Activity Comparing Industry Trends In Pay Rates Such As It, Fmcg

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LESSON: 26

Activity--Comparing industry trends in pay rates such as IT, FMCG etc

FOR FURTHER READING:

Article on compensation:

Redefining compensation in challenging times

Abstract:
Common approaches to compensating employees are reviewed and cost-effective
alternatives for sustaining an organization's critical pool of talent during and following a
period of economic uncertainty and beyond are discussed. A reasoned approach to
considering potential changes or managing current programs to maximum effect begins
with an appreciation of current economic uncertainty and a common understanding of the
various elements of total compensation and their relative costs. Different approaches to
measuring total compensation will often signal different strategies for managing
compensation costs. Organizations should carefully examine ideas for delivering efficient
compensation, both old and new, in order to survive current economic uncertainty
without losing the human capital needed for future growth. Tips on long term strategies
are provided that should help manage total compensation to build human capital for
sustained competitive advantage.

Causes for Concern:

On March 9, 2000, the NASDAQ Index hit an all-time high of 5046.86.(1) Since that
time, in what is becoming an increasingly prolonged and troubling period for the United
States and world economy, most stock indexes are down over 10%,- and unemployment
has increased with over three million jobs lost during this period and the number of
unemployed workers numbering 8.8 million as of April 2003.(3) In April 2000, the
unemployment rate was 3.8%, climbing to 4.2% by March 2001 when the recession
officially started, then climbing to 5.7% by March 2002 when Congress extended
unemployment benefits and then hitting 6.0% in April of this year as this article was
being written.''

More troubling is the long-term unemployment rate (the percentage of the unemployed
who have been out of a job for six months or more), which has hit a high of 21.4% two
years into the current recession. Weekly unemployment claims have surged this year to
over 400,000 since the middle of February.5

For even more troubling, longer-term trend data, we can look at mass layoff statistics
since 1996, when first tracked, and note that there has been a steady increase in mass



layoff events (a layoff event involving 50 or more workers) from 14,111 that year to
20,269 in 2002. Claimants for unemployment insurance increased from 1,437,628 in
1996 to 2,244,631 in 2002, dipping only once during that period for a compounded
annual increase of 56% and an average loss of 111 jobs per event.6

Cutting against this somewhat might be continued good news about low inflation rates,
which continue to hover below 3%, with core inflation (excluding food and energy
prices) at 1.5% for the 12 months ending April of 2003.(7) But aside from a continuing
slide in residential home mortgage rates (averaging 5.6% for a 30-year fixed rate
mortgage as of May 22, 2003), easing of gasoline prices, and some voicing fears of
deflation, many seem faced with a different day-to-day picture in prices for common
goods and services, with many items showing annual increases of well over 3% over the
last three years, such as health care, insurance, college tuition, natural gas and
entertainment.8

Despite rapidly rising costs of health insurance and increases in payments to pension
plans, employer costs for compensation increased at a lower rate than the previous year
for the third consecutive year.

Perhaps even more troubling is increasing evidence of real decreases in salaries for
certain jobs as companies continue to outsource work and export production overseas for
increasingly sophisticated goods and services, including avionics, financial services and
computer programming.10 At both ends of the spectrum, for the top 10% of earners aged
25 and over and for college graduates, there are statistics indicating real earnings
declines.11

Such evidence of troubling economic times is already old news for most employees and
employers alike. Individuals are either losing jobs and finding it tougher to find new
work, even at lower rates of pay, or feeling increasingly uncertain about the jobs they
hold. Employers face increasing global competition, a reduced demand for goods and
services, an uncertain stock market and increasingly vigilant shareholders amid
continuing revelations about questionable accounting. Such uncertainty demands a fresh
look at compensation and a search for alternatives that help to stabilize employment on a
basis that once again produces a healthy growth in earnings for companies

Measuring Total and Relative Compensation Costs

Most people think of compensation primarily as salary or perhaps W-2 earnings, which is
appropriate insofar as the proportion that wages and salaries represent for most
employees. But the term can be more broadly defined to include many other provisions of
employment. With the exception of referral bonuses and lump-sum payments provided in
lieu of wage increases that are captured under supplemental pay, so-called variable pay,
including incentive payments and other bonuses for company or individual results, are
included in wages and salaries in the definition above. For the typical professional,
technical or managerial employee, variable pay can represent as much as 10% of salary
or as much as 7% of total compensation if this element is broken out and considered



separately, as it should. Actual and relative costs for a single employer do of course vary
greatly, creating further opportunities or challenges depending on the composition and
level of total compensation in each case.

When compensation costs are viewed as expectations, with employers budgeting this
expense based on historical experience, an element that represents a relatively small
proportion of the total cost can increase greatly in significance. This is true in the last 12
months, in particular, for health benefit costs and retirement costs. For the latter, it is
defined benefit pension plan costs in particular that have suffered from both the weak
stock market that has also affected defined contribution plan investments, as well as low
interest rates that have obligated employers to set aside additional funds to cover
estimated liabilities.13

The approximately 10% increase in health benefit costs drove the largest 12-month
increase in benefit costs since the first quarter of 1992." And these figures tend to
understate total health insurance costs since they reflect what employers are paying after
making benefit plan design changes and cost sharing with employees. Trend rates used by
insurance companies to adjust premiums are running closer to 20% a year. Thus, while
health insurance and retirement costs, when taken together, represent only about 10% of
total compensation costs, when added in with other benefits, they accounted for nearly
50% of the annual increase in total compensation costs.15

As we move from a global understanding of total and relative compensation costs to a
reasoned individual company response, a meaningful strategy should begin with a
recalculation of costs at the company level to understand the scope of the problem and its
dynamics. Conclusions might be quite different than the national statistics cited here,
particularly if individual circumstances vary significantly from the norm. As one would
expect, the same BLS statistics shown above vary in some cases quite significantly
depending on region of the country, industry, employment sector, type of worker and
union status.

Short-Term Responses to the Recession (Post 9/11/01)

As many other surveys also demonstrate, short-term employer responses to the recession,
while somewhat predictable overall, also reflect a variety of approaches based on
individual circumstances. If not already a part of your company's response to economic
uncertainty, many of the following tactics may be necessary, if not entirely satisfactory:

* Layoffs

* Hiring freezes

* Salary cuts

* Reduced salary increase budgets



* Greater time between salary increases

* Reductions in variable pay.

Over the longer term, however, it is important to develop strategies that go beyond simple
cost-cutting measures to find creative and cost-efficient ways of delivering different types
of compensation tailored to individual needs and circumstances.

Perhaps because the effects are felt so immediately, and the effort expended is often
minimal, layoffs appear to be every company's first response to poor economic results.
Rut the rewards that Wall Street habitually bestowed upon firms and CEOs with instant
increases in stock prices following a major layoff are not so automatic anymore. Mass
layoffs produce immediate savings along with many longer-term costs. Some estimates
put the costs to companies of hiring a replacement for each laid-off employee at 1.5 times
the salary of the departing employee, although this can vary widely based on the type of
job, company and industry. For nonexempt employees, the figure may be closer to .75
times salary, while for professional employees; two times salary is more realistic.16

The difficult question to answer is whether layoffs are really always in the best interests
of the company. Do circumstances always require such a drastic action? Media reports on
layoffs often suggest that little effort was made to protect key talent. If so, how does this
help a company build long-term value? While it is hard to obtain information on the
effects of layoffs or even how they were handled, it is pretty safe to assume that value is
destroyed by making hasty and wrong decisions about whom to lay off, undermining the
morale and motivation of those left employed, not having a clear strategy for how to
restaff when business improves and/or having to quickly hire people to replace some of
those laid off.17 All of this is to suggest that layoffs are not necessarily the best response
to uncertain economic times. Despite quick cost savings, there is a longer-term price to be
paid in future growth potential.18 but few companies really seem committed to retraining
existing employees, preferring to churn for newer skills.19

A more measured response for a broader segment of companies has been to freeze or
slow down hiring of new employees until the need for more help becomes clearer. As
employees leave voluntarily, companies have been much slower to replace them.

While salary cuts for an existing work force are still quite rare, some companies have
chosen this path as preferable to a layoff. Some have also asked employees to take unpaid
leaves of absence to cut costs during periods of slow demand.

One survey of 660 companies seeking to measure responses to 9/11/2001 in particular
and to the recession in general found about 35% (231 companies) planning some action
or change to current policy. About 60% of these companies cited layoffs, 42% mentioned
a hiring freeze, and 40% noted a lengthening of the time between merit increases and
only 7% indicated salary cuts for all employees as an action.20



Most typically, employers are reducing the amount budgeted for annual salary increases.
All of the 231 companies either implemented or planned to implement a 2002 salary
increase budget change, with 89% making changes on a company wide basis. The
average decline in salary increases among these companies for exempt and nonexempt
employees was about 32%, slightly higher for executives and slightly lower for hourly
employees. Thus, salary increase budgets that were around 4.5% before the change
became 3.1% after the change.21

Of all the possible responses to economic uncertainty, the one that deserves the most
attention is variable pay. By definition, these are pay plans that many companies already
have in place where pay is not fixed, but rather varies with, most typically, company
financial results. So even if the employer does not make any overt design change to the
variable pay plan itself, changing the target incentive payments, for example, the actual
payouts under the plan represent a reasoned and predictable response to hard times and a
very responsive mechanism for attracting and retaining key talent while managing costs.
Companies that have already leveraged their compensation plans with a high degree of
variable pay are much better situated to weather a downturn, as compensation costs
automatically go down when company financial objectives are not achieved. Rather than
having to lay off valuable employees, these companies and their employees are able to
make do with less until business conditions improve, when the very same variable pay
plans are designed to deliver additional compensation for improved results.

Of course, variable pay plans can also be changed in response to economic uncertainty,
particularly if they are designed to pay out generous awards even when financial results
are poor. Repeated changes to plan design are of course far less preferable to letting the
plan payout formulas serve as the corrective tool. For example, of 193 respondents to one
survey on the impact of economic uncertainty on broad-based variable compensation
payouts, 54% indicated that payouts would be reduced (41% significantly and 13%
slightly)

Longer Term Strategies for the Future

Some companies always manage to succeed where others fail during a recession. In some
cases, macroeconomic forces simply overwhelm all other explanations for the success or
failure. Telecommunications companies that have done well over the last few years are
very hard to find indeed; many in the industry have simply failed altogether. If your
company is in the business of providing personal or corporate security, it is difficult not
to succeed. But if we ignore the worst- and best-situated companies and the worst- and
best-managed companies, that leaves most companies striving to gain competitive
advantage, both now during trying times as well as later when the economy finally
improves. For these companies, there are sustainable, longer term compensation
strategies that will help avoid the need for layoffs and prove to be much more profitable
than simply cutting payroll every time the numbers fall below expectations.

The time for sensible, long-term thinking and planning may never be better. Accounting
scandals and an excessive focus on short-term reported profits have left many investors



and shareholders willing to trade immediate gains for long-term stability in earnings.
Here are ten tips on strategies that should help manage total compensation to build human
capital for sustained competitive advantage:

1. Develop, implement and maintain a total rewards strategy.

2. Manage the relative mix of fixed and variable pay.

3. Maintain a flexible pay increase cycle.

4. Control hiring of new staff and 611 openings from within.

5. Redesign work for more flexible work schedules. 6. Identify and sustain critical
competencies.

7. Stay abreast of changing competitive market rates.

8. Monitor salary ranges and individual salary range penetration.

9. Communicate total compensation philosophy, development and administration.

10. Tailor rewards to individual performance.

Not all of these strategies are appropriate for every company, and even where many are,
they cannot be tackled all at once. Many are simply reminders of what we all already
know, and most deserve and have received more detailed treatment than what is possible
here. Let's briefly consider the advantages of each compensation strategy for leveraging
your human resource potential in trying times and beyond.

1. Develop, implement and maintain a total rewards strategy.

First, it is important to have a total rewards strategy that recognizes the limitations of
traditional, narrow definitions of compensation and goes beyond these boundaries to
include other value-added elements of the employment relationship. If you don't already
have one, much can be learned from the process of developing such a strategy.

Begin with a simple redefinition of compensation to include every conceivable aspect of
the employment relationship. Articulate the company's business and human resource
strategy. What are the organizations core competencies, what human resources are
needed to support these competencies, what types of compensation are being offered by
competitors for talent to their employees and what are your employees' reward
preferences? From this, one can develop a detailed list of rewards for further
consideration. Each item on the list can then be tested for three criteria: (1) desirability-
Do employees indicate a high degree of preference for this element? (2) Effectiveness-
Does it contribute to the achievement of reward program objectives? And (3) costing



absolute and relative terms. The result will be to build a value-added, employment-related
inventory of rewards prioritized to support your company's investments in human capital.

Items that end up at the top of the list are often surprising. Pay and benefits, while
important, usually rank lower than many other items. For example, in one approach to
measuring the relative importance of various factors, Aon Consulting, in their annual
study United States(C) Work, categorizes the drivers of employee commitment into the in
and the top drivers in each

Clearly, more traditional pay and benefit items also matter, and cannot be ignored.
Nevertheless, a focus on work/life programs and training and development can often
make the difference in creating and maintaining a committed and productive workforce
that ensures long-term business success.

2. Manage the relative mix affixed and variable pay.

Variable pay is not only a safety valve for controlling what is often the single largest cost
of doing business; it represents perhaps the single most powerful tool for directing
tactical and strategic behavior. Paying for performance, if properly executed, helps ensure
survival and longer-term success under even the worst macroeconomic conditions.

The mix itself should be tailored to the sector, industry, business or product life cycle,
and job. Variability must be clearly tied to results that are subject to at least some degree
of human control. A recession, a war, unusual weather or other largely uncontrollable
circumstances are always factors to contend with and sometimes overwhelm all other
considerations. The influence of these is acceptable as long as performance can otherwise
be affected by human intervention and control and rewarded appropriately.

Where sectors or industries are relatively stable, businesses and products mature, and jobs
necessarily routine, there should be little or no variable pay element. But in more
dynamic and competitive industries, rapidly changing technologies or consumer
preferences, and professional, technical and/or managerial jobs where individual
competencies and performance can make a difference, the variable pay element should be
noticeable (approaching 10% of base salary) to significant (50% or more of base salary).

3. Maintain a flexible pay increase cycle.

An uncommon practice worth exploring further is to manage not only the amount, but
also the timing, of salary increases. Moving from a 12-month to an 18-month pay
increase cycle could help delay the need for painful job cuts at precisely the time at which
critical talent is needed to launch a new product or develop a more competitive service in
anticipation of a rebound in consumer demand. While this approach may not be feasible
for many for a variety of reasons (union contracts, employee expectations and morale,
high turnover), it might make more sense for fragile start-ups with an employee
commitment to succeed, or where companies have little or no opportunity to offer
variable pay, and where the cost of living remains stable. As a longer-term strategy, a



company may find it beneficial to reshape expectations as to the timing and composition
of pay. In fact, an initial extension of the pay increase cycle might be most effectively
combined with an introduction to variable pay and a significant lump-sum award, to
signal a change in policy and to introduce significantly greater flexibility in the
compensation program.

4. Control hiring of new staff and fill openings from within.

An ideal way of managing compensation costs is to marry the need to slow the growth in
payroll with the challenge of providing meaningful developmental and promotional
opportunities for existing staff. While the ideal skill set may not be immediately available
from within the ranks, patience and a little training may provide a better long-term asset
who is more motivated and committed than an onside hire. The multilevel opportunity to
manage compensation cost is readily apparent: A promotion to fill the initial job opening
from within is usually cheaper than hiring an experienced employee from the outside,
while the job vacancy created by such a move offers additional opportunities to promote
from within, moving the vacancy down to a significantly lower level and lower cost job
where it is eventually filled from the outside.

5. Redesign work for more flexible, part-time work schedules

The combination of an aging workforce, the difficulties of managing work and family for
a couple on a dual career track, the demands of a younger genera ration for more free
time and the lower costs of part-time employment offer companies many reasons for
promoting flexible work schedules. Among the options are reduced work schedules
coupled with significant opportunities for telecommuting, job sharing, multiple reduced
hour shifts (e.g., four-hour shifts in lieu of eight-hour shifts) and other tailored work
schedules where employees and their employers exchange time for money in new and
creative ways that benefit both parties, giving employers lowered salary and benefit costs
and employees a cushion of highly valued time at a reasonable price.25

6. Identify and sustain critical competencies.

Any company that believes the key to competing successfully in a global economy is the
quality of its human capital should be defining precisely what competencies it needs,
which are available, which need to be developed, and/or acquired and how. There is
much useful literature on the subject of competencies.26 Suffice it to say here, the
essence of the matter is the notion that traditional definitions of competence that are
restricted to knowledge, skills and abilities can fail to capture harder-to-measure qualities
that often account for success. These critical competencies vary by job, but might include
such individual attributes as attention to detail, propensity to take the initiative, habit of
building consensus, willingness to compromise and refusal to give up under the toughest
circumstances, to mention a few. Among other considerations, a company's costs to
acquire and develop these types of critical



Qualities are often less than the costs associated with academic degrees, years of
experience or other easily identifiable characteristics of competence, especially to the
extent that the expected correlation between the more traditional and these more subtle
behavioral qualities fails to hold up in an individual circumstance.

7. Stay abreast of changing competitive market rates.

As pointed out above, competitive market rates are constantly changing and, in recent
years, for some jobs, even declining. Job candidate expectations for starting salaries may
not be realistic. In any event, while it may seem obvious, it is more important than ever to
check published as well as private and other sources of salary data as frequently as every
six months to a year (depending on the job) to ensure that you are not overpaying for
defined job duties and responsibilities. Where internal rates of pay increase have already
slowed, and supply of skills, in contrast to the end of the last decade, have now
outstripped demand, employers should and can manage new hire and retention costs by
staying abreast of the market.27

8. Monitor salary ranges an individual salary range penetration.

Make sure salary ranges are set as precisely as possible to reflect current market rates for
benchmark jobs. Also, are jobs assigned to the appropriate salary ranges within the
overall structure? Finally, salary increases can be slowed or capped depending on salary
range penetration in relation to experience, skill or other critical competencies. The
factors that determine salary range placement can he weighted and scored so that the
desired location of the salary within the salary range can he compared to the actual
location, with differences handled through increases or decreases to the planned merit
adjustment. While so-called merit matrices are not popular with employees, a less rigid
and more individually tailored approach will not only help manage costs but also help
ensure internal equity.

9. Communicate total compensation program philosophy, development and
administration.

Employees are generally more aware of what their employer does not provide than of all
the various elements of the existing total compensation program. Expenditures on pay,
benefits and other rewards are wasted if they are not understood and fully appreciated.
Appreciation, and the commitment that comes with it, are only realized if communication
goes beyond a simple explanation of each benefit to its relative cost, the company's
rationale for making the benefit or reward available, some assistance in providing easy
access, smooth administration of benefits and efficient resolution of disputes.

10. Tailor rewards to individual performance.



Much has been said about pay that varies with performance. In its broadest and oldest
incarnation, profit sharing or gain sharing, performance is measured, recognized and
rewarded at the enterprise level. This is good. It generally builds commitment, reinforces
the profit motive and remains highly sensitive to economic conditions. But as the saying
goes, a rising tide lifts all boats. As the tide recedes, should we try to rescue all boats or is
it better to leave some stranded?

A final suggestion then, is to be vigilant about individual performance and differentiate.
Without trying to be punitive, this vigilance is more to ensure that the team will excel
than to elevate the few to the status of superstars. We believe in our superstars, and we
inevitably need them. But just as championships are generally won when the individual is
able to channel effort and talent toward maximizing collective rather than individual
performance, so does the successful enterprise thrive on effective teamwork that depends
on all team members performing to the best of their abilities.

Much worse than the selfish superstar is the under performer who undermines not only
results, but also the spirit to improve those results. Truly inefficient compensation
rewards the laggards as much as the contributors. Thus, it is equally if not more important
to weed out the truly subpart performers as it is to elevate and reward the outstanding
few.

This is, of course, easily said, and easily agreed to. The real challenge is to make it
happen. To root out mediocrity where it thrives, to unleash potential where it exists, is the
challenge of all organizations-the larger and more bureaucratic, the greater the need. As
soon as one mediocre, lazy, insecure, power-hungry or purely political individual reaches
a position of authority, blocking more talented and deserving individuals from reaching
their potential, the entire system begins to break down.

So, if we have to cut staff for financial reasons, let's at least take the time to identify the
problem employees, 28 at whatever level of the organization, all the way up to the CEO,
and prune fur future growth, rather than playing a numbers game to reduce specified
headcount with across-the-board cuts in positions.

The Next Steps for Ensuring Success

There are hopeful signs that the economy may be getting back on its feet even as this
article is being written.29 Whether we finally have a robust recovery, a continued period
of uncertain growth or further stagnation, the time to act is now, to prepare your company
for any eventuality. Regardless of what specific initiatives you may be pursuing, the
following steps, if not already incorporated in your game plan, represent logical
milestones on a road map to greater stability:

* Establish a baseline of total compensation elements and costs.



Develop line-item budgets for each compensation element and strategy.

• Calculate current and projected unit costs for each line item.

* Assess the relative short- and long-term impact of possible initiatives.

* Implement compensation program changes.

* Measure the results.

Understand all of the elements of the employment relationship that compensate
employees for what they do, making sure you know what each item does and should cost,
so that alternatives can be evaluated, implemented and ultimately tested for effectiveness

Factors determining pay rates:

Let us discuss about main factors which determent the pay rates in an organization:

Following are the main steps involved in determining wage rate – performing job
analysis, wage surveys, analysis of relevant organizational problems forming wage
structure, framing rules of wage administration, explaining these to the employees,
assigning grades, and price to each job and paying the guaranteed wage
* The process of Job Analysis: - A Job analysis describes the duties, responsibilities,
working conditions and inter-relationships between the job as it is and the other jobs with
which it is associated. It attempt to record and analyses detail concerning training,
skills, required efforts, qualification, abilities, experience and responsibilities expected of
an employee. A job is rated in order to determine its value elative to all the jobs in the
organization that are subjected to evaluation.
* Wage Surveys: - Once a worthwhile job is determined by job evaluation, the actual
amounts to be paid must be determined. This can be possible when, wage or salary
surveys in the area concerned. This survey will give lot of answers for questions like –
what are other firm pay? What are they doing by way of social insurance? Etc., by
gathering information about benchmark jobs that are usually known as good indicators.

A wage survey to be useful, if following points should be taken into account.



* Frequency: - To know that particular wage structure in different companies used to
change rapidly.
* Scope: - It is the number of particular firm in that locality.
* Accuracy: - The diversity in job titles, and specific job duties is staggering.
* Relevant Organizational Problems: In addition to the results of job analysis and
wage surveys, several other variables have to be given due consideration in establishing
wage / pay structure.
* Preparation of Wage Structure:
Once above steps are determined next step is to determine the wage structure, it can be
done by several ways, whether the organization is able to pay amounts/wages to the
employee, how it is? Whether the wage/pay ranges should provide on merit basis.
Which jobs are to be placed in each of pay grades – the actual money value to be as
signed to various pay grades etc.

FOR FURTHER READING:

Article On Pay Rates:

Coke Issuing Widespread Pay Increases
Abstract:
Under court orders, Coke has not yet disclosed the terms of a settlement of a major
racial discrimination suit. And many black employees, fearful that Coke is trying to
avoid the stigma of a large cash payment and any guilt that might imply, are
accusing Coke of trying to appease disgruntled workers so that a small settlement
will seem more palatable when the terms are announced next month.

Coke officials vehemently denied the accusations, noting that Mr. [Douglas N. Daft]
personally promised all employees that the company would review its compensation
policy in May, one month before a settlement was reached. Since that time, the
company said, it has undertaken an extensive review of 500 other companies in a
variety of industries, including direct competitors like PepsiCo, consumer product
giants like Procter & Gamble and even Internet companies like Yahoo. Coke also
examined what its employees were paid case by case. So while the raises did occur
within weeks of the final settlement, there was no connection between the two, the
company said.

Full Text:
Copyright New York Times Company Oct 20, 2000



Struggling to retain employees after a turbulent year, the Coca-Cola Company has
instituted sweeping salary increases for the first time in at least two decades, according to
company officials.

The raises, ranging from less than $1,000 to as much as $15,000, came after the company
determined that many of its workers were paid less than their counterparts at other large
companies, a criticism Coke employees have leveled for years.

Company officials did not disclose how many workers were affected, but characterized
the number of increases as ''significant,'' involving United States employees at every level
of the company, from entry-level assistants to corporate managers. Though longtime
company officials could not remember a precedent for such widespread raises, they
described the move as necessary in light of a turnover rate that has been increasing all
year. Now at 12 percent, it is sharply higher than any other year since 1996, even with the
elimination of 5,200 positions this year.

The raises are the latest in a series of steps taken by Douglas N. Daft, chairman and chief
executive, to repair sagging confidence in a company once known for its employee
loyalty. Dispirited by the layoffs, a stock price that has fallen by roughly a third in the
last two years and the taint of a racial discrimination lawsuit, roughly 1,000 of 8,600
Coke employees in the United States are expected to leave this year. Among those who
remain, many describe a corporate atmosphere riddled with apprehension and distrust.

Shares of Coca-Cola fell $1, to $57.19 yesterday.

To bolster morale, Mr. Daft has initiated a permanent casual dress code, institutionalized
half-days on Fridays in the summer and issued early bonuses in August. And despite a
slowdown in the domestic soft- drink market, Coca-Cola stock has rebounded somewhat
in the last month, a boost for the many employees with stock options. But many current
and former employees, as well as some of their lawyers have viewed the pay raises with
suspicion.

Under court orders, Coke has not yet disclosed the terms of a settlement of a major racial
discrimination suit. And many black employees, fearful that Coke is trying to avoid the
stigma of a large cash payment and any guilt that might imply, are accusing Coke of
trying to appease disgruntled workers so that a small settlement will seem more palatable
when the terms are announced next month.

''They think it's clearly a tactic to lure people into accepting a bad deal,'' said Willie E.
Gary, who filed a separate $1.5 billion lawsuit in June on behalf of four black employees
accusing the company of racial harassment and discrimination. Since the pay raises took
effect two weeks ago, Mr. Gary said he had received letters and phone calls from
numerous Coke employees who had interpreted the raises to mean that the settlement
would not meet their expectations. ''They think it's a total slap in the face to people who
deserve more.''



Coke officials vehemently denied the accusations, noting that Mr. Daft personally
promised all employees that the company would review its compensation policy in May,
one month before a settlement was reached. Since that time, the company said, it has
undertaken an extensive review of 500 other companies in a variety of industries,
including direct competitors like PepsiCo, consumer product giants like Procter &
Gamble and even Internet companies like Yahoo. Coke also examined what its
employees were paid case by case. So while the raises did occur within weeks of the final
settlement, there was no connection between the two, the company said. ''What we have
learned throughout this process is that -- despite our best efforts -- there are some
individuals that we will never win over,'' said Ben Deutsch, a Coke spokesman.

The company said it expected much of the heightened tension to dissipate in the coming
weeks, when as many as 2,000 current and former black employees find out how much
money they are entitled to receive for a 1999 lawsuit contending that Coke denied
promotions and raises on the basis of race. But many employees have indicated that,
barring a surprisingly large payment, they plan to opt out of the settlement and pursue
litigation independently, potentially prolonging an issue that the company is anxious to
put to rest.

Article 2:

'Pay Banding' Spooks Some Workers, Makes Sense to Others

Abstract:
For example, some Homeland Security employees who participated in focus groups
during the summer "voiced reservations about pay banding and other performance-
based alternatives," said a report prepared for the Bush administration by the
consulting firm of Booz Allen Hamilton.

"In particular, the pay banding and simplifying the appeals process are good moves,"
[James Colvard] wrote. "The argument that federal managers cannot make
judgments about the performance of their employees is specious. It has been proven
through many years of application of the system within the Navy that they can and
do make those judgments and that they are well accepted by the employees."

Pay banding, Colvard said, "requires more investment in first- line supervisor
development, which in itself is a good thing. Also, pay banding quickly identifies the
better managers within your organization."

Full Text:
Copyright The Washington Post Company Oct 22, 2003

The possibility that civil service employees at the Defense and Homeland Security
departments may be taken out of the General Schedule and put into "pay banding"
systems has created some concern in those workforces, which are among the largest in
the government.



For example, some Homeland Security employees who participated in focus groups
during the summer "voiced reservations about pay banding and other performance-based
Alternatives," said a report prepared for the Bush administration by the consulting firm of
Booz Allen Hamilton.

Those employees "did not understand pay banding or the need for it," the report said. In
particular, the employees were concerned that managers would have too much discretion
over pay decisions and that new hires would end up being paid at a higher rate than
experienced employees, the report said.

Numerous employees are unsettled by the prospect of giving up the General Schedule,
with its 15 grades and within-grade pay raises, for a system that combines two or more
grades into wide salary ranges and that may not guarantee a pay raise at regular intervals.
Many of them say that they already see bosses playing favorites or that they work in a
large agency where the boss does not know the front-line employees all that well.

With those observations, here are two against-the-grain reactions taken from the Diary
mailbag:

James Colvard, a former Defense Department employee who served as deputy director of
the Office of Personnel Management in the Reagan administration, said he supports much
of the Pentagon's plan to revamp its civil service rules.

"In particular, the pay banding and simplifying the appeals process are good moves,"
Colvard wrote. "The argument that federal managers cannot make judgments about the
performance of their employees is specious. It has been proven through many years of
application of the system within the Navy that they can and do make those judgments and
that they are well accepted by the employees."

Pay banding, Colvard said, "requires more investment in first- line supervisor
development, which in itself is a good thing. Also, pay banding quickly identifies the
better managers within your organization."

A former civil service supervisor for the Navy, who spoke on condition of anonymity,
said he believes that "pay banding is a good deal for employees overall."

He explained: "Most people benefit in that they get more frequent pay increases than they
might normally get; people can move higher, quicker; and managers have more flexibility
in rewarding top performers. My caveat is that management must avoid the temptation to
manipulate the system. Those implementing must take the time to fully explain the
process and make sure the employees understand the system, its benefits, and be honest
about its shortcomings."

An interagency personnel management group, the Chief Human Capital Officers Council,
has set up five subcommittees to work on federal workforce issues, said Kay Coles
James, director of the Office of Personnel Management.



The panel chairs and their issues are: David Chu of the Defense Department, the hiring
process; Otto Wolff of the Commerce Department, performance management; William
Leidinger of the Education Department, leadership development and succession planning;
Patrick Pizzella of the Labor Department, employee conduct and poor performers; and
Gail Lovelace of the General Services Administration, emergency preparedness.

What are important factors to consider during the enrollment season for the Federal
Employees Health Benefits Program?

Richard G. Miles, president of the Government Employees Hospital Association, the
health plan known as GEHA, will take questions and comments at noon today on Federal
Diary Live. Please join us at www.washingtonpost.com/liveonline

Article-3

Survey: Pay: Priced out of a job

Abstract:
In much of the world the business of setting pay is still extraordinarily inflexible.
Unions and the law get between employer and employee. Still, downward pressure of
prices is strongest in precisely those countries where pay structures are most rigid,
and companies are desperately looking for ways to cut labor costs. For employers in
many countries, slower price rises aggravate a broader problem. The way they have
traditionally set pay no longer squares with the way their businesses work. Just as
pay bills are becoming a bigger share of total costs, employers have to deal with the
waning of the inflation that prompted the ritual of the annual pay round in the first
place.

Full Text:
Copyright Economist Newspaper Group, Incorporated May 8, 1999
[Headnote]
What happens to pay if prices are static, or falling.

A FEW years ago a row broke out at Viessmann, a German engineering firm. The firm
wanted to launch a new type of boiler. Because of high labour costs in Germany, it told
its workforce, it would produce the new model in the Czech Republic. The workers
offered to increase their working week without extra pay to stop the new jobs from going
abroad. But their trade union, the dogmatic IG Metall, took the company to court,
claiming that the deal broke the collective agreement it had negotiated with the industry's
employers. In the end a compromise involving a modest increase in working hours kept
Viessmann's new plant in Germany, creating 16o new jobs.

Such machinations may sound outlandish to British or American ears; yet in much of the
world the business of setting pay is still extraordinarily inflexible. Unions and the law get
between employer and employee. Still, downward pressure on prices is strongest in
precisely those countries where pay structures are most rigid, and companies are



desperately looking for ways to cut labour costs. So what happens to pay rituals when
increases in workers' living standards come mainly from falling prices? And how can
employers reward their best workers when they cannot afford to add to the wage bill?

These questions are most urgent in Japan, where the traditional "spring wage offensive"
to set basic pay for blue-collar workers still survives. But some awards are "symbolic", in
the view of Atsushi Seike of Keio University-such as the rise of Y5oo a month, worth all
of $4, recently negotiated by the union for computer and electronic-goods workers. True,
it avoided the indignity of a pay cut. But all sorts of other methods, such as stopping
overtime and cutting bonuses, are squeezing earnings.

In Argentina, where cutting pay is against the law, companies are also slashing overtime
and bonuses. Any staff change is a chance to slim the payroll. Ro- dolfo Ceretti, director
of industrial relations for Ford's ageing plant on the outskirts of Buenos Aires, recalls that
his excellent secretary, recently retired after working at the plant for a quarter of a
century, was paid $2,50o a month. Her successor gets $1,400.

In Germany, the downward pressure on pay threatens to blow apart the whole system of
collective bargaining, which has dominated pay setting for half a century. In February, IG
Metall negotiated a 4.1% across-the-board rise with an employers' federation dominated
by big firms such as Daimler Chrysler. "They have reasonable profits, and they will put
pressure on their suppliers, who are bound by the same agreement," says Claus Schnabel
of the Institute of German Economy in Cologne. "So an unprecedented tension is
building up between the small and middle-sized firms and the multinationals, which can
either transfer jobs abroad or increase their productivity."

The tension may blow the employers' association apart. The only safety valves, so-called
"opening clauses" that allow companies to set aside the agreement under certain
conditions, are being used increasingly in other industries to avoid the rules being openly
flouted. But the metalworking union refused to consider even the sort of agreement
negotiated in the chemical industry, which allows larger pay, rises for profitable firms
only.

In none of these countries-and indeed not even in the United States-have people thought
seriously about the consequences if regular across-the-board pay increases become a
thing of the past. Yet a long period of falling-or even just stable-prices would mean
precisely that. Without regular pay increases to negotiate, what would trade unions do?
Outside the United States and Britain, they remain powerful organizations, often with
political as well as economic clout. That is unlikely to survive if they have nothing more
important to do than lobby on issues such as health and safety.

Promoting flexibility

For employers in many countries, slower price rises aggravate a broader problem. The
way they have traditionally set pay no longer squares with the way their businesses work.
In the past, pay has been based partly on experience, partly on readily measurable skills



and qualifications, and partly on length of service. "When I started work in the 197os,"
recalls Vicky Wright, global head of remuneration and benefits consulting for Hay
Group, a pay consultancy, "a lot of people would join a company at 16, 18 or 21 and
expect to stay right the way through. The company would recruit people only at those
ages. Now companies recruit at all ages, all the way down from chief executive."

One reason why employees move about a lot more is that many companies have mutated.
Thus, as George Baker of Harvard Business School points out, Greyhound no longer
operates buses, and American Can has become Primerica, a retailer and financial-services
group. Different businesses need different employees. Even companies that stay in the
same business may change the way they work and therefore the sort of employees they
need; or they may merge, or shrink (see chart 4, next page). So gone-or at least going-are
the days when people like Charles Brown, erstwhile boss of AT&T, could start a career
repairing telephone lines with a company and rise to become its chief executive.

Because of increased turnover, both employers and employees these days have a much
better idea of the going rate for the job. And bosses have become more aware that their
best people may defect, taking their knowledge, their contacts-and perhaps even their
colleagues. Pay therefore has to take more account of the outside market. That is hard to
do under the old system, with its emphasis on seniority and promotion as the main routes
to higher pay. Besides, those routes now often lead nowhere. In Japan, according to Ken
Okamura, a strategist with Dresdner Kleinwort Benson, the birth rate has been so low that
the working-age population will actually start to decline next year. But companies have
more ageing white-collar workers than they could possibly promote even if demand were
rising, not falling. At the same time, Japan's modest deregulation is forcing those
companies to hire more market-oriented staff-putting them in hot competition with
foreign companies, which have always had wider differentials and more flexible pay.

In the United States, delayering of the management structure has had a similar effect.
"The main way you get rewarded in most firms is to get promoted," says Chicago's Mr
Prendergast. He remembers looking at one company with 25,000 employees that boasted
no fewer than 18,000 job titles: "Lots of people have discovered belatedly that job titles
are the cheapest way to pay people." But many companies have found layers an
impediment to flexibility, and swept them away.

The latest thing is "broad banding"-creating a few wide bands within which employees
can move sideways or upwards. An example is Lloyds TSB, a British retail bank formed
by a merger in 1996. "We knew we couldn't adopt either [firm's] pay structure," says Tim
Wilson, head of reward. "To do so would have left many people above the top of their
pay scale, demotivated by the knowledge that they had no hope of an increase." Instead,
the bank collapsed 16 grades into eight, each linked to market rates for particular jobs.
"The purpose is to make staff more aware of the external market and its movement," says
Mr. Wilson.

Pay rises themselves need to be more frugal than in the past. Just as pay bills are
becoming a bigger share of total costs, employers have to deal with the waning of the



inflation that prompted the ritual of the annual pay round in the first place. For most
people, the idea of smaller nominal pay awards still goes against the grain. "Look at this,"
shouted a trade unionist at a staff meeting of a British bank, brandishing a loaf of bread, a
carton of milk and a tin of beans. "That's what the increase they are offering will buy
you." It had an electric effect-and yet in future, many employees may be lucky to receive
an increase at all.

How to manage when largesse is out of the question? The best place to look is America,
where a long period of low inflation has taught companies ingenious ways to eke out
modest budgets.

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