Whether you are negotiating a collective bargaining agreement with unions or conducting an annual review of compensation plans at your company or organization, one of the first things you hear is the phrase “market based wages.”
In a unionized environment, labor wants management to believe that market based wages mean wages higher than the most recent settlement reached for a particular work group. In other words, classic pattern bargaining. The relative cost of living where your employees live does not matter to the union. Neither does the company’s financial performance. It is all about an ever escalation of wages with little regard for internal or external conditions.
On the flip side, the conventional view of market based wages by management is far more complex than just looking at the most recent settlement. One factor that always comes into play is answering the question -- How much do I need to pay to attract and retain a qualified person to do the job being recruited for?
If I want to review a pay scale or a salary range for a teacher in Columbus, Ohio, will I look at what teachers are being paid in Los Angeles? Highly doubtful. Will I look at what other teachers in comparably sized cities are paid? Yes. Will I look at what increases other public sector employees received in the same city? Absolutely.
If I am considering pay increases for the accountants at my mid-sized firm in Louisville, Kentucky, will I be interested in knowing what KPMG is paying its accountants? I may be interested, but since I cannot compete for that talent, it is not very relevant.
Identifying the critical business characteristics for determining what can and should be paid is a key component in establishing your market based wages.
The bottom line is that companies and organizations cannot ignore competitive, market, and financial conditions. If companies allow themselves to be swayed by pattern bargaining or comparing themselves to jobs in other cities with different demographics or financial situations, they will be doomed to fail in having real market based wages.
Welcome to the Empowering Employers and The Survey Says blog by F&H Solutions Group.
The purpose of this blog is to be a resource for HR and labor relations professionals. It will give you an opportunity to become familiar with F&H Solutions Group, stay abreast of changes related to the human capital industry and develop a better understanding of the attitudes of employees and supervisors. Our blog posts are designed to be thought provoking, educational, and interactive. Things are changing very rapidly in this industry and we hope you can rely on us to be a source of information. We look forward to your comments and hope you find our content helpful. Please feel free to pass the blog link on to others who might be interested.
The case for keeping bonus and retention plans
In the wake of recent disclosures about bonus and retention payments being made at AIG and other larger companies that have received financial assistance from the federal government, a number of corporate boards at public companies are reviewing the compensation plans they have in place for their own management teams.
Sound corporate governance dictates that boards should periodically review compensation programs to make sure they are reflective of the marketplace and competition.
Given all the negative publicity surrounding this issue, should companies be running scared? Absolutely not! The number one concern should always be to attract and retain your high achievers and future stars in an organization.
When determining whether someone should be receiving a bonus and/or retention payment, one needs to ask the following questions:
· How critical is this person to the success of the organization?
· Are other people dependent on this person for their own success?
· What would happen if this person leaves? Is there someone who can take his/her place?
· Is this person a serious risk to leave?
· Do you know if the person is satisfied in the job?
· Are you working on a realistic career development path with this person?
There are plenty of reasons not to want to let a valuable manager leave. That person has important institutional knowledge and could end up at a competitor. You make a big investment in this person’s success. And it can be very expensive to replace someone.
It can cost a company up to 100 percent of salary to replace a mid to senior level manager. Hiring an executive search firm is about 30 percent of the first year’s salary and bonus. Relocation of an executive can add another 10 to 20 percent of salary. Then, add a signing bonus and possibly a higher salary than the person they are replacing, and lo and behold, it cost you a fortune to replace the person you let leave. This doesn’t even take into account the time it takes for the new hire to “get up to speed.”
Of course, there are times when it is fine to let someone leave. But compensation structures that exist in American business are built on variable compensation. Base salary, short and long term incentive compensation plans, equity, and other forms of compensation are all part of the package. That is how managers and executives get paid.
The trick is to makes sure that your plans make sense and are not in such bad taste as to offend one’s sensibilities.
Come up with a well thought out plan to identify who is worth keeping and who you let leave. When you are trying to figure all of this out, ask yourself these two questions: Will my world end of this person is no longer with my organization, and how difficult will it be to replace them?
Design your compensation plan with enough flexibility in it to reward the solid achievers, but don’t be forced to dole out money to people who don’t deserve it.
Is your compensation program designed this way?
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