Category Archives: Compensation

Helping Compensation Catch Up

Source: Paula M. Singer and Lorraine Kituri, HR News, Vol. 79 no. 2, February 2013
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… But despite significant shifts in management philosophies, perspectives and practices within public sector organizations, the model for employee compensation has largely remained stuck in the past… Of course, one of the most difficult challenges we face in bringing new thinking to public sector compensation is the Catch 22 of needing to make change during a financial crunch—when, historically, the solution has been to cut personnel, cut hours, mandate furlough days or cut pay. Following are five critical ideas about moving compensation forward in the public sector that are not reliant on external forces for success….
Practice #1: Help Leadership Understand the Complete Compensation Picture
Practice #2: Breakout of the Compensation = Retention Box
Practice #3: Talk Openly About Reality
Practice #4: Consider Creative Pay Structures
Practice #5: Participate More Actively in the Compensation Conversation…

Transforming Benefits Financing and Design

Source: Don R. Heilman, HR News, Vol. 79 no. 2, February 2013
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The last 10 years have created a unique challenge among public sector employers in establishing, and delivering on, an organizational total compensation strategy. A number of factors have contributed to, or exacerbated, this challenge:
■ Initial Shift in Total Compensation
■ Economic Downturn
■ Lagging Recovery
■ Higher Benefits Costs
■ Retiree Health

… The net effect of these impacts is that the public sector’s costs for benefits have increased at a greater rate than for the private sector, and now represent an even greater proportion of total compensation than in prior years. This creates a real dilemma, in both finding the revenues and in convincing elected officials and policy makers to increase salaries to attract and retain talented employees without some tradeoffs in the level of benefits…

The Problems of and the Solutions for Pay Compression

Source: Jim Fox and Bruce Lawson, HR News, Vol. 79 no. 2, February 2013
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It has been said that every organization runs the risk of pay compression. Pay compression is when either a) a subordinate is paid more than their supervisor, based on regular, not overtime pay, or b) when a less tenured employee is paid more than the more senior tenured colleague in the same job… The latter form of pay compression is the most common—or at least it has been in more recent years. This is because organizations have held pay increases to a minimum, but new employees are paid a salary to attract them. Organizations have had to do this just to fill vacant positions. This problem becomes more severe in economic downturns, but it occurs even in better economic times due to the way pay increases are managed. The former situation usually is most evident in pay systems where lower level jobs, either through union contracts or other market forces, create a situation where first-line supervisors are paid less, on an hourly basis, than their subordinates…. Either form of pay compression is a symptom of a pay system that is not being administered correctly or not keeping up with the salary movement. At its worst, pay compression generates legal action, equal pay claims (sometimes unwarranted in our opinion), or, at its least, a serious employee morale problem….

Salary Freezes Begin To Thaw, Turnover Rockets Upward

Source: Mark Hrywna, Nonprofit Times, February 1, 2013

…Salary freezes have been a common story across the country. But now four years after the national economy began its plunge, some nonprofits are beginning to open the purse strings – at least a little – when it comes to salary increases, for both general staff and executives.

Nonprofit staff were the beneficiaries of a projected 3.03 percent average salary increase during 2012, slightly less than the average 3.35 percent hike in 2011, and on par with executive staff increases of 3.33 percent, according to results of The NonProfit Times/Bluewater Solutions Nonprofit Organizations Salary &
Benefits Report.

The highest average annual salary found within the survey was $229,237, for a chief scientific officer, roughly 10 times more than the lowest annual salary of $21,345, for a pre-school/kindergarten teaching assistant…

Comprehensive Survey of College and University Benefits Programs 2012

Source: College and University Professional Association for Human Resources (CUPA-HR), 2012

From the press release:
The College and University Professional Association for Human Resources (CUPA-HR) recently released the findings of its 2012 Comprehensive Survey of College and University Benefits Programs. For the 354 institutions completing this year’s survey, the median total premium costs for the three most common plan types (PPO, HMO and POS) increased 6.7% for employee-only coverage and 6.0% for employee + family coverage; comparable increases last year were 7.3% for both types of coverage. Median annual plan premiums increased to $6,396 for employee-only coverage and to $16,840 for employee + family coverage. The percentage increases in costs are less this year than in the preceding two years.

In other healthcare-related findings, the percentage of responding institutions offering healthcare benefits for same sex partners increased for the eighth straight year, rising to 57% (for opposite sex domestic partners, the percentage remained about the same at 42%); a majority of responding institutions continue to provide healthcare benefits for retirees under the age of 65 and slightly less than half do so for those 65 and over; more than 70% of responding institutions have a wellness program; consumer-driven health plans are offered by 34% of this year’s respondents (up from just 11% in 2007); and most responding institutions offer voluntary benefits that have no direct cost to the institution. Only about a third of responding institutions have developed a strategy for what their healthcare benefits should be in three years.

Some non-healthcare-related findings: almost all responding institutions provide basic life insurance, long-term disability, paid time off, tuition assistance and retirement benefits; about a quarter of responding institutions provide child daycare, but most do not subsidize the costs (even fewer provide sick-child daycare); the median number of paid holiday days each year is 12 as is the median number of sick days (only a small percentage of respondents have a formal PTO plan combining vacation/sick leave and other benefits, and the median number of vacation days varies by employee category)…
See also:
Fact Sheet
Responding Institutions – Healthcare Portion of Survey
Responding Institutions – Non-Healthcare Portion of Survey
Professionals in Higher Education Salary Survey

Striking it Richer: The Evolution of Top Incomes in the United States (Updated with 2011 estimates)

Source: Emmanuel Saez, University of California, Department of Economics, January 23, 2013

…From 2009 to 2011, average real income per family grew modestly by 1.7% (Table 1) but the gains were very uneven. Top 1% incomes grew by 11.2% while bottom 99% incomes shrunk by 0.4%. Hence, the top 1% captured 121% of the income gains in the first two years of the recovery. From 2009 to 2010, top 1% grew fast and then stagnated from 2010 to 2011. Bottom 99% stagnated both from 2009 to 2010 and from 2010 to 2011. In 2012, top 1% income will likely surge, due to booming stock-prices, as well as re-timing of income to avoid the higher 2013 top tax rates. Bottom 99% will likely grow much more modestly than top 1% incomes from 2011 to 2012….
See also:
The One Percent Gobbled Up the Recovery, Too / In fact, it put the 99 percent back in recession
Source: Timothy Noah, New Republic, February 12, 2013

20 Facts about U.S. Poverty and Inequality that Everyone Should Know
Source: Stanford Center on Poverty and Inequality (CPI), 2011

Neoclassical Labor Economics: Its Implications for Labor and Employment Law

Source: Michael L. Wachter, University of Pennsylvania, Institute for Law and Economics, Research Paper No. 13-34, 2012

From the abstract:
Whereas law and economics appears throughout business law, it never caught on in legal commentary about labor and employment law. A major reason is that the goals of the National Labor Relations Act (NLRA), the country’s foundational labor law, are at war with basic principles of economics. The lack of integration is unfortunate if understandable. Notwithstanding the NLRA’s normative goal to keep wages out of competition, economic analysis applies as centrally to labor markets as to any other market.

One of the NLRA’s primary goals is to equalize bargaining power. Its drafters envisioned achieving this goal through procedural and substantive means: increasing the number of people covered by collective bargaining contracts and raising union wages above competitive levels. These goals, however, are in conflict. For the NLRA to succeed, the relationship between demand (employment) and prices (wages) would have to be upward sloping. Unfortunately, the reverse is true. While the adverse tradeoff between above-market union wages and union employment was not as marked in the Wagner Act, the NLRA’s vision became unattainable once the Taft-Hartley amendments sanctioned competition between union and nonunion models of the employment relationship.

This Chapter uses neoclassical economics to analyze several theoretical and policy issues. For example, it considers the efficiency wage theory that unions can raise productivity to offset above-market pay. Efficiency wages work when employees respond to a reward, as in above market pay, with greater loyalty. Yet union workers are more likely to be loyal to their labor unions than the firm that the union claims resisted the higher pay. The efficiency wage model works better in the nonunion model, the context in which it was first developed. While unions may be preferred on normative grounds, the highly competitive political economy of the United States makes it difficult for unions to succeed.

U.S. Metros: Wage Growth & Trends

Source: Tom Tveidt, Garner Economics LLC, February 2013

In this brief, we examine the recent wage growth and trends over the last two years among the nation’s 372 metro areas.

Over the last 24 months national wages have increased slightly each month on a year-over-year basis. Although the pace hasn’t kept up with inflation, the overall trend has been positive throughout the two years in absolute terms. Among metros however, there a wide disparity in wage trends over the last two years. Only 47 U.S. metros can claim the same consistent year-over-year wage growth in all of the last 24 months. Seven metros did not experience one single month of year-over-year wage growth over the same period.

Vast majority of wage earners are working harder, and for not much more – Trends in U.S. work hours and wages over 1979–2007

Source: Lawrence Mishel, Economic Policy Institute, EPI issue Brief no. 348, January 30, 2013

A complete documentation of the growth of wage and benefit levels and inequality is presented in Chapter 4 of the recently released The State of Working America, 12th Edition (Mishel et al. 2012). This paper supplements that analysis by examining the growth of work hours and real hourly and annual wages by gender and wage level from 1979 to 2007.

Key findings include:
-The average worker worked 1,868 hours in 2007, an increase of 181 hours from the 1979 work year of 1,687 hours. This represents an increase of 10.7 percent—the equivalent of every worker working 4.5 additional weeks per year.
-Annual work hours grew more among women (20.3 percent) than among men (4.4 percent) from 1979 to 2007, primarily because women increased their weeks per year in the paid workforce.
-At 22.0 percent, the increase in annual hours between 1979 and 2007 was greater among workers in the lowest fifth of the wage distribution than among workers in the middle fifth (10.9 percent). It was also greater among middle-wage workers than among the top 5 percent of earners (7.6 percent).
-Real annual wages grew from 1979 to 2007, but for the bottom 60 percent of wage earners, this stemmed roughly as much from increased work hours as increased real hourly wages.
-Over 1979–2007, real hourly wages for middle-wage workers (those in the middle fifth of earners) grew 15.8 percent. Most of this wage growth occurred in the late 1990s boom (1995–2000). From 1979 to 1995 and from 2000 to 2007, the total real wage growth among this group was just 5.3 percent, equivalent to annual growth of about 0.25 percent.
-Over 1979–2007, real hourly wages for low-wage workers (those in the bottom fifth of earners) grew 7.7 percent, with most of this wage growth occurring in 1995–2000. From 1979 to 1995 and from 2000 to 2007, real wages among this group actually fell 3.2 percent.
-Over 1979–2007, the real hourly wages of the top 5 percent of earners grew by 30.2 percent—and by 14.8 percent if one excludes the 1995–2000 period.
See also:
Press Release