The good news for Nevada employers in the area of compensation is that the recent turbulent economic times have not only shown them to be more resilient than many around the country but left them leaner and more efficient – and poised for a stronger year in 2010.
Among the hard-earned lessons learned through adversity has been how to creatively lower the cost of employee compensation while rendering it more meaningful and satisfying – and hence more valuable – to employees.
“Very few companies really get into employment contracts which include a compensation package,” says Bill Rosado, President of Managed Pay. “Employers are going to continue operating leaner and are probably not going to be excited about adding payroll.” Though the recession has taken a turn, employers have become used to operating lean.
Instead of hiring someone within the company, employers are outsourcing individuals to hire. “When you hire someone for a project, you guarantee them a certain amount of money for a certain period of time,” Rosado says. “You guarantee them benefits and there are increases that are attached to that.”
“When it comes to compensation packages, we are finding there are more people available out there with higher qualifications now and who are willing to work for less,” says Rosado. “Employers are getting quality employees, people with experience, for less and they are being careful about how many benefits they are giving them.”
Michael Alter, President of SurePayroll, an online payroll service, points out that the state of Nevada is “probably a step ahead of the rest of the country because what’s happening there is what is going to happen to the rest of the country. As we have gone down the first thing you saw was that the owners of the businesses started to take less money. Then they began to reduce hours and lay off employees,” he said.
Craig Kapper, Regional Vice President of Robert Half International, Inc., notes that “when you look at how hard the market has been hit from a housing perspective, specifically in Southern Nevada — and the fact that we’re very heavily industry-specific in the gaming industry, which has been hurt more than other industries — it’s kind of a perfect storm from a wage perspective.”
Kapper divides employees into hourly or unskilled workers and degreed professionals. For hourlies — clerks, administrative personnel, hotel and casino workers like food and beverage staffers or dealers – “unemployment spikes specifically in those areas,” he notes. Same for construction. “In Southern Nevada there is an abundance of those folks, so wages for specifically hourly employees have gone down significantly.”
With degreed professionals, Kapper says, “whether it be accountants, senior executives, IT professionals, legal professionals, or any of those hard to find skilled workers, companies are still fighting and working to keep them. Those salaries are going to continue to progress regardless of that perfect storm that still is the Southern Nevada workforce.”
“What you’re seeing in Nevada is that the employment numbers have fallen,” says Alter. “The number of people on the payroll is down 1.8 percent but wages are up 1.3 percent. What’s driving it is that you’ve gotten rid of the low-hanging fruit. You’ve gotten rid of some of your lower-paid people who may not have been absolutely critical to the business. What you’re seeing is a decline in the number of folks in the workforce, so you’re paying more hours to those who are left because you’ve still got to cover the same number of hours.”
“Overall, my view is that there has been a bit of a lag in response in the area of compensation,” says Anne Hanson, President of Las Vegas-based Cam Cris LLC, a human resources and labor relations consulting firm. “I think it took companies a while to respond to the economic downturn in terms of making changes to their compensation packages. Likely it will lag in returning, as well. There has definitely been a large negative impact, and I think it will take some time before we get back to where we were.”
Nevada, Hanson says, stacks up well against the other 49 states. “Nevada is comparable to the rest of the country in that a number of employers are planning to reverse these cuts and restore their 401(k) matching contributions.” Another survey, from Watson Wyatt, a compensation consulting firm, reported in June that 17 percent of employers who had frozen salaries and 401(k) contributions expected to unfreeze them by 2010. In July, that figure had increased to 33 percent.
In reviewing the latest research, Hanson says, “Overwhelmingly there have been freezes, there have been bonuses not paid, there have, in some cases, been rollbacks. One individual that I network with indicated that their overall comp was down about one-third. That’s a huge hit: incentives, bonuses – which are more tied to results in general – and then overall base compensation, as well.”
For August 2008, she adds, average base salary increases were trending higher than 4 percent, “and only 2 percent of companies were actually reporting freezing salaries. But from that point forward to mid-2009, the number of companies freezing salaries is reported at 37 percent, a huge jump and very unusual. That’s amazing; average base salary increases are actually below 2 percent.”
Bonuses are “largely” going unpaid, Hanson reports, “and in fact most of the major employers have actually ceased their 401(k) matches, which is part of people’s overall compensation. Most companies did, in fact, do away with the 401(k)’s in either late 2008 or beginning in 2009.”
As for new hires, Hanson notes, August was “the 11th straight month in which the wages for new hires actually fell below the prior year” according to the Line Survey, published in September, one of the leading indicators of national employment. On the plus side, Hanson explains, the high levels of unemployment have permitted companies to attract qualified workers at lower salary levels, “and to retain workers even though the compensation has been lessened.”
Employers are being cautious when hiring new employees by limiting their compensation packages such as “immediately covering health insurance and providing a 401(k) plan,” Rosado says. “We have had clients cut back on the match of their 401(k) plan. This is a good time for employees to get involved in a 401(k) plan because now it is going up.”
Employers are offering less starting wages and they are careful about offering benefits right away. “I think everyone is waiting to see how the health reform act is going to affect them,” Rosado added, “especially if it mandates that an employer is to pay health insurance for all employees regardless if they are full time or part time and regardless of their status.”
Americans, Hanson insists, are becoming “much more optimistic about the economy, and realize how important compensation is to retention. The need to retain and attract qualified workers is not going to go away. Maybe it’s in a little bit of a lull, but I think more companies will be able to do that.”
The situation, Hanson emphasizes, is “still bad. Only 2 percent of companies froze salaries before 2008, and even with that change – 33 percent saying they’re going to lift the freezes and 401(k)s – they’ll still be at 13 percent, so it’s still not going to be the way it was. It will be several years before we see that.”
Personal and Personnel
A bit of creativity can render some compensation more personal and thus more valuable to employees – and less expensive for employers.
Those employers that Alter considers “the smart ones absolutely are” using nontraditional methods of compensation, “and there are several. They’re all what I call ‘surprise moments’ where you surprise an employee with something that matters to him. You might give somebody an extra day off. Or, you’ve got a hundred employees, you had a great month relative to where you were and you want to do something nice for them, so you have the ice cream truck outside and ring the bell. You get everybody an ice cream cone. It’s not expensive but it shows your employees that you care and that you’re doing things for them.”
Another: “You might (incentivize) a particular employee, and if you know something that matters to him you might give that,” Alter suggests. “As an example, if you have an employee who loves a particular performer – say, the Black Eyed Peas – you might scalp two front-row seats for them for $400 or $500 each and send them to the concert with a chauffeur. It costs you a thousand bucks but the value that you get from that is way more than just giving them $1,000 more in their salary.” This sort of approach gives companies “more leverage than just cash. Right now, there is a lot of value in that.”
Creativity “has really got to be the trend,” Hanson says. “If you’re talking to HR professionals there is more and more focus on what they call ‘total rewards’ versus just compensation.” The phrase total rewards “brings in all the aspects of the workplace that provide incentive and satisfaction to workers, and generally more on an individual basis.” This includes flexible work hours, commuting arrangements, flexibility in scheduling, promotion and transfer opportunities, work environment, time off and more, “even lifestyle things.”
What Hanson calls “the major point” is that companies have been in the position where they have taken “more drastic action in regards to compensation than we’ve seen certainly in my lifetime. But I also think there is reason to be optimistic, and some of those trends will reverse themselves slowly.” Her advice to employers is to “look at all the ways in which you can reward your employees and attract potential high performers to your company by shifting to a total rewards system.”
When Recovery Comes
At the end of December, Alter notes, the hiring index for Nevada stood at 1,343, up from 1,000 when the survey began in 2004. That 34 percent rise “tells us that salaries have been growing in Nevada since 2004. But the interesting thing is that today it’s at 1,361, which is up about 1.3 percent. What that tells me is that the total wages being paid are slightly up in Nevada, bucking the national trend,” which is down more than 6 percent.
When the recovery picks up steam, says Alter, the first thing that will happen as orders come back is that companies will bring their existing staffs up to full hours. If they’ve been working 33 hours a week you might bring them back to 40.” The next thing before getting more orders and hiring more employees is giving current employees overtime. “Once you exhaust the fact that you’ve brought them to full employment and given them overtime you’ll start to hire.” This process, however, will likely be “elongated because the other side of that equation is that the one in 10 people without a job aren’t spending money in these small businesses.”
As the economic comes back, Kapper says, “which most economist have stated is happening, and let’s hope they’re right, compensation plans are going to be a key retention factor.” Many companies implemented hiring freezes during 2009, he notes, “or did a flat reduction in either workforce, from a headcount perspective, or in compensation so that they could remain profitable with less performance. As that business improves, they’ve got a workforce that’s depleted, and they’ve got to find a way to attract the people. They’ve probably kept the best of the best, so now they have to find a way to keep them on board, as well as attract new talent. (Employers) are still going to look at their compensation plans and make improvements.”