Home / Archive / Salaries That Satisfy
Saturday, February 04, 2012
Feature: April 2006
Salaries That Satisfy
Attracting and retaining employees without breaking the company piggy bank
Story by Michael P. Scott
A few short years ago, experts proclaimed the Capital Region the next job Mecca. They said talented professionals would migrate to the area for career opportunities, the favorable housing market and an environment amenable to balancing work and family.
In his book “The Rise of the Creative Class,” Richard Florida, a professor at the George Mason University School of Public Policy, predicted a demographic shift to regions that offer a wealth of creative talent, tolerance of differences, and a great quality of life.
Places like the Sacramento region, he predicted, would be hotbeds for what he referred to as the creative class — scientists, artists, bohemians, managers and other professionals who, according to Florida’s studies, comprise more than 30 percent of the U.S. workforce and take home nearly half of the nation’s wage and salary income.
True to form, the Sacramento area was recently listed by Florida and his researchers as one of 10 U.S. hubs for creative workers. And according to a U.S. Census estimate, Sacramento is the fifth most popular city for new-resident arrivals.
In response, many employers are rethinking their approach to compensation as competition in the area stiffens among employers for the cream of the crop. Business executives are becoming increasingly aware of the fact that their banks, consulting firms, technology companies and other organizations are competing on a local and regional scale with areas like San Francisco, which pays some of the highest rates in the country.
The war for talent has even become global. The University of California, Davis Medical Center, for example, vies with Dublin, Helsinki and Bangalore for top scientists, physicians and researchers.
But many area employers have been slow to embrace major increases in base pay, instead looking to bonuses, incentives and indirect forms of compensation to address growing demands for higher pay.
According to a survey by Hewitt Associates of more than 1,000 U.S. employers, the average increase in base salaries nationwide will be 3.6 percent in 2006, an increase many economists assert will barely allow the average American to keep up with cost-of-living increases.
This same study also found that 78 percent of companies plan to offer variable pay in 2006. Variable pay, defined as compensation based in part on a company’s or department’s performance, includes cash awards, bonuses, gifts and non-monetary recognition.
“We are seeing growing numbers of employers moving to alternative forms of compensation, including the use of non-monetary incentive awards,” says Terry Purvis of the Terry M. Purvis Co., an executive-recruiting firm located in Roseville.
“This in part represents a concern among companies that their employees will become ripe picking for competitors if they are unable to maintain competitive wages as the employment market heats up,” says Purvis.
As the Capital Region continues to see an influx of talent, businesses are facing pressures to offer richer pay and benefits packages, especially to professionals in specialized fields. Bay Area transplants who expect their pay to be commensurate with their prior earnings also spell challenges for human resources professionals.
There are strong indicators, however, of regional wage growth. According to recent federal statistics, Sacramento County’s labor force, the 10th highest-paid among California counties, earns an average of $816 in weekly wages.
Sacramento and its surrounding counties trail the statewide average of $849, however, a figure highly influenced by some of the nation’s highest wages in Bay Area counties. With San Francisco coming in at a whopping $1,162 average in weekly wages, many Capital Region entrants from the Bay Area are overlooking local opportunities and choosing instead to commute to more lucrative jobs in the big city.
“It is quite clear that the Sacramento area employment market is going through a major shift, largely as a result of the huge migration of professionals from the Bay Area as well as the area’s economic diversification from its traditional roots as a government town,” says Toosje Koll, managing director for the Roseville office of Resources Global Professionals, an international professional-services firm.
“Employers need to remind employees
that compensation extends beyond their checks.”
— Toosje Koll, Sacramento managing director, Resources Global Professionals
“The conflict for many Bay Area transplants is that, while the Capital Region offers lower housing costs and greater opportunities for balancing work and family,” says Koll, “salary levels still remain a barrier for many who attempt to find jobs here.”
Those moving to the area include a significant number of baby boomers, who bring a unique set of values regarding the workplace and compensation. Boomers, born between 1946 and 1964, represent 28 percent of the U.S. population.
“The challenge that many companies face in this new economy is creating innovative compensation programs that not only attract boomers to their place of employment, but encourage them to stay,” says Rebecca Regan of Rebecca Regan & Associates, a human resources consulting practice.
“The current dynamics of the area make for a tough environment over the long haul,” says Regan, “because as the economy continues to improve, boomers will view this as an opportunity to change jobs.”
Total compensation, which includes base pay, wage incentives and indirect compensation and benefits, represents approximately 50 to 60 percent of total operating costs. Human resources professionals are charged with managing these costs while ensuring that the wage and benefit package offered to their workforce is competitive.
Healthcare, one of the Capital Region’s fastest-growing fields, provides an example of the compensation challenges employers face.
As a result of huge demands for highly trained nursing, physical therapy, respiratory therapy and medical laboratory staff, area hospitals’ and medical centers’ wage and benefit costs are soaring, often with very little appreciable impact on staff-vacancy rates.
“While compensation is just one factor in many that affects our business, it is an extremely important one because of our ongoing need to attract skilled staff in an extremely competitive wage market,” says Kathleen Noble, senior human resources director for Catholic Healthcare West, which has several hospitals throughout the region.
Due to shortages of key professionals, especially nurses, many hospitals are going to extraordinary lengths in their compensation practices, offering, in some cases, sign-on bonuses of up to $10,000.
“Because these bonuses have the effect of hospitals jockeying with one another to offer the highest incentives,” says Noble, “we made the decision at CHW to move away from these and instead focus on offering our current employees bonuses for sending qualified talent our way.”
Koll of Resource Global Professionals believes these competitive pressures are further indication of the need for companies to view human resources as an equal partner at the senior-management table. Well-tuned human resources professionals can play a critical role in assessing equity, controlling labor costs and addressing human-capital needs.
“There is no doubt that organizations need to explore ways for building the type of HR infrastructure that allows them to attract the best and the brightest,” says Koll. “This requires human resources’ presence at the executive level.”
She says companies must regularly conduct compensation surveys to assess their competitiveness because today’s employees, through the Internet and other avenues, are much more aware than they were in the past of wages at other area employers. Most importantly, Koll says, is a clear articulation of compensation philosophy to all staff.
“Employers need to do a better job of reminding their employees that total compensation extends beyond the net amount of their check and includes their various benefits as well as any other indirect forms of compensation,” says Koll.
Catholic Healthcare West, one of many healthcare systems facing stiff competition for top-flight staff, shares Koll’s faith in monitoring what the competition pays. “We participate in formalized blind salary surveys through various groups that are monitoring these trends to see where we stand in relation to other healthcare organizations,” says Noble.
Communication is often overlooked as an effective employer response to compensation questions. Experts argue that, beyond having a compensation policy in place, special attention needs to be given to how the policy is laid out to employees. Growing media attention around the rich compensation packages given to many senior-level executives further supports the need for keeping open the lines of communication regarding compensation.
“Communication is a valuable tool for bridging the us-versus-them philosophy among employees who view executive compensation as being excessive,” says Koll.
“We are already seeing a movement towards linking compensation
to performance.”
— Greg Van Ness, Northern California managing director, Acordia
Fixed pay is the traditional way most companies view compensation, largely because it is predictable and reduces risk to both employer and employee. Area employers, however, are beginning to promote total compensation, which includes variable pay incentives, benefits such as health insurance and 401ks, and non-cash perks such as club memberships and vacation packages. Much of this shift has been driven by the struggle on the part of employers to remain competitive while addressing compensation and benefit costs.
As the Northern California managing director for Acordia, the largest employee-benefits operation in this region, Greg Van Ness has seen a continued evolution in employee compensation.
“While compensation is frequently not the primary reason that employees join a company or leave one,” says Van Ness, “companies are realizing that how employees experience their pay and benefits package is vital.”
He also says the expense of maintaining these programs is of great concern to employers. “It will be interesting to see how employers respond to the growing costs of benefits and other areas of their compensation program.
“We are already seeing a movement by many companies towards programs which link compensation to performance,” he says. “Many are also passing on the costs of benefits to employees and putting the purchasing decisions in their hands.”
A consumer-driven philosophy that employs the use of health savings and reimbursement accounts seems popular these days, as do bonuses and stock-option packages, although the latter have been significantly complicated by oversight requirements enacted as part of Sarbanes-Oxley legislation.
“Internal controls associated with Sarbanes have placed a number of restrictions on public as well as some private employers with respect to their compensation practices,” says Van Ness.
“In particular,” he says, “businesses are reducing their use of stock options to compensate employees due to the enormous expenses they can incur in assessing the value of stock options as well as how they are accounted for and dispersed.”
As the Capital Region continues to grow popular among upwardly mobile professionals, area organizations will experience mounting pressure to ensure that their salary and benefit levels are on par with other employers’ pay levels.
The challenge for business leaders and their human resources executives is selecting equitable pay policies and practices that take skill and performance into consideration.
“Companies are having to become much more astute about what’s happening in the HR arena, particularly as it relates to having to provide competitive compensation for top talent,” says Koll.
“This simply comes with the territory in an area like Sacramento,” she says, “whose labor market is experiencing such enormous changes. It’s clear to me that employers are going to have to get used to these new realities, because I don’t see them abating anytime soon.”
