“investigation” file, which may be used to temporarily house confidential meeting notes and other forms of documentation related to the employee.
Contents of these files may include:
Personnel File
• Resume and employment application
• Employment offer letter
• Immigration paperwork (e.g., I-9) and tax verification forms (e.g., W4)
• Copy of Social Security cards and driver ’s license
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• Personnel action forms
• Temporary employee authorization forms (if applicable)
• Written acknowledgment of the firm’s key policies
• Leave of absence approval
• Final reports related to investigations made of employee’s conduct
• Disciplinary documents
• Performance and bonus evaluation forms
Employee Benefit File
• Benefit forms supporting the employee’s selection of specific benefits
• Vacation earnings and usage details
• Benefit tracking documents including requests for reimbursement
Medical or Disability File
• Workers’ compensation claim data
• Relevant medical and /or disability-related documentation
Investigation File (Confidential)
• Interview notes
• Complaints against employee
• Preliminary results of background investigation
• Manager’s documentation of performance incidents
As a matter of policy, report drafts and notes should not be included in files and should routinely be destroyed after their immediate usefulness has expired in order to maintain only relevant information in each employee’s files. Further, no information about any other employee should be included in an employee’s files to maintain each employee’s privacy rights. The investigation file is a confidential temporary file used to collect relevant information related to an investigation of the employee. After a summary level report about the incident(s) has been written and included in the personnel file, preliminary information should be destroyed in accordance with local legal counsel guidance.
Benefits Administration
In general, HR personnel are responsible for designing and administering benefits offered by the firm. This is a critical element in remaining competitive in the “employment” market. Well-managed firms ensure that at least one person in the HR group is fully versed on all aspects of every benefit offering and has been trained to know where the line is drawn among offering a full
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explanation, including some interpretation based on the individual’s situation, and advice (which should not be offered). Discussions about benefits typically are one of a new employee’s first impressions of the firm and, if well executed, can help the new employee form a long-lasting, favorable opinion of the firm. Getting this one right is a no-brainer that many firms often miss.
Compensation Administration and Forecasting
Responsibility for salary administration and forecasting is both a finance and HR function. Which group takes the lead on these critical processes is generally a function of the relative strength of the personnel involved as well as the personal preference of the executive team. Either way, both teams must work together to ensure that forecasts coordinate all changes in compensation known by both HR and finance. In particular, HR should review compensation plans to identify potential equity issues that may present legal liabilities. Compensation plans are discussed further in Chapter 10.
SALARY ADJUSTMENTS.
The art of determining actual salaries paid to
employees and all adjustments made thereto relies heavily on being competitive in the local, regional, and national marketplace, depending on the nature of each position. Salary surveys often are the best measure of
determining the relative worth of a position. National or regional salary surveys for many industries and positions are available for free or a nominal cost from various professional organizations including placement firms, trade organizations, and consulting firms. In certain situations, competitors within a city or region work together to retain an independent consultant or CPA to conduct an industry-specific salary survey tailored to local economic conditions and position descriptions. Such data, when updated annually before initiation of the annual planning process, can be used very effectively to ensure that employees are compensated fairly for their efforts.
A general rule of thumb to guide the use of survey data is that employees should be paid within a 20 percent band (i.e., ±20 percent) around the median compensation level for any given position. When an employee first begins taking responsibility for a position, he or she is paid at a rate that is 20
percent below the median for the position. Over time, and as the employee becomes more competent at the position, the employee would receive raises within that band until such time that he or she reaches the top of the band at 20 percent above the median. After that point, raises generally would ref lect only cost of living adjustments (i.e., to the median salary) as reported for each position in the annual salary survey. To receive a larger pay adjustment, an employee would have to be promoted into a higher paying position. Maintenance of such a salary administration program generally results in an equitable pay scale that balances the internal payroll with realities of the relevant local market.
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BONUS PROGRAMS.
When properly administered, bonus programs can be
tremendous motivational tools that help propel a firm to be a leader in its field. If not well conceived and executed, bonus programs simply increase costs with very little in return. Three types of bonus programs are found frequently in well-managed professional services firms:
• Profit-related “executive” bonuses: Generally reserved for only the most senior executives or partners of the firm, payment of profit-related bonuses can either be discretionary or tied to a formula. In general, these bonuses are tied to the firm’s overall financial success and are designed to motivate the senior leadership team to make decisions that are best for the growth and profitability of the firm. Long-term deferred bonus plans are designed to reward performance over several years while incenting the most senior executives to remain with and build the firm. The less discretionary these programs are, the closer the link may be between decision making and results.
• Management by objective (MBO)-related bonuses and deferred salaries: Unlike profit-related bonuses, MBO-related bonuses may be considered more like part of a salary that has been deferred for a period of time (e.g., quarterly, semiannually, or annually) and are paid only after successful performance of a set of predetermined tasks or responsibilities.
Effective MBO programs begin with a written statement of quantifi-
able objectives that the employee is to perform. In general, it is best to focus the program on three or four of the employee’s most important responsibilities that can be quantified. Once those objectives are discussed and agreed to with the employee, they should be documented in writing, with a copy given to the employee and another filed with his or her personnel records. The advantage of this technique is that it minimizes the amount of time required to perform the evaluation at the end of the year and record new objectives for the following year. Finally, the costs of such incentive programs, if properly established and managed, may be accrued ratably as a salary expense each month instead of being charged to bonus expense at the end of the year when paid. In some
client compensation agreements, this may properly increase the allowable amount of expense the firm may recover from its client, thus improving the firm’s profitability.
• Spot bonuses: Spot bonuses are, as the name implies, paid on the spot with short notice in recognition of a job well done, generally to lower level staff. Imagine the euphoric feeling of having your supervisor walk up to you, tell you that you did a fantastic job on a particular assignment, and then hand you a check for $1,000. Although not a material
amount, the fact that the firm’s management recognized your perfor-
mance and rewarded it with something tangible can be a powerful tool that builds loyalty and improves overall productivity.
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MONTHLY SALARY FORECAST BY PERSON. To provide both a control
point over the payroll process and the foundation for what is normally the largest cost element of the financial forecast, a detailed salary forecast should be prepared /updated each month. A salary forecast is a detailed spreadsheet (or database) that lists every employee, basic statistics about the person such as hire date, annual salary rate, date and amount of the last few salary adjustments, as well as a monthly spread of each individual’s compensation, including all bonuses and other salary adjustments. Employees are listed within their respective departments, with a copy of the worksheet given to the department head so that he or she can plan compensation adjustments for the year and the resulting numbers can then be used to develop departmental budgets to the extent used within the firm.
Each month, as new professional staff are hired, employees leave, salaries are adjusted, bonus amounts are refined, and new positions are approved and removed, the salary plan is updated to ref lect as many of these changes as possible. Many of these updates are recorded in some form of personnel action request form that the HR department uses to manage and control changes to the employee population. The salary forecast is one of the professional services firm’s most important management tools and must always be maintained in a current state and reconciled against actual payroll each month by someone other than the one who administers payroll. This simple control is vital in a well-managed firm.