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January 21, 2002 Issue

The Impact of the Recession and the Impending Recovery on Current Compensation Strategies - Part II - What Works

The last Astronology explored the state of the economy and how organizations are reacting in terms of their compensation strategies. This issue reviews what appear to be effective strategies for the coming year.

Let's start with the area of benefits. A major equation in the "employer of choice" formula for 2002 will focus on the benefit package offered. The benefit package can be a deal maker. Finding the right mixture or value is key.

The focus of the past few years has been voluntary benefits. A recent MetLife study indicates that more than ninety percent of the 481 employers surveyed provide at least one voluntary benefit to their employees. Among those offering voluntary benefits, the average number of offerings is 4.5. Eighty percent report their employees to be positive or very positive about the offerings.

In the future, a key strategy will be to offer programs that reduce the level of paperwork for employees. Creative organizations offer payroll deductions for homeowners and automobile insurance premiums. Looking to 2003, the role of voluntary benefit programs and concierge services will increase and become a focal point of many organizations' total benefit packages.

Many organizations look to alternative work arrangements to help survive the uncertainty of 2002. According to a survey by WorldatWork (www.worldatwork.org) and the Center for Workforce Effectiveness, the most common forms of alternative work arrangements are placing employees on temporary assignments and job/skill sharing arrangements. Other alternatives include hiring freezes, voluntary separation, reduced workweeks, and perquisites reduction. Seventy-three percent of human resource executives contacted in this survey report that the preservation of human capital is a priority of their senior management team.

Alternative employee recognition programs are again in focus. These programs make employees feel valued for their contributions to the organization and, if properly structured, can help retain them during slow economic times. Noncash recognition programs are affordable. The average program will cost three to five percent of participants' yearly compensation. These programs are a bargain when compared to base salary adjustments of three to four percent and incentives of upward of fifteen percent of annual compensation. Today's technology has made the design, implementation, and administration of these programs less time consuming.

The impact of noncash incentive programs is easily measurable. Organizations set distinct performance objectives based on the same period for the previous year, trend year-to-date, and see what increase is gained by adding a reward for incremental performance. Many organizations structure the program to only reward based on a predetermined return on investment (ROI).

According to a January 15, 2002 USA Today article, current job seekers include severance packages in their total compensation negotiations. Severance is joining salary, benefits, and time off as a key component in the job negotiating process. More than sixty percent of job seekers now research an organization's layoff policy and severance package prior to the initial interview.

The reasons are clear. Job seekers are defensive because rising corporate bankruptcies have led to layoffs with no severance package. In some industries, job seekers negotiate the signing of a "non-compete" package with the terms of a severance package. Research points to an increase in "golden parachute" negotiations at all employee levels, not just the executive level.

There are a variety of alternatives being explored by both employees and organizations in dealing with the uncertainties of 2002. Organizations should stay true to programs that support their strategic plan during these times, even if a short-term loss is the result. Becoming an employer of choice is hard work. Don't let a short-term recession alter your plans.

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ISSN Number 1549-0467