Affordability

Survey Says: Show Me the Money

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What is the best way to determine pay increases for employees?

For most organizations, calculating pay increases are included as part of an annualized budget planning process. On the face of it, budget planning appears to be pretty simple – money in vs. money out. How much money do we have to spend? Where are we going to spend it? What are the revenues? What are the expenses? What is the time frame for the upcoming budget plan? Is there a need for a contingency plan? Suddenly, the appearance of budgeting simplicity starts to become more complicated as we have to go through the assessment of multiple and competing expense priorities.

Paying employees must be at the top of that priority list.

While pay decisions do take affordability into consideration, they must also be aligned with workplace pay increase expectations. This is where the importance of data collection, through salary and compensation surveys, comes into play.

Most employees do have an expectation that their pay will be adjusted in a positive way from year to year. This is highlighted in a recent salary survey which showed that Canadian workers expect to receive a pay increase in this current year (2019) based on a number of variables. Specifically, the survey indicates a 2.8% salary increase is expected in Canadian workplaces.

Click here to read the results of the survey.

As we know from our compensation studies, data collection and survey results do provide fact-based evidence that employers can use to make pay decisions. Whether or not the employer can meet the demands arising from survey data sets up another complication in the budget planning process. While employees may expect to see the money, the employer may decide that it can not afford to show it.

Discussion Questions:

  1. How can these types of survey results influence organizational pay strategy?
  2. As an employee, how would you justify requesting an annual pay increase in excess of 2.8%?
  3. From a compensation management perspective, how would you justify giving your employees less than an annual 2.8% wage increase?

How Do You Show Your Employees You Care?

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How do you show your employees you care? You care for your employees’ children.

All employers are looking to use perks and other benefits to create sustainable bonds and lasting connections with their employees. Throwing more money at employees may seem like an easy way to improve employee workplace satisfaction but it is not they only retention tool out there. Employees stay with a company because they believe the company cares about them and their well-being.

If they really want to show employees they care, perhaps more HR departments should follow Starbucks’ lead and provide child care—not full-time child care, but a service many would consider almost as valuable—back up child care when an employee needs it the most.

Starbucks in the United States has partnered up with a company called Care@Work. Each eligible Starbucks employee will receive a free premium membership to access Care@Work services including subsidized day care at a cost of $1 per hour for up to 10 backup care days.

This isn’t only for child care, however. Starbucks realizes that many of their employees are in the sandwich generation and are looking after children as well as dependent adults. This benefit perk applies to both dependent groups.

Click here to read about Care@Work’s services.

With the tight labour market in North America, employers are looking for ways to stand out and attract prospective employees, while retaining existing ones. Providing subsidized child and adult care may be a key factor in helping your organization stand out.

Click here to read more about Starbucks’ innovative benefits.

Starbucks has been a leader in the service industry, which traditionally treats its employees as low-skill, entry level, transient workers. Starbucks has done the opposite by providing its employees with the full spectrum of benefits including medical, education, stock options, and even pensions.

Cynics might argue that Starbucks is adding all these benefits just to retain employees; however, it’s worth noting that the Starbucks mission statement highlights a desire to “inspire and nurture the human spirit”, and that among the company’s core values are commitments to foster a sense of belonging, to find new ways to take the company forward, and to “challenge the status quo”. Others might argue that in providing backup care for its employees’ loved ones, Starbucks is doing an admirable job of living up to this mission statement and these core values—that it is doing business “through the lens of humanity”.

Click here to read Starbucks’ mission and values statement.

Discussion Questions:

  1. Research two other service industry companies. What types of employee benefits do they offer their employees?
  2. Why don’t more service companies take the Starbucks approach to employee benefits?

The HR Pressure Cooker is Heating Up

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Wages have always been at the forefront of any HR Department’s concerns, but it seems we are now approaching boiling point and that something may blow. Recruitment company Hays notes in its 2018 Salary Guide “a building pressure and awareness around compensation that [they] have not seen in previous years.” (Hays 2018 Salary Guide, p. 20.)

What does this mean for HR Departments? It is clear that they are feeling the pressure. Eighty-five percent say they want and need to improve their compensation plans in order to hire and retain top employees, but according to the Hays study, only 24% of HR Departments are allowed to offer more than a 3% compensation improvement.

Here is where the pressure is building for HR Departments — in recruitment. Compensation challenges and an inability to hire locally sourced talent is making it very difficult for HR departments.

The pressure is on, then, for HR to develop sophisticated, integrated strategies that address compensation levels, organization culture, and recruitment challenges. Perhaps HR professionals will increasingly need to show evidence-based research to convince senior leaders that they may have to increase their compensation budgets in the very near future.

 

Discussion Questions:

Research companies that lead the market with their compensation strategies. Identify why they have pursued these strategies.

Develop a 3-minute presentation to convince a Chief Financial Officer that an increase in the compensation budget is needed.

 

Creating Strategy With Criteria

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As we have learned through our studies, affordability, legality and employee attraction are three criteria which must be met in order for any compensation strategy to be successful. If a compensation strategy is developed which is not affordable, it will not work. If it is based on shaky legal principles, it will not work. If it is not attractive to the employee marketplace, it will not work. Like the three legged stool, each of these elements must be in place in order to create and support a sustainable system for future success.

Of these three criteria, affordability must be considered in the context of the employer’s overall financial obligations and opportunities. The compensation plan is one piece of a monetary puzzle that the employer must piece together as part its overall revenue and expenditure plan. Financial obligations on the part of many employers include significant loans from financial institutions to cover items such as start-up costs and on-going operational requirements.

With this in mind, Social Capital Partners in Ontario have implemented a ‘Rate Drop Rebate’ program that supports the development of affordable compensation, by providing a rebate on the interest rates for employer loans or lines of credit. This program is only available in three Ontario municipalities at this time.

Click here to see a CBC interview with Bill Young explaining the benefits of the ‘Rate Drop Rebate’ program.

Click here to see how the program works for employers.

This program also addresses the second criteria, legality, by ensuring that appropriate recruitment and selection procedures are in place when making hiring decisions. As for the third criteria, employee attraction, this seems to be the strongest focal point for this program. The targeted employee marketplace for hiring through this program includes students with limited work experience, long-term and older unemployed persons, people with disabilities, newcomers to Canada and unemployed indigenous people.

This program offers evidence that a sustainable compensation strategy can be implemented by ensuring that each one of these three criteria is taken into account.

It also provides evidence that these criteria can support employers in the creation of social good.

Discussion Questions:

  1. After reviewing the link for the Rate Drop Rebate program, what types of recruitment strategies are in place that support employers?
  2. Why do you think the Rate Drop Rebate program should be used in other municipalities?
  3. As a Compensation Specialist, what are the risks and rewards that this program could offer your current workplace?

Perils of Pay Equity

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a young caucasian man in jeans taking two coins of one euro out of his pocketThe Pay Equity Act in Ontario has been in place since the 1980s. As we know from our studies, this legislation requires employers in Ontario to ensure that compensation levels for the value of work between traditionally designated ‘male’ and ‘female’ jobs are paid equally.

The pay equity process itself is extensive and exhaustive. It is also expensive, if compensation adjustments need to be implemented based on the results of the process. As this is a legislated issue for public sector employers in Ontario, it makes sense that public sector organizations will comply with this mandatory requirement.

Apparently not.

Recently, OPSEU (the union representing employees working with Community Living in Tillsonburg) issued an open letter as a result of the inability of Community Living to make the mandatory pay equity adjustments for its employees.

Click here to read the letter.

Why would any employer choose not to pay, when it is required to do so by law? As with most compensation dilemmas, the issue of affordability comes into play. A news article linked to this story provides an important insight into this seemingly simple pay issue.

Click here to read the article.

Public sector organizations receive their funding from the government. There are very strict parameters in place as to when and how the funding can be used, especially as it is linked to compensation. Given that the government will not fund pay equity adjustments, how can organizations like Community Living pay for mandatory wage adjustments if they do not have the money? It seems to be a Kafkaesque dilemma, as the government requiring the wage adjustments is the same source for funding that will not support the payment of these mandatory adjustments.

In the end, the employer is left holding the bag containing an unfunded liability and an unhappy workforce, which makes a heavy burden for the Compensation Manager to carry.

Discussion Questions:

  1. If you were the Compensation Manager for a public sector organization required to make Pay Equity Payments, what steps would you include to design an affordable compensation plan?
  2. Who should be responsible for ensuring funding for pay equity costs in the public sector? Explain your rationale.