Compensation and Benefits Trends in 2015

Savannah Engineering, Inspection and Insurance Company (SEIIC):

Trends in compensation and benefits

Savannah Engineering, Inspection and Insurance Company (SEIIC) is a service-based company and thus must cultivate a strong and committed performance from each and every one of its employees to thrive. However, currently its compensation and benefits programs lacks the ability to reward top performers and merely gives annual pay increases to all employees of 2-5%, regardless of the employee's level of productivity. Seniority rather than performance is given preference in terms of the company's evaluation and rewards system. Its benefits are competitive given that it offers health insurance and other benefits but the structure of the benefits is rigid and only includes such traditional benefits as health insurance, life insurance, retirement plan (defined benefit) and a 401(k) plan (defined contribution). This paper will offer suggestions to improve evaluation and rewards systems to ensure that top earners are adequately compensated.

Different types of appraisal and compensation

The most popular, traditional method of appraisal based on performance versus seniority is that of a behavioral checklist. "Behavioral checklist has a list of criteria that an employee should workup to be a diligent worker. The behaviors differ according to the type of job been assessed. This method is considered favorable as the evaluation is done on the basis of individual employee performance without comparisons" (Elan 2015). Managers meet and discuss the employee's performance with him or her. The downside to the process is that the checklist may not fully take into consideration all of the employee's input over the year. However, this method is fair in the sense that employees understand how and why they are being appraised and if they will receive a pay increase or promotion based upon their performance.

A more contemporary method of evaluation is that of management by objective, another method which does not emphasize seniority but rather the concrete compensation given by the employee to the organization. "In MBO method of performance appraisal, manager and the employee agree upon specific and obtainable goals with a set deadline. With this method, the appraiser can define success and failure easily" (Elan 2015). Setting the objectives is a mutually-agreed upon process. There is no peer input but the employee does give input into how he or she will be evaluated. The specificity and the directness of the goals ensure that employees feel that the process is fair and they know how they will be evaluated. They also have a sense of control over how they will be evaluated. The downside is that having such a rigid system can in some instances cause a focus on the 'trees rather than the forest' and hamper productivity because compensation is tied to making objectives. In one organization, according to an employee: "One of our production manager's main goals was to keep his employees 100% utilized ... he blocked most of the lean initiatives...worried that if the team figured out a way to improve the process, they might get stuff done faster and if they ran out of things to work on, his employees' utilization rate would drop" and thus fail to meet the predetermined goals (Dyer 2013). Goals can become arbitrary and fail to serve the organization.

Another popular type of performance appraisal used to allocate compensation is that of 360 degree appraisal which "involves feedback of the manager, supervisor, team members and any direct reports" (Elan 2015). The great advantage of this system over the current one is that it provides specific and targeted feedback to employees from a variety of sources. "In this method of appraisal, [an] employee's complete profile has to be collected and assessed. In addition to evaluating the employees work performance and technical skill set, an appraiser collects an in-depth feedback of the employee" (Elan 2015). Peer input as well as managerial input ensures that employees' efforts on a team do not go unrecognized. Of course, there are always concerns that team members might be unfairly biased against a member but the multiple sources of information act to counteract this. Employees are graded on a series of behaviors of which they are aware of from the beginning, so there are no surprises in terms of how they are evaluated and they have the criteria in mind during the period in which they are performing. "For example, to measure the leadership competency 'vision,' your evaluators score a list of behavioral statements such as, 'Marcus sets a clear vision for our team' and 'Marcus shows how our team's work fits the vision of the entire company'" (Buckingham 2011). Consistency in the surveys ensures that employees have an incentive to improve and there is continuity between reviews.

However, despite their trendiness, 360 evaluations have come under great criticism in recent years. It is argued that the fact that multiple sources of data from different sources do not cancel out errors. "Each individual rater is equally unreliable. This means that each rater yields bad data. And, unfortunately, when you add together many sources of bad data, you do not get good data. You get lots of bad data" (Buckingham 2011). The subjectivity of a performance review is inherent to filling out the 'ratings' forms and because of the formulaic nature, there is no way to provide individual input. One rater's interpretation of "having a clear vision" might be different than the other rater's.

Yet of all of these methods, 360 degree surveys are likely to be most appropriate for the organization. The checklists allow for some flexibility given that they can be changed over time and draw upon input beyond that of the relationship of manager and subordinate. For a company desiring to become less hierarchical, the 360 method is ideal.

Trends in benefits

Some cutting-edge organizations like Google are expanding the types of on-site compensation offered to employees to include free food and fitness classes, dry-cleaning, medical care, and even transportation may be provided to employees. These benefits are not simply attractive 'extras' -- they also serve an organizational purpose of ensuring the employee is more likely to remain at Google for lunch and to run appointments (D'Onfro & Smith 2014). Even if the organization cannot offer all of these amenities, complementary fitness classes and food can create a more positive feeling about being employed at SEIIC.