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April 20, 2012
Compensation Trends for 2012 Revealed

Spring is in the air. As the days drift between sunny and 70 degrees to a dusting of snow covering the crocus blooms, it brings to mind the economy. One day, there is the optimism of recovering from the deep, dark winter of recession; yet summer is not fully upon us.

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In the pages of PayScale’s 2012 Survey of Compensation Best Practices, it is apparent that many companies are keenly anticipating spring. We spoke with Stacey Carroll, the firm’s Director of Professional Services. You may know her as "the voice" of PayScale, from their frequent webinars covering compensation topics. Employers are reporting that they are poised for growth in 2012, she says. “They are in a growth mode, and that means they’re looking for top talent. But the market is constantly moving and you have to be able to find up-to-date information that keeps you aware of what’s happening in the market.”

Focus moves to retention

From a broad perspective, the survey reflects positive energy in the business community as it relates to compensation. “But the optimism may also be causing a little bit of concern for HR and business leaders,” Carroll says. “As the economy recovers and businesses performance improves, there is an elevated risk to an organization from a talent management perspective, namely, retention. The focus is shifting from, ‘How do we get the best people in the door?’ to ‘How do we retain the people we have?’ And that makes a lot of sense, if you think about all the things that leave when those top-tier individuals leave your company.

“They take intellectual property and inside information about your business. So there is a shift, and it has to do with not only the notion that there are competitive jobs out there, but that we can’t afford to lose these people who know so much about what we do.”

As is so often true, this conversation is about more than money; compensation budgets are still limited, after all. No one is suggesting a return to the days of “we’ll pick up your dry cleaning and groom your dog,” as was sometimes the case during the dot-com era. “I think people realized that all those dry cleaning, dog grooming things can’t compensate for, first, a fair and market-driven base wage, and second, creative incentive compensation which rewards performance and results,” says Carroll.

Keep up with business, avoid old trends

And that’s where the emphasis is. Not only does the survey reveal a dearth of companies rewarding based on continued ability to fog a mirror, but more CEOs (50+%) are involved in compensation budget decisions than have been in the past. “That’s good and bad for HR professionals,” Carroll says.

“On one hand, we’re always saying compensation is not simply an HR program. It’s about making smart business decisions that move your company forward. So it’s a good thing for us to see so much engagement from the CEO level. I think the challenge, though, is to figure out how to balance the decision-making by the CEO with executing on smart compensation plan design elements, which tend to be the expertise of the HR professionals.

“It is almost a necessity for us all to get on the same page about what we’re going to do relative to compensation, not only to make sure we’re competitive and driving the business forward, but that we’re doing it in a way that’s going to be successful in terms of overall design.”

The bottom line? Mirror-foggers can no longer expect an annual increase, Carroll continues. “One of the survey’s findings is the number of organizations (69%) that are doing away with cost of living increases as the primary reason for giving adjustments. That’s a very old-school idea that appears from the survey to be going away. That’s a shift in the way people are thinking about compensation. Instead of simply staying with the employer and getting a raise for it, the survey seems to validate that there is a strong push towards performance acquisition and/or skills acquisition. You can make more money if you’re promotable.”

“Companies need to recognize that the talent war is in full force,” Carroll says. “This notion that you can do what you’ve always done is just over. If you’re going to be on the front lines of making sure you’re winning that war for talent — which most people will argue is the only way to win the overall goal of making your company successful — you must ensure that you are moving as quickly as your business does.

“That means you need to have a talent management strategy that aligns with your business priorities, that you’re rewarding the talent in a way that recognizes results and the actions you need to see from your employees, and that you’re not sitting back and assuming you can get by on just doing things the same old way you’ve been doing them.”

More than money

Money alone isn’t enough to make your company “sticky” for employees, Carroll says. Challenges and opportunities for growth make employees want to stay. “It is harder now, because of the economy, for companies to just throw more money at folks. Think about the tech space: Microsoft is losing talent to Google or Facebook, because there are new and creative things going on there. So if you’re a company that’s innovative and doing new and cool stuff, that’s going to draw top talent. I think organizations need to recognize that paying a competitive wage is part of the equation, but looking at their overall work environment and the opportunity to be involved in meaningful, innovative work is really important, as well.”

Fresh data, fresh planning

This means you can’t rely on old data when you’re deciding how much to pay people. In fact, Carroll recommends that one of the very basics of compensation planning needs an update: the once-a-year planning session. “Companies now need to be very aware of what’s happening with regard to business and compensation. As the economy has recovered, so have hiring plans.

“Based on this report, most organizations are looking to grow. People are looking for top talent to make it happen. That means the market is constantly moving, and you’ve got to be able to find up-to-date information that keeps you aware of what’s happening in the market. A salary survey from 2010 is pretty much worth the paper it’s printed on. We need to change from the once-a-year compensation conversation to making sure that compensation is an integral part of our talent management strategy, which is an integral part of our business strategy.

“We’ve been hearing a lot lately that HR people need to be business-savvy. That’s true, because if you have an HR person trying to create a compensation plan and using outdated data, doing the compensation planning the same old way, using the same resources they’ve always used, you won’t get the results you need. The old school way was to have everyone doing things the same way, making sure nobody is coloring outside the lines. The new way is to color outside the lines, figure out how to be the best, how to be smarter, better, faster than everybody else. And that includes things like how you design your compensation plans and what data resources you have access to, and how you keep track of the market.

“In so many parts of business, and this is mentioned in the report, you don’t sit down once a year and set a plan. Business moves quicker than that now. Yet the traditional practice in HR, especially compensation, is to sit down once a year and decide what you’re going to do. But in reality, compensation, like any other business process, is a dynamic thing. We’ve got to stay abreast of what’s happening. As fast as your business is moving is as fast as your talent and compensation plans should be moving.”

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