Thank you to my "guest posters" for sitting in while I was away!  I'm back, but will have a few more guest posts, because so many colleagues were nice enough to contribute.  Getting back to my own work though, temporarily at least, the following post is a from my recent post at the Compensation Cafe.

The days of near-guaranteed base pay increases and growing employer contributions to ever-increasing benefits costs are slowly (but surely) dwindling.

No, base pay isn't going away, nor are periodic pay increases, but the battle against the growth in fixed compensation costs (base pay, health care costs, etc.) is gaining strength, even as the economic recovery starts to take hold.

Most employers are willing to pay out increased compensation, but today much of those pay increase budget dollars are going into variable pay, which typically flexes with organizational performance and ability to pay. The trend toward increased variable pay has been going on for two decades, but it seems to have hit a "tipping point" in recent years, as organizations struggle to absorb a never-ending battle with health care cost increases (crowding out merit budgets in the process), while trying to get more "bang for their buck" with their compensation dollars.

While organizations try to keep a lid on fixed costs, more enlightened employers realize that there's more to the "attract, motivate and retain" equation than just base pay and benefit dollars. But before going on, let's look at some general reward trends over the last few decades, and how we ended up where we are at today.

• The 1970's and 1980's: plain-vanilla base pay and benefits; defined benefit (DB) pension plans were common in larger, manufacturing and/or unionized organizations. Variable pay is confined largely to executives and sometimes middle management.
• The 1990's: many employers add variable pay (or push variable pay into lower levels of the organization) and other reward elements into the mix, such as stock option programs. Many employers freeze or eliminate DB pension programs and retiree medical as just too costly to maintain. Health care cost sharing is increasingly pushed down to employees. The 401(K) is the new pension program.
• The 2000's: a greater movement towards "total rewards," including variable pay for the masses and a greater recognition of the need to pay more attention to qualitative vs. purely quantitative (dollar dominated) rewards. Employers continue efforts to contain fixed costs, especially in the form of sharing increased health care costs with the employee base.
• The 2010's: as we enter a new decade, we see a greater focus on comprehensive or "holistic" rewards, including a movement away from purely quantitative rewards to qualitative and work-life rewards. Qualitative rewards include career/job growth and development opportunities, increased focus on organization culture and communication, work flexibility options, work-life "fit"options, and  creating a culture of appreciation/recognition.

Decades ago, Herzberg's work on motivation and job enrichment theorized that that pay is a more of a "satisfier" (it can meet basic needs and satisfy, but cannot make employees "happy" about their employment).  Confirming this, many studies have shown that pay is generally not the reason employees leave organizations (unless pay is noticeably below what's available in the relevant labor market); it was considered more of a "hygiene" (in Herzberg's terminology) or satisfaction factor. I believe this is an accurate characterization of base pay's role in job satisfaction, even today.

In reality, it's how managers treat and manage their staff, and how leaders lead their organizations that has the greatest impact on retention, job satisfaction and the propensity to turnover.  This is where rewards are headed; not just dollars (there are so few to spread around these days), but with qualitative or psychological rewards that can help to engage and retain employees (or to dis-engage and repel workers when not provided, or provided poorly or disingenuously).

Qualitative or psychological rewards focus more on genuine management/leadership, honest communication and regard for employees; building a culture of respect and appreciation, providing honest and constructive performance feedback, offering career and professional development opportunities, offering work flexibility and work-life balance fit options.

With the limited merit budgets of today and (predicted) for the future, there is just not enough "oomph" in the dollars that employers can offer to assist too much with the critical ideal of "attract, motivate and retain." Variable pay will help, but most of the rest will have to come from other types of rewards.

It's time to start thinking beyond dollars...


Doug Sayed is principal at Applied HR Strategies, a Seattle-area compensation consultancy and author of the StrategicPay Series Base Pay Toolkit, and hands-on, "do-it-yourself" (DIY) guide to developing a strategic market-based compensation program, complete with dozens of pre-built tools and templates, ready for use.

If yesterday's graphic didn't scare you, this one might help you get the gist of why REAL healthare reform is critical to the costs your organization incurs for healthcare, as well as for the entire country, and especially for the taxpayers (and your children/grandchildren) that will foot the burden of out-of-control healthcare cost growth.

Some may ask why I'm on a soapbox about healthcare reform recently, and the answer is really quite simple.  Healthcare reform, without real reform, is just another way to pump even more money into the machine that is slowly but surely bankrupting our country. 

The current plans on the table, while offering some "mini" reforms, basically just pump another trillion or so dollars into the same high margin, fee-for-service machine that has led to a never-ending spiral of cost increases several times the overall rate of inflation for the past few decades (even in the 2008-2009 economic slump, the worst in decades, healthcare costs are expected to rise in low double digits annually, even while consumers are cutting back on medical care!).

Of course, most Americans are concerned about what come out of their pocket for care, and that's understandable.  But what I believe many fail to realize is someone is paying for all the care that you're not paying for, and those "someones" are your employer, your government, your children and grandchildren, and you (indirectly, through taxes and deficits).

So, even if you think you're not paying for it, you really are, because it is built into the cost of the goods you buy, the massive deficits we're racking up, higher cost your employers are paying (which otherwise might go towards pay increases or hiring, but those costs are diverted to healthcare instead).

The healthcare crisis in America is not going away, with or without the current plans on the table.  It's time for all Americans to demand real reform (at least if you're concerned about the world you, your children and grandchildren will live in, in the the coming decades).  Reform that will restrict and/or eliminate the current fee-for-service model, and move towards evidence-based treatments, outcome-based payments, best-practice models, and yes, even some reasoned rationing, because everybody can't have everything they want (at little or no out-of-pocket cost, of course) and not expect the costs to soar.

I feel better, now that I've blown off some steam!  Please do you part.  This really is a crisis, even if you don't feel it yet.

Scariest Graphic Ever - Healthcare Costs!

If looking at this graphic doesn't scare you, then either you've been living in a cave, or must not care to much about the future of our country.

Healthcare costs are swallowing up an ever-growing percentage of our country's total spending, currently between 16% and 18% of GDP (depending on the study).  If current trends continue, healthcare spending will hit 20% of GDP in a few short years (yes, that's one of every five dollars spent in the U.S. is being spent on healthcare alone).

Healthcare is bankrupting this country, and it's time for everyone to become more informed and involved.  For a couple of good summaries of the issues and proposals, see this article in the Wall Street Journal (subscription may be required) "Ten Questions on the Health-Care Overhaul."  Another great overview most recent healthcare proposals coming out of Washington DC comes from the Terri Albee of the Compensation Cafe'. See her post here.

Don't let the special interests (and there are lots of them) rule your future.  Read up and speak up now!

If you see any real healthcare cost containment going on, please let me (and the rest of the country) know.

Each year some major consulting firms and others conduct their annual healthcare cost studies, and while the trends seemed to be moving toward slightly lower annual increases (down to the upper single digits, from the low double digit percentage annual increases), the last two studies I've seen are predicting roughly 10% annual increases in healthcare cost for 2009 and 2010, in the middle of major a major recession with virtually no (non-healthcare) inflation!

For instance the Buck Consultants 20th National Health Care Trend Survey is predicting between 10% and 11% annual increases (depending on plan type) for 2009 and 2010.  In other words, while wages are are flat to down in real (post-inflation) terms and companies suffering from falling sales and profits, somehow, healthcare can increase 10% in cost.

I've been reading about how many consumers are delaying going to the doctor, and not electing to have elective procedures done, but costs still go up 10%?  Somewhere I recall hearing about this concept called "the law of supply and demand," but apparently I was mistaken about that!

Healthcare costs for employers have more than doubled since the turn of the century and employee's out-of-pocket cost have tripled. Healthcare is slowly bankrupting our country.

I'm not a fan of government intervention in the free market, or of government-provided healthcare, but something has to be done.  In 1980, healthcare was about 9% of GDP, and in 2009 it will be approximately 18%.  We're heading toward 20% of GDP being spent on healthcare in this country within a few years.  Yes, you read correctly, one out of every five dollars spent in this country, will be spent on healthcare alone.