Compensation Trends Update – August 2010

2011 Economic Forecast – Register Now for September 14th  (7:30 – 9:30 am)

What should you be planning for from a legal, accounting, and labor cost perspective in 2011?  Keynote speaker John Mitchell, PhD, will be sharing his viewpoint on the local and regional economy.   Those of you who have heard Dr. Mitchell speak know you are in for a treat.  A sought-after speaker and author, Mr. Mitchell has been making economic presentations regarding both the nation and the Pacific Northwest for over 40 years. 

In addition, our local experts will provide guidance and expertise on key issues in the current economic climate.  Walk away with information to use in planning and budgeting for 2011.  Registration is $30 and space is limited.  Register at:  www.nwexecutiveforum.com

Ready, Set, Go!

Survey companies and compensation consulting firms are seeing a significant increase in organizations purchasing market data and developing competitive pay plans.  Although some companies sat on the sidelines during the downturn, many are now concerned about having current market rates in place so they can be ready when hiring takes off again.

He Who Lives by the Crystal Ball Eats Glass

It’s still a difficult environment to project labor cost increases, but current projected budget increases are running solidly around 3.0% for 2011.  Tech and life science companies are leading the job recovery while health care remains strong.  There are pockets of significant growth along with many areas that are still flat or down.  Seattle, Portland and San Jose are in the top five highest cities for projected pay increases in 2011.

For the past two years, projected increases have outstripped actual increases by 0.5% to 1.0%.  It is likely that projected increases for 2011 may also be a bit more optimistic than actual increases will be.  However, the spread is expected to narrow this year.

The industry you are in is critical.  Projected increases for some industries are double what they are for others.  Know your market and your industry and adjust accordingly.  Compensation is part art and part science.  Look at the data and then rely on your industry knowledge to guide your pay structure and budget decisions.

Another decision that can make a big difference is whether you compare your organization to all organizations or just organizations that are providing increases this year.  Look at what others in your industry are doing.  If most of them are giving increases like those seen in high tech, life sciences and health care, then use the higher figures showing "only organizations with increases".  If you are in another industry, you may consider using the more conservative estimates provided by "all participants". 

Compensation Works conducted a salary increase budget survey as well.  The figures in our survey are significantly lower than those provided by WorldatWork and Milliman.  We believe the Compensation Works survey is lower due to a self-selection process where organizations with significant concerns about pay chose to respond to the survey while those with less concern did not take the time to respond.

 

New Research Continues to Support Greater Pay Transparency

We are continuing to see more support for pay communication and pay transparency.  The following graphic shows how pay satisfaction increases as organizations become more open about how pay works.   (Workspan Pay Satisfaction 08/08)

A study published by Hay in 2009 of Most Admired Companies (MACs) shows that MACs pay about 5% less in base pay than other companies, but have better pay differentiation for top performers and better communication overall.  To be able to communicate about pay, you have to have a solid program in place that is equitable both internally and externally, and the process for pay decisions has to be consistent throughout the organization.  Few organizations communicate with their employees enough about pay, performance, skill development, or organizational strategy.  It’s often the case that organizations do all the work to ensure that pay is equitable, but do not communicate effectively about the process. 

Employees are concerned about losing ground on pay over the last few years.  Don’t miss the opportunity to show your staff that you are on top of things.

Tips for Thriving in the New Normal

The learning that comes out of a downturn can be invaluable.  Your employees are listening now more than ever.  This is the time to re-affirm strategy and communicate organizational direction and goals.

• Begin preparing for the war for talent, but it may be a different kind of war.  Pay attention to the soft side of the employment deal elements, such as: training, career development, recognition, and flexible work hours.
• Employees are interested in keeping their skills current and want to understand how their careers can grow within the organization.  With limited budgets, look at ways to provide cross-training or new project experiences to existing staff.  
• Employees care more about job security and benefits than ever before.  However, surveys show that many are planning to look for new opportunities when the job market improves. If you are in a stable environment, it’s a great time to remind staff of this stability.  If your industry and business are stabilizing, let staff know what you are seeing and why.  Be proactive now to ensure that you retain your top performers.
• We expect pay to remain flat for a number of years.  Pay is still in the top five factors employees are concerned about.  Paying significantly more than market will make employees happy for a paycheck or two.  After that, it becomes invisible.  Make sure your pay levels are fair and then communicate them to staff. 
• Focus on performance continues to increase.  Better differentiation between your top performers and your low performers will allow you to keep costs consistent while rewarding the individuals who make a difference to your bottom line.  Below is recent research from WorldatWork that shows the typical performance and pay distribution.

Final Thought

Don’t forget to include budget dollars to purchase salary surveys each year.  When you consider your total salary budget for a year, a few thousand dollars for good salary data is a wise investment.  One overpaid employee can easily offset all your survey costs for the year.  We’re happy to suggest great survey sources for your organization.

We’ll continue to monitor the trends and projections.  Let us know what you are seeing in your industry and please contact us if you have questions.