2014/2015 Trends in Compensation
Society for Information Management
Minnesota Chapter
Presented by:
Maureen Driscoll
Principal, Compensation Consulting
Today’s Presenter
– Maureen Driscoll
• Principal with Verisight’s compensation consulting group
• 35 years of compensation experience
• 23 years of consulting experience
1
Agenda
– Trend data
• Verisight’s 2014/2015 Compensation, Retirement and
Benefits Trend Survey
– Total rewards philosophy
– Base pay considerations
• Job families and career pathing
– Variable pay considerations
– Nontraditional rewards
– What employees want: rewards of work
2
Why is This Topic Important?
• Attracting and retaining skilled employees is critical
• 81% of IT professionals are open to hearing about new job
opportunities, even if they are happily employed*
• IT professionals report receiving an average of 34 job
solicitations each week*
• Total compensation costs usually represent the greatest expense to
organizations
• Turnover is costly
• Saratoga Institute
1x salary
• World At Work
1.5x salary
*Minneapolis/St. Paul Business Journal-Dec 2014
3
Verisight and McGladrey
2014/2015 Compensation, Retirement
and Benefits Trends Report
2014/2015 Compensation, Retirement and Benefits Trends Report
2014/2015 Compensation, Retirement and Benefits Trends Report
•
•
•
•
Fourth annual survey
More than 1,000 participants from across the country
Respondents span a range of industries
Deepest penetration in manufacturing, not-for-profit, health care and
professional services industries
5
Compensation Philosophy
The total compensation philosophy of the majority of employers is to position base salary at
market. However, a fairly large segment of employers (34 percent), typically from firms with 500 or
fewer employees, have no formal philosophy for positioning bonus and incentive compensation.
14%
22%
37%
30%
36%
62%
Position Above Market
47%
8%
44%
Position at Market
Position Below Market
No Formal Philosophy
10%
34%
14%
Base Salary
Compensation Practices
Incentive
Compensation
5%
7%
14%
16%
Health and
Welfare
Benefits
Retirement
Benefits
Base = 521
6
Salary Increases
Identical to the past two years, median salary increases for executive, managerial, salaried and
hourly non-exempt workers remained at 3.0 percent.
2014 Actual
Base Salary Increases
2015 Anticipated
Base Salary Increases
Mean
2.8%
2.8%
Median
3.0%
3.0%
Mean
2.6%
2.8%
Median
3.0%
3.0%
Mean
2.5%
2.6%
Median
3.0%
3.0%
Mean
2.6%
2.7%
Median
3.0%
3.0%
Mean
1.8%
2.0%
Median
2.3%
2.5%
Executives
Salaried (Exempt)
Salaried (Non-exempt)
Hourly (Non-exempt)
Hourly (Union)
Includes zeros (i.e., salary freezes)
Compensation Practices
7
Salary Structures
Only half of organizations (50 percent) have a formal salary structure with grades, minimums,
midpoints and maximums to manage compensation. The Financial/Banking/Insurance, Health Care
and Not-for-profit industry sectors are far more likely than other industry groups to have a formal
salary structure to manage their compensation investment, as are larger organizations with 1,000 or
more employees.
No
50%
Yes
50%
Base = 515
Compensation Practices
8
Salary Structures
Salary structures are anticipated to move up slightly in 2015 compared to 2014 .
2014 Actual
Salary Structure Adjustments
2015 Anticipated
Salary Structure Adjustments
Mean
1.1%
1.4%
Median
1.0%
1.5%
Mean
1.4%
1.6%
Median
1.7%
2.0%
Mean
1.2%
1.5%
Median
1.2%
1.8%
Mean
1.4%
1.7%
Median
1.7%
2.1%
Mean
0.9%
1.0%
Median
0.9%
0.9%
Base
163
148
Executives
Salaried (Exempt)
Salaried (Non-exempt)
Hourly (Non-exempt)
Hourly (Union)
Includes zeros (i.e., no adjustments)
Compensation Practices
9
Pay for Performance
More than half (56 percent) of the organizations surveyed have implemented or plan to implement
some type of pay-for-performance program. Larger organizations with 1,000 or more employees are
much more likely to utilize pay-for-performance compared to smaller organizations.
27%
Implemented Throughout the
Organization
20%
Implemented with Some Employee
Groups
9%
Considered Implementing in Next
12 Months
Not Implemented
41%
Previously Implemented But
Eliminated
3%
Base = 508
Compensation Practices
10
Pay for Performance
While average salary increases for high performers and satisfactory performers
increased slightly from 2012 to 2013, they remained relatively steady over last year at
4.8 percent and 2.9 percent respectively.
4.8%
High Performers
4.4%
2.9%
Satisfactory Performers
3.0%
1.1%
Low Performers
1.2%
Base = 390
Mean
Compensation Practices
Median
11
Incentive Plans
Eligibility for short-term incentive pay is substantially more available to executives and salariedexempt management than to hourly and non-exempt workers. Long-term incentive pay remains
largely reserved for executives.
59%
Executives
34%
60%
Salaried (Exempt)
14%
35%
Salaried (Non-exempt)
7%
41%
Hourly (Non-exempt)
Hourly (Union)
7%
6%
1%
Short-Term Incentives (1 year or less)
Long-Term Incentives (More than 1 year)
Compensation Practices
Base = 462
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Incentive Plans
What is the targeted short-term incentive pay opportunity at your
company for 2014?
23%
Executives
20%
12%
Salaried (Exempt)
12%
6%
Salaried (Non-exempt)
7%
5%
Hourly (Non-exempt)
6%
8%
Mean
Median
Base = 133
Compensation Practices
47%
Executives
32%
21%
Salaried (Exempt)
21%
12%
Salaried (Non-exempt)
12%
9%
Hourly (Non-exempt)
5%
Hourly (Union)
What is the maximum short-term incentive pay opportunity at your
company for 2014?
9%
10%
Hourly (Union)
8%
Mean
Median
Base = 133
13
Incentive Plans
The most important measurement criteria for executives is organizational performance, while for
workers at most other levels, individual performance is most important.
87%
70%
69%
67%
63%
62%
58%
55%
49%
46%
37%
Organization Performance
46%
36%
34%
31%
Division/Department Performance
Individual Performance
Other Measures
18%
8%
Executives
6%
8%
Salaried (Exempt) Salaried (Nonexempt)
10%
Hourly (Nonexempt)
Hourly (Union)
Base = 325
Compensation Practices
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Incentive Plans
By far, the most commonly used measure for organizational performance continues to be earnings
before income, taxes, depreciation and amortization (EBITDA), cited by 60 percent of respondents.
EBITDA
60%
ROA
8%
ROE
8%
ROIC
Other
6%
38%
Base = 227
Compensation Practices
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Incentive Plans
While most incentive plans are designed to set expectations up front, spot bonuses, which are
usually more subjective, are also used by 40 percent of responding organizations.
Under
Consideration
10%
Yes
40%
No
50%
Base = 484
Compensation Practices
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Total Rewards Philosophy
17
Business Strategies
Pay &
Reward Objectives
Organization Style & Culture
Information &
Support Systems
Compensation
Strategies
Stakeholder Concerns
& Objectives
Competitive Pay & Reward Policies
Industry, Legislation, Market &
Economic Development
Long Term Incentives
Short Term Incentives
Base Salary
Benefits
Perquisites
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Total Rewards Package Example
Organization “X” vs. Market
Organization X
70K
Variable
Pay *
65K
60K
Benefits
Market
Variable
Pay *
Benefits
* Variable Pay =
Bonus/Incentive
55K
50K
45K
Base Pay
Base Pay
40K
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Elements of a Total Rewards Philosophy
•
•
•
•
•
•
Reward program objectives (overall and for each element)
Market position (who and how competitive against)
Reward mix (base versus variable pay versus benefits)
Reward focus (individual versus group)
Basis of job value (internal versus external)
Structure (traditional versus non-traditional)
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Sample Philosophy Questions for Leadership
• What results/outcomes will be connected with what reward system?
• Who are our labor market competitors? How should our rewards
compare to the market – overall and for each reward element? Does
this differ by employee group (such as IT)?
• Which is more important – how jobs compare to one another
internally, or how they compare to the external market?
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Outcome
• Serves as a blueprint for the design of the company’s total rewards
program
• Written document that is a powerful communication tool for
employees and applicants
• Articulates the company’s “value proposition”
– Tangibles and intangibles
– Why should they work for you?
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Base Pay Considerations
23
Salary Survey Sources
• Be sure to use:
– data sources that are reflective of your company’s total rewards
philosophy
– multiple data sources, whenever possible
– data sources that have a reputation for quality control
– matches that reasonably reflect job responsibilities
– sound sample sizes (company and incumbent)
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Reliability Issues with Internet Compensation Data
• Primary purpose of the site and the host
– Hook/lure to sell HR/non-HR related services or products
– Re-seller of data
• Site’s targeted customers
− Employers or consumers?
• Underlying database for the reported pay data
– Often self-reported
– Jobs matched on title (results in mismatch) and no level
differentiation
• Methodology used to gather data
– Lack of disclosure on effective date and data parameters
– No quality control
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Job Families
• Can represent a broad grouping of functionally related jobs
– Accounting
– Information Technology
• Can represent career progression within a particular job
– Business Systems Analyst
– Database Administrator
– Systems Administrator
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Career Pathing and Job Families
Technical
Track
Management
Track
Information Technology
Principal
Senior
Advanced
Associate
27
Movement Between Job Families May or May Not be Feasible
Level 3
Level 3
Level 2
Level 2
Level 2
Level 1
Level 1
Level 1
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Job Family Leveling Criteria - Examples
•
•
•
•
•
•
Education and Experience
Knowledge, Skills and Abilities
Credentials, Licenses or Designations
Problem Solving/Decision Making
Freedom to Act
Relationships
29
Job Family/Career Pathing Example
• Large Twin Cities employer
• IT Department with the following job families:
– Systems Analysis
– Systems Administration
– Business Systems Analysis
– Data Base Administration
– Telecommunications
– Project management
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Job Family/Career Pathing Example (continued)
• Each family has 3 or 4 generic “levels” based on generally defined
criteria.
• This is the primary tool to:
– Describe what is needed to advance to higher levels within
each family
– Assist employees and their managers/supervisors in establishing
a development plan
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Job Family/Career Pathing Example (continued)
• Technical toolbox:
– identifies the specific technical competencies (knowledge,
skills and/or abilities) needed within a given job family
• can include identification of ascending and descending skills
– complementary tool to identify training and development
needs for the respective job families
– should be consistent with the company’s technology
management, architecture and business strategies
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Succession Planning
• IT professionals report receiving an average of 34 job solicitations
each week*
• Attrition, promotion and organizational change can happen quickly
and unexpectedly
• Critical that companies put programs in place to cultivate highpotential internal talent who can step into key roles when needed
• A strong succession management program serves as a powerful
retention tool in a highly competitive market for IT talent
*Minneapolis/St. Paul Business Journal-Dec 2014
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Variable Pay Considerations
34
Types of Variable Pay Systems
• Bonuses (usually “after the fact”)
– Recognition
– Project completion
– Sign-on/hiring
– Retention
– Spot awards
– Discretionary
•
•
Short-term incentives (“before
the fact”)
– Formula driven
– May reflect balanced score
card
Long-term incentives (usually
3-5 years)
– Usually only available at
upper management levels
– Balance short- and longterm decision making
– Retention
35
Performance Criteria vs. Reward Vehicles
Base Pay
Behavioral
Competencies
Objectives
Variable Pay
(Incentives or
Bonuses)
Reward Vehicles
Performance Criteria
Job Responsibilities
Developmental
Performance
Improvement
Recognition
Special Goals or
Objectives
36
Pros and Cons of Variable Pay
Opportunities
Cautions
• Increased compensation
• Can become an “entitlement” if
expense is a variable cost
not properly designed, and
communicated
• Depending on plan design,
can reward for individual, team • Discretionary bonuses typically
and/or company-wide
don’t reinforce “pay for
performance measures
performance”
• Allows for targeted distribution • FLSA provision complicates
of limited compensation dollars
incentive payouts for nonexempt employees who work
overtime
37
Why Do Incentive Plans Fail?
•
•
•
•
•
•
Lack of buy-in, involvement (employees and managers)
Plan done in a hurry
Too complicated
Employees feel impact is too indirect
Poor communication
No payout, first or second measurement period
• Plan lacks flexibility
• Too many major changes during first year (instability)
• Administration too costly/confusing
38
Key Design Steps for Short-Term Plans
1
Determine
Objectives
2
Determine
Basis of Eligibility
3
Determine Funding Mechanism(s)
4
Determine Payout Basis/Size of Awards/Payout Timing
5
Determine Plan Measures and Formulas
6
Determine Plan Administration & Communication
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Nontraditional Rewards
40
Nontraditional Rewards
•
•
•
•
•
•
•
•
•
Flexible work arrangements
Telecommuting
Wellness and career counseling
Family/child care
Home office set-up stipends
On-site health facilities
Casual dress
“Cutting edge” technology
Leased automobiles
•
•
•
•
•
•
•
•
•
Company paid spousal travel
Discounted weekend trips
Training and certification
Prepaid legal advice
Paid parking
Company paid outings
Free meals
Sabbaticals
True work/life balance
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What Employees Want: Rewards of Work
42
What Employees Want: Rewards of Work
• Study co-sponsored by World At Work and Sibson & Company
• 1200+ respondents in U.S.
• Questions:
– How do they feel about rewards of work?
– What do they value?
– What leads them to remain?
43
What Employees Want: Rewards Of Work (continued)
• Five categories studied:
– Direct financial (pay)
– Indirect financial (benefits)
– Work content (work itself)
– Careers (long-term opportunity)
– Affiliation (feelings of belonging)
WorldatWork and Sibson & Co. survey of 1200+ U.S. companies regarding
employees feelings about rewards of work, related values, and retention
44
Findings
• Work content was most highly rated
• Level of satisfaction with pay was high
• Satisfaction with pay process was low
• 75% prefer traditional forms of changes in pay
 Merit
 Individual incentives
 Promotional increases
45
Retention Drivers
Component
Driver
Driver
Driver
Base Pay
Satisfaction with
process
Pay level
Pay raises
Indirect Pay
Satisfaction with time
off
Benefits process
Benefit levels
Career
Career opportunities
Satisfaction with
manager
Job security
Work Content
Feedback from
supervisor and coworkers
Job responsibilities
Autonomy
46
Overall Best Practices
• Total Rewards Philosophy
– Formalized and continuously communicated
• Base Pay
– Competitive with defined market
– Includes opportunities for growth and development
• Variable Pay
– Rewards outcomes distinct from base pay and other programs
• Non-traditional rewards
– Appropriate for culture
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THANK YOU!
Contact Info:
Maureen Driscoll
Principal, Compensation Consulting
Maureen.Driscoll@verisightgroup.com
651.900.8111
48