Hot Topics in Total Rewards

Annual employer reporting would remain but would be less burdensome

By Stephen Miller, CEBS Jun 23, 2017

The health care bill released by the Senate this week closely hews to the bill that was narrowly approved by the House, at least with regard to employer-sponsored group health plans.

On June 22, the Senate made public the Better Care Reconciliation Act (BCRA), its measure to repeal and replace key sections of the Affordable Care Act (ACA). The House passed its version of a replacement bill, the American Health Care Act (AHCA), on May 4. If the Senate approves its bill, which is not expected to receive any Democratic support, the Senate and House versions would need to be reconciled by a joint committee.

"The Senate proposal largely mirrors the House measure with some significant differences," said Ben Conley, a partner with law firm Seyfarth Shaw in Chicago and a faculty member of the nonprofit Health Care Reform Center and Policy Center. For instance, both bills would:

• Eliminate employer mandate penalties and ease employee tracking/reporting requirements. Under the ACA, employers with 50 or more full-time employees or full-time equivalent employees are required to provide ACA-compliant health insurance or pay a penalty. Both the House and Senate bills would reduce the penalty to zero for failure to provide minimum essential coverage. Without these penalties, follow-up regulatory changes could reduce reporting and notification requirements, benefit attorneys said.
  
  
• Eliminate individual mandate penalties. Under current law, most individuals are required to purchase health insurance or pay a penalty. The bill reduces the penalty to zero for failure to maintain minimum essential coverage.
  
  
• Keep but delay the "Cadillac tax," and eliminate other levies. The ACA imposed a 40-percent excise tax on the value of employer-sponsored health plans exceeding $10,200 for individual coverage and $27,500 for family coverage, indexed for inflation. Both the House and Senate bills would delay the excise tax, now set to take effect in 2020, until 2026 and end all other ACA taxes on employers.
  
  
• Raise health savings account (HSA) contributions. The Senate bill, like its House counterpart, would nearly double annual HSA contribution limits above the current limits (for 2017: $3,400 for self-only coverage and $6,750 for family coverage), making the cap equal to the out-of-pocket maximums that apply to high-deductible health plans (for 2018: $6,650 for self-only coverage and $13,300 for family coverage).
  
  
• Repeal tax increases on HSAs. The ACA imposed a 20-percent tax on distributions that are not used for qualified medical expenses. The House and Senate bills lower the tax rate to 10 percent and allow individuals to use HSA funds for over-the-counter medical items.
  
  
• Repeal the limit on contributions to health flexible spending accounts (FSAs). The ACA limited the amount an employee may contribute to a health FSA to $2,500 indexed for inflation, with the 2017 limit set at $2,600. This BCRA, like the AHCA, would repeal these annual limits and allow FSAs to reimburse over-the-counter medications.
  

Essential Health Benefits

Like the House bill, "The Senate bill allows states to repeal essential health benefits mandated by the ACA, including things like maternal care and mental health care," said Shan Fowler, senior director of product strategy at Benefitfocus, a Charleston, S.C.-based provider of cloud-based benefits software. He noted that a poll released last fall by the International Foundation of Employee Benefit Plans showed that nearly 3 in 4 employee-benefits professionals support essential health benefits, and more than 4 in 5 support mental health benefits in particular.

Differences from the House Bill

In the House version of the bill, health care subsidies were tied to age, so the older a person is, the more assistance he or she would receive in paying for health insurance. In the Senate version of the bill, subsidies would be tied to income, as they are in the ACA.

While largely maintaining the ACA's premium subsidies structure, the Senate bill would tighten the eligibility criteria starting in 2020. "Maintaining the income-based subsidy structure may keep costs lower than under the House plan but it limits subsidies to those making 350 percent of the federal poverty level, as opposed to the ACA's 400 percent," Fowler said.

The Senate also backs away from the House bill's provision that would allow states to opt out of requiring health plans to provide equal access to those with pre-existing conditions.

ACA Reporting Requirements

The Senate bill "doesn't appear to differ from the House bill with respect to annual ACA information-reporting by employers," Conley said. As with the House's American Health Care Act, "even in the absence of an individual or employer mandate, if there is a tax credit and that tax credit is conditioned, in part, on whether your employer has offered you qualified health insurance coverage, the IRS needs to know whether the employer offered you qualifying health insurance coverage," he explained.

However, eliminating the individual and employer mandate penalties would allow federal agencies to simplify employer reporting. For instance, "there would be a reduced burden in that you no longer have to track full-time staff for purposes of offering coverage to individuals working 30 or more hours a week; that piece would drop off." He further noted, "there likely will be no [Form 1095] Line 16 reporting for the employer mandate safe harbor, given that the employer mandate penalty would be zeroed out."

After 2019, when the new provisions would take effect, "presumably, the IRS could move to modify employers' reporting requirements, and they could even do so before 2019," Conley said.

Cadillac Tax Persists

The Senate bill "fully repeals every other tax imposed by the Affordable Care Act, and the same must be done for the Cadillac tax to avoid harming the 1 out of 2 Americans who receive health coverage through their employer," said a statement by the Alliance to Fight the 40, which advocates repeal of the tax.

Boost for HSAs

"The language and updates to the Senate bill regarding health savings accounts have carried over, unchanged, from the House bill," Fowler said. "It would change the annual HSA contributions to line up with maximum out-of-pocket amounts. This change is positive for the growing number of employees and individuals with high-deductible health plans and HSAs," as it will help them save more today to prepare to manage future health care expenses.

ACA Market Reforms Kept

"Popular ACA market reforms would remain in place," said Robert Projansky, a partner with law firm Proskauer in New York City. "These include, among other things, mandated dependent coverage to age 26, first-dollar coverage of preventive care, prohibition on annual and lifetime dollar limits, and prohibition on preexisting condition exclusions."

While both the House' and Senate bills repeal the ACA's individual mandate penalties, "the AHCA included a premium surcharge to be applied on insurance purchased on the individual market following a break in coverage of more than 63 days," Projansky noted. "This, at least, provided some financial incentive for individuals to maintain insurance coverage. The BCRA does not provide any financial incentive to maintain continuous insurance coverage."

Next Steps

The Senate bill will shortly be "scored" by the Congressional Budget Office (CBO), which will estimate how many additional Americans would go without health insurance under the plan and how passage would affect federal spending. After the CBO score, the Senate will vote on the bill. If the bill passes, it would go to joint committee where the House and Senate versions would be reconciled. That final bill, depending on the scope of its changes, may again need to be approved by the House and Senate.

"With 52 seats in the majority party, Senate leadership can only afford to lose two Republicans, with Vice President Mike Pence breaking the tie," said Chatrane Birbal, senior advisor for government relations at the Society for Human Resource Management.

SHRM "has not yet taken a formal position on the Senate's proposal as we are still reviewing the full legislative text," Birbal said. Similarly, SHRM did not formally take a position on the House-passed bill, "as we remain concerned about its potential implications on employer-sponsored coverage, and the health care coverage these plans provide to over 177 million Americans. SHRM does support the reduction of the employer mandate penalty and looks forward to working with Congress to repeal the mandated employer coverage and reporting requirements, which are an administrative and financial burden to employers."

She added, "SHRM applauds the inclusion of a six-year delay of the ACA excise tax on health care plans but will continue to advocate to fully repeal the tax. Furthermore, SHRM fully supports the repeal of the restrictions on the use and limitations on contributions to health savings accounts and flexible spending accounts."

***** ***** ***** ***** *****

Source: Society for Human Resource Management (SHRM)

https://www.shrm.org/ResourcesAndTools/hr-topics/benefits/Pages/Senate-BCRA-mandates-reporting-taxes.aspx?utm_source=SHRM%20Friday%20-%20PublishThis_HRDaily_7.18.16%20(52)&utm_medium=email&utm_content=June%2023%2C%202017&SPMID=00330610&SPJD=07%2F25%2F1996&SPED=04%2F30%2F2018&SPSEG=&spMailingID=29507344&spUserID=ODM1OTI0MDgxMjMS1&spJobID=1062952067&spReportId=MTA2Mjk1MjA2NwS2

Adoption rate of loan repayment benefits still low, despite much attention

By Stephen Miller, CEBS Jun 14, 2017

Although employers that help repay their workers' student loans report that it boosts morale and productivity—and that this aid is especially valued by Millennials—only 4 percent of Society for Human Resource Management (SHRM) members say that their organizations offered this benefit in 2017, the same percentage that provided this assistance a year earlier and just one percentage point more than offered it in 2015.

(Click on graphic to view in a separate window.)

The SHRM 2017 Employee Benefits survey report will be released June 19. The findings are based on a January/February poll of randomly selected SHRM members, with 3,227 HR professionals responding.

"Sometimes when big companies offer certain benefits, it gets a lot of media coverage, but that doesn't mean it's actually changing in overall prevalence," said SHRM researcher Tanya Mulvey, the survey project leader.

"Employer-provided loan repayment assistance is still relatively new and it can be a high-cost benefit for employers," said Evren Esen, director of SHRM's survey programs. However, "it is especially attractive to younger workers with highly valued skills." Over time, she believes, "this benefit could see future growth."

There are 44 million Americans with student loan debt, bringing the total U.S. student debt burden to more than $1.3 trillion, the federal government estimates. "Early evidence has shown that employer repayment assistance can reduce the time needed to retire an average student loan balance by four years," noted Scott Thompson, CEO of Tuition.io, a student loan contribution platform.

Mostly a Mega-Corporation Benefit?

A January 2017 survey report by WorldatWork, an organization of total rewards professionals, also showed that 4 percent of employers overall provided a loan-repayment benefit but that the largest of the corporate giants were the most likely to do so.

The WorldatWork survey was conducted in August 2016 with 730 responses from total rewards professionals, predominantly at large North American firms.

Tax Hurdle

An obstacle to providing student loan repayment assistance is that, at present, employers can't claim a deduction for these payments, which also are taxable income for the recipients.

"For employers considering a student loan repayment benefit option, they will need to remember that this is considered taxable income to the employee, unlike the familiar tuition reimbursement that provides employers with a deduction up to $5,250 paid on behalf of the employee," advised Bobbi Kloss, HR director at Benefit Advisors Network (BAN), a consortium of health and welfare benefit brokers across the U.S.

Proposed legislation now before Congress would allow employers to provide loan repayment assistance with pretax dollars. SHRM supports the bipartisan Employer Participation in Student Loan Assistance Act (H.R. 795), which would amend Section 127 of the Internal Revenue Code, introduced Feb. 1 in the House with 23 co-sponsors.

Aiding Recruitment

Loan-repayment aid seems most likely to be offered by businesses facing difficulty in recruiting employees with in-demand skills, whether that be nurses, financial analysts or software designers, and by those that want to differentiate themselves as attractive to recent graduates and younger workers. "This may be a benefit that certain organizations are using if they are having a difficult time recruiting certain types of talent, for whom this would be a lucrative benefit," Mulvey said.

For the class of 2017, "nearly 70 percent of college graduates will be strapped with student loan debt, with the average undergraduate student facing $30,100 in loans," said Tim DeMello, CEO of Gradifi, an employee-benefit student loan repayment platform. "This generation is made up of tech-savvy and hard-working people who want to work for companies that are passionate about what they do, and who also care about their employees."

Millennials and Others

Older workers also are financially overstretched by student debt, shows a recent survey of 909 people 35 and older who have a student loan. According to the survey by IonTuition, a firm that helps borrowers manage these loans:

• Over 37 percent of respondents had fallen behind on their student loan payments.
  
  
• 43 percent reported being unable to prepare properly for retirement due to their student loans,
  
  
• 36 percent would prefer student loan repayment benefits, such as contribution matching or automatic payroll deductions, over a 401(k).
  
  
• 29 percent would prefer student loan repayment benefits over health benefits.
  

"The impact of student loan debt on Millennials is widely discussed, but we were interested in exploring how student loan debt affects the financial wellness of older generations," said IonTuition CEO Balaji Rajan. "Businesses have a unique opportunity to help workers of all ages."

Respondents taking out or cosigning student loans for others are also struggling. "Nearly half of Gen Xers and Baby Boomers who cosigned for loans are concerned that the borrower may not pay back their loans," he added.

Tuition Assistance Dips

While SHRM found that more employers are providing financial advice, training and tools to employees, direct financial assistance with graduate and post-graduate education has declined. 

Educational Assistance Benefits
	2013	2015	2017
Undergraduate educational assistance	61%	56%	53%
Graduate educational assistance	59%	52%	50%
529 plan payroll deduction	14%	11%	11%
Educational scholarships for members of employees' families	--	11%	11%
Employer-provided student loan repayment	--	3%	4%
Employer contribution or match for 529 plan	--	--	2%
Source: Society for Human Resource Management, 2017 Employee Benefits report.

Organizations that decreased their benefits offerings in the past 12 months most commonly did so to remain financially stable when facing rising costs of benefits, economic pressures or poor organizational performance, SHRM's report noted.

However, given the employee skills gap confronting employers, seeking to cut costs by reducing educational benefits may be short sighted and even counterproductive. "Investing in employees' tuition isn't a benefit cost but rather a valuable investment that positively impacts organizations' bottom line," said Jamie Merisotis, president and CEO of Lumina Foundation, a nonprofit that focuses on increasing the share of Americans with degrees, certificates and other credentials.

The foundation partnered on a recent study of health insurer Cigna's education reimbursement program that showed each dollar the company spent on tuition assistance generated an additional $1.29 in savings—a 129 percent return on investment—due to reduced turnover and lower hiring costs.

***** ***** ***** ***** *****

Source: The Society for Human Resource Management (SHRM)

https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/student-loan-assistance-benefit.aspx

Economic growth is picking up, but will wages keep pace?

By Stephen Miller, CEBS May 31, 2017

In the U.S., salary increase budgets are expected to grow by 3.2 percent in 2018, up from a 3.1 percent increase in 2017 and 3.0 percent in 2016, according to a May forecast.

Salary budgets represent funds that employers are planning to spend on employee compensation but do not necessarily represent the average salary or wage increase that workers will receive.

The 2018 pay projections were reported in Planning Global Compensation Budgets for 2018 by ERI Economic Research Institute, a compensation analytics firm in Irvine, Calif. The firm's projections are based on data from over 20,000 companies and analysis of government statistics, such as the following:

• Gross domestic product in the U.S. is expected to increase by 2.5 percent next year, up from 2.3 percent in 2017 and 1.6 percent in 2016—an improvement but below the Trump administration's goal of 3 percent growth for the economy.
  
  
• Inflation is forecast to slow to 2.4 percent, down from 2.7 percent this year but higher than the 1.3 percent reported for 2016.
  
  
• The unemployment rate is predicted to fall slightly to 4.6 percent, down from 4.7 percent this year and 4.9 percent in 2016.
  

Investing in Workers

"The 2018 projections indicate salary increase budgets throughout the majority of the world between 2 percent and 5 percent," said Linda Cox, CCP, global total rewards expert at ERI Economic Research Institute. "The global economy seems to be gaining momentum," she noted, and the U.S. economy is expected to expand due to the current administration's eased fiscal policy, among other factors.

However, wages haven't kept up with rising productivity in the U.S. and elsewhere, while technology has driven the decline in labor's share of national income, Cox pointed out. (For a different viewpoint, see the box below.)

For employers, the economic recovery provides "an opportunity to look at their total rewards strategies and practices" to ensure fair distribution of rewards based on performance for all employee groups, Cox said.

Employers should also ask whether they are preparing their workforce for technological advances, such as artificial intelligence, that will continue to displace jobs.

"A breakthrough in technology fundamentally changing the way people work also requires an investment in human capital to prepare employees for the future," Cox noted.

Wage Growth Is Low but So Are Inflation and Productivity Forecasts based on economic data are subject to interpretation, and different economists will judge differently whether the glass is half full or half empty. Over the last 24 months through March, for instance, U.S. inflation has been pegged at 1.4 percent a year and productivity growth at 0.6 percent, Neil Irwin, senior economics correspondent for The New York Times, recently reported. "Those are very low numbers," Irwin noted, and "you may expect average worker wages to have risen only 2 percent." However, "the average hourly earnings for nonmanagerial private-sector workers rose 2.4 percent a year in that period," which is "more than we might have expected, with inflation and productivity so weak." "If anything," Irwin wrote, "the numbers show that workers are capturing more than their share of the spoils from a growing economy."

Source: Society for Human Resource Management (SHRM) 

https://www.shrm.org/ResourcesAndTools/hr-topics/compensation/Pages/2018-salary-budget-forecast.aspx?utm_source=SHRM%20Wednesday%20-%20PublishThis_HRDaily_7.18.16%20(54)&utm_medium=email&utm_content=May%2031%2C%202017&SPMID=00330610&SPJD=07%2F25%2F1996&SPED=04%2F30%2F2018&SPSEG=&spMailingID=29205464&spUserID=ODM1OTI0MDgxMjMS1&spJobID=1044136149&spReportId=MTA0NDEzNjE0OQS2

Plan sponsors could be liable for advice that is not in participants' best interest

By Stephen Miller, CEBS May 25, 2017

In the wake of Labor Secretary Alexander Acosta's announcement this week that the Department of Labor won't further delay the Obama administration's controversial fiduciary rule, retirement plan sponsors should ensure that any investment advice they help plan participants receive isn't conflicted due to advisor fees.

Last month, the DOL put a 60-day hold on implementing the rule, delaying the date by which retirement advisors must act as fiduciaries from April 10 to June 9, 2017. The DOL also delayed parts of the regulation related to the best interest contract (BIC) exemption, which allows so-called conflicted compensation to be paid under certain conditions, until Jan. 1, 2018. Commissions and revenue-sharing payments are examples of conflicted compensation.

In a May 23 Wall Street Journal op-ed (posted online the evening of May 22), Acosta wrote that the fiduciary rule will take effect as presently scheduled but that the DOL will seek public input on subsequently revising it.

Many financial service providers had called for a further delay of the rule, saying its requirements are overly burdensome on advisors, increase the likelihood of participant lawsuits, and will require participants or plan sponsors to pay higher flat fees for advice.

Acosta, however, wrote, "We have carefully considered the record in this case, and the requirements of the Administrative Procedure Act, and have found no principled legal basis to change the June 9 date while we seek public input. Respect for the rule of law leads us to the conclusion that this date cannot be postponed."

He added, "Trust in Americans' ability to decide what is best for them and their families leads us to the conclusion that we should seek public comment on how to revise this rule."

At the same time, the DOL issued two new pieces of guidance:

• The Temporary Enforcement Policy on Fiduciary Duty Rule states that during the phased implementation period ending on Jan. 1, 2018, the DOL won't pursue claims against fiduciaries "who are working diligently and in good faith to comply with the fiduciary duty rule and exemptions, or treat those fiduciaries as being in violation of the fiduciary duty rule and exemptions."
  
  
• Conflict of Interest FAQs (Transition Period) is a new set of frequently asked questions (FAQs) and answers to help financial services firms implement the rule.
  

"While the June 9 applicability date is firm, it is not beyond the realm of possibility that the date on which the transition period ends, Jan. 1, 2018, could be delayed," said Marcia Wagner, managing director of Boston-based Wagner Law Group. "The FAQs indicated that the DOL is still conducting the review of the fiduciary rule mandated by the White House and that the DOL intends to issue a new Request for Information regarding possible changes to the fiduciary rule."

HR's Role—and Risks

Plan sponsors that arrange for participants to receive advice that is conflicted or otherwise not in their best interest could face class-action lawsuits, benefits attorneys said. "Most retirement plan sponsors have a hazy understanding about what a fiduciary is and if their advisor is acting as one," warned Robert Lawton, president of Lawton Retirement Plan Consultants in Milwaukee. "The HR person will have to look at the fees and the new contracts" from their financial services vendors and ensure that they meet the new standard, Wagner advised.

The fiduciary standard requires that an advice provider act in the best interest of plan participants, receive only reasonable compensation and refrain from making misleading statements, said Erin Sweeney, a benefits attorney with Miller & Chevalier in Washington, D.C. "Notably, the DOL advised that the agency would not enforce the impartial conduct standards until after Jan. 1, 2018, provided the advice providers are 'working diligently and in good faith to comply,' " she noted.

The DOL also clarified that until Jan. 1, "as long as advice providers adhere to the impartial conduct standards in making recommendations, that the advice providers would not violate existing exemptions even if new compensation systems are not yet implemented," Sweeney said.

However, "As DOL acknowledged, its enforcement policy does not bar participant lawsuits during the transition period," explained Julia Zuckerman, J.D., a director at Conduent HR Services, and Marjorie Martin, a principal at Conduent's Knowledge Resource Center. "This means that, as of June 9, 2017, participants can bring class-action lawsuits against fiduciaries under the final rule for breaches that occur on or after that date."

In crafting the rule, "the DOL aimed to broaden the scope of fiduciary investment advice and thereby make it easier for it, and participants, to establish fiduciary liability," they added. "Although the DOL's focus on compliance assistance during this transition period is helpful, plan sponsors may still face litigation risk via participant lawsuits."

"With the fiduciary rule's applicability date now locked in, sponsors should understand the effect of the rule on everyday interactions with plan participants," said Dominic DeMatties, a partner at Alston & Bird in Washington, D.C. "In addition, sponsors should keep an eye on, and may wish to be involved in, the continuing regulatory review and process associated with the rule at the Department of Labor for additional changes, in particular as the next enforcement deadline, Jan, 1, 2018, approaches."

Contrasting Views on the Fiduciary Rule "Access to retirement products and services will decrease, retirement services will become more expensive [and] investment choices and options will be limited" if the fiduciary rule takes effect, the U.S. Chamber of Commerce contended. The chamber referenced a 2017 survey by the National Association of Insurance and Financial Advisors that found "nearly 90 percent of financial professionals believe consumers will pay more for professional advice services" with the rule in place. But "the rule would expand the fiduciary duty standard to cover brokers advising people seeking advice about retirement investments, which currently allows them to steer clients toward the products that make themselves more money at the expense of their clients' needs," argued ThinkProgress, which advocates for liberal public policies. The group cited Obama administration claims that "Americans lose an estimated $17 billion a year to this conflicted advice every year."

Source: Society for Human Resource Management (SHRM)

https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/fiduciary-rule-acosta-no-delay.aspx

A small percentage of employers might drop health care coverage altogether

By Allen Smith, J.D. May 23, 2017

Approximately 1 in 5 employers (20 percent) anticipate modifying eligibility requirements for health care coverage if the Affordable Care Act (ACA) is repealed, according to the results of a health care and employment law survey released by Littler.

The survey recorded responses from 1,220 in-house counsel, HR professionals and C-suite executives from a range of industries who answered questions about health care reform and state and local law changes that affect employers.

The ACA broadened the base of employees covered by health care, mandating that those who work 30 hours or more a week be offered coverage, noted Steven Friedman, an attorney with Littler in New York City. If the ACA is repealed, "I would be very surprised if employers didn't cut back on eligibility to where they were before the ACA," he said. Before the ACA, "many employers set the bar far higher than 30 hours a week to be considered full-timers," he noted; 40 hours was much more common.

The survey also found that if the ACA is repealed:

• 28 percent of respondents would not be affected, as they did not offer coverage to additional employees as a result of the law.
  
• 18 percent would allow more employees to work over 30 hours per week given that it would not trigger a requirement to offer health insurance.
  
• 17 percent would increase premiums or cost-sharing.
  
• 4 percent would drop health insurance coverage for some full-time employees.
  

"Even though employers would save money if they cut back on coverage, there is the question of how such a change would impact employee morale and employee relations," Friedman said.

In the version of the American Health Care Act that passed the House of Representatives May 4, "the number of people who may be eligible for some subsidy may be greater than those entitled to a subsidy under the ACA," he added. "Overall, employees may receive less money but over a wider swath of the population," he explained, noting that there could be tax credits that phase out at incomes between $75,000 and $115,000. This "could make employers think about whether they should continue to provide a subsidy to employees when the government provides it," he said. However, he added, "Employers still feel heavily invested in providing health care to employees."

State Pre-Emption Laws on the Rise

Businesses have been challenged by the multitude of local laws imposing higher minimum wages, banning questions on job applications inquiring about criminal history and mandating paid sick leave, among other requirements.

"With the Trump administration working to overturn labor and employment rules and to reduce regulations at the federal level, employers can expect a continued increase in new regulations impacting the workplace at the state and local levels," said Michael Lotito, an attorney with Littler in San Francisco and co-chair of the Workplace Policy Institute.

"If there is any hope for more consistency, it may emanate from the recent surge of pre-emption bills under consideration in various states," according to the survey report. "At least half of the states have already passed measures precluding localities from imposing various types of additional requirements on private-sector employers; at least a dozen new pre-emption measures are currently pending."

These pre-emption laws typically are being enacted in states with Republican Houses and Senates as well as governors but that also have progressive cities, Lotito said. He expects to continue to see this type of pre-emption.

The survey report noted that due to changes in state and local laws impacting employers:

• 85 percent of employers updated their policies, handbooks and HR procedures.
  
• 54 percent provided additional training to supervisors and employees.
  
• 50 percent conducted internal audits.
  
• 10 percent reduced working hours for staff.
  
• 7 percent made no change.
  
• 4 percent considered moving the business from its current location.
  

While some states are pre-empting local laws, other states are adding employment law requirements. The survey found that the following percentages of employers had laws at the state or local level that impacted their businesses:

• 59 percent had paid-leave mandates.
  
• 48 percent had "ban-the-box" and other laws restricting employer use of criminal and credit history.
  
• 47 percent had minimum-wage increases.
  
• 36 percent had legalization of marijuana provisions.
  
• 24 percent had gender pay equity measures.
  
• 18 percent had employee scheduling laws, requiring advance notice of schedule changes.
  

Trump Priorities

Survey respondents said they expected the following developments under the Trump administration:

• Health care reform would be a priority during the administration's first year (89 percent).
  
• Immigration reform would be emphasized (85 percent).
  
• Reducing the outsourcing of jobs from America would be prioritized (51 percent).
  
• Income equality measures, such as raising the minimum wage and overtime pay, could be opposed (35 percent).
  
• National Labor Relations Board (NLRB) decisions would be challenged (33 percent).
  
• Regulations and enforcement around the use of independent contractors would be eased (23 percent).
  

Survey respondents said they hoped for the following:

• Revocation of the NLRB's quickie election rule (53 percent).
  
• Repeal of the revised EEO-1 pay reporting requirements (50 percent).
  
• Rollback of the expanded "joint employer" standard (47 percent).
  
• Repeal or revision of the new overtime rule (45 percent).
  
• Repeal of the Affordable Care Act (43 percent).
  
• Rollback of new requirements for federal contractors, such as the paid-sick-leave mandate(33 percent). 
  

***** ***** ***** ***** *****

Source: Society for Human Resource Management (SHRM)

https://www.shrm.org/ResourcesAndTools/legal-and-compliance/employment-law/Pages/compliance-survey-2017.aspx?utm_source=SHRM%20Tuesday%20-%20PublishThis_HRDaily_7.18.16%20(54)&utm_medium=email&utm_content=May%2023%2C%202017&SPMID=00330610&SPJD=07%2F25%2F1996&SPED=04%2F30%2F2018&SPSEG=&restr_scanning=silver&spMailingID=29110116&spUserID=ODM1OTI0MDgxMjMS1&spJobID=1043087006&spReportId=MTA0MzA4NzAwNgS2 

Inc. 5000 honorees tell us how they would tackle a common business challenge.

CREDIT: Tommy Parker

"Think of things you can cover that cost a little bit of money but not as much as raises. We cover the cost of dry cleaning and health club memberships for our team members. We try to create a sense of community around the things we may not love to do but have to."

Kevin O'Neill Founder and managing partner, Acertitude (human resources)
No. 1,889 2016 Inc. 5000 Rank
198% 3-year growth
$6.8M 2015 revenue

---------------------------------

"For my top-performing team, I'd find a reward that's applicable to them--I'd ask if they want to go on a ski trip, or to a concert or basketball game, or some other type of outing, and send them to that. With the engineering department, if a product they worked on got
patented, I would include their name on the patent."

Sam Sinai CEO, Deco Lighting(manufacturing)
No. 1,667 2016 Inc. 5000 Rank
224% 3-year growth
$33.2M 2015 revenue

---------------------------------

"We could ask our team members to pick a cause they're interested in and put together a fundraiser. We've done a fundraiser for a domestic violence shelter and one for a family homeless shelter in town. Those things mean a lot to people here."

Ingrid Emerick CEO, Girl Friday Productions (media)
No. 803 2016 Inc. 5000 Rank
495% 3-year growth
$2.9M 2015 revenue

---------------------------------

"I call people out in front of their peers. In team meetings, sales meetings, safety meetings, whenever we get together as a group, I highlight those top performers. I think that's always a good way to motivate and elevate."

Kristi Alford CEO, E2 Optics (telecommunications)
No. 452 2016 Inc. 5000 Rank
847% 3-year growth
$50.4M 2015 revenue

---------------------------------

"You can find some really great professional training opportunities that don't cost as much as a raise and yet can have a really big impact: in-person classes, online classes, or internal opportunities that we set up. We'd give them the time to do that."

Mike Belasco CEO, Inflow (advertising and marketing)
No. 2,796 2016 Inc. 5000 Rank
125% 3-year growth
$2.8M 2015 revenue

***** ***** ***** ***** ***** 

Source: www.Inc.com

https://www.inc.com/magazine/201706/sheila-marikar/inc-5000-insights-you-cant-give-raises-this-year.html?cid=hmhero

Decision contradicts other rulings; Supreme Court may have to resolve split among courts

By Allen Smith, J.D. May 1, 2017

A9th U.S. Circuit Court of Appeals decision contradicts other appeals court rulings by holding that salary history alone may be used in setting pay--an appellate split that the Supreme Court may have to resolve. 

The plaintiff in this case is Aileen Rizo, a math consultant for Fresno County, Calif., schools. Over lunch with male colleagues Rizo, learned that she was paid less than all of them, though they had the same job. She sued, claiming a violation of the federal Equal Pay Act.

A district court determined that the county's reason for her lower pay—prior salary—was "so inherently fraught with the risk … that it will perpetuate a discriminatory wage disparity between men and women that cannot stand, even if motivated by a legitimate nondiscriminatory business purpose."

But the 9th U.S. Circuit Court of Appeals reversed on April 27 (Rizo v. Yovino, No. 16-15372), concluding that, under the Equal Pay Act, prior salary can be a factor other than sex if it supports a business policy and the employer uses the factor reasonably in light of its stated purposes and practices.

The decision on the applicability of the federal Equal Pay Act does not affect state laws, such as one in Massachusetts that takes effect in 2018, that prohibit employers from asking about salary history in job interviews.

Fresno County Claims Business Reasons for Policy

Fresno County claimed four business reasons for relying exclusively on prior salary:

• The policy is objective.
  
• The policy encourages candidates to leave their current jobs for positions with the county because the county always pays new employees 5 percent more than their old salary.
  
• The policy prevents favoritism and ensures consistency.
  
• The policy is a judicious use of taxpayer dollars.
  

The appeals court sent the case back to the district court to examine whether Fresno County's reliance on prior salary in setting pay effectuated some business policy and used prior salary reasonably. The 9th Circuit rejected the district court's determination that salary history cannot be the only factor for setting pay. But the 10th and 11th Circuits have reached the opposite conclusion (in Angove v. Williams-Sonoma Inc., 70 F. App'x 500, 508 (10th Cir. 2003), and Irby v. Bittick, 44 F.3d 949, 954 (11th Cir. 1995), respectively).

(9th U.S. Circuit Court of Appeals Opinions)

Plaintiff's Lawyer Notes the Split in Authority

Rizo's attorney hasn't decided his next move but did note that the case may go to the U.S. Supreme Court since there now is a split at the appellate court level. "The logic of the decision is hard to accept. You're OK'ing a system that perpetuates the inequity in compensation for women."

(The Associated Press)

State Laws May Have Broader Protections

Already some state laws provide broader coverage than the Equal Pay Act. Massachusetts, for example, has a prohibition on inquiring about salary histories. As of 2018, employers in the Bay State may not ask about salary history before offering a job to an applicant. In addition, employers won't be able to contact an applicant's former company to confirm the wage amount until after an offer is made. Even then, employers will only be able to verify past wage amounts if they have written permission from the applicant.

California's Fair Pay Act

California has the Fair Pay Act, which requires employers to explain differences between male and female employees' pay. It tasks employers with proving that any disparities in pay between men and women doing "substantially similar" work are based on a limited number of acceptable factors, including seniority, education and "quantity or quality of production" of goods. Rizo's claim arose before the enactment of the Fair Pay Act; she therefore did not sue under it.

***** ***** ***** ***** *****  

Source: The Society for Human Resource Management (SHRM)

https://www.shrm.org/ResourcesAndTools/legal-and-compliance/employment-law/Pages/In-Focus-pay-differential.aspx?utm_source=SHRM%20PublishThis_HRWeek_7.18.16%20(42)&utm_medium=email&utm_content=May%2008%2C%202017&SPMID=00330610&SPJD=07%2F25%2F1996&SPED=04%2F30%2F2018&SPSEG=&restr_scanning=silver&spMailingID=28938213&spUserID=ODM1OTI0MDgxMjMS1&spJobID=1040734677&spReportId=MTA0MDczNDY3NwS2

Despite House amendments, core provisions affecting employers left intact

By Stephen Miller, CEBS May 4, 2017

On Thursday, the U.S. House of Representatives passed the GOP's revised American Health Care Act (AHCA) by a vote of 217 to 213, sending the measure to the Senate, where it faces a drastic makeover.

No Democrats voted "yes" in the House, while 20 Republicans voted against the bill.

 

If the Senate approves the legislation—with amendments or an entirely rewritten bill—then representatives of both chambers will attempt to cobble the two versions together in a conference committee and that iteration will (depending on the extent of the changes) face up-and-down votes in the House and Senate.

While Republicans have a 45-seat majority in the House, the 100-member Senate has just 52 Republicans. The GOP can only afford to lose two Republican votes and still keep the legislation alive, with Vice President Mike Pence serving as tie-breaker.

"The fate of bill in the Senate is uncertain since it includes a few provisions unrelated to tax provisions, a requirement under the budget reconciliation process" through which legislation can be passed by majority vote, not subject to filibuster, said Chatrane Birbal, senior advisor for government relations at the Society for Human Resource Management. "In addition, the Congressional Budget Office score estimating the potential costs and number of people who would lose insurance was not released until after House passage of the bill, which could impact the Senate's consideration of the measure."

Employer-Sponsored Plans

"In many respects, the AHCA is less 'repeal and replace' and more 'retool and repurpose,' but there are some significant changes that could affect employers if this bill becomes law" and the provisions stay intact, noted Chris Rylands and Sarah Bhagwandin, benefit attorneys at law firm Bryan Cave's Atlanta and Denver offices, respectively.

What does the AHCA, as it currently stands, portend for employer-sponsored group health plans?

To date, most of the debate around the Republicans' bill has focused on its repeal of the Affordable Care Act's (ACA's) reforms to the individual insurance market and, for those purchasing nongroup policies, its replacement of subsidies for lower-income people with age-based refundable tax credits.

Among the key issues for HR professionals who manage employer-sponsored group plans are the following:

• Employer mandate and tracking/reporting requirements. Under the ACA, employers with 50 or more full-time employees or equivalents are required to provide health insurance or pay a penalty. The AHCA reduces the penalty to zero for failure to provide minimum essential coverage. Without those penalties, follow-up regulatory changes could reduce reporting and notification requirements, benefit attorneys said.
  
  
• Individual mandate penalty. Under current law, most individuals are required to purchase health insurance or pay a penalty. The bill reduces the penalty to zero for failure to maintain minimum essential coverage.
  
  
• "Cadillac tax" and other levies on employer plans. The ACA imposed a 40 percent excise tax on the value of employer-sponsored health plans exceeding $10,200 for individuals and $27,500 for family coverage, indexed for inflation. The AHCA would delay the excise tax, now set to take effect in 2020, until 2026 and end all other ACA taxes on employers.
  
  
• Health savings accounts (HSAs) contributions. The bill would nearly double annual HSA contribution limits above current contribution limits, making the cap equal to the out-of-pocket maximums that apply to high-deductible health plans (for 2018, $6,650 for self-only coverage and $13,300 for faimily coverage). 
  
  The AHCA also would allow spouses age 55 or older to make catch-up contributions to the same HSA (currently, only the account holder can make an annual catch-up contribution; a spouse must open a separate HSA to make this contribution). And any excess funds left from the coverage tax credit after purchasing qualifying health insurance would be payable to an HSA.
  
  
• HSA restrictions. The ACA increased the tax on HSA distributions for nonmedical expenses to 20 percent; the AHCA would lower the rate back to 10 percent and allow individuals to use HSA funds for over-the-counter medical items. Additionally, expenses incurred up to 60 days before the account is established could be reimbursed from the account.
  
  
• Flexible spending accounts (FSAs). The ACA limited the amount an employee may contribute to a health FSA to $2,500 indexed for inflation, with the 2017 limit set at $2,600. This AHCA would repeal these annual limits and allow FSAs to reimburse over-the-counter medications.
  
  
• Medicare Part D subsidies. The ACA allowed Medicare Part D subsidies to be excluded from a company’s income, but denied the deduction, for tax purposes, for any expenses that were subsidized. The AHCA reinstates the prior law that allowed both the exclusion of the subsidy from income and the deduction for the costs funded by the subsidy.
  
  
• COBRA subsidies. Unlike the ACA's subsidies to purchase only individual market insurance, the AHCA's refundable tax credits could pay for unsubsidized COBRA coverage. 
  
  
• Additional Medicare Tax. The ACA added an additional 0.9 percent tax on wages above certain thresholds. The AHCA eliminates this tax.
  
  
• Small Business Health Care Tax Credit. The AHCA eliminates the credit for qualifying small businesses to purchase ACA coverage through the Small Business Health Options Program (SHOP). Under the ACA, the credit could be claimed for two consecutive years.
  

Existing ACA insurance standards, such as those providing coverage for adult children up to age 26, guaranteed renewability and no discrimination based on gender, would remain the law.

"SHRM did not take a formal position on the American Health Care Act as we remain concerned about its potential implications on employer-sponsored coverage, and the health care coverage these plans provide to over 177 million Americans," said Birbal. 

"SHRM does support the reduction of the employer mandate penalty but looks forward to working with Congress to repeal the mandated employer coverage and reporting requirements, which are an administrative and financial burden to employers," she added. "SHRM applauds the inclusion of a six-year delay of the ACA excise tax on health care plans but will continue to advocate to fully repeal the tax. Furthermore, SHRM fully supports the repeal of the restrictions on the use and limitations on contributions to health savings accounts and flexible spending accounts."

Looking ahead to Senate action, "SHRM will continue to urge Congress to avoid any future changes to the tax treatment of employer-sponsored health coverage and will advocate for the preservation of the Employee Retirement Income Security Act that allows for common benefit plans across state lines."

[SHRM members-only toolkit: Complying with and Leveraging the Affordable Care Act]

Essential Health Benefits and Lifetime Limits

The House revised the original AHCA through an amendment that gives states the flexibility to apply for waivers from certain requirements imposed on individual market plans and group plans offered by small employers.

One waiver that individual states could request would allow them to opt out of mandating that insurers cover 10 essential health benefits in health care plans. "For small group plans, this would mean a change in what they have to cover, if the state in which the insurance is issued obtains a waiver," said Rylands and Bhagwandin.

Also, as Birbal explained in a recent analysis, "since the ACA's prohibitions of lifetime and annual limits and cap on out-of-pocket expenditures also only apply to essential health benefits, states granted a waiver would be able to define these protections as well."

Also, while the waiver would specifically apply to individual market and small-group market plans, the amended AHCA "could affect large group and self-funded employer plans that are prohibited from imposing annual and lifetime dollar limits on 10 essential health benefits," said Garrett Fenton, an employee benefits lawyer at Miller & Chevalier in Washington, D.C.

"In theory, for example, a large group or self-funded employer plan might be able to use a 'waiver' state's definition of essential health benefits—which could be significantly more limited than the current federal definition—and exclude items like maternity, mental health or substance abuse coverage for purposes of the annual and lifetime limit rules. Employers effectively could be permitted to begin imposing dollar caps on certain benefits that currently would be prohibited under the ACA."

"In light of the patterns of state benefit regulation that existed prior to the ACA, it appears plausible that many states will set essential health benefit standards that are considerably laxer than those that are in place under the ACA," wrote Matthew Fiedler, a fellow in the Brookings Institution's Center for Health Policy. "Large employers may have the option to pick which state's essential health benefits requirements they wish to abide by for the purposes of these provisions; this would likely have the effect of virtually eliminating the catastrophic protections with respect to large employers since employers could choose to pick whichever state set the laxest standards."

But as the amended bill relates to states' flexibility to waive lifetime limits, "the provision wouldn't have much of an impact on employer-sponsored health plans," said Birbal. "Many large employers didn't impose annual or lifetime limits before the ACA was implemented. Furthermore, HR professionals work diligently to design and implement quality benefits to meet employee needs. Health care will continue to be an integral part of the benefits package employers offer to recruit and retain talent."

Essential health benefits and lifetime limits are issues that the Senate is likely to revisit.

Outlook Uncertain

"There is no timeline for the Senate effort," said Edward Fensholt, senior vice president and director of compliance services at Lockton, a benefits brokerage and consultancy based in Kansas City, Mo., and Scott Behrens, an ERISA compliance attorney at the firm. 

"Even if the Senate is able to agree on a bill, it's unclear whether the Freedom Caucus, the staunch House conservatives who initially derailed the AHCA in that chamber, would support the Senate version," they noted. "So, while group plan sponsors might keep one eye on Washington, it's important to keep the other focused on ACA compliance, as it remains the law of the land."

***** ***** ***** ***** *****  

Source: The Society for Human Resource Management (SHRM)

https://www.shrm.org/ResourcesAndTools/hr-topics/benefits/Pages/House-passes-GOP-healthcare-bill-now-what.aspx?utm_source=SHRM%20PublishThis_HRWeek_7.18.16%20(42)&utm_medium=email&utm_content=May%2008%2C%202017&SPMID=00330610&SPJD=07%2F25%2F1996&SPED=04%2F30%2F2018&SPSEG=&restr_scanning=silver&spMailingID=28938213&spUserID=ODM1OTI0MDgxMjMS1&spJobID=1040734677&spReportId=MTA0MDczNDY3NwS2

Companies must decide how much it's worth to put a controversy behind them

By Stephen Miller, CEBS Apr 24, 2017

When businesses pay severance packages to well-known company leaders or star talent accused of wrongdoing—or of just doing a bad job—are they getting their money's worth?

Last week, the Fox News Channel announced that Bill O'Reilly, the anchor of its highest-rated prime-time show, "The O'Reilly Factor," would be parting ways following news reports that he and Fox had, over the past decade and a half, settled five sexual harassment allegations for about $13 million.

O'Reilly has denied the accusers' claims.

After the announcement, several media outlets, citing inside sources, reported that Fox would pay O'Reilly a severance package worth up to $25 million—about one year's pay under his recently renewed contract.

Critics were outraged at Fox News over a deal giving O'Reilly almost twice as much as the women who said they were victimized by him received. That, in turn, was bad news for the network's corporate parent, 21st Century Fox, which shares common ownership with News Corp.

Making matters worse, last year Fox News cut ties with its founding CEO Roger Ailes, reportedly paying him severance of $40 million amid allegations of sexual harassment and settlements with several female employees, including former anchorwoman Gretchen Carlson. Adding to the bad publicity, CNN reported that Ailes' "lifestyle isn't suffering. He recently bought a $36 million oceanfront home in Palm Beach, Fla."

Generous severance packages are sometimes referred to as golden parachutes, although sticklers say that this phrase properly applies to payments triggered when an executive is terminated following a takeover or merger. Whatever the terminology, paying those accused of wrongdoing more money than their purported victims receive—and many times what lower-level employees will earn over their entire careers—is what public relations pros call "bad optics."

The reason why scandal-plagued companies are willing to pay millions in severance to allegedly bad actors is because they believe it's the best way to put a crisis behind them and move on, explained Alan Johnson, managing director at Johnson Associates, an executive pay consultancy in New York City.

The Best of a Bad Situation

It's common for employment contracts with highly paid talent to have clauses allowing for dismissal without severance if the employee engages in unethical or criminal behavior, Johnson said.

"But none of the allegations against O'Reilly have been proved in a court, and the settlements all stipulated that O'Reilly didn't admit to any wrongdoing. So Fox News had to consider that O'Reilly probably would have sued the company if it didn't pay him a substantial severance package, and that the suit, as it was litigated, would have continued to keep the scandal in the public eye"—and perhaps highlighted a perceived inattention toward sexual harassment at the company.

Employers in this situation "have to balance their legal rights not to pay severance with the negative effects of a prolonged negotiation or trial," Johnson said.

A key role for corporate risk managers and HR chiefs "is to make sure that the board of directors and the CEO are fully aware about the risks of losing litigation or from bad publicity, and that they are fully informed about what their choices are. The board shouldn't be asking, after the fact, 'Why did we give him $25 million, what's that all about?' "

Fixing Fox’s Corporate Culture HR executives' responsibilities include preventing toxic corporate cultures that enable sexual harassment—or working to remedy bad cultures that are already in place. Following O'Reilly's dismissal, the Washington Post reported that: Fox has brought on a new human resources director, and all employees have now undergone “sensitivity training,” company officials said. And the New York-based news operation has assigned a human resources employee to work out of its large Washington bureau. Such moves could address workplace and financial concerns: Companies that spend large sums settling sexual-harassment complaints can draw the ire of shareholders. "After seeing what Fox went through, companies are now likely a bit more sensitive to the possible PR damage that a harassment claim can do," noted Tom Spiggle, principal at The Spiggle Law Firm in Washington, D.C.

News-Making CEO Severance

While O'Reilly's departure, like Ailes' before him, stemmed from allegations of unethical and possibly illegal conduct, headline-generating severance packages more typically involve CEOs let go because their companies have hit a rough patch, Johnson noted. For instance:

• Philippe Dauman was paid a severance package reportedly worth $72 million last year when he was forced to resign as head of media giant Viacom after a highly public dispute with controlling shareholder Sumner Redstone.
  
  
• Angelo Mozilo received retirement benefits and deferred compensation totaling more than $40 million when, in 2008, he stepped down as CEO of troubled mortgage firm Countrywide Financial Corp. following its sale to Bank of America. Initially, a more lucrative payout had been announced, causing widespread criticism and leading the parties to step back from the deal and reduce the settlement.
  
  
• Carly Fiorina collected an exit package worth at least $21.4 million plus additional millions in stock options and pension benefits when forced out as CEO of Hewlett-Packard in 2005 amid signs that the tech giant was floundering.
  

In situations where terminations are not "for cause," such as unethical or illegal conduct but because "it's just time for a change," the issues faced by boards of directors—advised by pay consultants and, frequently, HR chiefs—involve how much severance the executive has a contractual right to, and whether that amount might be excessive, Johnson explained.

"Sometimes the payouts are just too big, representing two or three years of pay," plus sweeteners such as full vesting in long-term incentive programs, deferred compensation and executive pension plans, he noted.

"If you're in human resources, you should make sure that severance obligations don't become excessive. Look to filings of other public companies and make sure that your agreements or policies are competitive. If they're more generous than competitive, then everybody should know that and the reasons why."

As with the termination of any employee, he added, the question is whether the severance is fair and reasonable. "Sometimes these agreements get put in place and people just don't pay enough attention to them," Johnson said. "Then you end up paying more than you should."

When CEOs don't have contracts, "you're negotiating from a clean sheet of paper but, as with Bill O'Reilly, you don't want to have extended litigation and you don't want the ousted CEO to badmouth you, publicly or privately. You just want him or her to go away. You also want to set a precedent for other executives so they know that, even without contacts, if the arrangement ends they'll be treated fairly."

Be Prepared

To avoid bad situations becoming worse, Johnson recommended these preparations:

• Do your analysis. "Look at what other CEOs and senior talent in similar situations received when they were terminated. Then you'll have data to back your offer, the CEO's lawyers will have their data to support the target they want, and usually you'll end up somewhere in the middle."
  
  
• Have consistent, reasonable policies in place. To avoid getting mired in negotiations, have reasonable severance policies with stated dollar figures in place to start with, "then you can just say, 'Hey, that's the deal, that's all you're getting,' Johnson noted. "If you don't have that ahead of time, usually it ends up costing the company more because the terminated CEO may be in no hurry to settle, while the company wants to get this over and done with and get the new person off and running."
  
  
• Review your policies from time to time. Make sure the dollar amounts are still reasonable and reflect the real word, "so when these unfortunate things happen, everybody is treated fairly and there's a minimum of hard feelings," advised Johnson, who compared it to putting in place "a prenuptial agreement in case of termination."
  

"The key is don't make severance too generous," he added. "If it's not generous enough, the CEO or senior executive will always come back and try to negotiate some more." But if it's too generous, "you won't hear anything, but you'll have wasted a lot of money."

Excessive severance also creates skepticism among customers, shareholders and the public about whether the termination was handled appropriately. "Even more important is how the deal is viewed by your employees," Johnson said. "You don't want their response to be, 'We're having a hard time here at X, Y and Z Corp., but did you hear what Mr. Big got on the way out?'"

***** ***** ***** ***** ***** 

Source: The Society for Human Resource Management (SHRM)

https://www.shrm.org/resourcesandtools/hr-topics/compensation/pages/hr-lessons-from-bill-oreillys-25-million-severance-deal.aspx?utm_source=SHRM%20PublishThis_HRWeek_7.18.16%20(41)&utm_medium=email&utm_content=May%2001%2C%202017&SPMID=00330610&SPJD=07%2F25%2F1996&SPED=04%2F30%2F2018&SPSEG=&restr_scanning=silver&spMailingID=28846577&spUserID=ODM1OTI0MDgxMjMS1&spJobID=1040052233&spReportId=MTA0MDA1MjIzMwS2

The market for executive pay is more efficient today than it was decades ago, a pay consultant insists.

RJ Bannister - Leader, North America executive compensation consulting, Willis Towers Watson

April 21, 2017 | CFO.com | US

Executive pay is just about right — for today, which assumes an efficient market. To suggest otherwise would imply that there is a market irregularity, such as a bubble or inefficiency, which causes an imbalance in executive pay.

RJ Bannister

I submit that the market for executive pay is more efficient today than it was 20, 50, or even 100 years ago, driven by three primary forces; more information, more scrutiny/attention, and more employment liquidity.

Let’s first discuss the issues of efficient markets and the influence of information. Markets are deemed to be efficient. Market clearing rates (MCRs) change with new information over time.

Executive pay is no different. Perceptions of the value or worth of an MCR will always exist, whether it’s the value of a teacher, a piece of art, an NBA superstar, or an executive’s pay. Any observer can have a perception about the value or worth of a MCR. However, most observers have limited or no influence on the MCR. Usually only decision makers have this authority.

New information over time creates an supply-and-demand imbalance in the decision makers and moves the market to a new MCR. Local counties and tax authorities (along with unions) determine teachers’ compensation, investors/collectors the price of a piece of art, and an NBA owner the compensation of a basketball star. For public companies, the decision makers who have the ultimate authority on executive pay are the company’s board of directors by way of the compensation committee.

Of course, many external forces and constituents can influence executive pay, including the supply and demand of executives themselves, shareholders, shareholder advocates, legislation, regulations, pundits, and, yes, consultants. These influencers provide new information over time, which helps adjust the MCR accordingly and revise perceptions, both positively and negatively.

Executives today are much more informed about pay levels than ever before. Public disclosure, search firms, and advocates (lawyers, tax advisors, private bankers, etc.) arm executives with more information on compensation MCRs and, thus, enable a better negotiating stance in an arms-length transaction.

The government has also played a critical role, by elevating the amount of scrutiny and effort involved in looking at executive pay. Take a look at companies’ proxy statements from just 25 years ago and compare them to today’s. The striking contrast points to the breadth and depth of the information U.S. public companies are now required to provide.

All of this information has raised the average investor’s consciousness of executive compensation, how much executives get paid, and how they receive that compensation.

Today, managing the Compensation Discussion and Analysis section of a public company’s proxy statement has become an essential part of the compensation committee’s purview. While the U.S. governance wave seems to have crested, management of a company’s annual compensation cycle has become a full-time job that can have a significant impact on the company’s success and reputation.

Finally, executives have more mobility today than ever before. Executives are likely to work for multiple firms over their careers, versus becoming a “lifer.” The continued decline of defined benefit retirement programs over the past 40 years and the reallocation of that money into total direct compensation have had a tremendous influence on the level of executive compensation and the increase in executive mobility. Executive search firms provide an active catalyst to inform executives of external opportunities and the potential compensation level.

It’s often difficult for observers to grasp the full import of a revolution when they are living it. All employees, not just executives, will likely benefit from increasing digitization and technology. These factors will also drive more information, more scrutiny/attention, and more liquidity to lower-level workers as well.

This will drive a platform for average workers (freedom of mobility, freelancing, the “gig” economy, personal branding, on-line job postings, etc.) to arm themselves with more information and hence a stronger bargaining position in the future.

RJ Bannister leads Willis Towers Watson’s executive compensation consulting practice in North America.

***** ***** ***** ***** ***** 

Source: CFO.com

http://ww2.cfo.com/compensation/2017/04/executive-compensation-right/?utm_campaign=CFODailyAlert&utm_nooverride=1&utm_source=CFO-email&utm_medium=email&utm_content=CFODailyAlert_Friday_2017-4-21&utm_term=compensation&mkt_tok=eyJpIjoiWVRrME5HWXhZV0psTkRVdyIsInQiOiJ4V0JIdnRMTGFxNUd0VjRvQUk3bmxtbnlJaXhXUW1BVG5ENityT29KK2x0V0xBZzBXaVpTdFA0K3FISldtUE1oczZPTnNQcUdBbWNLbFpkWVZIeklQOXQ0TW1ZZlwvbGd5eUtPWFlNODlLRmpialowZVpnblFocEVYS1Y5OHdpU00ifQ%3D%3D