978.371.0476
This is a summary of the severance section of the full 2017 Severance and Paid-Time Off: Results from the Special Survey. Forty-five companies from a variety of industries including Technology, Manufacturing, Healthcare, Education, Financial Services, Retail and more provided information on their Severance and Paid-time-off policies and practices. The survey analyzed the data using the following employee/organizational level:
To obtain the full report, please contact Tom Wilson (twilson@wilsongrouop.com) or purchase from this link: https://www.wilsongroup.com/resources/surveys-and-reports-for-purchase/
Executives tend to have an employment contract or agreement that defines their severance program.
In a 2015 Survey of Executive Severance, Meridian Partners from proxy data (http://www.meridiancp.com/insights/research/2015-study-of-executive-severance-arrangements-not-related-to-change-in-control/), reported that Named Executive Officer Severance agreements typically include:
There are a variety of approaches organizations take with severance. For determining what should be your policy, ask what does your organization believe is fair, reasonable and competitive for the type of talent you attract. The challenge is to be fair, competitive, and fiscally responsible. Find the balance.
In working with clients in the development and management of base pay programs, we may hear about or receive questions about geographic cost of living being used to determine or justify pay rates. For example, “our Stanford, CT location has a much higher cost of living than the headquarters in Billerica, MA”. This may be based on employee experience and not actual cost of living information. This demonstrates confusion about what impact the cost of living has on pay levels. In addition, annual salary increases are sometimes referred to as cost of living increases.
What is Cost of Labor?
Cost of labor is what an employer pays to attract and retain an individual with the education, experience and skills needed to do a job. This is usually based on supply and demand in that location. Compensation professionals utilize ongoing employer-completed salary surveys (compensation market data) to establish and adjust pay ranges. Therefore, what employers pay in each geographic area reflect what other employers in that area are paying. Over time, pay for jobs increase when supply is low, and demand is high. When the demand drops, and the supply is high, the pay does not increase but can decrease.
What is Cost of Living?
“Cost of living is the amount of money needed to sustain a certain level of living, including basic expenses such as housing, food, taxes and health care” (Investopedia). Over time the cost of living has both increased and decreased. However, most don’t realize that it can decrease, and many employees still expect an annual increase to “maintain the same standard of living”.
Often, cost of living is higher in major metropolitan areas than the cost of labor. The Economic Research Institute Geographic Assessor provides differentials for both cost of living and cost of labor by salary levels compared to the US average.
As an example, the following table was created from our ERI subscription of Geographic Assessor. It compares the salary rate of $75,000 between the two cities of Newport News, Virginia and San Diego, California compared to the US Average and each other. It shows that the cost of labor is about 13% more in San Diego ($84,706) than Newport News. However, the cost of living in San Diego is significantly more than Newport News or 64%. If you want to live in a city where the cost of labor and cost of living is equal, Newport News is the place to be.
It is a prevailing practice or best practice for employers to use compensation market data to establish pay ranges, differentials between locations and establish salary increase budgets, not the cost of living. In these examples above, in developing a salary range for the two cities, we would recommend a 10-15% differential for these two cities for this pay level. We would not base it on the 64% differential in the cost of living.
Continue reading
In the process of evaluating the effectiveness of sales compensation on a regular basis, sales organizations want to know how the design of their plans and practices compare to the market. These questions include:
Wilson Group covered these and many other questions in the 2014-2015 Survey of Sales Compensation Practices. An updated survey report will be available in the fall 2017.
Results of the 2014-2015 Survey
Twenty-seven public and privately-held companies participated in this survey from technology, consumer products/retail, manufacturing and insurance sectors. Two of the sales roles we looked at are Direct Sales professionals and Account Managers. Key findings from this survey include:
Overall, sales strategies are focused on increasing the number of customers/new logos and growing revenue. Companies are continually looking for ways to maintain or make their plans simple, aligned with the business needs and priorities, and effective in rewarding the desired behaviors and results. The most prevalent plan changes were to ‘improve alignment with strategy’ and ‘change performance measures’. In the survey, no company viewed the effectiveness of their sales compensation plan as “Excellent” or “Negative”. Fifty three percent rated their plans “Positive”, 27% “Neutral” and 13% “Problematic”. Seventy three percent felt their plans motivated their sales professionals either at a “great” or “moderate” level, 20% to “some extent” and 7% to a “little extent”.
In most cases, we confirmed the practice that the plan design is different between Direct Sales and Account Manager roles as follows:
Figure 1: Account Manager
Figure 2: Direct Sales
Wilson Group’s 2017-2018 survey will be available for participation in late summer 2017 and we urge you to participate. Your participation guarantees a FREE survey report just in time for 2018 planning. Review our last complete report Wilson Group Sales Comp Practices Survey Report 2014-15
If you have any questions on this topic or would like to discuss your company’s sales compensation plans… contact Susan Malanowski at smalanowski@wilsongroup.com.
What is a Compensation Philosophy? 
Does your company have a compensation philosophy? What does that even mean?! A compensation philosophy is a description of the objectives, guidelines and principles on which compensation policies, programs, systems and practices are based. It answers why a compensation program is designed or functions as it does or will in the future. It forms the foundation for making decisions and communicating them internally and externally.
It’s important to have a compensation philosophy to provide clarity and guidance to management in making decisions about: the ongoing effectiveness of programs and practices, new or unexpected situations within and outside of the organization, issues with talent acquisition and management, changes to the economic and market conditions and regulatory environment, and unusual employee situations and issues.
When consistently translated into actions through policies, programs, systems and practices and communicated to employees, it enhances employee pay satisfaction. If the philosophy statement doesn’t impact how pay programs are designed and managed, it is just rhetoric. Therefore, at its best, the compensation philosophy influences desired behaviors (and performance) of employees.
Read more about what a compensation philosophy includes…
What are some examples?
Check out these websites:
https://case.edu/finadmin/humres/compensation/compphil.html
http://www.citigroup.com/citi/investor/data/comp_phil_policy.pdf
To learn more or discuss this further, contact the Wilson Group at info@wilsongroup.com.
“Less is more” when determining the criteria or metrics to use in the plan. Plans with 3 to 5 measures can provide balance and focus. Too many measures dilute a participant’s attention and motivation.
One of the signs of too many measures is when a measure is weighted to be less than 10% in calculating the incentive. For most participants, a measure that is less than 10% adds very little to individual earnings and so they are easily ignored.
For each measure, goals are set. Goals are most effective when the manager and the employee knows when performance has been achieved, has been under achieved and over achieved and how the payouts align with those levels. Binary or yes/no goals present a significant issue for the incentive plan participant. What happens if there is over achievement or the results were actually close to the achievement or “yes” level but not quite?
Continue reading
According to a recent study by Wilson Group, Concord, MA, and Bose Corporation, New England companies are expecting modest growth in their business. Sixty-two percent (62%) of companies recently surveyed expected growth exceeding 4% in 2017; this compares to only 44% for 2016 actual growth. Plus 43% of companies surveyed are planning to increase their staffing levels and 41% are planning no change in staffing for 2015; this shows that employment is likely to remain strong in 2017 and the competition for talent will intensify.
The survey, “Compensation Planning for 2017” was conducted in November, 2016 and was sponsored by BOSE Corporation and Wilson Group. It includes survey responses from 58 leading New England companies such as TJX, iRobot, Hubspot, Mathworks, Dana-Farber Cancer Institute, New Balance, Harvard University, and DentaQuest. The survey report can be purchased here.
The jobs with the highest hiring challenges are professional level positions in Information Technology and Engineering. “This is not surprising given the knowledge based economy that characterizes the New England market” says Tom Wilson, President of Wilson Group.
Variable pay programs are becoming more common for non-exempt employees. The new FLSA regulations have clarified the impact on overtime pay and the standard threshold salary level for FLSA exemption. For non-exempt employees, any non-discretionary bonus needs to be included in their overtime pay. Plus, under the new regulation, 10% of any bonus can be included with the salary to determine whether pay exceeds the standard pay threshold of $47,476. Other factors may impact the cost and effectiveness of variable pay programs. Continue reading…
To learn more or discuss this further, contact the Wilson Group at info@wilsongroup.com.
Companies will be increasing base salaries 3% again this year. Companies are expecting greater competition for talent in 2016. So, most people will be getting a 3% raise and fewer people will receive no pay increase at all. This is just one of the findings from a recent survey report conducted by Wilson Group, Concord, MA, and sponsored by the BOSE Corporation.
The survey included data from over 50 leading companies in New England, and these companies reflect practices seen in other national and international studies. The survey was published in November, 2015, and looked back on 2015 and asked for projections for 2016.
Long-term incentives (LTI), including stock options, restricted stock, have long been a key element of total compensation plans in public companies. The principle difference between LTI plans in public versus private companies is that the funding for these long term incentive plans comes directly from the private company’s bank account. While public companies have to expense options and restricted stock, the gain that is realized is paid for by outside investors. This is not true in a private company unless the objective is to sell the company to outside investors. If the private company issues stock, and the value grows, when it is time to redeem the shares, the company pays for this directly. Therefore, the design of these LTI plans need greater care and thought than in public companies. In fact, several surveys have indicated that while virtually all public companies use equity or LTI plans, only approximately 60% of private companies use them.
So why do private companies use LTI plans? Our perspective at the Wilson Group is that, if a company can achieve the desired level of revenue and profit growth without LTI plans, then do it. It is just that simple. LTI plans are used because the firm needs a leadership team that care about the growth, sustainable profitability and long-term value of the company; the same concern of most business owners. Do you want your executives to be “hired-guns” or “adopted” into the family business? How you answer this question will tell you what kind of compensation plan you need.
Which executives should be included in an LTI plan? Most private firms start with the CEO. If this person is from the outside, then equity will likely be needed, especially if you want the person to think more like an owner than a “hired gun.” After this is in place, or if the CEO is an owner, these plans are expanded to the senior management or the leadership team. LTI plans usually stop there, but there are a number of firms that use stock options or restricted stock as performance based recognition awards to all or many employees.
In public companies stock options and restricted stock are the most prevalent vehicles for long term incentives. In private companies, the vehicle depends on the purpose and structure of the plan. These may range from 3 to 5 year cash-incentive plans (i.e., if the company gets to $X level, you will receive $Y bonus after Z years) to performance-unit or simulated-stock plans. Of course, private companies can use options or stock, but simulated equity plans can have more flexibility when it comes to performance measures, goals, and payout mechanisms. While most LTI plans in public companies use Total Shareholder Returns as the prime measure, private companies use more operational metrics like revenue growth, profitability and return. Then, the number of units awarded and their value can be determined in relation to factors that drive growth and corporate value.
Finally, a key issue for LTI plans is to determine the share of ownership or value that will be awarded to LTI plan participants. In public companies, the equity value usually represents between 10% – 20% of the company’s total outstanding shares. This is a reasonable benchmark for a private company, but because of the reasons stated above, these plans are usually of less value. If they have significantly less “expected value”, then they will not be competitive enough to retain senior leadership especially if the company grows or becomes a leader in the market. Public companies are always looking for good talent.
We find that small private companies (under $10M in revenues) tend not to use equity plans, unless they are on a direct shot to an IPO, acquisition or are a venture financing backed firm. But, as they get larger, their need for leadership talent also grows and the firm may need someone who has “done this before.” This means they will seek to bring in talent that likely had equity as part of his or her total compensation package. Consequently, private companies growing past $50M start using LTI plans more frequently. When the firm reaches over $100M or $250M, then they most likely have some form of LTI plan as described above. These plans tend to follow the evolutionary growth and development of the company.
There are over 100 decisions needed in putting together an effective long-term incentive plan for a private company. The methodology for making these decisions is almost as important as the decisions themselves. These plans bond the individual and the company for the long-term, and are based on creating value for both. So long term incentive planning is fundamentally a win-win opportunity but needs to be carefully planned and executed to realize desired LTI benefits.
Thomas B. Wilson
President, Wilson Group
According to a recent study by the Wilson Group, Concord, MA, and the Bose Corporation, New England companies are expecting modest growth in their business. Seventy-one percent (71%) of companies recently surveyed expected growth exceeding 4% in 2015; this compares to only 55% for 2014 actual growth. Plus 50% of companies surveyed are planning to increase their staffing levels and 37% are planning no change in staffing for 2015; only one company in the survey indicated they were facing layoffs or staff reductions.
The survey, “Total Compensation Planning: Review of 2014 – Projections for 2015” was conducted in November, 2014 and was sponsored by the BOSE Corporation and the Wilson Group. It includes survey responses from 57 leading New England companies such as Constant Contact, Dana-Farber Cancer Institute, Eastern Bank, iRobot, and TJX. The survey is available at the Wilson Group website (www.wilsongroup.com).
The jobs with the highest hiring challenges are professional level positions in Information Technology, Engineering, and Sales and Marketing. “This is not surprising given the knowledge based economy that characterizes New England market” says Tom Wilson, President of the Wilson Group.
“Merit pay increases are likely to be the same in 2015 as in 2014” stated Wilson. The projected pay increase averages 3.0% for both years. “But, the number of people not receiving a pay increase will be slightly higher in 2015 than 2014,” says Wilson. The report sited that 4.5% of employees didn’t receive a pay increase in 2014 and 5.0% are not likely to get one in 2015 in these companies.
Bonus plans will continue to be a major element of compensation and virtually all companies in the survey have these performance incentive plans. Over 88% of these companies reported making bonus payouts in 2014. The average payout will be a little less than the target payout, with the median payout at 90% of the planned amount. The range of payouts for most companies fell between 47% of the target and 130% of the target for exceptional performance.
“Few companies are planning any major changes to their stock/equity plans,” says Wilson. “Seventy-seven percent (77%) are planning just normal updates, and some are developing new guidelines for awards given the migration from stock options to restricted stock.” Companies are changing the performance measures with bonus plans to reflect more emphasis on revenue growth and customer satisfaction. “As the market heats up for talent, New England companies are ready to link rewards more closely to performance and to use a variety of tools to accomplish this,” concludes Wilson.