Category Archives: compensation

Philly Bans Salary Questions

Philadelphia, well known as this country’s Cradle of Liberty, may soon become known as a Grave of Salary Questions.

According to this Associated Press report, Philadelphia has joined other cities and municipalities that have banned employers from asking potential hires to provide their salary history, a move supporters say is a step toward closing the wage gap between men and women.

(The story notes that similar salary history bans have been introduced in New Jersey, and the city councils of New York City and Pittsburgh as well as the District of Columbia. In November, New York City stopped asking applicants for municipal jobs what they currently earn, and earlier this month Democratic New York Gov. Andrew Cuomo signed an executive order banning state entities from asking about pay history. Democrat Eleanor Holmes Norton, the District of Columbia’s delegate to Congress, has sponsored similar legislation in Congress.)

Mayor Jim Kenney (Democrat) signed the measure on Monday, and said he’s confident the bill can withstand legal challenges, likely led by Philadelphia-based Comcast.

“I know that Comcast and the business community are committed to ending wage discrimination, and I’m hopeful that moving forward we can have a better partnership on this and other issues of concern to business owners and their employees,” he said. “This doesn’t need to be an either/or argument — what is good for the people of Philadelphia is good for business, too.”

However, the report notes, Comcast and the Chamber of Commerce see the bill as yet another roadblock to Philadelphia-based businesses:

“The wage equity ordinance as written is an overly broad impediment to businesses seeking to grow their workforce in the City of Philadelphia,” Rob Wonderling, president and CEO of the Philadelphia Chamber of Commerce, wrote in an opinion piece to a city business journal this month, adding it “infringes upon an employer’s ability to gain important information during the hiring process.”

Comcast had urged the mayor to veto the bill or face legal challenges, according to a legal memo obtained by The Philadelphia Inquirer earlier this month. The memo said the law would violate employers’ First Amendment rights to ask potential hires about their salary history.

Comcast referred questions to the Chamber of Commerce for AP’s story.

 

 

Pay Equity for Lower Ranks Only

We’ve been focusing, along with the rest of the media, on gender pay equity and wage gaps for some time now. (Witness searches on  this HRE Daily site and our magazine website, HREOnline.com, alone.)

But this latest study from the Academy of Management that’s going into the February issue of the Academy of Management Journal shows something we’ve never reported on: the fact that women managers foster pay equity between the genders, but only for low-ranking employees.

The study, based on actual manager-subordinate reporting relationships in 120 branches of a large U.S. bank, takes into account two different approaches to combatting pay inequity. One consists of pay formalization, which seeks to minimize personal biases by mandating the use of detailed written rules to determine compensation. The other, less formalized approach, looks to the increasing number of female managers in the workforce, and the power they wield to set pay.

According to an email I received on the study:

“… both formalized and less formalized approaches to pay equity come into play in each locale, with employee annual bonuses being awarded on a highly formalized basis but branch managers, almost half of them women, having considerable leeway in determining employees’ base salaries. Thus, [researchers had] a rare opportunity to compare the efficacy of formalized and less formalized approaches in achieving pay equity between men and women workers — specifically, how this is affected by manager gender.

“Unsurprisingly, the paper finds little or no gender gap in the formalized segment of pay — that is, in the amount of annual bonuses, standards for which are spelled out in detail by the company. In contrast, there was significant gender inequality in the less formalized component of pay, base salaries, which constituted the lion’s share of compensation, with greater imbalance occurring on average under male managers than under women.”

Yet, in the words of the study,

“Concluding that female managers redress inequality is incomplete because once organizational level is taken into account, it becomes evident that female managers only reduce inequality for employees at the lowest-level organizational position of teller.”

So … as the study paints it, controlling for a host of relevant factors, female tellers in branches headed by women had base salaries that were about the same as those of male tellers; yet, female tellers in branches headed by men had base salaries about 7.5 percent less than male tellers.

In sharp contrast, women’s wages for all other positions ranged from 4 percent to 13 percent less than those of men holding the same job, regardless of whether the branch was headed by a man or a woman.

What accounts for the fact that women branch managers eliminated the gender pay gap for female tellers but not for higher-status female employees? Does this confirm the “queen bee” effect, which contends that women who have been successful in male-dominated contexts try to keep other women from getting ahead? Mabel Abraham of the Columbia University Business School, the study’s researcher and author, answered this for me:

“Any suggestion that this is a queen-bee phenomenon would be purely speculative. It just as likely is a matter of women showing an extra measurer of concern for lower-income workers. The value of the research lies elsewhere — in highlighting a nuanced approach for organizations in striving for gender pay equity.”

What are employers and their HR leaders supposed to do with this new information? In Abraham’s opinion:

“In order to develop appropriate strategies for reducing gender pay inequality, organizations must concurrently consider the potential role of both female managers and the level of the employee they oversee.”

Millennials Earn Less Than Boomers

As if young workers weren’t already  feeling  cursed on this Friday the 13th, here is more fodder for the Millennial Misery file (via the Associated Press and USA Today):

With a median household income of $40,581, millennials earn 20 percent less than boomers did at the same stage of life, despite being better educated, according to a new analysis of Federal Reserve data by the advocacy group Young Invincibles.

According to USA Today’s piece, the analysis of the Fed data shows the extent of the decline in outlook for millennials. It compared 25 to 34 year-olds in 2013, the most recent year available, to the same age group in 1989 after adjusting for inflation.

While education does help boost incomes, the median college-educated millennial with student debt is only earning slightly more than a baby boomer without a degree did in 1989.

The home ownership rate for this age group dipped to 43 percent from 46 percent in 1989, although the rate has improved for millennials with a college degree relative to boomers.

The median net worth of millennials is $10,090, 56 percent less than it was for boomers.

The analysis, the story notes, fits into a broader pattern of diminished opportunity.

Research last year by economists led by Stanford University’s Raj Chetty found that people born in 1950 had a 79 percent chance of making more money than their parents. That figure steadily slipped over the past several decades, such that those born in 1980 had just a 50 percent chance of out-earning their parents.

What’s even more troubling, though, is that the millennial malaise could be a portent of more economic worries:

The declining fortunes of millennials could impact boomers who are retired or on the cusp of retirement. Payroll taxes from millennials helps to finance the Social Security and Medicare benefits that many boomers receive — programs that Trump has said won’t be subject to spending cuts. And those same boomers will need younger generations to buy their homes and invest in the financial markets to protect their own savings.

“The challenges that young adults face today could forecast the challenges that we see down the road,” said Tom Allison, deputy policy and research director at Young Invincibles.

Gaming the Gainsharing System

This is just a guess, but I’m going to say the mood throughout Whole Foods break rooms is less than festive this holiday season.

And if the claims made in a new lawsuit prove to be true, you couldn’t really blame the grocery store chain’s employees for not getting into the spirit this year.

Last week, one current and one former employee from a Whole Foods store in Washington, D.C. filed a federal class-action lawsuit claiming the Austin, Texas-based company “engaged in a nationwide scheme to strip hard-working employees of earned bonuses in order to maximize [its] own profit.”

More specifically, plaintiffs Michael Molock and Randal Kuczor assert that a group of managers gamed Whole Foods’ gainsharing program to avoid paying automatic bonuses to departments that came in under budget for the year, as reported by the Washington Post.

According to the lawsuit, the gainsharing program is intended to enable employees in such departments to share in surpluses. The plaintiffs claim, however, that Whole Foods avoided paying by shifting labor costs to other departments without properly accounting for it, as well as by creating “fast teams” comprised of employees who float from one department to another.

The complaint also alleges that company executives knew of the “illicit practice of shifting costs,” which the suit says has impacted as many as 20,000 past and present Whole Foods employees.

In a statement, Whole Foods acknowledges that some sort of bonus program manipulation took place, while maintaining that it was confined to a relatively small number of its stores. Nevertheless, Whole Foods says it is investigating the matter. And, as the Post reports, the organization has already terminated the nine managers known to have been involved.

The plaintiffs are asking for more than to see a few managers fired. The suit seeks $200 million in punitive damages and triple unpaid wages, among other relief, according to the Post.

“Defendants intentionally manipulated the program and illicitly engaged in a nationwide corporate practice of ‘shifting labor costs’ in order to pad its profits,” the suit claims, alleging that this “unlawful” maneuvering effectively wiped out surpluses in certain departments, “thereby robbing hard-working employees of earned bonuses.”

Holiday Bonuses Up This Year

the best gift- money. Gifts on wooden background.The holidays will bring a little extra cheer for many workers this season, with two thirds (66 percent) of companies planning to award year-end bonuses and gifts, according to a survey from Challenger, Gray & Christmas. That’s up from 50 percent from Challenger’s 2015 holiday bonus survey.

Another survey, this one from recruiting firm Accounting Principles, finds that 75 percent of companies will award bonuses this year. Thirteen percent of companies will provide bonuses of between $1 and $99, 37 percent  between $100 and $499, 21 percent will provide between $500 and $899, and 29 percent will be awarding their lucky employees $1,000 or more.

Credit the steadily improving economy for the rise in bonuses, says Challenger, Gray & Christmas CEO John Challenger. “As [the economy] continues to improve, employers will have to rely increasingly on bonuses and other perks to hold onto valuable employees,” he said in a statement.

Full results of the Challenger survey below:

Does your company award year-end/holiday bonus, perks or gifts to employees? (Check all that apply)

2016 2015
Yes, we provide a non-monetary gift to all employees (such as gift basket or extra vacation day). 14.8% 6.3%
Yes, we award a nominal ($100 or less) monetary award to all employees (cash or gift certificate). 11.1% 12.5%
We award a monetary bonus to all employees, the size of which is determined by the company’s overall performance throughout the year. 18.5% 18.8%
We award a performance-based year-end bonus to selected employees, the amount of which is determined by individual’s contribution to departmental and/or company-wide objectives. 22.2% 37.5%
No, we do not award any type of year-end/holiday monetary or non-monetary bonus/perk/gift. 29.6% 43.8%
No, we have awarded year-end/holiday bonuses in the past, but we will not be doing so this year due to the economy. 0.0% 0.0%
Other 3.7% 6.3%

 

If your company does award year-end/holiday bonus, perks or gifts to employees, please describe how this year’s distribution differs from last year.

2016
The monetary value of the year-end bonus will increase. 18.2%
The monetary value of the year-end bonus will decrease. 9.1%
The monetary value of the year-end bonus will be about the same as last year. 72.7%
We are reinstituting year-end bonus/perk/gift after one or more years of not offering such awards. 0.0%

 

Source: Challenger, Gray & Christmas, Inc. ©

A Surcharge on CEO Pay

In case you missed it, the city council in Portland, Ore., voted last week to impose a surtax on companies whose chief executives earn more than 100 times the median pay of their rank-and-file workers beginning next year.

According to the New York Times piece, the legislation is ground-breaking:

The surcharge, which Portland officials said is the first in the nation linked to chief executives’ pay, would be added to the city’s business tax for those companies that exceed the pay threshold. Currently, roughly 550 companies that generate significant income on sales in Portland pay the business tax.

According to the Times piece, companies must pay an additional 10 percent in taxes if their chief executives receive compensation greater than 100 times the median pay of all their employees, and organizations with pay ratios greater than 250 times the median will face a 25 percent surcharge.

This new surcharge comes along just as companies are preparing to comply with the Security and Exchange Commission’s pay-ratio disclosure rules under the Dodd-Frank Act.

“Portland’s effort to impose pay ratio penalties would raise new issues for public companies already working to comply with the SEC’s pay ratio disclosure rules,” said Mike Stevens, a partner in Alston & Bird’s employee benefits and executive compensation group, shortly before the Portland City Council voted on the matter.

“As companies look to address the mechanics of the pay-ratio rules and prepare early disclosure models,” he said, “it’s important to understand that the SEC has given companies broad leeway in calculating these ratios. If Portland or other jurisdictions decide they are going to impose a penalty based on ratios, we  can expect that companies will take a hard look at the available alternatives and likely will become more aggressive with their method of calculation.”

 

 

Benchmarking and Executive Comp

Executive-pay packages often don’t include a comparison of company performance and its competitors are regularly approved by boards of directors, and many have wondered why.

New research by University of Michigan professor Martin Schmalz and co-authors Miguel Anton and Mireia Gine of the IESE Business School and Florian Ederer of the Yale School of Management helps explain why—and why benchmarking happens more in some industries than in others.

They found that when companies in an industry are owned by the same shareholders, the executives tend to be rewarded relatively more for industry performance and less for their own company’s performance.

“Many people have been puzzled why shareholders approve pay packages that lead to high pay without much benchmarking,” said Schmalz, the NBD Bancorp Assistant Professor of Business Administration and an assistant professor of finance. “But it’s actually not that puzzling once you analyze these shareholders’ economic incentives.”

Schmalz, Anton, Ederer and Gine examined 20 years’ worth of data from ExecuComp, which measures the compensation of top executives of the largest 2,000 U.S. companies.

The more a company’s institutional shareholders own big stakes in rival companies, the less pay managers receive for company performance and the more pay they receive in response to rivals’ performance.

The logic is easy to understand, the author contends:

If you benchmark performance against rival companies, that gives managers an incentive to compete aggressively. If you own a number of companies in the same industry, you don’t want that to happen,” Schmalz said. “If anything, you want them to cooperate more, because you want to improve the value of your entire portfolio, not just one company. Our findings suggest managerial contracts give managers economic reasons to act in their shareholders’ interests—it’s as simple as that.

What Drives Retention Rates?

Around the world, pay matters most to workers. But other factors that keep them loyal vary quite a lot, a new study finds. And they’re changing as the nature of work evolves.

The results are part of the 2016 Global Talent Management and Rewards Survey by Willis Towers Watson. Every other year the company surveys workers around the globe to see what rewards and conditions keep them happy or attract them to new jobs.

This year’s survey, conducted in April and May, included 31,000 employees in 29 markets. In studying retention factors, the London-based consulting firm ranked eight countries, including the United States. (See the full results at the bottom of this post.)

Pay was the top priority in each, says Laura Sejen, managing director for talent and rewards at Willis Towers Watson.  After that, the No. 2 retention driver in most countries, including the U.S., was career advancement opportunities.

For multinational companies, those two factors are fundamental to attracting and retaining workers, Sejen says. Workers want clear expectations not only for their current job, but also for what they need to move up.

For a global employer, “If I could only do two things right, I would focus on those,” Sejen says.

Career advancement opportunities wasn’t the No. 2 retention driver everywhere, however. In China it was the physical work environment. In Brazil it was the length of the commute. In India it was job security.

Sejen notes that work environment has been moving up in the list of priorities globally. She thinks longer hours and a trend toward open offices and shared workspaces may have increased employee awareness of the physical environment as a factor in their job satisfaction.

“That, I think, is just a reflection of how the work environment has changed,” Sejen says. “It’s important. We spend a lot of time at work.”

Among the eight countries studied, job security was No. 2 only in India. But it’s slowly rising in importance around the world, Sejen says.

How workers define job security varies, however. Few workers expect a job for life. But many worry about losing financial security, and others worry about their jobs changing.

Sometimes mundane local conditions like traffic congestion influence the rankings. It makes sense that commute times would be important in Brazil, because cities there tend to be dense, sprawling and challenging to navigate, Sejen notes. “If you’ve ever been to Sao Paulo, you can appreciate that.”

Retention drivers Globally Brazil Canada China Germany India Mexico U.K. U.S.
Base pay/salary 1 1 1 1 1 1 1 1 1
Career advancement opportunities 2 3 2 3 2 3 2 2 2
Physical work environment 3 4 2 5 3
Job security 4 7 3 3 2 6 3 3
Work-related stress 5 6 4 5 6 7
Trust in senior leadership 6 5 4 4
Relationship with supervisor 7 5 7 7 6 7
Length of commute 2 4 4 4 5 6
Retirement benefits 6 6 4 5
Flexible work environments 5
Challenging work 6
Opportunity to learn new skills 7 7 7 5
Source: 2016 Global Talent Management and Rewards Survey by Willis Towers Watson

So Long, Salary History Questions?

It’s a topic that has made many an interviewee squirm. When asked to discuss compensation history, it’s only natural for job candidates to worry about either pricing themselves out of the market or setting the salary bar too low.

Depending on what happens when Congress returns from summer recess, job candidates may never have to answer uncomfortable salary history-related questions again.

Late last week, a trio of lawmakers announced that they planned to introduce a bill that would prohibit employers from asking job applicants for their salary history before making a job or salary offer.

These legislators, however, have loftier aspirations than just making the interview process a little less awkward for job seekers.

Congresswoman Eleanor Holmes Norton, along with Representatives Rosa DeLauro (D-CT) and Jerrold Nadler (D-NY), will introduce the bill, which “seeks to eliminate the wage gap that women and people of color often encounter,” according to a statement announcing the bill.

“Because many employers set wages based on an applicant’s previous salary, workers from historically disadvantaged groups often start out behind their white male counterparts in salary negotiations and never catch up.”

Ultimately, “the only way to make sure women and minorities will be treated equally is to remove the early biases that exist, both in hiring practices and salary negotiations, and our bill works to eliminate those obstacles by requiring employers to offer salaries based on the value of the work,” said Congressman Nadler, in the aforementioned statement. “Employers can and should hire good employees without taking into account prior pay history or condemning someone to depressed wages due to gender and racial inequity.”

The Washington Post calls the bill “the latest sign that efforts to dump the dreaded [salary history] question could be gaining momentum.”

In August, for example, Massachusetts Governor Charlie Baker signed an equal pay bill—passed unanimously by both of the state’s legislative branches—forbidding employers from asking about salary history until a job offer was extended.

Meanwhile, an amendment to California’s Fair Pay Act went into effect at the beginning of 2016 that would bar companies from basing compensation decisions on prior salaries alone, according to the Post.

Such recent examples aside, the new bill’s prospects for passage aren’t great, the paper notes, pointing out that bills attempting to legislate equal pay have been introduced in every Congress since 1997, to no avail.

That doesn’t mean, however, that the legislation is dead on arrival, as Fatima Goss Graves, senior vice president at the National Women’s Law Center, told the Post.

“People can see the connection of the deep unfairness of carrying past discrimination with you to job after job,” Graves told the paper, noting that the support the Massachusetts business community has shown since the state banned salary-related questions could have a mobilizing effect.

“When states show that something is possible,” says Graves, “that’s extremely reinforcing.”

The Motherhood Tax at Work

New research out of the United Kingdom shows the gender-pay gap widens significantly after the birth of a child, otherwise known as the “motherhood tax.”

According to a new report from the Institute for Fiscal Studies, 12 years after giving birth for the first time, women are making 33 percent less per hour than men.

On average, women in work receive about 18 percent less per hour than men, down from 23 percent in 2003.

While the wider gap for mothers is not because women see an immediate cut in hourly pay after childbirth.

Possible explanations include mothers missing out on promotions or accumulating less labor market experience, the authors said.

“Comparing women who had the same hourly wage before leaving paid work, wages when they return are on average 2 percent lower for each year spent out of paid work in the interim,” the IFS wrote.

(Tip of the hat to CNN Money.)