Competing on Compensation

With metals industry total employmentin continued slow decline, but with performance expectations always rising, a shift is occurring in terms of the amount and type of compensation that companies offer to attract and retain top employees.

Surveys by the Metals Service Center Institute, among others, show three major trends that will impact staffing costs:

• A shift toward security and away from variable incentives in hiring and compensation negotiations
• Non-financial benefits as a way of retaining the best staff members while controlling costs
• Efforts to control the health care costs associated with employing an aging workforce.

Hiring across the metals industry has been largely flat in the last year. Turnover at many companies has fallen below 5% as employees look for security in a shrinking job market and employers find, even when they have an opening, a smaller pool of qualified applicants.

“The last four to five years have been difficult, so job security has been valued,” says Paul Winsauer, vice president, human resources at A.M. Castle & Co., Franklin Park, Illinois. “On the heels of 2004, which was a good year, you can sense a more positive outlook and optimism—people feel good about what they're doing and want to stay.”

At Marmon/Keystone, where the retention rate is 93%, base salaries have increased only 3% to 4% for the past few years. And at Olympic Steel in Cleveland, “We've been very conscious about maintaining our current employment levels and being efficient rather than adding bodies,” says Maureen Mason, vice president of human resources.

COMPENSATION

Most of the employees at Olympic Steel's 10 locations in the U.S. Midwestern, Eastern and Southern regions are production workers—two-thirds of the total 800 employees. Olympic, using MSCI's compensation surveys, saw that other companies were successfully using non-cash forms of compensation and perks. The company put flexible work arrangements, cars, remote access availability and access to computer equipment in place, Mason says.

Yarde Metals Inc.'s president, Craig Yarde, Sr., has also gone toward nonfinancial rewards. The Southington, Connecticut, company, which has a 10% turnover rate, has focused on nontraditional forms of compensation—an employee gym and a game room, for instance—that help control salary increases but keep staff members satisfied. Yarde conducts an annual industry compensation analysis and then compares that number with the company's current financial status and projected sales and profit. Retention has been fairly constant at Yarde, where 41% of employees have been with the company for more than five years.

Laurel Zurawick, Olympic's human resources manager, has been looking at outside research for an analysis of compensation as a percentage of base pay. For sales staff, “the relationship between fixed and variable pay is critical,” she says. By learning what her peers are doing, Zurawick will adjust base pay to attract and retain certain types of staff and stay within industry-wide pay ranges. She finds it especially difficult to find good sales people and will negotiate base pay or variable pay based on what other companies are doing to achieve the desired results.

Research findings help Olympic offer competitive pay packages among other similarly sized service centers, she says. Participating in research surveys enabled Olympic to look “at where we were in relation to the industry and make adjustments in a short period,” Zurawick says. “By looking at other companies, you are able to strike a baseline to make better-educated decisions.” Using industry-wide research, Olympic developed an inside sales incentive program and implemented a more aggressive vacation policy to attract new employees and help with long-term retention.

To validate its compensation initiatives, for the past four years, Olympic Steel has conducted an annual employee opinion survey, which focuses on incremental improvement in 12 major categories—none of them salary. Overall, 99% of its 920 employees in 10 divisions and two joint ventures said that the company had improved in every category—safety to teamwork, corporate citizenship to quality—between 4.3% and 16% companywide. In fact, 85% of employees regard Olympic Steel as a good place to work and have plans to remain with the company. Zurawick says that Olympic's turnover rate is “well below industry levels.”

Bonuses at Yarde are based not on individual performance but on overall corporate performance. A.M. Castle uses gain sharing—a combination of profit sharing and incentives—which Winsauer says has been a huge retention advantage. “We have profit-sharing for most employees,” he says. “Profitability touches most of our employees at all levels.”

HEALTH CARE

Rising health care costs plague all industries and, in the metals industry where turnover is low and workers are aging, it is an increasing expense that must be controlled. U.S. service centers experienced average health care cost increases ranging from 7% to 13% in 2003 compared to 2002, the MSCI production employee compensation survey showed. Average health care costs as a percentage of total wages for responding U.S. plants ranged from 8% to 13%. The middle management survey found average cost increases of 13% from 2002 to 2003.

Among U.S. companies, nearly 70% reported that their total benefit cost was 30% or less of base pay, says the MSCI middle management survey. Among Canadian companies, results are the opposite: Benefit cost was above 30% of base pay for more than 70% of companies.

Yarde's health care expenditures run at about 32% of the total compensation package, and the company established a 20% weekly contribution toward insurance costs that will rise as the premiums increase. “We also increased co-pays and deductibles to assist in absorbing the costs,” Yarde says. “Even with these changes, we are still more generous with the group medical plan in comparison to most employers.”

At Marmon/Keystone, health care costs represent about 16% of the total compensation package. “We plan to analyze and project our health care costs annually and modify our plans to control escalating costs with greater employee participation,” says Robert M. Kaniecki, executive vice president of administration.