Compensation Update: Tips, Trends, and Tactics for 2013

Compensation Planning
by Stephen Bruce, PhD, PHR
"With the economy showing positive movement, employers have to focus on competitiveness again, says consultant Diana Neelman. If you don’t, you won’t be able to attract good new employees and you’ll lose the good ones you have."

Negative staffing and salary actions will decrease in 2013, says a recent Compensation Resources, Inc. survey. Neelman is a principal and senior consultant with the firm, which is located in Upper Saddle River, New Jersey.

Salary Action Outlook

Strategy

Change (up or down) from 2012 to 2013 (Projected)

Layoffs

Hiring Freezes

Staffing Increases

Salary Freezes

Reduction in Pay

Base Salary Trends for 2013

Here’s what we’re likely to see in 2013, says Neelman.

  • Desire to evaluate market competitiveness. Employers will want to ensure that pay levels can attract and retain. They will once again be looking at survey data.
  • Interest in salary structures. Based on market analysis, companies will evaluate their pay structures, especially with an eye toward flexibility and pay for performance.
  • Using compensation dollars more judiciously. Companies will want to award merit increases only where performance warrants it.
  • Examining policies and procedures.  Are they still working? Is the program applied consistently? Are managers properly trained? What changes are necessary?
  • Reevaluating job descriptions and the FLSA. Employers will be looking at job descriptions, a critical part of compensation management. Companies want to ensure that duties are clearly articulated, as exemption status is generally based on the job description.

As far as variable pay trends, Neelman expects:

  • A shift back to more broad-based annual incentive plan participation, continuing the pay-for-performance theme.
  • A search for additional opportunities to reward performance.
  • Goal setting becoming part of the performance evaluation process for most positions.
  • At not-for-profits, reexamining annual incentive plan usage as they must be able to compete in the same marketplace as the for-profit companies. Generally, nonprofit rewards are more modest in comparison, and tend to  reward based on achievement of strategic plan and mission.

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Short-Term Incentives

A recent Compensation Resources, Inc. survey indicates that short-term incentives are still prevalent among many employee groups (all participants reporting):

Employee Group

Eligibility

% of Base Salary

CEO

66.7%

80.8%

Other Executives

70.4%

41.6%

Sr. Managers/Directors

67.6%

22.2%

Managers

64.2%

13.7%

Exempt Salaried

54.6%

8.7%

Non-Exempt Salaried

34.6%

5.5%

Hourly

32.9%

4.8%

Senior-level managers and executives have higher bonus percentages because they have a more direct line of sight to achievement of company goals, Neelman says.

Long-Term Incentives

In the same survey, 88% of respondents who have a plan say their plans will change in 2013 in order to:

  • Refocus long-term incentives to match business strategy.
  • Maintain competitiveness.
  • Comply with applicable regulations.

Long-term incentives continue to be provided to more senior-level positions, that is, to the people who can have a direct impact on organizational long-term success.

Performance Management Trends

Neelman sees the following trends regarding pay and performance management.

First of all, looking beyond behavioral factors. We’re dealing with managers who are stretched too thin and have little time to spend on performance management. Many organizations have a program that focuses on behavior characteristics, team spirit, and quality, all softer measures, Neelman says.

Neelman works with clients to provide them with a tool for assessing performance on many levels, not only behavioral, but also on major job tasks—what are they doing, how well are they doing it, and what do they need to do to improve?

Next, limiting the number of rating levels. She is starting to see movement to a three or four-point rating system away from the common five-point system.
Most employees meet expectations, Neelman says. Only a handful are truly outstanding. With fewer ratings, managers can really sit down and evaluate.

Reducing the number of ratings can also help to eliminate “ratings creep” for managers who just don’t like to have the performance conversation with their workers and so move employees up a level just to have an easy time with the evaluation meeting.

Finally, customizing evaluation forms. Forms are an important communication tool, but one size does not fit all. Consider customizing for different employee groups, for example, in health care, a separate form for nurses, management, and IT. You don’t want too many, Neelman says, but some can be helpful.


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Industry Trends

In various industries, there are different emphases, says Neelman. For example:

Financial Services—Passing watchdog and shareholder scrutiny
Manufacturing—Using variable pay to improve performance
Not-for-Profits, Including Healthcare—Continued examination of competitiveness and an increase in consideration of variable pay
Business/Professional Services—Strategic plan focus and ensuring competitiveness of executive pay

In tomorrow’s Advisor, Neelman’s 18 questions every comp manager needs to ask for the year ahead, plus an introduction to BLR’s popular wage/hour guide.

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