Hot Topics in Total Rewards

Author: Jesse C. Ferrantella (San Diego)

Published Date: March 23, 2018

For decades, many employers across California relied upon established federal law governing the calculation of overtime compensation on bonuses. Under federal law, the same set of rules apply to flat sum bonuses (i.e., set bonus amounts that cannot increase with additional productivity or employee effort) and other bonuses.

That all changed earlier this month when the Supreme Court of California decided Alvarado v. Dart Container Corporation of California. The decision transforms the method for calculating overtime under California law when employees receive flat sum bonuses. The court’s decision represents a significant development for employers that pay bonuses and will likely require employers operating in California using flat sum bonuses to revise their pay practices.

Background

Under California law, when an individual receives a nondiscretionary bonus, the bonus payment must be included in the employee’s “regular rate of pay” for purposes of calculating overtime. The question in Alvarado was how this calculation should be made with respect to flat sum bonuses. The flat sum bonus at issue was a $15 attendance bonus that employees received when they worked weekend shifts.

The California Division of Labor Standards Enforcement (DLSE) has long taken the position that California requires a special, more expensive overtime calculation for flat sum bonuses. According to the DLSE, to protect against dilution as employees work more overtime, flat sum bonuses are to be divided only by straight-time hours and then multiplied by one-and-one-half (or two in the case of double time) to determine overtime premiums on these bonuses. By contrast, the DLSE opined bonuses that increase with more effort or production (for example, a $5 bonus for every 100 widgets made) could instead be divided by all total hours worked and multiplied by one half (or one in the case of double time) to determine the overtime premium owed.

Federal law, derived from the Fair Labor Standards Act, does not have any unique formula for flat sum bonuses. And until this ruling, the DLSE’s position on flat sum bonuses was never actually endorsed by a California court. In fact, the court of appeal in Alvarado rejected the DLSE’s position and applied federal law to flat sum bonuses. As a result, many employers relied on federal law to calculate overtime when employees received these bonus payments, using the larger divisor of total hours worked and thus resulting in smaller overtime payments relative to those under the DLSE’s formula.

The California Supreme Court’s Ruling

The law has changed. The California Supreme Court unanimously reversed the court of appeal’s ruling and adopted the DLSE’s rule on flat sum bonuses. Although the court did not believe it was bound by the DLSE’s guidance, the court nevertheless found the DLSE’s reasoning persuasive. The court reasoned that using the DLSE formula to calculate overtime on flat sum bonuses furthered California’s public policy of discouraging overtime work. Because flat sum bonuses do not increase with more hours worked, the court concluded that to allow employers to divide by total hours worked in calculating overtime would encourage employers to assign more overtime. In such a case, the more overtime an employer assigned, the larger the divisor would be and the less value the bonus would have relative to each hour worked.  

The rule adopted by the supreme court requires employers, in calculating overtime when employees receive flat sum bonuses, to divide the bonus only by straight-time (i.e., non-overtime) hours to determine overtime compensation on the bonus. The net arithmetic effect is that the formula adopted by the California Supreme Court results in a payment of more than three times as much overtime compensation on the bonus as the federal law formula. 

Implications for Employers

The Alvarado ruling has far-reaching implications for employers that provide bonus or incentive payments in California.

For any employer that pays a flat sum bonus, the decision likely means that the employer will need to revise its pay policies immediately to comply with the California Supreme Court’s ruling. At the very least, employers that pay bonuses should consider evaluating their payment policies and calculations to determine if they remain lawful after Alvarado.

In addition to policy revisions, the ruling has significant implications for employer wage-and-hour liability. Importantly, the California Supreme Court rejected the argument that its formula should only have prospective effect. Its formula will therefore apply retroactively to flat sum bonus payments. This means that if an employer previously relied on the federal formula, its past flat sum bonus payments were likely unlawful.

The effect is not simply that employees who received such bonuses were underpaid. On top of the underpayment, employers could be subject to significant penalties. In addition to unpaid wages, employees in wage-and-hour lawsuits typically seek derivative penalties such as wage statement penalties ($50/$100 per pay period), waiting time penalties (up to 30 days of wages), and civil penalties under the Private Attorneys General Act (PAGA) ($100/$200 per pay period per violation). Given these potential penalties, even a small underpayment could give rise to far-reaching exposure that exponentially increases liability.

Moreover, there are many types of flat sum bonuses that are common across industries. They range from attendance bonuses like those at issue in Alvarado to safety bonuses, project-completion bonuses, referral bonuses, job retention bonuses, on-call stipends, and bonuses for earning a degree or technical certification. Therefore, the decision could arguably impact many bonus payments made for a variety of purposes across a broad array of industries.

Finally, the ruling will likely lead to significant administrative challenges for employers—an issue that employers may want to consider. Employers that pay flat sum bonuses like an attendance bonus but also make other incentive payments like commissions will have to work with their payroll providers to ensure that two different formulas are applied to the different payments. Since the flat sum rule is unique to California, it will also result in employers with multistate operations having two different calculations for the exact same type of bonus payment, depending on the state. Employers may want to have these conversations with their payroll providers to ensure technical compliance with the law.

Silver Linings?

For employers, there were not many positives to take away from the Alvarado ruling. But, there were a few potentially helpful comments hidden within the supreme court’s ruling.

First, the court confirmed prior law finding that informal positions taken by the DLSE in its enforcement manual are effectively “underground regulations” and not subject to deference. Of course, that does not mean the California Supreme Court will refuse to follow DLSE opinions. After all, it adopted the DLSE’s rule in Alvarado. However, this statement is helpful in confirming that the DLSE’s published but informal opinions will not be given binding deference by courts.

Second, in a footnote, the court explicitly limited its decision to flat sum bonuses “comparable to the attendance bonus at issue” in the case. The court noted that “other types of nonhourly compensation, such as a production or piecework bonus or a commission, may increase in size in rough proportion to the number of hours worked,” and thus might warrant a different analysis. Therefore, the court did not explicitly extend Alvarado to other types of bonuses but instead left ambiguity as the scope of its decision. Employers may be able to rely on this footnote in distinguishing other bonuses from Dart’s attendance bonus. For example, the Alvarado court reasoned that a flat sum attendance bonus could encourage an employer to assign more overtime, given that the bonus does not increase as more hours are worked. On the other hand, flat sum referral bonuses may be included in the regular rate of pay, depending on the conditions. However, a referral bonus has no conceivable connection to hours worked and certainly does not encourage an employer to assign overtime. Employers may be able to capitalize on these distinctions and narrow the potential scope of the supreme court’s ruling. Only time will tell how this strategy plays out.

Third, in a concurring opinion, Chief Justice Cantil-Sakauye noted that the DLSE could have avoided “uncertainty” over the prior law had an interpretative regulation on this subject been promulgated through formal rulemaking. The DLSE’s flat sum bonus interpretation was only present in the agency’s enforcement manual, and because it was not subject to any rulemaking procedure, it had no binding effect. The chief justice characterized this uncertainty as regrettable. Although these words do not change the result of Alvarado, they may prove helpful in defending future litigation based on bonus payments. Certain penalties under California law, like waiting time penalties, require a showing of willfulness. Others, such as civil penalties under PAGA, are subject to reduction in the court’s discretion. Given the uncertainty over the law and the existence of federal law supporting a completely different flat sum bonus calculation, employers may be able to use the concurrence to argue against imposition of these penalties.

We suspect that Alvarado will give rise to a flood of litigation in the coming months. As this litigation develops, hopefully courts will shed light on these lingering questions. In the meantime, employers should consider carefully evaluating their bonus payments to ensure compliance with the supreme court’s decision and working with payroll in updating their flat sum bonus formulas.

Jesse C. Ferrantella coauthored an amicus brief filed in this case on behalf of California Employment Law Council and Employers Group.

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Source: Ogletree, Deakins, Nash, Smoak & Stewart, P.C.

https://ogletree.com/shared-content/content/blog/2018/march/california-supreme-court-adopts-new-formula-for-flat-sum-bonuses

By Tom Korosec and Kartikay Mehrotra | December 17, 2018

Obamacare was struck down by a Texas federal judge in a ruling that casts uncertainty on insurance coverage for millions of U.S. residents, drawing sharp condemnation from some medical professionals and a vow for action by top Democrats.

President Donald Trump termed the ruling “a big big victory by a highly respected judge” and an alternative path to the long-time Republican goal of repeal-and-replace.

“We’ll be able to get great health care,” Trump said Saturday during an unannounced visit to Arlington National Cemetery, where a “Wreaths Across America” holiday wreath-laying event was under way. “We’ll have to sit down with the Democrats to do it, but I’m sure they want to do it also.”

The decision Friday finding the Affordable Care Act unconstitutional comes at the tail end of a six-week open enrollment period for the program in 2019 and underscores a divide between Republicans who have long sought to invalidate the law and Democrats who fought to keep it in place.

The White House said the ruling will be put on hold during an appeals process that’s destined to go all the way to the U.S. Supreme Court, drawing confirmation from Democrats vowing a rapid appeal. It has “no impact to current coverage or coverage in a 2019 plan,” Seema Verma, administrator for the Centers for Medicare and Medicaid Services, said on Twitter.

U.S. District Judge Reed O’Connor in Fort Worth agreed with a coalition of Republican states led by Texas that the Affordable Care Act, the signature health-care overhaul by President Barack Obama, needed to be eviscerated after Congress last year zeroed out a key provision — the tax penalty for not complying with the requirement to buy insurance.

‘133 Million’

“Today’s ruling is an assault on 133 million Americans with preexisting conditions, on the 20 million Americans who rely on the ACA’s consumer protections for health care, and on America’s faithful progress toward affordable health care for all Americans,” California Attorney General Xavier Becerra said in a statement. A spokeswoman for Becerra vowed a quick challenge to O’Connor’s ruling. O’Connor was appointed to the federal bench by President George W. Bush.

Representative Nancy Pelosi, who’s likely to become Speaker in the new Congress, called the ruling “absurd,” adding that Democrats in the House will “swiftly intervene in the appeals process” once they take control in January.

Senator Chuck Schumer, the top Democrat in the Senate, castigated Republicans for “pretending to support people with pre-existing conditions while quietly trying to remove that support in the courts.” He tweeted that Democrats “will force votes to expose their lies.” Senator Joe Manchin, a West Virginia Democrat who won re-election in November on a pro-Obamacare platform, called the ruling “misguided and inhumane.”

Democrats weren’t the only ones to criticize the decision. Arthur Evans, chief executive officer of the American Psychological Association, said his group was “very concerned for the millions of Americans” who get insurance through the health law.

“As our nation is in the midst of an opioid crisis, this coverage is especially needed,” Evans said in a statement. “We should be expanding access to health insurance, including behavioral health services, rather than stripping coverage from Americans in need.”

Texas and an alliance of 19 states argued to the judge that they’ve been harmed by an increase in the number of people on state-supported insurance rolls. They claimed that when Congress last year repealed the tax penalty for the so-called individual mandate, it eliminated the U.S. Supreme Court’s rationale for finding the ACA constitutional in 2012.

The Texas judge agreed. He likened the debate over which provisions of the law should stand or fail to “watching a slow game of Jenga, each party poking at a different provision to see if the ACA falls.” He also wrote that it’s clear the individual mandate is the linchpin of the law “without marching through every nook and cranny of the ACA’s 900-plus pages.”

“The court must find the individual mandate inseverable from the ACA,” he said. “To find otherwise would be to introduce an entirely new regulatory scheme never intended by Congress or signed by the president.”

While Trump and Texas Attorney General Ken Paxton were quick to praise the ruling, while the American Medical Association called the decision “an unfortunate step backward for our health system.”

Some health-care law experts were quick to critique the judge’s reasoning and predicted the ruling will be overturned.

“We know what Congress’ intent was in 2017 — that was to pull the individual mandate while keeping the rest of ACA intact,” University of Michigan law professor Nicholas Bagley said. “Now we have a judge saying we have an unenforceable mandate. This whole thing is bonkers.”

With just one day left in the sign-up period for 2019 Obamacare coverage, the judge’s ruling is unlikely to have much of an effect on those actively shopping for insurance for next year. As of Dec. 8, 4.1 million people had chosen plans through the federal-government run portal that 39 states use for enrollment.

Total enrollment is on track to be lower than in previous years, which many critics have credited to efforts by the Trump administration to promote alternatives to the law or cut back on its promotion.

Centene Corp. of St. Louis and California’s Molina Health Inc. are the insurers that would be hurt the most if Friday’s ruling stands, Ana Gupte, health care analyst at Leerink Partners, wrote in an analysis late Friday.

California and Democratic officials in 14 states, along with the District of Columbia, won permission to defend the ACA in the Fort Worth case when the Trump administration sided with the states seeking to dismantle it. They contended that overturning the law would throw millions off health insurance rolls by reversing Medicaid expansion, ending tax credits that help people and empowering insurers to once again deny coverage based on pre-existing conditions.

Individual Mandate

Justice Department lawyers urged the judge to strike down the individual mandate and provisions requiring insurance companies to cover individuals with preexisting health conditions and charge them the same premiums as healthy individuals. They argued the judge should spare the rest of the law, which includes Medicaid expansion, the employer mandate, health exchanges, premium subsidies and federal health-care reimbursement rates for hospitals.

The judge’s ruling would, since it overturns the entire act, also end provisions that have little to do with health insurance. Those include parts of the law on adding calorie counts on restaurant menus and speeding to market cheaper versions of costly biotechnology drugs.

Maryland Attorney General Brian Frosh launched a counterattack Sept. 13 to save Obamacare, seeking a judgment that the Affordable Care Act is constitutional and a court order barring the U.S. from taking any action inconsistent with that conclusion. Frosh sued then-U.S. Attorney General Jeff Sessions and the federal departments of Justice and Health and Human Services.

The Texas case is Texas v. U.S., 4:18-cv-00167-O, U.S. District Court, Northern District of Texas (Fort Worth).

Frosh’s case is State of Maryland v. United States, 1:18-cv-02849, U.S. District Court, District of Maryland (Baltimore).

Texas v U.S. re-ACA

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Source: Insurance Journal

https://www.insurancejournal.com/news/national/2018/12/17/512261.htm

AUTHOR

Valerie Bolden-Barrett

PUBLISHED

Dec. 4, 2018

Dive Brief:

• A holiday bonus tops employees' wish lists this year, according to a new survey's results. In a poll of 1,000 people by Research Now SSI for Spherion Staffing Services, 41% of respondents ranked bonuses as their most preferred holiday perk. But the 2018 Holidays at Work Survey found that 46% of respondents said their employers don't give out any type of monetary holiday gifts, which would include bonuses. Among employees who do receive an extra check in December, the majority receive less than $500.
• Slightly more than half of respondents surveyed (52%) described that business continues as usual at their offices during the holidays, while 36% said their workplaces are generous and 13% called them "stingy." Still, more than half (51%) said their company collects food, clothing, toys or other items to participate in drives. Almost a fifth said their companies organize a volunteer activity, and about the same amount (15%) said their company adopts a needy child or family.
• Survey results found that this year's perks include a holiday party (36%), extra time off (28%), holiday bonus (26%), office close-down between Christmas and New Year's Day (22%), an employee gift exchange (18%) and an employer-paid holiday meal (18%).

Dive Insight:

It's no surprise that employees named holiday bonuses their most-preferred holiday gift this year; although other benefits and perks rank high, money remains the biggest motivator in job polls. But results in the Spherion poll showed that just over a quarter of employers offer the highly-prized holiday bonus.

Employers that can't offer bonuses can find other perks that employees might find nearly as valuable. Workers in a West Monroe Partner surveysaid they want flexible work schedules and remote work options during the time-strapped, often stressful holiday season. Respondents said they were just as productive, but less stressed, working remotely than working onsite. 

While employees find work flexibility and remote work options favorable throughout the year, they might find a less stressful holiday a more valuable gift than a bonus. In a 2017 Accountemps survey, employees said their greatest source of stress was balancing work duties with holiday events (32%), returning to work after taking time off to find a heavy workload (23%) and not having enough coworkers around to share some of the duties (18%).

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Source: HR Dive

https://www.hrdive.com/news/holiday-bonuses-top-workers-wish-lists-but-employers-have-other-plans/543404/

AUTHOR

Ryan Golden@RyanTGolden

PUBLISHED

Dec. 3, 2018

Helping new families:

PwC introduced a return-to-work benefit for employees who become new parents, in addition to its existing paid leave programs.

Improving engagement:

Allowing new parents to work 60% of their schedule at 100% pay for up to four weeks gives parents time to adapt gradually back to the flow of work, and the benefit has been called "a tremendous deal" for those who've taken advantage of it.

Outlook:

The later months of 2018 saw the unveiling of similar formal policies at other organizations, and PwC may have set a new standard for family and caregiver support.

The number of babies born to U.S. parents in a given year has hovered just shy of 4 million in recent years, and that means thousands of new parents and families are shuffling their work and life obligations to accommodate.

Employers have taken steps to support their new parents beyond what the Family and Medical Leave Act mandates. Many are either creating or expanding paid leave policies. Others are offering any of a list of benefits, including on-site daycare, paid childcare services and breast milk shipping, among others. But these are expensive tasks that require thorough planning, with or without employers' financial help. And a quick return to work may catch some parents unprepared, leaving them distracted on the job, at best.

In 2018, PwC decided to address the issue of engagement post-childbirth specifically, putting into formal, official letters what in the past had been an unwritten practice among managers of its different teams. And in doing so, it may have helped set a standard for family and caregiver support in corporate America.

'It's an innovative idea that fits a real need'

PwC, trading name for PricewaterhouseCoopers, is one of the world's "Big Four" auditors and one of its most recognized consultancies. But it is not so unique in another sense: thousands of its employees go on parental leave every year. An estimated 2,000, to be precise.

The company offers up to six weeks of paid leave to all new parents (not including any short-term disability benefits), in addition to an extra two weeks for those having more than one child at a time, but its leaders saw a way to improve. "We try to get a pulse on how people are doing," Jennifer Allyn, PwC diversity strategy leader, told HR Dive in an interview, "and we heard that it's hard to go from 100% off to 100% on again" — from parental leave, that is. An informal policy to allow workers some "transition time" did previously exist, but it was "inconsistent," Allyn said.

And so a solution was born. PwC announced in April that all employees would soon be eligible to work 60% of their usual schedule at 100% pay for up to four weeks after returning to work. After an initial test with individual workers, the benefit was rolled out to the entire organization on July 1.

The four weeks of phased return to work must be taken consecutively, a PwC spokesperson said. Parents who choose to adopt can also take advantage of the benefit. Workers can negotiate with their manager what the reduced schedule will look like, incorporating a flexible schedule and remote work if necessary. While that balance requires trust and a willingness to adhere to deliverables for certain projects, Allyn said the feedback so far from new parents has been positive.

"We're driving to drive some cultural change with this benefit. We want people to know the experience of working flexibly," Allyn said. "It's an innovative idea that fits a real need."

'I feel excited for the future'

Robert Harper has been with PwC subsidiary Strategy& as a manager since September 2013. This year, he became a first-time parent, as well as the first dad among PwC companies to take advantage of the eight weeks of paid paternity leave plus four weeks of transition time offered to employees. In an interview with HR Dive, he described how he learned of the new perk from a friend on the same project.

"It was very new at the time," he said of the benefit. "I was actually not really aware of it because the policy had been changed."

The process involved close communication with management, Harper said, but the project-to-project nature of Strategy&'s work made it easier to come back, since new projects open up constantly. He spent most of his time doing firm development needs, like proposals, recruiting and assisting with others thought leadership pieces. It helped that PwC expressed support for flexibility as an organization, Harper said, from upper leadership on down.

"I think there's this understanding that we are in a very demanding client service business," Harper said. "There are heavy requirements on each of us, and so being as flexible as possible is really critical to developing a really unique culture and keeping the right talent."

Project leaders were willing to negotiate which days Harper would be on a full-time schedule — three days out of the week for example — while ensuring he hit the required percentage of hours. PwC made the conscious decision to use a percentage system for the benefit instead of a system based on number of hours in order to ensure maximum flexibility across different schedules, Allyn said.

SOURCE: Data from Pew Research Center, "Family and Medical Leave Study" Credit: Ryan Golden / HR Dive

 

Harper's story is a reminder of the pressures that exist on parents of both sexes when new children come into the fold: 52% of working fathers in a 2015 Pew Research Center survey said they felt it very or somewhat difficult to balance the dual responsibilities of work and family, and close to 60% of working mothers reported likewise. Twenty-nine percent of dads and 37% of moms in the same survey said they were "always rushed."

Harper ultimately said he felt supported by the PwC team in making the choice, calling it "a tremendous deal" to his growing family. And his situation may not be far from the norm for many workers in the near future, with employers like Noodles & Co. announcing other versions of a phased return policy in the late months of 2018.

"It's great to get back into the swing of things," Harper said. "I feel excited for the future."

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Source: HR Dive

https://www.hrdive.com/news/benefits-program-of-the-year-pwc/541311/

By Matthew Wride

November 23, 2018

Last month, Bloomberg reported that employees will give up big pay raises in exchange for job perks. The reported statistics from a study published by the National Bureau of Economic Research were eye-catching, the Bloomberg headline teasing that “Americans Are Willing to Forgo a 56% Pay Raise for Best Job Perks.”

At the end of the day, I agree with the findings, but not the headline. Employees do not give up pay for perks! They will, however, give up compensation for the right cultural fit – things that matter to them, such as increased meaning or greater autonomy. Employees who forego pay do so because they align with the key values and opportunities that are woven into a company’s culture. These values cannot be doled out like bonus bucks. Great cultures require hard work and constant care. Flashy perks are easy.

What’s a ‘perk’?

As suggested, my consternation with the article has more to do with how the term “perks” is defined. Let’s unpack what I mean. A reasonable definition is that a perk is an employee benefit that does not have an immediate cash component tied to it. Thus, wages, health insurance, retirement benefits, all of which are measured in dollars, are not perks. The list of perks in the study, while non-wage in nature, do not fall into the category of what we traditionally think of when we use the term perks. In most HR circles, perks are things like state-of-the-art breakrooms, onsite gym facilities, employer-provided daycare, etc. Yes, these benefits have a monetary value, but their value is indirect to the employee.

What I find most interesting in the list is that almost every one of the “perks” is exactly as I described above. They are values centered around the organization’s culture. In my view, culture is the way things function in a workplace environment coupled with the organization’s supported values. Not their publicly stated values, but the organization’s actual values, and yes, there is a difference.

Employee engagement drivers

For us at DecisionWise, these findings are not surprising. They support what we have found in our research – employees are motivated far more by meaning, autonomy, growth, impact, and connection than by other factors. We call these employee engagement drivers the five keys of employee engagement, and they form the acronym M.A.G.I.C.

Thus, we weren’t surprised when, as Bloomberg said, the study found that time off is huge. We know that the right amount of employee autonomy is vital in building a culture of employee engagement. The same can be said for the notion of company-supported training. This is really an issue of whether an organization values and provides growth opportunitiesfor its employees. Do they see a pathway forward to a better place professionally, both in terms of skillsets and opportunities? Again, these are cultural characteristics and not perks.

Article Continues Below

A culture built around values

At the end of the day, I essentially agree with the results of the study as reported in the article. It accurately notes that organizational cultures built around values that matter to employees are more successful at fostering employee engagement than those focused on the employment transactions, such as traditional perks, pay, and incentives.

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Source: ERE Media, Inc. - Human Resources Today

http://www.humanresourcestoday.com/edition/weekly-recruitment-e-recruitment-2018-11-17?open-article-id=9289648&article-title=employees-trade-pay-for-culture--not-perks&blog-domain=tlnt.com&blog-title=tlnt--the-business-of-hr

by Natalie Black, November 13, 2018

According to Aon’s 2017 U.S. salary increase survey, more than two-thirds of employers were taking some kind of action to increase merit pay differentiation, with 40% reducing or eliminating increases for lesser performers. This suggests that spreading pay raises across the board, like peanut butter on toast, has become an outdated practice.

In many cases (beyond cost of living adjustments) this is a step in the right direction. Rewarding mediocre performance can lead to mediocre results, which can also impact employee morale. As the former Chief Talent Officer for Netflix wrote in this HBR piece, when it comes to employee engagement, excellent colleagues “trump everything else.”

Salary increases can also encourage hard-to-find star performers to stay with the company longer. Glassdoor research reveals a strong correlation between pay and retention, which means that salary increases can be used as a tool to reward and retain people whose flight risk also poses a business risk.

When a top performer leaves the company, the indirect costs in the form of lost client relationships or stifled product innovation can be staggering. Consulting firm Bain & Company has estimated that, across all job types, “the best performers are roughly four times as productive as average performers.” According to HR thought leader Dr. John Sullivan, at a high-performing technology organization, “a single top-performing programmer would produce an astounding $48 million per year in added value each and every year.”

It’s not surprising, then, that many organizations are adopting pay-for-performance cultures. But some experts have argued that pay differentiation should be the exception and not the rule: it can be difficult to determine the impacts of differentiation with sufficient precision, reliability, and accuracy. Furthermore, if retention is the goal, there may be other factors beyond compensation driving up resignations of top performers in critical roles.

The good news is that–with workforce analytics technology that yields granular insights from multiple systems–compensation teams now have the capacity to determine the optimal amount for increases based on hard data.

Follow these steps to model different merit increase configurations and make the right decision for your company:

Step 1: Determine How Role-Specific Performance Impacts Business Results

It is important to define how performance in different job types contributes to business performance. This will help determine what exactly constitutes a reasonable differential.

For example, the Bain & Company research suggests that, for roles involving repetitive, transactional tasks, top performers are typically two or three times as productive as lesser performers. The differential is likely to be a factor of six or more in highly specialized or creative work.

Another fundamental task is to determine what, exactly, is a critical role. To do this, ask these questions:

• What is the cost of mistakes in this role?
• How difficult is it to replace someone in this role?
• How closely is this role tied to the success of our business strategy?

This does not mean you should rush out and, say, give an increase that is six times greater to all those people in a creative, critical role. It may not be sustainable for your business from a budget or employee morale perspective, and may not even be necessary. This is where segmentation and scenario modeling will be helpful.

Step 2: Objectively Assess Performance

Once you have defined who is in the business-critical roles, it is time to find those individuals who are really moving the needle in terms of performance. To objectively determine who is a top performer, look beyond performance reviews. Humans use heuristics, quick and dirty rules of thumb, to make snap judgments about other people. A salesperson’s recent fumble, for example, can overshadow a history of consistently strong performance.

To make a valid assessment of performance, gather data from multiple sources. Performance ratings need to be combined with other data like potential rating, tenure, and recognition awards, to get a full, unbiased view of how the person is performing. Job-specific data, such as units produced or number of sales deals made, can also be considered.

This is where a people strategy platform that brings employee, performance, financial, and business data together can be a big help. Without information from multiple sources, assessing who stands out from the pack can be prone to bias.

Step 3. Determine Whether Merit Increases Will Work

Now you need to answer a big question that many compensation teams forget to ask: whether merit increases will actually drive retention.

While compensation is consistently a retention factor, there are many other reasons why people quit, from job security and poor onboarding to workplace stress and location. One of our customers, Micron, found that a tweak in job descriptions helped address an issue with resignations due to job fit. So it pays to investigate the problem first before designing a solution.

Predicting flight risk can involve some pretty sophisticated technology and techniques, but simply put, it’s about building a profile of people who left in the past, which can then be used to identify similar characteristics in existing employees.

Advanced “in-memory” applications make it easier to run tailored algorithms to help identify flight risk. This has been proven by data scientists to be up to 17 times more accurate than other methods.

Step 4. Model Out the Increases

Once you have confirmed that salary increases will help retain a certain group of high performers, model out different increase scenarios to determine how they will impact your organization. The goal is to retain the highest number of people at the lowest cost. Start with three scenarios:

• Scenario 1: In this baseline scenario, everyone gets the same amount — a 3% increase.
• Scenario 2: Here, the differential is greater — an increase in 5% for top performers and 2% for everyone else.
• Scenario 3: In this scenario, only critical roles within the top talent segment would be given a 5% increase while everyone else would receive 2%. Alternatively, a 5% increase could be assigned to all critical roles, regardless of performance.

As you review each scenario, consider other factors such as time-to-fill. A bigger differential may be required if the roles are critical and the talent required to fill them is scarce. If the battle for these people in the market is less fierce, you can likely get away with a smaller differential. You can go back and keep refining the scenarios until you have developed the best plan.

Merit Pay Differentiation: Finally a Reality

Merit pay differentiation used to be a good idea in theory. Now, with advances in analytics technology, it is also a good idea in practice. With a holistic approach to your people and business data, gathered instantly from multiple systems, you can gain the insights you need to reward performance and keep star players.

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Source: Visier Inc.

http://www.humanresourcestoday.com/edition/weekly-knowledge-management-ats-2018-11-10?open-article-id=9223034&article-title=determine-the-right-employee-salary-increase-using-people-analytics&blog-domain=visier.com&blog-title=visier

NOVEMBER 2018

Author(s)

ASSOCIATE ACCOUNT MANAGER

BOSTON

Daniel Besser

As 2018 comes to a close, most HR teams have turned their attention to 2019 salary budget planning—a task that should not take place without reputable market data. In this strong job market, ensuring salaries are competitive across your organization may keep your workforce focused on their own group’s 2019 planning, rather than spending time over the holidays testing the waters for higher pay elsewhere. Pearl Meyer’s 2019 Compensation Planning Survey is a valuable source of reliable, current data that will help you make informed decisions as you plan for the upcoming year.

A Key Three-Year Trend

Across the board, salary budget figures are up and more companies than ever are planning to give increases. In fact, an impressive 94% of surveyed organizations are planning a compensation increase program in 2019, up from 91% just a year ago. A notable shift has occurred this year, as that increase is larger at 3.2% than the near-flat 3% year-over-year that we’ve become accustomed to. In fact, the average projected compensation increase budget is the highest since Pearl Meyer started collecting this data in 2012.

* 2019 survey results based on preliminary data (for 211 participating organizations) as of November 7, 2018.

When looking at compensation increase budgets for different employee types (e.g., exempt, non-exempt, management, or executive) there is little difference, suggesting this factor does not have significant bearing on projected salary budgets.

Global Increases

Survey participants also provided global data regarding the percentage adjustment to base compensation. This gives organizations a good starting point to determine if they are adjusting pay competitively abroad, as the Compensation Planning Survey collects this data for 60 countries outside of the United States. Three countries to note are India, China, and Russia, as survey respondents indicate that they are providing the largest percent adjustment to base compensation for employees in these countries.

* 2019 survey results based on preliminary data (for 211 participating organizations) as of November 7, 2018.

Preliminary Results Available Now

Preliminary results of the 2019 Compensation Planning Survey are now available to participating organizations. If you would like to participate in this complimentary survey, please contact survey@pearlmeyer.com.

Complimentary Custom Reports for all Participants

All survey participants can run unlimited complimentary custom reports. This tailored reporting tool makes the Compensation Planning Survey unique, as you can view up-to-date survey results for all participating organizations, or for a specific peer group of companies. The custom reporting tool is available to participating organizations immediately after completing the survey and a dedicated Account Manager is ready to assist you, should you have any trouble accessing this tool. Organizations that participate in the Compensation Planning Survey will also receive a free copy of the final report when it is published in January 2019.

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Source: Pearl Meyer & Partners, LLC

https://www.pearlmeyer.com/blog/salary-budget-survey-shows-companies-are-paying-more

by John Sullivan, Editor-In-Chief

 

 November 18, 2018

Low-cost colossus Vanguard has partnered with HealthEquity, which claims to be the nation’s largest independent health savings account (HSA) custodian.

The two will team to provide DC sponsors and participants a new service integrating health and wealth planning for retirement.

Vanguard will offer sponsors the ability to provide HealthEquity HSA products to their employees that feature Vanguard funds or the same investment options as their 401k plan line-up.

For Vanguard participants who choose a HealthEquity HSA, Vanguard’s Retirement Readiness Tool technology will integrate their HSA information with their 401k balance and other assets “to give them a comprehensive view of their current and future retirement savings,” according to the announcement. “Participants will also benefit from highly personalized communications that are rooted in behavioral finance and proven to successfully encourage their next best action.”

“Consumers who learn to use HSAs and DC plans together are on the fast track to retirement readiness,” Jon Kessler, President and CEO at HealthEquity, said in a statement. “Our partnership with Vanguard offers plan sponsors a powerful solution to connect health and wealth.”

With $1.1 trillion in DC assets under management, Vanguard serves as recordkeeper to more than 1,900 qualified plan sponsors and 4.8 million participants.

As a supplement to its new HSA solution, Vanguard plans to introduce a new proprietary health care cost calculator that will help participants to better plan and save for health care expenses in retirement.

Participants investing in an HSA enjoy several benefits, including a triple tax advantage:

1) contributions are made pre-tax or are tax-deductible;

2) earnings and interest accumulate tax-free; and

3) withdrawals for qualified medical expenses are also non-taxed.

After age 65, account owners can make withdrawals for any expense without a penalty; however, withdrawals used for anything other than medical expenses are taxed as income.

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Source: 401k Specialist

https://401kspecialistmag.com/major-401k-player-enters-hsa-space/

AUTHOR

Valerie Bolden-Barrett

PUBLISHED

Nov. 15, 2018

Dive Brief:

• Employers are offering healthcare benefits at the highest level since 2013 despite uncertain times for the U.S. healthcare system, according to a new survey of benefits decision-makers released by the Transamerica Center for Health Studies. The online survey, conducted by Harris Poll, showed 28% of respondents made changes to their healthcare benefits, with 32% adding health insurance and 36% adding other healthcare benefits.
• Company size was cited as the top reason for not offering or being unable to offer health insurance; 59% of small business reps in the survey said their company offered healthcare benefits to full- and part-time workers, compared to 85% of overall employers. Respondents also cited cost (28%) as an obstacle. Only 16% of respondents said they think offering the best health benefits package is the biggest benefit-related priority. Just 1% of those currently offering health insurance said they won't be providing it in two to three years.
• The survey results also showed that 61% of benefits decision-makers said their company is "extremely/very aware" of potential healthcare policy changes at the federal level. Just over a third (39%) of respondents anticipate health insurance quality improving in the next one to three years.

Dive Insight:

Healthcare coverage remains top consideration for job applicants. According to a survey released in February by America's Health Insurance Plans (AHIP), health coverage is the reason 56% of employees remain on their current job. The AHIP survey also showed that most employees are satisfied with their employer's health plan. Health coverage, therefore, can be an effective means of attracting, hiring and retaining talents.

After a being a strong point of discussion in the late months of 2017, Congressional health policy has generally failed to impact larger employers' pain points. Most employers in the Transamerica survey were aware of the potential healthcare policy changes, but were uncertain about the potential impact of repealing the Affordable Care Act's employer mandate. A smaller contingent (27%) in the survey were concerned about protections for preexisting conditions being overturned.

Employers are continuously trying to curb healthcare costs, which the Transamerica survey and other studies affirm. But those efforts have proven difficult, given healthcare system issues regarding the ability to evaluate quality of care, as well as the increasing cost of prescription drugs.

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Source: HR Dive

https://www.hrdive.com/news/employers-offering-health-benefits-at-highest-level-since-2013/542217/

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AUTHOR

Valerie Bolden-Barrett

PUBLISHED

Nov. 16, 2018

Dive Brief:

• In a new Staples Business Advantage survey, 44% of the respondents said they had the flu last year, and 45% of them blame their colleagues for coming to work sick and spreading the virus. Citing a Centers for Disease and Prevention (CDC) report, the business-to-business Staples division noted that people can be infected with the flu a day before symptoms appear and up to a week afterwards, and that people are the most contagious three to four days after becoming ill. According to Staples, employees took on average just 2.7 days of sick time, which likely means that employees are coming to work during the most contagious stages of the illness. More than half of respondents (53%) who were out with the flu last year admitted returning to work before feeling better.
• Survey results suggested that employees skipping the vaccine and being fearful of taking enough sick days to get well is behind the spread of the flu virus at work. Just 47% of the respondents said they normally get a flu shot. However, when asked what employers are doing to protect the workplace against the flu, only 53% of their employers offer sick leave; just 51% provide cleaning services for bathrooms and common areas;  and fewer than half offer tissues and anti-viral cleaning supplies. Also, 36% of employers offer vaccination days and 17% let employees work from home.
• Baby boomers and women in the survey were more proactive about taking precautions against the flu. However, given the severity of last year's flu season, half of the respondents said they were concerned about the flu this season. According to the CDC, the virus was widespread in more than two-thirds of the U.S. by the end of the week of Dec. 23, 2017, and widespread throughout the country between Dec. 30, 2017, and March 3, 2018.

Dive Insight:

Employers can better protect the workplace from flu outbreaks by stepping up the precautions that survey respondents addressed, including allowing employees to work from home or providing vaccination days to encourage inoculations. Some employers are offering vaccinations on-site and including a focus on flu prevention in their wellness programs. Three basic tips employers can use to get through the flu season are: 1) offer flu shots at work; 2) encourage workers and their families to get vaccinated; and 3) ask employees to stay home when they're sick.

Also, HR managers can help mitigate employees' fear of staying home sick beyond a few days by creating a culture of health. Just telling employees to stay home while sick or to get vaccinated might not be enough to get them to do so. By building and sustaining a culture of health, employers can create a supportive and energizing work environment that engages workers in healthful activities, habits and lifestyles.

According to the CDC, the flu leads to $10.4 billion in direct medical costs and $16.3 billion in lost earnings each year. But mandatory flu vaccinations have consequences. In 2017, Saint Vincent Health Center in Erie, Pa., paid $300,000 to resolve a U.S. Equal Employment Opportunity Commission (EEOC) suit over its mandatory flu shot policy. Similar suits have followed.

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Source: HR Dive

https://www.hrdive.com/news/short-sick-time-policies-might-be-helping-to-spread-the-flu-at-work/542332/