The Future of Compensation Packages: A Q&A with John White, JD White & Associates

69INTERVIEW WITH AN EXPERT

Dr. Alice Waagen interviews compensation package expert John White, an HR consultant and owner of JD White & Associates

John D. White, Ph.D. is the president of JD White & Associates, Inc., www.jdwhite.net and has over 25 years experience in human resource management. Before starting his own consulting firm in 1995, John was vice president of human resources for BDM Federal, a government contractor and information technology company. In his consulting practice, John works with organizations to develop competitive and comprehensive Human Resource programs. His focus is to help his clients attract and retain the talented staff they need for future success.

John’s fields of expertise include: designing and implementing cost effective compensation and benefits programs; creating innovative performance appraisal and career development systems; designing strategic human resources plans; and developing effective employee communication and management training programs.

Alice Waagen: What is the biggest impact the recession has had on compensation practices?

John White: I see many challenges ahead for the business world in managing salary expectations under the reality of tight budgets. Merit increases in the past few years have hovered around 3% to 4% in the Metro DC area. This year, merit pay increases have shrunk closer to 2% and in some cases, salary budgets have been frozen and employees have received no salary increases at all. I believe that even after the economy recovers, salary budgets will continue to be tight. Since salaries are fixed costs, organizations will need to manage their salary budgets very carefully in order to remain competitive.

Alice Waagen: Do you see other approaches to compensation becoming more popular?

John White: Companies are continuing to expand their use of employee recognition programs to augment their salary budgets. These latter programs are not “fixed costs” like salaries, but instead are based on organizational, team and individual performance.

Organizations are looking for ways to reward employees and create a positive working environment without spending huge amounts of money. Employee recognition programs, especially those that use on-the-spot awards to recognize achievement, can do this. Employers typically provide items such as gift certificates, show tickets, sporting event tickets, dinners at good restaurants to provide recognition for excellent performance.

Another approach business leaders are examining is the use of more “pay at risk” or bonus pay. Bonus programs, when they are linked to organizational and individual achievement, can have a positive impact on business results and are an effective way to reward employees. However, these types of programs can be very tricky to develop and administer properly. Managers have to be adept at creating measurable and meaningful objectives so that the company is rewarding the right behavior. When poorly administered, bonus programs can actually be disincentives because they can create the perception of unfair rewards.

But given the tough economic climate and tight budgets, I do think organizations will have to try to more tightly link their allocation of compensation dollars with their actual business results.
In addition, there are other ways organizations can create a positive working environment that don’t involve compensation at all. Flexible work schedules, for example, do not increase fixed operating costs but are important to many employees seeking to achieve a healthy work/life balance.

Alice Waagen: When it comes to compensation market data, how sound is this information — especially after the unusual compensation practices that we’ve seen in this downturn?

John White: I am not sure there is a major impact here. It is true that the data collected in the downturn will reflect stagnant or even reduced salaries for certain positions. Organizations will need to be careful how they use this data in setting their compensation plans. More important than the data, perhaps, is the fact that businesses will need to think strategically about where they are setting their compensation targets in comparison to their competitors. Even though salary budgets will remain tight, some organizations may want to position themselves slightly above market so that they will be able to attract and retain key employees once the economy recovers.

Alice Waagen: Before the downturn, a number of the larger organizations were aggressively using stock and stock options as an attraction and retention tool. Has this gone away?

John White: No, it has not gone away. In fact, with the stock prices of many companies falling during the recession, stock options issued in the last year might turn out to be quite valuable over time. However, the organizations that I typically work with are more concerned with “bread and butter” compensation issues like base pay and—not to be forgotten—employee benefits.

Alice Waagen: Any parting thoughts?

John White: The real wild card in the “total compensation” equation right now is health care costs. At this point, no one knows what the legislation will look like and what the cost will be to businesses. Because of this, many organizations are now in a “wait and see” mode, not looking to make changes until the situation becomes clearer. Savvy organizations, however, are communicating to employees about the cost of the employee benefit programs.

By taking the focus away from base pay only and shifting to a more complete view of compensation (to include employees’ benefits, bonuses, recognition programs and other forms of compensation), organizations can help employees understand the complete picture and some of the trade offs that are always involved in these important decisions.

To learn more about John’s perspective on HR practices in these challenging economic times, you can check out his website at www.jdwhite.net. His latest newsletter, which addresses the coming challenge for HR once the recession is over, is available online, here.