Module 5--Documentation, Audits and Communication Flashcards
What are Documentation?
Although few legal requirements exist pertaining to documentation, it is a key tool for the compensation professional. Documenting such things as which salary surveys were used and why, what formulas and processes were used to determine variable or base pay rates, or retaining specific overtime calculations will aid when practices or processes are called into question. There are various ways that compensation professionals can document what they have done with regards to compensation. Regardless of how documentation is kept, it is important that you are consistent in
your procedures and completeness.
■ Electronic
* Database, HRIS system, or spreadsheet
* Efficient – typically more efficient to collect and update information than hard copy format
* Data can be analyzed – allows for easier analysis of data, especially when there are large numbers of employees
■ Hardcopy
* May provide more qualitative information – on why specific employment decisions were made
* Storage and security – information must be stored, maintained and secured. This can be costly and time-consuming.
* More difficult to analyze data
What are Documenting Framework and Sources?
■ Framework
* Job evaluation method – how jobs are valued within the organization
* Pay position – how the organization intends to pay relative to its competitors
* Criteria for increases – what the specific criteria are for determining pay increases and other cash awards
■ Sources
* Specific surveys – document survey(s) used and rationale
* Statistics used – document whether mean, median or other percentile was used
– Aging – How was the data from surveys aged to reflect market movement over time?
– Market composite for jobs – How was the market composite for each job determined (i.e., weighting of different survey sources)?
* Associations, government and consultants – Other sources of information include associations (such as WorldatWork), Government sources (e.g., Bureau of Labor Statistics [BLS]) or HR consulting firms.
How do you Document Results?
Maintaining adequate documentation pertaining to how individual pay decisions were made is an important component of a sound compensation program. Even companies with small numbers of
employees will be challenged to remember specific justification for every increase over time without physical and/or electronic records.
■ Hiring rates – provide historical data and may aid defense in an audit
■ Performance ratings – often a primary criterion for salary increases
■ Position in range – useful to document at time of increase (if used as a criterion for increases). This can be difficult to reconstruct years later if not captured at the time of increase.
■ Salary adjustments used – the types of increases (promotion, merit, etc.) as well as categories of employees to whom they were delivered
■ Transparent processes and communications can be used to create a culture of trust and ethical behavior.
What about Auditing and Reporting?
■ Why Audit?
A sound compensation program should include a mechanism for assessing its effectiveness. A periodic audit of processes and results will increase the likelihood that the program is meeting desired objectives and builds in a process of continuous improvement.
■ Internal Audit
* Who conducts the audit
– Typically HR or a team which may include senior management, line management, employees or outside consultants
* When to audit
– A set interval may be established (annually, biannually)
– After a program cycle has been complete (following a merit or general increase)
* How the process is planned
– Determine audit objectives and what questions we want answered
– Determine information / data sources and where data will come from (systems, records, employees)
– Determine who is going to collect and analyze information / data
– Determine who is going to receive results
– Develop schedule and timeline
* Include legal counsel – Inform and work closely with the organization’s legal counsel when conducting an audit to minimize legal risk.
What to Audit?
It is important to clearly identify what answers are being sought at the beginning of the audit process.
This will guide the scope of the audit as well as what data needs to be collected. An audit can include a variety of different areas and measures:
■ Ability to attract employees – Does the pay program attract the talent necessary to meet business objectives?
* Time to fill – How long are job postings staying open?
* Are hiring managers satisfied with the quality of new hires?
* What percentage of candidates are declining offers due to low pay?
■ Ability to motivate employees – Are employees motivated to do the best job possible?
* Employee surveys – Do employees believe rewards are sufficient to be motivating?
* Productivity measures – How does the organization’s production or output compare to its compensation expenses (rising, falling or static)?
■ Ability to retain employees – Is the organization losing employees to competitors for higher pay?
* What percentage of voluntary turnover is due to pay issues?
* How well does the organization retain its top performers?
■ Compensation costs
* Measure payroll budget over time – can be measured on an absolute basis or relative to headcount (average per employee)
* Base pay budget versus variable pay budget (bonuses, incentive plans, etc.)
■ Competitiveness of compensation levels – “competitive” as defined by the organization’s pay strategy
* Overall salary levels versus market
* Job specific levels versus market
* Salary structure(s) compared to market
* Range penetration – measure of how far employees have progressed through their
respective salary range
■ Employee pay progression
* Are employees moving through salary ranges at an adequate pace, or are employees with many years of service still low in range?
* Identify employees outside salary range and determine reasons they are below minimum or above maximum.
■ Pay for performance (if applicable)
* Average pay increases for high performers – versus solid performers – versus low performers
* Rank all employees within the same job based on performance / contribution and compare to pay levels – identify outliers
* How do bonus and incentive plan payouts compare to organizational performance? Are they
correlated or not?
■ Pay administration and processes
* Survey managers and employees – Are processes user-friendly and streamlined or cumbersome and time consuming?
* Communication – Do managers and employees understand how pay is determined and what are the criteria to increase one’s pay?
■ Program fairness and pay delivery
* Are employees being paid at least minimum wage and receiving proper overtime?
* Are employees properly classified?
* Are differences in pay levels and other rewards based on objective criteria (i.e.,
performance, contribution, responsibility and impact, tenure)?
What are some methods for Assessing Program Fairness?
A “fair” compensation program is one that pays employees based on objective criteria that are tied to the organization’s business strategy and objectives. An organization may include in their audits an analysis of the pay of its employees to assess whether potential discriminatory or other illegal pay practices are occurring. However, it is strongly recommended that the organization’s legal counsel is consulted prior to any such analysis being conducted, as any reports created may become discoverable in the event of litigation. There are many techniques available, such as:
■ Average pay levels by gender / ethnicity* – compare rates of pay within the same job by gender or ethnicity
■ Compare pay increases of employees by gender / ethnicity* – after controlling for other objective criteria, such as job performance, time in job, education.
■ Use scatter grams to highlight potential problems – identify outliers
■ Excel graphs and pivot tables can be effective ways to analyze large amounts of data.
■ Regression analysis – a statistical tool used to analyze the factors that influence pay levels. It also can be used in identifying individuals whose pay levels deviate significantly from expected pay levels.
How do you Maintain Program Compliance?
Maintaining Program Compliance
■ Monitor plans for compliance – With changes in regulations, it is essential to monitor compensation plans for compliance with applicable legal and regulatory requirements. To stay up
to date with legislative and tax changes HR professionals may:
* Subscribe to notifications from government agencies
* Participate in national or local associations or groups
■ Anticipate lead time – Some regulatory changes will require significant time and resources in preparing and implementing within the organization. Don’t underestimate the lead time needed.
■ Involve necessary stakeholders – Successful implementation of changes often requires the involvement of various groups including Legal, IT, Finance and those responsible for employee communications.
■ Seek internal and external counsel – Sometimes regulations are complex and difficult to apply.
It may be necessary to obtain expert advice regarding law and tax changes from an attorney, compensation consultant, government agency, etc.
What are the required Posters?
The law requires most employers to post notices describing the federal laws prohibiting job discrimination based on race, color, sex, national origin, religion, age, equal pay, disability and genetic information.
■ Equal Employment Opportunity (EEO) – information concerning the laws and procedures for filing complaints of violations of the laws of compliance programs
■ Posters that may be required by the Department of Labor’s Wage and Hour Division include*:
* FLSA
– Federal Minimum Wage
– Notice to Workers with Disabilities / Special Minimum Wage
– State and Local Governments under the Fair Labor Standards Act
■ Family and Medical Leave
– The Family and Medical Leave Act
■ Government Contracts
– Service Contract Act / Walsh-Healey Public Contracts Act
– Davis-Bacon Act
■ Agricultural Employment
– Migrant and Seasonal Worker Protection Act
– Agriculture under the Fair Labor Standards Act
– Employee Rights under the H-2A Program
– Employee Rights under the H-2B Program
■ Lie Detector Tests
– Employee Polygraph Protection Act (EPPA)
Reporting to Management
From time to time it will be necessary to present information to senior management. This is an opportunity to keep them informed about new regulations, changes in existing regulations as well as the results of any audits conducted or other major pay program initiatives. Proactive communication on the part of HR will increase its ability to influence key decision making, encourage executive support and minimize the chance for leaders to be hit with unpleasant surprises. The following are some considerations in reporting to management.
■ Present a compelling case – Executives are tasked with processing large amounts of information from disparate areas of the organization. Format your report in logical order that is easily understandable:
* Familiarize them with the problem or issue (brief and concise is usually better)
* Articulate why the issue needs to be addressed
* Indicate what the consequences (business implications) will be if no action is taken
* Propose a plan of action (how we will solve the problem), including timelines and estimated costs for implementation
■ Highlight legal implications – Make sure that you are clear in your report when discussing regulatory items that failure to take action will result in a situation of non-compliance and what the potential fines, penalties and other consequences may be.
■ Present facts and data – Using facts and objective data to support your presentation carry much greater weight than opinions or qualitative assertions.
Pay Program Communication
An organization’s pay program stands a much better chance of staying in compliance and meeting business objectives when its managers and employees understand the compensation program
generally, and important laws and regulations specifically.
■ Seek commitment from the executive team
* Compensation programs, no matter how well designed or implemented, have little chance for success without buy-in from the executive team. To this end, the compensation professional can play a significant role in conveying the importance of a legally compliant pay program in terms of avoiding costly fines and bad publicity, and also retaining and engaging employees who believe their compensation is determined in a fair and objective manner.
■ Communicate to employees in multiple ways – Different employees have different preferences when it comes to receiving information. Utilize all the mediums available including written, person-to-person, video, audio, electronic, social media, etc.
Develop a compensation guide for managers
* Include the organization’s pay strategy – if it exists
* Provide information on common management processes such as hiring, promotions, merit increases, adjustments, etc.
* Highlight the most important regulations managers need to comply with – minimum wage, overtime, pay fairness
* Provide training as needed – provide managers with the tools they need, i.e., how to explain to employees about their exemption status, what is included in employees’ regular rate of pay for computing overtime, etc.
■ Managers should be a primary source of pay program information – While HR is usually tasked with developing and maintaining pay programs, one sign of an effective program is when employees go first to their immediate supervisor for information or questions on their pay rather than directly to HR. Pay then becomes a company program and not an HR program. HR can then serve as a backup to the supervisor with assistance as needed.
- Which one of the following practices will help to ensure proper documentation for compliance with legislation?
A. Allow employees easy and unlimited access to documentation
B. Be consistent in procedures and completeness
C. Use one survey source instead of several
B. Be consistent in procedures and completeness
- What is one reason that it is important to perform a periodic audit of processes and results?
A. It is required by the Department of Labor.
B. It is required in determining increase budgets.
C. It determines what information and data sources will be used in the audit.
D. It builds in a process of continuous improvement.
D. It builds in a process of continuous improvement.
- What information do EEO posters provide to employees?
A. Various federal minimum wage rules
B. Employee rights under the H-2A Program
C. Laws and procedures for filing complaints
D. Laws and rules for employee polygraph protection
C. Laws and procedures for filing complaints
- Which one of the following should be included in a compensation guide for managers?
A. Information on common management processes
B. The consequences of various disciplinary measures
C. Individual salary rates of employees in their department
A. Information on common management processes
What are the things to Document?
Job Evaluation Methond
How are jobs evaluated
What Range postions
What are the criteria for pay increases
