Compensation

Are corporate health care costs a crisis, or not?

This time of year, we tend to see a lot of press around the rising costs of health care in the US. The prestigious Kaiser Family Foundation notes that “Annual premiums rose 5% to $19,616 for an employer-provided family plan in 2018.”

That sounds scary – I know my salary did not go up 5%. So, I’m taking home less pay, right? Well, yes and no.

In another recent article, Kaiser Family Foundation’s Drew Altman notes that, at least recently, there is no crisis. Here’s his chart showing how health care, as a portion of total compensation, has fared over the last decade or so:

There is definitely an increase over the last few years, but it may not be as bad as it seems. However, as Altman notes, “Even if health costs have not been growing recently as a percentage of compensation, there still can be sticker shock, with the average cost of a family policy around $19,000 per year, about the cost of a Honda Civic.” Yikes!

What this graph and his analysis has not captured is the cost shifting that has happened to a lot of US workers over this time. We’ve seen the growth of high deductible health plans and rising PPO deductibles and other cost shifting such as eliminating copayments or adding additional tiers of coverage for specialty medications.

So, while the premiums as a percentage of total compensation have been steady over the past few years, I know that many people who require some basic level of health care treatment are feeling much more of an impact at the point of sale.

The first Kaiser article cited above also notes “The average 2018 general deductible for individual-worker coverage was $1,573, according to the survey, up from $1,505 last year and $1,135 five years ago. Those averages don’t include plans that lacked such deductibles.” Here’s the chart showing the rise in the annual deductible over the past decade or so:

So, while premiums and employer costs may not feel like a crisis, health plan consumers, your employees, are absolutely feeling the crisis. We’re expecting employees and their families to pay for a lot of their health care costs (and those costs keep growing, as well) and that trend is definitely unsustainable.

Without this cost shifting, the total compensation chart above would look very different. So, unfortunately, I think the crisis is real!

 

Should employers pay off student debt?

higher ed costIt is the season for graduation, so student debt is on my mind. I have a child graduating high school in a few weeks, which means I am thinking a lot about the cost of higher education.

Student debt is out of control – let’s just get that out of the way. Yes, higher education has become very expensive and many people cannot afford the retail costs. Many students do get some forms of financial aid (including scholarships, grants and loans) but many put themselves into way too much debt for an education that may be marginally better than one at a lower cost alternative.

So, in an attempt to attract younger employees (who are mired in this debt) some employers are now helping to pay off their employee’s student loans. Sounds like a great way to attract talent, right?

It could be, but as the article notes, this does not tackle the larger issue of why higher education is so expensive.

Offering this cash pay-off may also create a disincentive for those who are currently debt-free. What if you put yourself through college, working two jobs in the process, and emerged with a degree and no debt? Good for you, right? So, how do your total rewards compare to your peer who accumulated debt? Are you, the employer, rewarding someone more for having this debt? Is that what you want to reward?

I know that student debt is not necessarily a choice, and that these payments really do not amount to a lot for any individual. However, based on the Employer Participation in Student Loan Assistance Act noted in the article, some want these payments tax-free up to $5,250/year (or $437.50/month).

Payments that high can create a bigger total reward gap among your peer employees. This gap may already exist within your organization, depending on which employees cover their dependents (if any) on their health care benefits, for example. In that case, you may be rewarding families more than single employees.

I am more concerned about yet another employer-funded benefit emerging instead of tackling the greater issue of overall cost of higher education (and educating potential students on the true value of higher education at different price points).

That said, tread lightly in this direction, should you choose. It is really hard to take away a benefit in the future, so offer only with this caveat in mind. As we saw with Starbucks recently, jumping too quickly into a response can also lead to a swift backlash.

When can you pay someone less for equal work? When they earned less before…

I just learned that the 9th U.S. Circuit Court of Appeals ruled yesterday that you can pay an employee less than another who is doing the same work, simply because they earned less in the past. Actually, the ruling was specific to a woman who earned less; but really, this has implications to anyone who earns less on a prior job – not just women.

Think about it – have you ever taken less salary to have better benefits? What about a better work-life balance? What if you worked in a location that had a lower cost of living (which is actually what seems to have happened in this case)? Did you think that those decisions/situations might impact your salary for the rest of your life? Probably not.

We all like to think that we get paid appropriately for the work that we do. However, this is very situational. You might want more to work in a fast-paced environment. Or, maybe less if they offer you a rich pension plan or more paid time off.

In this case, the court is saying that it is okay for an employer to allow a lower rate of pay to follow you around for the rest of your life (unless someone smarter realizes the injustice and decides to be more equitable).

I know that we’re dancing on a very fine line here – especially when it comes to quality of work and pay for performance. Do I like Bob’s work better than John’s because Bob and I are friends? What if Bob and I communicate well, but John and I do not. When is there bias in the decisions? We cannot often tell, nor are we always aware that we are being biased in these situations. So, we need to be careful in these valuations. But this decision does not take any variations of cost-of-living or total compensation into account, which seems very unfair.

This ruling is being sent back to U.S. Magistrate Judge Michael Seng for consideration. This judge previously decided that this behavior was grounds for bias. I ask you to think about what would happen if this happened to you, even if you are not female? Would you accept this if you found out another worker earned more just because s/he earned more in a previous job?

I hope this does end up in a higher court, as I have a hard time believing anyone would accept “prior pay” as a reason to pay someone less for very long. Seniority (years of experience), merit, quality or quantity of work all still sound reasons to differentiate pay (assuming you have as little bias as possible in the assessment). Good employees know they will be in demand, and will not tolerate discrimination for long. If possible, they will go to the smarter employer who will pay them what they deserve.

Let me know your thoughts on this topic…

Is Google still searching for gender pay equity?

You may have seen that the Department of Labor is going after Google for “extreme” gender pay discrimination. You can read the latest Google response via a blog post here.

So what’s happening and why does this matter?

Keep in mind that tech companies are especially notorious for gender hiring and pay issues. Many articles have addressed the ongoing struggle to keep women in technology-related jobs, and there is even a website/network dedicated to women empowering others in these roles: www.womenintechnology.org

Since the technology field is already dominated by men, it is only natural that there exists a potential for bias, either deliberate or unconscious, against others “not like me,” including gender and race/culture. Google’s own published workforce statistics for their technology jobs support some of this behavior:

Google

Yes, Google’s tech workforce is 81% male and 57% white. That compares to the US averages of 49.2% male and 61.6% non-Hispanic, white in the 2015 data.  Note that the Google ethnicity above shows their tech workforce is 37% Asian, whereas the US average in 2015 is 5.6% Asian, so that is skewing the white percentages down quite a bit.

So why does this matter? Can’t Google hire who they want and pay their employees what they want?

Well, no, they cannot. Google is a Federal contractor, so they are subject to the pay practice rules of the OFCCP (Office of Federal Contract Compliance Programs), which requires Federal contractors “take affirmative action to ensure that applicants are hired and employees are treated during employment without regard to race, creed, color or national origin.” Gender was added in 1967, but apparently it takes more than 50 years to get the task accomplished!

It also matters because Google is a household name – it is even the verb we use for searching for something online! So, Google should know that they are a huge target for any compliance concern. They should be preemptively monitoring their HR practices and procedures for any potential issue, but apparently they were behind on that front.

The initial charge from the OFCCP/Department of Labor was for gender pay discrimination from 2014 to 2015, and the suit was filed in court in 2016. Note that in the Google blog post cited above they note “In late 2016, we performed our most recent analysis across 52 different, major job categories, and found no gender pay gap.” Is that too late? What about 2015 data? Looks like they still have a legal issue from that time frame.

I do appreciate that Google has published their compensation process online here: https://rework.withgoogle.com/guides/pay-equity/steps/introduction/. This is a valuable resource for other employers to use in their own compensation strategies. The blog post also notes that Google “recently expanded the analysis to cover race in the US.” That makes me cringe, because they actually should have been considering race before they were required to consider gender in pay equity issues, according to the OFCCP rules.

Lessons Learned

There are some lessons for all HR/Compensation managers from all of this:

  • Have a compensation philosophy and use it as your mantra
  • Define your jobs/requirements and classify them accordingly
  • Stick to your structure and try to prevent outliers
  • Assess your overall data at least annually and make adjustments where needed
  • Push back on hiring managers when you see bias in hiring/compensation decisions, where appropriate

These are not easy steps for HR – we are often already considered the bureaucracy/red tape. However, this is one front that is worth pushing back on and your legal team will thank you when you can defend your decisions in court (and can back them up with the statistical data as evidence).