Concerns About Employee Retention?

With the forecasted economic rise in 2011, employers are increasingly worried about losing top performers. While the economy has been down, companies have focused on nonmonetary rewards for employees, including career development and training. However, with the economy rising, top performers are likely to begin demanding monetary rewards. The outcome of economic upturn will differ for different business sectors. Those who come out of the economic downturn earlier are more likely to keep their top performers, while those who do not move with the economy could be vulnerable to losing some of their key performers.

An upcoming trend forecasted for 2011 is the move toward variable pay as a way to increase monetary benefits without increasing an employee’s base salary. Because of its dependence on employee performance, variable pay would allow companies to reward their top performers while maximizing pay dollar distribution. According to the June 2010 Kiplinger Letter, twenty years ago, variable pay accounted for less than 4 percent of compensation whereas today, it is nearing 12 percent and continues to rise. This begs the question “is variable pay the new merit?”

Author: Lauren Blount

Variable Pay the New Merit?

In light of the current economic conditions along with the recent regulatory changes, compensation and human resources professionals may ask “what does this mean for variable compensation”? We recently developed and presented on this topic at the Atlanta Area Compensation Association’s Annual Forum and found that we were not the only ones pondering this question.

Clearly the economic downturn has taken a toll on the ability for businesses to payout bonuses and incentives. Not surprisingly, recent surveys have shown that both incentive targets and actual payouts are down for both 2008 and 2009. With this being the reality, it is more important than ever to communicate with employees to ensure they understand the business reasons for not being able to payout bonuses and incentives. In addition, just because an organization can’t reward performance monetarily, it does not mean that management can’t recognize employee achievements. Another point of discussion is whether or not variable pay in partnership with strategic goal setting can be used as a tool to pull organizations out of the recession. Maybe now is not the time to abandon these plans but to use them to our advantage to see just how far our employee will and can go to help organizations succeed.

Looking at recent legislation that has been passed, the Lilly Ledbetter Fair Pay Act may also provide some interesting opportunities for variable compensation. Under this Act, employees have 180 days after each “discriminatory pay setting decision” to file suit which means that if the discriminatory pay setting decision is reflected in base pay, every paycheck restarts the 180 day clock. That is a big window of time for an employee to bring a lawsuit against an employer! Some organizations may choose to differentiate compensation for top performers in the form of variable compensation payouts as apposed to merit increases applied to base salaries. The reason for this is that short term incentive payouts are a “one time” pay setting decision while base pay increases are reflected in every paycheck, thus restarting the 180 day clock. It is important to note that if employers do choose to use variable compensation as a means of differentiating pay, they still need to ensure that these decisions are documented and based on business-related factors that will not be considered discriminatory. This could be a difficult adjustment for employees, especially top performers, who have become accustomed to receiving merit increases. So the question remains, is variable pay going to become the new merit?

How Are You Dealing with Workers Putting Off Retirement Due to the Recession?

I attended a professional association meeting this morning, and the topic naturally centered around how companies are adjusting to the economic downturn. It seems news of the recession is everywhere in the media lately. A few weeks ago Phil Blount, president and founder of Phillip Blount & Associates, gave a presentation on managing compensation in the current economic climate (a write-up of that speech can be found at http://www.phillipblount.com/newsarchive.php). With all the focus, I thought it would be an appropriate time to write the first of what will be a series of blog postings on the challenges and opportunities presented by the recession.

One of the major issues that has risen is the conundrum posed by baby boomers who, prior to the onset of the recession, were prepared to retire within a very short time. In some cases, these employees may have already begun flexing down schedules and preparing to exit. Fast forward a few months, and all of the sudden 401(k) and other investments are down 40%. Who is going to retire under that situation? Many of these employees are deciding to stick it out for another three to five years.

This situation has both positive and negative effects for employers. On one hand, the company gets to keep some of its most knowledgeable, highly skilled, and valuable employees. The experience these employees bring to the table is immense, and they have just the kind of problem-solving ability needed to help the organization emerge from the recession. However, many of them are in a situation where rather than working full weeks at their current job, they had planned on working part time or enjoying family and travel during retirement. How do companies re-engage these employees?

Another issue arises around talent management. While the potential retirees had planned moving out of the company, younger employees saw this as an opportunity to expand responsibility, take on larger roles, and move up in the company. Now these employees are stuck in a situation where they are unlikely to move up and displace any of the more experienced workers, and this is compounded by the fact that the recession is already limiting opportunities for advancement. While companies can tell themselves that these younger employees should just be glad they have a job, the reality is that may of them are becoming more disengaged and disheartened about prospects for advancement. These feelings are sure to carry over when the economy does begin to turn, and companies may be in danger of attrition at that time.

So, what are some ideas to battle this lack of engagement from both parties? One approach is to hold Bagels and Business breakfasts or Lunch and Learn meetings. These meetings are designed to help junior to mid-level employees fully understand the business. The thought process is that, while many of these employees may be very good at their current function, they may lack some understanding of how the company or organization functions as a whole. In order to be well prepared for larger roles, they must understand how all of the business processes are integrated to achieve organizational goals. That is where the older, retirement-ready employees play a role. Give them the opportunity to prepare for and present at these meetings. Let them impart their knowledge to the “next generation.” Furthermore, it may be beneficial to set up some kind of mentorship program coming out of these meetings. These are very cost-efficient ways to promote training and development while helping to raise employee engagement across the organization.

So, are these viable ideas? What is your company doing to handle the issue of employees working longer and retiring later?

Lilly Ledbetter Fair Pay Act of 2009

Like many of you, we have been inundated recently with news about the Lilly Ledbetter Fair Pay Act of 2009. What is Lilly Ledbetter, and what does it mean for business management?

Signed into law on January 29, 2009, Lilly Ledbetter is an amendment to some of the most fundamental employment law that exists (Civil Rights Act of 1964, Age Discrimination in Employment Act of 1967, Americans with Disabilities Act of 1990, Rehabilitation Act of 1973). In effect, Lilly Ledbetter accomplishes two main purposes:

1.) It extends the period during which employees may file a pay discrimination claim. In the Supreme Court decision for Ledbetter v. Goodyear Tire, the ruling held that employees must file a claim within the statutory period (180 days) following the initial discriminatory pay action. The new law establishes that a discriminatory compensation decision occurs with each paycheck that is lower due to the discriminatory practice or decision. Basically, the employee (or anyone “affected” by the discrimination – possibly children, spouses, etc.) has much longer to file a complaint.

2.) Allows the employee to recover back pay for up to two years prior to the claim in instances where unlawful discrimination is established.

So, now that we have established the main purposes of Lilly Ledbetter, how does it affect your company? Lilly Ledbetter highlights the need for companies to establish why they pay employees particular salaries or wages. There are several ways to do this. A company could simply adopt a tenure-based system, but we all know the inherent downfalls to such a plan.

A better approach is to establish a pay-for-performance system. Such a merit-based system presents logical evidence for why two individuals in the same position may be compensated differently. However, a pay-for-performance system does require managers to do some “heavy lifting” and distinguish between various levels of employee performance. It is imperative that managers keep detailed records of each performance review and assessment. It is also increasingly important that managers are trained (and periodically re-trained) on how to conduct performance reviews, and that they understand how compensation issues relate to the new legislation. This will ensure proper application of the system, as well as consistent performance expectations across the company.

Other items to consider in light of Lilly Ledbetter include:

• Ensuring job descriptions are accurate and up-to-date. If responsibilities have been added to one incumbent’s job, that incumbent needs a new description reflecting this. Also, job descriptions should not unfairly bias one class of employees over another.

• Reviewing the compensation of all incumbents with similar job descriptions/titles/duties. If your company is, in fact, in danger of potential lawsuits, it is much better to be proactive in adopting a plan to correct the situation than to stand idle on the matter.

• Examining the market pay of positions across the company. This will give evidence for why one position may be paid differently from another, although the two may seem to require similar qualifications.

• Conducting a thorough assessment of administrative policies and practices, especially as they relate to pay. In case of legal action, it is imperative to have a trail of evidence to support your company’s claims.

The signing into law of the Lilly Ledbetter Fair Pay Act is sure to have serious implications for companies across the country. As attention grows around such issues, it is vital that your company act appropriately to ensure compliance. While the law causes increased concern for employers in certain areas, it also reinforces the need for sound business practices and presents the opportunity to implement strategic and beneficial changes such as a strong pay-for-performance culture.

What are your thoughts? How will this new legislation impact your organization and the field of human resources? Please leave comments below.