Compensation Strategy

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.

 

Pay Increase = Price Increase

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northallertonman/Shutterstock

In the world of compensation strategy and design, some things are highly predictable. When an expense goes up, there must be a correlating financial adjustment in order to pay for that increased expense. This adjustment could be realized through one of a few options, which include the potential reduction of other expenses, or the increase of other revenue streams in order to cover increased costs.

With the implementation of minimum wage increases in Ontario, we are starting to see how the required cost adjustments are being achieved. According to numerous media reports, the restaurant industry is offsetting the increase in payroll expenses by raising product prices – a cost that is ultimately absorbed by the consumer.

Click here to read about the impact of minimum wage on consumer pricing.

As noted in the article, the increase in consumer price adjustments can be connected directly to minimum wage increases for employees. It is interesting to note, however, that the extent of the increase in employer expenses is significantly greater than expected. It seems that many employers in Ontario may not have taken into account some of the additional compensation-related cost increases that have resulted from legislation imposing a higher minimum wage.

This article provides us with a good example of how and why compensation planning must take into account more than just wage or salary increases.

No matter how the financial adjustment is realized, good compensation strategies will require careful planning and timing if they are to be implemented successfully – and this includes a broad range of compensation-related considerations.

Additional minimum wage increases are a known quantity for all businesses in Ontario. With this in mind, businesses need also to ensure that thoughtful compensation planning (taking all cost-related expenses into consideration) is a known quantity – one that feeds into rational and reasonable economic responses.

 

Discussion Questions:

  1. How would you design an affordable compensation strategy that supports on-going minimum wage increases over the next two years?
  2. What types of rewards or incentives could you offer to employees that are cost neutral?
  3. From your perspective, do restaurant owners have other options to pay for increased wages besides increasing menu prices? Explain your rationale.

 

How to Bring the Apple Consumer Culture to HR

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luisrsphoto/Shutterstock

Apple has long been recognized as a leader in creating innovative customer experiences, which is one of the reasons the company has developed what some consider a cult-like following. What would happen if HR could create a similar experience for their employees?

The Harvard Business Review (HBR) suggests that the concept of employee engagement is waning and that the true organizational leaders of tomorrow will concentrate on the “Employee Experience.” It is the employee experience that will shape employee engagement.

Research indicates that companies should care deeply about employee engagement. Gallup has found that, “companies with highly engaged workforces outperform their peers by 147% in earnings per share.”

What CEO would not want to see a 147% increase in share price?

Expanding on this research, HR needs to start treating employees like customers. This is not a particularly new idea. HR has attempted to treat its employees more like customers for years. However, it is now time to continue that trend, and to succeed in creating more positive employee experiences.

There are two fundamental concepts in developing a customer experience strategy for employees; the concept of segmentation and the customer journey. The following HBR article summarizes these two concepts.

Click here to read the article.

If organizations what to improve their corporate results, perhaps they should think about changing their employment engagement philosophy to one that truly focuses on the employee experience, which will in turn improve employee performance.

Discussion Questions:

  1. After reading the HBR article, create a journey map to improve the employee experience. Choose an organization that you are familiar with, or somewhere you have worked in the past.
  2. Think about a job you have had in the past. How would your relationship with that company have been different if they had treated you like a customer?

When Incentives Backfire

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Performance incentives may do more harm than good.

backfired Amazing drift car
Kárpáti Tamás/Shutterstock

In the summer months I drive a 40-year-old British sports car and occasionally it will backfire. A backfire happens when the car’s internal combustion engine decides to have a moment of external combustion and the whole neighborhood hears about it.

There can be many reasons for a car to backfire: wrong air/fuel mix, spark plug timing or just an exhaust problem. When it happens, I know the car is not performing at its best and something needs to be addressed.

The same thing can happen in the workplace with performance incentive plans. They sometimes backfire, and that backfire turns into real-world blow-back with significant consequences. Recent examples have happened in the banking industry:

  • Wells Fargo fined $185 million for pressuring employees to sell.

 Click here to read about Wells Fargo

  • TD Bank faces allegations that its employees broke the law to meet sales targets.

Click here to read about TD and its selling tactics.

The purpose of performance incentives is to encourage employees to display behaviours that are above the basics of task behaviour. In the HR world, we call this organizational citizenship behaviour. When we think of the citizenship behaviour we default to a very positive image of workers going above and beyond the call of duty. But, in reality, going above and beyond the call of duty can have disastrous effects when it is linked to a poorly developed sales incentive program. Poorly designed programs can create very successful anti- citizenship behaviour that supports the dark side of business plans.

Both TD and Wells Fargo had well-intentioned sale incentive programs designed to raise organizational performance in terms of profit. However, for both organizations, the profit motive became unhinged from the organization’s ethics and negative things happened. Employees become whistle-blowers and companies now face the blow-back of legal action, ethical complaints and very bad public relations.

There is always a right and a wrong way to implement a performance incentive program in an organization. When the company gets it right there is recognition as a top employer. When the company gets it wrong, there is always blow-back.

Question

  1. Do some research and find a workplace incentive plan that went wrong. Compare and contrast what went wrong to the Society of Human Resources Management (SHRM) suggestions on how to implement an effective incentive plan.

Click here to read about the SHRM’s suggestions.

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.