Compensation & Benefits Review

Compensation professionals often face a conflict when the retention of an employee depends upon matching the offer of a competitor firm. While managers may wish to avoid the turnover of given employees, the authorization of exceptional pay packages to outbid raiders could adversely impact the company’s compensation practice. Offer matching is likely to escalate compensation costs and create individual equity problems within the workforce. In planning for employee retention, managers should consider and declare, prior to any external recruitment event, the maximum amount of pay that would, reflective of the company’s overall business interests, be allotted to preempt an employee departure. This article introduces the willingness to offer match concept. It also presents a preparatory exercise to elicit information from a manager on the counteroffer pay ceiling for an employee. The use of this information, as an input for various incentive arrangements, in formulating employee retention tactics is discussed.

What makes a reward or talent strategy businessvaluable? How does a company get beyond slogans and generalizations to substance? The most logical way is to make the talent and reward strategies critical to business success. This article suggests that practical talent strategies and ensuing reward solutions must focus on the most critical employees in the company. These people not only have essential skills but additionally the demonstrated ability over time to translate what they know into business-critical outcomes. These are the superkeepers of the business and require a selective reward strategy supported by valid pay, reward, and other human resource tools to convert statements of strategy into practical tactics. This places a new premium on the willingness and ability of organizations to truly pay for performance.

The collapse of several large US companies and evidence of weak corporate governance have awakened government, regulators, stock exchanges and leading executives to respond to the crisis proactively, transparently and comprehensively to regain investor and shareholder trust. Board reform has become the driving force behind the increase in board total compensation, especially the cash retainers and stock awards; the establishment of differentiated premiums for committee chairs; the growing support for creating lead director positions and increase in number of outsiders; as well as the establishment of share ownership guidelines, board charters, evaluations and performance reviews. Facing the emerging trends in board total compensation, companies need to evaluate and overhaul their current board structures and compensation programs to strike a proper balance between equity and cash payments. By doing so, organizations will be better poised to attract and retain qualified and independent directors with sufficient financial and technical expertise who are expected to take on a larger role in improving corporate governance.

Physicians are becoming reluctant to provide emergency on-call availability without direct compensation from the hospital because of increasing patient visits and a growing proportion of uninsured patients. Accurately valuing on-call compensation is required to insure regulatory compliance and to control the economic exposure to the hospital. Failure to arrange for appropriate physician coverage can give rise to material fines under EMTALA. In establishing the fair market value (FMV) of compensation arrangements, a market approach is generally preferable. However, reliable market data frequently is unavailable. Instead, an analytical approach can be used to establish an objective measure of the value of on-call services relative to a physician’s work time. Then, factors that are unique to the hospital can be considered, along with market data, to reach a final determination of the FMV. In light of the regulatory implications, the financial impact to the hospital and the significant judgment required in arriving at FMV, the use of an independent expert is frequently advisable.

One way an organization can increase economic gains is by aligning its compensation strategy with its overall strategy. Unions can benefit from this transition to alternative reward strategies (ARS). But they have resisted ARS because of unfamiliarity, a backlash from their membership, and fear of being co-opted by employers. Benefits of ARS for unions include the opportunity to protect wages during turmoil and employee involvement in shaping overall strategy. This article outlines the prerequisites that are necessary for unions to promote ARS, such as a long-term bargaining relationship, existence of a pre-entry closed shop, and a stable membership base with a majority of employees that are organized.