Compensation Criteria

The HR Pressure Cooker is Heating Up

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Santhosh Varghese/Shutterstock

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.

 

Tack You – You’re Welcome!

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Martin Good/Shutterstock

IKEA’s business model works very well, with its focus on low cost, flat packing, and distinctive style. However, there’s something else at IKEA that’s working very well — their employee compensation model. In 2015 IKEA raised its minimum wages.

Click here to read about IKEA’s wage boost.

IKEA is committed to providing its employees with a living minimum wage. It also understands the benefits of performance bonuses. Recently, the company created an employee loyalty program it called Tack!, which is Swedish for “thank you”. The following milestones suggest IKEA is doing something right with its Tack! program:

  • IKEA has increased its total revenue from 20 billion euros to over 36 billion euros
  • It is the number 1 furniture retailer in the world
  • It is the number 5 retail brand in the word.

David Hood, Country Retail Manager of IKEA Australia, describes the program as “build[ing] something for the future and giv[ing] something back … by building a long-term relationship with employees.”

IKEA’s basic compensation program has wages that are above the jurisdiction’s minimum wage — they provide benefits and now, with the expansion of the Tack! program, all full time and part time employees with over 5 years’ service will get an annual bonus based on IKEA’s performance in that country of operations.

Click here to read more about IKEA’s Tack! program.

In Canada, the Tack! program has paid out $145 million to its employees this year.

Click here to read about the Tack! program in Canada.

IKEA is an excellent example of an organization that understands that compensation, benefits, and bonus systems are key tools in a successful business.

 

Discussion Questions:

  1. Identify the pros and cons of paying front line retail workers a minimum living wage when it is above the minimum wage required by law.
  2. Research and identify the cost of high staff turnover and the relative benefits of employee retention in the retail environment. Summarize your findings by creating a 5-minute presentation.

 

 

Compensation Data

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How do you evaluate the labour market?

business documents on office table with smart phone and laptop computer and graph financial with social network diagram and three colleagues discussing data in the background
ESB Professional/Shutterstock

An organization’s compensation system is only as good as the data it has available to evaluate the labour market and the quality of the sources of the data. It turns out a good source of third party compensation data is the payroll companies. Take ADP for example.

Click here to read this USA today article.

There are some interesting labour market trends happening in the USA. According to ADP, about half a million U.S. workers left one job for another in the fourth quarter, up from 406,000 in the same period in 2015 and 365,000 two years ago. But ADP in the Department of Labour can give HR greater insight with information like this, as ADP also finds that more workers are shifting into new sectors, such as a marketing manager who leaves retail for finance.

HR needs to be aware of this type of data and trends. This type of data is suggesting that the USA is a long way away from the 2008 recession where they had their pick of employee talent. With this type of worker volatility of switching industries and not just jobs, combined with a USA unemployment rate at its lowest level in 43 years, these factors will surely affect an organization compensation system.

Discussion Questions

  1. What is Canada’s current unemployment rate? How will this affect an organization’s compensation system?
  2. Identify two other Canadian sources of Labour Market Data. Look them up and determine some of the labour market trends currently in Canada.

Quality of Job Evaluations

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It is all in the job evaluation method.

Job well done - concept , boss showing thumb up to one of his employee in the office
Eviled/Shutterstock

In the HR industry we call Job Analysis (JA) the foundation of any HR Department. In a similar sense, then, Job Evaluation (JE) would be considered the foundation to the compensation system.

This video clip outlines the four most common methods of JE’s.

Click here to watch the video “Four Methods of Job Evaluation”

What is the purpose of job evaluation? According to the HR Council of Canada, “Job evaluation is the systematic process for assessing the relative worth of jobs within an organization.” And even more importantly it is “a comprehensive analysis of each position’s tasks, responsibilities, knowledge, and skill requirements is used to assess the value to the employer of the job’s content and provide an internal ranking of the jobs.”

Worth and value are the true purpose of doing a JE; it helps determine wages/salary, an important aspect of the compensation system. It is hard to imagine how an organization could survive long term without some kind of JE system in place. Unfortunately, though, many of them shy away from conducting a JE for many various reasons. New HR practitioners should become knowledgeable on how to conduct JEs in any organization to ensure their value and worth.

 Discussion Questions

  1. Compare and contrast the benefits and negatives of the four methods of job evaluation. Consider why you would choose one method over the other. Be prepared to defend your answer.
    Quantitative
    – Point Rating
    – Factor Comparison
    Non-Quantitative
    – Ranking or Job Comparison
    – Grading or Job Classification
  2. If you were the HR Director of a compensation department which JE system would you recommend to ensure your company is in compliance with pay equity legislation.

Compensation? Do Tell!

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What do employees want to know about compensation?

Close-up Of Businessman Hands Giving Cheque To Other Person In Office
Andrey_Popov/Shutterstock

What makes compensation effective? Employers, do you really want to know? The secret is that employees just want to know. They don’t necessary want to know everyone’s wages but they do want to know how the compensation system works in their organization.

Most organizations are afraid to talk about compensation. It is almost like politics and religion, which are not usually talked about in public. However, like any topic that is not discussed in the workplace, misinformation breeds like a wildfire. Misinformation leads to assumptions and workplace assumptions are usually incorrect, which can lead to organizational frustration.

A study by Peter LeBlanc shows that effectively communicating your compensation system will benefit your organization.

Click here to read about the study.

According to the study, the best way to communicate your compensation systems is to, “Keep it personal, interactive and it is best presented one on one from the employees direct manager.” Furthermore, the study also found that “…at all income levels…the more knowledge our study participants have about their pay system, the more likely they are to be satisfied with their pay and engaged at work.”

The shroud of secrecy over workplace compensation needs to be lifted, and open one-to-one communication encouraged so an employee’s supervisor can pave the way.

Discussion Questions

  1. If information about compensation is best presented to the employee by their manager, what role can HR play in supporting the communication roll out strategy?
  2. Develop an outline of a training program for managers to discuss compensation with their employees.