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Feature: Pay Smart and Prosper - CWS 30 January 2.1

Contingent Workforce Strategies 30





By Leslie Stevens-Huffman

If adversity is the catalyst for new best practices, then companies should have exited 2009 with an abundance of innovative ideas for managing contingent pay. Some companies learned valuable lessons when calculating pay decreases for contingents amid a declining labor market; others became a little wiser after Microsoft ordered its staffing vendors to cut wages across the board from watching disgruntled IT contractors post their displeasure on the Internet.

"One of the things we learned is that a slash-and-burn approach to pay management has unintended consequences," said Jay Lash, executive director of consulting for Allegis Group Services. "Companies that universally lowered contingent pay by 15 percent experienced attitude and morale problems and some highly skilled IT contractors defected to independent consulting firms, which nearly derailed critical projects."

But don't assume you're in the clear if you sidestepped contingent pay issues in 2009. The economic conditions experts call the "new normal" along with the fair pay legislation passed during 2009 should persuade every company to adopt a few best practices for managing contingent pay this year.

Anticipate Change
Following a prolonged period of rising wages, some customers were unable to capitalize on the declining contingent market in 2009 because they weren't monitoring the trends or didn't have the appropriate detail to allocate wage decreases to specific classes of temporary workers.

A person who correctly anticipated the decline was Liz Thien-Reich, global procurement sourcing strategist for Monsanto Co. Thien-Reich has made a hobby of collecting contingent bill rates. The company's internal database contained rates on 400 job descriptions dating back to 2002 before she expanded her capabilities 18 months ago by incorporating the company's data with rate intelligence from a third-party provider.

One of Thien-Reich's best practices is a process she calls "pressure testing" the market. The test exposes gaps by comparing Monsanto's current bill rates against those in the database. Thien-Reich usually tests each quarter, but as the events of 2009 unfolded, she increased the frequency and subsequently secured rate decreases from staffing vendors as the labor market contracted.

While Thien-Reich requires her staffing vendors to administer contingent pay, she was able to gauge the potential fallout from wage decreases after contrasting her company's compensation levels to standard market pay. She follows the pay rates listed on salary Web sites like Salary.com, Payscale.com and Glassdoor.com to evaluate her company's competitive position, which is the cornerstone of an effective pay management strategy.

"We had our eyes open to the changing market conditions, so we were able to lower bill rates and minimize any negative impact with our contingent workers," says Thien-Reich. "We agree to bill rate ranges for professional workers with our vendors, and we've already increased one skill category, based upon the information from our tests and the recommendations of our vendors, so we can recruit and retain these workers during 2010."

Most staffing contracts allow companies to renegotiate bill rates as market conditions shift; companies then rely on their staffing vendors to implement the changes. But pay decreases rarely occur during the course of an assignment. In several instances, staffing vendors lacked the foresight and a plan to enact pay reductions swiftly and equitably, catching their contingents off guard because the possibility of a pay cut was neither discussed during the onboarding process nor mentioned in their agency's agreement. Savvy contingents attempted to renegotiate per diems or other perks, once the compensation door was reopened, and some were reassigned to the company through a non-staffing vendor for the same pay.

Scenario testing your contingent compensation strategy under a variety of conditions is a best practice that will guarantee your readiness when the temporary labor market changes course. Follow the process through from start to finish anticipating problems and proactively developing solutions.

"The contracts between the agency and the company and the contracts between the agency and the contingent workers need to anticipate the â€ËÅ“what if's,'" advises Ronald Wainrib, an attorney who specializes in contingent workforce law. "Agency agreements with contingents should state that changes to one addendum will not affect the others, so it's easy to change hourly pay without slowing down the process by jeopardizing everything else."

To maintain motivation following salary reductions, offer assignment extensions, especially to long-term temps working on critical projects, or offer workers the opportunity to recapture a portion of their lost wages via an assignment completion bonus, which will maintain continuity and preserve training investments. Offering workers more variable and less fixed compensation is a best practice that insures a return on temp expenditures in the "new normal" economy.

Link Pay to Performance
In November 2009, the U.S. Bureau of Labor Statistics estimated that 9.2 million workers were working temporary or part-time jobs for economic reasons. While the recession has eased the shortage of contingents in many skill categories, historically demand for these workers increases during a recovery period and many will exit the contingent workforce for full-time opportunities as the market rebounds. This scenario will give newly recruited contingents more negotiating power and drive wages up, unless companies give their existing contingents an incentive to stay.

While offering liberal increases for retention purposes may be justifiable when a company's top line is growing, it may not be feasible if lackluster revenue growth continues, as some experts predict. Instead, companies will be tasked with controlling pay rates and increasing contingent productivity, so their organizations can thrive in the "new normal" economy. The solution is to offer financial rewards based on merit and accomplishment, not escalating market rates.

"The idea of merit-based pay for IT contractors makes sense, but there's currently no quantitative way to discern the difference between a star software engineer and an average performer," said James McCaffrey, associate VP for Volt Information Sciences.

Although it takes a little work to initiate a pay-for-performance strategy, companies can reap substantial benefits by partnering with their staffing vendors to establish contingent incentives or performance metrics before ultimately delegating the administration of the program. Quick fixes include incorporating the measurements from the performance plans of employees into temporary job descriptions or requiring managers to state the mandatory output for each task cited in contingent requisitions.

Instead of restoring pay for long-term contingents to pre-recession levels, offer performance bonuses that will drive productivity and preserve today's lower fixed costs or offer contingents raises in exchange for sustaining higher productivity benchmarks. Run a pilot program in one department or functional area that uses long-term contingents to assess whether the incentive program increases output while reducing headcount or total contingent expenditures.

Thien-Reich controls wage increases at Monsanto by establishing the raise parameters for each assignment before the contingent starts. The worker can earn an increase by achieving a tangible requirement that also delivers increased value to the company. Examples include earning a new certification or transferring to a more complex project for IT professionals or taking on additional job responsibilities from other contingents.

Performance-based rewards mirror the strategy of employers that are compelled to limit salary increases for full-time employees given the "new normal" economy. And performance benchmarking enables managers to make strategic decisions when reducing contingent staff or apportioning wage decreases.

In the absence of real performance data, managers may be forced to institute wholesale wage reductions to lower costs at the risk of losing top performers or damaging the company's employment brand as contingents vent their anger over the company's unfair practices on the Internet. Companies can maintain contingent morale by making compensation decisions that are supported by facts and administered fairly, especially when it involves a pay cut.

Pay Equity
Congressional approval of the Lilly Ledbetter Fair Pay Act, along with the passage of the Paycheck Fairness Act by the House of Representatives in 2009, is a reminder to all employers that contingent workers should be paid equally for work requiring similar skills, effort and responsibilities that is performed under similar working conditions in the same location.

While temporary workers assigned to manufacturing or distribution functions often have similar pay rates, professional contingents fulfill a variety of job descriptions and requisitions are often filled by a large number of agencies. This situation can lead to pay rate disparity if the agencies are not operating under uniform guidelines.

"Liability will most likely be determined by the amount of control the client company exerts over contingent pay in cases of alleged discrimination," says Wainrib. "But to the extent that pay is tied to the going market rates and falls within a range based upon performance or other qualifications like education and experience --everyone will be better off."

Companies should allow their staffing vendors to compose the rate card to avoid co-employment, but ask them to explain their methodology for determining rates and assigning contingent pay to be sure that pay will be administered fairly. Watch out for cronyism or favoritism by company managers. In fact, companies should require an alternate supervisor to interview and approve rates for contingent workers who are acquainted with the hiring manager. This recommended best practice is vital for companies that frequently bring back retired employees in temporary roles or incent employees to refer friends and family to contracted agencies.

Companies also should investigate disparities in bill and pay rates during quarterly audits to discern the tangible reasons for differences among contingents performing similar duties. Having a diverse audit team will validate the company's commitment to equality. And while it might be tempting to engage a contingent offering a bargain rate, that decision may come back to haunt employers and staffing agencies, if the contingent later discovers that a fellow temp is earning more for similar duties.

"Running exception reports in the VMS or another program can help you spot managers who frequently veer outside the defined bill rate bands," says Thien-Reich. "Then you can discuss the reasons for those exceptions and coach those managers, if you need to."

While these best practices can help companies and their staffing agencies engage contingents, control fixed costs and avoid EEO claims, never underestimate the need for clear communication and solid reasoning when discussing compensation decisions with contingent workers.

"I think it's easy to forget that we're talking about people when we talk about contingent workers," Lash says. "There has to be some logic behind pay increases and decreases and we have to be individually sensitive when making changes, because it's never wise to treat people like commodities, even during difficult times."

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