Compensation Trends 2009 Kmp

1,261 views

Published on

Presentation on trends in base and incentive compensation for Iowa employers. Covers actual findings from 2009 and projections for 2010.

Published in: Business, Technology
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
1,261
On SlideShare
0
From Embeds
0
Number of Embeds
11
Actions
Shares
0
Downloads
50
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Compensation Trends 2009 Kmp

  1. 1. 1 COMPENSATION TRENDS FINANCIAL EXECUTIVES ROUNDTABLE RSM McGladrey, Inc. is a member firm of RSM International – an affiliation of separate and independent legal entities.
  2. 2. Today s Today’s Presenter 2 Kevin Paulsen Director i Di t in RSM M Gl d ’ H McGladrey’s Human C it l consulting practice iin th G t Pl i region Capital lti ti the Great Plains i 20 years of Human Capital experience Specializing in: Compensation & P f C ti Performance Management M t Wage & Salary Structure Incentive Compensation Performance Management/Review Systems High Performance Workplace design Open Book Management & Gainsharing Team Development Participative Management Training Organizational Planning Management Team Roles & Responsibilities Management Assessment & Development
  3. 3. Why is this topic important? 3 Economic recession has had - and continues to have – significant g impact on organizations and employees Retaining (and attracting) skilled employees is STILL critical Total compensation cost usually represent the greatest expense to organizations Emotional issue for employees
  4. 4. Agenda 4 Economic Outlook: The Current Reality y Trends Total Rewards Philosophy Variable Pay The “New Normal”
  5. 5. 5 Economic O l k Th C E i Outlook: The Current R li Reality
  6. 6. Economic Outlook 6 October O b ’09 unemployment rate - 10 2% l 10.2% Increase from 4.8% in early 2008 12 10.2 9.5 9.7 9.8 10 9.4 9.4 Unemployment Rate 8.9 8.5 8.1 7.6 8 t 7.2 6 6.2 6.2 6.6 6.8 5.5 5.6 5.8 2008 4 4.9 4.8 5.1 5 2009 2 0 st pt may y july y nov v dec c jan n march h june e april ct feb b augus sep oc Bureau of Labor Statistics
  7. 7. Economic Outlook 7 Job losses continue in many major industry sectors but declines y j y have moderated in recent months Annual CPI rate (August ‘09) was -1.6% March 2009 was first time since 1955 the rate of inflation for a 12- month period was negative No consensus among economists whether near term will be inflationary or deflationary period.
  8. 8. Economic Conditions and Employee Costs 8 “Employees aren’t g g anywhere in this economy” p y going y y Benefit costs are still rising, particularly healthcare Retirement plan costs being examined or changed Some organizations not worried about compensation in 2010: Frozen salary increase budgets in 2009 or reduced to almost nothing thi Reduction in pay levels, typically a ‘targeted action’
  9. 9. Factors Impacting Comp Planning p g p g 9 •Business conditions and their influence Economic Factors Industry Conditions Costs/Ex penses Costs/Ex penses Industry Conditions n Stagnating or Rising Falling Improv ing Deteriorating Cedar Falls/Wat 11 6 1 2 8 Cedar R id C d Rapids 46 30 0 6 29 Des Moines 7 6 1 0 4 Dubuque 7 4 0 0 6 Iowa City 12 8 0 2 4 Quad Cities 9 5 0 0 7 All 92 59 2 10 58 % impacted 64.1% 2.2% 10.9% 63.0% *RSM McGladrey 2009 Compensation & Benefits Trends Survey
  10. 10. Factors Impacting Comp Planning p g p g 10 •Employment conditions and th i i fl E l t diti d their influence Employment Factors Retaining Key g y Attracting g Motiv ating g Benefit Costs n Benefit C t Rising B fit Costs Ri i Employ ees Employ ees Performance Stabilizing or Falling Cedar Falls/Wat 11 6 1 3 6 0 Cedar Rapids 46 18 5 7 25 0 Des Moines 7 3 0 0 2 0 Dubuque 7 4 2 3 5 0 Iowa City 12 5 4 3 6 0 Quad Cities 9 2 1 1 5 1 All 92 38 13 17 49 1 % impacted 41.3% 14.1% 18.5% 53.3% 1.1% *RSM McGladrey 2009 Compensation & Benefits Trends Survey
  11. 11. Current Environment on Exec Pay 11 Economic Organization Recession Scandals Reforms R f Improved Governance New Compensation and (Executive Compensation Practices) Benefit Environment Reforms Business Congress & Stakeholder Leadership Regulators Groups Groups
  12. 12. Total Reward Trends 12 Reviewing and acting on trend information involves critical q g g questions: What do we want to accomplish? What can we afford to do? What’s i Wh ’ going on iin the market? h k ? Given the above, what actions should we take?
  13. 13. 13 Trends T d
  14. 14. 2009 Salary Increases Increases* 14 National Data Nonexempt Exempt Executive All Industries 2.3% 2.2% 2.0% Not-for-Profit 2.4% 2.3% 2.1% Health Care 2.9% 2.8% 2.5% Utilities 3.2% 3.1% 2.7% Finance/Insurance 2.6% 2.5% 2.1% Retail/Wholesale R t il/Wh l l 1.8% 1 8% 1.7% 1 7% 1.4% 1 4% *Zero increases included Depending on the source, industry and employee g p, anywhere from 30% - p g , y p y group, y 40% of employers froze salaries in 2009. *World at Work 2009-2010 Salary Budget Reports
  15. 15. 2009 Salary Structure Adjustments* Adjustments 15 National Data Nonexempt Exempt Executive All Industries 1.5% 1.5% 1.4% Not-for-Profit 1.3% 1.3% 1.4% Health Care 1.5% 1.5% 1.3% Utilities 2.2% 2.2% 2.0% Finance/Insurance 1.6% 1.6% 1.6% Retail/Wholesale 0.9% 0.9% 0.9% *Zero increases included Approximately half of respondents reported no salary structure movement in 2009 *World at Work 2009-2010 Salary Budget Report
  16. 16. 2010 Projected Salary Increases Increases* 16 National Data Nonexempt Exempt Executive All Industries 2.8% 2.8% 2.8% Not-for-Profit 2.4% 2.4% 2.3% Health Care 2.8% 2.8% 2.8% Utilities 3.3% 3.2% 3.3% Finance/Insurance *Zero increases included 2.9% 2.9% 2.8% Retail/Wholesale 2.9% 2.9% 2.8% *Zero increases included *World at Work 2009-2010 Salary Budget Report
  17. 17. 2010 Projected Salary Increases* j y 17 State Data Projected Base Pay Adjustment (overall) Average Change n Hourly Salaried Executive Last Year - All Groups < 50 FTE 28 1.6% 1.4% -0.1% 2.5% 50-200 FTE 41 2.2% 2.0% 1.6% 2.2% 201-500 FTE 11 2.5% 2.7% 2.8% 3.6% > 500 FTE 12 1.3% 1.3% 1.2% 2.1% All 92 1.9% 1.8% 1.2% 2.4% *RSM McGladrey 2009 Compensation & Benefits Trends Survey *Zero increases included
  18. 18. 2010 Projected Salary Increases* j y 18 State Data Projected Base Pay Adjustment (overall) Average Change n Hourly Salaried Executive Last Year - All Groups Cedar Falls/Wat 11 2.5% 2.3% 1.9% nd Cedar Rapids 46 1.9% 2.0% 1.1% nd Des Moines 7 0.7% 1.1% -0.9% nd Dubuque 7 2.4% 2.2% 2.0% nd Iowa City y 12 1.9% 1.1% 1.2% nd Quad Cities 9 2.1% 1.9% 1.7% nd All 92 1.9% 1.8% 1.2% 2.4% *Zero increases included Zero *RSM McGladrey 2009 Compensation & Benefits Trends Survey
  19. 19. 2010 Projected Salary Increases* j y 19 State Data Hourly Base Pay Adjustment Compared to Last Year Change from previous year Higher Hi h or more Same S Lower or lless L < 50 FTE 4 12 12 50-200 FTE 12 15 14 201-500 201 500 FTE 1 5 5 > 500 FTE 1 4 6 All 18 36 37 % of participants 19.8% 39.6% 40.7% *RSM McGladrey 2009 Compensation & Benefits Trends Survey
  20. 20. Trends in the Market 20 Merit pay still the most p p y prevalent form of increase Nearly five times more common than other forms such as cost of living or lump sums. In some cases, organizations are extending the time between increases (averaging approximately 12.5 months) While a number of organizations are freezing salary budgets, most budgets are finding money – even if not budgeted – to fund at least some pay increases Rewarding those who drive results is key Nearly 80% of survey respondents use some form of variable pay (incentives/bonuses)
  21. 21. Trends in the Market – Aligning Pay and Performance Rating 21 Rewarding high p g g performers and key employees is more important that y p y p ever. Employers are doing a better job of differentiating increases, but have room to improve. Average Increase by Performance Category 6 5.2 4.9 5 4.4 4.2 4 % Increase e 3.4 3.5 3 Mgmt/Exempt 2 1.7 1.8 Nonexempt 1 0 Highest Above Average Below Rating Average Rating Average Watson Wyatt 2009-2010 Salary Budget Report
  22. 22. Trends in the Market – Controlling Employee Costs 22 Cost Containment/Reduction Attraction/Retention Practices Wage freeze/no increases Sign-on/hiring bonus Pay reduction Employee referral bonus Reduction in hours Flexible work schedules Hiring freeze Spot bonus Limit/eliminate overtime Reduction in force Early retirement Increase employee share of health care premiums p
  23. 23. 23 Total R T t l Rewards Phil d Philosophy h
  24. 24. Importance of Establishing a Total Rewards Philosophy 24 Aligns business strategy with rewards Establishes performance/position expectations Establishes a clear employee value proposition Sets direction for program design S o g y encouraged Strongly e cou aged by the IRS for de e d g po e a e S o defending potential excessive compensation issues
  25. 25. Total Rewards Package Example Organization “X” vs Market X vs. 25 Organization X Market 40K Variable a ab e Variable V i bl 35K Pay * Pay * 30K * Variable Pay = Benefits Benefits Bonus/Incentive 25K 20K Base Pay 15K Base Pay 10K
  26. 26. Total Reward Philosophy 26 Identified by senior leadership y p Elements of the total reward philosophy: Reward components and objectives Basis f b l (internall vs. external) B i of jjob value (i t t l) Reward focus Structure Administration Outcome is written document Can b h d ith C be shared with current and prospective employees t d ti l Articulates your ‘value proposition’ as an employer
  27. 27. Total Rewards Philosophy 27 Sample questions for senior leadership: What components will make up our total rewards package? What is the purpose/objective of each component offered? What Wh t results/outcomes will b connected with what reward system? lt / t ill be t d ith h t d t ? Which is more important – how jobs compare to one another internally or how they compare to the external market? y y p Who are our labor market competitors? How should our rewards compare to the market – overall and for each component? Does this differ by employee group? What should be the basis for making adjustments to wages?
  28. 28. Total Rewards Statement 28 TOTAL REWARDS STATEMENT – example verbiage Example Company recognizes that our employees are the key to our success as a community bank, and retaining and attracting employees is critical to achieving our goals and objectives. … Our O totall rewards program supports an organization that continues to experience iindustry change and significant d i i h i i d h d i ifi market competition. … To meet our partnership commitments Example Company will: • Establish a market driven, flexible total rewards program. At the same time, internal relationships between driven program time jobs will be monitored for equity. Progress toward market rates will always depend upon the Bank’s overall financial performance. • Maintain a total rewards program that is competitive with financial institutions for jobs requiring financial and/or banking backgrounds, and all industries for staff and support jobs. Local and/or regional data will be backgrounds jobs considered depending upon the position. • Encourage high performance and reward employees on the basis of individual and/or bank-wide results. • Consider adjustments to wages on the basis of individual performance and labor market conditions.
  29. 29. 29 Variable Pay V i bl P
  30. 30. Performance Criteria vs. Reward Vehicles 30 Performance Criteria Reward Vehicles Job Responsibilities Base Pay Behavioral Competencies Variable Pay Standard (Incentives or Objectives Bonuses) Atypical Results Recognition Value Creation Special Goals or Projects 30
  31. 31. Variable Pay Definitions 31 Bonuses (usually “after the fact ) after fact”) Recognition Project completion Sign-on/hiring Retention Spot awards Discretionary Short-term incentives (“before the fact”) ( ) Formula driven May consider balanced scorecard metrics
  32. 32. Variable Pay Definitions 32 Long-term Long term incentives (usually three to five years) Typically provided only at executive or upper management levels g Encourages key stakeholder thinking Balances short- and long-term decision making Retention In non-profit organizations, typically used to supplement retirement benefits
  33. 33. Prevalence of Variable Pay 33 Nearly 80% of organizations have at least one variable p y p for y g pay plan at least some segment of their employee base Most prevalent in retail/wholesale, manufacturing and banking/finance (84% - 89%) b ki /fi Least prevalent in not-for profit and healthcare (53% - 55%) 80% of organizations reported that variable pay has no impact on base salary budgets for nonexempt workers, while more organizations take it into consideration for exempt and executive/management employees ( 0% & 66% respectively) i / l (70% i l ) *World at Work 2009-2010 & Watson Wyatt 2009-2010 Salary Budget Reports
  34. 34. Rewards – Holiday Bonus y 34 State Data Holiday Bonus - by Employment Current Practice Less than More than Varies on tenure or None offered $200/person for all $200/person for all performance < 50 FTE 14 4 4 6 50-200 FTE 22 9 3 7 201-500 FTE 5 4 0 2 > 500 FTE 9 3 0 0 All 50 20 7 15 % of participants 54.3% 21.7% 7.6% 16.3% *RSM McGladrey 2009 Compensation & Benefits Trends Survey
  35. 35. Rewards – Targeted Incentive 35 Amount State Data Targeted Incentive - by Employment Incentive - Targeted Amount Hourly Supervisory Management Executive < 50 FTE 3.2% 4.5% 10.7% 10.5% 50-200 FTE 1.8% 1 8% 3.6% 3 6% 5.8% 5 8% 10.9% 10 9% 201-500 FTE 1.7% 3.3% 6.8% 11.1% > 500 FTE 2.3% 5.8% 5.0% 32.8% All 2.2% 3.9% 7.5% 12.7% *RSM McGladrey 2009 Compensation & Benefits Trends Survey
  36. 36. Rewards – Incentive Planning g 36 Salaried Incentive Opportunity Compared to Last Year Change from previous year Increased Stayed the Same Decreased < 50 FTE 5 16 6 50-200 FTE 1 23 11 201-500 201 500 FTE 2 5 2 > 500 FTE 1 4 1 All 9 48 20 % of participants 11.7% 62.3% 26.0% *RSM McGladrey 2009 Compensation & Benefits Trends Survey
  37. 37. Prevalence of Variable Pay 37 Despite the economy, variable pay budgets have stayed steady. p y, p y g y y 35 31.4 30 30.7 30 7 30 25 % Budgeted 20 15 11 10 11 10 5 4.7 5 5 0 2008 2009 2010 p Nonexempt p Exempt g Exec/Mgmt Watson Wyatt 2009-2010 Salary Budget Reports
  38. 38. Opportunities and Cautions With 38 Variable Pay Opportunities Cautions Increased compensation Can become and “entitlement” expense iis a variable cost i bl t if not properly communicated t l i t d Depending on plan design, Discretionary bonus typically can reward individuals, teams individuals do not reinforce “pay for pay and/or organization-wide performance” performance FLSA provisions complicate Allows targeted distribution of incentive payouts for non- limited compensation dollars exempt employees who work overtime
  39. 39. Key Design Steps 39
  40. 40. 40 The “New N Th “N Normal” l”
  41. 41. The “Old Normal Old Normal” 41 Inherent assumptions: p Expected and appropriate to increase salary levels every year. Salary increase budgets been averaging between 3.5%-4% for llast fi years t five Employees see a minimal difference between an average salary increase that is 1-2% above or below the “average” increase 1 2% average Incentive compensation is most appropriate for higher level positions
  42. 42. The “New Normal New Normal” 42 Treats investment in people with same importance as other critical strategic investments Working to ‘re-engage’ employees (especially high performers) as the economy recovers. y Recent survey from Watson Wyatt reports employee engagement levels have decreased 10% overall since last year, 23% for top performers. Salary adjustments linked to significant growth in competency, y j g g p y performance, promotion, or labor market movement Reduced frequency and greater differentiation in salary increases based on performance p Replacement of annual salary increase opportunities with incentive compensation eligibility Transparency and work force involvement
  43. 43. Opportunities With the “New Normal New Normal” 43 Challenge y underlying assumptions considering economic g your y g p g conditions that existed when practices were adopted Eliminate certain programs/practices that do not support the culture and direction of your organization, and don’t make sense iin t d ’ d di ti f i ti d d ’t k today’s economy Create the future you would like to see

×