Compensation Cafe

One Company's Experiment with Biometrics & Health Premium Discounts

Graco, Inc., a manufacturer in the Minneapolis area where I live and work, is on the leading edge of what some say is the next trend in incenting wellness as an avenue to holding down medical costs.  Their efforts were profiled in a recent article in the Minneapolis Star Tribune.

After seeing their health care costs rise - like many employers - year after year, Graco decided to take strong steps:

In late 2008, Graco asked employees to volunteer for a health risk assessment and testing for
several measures, including blood pressure, cholesterol, and height and weight. They were
also asked if they smoked. The program was optional, and those who underwent the tests got a
10 percent discount on premiums for 2009. Some 67 percent participated.

Graco supplemented its health risk assessment and testing with more traditional wellness programss, like its "Biggest Loser" competition.  And when 2009 came around, the company decided to go a step further:

Employees were tested again. This time, about 80 percent participated. Those who met four goals
and had a non-smoking spouse stand to get as much as $85 off the monthly family premium of
$307 in 2010. Those who met none of the goals will pay $307 (as will those who chose not to get
tested). Everyone else's premium falls in between.

Some in the wellness arena have expressed concerns about possible unintended consequences of a results-based approach like Graco's, where employees might - for example - turn to a cholesterol pill to ensure the qualify for a premium discount, when a program of diet and exercise might be a better alternative in the longer run.

But there may be something to tackling health costs head on, as the Graco plan does, rather than simply shifting premium costs to employees.  I know a lot of employers in my community are paying attention to Graco's example.

What's your take?

Ann Baresis the Editor of Compensation Café,  Author of Compensation Force and Managing Partner of Altura Consulting Group LLC, where she provides compensation consulting services to a wide range of client organizations.  She earned her M.B.A. at Northwestern University’s Kellogg School and enjoys reading in her spare time.  Follow her on Twitter at @annbares.

Job Creation Numbers Represent a Moving Target

As compensation professionals, part of our job is to analyze, interpret and understand statistics.  So it was with interest that I read the White House's job creation statistics released at the end of this year's third quarter.

The White House announced that about 640,000 jobs have been created using $159 billion dollars of the total $787 billion stimulus package.  The WSJ reported that this announcement didn't do much to ease concerns about growing unemployment in their related article, "Stimulus Created 640,000 Jobs, White House Says".

The report was met with skepticism and criticism by a wide range of different interests, including ABC News, economists, Republicans, and more than 15 million unemployed Americans.  New unemployment rates will be announced later this week, with the expectation that they will exceed 10% nationwide for the first time since the Great Depression.

The report rekindled a running quarrel with some members of Congress and economists concerning how the job creation numbers are calculated to show reported employment gains.  The larger issue is that far more people have lost jobs during this recession than have become employed through the most expansive job stimulus program in U.S. history.

Economists contend that is it impossible to count "jobs saved."  Recovery Act fund recipients were asked to report how many jobs were created directly from receiving Federal funds.  ABC News reported that even the Recovery Act board, who has been reviewing all of the numbers, acknowledged that many inaccuracies exist.

One case in point is California's San Joaquin Regional Rail Commission, which received $5 million in stimulus funds to build an additional train track for the Union Pacific Railroad in an economically challenged part of the state.

Brian Schmidt, director of planning and programming for the commission said that his staff first reported to the Obama administration that the stimulus money saved 250 jobs.  Realizing that they had mistakenly double counted the jobs, they changed the number to 125.  Last Tuesday, they updated the reported number to 74 jobs.

When ABC News challenged the administration on the cost per saved job as being $160,000 per job, Jared Bernstein, chief economist and senior economic adviser to the vice president countered that as "calculator abuse."  He said that the correct cost per job was closer to $92,000  per job, but acknowledged that this estimate was for the entire stimulus package as of the end of next year.

Bernstein was not able to break down the difference between jobs saved versus jobs created for the reported 640,329 jobs.  White House officials said that 80,000 jobs were in the construction sector, and more than half, i.e. 325,000 jobs, were in education.  In January, President Obama predicted that 90% of the stimulus jobs would be in the private sector. 

Net labor figures do exist, according to Edward Lazear, chairman of the President's Council of Economic Advisers from 2006-2009, and a professor at Stanford University's Graduate School of Business.  In a separate WSJ editorial, "Stimulus and the Jobless Recovery", he contends that the government is reporting skewed data because they're reporting the gross positive figures, not the relevant net figures.

Mr. Lazear explained that the government wants us to believe that the new hires were previously unemployed, but the data doesn't tally workers who left their current jobs to fill government-sponsored jobs.  The vacancies that are left are not taken into account when these employees leave their old jobs to take the government-sponsored jobs.  These transitions must be tracked in order to arrive at a net figure that represents a credible statistic.

Because these numbers don't tell us where the workers came from and what happened to the jobs they left, there is no answer for how many net jobs were created. 

A better example of the government's reporting on job creation was shown in the Department of Labor's report for August, 2009.  The Job Openings and Labor Turnover Survey (Jolts) revealed that more than 4 million workers were hired.  But it also reported that 4.3 million employees lost their jobs in the same month, resulting in the net effect of several hundred thousand jobs lost in that month.

There are lots of numbers and statistics to digest from many sources, to be sure.  It can be confusing to know which reported statistics are credible unless we know what they represent.  Many times it's necessary to dig deeper to learn how the reported numbers are calculated to understand what the numbers mean.  Once we sort through the data, we get a clearer picture of what the real story is....from both a "big picture" and trend line perspective.

Becky Regan is the founder and President of Regan HR, Inc., a human resources consulting firm specializing in compensation consulting for California employers and purveyor of online HR products. A former Corporate Human Resources Director (10,000+ employees) with more than 25 years of HR work experience in many industries, her team works with private, public and non-profit clients.  Becky is passionate about designing HR programs and compensation plans that build organizations.

Flickr photo courtesy of "Tim in Times Square"

Can Your CEO Reignite the Passion in Your Relationship?

Thomas Friedman’s Sunday, November 1 column in the New York Times offered President Obama communications advice that he really needs.

‘I don’t think that President Obama has a communications problem, per se. He has given many speeches and interviews broadly explaining his policies and justifying their necessity. Rather, he has a “narrative” problem.

He has not tied all his programs into a single narrative that shows the links between his health care, banking, economic, climate, energy, education and foreign policies .  .  .

His daring but discrete policies are starting to feel like a work plan that we have to slog through and endlessly compromise over, just to finish for finishing’s sake -- not because they are all building blocks of a great national project.’

Anything here seem familiar? What I mean is could your CEO withstand this assessment? Dig deep and tell the truth. Has your CEO been effective at winning the hearts and minds of employees? Does everyone share the conviction that there are overriding, compelling goals for the future?

In the next few weeks, most CEOs will be speaking with employees about traditional year-end subjects -- operating and fiscal results, financial and competitive challenges, their impact on compensation and other expenses, how employees can help in the coming year.

Friedman believes that many people voted for Obama with their hearts because they believed in his vision for the future. That’s exactly what you need employees to feel right now. You need them to vote with their hearts. And odds are -- given limited merit budgets, cutbacks and layoffs -- it’s not going to happen easily. 

In spite of many companies’ current challenges, this is no time for employees to slog through and finish just for finishing sake. Instead, they need to join your CEO in a passion for a future that inspires them to make light of today’s sacrifices. 

How can your CEO convince them?

• Prepare a “narrative” that tells a compelling story. Look forward to the work and potential achievements of the next three years. In the story, sew your goals together with “messages” that are so authentic to your business and your CEO’s vision that he or she will build feelings of commitment each time they are repeated. (If you recall, this sense of shared excitement is the key to passion!)
• Convey real feelings and demonstrate resolution. If your CEO is dissatisfied with this year’s financial limitations on employee recognition, don’t just say that. It’s cold comfort to employees and makes your CEO seem ineffectual.  Put the CEO in employees’ shoes -- what types of recognition will serve employees and the company in the coming three years?
• Demonstrate excitement and deliver on promises. (Yikes!) Your CEO should track progress and share insights often with employees. If there is real passion this is no work plan check off, but a “we’re in this together” impulse that shows real warmth.
• Don’t kid yourselves. Like long- married couples, schedule those dates together instead of hoping for them. Passion needs to be reignited regularly or the flame will die. Prepare a formal plan to continue the narrative. The year-end communications -- especially those on employee performance and compensation -- should be the first milestone in a schedule of regular CEO communications that continue throughout 2010. The schedule should be prepared before year end and approved long before the end of January.

Margaret O’Hanlon is founder and principal of re:Think Consulting.  She has decades of experience teaming up with clients to ensure great Human Resource ideas deliver valuable business results.  Margaret brings deep expertise in total rewards communication to the dialogue at the Café; before founding re:Think Consulting, she was a Principal in Total Rewards Communications with Towers Perrin.  Margaret earned her M.S. and Ed.S. in Instructional Technology at Indiana University.  Creative writing is one of her outside passions.

Why Too Much Pay is a Bad Thing All Around

Providing too much pay is almost always a bad thing for a business.  It hurts the company’s competitive position if they’re paying significantly more for the same position than their competitors.  Of course there are exceptions if the company has found a real rock star that drives the business in a way that provides a return on that investment.  But for the most part, it isn’t a good thing when a company overpays an employee. 

Now there aren’t many employees out there who would tell you that they’re overpaid.  Many people have an inflated sense of their own performance and job size, so they believe the exact opposite.  But the reality is that when you perform a market study, there are usually a few people who are being paid significantly above the target market rate.  Sometimes this can be due to longevity, other times it can be caused by the type of situation many businesses are facing today:  With all of the recent cuts we’ve asked people to do more with less, and sometimes we’ve given more money to those folks.  There are instances where that is perfectly legitimate, but there are also times when that may not have been the best decision.  If the extra work was temporary or at the same level and easily absorbed with improved efficiency; or if we gave an inflated title that was accompanied by an inflated wage, this isn’t such a good thing for the business.

But the business isn’t always the only one to suffer.  The individual who is overpaid can suffer too.  They may reach a point where they’re no longer happy in their position, but now they’re trapped financially.  This is of course also bad for the business, who wants an unhappy employee sticking around just for their paycheck?  Or the employee may be a part of a RIF and discover that even if they can find a comparable position, they can’t make a comparable wage.  It can be very challenging to trim your personal budget after you’re used to a certain level of income, and this is the exact position we can put our employees into when we overpay them.

It’s never easy to tell someone that their pay is too high and they aren’t getting a raise, or aren’t getting as large a raise as expected.  It can be even more difficult if the employee doesn’t have a good grasp of their performance and believes they’re worth the extra money.  But it may very well be easier than the employee finding out the hard way when they start looking elsewhere for employment.  So do your business and your employees a favor and make sure your pay is in line with your company’s compensation philosophy for all employees.

Darcy Dees works as the Compensation Manager for Rock Bottom Restaurants, Inc., headquartered in Louisville, CO.  She has been working in Compensation for over 5 years now and recently attained her Certified Compensation Professional (CCP) designation.  She spends what little free time she has hiking and reading.

Compensation Bloggers Wanted!

We at the Compensation Cafe are looking to add a contributor to our award winning blogging team.  Could that be you?  Here are a few details.

Rewards of Cafe Blogging

• An avenue into blogging without having to start and run your own site.  Or, if you are a current compensation blogger, increased exposure for you and your site through blogging at the Cafe.
• Active participation in thought leadership for the field of compensation ... and a place in the awesome larger community of talent management bloggers.
• An opportunity to put your ideas and opinions out there for others to read, consider and discuss.
• Pay that is competitive with what most of us who blog in the talent space earn; in other words, zippo, nada ... nothing.

Requirements for Cafe Blogging

• Substantial experience in the field of employee rewards.
• Solid writing skills and the ability to deliver straight talk, original thinking and caffeinated discussion on everything compensation. 
• Ability to blog under your own identity and with full disclosure of where you work.
• Ability and willingness to blog on approximately a weekly basis.

Interested?  Shoot me an email (abares@alturaconsultinggroup.com).  We will ask for a resume and a couple of sample posts.

Interested, but not able/willing to commit to weekly blogging?  We also feature guest bloggers as part of our Friday Special at the Cafe series.  Again, email me if this is something you'd like to pursue.

Talking with Employees about the Cost of Living

One of your employees is bound to ask whether your company’s increase budget matches the Cost of Living. It’s a tradition in a down economy. Even though we are not experiencing inflation, employees who work for companies with limited merit budgets will be trying to assess the value of their newly downsized pay adjustments. Emotionally and literally, they really won’t know what to make of them even if you've warned employees that this was coming.

What They Say Isn’t Quite What They Mean
Here are the kinds of questions that will be worrying employees. Should I be satisfied under these economic conditions or am I being complacent? If I go along with what they are telling me – that they couldn’t afford to recognize my hard work – should I really feel like I play an important role here? How can I be working this hard and have trouble paying my bills this year? Should I just be glad I have a job and get back to work? How much trust do they really deserve?

While these are their private thoughts, the questions illustrate the type of dialogue these employees want to have with you. In other words, they are hoping you will help them figure out what to make of this. They want to hear your side and then they’ll size it up for themselves.

The danger is that most employees don’t really understand compensation. You know this from experience. It’s confirmed by research. And, if you check your own company’s past communication practices, you’ll see the evidence for yourself. So in a pinch, employees ask about the Cost of Living since they’ve heard the term used when salaries have been discussed in the past. It seems to comprise all the things they are worried about.

Watch Your Language
If your company has a pay-for-performance approach to compensation, it's likely that you have misled people in the past if you have used the term Cost of Living to describe your increase practices.  For one thing, the numbers don’t add up.  It is exceptional and almost odd for the Consumer Price Index (CPI) to match the Cost of Labor, as our Editor, Ann Bares, illustrates in the ten year chart in her post, “Think Twice before You Call It a Cost of Living Increase.”

These are macro measures, so keep that in mind. Cost of Labor refers to what employers pay employees for doing particular jobs at a particular time. Cost of Living or the CPI address a broader economic concept of the cost of goods purchased by “typical” consumers.  See the piles of apples and oranges?

Should you use the term, “Cost of Labor,” instead? Probably not, unless you have a good grasp of how to distinguish between the economics of each term. Remember, employees are trying to figure out whether they should trust you. Talk about what you really know.

You’ve Got Alternatives
Unless pay practices are influenced by Union agreements in your industry, try to put any employee concerns about Cost of Living behind you. Answer employee questions directly and accurately. Cost of Living refers to consumer practices in relation to goods. It’s just not pertinent to your compensation philosophy. The heart of your compensaion philosophy is to align your pay opportunities with competitive practices.

If your company has a salary structure, you can go further.  Explain that your company’s pay philosophy is to provide a salary range that offers minimum to maximum competitive pay opportunities based on market research. Employees can move up to maximum – which is more than the competitive pay target for their job – based on performance.

How Will This Help?
First of all, trust builds from a commitment to accuracy. If the CPI has nothing to do with your practices, then don’t linger on it, you’ll just muddy up the discussion. If employees are going to trust you, you need to lay out what’s actually going on.

Second, don’t fiddle with distractions when you need to get to the heart of the matter this year. Help employees assess the value of their pay in a realistic way. Help them feel motivated if they are not. Help them learn how to feel that their work is valuable, even when they can't rely on traditional reward methods like merit increases.

Margaret O’Hanlon is founder and principal of re:Think Consulting.  She has decades of experience teaming up with clients to ensure great Human Resource ideas deliver valuable business results.  Margaret brings deep expertise in total rewards communication to the dialogue at the Café; before founding re:Think Consulting, she was a Principal in Total Rewards Communications with Towers Perrin.  Margaret earned her M.S. and Ed.S. in Instructional Technology at Indiana University.  Creative writing is one of her outside passions.

Self Insight (or our lack thereof), Self Appraisal & Constructive Criticism

Bob Sutton recently profiled Professor David Dunning (Cornell University) and his fascinating research on self-awareness, covered in his article Unskilled and Unaware of It (abstract here).

At the risk of vastly oversimplifying Professor Dunning's research and findings, the upshot of it seems to be this:  That the lowest skilled people consistently and significantly overestimate their relative abilities, while the most skilled tend to underestimate theirs. 

This may not surprise seasoned managers, but it does shed a bit of light on some of our biggest performance management challenges.  Low performers may, in fact, suffer a "dual burden". As the abstract for Dunning's article puts it, "not only do these people reach erroneous conclusions and make unfortunate choices, but their incompetence robs them of the metacognitive ability to realize it."  On the flip side, Dunning's research suggests that addressing the issue can produce double benefits, both improving the individual's skills and increasing their ability to recognize their own limits.

For me, this helps explain one of the reasons why self appraisal exercises, particularly those without crystal clear expectations and metrics, so often backfire.  It also sheds additional light on why constructive feedback is both critical and difficult to do effectively.

Ann Bares is the Editor of Compensation Café,  Author of Compensation Force and Managing Partner of Altura Consulting Group LLC, where she provides compensation consulting services to a wide range of client organizations.  She earned her M.B.A. at Northwestern University’s Kellogg School, enjoys reading in her spare time.  Follow her on Twitter at @annbares.

Cafe Named a Top Talent Management Blog!

We are proud to announce that the Compensation Cafe has been recognized as one of the 30 Top Talent Management Blogs in the recently announced Blog Power Rankings published by Fistful of Talent and the HR Capitalist.

Special thanks to the awesome team of regular Cafe contributors Becky, Darcy, Doug and Margaret; our "alumni" Terri, and our great group of guest bloggers including Paul, Theresa and Joe.  You all make the Cafe shine!

An appreciative shout back to Jessica Lee and the rest of the FOT/Capitalist Team for their commitment to keeping on top of the best of the Talent Management blogosphere.  Please take a moment to click back to their post and check out the list of outstanding blogs. 

CPI and Unintended Consequences

Using the CPI (Consumer Price Index) to set wages can cause some unintended consequences for wages.  Ann Bares wrote a good post about this over at Compensation Force that included a particularly telling chart.  As a general rule, the CPI rises faster than wages.  If this is the measure your business is using to set wages, you can find yourself paying far too much for labor and in a compromised competitive position. 

Here in Colorado we’re experiencing another consequence of using CPI that I don’t think anyone intended.  A few years back we voted on a ballot issue that amended the state constitution, raising the minimum wage and indexing future minimum wage rates to the CPI.  Because most people don’t have a good understanding of the CPI and its intended use, the ballot issue passed.  There was a legal battle after the fact since there is no state-wide CPI tracked, but for now it stands.

The unusual thing is that like many other places this year, the Denver metro CPI is negative.  Since the constitution was amended to index the minimum wage rate to CPI, for 2010 the state minimum wage will decrease in Colorado.  (It actually can’t drop as far as it’s supposed to because then it would be below the federal minimum wage rate.)  So for 2010, Colorado’s minimum wage will again by the same as the federal minimum wage rate.

I highly doubt that anyone intended for that to happen.  After all, if most other people living in Colorado are like me, their personal cost of living didn’t decrease.  My company like many others was under a wage freeze in 2009 and our incentive plans weren’t paying out at a very high rate.  So I brought home less money than in previous years, but my daycare still went up, my health insurance premiums increased, the cost of fueling my car is slowly but steadily rising back up again, and my grocery bills are bigger than ever.  So although the Consumer Price Index overall went down, my personal costs didn’t go down, and I don’t think that I’m alone.

I’d like to think that most companies won’t decrease the wages of their workers being paid minimum wage; that they’ll just use the new, lower rate for new hires.  But times are tough, and if it can save money, I imagine that some businesses may very well take the opportunity to lower wages for those making the minimum, who in many cases have been hit the hardest by increased costs. 

So here it is, yet another reason why using CPI to set wages doesn’t work.  Too bad Colorado voters didn’t know about all of the consequences before we amended our state constitution.

Darcy Dees works as the Compensation Manager for Rock Bottom Restaurants, Inc., headquartered in Louisville, CO.  She has been working in Compensation for over 5 years now and recently attained her Certified Compensation Professional (CCP) designation.  She spends what little free time she has hiking and reading.

Image:  Creative Commons Photo "Oops!" by Kyle May

Gender Pay Gap Shrinks During Recession

In a recently released survey conducted by the Bureau of Labor Statistics, women's wages showed gains at a higher pace than men's wages during the recession.  Over the past two years, median wages earned by women rose 3.2% after adjustments for inflation were taken into account.  Wages of the median man rose just 2% in comparison. 

The Wall St. Journal wrote a recent article assessing highlights of the BLS' study, "Women's Wages Outpaced Men's During Recession."  

In it they noted that minority men's wages have been hit particularly hard during the recession, while minority and highly educated women of all races fared better. Full-time women had median earnings of $657 per week, or 80.9% of the $812 median for men as shown in the chart below.  Men were more likely to be unemployed though during the recession, with the male jobless rate at 11% and the female rate at 8.4%.

Note: due to formatting problems within the blog template, second column from the right side in the table reads "55 to 64 years" and reports women earning $706 and men earning $979.  The last column on the right side of the table reads "65 years and over," and reports women earning $599 and men earning $791. 

Economists involved in the BLS study cautioned that the reported wages don't reflect the large number of unemployed, self-employed, or part-time workers.  There were approximately 8.2 million fewer full-time workers in '09's third quarter than there were just two years ago. 

Not surprisingly, education was a key factor in the study's wage findings.  Median weekly wages for both sexes jump dramatically once an educational threshold of a Bachelor's degree or higher was achieved.  The Labor Department reported that in the 3rd quarter of 2009, workers with some college or an Associate's degree earned a median weekly wage of $720. With the completion of a Bachelor's degree or higher, that wage jumped approximately 40% to $1,145.  An advanced degree earned $1,336 weekly.

More traditional jobs held by men were eliminated during the recession in such hard hit industries as construction, manufacturing and finance. Female employment was not as adversely impacted and research has proven that wages for women rose during this timeframe. Most economists believe that the recession officially ended last summer, with GDP expected to rise a healthy 3.5% in the third quarter of this year as reported by Kiplinger (link to Kiplinger).

The recent gains in women's wages during the recession have helped to shorten the gap between gender pay disparity.  Let's hope this trend continues as the economy improves and employment opportunities for all become more robust.

Becky Regan is the founder and President of Regan HR, Inc., a human resources consulting firm specializing in compensation consulting for California employers and purveyor of online HR products. A former Corporate Human Resources Director (10,000+ employees) with more than 25 years of HR work experience in many industries, her team works with private, public and non-profit clients.  Becky is passionate about designing HR programs and compensation plans that build organizations.