SEDA Safety Scene Online
May 2002
COMPENSATION PLANNING IN UNCERTAIN ECONOMIC TIMES
Given the economic turmoil of 2001, it is not surprising that the 2002 Employee Compensation Report paints a picture of changes in both the compensation levels and fringe benefit programs provided by distributors. Much of the change revolved around the fact that with reduced profits, bonus compensation became much more difficult to come by and fringe benefits were viewed with more of an eye to their economic payback.
Compensation: Executive Suite Versus the Operations Level
Between 1999 (the time of the last cross-industry compensation study) and 2001, compensation levels for the top management team were largely stagnant. In fact, the typical increase in compensation for both the CEO and COO of the typical distribution firm was zero in 2001. At the other two executive positions, Chief Financial Officer and Chief Marketing Officer, the typical increase was only three percent.Interestingly, the challenge in compensation was not felt outside the executive suite. For all of the management and administrative positions covered, ranging from Human Resource Managers to clerical personnel, compensation increased. The largest increases were associated with operating employees, specifically warehouse employees, truck drivers and office/clerical personnel. Despite the widespread discussion of layoffs in the economy, competition for operating employees remained strong.
Company-Wide Benefit Programs
For the total firm, most of the significant changes were associated with fringe benefits, particularly health insurance. The culprit, to the surprise of almost nobody, was the dramatic increase in insurance costs. To cite only one example, the typical monthly insurance premium for a family rose from $461 in 1999 to $600 in 2001, a thirty percent increase.To counter this trend, distributors took four specific actions. First, traditional indemnity programs continued to disappear. Second, among virtually every type of insurance program offered, the employer-paid percentage of the premium dropped from around eighty-five percent to eighty percent. Third, the annual deductible per person increased sharply from around $250 to $300 depending upon the type of plan. Finally, for several types of insurance programs the co-payment was increased. Additional cutbacks made to control spiraling benefit expenses were evident in the areas of dependent coverage and prescription drug deductibles. At the same time, there was an increase in the use of pre-tax spending accounts which generally result in greater discretion in health care expenditures.
Other Issues
One of the most significant changes in 2001 was in outside sales force compensation arrangements. There was a pronounced shift from sales-based commission plans to gross margin-based ones. Clearly, in a time of price pressures, management was making an effort to compensate the ability of the sales force to maintain margins.For the first time the survey examined employee turnover for the total firm [(# employees leaving ÷ # employees at beginning of year) x 100]. The result was a disturbing twenty percent. Clearly, there are serious costs associated with employee retention that are not being measured on the income statement.
Finally, there was an increase in the use of more restrictive combined vacation/sick leave programs and a decrease in the use of flextime. A greater degree of leniency regarding employee work schedules is generally more prevalent when strong economic conditions make employee hiring challenging. These developments given the turbulent economic environment are not surprising.
Sales Size
The ability to pay truly competitive wages is highly dependent upon the size of the firm. For companies under $5.0 million, only a very few of which are start-up operations, compensation levels are low enough that the ability of the firm to always find qualified employees is called into question. In addition, several positions, such as IT managers, controllers, human resources managers and purchasing managers, simply do not exist at the small-firm level. Both factors create a competitive challenge.From a compensation perspective, there is an inflection point at somewhere around $5.0 million. At this point, firms have the financial capability to compete effectively for managerial and operating talent in a concerted manner.
About the Study
The 2002 Employee Compensation Report provides information for distribution firms of all sizes, with a total sample 1,986 firms and 7,927 branches. With such a large sample, it is possible to provide local market perspectives on salaries and total compensation. It is also possible to compare compensation levels and fringe benefit programs across different-sized firms and branches. These features make this report invaluable in evaluating and planning compensation practices.Order the Study — Click here for order form.