Compensation Cafe

When is the Minimum Wage Not the Minimum Wage?

We all know that the minimum wage is the lowest hourly rate that employers may legally pay to workers. Or is it?

It turns out that there are some exceptions to minimum wage laws. The Fair Labor Standards Act contains some exemptions that apply to certain types of businesses, specific types of work, and certain individuals.

Here's the run-down on sub-minimum wages:

• Young workers: employees under the age of 20 can be paid an hourly rate of $4.25 during the first 90 consecutive calendar days of employment, as long as their work does not displace other workers. After the 90-day period or attainment of age 20 (whichever is first), the employee must receive the "standard" minimum wage of $7.25.

• Student learners: a student learner is a high school student at least 16 years old who is enrolled in vocational education. Employers who hire student learners can obtain a certificate from the Department of Labor that allows the student to be paid 75% of the minimum wage as long as the student is enrolled in the vocational education program.

• Full time students: full-time students employed in retail or service stores, agriculture or colleges and universities can be paid 85% of the minimum wage, provided the employer obtains a certificate from the Department of Labor. The certificate limits the student's employment to 8 hours per day and a maximum of 20 hours per week while school is in session. Students are permitted to work 40 hours per week when school is not in session. Upon graduation or departure from school, the "standard" minimum wage rate applies.

• Tipped employees: employers can pay tipped employees $2.13 per hour in direct wages, provided that (a) this hourly rate plus tips received are at least equal to the federal minimum wage, (b) the employee retains all tips and (c) the employee customarily and regularly receives more than $30 per month in tips. If the combination of tips and direct wages of $2.13 per hour are less than the federal minimum wage, the employer must make up the difference.

• Workers who have disabilities for the work being performed: employers who receive a certificate from the Department of Labor can pay individuals less than the minimum wage - and less than the prevailing wage rate - for workers who have disabilities for the work being performed. A worker who has disabilities for the job being performed is one whose earning or productive capacity is impaired by a physical or mental disability, including those relating to age or injury. This exemption doesn't apply unless the disability actually impairs the worker's earning or productive capacity for the work being performed. The fact that a worker may have a disability is not in and of itself sufficient to warrant the payment of a special minimum wage.

• Employees in specific industries and occupations: individuals employed by certain seasonal amusement or recreational establishments, seamen employed on foreign vessels, employees engaged in fishing operations, farm workers employed on small farms, employees engaged in newspaper delivery, and casual babysitters and individuals employed as companions to the elderly or infirm may be exempt from minimum wage laws.

The current federal minimum wage is $7.25 per hour. But that may not be the lowest hourly rate employers can legally pay employees. If one of these exemptions applies, employers may be permitted to pay an hourly rate less than $7.25. On the other hand, if you live in one of the 18 states (or the DIstrict of Columbia) where the state minimum wage is higher than the federal minimum wage, the lowest hourly rate legally allowed may be greater than $7.25

Be sure to comply with all federal and state minimum wage laws, and check with your legal counsel with any questions.

Stephanie R. Thomas is an economic and statistical consultant specializing in EEO issues and employment litigation risk management. Since 1999, she's been working with businesses and government agencies providing expert analysis. Stephanie's articles on examining compensation systems for internal equity have appeared in professional journals and she has appeared on NPR to discuss the gender wage gap. Stephanie is the founder of Thomas Econometrics and is the host of The Proactive Employer Podcast. Follow her on Twitter at ProactiveStats. 

 

Is It the Person or the Position?

How much value is added by the individual holding that important management post?  Would those same output results occur no matter who was the incumbent?  Should any person who holds a position of substantial impact be automatically highly compensated?  How much of the “job worth” is truly attributable to the talents of the individual versus the normal outcomes anyone could generate from that place of power?  If someone is placed in a spot whose leverage has been created by the larger organization and its systems, why do we assume they deserve so much more pay than if they were an individual contributor with limited ability to affect the bottom line?  Is it the job or the person that creates value and how much comes from each?

These questions are integral to the compensation tradecraft yet are rarely discussed or even mentioned.

A recent article had an interesting take on the global compensation issues from bankers meeting in Switzerland.  Most felt that their generous remuneration was a matter of disinterest to their institutional investor shareholders, because it was a relatively tiny expense compared to the profits.  But a few noted that "it's the seat, not the individual," and found it offensive to see some callow young ignoramus earning millions merely because they had been placed at the head of a hedge fund which almost automatically generated billions in profits.  That comment brought back memories of my compensation childhood when Robert A. Smith preached the distinctions of organizational leverage versus human capital factors (KSAs) back in the early 1970's to his four young corporate comp/org analysts named Dave Thomsen, Gerry Stern, Larry Cook and Jim Brennan. 

He directed our reverse-engineering of virtually every job evaluation plan that existed at the time.  Taking the most statistically reliable elements of each, we then freshly designed and validated a customized point-factor plan universal enough to suffice for the Fortune 50 multinational conglomerate we served.  Besides the traditional personal features people bring to the job like education, experience and specific types of skills, we had an entirely distinct set of other categories we called “organizational factors.”   The personal human capital elements specific to the individual (KSAs) could be carried from job to job and proved to have significant but limited effect on market compensation.  The real money came from the leverage supplied by the organization for the application of the individual performer’s talents.

A skilled surgeon or product designer would have great value up to a certain point.  The personal value of an isolated worker would not continue to increase at the same rate (it showed an asymptotic relationship) as that of a less “skilled” but more “responsible” manager or executive given a higher degree of wider impact.  A great individual contributor only has one brain, two hands and so many hours to ply their trade.  The market value of personal KSAs flattened out fairly quickly.  On the other hand, even an indifferent manager, director or other executive operates as a conductor, coordinator or force multiplier who stirs those diverse KSAs together and applies them throughout the broader enterprise than the individual work unit.  The bureaucrat who applies the creative talents of otherwise isolated Nobel Prize winners will earn his or her value from that application leverage position rather than from their personal stand-alone talents.  Albert Einstein and Stephen Hawking would have had very limited values as ditch diggers but had tremendous values as teachers and publishers and innovators in the field of theoretical physics.  Many a brilliant genius has starved to death in this world due to failure to find an adequate platform from which their talents could be monetized.

There are things only the person can do.  And there are things only the organization can empower the position to do.   

This might be fundamental Compensation 301 to some readers, well known and fully documented in every textbook, but I don’t recall seeing it discussed much, if at all.  Please offer links or references that prove me wrong.  Supply even better elaboration on the topic.  I’d rather be wrong than right, on this point, because it is pivotal to a sophisticated comprehension of compensation tradecraft.

Whether the concept is new or old, just think about it.  It might help clarify some compensation valuation questions you face on a daily basis.

 E. James (Jim) Brennan is Senior Associate of ERI Economic Research Institute, the premier publisher of interactive pay and living-cost surveys. Semi-retired after over 40 years in HR corporate and consulting roles throughout the U.S. and Canada, he’s pretty much been there done that (articles, books, speeches, seminars, radio/TV, advisory posts, in-trial expert witness stuff, etc.) and will express his opinion on almost anything.

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The Future Ain't What It Used To Be

Editor's Note: Today's post comes to us courtesy of guest contributor Jacque Vilet.

"The future ain't what it used to be."

---Yogi Berra

Today, compensation professionals are at a crossroads.   It looks like once again we are facing a shift in how we manage compensation.    For as long as I remember, the competitive market has always played a major role, if not THE most important role in compensation management.

Times have changed. According to a 2010 survey of Mercer clients, 72% of the executives said the focus in the future would be placed more on paying for critical skills and less on market comparisons

Critical Skill Jobs

“Critical skill” jobs are those that add more value than others.   They are just that -----critical.   They can actually make or break a company in meeting its overall business strategy.   They would likely be different for every company as each company’s business strategy would be unique.  All jobs are important ---- but these jobs are critical.  

Don’t think that the employees with “critical skills” are always top management, management in general or the most highly educated and technical employees.   Many times they aren’t.   FedEx determined it was their pilots and route drivers that were most critical.  Reason?   Timely customer service is critical to their business strategy. 

Looks like we were in a similar situation when the Y2K scare made COBOL programmers worth their weight in gold ---- a great example of a critical skill.   Companies could have put them in the same salary grade as their other programmers but paid out large bonuses based on project milestones.   Another way of handling this was perhaps to have a separate salary line for them far above their other programmers.  Regardless, compensation specialists had to find a “work around”.   

Job Matching

Another less talked about issue is how to match jobs now in salary surveys.   Companies in the U.S. have gone through massive layoffs.   The survivors are now having to be responsible not only for their own job ---- but pieces of other jobs as well.

Think about this.   How on earth do you match jobs anymore?    Example:  Account Receivable Clerk.   If you match your  Accounts Receivable Clerk to the traditional one in the survey, you can’t be certain it is a valid match.   Reason?   People in these jobs in your company are also taking on some Accounts Payable responsibilities.  In other companies it may mean adding administrative assistant to the Controller responsibilities.   In yet other companies it may mean adding payroll responsibilities.

Do you assume that all companies in a survey have added the exact same extra responsibilities to their Accounting Clerk?   Do you compare to the survey Accounting Clerk and add a premium?   If you do, are you adding a premium on the traditional job or an “enhanced” one?  Has the survey vendor somehow accommodated these changes in the survey?   I would bet that if your survey vendor held a job matching meeting, participants would find out pretty quickly that traditional matches don’t work anymore.

Sigh. . .  the “new normal” is creating problems for many of us.   It just proves, once again, that compensation is more of an “art” than a “science”.

Jacque Vilet, President of Vilet International has over 20 years’ experience in International Human Resources with major multinationals such as Intel, National Semiconductor and Seagate Technology.    She has worked with both local nationals and expatriates and has been an expat twice during her career.    Jacque holds the CCP, GPHR and SWP (Human Capital Institute).  She is a member of WorldatWork,  Society of Human Resources Management and the Human Capital Institute.   She is co-chair of the Global HR professional emphasis group for the Dallas chapter of SHRM.  She is a regular contributor to HCI, HR.com and IHR Forum.

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Overtime for Nannies

Home companions and live-in nannies may become entitled to overtime, under the latest Department of Labor Notice of Proposed RuleMaking (NPRM) affecting the Fair Labor Standards Act (FLSA).   

A limited exemption was written into the US FLSA law  in 1974 for casual babysitters and companions for the aged and infirm.  At that time, Congress also created an exemption from the overtime pay requirement only for live-in domestic workers who still must receive the minimum wage.  Now DOL wants to modify those rules and require overtime to millions of workers who currently qualify for exemptions under the status quo regulatory interpretations.

"Although the regulations governing exemptions have been substantially unchanged since they were promulgated in 1975, the in-home care industry has undergone a dramatic transformation. There has been a growing demand for long-term in-home care, and as a result the in-home care services industry has grown substantially. However, the earnings of in-home care employees remain among the lowest in the service industry, impeding efforts to improve both jobs and care. Moreover, the workers that are employed by in-home care staffing agencies are not the workers that Congress envisioned when it enacted the companionship exemption (i.e., neighbors performing elder sitting), but instead are professional caregivers entitled to FLSA protections. In view of these changes, the Department believes it is appropriate to reconsider whether the scope of the regulations are now too broad and not in harmony with Congressional intent." (http://www.dol.gov/whd/flsa/companionNPRM.htm)

The revisions in the 56-page document published in the Federal Register of December 27, 2011, would clarify definitions of “domestic service employment” and “companionship services.”  DOL also proposes to narrow the type of duties permitted for exempt companions, to require tighter record-keeping requirements for live-in domestic workers and to deny exemptions to employees of third party employers such as staffing agencies.   Law firms advise their clients who supply nannies and domestic home-care workers to expect steep labor cost increases.  This is all quite consistent with the DOL’s broad theme of Plan/Prevent/Protect.     

This latest regulatory tweak might not extend minimum wage or overtime protections to babysitters but it certainly does spread a wider net over domestic companions and home-care workers of various types.  The overtime enforcers appear to be attempting to lasso more of the helpers and caregivers involved in serving our growing assistance-needing and increasingly elderly population.  Observers of the US political scene know that every administration wants a record of creating good jobs when it seeks re-election.  If you don’t control Congress to the extent that you can create massive public works projects similar to those of the Great Depression, the next best attention-grabber during an economic downturn is to be seen as forcing recalcitrant employers to increase the pay for bad jobs in order to make them more palatable.  That was the intent in 1938, too.  It was no accident that the Fair Labor Standards Act requiring overtime in America was passed during the depression doldrums when so many were unemployed that companies could hire workers for peanuts. 

This is a test:  What was the first minimum wage established by the FLSA in 1938?

 E. James (Jim) Brennan is Senior Associate of ERI Economic Research Institute, the premier publisher of interactive pay and living-cost surveys. Semi-retired after over 40 years in HR corporate and consulting roles throughout the U.S. and Canada, he’s pretty much been there done that (articles, books, speeches, seminars, radio/TV, advisory posts, in-trial expert witness stuff, etc.) and will express his opinion on almost anything.

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Don’t Tell Me I’m Great If I’m Not!

I have both friends and clients who have been struck by an unfortunate dilemma. I have a couple of friends who have been told one thing for months, and perhaps years, only to find out that the truth they knew wasn’t the “real” truth. I have clients who need to realign pay for people who have been told they were top performers when, in fact, they are less than adequate. In both cases it seems more like senior managers were trying to be nice, rather than sneaky.

Why have confrontation when you can have everyone like you? It’s easier to be nice to everyone. Many managers have made this their approach to leading their staff. Rather than point out flaws, they point out only the positives. Rather than prepare their staff for bumpy water in the future, they keep things on the bright side right up to the moment the boat hits the dangerous rapids. The discussion of a potential demotion, cut in pay or job-ending decision never seems to make it onto the agenda.

Employees want to be led, and generally want the truth. I also think managers generally want to tell the truth, but seldom have the skills to do so delicately. While these managers do a disservice to employees by not laying out a realistic path, those of us in the compensation community do even worse by not providing them with the tools, words and examples that will allow them to discuss both the good and bad.

We can’t expect great employees who have been promoted to be great managers to be able to talk about pay issues with any amount of expertise. We also can’t expect that they will always do this task well, even if they have been trained. We need to make it clear what needs to be said to underperformers and check back to make sure it has been communicated.

This is not about avoiding lawsuits or angry ex-employees. This is about not being jerks in the eyes of those we need to keep working hard. Once the trust on performance has eroded in a single example, you risk the chance of other employees questioning their value to the company. Rebuilding trust is far more difficult than maintaining it. Like a swimming pool, it is far easier to keep it full than it is to fill it up.

So look at what you've asked managers to communicate. Then ask yourself if you have provided them the skillset to do so with a complete level of truth. It is not only our job to make sure that pay is properly designed and set, it is also our responsibility to ensure that the discussions around pay reflect the sometimes harsh reality of underperformance.

Dan Walter is the President and CEO of Performensation an independent compensation consultant focused on the needs of small and mid-sized public and private companies. Dan’s unique perspective and expertise includes equity compensation, executive compensation, performance-based pay and talent management issues. Dan is a co-author of “The Decision Makers Guide to Equity Compensation” and “Beyond Stock Options.” Dan is on the board of the National Center for Employee Ownership, a partner in the ShareComp virtual conferences and the founder of Equity Compensation Experts a free networking group. Dan is frequently requested as a dynamic and humorous speaker covering compensation and motivation topics. Connect with him on LinkedIn or follow him on Twitter @Performensation and @SayOnPay

Should We Define Superior Performance?

I think most of us agree on the importance of setting performance goals and clearly communicating performance expectations to employees.  Without this, you're left with something like management by mental telepathy.

But here's a question that has dogged me for some time:  Should managers, as part of the setting of performance expectations, give employees information on what they must do in order for their performance to be considered "superior"?  What it would look like to "far exceed expectations"?  Or is it better, even necessary, that we fall back to the Justice Potter Stewart position - that excellence is hard to define but we'll know it when we see it?

I hear more arguments against than in favor of pre-defining superior performance.  That it would give too much - even too specific - direction to workers.  That it boxes employees in and limits the possibilities of what they might accomplish.  In a world as fast-moving and uncertain as ours, these are compelling points.  Yet I'm left with the nagging sense that we're letting ourselves off the hook too easily here.

And here's another angle to consider.  In my admittedly unscientific observations, I am left with the impression that compensation professionals favor predefining superior performance and that leadership/OD/learning professionals typically fall on the side of leaving superior performance undefined. 

Are these sweeping generalizations on target?  If they are - why would it be so?  Is it that we who practice in the rewards field feel tend to be too black and white, too linear in our perspectives and preferences?  Or, like me, have too many of us had conversations with motivated employees who want very much to do what it takes to excel (and to earn the rewards associated with excellence), but who are frustrated by a boss who refuses to provide concrete suggestions - or even hints - of what they can do to better their contribution to the organization's success.  For an employees in these shoes, the response of "I can't tell you but I'll know it when I see it" can feel like a big fat cop-out. 

Is it?

Where do you come down on this question?  I'd love to hear the thoughts of those both in and outside of the compensation field.

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

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Don't Use Pay As A Babysitter

Have you ever used a babysitter?  This is when you have someone else assume your responsibilities while you take a break and focus on something else.  The babysitter stands in for you, is you during the period of your absence. 

Typically we think of babysitting when there’s a dependent child involved, but in the workplace it’s not uncommon for ineffective managers to use the same concept when dealing with their employees.  These managers seek to use the pay that their employees receive as a surrogate for leadership – for keeping those workers complacent, retained and generally “in line.”

The practice of manipulating rewards presumes that the employee will chase the money, and will be happy with their lot, while at the same time will not require much in the way of supervision, periodic direction or even meaningful conversation.  The thinking here is that, if I provide you with enough reward you will act as desired in order to not jeopardize those payments.  The goal is to place the employee’s attitude and performance on automatic pilot while the manager is engaged elsewhere.

So far, so good.  Not necessarily a problem.  The red flag goes up the pole when you consider whether these monies are warranted by either performance or business need, or are they simply bribes?

What are we talking about?

Scenarios where pay is used in lieu of actual management are easy to spot.

• The Grand Giveaway:  Where managers try to give away as much money as they can to as many as possible, not worrying overmuch with distinctions between individual performances.  The key is to build an employee's appreciation of their manager’s largesse.

• Title inflation: The promise of bloated and meaningless titles that distort organizational structures, for the prime purpose of rewarding employees in lieu of cash.

• Over rated performance:  Playing the good guy by over-rating performance during salary reviews.  Culprits are often seen rewarding activity over results.  So look busy!

• Assured compensation: Take the risk out of rewards and encourage an attitude of entitlement.  Everybody receives an annual merit raise, everyone earns a bonus. 

• Counter-offers: “Let’s make a deal” attitude to keep resigning employees from actually leaving; a dangerous practice that increases costs and lowers morale.

What’s the cause of this behavior?   Managers typically receive inadequate training (if any) on how to use their company’s pay programs, so many use pay as a crutch.  Spending the company’s money effectively and efficiently isn’t on the radar screen.  They use pay like a club to get an employee’s attention.  And once they have it the manager is off doing something else – with the presumption that pay will substitute as supervision and motivation while the manager is absent – kind of like a babysitter.

Weak and ineffectual managers don’t actually manage their employees, in the sense of performance direction, leadership, setting good examples and decision-making.  Instead, they want to be liked.  They want to avoid conflict and they don’t want anyone to quit.  They want employees to get along, and to help foster a friendly team atmosphere they try to manipulate pay in support of their efforts.

It’s really kind of a bribe.

So what is “managing” to these people?  It’s not about making hard decisions.  Too often it’s trying to get the most for their employees, deserved or otherwise, whether the organization gains in the process or not.  The manager is focused on their own interests, and is using someone else’s money to fund their behavior.

Why it doesn’t work

Relying on pay as a replacement for management has a short effective life cycle.

• Employees see arbitrary same-same pay treatment as de-motivating to high performers.  Why bother extending yourself if you’re going to receive the same reward as the guy doing crossword puzzles?

• Employees resent favored-son treatment and those who benefit for non-performance reasons will always become known.  There goes your morale.

• No amount of money replaces the value of honest performance direction and feedback.  Those with an interest in learning and growing appreciate the help.

• Absentee managers lose the respect of their employees, who know what’s going on.  Remember that employees leave managers, not companies.

For managers who need a crutch to help motivate and retain their employees, to help them do their jobs, the above cautions likely won’t make a difference.  Their goal is not to manage, but to get-by, to be liked by their employees and to avoid disruptions to their routine.  This is not leadership, but administration.

But for those managers who wish to make a difference, who understand that managing employees is a challenging and rewarding role, abrogating responsibility through babysitting is not an option.  They recognize it as the opposite of management, a damaging practice that will not enhance anyone’s long term career prospects.

Chuck Csizmar CCP is founder and Principal of CMC Compensation Group, providing global compensation consulting services to a wide variety of industries and non-profit organizations.  He is also associated with several HR Consulting firms as a contributing consultant.  Chuck is a broad based subject matter expert with a specialty in international and expatriate compensation.  He lives in Central Florida (near The Mouse) and enjoys growing fruit and managing (?) a brood of cats. 

Creative Commons image courtesy of _DarkGuru_

Got Data?

I recently replied to a question on Focus.com about employee engagement and was intrigued by a response that criticized HR for their heavy handed control over salaries.

The example given for why this is a problem involved a highly skilled IT professional with four children who has reached the top of his salary grade at his current company.  There is apparently no possibility of increasing his salary although he has taken it upon himself to acquire marketable new skills and at least one other company has offered him more money.

No clue how this one’s gonna play out, huh?

I get it.  We all get it.  Salary ranges are there to promote fairness and reduce the administrative overhead created by exceptions.  These are good things.  But here’s this guy with hot technical skills about to walk because he has a family to support and earns less than the market is offering.  Not to mention that replacing him will be expensive in terms of recruiting, training and lost productivity - possibly more expensive than just paying him more in recognition of his market value.

It sounds like I recommend paying him more to keep him but I’m actually going somewhere else with this.  In fact, I’m a big fan of voluntary attrition because it feeds this Ponzi scheme we call ‘career development.’

My point is if the company is going to lose this person, lose him with intent.  In other words, if your company has a hard rule about salary ranges that’s fine as long as you have:

•    Analyzed which people are flight risks as a result.*
•    Calculated the cost of losing these people and having to replace them. 

*Warning signs include people who are already at the top of their grade, have dependents, possess critical skills, are solid or high performers, haven't had a salary increase or new opportunity in several years, have recently exercized stock options, are late submitting their self-evaluation and/or are frequently absent. There are other signs as well but these are the ones you can get at through your data.

Armed with this information you can evaluate whether it’s worth: 1) changing your policy; 2) creating a new salary grade for highly skilled people to ‘graduate’ into once they reach a certain level of expertise; or 3) doing nothing, but on purpose.

If you don’t possess this critical information about your workforce, an inflexible salary strategy is like a wall across an expressway that surprises people each time a car crashes into it.

OK, that analogy may have been too colorful.  My point is that rigid policy combined with lack of information does not a business strategy make.

At least, not a very good one.

Picture courtesy of Wikipedia.

Laura Schroeder is a global talent specialist at Workday, headquartered in Pleasanton, CA.  She has nearly fifteen years of experience envisioning, designing, developing, implementing and evangelizing global Human Capital Management (HCM) solutions and holds a certificate in Strategic Human Resources Practices from Cornell University.  Her articles and interviews on HCM topics have been published in the US, Europe and Asia.  She lives in Munich, Germany and enjoys cooking, reading, writing, kick boxing (well, kicking things) and spending time with friends and family. If you want to read more from Laura, check out her talent management blog Working Girl or follow her on Twitter @WorkGal.

Implementation: Action that Must Follow Ideas If You Actually Want Something to Happen

Each year we step back to adjust to an updated business strategy that addresses new challenges. We plan alignment of objectives, behaviors and performance with that strategy. And then we try for effective implementation of the strategy so we can achieve the planned-for results . . . results that fund financial success and compensation.

This is the virtuous cycle in which you invest your hard work and the company's money.

As we all know, HR plays a critical role as facilitator of alignment and educator of effective implementation. Many of you are in the midst of the objective setting process right now, where you are responsible for training and facilitating the cascade of objectives within your organization.

Objectives that employees should be developing to link with corporate performance. Otherwise, their work will have only a glancingly positive impact on financial and operational results -- or could misguidedly create obstacles that have negative impact on those results.

There is no doubt that your employees' ability to adapt to each new strategy impacts the success of your company. Look at this result from the World's Most Admired Company research conducted by the Hay Group in partnership with Fortune Magazine. It makes it clear that "Most Admired Companies" do a far better job of implementing their strategies (and achieve significantly higher Total Shareholder Returns).  

And their HR organizations do a better job of implementation, too. Implementation of new programs and existing programs like compensation that can truly play a role in the business strategy when employees see strong linkages and understand how they can impact success. 

Over my next few blog postings, I'm going to cover what effective implementation means, how it can help you and what you can think about doing differently. I thought it would be a great time of year for this discussion since you'll be turning new ideas into plans over the next few months.

Turning great intentions into business results is really where the rubber meets the road. Great ideas become actual business opportunities only when people understand clearly and then are willing and able to do the tough work of changing to a new focus and new practices.

I'll be talking about communications and I'll be talking about change management, too. After all, compensation is a form of change management. Every paycheck sends the message that we expect employees to assess a changing environment and profit from changing opportunities.

Margaret O'Hanlon is founder and principal of re:Think Consulting.  She has decades of experience teaming up with clients to ensure great Human Resource ideas deliver valuable business results.  Margaret brings deep expertise in total rewards communications and change management to the dialog at the Café. Before founding re:Think Consulting, she was a Principal in Total Rewards Communications and Change Management with Towers Perrin. Margaret is a member of the Board of Directors of the International Association of Business Communicators (IABC), Pacific Plains Region. She earned her M.S. and Ed.S. in Instructional Technology at Indiana University. Creative writing is one of her outside passions, along with Masters Swimming.

Mandatory Increases: The Bête Noir of Pay-for-Performance in Europe

Editor's Note:  Today's post comes to us courtesy of guest contributor Judy Freides.

Mandatory salary increases are common in Europe and in some parts of Asia and Latin America. The mechanism for the increase can be a fixed percentage, a flat amount or, in some cases, an individualized calculation. Depending on the country, the increase can be a statutory requirement, it can be negotiated with a trade union or works council or it can be bargained by site.

Sounds pretty straightforward, right? In the abstract, perhaps. But envision this scenario… Your company’s new CEO is sitting down with you for the first time to review your salary increase budget recommendations for the upcoming year. The CEO has never done business outside the United States. In my experience, you can expect some variation of the following conversation…

CEO: “Why is the budget for Belgium so high?”

You: “Because we need the budget to cover the forecasted mandatory increase.”

CEO: “Did you say mandatory?”

You:  “Yes, we have a statutory requirement to give an increase.”

CEO: “Well who decided that?”

You:  “The government.”

CEO (under his/her breath): “Of all the pro-employee, anti-competitive….”

In fact, if you are going alphabetically, you can probably expect the CEO to be seriously considering discontinuing European operations by the time you get to Germany. By Italy at the latest.

While mandatory increases can create quite a few challenges for compensation professionals, I’d argue that the biggest is the visceral reaction of U.S. managers. The idea that employees are entitled to an increase is anathema to the pay-for-performance philosophy that so many of us embrace. The very thought of giving a significant increase to an underperforming employee makes us hyperventilate. So how can we possibly reconcile ourselves to it?

One approach is to help leaders accept the fact that compensation practices are different in different countries. As compensation professionals, we certainly know this to be true. Across Europe we see mandatory profit-sharing arrangements, recurring allowances, liberal vacation policies and company cars – none of which is common in the United States. And while acceptance is difficult, it’s important that business leaders understand that it is not realistic to simply export American human resources practices overseas.

An alternative approach is to proactively try to effect change. If performance-based pay is an integral element of your company’s compensation philosophy, make it a cornerstone of your negotiation strategy. Negotiate a reasonable salary increase percentage, but also require that a portion to be based on individual performance. For example, let’s say you agree to a 4% mandatory increase in France for a total projected increase budget of €100,000. As part of the agreement, you could further negotiate that all employees will receive a 2% mandatory increase, but the remaining €50,000 would be allocated out based on individual performance. While not ideal from an American perspective, it could be a promising first step.

Whichever route you take – maybe even a combination of the two – be sure that you are in alignment with your company’s culture and HR strategy. And don’t worry about your CEO. He or she will probably forget all about mandatory increases within a few days of your meeting… until the next year.

Judy L. Freides is the resident blogger for CompDevil, a new company providing Human Resources professionals with on-demand access to compensation experts via live chat. Judy brings over 15 years of experience to bear in her weekly blog, which focuses on the nuances and pitfalls of compensation around the world. Her recent role as Global Compensation Director for a company with over 100,000 employees in 100 countries leaves her skeptical that there’s much out there that she hasn’t come across. But then again, she loves surprises.

Creative Commons image: "The Eyes of an Old Black Cat" by accent on eclectic