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U.S. Politics and their Impact on Rewards

18 August, 2015

As a consultant, I am curious and always eager to gain a better understanding of my field, which is total rewards and global mobility. I am currently taking a couple weeks leave in the U.S. to catch up with family and friends. I am also catching up on politics and rewards trends in the U.S. and I’d like to share some highlights for your benefit and interest!

President Trump?

Donald Trump is running for president! With a personal net worth of USD $10 billion and celebrity status from his reality show, The Apprentice (“you’re fired!”), Donald Trump is leading all the polls as the top Republican party candidate. His priorities include repealing “Obamacare” (Affordable Care Act) while still providing universal healthcare, tightening the inflow of foreigners crossing illegally into to the U.S. through the Mexican border, and getting tougher on various threats to America and its allies. On trade, he would seek to reduce the national debt of $18 trillion (the U.S. owes China more than 1 trillion), get tougher on trade deals, etc. As a businessman, he promises to hold federal employees more accountable, cut waste, etc.

“You can’t let the people in this country that are the poor people, the people without the money and resources go without healthcare…I just can’t even imagine. You’re sick and you can’t even go to a doctor. I say one thing, can you not let 25 percent of the people of the country because they have no money go without something?” –Donald Trump to MSNBC

Other Republican candidates–who are generally social conservatives (traditional family, pro-life, etc.)–include Jeb Bush (younger brother of George W. Bush, and former governor of Florida), Dr. Ben Carson (African-American retired neurosurgeon who once lectured President Obama on overuse of welfare to address the problems facing blacks), and Carly Fiorina, former (and first female) CEO of Hewlett-Packard.

Among Democrats, Hillary Clinton holds a strong lead over other candidates, although she is struggling to evade scandals that are dragging down her popularity. These include a scandal surrounding her decision as Secretary of State to install her own personal email server in her home, and to use personal email accounts to conduct work for the U.S. government, rather than use her official U.S. government email account. Assuming she survives this scandal and others, she may become America’s first female president. Her policies? Generally, Clinton favors liberal policies that provide higher entitlements to lower-income people, minorities, unions, women (abortion or “pro-choice” rights), etc. She has enormous political experience as former first lady (to Bill Clinton), Senator from New York and Secretary of State.

Impact on employers: Generally, a Democrat in the White House means higher taxes on corporations and wealthy individuals who should “pay their fair share” and more social welfare entitlements and legal protections for larger numbers of people, especially those in lower incomes or minorities. Corporate burdens (wages, overtime, healthcare, etc.) generally increase when the Democrats have power. If a Republican is elected, it is generally good news to employers who can expect less regulation and fewer “unfunded mandates”, i.e. laws that cost employers money with no direct aid to cover these costs. One issue to watch is the issue of gay rights. Same sex marriage must now be recognized in the U.S. It remains to be seen how employers respond, in terms of how a “dependent” is defined for benefits purposes. If Hillary Clinton is elected, it is likely she will be active in the area of Healthcare, as this was her key focus while first lady under the Bill Clinton presidency.

US Dollar SignWhat’s the State of Rewards Practices in the U.S.?

Here are four specific reward-related topics getting a lot of attention in the U.S.:

Minimum wage has been a hot issue in the U.S. the last year or so. The city of Seattle, Washington has established a $15 minimum wage. The early results are mixed. Some workers make more money and are very happy with it. Others have seen a pay increase but have requested a reduction in working hours, because if they earn too much they will no longer be eligible for government food stamps and other welfare entitlements. In other cases, employers have laid off workers and raised prices (or added a surcharge) to their customers. Earlier this year, President Obama declared a new minimum wage for federal employees of $10.10. There are 2.7 million non-military employees in the federal government, so this is significant. States or cities (such as Seattle) can set their own minimum wages that exceed the federal minimum wage, currently $7.25 per hour.

Impact on employers: minimum wage increases impact businesses who employ many workers making less than minimum wage. There is a direct cost impact for employees who were making below minimum wage, and there is an indirect impact on those making just above minimum wage, since there is now wage “compression” (smaller gap) between new and more experienced workers. Profits are squeezed on both ends: wage costs increase, while revenue may decrease if the employer raises their prices, and business is lost to lower-cost competitors (especially in manufacturing or other industries where the work can be moved offshore where labor is cheaper.)

Salary budgets in corporate USA are slim. Employees used to wonder how big their raises would be. Then they wondered how small their raises would be. Now they wonder whether they will get a raise at all. Generally, annual salary increase budgets are just under 3.0%. As a result of small budgets, the annual review process has become highly competitive, with workers seeking to get limited dollars. There has been enormous pressure on performance management systems, and as a result, a number of companies are beginning to wonder if all this competition is due to the use of ratings.

Impact on employers: tight salary budgets make it even more important than ever to allocate increases to those talents most critical to retain. In order to give significant increases to the top performers or key contributors/high potentials, more employees must receive no increase at all. There just isn’t enough money to give something to everyone and also give big raises to key individuals.

Ending the use of performance ratings is gaining momentum, with Accenture recently joining the list of companies such as Adobe, Microsoft, Apple and others who are trying to get workers more focused again on teamwork, and getting managers to give ongoing feedback and make good decisions on pay without the use of ratings. (See my recent blog on Ending the Use of Performance Ratings for more on this.)

Impact on employers: employers should re-assess their performance management systems to ensure they are achieving their objectives. If they are, they should ignore this trend of dropping ratings. If there are issues with organisational and individual performance, there could be any of several reasons. There is no evidence at this point that dropping the use of ratings is a good idea for everyone!

The Patient Protection and Affordable Care Act (i.e. “Obamacare”) is still challenging to employers, as premiums have been increasing for employer sponsored plans due to the requirement of covering pre-existing conditions and other requirements. Employers are re-assessing their reward philosophies and cost containment options while seeking to remain compliant and competitive in the market. The good news is, millions of Americans who did not have health insurance now have health insurance. The bad news is, the law generally places a greater cost burden on employers. In short, employees working 30 hours per week or more must be provided with affordable health insurance by the employer. The company can require workers to pay up to 9.5% of the insurance premiums, but no more. If employers don’t provide this, they must pay a penalty to the government for each eligible employee not getting insurance. The law has had mixed consequences. On the one hand, more Americans have health insurance. On the other hand, some employers are choosing not to provide insurance at all, while others are reducing work hours to a maximum of 29 hours per week, to make these employees ineligible for coverage and avoid the associated penalty for not providing coverage at work.

Impact on employers: American employers are investing a lot of time and money (on consultants!) to establish or update their rewards philosophy and their strategy for complying with Obamacare. Simply going along and providing richer plans results in significant cost increases for most employers. Practices may evolve to address these challenges, or a new President, a new administration and new members of congress may take office in January 2017 and either repeal or amend the law to preserve the “good” aspects of the law and remove the “bad” parts.

Keep an Eye on Politics at All Times

As a rewards professional, you need to keep your eye on politics. Getting elected requires votes, and promising better pay and better benefits has wide appeal. Politicians in democracies are increasingly focusing on reward issues as a means of getting votes and political support.

 

 

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