Compensation Management

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These executive summaries were compiled from EMPLOYEE BENEFITS INFOSOURCE database, a source for information on employee benefits and human resources.

Final Rules on Qualified Retirement Plans in Puerto Rico.
Gonzalez, Carlos; Compensation Planning Journal; v40 p 83 Feb 28 2012; journal article

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Abstract : Puerto Rico Internal Revenue Code amendments made December 2011 had an impact on qualified retirement plans. Major changes in plan qualification include a narrower definition of a highly-compensated employee, the replacement of fixed dollar limits with formulas and a revised limit on aggregate after tax contributions. Taxation changes include an expanded definition of Puerto Rican property investments, limiting rollovers to lump sums but allowing partial lump-sum rollovers and a broadening of the definition of installments for purposes of a withholding exemption. Other changes impacted the deduction of plan contributions and the issuance of determination letters by the Puerto Rico Department of the Treasury.
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Avoiding 10 Common Plan Compensation Mistakes.
Lyon, Heidi A.; Employee Benefit Plan Review; v67 no3 pp 29-30 Mar 2012; journal article

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Abstract : Calculating compensation is one of the most common sources of error for defined contribution plan administrators. Errors arise from relying on W-2 Box 1 or Box 5 wages, including deferred severance pay, failing to follow plan terms and definitions and applying payroll practices inconsistently. Definitions of compensation may vary for different purposes within the plan, causing confusion. Deviating from the safe harbor definition for compensation can lead to discrimination favoring highly compensating employees. Other problems come from using an incorrect period of compensation, failing to include noncash benefits or to deduct deferrals from extra payrolls or special payments, and failing to consider self-employed individuals' earned income.
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Benefit Plan Risk: A Global Perspective.
Berk, Adam; Simmons, Terry; Benefits Magazine; v49 no3 pp 16-21 Mar 2012; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : Multinational organizations' benefit plans face unpredictable risks from rising costs, volatile investments and participant longevity. Five steps significantly help in handling these risks, starting with an understanding of the employees needed to achieve strategic goals and how benefits support employee recruitment, retention and engagement. Based on this understanding of business context, organizations can define and design a global benefits strategy. This must be done in accordance with local market practices and regulations. Strong governance is key, with a cross-functional governance committee having global authority for design and implementation. Communications must address all stakeholders, providing necessary information to internal departments and administrators as well as to employees.
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Link To Full Article
Benefits for Older Workers.
Lytle, Tamara; HR Magazine; v57 no3 pp 53, 56, 58 Mar 2012; journal article

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Abstract : It is increasingly common for retiring workers to return to work, lured back by the appeal of flexible schedules and benefits designed for them. The workforce is shifting, with 93 percent of its growth from 2006 to 2016 among those 55 years and more. Older workers are healthier and have bring historical perspective and customer knowledge. They continue to look for rewarding opportunities and appreciate the financial and medical benefits of employment. Various wellness and convenience benefits are especially appealing to those over age 50, as are permitting pension benefit accrual while working, seasonal and contract work, pay increases and health benefits for part timers. Firms hoping to retain older workers must communicate the special benefits well ahead of individuals' anticipated retirement.
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Companies Improve Forecasting and Budgeting Techniques.
Report on Salary Surveys; no19-3 pp 9-11 Mar 2012; journal article

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Abstract : A survey from Sibson Consulting shows salary increase budgets stronger in 2012 than they have been for several years. Overall budgets are 2.9 percent higher, up from 2.7 percent in 2011, and likely to avoid the downward revisions common in the previous few years. The good match between forecast and actual increases represents a firmer economy with a return to stability and normalcy. Most executives will make up for minimal increases in recent years with an average 2.9 percent raise in 2012. Exempt employees are forecast to gain 2.8 percent, with 2.7 percent for nonexempt workers, in the context of a three percent rise in the Consumer Price Index from January through September 2011. By industry, nonprofits and banking and finance, which saw the lowest actual increases in 2011, should rebound in 2012, while utilities, services and health services had the highest increases in 2011 and should do well again in 2012.
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Compensatory Damages in Lost Wages Claims: The Relevance of Unemployment Trends Adjustments.
Tranfa-Abboud, Josefina V.; Employee Relations Law Journal; v37 no4 pp 23-38 Spring 2012; journal article

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Abstract : An economic expert is often called upon to make a reasonable estimate of damages in cases claiming lost compensation. Such claims often arise from a dismissal, failure to promote, personal injury or wrongful death. An economic damages model should account for the economic environment, including the industry and occupation, as well as individual circumstances. If actual unemployment figures suggest a high risk of unemployment rather than a quick resumption of earnings, this is a reasonable factor in calculating lost earnings. A hypothetical case accounting for unemployment risk yields a 44.7 percent lower estimate of earnings than one assuming continuation of previous earnings and salary increases.
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Earn Less, Pay Less.
Woodward, Nancy Hatch; HR Magazine; v57 no3 pp 67-68, 70 Mar 2012; journal article

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Abstract : Health insurance premiums proportionate to salary may be on the rise. Starting in 2014 the Patient Protection and Affordable Care Act requires employers to provide affordable coverage not to exceed 9.5 percent of a family's income, or face a penalty. One in ten employers with 500 or more employees takes this approach, including Pitney Bowes and General Electric. The structure accounts for wage ranges, health plans and coverage tiers and formula calculations. The arrangement does not work in all settings, such as in an organization with mostly low-wage employers, and prohibitions against discriminating in favor of highly paid employees must be taken into consideration. For many basing premium payments on wages seems only fair, but some employees, union leaders and those at higher income levels may object to a change, making communication a key part of a transition.
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Salaries Rise for HR Professionals With Specific Skills, Mercer Finds.
Report on Salary Surveys; no19-3 pp 1-4 Mar 2012; journal article

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Abstract : A Mercer survey reflecting 2011 pay and 2012 projections indicated HR professionals saw 2.8 percent pay raises on average. HR managers got only 0.5 percent more while pay for top-level executives rose 11.1 percent. Specialization was a major factor in pay differential. While jobs related to compensation are in slightly greater demand, those combining compensation and benefits management jumped 8.2 percent. HR pros most in demand are strategic thinkers, oriented toward finance and bringing workforce data analytic skills. Those with organizational development, training and diversity management skills also got higher than average raises in 2011. Mercer also observed that salary rises were bigger at larger companies and higher ranked managers are eligible for and receive more incentive income.
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The Employee Benefits Landscape in the Baltic States.
Devoland, Nick; Vyas, Sunil; Benefits & Compensation International; v41 no7 pp 3-8 Mar 2012; journal article

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Abstract : After gaining independence from the USSR in 1991, the Baltic countries of Estonia, Latvia and Lithuania were making strong economic progress until the global recession of 2008 hit. Though growth resumed in 2011, unemployment and a shortage of skilled labor are nagging problems in each country, often resulting in emigration. Few employers have resources to pay more than minimum wage, and some resort to handing out undeclared wage supplements. Each country undertook a radical restructuring of the three-pillar state welfare system, but heavy taxes are a serious disincentive for employers to provide any unmandated additional benefits. Group private medical insurance has grown, especially in Latvia. This and other forms of insurance are fairly common among foreign enterprises but rare with national employers. As the global economy improves, the range of benefits and interest in offering them is expected to rise slowly.
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The Implications of the Arab Spring for Compensation and Benefits.
D'Cruz, Warren; Benefits & Compensation International; v41 no7 pp 12-13 Mar 2012; journal article

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Abstract : In the wake of political turmoil and unrest in many Arab countries in the spring of 2011, governments have announced increases in pay and benefits for national workers, mostly those in the public sector. Increases include Oman's 43 percent hike in minimum wage and 100 percent pension increase, a 100 percent increase in federal government workers' salaries in Egypt and in the United Arab Emirates and a 60 percent increase in Qatar, which spread from government employees to other sectors. These pay increases directly affect each country's economy, build inflationary pressure and create an nearly impossible competitive labor market for the private sector. Employees are seeking enhanced benefits, and multinational firms are contemplating leaving. Employers in the Middle East are left to develop realistic compensation budgets and a culture that rewards performance.
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The Reward Balancing Act.
Hatton-Gore, Tony; Benefits & Compensation International; v41 no7 pp 10-11 Mar 2012; journal article

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Abstract : Managing compensation is a challenge involving balancing competing forces on several dimensions. The manager must be attuned to the pull between strategic thinking and operational focus, recognizing the need to build relationships with diverse stakeholders and build various business interests while working with others less aware of the details of compensation management. One must strive to balance serving global principles with market flexibility, keeping an eye on the impact of the local environment on benefits and retirement plans. Some balance point must be found between rewarding the whole organization or concentrating on those at the top. Last, those who are thought leaders and line workers and managers all influence the success of the organization and deserve recognition.
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What Are the Latest Trends in Executive Retirement and Perquisites?
Riley, Malinda; Journal of Compensation and Benefits; v28 no2 pp 5-14 Mar-Apr 2012; journal article

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Abstract : A Hay Group survey of summer 2011 shows that, of 317 responding employers, 49 percent provide a nonqualified retirement plan, whether defined benefit or defined contribution. The rate of eligibility declines moving from the president and chief executive officer level down to division heads. Plans are offered by 59 percent of the industrial sector and 20 percent of the services sector, primarily as a retention tool and to make up for limits imposed by the IRS. Just over half of those polled have funding in place for the executive plans, with Rabbi trusts used by 72 percent. The most prevalent perquisites are cell phones, company car or allowance and severance pay. Physical exams and executive coaching are more common than in past years, while tax grossups, medical reimbursements and country club memberships are waning.
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Your Best Interests in Mind.
Edholm, Jim; Business Insurance; v46 no8 p 16 Feb 20, 2012; journal article

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Abstract : An independent benefits broker can be a boon for an employer as long as the broker honestly shares the same objectives. A good broker should understand all lines of coverage and present useful comparative data on services, design options and costs. While many states require standard prices for benefits purchased through a broker or directly with an insurer, taking commissions out of the picture, brokers are still influenced by other incentives offered by insurance companies. These include bonuses for new business, for total business and for percentage of renewals. Some brokers may not even mention the possibility of self-insuring. Employers should ask brokers about income from commissions and bonuses and about tenure with an insurer. They should do competitive checks with other brokers every few years and request quotes without a commission.
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Caution Still Reigns With Salary Forecasts.
Dobson, Sarah; Canadian HR Reporter; v25 no3 pp 1, 8 Feb 13, 2012; journal article

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Abstract : Employers have different views on the 2012 economy, with some not seeing as fast recovery as expected, according to Aon Hewitt in Toronto. Compared with their mid-2011 salary survey, a 2012 survey shows employers trimming salary budgets up to 0.3 percent across most of Canada. The Wynford Group of Calgary observed more hopeful signs with recruitment back to normal and few staff reductions, reflecting a reasonably stable outlook in North America. A Wynford survey found strong salary increases, averaging 3.23 percent nationwide, led by Alberta and British Columbia. Wynford found industry leaders for salary projections to be energy, manufacturing, engineering and energy services, while Hays Canada saw strong signs from construction, information technology, resources and mining. Eighty-one percent of Hays' respondents expect a static or stronger economy for 2012. A major challenge will be crafting rewards to satisfy recruitment and retention challenges.
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Can the Rapid Growth in the Cost of Employer-Provided Health Benefits Explain the Observed Increase in Earnings Inequality?
Warshawsky, Mark J.; BNA's Pension & Benefits Reporter; v39 p 262 Feb 7, 2012; journal article

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Abstract : The gap between lower and higher incomes is expanding, and with earnings growing slowly relative to rising health care costs, individuals receiving lower compensation are more severely affected by medical costs than those at higher compensation levels. Growth in actual earnings, the amount remaining after health care benefit costs are deducted, has lagged behind compensation growth, especially for those at lower income percentiles. The inequality in earnings reflects the rapid rise in health insurance costs, but inequality in compensation has not changed significantly. Legislative proposals and policies, including the health care reform law, have been made to address the gap, but much remains to be done to address earnings inequality as affected by health care benefits.
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Changes to Final Fee Disclosure Rule.
3 pp Feb 2012; misc. publication

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Abstract : The final rule from the DOL's Employee Benefits Security Administration regarding pension plan service provider fee disclosure, updating the July 2010 interim rule, takes effect July 1, 2012. Changes address investment-related disclosures about designated investment alternatives for fiduciary services and recordkeeping or brokerage services. The rule requires more information about indirect compensation for service providers, changes the time of the initial disclosure and of reporting and disclosure in response to a plan fiduciary's request. Relief under a class exemption is more restrictive, requiring fiduciaries to terminate an arrangement with a service provider who fails to deliver information within 90 days after a written request. The final rule includes an illustrative sample guide.
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Fact Sheet: Final Regulations Relating to Service Provider Disclosures Under Section 408(b)(2).
4 pp Feb 2012; misc. publication

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Abstract : The Employee Benefits Security Administration finalized rules for covered service providers, making minor changes to the July 2010 interim rules. The final version specifies the types of information that service providers must disclose to fiduciaries of ERISA-covered defined benefit and defined contribution pension plans. Providers must describe all services for which they expect at least $1,000 in direct or indirect compensation. Indirect compensation must be explained, including its source. Providers must disclose how compensation is allocated among affiliates or subcontractors and state what compensation is attributable to recordkeeping services, if provided. The final rule does not apply to certain Section 403(b) annuity contracts and custodial accounts. The rule expands disclosures about indirect compensation and parallels participant level disclosure regulations.
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Restricted Stock Awards and Taxes: What Employees and Employers Should Know.
Petra, Steven T.; Dorata, Nina T.; Journal of Accountancy; v213 no2 pp 44, 46-48 Feb 2012; journal article

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Abstract : As the use of stock options has faded, restricted stock awards are on the rise. Such stock is tax free for the employee until it becomes subject to a substantial risk of forfeiture or is transferred. Internal Revenue Code Section 83(b) permits employees to include in their gross income the difference between what they paid and the stock's fair market value when the stock is transferred. However the employee forfeits taxes paid if the stock value drops or if the employee sells or otherwise disposes of the stock award. There are limited salvage options concerning the Section 83(b) election, including a petition for revocation as a mistake of fact. Accountants should fully guide employees on the tax consequences of restricted stock awards and advise employers on issues related to the amount and timing of the awards.
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When a Client Leaves or Loses a Job.
Aloi, Michael J.; Journal of Accountancy; v213 no2 pp 40-43 Feb 2012; journal article

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Abstract : Accountants remain valuable advisors when a client faces job loss and can provide financial planning assistance. Maintaining liquidity with an income stream is the top concern. Loans from 401(k) plans must be paid off but a payment plan may be possible. IRA transfers are normal but demand review for their absence of creditor protection. Net unrealized appreciation rules may apply with regard to company stock ownership, and there may be some recourse for taxes already paid on restricted stock. Other issues concern deferred compensation, company stock options, retaining company stock, staying in defined benefit plans or taking lump-sum distributions or annuities, and maintaining health and other forms of insurance.
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Executive Compensation Planning for Pre-IPO Companies.
Lilienfeld, Doreen E.; Wissel, Veronica M.; BNA's Pension & Benefits Reporter; v39 p 207 Jan 31, 2012; journal article

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Abstract : Companies heading toward an initial public offering (IPO) will face different possibilities and constraints over their executive compensation, based on federal tax code and securities laws. They should act early to be sure their compensation programs serve intended purposes. Change-in-control provisions become more important, and corporate governance demands a more formalized approach to compensation management. Disclosures may be required for the decision to engage a compensation consultant and the fees paid. Compensation for named executive officers and their annual bonuses and incentive plans must be disclosed, and tax deductibility limits of Internal Revenue Code Section 162(m) respected. Firms should prepare for scrutiny of stock option grants, disclose material risks and be ready for say-on-pay votes.
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Executive Compensation: Committee Chair Pay Gap Is Shrinking, Speakers Say in Discussion of NACD Study.
Hughes, Mary; BNA's Pension & Benefits Reporter; v39 p 185 Jan 31, 2012; journal article

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Abstract : There is a growing trend toward more consistent pay for board of director members. A survey prepared for the National Association of Corporate Directors (NACD) by Pearl Meyer & Partners shows pay differentials based on committee membership and position are shrinking, according to Jannice L. Koors. The review of director pay at 1,400 public companies indicated the median compensation for chairs of both compensation and governance/nominating committees was $15,000, with audit committee chairs getting about 50 percent more. Among the top 200 firms, 79 paid over half their compensation as company equity, with full value shares dominating over stock options.
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Generous Severance Can Hamper Firm Performance, Says Study.
Dobson, Sarah; Canadian HR Reporter; v25 no2 pp 2, 26 Jan 30, 2012; journal article

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Abstract : Research by Peggy Huang of Tulane University suggests that firms that provide severance contracts to their chief executive officers tend to underperform. In 2007, 55 percent of firms gave top executives several contracts, with 60 percent including an equity component. Considering 5,142 CEOs heading Standard & Poor's 500 firms, the firms awarding cash only performed worse than those providing some vested equity compensation. Details of the contract structure also matter, such as an accelerated vesting option. But severance arrangements can also have positive effects, dampening risk taking if well-constructed and encouraging positive results when the CEO's compensation is tied to strong corporate performance.
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Forms: IRS Clarifies Participant Notice Requirement Necessary for Completing Its Form 8955-SSA.
BNA's Pension & Benefits Reporter; v39 p 92 Jan 17, 2012; journal article

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Abstract : A January 11, 2012 email alert from the IRS clarified a notice requirement for plan sponsors filing IRS Form 8955-SSA, Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits. Specifically, it established two conditions a sponsor must meet before answering affirmatively to a question about whether the plan administrator provided a statement to each individual required to receive one. First, the administrator must have furnished timely notice through an alternative document, such as a benefit form or distribution form. Second, the documents sent to affected participants must have included the plan name, the name and address of the plan administrator, the participant's name, and the nature and amount of the deferred vested benefit the participant is entitled to.
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Retail Stores: Study Says Retail Sector Booms, but Serves as Largest Employer of Low-Wage Workers.
Biggs, Alicia; Daily Labor Report; no10 p A8 Jan 17, 2012; journal article

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Abstract : According to a report by the Retail Action Project and Stephanie Lucce of the City University of New York, the retail industry, while growing, employs more low-wage workers than any other industry. Over half the retail workforce is part-time, temporary or holiday workers. Half of all retail workers make under $10 per hour, more than 70 percent do not get health insurance from their employers, and 30 percent support a family member. The average age of a surveyed worker was 24 years old. Over three-quarters of Latino women made under $10 per hour. The authors of the report advocated higher retail wages, saying it would boost the struggling U.S. economy.
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Making It Interesting: Creative Ways to Communicate Benefits.
Hogg, Sharon; Canadian HR Reporter; v25 no1 pp 11, 14 Jan 16, 2012; journal article

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Abstract : Communication and education are the keys to helping employees understand their total benefits, but it takes creativity to motivate them to fully incorporate the information. Content must be interesting, free of jargon and relatable. Personal stories are more likely to be read than annual reports. Communications should be branded for easy recognition and inspire active involvement, especially for health-related activities. Employee surveys reveal knowledge levels to shape messages. Insurance carriers and consultants may have much to offer. Seeing complete cost data for all benefits may put benefits in a new light for many. Benefit information will be remembered when conveyed in an entertaining way.
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