Dealing with Good News

After two years of layoffs and hiring freezes, the economy is
picking up. Employers are starting to think about where to go from
here: Hire or hang tight? Offer raises or reserve that money for
something else?

The amount of change affecting compensation and
benefits has been unprecedented in the past two years. Both the
economic crisis and major legislative developments such as health-care
reform bring into question everything businesses do in managing these
essential costs.

Four main components directly affect a companys
people costs: cash compensation, health-care benefits, retirement
benefits and workers compensation. These four cost categories are
among the highest operating expenses for a company. In most healthy
organizations, total compensation, or gross payroll, is the most
significant business expense, amounting to 25 percent to 33 percent of
revenue. And benefits typically make up 30 percent to 40 percent of
payroll, according the 2011 Annual Study of Employee Benefits Trends by
MetLife. These costs also directly relate to employee engagement and
productivity, which drive the health and performance of an organization.

History
shows us that once the economy bottoms out and neutralizes, employees
start changing jobs. Already, were seeing significant movement in top
management positionsthe CEO, CFO and vice president of human
resources. These individuals are seeking new opportunities after
shepherding their employers through a difficult time or gaining the
experience necessary to move up and on.

Even those employees who
may be staying with their current organizations because of the
uncertain labor market may be disengaged. More than one in three
employees (36 percent) surveyed by MetLife in its Employee Benefits
Trends study said they hope to work elsewhere in the next 12 months.
Only 47 percent say they have a strong sense of loyalty to their
employera three-year low. Employers consistently underestimate how
significant salary and benefits really are in driving employee loyalty
and engagement. While company culture plays a big role, employees rank
culture as a less significant factor when compared with the tangible
aspects of total compensation and rewards.

How do employers
keep employees from moving on and costing them a great deal in training
and lost-opportunity costs? Money and benefits. Those considerations
will keep employees around, even if they are less than satisfied.
Employees also value transparency and communication, even when firms
have to make tough decisions. Best companies win employee praise when
they explain what they are doing and why.

Salaries have fallen
behind in some businesses as a result of the economic downturn. Many
companies chose to forgo salary increases or offered only small ones
over the past few years. However, their competitors may not have done
the same thing. In fact, actual salaries have continued to increase for
many jobs during the downturn, albeit at a slower rate. Now is the time
for employers to review their salary structures and determine if they
are in line with their companys compensation philosophy. They should
also consider how the company wants to be compared to its competitors
compensation practicesat the high, middle or low end.

Many
companies are also experiencing a new-talent shortage, similar to one
felt before the recession. During the recession, so few entry-level
positions were filled that there are now few people in those positions
to promote as more senior employees move on. Employees are leaving as
opportunities open, other employees are retiring and hiring freezes
have cut into the pipeline.

What should employers do? Ask these
questions: How competitive are your salary practices? (Determine this
by looking at market position, annual adjustments and whether you have,
or even want, a method to establish internal equity.) Are you ready for
the new-talent shortage? What will you do to fill new openings as
people move up and on?

Look inward and shore up what you have.
While many employers spent the past two to three years doing triage
without much long-term planning, its time to look forward again and to
move from survival mode to a strategic approach.

Nita Petry is area president, Washington state, for Gallagher
Benefit Services Inc., a subsidiary of Arthur J. Gallagher & Co.