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Compensation Trends in 2014: Removing the South Beach Option

Date: Nov 20, 2013 @ 07:00 AM
Filed Under: Compensation Trends

When coveted basketball star LeBron James became a free agent in 2010, the world watched as the Cleveland Cavaliers tried to hold onto their superstar while every other NBA team tried to court him. When he finally decided his future, he hosted an ESPN TV special infamously called “The Decision” to announce his intentions. Thirteen million people worldwide watched as LeBron famously proclaimed, “I will be taking my talents to South Beach” and joined the Miami Heat, leaving fans and ownership in Cleveland devastated.

Certainly, this event was memorable for sports fans. But what does this story have to do with the equipment finance and leasing industry? Well, there is some serious speculation that March 15, 2014 could be the industry’s version of “The Decision” date for many employees. It’s a Y2K event of sorts, where the clock will strike midnight and employees will make new decisions. On this date, employees will have a complete grasp of important things. First, how did their 2013 bonus plans pay out for the year? Second, what type of salary increase did they receive? Lastly, what does the future hold for all aspects of compensation in 2014 and beyond? The “triple witching hour” of leasing and finance compensation will arrive. This comes on the heels of several years of muted increases and disappointing bonus payouts. By March, employees will get a tangible sense of their value where they currently work and will have to decide: Do I stay put, or do I take my talents to the South Beach of the equipment finance world?

What supports this human capital hypothesis that major change and turnover could be on the horizon? Is it hyperbolized or factual? According to a recent study by the Hay Group, as growth builds and employment opportunities increase, worldwide employee turnover is set to accelerate in 2014, after broadly flat levels in recent years. The number of workers taking flight is expected to reach 161.7 million in 2014, a 12.9 % increase compared to 2012. Looking closer at the leasing niche, the ZRG Partners Hiring Index, which tracks hiring demand in the industry, hit its highest level since 2008. Hiring demand is clearly up, especially for top talent. Existing players are seeking growth and the imperfect storm of new players entering the space is adding additional pressure to the talent pools. Using sports vernacular, the leasing industry is adding new expansion teams to an already large league. We have added five new expansion clubs that each need 52 players and this is impacting the entire league.

So, with the clock ticking and pressure mounting, what does this mean to you and what should you do?

For Leaders Working Hard to Keep the Team Together

As leaders addressing this issue, it’s complicated. In addition to the “South Beach” risks and according to experts, in the United States alone, the next decade is set to see the retirement of over 75 million workers. This retirement statistic includes 50% of the CEOs of major organizations. The available talent to replace those retiring will need to be picked from the next generation of just 45 million workers. While this is a macro trend, these ratios seem even more skewed within the equipment finance and leasing market with the continued graying of the leasing industry that has gone unchecked for decades. 

Also, consider what has been going on the past few years in human resources? While employees have generally been less likely to change jobs in the past, companies have been making subtle changes in compensation models revolving around a few key concepts. They are:

  1. Changing the variable compensation plans to align better with their business strategy and results;
  2. Thinking further about differentiating and rewarding ‘mission-critical’ roles as well as roles with high costs of replacement. This means getting away from parity and thinking about rewarding “A” players in different ways;
  3. Setting more challenging revenue and income goals and rewarding superior performance, but not overpaying for average or poor performance.  

The big overhand to this has been integrating parent company metrics and cultures into the equipment finance and leasing businesses. For decades, the finance and leasing units were able to operate with a detachment from banking standards in compensation. However, over the past few years, bank-owned leasing companies have fought parent company pressure to introduce “balanced scorecard” models for compensation factoring parent company performance with business unit performance. Concepts previously held as sacred, such as “compensation caps” and “bank like variable compensation plans” have been finally driven into the leasing groups due to regulation, scrutiny and pressure. The questions is, how will these changes now work when it comes time to review actual bonuses in good times?

Will these decisions be right, but the results in retaining talent a problem? Time will tell.

What Can the Workforce Expect in 2014?

So, good times mean better opportunities for employees, right? An imbalance in the supply and demand of talent can create good financial outcomes. What can you expect in 2014?

Let’s start with the facts and happenings in the broader markets. According to many experts in the general employment field, U.S. employees can expect median base salary increases of 3.0% in 2014. Good news ... your base salary should at least outpace inflation and this is probably a good benchmark. But what about the all-important variable compensation component ... the bonuses?

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