Total Reward Design for an Intergenerational Workforce - Compensation Strategies

CBIZ Human Capital Services

Total Reward Design for an Intergenerational Workforce

Introduction

• Edward R. Rataj• Managing Director, Compensation Consulting• Certified Compensation Professional (CCP)• Frequently quoted in national news publications such as

the Wall Street Journal and Smartmoney.com

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Overview

• Overview of generations• Compensation strategies for rewarding and motivating the

inter-generational workforce:– Base salary– Incentives– Benefits– Pay increases

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Why Specifically Focus on Generations?

• The workforce continues to change demographically and globally

• For the first time, we have the largest number of generations (Traditionalists, Baby Boomers, Generation X, Generation Y and Millenials) in the workplace

• Generations have varying values, motivations and perceptions of reward strategies

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One Note About Generalizations…

Importa

nt!

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Generations Born Age

Traditionalists 1930-1945 66-81

Baby Boomers 1946-1964 47-66

Gen Xers 1965-1978 33-46

Gen Yers 1979-1990 21-32

Gen Z/Millenials* 1991 & Later 20 & Younger

* New to the workforce, characteristics still being defined

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The Emerging Workforce Has Different Values*

Traditional

(1930–1945)

Boomers

(1946–1964)

Gen X

(1965–1978)

Gen Y

(Born 1979–1990)

• Conformity

• Stability

• Upward mobility

• Security

• Economic success

• Personal and social expression

• Idealism

• Health/Wellness

• Youth

• Free agency and independence

• Street smarts

• Friendship

• Cynicism

• Hope about the future

• Collaboration

• Social Activism

• Tolerance for diversity

• Family centricity

*CEO Magazine 7

Traditionalists - Characteristics66-81 years old

• Appreciate tradition and conformity; patriotic• Stability and security “You get a job…you keep a job”• Make a lasting contribution• Value appreciation for input and experience• Value financial security; thrifty• Economic success

– $1.7 trillion in buying power– 50% of discretionary income -this is changing

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Traditionalists - Communication

Face to face

Telephone

Formal

Handwritten personal note

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Baby Boomers - Characteristics

• 77 million strong!• “Work hard, pay your dues”

– First generation of “workaholics”; focused on outstanding careers

• Idealism• Grew up during times of societal change• Value personal and social expression• A sense of community and belonging• Health/wellness/youth is critical

47-66 years old

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Baby Boomers - Communication

Phone

Personal interaction

Meetings

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Gen Xers - Characteristics

• More likely to be children of divorce and/or be children of working parents – Independent; “Latch-key kids”

• Watched as parents were right-sized or down-sized and may have jaded view of loyalty to one company. – First generation of “Job-hoppers”

• Training is security – If not learning then won’t be prepared for the future.

• Thrive on responsibility, honesty, creative input• Grew up with technology, savvy with media and

information

33-46 years old

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Gen Xers - Communication

Efficient technologies

Email

Voice mail

Direct & Immediate

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Gen Y - Characteristics

• Respect accomplishments rather than authority• Goal oriented, problem solvers• Street smart and savvy• Born in the time of the “child” – praised constantly,

everyone is a winner• Great multi-taskers – been doing multiple activities their

whole life• Intent on making a difference in their communities

21-32 years old

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Gen Y - Communication

Email and voice mail

Instant messaging

Text messaging

Blogs

Tweets

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Millenials/Gen Z - Characteristics

• Just beginning to enter the workforce• Technology driven• Views communication as an instant – anytime, anywhere• Like Gen Y, are great multi-taskers – been doing multiple

activities their whole life• Exposed to classrooms and teams rich in cultural,

religious and ethnic diversity• Learned conflict-negotiation skills in school

20 and younger

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Millenials/Gen Z - Communication

Text messaging

Verbal and written communication skills may be lacking

Large social networks

No expectation of privacy

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What does this mean for total reward design?

• Base salary• Incentives• Benefits• Pay Increases

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Base Salary

• Regardless of generation, salary must be market competitive to recruit and retain talent.

Traditional

(1930–1945)

Boomers

(1946–1964)

Gen X

(1965–1978)

Gen Y

(Born 1979–1990)

• Loyalty to organization

• Internal competitiveness

• Hired guns/ mercenaries

• Accessing opportunity

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Designing a Market-Based Compensation System

• Plan and collect data• Ensure job documentation accuracy• Complete market analysis• Design pay structures• Model implementation costs• Assess internal equity• Create procedure manual• Report results

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Designing Salary Structures

Range SpreadMidpoint Differential

minim

um

midpo

int

maxim

um

Typical Structure

Designing Salary Structures

Range SpreadMidpoint Differential

minimum

midpo

int

maximum

22Midpoint Differential

minimum

midpo

int

maximum

Market Structure “Gen Y” Structure

Incentives

Traditional

(1930–1945)

Boomers

(1946–1964)

Gen X

(1965–1978)

Gen Y

(Born 1979–1990)

• Appreciation & recognition important

• Plaques, certificates, employee of the month

• Individual rewards

• Reward for results

• Team rewards

• Constant feedback

• Spot awards useful

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Incentives

• Ensure incentive programs are aligned with overall organizational objectives

• Develop line-of-site performance objectives• Consider mix of short-term and long-term awards along

with spot awards and non-monetary recognition programs

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Benefits

Traditional

(1930–1945)

Boomers

(1946–1964)

Gen X

(1965–1978)

Gen Y

(Born 1979–1990)

• Embrace defined benefit retirement programs, including social security

• Eligible for Medicare

• Make employment decisions based upon benefits offerings

• View social security as a “ponzi scheme”

• “Pay me now, I’ll take care of myself” mentality

• Prefer flexible benefit options

• Value creative and time off benefits

• More focused on salary than benefits

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Benefits

• Consider offering high-deductible plan option• Think about adding a unique benefits like veterinary care

insurance or sabbatical leave to attract and retain Gen Y• Work/life balance, flexible work environment and wellness

programs key• Consider benefits of Early Retirement Incentive Program

(ERIP) if organizational fit

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Pay Increases

Traditional

(1930–1945)

Boomers

(1946–1964)

Gen X

(1965–1978)

Gen Y

(Born 1979–1990)

• Cost of Living Adjustments (COLA) important

• Seniority and internal equity important

• Pay increases should be tied to performance

• In constant communication with friends, will share pay increase information

• Entire group may leave if perceived as unfair

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Pay Increases - Merit Matrix

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Boomer-Centric

Matrix

Performance 1 2 3 4Exceptional 3.5% 3.5% 3.0% 3.0%

Exceeds Expectation 3.0% 3.0% 3.0% 3.0%Effective 2.5% 2.5% 2.5% 2.0%

Development Needed 2.0% 2.0% 2.0% 2.0%Critical Need for Improvement 2.0% 2.0% 2.0% 2.0%

Quartile in Range

Pay Increases - Merit Matrix

Best Practice

Matrix

Performance 1 2 3 4Exceptional 6.5% 5.5% 5.0% 4.0%

Exceeds Expectation 6.0% 5.0% 4.0% 3.0%Effective 5.0% 4.0% 3.0% 2.0%

Development Needed 2.0% 1.0% 0.0% 0.0%Critical Need for Improvement 0.0% 0.0% 0.0% 0.0%

Quartile in Range

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Pay Increases - Merit Matrix

Ultra-Aggressive

Matrix

Performance 1 2 3 4Exceptional 13.0% 11.0% 5.0% 3.0%

Exceeds Expectation 11.0% 6.0% 3.0% 1.0%Effective 4.0% 0.0% 0.0% 0.0%

Development Needed 0.0% 0.0% 0.0% 0.0%Critical Need for Improvement 0.0% 0.0% 0.0% 0.0%

Quartile in Range

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Results

Model fits within budget

Typical

Matrix

Performance 1 2 3 4Exceptional 8.0% 7.0% 6.0% 5.0%

Exceeds Expectation 6.0% 5.0% 4.0% 2.5%Effective 4.5% 3.5% 3.0% 2.0%

Development Needed 2.0% 0.0% 0.0% 0.0%Critical Need for Improvement 0.0% 0.0% 0.0% 0.0%

Cost SummaryPayroll: $30,400,917 Budget $: $1,064,032

Merit Increases: $1,071,120.86 Budget as % of Payroll: 3.5%

Percent Increase: 3.5%

Cost Detail

Performance First Second Third FourthExceptional $83,979 $184,222 $88,669 $15,200

Exceeds Expectations $109,175 $158,310 $58,617 $0Meets Expectations $108,116 $191,830 $36,698 $3,650

Development Needed $32,654 $0 $0 $0Critical Need for Improvement $0 $0 $0 $0

Total Cost: $1,071,121

Employee Count Detail

Performance 1 2 3 4Exceptional 24 36 16 4

Exceeds Expectations 36 60 20 0Effective 52 96 16 4

Development Needed 36 40 20 4Critical Need for Improvement 24 32 12 4

Total Employees: 536

Quartile in Range

Quartile in Range

Quartile in Range

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Pay Increases - Merit Matrix

• Common Pitfalls– Structures out of alignment with market

• Garbage in, garbage out

• May improperly allocate limited salary increase dollars based upon the current competitiveness of pay

– Performance scores not calibrated• Supervisors can learn to game the system

• Cheating is rewarded

• Top performers may not be properly rewarded

– Matrix results outside of budget

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Summary

The intergenerational workforce brings different values, attitudes toward work, work styles, job satisfaction criteria, engagement beliefs, learning styles, expectations and levels of commitment to the workplace

Organizations that understand this and design rewards programs to meet generational needs will have the competitive edge

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Additional Considerations

• Nonprofit compensation• Executive compensation in closely held businesses• Fair pay based on race and gender• Online performance management• Sales compensation

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CBIZ CompCasts

CompCasts Nonprofit Quick Guide to Navigating Intermediate Sanctions

How to Set Pay Ranges that are Fair and Effective

Creating and Using a Salary Increase Matrix

Fair Pay: Maintaining Equality in Today’s Litigious Society

In development at: www.cbiz.com/hr/compcasts

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Questions?

Ed Rataj, CCP

Managing Director – Compensation Consulting

CBIZ Human Capital Services

(314) 692-5884

erataj@cbiz.com

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