Almost eighty million people between the ages of 36 and 54 are Baby Boomers. As a generation, they have been called shortsighted, accused of living for today instead of tomorrow. In order to design effective compensation programs for them, an understanding of how a significant number of Boomers generally approach retirement planning is necessary.

• • Born to parents who lived frugally, Baby Boomers have been slow to emulate this example.
• • Many have postponed retirement saving until well into their 40s and 50s.
• • Some Boomers are counting on the sale of their homes or inheritance dollars from their parents to finance retirement.
• • Many Boomers say that saving for kids' college tuition has taken precedence over saving for retirement.
• • There is a trend among Boomers towards "hybrid" retirement. Boomers who started saving too late, or can't save enough, will have to retire into new jobs. They are shifting from full-time to part-time or consulting work.

Boomers will need a lot of cash to maintain their lifestyle. If a person earns $45,000 a year and wants to retire at that level, he or she would need to have at least $540,000 - 60% of total working income - to live twenty years in retirement.

According to Dr. Marian Stolz-Loike, PhD. of SeniorThinking, LLC, there are key challenges facing employers today in retaining "mature" employees. These include

• • The belief that early retirement has been ingrained in the career plans of this group over the past twenty-five years.
• • The use of seniority-based pay scales that are not linked to the productivity and performance of the individual.
• • The preponderance of service-based pensions that encourage retirement at the maximum age regardless of the worker's value.
• • The challenge of supporting pension costs with decreasing stock value.
• • Continued rising healthcare costs.
• • Continued worker shortages of those with highly sought-after skills.
• • The stereotype that younger workers are more energetic and flexible, and that older workers are inflexible and lethargic.
• • The myth that everyone over 50 is waiting to retire.

Astron Solutions' clients challenge us to address key compensation issues of their Baby Boom employee population. The top five critical issues raised are

• • The conflict between job range value (the maximum of the pay range) and the need increase total earnings.
• • Limited retirement savings offered by employers and the need to secure employees' financial futures.
• • The impact of stock market fluctuations on personal investments, negatively affecting employees' abilities to retire with financial security.
• • The challenge of balancing Gen X employees' desires for personal career advancement and the need to retain aging Boomer staff with a wealth of knowledge and experience.
• • The conflict between pay for personal contribution (Gen X) and pay for loyalty and longevity (Boomers).

Of these issues, the conflict between job range value and the need to increase total earnings is the one most frequently raised by Astron's clients. For organizations with formal compensation systems utilizing pay grades and ranges, the maximum of the range corresponds to the maximum investment an organization makes for expected return of services and efforts from the employee. Range maximums can, in some organizations, be used as a guide to slow down the progress of individual pay, or as a strict stopping point that cannot be breached.

The placement of the range maximum varies from 20% to 100% above the minimum. This percentage often relates to a compensation assumption that jobs of lower internal or external value should have their maximums set closer to the minimum. Employees in these jobs master the job quickly and should be encouraged to advance. Jobs with greater value have their maximum set higher above the minimum. This relates to a longer learning curve and fewer opportunities for advancement.

The conflict occurs because assumptions surrounding the range maximum are not sound. More and more employees remain longer in their current position, advancing to the maximum and limiting their future earning potential. Since the vast majority of these employees are Boomers, advancement to range maximum conflicts directly with their need to increase their overall earnings.

A simple answer to this concern is to eliminate all pay range maximums and allow employees, especially long-term staff, to continue to increase their earnings until retirement. Even this solution, however, can result in more complication, resulting in compression with management pay levels.

A hospital in New England once had a housekeeper earning $60,000 per year. The department Director earned $45,000. The housekeeper position had a minimum market rate of $12,500. The organization had not set maximums. The employee had forty-eight years of service. The lack of a maximum created a situation of compression with management. The organization paid far more than warranted by the services returned.

A more complex solution to addressing the needs of this group is to increase their earnings and expected work contributions in the later years of their work career. This requires taking a different approach to job definition and pay alignment. This can be achieved via a readily available and effective pay methodology: the career / complexity compensation matrix.

The initial intent of the career / complexity matrix was to attract Gen X and Y individuals searching for organizations with a strong commitment to career development. As new employees develop their competency, and there is a need to fill more complex positions, the new employees advance and are rewarded. These matrices have been very successful for organizations recruiting for hard-to-fill positions, as well as retaining the talent they need to meet increasing customer needs for the future.

Let's now look at this matrix from a different perspective. As an employee matures in job competency over the years, one can assume that he or she has fine-tuned the requisite skills and have little left to learn. Often, a competency level beyond technical expertise has been achieved, as well as a mastery of organizational and behavioral competencies.

Typically three levels of competency are identified in these systems. Developmental competency describes the basic capability necessary to function in the position. Full competency describes the abilities required to fully function in the job at an acceptable level. Expert competency describes the level at which an employee has advanced knowledge of the technical aspects of the position.

In response to the needs of the Baby Boom generation, consider expanding the competency levels to include a "Mastery" level. This fourth level recognizes not only technical competency but also political and behavioral competencies. This provides a way to recognize long-term staff that have advanced beyond the technical aspects of the job and are invaluable to the organization's continued success. The Mastery competency level includes

• • A firm grasp on the inner workings of the organization, and the process to expedite change and decision-making.
• • A level of problem solving that incorporates self-induced investigation of issues and offers viable solutions to work-based problems.
• • The voluntary offering of guidance and mentorship to younger staff. This includes helping them develop a better awareness of internal politics and effective communication avenues.
• • Campaigning for the cause of the organization and the work unit through positive behaviors and enthusiastic support of new initiatives.

By incorporating these often-exhibited behavioral competencies into a formal competency-based compensation system, organizations can develop legitimate methods of compensating beyond the traditional pay range maximum.

Looking for a top-notch presenter for your human resource organization's meeting? Both Jennifer Loftus and Michael Maciekowich present highly-rated sessions on a variety of compensation and employee retention issues. For more information, send an e-mail to info@astronsolutions.com.

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Copyright 2007, Astron Solutions, LLC

ISSN Number 1549-0467