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2019: Pay Me (Too) Now!

Over the past few years, there has been a lot of good pressure regarding pay equity in the workplace. Though the recent #MeToo main emphasis has been the increased exposure of sexual harassment in the work sites around the county, it has also reenergized the pay gap between men and women. This pay gap will be addressed later in this article, but there is finally a recognizable increase in wages around the U.S. and 2019 average increase in wage budgets is projected to be around 3.2%. Wage increases tend to lag the economy and we have had a couple of solid performing years, thus organizations have been using some of their cash reserves to invest in their infrastructure including capital and human improvements. The economy recovery started in the mid-2009 (however slow going until 2016) and the average annual wage increase for private employees for the last eight years has averaged 2.8% as mentioned in an Economic Policy Institute October, 2018 report. However, the 3.2% is a notable event as wages have been fairly stagnant for several years. There are some other recent developments that have occurred which will create additional pressure by companies to increase their starting wages. These include:

1. Walmart increased their starting wage in their stores to $11.00
back in January, 2018. Target has committed to increase their
starting wage to $15.00 by 2020.

2. Big financial and insurance companies like Wells Fargo,
J.P. Morgan and Aetna increased their starting wage to
$16.00/$16.50 back in 2015/2016.

3. Amazon increased their starting wage to $15.00 this past month.

4. There are more organizations researching the living wage structure
for the minimum pay level jobs. This website provides living wage
structure in 13 different living units categories from one adult to
two adults and three children by state and then by county. The
organization mentioned that the average living wage jumped
between 4 to 6% in 2017. http://livingwage.mit.edu/

5. Many states are passing minimum wage laws that will drive up
starting wages. For example, Arkansas’ new minimum will be
$9.25 per hour starting January 1, 2019, then $10.00 per hour
in January 1, 2020 and $11.00 per hour in January 1, 2021. For
Missouri, their current minimum of $7.85 per hour will be raised
to $8.60 per hour January 1, 2019, then increase by $0.85 per
hour each following January until 2023 when it will be $12.00
per hour.

Gender Gap
Based on a variety of articles, there is still about a 20% gender gap between male and female pay levels. Annie Nova wrote an article titled “Make the #MeToo moment your chance for a raise” in February, 2018. She mentioned, “As the conversation about sexual harassment gets louder, women are also bringing up the pay gap to their bosses, according to experts.” The rest of Annie’s article provides advice on how a female can navigate her way to a salary increase in the #MeToo Moment. Her two main steps are “Push for your value to be seen” and “Prepare to ask.”

Given our work with numerous clients from all types of industries over the past 30 plus years, there is a genuine desire and commitment to eliminate any justified pay equity issues and there is also an effort to ensure employees are paid a competitive salary or higher based on performance and time in the position. The Department of Labor (DOL) and the Equal Employment Opportunity Commission (EEOC) are making every effort to find organizations that are intentionally discriminating regarding pay from a gender, ethnic background, age, disability, etc. basis and the back pay, penalties, and fines are significant.

Since 1985, our firm has offered its own copyrighted 15-factor job valuing/rating system. This system evaluates a job against various factors including general experience, management experience, education, machine operations, revenue and/or expense savings generation, etc. and ends up with a point value for a position. An overall point total is established for each position and the base salary for all the employees in each position to calculate an internal pay line or regression line. This allows an organization to use an objective and defensible approach to determine if it has any internal pay equity issues as well as being able to classify positions in similar or dissimilar situated groupings of position titles. We have been able to assist our clients to identify and set in motion steps to correct any pay equity problems.

Millennials and forward Generations Pay/Benefits
Randy Barrett published a thought-provoking article for Employee Benefit News last year titled, “Why the most innovated employers are rethinking total compensation.” Randy said that the millennials are the drivers for this change and the employers are responding. Beyond a competitive base salary, Randy mentioned that the millennials want work/life balance and a socially conscious corporate culture. Below are two key paragraphs from his article.

“Leading innovators, including Akamai, Rackspace, Southwest Airlines and Vivint, are focusing on “quality of life” perks and other benefits that our grandfathers wouldn’t have dreamed of — or thought possible. They include daycare assistance, adoption and fertility funding, onsite medical scans, ID-theft services and enhanced options for working remotely.”

“Benefits, or what we refer to as WorkPerks at Southwest, are a big driver when it comes to attracting, retaining and engaging [employees],” says Julie Weber, VP of people at Southwest Airlines. She adds that the company “doesn’t just focus on traditional benefits like wellness, healthcare and retirement.” “For the airline, that means a positive work culture, career development and generous travel privileges.“

Millennials and later generations are likely to jump ship if they don’t see the above perks as well as career advancement opportunities, challenging work, an open and genuine relationship with supervisor/manager, learning new skills opportunities and performance-based retention compensation.

One of the best retention compensation tools for millennials that we have seen is having a performance-based year-end non-contributory retirement supplement amount (roughly 10% to 15% of base salary) that has a vesting requirement of at least five years that causes high performers to stick around and get past the itch to move tendency.

Another trend we are seeing for millennials is some employers are paying for additional college degrees and/or professional licenses/certifications including MBAs, Project Management Professional (PMP) certification, CPA license, etc.

Baby Boomer Pay/Benefits
With life expectancy being into the mid to late 80’s, many of the baby boomers (BBs) are still working past 65 and this trend will continue for at least the next decade. BBs are looking for ways that they can continue to work to around age 70 to maximize their social security dollars, hold onto good health benefits through their employers until they retire, and take more time off with less pay to be in a semi-retired status so they can spend time with the grandchildren.

BBs can be great mentors to the Gen Xers, Gen Yers (Millennials) and the Gen Zers, the newest workforce members. Most of the BBs are well educated, trained and started working in the mid-60s. They tend to have a balanced outlook on life, worked hard for many years with a few employers and can assist with filling in any non-technical skills gaps that the younger generations haven’t mastered or been exposed to up to now.

Given the pay gap between seasoned BBs and new employees entering the workforce, employers are being creative with easing out the BBs and avoiding any age discrimination issues as well as being able to transfer any intellectual knowledge to new employees. Having a well thought-out succession plan creates a win-win for both the employer and the BBs.

Fixed Pay vs. Variable Pay
The younger generations are open for variable pay as long as the base salary is reasonable and the performance factors tied to the variable or incentive pay are challenging, but achievable. We have worked with several clients over the past few years implementing incentive compensation plans for salaried and hourly positions using a threshold to target maximum pay out with three to six performance-based targets and bonuses starting at 5% of base salary for hourly positions to as high as 50% of base salary for C-Suite positions. New or revised targets are established at the beginning of each calendar or fiscal year and bonuses can be paid in cash or stocks. Variable pay allows an organization to use more at-risk dollars and lowers the amount of fixed pay dollars from a cash flow standpoint.

Key Employee Retention
As more of the BBs are retiring, there is a need to retain key employees that will be the new leaders to take the organization forward over the next 10 to 20 years. To ensure key employees will stay, many companies are offering deferred compensation plans, split dollar insurance and/or restrictive stock grants to lock in the future leaders. These forms of long-term compensation place funds in accounts that would leave a significant amount of dollars that would be forfeited if a key employee leaves for another position.

 

Learn more by visiting www.johansongroup.net or www.dbsquared.com or request a free consultation by visiting https://www.dbsquared.com/consultation-request-ty/.