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This Guide Covers The SPHR® Exam Content From The Total Rewards Functional Area And Consists Of The Following Responsibilities And Required Knowledge.
RESPONSIBILITIES: 01 Analyze and evaluate compensation strategies (for example: philosophy, classification, direct, indirect, incentives, bonuses, equity, executive compensation) that attract, reward, and retain talent 02 Analyze and evaluate benefit strategies (for example: health, welfare, retirement, recognition programs, work-life balance, wellness) that attract, reward, and retain talent
In Addition To The Preceding Responsibilities, An Individual Taking The SPHR® Exam Should Have Working Knowledge Of The Following Areas, Usually Derived Through Practical Experience: - Compensation strategies and philosophy - Job analysis and evaluation methods - Job pricing and pay structures - External labor markets and economic factors - Executive compensation methods - Noncash compensation methods - Benefits program strategies - Fiduciary responsibilities - Motivation concepts and applications - Benchmarking techniques
This guide covers the important topics of total rewards for the SPHR® exam. Total rewards is the term referring to all policies, programs, compensation and benefits, recognition, and rewards designed to attract and retain the necessary talent to meet the organization’s goals and objectives. It represents 12 percent of the total exam content. The functional role at the senior HR level, with respect to total rewards, is to monitor the effectiveness of compensation and benefits strategies for attracting, rewarding, and retaining talent. Senior HR professionals who understand the full details of such programs are much better equipped to analyze and develop strong programs that benefit all the employees of the company. Fairly providing compensation and benefits to company employees is critical to all successful organizations. This guide focuses primarily on analyzing and evaluating compensation strategies that support the company’s mission, vision, and values. The process begins with the development of a compensation philosophy that meets the needs of the organization. Emerging companies that are growing do well to invest in a strong senior HR professional with knowledge of compensation and benefits to oversee the programs involved. Required Knowledge This guide has among the most complex knowledge requirements of all the topics. Because this is a review guide, the intention here and throughout is that individuals preparing to sit for the SPHR® exam already have a base knowledge and are reviewing the content as a refresher. However, I highly recommend that even individuals with experience and in-depth knowledge spend a little more time with this guide. The knowledge areas of compensation and benefits can be viewed in different ways: strategy, methods, and responsibilities. Compensation Strategies and Philosophy In conjunction with the overall corporate strategy and aligned with the HR strategy, senior HR professionals must help the executive leadership establish a compensation and benefits plan that meets the needs of the organization and its valued employees. They are required to know and understand the factors that impact compensation and benefits within a market. Senior HR professionals should be familiar with the company’s mission, vision, and values to know how to design a compensation and benefits strategy that matches them. Organizational culture and a pay philosophy from the executive leadership will impact the strategy as well. Total Rewards Strategies Senior HR professionals must know how to establish a total rewards strategy to attract and retain the right employees capable of performing the duties required to accomplish the goals of the organization. It begins with the company’s pay philosophy, which determines how it will structure its compensation plan and the types of benefits that can be offered. The strategy must take into account the available resources and consider when and under what circumstances increases will be given.
The strategy first looks at external factors, which include the industry in which the company exists. Industries that have a shortage of qualified talent, such as emerging technology or information age companies, will have higher wage demands. Higher technical and skilled craftspeople will elicit a higher compensation scale as well. As a result, even the support functions and roles may have some pay affected by the other core occupations of the organization. Finally, where the company is located will also impact the compensation plan. Geographic distribution may have variations in labor costs, and this is magnified in international markets.
Senior HR professionals must know the market and the company’s competition and with this knowledge make a decision about where to place the company’s pay. If the organization matches the market, it will strive to be in balance with what others pay for talent. It will use metrics to establish the median salary point and try to target employees’ salaries in a band on either side of this target. Companies with more available resources or seeking to be an industry leader will seek to lead the market by paying the highest salaries and providing the best benefits to the employees.
The objective is to pull the best talent from the market to the company. However, it is important to be careful with this methodology as the highest paid is not always the best qualified; employees can be under- or overvalued. However, bringing in higher-paid employees should result in a more productive workforce, increasing profitability. Finally, a company may choose to lag the market wages because of costs or an availability of talent that allows the company to pay less and not fear loss of employees. It is also possible that any or all of these strategies may be employed at one point in the company’s history or even at the same time with different occupations within the organization.
This figure shows the relative position of the wages in the market and their pros and cons. FIGURE: Comparative wages External Labor Markets and Economic Factors Pay rates and the benefits offered cannot be exclusively controlled within the boundaries of the company. There are external factors that will impact decisions regarding compensation and benefits provided. Senior HR professionals must know how to review these external factors and estimate their impact on the company. Two significant areas to understand are the external labor market and other economic factors. The external labor market consists of all the available talent external to the company that could be readily employed in the organization. Factors that affect this variable include the complexity of the work and required skilled labor needed to successfully complete the assigned duties. In cases where there is a shortage of qualified applicants, it will inflate the cost of human capital by the laws of supply and demand. Conversely, if there is an abundance of labor, companies will have an advantage when it comes to salary ranges. In states where there is a strong organized labor presence, the expectation is that negotiating wages will result in higher costs to the employer.
Note: In 2017, the Trump administration supported legislation that would alter the nation’s immigration policy, which would impact the composition of immigrants entering the United States. This decision could potentially have consequences on the talent pool traditionally filled by immigrant labor and increase labor costs as a result. The economy also plays an important role in the compensation and benefits strategy of a company. In times of economic recession, wages and costs are compressed in response to the slowdown. In 2008, the housing market bubble resulted in a significant economic downturn. Because the housing sector has such wide-ranging secondary effects, it ultimately put strain on certain industries that caused jobs to be lost, which created a spiral effect feeding on each other. While it is not the job of senior HR professionals to be economists, they must understand how the economy flows, especially in the United States, and how this ties to wages and unemployment. Executive Compensation Senior HR professionals must know and understand the difference between executive compensation packages and other pay structures for the rest of the organization. Executive-level compensation is usually reserved for those at the highest managerial and leadership positions within the organization. This is sometimes referred to as the C-suite as it includes the chief executive officer (CEO), chief financial officer (CFO), chief operating officer (COO), and other such designated positions that bear the responsibility and authority for the creation, execution, and sustainment of the company’s mission, vision, and values. Because these positions have such a mantle of responsibility, including the professional lives, welfare, morale, and development of the company’s entire workforce, it is difficult to determine a valuation for such positions. There are two components to executive compensation. The first is the cash value, which consists of the base salary and any incentives that are paid annually, and the second is the noncash compensation offered by the company. The second is usually tied to the outcomes of the actions undertaken by the executive. It is important to note that the combination of both should align with the overall values of the company in terms of adequate compensation and reflect the values of the company.
There is an ethical component to pay for executives that must be considered when establishing the pay parameters. The cash portion is easier to calculate with a base salary and is set based on the knowledge, skills, and abilities of the executive, along with the experience and gravity of the job. Added to the base would be cash incentives that are a direct result of the outcomes of the executive’s contributions to the company. These could be as much as twice the base salary depending on the company and the executive compensation structure.
Noncash Compensation A large portion of the compensation at the executive level is the noncash part, which can consist of a variety of offerings depending on the organization. While there may be a cash value, there is often a conversion that is required to realize the full monetary potential of the compensation provided. Perks are those select items that are provided for executives and have some intrinsic value. A company car, for example, has some value, as does a company expense account in the form of a company credit card. Other items might be event tickets, passes to amusement parks, exclusive fitness club memberships, or any other item that is not available to the general employees but reserved only for executives to recruit and retain their commitment to the organization.
Another portion of the noncash compensation is the written consideration to provide an amount of money if a top executive were to lose their job as a result of the company being sold or acquired by an outside entity and they would otherwise have difficulty finding a similar job and compensation elsewhere. Designed to lessen the burden to the individual from the fall from the executive level, this is more commonly known as a golden parachute. Such items might include early access to benefits or the company contributions of a retirement account.
Stock in the company is the most common component of the noncash compensation. There are a variety of methods for companies that senior HR professionals should be aware of and understand the requirements of each. While it is not necessary to be a stockbroker to be in the HR field, knowing the implications and rules, or where to find them, is beneficial for educating executives who may be new to such structures or advising boards, directors, or pay committees that are developing plans or hire offers to executives. There are many tax implications that must be considered for each of the choices. Some companies may choose to offer stock options; that is, they provide the executive with the opportunity to obtain stock in the company when the value of such stock is higher than would be the purchase price. By doing so with the options, the executive does not need to commit large amounts of personal funds to the deal, essentially ensuring a payout at the fair market value of the stock. Because this leverages certain invested amounts, there are restrictions and tax implications that should be considered for both the company and the executive.
Another stock program would be the purchase of stock itself. The stocks could be a diversified package that is managed to provide returns as dictated by the market but also could be portions of the company stock itself. In the second choice, federal law and regulations place restrictions on company executives, especially those who have responsibility over the financial performance of the organization where they might be in a position to manipulate the financial decisions in such a way as to increase the profitability and therefore the value, which would inflate stock prices. Legal limitations created under Sarbanes-Oxley in 2002 and Dodd-Frank in 2010 have greatly restricted the practices of stock purchase plans in publicly traded companies. There are other stock choices that closely resemble the ones previously mentioned but take a different form to meet different situations that can be advantageous to both the company and the executive.
This figure shows some comparisons of two common miscellaneous stock plans that an executive might receive. FIGURE: Miscellaneous stock plans for executives Methods Having an overall strategy for how a company will provide compensation and benefits for its employees is only the first step in the process. There are several methods of executing the plan, once developed, that senior HR professionals must have knowledge of to be successful. These methods cover examining the jobs themselves and the pay structures that result. The pay and benefit programs that include executive compensation are the direct results of the methods discussed here. Job Evaluation Methods A job evaluation determines the relative worth to the company of any particular position. An HR professional can rank the positions in degrees of importance to the company or can compare each job to another using a predetermined value scoring. When we compare jobs in an organization, it can sometimes be difficult to determine the more important job when the jobs vary significantly. For example, it is challenging to compare the controller’s value with that of an area HR manager or the IT supervisor. All are critical, but how they are paid compared to each other could be different in different companies. A technique that can be used simply is to compare each job, one by one, with another in the organization in a matrix. That will result in a one-to-n list, where n is the total number of different jobs in the company in order of value. This process looks at the whole job, not individual skills or competencies required. Determining skills and competencies is the fastest method, but it isn’t useful in knowing why one job is favored against another. Another method is the classification of jobs into a set number of grades, such as in the federal or state government systems. These job classes group common knowledge, skills, or attributes (known as essential job functions) needed for the successful execution of the jobs in that category and may have common work done by all. In many cases, the HR function may list example jobs, or benchmarks, that fit in the category. This is a highly effective method for grouping large numbers of jobs such as would be required by the federal government. The downside of such a system is that by its nature it is general and broad. A company may have two unrelated job functions in the same classification.
When those jobs in the same classification are banded together for pay purposes, it highly restricts certain positions from being paid at a higher wage. A quantitative approach as shown below uses established compensable factors to score each job in a point comparison. Compensable factors are value added to the organization.
To ensure compliance with the Equal Pay Act and Title VII, the following factors should be considered: - Skill - Responsibility - Effort - Working conditions - Supervision
These factors take into account the actual work performed, documented in a job description, and supporting the organization’s mission, vision, values, and goals. They should be reviewed periodically and be valued by the stakeholders of the company. FIGURE: Quantitative approach Senior HR professionals may choose to examine the jobs in their organization and conduct higher-level analysis with other similar jobs in the market and around the nation to benchmark relative value. This takes external factors into account such as the availability of qualified individuals and what competitor organizations are willing to pay for the same knowledge, skills, and abilities. The comparison can be scaled on a local area, at the state level, or nationally. There are several companies that specialize in doing pay studies that can help by analyzing large quantities of data to refine market-based pay. It is important to know the pros and cons of using external market values. For example, a company may value a particular position or job skill as more important than other companies and therefore have a higher pay value. Or it may be part of an emerging industry that does not have a lot of useful data yet, meaning that its market is not mature enough to price-compare. Job Pricing and Pay Structures Senior HR professionals must know the proper valuation of job categories and specific jobs within that category. It is a critical skill to find a competitive wage to pay for the right skilled talent that will further the company’s mission without losing profitability. To do this, senior HR professionals rely heavily on data including information obtained from surveys, regularly published information from the government, and historical trends recorded over time. While no single survey can capture all the information, the combination of various data points helps to create a picture of the target pay area that can help when making decisions. The data when collected should capture a range of salaries and a time frame to determine how current this information is. For instance, if salary information in the company is reviewed once every four years, there could be significant economic changes that have impacted the organization during that time. As a result, the data will be harder to compare and make a determination of the right range. Likewise, if the information is new, it may be the result of a spike with no other data trend for comparison. When the information is collected, senior HR professionals must know how to use analytics to determine trends, averages, and outliers in given pay categories. The goal should be to find the midpoint of a range of comparable salaries to have a target from which to base offers and set salary ranges. The pay structure is created by analyzing the data and creating either graduated steps or tiers from the lowest salary point to the highest. There is no specific rule on how to create structures for companies, and it is largely determined by the characteristics of the company itself. However, within the structure there will be pay grades and pay ranges that are established, and this will be the foundation for determining the salaries of the employees. Pay grades band together jobs that have a similar value to the overall company. They may not be closely related in terms of duties or job function, but they have the same worth to the bottom line of the company. Pay grades will differ between larger or smaller organizations where the total numbers of employees being grouped are different. There may be different levels in the company from line employees to leads, supervisors, department managers, senior staff, or executives. The more complex a hierarchy in a company, the broader or more numerous pay bands needed. How people advance and grow in the company also will impact pay grades. If certain promotions carry increases in salary, it is possible that someone would need to move to a different band with promotion or risk reaching the upper ceiling of a pay range. Pay ranges are the limits of pay for any employee who may have their pay determined by being in a pay grade.
As shown in this figure, these upper and lower limits bracket the salaries within a pay grade, but that does not necessarily mean that there is no overlap between grades. The determination should consider how often a company moves individuals across pay bands and how an employee whose salary is at the maximum level of one band would be shifted to another band based on an increase in salary. FIGURE: Pay ranges in a company HR professionals should calculate the range spread by subtracting the minimum pay in a band from the maximum and then dividing the results by the minimum. In larger organizations, the midpoints of the pay grades may become compressed, and the result is an unmanageable system. In those cases, a company may choose to broadband the pay bands, putting multiple grades inside one band for the purpose of simplification. Benefit Program Strategies Businesses must compete every day for a limited supply of human capital. Benefits that are offered by companies have become much more than government-mandated offerings that are common among all employers. Instead, senior HR professionals, in conjunction with the executive leadership of a company, develop benefit strategies to attract and retain key talent. In many circumstances, employees will seek out employers that offer comprehensive benefits in addition to their base salary. Health, dental, and vision insurance are common offerings along with supplemental disability insurance. Additionally, there are other critical care and catastrophic insurances for critical and acute illness such as cancer or heart attacks. This category of benefit usually has some costs shared between the employer and employee. Retirement benefits such as a pension plan or 401K can have a company match to employee contributions and are managed by the company for the benefit of employees. Finally, perks such as employee discounts, financial planning assistance, fitness and wellness, and educational benefits can attract talent that require more work-life balance as motivation for continued engagement. Senior HR professionals must be knowledgeable in the rules and functions of each type of benefit offered by the company. They must assist in determining the percentage of the company’s contribution toward the overall cost of these benefits and evaluate third-party vendors for both cost and offerings to match the needs of the organization. The average age of the workforce and the overall health, financial stability, and educational level are all factors that impact the decision of what programs to offer and to what level. Employers are limited only by the creativity of what they decide to offer and the financial resources they are willing to commit to benefit their talent. Fiduciary Responsibility HR professionals may be chiefly responsible for the administration and execution of the company’s retirement plan. As previously mentioned, there are already numerous laws that govern this important benefit for your employees. However, beyond the compliance factor, the fiduciary obligations are critically important points of knowledge for HR professionals. The basic rules set forth in ERISA also provide the standards of conduct for those individuals charged with managing the benefit plan and its assets.
HR professionals should be familiar with these four elements: - A written plan that outlines the benefits structure and general standard operating procedures - A trust fund to hold the plan’s assets - A means of recording and tracking the cash flow of the plan - Documentation that is provided to the employees (and regulators when required) with information about the plan
All those who are responsible for the management and day-to-day operation of these plans and who have discretion to make decisions about the plan are considered to be the fiduciaries. It is the functions that an individual performs, not their official title or position in the company, that determine the level of fiduciary responsibility the individual has.
Note: In some decisions regarding a retirement plan, corporate executives may be making a decision in terms of the best interests of the business (what plan to have, the features, or when the plan is canceled). When making these decisions, they are not acting on behalf of the plan (and by extension the beneficiaries of the plan), so are not considered to be making fiduciary decisions. However, the execution of these decisions and how they are carried out can be fiduciary when doing so requires the individual to work on behalf of the plan. The fiduciary, therefore, must act solely in the interest of the plan’s participants with the purpose of providing the benefits, acting in a diligent manner in accordance to the standard operating procedures, maintaining a diverse investment portfolio, and paying only reasonable expenses. Employer-Provided Benefits As discussed previously, there are as many types of benefits as there are employers, and all have distinct features. It is impossible to detail each single type of program within the scope of this review, but HR professionals should be familiar with the general types and examples from each. In general, there are deferred compensation plans (often viewed as retirement or savings plans), health plans (such as medical, dental, and vision), and supplemental plans (including short- and long-term disability, life insurance, leave, employee assistance, and wellness).
This Table shows these various examples and important knowledge points for HR. TABLE: Employer-provided benefits
Motivation Concepts and Applications As discussed previously, numerous factors determine what kind of compensation and benefits packages will attract the desired talent for a company. Senior HR professionals must be capable of understanding the motivation of groups of individuals that comprise the talent network from which employees are drawn. Younger individuals who may not have families, for example, may desire low-cost healthcare with high deductibles and catastrophic coverage because they are generally healthier individuals. They may be drawn to educational benefits and growth opportunities, being eligible for performance raises and bonuses. Conversely, older, established employees may seek stability with retirement benefits, consistent pay security, and life and health insurance to sustain and support their families. While these are generalities, analysis across demographics can reveal common trends and needs by these groups that can then be offered by the organization. Senior HR professionals must evaluate the workforce population and apply an understanding of the needs of these groups to address what motivates them to remain engaged with the company. These various levers across the total rewards spectrum do not operate independently; they all impact in varying degrees on the motivation of employees. Only through adjustment and often trial and error will a company find continued positive results. Benchmarking Techniques Senior HR professionals should know how to benchmark both compensation and benefits for the organization. They must know how to conduct assessments, track utilization rates, and compare pricing from providers. Each year third-party administrators and brokers will desire to compete for business. This is especially true for growing and successful organizations. Senior HR professionals should meet with brokers well before the open enrollment season and review data from the previous year. They must analyze the effectiveness of the coverage, usage, and cost and must consider any feedback from the employees. A good broker will bring several proposals to the company with competitive rates to compare. The company should be prepared to evaluate and measure the provider’s proposals and make a decision. Performance history, reputation, and similar clients can all be indicators of how effective the provider will be. In a similar manner, senior HR professionals look at the internal compensation structure and across the industry or at local competitors and determine whether the pay philosophy and compensation plan meet the needs to attract and retain talent. Number of voluntary separations, requests for increases, and history of previous salary adjustments are metrics that can be used to determine patterns related to compensation. It is important to look not at individual cases as the benchmark or trend but in the aggregate. Exam Tips Understand compensation strategy and pay philosophy. Familiarize yourself with the pay philosophy of your organization and how pay decisions are made. What is the compensation strategy for the company and how is it executed? Are there discrepancies in how pay is done, and how would an organization resolve those issues? The company should be able to identify the methods used in determining job demands that drive pay. Understand the role of the fiduciary and their responsibility. This is an important function within the organization, and those who hold this responsibility must place the needs of the employees and any benefits programs above the company in some instances. They are truly the honest broker in determining what is best in terms of management and decisions on the benefits programs. Understand how job evaluations inform compensation structures. As an organization defines the roles in the company, each job must be evaluated to understand its relative worth and importance to the performance of the company’s mission. Once these roles are established, you should be able to evaluate the compensation structure to ensure that individuals are paid properly based on the role and duties associated with their job. You should look at objective measures that are used in determining a pay scale and compare them to the difficulties of the tasks a certain job performs. Review job descriptions and essential job functions for some key roles in your organization, and if you have the ability, examine the relative pay. Responsibilities Ensuring that employees are paid and receive the benefits to which they are entitled is one of the most critical responsibilities of an HR professional. The timely compensation for the hard work rendered by workers shows that they are valued and respected and demonstrates the ongoing commitment of the organization to see that their employees’ basic needs are met. Senior HR professionals will analyze and evaluate the effectiveness of compensation and benefit strategies and make recommended changes needed to remain competitive in the market to attract and retain the required talent. Conducting a Needs Assessment As discussed in, “Leadership and Strategy,” needs assessments are useful tools to plan for the organization by surveying the stakeholders and determining what actions can be taken to meet their needs. This is applicable to total rewards as well. Senior HR professionals can analyze surveys of the company’s employees and determine what benefits are deemed most important. Certain benefits are governed by law, but others are discretionary, so there is a great deal of latitude in choosing which ones to provide. Because part of the goal of compensation and benefits programs is to reward employees who align to the values of the organization and keep them engaged, it follows that good organizations are responsive and attentive to their employees. Benefit programs align with the pay philosophy of the company. The HR team collects data on benefits programs and their relative importance, and it discovers any gaps that indicate where needs are not met.
When reaching a decision to provide a benefit, the HR team is responsible for understanding what kind of benefit is needed and for building a business case that supports inclusion of such a benefit program. Included in the recommendation is how the benefit will be delivered and who will manage it. They work closely with the company finance department to determine the feasibility of the cost and whether employees will cover a portion. Finally, it is critical that the company effectively communicate with the employees its decision to deliver a particular benefit and how it will impact the company. Many benefits are impacted by governing regulations, so this may be a factor in the company’s ability to deliver certain benefit programs. Analyze and Evaluate Compensation Strategies A key responsibility for any senior HR professional is to evaluate and analyze the compensation strategy for the company. Determining the pay strategy is not a onetime event, but a continuous process to meet the changing needs of the organization. As a company grows and develops over time, the need for pay structures changes, and senior HR professionals are responsible for crafting the philosophy and evaluating direct and indirect compensation, bonuses and rewards, equity, and executive compensation that attracts, rewards, and retains talent. Pay Philosophy Senior HR professionals should meet with the corporate leadership and establish a pay philosophy for the organization. The pay philosophy aligns with the organizational values and company ethos. It often will become part of the brand identity as employees and applicants to the company factor pay as part of their motivation to seek and retain employment with a company. While pay is not the sole motivation for any employee, a fair and responsible pay structure is critical to maintain. As part of the responsibility for implementing pay programs, the HR team is responsible for conducting the analysis of pay structure. Using either an external source or company resources to validate current pay, they can examine pay ratios to revenue, productivity, or other operational metrics. It is worth noting that sometimes external sources do not have a complete understanding of the scope and responsibilities of positions inside a company, possibly because it has nonstandard job titles or unique duties and scope of responsibility. The external reviews are only as accurate as the data provided to make a determination and are only a recommendation. The company must make the final decision, so the role of the senior HR professional is to be the arbitrator of all the various sources and provide counsel to the decision-makers of the organization. Pay Range Spread and Increases When determining pay raises for the company, there are some factors to consider to ensure that pay ranges are moderated. When the company uses a percentage increase, pay ranges expand because the total amount is less at a lower pay. This increases pay gaps over time. Conversely, a flat amount compresses pay ranges because as salary grows, the gap is unchanged but decreases as a percentage of the total salary.
This figure demonstrates these concepts. FIGURE: Pay range spread Bonuses and Equity A company with a strong commitment to employees as part of its corporate values should be concerned with pay equity within the company. Senior HR professionals are responsible for ensuring that pay equity is maintained with periodic adjustments. Sometimes a newly hired HR professional will discover through analysis that the company’s pay equity is out of balance and may take some time to recover. It is important to realize that pay inequity that has occurred over the course of years should not be attempted to be corrected immediately as this could have negative consequences to employee morale.
Adjusting Pay Gaps Determining the highest-paid and lowest-paid employee in the same job classification will show the pay range spread. For example, if the lowest-paid person earns $30,000 per year and the highest earns $50,000, it represents a $20,000 difference. This could be based on longevity or the fact that the higher-paid person has additional duties or skills adding value to their position. They could be classified as a lead or supervisor, justifying the increase in pay. However, more often than not, it may be that one was hired when the company was seeing high profits and the market supported that pay, and the other was hired at a different point. It’s hard to determine in those cases what is the right targeted pay point and even more difficult to correct. It may not be feasible to raise all pay to the higher level, but cutting pay can also have a negative impact.
Cost of Living Adjustment In some cases, a company may choose to apply a cost of living adjustment (COLA) to wages. Generally, the COLA is a percentage added to the base wage and is a onetime adjustment. The intent is to make periodic corrections based on significant changes to living costs, but if carried out continuously it could result in perpetual rising wage costs that could be detrimental to a company’s profitability. HR professionals are responsible for recommending these adjustments because it has impact to all eligible employees and isn’t connected to individual performance.
Bonuses There are several types of bonuses that can be provided by a company. Monetary rewards based on performance or meeting certain criteria can be ongoing. Others may be onetime, on-the-spot awards for achievement. Senior HR professionals are responsible for ensuring that bonuses are awarded consistently, with established metrics and justification that is fair and equitable. Some bonus structures have legal considerations with respect to wage laws or taxes and should be discussed with the finance department and executive leadership to evaluate any unintended consequences or financial obligations to the company or employee. The advantage to giving bonuses is that they are not a continuing obligation year to year and can be adjusted as the company’s needs change.
Note: Most bonuses are taxable and also require that certain payroll taxes be withheld on the money earned. When giving a set award amount such as $500, the actual net to the employee may be less based on withholdings. Some companies will “plus up” the bonus to cover these taxes, making the net amount the intended award. Analyze and Evaluate Benefit Strategies As most companies grow and become more profitable, they will have the ability to offer benefits to remain competitive and retain top talent. What benefits are offered depends on the needs assessment discussed earlier and what the company can afford to provide. Companies will provide certain benefits such as health and dental early in the company’s growth life cycle, and then other benefits follow depending on the company demographics and needs. Senior HR professionals are responsible for helping corporate executives decide which programs meet the needs of the company at an affordable cost. Over time, they analyze and evaluate the effects and benefits that the program produces and make change recommendations as needed. Senior HR professionals will often review offers from third-party providers that consolidate services to broker benefit plans from a variety of providers. In many circumstances, these plans are highly subject to compliance laws and regulations. Because HR professionals are not legal advisors, it is recommended that these service providers be used, as they have the legal foundation and support to ensure that all regulatory requirements are met in providing these programs. This is especially important for organizations with limited internal HR resources that may not have the breadth and depth of experience in benefits administration. In addition to reviewing offers from providers, Senior HR professionals are responsible for assessing the programs periodically and working with the executives to determine when changes are needed. They may solicit new proposals for services to be provided, developing the evaluation criteria and reviewing proposals from vendors. When a suitable program is found, they become the primary point of contact for the company and keep the company informed of the pending changes. If the program is new, then senior HR professionals develop an implementation plan with start dates, communication plans, and other necessary actions to ensure a smooth start. If, however, this is a change in providers or a new benefits program replacing an existing one, then they are responsible for the transition plan, which may include facilitating new registrations, updating any employee information, and monitoring the changeover. Finally, Senior HR professionals will develop policies and documentation for the benefits programs for new employees as part of the onboarding process and to inform current employees. They may schedule and conduct information briefings on the new plans and their costs to employees and be available to answer any questions. They must work with employees to validate data so that benefits providers have the most accurate employee information when beginning the delivery of the services and benefits program. Ethically Sound Executive Compensation Packages In today’s world of global information and the influence of social media on corporate reputation and corporate responsibility, a hot topic continues to be the relative compensation of executives. It is the senior HR professional’s responsibility to help the company develop, implement, and maintain an ethically sound executive compensation plan. This is certainly a challenge in that, on one hand, it is important to compensate high-level executives fairly for the role they play in making or keeping a company successful; but on the other hand, they must guard against perception of excess. In all cases, senior HR professionals should always put first the mission and values of the company. This will serve as the guideposts for decisions and help with consistency.
Executive Compensation and Performance
What often seems right and fair is tied directly to the results produced by the executive in question. Senior HR professionals will work with a board of directors, executive committee, or key leaders of the organization to develop the objective evaluation standards for an executive entitled to executive compensation packages. Generally, it should be assumed that executives work to the best interests of the company and are doing their best to make timely, accurate, and ethical decisions.
Several regulations that govern compensation directly apply to executive compensation. For example, the provisions of the Dodd-Frank legislation cover public companies to ensure that underperforming executives are not entitled to certain compensation. However, the company must make the ultimate decision as to the manner that this portion of compensation is restricted. This is especially true when it comes to the separation or retirement of an executive whose departure triggers additional compensation in the form of stock liquidation or other severance.
Senior HR professionals are responsible for monitoring these actions and carrying out the decisions of corporate leadership.
Senior HR professionals must remember that the intent of these stipulations is not to handcuff an executive from making hard decisions or cutting costs where appropriate for the betterment of the company. Again, it ties directly to the values of the organization. This applies equally in the public and private sectors, for profit and not for profit. These restrictions are safeguards to ensure that an executive is committed to the successful accomplishment of the goals and objectives of the company. Health and Welfare Senior HR professionals are responsible for the health and welfare programs that support and take care of the employees of the organization. Ensuring the well-being of the workforce is a critical task and significant responsibility. They must ensure that policies and procedures such as safety and workers’ compensation and programs such as benefits and wellness are robust and well designed to keep the human capital healthy and functioning.
Work-Life Balance The term work-life balance defines a concept that examines the employee as a whole person and seeks to balance their personal needs with the professional requirements the company must have to achieve its goals and objectives. This change recognizes that human capital in today’s business environment is a limited resource, and the company cannot demand that an employee remain engaged and functioning in the job without risking burnout, if some consideration is not paid toward meeting the employee’s needs for growth, development, and personal life. Some companies may not be concerned with employees beyond the workday, but research suggests that a lack of understanding of an employee’s personal life situation will have negative consequences and manifest as a decline in the employee’s performance. Companies that seek to understand each individual’s personal situation will have more loyal and dedicated employees. Predictable hours, strong leadership, transparent communications, fair compensation and benefits, and a commitment to employees and their families are some of the ways a company can help achieve this necessary balance between work and home.
Employee Wellness An employee’s performance is impacted by more than just knowledge, skills, and abilities required for the job. Their mental, social, and spiritual well-being all have an impact too. Senior HR professionals are responsible for establishing programs and making recommendations on behalf of the employees that improve wellness throughout the organization. Stress management is important to a company. Some stress, like the need to finish a project on time or deliver great customer service, is needed to inspire growth and achievement. However, an abundance of unnecessary stress negatively affects performance and is detrimental.
Some sources of stress could be the following: - Financial issues - Health problems - Family problems - Substance abuse - Anxiety
Senior HR professionals should seek to adopt programs that can help employees in these life areas. Depending on the social structure and demographics, different practices can be implemented to meet the needs of the group or individual.
Rewards and Recognition Programs Going hand in hand with employee wellness is the employee’s need to feel appreciated for the work they contribute to the organization. Senior HR professionals are responsible for designing, implementing, and managing an effective rewards and recognition program. Such programs must be timely and seek to reward those behaviors that consistently align with the company’s values and vision. For example, if a company values a commitment to the customer, then customer service will be highly valued in the company. Therefore, the company should have a method to recognize and reward those employees that are exceptional at customer service and spotlight those specific behaviors of employees that are tied to that performance. All recognition programs should be of some value that is at least equal to the value provided by the employee’s actions or attitude being considered.
Retirement Some employees will serve the organization to a point where they are eligible for retirement benefits. Some companies have pension plans that provide a defined benefit. This means that an eligible employee will receive a set amount based on criteria met, such as length of service, salary, and age. These programs carry liability to the future because the amount of resources needed to completely fund the liability may be unknown. The defined contribution retirement method allows for employees to set aside a portion of their compensation that may also be matched in part by the employer. This plan relies on investment vehicles that grow and provide a rate of return to have more value than the contributions when the employee becomes eligible for the benefit. While there is more flexibility in this option, the total amount set aside is unknown and not guaranteed. Senior HR professionals are responsible for evaluating the pros and cons of these two options and for determining which method and vehicles will be used to have the needed resources to meet the retirement funding obligations of the organization. Exam tips For SPHR, understand executive compensation packages. These areas are important from an ethical and corporate responsibility standpoint, but most often HR generalists have limited interaction with these topics unless they work in this area specifically. Reviewing these sections will help trigger reminders about scenarios that might exist in larger corporations where the determination of a corporate executive pay program might exist. Understand the responsibilities associated with analyzing and evaluating compensation and benefits strategies. In addition to managing these programs, the knowledge of the roles and responsibilities when the function is distributed to third parties is also critical. The key points include the ongoing communications, notifications to employees, coverage, and compliance. Any outsourced function should reduce the burden of the HR team. You should review how programs are created out of needs that arise to address human capital demands in the company. Summary Total rewards will continue to be a core competency of senior HR professionals, but the landscape of the strategies to deliver these important services continually changes, impacted by legislation, the market, and the changing workforce population. The needs of workers should be evaluated and analyzed on a continuous basis to ensure the alignment of compensation and benefits and to meet the burden of taking care of the lifeblood of any organization—its people. For additional information on this topic, candidates for the exam should visit the Department of Labor website at www.dol.gov, the Social Security Administration at www.ssa.gov, and the Internal Revenue Service at www.irs.gov. At these websites a keyword search of the topics discussed in this guide will provide regulations, guidance, and rulings to review for a more in-depth understanding of the role these federal agencies play in compensation and benefits for employees. Tip: The SPHR® exam is now available year-round at testing centers. In the past, these exams were offered only two times per year, which meant having to adjust preparation and study time to those windows, which may not work with an HR professional’s busy schedule. Take your time in the preparation of this comprehensive exam. Review the material including the references to ensure that you have a good practical base of knowledge prior to test day.
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