Alz June News
- 1. 2009 HR focus In a period of economic downturn, how do you manger your business and mirror market trends for your employee benefits and rewards. Merit Increases for 2009 – the news continues to be bleak and with people watching their colleagues leave in record numbers, most are not expecting to see pay increases. Planning Compensation and Rewards in Tough Economic Times June Issue I 2009 Benefits Strategies for 2010 – show employees taking on more of the burden and accountability for their own healthcare choices. 2008 and 2009 are challenging times for most businesses. You may be cutting back on your workforce or at least freezing many employee pay and benefit programs. However, this may also be a good time to remind your team about the support the company provides in addition to employment in a down economy. 2009 Merit Increase Budgets Original survey data for 2009 indicated that average merit budgets would be around 3.71% (Source BLR). This has moved dramatically in a new direction. With the latest unemployment figures still rising and 8 of 10 major industry indexes still negative, employers are freezing wages, eliminating bonuses, reducing benefits and holding steady headcount. If you are giving your employees base pay adjustments – you should “sound the trumpets” and herald your success because you are one of th 6% of employers doing this according to the lastest M&S surveys. Total Reward Strategies 2009 HR gets a lot of criticism for the use of buzzwords and euphemisms. One of the terms that cropped up years ago was “Total Rewards”. When employees heard this, it sounded like a way to rationalize giving them less by highlighting and quantifying all of the benefits and programs the company provided to them. This includes, but is not limited to elements such as: Base pay Incentive/Bonus Pay Health Insurance Disability Insurance Direct and Supplemental Life 401(k) and matching FSA and HSA and matching Educational and training benefits Time off – vacation, sick, holiday So my question is, why shouldn’t you get credit as an employer for providing these benefits and rewards? At a minimum, they cost the company money to administer and, in most cases, have a substantial cost. Even 2%-3% merit increases based on the companies largest expense – payroll – is a big deal, but to most employees getting this level of increase feels minimal. Employers are often wary about strongly presenting the reward and benefits programs because they fear criticism of a particular program or offering. You may need to beef up areas of your reward system, but overall, you may provide a very competitive menu. A bad economy is tough for all of us, but it might be a good time to take stock and communicate what you are providing to your employees in “Total Rewards”. You can easily acknowledge areas that will be reviewed with an improving economy and revenue. In the meantime, make sure your employees know the value of what you are providing!
- 2. Severance: 2009 According to About.com, the typical severance package is two weeks for every year of service. Some executive level packages are 3- 9 months, but have taken a hit with the recent negative publicity for top execs. My experience says these numbers are actually high and that the typical package is two weeks + a week for every year of service. Execs will get two to four months unless they have a signed agreement. First Things First The task of reviewing a company reward system seems daunting at best. There are a lot of moving pieces, but it can be done in a systematic way. The best way is to start is to look at the distinct elements of your total reward system. Base Pay A simple way to look at base pay is to determine how many distinct job titles you have in your company. For each title you should have a corresponding job description or at least of list of corresponding competencies and responsibilities. The job content allows you to compare your job title and the content of your job with positions out in the market. You can usually find free salary statistics from your state department of labor and there are many online salary survey companies that charge by the job or block of jobs. Do a quick comparison of your incumbents against the public and private salary data. This will give you a good picture of your base pay in the competitive landscape. Are your folks at the high, mid or low end of the data? Knowing this data will allow you to make a good case for where your people are paid in the market. Your base pay may be lower, but this is justified if you offer higher end health insurance. Incentive/Bonus Pay This is a good time to tie incentives to productive and tangible results. Too many incentive programs have evolved into entitlements that are paid to people for doing their jobs. Incentives should be paid for specific and measurable returns to the company. Disconnect bonus or incentive pay for jobs that cannot produce tangible returns. Your receptionist, facilities manager or accountants are probably not in a position to increase revenue or even increase prospects for higher revenue so why would you pay them a bonus. Re-justify your bonus programs based on the company’s need to increase sales, revenue and profits. Health Insurance Let me give you a formula for success on this one. 60% of premiums are paid by the company and 40% are paid by the employees. If you are not at this level yet, you should move in this direction. The 60/40 rule still makes the company primary payer of the premiums. This also makes the employee a major stakeholder in the insurance scheme – they will respond to approaches and recommendations that lower or contain medical and dental costs. The government will soon become more directly involved in the management of healthcare and the conservative 60/40 rule puts you in a good position to respond to the new legislation once it is approved and implemented. If you work with a broker, this is a great time to “turn up the volume” and have them negotiate aggressively on your behalf. Make sure that their negotiations with the carriers are transparent to you. Disability Insurance In my view, highly paid employees and executives have “shot themselves in the foot on these plans”. As costs have risen, the decision makers have allowed the caps on these plans to exclude them from the plans. You have to ask yourself why? Typically STD and LTD pay a percentage of your pay to a stated cap. When you examine the caps – they frequently do not deliver the stated percentage to employees over certain salary levels. The actual cost is not typically high and yet the executives themselves have allowed this to happen. If your STD and LTD plan are supposed to cover 60% of salary – then make it cover that for all of your employees. This is not a great time to leave the higher paid employees exposed. Given that just about every benefit for highly paid employees is in question/under attack – this fundamental benefit should align and provide the same level of support for all employees. Direct and Supplemental Life Life insurance is a fairly low cost benefit and there should be some upside to providing this as an employer. There should be a good return for a group if you can pool your rates. This should be true for both direct insurance and supplemental insurance covered by employees. In this market, a fixed insurance amount such as 1X or 2 X salary makes the most sense. The incremental amounts beyond the basic coverage can be provided with the employee paying the cost of the premiums. Benefits Renewals for 2010? If you have been meaning to adjust your benefits cost sharing to reflect market trends – this may be the year. Employees are happy to be employed and most expect to see the nature of their benefits and pay modified. With increased rumors about changes in health care, company trends are to move cost sharing to the employee. Employers who have covered 70% or more of premiums for health insurance are moving fast to 60%. There is a rise of the high deductible HSA plan which drives a high level of consumer behavior from employees and makes them a partner in managing health care costs. The moves in both of these directions will be more dramatic in 2010. Total Rewards – Building the Program
- 3. Al Zink With over 30 years of Human Resources experience in Global Enterprises, Al Zink is currently the VP of Human Resources at BirdDog Solutions. BirdDog Solutions is the expert in helping businesses reduce and control their transportation spend through carrier contract negotiation, invoice audit and payment, and information management. Prior to BirdDog, Al was VP of Human Resources for Compete Inc., a fast growing on- line market research company. He has also held several leadership positions including Senior Vice President of Human Resources for Upromise in Newton, MA, Vice President of Human Resources of Thomson Dialog worldwide in Raleigh, NC as well as establishing Human Resources Functions for NewsEdge Corporation of Burlington, MA and for PictureTel Corporation of Andover, MA. Al received a Bachelor of Arts degree from Boston College and a Masters of Education in Human Resources from Boston University. 401(k) and Matching With the market making some slow improvement, it makes sense to review/audit your 401(k) offering. How many funds do you offer? How many funds do your employees use and with what frequency do the make changes? Is your provider still reputable and providing the best returns? A strong audit with some design tweaks will tell your employees you are managing this effectively for them. Proactive changes to your 401(k) give you the opportunity to reiterate your plan and that you are on top of this program for your employees. This is a fairly low cost, high return activity. The 401(k) has risen to a new level of importance to employees. Additionally, if you do not match, this may be a good time to establish a match that is tied to the company achieving a certain revenue or profit goal. Since this benefit matters, you have an opportunity to provide an important program and get leverage for your business. FSA and HSA and matching Many employers do not understand the underlying value of having employees invest in these programs. Flexible spending accounts allow employees to save pre-tax dollars for health care costs that are not covered by the carriers. The money is deducted from the employee’s pay and the amount that they save is tied to their family’s actual spending. A match of a hundred dollars by the employer can go a long way as it helps the employee directly address day-to-day health care costs. health savings accounts are the new iteration of FSAs and are tied to high deductible health plans. This allows for employees to become more active in the managing of health care costs and determining level and type of service they want to pay for. These plans are more flexible and allow for growth through investments. These are an new trend and although they make sense – there is some downside with these programs unless employees are well educated on their use. Educational and Training Benefits If you offer reimbursement or if you pay directly for certain types of courses and memberships – you should evaluate the return to your business for the money you spend. There are many low cost training alternatives today for training your employees. Some of these include: self guided training – using CD’s and workbooks to learn a new application or method distance learning - through colleges and training companies. Tuition is lower and travel costs are minimal or even eliminated videoconferencing – for internal programs and idea generation on line meeting tools – to identify strategies and approaches for solving problems. The key is that the time, money and/or expertise that is provided by the company for training and education are benefits to the employees. These programs (if tied to the work) can increase the employees value to the company and provide inherent skills that help them in their careers. Time off – Vacation, Sick, Holiday Whether your provide PTO, personal days or floating holidays, you are providing an important opportunity for your employees to get away, re-charge their batteries and be with family and friends. The problem with “time off” benefits is that employers frequently do not know how their program competes in the marketplace. Most employers do a poor job or marketing the benefits and value of these programs. Accrued vacation can be a real budget buster for a company. The purpose and value of this time must be reiterated to your employees and your policies must encourage your employees to take the time when it is earned and not bank it for future events or an expanded severance when they plan to leave. Make sure you know how your plan stacks up against the market and make sure your polices support the overall objective of time off. ------------------------------------------------------------------------------------------------------------------------------------------------------------------------ This exercise not only helps you to understand the value of your programs, but gives you a basis to market this to your employees. Employees today need to know that despite the market conditions, their employers value them. The idea that you do not have turnover because your employees do not have other options is short-sighted. Once the layoffs and freezes have been done – you need your active employees to be as engaged and productive as possible. As you communicate about the state of your business and share strategies for the future, I would highly encourage you to market your total rewards program. The mid year 2009 formula for total rewards is to 1) assess your total rewards 2) compare your programs to the market 3) under the position Of your programs at they relate to the market and 4) communicate and market your plan.