Aligning Pay to Your Audience : Millennials to Boomers

Transcription

1 Aligning Pay to Your Audience : Millennials to Boomers

2 We re happy to provide a copy of today s slides. Information will be provided at the close of the presentation. To open or close the control panel: Click the red arrow For questions during today s presentation: Use the question area on your control panel Q: Are the slides available? A: Yes, more info will be provided at the end Webinar

3 Today s Presenter: Joe Miller Senior Consultant (949) jmiller@vladvisors.com 7700 Irvine Center Drive Suite 930 Irvine, CA

4 Special Opportunity Announced at end of Broadcast.

5 Special Offer One hour consulting call with a VisionLink principal at no charge Indicate interest on final survey 5

6 Founded in 1996 Over 450 Clients in North America Focus: Compensation design and management that drives growth 6

7 Changing World Today s world has changed dramatically from yesteryear In the past emphasis was placed on simplicity, consistency, and predictability My grandfather: Born in the same house he died in Worked the same job his entire life Today we value Diversity of Options 7

8 What Has Changed? People have different priorities than they used to More value on creativity, personal expression, and individuality than ever before People do not want to be broadly defined by yesterday Economy has tried to keep pace with this trend 8

9 When I was a kid Shoes differed largely by Size Color Red White Black 9

10 Today s Options Are Limitless 10

11 21 st Century Rewards Have your rewards programs kept pace with the changing economy? To win the talent wars, you will need pay programs that help attract, reward, and retain your employees Are your compensation programs designed to target key employee demographics? 11

12 Blanket Generalization Baby Boomers Born between Generation X Born between Millennials Born in the 1980 s and 1990 s Demographic identities are extremely influenced by the world they grew up in Disclaimer: I will be intentionally painting employee demographics with one overly-broad brush. These statements will not hold true for all individuals in these three general classifications. This overgeneralization is intended to provide directional guidance on pay for these subgroups. 12

13 Baby Boomers 13

14 Baby Boomers Raised by World War II Survivors Parents worked in manufacturing, agriculture, or retail jobs Encouraged to attend Universities (premium) Focused on having fewer/longer term roles within organizations Dominate senior leadership roles Understand the increased cost of health care Typically eyeing retirement Many retired early and have rejoined the job force 14

15 Boomer Pay Profile Profile Base Pay Short-Term Incentives Long-Term Incentives Core Benefits Retirement Boomer Low Moderate High High High Not buying new houses or new cars (Low Salary Fixed Costs) Does appreciate some short-term wins (higher upside potential) Concerned about medical care (Core Bens) Wants long-term security (Long-Term Incentives) If available, highly value strong retirement Qualified retirement not as enticing as Non-Qualified Deferred Comp over 401k 15

16 Generation X 16

17 Generation X MTV generation/latchkey generation Two parents in the workforce First to have access to home computers College/university was strongly encouraged Incorrectly labeled as slackers by preceding generations Strong entrepreneurship mindset More likely to be 1099 than other gens Married Later/Fewer kids Took a few jobs to get comfortable Professional and Mid-Manager jobs 17

18 Gen X Pay Profile Profile Base Pay Short-Term Incentives Long-Term Incentives Core Benefits Retirement Gen X Moderate High High Moderate Moderate Has mortgage and kids secure guaranteed pay Values disposable income Family Vacations, Pools, Etc. Has children and moderately concerned about health care Starting to think about retirement/saving Contributing to 401(k) Has friends who have cashed in on big career opportunities Interested in long-term incentives (Equity or Phantom Stock) 18

19 Generation Y 19

20 Millennials Grew up with technology in the house (home computers, internet, cell phones) Values teamwork, ingenuity, and creativity Was told that college/university was a necessity Many struggled to get jobs after graduation Many prevailing myths Not all living in Mom s basement Starting to have families More likely to stay in the same job as previously assumed Seeks partnership instead of traditional employer/employee relationship 20

21 Millennial Pay Profile Profile Base Pay Short-Term Incentives Long-Term Incentives Core Benefits Retirement Millennial High High Low Moderate Low Had a difficult time getting a job out of college First job was low paying or beneath their qualifications Values high salary as a sign of success Just starting to have children values health care Not strongly interested in retirement Knows how to modernize programs and systems Expects to be rewarded for contributing 21

22 Theoretical Solution Structure your rewards around your key employee demographic Example: My business is a regional call center hiring predominately college students and recent college grads. (Millennials) We are a professional investment management firm hiring mostly experienced licensed financial planners. (Gen X) I m looking to hire extremely experienced legal professionals. (Boomers) 22

23 In reality Rarely, is your workplace demographic so pure Your senior leadership team is probably in a different demographic than your staff accountant As a result, their financial goals are probably very different Maintaining one Compensation Philosophy can be challenging 23

24 What is the solution? Don t suppose that your compensation programs are just fine the way they are. They should be evolving. My great-grandfather built this company on the principle of low wages for a hard days work. It would break his heart if we ever gave salary increases! Question the effectiveness of your rewards programs! Assume that your rewards programs should be reconsidered every 3-5 years 24

25 Ask The Audience Which of these compensation programs is the most compelling to you? A. Health and Dental C. 401k B. Profit Sharing D. Merit 25

26 Ask The Audience Ask without committing to change We are looking into the effectiveness of our rewards programs and seek your feedback to ensure they are properly aligned to employee expectations Conjoint Analysis Would you rather: a) Have a salary increase with an increase in your health premium b) Have no salary increase and no increase in your health premium 26

27 Ask The Audience Send an to all or to randomly employees: 1. What is the most/least compelling parts of our compensation programs (salary, incentives, benefits, other)? Why are these programs important or not important to you? 2. Do you understand the short and long-term vision/objectives of the organization? How does your role link to the achievement of big picture results? 3. Are employees properly rewarded for innovation, creativity, and efficiency? What can we do to improve our performance culture? 27

28 Interpret Results Process all data before reacting Don t overreact to single individual feedback Search for consistent themes Measure the pros and cons of suggestions Analyze the data (What would it cost if ) Acknowledge the trade offs Make a decision that is in the best interest of both the company and the employees 28

29 Tangent What will you likely find in this exercise? Most organizations reach similar conclusions Still encourage you to gather data Employees feel like they are part of the process 29

30 Likely Results Employees don t want to give up any part of their current pay package Cash is king (salaries and incentives) Concerned about escalating medical costs Want opportunities to win big 30

31 Demographic Profiles All demographics value incentive pay and core benefits Profile Base Pay Short-Term Incentives Long-Term Incentives Core Benefits Retirement Boomer Low Moderate High High High Profile Base Pay Short-Term Incentives Long-Term Incentives Core Benefits Retirement Gen X Moderate High High Moderate Moderate Profile Base Pay Short-Term Incentives Long-Term Incentives Core Benefits Retirement Millennial High High Low Moderate Low 31

32 Focus on Benefits and Incentives Determine how you are going to balance your rewards programs No rewards program can be all things to all people Compensation should be thoughtfully considered to address who you are looking to attract against what you can afford to pay Profile Base Pay Short-Term Incentives Long-Term Incentives Core Benefits Retirement Miller Co Moderate High Moderate Moderate Low 32

33 Boomers and Benefits The average life expectancy for a 65-year-old American is 17.7 years for a male and 20.3 years for a female Nearly 1 in 5 baby boomers has diabetes Over 40% are obese More than 50% take prescription medication for hypertension Not to mention the cost of eye care, dental care, preventative care Difficult to predict the costs of living so long 33

34 Gen X and Benefits Gen X employees have children Premiums for family coverage increased 27% during the last five years In 2015 the cost of employee contributions towards healthcare rose 4% The average wage increase was less than 2% Source: The Henry J Kaiser Foundation2015 Employer Health Benefits Survey 34

35 Millennials and Benefits Older Millennials are now in their 30 s Millennials have waited longer to have children Birth rates are down. But it is happening. Although percentage of millennials having children is down, the raw number of millennials having children is still high. 35

36 Millennials and Benefits In addition, according to Becker s Hospital Review, 50% of Millennials avoid seeing the doctor to save money. Millennials prefer to save with high-deductible insurance plans that carry a lower premium. They know they need insurance, but will often choose the plan that will cost the least. 36

37 Why Benefits? Highly valued by all demographics Boomers Living longer Gen X Have families Millennials Starting to have children Unfortunately Core Medical Benefit costs are impossible to predict and will likely continue to be expensive 37

38 Not Just Benefits Profile Base Pay Short-Term Incentives Long-Term Incentives Core Benefits Retirement Boomer Low Moderate High High High Profile Base Pay Short-Term Incentives Long-Term Incentives Core Benefits Retirement Gen X Moderate High High Moderate Moderate Profile Base Pay Short-Term Incentives Long-Term Incentives Core Benefits Retirement Millennial High High Low Moderate Low 38

39 Why Incentives? All demographics appreciate incentives Millennials Partnership Gen X Entrepreneurial Minded Boomers Hoarding cash for retirement Most incentive plans do not deliver on a level that all demographics can appreciate and relate to 39

40 Market Compensation Trends Incentive programs are more common than ever 2014 World at Work study showed that 99% of publicly traded companies have incentive plans Between 2011 and 2013 private companies with incentives plans have grown from 95% to 97% prevalence 40

41 Incentives are A Good Bet Good for organization to put emphasis on incentive pay Performance Requirements Not Guaranteed Provides alignment with big picture objectives When properly structured incentives create a partnership mentality 41

42 Why Do Incentive Plans Fail? Traditional Incentive plans They seek to change/set behaviors They rob employees of their creative input They reward for completion of small tasks instead of achieving big picture results They aren t tied to overall company results/lack line of sight They are either too discretionary or too quantitative BOTTOM LINE: Traditional Incentive plans are philosophically broken. They are not perceived as empowering a partnership mentality 42

43 Partnership Partnership reinforces a team focus Incentives tell that team which way they should be rowing If we all row efficiently we all win Everyone gets a trophy 43

44 Simple Plan Construct The key factor to plan funding is overall company success Employees should be focusing on what they can do to make the company successful Focus on big picture success rather than smaller metrics Reinforce partnership mindset through continual education and communication Incentives similar to partner distributions 44

45 Individual Performance Should employee performance be taken into consideration? Trend is to disconnect performance from incentive pay Performance Management is still important Managers more likely to be honest about performance if incentives are not directly correlated to performance rating If performance was deemed Unacceptable discretion should be utilized to eliminate incentive payment 45

46 Basic Construct All employees are told they will share in the creation of company value Every employee has a defined incentive opportunity aligned to forecasted company results Base Minimum performance Target - Forecast Superior - Overachievement 46

47 Incentive Calculation Depending on how the company performs an actual incentive can be calculated for each employee If company results are halfway between Base and Target. Incentives will be calculated halfway between Base and Target Actual Results = $47,500,000 Calculated Incentive = $5,625 47

48 Incentive Plan Qualifier Simple plan construct intends to align behavior not to reward for performance Exceptional performance should be recognized outside the context of the Annual Partnership Plan Best practice is to create a monthly recognition pool (Funded). Exceptional performers should be rewarded more frequently than typical incentive plans allow Awards need to be meaningful but moderate 48

49 Demographic Shift Millennials are now the single largest demographic in the workplace Rewards programs have not typically been suited to this rising generation Boomers and Gen X were more likely to accept perspectives on pay from prior generations Millennials have been challenging the norm Its not longer appropriate if the shoe merely fits 49

50 Bridge The Gap As Boomers fade out of the workforce you will still need programs they relate to As Gen X transform into the leaders of tomorrow you need compensation programs that support their trajectory Millennials are already the backbone of the workforce. Ensure your plans properly align them to the strategic vision of the business Your rewards focus does not need to alienate any demographic 50

51 The Keys Seek feedback from your employees Feedback builds consensus Align programs based on feedback Don t ignore benefits All demographics are beginning to appreciate Medical Bens Use incentives to reinforce partnership Align workforce with strategic vision Review and refocus frequently Typically every 3-5 years 51

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57 Next Online Seminar: Pay, Performance & Productivity To be held on: Tuesday, September 27 th 7700 Irvine Center Drive, Suite 930 Irvine, CA

58 Upcoming VisionLink Online Seminars: Pay, Performance & Productivity How to Place Results at the Center of the Rewards Equation September 27 th How to Transform Employees into Growth Partners October 25 th Balancing Salaries and Incentive Pay (HR Specific Webinar) November 8 th Pay Strategies that Increase Shareholder Value December 6 th 7700 Irvine Center Drive, Suite 930 Irvine, CA

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62 Q&A 62

63 Thank you! Joe Miller Senior Consultant (949)