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December 2017
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Important personnel issues

We are all aware of how economic factors and business issues change on a daily basis. They change and we change or we fall behind at a time when it is quite risky to fall behind. Look at personnel factors as an example; there were tremendous changes as a result of the recession and the very slow recovery.

As business cratered personnel adjustments were made from the number of employees on the payroll, the payroll and insurance costs paid on behalf of employees and the amount of work employees were asked to do. Tough times lead to tough decisions and tough workloads.

On the bright side the recession made most companies more efficient because productivity increased as employees found ways to “do more with less”. And from what I see and hear these productivity gains remain in place as we move along to some sort of recovery.

But as the media keeps touting the recovery in terms of earnings growth and increases in stock prices a lot of employees are going to think this same definition of earnings growth applies to their company as well, when in fact it may not. In many cases public companies have engineered their EPS (earnings per share) without any units’ sales growth but through some minor price increases, cost reduction and share buy-backs all of which increase EPS without much of any increase in the top line. Amazing how that works.

Employees have paid for their fair share of this recession and we have to give credit where credit is due. It has been five years of virtually zero pay increases even though inflation has been increasing where people spend most of their budget. So, if company profits are increasing as the media states, an employees’ expectation at this time is for some sort of pay increase. Can you blame them?

In 2010 surveys showed that pay increases was number six on the list of job expectations. Today it is number 1 along with the ability to use job skills and being able to work in an environment where co-workers and supervisors get along and work together.

So what is a CEO to do? Is a company more at risk today in terms of losing quality personnel because they really need those few extra bucks a pay raise will give them? I believe that is the case. It may not be an 80% likelihood, but 60% is surely in the ballpark.

What a management team has to do now is assess their ability in terms of when and how much they can add to their payroll cost. If they conclude they can, then the next step is to ascertain which employees get a raise or bonus and which do not. And if you have any in the second category is may be time to assess their ability to stay with the company.

If you find your company is still behind the eight-ball for whatever reasons it may be wise to find other ways to compensate for performance which mitigate an outright pay hike. But in any event companies finding themselves with tight cash flows better as least communicate a game plan to employees about what has to happen before pay raises are in the picture.

A lot of these problems and issues will fall on the HR department. If you don’t have a fully qualified HR professional on staff I suggest you explore a contract or hourly arrangement to get the help you need to avoid compliance and documentation issues required by law or by your lawyers if a lawsuit presents itself.  In todays’ environment this is a MUST!

No matter what you do there are some basics management should consider that will not cost much but add to the communication factor mentioned earlier. Some of these are:

Communicate the financial status of the company along with the plan to get it to the point of reinstating pay raises if you have not done so already. People like to know what is going on and how they fit into the program. You may find some good ideas as a result of these meetings as well.

Have a discussion about health insurance and how the new plans are working and whether there will be any changes in deductibles and/or out-of-pocket costs. I would also let them know that insurance is part of personnel cost and has to be considered when discussing pay hikes.

To improve productivity, which could allow for performance comp changes, the computer system should be reviewed to determine that employees are making full use of the system to pull out strategic information and reduce manual labor related to business transactions. I find many companies use expensive, industry specific systems but only use 50% of its capability. It may pay to ask your system vendor for the name of a user who is taking full advantage of the system and then compare what you are doing against what they are doing. Another option would be to have the vendor audit your procedures and offer suggestions how to make better use of the programs.

Make sure employees are educated about any employee benefit plans offered by the company, especially employees close to retirement age that have tremendous market risk. This is an ERISA requirement by the way and if your plan vendor is not complying with ERISA rules on an annual basis then find a new vendor. This is nothing to fool around with.

I am sure you can find other issues or comments you want to communicate with your troops and I encourage you to do so. I will repeat, however, that if you plan to do anything along these lines that you consult with an HR pro to ensure you are saying or doing anything that will get you in trouble with the Feds.

On a final note I will remind you that our friend Dr. Al Bates constantly reminds us that personnel costs should not increases faster than the top line. So if you believe a pay raise is on the table do your homework first to see if it works and how you can mitigate it with higher productivity, incentive programs rather than a fixed pay hike or perhaps a bonus program if company goals are made.  

Garry Bartecki is a CPA MBA with GB Financial Services LLC. E-mail to contact Garry.