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Vol. 15, No. 3 - Classification Response to Difficult Economic Times

Volume 15, Number 3

The Public Sector Response to the Difficult Economic Times

While the private sector is showing some signs of recovery in 2010, public sector organizations appear to be struggling in many areas especially in the provision of employee pay increases and related employee pay and benefit programs. During the first part of 2010, Fox Lawson and Associates, a division of Gallagher Benefit Services, Inc. (FLA) and the International Public Management Association for Human Resources (IPMA-HR) jointly conducted on-line surveys of IPMA-HR members (approximately 310 organizations) regarding their compensation administration plans and actions planned or taken in 2010. The results clearly demonstrate that the public sector is in for a difficult ride in this year and into 2011.

In 2009, overall employee pay increase budgets reported by all organizations responding to the survey averaged less than two (2) percent for all public sector employees; the exception being public safety employees where the increase budget averaged 2.08%. However in 2010, employee increase budgets were forecasted by organizations at less than one(1) percent with the exception of the public safety (1.2%) and non-exempt union (1.07%) employee categories. Subsequent regional surveys conducted by FLA for our clients during 2010 also reported similar dismal budget numbers. Sixty (60) percent of all organizations reported suspending pay increases and 44% reported suspending pay structure increases. Only a small percentage of public sector organizations (3%) responded that they were not expecting to make changes to their compensation systems in 2010. For an overview of the results of this survey, please visit the IPMA-HR website.

What does all this information mean for public sector organizations? It is clear that with reduced or zero pay increase budgets, employees will be unhappy and public sector organizations will be faced with concerns including how to balance the budget while managing their compensation program as well as their relationship with employees. In our work with public sector organizations of all sizes and types, we are seeing a number of related issues and concerns emerge during the public sector budget crisis.

Increased interest in pay-for- performance by Boards and Councils. Elected officials seek greater justification for their pay budgets even as budgeted amounts become limited. They want a way to reward stronger performers and reduce amounts given to poorer performers. The public also has become increasingly vocal about across-the-board increases for public sector employees when their own private sector jobs are eliminated and/or pay is cut. On the other hand, public sector employees are seeking ways to ensure pay increases such as considering unionization and initiating attempts to return to step based pay systems.

Employees try to find other way to gain pay increases. If employees cannot access pay increases through the regular pay administration image cycle, they frequently seek other ways to gain additional pay. We are seeing an increase in the number of reclassification requests and title changes. If employees cannot increase their compensation through the pay cycle, attempts to justify pay changes using inappropriate mechanisms create significant administrative burdens. The manpower and time spent processing these requests are expensive for the organization. In addition, inequity is introduced that may damage morale and credibility.

Fox Lawson & Associates solves strategic compensation and human resources issues of organizations experiencing significant change.

We assist organizations to align their compensation, benefits and human resources systems to their organization objectives.

We have solutions for people who pay people.

Disparity between union contracted increase amounts and non-union employee increase budgets. Public sector organizations are very reluctant to renegotiate contracted employee increase and pay structure amounts with labor unions. However, elected officials tend to treat non-union employee pay increase budgets as flexible and those dollars available for use in other areas to make up for budget shortfalls. They also believe that public perception requires the politically correct action of curtailing the pay increases of the non-union employees (generally management and exempt staff). These types of actions result in a variety of negatives for the organization. Employee disgruntlement results when non-union staff is treated in a manner different from employees protected by a union contract. Increased risk of unionization can also occur. Pay compression between bargaining union and non-bargaining pay structures creates increased internal equity issues within the pay structure of jobs that are non-union. Across the United States, we frequently find that public sector organizations pay non-exempt jobs above the market while exempt or management jobs are paid below the market. Obviously, increasing the higher paid bargaining unit pay structure while reducing or eliminating pay increases for the non-bargaining jobs/ pay structure will further complicate this existing problem. The ultimate answer to compression is a very expensive solution.

Retention and Turnover. As pay increase budgets are reduced or eliminated, pay ranges and employee salaries will begin to fall behind the market especially as the private sector continues its recovery and its pay administration budgets return to pre- 2008 levels. FLA saw a similar cycle after the 9/11crisis as organizations succumbed to hearsay regarding the full-scale elimination of pay increases by the market and reduced/eliminated employee increase amounts for several years. When turnover and retention issues were recognized by public sector organizations they found themselves substantially behind the market and had to play catch up.

These and other issues may occur in your organization. If they do and you have questions about how your organization might respond to these issues, the budget crunch and these difficult economic times, please feel free to contact us. We have the experience to handle the issues public sector organizations face in today’s environment. Please call 651-635-0976, Ext. 12 for Jim Fox or 602-840-1070 for Bruce Lawson to discuss your particular situation.

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Vol. 15, No. 2 - Classification and Pay Effects of The New Economy

Volume 15, Number 2

Classification and Pay Effects of The New Economy

Unemployment is at record levels. Eighty percent of private sector employers and about 15% of government employers reduced work hours in 2009. More than half of government employers froze pay, froze hiring, restricted overtime and reduced travel or educational opportunities for employees. More recent news suggests that the governments will reduce employment this fiscal year by up to 400,000 jobs, or roughly 20% of 19.7 million.

With the current budget crisis affecting almost all government sectors, most organizations have been trimming their budgets. Since the largest cost is personnel, this is where large savings can be found. But reduction in personnel affects services – as we have known them to be delivered, at least.

When controlling organization budgets, the HR department is often called upon to make tough decisions. HR professionals provide input on freezing salaries, layoffs, bumping rights, promotions, reorganizations, and related resolutions. While these actions are often necessary to balance the budget, they can have unforeseen impacts in the long run. It is important for organizations to be aware of the potential long-term impacts of these decisions.

Our firm has been through the past three economic downturns and we are well aware of the issues associated with such decisions. Based on our firsthand experience, we can share with you some long-term impacts of these decisions and suggest what you might do to avoid them.

Probably the most significant impact is the effect on your classification system. When managers cannot reward their employees with pay increases, they try other methods, often using the classification system as a reward vehicle. They may seek new classifications using departmental reorganizations to establish new sets of responsibilities, and the like. These actions can lead to:

A classification and pay system that becomes “out of whack.”

Unexpected increases in overall payroll costs.

Increased numbers of titles to justify pay increases.

Payroll costs that increase and force new or additional layoffs that may not have occurred had there been no classification changes.

If it has not already occurred, you will probably begin to see an increase in reclassification requests. We have experienced an increased demand to review “new jobs” in the last few months. Some appear to be stretching credibility to be called “new.”

Limited new money available (our IPMA-HR survey in March 2010 shows that public sector pay programs will increase by about 1.2% in 2010, whereas the private sector will be twice that rate), leads to increased pressure to reward employees.

Reclassification requests may begin to be approved without merit. This can start a chain reaction of requests, resulting in a classification system that could become compromised – in short, “out of whack!” Payroll costs may no longer be as controllable, since pay is usually increased with each approved request. In the long run, you may spend most of the money you attempted to save.

Fox Lawson & Associates solves strategic compensation and human resources issues of organizations experiencing significant change.

We assist organizations to align their compensation, benefits and human resources systems to their organization objectives.

We have solutions for people who pay people.

While the best approach is to approve only requests with sufficient merit, (the job should have changed by more than 30%) HR professionals often bear the burden of intense pressure to approve job classification requests and pay adjustments. Our research in large government organizations shows that 60-70% of reclassification requests are approved, almost all with more salary attached.

What can you do? Several actions can ensure that the integrity of your classification system is maintained during this process. One is to request a budget justification for any classification or pay change. This forces managers to find the money within their own budgets to underwrite any pay adjustments.

Second, instead of attaching a dollar figure to the classification requests, you can limit the number of reclassification

requests to selected times of the year. This may not be as effective in controlling costs in the long run. However, it can control the workload of HR. Furthermore, it “forces” employees and managers to verify that any classification request has merit, something on which the passage of time can have an impact.

A third option is for the organization to use an external source to review reclassification requests. An external source can provide an objective opinion that is not influenced by political or internal pressure. This will help eliminate the burden placed on the HR Department and enable classification and pay changes only if the request has merit. We have found that when reclassification requests are outsourced, the burden of proof becomes more difficult. This option might cost a little more today, but it may be cheaper in the long run, because your system will retain its integrity for a longer period of time.

If you have questions about how you might respond to the budget crunch, please feel free to contact us. We have the experience to handle the issues you face in today’s environment. Call 651-635-0976, Ext. 12 for Jim or 602-840-1070 for Bruce.

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Vol. 15, No. 1 - Auditing your Classification and Compensation Plan

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FLA

Compensation Consulting Since 1995

Volume 15, Number 1

 

Philosophy and supporting strategies guide your classification and pay systems.

Employees who understand how and why they are paid accept their level of pay more readily.

Visit our website for past newsletters, clients in your area and other items of interest, or to e-mail us a question.

 

www.foxlawson.com

 

Auditing Your Classification and Compensation Plan

Over the past months, we have conducted diagnostic reviews of the classification and compensation programs for 34 government organizations. It may be instructive to outline the diagnostic review process and study some common findings among the programs we reviewed.

The diagnostic review process looks at three major areas: 1. The Classification/ Compensation Philosophy and Strategies,

2. The Classification System, and 3. The Compensation System.

We follow this process because we believe that a well thought out Philosophy and supporting strategies are critical elements of any classification and compensation system in which the majority of dollars is spent on personnel costs.In the remainder of this newsletter, we will discuss each of the three components along with criteria that we consider crucial in determining the health of a compensation program.

Philosophy and Strategy

Philosophy and supporting strategies guide the management both of classification and of compensation within your organization. Typical issues addressed include whether the organization seeks to have a broad or narrow job classification system (this relates to the degree of flexibility needed or wanted in terms of job responsibilities in each job), whether the system should emphasize market parity (44% do) over internal equity (56% do) or whether the system is designed to reflect a balance of both, and how the organization views itself relative to the labor market (how the labor market is defined) and how the organization views itself relative to its competitors in the labor market(s). Sixty- two percent (62%) of organizations target the average of their labor market.

Philosophy and strategies then become a viable communications tool by which your employees and other stakeholders can clearly see how you view compensation and how you try to manage it. It is also something tangible to apply whenever you need to make programmatic decisions to determine whether the action will help you achieve your stated goals and objectives. In simpler terms, when you ask, “Will this action help us achieve our objectives or will it hinder our ability to achieve our objectives?”, this tool guides your response. Further, we have found that if employees understand how and why they are paid (which should be articulated in the Philosophy), they more readily accept their level of pay.

About 83% of the public sector organizations we studied state that they have a pay philosophy and strategy (although we found no consistency in the Philosophy articulated). If you are one who does not have a defined compensation philosophy, you might want to look at some guidelines regarding what should be included. You can access that information at the following web address: http://www.foxlawson.com/compDoctor/ pdf/CompDoc04-05.pdf. Then, you may facilitate a process in your organization to finalize a process that the Board or Council can ultimately adopt.

The Classification System

Classification is formal documentation of the body of work performed by employees of your organization. The Classification Plan should reflect types and levels of work performed, be organized by occupational group and job family, and be presented so as to clearly define basic information about each job, including:

  • The appropriate FLSA status designation

  • Thephysicalattributesrequiredtoperform the essential duties of the job as defined by the Americans With Disabilities Act

  • The natural career path of most jobs

 


 

Fox Lawson & Associates solves strategic compensation and human resources issues of

organizations experiencing significant change.

 

We assist organizations to align their compensation, benefits and human resources systems to their organization objectives.

 

We have solutions for people who pay people.

In addition, job classification descriptions should be up-to-date and be written in a consistent style and format. We have provided on our website a format you might find helpful: http://www.foxlawson. com/newsletter/pdfs/volume12_2.pdf. Our research showed that only about half the organizations we studied reported job descriptions which were current, and reflecting the requisite information such as FLSA status and career path options. Obviously, for those lacking current and accurate descriptions, numerous ramifications need to be addressed.

The Compensation System

We believe that no organization exists for the sole purpose and pleasure of paying people. We pay people in order to realize some purpose, whether to recognize the accomplishment of certain goals and objectives, to provide a defined service, or simply to acknowledge continued service to the organization. The purpose should have been defined in the organization’s Philosophy statement.

Once that philosophy is defined, one may look at how the pay system is structured to determine if it supports the stated philosophy and strategies. For example, if the philosophy is based on recognizing and rewarding employees based on their individual contributions toward achievement of organizational goals, an open range pay structure with opportunities for various levels of pay adjustment may be appropriate. Conversely, if the philosophy is recruitment and retention within the organization where longevity is more the focus, then a more traditional step-type pay plan may be more appropriate.

Most organizations we have reviewed

employ several types of pay systems. For example, for exempt and executive jobs, an open range system is prevalent and raises are based on performance. For public safety and non-exempt jobs, a step plan is more typical with pay raises based on years of service.

A review of the compensation system will assess the number of different pay plans that exist, the type(s) of structures(s), the salary range width, and the number of ranges within each structure. For organizations having multiple labor contracts, the various pay structures may or may not be consistent depending on the organization’s pay philosophy and whether a need exists for unique pay plans in each bargaining unit.

How We Can Assist Your Organization:

If your organization has experienced changes relative to the work performed by your employees, you have recently downsized or reorganized, or you have experienced difficulties with your compensation program as a result of market pressures or recognition that the plan no longer meets current needs, we can assist you in restructuring both your classification and compensation programs to accommodate your organization’s changes.

Should you desire our assistance in diagnosing your current classification and/ or compensation programs, please access our diagnostic questionnaire (http://www. surveymonkey.com/FLADiagnostic). If you would like our assistance in updating or revising your current classification or compensation structure, give us a call. 651-635-0976 Ext. 12 for Jim or 602-840-

1070 for Bruce.

 

Offices:

1335 County Road D. Circle East St. Paul, Minnesota 55109-5260

Phone: 800-383-0976

Fax: 651-635-0980

E-mail: jfox@foxlawson.com

 

P. O. Box 32985

Phoenix, Arizona 85064-2985

Phone: 602-840-1070

Fax: 602-840-1071

E-mail: blawson@foxlawson.com

2141 P Street, Suite 1010

Washington, DC 20037

Phone: 202-785-1197

Fox Lawson & Associates

1335 County Road D. Circle East

St. Paul, MN 55109-5260

E-mail: sspellman@foxlawson.com

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Vol. 14, No. 3 - Trainee Classifications

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volume14_3

FLA

Volume 14, Number 3

Creation of a Trainee

Classification is frequently not in your best interests.

Trainees are treated as at-will employees.

If student interns are paid, FLSA implications need to be understood.

Visit our website for past newsletters, clients in your area and other items of interest, or to e-mail us a question.

www.foxlawson.com

During many of the classification studies we conduct, we receive requests for additional classifications that are, in effect, training classes. The departmental objective is to use those classes to provide opportunity for individuals to obtain the basic skills needed to perform the essential duties of the entry level class in the series. When such a class is created, a below market salary is often established for what then becomes the first level in a class series. The objective is to create a class where employees stay for a short period of time because they are either promoted or terminated.

As a general practice, we believe that creation of a specific “Trainee” classification is not in the best interest of our clients. The major exception is in the trades, where an Apprentice level may be necessary to an organization developingpersonnelthroughaformal program with the objective of moving them to the journey level. Since most apprenticeship programs last 3-4 years, a formal job classification may be appropriate – although it should include a statement that incumbents must successfully complete the formal apprenticeship program within a fixed period of time in order to retain their employment. However, under normal circumstances, we believe that when it is deemed in the best interest of the client organization, the human resources director or his/her designee may authorize the appointment of a “Trainee” to fill an open position in a specialized technical or skilled trades class subject to the following restrictions:

    Trainees will not be used for entry level general classes (e.g. administrative support, program management, etc.) unless qualified applicants for the position or job are in short supply.

    Trainees may be used in a variety of circumstances but the primary purpose is to enable a department to fill a position when fully qualified candidates are not available in sufficient number to make a selection.

    Trainees will be hired at a pay rate below the minimum of the rate of pay for the position/job classification for which training is being conducted.

    Trainee positions will not last longer than one calendar year except in the caseofformalapprenticeshipprograms such as trades and mechanics.

    Trainees will be evaluated periodically during their training period and if their performance is satisfactory they can be advanced in pay at a pre-determined rate until reaching the minimum of the pay grade for the job classification — upon completion of the training period or until meeting the minimum qualifications for the position or job, whichever occurs first.

    Trainees are treated as at-will employees and subject to termination at any time during their training period without evidence of just cause although the normal reason for termination would be that they are not making the progress necessary to fulfill the conditions of the trainee appointment.

    Once a trainee completes a training period and is appointed to a position, the employee should then serve a full probationary period in the class to which appointed to ensure that he or she can, in fact, fully perform the essential duties of the job.

    All trainee appointments should be made in writing and outline the position for which they are training, the beginning rate of pay, the

    Fox Lawson & Associates solves strategic compensation and human resources issues of organizations experiencing significant change.

    We assist organizations to align their compensation, benefits and human resources systems to their organization objectives.

    We have solutions for people who pay people.

    evaluation periods and criteria for periodic increases in compensation for satisfactory performance, and a statement that employees understand that they must serve a full probationary period in the job after having satisfactorily completed their training period.

    Another wrinkle to the issue of trainees and interns is relative to their status under the Fair Labor Standards Act. The interpretation is that if they are Trainees, then they are exempt from overtime requirements, even if the job for which they are training would be considered non-exempt subject to the conditions described below. However, if they are treated as employees, then they are covered by the FLSA and subject to overtime requirements. The United States Department of Labor applies a six criteria test as a result of a Supreme Court decision (Walling v. Portland Terminal Co.) to determine whether a trainee or intern is subject to the overtime requirements of the FLSA. The six criteria are:

        The training, even though it includes actual operation of the employer’s facilities, is similar to that of a vocational school.

        The training is for the benefit of the employee.

        The trainees do not displace regular employees but work under close supervision.

        The employer providing the training derives no immediate advantage from the activities of the trainees and on occasion the employer’s operations may be impeded. (Obviously, if the employer is using the employee to perform regular work, then this criteria would not be met.)

    The trainees are not necessarily entitled to a job at the completion of the training period.

    The employer and the trainees understand that the trainees are not entitled to wages for the time spent in training.

This can be an issue for many organizations that want to include a trainee level class in their structure. Unpaid student interns should not be a part of any system, but if they are paid then the FLSA implications need to be understood, as well as the property rights enjoyed by public employees unless there is a specific provision in the class that designates it a limited or fixed term job.

How We Can Assist Your Organization:

If your organization has experienced changes in work performed by your employees or you have experienced difficulties with your compensation program as a result of market pressures, we can assist you in restructuring both your classification and compensation programs to accommodate changes that have taken place within your organization as well as from external pressures.

Should you desire our assistance in either revising or updating your classification system, or in updating your current compensation structure, please contact us. 651-635-0976 Ext. 12 for Jim or 602-840-1070 for Bruce.

Offices:

1335 County Road D. Circle East St. Paul, Minnesota 55109-5260

Phone: 800-383-0976

Fax: 651-635-0980

E-mail: jfox@foxlawson.com

P. O. Box 32985

image

Phoenix, Arizona 85064-2985

Phone: 602-840-1070

Fax: 602-840-1071

Fox Lawson & Associates

1335 County Road D. Circle East

St. Paul, MN 55109-5260

E-mail: blawson@foxlawson.com

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Vol. 14, No. 2 - Performance Management

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FLA

Compensation Consulting Since 1995

Volume 14, Number 2

 

Organizations still struggle to implement their performance management systems

 

Whether formal or informal, sophisticated or simple, the new system must define your objective

 

Coach managers on how to talk with employees about their performance

 

Visit our website for past newsletters, clients in your area and other items of interest, or to e-mail us a question.

 

www.foxlawson.com

 

FOX LAWSON & ASSOCIATES LLC

C O M P E N S A T I O N   A N D    H U M A N   R E S O U R C E S  S P E C I A L I S T S

 

 

While most human resource professionals and line managers agree that performance management is an important key to managing and leveraging the human resources of an organization, organizations continue struggling to implement effective performance management systems. Organizations often spend a great deal of time developing and revising their performance appraisal forms and process in hopes of improving the system’s effectiveness. Rather than focusing on the mechanics of a performance management system, organizations would be better served by spending the time and energy required to 1) clarify the objectives of a performance management system, 2) confirm the fit between an organization’s culture, financial capacity, and the system, and, 3) provide performance management training and coaching to managers.

 

The first step in implementing a new performance management system or revising an existing system should be to clarify the objectives of the performance management system. Possible objectives might be making pay decisions, identifying training and development needs, weeding out poor performers, or identifying individuals with high potential. While an organization may want a performance management system to do all this and more, the implementation of a new performance management system should realistically evaluate the capabilities of the system.

 

In addition, some objectives may conflict with each other. For example, a system established to reward employees for strong performance may result in employees (and managers) being unwilling to identify training and development needs, because doing so might reveal a weakness. For an organization new to the performance management process, a realistic objective may be for managers to set performance goals with their employees, and to measure employees’ progress toward the goals. Another organization which has already established goals and measured employee performance may find it appropriate to tie compensation to the results of a performance management system.

 

Before rolling out a performance management system, organizations should confirm that the objective(s) of the system are aligned with the organization’s culture and financial capacity.For example,an organization may have limited financial resources allowing just a 2.5% average increase in annual compensation. Culturally, the organization believes that all employees deserve at least some increase. Implementing a performance management system to make pay decisions may not be worth the time and effort since the difference in increases for those identified as high performers and those identified as average or low performers will be minimal. In another example, the purpose of the performance management system may be to identify training and development needs. But if the majority of training opportunities are mandated by law the impact of the performance management system will be very limited.

 

Fox Lawson & Associates LLC solves strategic compensation and human resources issues of organizations experiencing significant change.

 

We assist organizations to align their compensation, benefits and human resources systems to their organization objectives.

 

We have solutions for people who pay people.

 

Before a performance management system is implemented, time and effort should be put into coaching managers on how to talk with employees about their performance. This effort needs to start with senior management modeling behavior that is expected of middle and line managers. Training and development opportunities should provide ample opportunity for discussion and coaching, so that managers are learning not just the mechanics of a system, but gaining the skills necessary to effectively establish expectations, discuss performance, and coach employees to develop their skills and abilities.

 

Whether a performance management system is formal or informal, sophisticated or simple – the effectiveness of the system can be

improved by defining the objective of the system, ensuring the system is consistent with the resources and culture of the organization and providing training and coaching on the soft skills necessary to effectively implement the system.

 

Once the purpose of a performance management system is defined and aligned with the resources and culture of the organization, the next step is to develop an appraisal form and system that is easy to implement and maintain and supports the goals of the system. While a great deal of time is often spent creating unique, sophisticated, detailed forms,and defining a complex process,no form or process,regardless how brilliantly conceived, will result in an effective system unless time has been spent defining objectives of the performance management system, confirming those objectives align with the organization’s resources and culture, and coaching managers in effective performance management.

 

FOX LAWSON & ASSOCIATES

C O M P E N S A T I O N   A N D   H U M A N   R E S O U R C E S   S P E C I A L I S T S

 

Offices:

1335 County Road D. Circle East St. Paul, Minnesota 55109-5260

Phone: 800-383-0976

Fax: 651-635-0980

E-mail: jfox@foxlawson.com

 

P. O. Box 32985

Phoenix, Arizona 85064-2985

 

Phone: 602-840-1070

Fax: 602-840-1071

E-mail: blawson@foxlawson.com

 

 

Fox Lawson & Associates, LLC

1335 County Road D. Circle East

St. Paul, MN 55109-5260

LLC

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Vol. 14, No. 1 - Staying the Course in a Distressed Economy

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 FLA

FLA

Compensation Consulting Since 1995

Volume 14, Number 1

 

FOX LAWSON & ASSOCIATES, LLC

Staying the Course in a Distressed Economy

The headlines are full of bleak economic news. Some observe that the current recession, left unchecked by central government intervention, has the potential of growing into the worst economic crisis since the Great Depression. Millions of American workers have already been laid off. Dismal predictions warn that millions more will lose their jobs in the next year.

 

So far most public employees have avoided the shedding of jobs experienced by the private sector. However, it is only a matter of time before reduced state and federal aid to cities, counties and school districts will force elected officials to deal with the challenges that decreased revenues and increased demands for services create in a distressed economy. Not only are governments experiencing a decline in revenues from the state and federal government, they are being buffeted by a decline in the property tax base brought on by declining property values. A decline in the property tax base means that the main source for raising local revenues is unable to replenish a decline in state and federal aid without a significant increase in a jurisdiction’s tax rate.

 

Maintain Sound Pay Practices

 

When managing a budget crisis it is only reasonable for elected officials to closely examine their organization’s compensation structures since personnel costs make up most of the expenditures for a typical local unit of government. These costs can sometimes be as much as 70% of the budget. When local units of government are asked to do more with less it is essential that governments perform their functions as effectively and efficiently as possible. This high level of performance is directly dependent upon skilled and dedicated employees.

 

C O M P E N S A T I O N   A N D   H U M A N   R E S O U R C E S   S P E C I A L I S T S

 

Attracting and retaining competent employees has never been so important. At the same time, public employers must also be exceptional stewards of limited financial resources, focusing especially on keeping personnel costs under control. During these challenging times local units of government should not, if at all possible, abandon their core compensation strategies and policies in the face of mounting budgetary challenges. Compensation strategies and policies that keep your organization competitive with comparable public employers while maintaining internal pay equity will help ensure that your organization will continue to attract and retain qualified employees without overpaying them.

Importance of a Salary Survey

An external market salary survey is the reliable way to determine what the market is paying the benchmark positions of your jurisdiction. Some market- determining characteristics linked to housing values such as per capita assessed valuation or tax capacity may have changed so dramatically in the past year that it would be a good idea to determine if your jurisdiction’s labor market has changed. Performing a labor market survey will help to reassure your board that they are paying no more than necessary to attract and retain qualified employees.

 

- Contributed by Greg Mangold

 

FOX LAWSON & ASSOCIATES LLC

 

C O M P E N S A T I O N   A N D   H U M A N   R E S O U R C E S   S P E C I A L I S T S

 

 

 

 

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Vol. 13, No. 3 - Alternative Approaches to Job Evaluation

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FLA 

Compensation Consulting Since 1995

Volume 13, Number 3

 

Alternative Approaches to Job Evaluation: Determining Internal Equity

Job evaluation must begin with a clear definition of the work performed

Thousands of plans being used still fall into one of only seven categories

Visit our website for past newsletters, clients in your area and other items of interest, or to e-mail us a question.

www.foxlawson.com

 

This Newsletter will address quantitative and non-quantitative approaches to job evaluation in an effort to stimulate thinking about how an agency can address internal equity issues.

What is Job Evaluation?

Job evaluation is a formal process used to establish a job worth hierarchy within an organization. It is also used as a proxy when market data is not available for some jobs. There are two, and only two, conceptually different approaches to the process: Job evaluation and market pricing. Agencies have tried a third approach which we call the SWAG or dartboard method, but which really is not a formal or defensible approach. In reality, job evaluation focuses on job content relative to other jobs while market pricing focuses on external value of specific jobs.

Job Evaluation Alternatives

Since the first formal job evaluation method was introduced in the 1930s a variety of approaches have been developed and are currently in use in both the public and private sectors. While literally thousands of different job evaluation plans are in effect, they all fall into one of seven generic categories:

Non-Quantitative Methods Whole job ranking Classification

Quantitative Methods

Market Pricing Point Factor

Factor Comparison Scored Questionnaires Decision Banding

Although market pricing is included as a quantitative method, its reliance on external factors and not internal value creates an interesting question

 

Substantive Differences

While the various job evaluation methods each result in a job worth hierarchy, they find their answers in different ways once job content is defined. For consistent comparison and evaluation, all methods require an understanding of the body of work performed by incumbents in the job. Following is a summary of the substantive strengths and weaknesses of each optional approach:

Non-Quantitative Methods

The major benefit of the non-quantitative systems is their simplicity. With whole job ranking, one simply ranks jobs from high to low (or low to high if preferred) based on the perceived complexity and difficulty of the job relative to other jobs in the organization. While this works well if the organization is small and the person doing the ranking has a solid grasp of the work performed by all employees, it is still very subjective and the Federal EEO has stated that use of this approach will not be a valid defense should the employer ever be challenged about either the disparate impact or disparate treatment of employees in a job classification. This is because there is typically no documentation and the evaluation is often based on the incumbent, not the job itself.

 

The classification method is also relatively quick and easy to use, and works reasonably well with larger organizations. An organization using the classification method must first define the levels of work within each job family. Common phrases include “under close supervision,” “under general supervision,” and “under administrative direction.” Individual positions are then slotted into the classification level that most closely equates to the work performed. The downside of this approach is that it tends to force jobs into as to whether if really is a means of job evaluation.

FOX LAWSON & ASSOCIATES LLC

C O M P E N S A T I O N   A N D   H U M A N   R E S O U R C E S   S P E C I A L I S T S

 

Fox Lawson

& Associates LLC solves

strategic compensation and

human resources issues of

organizations experiencing

significant change.

 

We assist organizations to align their compensation, benefits and human resources systems to their organization objectives.

We have solutions for people who pay people.

existing categories even if the definitions do not quite match the work being done.

These types of systems can also be costly to develop. While they do work well within a specific occupational group, they are less effective crossing occupational boundaries.

Quantitative Methods

The mere fact that values are quantified tends to give the impression that quantitative methods are more accurate and therefore more defensible. Of four quantitative approaches, three (point-factor, factor comparison, and scored questionnaires) require that compensable factors first be defined. The Federal Equal Pay Act outlines four useful factors: skill, effort, responsibility, and working conditions. Most other factors considered will still fall generally into these categories.

Once the factors are defined, a value for each, relative to the others, must be established. Within each factor, then, degrees of value must be determined and values assigned accordingly.

The major difference between the three approaches is how they are practically applied. Point-factor plans require that each job be rated in terms of the established factors and degrees, then the values added to arrive at a total score. Using factor comparison, jobs are compared relative to each component factor, to arrive at ratings of equal to, greater than, or lesser than, the job to which it is being compared. When all comparisons within the plan are concluded– job to job, factor to factor – scores are totaled to arrive at the hierarchy.

Scored questionnaires are essentially automated versions of a point-factor plan. Commercially available systems, however, reflect the vendor’s value system, not the organization’s, in assigning the weights or values for each factor.

The fourth quantitative approach, the Decision BandTM Method, focuses on the level of responsibility and decision making in determining the level of the job. Factors present in point systems also exist but play a lesser role in the evaluation process.

While quantitative systems offer the advantage of fixed scores, they also generate challenges to the job rating formula, especially regarding why one job is rated higher or lower than another. Ease of explanation must be considered for employees and managers to reach understanding and ultimate buy-in.

How We Can Assist Your Organization: We understand how various types of pay delivery systems work in public sector organizations and the strengths and weaknesses of the various approaches. While no single system is right for every agency, understanding of what works and does not work in varying situations is a vital component.

For the past 25 years, we have been working with some of the largest and some of the smallest public and private sector organizations throughout the country to review and recommend classification, compensation, job evaluation, and performance appraisal systems.

So, if you would like help assessing your compensation program, consider our offer. We can be reached at 800-383-0976. Press 12 for Jim or 20 for Bruce.

 

FOX LAWSON & ASSOCIATES

C O M P E N S A T I O N    A N D   H U M A N   R E S O U R C E S   S P E C I A L I S T S

 

Offices:

1335 County Road D. Circle East St. Paul, Minnesota 55109-5260

Phone: 800-383-0976

Fax: 651-635-0980

E-mail: jfox@foxlawson.com

 

P. O. Box 32985

MINNEAPOLIS MN

Phoenix, Arizona 85064-2985

 

PERMIT 28474

Phone: 602-840-1070

PAID

Fax: 602-840-1071

PRSRT STD

U S POSTAGE

E-mail: blawson@foxlawson.com

 

 

Fox Lawson & Associates, LLC

1335 County Road D. Circle East

St. Paul, MN 55109-5260

LLC

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Vol. 13, No. 2 - Single vs. Multiple Pay

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FLA

FLA 

Compensation Consulting Since 1995

Volume 13, Number 2

 

Single vs. Multiple Pay Plans: When should they be used?

 

The first goal of salary structure is market competitiveness

If job groups or families are evident in the organization, a salary structure may be beneficial

Visit our website for past newsletters, clients in your area and other items of interest, or to e-mail us a question.

www.foxlawson.com

 

At some point HR must address the matter of market competitiveness for special or unique skill sets. Frequently, special skills and market competitiveness can be handled on an individual job or employee-by-employee basis, having no effect on the overall salary structure. If, however, a significant number of employees make up these special groups, multiple salary structures may be indicated.

The intent of a salary structure is to ensure a balance between the internal equity of jobs and market competitive salary ranges for each level of responsibility and the skills required. Salary structures can also differentiate variable levels of responsibility within an organization or specific job family, as in a non-exempt structure or executive job structure.

When is it necessary to change or update an entire salary structure to manage these groups of jobs? Understand that we are proponents of a single salary structure for organizations. Single salary structures allow for consistency, easier administration, and the concept of a single organization. Occasionally, however, situations make necessary, even beneficial, the implementation of multiple salary structures. Following is a short list of these situations:

Market Competitiveness

This is the primary goal of the salary structure. Without market competitiveness your organization may have difficulty recruiting or retaining qualified employees.

Market competitiveness can happen on two levels: individual or job family. We address the job family below under Labor Market Changes.

For individual jobs, a market premium

The grade or pay level of the job need not be changed; the salary range need only be temporarily adjusted until regaining market competitiveness. If the market median is consistently 15% higher than suggested median pay level or your current structure, a market premium should be investigated.

Large Organizations

Large cities, counties, or any number of larger organizations typically have many jobs in multiple departments. Due to the quantity and variety of such jobs, the Human Resources department may find it difficult to manage all the classifications within the same salary structure.

Large organizations benefit from the very quantity of jobs that can be separated into functions (e.g. police, fire, health care, finance, etc.), requiring natural levels of responsibility. For example, a small organization may only have two to three levels of responsibility within the police department – police officer and police chief – which would not require a separate salary structure. The larger police department will have officers, sergeants, lieutenants, majors, deputy chiefs, and chiefs. A very noticeable career progression is in place, giving that organization the ability to develop a salary structure with six distinct levels of responsibility.

Labor Market Changes

In recent history we have seen some dramatic shifts in the labor market. In the late 1990s even private organizations seemed unable to keep up with the information technology salaries, and the public sector experienced high turnover in these areas. Today we are seeing a similar change in police jobs, engineers, planners, and inspectors.

FOX LAWSON & ASSOCIATES, LLC

C O M P E N S A T I O N   A N D   H U M A N    R E S O U R C E S   S P E C I A L I S T S

 

If your organization has any of these job families, identify the jobs or functionsfor the identified jobs may be developed within the same salary structure.

 

Fox Lawson & Associates LLC solves

strategic compensation and

human resources issues of

organizations experiencing

significant change.

 

We assist organizations to align their compensation, benefits and human resources systems to their organization objectives.

We have solutions for people who pay people.

by reviewing past turnover rates, salary surveys, and even internal salary movements (for example, changes in entry level salaries will provide significant data). After identifying the specific jobs or functions, determine if the jobs form a natural hierarchy.

Presence of Represented Employees One reason employees are represented is to ensure the competitiveness of salary and benefits. Therefore, represented employees will have developed separate salary structures through negotiating efforts.

Such structures may guide even organizations without represented employees in defining job groups for salary structure development. By following the market grouping, your organization ensures that similar positions are market competitive not only in their salary ranges but also salary grade and relationship to similar positions within the market.

Different Labor Markets

As shown above, large organizations have multiple job families or occupation groups that may necessitate separate salary structures; however, some organizations encompass completely different labor markets: police, fire, bridge, airport, etc. Employees in these labor groups do not typically move from one group to another. For example, a police officer does not typically move to the fire station.

Organizations of this type may find it beneficial to separate the salary schedules since each labor market requires distinct skills, knowledge and abilities; recruit from different areas; in markets moving at different rates. A separate salary structure permits quicker responses to these changes in order to maintain market competitiveness.

Conclusion

There is nothing wrong with using multiple salary structures as long as you have reason to use them. If your organization meets the outlined criteria it may be advisable to have multiple salary structures.

Employing multiple salary structures may actually decrease turnover, increase market competitiveness, and increase the ability of HR to track the labor market movements of specific jobs and job families. However, remember to establish clear guidelines to define the need for separate salary structures or you could end up with more than may be justified. Below is a short summary of the pros and cons to using multiple salary structures.

 

Pros

  • Maintain market competitiveness

  • Easy to track market movements

  • Easy to explain to employees

  • Easy for employees to understand

  • Addresses specific or unique skill sets

    Cons

  • Creates a special group

  • Salary structure could go up and down differently than do other salary structures

  • Increases administrative burden on HR

 

No hard and fast rule can help determine whether multiple salary structures are needed. However, when the multiple salary structures are considered for job families or occupational groups, it is important that HR review the entire system to see how creating a separate salary schedule for one job family may impact the organization.

 

FOX LAWSON & ASSOCIATES

C O M P E N S A T I O N   A N D   H U M A N   R E S O U R C E S    S P E C I A L I S T S

 

Offices:

1335 County Road D. Circle East St. Paul, Minnesota 55109-5260

Phone: 800-383-0976

Fax: 651-635-0980

E-mail: jfox@foxlawson.com

 

P. O. Box 32985

MINNEAPOLIS MN

Phoenix, Arizona 85064-2985

 

PERMIT 28474

Phone: 602-840-1070

PAID

Fax: 602-840-1071

PRSRT STD

U S POSTAGE

E-mail: blawson@foxlawson.com

 

 

Fox Lawson & Associates, LLC

1335 County Road D. Circle East

St. Paul, MN 55109-5260

LLC

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Vol. 13, No. 1 - Shifting Demographics and Pay

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FLA

FLA

Compensation Consulting Since 1995

Volume 13, Number 1

 

Shifting Demographics and Values Challenge Traditional Thinking in Setting Pay Levels

Today’s worker wants something entirely different than does the baby boom worker

Incentive plans tied to objective measures should be examined

Visit our website for past newsletters, clients in your area and other items of interest, or to e-mail us a question.

www.foxlawson.com

 

Reexamining Values

In the 1960s and 1970s, public employers were often considered to be employers of choice. Not only could individuals make a decent living, they were doing work that was generally looked upon as public service. Employment was also steady and there was the expectation that an individual could enjoy a long career with one employer.

In the late 1970s and early 1980s, many states began to experience taxpayer resistance to the cost of government and a variety of initiatives, such as Proposition 13 in California, was adopted that began to limit the scope of government including imposition of limitations on revenue growth. At the same time, employment opportunities in the private sector began to expand creating new competitors for public employers in terms of potential employees.

Demographics within the United States have also changed dramatically over the past 30 to 40 years. Members of the baby boom generation tended to look for steady employment opportunities with reasonable job security. Today, the focus has shifted to maximizing compensation with less interest in long- term employment. Younger workers also tend to be more supportive of individually based incentives than are older workers.

Changing demographics throughout our society have triggered the need to alter our traditional thinking about the way we classify and compensate employees. This can be either a positive or a negative, depending on where you sit.

As long-term employees begin to reach retirement age, agencies must now think about how to fill the positions becoming vacant, as well as new positions that may be needed, since the number of way up the internal career ladder. That means hiring from the outside, under- filling key positions until the employees have acquired the needed skills to step into higher level roles, investing more in training lower level staff, contracting out for needed services, or simply not filling vacated positions thus impacting the types and level of services provided by the organization.

This Newsletter will address the need to re-think how an agency can address its staffing needs in the future.

The Starting Point – Assess Demographics

The first thing that an organization needs to do is review its internal workforce demographics. If the organization finds that it will experience substantial turnover due to retirement within the next few years, and if it is using a traditional compensation approach, that organization may need to re-evaluate its overall compensation philosophy and strategy. The organization should also review its recruiting efforts over the past two or three years for evidence of a trend towards fewer qualified applicants in certain occupational groups. While this is neither easy nor fun, it is absolutely necessary if the organization is to adapt to the rapidly changing labor market with its greater demand for individuals having unique or specialized skills (in both the public and the private sectors) than available candidates. At the same time, there will continue to be an abundance of applicants for other occupations historically viewed as comparable or equal based on the type and level of work performed within the organization. This seems to be the case with Police and Fire in most communities throughout the country. While the number of qualified applicants for Fire Fighter jobs continues to be sufficient to meet demand, the number of qualified applicants for Police vacancies often exceeds the cadre of internal staff that may be working their Officer positions continues to decrease. The result is the need to re-think the way these two occupational groups are compensated to determine if current practices remain appropriate. Certainly, there will be internal resistance to change. However, we question whether business as usual will work over the longer term.

Fox Lawson & Associates, LLC

C O M P E N S A T I O N   A N D   H U M A N   R E S O U R C E S   S P E C I A L I S T S

Fox Lawson & Associates LLC solves

strategic compensation and

human resources issues of

organizations experiencing

significant change.

We assist organizations to align their compensation, benefits and human resources systems to their organization objectives.

We have solutions for people who pay people.

The priorities of younger workers are also substantially different than those of older workers who came to the public sector for a variety of reasons including job security, long-term employment, and a focus on seniority and experience.

This will put increasing pressure on the organization to compensate employees differently than they have in the past.

Review Compensation Philosophy and Strategies

Traditional compensation systems that limit compensation levels for individual jobs based on their relative internal value are not responsive to changing market conditions. Comparing the IT positions of 1999 to engineering, planning, nursing, construction management and inspection, and police of today, the mindset that a subordinate position should not be paid more than higher level jobs must be reconsidered. When many of the pay systems in place today were established, the higher level positions in an organization were often paid about 10 times more than the lowest level job in the organization. Today, in the public sector, we are seeing ratios approximating one to five rather than one to ten. This factor alone has created compression issues that cannot be ignored.

Implications for Public Pay Programs

In certain labor markets, the mindset prevails that top level public sector positions should not be paid in excess of some arbitrary amount. In the past few years, we have seen the compensation level of certain city manager positions increase to earnings in excess of $250,000 per year (base salary) and certain public university president salaries increase to figures in excess of $500,000 per year. However, many organizations still resist adjusting compensation plans to reflect the market reality that to attract people with certain skills or people willing to accept certain levels of responsibility, an economic cost must be paid. While not an easy choice, it is one that must be addressed. This may mean that employees receive both base compensation and options for additional compensation tied to achievement of specific organizational objectives or needs. While practices such as this have been used extensively in the private sector for many years, they have rarely been used in the public sector.

How We Can Assist Your Organization:

We understand how various types of pay delivery systems work in public sector organizations and the strengths and weaknesses of the various approaches. While no single system is right for every agency, a comprehensive understanding of what works and does not work in varying situations is a fiscal necessity today.

For the past 25 years, we have been working with some of the largest and some of the smallest public and private sector organizations throughout the country to review and recommend classification, compensation, job evaluation and performance appraisal systems.

So, if you would like help assessing your compensation program, consider our offer. We can be reached at 800-383-0976. Press 12 for Jim or 20 for Bruce.

 

Fox Lawson & Associates

C O M P E N S A T I O N   A N D   H U M A N   R E S O U R C E S   S P E C I A L I S T S

 

Offices:

1335 County Road D. Circle East St. Paul, Minnesota 55109-5260

Phone: 800-383-0976

Fax: 651-635-0980

E-mail: jfox@foxlawson.com

 

P. O. Box 32985

MINNEAPOLIS MN

Phoenix, Arizona 85064-2985

 

PERMIT 28474

Phone: 602-840-1070

PAID

Fax: 602-840-1071

PRSRT STD

U S POSTAGE

E-mail: blawson@foxlawson.com

 

Fox Lawson & Associates, LLC

1335 County Road D. Circle East

St. Paul, MN 55109-5260

LLC

Read More...

Vol. 12, No. 5 - Using Private and Public Market Data to Set Your Pay Levels

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fla

FLA

Compensation Consulting Since 1995

Volume 12, Number 5

 

Using Private and Public Market Data to Set Your Pay Levels

Private sector salaries are not always higher than public sector

Leaving out private sector data may give an incomplete picture of the market

 

Visit our website for past newsletters, clients in your area and other items of interest, or to

e-mail us a question. www.foxlawson.com

 

Public organizations often struggle with the issue of using private sector data when conducting market comparisons. Many believe it is inappropriate to use private sector data because it would compare apple to oranges, resulting in skewed comparisons. Proponents argue that avoiding private sector data results in an incomplete picture of the market. We believe private sector data can and should be used, although certain precautions must be observed.

 

Historically, the purpose of conducting market comparisons is to develop approximate salary range midpoints and spreads that reflect an organization’s competitive market. Although organizations may use a variety of scope information when selecting market comparison data (e.g. budget size, revenue, industry, # of employees, etc.), the primary goal is to collect data that provides the most representative picture of the market. This is usually where private sector data is ignored. Human resources professionals in public organizations tend to leave out private sector comparisons on the basis that these organizations are too different from the public sector to provide meaningful comparisons. In addition, there is a common belief that private sector jobs always pay more, so market points might become artificially inflated.

 

In reality, most concerns over using private sector data for public comparisons are unfounded. First, private sector jobs do not always pay more. In fact, depending on the level of the position, private sector jobs might actually pay less than their public counterparts. Conducting compensation studies over the years, we have noticed that the distance between the two markets has been closing. This has been evident in both the custom salary surveys we conduct for our clients, and in a variety of published salary surveys. Second, we need to look beyond base salary when conducting these comparisons. More and more, the difference between private and public sector comparison can be accounted for in terms of benefits. Public organizations tend to offer richer benefits packages than the private sector. When the value of these benefits is included in a market comparison, the data tends to even out.

 

Leaving the specifics of private and public market comparisons aside, it is important to realize that omitting private sector data provides an incomplete picture of the market. Many jobs, especially those in the lower levels of an organization, are essentially the same between the two markets, resulting in private and public organizations competing for candidates with similar, if not identical, skill sets. So if we fail to include both data sources in our analyses, resulting salary ranges might leave an organization unable to compete, whether public or private.

 

FOX LAWSON & ASSOCIATES, LLC  C O M P E N S A T I O N   A N D   H U M A N   R E S O U R C E S   S P E C I A L I S T S

 

Fox Lawson

& Associates LLC solves

strategic compensation

and human resources

issues of organizations

experiencing significant

change.

 

We assist organizations to align their compensation, benefits and human resources systems to their organization objectives.

 

We have solutions for people who pay people.

 

Clearly, private sector data should not be ignored when conducting market comparisons. However, we believe certain considerations and precautions should be taken when conducting analyses. Most important, careful attention should be given to the leveling of private sector jobs when collecting data. Generally speaking, private sector positions tend to offer greater decision-making latitude than their public sector counterparts, often making it necessary to match one or two levels lower in the private sector. This is especially true of upper level jobs.

 

It is also recommended that private and public sector data be summarized separately until it is determined how to position oneself in relation to the market. Although data may certainly be averaged together, it is frequently helpful to review results reflecting both the inclusion and exclusion of private data. This

course permits experimentation with the data, showing which approach best fits the overall compensation strategy.

 

We understand how various types of pay delivery systems work in public sector organizations and the strengths and weaknesses of the various approaches. While using private sector data can be effective, it may not be appropriate for all organizations.

 

For the past 25 years, we have been working with some of the largest and some of the smallest public and private sector organizations throughout the country to review and recommend classification, compensation, job evaluation and performance appraisal systems.

 

If you would like help determining whether private sector data, or public, or both, should be used in your organization, contact us. We can be reached at 800-383-0976. Press 12 for Jim or 20 for Bruce.

 

 

FOX LAWSON & ASSOCIATES, LLC  C O M P E N S A T I O N   A N D   H U M A N   R E S O U R C E S   S P E C I A L I S T S

 

Offices:

1335 County Road D. Circle East St. Paul, Minnesota 55109-5260

Phone: 800-383-0976

Fax: 651-635-0980

E-mail: jfox@foxlawson.com

 

P. O. Box 32985

Phoenix, Arizona 85064-2985

 

Phone: 602-840-1070

Fax: 602-840-1071

E-mail: blawson@foxlawson.com

Read More...

Vol. 12, No. 4 - Broadbanding Issues and Techniques

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FLA

FLA

Compensation Consulting Since 1995

Volume 12, Number 4

 

Broadbanding Issues and Techniques

Broadbanding may not be for everyone

Is your organization ready for the change?

 

How will market data be used?

 

Visit our website for past newsletters, clients in your area and other items of interest, or to

e-mail us a question. www.foxlawson.com

 

FOX LAWSON & ASSOCIATES, LLCC O M P E N S A T I O N   A N D   H U M A N   R E S O U R C E S   S P E C I A L I S T S

 

The economic changes occurring in the late 1980s and early 1990s, coupled with the changing demographics of the American workforce, have driven many organizations to reexamine whether their pay systems allow them to respond effectively to competitive pressures. Issues such as dissatisfaction with complex job evaluation systems, the need to retain top contributors, pressure to eliminate management levels which do not add value, changing demographics in the workforce, and development of a more skilled and versatile workforce have sent organizations in search of a “magic bullet” compensation system to address these matters. Broadbanding has developed as a response to these issues and has become one of the most talked about and debated topics in compensation.

 

Broadbanding, in simplest terms, is the consolidation of traditional salary grades into a small number (typically 5-10) of wide (100-150%) salary or pay bands, with managers having a great deal of discretion in employee pay decisions. Unlike traditional pay systems, broadbanding provides greater flexibility to operating managers to recognize individuals for their contributions to organizational success and to act quickly in response to changing priorities and workforce demographics. Perhaps more importantly, broadbanding is seen as an approach to create and support culture change in re-engineered, streamlined and customer-focused organizations.

 

This newsletter will introduce the concept of broadbanding.

 

What is Broadbanding? Broadbanding is a simply a new format for a wage or salary structure.

 

Banded programs are characterized by a reduced number of salary grades and ranges with wider salary ranges. The traditional salary structure typically ranges 25-50 percent in width from minimum to maximum although it can be as narrow as 15-20 percent wide. With traditional structures, the difference between ranges is typically 5-10 percent resulting in pay structures that contain anywhere from 20 to 40 pay ranges — although we have seen structures with differences as small as one-half of one percent resulting in structures with literally hundreds of pay ranges.

 

Banding represents a dramatic shift in salary management.

 

Background

The Broadbanding concept was

developed in 1980 by the US Navy

as part of a Navy Demonstration

Pilot Project. The concept emerged in

the private sector in the early

’90s in response to re-engineering

and competitive labor market

requirements and has been used

by some of the largest and

most sophisticated corporations

in America.

 

The current popularity of the concept is associated with grade/salary range streamlining and additional pay change flexibility in order to give managers more direct control over the resources allocated to their function. Although widely viewed as positive, broadbanding experience is still developing and is not a “cure all” for classification/compensation reform. While the concept has worked well in many organizations, it has also been less than successful in others for a variety of reasons.

 

Banding is Organizational Change One of the hardest issues to grasp is that implementation of a broadbanding pay structure involves significant organizational change. Banding diminishes the importance of job “measurement.” The traditional job-to-job comparisons are lessimportant. They can still be used but their role is more limited to what portion or segment of a broad band is available for individual positions. Now, narrow differences in jobs are less important.

 

Fox Lawson

& Associates LLC solves

strategic compensation

and human resources

issues of organizations

experiencing significant

change.

 

We assist organizations to align their compensation, benefits and human resources systems to their organization objectives.

 

We have solutions for people who pay people.

 

Managers assume more responsibility for salary management and must then be held accountable for managing their resources to an established budget.

 

Reorganization is easier because jobs are less likely to move up or down in the salary grade structure. One fundamental change is that adjusted duties do not give the job higher or lower economic value to the organization. The employee should not expect to receive pay increases simply because he or she performs different duties.

 

The Starting Point – A Traditional Salary Structure

We first need to understand the existing structure and associated decision systems. Traditional structures were designed with boundaries or parameters for every defined job. Control of the pay system typically rested with the Human Resources Department and not the operating managers.

 

Banding represents a significant change. Designing a replacement structure requires decisions about how salaries will be managed. This involves several key strategic issues including relative relationship of individual salaries to the labor market, as well as other salaries within the organization. For example, what part does performance play in the compensation program versus tenure or longevity? How does the compensation program affect your ability to recruit and retain employees you will need to achieve organizational objectives in the 21st century?

Broadband Example

In a simple example, three to five

current pay ranges are grouped into a

single pay band. The net effect is to

consolidate a large number of salary

grades into a much smaller number of

bands. The bands are considerably

wider (100-300%) although the actual

range of pay opportunity for an

individual employee may be limited to

only a segment of the new band. The

focus in broadbanding becomes the

economic value of the work performed

and not a formal job classification that

may limit an employee’s career growth

opportunity.

 

Implications for Public Pay Programs

Internal equity has been a core public sector compensation belief.

 

Most banding has occurred in non- union environments although the concept has worked very effectively in union environments when combined with pay delivery mechanisms such as skill-based pay or competency models such as clinical ladders in Nursing.

 

How We Can Assist Your Organization

We understand how various types of pay delivery systems work in public sector organizations and the strengths and weaknesses of the various approaches. While Broadbanding can be an effective tool, it is not appropriate for all organizations.

 

For the past 25 years, we have been working with some of the largest and some of the smallest public and private sector organizations throughout the country to review and recommend classification, compensation, job evaluation and performance appraisal systems.

 

So if you would like help assessing your compensation program, consider calling us at 800-383-0976. Press 12 for Jim or 20 for Bruce.

 

FOX LAWSON & ASSOCIATES, LLCC O M P E N S A T I O N   A N D   H U M A N   R E S O U R C E S   S P E C I A L I S T S

 

Offices:

1335 County Road D. Circle East St. Paul, Minnesota 55109-5260

Phone: 800-383-0976

Fax: 651-635-0980

E-mail: jfox@foxlawson.com

 

P. O. Box 32985

Phoenix, Arizona 85064-2985

 

Phone: 602-840-1070

Fax: 602-840-1071

E-mail: blawson@foxlawson.com

 

Read More...

Vol. 12, No. 3 - Base Pay or Total Compensation?

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FLA

FLA

Compensation Consulting Since 1995

Volume 12, Number 3

 

Base Pay or Total Compensation?

What is included in total compensation?

Are you comparing similar items?

Make sure you annualize the monthly figures.

 

Visit our website for past newsletters, clients in your area and other items of interest, or to

e-mail us a question. www.foxlawson.com

 

We all know that total compensation is an important issue in today’s world. In the numerous pay and benefits studies we conducted this year, benefits as a percent of base salaries are averaging 30% or more. We know the importance of communicating the full value of total compensation for achieving employees’ understanding of their pay and benefit packages. Since the total compensation package is a major tool in attracting and retaining employees, organizations are asking themselves when they conduct a market survey if they should be basing their competitive analysis on base pay only, or should they be making market comparisons on a total compensation level? The surveys that we have conducted on behalf of our clients over the years have been a mixture of either base pay only, base pay with benefit items surveyed and analyzed separately, and base pay with benefit items surveyed and analyzed together in the form of a total compensation perspective. We have found that a base pay analysis with benefit items surveyed and analyzed separately is the most accurate reflection and is the most accepted by employees, as a total compensation analysis can be difficult to ensure accuracy, understanding and acceptance. You might ask, “Why is that?”

We have found that once an organization decides to compare itself to the market based on total compensation, the biggest obstacle needs to define total compensation. This will be a different definition for different organizations depending on an organization’s culture, pay strategy, economic factors, legal/regulatory issues, and what their competition is doing. Typically, total compensation includes base compensation, short-term incentives, health and welfare benefits, retirement benefits, paid leave, and in some cases prequisites or special pay practice items (like overtime, shift differentials, certification pay, uniform or car allowances, longevity payments, flexible schedules etc.). What of these gets included in the total compensation formula is the difficult part.

Some components of total compensation are easily quantifiable by equating an exact dollar figure to each item, while other components are not easily quantifiable, although are still very important for factoring into the total compensation mix. Let’s say your organization wants to do a total compensation analysis. Do you want to include all quantifiable items that you can attach a dollar figure to? Or do you want to only include three core items such as base pay, health premiums, and retirement contributions? The most important consideration in defining your total compensation formula is to ensure consistency. Before you decide which items you want included in your total compensation competitive analysis, be sure that you can quantify those items in your own organization first so that you can make an apples to apples is determining what their total compensation components are going to be. First, the organization comparison with your labor market. For example, if you are in California and you are paying in to a PERS plan but not in to Social Security for your employees, do not expect to make a consistent comparison with organizations in another state that do not pay in to a PERS plan but do pay in to Social Security for their employees. Another example is with medical and dental premiums paid for by the organization versus the employee. When factoring in the dollar amounts that organizations spend on premiums for employees, do you want to consider employee only, or employee plus family coverage? Whichever your organization decides to focus on, you need to ensure the same figures are referenced from the market. One more example, probably the most obvious but many times forgotten, is to ensure that the values you are collecting are all in one base before analyzing. If you analyze your salaries on an annual basis, be sure to then calculate and annualize the benefit and retirement dollars to equate to the same basis. Many times we have seen organizations forget to equate their monthly retirement contributions to an annualized basis before adding that amount to their annual base pay, thereby distorting the end result.

 

FOX LAWSON & ASSOCIATES, LLCC O M P E N S A T I O N   A N D   H U M A N   R E S O U R C E S   S P E C I A L I S T S

 

Fox Lawson

& Associates LLC solves

strategic compensation

and human resources

issues of organizations

experiencing significant

change.

 

We assist organizations to align their compensation, benefits and human resources systems to their organization objectives.

 

We have solutions for people who pay people.

 

We have found such examples end up becoming an obstacle in valuing total compensation from a competitive standpoint. Too often, we have found that organizations decide they want to compare based on total compensation, but the debate over what the formula should be arises after the numbers are collected and analyzed. Prior to conducting your market survey, strategic discussions are necessary, and all decision makers from the organization need to be in agreement on the total compensation components.

Remember your goal is to identify the competitiveness of your total compensation package for attracting and retaining employees. If you can ensure that your end result in valuing total compensation will include all pertinent components and be a consistent comparison to the market, then a total compensation analysis is beneficial; but if not, then go with analyzing your base pay and benefit items separately. In the end, a separate analysis may be easier for everyone to understand, and it may be easier to make needed changes if you focus on each item separately.

If you would like help with a total compensation analysis, contact us. We can be reached at 800-383-0976. Press 12 for Jim or 20 for Bruce.

 

 

FOX LAWSON & ASSOCIATES, LLCC O M P E N S A T I O N   A N D   H U M A N   R E S O U R C E S   S P E C I A L I S T S

Offices:

1335 County Road D. Circle East St. Paul, Minnesota 55109-5260

Phone: 800-383-0976

Fax: 651-635-0980

E-mail: jfox@foxlawson.com

 

P. O. Box 32985

Phoenix, Arizona 85064-2985

 

Phone: 602-840-1070

Fax: 602-840-1071

E-mail: blawson@foxlawson.com

 

Read More...

Vol. 12, No. 2 - Job Descriptions: A Format You Can Use

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FLA

FLA

Compensation Consulting Since 1995

Volume 12, Number 2

 

JOB DESCRIPTIONS:

A Format You Can Use

8-10 Essential Functions Link knowledge and skills to the essential functions

Include a disclaimer

Visit our website for past newsletters, clients in your area and other items of interest, or to

e-mail us a question. www.foxlawson.com

 

Clear, accurate, and well-defined job descriptions have been a useful management tool for human resources for many years. However, there is no one accepted or “best” format. Some organizations develop elaborate and lengthy descriptions, while others employ broad, more generic class specifications. At Fox Lawson & Associates LLC, we work with organizations to custom-tailor job descriptions to the specific format that you are looking for, while ensuring that all considerations of legal compliance are in order.

 

Some of the main characteristics that all job descriptions should have, no matter their degree of specificity, are:

 

  1. An Accurate Job or Classification Title. The title should describe the nature and level of work performed. It should be descriptive, gender free and simple. When you read it, you should know the character of the work (engineering, accounting, etc.) and the level of work, such as entry level, journey level, master level. Don’t inflate the title, as it will cause problems later on.

     

  2. A Summary. In this section, the job description should provide a brief (3 - 4 sentence) description that describes in further detail the nature and level of work. It should state why the job exists.

     

  3. Supervisory Requirements. This should outline the job titles that the person reports to or, conversely, which report to it. This section is most commonly found in exempt jobs. It may not be found on a non-exempt job description because non-exempt jobs may operate in multiple different supervisory titles relationships.

     

  4. The Fair Labor Standards Act. Your job descriptions should identify if the job is exempt or non-exempt.

     

  5. Essential Functions. Sometimes called duties and responsibilities, this section should list the essential functions of the job. This is usually about 8 - 10 statements of what incumbents are responsible for performing. Another way to look at this is, if these duties were not performed, there would be no reason for the job to exist. Normally they are listed in order of importance, or some other logical order such as the sequence of performance. In either case, each function should be succinctly written or constitute at least 10% of an incumbent’s time. Anything less than 10% is not considered an essential function according to the ADA, and therefore may not be required of an applicant to perform. They should clearly describe why the job is different from other jobs in the same family in terms of the complexity of the work performed or the character of the work.

     

  6. Other Duties. In the essential functions section, it is advisable that you list the last function as “other duties as assigned” or some other disclaimer that states that the essential functions are examples of the types of duties and responsibilities that an employee will be required to perform. This statement prevents employees from demanding that everything be placed in the job description and allows some flexibility to management.

  7. Minimum Qualifications. This section should contain the minimum level of education and departments where there are experience required to perform the work at the entry level of the job. While many supervisors want to indicate a higher level of skills, these are desired qualifications and should not be used to influence the minimum level that is required. We prefer to list equivalencies in this section, such as “...or, an equivalent combination of education and experience sufficient to successfully perform the essential functions of the job.” This allows the incumbents to meet the requirements in a number of different ways and reduces the opportunities for legal challenge.

    C O M P E N S A T I O N A N D H U M A N R E S O U R C E S S P E C I A L I S T S

     

    Fox Lawson

    & Associates LLC solves

    strategic compensation

    and human resources

    issues of organizations

    experiencing significant

    change.

     

    We assist organizations to align their compensation, benefits and human resources systems to their organization objectives.

     

    We have solutions for people who pay people.

     

     

  8. Knowledge and Skills. In this section the job descriptions should describe the things that the employee needs to know (knowledge) and the things the employee needs to be able to do (skills). The best way to get this correct is to link every knowledge or skill to the essential functions that have been identified earlier. If a link cannot be made to an essential function, perhaps it should not be listed in this section.

  9. Dates and Approvals.

Your job descriptions need to have

a section that outlines who approved

the job description (you don’t want

just anybody in the organization

approving job descriptions!). In

addition, you should date the

job descriptions so that you can

determine if they are in need of an

update in the future.

 

To prepare good job descriptions, it is important to collect up-to-date job content information. We recommend starting with having employees fill out Position Description Questionnaires (PDQs). PDQs will collect information about

current job content – essential duties, knowledge, skills, and abilities, minimum qualifications, working conditions, and other related job information. Supervisors should review these and add comments, but should not change employee input. Then, a series of informational interviews should take place to confirm and expand on the data in the PDQs. These should include at least one representative from each job class, and often several. This level of employee participation will help to secure buy-in.

 

The next task is to actually prepare the written job descriptions. It has been our experience that here is where organizations often stumble and take too long. Jobs are not static

– they often do not stay the same for months and years on end. So, after going through all of the trouble of collecting this information and asking for employee input, it is important to get the job descriptions prepared in a reasonable amount of time. We have assisted organizations with the collecting of information, only to watch them take years to prepare the job descriptions. By then the job content information will, in many cases, be out of date. Good job descriptions should be in a format that is concise, easy to read, not too long or short. They are an essential HR document and they should facilitate job evaluation, recruitment, organizational design and training needs.

 

If you need assistance in analyzing jobs and preparing new or updated job descriptions, please contact us at 800-383-0976. Jim Fox is at extension 12 and Bruce Lawson is at extension 20.

 

 

FOX LAWSON & ASSOCIATES

C O M P E N S A T I O N A N D H U M A N R E S O U R C E S S P E C I A L I S T S

 

Offices:

1335 County Road D. Circle East St. Paul, Minnesota 55109-5260

Phone: 800-383-0976

Fax: 651-635-0980

E-mail: jfox@foxlawson.com

 

P. O. Box 32985

Phoenix, Arizona 85064-2985

 

Phone: 602-840-1070

Fax: 602-840-1071

E-mail: blawson@foxlawson.com

 

 

Read More...

Vol. 12, No. 1 - Communicating Your Compensation Study: Keys to Success

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FLA

FLAFLA

Compensation Consulting Since 1995

Volume 12 Number 1

Communicating Your Compensation Study: Keys to Success

Communication Plan Design

 

Visit our website for past newsletters, clients in your area and other items of interest, or to

e-mail us a question. www.foxlawson.com

 

To an organization, conducting a Classification and Compensation Study is serious business. To employees, it is seriously personal because it impacts their lives. Employees typically want to know what is happening, why it is happening, the process, the timelines, and procedural details. A key to success is to design, implement, and monitor a Communication Plan.

 

Communication Plan Design

 

The first step is to design a strategy. Ask yourself three questions and map the answers.

 

  1. What are the major tasks or steps? Each Classification and Compensation Study has milestone tasks that generate employee attention and a desire for information. The five most typical tasks are: study initiation, the classification study, the job evaluation portion, the compensation study, and the final report. For each task, identify employee roles and what they will want to know relative to each task.

     

  2. Who is the audience? Employees differ in what they need to know. Some employees need more detail than others and some employees need more message repetition than others. A successful Communication Plan addresses the overall audience and its separate groupings. All

     specific groupings also, such as departmental assignment, represented/non-represented status, occupational groups, or level. Your organization may also have other special groupings that are part of the organization’s operational structure. Describe your overall audience and identify each separate grouping.

     

  3. What are the methods of communication available in this organization that will most effectively communicate the messages to the various audiences? Some methods are effective for messages to all employees, and others are more effective for various specific employee groups. Among the many media sources available are memos, statements from management on videotape/CD/website, group sessions, emails, newsletters, bulletin board postings, pay check envelop inserts, and team meetings. Identify which media sources are most appropriate to each task of the study and each audience grouping.

 

Communication Plan Implementation

 

 

The second step is to implement the plan with appropriate messages delivered within an appropriate timeline. After you have mapped the audience groupings, the tasks, and the media, you already have a general idea of what needs to be communicated and when. In this step you get more specific by answering two more questions:

 

  1. For each task and each audience

    FOX LAWSON & ASSOCIATES

     

    LLC

     

    Employees” is one audience grouping. Consider looking at more

    C O M P E N S A T I O N A N D H U M A N R E S O U R C E S S P E C I A L I S T S

    continued on next page

     

     

    Fox Lawson

    & Associates LLC solves

    strategic compensation

    and human resources

    issues of organizations

    experiencing significant

    change.

     

    We assist organizations to align their compensation, benefits and human resources systems to their organization objectives.

     

    We have solutions for people who pay people.

     

    FOX LAWSON & ASSOCIATES, LLCC O M P E N S A T I O N   A N D   H U M A N   R E S O U R C E S   S P E C I A L I S T S

    Offices:

    1335 County Road D. Circle East St. Paul, Minnesota 55109-5260

    Phone: 800-383-0976

    Fax: 651-635-0980

    E-mail: jfox@foxlawson.com

     

    P. O. Box 32985

    Phoenix, Arizona 85064-2985

     

    Phone: 602-840-1070

    Fax: 602-840-1071

    E-mail: blawson@foxlawson

    E-mail: blawson@foxlawson.com

     

    TASK & MESSAGE

     

    AUDIENCE

    SR

    Mgmt

    ALL

    EEs

    HR

    Staff

    STUDY INVITATION

     

     

    X

     

    X

     

    X

     

    X

     

    X

     

    X

     

    CLASSIFICATION

     

     

    a panel

     

     

    X

     

    X

     

    X

     

    X

     

    X

     

    X

     

    X

     

    X

     

    X

    JOB EVALUATION

     

     

    X

     

    X

    COMPENSATION

     

     

     

    X

     

    X

     

    X

     

    X

     

    X

     

    X

     

    X

    FINAL REPORT

     

     

    X

     

    X

     

    X

     

    X

     

    X

     

    1. Overall plan and timetable

    2. Employees will attend a meeting

    3. Employees will fill out a form

    1. Process overview

    2. Individual role to be interviewed or involved in

    3. Updated classification structure

    4. New job descriptions

    1. Method Selection

    2. Application Review

    1. Survey process

    2. Benchmarks

    3. Draft Report

    1. Summary overview

    2. Implementation of results

  2. grouping, what is the message I want to communicate? Consider if you want the audience grouping to receive logistical information only, or process information, or a combination of both. Identify the messages you want heard and create a draft of each message. Messages should be simple and clear.

     

  3. What are my message release timelines? In choosing when to release a message, consider the task timelines and the speed of distribution of the media source. Also consider when the audience groupings will receive the messages. For example, if a message is distributed via pay check envelop inserts, some employees may receive the information in two weeks and some may receive it at the end of the month. Identify a release timeline for each message that ensures it gets to the right people at the right time in accordance with your Communication Plan design.

 

Communication Plan Monitoring

 

The final step is to monitor its effectiveness. There are two kinds of feedback you can receive to monitor the success of your Communication Plan: unsolicited and solicited. A successful Communication Plan notes all feedback and distinguishes between the two. Unsolicited feedback comes from many sources and needs to be weighed based on the source, levity, and frequency. Solicited feedback has various methods and asks for specific information. Identify how you are going to solicit feedback, when you are going to solicit it, and exactly what you want to know.

 

The Communication Plan is complete when you have completed the three steps of design, implementation, and monitoring. You have also, then, completed your preparations for conducting a successful Classification and Compensation Study.

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Vol. 11, No. 5 - Pay for Performance Systems: Individual Programs

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Compensation Consulting Since 1995

Compensation Consulting Since 1995

Volume 11, Number 5

 

Pay for Performance Systems: Individual Programs

 

Visit our website for past newsletters, clients in your area and other items of interest, or to

e-mail us a question. www.foxlawson.com

 

In the past three years, pay for performance systems have exploded in popularity among public sector organizations. Performance evaluation systems have been used in most of the private sector companies for a long time. There is even research which suggests that if a company has a performance evaluation system in place, their performance is better (as measured by profits and related financial measures) than those companies that don’t have such systems in place.

 

Since government managers want to be able to reward top performers, and in light of the evidence from the private sector, doesn’t it stand to reason that pay for performance systems in the public sector would work to motivate government employees? (We will answer that in a later newsletter.) First, it is important to recognize the variety of options available to governments when they want to install or revise a pay for performance system for their employees.

 

There are two conceptually different types of pay for performance systems. There are individual programs and group programs. Each focuses on a different type of behavior and thus each has varying degrees of success.

 

Individual Programs

 

The key to individual performance based programs is that they focus specifically on the individual.

programs is that an individual can control their own behavior, and given some feedback about the behavior that is good and that which needs improvement, the employee will choose to improve. Typically, individual performance based systems involve one individual, usually a supervisor, evaluating (i.e., judging) the performance of another individual. If there is enough behavior that meets their approval, the employee is rewarded. Hopefully, the employee will be grateful and decide, like a good lab rat, to be rewarded again. If it works, everybody is happy and productivity, quality or what have you is up.

 

Among individual performance based systems are the following:

 

  • performance evaluations

 

  • skill based systems

 

  • competency based systems

 

  • recognition

 

  • spot awards

 

  • suggestion programs

 

  • promotion

 

Among systems in the public sector, recognition and suggestion based systems are the most popular according to a survey that our firm conducted in 1996 among government organizations. Unfortunately, they are among the systems that are the least effective and frequently fall into misuse or disuse. Skill based and competency based programs are less popular but gaining some frequency of use.

FOX LAWSON & ASSOCIATES  LLC

 

 

C O M P E N S A T I O N   A N D   H U M A N   R E S O U R C E S   S P E C I A L I S T S

continued on next page

 

 

Fox Lawson

& Associates LLC solves

strategic compensation

and human resources

issues of organizations

experiencing significant

change.

 

We assist organizations to align their compensation, benefits and human resources systems to their organization objectives.

 

We have solutions for people who pay people.

They are most popular among trades, police and fire and clerical. Some of the larger public sector unions (AFSCME) have found them to be acceptable if developed jointly and managed fairly. Finally, spot awards are used in just a handful of organizations and usually for only a specific event, such as completion of a special project on tight time lines.

 

Performance evaluation systems, in our opinion are experiencing a renewal of interest, but will probably have a tough time in the long run because of the inherent subjectivity involved. When pay is tied to the results, the systems pit one employee against another for a small and finite pool of money. In fact, with today’s payroll increases averaging somewhere in the 3-4% range, even if an employee is exceptional, the amount of money tied to such performance amounts to about $20 per month. This is earned at the expense of someone who must be judged as less than acceptable for the math to work out right.

 

It’s typically seen as a win/lose situation: I win/you lose; or you win/I lose. Most employees view these types of programs with suspicion and will likely argue against them.

 

 

FOX LAWSON & ASSOCIATES LLC

 

C O M P E N S A T I O N   A N D   H U M A N   R E S O U R C E S   S P E C I A L I S T S

 

Offices:

1335 County Road D. Circle East St. Paul, Minnesota 55109-5260

Phone: 800-383-0976

Fax: 651-635-0980

E-mail: jfox@foxlawson.com

 

P. O. Box 32985

Phoenix, Arizona 85064-2985

 

Phone: 602-840-1070

Fax: 602-840-1071

E-mail: blawson@foxlawson.com

 

 

Read More...

Vol. 11, No. 4 - Pay Compression

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volume11_4

Content Here

Compensation Consulting Since 1995

Volume 11, Number 4

Pay Compression

Visit our website for past newsletters, clients in your area and other items of interest, or to

e-mail us a question. www.foxlawson.com

FOX LAWSON & ASSOCIATES LLC

C O M P E N S A T I O N   A N D   H U M A N   R E S O U R C E S   S P E C I A L I S T S

The number two problem in public sector compensation programs is the problem of pay compression. (I will let you know what we think the number one problem is at the end of the newsletter)

Pay compression goes by many definitions and these are some of them:

  •     When a subordinate is paid, with or without overtime, more than his or her supervisor who does not get overtime.
  •     When an employee in a lower graded job is paid more than an employee in a higher graded job is paid.
  •     When a new employee is paid more than a longer term employee and they are in the same pay grade.
  •     When a job that is less complex, difficult, or requires less effort, is paid more than a job that is more complex, difficult or requires more effort.
  •     When employees in a new unit receive big increases and they aren?t doing any different work than before the move.

    There are probably other situations that can be called pay compression. We are going to try and describe what you can do in each of these situations.

    First, however, recognize that regardless of how hard you try, as long as you have employees entering, leaving or moving in the system, you will have some degree of pay compression.You should try to minimize it as much as possible, because once it gets out of control or its causes become institutionalized, the cost to get out of the problem will be large, the pain will be deep and the solution elusive.

    Here we go:

        When a subordinate is paid, with overtime, more than his or her supervisor who does not get overtime.

        The solution to this is easy, but employees probably won?t buy it. One solution is to pay supervisors overtime at a straight time rate. This usually resolves the issues, although it can be expensive, especially if you cannot control the overtime hours that are worked. The second solution, is to make sure that you just count base wages. If the base wage of the higher level job is greater than the subordinate job, then you really don?t have pay compression. Make sure that you measure this at the midpoint of the pay grade rather than at what employees are actually paid. The supervisor will eventually be paid more than all their subordinates at the base wage level even though a new supervisor may be paid less than a more senior subordinate.

        When an employee in a lower graded job is paid more than an employee in a higher graded job is paid.

        continued on next page

 

        Fox Lawson

        & Associates LLC solves

        strategic compensation

        and human resources

        issues of organizations

        experiencing significant

        change.

        We assist organizations to align their compensation, benefits and human resources systems to their organization objectives.

        We have solutions for people who pay people.

        This is not too much different than the second part of the above issue. You want to make sure that the pay range opportunity (i.e., maximum of thepay range) is higher in the higher graded job than in the lower graded job. You may have employees that are paid less than long term lower graded employees, and that is to be expected in most pay systems because of range overlap, but you should make sure that your system of grades and ranges, or your pay movement procedures does not encourage this to happen. In addition, you want to make sure that range overlap does not exceed about 30%.

        When a new employee is paid more than a longer term employee and they are in the same pay grade.

        Now this is a problem. It may get worse in the near future as hiring picks up. It is normal to bring a new person in at a higher rater of pay than they were making in their previous job. Unless the move is a promotion, the new employee is going to want an increase just to make the move. That means that they may make more money than an existing employee. Existing employees get agitated when they find out that they have to train the new employee and they are making less money than the newbie.

        Although most HR departments try to avoid this, unless you have a competitive pay structure and a hiring policy that limits the starting pay of new hires, you will likely have this problem to some extent. Existing employees still don?t like it. But unless the problem is a total reversal of pay, this is a problem that may be managed by some pay adjustments and some education of current employees. Everyone has some of this

        take some action. The serious potential danger you may have is if the pay is separated by racial or gender lines. But assuming it is not, and it is not a problem of seniority, then what you need to do is make sure that the basis of the assignment of job to pay grades is based on a defensible job evaluation system, good market data or a combination of the two. In short, your pay and classification system needs an overhaul.

        5. When employees in a new unit receive big increases and they aren?t doing any different work than before the move.

        Ahh. Here is the tough one. We have heard this problem with general government jobs versus enterprise fund jobs, as well as new departments and functions. In order to get the

        ?right? people, the argument is that they have to pay higher wages. They will also argue that they have higher expectations and/or there will be new procedures that people have to learn, and on and on and on. Most of it is spurious and should be dealt with by senior management. There may be issues of pay discrimination, as well as a clear definition of who the employer is. The ultimate outcome is either higher pay for everyone, or a slow exodus from the lower paid jobs to the higher paid jobs. Either way, the effect on government is a higher total payroll cost, either through higher pay or higher cost of recruiting and training.

        And the number one pay problem in government? In our opinion, it is pay type of compression.

        FOX LAWSON & ASSOCIATES LLC

        C O M P E N S A T I O N   A N D   H U M A N   R E S O U R C E S   S P E C I A L I S T S

        Offices:

        1335 County Road D. Circle East St. Paul, Minnesota 55109-5260

        Phone: 800-383-0976

        Fax: 651-635-0980

        E-mail: jfox@foxlawson.com

        P. O. Box 32985

        Phoenix, Arizona 85064-2985

        Phone: 602-840-1070

        Fax: 602-840-1071

        E-mail: blawson@foxlawson.com

 

   

        When a job that is less complex, difficult, or requires less effort, is paid more than a job that is more complex, difficult or requires more effort.

This type of compression can be a serious issue, if it is true. Although employees will make this case quite frequently, if the facts bear out that lower complexity jobs are paid more than higher complexity jobs, and it is not a result of tenure in the job, then the problem is one where you need to that is lower than the competitive market levels. Over time, this leads to the obvious problems of turnover, quality of work, morale issues and bureaucratic resistance to change. Eventually, this problem gets corrected because the market is a very powerful regulator of pay.

Read More...

Vol. 11, No. 3 - Separating Market Adjustments from Merit Movement

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volume11_3

Content Here

 

Compensation Consulting Since 1995

 

Volume 11, Number 3

 

Separating Market Adjustments from Merit Movement

 

Visit our website for past newsletters, clients in your area and other items of interest, or to

e-mail us a question. www.foxlawson.com

FOX LAWSON & ASSOCIATES LLC

 

Each year, most governmental organizations struggle with the question of how they are going to balance the need to update their salary structure in order to maintain their relative position in the overall labor market while also trying to reward employees for meeting or exceeding their performance objectives for the past year. At the same time, employees would like to see their compensation increase within their established salary range. Unfortunately, many government employers simply grant a fixed percentage market or Cost of Living (COLA) adjustment that results in employees receiving a salary increase that is equal to the adjustment in the salary range. The result is that while employee salaries are increasing, they don't feel like they are getting ahead.

 

Private sector employers long ago recognized that they needed to separate structure adjustments from pay increases. Thus, year after year, their salary structures are adjusted at about 1/2 to 1/3 of the amount allocated for employee pay increases. During some periods, salary structures did not increase.

This separation is all very logical if you realize that a salary structure is designed to bring salaries (at the minimum) to market levels and to control maximum salaries at the top of the structure. Employees already have a job so the structure adjustments do nothing for them.

 

Adjustments to pay, therefore, are designed to recognize your current employees.

 

The only viable option to the above scenario is for organizations to determine how much money they are going to add to their total compensation package and then determine how they can use those dollars most effectively. In most cases, the answer is fairly simply - allocate a portion of the money to a structural adjustment in order to keep the salary ranges competitive with the labor market. Structural adjustments in the 2% to 3% have been common over the past few years. The remainder of the money that is available for compensation increases can then be put into the organization's merit pool for distribution to employees whose work meets or exceeds performance expectations. For those organizations using a step type system, those dollars can offset some or all of the cost of step increases. For those organizations having an open-range model, the dollars would become the basis for merit adjustments.

 

You may ask why this is significant or important. Very simply, most workers (something in the area of 85% of the American workforce) do not receive automatic pay increases every year. Given the public's concern about public sector pay levels, it is often easier to sell a more modest market adjustment with he balance of the money being used to reward those employees who add value to their organization. Unfortunately, that is not the culture that we have established. While this should not be news to public sector human resources professionals, we have an entitlement mentality that must be changed if government is to manage more effectively its ever-decreasing resources.

 

C O M P E N S A T I O N   A N D   H U M A N   R E S O U R C E S   S P E C I A L I S T S

continued on next page

 

 

Fox Lawson

& Associates LLC solves

strategic compensation

and human resources

issues of organizations

experiencing significant

change.

 

We assist organizations to align their compensation, benefits and human resources systems to their organization objectives.

 

We have solutions for people who pay people.

In a prior newsletter, we talked about the need to define a compensation philosophy and related strategies. The key point was that you should be using

your resources to accomplish strategic and organizational objectives rather than simply continuing to do business as you have always done. Maintaining a competitive salary structure is important, but so is having the resources to recognize employees for their performance through increases in base pay within their established salary rage. As resources for salary increases become more limited, the need to separate structure adjustments from merit increases will become more significant.

 

 

FOX LAWSON & ASSOCIATES LLC

 

C O M P E N S A T I O N   A N D   H U M A N   R E S O U R C E S   S P E C I A L I S T S

 

Offices:

1335 County Road D. Circle East St. Paul, Minnesota 55109-5260

Phone: 800-383-0976

Fax: 651-635-0980

E-mail: jfox@foxlawson.com

 

P. O. Box 32985

Phoenix, Arizona 85064-2985

 

Phone: 602-840-1070

Fax: 602-840-1071

E-mail: blawson@foxlawson.com

 

 

 

Read More...

Vol. 11, No. 2 - The Value of a Pay Strategy

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volume11_2

Content Here

 

Compensation Consulting Since 1995

Volume 11, Number 2

TheValue of a Pay Strategy

 

Visit our website for past newsletters, clients in your area and other items of interest, or to

e-mail us a question. www.foxlawson.com

 

FOX LAWSON & ASSOCIATES LLC

 

C O M P E N S A T I O N    A N D   H U M A N   R E S O U R C E S   S P E C I A L I S T S

Public sector organizations usually spend more than 50%, and sometimes as much as 80% of their total operating budget on employee compensation including base salaries, employee benefits, and any variable compensation that may be applicable. When one spends that percentage of their total resources on a single item, it only makes sense that the money be spent in a way that achieves some defined goal.

 

While public sector organizations have had established salary plans for many years, the sole issue that has been addressed by many organizations is that the plan be related to some defined labor market and allows the agency to be competitive within that market. The plans have not addressed how the money was allocated or spent. By this, we mean rewarding employees for achieving organizational goals and objectives rather than simply paying them for service as an employee.

 

Historically, compensation philosophy has focused on recruitment, retention, and then, if resources allowed, motivation.While recruitment is always an issue, one needs to question whether retention, merely for the sake of retention, is an appropriate philosophy. We now see many organizations that are taking the view that they only want to retain those employees who contribute to achievement of organizational goals. With that in mind, strategy becomes critical.

 

For example, rather than traditional step type pay plans, organizations are moving to broadband pay structures that facilitate use of alternative pay delivery mechanisms such as skill-based pay, competency based pay, and individual or group performance based pay. Under these models, a job rate (the market value of a position or job) is defined and employees who perform to established job standards can get to that point in the salary range or grade. However, any compensation above the job rate must relate to the organization's strategic objectives. The result of this change is that compensation dollars are more closely tied to achievement of organizational goals and objectives, and less to longevity or entitlement of individual employees. Unfortunately, some other parts of the pay plan may conflict with these goals including longevity pay or the vesting schedules of defined benefit retirement plans.

Another advantage of addressing compensation philosophy and strategies is how you define your labor market. Many organizations simply look at neighboring jurisdictions regardless of their size, character, ability to pay or organizational similarity. As a result, many organizations that have been used to help define market pay rates are not really part of your direct labor market even though they may have physical proximity. This is the equivalent of trying to keep up with the Jones' even though your family situation may have nothing in common with theirs. At the same time, you may be ignoring organizations that are more relevant competitors. A review of your philosophy and strategies would allow your organization to bring these issues into alignment.

 

continued on next page

 

Fox Lawson

& Associates LLC solves

strategic compensation

and human resources

issues of organizations

experiencing significant

change.

 

We assist organizations to align their compensation, benefits and human resources systems to their organization objectives.

 

We have solutions for people who pay people.

Finally, there is the issue of internal equity versus market parity. Back in the 1980's, internal equity was a major issue for many organizations. Today, market parity seems to be equally, if not more, important. Unless these issues are reviewed, you may very well be paying people based on concepts and a philosophy that is no longer relevant resulting in your spending limited resources without tangible benefit to your organization.

 

Having said all of this, we believe the prudent organization strives to articulate a pay philosophy and strategy. Such a strategy should answer the following questions:

  1. Why do you have a compensation system?
  2. What behavior do you expect to receive from your compensation dollars?
  3. How do you view your organization relative to other organizations with whom you compete?
  4.  Which organizations are competing with you for the same talent?
  5.  What message are you trying to send to your employees relative to compensation within the overall context of organization management?

 

If you can articulate answers to each of the above questions, then you are well on your way to defining a compensation philosophy and strategies.

 

 

FOX LAWSON & ASSOCIATES LLC

C O M P E N S A T I O N   A N D   H U M A N   R E S O U R C E S   S P E C I A L I S T S

 

Offices:

1335 County Road D. Circle East St. Paul, Minnesota 55109-5260

Phone: 800-383-0976

Fax: 651-635-0980

E-mail: jfox@foxlawson.com

 

P. O. Box 32985

Phoenix, Arizona 85064-2985

 

Phone: 602-840-1070

Fax: 602-840-1071

E-mail: blawson@foxlawson.com

 

 

 

 

Read More...

Vol. 11, No. 1 - What We Do

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volume11_1

Content Here

 

Compensation Consulting Since 1995

Volume 11, Number 1

What We Do

 

Visit our website for past newsletters, clients in your area and other items of interest, or to

e-mail us a question. www.foxlawson.com

FOX LAWSON & ASSOCIATES LLC

 

Our firm has been conducting position classification and compensation studies in the government market for over 25 years. We have been exhibitors at major training conferences for about 20 years, and we have published a newsletter like the one you are reading for about 15 years. Still, we get questions from potential clients about what we do.

 

So, to end this confusion, or clarify and enlighten, we thought we should summarize some of the things that we have done. Here are some questions that you may have, and our answers.

 

Do you write job descriptions?

 

Yes. In fact, in the last year alone, we estimate that we have reviewed over 15,000 job analysis questionnaires and written between 2 - 3,000 formal job descriptions. Our normal process is to also review the jobs for FLSA designation, as well as ADA information so that when you have the final job description. We give you all the relevant information including the exempt and non- exempt status as well as other legally required information.

 

Sometimes our clients want us to determine if some of their existing job classes could be collapsed or they want career ladders set up. We do that too.

 

Do you develop or update salary structures?

 

Of course. In doing so, we survey the market to identify what the market is paying for similar jobs in similar organizations and competitive markets. Then we either update your salary plan(s) or develop new plans based on the market data. Usually this means that we have to determine how much it will cost to adopt the new plan. You can guess that there are many ways to do this in a fair and equitable fashion. Our process gives you a cost for each employee.

 

Have you developed pay for performance plans?

 

We have done this as well. We like to start with an assessment of the culture of the organization to determine its readiness for pay for performance. Then, if you are ready, we work to custom design the program to meet your needs. This may mean that we develop a performance evaluation process and link it to pay or that we develop a group based plan like gainsharing or goal sharing. Then we work through the policies and procedures that you need to adopt to make it work. Finally, we train the employees and managers that will use the system.

 

Do you do windows?

 

No, my partner and I prefer Apple computers but our staff does Windows.

 

We have classification appeals that need an outside review. Do you do that?

 

Naturally. We can do one at a time or we can do them in bunches. Either way, we will review your current documentation, interview the employee and/or supervisor, as needed and determine if there is merit in the request.

 

C O M P E N S A T I O N   A N D   H U M A N   R E S O U R C E S   S P E C I A L I S T S

continued on next page

 

 

Fox Lawson

& Associates LLC solves

strategic compensation

and human resources

issues of organizations

experiencing significant

change.

 

We assist organizations to align their compensation, benefits and human resources systems to their organization objectives.

 

We have solutions for people who pay people.

 

We can even use your job evaluation system to decide which pay grade it belongs in. We have market data available for many jobs to help in determining the right pay grade. Finally, we write all this information up and give you our recommendation.

 

Our administrator wants to do an employee climate survey. Can you advise us on that?

 

We have done many climate surveys in public organizations. We have a set of standard areas that we think are important and we have benchmark data on these questions so you can see how well you stack up. We used the results of one of our surveys to pick the best employee work group to serve as the pilot of a new compensation program. Even though the organization decided to pick other units as well as the ones we picked, the ones that we found to score high on important climate dimensions turned out to be the most successful pilots.

 

What else do you do?

 

Just about anything that is related to cash compensation in government settings is what we do best. If it involves determining what employees should be paid, determining how much a new pay structure will cost, is a new system fair, should you develop

or consolidate some jobs, or deciding what pay strategy is important, we do it. We can advise you on major redesign efforts, or minor tweaks to the system. We can work with you as an over-the-shoulder advisor while you do most of the work or we can do a complete turnkey implementation. In addition, we have compensation management, and job evaluation software that can make your job easier, and keep track of pay grades, promotions, market data and other information to better manage your compensation program.

 

We have done work in some of the largest (120,000 employees) and some of the smallest (4 employees) public organizations. We have handled some of the politically messiest compensation change projects in the country. We know government organizations, your uniqueness and your procedures and the environment in which you operate because we have worked with just about every type of government organization in the country.

 

If you need assistance in compensation or classification issues, we are the firm to call. If we haven't run across the problem and a workable solution, it probably doesn't exist.

 

Call either Bruce or Jim at the number below, or email us with your question.

 

 

FOX LAWSON & ASSOCIATES LLC

C O M P E N S A T I O N   A N D   H U M A N   R E S O U R C E S   S P E C I A L I S T S

 

Offices:

1335 County Road D. Circle East St. Paul, Minnesota 55109-5260

Phone: 800-383-0976

Fax: 651-635-0980

E-mail: jfox@foxlawson.com

 

P. O. Box 32985

Phoenix, Arizona 85064-2985

 

Phone: 602-840-1070

Fax: 602-840-1071

E-mail: blawson@foxlawson.com

 

 

 

Read More...

Vol. 10, No. 4 - Market Data Software

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volume10_4

Content Here

Compensation Consulting Since 1995

Volume 10, Number 4

Market Data Software

 

Visit our website for past newsletters, clients in your area and other items of interest, or to

e-mail us a question. www.foxlawson.com

 

FOX LAWSON & ASSOCIATES LLC

 

In our last newsletter we discussed making sense of market data, what do you do with it to arrive at meaningful and valid conclusions?

 

Market pricing is a simple philosophy but one which can require a lot of work to administer. When organizations run into difficulty in their market pricing process, the problems are usually practical rather than theoretical in nature, and often revolve around issues of market data management.

 

Software can simplify and resolve many of these market data management issues and so, as a service to our clients, we have recently formed a relationship with Link HR Systems, Inc., a leading supplier of compensation software. We asked Darwin Hanson, Link's Vice President, Technical Services, for his advice on how software can enhance the market pricing process.

 

"If you're like most people" according to Darwin "you'll first consider market pricing software as an aid to simplify the sophisticated number crunching, but there's a lot more that it can and should do. Good market pricing software should enable you to age and weight the data according to your own policies and preferences and do regression and other statistical calculations for you. But in addition to simplifying the work, software should also help you to improve the quality of your conclusions."

 

"The old saying 'garbage in, garbage out' applies with full force in market pricing. While there are many quality issues to contend with, you should be especially careful about outliers. When combining multiple survey results to get a market average, outliers (extreme values) can skew the results considerably. As a rule, if removing a single data point has a big impact on your estimate of the market price for a job, the data is suspect. Likewise, watch out for extraneous zeros when working with electronic data. Missing data can sometimes be interpreted as zeros (for example, for jobs where a survey vendor has insufficient information), with a big distortion in market rates resulting. Good software should help you check for outliers and potentially, remove the data to mitigate their influence."

 

Darwin likewise cautioned that "you shouldn't let the crush of work compromise the quality of your effort, especially when it comes to job matching." "If you're like most organizations, you receive multiple requests for salary data all at the same time. In the crush to meet deadlines, the quality of job matches often suffers. Further, in the when participant report is received, the details of the job matches that were made several months earlier sometimes get forgotten."

 

 

"Organization and preparation are the keys to quality results in market pricing. You will earn big pay-offs if you take the time to prepare your matches carefully at the time of data submission. Just as important, take the time to document your matches thoroughly so the same results can be used for salary planning and future year's data submissions. This is another area where market data management software can be an invaluable aid."

C O M P E N S A T I O N   A N D   H U M A N   R E S O U R C E S   S P E C I A L I S T S

continued on next page

 

Fox Lawson

& Associates LLC solves

strategic compensation

and human resources

issues of organizations

experiencing significant

change.

 

We assist organizations to align their compensation, benefits and human resources systems to their organization objectives.

 

We have solutions for people who pay people.

 

Finally, software can streamline the survey data submission process. "If your software already contains your incumbent pay information and the matches between your jobs and those of your survey vendors, then you should be able to completely automate the survey submission process"

 

"Link has nearly 300 clients worldwide for its Pay Modeler compensation analysis and planning software. When we introduced the new Market Modeler™ option last year, we tried to address all these critical market pricing issues including job matching, statistical calculations, outlier management and vendor data submission."

 

If you would like more information on Link Market Modeler, please contact Darwin at d.hanson@link- hrsystems.com or toll free at 1 (866) 546-5797. You can also register for a free, web demonstration by visiting www.link-hrsystems.com to register.

 

 

FOX LAWSON & ASSOCIATES LLC

C O M P E N S A T I O N   A N D   H U M A N   R E S O U R C E S   S P E C I A L I S T S

 

Offices:

1335 County Road D. Circle East St. Paul, Minnesota 55109-5260

Phone: 800-383-0976

Fax: 651-635-0980

E-mail: jfox@foxlawson.com

 

P. O. Box 32985

Phoenix, Arizona 85064-2985

 

Phone: 602-840-1070

Fax: 602-840-1071

E-mail: blawson@foxlawson.com

 

 

 

Read More...

Vol. 10, No. 3 - Using Market Data to Update Your Pay Structure and Employee Pay

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Content Here

Compensation Consulting Since 1995

Volume 10, Number 3

USING MARKET DATA TO UPDATE YOUR PAY STRUCTURE AND EMPLOYEE PAY

 

Visit our website for past newsletters, clients in your area and other items of interest, or to

e-mail us a question. www.foxlawson.com

FOX LAWSON & ASSOCIATES LLC

 

In our last two newsletters we discussed conducting a market salary survey, and using market survey data. Now that you know the competitive stance of your organization, how do you apply it to your salary structure to make sure employee salaries are market competitive?

 

As we discussed in the last newsletter, once you have your market data collected and analyzed, regression analysis is a statistical analysis that is useful for determining predicted rates of pay for all grade levels. This predicted pay rate for each grade level normally becomes the midpoint of a new market based salary structure, since it reflects the market pay trend generated from regression analysis. Minimums and maximums (and also steps) can then be calculated from that new midpoint based on the desired range spread (spread from minimum to maximum) or distance desired between steps. As an alternative to creating an entirely new salary structure model that utilizes the market pay trend figures, you can also simply adjust your current salary structure by the amount that you are below the market. For example, if it is found that your organization is on average, paying 3% below market, you can increase all figures of the current salary structure by 3%.

 

Your salary structure model should support your organization's pay philosophy and strategy, and represent the balance between internal and external equity. The two most common models are open- range models (consisting of minimum, midpoint and maximum), and step models (consisting of steps rather than open ranges). Range spreads can be constant or expand as grade levels increase to accommodate growth and movement. There are also many variations of these two models that many organizations find useful for supporting their strategy and rewarding their employees. Some of these include steps up to midpoint, with an open range between midpoint and maximum for performance related movement, or an increasing number of steps available in the range as grade levels increase.

 

While many options exist for implementing your new salary structure and for determining the associated costs, three options are utilized by most organizations. The first option is to bring only those employees that are below the new minimum, up to the minimum and leave all other employees at their current rate of pay. This represents the least cost to your organization and is simply an initial placement cost.While this is the cheapest option to implement, it can cause compression among employees in that longevity and performance are not factored into the employee's placement. The second option is to bring employees to the next closest step based on their current salary (if a step plan exists). This represents an average cost to the organization. This option is only relevant for those organizations with step plans. The third option is to bring employees to the same point of the new range that they are in their current range (also known as same compa-ratio).

 

C O M P E N S A T I O N   A N D   H U M A N   R E S O U R C E S   S P E C I A L I S T S

continued on next page

 

 

Fox Lawson

& Associates LLC solves

strategic compensation

and human resources

issues of organizations

experiencing significant

change.

 

We assist organizations to align their compensation, benefits and human resources systems to their organization objectives.

 

We have solutions for people who pay people.

 

A compa-ratio greater than 1.0 means the employee is above the midpoint. For example, if an employee's current salary is $30,000, and the current salary range midpoint is $37,500, the current compa-ratio for that employee is .80 ($30,000/$37,500). To place this employee at the same compa-ratio within a new salary range, one would multiply the new salary range midpoint times .80 to arrive at the appropriate salary for the employee. So, if the new salary range midpoint is

$39,000, the employee's new salary would be $31,200 ($39,000 * .80), or an increase of $1,200 (or 4.0%). This cost option represents the highest cost to the organization. Even though it represents the most cost, it is considered the most fair and equitable option because it does factor in employee's longevity and performance, thereby eliminating any new compression problems.

Other less common options for implementation include factoring in hire date and time in grade. A combination of any of these cost alternatives described may be used that factor in merit, performance, and skilled-based or competency pay.

 

Fox Lawson & Associates conducts over 50 compensation studies for organizations each year. If you need assistance in updating your salary structure, please contact us to discuss how we can help in developing a salary structure and calculating associated costs of implementation. We can offer assistance in conducting a custom market survey, analyzing the results, developing and making salary structure recommendations, and calculating cost implications of implementing a new salary structure.

 

Call 800-383-0976 for more information. Press 102 for Jim Fox or 110 for Bruce Lawson.

 

 

FOX LAWSON & ASSOCIATES LLC

C O M P E N S A T I O N   A N D   H U M A N   R E S O U R C E S   S P E C I A L I S T S

 

Offices:

1335 County Road D. Circle East St. Paul, Minnesota 55109-5260

Phone: 800-383-0976

Fax: 651-635-0980

E-mail: jfox@foxlawson.com

 

P. O. Box 32985

Phoenix, Arizona 85064-2985

 

Phone: 602-840-1070

Fax: 602-840-1071

E-mail: blawson@foxlawson.com

 

 

 

Read More...

Vol. 10, No. 2 - Making Sense of Market Data

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Content Here

 

Compensation Consulting Since 1995

Volume 10, Number 2

Making Sense of Market Data

 

Visit our website for past newsletters, clients in your area and other items of interest, or to

e-mail us a question. www.foxlawson.com

 

FOX LAWSON & ASSOCIATES LLC

C O M P E N S A T I O N   A N D   H U M A N   R E S O U R C E S   S P E C I A L I S T S

 

In our last newsletter we discussed conducting a market salary survey. Now that you have collected market data, what do you do with it to arrive at meaningful and valid conclusions?

 

The first task of using market data involves an initial review of each participant's returned survey questionnaire. You want to check for completeness and that the responses seem appropriate. Review each job match made to the benchmarks as well as the salary data reported, and follow-up with participants to question and clarify job matches or reported figures. Since all of the data you receive from participants will be of varying quantities (hourly, monthly, annual), of varying effective dates and of varying geographic locations, the data needs to be adjusted so that consistent comparisons can be made. The data should be 'aged' to a common point in time by applying an aging factor. The data should be 'annualized' to one common dollar amount (hourly, monthly or annual), and the data should be adjusted by geographic factors so that it is common to your geographic location. There are several independent sources that can help you with the correct aging and geographic factors. Once all of the data have been reviewed, entered into an analysis application such as MS Excel or a statistics program, and adjusted, a check for 'outliers' should be performed to exclude any extreme data figures. This is done by calculating salary figures that are

+2.00 or -2.00 standard deviation points from the market trend regression line. Standard deviation is a statistical term that represents how far data points are from the trend. If a salary figure is greater than + or -

2.00 standard deviation points from the trend, it means that the job match is poor or other factors which may not be identifiable, are affecting this salary. Outliers should be excluded from your analyses.

 

Once the data has been 'cleaned', it can then be summarized. This means calculating statistics such as totals, averages, and medians of the data. Your organization's pay strategy will determine what statistics from the market you will calculate and compare your data to. Three statistics commonly calculated are unweighted average (a simple average), weighted average (averages weighted by number of incumbents) or median (50th percentile or the middle rate). The most commonly used statistic is the median since it is the middle rate and is not impacted by any high or low rates, which would be reflected in an average.

 

It is important to present your summarized data in a fashion that will not violate Antitrust provisions. The general guidelines for these provisions state that the survey output should be aggregated rather than showing individual company data, that the data should not be summarized for fewer than 5 data matches, and that no organization can represent more than 25% of the aggregate data. (Refer to our website at www.foxlawson.com/newsletter for our newsletter "New Alerts on Using Salary Survey Data" (volume 8, number 4), covering this topic ).

 

 

continued on next page

 

 

Fox Lawson

& Associates LLC solves

strategic compensation

and human resources

issues of organizations

experiencing significant

change.

 

We assist organizations to align their compensation, benefits and human resources systems to their organization objectives.

 

We have solutions for people who pay people.

 

Comparisons can first be made on a job by job basis. A job by job basis compares your organization's salary against the market salary for each benchmark job. This comparison tells us those individual jobs that are above or below market. Jobs whose salaries are +/- 15% from the market should be reviewed more carefully. Overall averages encompassing all benchmark jobs can also be calculated to get an idea of on average, how your organization compares to the market in general.

 

Utilizing regression analysis, a comparison can be made on a grade by grade basis. A grade by grade basis compares your salary by grade to market salary by grade. This comparison tells us those grade levels that are above or below market (or how your organization's current structure compares with market). Regression analysis is a "line of best fit" between an independent variable, such as grade, and a dependent variable, such as base salary. The formula produced by regression analysis can be used to predict market pay rates for jobs at various points along this line of best fit. Thus, for any given grade level, the predicted market pay for that level can be determined. This is useful for determining predicted rates of market pay for jobs that were not benchmarked.

 

This predicted market pay rate normally becomes the midpoint of a new market based salary structure, since it reflects the market pay trend.

 

Fox Lawson & Associates conducts over 50 compensation surveys for organizations each year. If you need assistance in using market data, please contact us to discuss how we can help in making meaningful and valid conclusions based on market results. We can offer assistance in conducting a custom market survey, analyzing the results, developing and making salary structure recommendations, and calculating cost implications of implementing a new salary structure.

 

 

FOX LAWSON & ASSOCIATES LLC

C O M P E N S A T I O N   A N D   H U M A N   R E S O U R C E S   S P E C I A L I S T S

 

Offices:

1335 County Road D. Circle East St. Paul, Minnesota 55109-5260

Phone: 800-383-0976

Fax: 651-635-0980

E-mail: jfox@foxlawson.com

 

P. O. Box 32985

Phoenix, Arizona 85064-2985

 

Phone: 602-840-1070

Fax: 602-840-1071

E-mail: blawson@foxlawson.com

 

 

 

 

Read More...

Vol. 10, No. 1 - Determining the Competitiveness of Your Salary Structure

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Content Here

 

 

Compensation Consulting Since 1995

Volume 10, Number 1

Determining the Competitiveness of Your Salary Structure

 

Visit our website for past newsletters, clients in your area and other items of interest, or to

e-mail us a question. www.foxlawson.com

 

You have decided that your organization needs to determine its market competitiveness. You have considered your alternatives; which are to purchase published survey sources, participate in sponsored surveys, or to conduct your own survey either yourself or through a third party. Each of these alternatives requires factors to consider, which may affect your decision. The factors include cost, time, reliability, availability, and confidentiality of the data, as well as legal issues. It will cost more to purchase published sources or to have a third party conduct a custom survey. It will involve more of your time to conduct your own survey.The data will be more reliable and meaningful if a custom survey is conducted. Confidentiality and compliance with legal issues will be secured if a third party conducts the survey. By collecting the data yourself, there is the potential for anti-trust violations (refer to our website at www.foxlawson.com/newsletter for our newsletter "New Alerts on Using Salary Survey Data" (volume 8, number 4), covering this topic).

 

After weighing these alternatives and the associated factors involved, you decide to conduct a custom survey. When conducting a custom survey, many items need to be addressed to ensure that the data you receive are reliable, valid and useful.Your first task is to define your labor market. When determining organizations to include in your survey, size, geographic location, are to select organizations that compete with your organization for employees, organizations that are no less than 50% and no more than 200% the size of your organization, organizations that serve similar populations in terms of size and community character, and organizations that have similar economic bases (taxes, operating budgets, per capita income etc.). The organizations will vary based on the level of job being surveyed (i.e., different jobs have different labor markets). Clerical and technical jobs are normally surveyed locally, administrative/professional jobs are normally surveyed locally and regionally, and management jobs are normally surveyed locally, regionally and nationally. The standard participation rate to expect is 50%- 70%, so be sure to select enough participants so that if only half respond, you still have enough data to make and support conclusions. Fewer than five matches to a given job is normally considered an insufficient number for drawing valid conclusions.

 

Your next task is to identify your benchmarks. Benchmark jobs should be representative of a large proportion of employees within the organization, be widely representative of job families or occupational groups within the organization, be representative of all hierarchical levels within the organization, have well-defined job content and qualification requirements, and be found in similar form in competing and industry are the major considerations. General guidelines organizations. You will also want to focus on those jobs that you're having difficulty in attracting and retaining. The standard number of benchmarks to be selected should equal about 30% of the total number of classifications in your organization.

 

FOX LAWSON & ASSOCIATES LLC

C O M P E N S A T I O N   A N D   H U M A N   R E S O U R C E S   S P E C I A L I S T S

 

continued on next page

 

 

Fox Lawson

& Associates LLC solves

strategic compensation

and human resources

issues of organizations

experiencing significant

change.

 

We assist organizations to align their compensation, benefits and human resources systems to their organization objectives.

 

We have solutions for people who pay people.

 

If you have selected benchmarks correctly, they should cover about 50% or more of the employees. It is important to include summary descriptions that describe the benchmark job for participants to base the organization's benefit structure, you may or may not need to survey benefits. Some organizations simply collect what the benefits are as a percent of base salary in order to determine if their benefits as a whole are competitive with the market.

 

Some benefit areas commonly surveyed are time-off amounts by length of service, retirement contribution amounts by both employee and employer and amount of various insurance's paid by the both employee and employer. In addition to benefits, pay practice items such as the prevalence of variable pay, on- call/call-back pay, shift differentials, merit increase amounts, and certification/education incentives may be important for your organization to collect. Standard salary information to collect is both actual salaries and salary range (formal minimums and maximums) information. Your organization's pay strategy will determine what specific salary data you collect.

 

It is important to prepare a survey questionnaire in a format that is concise, easy for response, and collects data in a fashion that is quantifiable. Communication with participants is critical; place a phone call initially to determine who to send the survey to, send a letter to the participants, and place phone calls to participants throughout the course of the survey to encourage participation and answer questions.

 

If you need assistance in determining your market competitiveness, please contact us to discuss how we can conduct a survey for you.

 

Please call 800-383-0976 for more information. Press 12 for Jim Fox and 20 for Bruce Lawson.

 

 

FOX LAWSON & ASSOCIATES LLC

C O M P E N S A T I O N   A N D   H U M A N   R E S O U R C E S   S P E C I A L I S T S

 

Offices:

1335 County Road D. Circle East St. Paul, Minnesota 55109-5260

Phone: 800-383-0976

Fax: 651-635-0980

E-mail: jfox@foxlawson.com

 

P. O. Box 32985

Phoenix, Arizona 85064-2985

 

Phone: 602-840-1070

Fax: 602-840-1071

E-mail: blawson@foxlawson.com

 

 

 

 

 

Compensation Consulting Since 1995

Volume 10, Number 1

Determining the Competitiveness of Your Salary Structure

 

Visit our website for past newsletters, clients in your area and other items of interest, or to

e-mail us a question. www.foxlawson.com

 

You have decided that your organization needs to determine its market competitiveness. You have considered your alternatives; which are to purchase published survey sources, participate in sponsored surveys, or to conduct your own survey either yourself or through a third party. Each of these alternatives requires factors to consider, which may affect your decision. The factors include cost, time, reliability, availability, and confidentiality of the data, as well as legal issues. It will cost more to purchase published sources or to have a third party conduct a custom survey. It will involve more of your time to conduct your own survey.The data will be more reliable and meaningful if a custom survey is conducted. Confidentiality and compliance with legal issues will be secured if a third party conducts the survey. By collecting the data yourself, there is the potential for anti-trust violations (refer to our website at www.foxlawson.com/newsletter for our newsletter "New Alerts on Using Salary Survey Data" (volume 8, number 4), covering this topic).

 

After weighing these alternatives and the associated factors involved, you decide to conduct a custom survey. When conducting a custom survey, many items need to be addressed to ensure that the data you receive are reliable, valid and useful.Your first task is to define your labor market. When determining organizations to include in your survey, size, geographic location, are to select organizations that compete with your organization for employees, organizations that are no less than 50% and no more than 200% the size of your organization, organizations that serve similar populations in terms of size and community character, and organizations that have similar economic bases (taxes, operating budgets, per capita income etc.). The organizations will vary based on the level of job being surveyed (i.e., different jobs have different labor markets). Clerical and technical jobs are normally surveyed locally, administrative/professional jobs are normally surveyed locally and regionally, and management jobs are normally surveyed locally, regionally and nationally. The standard participation rate to expect is 50%- 70%, so be sure to select enough participants so that if only half respond, you still have enough data to make and support conclusions. Fewer than five matches to a given job is normally considered an insufficient number for drawing valid conclusions.

 

Your next task is to identify your benchmarks. Benchmark jobs should be representative of a large proportion of employees within the organization, be widely representative of job families or occupational groups within the organization, be representative of all hierarchical levels within the organization, have well-defined job content and qualification requirements, and be found in similar form in competing and industry are the major considerations. General guidelines organizations. You will also want to focus on those jobs that you're having difficulty in attracting and retaining. The standard number of benchmarks to be selected should equal about 30% of the total number of classifications in your organization.

 

FOX LAWSON & ASSOCIATES LLC

C O M P E N S A T I O N   A N D   H U M A N   R E S O U R C E S   S P E C I A L I S T S

 

continued on next page

 

 

Fox Lawson

& Associates LLC solves

strategic compensation

and human resources

issues of organizations

experiencing significant

change.

 

We assist organizations to align their compensation, benefits and human resources systems to their organization objectives.

 

We have solutions for people who pay people.

 

If you have selected benchmarks correctly, they should cover about 50% or more of the employees. It is important to include summary descriptions that describe the benchmark job for participants to base the organization's benefit structure, you may or may not need to survey benefits. Some organizations simply collect what the benefits are as a percent of base salary in order to determine if their benefits as a whole are competitive with the market.

 

Some benefit areas commonly surveyed are time-off amounts by length of service, retirement contribution amounts by both employee and employer and amount of various insurance's paid by the both employee and employer. In addition to benefits, pay practice items such as the prevalence of variable pay, on- call/call-back pay, shift differentials, merit increase amounts, and certification/education incentives may be important for your organization to collect. Standard salary information to collect is both actual salaries and salary range (formal minimums and maximums) information. Your organization's pay strategy will determine what specific salary data you collect.

 

It is important to prepare a survey questionnaire in a format that is concise, easy for response, and collects data in a fashion that is quantifiable. Communication with participants is critical; place a phone call initially to determine who to send the survey to, send a letter to the participants, and place phone calls to participants throughout the course of the survey to encourage participation and answer questions.

 

If you need assistance in determining your market competitiveness, please contact us to discuss how we can conduct a survey for you.

 

Please call 800-383-0976 for more information. Press 12 for Jim Fox and 20 for Bruce Lawson.

 

 

FOX LAWSON & ASSOCIATES LLC

C O M P E N S A T I O N   A N D   H U M A N   R E S O U R C E S   S P E C I A L I S T S

 

Offices:

1335 County Road D. Circle East St. Paul, Minnesota 55109-5260

Phone: 800-383-0976

Fax: 651-635-0980

E-mail: jfox@foxlawson.com

 

P. O. Box 32985

Phoenix, Arizona 85064-2985

 

Phone: 602-840-1070

Fax: 602-840-1071

E-mail: blawson@foxlawson.com

 

 

 

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