WA State Unemployment Rate Hits 9.4%

After stabilizing for one month in April (after a long string of unemployment rate increases), the State's unemployment rate has resumed its upward march, standing now at 9.4% for May 2009 (up from April's adjusted 9.0%).

In the past year, the total number of unemployed in the state has nearly doubled rising from 177,000 to 336,00. Over the past year 116,000 jobs have been lost in the state, but even more surprising is that over 40% of those losses have taken place since the beginning of this year.

Even some of the formerly strong areas such as high tech workers are now on the decline. "Information" workers are down 2.9% in the past year.

The only areas showing net increases over the past year are healthcare, social services and government (virtually nothing can't halt the growth of government!). The view the compete report from the state, click here.

Visit Doug at the Conference!

When I was at the WorldatWork conference in early June in Seattle, I ran into an old friend and colleague, Matt Johnson of NextComp (developer of a great market pricing tool you should checkout at www.Nextcomp.net).

Matt was nice enough to shoot a brief video of me introducing the new StrategicPay Series (www.strategicpayseries.com). You can find that blog post and accompanying video here.

Enjoy!

Healthcare Cost Containment?

If you see any real healthcare cost containment going on, please let me (and the rest of the country) know.

Each year some major consulting firms and others conduct their annual healthcare cost studies, and while the trends seemed to be moving toward slightly lower annual increases (down to the upper single digits, from the low double digit percentage annual increases), the last two studies I've seen are predicting roughly 10% annual increases in healthcare cost for 2009 and 2010, in the middle of major a major recession with virtually no (non-healthcare) inflation!

For instance the Buck Consultants 20th National Health Care Trend Survey is predicting between 10% and 11% annual increases (depending on plan type) for 2009 and 2010. In other words, while wages are are flat to down in real (post-inflation) terms and companies suffering from falling sales and profits, somehow, healthcare can increase 10% in cost.

I've been reading about how many consumers are delaying going to the doctor, and not electing to have elective procedures done, but costs still go up 10%? Somewhere I recall hearing about this concept called "the law of supply and demand," but apparently I was mistaken about that!

Healthcare costs for employers have more than doubled since the turn of the century and employee's out-of-pocket cost have tripled. Healthcare is slowly bankrupting our country.

I'm not a fan of government intervention in the free market, or of government-provided healthcare, but something has to be done. In 1980, healthcare was about 9% of GDP, and in 2009 it will be approximately 18%. We're heading toward 20% of GDP being spent on healthcare in this country within a few years. Yes, you read correctly, one out of every five dollars spent in this country, will be spent on healthcare alone.

Announcing the StrategicPay Series!

Today, Applied HR Strategies is announcing the publication of the first of several planned "hands on" guidebooks to help business, HR and even compensation professionals to be able to "do it yourself" ("DIY") on compensation development projects that are normally hired out to compensation consultants, at many times the cost of the Series modules (we call then toolkits).

The StrategicPay™ Series was created for HR, compensation and business professionals that want to have technically sound and professional compensation programs, but who can't afford (or don't want to afford) the high cost of hiring outside compensation consultants. It's also designed to help HR and compensation professionals learn and grow professionally in strategic areas of compensation planning and program development.

Also, effective immediately, the StrategicPay Series website will also be the home of our main blog. We will continue to periodically post compensation and HR stories directly related to the Pacific Northwest here, but for our main blog, visit us here.

Are Wages Falling?

Are wages falling in this recession?

The answer to that question depends on who's wages we're talking about. Different angles of this question will yield different answers.

With nearly 15 million Americans unemployed (and that doesn't count "disaffected" job seekers who've dropped out of the labor force or taken part-time work in the interim), competition for jobs hasn't been this high in decades.

And just like many of us learned in Economics 101, when demand falls and supply increases, prices fall (in this case, prices = wage rates). Generally this is most pronounced at the hiring level, as most companies are generally reluctant to cut wages for their workforces overall.

Despite the downward pressure, if you consult salary surveys coming out the first half of 2009, most will probably show a modest (albeit small) increase in overall wage rates from last year. Why? The reason is that salary surveys are generally measures of pay for employed workers, not a measurement of how hiring rates are changing, although that data eventually works its way into databases that survey vendors report data from.

Chances are that for most jobs, hiring rates are indeed falling, while overall wages rates are fairly stable (wages rates are stable to slightly increasing for those that have remained employed). For instance, an article on the SHRM (Society for HR Management) website reports that hiring rates have dropped 7.0% in the service sector and 10.0% in manufacturing year over year (March '08 to March '09). While these are large drops by any standard, that doesn't mean that wages are falling precipitously everywhere. We know that both of these areas are very weak right now, so these drops are not too shocking.

But what about stronger areas like health care or government (almost nothing can stop the growth of government!). We doubt wages have fallen for nurses and many other still in-demand health care workers, and for "hot skill" roles in technology, such as experts in web search technology or social networking (Twitter anyone?).

A good labor market analogy is that labor markets are much like the regional weather patterns, full of micro-climates within larger overall weather trends and systems. We know, for instance, that certain areas within specific wine growing regions are slightly cooler/warmer or wetter/dryer than other nearby areas, sometimes just a hundred yards away, and it's the same with labor markets. We know the macro trend is down in this labor market, but that doesn't mean it's a universal trend that applies to all jobs and all regional labor markets. Do your research before making sweeping generalizations based on the larger overall pay trends.

Doug Sayed, SPHR, CCP, is principal at Applied HR Strategies, Inc., a compensation consultancy based in the Seattle area. Doug is a Certified Compensation Professional (CCP) with over 20 years of HR and compensation experience, and a Master's degree in HR management from the Ohio State University. He is the lead developer of the StrategicPay™ Series, a series of "do it yourself" compensation resource toolkits, the first edition of which has just been released for publication.

What's Happening in CEO/Executive Comp

Attended the Wall Street Journal / Hay Group 2008 CEO Compensation Study webinar earlier this week and learned a lot about what's happening in CEO pay over the past year. The trends and changes are many.

The study looked at proxy filings for 200 large (>$5B in revenue) public companies that filed their proxy reports in the 10/08 to 3/09 period, so the data is very current. While I realize that most of our blog followers are not in companies of this size, many (if not most) major trends in executive compensation tend to come out of larger firms, who have the internal and external resources to research, develop and implement new and new, different and "game-changing" executive compensation programs.

While the issues and trends discussed in the study are too numerous to cover here, below are some of the major trends and issues discussed with regard to CEO compensation:

• CEO total compensation dropped in 2008 for the first time since 2001, when the U.S. was in a recession and suffering from post-Internet "bubble."
• The drop in Total Cash Compensation (TCC) was -8.5%, due to a drop in cash incentives of over 10% in 2008 vs. 2007 (base pay was up 4.5% in 2008; it won't be up that much this year though).
• Total Direct Comp (TDC), which is total cash comp or TCC, plus realized gains from stock or other sources was down 3.4%.
• The shift away from stock options towards performance shares (stock that grants and/or vests based on the achievement of predetermined performance targets) continues. The use of restricted stock was down slightly, largely at the expense of performance shares.

Some major executive comp practice trends noted in the survey were:

• More and more companies are reducing or changing some of the more egregious (at least from the outside critics' perspectives) executive compensation practices (see details below).
• Executive perquisites or "perks" were roughly flat in 2008 with 2007, after several years of gains. Recently imposed reporting requirements, as well as increased scrutiny of these perks may have slowed down their growth.
• Gross-ups (covering the taxes owed by an executive on compensation, often on special perks) are declining in prevalence, due to their widely negative perception. There's an article on this in the 4/21 Wall Street Journal (paid subscription required).
• Clawbacks (the ability to recover an ill-gotten gain) are increasing in usage (and are required under the Federal TARP program).
• The "Say on Pay" (non-binding shareholder votes on executive compensation plans) movement is gaining steam. While not required now, it was the feeling of the expert panel that eventually, this may be required by Congress (it already is for TARP recipients).

Other trends noted in the presentation:

• Increased emphasis on performance-oriented equity, such as performance shares. Performance shares have been gaining ground for the past few years, and the panel expect that trend to continue.
• Compensation committees should start to look at concept of "risk" in their executive comp plans. In other words, do the plans they help set encourage excessive executive risk taking? Comp committees should help to "manage" risk in designing executive rewards.
• Companies will be very conservative with base pay in 2009 (this is already happening, with many companies freezing base pay for executives).
• Reduced perks are likely, gross ups on the decline, and pressure to reduce or eliminate high-value golden parachutes.

Well, that's about it for now. The full report should be out in May, and would suggest that those of you who are interested in major trends in executive compensation should look for it via the WSJ or the the Hay Group.

Unemployment Soars in the Pacific Northwest

Having lived in the northwest since the mid-80s, I missed the "will the last person...turn out the lights" era. Back then, in the early 80s, the Puget Sound regional economy was dominated by Boeing, and today we're far more diversified than that. Our economic diversity has been no savior in this recession though (sort of like the stock market, where diversification hasn't helped there either).

But at least since I've been here in the northwest, this is by far the worst labor market I've seen (although my hometown - in the Detroit suburbs - is far worse off than we are, and won't be seeing any recovery for many years). Today's labor market makes the 2001-2003 jobs downturn look downright wimpy by comparison (and I thought the '01-'03 period was was pretty ugly at the time).

Oregon reported today that unemployment rose to 12.1% in March. That's tied for the highest rate the state has reported since it began tracking unemployment in 1947 (equaling the high point in the 1982 recession). That record will be broken soon.

While not as bad off as Oregon, Washington state is now up to 9.2% unemployment for March, jumping up nearly a full point from February's 8.3% revised rate. Meanwhile in Seattle, a jobs "safe haven" in the past few years, unemployment rose to 8.1%, from February's 7.6% rate.

Just one year ago, Washington's unemployment rate was 4.8%, and the Seattle metro area was well below 4%, so unemployment has doubled in the past 12 months.

If you've seen my earlier posts, I've been predicting for some time the worst labor market in many years, and now we can safely change "years" to "decades." We've also noted that the labor market is a lagging indicator, and so it's likely that unemployment will continue to worsen for several more months, even if the economy starts bottoming out and/or recovering soon (and no one knows when "soon" will be).