market pay changes and their effect on the retention key talent in today’s economic climate...
TRANSCRIPT
Market Pay Changes and their Effect on the Retention Key Talent in Today’s Economic Climate
IPMA-HR National Conference 2010
Today’s Economic Climate Current Trends in HR Programs Compensation Trends Examples Questions and Answers
Presentation Overview
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Three Year Economic View*
Category 2007 2008 2009P 2010P
Real GDP Growth 2.0% 1.1% -2.6 1.5
CPI 2.9% 5.3% -1.7% ~3.0
Unemployment 4.6% 5.4% 9.5% ~ 10%
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* The Conference Board 2009
Economic View (Quarterly)
Nov-03
Dec-03
Jan-04
Feb-04
Mar-04
Apr-04
May-04
Jun-04Jul-0
4
Aug-04
Sep-04
Oct-04
Nov-04
Dec-04
Jan-05
Feb-05
Mar-05
Apr-05
May-05
Jun-05Jul-0
5
Aug-05
Sep-05
Oct-05
Nov-05
Dec-05
Jan-06
Feb-06
-8.00%
-6.00%
-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
Real GDP Growth (Quarterly)Unemployment RateConsumer Price Index
The Conference Board 2009
An increasing number of organizations are reversing cost cutting measures taken during the recession
Efforts to attract and retain talent have been reduced if hiring freezes were in place and voluntary turnover was low
Increasing number of private sector employers are restoring 401(k) match
Only 5.5% of public sector employers reduced or suspended their 457 or 401(k) plan match
Fewer organizations planned or held holiday parties in 2009, others reduced party budgets relative to the previous year
Current Trends in HR Programs
Sources: Gallagher Benefit Services Minneapolis, WorldatWork, Watson Wyatt 5
80% of employers who reduced their work week are expected to reinstate full weeks in the next 6-12 months
Very few public sector employers reduced hours (15.3%)
Economists project more than 500,000 additional jobs in state and local government, and companies that serve them, will be lost in the coming year
Most public sector employers:– Froze pay (59%)– Froze hiring (62%)– Restricted overtime (56%)– Restricted travel or education (55-66%)
Current Trends in HR Programs
Sources: Gallagher Benefit Services Minneapolis, WorldatWork, Watson Wyatt 6
2010 Pay Increases– 60% of firms made planned 2010 merit increases
(enterprise-wide)– Another 15% are planning workforce-segment
increases– 11% of firms still have an enterprise-wide freeze– Another 12% are maintaining a freeze only for
certain employee levels or business units More organizations are expected to restore
training program funding and ease/reverse restrictions on travel in 2010
Current Trends in HR Programs
Sources: Gallagher Benefit Services Minneapolis, WorldatWork, Watson Wyatt 7
2010 looks brighter– 27% of firms are hiring/expanding the overall
workforce– 3% have instituted broad-based reductions– 45% of firms are hiring at replacement levels only– 25% hiring talent to critical areas– Of those organizations that froze pay in the last 12
months, 90% had or were considering resuming normal pay practices for 2010
– Of those organizations that cut pay in the last 12 months, 70% have already restored or planned to restore rates and 20% said those pay cuts will remain permanent
Current Trends in HR Programs
Sources: Gallagher Benefit Services Minneapolis, WorldatWork, Watson Wyatt, Mercer 8
Talent Acquisition– 10% Focus on buying talent externally (new
hires)– 15% Building talent from within– 75% Balance between new talent and building
within Voluntary turnover
– More than 60% of organizations believe voluntary turnover will increase as the economy continues to recover
Current Trends in HR Programs
Sources: Gallagher Benefit Services Minneapolis, WorldatWork, Watson Wyatt, Mercer 9
Effect of the recession on organizations– 62% were recovering– 37% considering or implementing recovery
actions– 25% recovering, but not taking or considering
action yet– 22% did not experience any negative effects
from the recession– 15% are still in recession (as of April 2010)
Recovery Actions
Sources: Gallagher Benefit Services Minneapolis, WorldatWork
1. Controlling the cost of employee benefits– Healthcare coverage is expected to increase 7-8% in
2010– 81% of organizations indicated that health care
costs are not a factor when formulating salary budget recommendations
2. Attracting and retaining top talent– Over 65% of employers are concerned about
retaining their key performers– 23% of employers provided retention awards in 2009
3. Aligning HR programs with overall Organization strategy– Designing HR programs that motivates desired
behaviors and contributes to Organization success
Top Priorities of Human Resources in 2010
11 Sources: Gallagher Benefit Services Minneapolis, Milliman, World at Work, Mercer
4. Linking pay to performance– Clearly identify key performance measures and
make a strong link to compensation
5. Improving employee engagement– Especially true for top performers; presenting a
challenge for retaining critical skills
6. More employers are implementing wellness programs and providing financial incentives for life-style changes as cost control strategies
Top Priorities of Human Resources in 2010 cont.
12 Sources: Gallagher Benefit Services Minneapolis, Milliman, World at Work, Mercer
In 2010, General Increase/COLA budget increases went from 0% (2009) to 1% (2010); 2011 projections expect another 1% rise to 2%
Merit budget increases went from 2.5% (2009) to 3.0% in 2010; increases are expected to level off at 3.0% for 2011.
Organizations using variable pay leveled off at 80% in 2010. Variable pay fell only slightly in 2010 while salary budgets and structure adjustments dropped significantly.
Pay Programs in 2010-General Market
Source: Gallagher Benefit Services Minneapolis, IPMA-HR, World at Work 13
In 2010, 2.5% of organizations reported a 0% Salary Budget Increase, well below the 10-year average of 3.8%.
About three in four organizations are budgeting for pay increases between 2% and 4%. Of those organizations awarding base salary increases, 86% of employees are expected to receive an increase which is up 6% from 2009, but well below the 91% in a typical year.
Pay Programs in 2010-General Market
Source: Gallagher Benefit Services Minneapolis, IPMA-HR, World at Work 14
Despite signs of improvement in the general economic environment, 36% of private organizations are freezing their salary structures
Roughly 10-15% of both public and private sector employers are planning on freezing their salary budget
More employers are planning on restoring the salary reductions made in 2009
15% of public employers renegotiated union agreements in FY09
12% of public employers plan on renegotiating union agreements in FY10
Pay Programs in 2010-General Market
Source: Gallagher Benefit Services Minneapolis, IPMA-HR 15
Projected 2010 vs. 2009 Structure and Salary Budget*
Source: Gallagher Benefit Services Minneapolis, World at Work
* All percentages do not include zero reporting
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Salary Structure Adj Merit Budget Total Salary Increase Gov.-Structure Adj. Gov.-Salary Increase0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
20092010 Projected2011 (Projected)
The Real Value of Pay Increases
4.4
1.4
3.0
4.5
3.1
1.4
3.8
1.6
2.2
3.5
2.3
1.2
3.83.5
0.3
3.9
3.0
0.9
2.2
-1.5
3.22.8
3
-0.2
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
1998 2000 2002 2004 2006 2008 2009 2010P
MeritInflationReal Inc.
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Total Rewards Model
Compensation BenefitsDevelopment / and Training
Work Environment
Base Pay
Variable Pay
Long-term
Incentive
Deferred
Compensatio
n
Spot Awards
Discretionary
Bonuses
Retirement
Medical,
Dental,
Pharmacy and
Vision
Life Insurance
STD and LTD
Other Perks
Legally
mandated
benefits
Learning and
Development
Career
Opportunities
Tuition
Reimburseme
nt
Job Growth
Vacation
Wellness
Dependent
Care
Community
Involvement
Telecommuting
Flex Time
Affiliation
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Hourly Workers Payroll Breakdown
70%8%
8%4%
7% 3%
Base Pay Legally Required
Ins. Benefits Retirement
Paid Time off Suppl. Pay
December 2008, BLS Data
Proportions vary by job level and from organization to organization
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Pay strategy is defined by how an organization competes for talent in the marketplace Four key elements strategy:
1. Defining the market: regional, industry, organization size
2. Deciding pay level relative to the market3. Setting the type of pay structure (step, open
ranges, no structure, ranges)4. Determining the basis for granting increases:
length of service, performance, competency/skills, across the board
Elements of Pay Strategy
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1. Start with drafting a compensation strategy/total rewards strategy
2. Articulate the organization’s strategy and objectives
3. Identify measures (metrics) tied to progress made on business objectives (performance)
4. Qualities of good metrics: understandable, reportable, meaningful and influence-able.
5. Incorporate measures in the performance management system
6. Report on progress toward goals 7. Link rewards to goal achievement
Opportunities for Aligning Rewards
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1. Offer Work Share Programs, if available in your state
2. Reduce workweek (20-60% of scheduled time) with proportional decrease in compensation
3. Loan employees to other employers (costs reimbursed by other employer)
4. Redeployment and cross-training5. Offer unpaid sabbatical leaves for up to
one year
Strategies for Reducing Layoffs
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6. Offer Voluntary time-off without pay7. Mandatory time-off without pay (furloughs)8. Phased Retirement9. Require use of accumulated paid time
off/vacation/sick leave time10.Organizational restructuring11.Enhance effectiveness of performance
management program and eliminate weakest performing employees
Strategies for Reducing Layoffs cont.
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1. Be open and direct about the financial conditions
2. Solicit, and listen to, employee input regarding alternative solutions
3. Share organization strategies regarding service delivery
4. Increase face-time with employees to promote employee engagement
Strategies for Maintaining Employee Loyalty
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1. City of Renton Furlough Program (2009)– Cut city expenses and help balance the City’s budget– Help close the 2009 budget gap while preserving jobs and
continuing to provide city services– All employees, excluding fire, police, and emergency staff
2. Waukesha County Voluntary Unpaid Leave (2009)– Mitigate revenue shortfalls– 1,400 employees eligible for up to 40 hours of unpaid leave
3. County of San Diego Contract Modifications (2009)– Negotiated with the 5 labor unions and modified current
labor contracts– Assessing and modifying retirement plans
Public Employer Initiatives
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Go to: www.foxlawson.com– CompDoctor Tab– Newsletter Tab
For Recent Articles and Newsletters
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Bruce G. Lawson, CCPManaging DirectorPhone: 602-840-1070Email: [email protected]
James C. Fox, Ph.D.Managing DirectorPhone: 651-635-0976 x12Email: [email protected]
Questions or Additional Information
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