The SESCO Report – October 2008

Effectively Managing Pay Practices in Today's Harsh and Competitive Business Environment

Just as many organizations are finding that they need to lay off employees during the economic slow down, they are also finding they are suffering from a shortage of skilled workers. This statement is conflicting; however, employers are finding that they are having to employ more workers to meet their goals because there is a shortage of workers who are skilled as well as who want to "work" for a living wage.

The economy which has forced many workers to live paycheck to paycheck has also created a tremendous need for skilled positions such as nurses, pharmacists, and engineers. This unusual reality has a direct impact on an employer's compensation practices — most organizations' largest, single controllable cost.

If your organization has hired plenty of warm bodies but not enough with the skills you need to survive the economic downturn, you must change the way you compensate your employees. Consider the following opportunities:

1. The best get more. Pay your best employees the most. Even if you are having to lay off, you must retain your best employees. You must keep your highest, skilled, top performing employees — the ones who can get you through to the other side of this economic crisis. The bottom line to them is money.

2. Others get less. Pay less valuable employees less money. Yes, they might quit, but employers cannot allow "mediocre" employees to hang around. Not only can you not afford this type of unproductive behavior, allowing this type of unproductive behavior to "hang around" sends a very poor message to those good employees. Eventually, morale suffers and productivity drops because the organization has allowed this unproductive behavior to define the organization. Subsequently, a top performer may get 4%, 5% or even a 6% increase; however, the poor performer may get 0%, 1% or 2% at best.

3. Nobody automatically gets more. Organizations should remove automatic, across-the-board bonuses or increases employees get for hitting anniversaries, year-end Christmas bonuses, or other productivity/incentive bonuses. Put that money into your top performers as most bonuses and incentives are discounted as wages by employees. An employer who pays an exceptional bonus at the end of the year can ask that same employee mid-year in June, "How much are you making?" They will readily state their hourly rate and quickly forget that annual or quarterly bonus. When SESCO surveys employees regarding compensation, employees more than likely will regard bonuses as "Oh, that's just extra money that they paid," "It is not guaranteed," "We can't count on that," "It is not something that we "earned'."

Also, SESCO finds that most organizations and managers believe that they do have a "pay-for-performance" compensation system. But the reality is they don't. Most organizations do not have a formal compensation system which ties managers' responsibility in ensuring an effective return on the behavior purchased (performance management) to the pay ranges and compensation practices of the organization. Where employers are able to train their managers and supervisors so that they fully understand that their role is to manage performance and subsequent compensation, they are able to more effectively implement a pay-for-performance system. Additionally, the following are tips to enhance your pay-for-performance in addition to developing a formal compensation system and training managers on their role in performance management and compensation administration:

1. Fully explain to employees their compensation opportunities, or lack thereof, through performance management tools and systems. We can no longer tell employees, "Show up to work, do a good job and we will take care of you." You must clearly articulate your expectations as well as clearly articulate what employees can expect if they perform as "expected," or "above expected." They also need to understand that they will be held accountable and receive little or no increases if their performance is below expected.

2. Establish thorough performance appraisal systems and train supervisors in appraisal and feedback skills. This performance management process must be a daily, weekly, monthly, quarterly and annual phenomenon. Performance management must become a part of your culture and the primary responsibility of your managers and leaders.

3. Fully understand what your employees want. Money, of course, is one of those needs. But also employers need to understand the psychological needs of their employees to include appreciation, communication, training and development, advancement opportunities and others.

4. Budget properly. Merely setting an average raise percentage on an annual basis isn't enough. Distribution of money based upon market sensitive positions, highly performing departments, adjustments for market pressures, etc. all need to be considered as well.

5. Communicate the compensation plan and train managers as well as employees so they know what to expect and, most importantly, what they must do to earn the most money.

In summary, most employers can "do more with less" through retaining and compensating highly productive employees. Cutting out waste including poor performers is a must in these tough economic times and an efficient pay-for-performance system will help you achieve your goals. SESCO develops and implements effective compensation programs including training managers and employees on compensation administration, the realities thereof, performance management, coaching, and leadership skills.

What Employees Want from Work

Some employees love to work; others work for personal fulfillment. Others like to accomplish goals and feel as if they are contributing to something larger than themselves, something important. Some people have personal missions they accomplish through meaningful work. Some employees like to work because of the challenge.

Whatever personal reasons there are for working, the bottom line, however, is that almost everyone works for money to satisfy their basic living needs. Compensation pays the bills. Money provides housing, gives their children clothing and food, sends their teens to college, and allows leisure activities and eventually retirement. To underplay the importance of compensation is a mistake.

However, in addition to being competitive, fairness in pay is the cornerstone of an organization that successfully recruits and retains committed workers. If your organization provides at least a competitive and equitable wage for your employees, then you have an opportunity to provide the "psychological" compensation employees need including:

• Control of the work: including the ability to impact decisions, setting clear and measurable goals, having clear responsibility to complete a defined task and recognition for achievement of that task.

• To belong: including teams such as receiving timely information and communication, understanding management's reasons for decision making, team and meeting participation opportunities, visual and recordable documentation and posting of work progress and accomplishments.

• The opportunity for growth and development: including education and training, career paths, team development, cross training.

• Leadership: employees want clear and defined expectations that provide a picture of the outcomes desired with goal setting and feedback including an appropriate structure or framework.

In summary, ensure that your compensation system is:

• Internally equitable — rewarding high performers and positions that are "more valuable" to your organization. Furthermore, employers need to hold employees accountable for poor work performance to include removing that behavior.

• Provide a living wage — you do not have to be the highest payer in town, but your compensation and benefits must be competitive to compete for talent.

Conflict Management

All organizations experience conflict on a regular basis. Think you understand conflict in the workplace? Test your knowledge with these questions!

Directions: Circle the letter of the most appropriate response. (See answers at the end of this article)

1. What are the two main reasons for conflicts in the workplace?
a. Personality clashes and money.
b. Money and vacation time.
c. Work structure and personality clashes.
d. Favoritism and job position.
e. Pay rates and job assignments.

2. Conflicts are a natural and unavoidable part of the life in any organization.
a. True
b. False

3. Which one of the following is not an example of a work-related conflict?
a. Uneven distribution of tasks.
b. Allocation of resources.
c. Conflicting priorities.
d. Work flow between separate functions.
e. Differences in background and training.

4. All the choices below are effective ways to resolve conflicts except which one?
a. Take an impartial position.
b. Ignore the conflict.
c. Try for a resolution at neither person's expense.
d. Determine the basic cause of the conflict, personality or work structure.
e. Try to get resolution from the parties in conflict.

5. When a conflict is actually a mismanaged agreement, all but which of the following are reasons that team members don't share their reservations about a group agreement?
a. Lack of preparation for the meeting.
b. The desire to be seen as a team player.
c. Reluctance to cause conflict.
d. Competition for company resources
e. Time pressures.

6. In resolving a conflict, a team leader should get each party to understand the other's point of view.
a. True
b. False

7. Which one of the following statements is false?
a. Conflicts are unavoidable on the job.
b. Conflict on the job usually represents the normal competitive urge present in most individuals.
c. A team leader must remain impartial and give conflicting parties the chance to express their opinions.
d. Solutions imposed from above may mask the conflict, but may create more serious problems.
e. The most successful resolution is one that is not at the expense of either party.

8. Which one of the following is a negative aspect of conflict?
a. Wastes time.
b. Causes stress.
c. Undermines morale.
d. Leads to distrust between team members.
e. All of the above.

9. One of the benefits of conflict on the job is that it sometimes produces useful change.
a. True
b. False

10. Which phase is not part of the four-phase pattern that conflict normally follows?
a. Disagreements between individuals begin to disrupt the workplace.
b. Disagreements begin to affect the job performance.
c. The team leader imposes a resolution.
d. The team leader investigates the problem by talking with both individuals.
e. The parties agree to necessary behavioral changes to resolve the conflict.

If you would like to better understand conflict, or secure assistance in dealing with a specific problem your team is having, call your SESCO consultant today to discuss diagnosing and addressing your workplace conflict issues!

Answers: 1) C; 2) A; 3) E; 4) B; 5) D; 6) A; 7) B; 8) E; 9) A; 10) C

SESCO Client Feedback

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SESCO Client Inquiry ? Staff Response

Question: Does federal law require employers to continue to pay employees who are on military leave?

Answer: The Uniformed Services Employment and Reemployment Rights Act (USERRA) does not require that employers compensate employees who are on military leave. Employers may not require employees to use vacation or other paid time off during military leave, but employees may request to use such paid time off. Some employers may choose to pay such employees for a limited number of days or weeks. Also, some states require that government employees on military leave receive compensation for a specific number of days.