Copper Rise Consulting

Sharing our learning, insights and practical tips – August 2002

Compensation – does it support your company goals?  No matter how our economy expands or contracts your compensation program can be a chronic complaint with some employees.  It may be because the program is failing to reward employees for supporting company values or objectives.  Most employers, particularly smaller to medium size firms try to pay at market level, more or less, without knowing there are other ways to make compensation programs more effective and useful.  A good compensation program begins when management clearly identifies what it wishes to accomplish with its pay program. Is the goal to recruit and train your own workforce, or are you trying to recruit the highest qualified for the job?  Do you want to encourage people to learn more skills, grow knowledge or do you want to recognize and encourage top performance?  Do you want people to participate in developing the company further? Or do you want people to just do their jobs well?  Based on what you want to accomplish, you may want to look at other options such as skill-based pay, pay for performance, increases based on achievement, or bonus, incentives, and/or at-risk pay.  Compensation starts by reviewing at your company values. Are you rewarding the right things? Consider this – While regular attendance is desirable, did the person who shows up daily with no additional effort receive the same increase as the person who missed a few days but also implemented a significant cost savings program? Which had higher impact on the bottom line – showing up for work every day or saving the Company money? Which activity do you truly want to reward?  Perhaps showing up for work every day is the correct response for your company, but if not – you may want to rethink your compensation plan. (Note: For those of you worried that changing programs will end up costing you more, that’s not always true.  Changing your plans helps clarify how and for what you will compensate people, which can improve morale without new costs!)

A Practical Tip – “Discretionary” Incentive Programs

Do you have or are you considering an incentive program for your employees? Great!  Whether the program is based on sharing profit or rewarding individual achievement, you should be aware that sometimes such payments need to be included in overtime calculations for non-exempt employees.  Keep in mind that only truly “discretionary” bonus plans are not subject to inclusion in overtime calculations.  To meet this discretionary bonus test, here are suggested guidelines to follow: Don’t promise a bonus in advance of the payment, don’t announce a potential bonus, don’t announce that a bonus or incentive could be paid, don’t announce how much of a bonus could be paid, and make your decision to pay after the fact or at the end of the period.   Too many don’ts?  Just tips to keep you in line with the federal Department of Labor regulations; however, if including payment of bonuses in the overtime calculations isn’t a concern for you – develop and communicate a formal incentive program to all your employees!  (Note: payments made to a bone fide Profit Sharing Plan is an exception to this rule and do not need to be included as regular rate of pay when calculating overtime.) 

About Copper Rise Consulting

Copper Rise Consulting has experience developing skill-based pay, pay for performance, incentive and bonus programs.  Our past successful programs with clients have included value/objective clarification, job evaluations, salary research, exempt/non-exempt designations and program design supported by policy and procedures. Each program has been customized to meet the needs of the client; including working with a client’s programmer to create a web-based compensation database.