By Meg Breslin
May. 16, 2012
In place of limited or frozen pay scales, employees in today’s strained economy have learned to live with other perks such as bonus pay, flexible schedules and lateral promotions to expand their skills.
But increasingly, those employees are running out of patience, benefits experts say. In essence the message to employers is simple: Show me the money, and put it in my base.
“As a compensation guy, I’ve often said that compensation is important but it’s not at the top of the list. But in the last couple years, it has been all about the base wage or salary,” says David Van De Voort, a principal in the Chicago office of HR consultancy Buck Consultants.
As the workforce shrinks and payroll costs drop, he says, some of that money needs to be reallocated to people who picked up bigger and broader roles. Yet that wisdom is not embraced by many employers.
“You still get a lot of them saying, ‘Folks should be happy to have a job,’ ” Van De Voort says. “Well, they were happy to have a job in 2008, 2009 and 2010, but as we start seeing the economy improve, people are saying, ‘I was happy to have a job, but it doesn’t feed the baby.’ “
Base pay was clearly the most important part of the salary and benefits package for employees in a 2011 study by New York-based global benefits consulting firm Mercer. U.S. workers showed lower satisfaction with base pay, with 53 percent satisfied, down from 58 percent in 2005, Mercer’s What’s Working report shows.
As a result of overall dissatisfaction with pay and benefits, one in three U.S. workers stated they were seriously considering leaving their company, the study shows. That figure—32 percent of workers—is up from 23 percent who were thinking about leaving in 2005. It is even higher among younger workers, with 40 percent of employees 25-34 seriously considering a move.
“Loyalty to employers is eroding,” says Jeanie Adkins, a partner at Mercer’s Louisville, Kentucky, office who focuses on workforce rewards. “Disengagement and just not being motivated is a serious hidden problem and a serious issue.”
Filling the Bonus Pool
In response to the pay problem, progressive employers are thinking harder about their salary and benefit offerings, and in some cases getting more creative, given that the pool of money available for pay and rewards is still relatively small.
Adkins advocates promotions as a way to give star employees significant money rather than simply granting top performers the highest salary bonuses, with others getting lower increases. Money that’s available for promotions is typically separate from the main salary pool, she says, giving employers more options for meaningfully rewarding employees.
“You can spend a lot of time figuring out who’s going to get a 3.2 percent raise versus a 4.2 percent raise,” Adkins says. “CEOs may need to think about what alternatives might there be; what other levers can we pull?”
Van De Voort was intrigued by a client’s response to the issue, one he initially thought made little sense but now wholeheartedly supports.
For years, many companies have opted for a differentiated bonus plan, which gives the top 10 to 20 percent of performers the highest bonuses, with others receiving little or no additional money, Van De Voort says. Or, in other cases, all employees might get the same percentage bonus if the whole company reaches its goals.
Turning that philosophy on its head, the board of directors at Blue Cross and Blue Shield of Nebraska asked management to grant half of the employees in one segment of its workforce a bonus based on “above average” performance, with the other half receiving none. In the past, all employees received the same percentage bonus if the company’s goals were met.
“I found it to be a very powerful approach,” Van De Voort says of the new plan. “It was counterintuitive but … the downside to the typical differentiation plans is that you make 10 percent of the workforce happy but 90 percent unhappy, as opposed to here—with a 50-50 split.”
The plan has some detractors, says Brad Schroeder, director of compensation and benefits for Blue Cross and Blue Shield of Nebraska. “We’ve replaced a program that was considered an entitlement [by some employees],” Schroeder said, “but it was necessary for trying to change the culture and drive performance.”
Regardless of their approach, employers will face tough choices in trying to find the sweet spots for employee incentives and rewards, Adkins says. While not enough money is a turnoff, there’s also a point at which pay increases have little effect on an employee’s performance or engagement. No matter how much you pay, other factors—such as whether an employee feels respected and rewarded—will come into play.
“Still, the key message I want to send out is that organizations should not be complacent,” Van De Voort says. “Employees are clearly more concerned about pay than they’ve been in recent history.”
Meg McSherry Breslin is a writer based in the Chicago area. Comment below or email firstname.lastname@example.org.
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