Compensation & Benefits Review

Stepped-up enforcement and new government demands make it more likely than ever that companies will face an audit of their compensation practices by the federal government. And with only about 15% to 20% of companies that undergo some form of compensation audit emerging with a clean bill of health, most companies have a lot of work to do. The stakes could not be higher. Companies that are found to have discriminatory pay practices face not only fines, penalties and negative publicity but also the loss of trust from customers, employees and other stakeholders. This article outlines a process through which companies can determine whether their compensation practices discriminate against certain employee groups and take steps to correct those problems before the government steps in with an audit. Even if the government is already on the case, companies can use these statistical tools to defend themselves and potentially reduce the cost of remedies and penalties.

Recent federal government initiatives suggest that comparable worth is being resurrected as a major policy initiative. The Office of Federal Contract Compliance Programs has introduced the Equal Opportunity Survey, which requires government contractors to provide compensation data broken out by gender and race/ ethnicity for each of the nine equal employment opportunity (EEO) occupational classifications. The compensation data from the survey are already being used to target contractors for audits and represent a new and extended drive to impose comparable worth principles through federal regulations. This article focuses on the EEO Survey and its shortcomings as a source of data for analysis. Legitimate sources of male-female wage differentials are discussed, along with the difficulties that would be encountered in implementing a pay system that would meet traditional comparable worth standards. Methods contractors can use to carry out an internal audit to defend pay discrimination charges related to comparable worth are described.

A shortage of quality, entry-level construction employees has prompted Patio Enclosures, Inc., North America's largest producer of custom sunrooms, to establish an innovative Apprentice Program. The goal of the program is to attract, train, retain and reward men and women who want long-term, high-paying careers in the construction industry. The Apprentice Program is a motivational training system that rewards employees with promotions and pay raises for reaching certain achievements during their career. Program entrants receive salary and title increases as they move through various construction skill levels. These employees can then also become salespeople, installation supervisors, office supervisors or branch managers as these career opportunities become available within the company. As an added benefit, employees who work at Patio Enclosures, Inc. for one year become part owners of the $73 million company through participation in the Employee Stock Ownership Plan established two years ago. This article describes the company’s unique program and the dramatic drop in turnover that the program has achieved.

In today’s tight labor market, businesses are finding they have to offer more creative packages that go beyond traditional compensation just to stay competitive. With unemployment at historically low levels, jobs are plentiful and employee turnover is a major concern for businesses of all kinds. This article uses national survey data of employees and employers and case studies to explain why an increasing number of U.S. companies are using incentives and “sticky” rewards in the workplace. It describes how these programs can be incorporated into a company’s comprehensive efforts to attract and retain the best employees in a tight labor market.

Compensation practices play a role in the perpetuation of the much reviled “used-car salesman” stereotype. This article explores the occupation that everybody loves to hate. In particular, it investigates the relationship between the design of automotive sales compensation and the types of personalities and behaviors that commonly characterize salespeople in the auto industry. The article concludes that auto sales compensation programs play a significant role in creating an environment of high competition within dealerships, a climate of aggressiveness and frequent use of high-pressure sales techniques. The article also describes examples of steps taken by some dealerships to change this environment and trends within the industry that may significantly change the auto sales and sales compensation structures of the future.

A recent innovation in defined benefit (DB) plans is providing a new form of compensation to longterm employees. Although initially implemented in public sector pension plans, the ability of private sector pension plans to replicate this new form of deferred compensation could slow or even reverse the shift from DB to defined contribution (DC) plans. A Deferred Retirement Option Plan (DROP) is a provision in a DB plan that gives long-term employees the opportunity to leave their jobs with both their traditional DB retirement annuity and a lump-sum accumulation resembling that of a DC plan. DROP is an enhancement that may be added to a DB plan but is impossible to add to a DC plan. Professionals who work in the area of compensation and benefits design need to understand this new DROP provision for DB plans so that they are prepared to help propose these plans when appropriate, assist management in understanding these plans when proposed by employees and unions and help to implement these plans.

As open enrollment approaches, many plan administrators find themselves reviewing plan documents or, more likely, the summary plan descriptions that will be distributed to participants. Now is the time for plan administrators to look at welfare plans, including long-term disability plans, which have become increasingly important and prevalent in all types of industries. This article provides a detailed checklist that identifies the substantive issues that plan sponsors and administrators should consider in the design and implementation of both long-term and short-term disability plans.