LESSON: 26Activity--Comparing industry trends in pay rates such as IT, FMCG etcFOR FURTHER READING:Article on compensation: Redefining compensation in challenging timesAbstract:Common approaches to compensating employees are reviewed and cost-effectivealternatives for sustaining an organizations critical pool of talent during and following aperiod of economic uncertainty and beyond are discussed. A reasoned approach toconsidering potential changes or managing current programs to maximum effect beginswith an appreciation of current economic uncertainty and a common understanding of thevarious elements of total compensation and their relative costs. Different approaches tomeasuring total compensation will often signal different strategies for managingcompensation costs. Organizations should carefully examine ideas for delivering efficientcompensation, both old and new, in order to survive current economic uncertaintywithout losing the human capital needed for future growth. Tips on long term strategiesare provided that should help manage total compensation to build human capital forsustained competitive advantage.Causes for Concern:On March 9, 2000, the NASDAQ Index hit an all-time high of 5046.86.(1) Since thattime, in what is becoming an increasingly prolonged and troubling period for the UnitedStates and world economy, most stock indexes are down over 10%,- and unemploymenthas increased with over three million jobs lost during this period and the number ofunemployed workers numbering 8.8 million as of April 2003.(3) In April 2000, theunemployment rate was 3.8%, climbing to 4.2% by March 2001 when the recessionofficially started, then climbing to 5.7% by March 2002 when Congress extendedunemployment benefits and then hitting 6.0% in April of this year as this article wasbeing written.More troubling is the long-term unemployment rate (the percentage of the unemployedwho have been out of a job for six months or more), which has hit a high of 21.4% twoyears into the current recession. Weekly unemployment claims have surged this year toover 400,000 since the middle of February.5For even more troubling, longer-term trend data, we can look at mass layoff statisticssince 1996, when first tracked, and note that there has been a steady increase in mass
layoff events (a layoff event involving 50 or more workers) from 14,111 that year to20,269 in 2002. Claimants for unemployment insurance increased from 1,437,628 in1996 to 2,244,631 in 2002, dipping only once during that period for a compoundedannual increase of 56% and an average loss of 111 jobs per event.6Cutting against this somewhat might be continued good news about low inflation rates,which continue to hover below 3%, with core inflation (excluding food and energyprices) at 1.5% for the 12 months ending April of 2003.(7) But aside from a continuingslide in residential home mortgage rates (averaging 5.6% for a 30-year fixed ratemortgage as of May 22, 2003), easing of gasoline prices, and some voicing fears ofdeflation, many seem faced with a different day-to-day picture in prices for commongoods and services, with many items showing annual increases of well over 3% over thelast three years, such as health care, insurance, college tuition, natural gas andentertainment.8Despite rapidly rising costs of health insurance and increases in payments to pensionplans, employer costs for compensation increased at a lower rate than the previous yearfor the third consecutive year.Perhaps even more troubling is increasing evidence of real decreases in salaries forcertain jobs as companies continue to outsource work and export production overseas forincreasingly sophisticated goods and services, including avionics, financial services andcomputer programming.10 At both ends of the spectrum, for the top 10% of earners aged25 and over and for college graduates, there are statistics indicating real earningsdeclines.11Such evidence of troubling economic times is already old news for most employees andemployers alike. Individuals are either losing jobs and finding it tougher to find newwork, even at lower rates of pay, or feeling increasingly uncertain about the jobs theyhold. Employers face increasing global competition, a reduced demand for goods andservices, an uncertain stock market and increasingly vigilant shareholders amidcontinuing revelations about questionable accounting. Such uncertainty demands a freshlook at compensation and a search for alternatives that help to stabilize employment on abasis that once again produces a healthy growth in earnings for companiesMeasuring Total and Relative Compensation CostsMost people think of compensation primarily as salary or perhaps W-2 earnings, which isappropriate insofar as the proportion that wages and salaries represent for mostemployees. But the term can be more broadly defined to include many other provisions ofemployment. With the exception of referral bonuses and lump-sum payments provided inlieu of wage increases that are captured under supplemental pay, so-called variable pay,including incentive payments and other bonuses for company or individual results, areincluded in wages and salaries in the definition above. For the typical professional,technical or managerial employee, variable pay can represent as much as 10% of salaryor as much as 7% of total compensation if this element is broken out and considered
separately, as it should. Actual and relative costs for a single employer do of course varygreatly, creating further opportunities or challenges depending on the composition andlevel of total compensation in each case.When compensation costs are viewed as expectations, with employers budgeting thisexpense based on historical experience, an element that represents a relatively smallproportion of the total cost can increase greatly in significance. This is true in the last 12months, in particular, for health benefit costs and retirement costs. For the latter, it isdefined benefit pension plan costs in particular that have suffered from both the weakstock market that has also affected defined contribution plan investments, as well as lowinterest rates that have obligated employers to set aside additional funds to coverestimated liabilities.13The approximately 10% increase in health benefit costs drove the largest 12-monthincrease in benefit costs since the first quarter of 1992." And these figures tend tounderstate total health insurance costs since they reflect what employers are paying aftermaking benefit plan design changes and cost sharing with employees. Trend rates used byinsurance companies to adjust premiums are running closer to 20% a year. Thus, whilehealth insurance and retirement costs, when taken together, represent only about 10% oftotal compensation costs, when added in with other benefits, they accounted for nearly50% of the annual increase in total compensation costs.15As we move from a global understanding of total and relative compensation costs to areasoned individual company response, a meaningful strategy should begin with arecalculation of costs at the company level to understand the scope of the problem and itsdynamics. Conclusions might be quite different than the national statistics cited here,particularly if individual circumstances vary significantly from the norm. As one wouldexpect, the same BLS statistics shown above vary in some cases quite significantlydepending on region of the country, industry, employment sector, type of worker andunion status.Short-Term Responses to the Recession (Post 9/11/01)As many other surveys also demonstrate, short-term employer responses to the recession,while somewhat predictable overall, also reflect a variety of approaches based onindividual circumstances. If not already a part of your companys response to economicuncertainty, many of the following tactics may be necessary, if not entirely satisfactory:* Layoffs* Hiring freezes* Salary cuts* Reduced salary increase budgets
* Greater time between salary increases* Reductions in variable pay.Over the longer term, however, it is important to develop strategies that go beyond simplecost-cutting measures to find creative and cost-efficient ways of delivering different typesof compensation tailored to individual needs and circumstances.Perhaps because the effects are felt so immediately, and the effort expended is oftenminimal, layoffs appear to be every companys first response to poor economic results.Rut the rewards that Wall Street habitually bestowed upon firms and CEOs with instantincreases in stock prices following a major layoff are not so automatic anymore. Masslayoffs produce immediate savings along with many longer-term costs. Some estimatesput the costs to companies of hiring a replacement for each laid-off employee at 1.5 timesthe salary of the departing employee, although this can vary widely based on the type ofjob, company and industry. For nonexempt employees, the figure may be closer to .75times salary, while for professional employees; two times salary is more realistic.16The difficult question to answer is whether layoffs are really always in the best interestsof the company. Do circumstances always require such a drastic action? Media reports onlayoffs often suggest that little effort was made to protect key talent. If so, how does thishelp a company build long-term value? While it is hard to obtain information on theeffects of layoffs or even how they were handled, it is pretty safe to assume that value isdestroyed by making hasty and wrong decisions about whom to lay off, undermining themorale and motivation of those left employed, not having a clear strategy for how torestaff when business improves and/or having to quickly hire people to replace some ofthose laid off.17 All of this is to suggest that layoffs are not necessarily the best responseto uncertain economic times. Despite quick cost savings, there is a longer-term price to bepaid in future growth potential.18 but few companies really seem committed to retrainingexisting employees, preferring to churn for newer skills.19A more measured response for a broader segment of companies has been to freeze orslow down hiring of new employees until the need for more help becomes clearer. Asemployees leave voluntarily, companies have been much slower to replace them.While salary cuts for an existing work force are still quite rare, some companies havechosen this path as preferable to a layoff. Some have also asked employees to take unpaidleaves of absence to cut costs during periods of slow demand.One survey of 660 companies seeking to measure responses to 9/11/2001 in particularand to the recession in general found about 35% (231 companies) planning some actionor change to current policy. About 60% of these companies cited layoffs, 42% mentioneda hiring freeze, and 40% noted a lengthening of the time between merit increases andonly 7% indicated salary cuts for all employees as an action.20
Most typically, employers are reducing the amount budgeted for annual salary increases.All of the 231 companies either implemented or planned to implement a 2002 salaryincrease budget change, with 89% making changes on a company wide basis. Theaverage decline in salary increases among these companies for exempt and nonexemptemployees was about 32%, slightly higher for executives and slightly lower for hourlyemployees. Thus, salary increase budgets that were around 4.5% before the changebecame 3.1% after the change.21Of all the possible responses to economic uncertainty, the one that deserves the mostattention is variable pay. By definition, these are pay plans that many companies alreadyhave in place where pay is not fixed, but rather varies with, most typically, companyfinancial results. So even if the employer does not make any overt design change to thevariable pay plan itself, changing the target incentive payments, for example, the actualpayouts under the plan represent a reasoned and predictable response to hard times and avery responsive mechanism for attracting and retaining key talent while managing costs.Companies that have already leveraged their compensation plans with a high degree ofvariable pay are much better situated to weather a downturn, as compensation costsautomatically go down when company financial objectives are not achieved. Rather thanhaving to lay off valuable employees, these companies and their employees are able tomake do with less until business conditions improve, when the very same variable payplans are designed to deliver additional compensation for improved results.Of course, variable pay plans can also be changed in response to economic uncertainty,particularly if they are designed to pay out generous awards even when financial resultsare poor. Repeated changes to plan design are of course far less preferable to letting theplan payout formulas serve as the corrective tool. For example, of 193 respondents to onesurvey on the impact of economic uncertainty on broad-based variable compensationpayouts, 54% indicated that payouts would be reduced (41% significantly and 13%slightly)Longer Term Strategies for the FutureSome companies always manage to succeed where others fail during a recession. In somecases, macroeconomic forces simply overwhelm all other explanations for the success orfailure. Telecommunications companies that have done well over the last few years arevery hard to find indeed; many in the industry have simply failed altogether. If yourcompany is in the business of providing personal or corporate security, it is difficult notto succeed. But if we ignore the worst- and best-situated companies and the worst- andbest-managed companies, that leaves most companies striving to gain competitiveadvantage, both now during trying times as well as later when the economy finallyimproves. For these companies, there are sustainable, longer term compensationstrategies that will help avoid the need for layoffs and prove to be much more profitablethan simply cutting payroll every time the numbers fall below expectations.The time for sensible, long-term thinking and planning may never be better. Accountingscandals and an excessive focus on short-term reported profits have left many investors
and shareholders willing to trade immediate gains for long-term stability in earnings.Here are ten tips on strategies that should help manage total compensation to build humancapital for sustained competitive advantage:1. Develop, implement and maintain a total rewards strategy.2. Manage the relative mix of fixed and variable pay.3. Maintain a flexible pay increase cycle.4. Control hiring of new staff and 611 openings from within.5. Redesign work for more flexible work schedules. 6. Identify and sustain criticalcompetencies.7. Stay abreast of changing competitive market rates.8. Monitor salary ranges and individual salary range penetration.9. Communicate total compensation philosophy, development and administration.10. Tailor rewards to individual performance.Not all of these strategies are appropriate for every company, and even where many are,they cannot be tackled all at once. Many are simply reminders of what we all alreadyknow, and most deserve and have received more detailed treatment than what is possiblehere. Lets briefly consider the advantages of each compensation strategy for leveragingyour human resource potential in trying times and beyond.1. Develop, implement and maintain a total rewards strategy.First, it is important to have a total rewards strategy that recognizes the limitations oftraditional, narrow definitions of compensation and goes beyond these boundaries toinclude other value-added elements of the employment relationship. If you dont alreadyhave one, much can be learned from the process of developing such a strategy.Begin with a simple redefinition of compensation to include every conceivable aspect ofthe employment relationship. Articulate the companys business and human resourcestrategy. What are the organizations core competencies, what human resources areneeded to support these competencies, what types of compensation are being offered bycompetitors for talent to their employees and what are your employees rewardpreferences? From this, one can develop a detailed list of rewards for furtherconsideration. Each item on the list can then be tested for three criteria: (1) desirability-Do employees indicate a high degree of preference for this element? (2) Effectiveness-Does it contribute to the achievement of reward program objectives? And (3) costing
absolute and relative terms. The result will be to build a value-added, employment-relatedinventory of rewards prioritized to support your companys investments in human capital.Items that end up at the top of the list are often surprising. Pay and benefits, whileimportant, usually rank lower than many other items. For example, in one approach tomeasuring the relative importance of various factors, Aon Consulting, in their annualstudy United States(C) Work, categorizes the drivers of employee commitment into the inand the top drivers in eachClearly, more traditional pay and benefit items also matter, and cannot be ignored.Nevertheless, a focus on work/life programs and training and development can oftenmake the difference in creating and maintaining a committed and productive workforcethat ensures long-term business success.2. Manage the relative mix affixed and variable pay.Variable pay is not only a safety valve for controlling what is often the single largest costof doing business; it represents perhaps the single most powerful tool for directingtactical and strategic behavior. Paying for performance, if properly executed, helps ensuresurvival and longer-term success under even the worst macroeconomic conditions.The mix itself should be tailored to the sector, industry, business or product life cycle,and job. Variability must be clearly tied to results that are subject to at least some degreeof human control. A recession, a war, unusual weather or other largely uncontrollablecircumstances are always factors to contend with and sometimes overwhelm all otherconsiderations. The influence of these is acceptable as long as performance can otherwisebe affected by human intervention and control and rewarded appropriately.Where sectors or industries are relatively stable, businesses and products mature, and jobsnecessarily routine, there should be little or no variable pay element. But in moredynamic and competitive industries, rapidly changing technologies or consumerpreferences, and professional, technical and/or managerial jobs where individualcompetencies and performance can make a difference, the variable pay element should benoticeable (approaching 10% of base salary) to significant (50% or more of base salary).3. Maintain a flexible pay increase cycle.An uncommon practice worth exploring further is to manage not only the amount, butalso the timing, of salary increases. Moving from a 12-month to an 18-month payincrease cycle could help delay the need for painful job cuts at precisely the time at whichcritical talent is needed to launch a new product or develop a more competitive service inanticipation of a rebound in consumer demand. While this approach may not be feasiblefor many for a variety of reasons (union contracts, employee expectations and morale,high turnover), it might make more sense for fragile start-ups with an employeecommitment to succeed, or where companies have little or no opportunity to offervariable pay, and where the cost of living remains stable. As a longer-term strategy, a
company may find it beneficial to reshape expectations as to the timing and compositionof pay. In fact, an initial extension of the pay increase cycle might be most effectivelycombined with an introduction to variable pay and a significant lump-sum award, tosignal a change in policy and to introduce significantly greater flexibility in thecompensation program.4. Control hiring of new staff and fill openings from within.An ideal way of managing compensation costs is to marry the need to slow the growth inpayroll with the challenge of providing meaningful developmental and promotionalopportunities for existing staff. While the ideal skill set may not be immediately availablefrom within the ranks, patience and a little training may provide a better long-term assetwho is more motivated and committed than an onside hire. The multilevel opportunity tomanage compensation cost is readily apparent: A promotion to fill the initial job openingfrom within is usually cheaper than hiring an experienced employee from the outside,while the job vacancy created by such a move offers additional opportunities to promotefrom within, moving the vacancy down to a significantly lower level and lower cost jobwhere it is eventually filled from the outside.5. Redesign work for more flexible, part-time work schedulesThe combination of an aging workforce, the difficulties of managing work and family fora couple on a dual career track, the demands of a younger genera ration for more freetime and the lower costs of part-time employment offer companies many reasons forpromoting flexible work schedules. Among the options are reduced work schedulescoupled with significant opportunities for telecommuting, job sharing, multiple reducedhour shifts (e.g., four-hour shifts in lieu of eight-hour shifts) and other tailored workschedules where employees and their employers exchange time for money in new andcreative ways that benefit both parties, giving employers lowered salary and benefit costsand employees a cushion of highly valued time at a reasonable price.256. Identify and sustain critical competencies.Any company that believes the key to competing successfully in a global economy is thequality of its human capital should be defining precisely what competencies it needs,which are available, which need to be developed, and/or acquired and how. There ismuch useful literature on the subject of competencies.26 Suffice it to say here, theessence of the matter is the notion that traditional definitions of competence that arerestricted to knowledge, skills and abilities can fail to capture harder-to-measure qualitiesthat often account for success. These critical competencies vary by job, but might includesuch individual attributes as attention to detail, propensity to take the initiative, habit ofbuilding consensus, willingness to compromise and refusal to give up under the toughestcircumstances, to mention a few. Among other considerations, a companys costs toacquire and develop these types of critical
Qualities are often less than the costs associated with academic degrees, years ofexperience or other easily identifiable characteristics of competence, especially to theextent that the expected correlation between the more traditional and these more subtlebehavioral qualities fails to hold up in an individual circumstance.7. Stay abreast of changing competitive market rates.As pointed out above, competitive market rates are constantly changing and, in recentyears, for some jobs, even declining. Job candidate expectations for starting salaries maynot be realistic. In any event, while it may seem obvious, it is more important than ever tocheck published as well as private and other sources of salary data as frequently as everysix months to a year (depending on the job) to ensure that you are not overpaying fordefined job duties and responsibilities. Where internal rates of pay increase have alreadyslowed, and supply of skills, in contrast to the end of the last decade, have nowoutstripped demand, employers should and can manage new hire and retention costs bystaying abreast of the market.278. Monitor salary ranges an individual salary range penetration.Make sure salary ranges are set as precisely as possible to reflect current market rates forbenchmark jobs. Also, are jobs assigned to the appropriate salary ranges within theoverall structure? Finally, salary increases can be slowed or capped depending on salaryrange penetration in relation to experience, skill or other critical competencies. Thefactors that determine salary range placement can he weighted and scored so that thedesired location of the salary within the salary range can he compared to the actuallocation, with differences handled through increases or decreases to the planned meritadjustment. While so-called merit matrices are not popular with employees, a less rigidand more individually tailored approach will not only help manage costs but also helpensure internal equity.9. Communicate total compensation program philosophy, development andadministration.Employees are generally more aware of what their employer does not provide than of allthe various elements of the existing total compensation program. Expenditures on pay,benefits and other rewards are wasted if they are not understood and fully appreciated.Appreciation, and the commitment that comes with it, are only realized if communicationgoes beyond a simple explanation of each benefit to its relative cost, the companysrationale for making the benefit or reward available, some assistance in providing easyaccess, smooth administration of benefits and efficient resolution of disputes.10. Tailor rewards to individual performance.
Much has been said about pay that varies with performance. In its broadest and oldestincarnation, profit sharing or gain sharing, performance is measured, recognized andrewarded at the enterprise level. This is good. It generally builds commitment, reinforcesthe profit motive and remains highly sensitive to economic conditions. But as the sayinggoes, a rising tide lifts all boats. As the tide recedes, should we try to rescue all boats or isit better to leave some stranded?A final suggestion then, is to be vigilant about individual performance and differentiate.Without trying to be punitive, this vigilance is more to ensure that the team will excelthan to elevate the few to the status of superstars. We believe in our superstars, and weinevitably need them. But just as championships are generally won when the individual isable to channel effort and talent toward maximizing collective rather than individualperformance, so does the successful enterprise thrive on effective teamwork that dependson all team members performing to the best of their abilities.Much worse than the selfish superstar is the under performer who undermines not onlyresults, but also the spirit to improve those results. Truly inefficient compensationrewards the laggards as much as the contributors. Thus, it is equally if not more importantto weed out the truly subpart performers as it is to elevate and reward the outstandingfew.This is, of course, easily said, and easily agreed to. The real challenge is to make ithappen. To root out mediocrity where it thrives, to unleash potential where it exists, is thechallenge of all organizations-the larger and more bureaucratic, the greater the need. Assoon as one mediocre, lazy, insecure, power-hungry or purely political individual reachesa position of authority, blocking more talented and deserving individuals from reachingtheir potential, the entire system begins to break down.So, if we have to cut staff for financial reasons, lets at least take the time to identify theproblem employees, 28 at whatever level of the organization, all the way up to the CEO,and prune fur future growth, rather than playing a numbers game to reduce specifiedheadcount with across-the-board cuts in positions.The Next Steps for Ensuring SuccessThere are hopeful signs that the economy may be getting back on its feet even as thisarticle is being written.29 Whether we finally have a robust recovery, a continued periodof uncertain growth or further stagnation, the time to act is now, to prepare your companyfor any eventuality. Regardless of what specific initiatives you may be pursuing, thefollowing steps, if not already incorporated in your game plan, represent logicalmilestones on a road map to greater stability:* Establish a baseline of total compensation elements and costs.
Develop line-item budgets for each compensation element and strategy. • Calculate current and projected unit costs for each line item.* Assess the relative short- and long-term impact of possible initiatives.* Implement compensation program changes.* Measure the results.Understand all of the elements of the employment relationship that compensateemployees for what they do, making sure you know what each item does and should cost,so that alternatives can be evaluated, implemented and ultimately tested for effectivenessFactors determining pay rates:Let us discuss about main factors which determent the pay rates in an organization:Following are the main steps involved in determining wage rate – performing jobanalysis, wage surveys, analysis of relevant organizational problems forming wagestructure, framing rules of wage administration, explaining these to the employees,assigning grades, and price to each job and paying the guaranteed wage* The process of Job Analysis: - A Job analysis describes the duties, responsibilities,working conditions and inter-relationships between the job as it is and the other jobs withwhich it is associated. It attempt to record and analyses detail concerning training,skills, required efforts, qualification, abilities, experience and responsibilities expected ofan employee. A job is rated in order to determine its value elative to all the jobs in theorganization that are subjected to evaluation.* Wage Surveys: - Once a worthwhile job is determined by job evaluation, the actualamounts to be paid must be determined. This can be possible when, wage or salarysurveys in the area concerned. This survey will give lot of answers for questions like –what are other firm pay? What are they doing by way of social insurance? Etc., bygathering information about benchmark jobs that are usually known as good indicators.A wage survey to be useful, if following points should be taken into account.
* Frequency: - To know that particular wage structure in different companies used tochange rapidly.* Scope: - It is the number of particular firm in that locality.* Accuracy: - The diversity in job titles, and specific job duties is staggering.* Relevant Organizational Problems: In addition to the results of job analysis andwage surveys, several other variables have to be given due consideration in establishingwage / pay structure.* Preparation of Wage Structure:Once above steps are determined next step is to determine the wage structure, it can bedone by several ways, whether the organization is able to pay amounts/wages to theemployee, how it is? Whether the wage/pay ranges should provide on merit basis.Which jobs are to be placed in each of pay grades – the actual money value to be assigned to various pay grades etc.FOR FURTHER READING:Article On Pay Rates:Coke Issuing Widespread Pay IncreasesAbstract:Under court orders, Coke has not yet disclosed the terms of a settlement of a majorracial discrimination suit. And many black employees, fearful that Coke is trying toavoid the stigma of a large cash payment and any guilt that might imply, areaccusing Coke of trying to appease disgruntled workers so that a small settlementwill seem more palatable when the terms are announced next month.Coke officials vehemently denied the accusations, noting that Mr. [Douglas N. Daft]personally promised all employees that the company would review its compensationpolicy in May, one month before a settlement was reached. Since that time, thecompany said, it has undertaken an extensive review of 500 other companies in avariety of industries, including direct competitors like PepsiCo, consumer productgiants like Procter & Gamble and even Internet companies like Yahoo. Coke alsoexamined what its employees were paid case by case. So while the raises did occurwithin weeks of the final settlement, there was no connection between the two, thecompany said.Full Text:Copyright New York Times Company Oct 20, 2000
Struggling to retain employees after a turbulent year, the Coca-Cola Company hasinstituted sweeping salary increases for the first time in at least two decades, according tocompany officials.The raises, ranging from less than $1,000 to as much as $15,000, came after the companydetermined that many of its workers were paid less than their counterparts at other largecompanies, a criticism Coke employees have leveled for years.Company officials did not disclose how many workers were affected, but characterizedthe number of increases as significant, involving United States employees at every levelof the company, from entry-level assistants to corporate managers. Though longtimecompany officials could not remember a precedent for such widespread raises, theydescribed the move as necessary in light of a turnover rate that has been increasing allyear. Now at 12 percent, it is sharply higher than any other year since 1996, even with theelimination of 5,200 positions this year.The raises are the latest in a series of steps taken by Douglas N. Daft, chairman and chiefexecutive, to repair sagging confidence in a company once known for its employeeloyalty. Dispirited by the layoffs, a stock price that has fallen by roughly a third in thelast two years and the taint of a racial discrimination lawsuit, roughly 1,000 of 8,600Coke employees in the United States are expected to leave this year. Among those whoremain, many describe a corporate atmosphere riddled with apprehension and distrust.Shares of Coca-Cola fell $1, to $57.19 yesterday.To bolster morale, Mr. Daft has initiated a permanent casual dress code, institutionalizedhalf-days on Fridays in the summer and issued early bonuses in August. And despite aslowdown in the domestic soft- drink market, Coca-Cola stock has rebounded somewhatin the last month, a boost for the many employees with stock options. But many currentand former employees, as well as some of their lawyers have viewed the pay raises withsuspicion.Under court orders, Coke has not yet disclosed the terms of a settlement of a major racialdiscrimination suit. And many black employees, fearful that Coke is trying to avoid thestigma of a large cash payment and any guilt that might imply, are accusing Coke oftrying to appease disgruntled workers so that a small settlement will seem more palatablewhen the terms are announced next month.They think its clearly a tactic to lure people into accepting a bad deal, said Willie E.Gary, who filed a separate $1.5 billion lawsuit in June on behalf of four black employeesaccusing the company of racial harassment and discrimination. Since the pay raises tookeffect two weeks ago, Mr. Gary said he had received letters and phone calls fromnumerous Coke employees who had interpreted the raises to mean that the settlementwould not meet their expectations. They think its a total slap in the face to people whodeserve more.
Coke officials vehemently denied the accusations, noting that Mr. Daft personallypromised all employees that the company would review its compensation policy in May,one month before a settlement was reached. Since that time, the company said, it hasundertaken an extensive review of 500 other companies in a variety of industries,including direct competitors like PepsiCo, consumer product giants like Procter &Gamble and even Internet companies like Yahoo. Coke also examined what itsemployees were paid case by case. So while the raises did occur within weeks of the finalsettlement, there was no connection between the two, the company said. What we havelearned throughout this process is that -- despite our best efforts -- there are someindividuals that we will never win over, said Ben Deutsch, a Coke spokesman.The company said it expected much of the heightened tension to dissipate in the comingweeks, when as many as 2,000 current and former black employees find out how muchmoney they are entitled to receive for a 1999 lawsuit contending that Coke deniedpromotions and raises on the basis of race. But many employees have indicated that,barring a surprisingly large payment, they plan to opt out of the settlement and pursuelitigation independently, potentially prolonging an issue that the company is anxious toput to rest.Article 2:Pay Banding Spooks Some Workers, Makes Sense to OthersAbstract:For example, some Homeland Security employees who participated in focus groupsduring the summer "voiced reservations about pay banding and other performance-based alternatives," said a report prepared for the Bush administration by theconsulting firm of Booz Allen Hamilton."In particular, the pay banding and simplifying the appeals process are good moves,"[James Colvard] wrote. "The argument that federal managers cannot makejudgments about the performance of their employees is specious. It has been proventhrough many years of application of the system within the Navy that they can anddo make those judgments and that they are well accepted by the employees."Pay banding, Colvard said, "requires more investment in first- line supervisordevelopment, which in itself is a good thing. Also, pay banding quickly identifies thebetter managers within your organization."Full Text:Copyright The Washington Post Company Oct 22, 2003The possibility that civil service employees at the Defense and Homeland Securitydepartments may be taken out of the General Schedule and put into "pay banding"systems has created some concern in those workforces, which are among the largest inthe government.
For example, some Homeland Security employees who participated in focus groupsduring the summer "voiced reservations about pay banding and other performance-basedAlternatives," said a report prepared for the Bush administration by the consulting firm ofBooz Allen Hamilton.Those employees "did not understand pay banding or the need for it," the report said. Inparticular, the employees were concerned that managers would have too much discretionover pay decisions and that new hires would end up being paid at a higher rate thanexperienced employees, the report said.Numerous employees are unsettled by the prospect of giving up the General Schedule,with its 15 grades and within-grade pay raises, for a system that combines two or moregrades into wide salary ranges and that may not guarantee a pay raise at regular intervals.Many of them say that they already see bosses playing favorites or that they work in alarge agency where the boss does not know the front-line employees all that well.With those observations, here are two against-the-grain reactions taken from the Diarymailbag:James Colvard, a former Defense Department employee who served as deputy director ofthe Office of Personnel Management in the Reagan administration, said he supports muchof the Pentagons plan to revamp its civil service rules."In particular, the pay banding and simplifying the appeals process are good moves,"Colvard wrote. "The argument that federal managers cannot make judgments about theperformance of their employees is specious. It has been proven through many years ofapplication of the system within the Navy that they can and do make those judgments andthat they are well accepted by the employees."Pay banding, Colvard said, "requires more investment in first- line supervisordevelopment, which in itself is a good thing. Also, pay banding quickly identifies thebetter managers within your organization."A former civil service supervisor for the Navy, who spoke on condition of anonymity,said he believes that "pay banding is a good deal for employees overall."He explained: "Most people benefit in that they get more frequent pay increases than theymight normally get; people can move higher, quicker; and managers have more flexibilityin rewarding top performers. My caveat is that management must avoid the temptation tomanipulate the system. Those implementing must take the time to fully explain theprocess and make sure the employees understand the system, its benefits, and be honestabout its shortcomings."An interagency personnel management group, the Chief Human Capital Officers Council,has set up five subcommittees to work on federal workforce issues, said Kay ColesJames, director of the Office of Personnel Management.
The panel chairs and their issues are: David Chu of the Defense Department, the hiringprocess; Otto Wolff of the Commerce Department, performance management; WilliamLeidinger of the Education Department, leadership development and succession planning;Patrick Pizzella of the Labor Department, employee conduct and poor performers; andGail Lovelace of the General Services Administration, emergency preparedness.What are important factors to consider during the enrollment season for the FederalEmployees Health Benefits Program?Richard G. Miles, president of the Government Employees Hospital Association, thehealth plan known as GEHA, will take questions and comments at noon today on FederalDiary Live. Please join us at www.washingtonpost.com/liveonlineArticle-3Survey: Pay: Priced out of a jobAbstract:In much of the world the business of setting pay is still extraordinarily inflexible.Unions and the law get between employer and employee. Still, downward pressure ofprices is strongest in precisely those countries where pay structures are most rigid,and companies are desperately looking for ways to cut labor costs. For employers inmany countries, slower price rises aggravate a broader problem. The way they havetraditionally set pay no longer squares with the way their businesses work. Just aspay bills are becoming a bigger share of total costs, employers have to deal with thewaning of the inflation that prompted the ritual of the annual pay round in the firstplace.Full Text:Copyright Economist Newspaper Group, Incorporated May 8, 1999[Headnote]What happens to pay if prices are static, or falling.A FEW years ago a row broke out at Viessmann, a German engineering firm. The firmwanted to launch a new type of boiler. Because of high labour costs in Germany, it toldits workforce, it would produce the new model in the Czech Republic. The workersoffered to increase their working week without extra pay to stop the new jobs from goingabroad. But their trade union, the dogmatic IG Metall, took the company to court,claiming that the deal broke the collective agreement it had negotiated with the industrysemployers. In the end a compromise involving a modest increase in working hours keptViessmanns new plant in Germany, creating 16o new jobs.Such machinations may sound outlandish to British or American ears; yet in much of theworld the business of setting pay is still extraordinarily inflexible. Unions and the law getbetween employer and employee. Still, downward pressure on prices is strongest inprecisely those countries where pay structures are most rigid, and companies are
desperately looking for ways to cut labour costs. So what happens to pay rituals whenincreases in workers living standards come mainly from falling prices? And how canemployers reward their best workers when they cannot afford to add to the wage bill?These questions are most urgent in Japan, where the traditional "spring wage offensive"to set basic pay for blue-collar workers still survives. But some awards are "symbolic", inthe view of Atsushi Seike of Keio University-such as the rise of Y5oo a month, worth allof $4, recently negotiated by the union for computer and electronic-goods workers. True,it avoided the indignity of a pay cut. But all sorts of other methods, such as stoppingovertime and cutting bonuses, are squeezing earnings.In Argentina, where cutting pay is against the law, companies are also slashing overtimeand bonuses. Any staff change is a chance to slim the payroll. Ro- dolfo Ceretti, directorof industrial relations for Fords ageing plant on the outskirts of Buenos Aires, recalls thathis excellent secretary, recently retired after working at the plant for a quarter of acentury, was paid $2,50o a month. Her successor gets $1,400.In Germany, the downward pressure on pay threatens to blow apart the whole system ofcollective bargaining, which has dominated pay setting for half a century. In February, IGMetall negotiated a 4.1% across-the-board rise with an employers federation dominatedby big firms such as Daimler Chrysler. "They have reasonable profits, and they will putpressure on their suppliers, who are bound by the same agreement," says Claus Schnabelof the Institute of German Economy in Cologne. "So an unprecedented tension isbuilding up between the small and middle-sized firms and the multinationals, which caneither transfer jobs abroad or increase their productivity."The tension may blow the employers association apart. The only safety valves, so-called"opening clauses" that allow companies to set aside the agreement under certainconditions, are being used increasingly in other industries to avoid the rules being openlyflouted. But the metalworking union refused to consider even the sort of agreementnegotiated in the chemical industry, which allows larger pay, rises for profitable firmsonly.In none of these countries-and indeed not even in the United States-have people thoughtseriously about the consequences if regular across-the-board pay increases become athing of the past. Yet a long period of falling-or even just stable-prices would meanprecisely that. Without regular pay increases to negotiate, what would trade unions do?Outside the United States and Britain, they remain powerful organizations, often withpolitical as well as economic clout. That is unlikely to survive if they have nothing moreimportant to do than lobby on issues such as health and safety.Promoting flexibilityFor employers in many countries, slower price rises aggravate a broader problem. Theway they have traditionally set pay no longer squares with the way their businesses work.In the past, pay has been based partly on experience, partly on readily measurable skills
and qualifications, and partly on length of service. "When I started work in the 197os,"recalls Vicky Wright, global head of remuneration and benefits consulting for HayGroup, a pay consultancy, "a lot of people would join a company at 16, 18 or 21 andexpect to stay right the way through. The company would recruit people only at thoseages. Now companies recruit at all ages, all the way down from chief executive."One reason why employees move about a lot more is that many companies have mutated.Thus, as George Baker of Harvard Business School points out, Greyhound no longeroperates buses, and American Can has become Primerica, a retailer and financial-servicesgroup. Different businesses need different employees. Even companies that stay in thesame business may change the way they work and therefore the sort of employees theyneed; or they may merge, or shrink (see chart 4, next page). So gone-or at least going-arethe days when people like Charles Brown, erstwhile boss of AT&T, could start a careerrepairing telephone lines with a company and rise to become its chief executive.Because of increased turnover, both employers and employees these days have a muchbetter idea of the going rate for the job. And bosses have become more aware that theirbest people may defect, taking their knowledge, their contacts-and perhaps even theircolleagues. Pay therefore has to take more account of the outside market. That is hard todo under the old system, with its emphasis on seniority and promotion as the main routesto higher pay. Besides, those routes now often lead nowhere. In Japan, according to KenOkamura, a strategist with Dresdner Kleinwort Benson, the birth rate has been so low thatthe working-age population will actually start to decline next year. But companies havemore ageing white-collar workers than they could possibly promote even if demand wererising, not falling. At the same time, Japans modest deregulation is forcing thosecompanies to hire more market-oriented staff-putting them in hot competition withforeign companies, which have always had wider differentials and more flexible pay.In the United States, delayering of the management structure has had a similar effect."The main way you get rewarded in most firms is to get promoted," says Chicagos MrPrendergast. He remembers looking at one company with 25,000 employees that boastedno fewer than 18,000 job titles: "Lots of people have discovered belatedly that job titlesare the cheapest way to pay people." But many companies have found layers animpediment to flexibility, and swept them away.The latest thing is "broad banding"-creating a few wide bands within which employeescan move sideways or upwards. An example is Lloyds TSB, a British retail bank formedby a merger in 1996. "We knew we couldnt adopt either [firms] pay structure," says TimWilson, head of reward. "To do so would have left many people above the top of theirpay scale, demotivated by the knowledge that they had no hope of an increase." Instead,the bank collapsed 16 grades into eight, each linked to market rates for particular jobs."The purpose is to make staff more aware of the external market and its movement," saysMr. Wilson.Pay rises themselves need to be more frugal than in the past. Just as pay bills arebecoming a bigger share of total costs, employers have to deal with the waning of the
inflation that prompted the ritual of the annual pay round in the first place. For mostpeople, the idea of smaller nominal pay awards still goes against the grain. "Look at this,"shouted a trade unionist at a staff meeting of a British bank, brandishing a loaf of bread, acarton of milk and a tin of beans. "Thats what the increase they are offering will buyyou." It had an electric effect-and yet in future, many employees may be lucky to receivean increase at all.How to manage when largesse is out of the question? The best place to look is America,where a long period of low inflation has taught companies ingenious ways to eke outmodest budgets.