Total Reward Design for an Intergenerational Workforce

CBIZ Human Capital Services

Introduction
Edward R. Rataj Managing Director, Compensation Consulting Certified Compensation Professional (CCP) Frequently quoted in national news publications such as the Wall Street Journal and Smartmoney.com

Overview
Overview of generations Compensation strategies for rewarding and motivating the inter-generational workforce:
Base salary Incentives Benefits Pay increases

Why Specifically Focus on Generations?

The workforce continues to change demographically and globally For the first time, we have the largest number of generations (Traditionalists, Baby Boomers, Generation X, Generation Y and Millenials) in the workplace Generations have varying values, motivations and perceptions of reward strategies
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One Note About Generalizations

orta Im p nt!
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Generations Traditionalists Baby Boomers Gen Xers Gen Yers Gen Z/Millenials*

Born 1930-1945 1946-1964 1965-1978 1979-1990 1991 & Later

Age 66-81 47-66 33-46 21-32 20 & Younger

* New to the workforce, characteristics still being defined

The Emerging Workforce Has Different Values*

Traditional (19301945) Conformity Stability Upward mobility Security Economic success Boomers (19461964) Gen X (19651978) Gen Y (Born 19791990) Hope about the future Collaboration Social Activism Tolerance for diversity Family centricity

Personal and social Free agency and expression independence Idealism Street smarts Health/Wellness Friendship Youth Cynicism

*CEO Magazine
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Traditionalists - Characteristics 66-81 years old

Appreciate tradition and conformity; patriotic Stability and security You get a jobyou keep a job Make a lasting contribution Value appreciation for input and experience Value financial security; thrifty Economic success
$1.7 trillion in buying power 50% of discretionary income -this is changing

Traditionalists - Communication
Face to face Telephone Formal Handwritten personal note

Baby Boomers - Characteristics 47-66 years old

77 million strong! Work hard, pay your dues
First generation of workaholics; focused on outstanding careers

Idealism Grew up during times of societal change Value personal and social expression A sense of community and belonging Health/wellness/youth is critical

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Baby Boomers - Communication Phone Personal interaction Meetings

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Gen Xers - Characteristics

33-46 years old

More likely to be children of divorce and/or be children of working parents

Independent; Latch-key kids

Watched as parents were right-sized or down-sized and may have jaded view of loyalty to one company.
First generation of Job-hoppers

Training is security If not learning then wont be prepared for the future. Thrive on responsibility, honesty, creative input Grew up with technology, savvy with media and information

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Gen Xers - Communication Efficient technologies Email Voice mail Direct & Immediate
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Gen Y - Characteristics 21-32 years old

Respect accomplishments rather than authority Goal oriented, problem solvers Street smart and savvy Born in the time of the child praised constantly, everyone is a winner Great multi-taskers been doing multiple activities their whole life Intent on making a difference in their communities

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Gen Y - Communication Email and voice mail Instant messaging Text messaging Blogs Tweets
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Millenials/Gen Z - Characteristics

20 and younger

Just beginning to enter the workforce Technology driven Views communication as an instant anytime, anywhere Like Gen Y, are great multi-taskers been doing multiple activities their whole life Exposed to classrooms and teams rich in cultural, religious and ethnic diversity Learned conflict-negotiation skills in school

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Millenials/Gen Z - Communication
Text messaging Verbal and written communication skills may be lacking Large social networks No expectation of privacy

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What does this mean for total reward design?

Base salary Incentives Benefits Pay Increases

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Base Salary
Traditional (19301945) Loyalty to organization Boomers (19461964) Internal competitiveness Gen X (19651978) Hired guns/ mercenaries Gen Y (Born 19791990) Accessing opportunity

Regardless of generation, salary must be market competitive to recruit and retain talent.

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Designing a Market-Based Compensation System

Plan and collect data Ensure job documentation accuracy Complete market analysis Design pay structures Model implementation costs Assess internal equity Create procedure manual Report results

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Designing Salary Structures

Typical Structure

minimum

midpoint

Midpoint Differential

Range Spread

maximum

Designing Salary Structures

Market Structure Gen Y Structure

xim um

midpoint

midpoint

im min

im min

ma

Midpoint Differential

Range Spread

Midpoint Differential

ma
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xim um

um

um

Incentives
Traditional (19301945) Boomers (19461964) Gen X (19651978) Gen Y (Born 19791990)

Appreciation & Individual rewards Reward for results Constant feedback recognition important Team rewards Spot awards useful Plaques, certificates, employee of the month

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Incentives
Ensure incentive programs are aligned with overall organizational objectives Develop line-of-site performance objectives Consider mix of short-term and long-term awards along with spot awards and non-monetary recognition programs

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Benefits
Traditional (19301945) Embrace defined benefit retirement programs, including social security Eligible for Medicare Boomers (19461964) Make employment decisions based upon benefits offerings Gen X (19651978) Gen Y (Born 19791990)

View social security Value creative and as a ponzi scheme time off benefits Pay me now, Ill More focused on take care of myself salary than benefits mentality Prefer flexible benefit options

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Benefits
Consider offering high-deductible plan option Think about adding a unique benefits like veterinary care insurance or sabbatical leave to attract and retain Gen Y Work/life balance, flexible work environment and wellness programs key Consider benefits of Early Retirement Incentive Program (ERIP) if organizational fit

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Pay Increases
Traditional (19301945) Boomers (19461964) Gen X (19651978) Pay increases should be tied to performance Gen Y (Born 19791990) In constant communication with friends, will share pay increase information Entire group may leave if perceived as unfair

Cost of Living Seniority and Adjustments (COLA) internal equity important important

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Pay Increases - Merit Matrix

Boomer-Centric
Matrix

Performance Exceptional Exceeds Expectation Effective Development Needed Critical Need for Improvement

1 3.5% 3.0% 2.5% 2.0% 2.0%

Quartile in Range 2 3 3.5% 3.0% 3.0% 3.0% 2.5% 2.5% 2.0% 2.0% 2.0% 2.0%

4 3.0% 3.0% 2.0% 2.0% 2.0%

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Pay Increases - Merit Matrix

Best Pract
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Pay Increases - Merit Matrix

Ultra-Aggr
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Typical

Results

Matrix Performance Exceptional Exceeds Expectation Effective Development Needed Critical Need for Improvement Cost Summary Payroll: $30,400,917 Merit Increases: $1,071,120.86 Percent Increase: 3.5% Cost Detail Performance First Exceptional $83,979 Exceeds Expectations $109,175 Meets Expectations $108,116 Development Needed $32,654 Critical Need for Improvement $0 Total Cost: $1,071,121 Employee Count Detail Performance Exceptional Exceeds Expectations Effective Development Needed Critical Need for Improvement 1 24 36 52 36 24 Quartile in Range 2 3 36 16 60 20 96 16 40 20 32 12 4 4 0 4 4 4 Quartile in Range Second Third $184,222 $88,669 $158,310 $58,617 $191,830 $36,698 $0 $0 $0 $0 Fourth $15,200 $0 $3,650 $0 $0 Budget $: Budget as % of Payroll: $1,064,032 3.5% 1 8.0% 6.0% 4.5% 2.0% 0.0% Quartile in Range 2 3 7.0% 6.0% 5.0% 4.0% 3.5% 3.0% 0.0% 0.0% 0.0% 0.0% 4 5.0% 2.5% 2.0% 0.0% 0.0%

Model fits within budget

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Pay Increases - Merit Matrix

Common Pitfalls
Structures out of alignment with market
Garbage in, garbage out May improperly allocate limited salary increase dollars based upon the current competitiveness of pay

Performance scores not calibrated

Supervisors can learn to game the system Cheating is rewarded Top performers may not be properly rewarded

Matrix results outside of budget

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Summary
The intergenerational workforce brings different values, attitudes toward work, work styles, job satisfaction criteria, engagement beliefs, learning styles, expectations and levels of commitment to the workplace Organizations that understand this and design rewards programs to meet generational needs will have the competitive edge

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Additional Considerations
Nonprofit compensation Executive compensation in closely held businesses Fair pay based on race and gender Online performance management Sales compensation

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CBIZ CompCasts

How to Set Pay Ranges that are Fair and Effective

CompCasts

Nonprofit Quick Guide to Navigating Intermediate Sanctions Creating and Using a Salary Increase Matrix Fair Pay: Maintaining Equality in Todays Litigious Society

In development at: www.cbiz.com/hr/compcasts

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Questions?
Ed Rataj, CCP Managing Director Compensation Consulting CBIZ Human Capital Services (314) 692-5884 erataj@cbiz.com

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