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The Impact of the Current Economy on Compensation Management

  2. TODAY’S SPEAKERS JAMES REDFERN Chief Financial Officer BECKY WOOD Applied Analytics
  3. 3 TODAY'S AGENDA • Recessions and wages • Using salary data as your guiding compass • Working with the CFO • Tying it together: How to use data to inform compensation decisions • Q&A
  4. RECESSIONS AND WAGES How our economy got here…
  5. 5 2009-2020: 10 YEARS OF GROWTH • Longest economic expansion on record (128 months) • Average GDP growth per year since end of Great Recession through 2019 = 2.3% • Average annual growth rate and workers earnings relatively modest compared to earlier long expansions
  6. 6 THE ECONOMY NOW: THREE CONCURRENT CRISES Government intervention • Massive federal reserve support Coronavirus • Womenhave had a higher risk of suffering greater penalties in earnings • Womenof color face wider gaps in opportunity Pay inequality • Overall increasing inequality • Gender, racial, opportunity gaps
  7. 7 CORONAVIRUS IMPACT End of economic growth in USA due to shut down of the economy Through Feb 2020,payroll employment had risen every month for 113 months Private employment rose for 120 months Totaljob losses through May = 19.6 million 13.3% unemployment rate (May 2020 BLS) 42 million Americans received unemployment insurance benefits (Brookings Institute) 45.2% are essential workers (United Way) Highest concentration of essential workers Washington DC (74.93%) Lowest concentration of essential workers Arizona (39.3%)
  8. 8 TODAY • It’s official: We’re in a recession (NPR) • Recession began in February 2020 • Record-breaking stimulus packages • Largest unemployment rates since the Great Depression • How long will it last? • 2.5 million jobs added as unemployment dips to 13.3% in May 2020 • The stock market is rising • Working from home • 82% of US workers prefer to work from home (Global WorkplaceAnalytics) • Increase in productivity • Economic fallout – but where?
  9. 9 WHAT DOES THIS MEAN FOR COMP? • DNWR: Why wages won't fall along with prices and demand • Employers will reduce their workforce but maintain pay to keep employees satisfied and productive • Unusually, there will be temporary paycuts and furloughs during COVID • Guidelines for cost cutting measures: • Don't cut pay if you can avoid it - or you are confident it is temporary and/or in line with market • Use annual bonus for cost control • Do freeze pay if warranted • Do suspend benefits outside of healthcare • Do consider reduced hours • Don't cut healthcare benefits • Don't cut perks that boost morale or productivity
  11. 11 WAGE DATA OVERVIEW What's happening NOW? • Real time market data to reflect what's happening in the economy PayScale Company and Crowd Sourced data: • 65M total salary profiles • 8,000 clients • 10M website contributors • 1,900 employer participants PayScale Methodology: • Collect > Validate > Augment & Analyze > Match & Deliver • Proprietary algorithms to assure consistency and accuracy with every data point used in our compensation models and reports
  12. 12 IMPACT ON INDUSTRIES Wage growth by industry slowed to 0.5% this year compared to 1.6% in 2019 • –0.7% industry wage growth drop between Feb 2020 and March 2020 Highest Feb 2020 to March 2020 wage decreases were in: • Retail & Customer Service at –11.6% • Accommodation, Food Services at –8.4% • Every other industry took a hit or stayed flat
  13. 13 IMPACT ON OCCUPATIONS Wage growth by occupation slowed to 0.6% this year compared to 1.1% in 2019 • –0.7% occupation wage growth drop between Feb 2020 and March 2020 Highest Feb 2020 to March 2020 wage decreases were in: • Legal jobs at –7.3% • Food service and restaurant jobs at –6.6% • Retail jobs at –3.4%
  14. 14 IMPACT BY CITY Wage growth across all metros dropped to -0.1%, from 3.1% last year Highest YoY wage increases: • Nashville-Davidson--Murfreesboro-- Franklin, TN: 1.8% • Milwaukee, WI: 1.6% • San Francisco: 1.5% Highest YoY wage decreases: • Houston, TX: –3.4% • Detroit, MI: –1.8% • Kansas City, KS: –1.5%
  15. 15 COMP PHILOSOPHY CHECK New business environment New goals and objectives New ways of working Same laws and regulations Same HR objectives What new data can we get, do we need to adjust our employee compensation philosophy to the new... everything?
  16. Working With the CFO: Data makes the CFO Purr
  17. 17 HOW TO PARTNER WITH YOUR CFO Data Scenarios
  18. 18 1. DATA • Compensation impacts talent retention, performance, and the bottom line • Surface key information: • Increase budgets • Performance ratings vs. ranges & market • Employee by pay grouping • Alternatives / Tradeoffs • Maximize Free Cash Flow in 3-5 Years (seriously, that is all a CFO cares about)
  19. 19 2. SCENARIOSHOW TO GET YOUR CFO TO SAY "YES" THE RIGHT ANSWER • Show the data: • Transparent datasets • Structure modeling • YoY analytics • Attrition (voluntary and involuntary) • Range penetration / benchmarking • Compensable reports WHAT OTHER CFOs ARE TALKING ABOUT.... …..AND WHY IT MATTERS TO HR & COMP • CFO and CHRO should be in lockstep in business decisions: • People are the most important asset; risks of overpaying and underpaying • People want to understand the rationale • Align talent with business strategy. How? • Configurable reporting and modeling • Dynamic merit matrix • Cost variances by geo WHY SHOWING THE CFO DATA IS VALUABLE • Understandmarket data and market prices • Be in control of your approach to spend • Provide alternatives; understand tradeoffs • Maximize Free Cash Flow in 3-5 Years (seriously, that is all a CFO cares about)
  20. WHAT THIS ALL MEANS AND HOW TO USE THE DATA Let’s put it all together
  21. 21 BE NIMBLE AND THOUGHTFUL NIMBLE • Remote workers • Essential workers • Gig workers THOUGHTFUL • Laws • Internally and externally equitable • Skills • Equity
  22. 22 PLAN - DATA
  23. 23 ANALYZE - DATA
  24. 24 UTILIZE - DATA
  25. 25 UTILIZE – DATA (CONT)
  28. 28 ADDITIONAL Q&A Regarding essential workers (we are in the restaurant industry), what trends are you seeing for their pay (permanent wage rates, not hazard temporary pay)? Also Becky mentioned to think about what else we can impact other than their pay/benefits, but I didn't hear any examples - can the team provide any examples? Becky at PayScale: Most essential workers were brought back or continued employment at the same rate of pay as before. Less than 6% had any hazard pay as of April. We'll see what happens for May and onward. The goal is to think outside of hourly pay, hours, and benefits. To consider spot bonuses, other perquisites, discounts, etc. I've even heard of a "loyalty" list that an employer posted on their premises to allow customers to recognize (hopefully with a big tip) their valued employees who have had to sacrifice their own income while the business was closed and are even now, not back to where they would like to be. Always remember that recognition can go almost as far as a bonus. When I was in comp at a not-for-profit, the letter of recognition from the president was always prominently displayed by the award winners at their desks. In a follow-up survey, they valued the recognition (an award ceremony in front of peers by each department) three times (3x) more than the cash award itself. Do you see a national average for pay rates given remote work becoming a reality? Becky at PayScale: We see that now in many industries. Many more clients moving to a national structure. However, at the non-exempt job level, geographic differentials still seem to be prevalent. We are keeping an eye on this trend.
  29. 29 ADDITIONAL Q&A How much should experience factor into pay, versus individual performance and role importance to the company's success? Becky at PayScale: The answer to this is the classic, "it depends." It is a factor of the industry you are in, the type of job duties and responsibilities associated with a position, if there is a union involved, etc. Most organizations are a blend of "all of the above." I wonder the factors that played into the wage growth trends. Am I right to interpret that wage rates didn't decrease but the growth or expansion of them slowed. It was confusing between the data showing growth trends or actual paid trends Becky at PayScale: Sorry about that confusion. I tried to work in too many different summary statements into the slides. The information provided in the slides in the comp section pertain to wage growth. The wage growth measures the percent change in median total cash compensation from month to month and a 12-month comparison using all profile types and those with job offer profiles only (for the job offer trends). Actual wages have stayed the same or shown slight growth. As James indicated, this has remained the case even through previous recessions. The wage growth percent has fallen or slowed across most industries, occupations and some cities – deeply in March, starting to trend up slightly in April, but still lower compared to 12 months ago.
  30. 30 ADDITIONAL Q&A Regarding the "add-ons" in pay. Have you seen any data showing the costs of working from home (i.e., higher utility bills) versus cost of commuting, parking, etc.? Brian at PayScale: We haven't seen specific data regarding "add-ons" yet. What we have seen anecdotally at PayScale is that employees are experiencing some moderate increases in utilities, whether it be and uptick in electricity and water consumption or needing to increase their home internet bandwidth. Generally speaking the reduction in commuting costs (outlined below with very broad assumptions) more than offsets these, however it is important to recognize that every employee will have a unique financial circumstances. Evaluate where your employee population is at and potential hardships they may be encountering. Include in that evaluation what the cost saving the business has had by not having employees working in its office/work locations and see what potential savings the business may have that can be passed along to employees. It is important to note and communicate that business still have rent and utility expenses even though the buildings may not be occupied so not all or sometime none of the savings can be passed on to employees. The median commute in the US is 43 miles, multiply that by the IRS mileage rate of $0.575 cents per mile and you the medium cost for a commute per day is $24.73 (not including parking). Then if you factor in 20 working days per month that is $494.50 in saving from wear and tear on a vehicle alone. Granted some people take public transit which is about $7.00 round trip, so $140 per month.
  31. 31 ADDITIONAL Q&A Are any companies considering providing a 'payback' to employees as they shift to virtual environments and therefore limit the cost/spend on real estate? Brian at PayScale: We haven't seen any data on a 'payback' yet, however companies ought to be thinking about how they can adjust their total rewards packages to meet the demands of a virtual working environment. Gone are the days of unlimited gourmet coffee in the office, company lunches every Monday, happy hours on Fridays, or that big summer family picnic. Think through why you were offering the perks and benefits you were in the first place. Was it simply to be competitive with what other businesses in your industry were offering or were they perks that differentiated your package and enhanced your culture? How could you deliver upon that same differentiation in a now virtual work environment? The answer will be different for every business and we are still thinking through this at PayScale for our own employees. Reach out to peers who do HR for 100% remote companies and learn some of the things they have been doing for years to enhance their cultures.