Author: Douglas Shuit

The big job boards–Monster, HotJobs, CareerBuilder–cast a very wide net. The increasingly influential niche job boards provide a much narrower target, but in a tight job market with a premium on talent, such sites are a good hunting ground for job candidates.

    Here, names of the dot-coms often tell the story. There’s AMFMJobs, Attorneyjobs, Vets4Hire and, for executives, 6figurejobs. A desire to create a more diverse workforce might be satisfied at The Black Collegian Online, DiversityInc.com, GayWork.com and HireDiversity.com. Professional associations like the Society for Human Resource Management often have job boards, as do alumni groups, veterans and trade groups. In all, there are about 40,000 job boards.

    The authors of CareerXRoads looked at about 3,000 sites for their 2003 edition, including many of the above, and then narrowed that list down to 500 published job board reviews. “The sources of finding people have multiplied in an exponential fashion over the last few years,” says Gerry Crispin, co-author of the reference guide. “There are literally hundreds of sources for every specialty.”

    Hiring managers feel more of a need to make every hire count in a tight economy, so they have been turning to niche boards, says Peter Weddle, whose company, Weddle’s, publishes surveys of Internet sites related to employment. Weddle says that the war for talent “has morphed into a war for the best talent.” Thus the explosion of niche Web sites.

    As most hiring is still done by employee referrals, word-of-mouth networking is all important; professional associations also provide opportunities for social interaction on their Web sites. Mediabistro.com, where hiring managers can list media jobs, also sponsors cocktail parties and other social activities, which can provide access to top performers. Craigslist in San Francisco and other cities provides a big range of job listings, posted along with personals, community bulletin boards and housing information.

    Maureen Kelleher, director of experienced recruiting for Ernst & Young, says that niche sites are valuable in finding experienced accountants, auditors and other specialists. She has a list of 20 niche job boards she often uses. One she likes is Jobsinthemoney, recently acquired by eFinancialCareers.com. “Since July we have had over 2,000 applications from Jobsinthemoney” for job openings. She says she still uses Monster but has dropped CareerBuilder. “It has very much to do with the level [of employees] we are looking for,” she says. “We found that the hires from Monster tended to be for the lower ranks of our accountants. For senior roles, we need a more diverse network.”

Workforce Management, November 2003, p. 42 — Subscribe Now!

Life at Monster.com these days isn’t exactly a cabaret. But the financial picture isn’t so bleak that the company’s zany mascot, Trumpasaurus, is preparing for anything resembling a retreat. It’s true that revenues are down and competitors are boldly trying to slay the ubiquitous Monster. But the online career portal is, at least for now, hanging on to job board supremacy over archrivals HotJobs and CareerBuilder.

    As every hiring manager knows, the job board wars offer solid clues about what’s going on in the evolving realm of digital recruiting, what works–and what doesn’t. That’s why workforce executives listen closely when Steve Pogorzelski, president of Monster North America, declares without hesitation: “The Monster is not dead. And we will not be dead a year from now. We will still be number one.”

    Being number one in the job-recruiting field is about more than bragging rights. With mushrooming online competition, including corporate Web sites and niche job boards, Monster and its rivals are under intense scrutiny from hiring managers. Human resources chiefs often use all three big job boards, but are becoming much more choosy because the tight job market creates more pressure to make each new hire count.

    Monster’s revenue numbers show why competitors are smelling blood. During the quarter ending September 30, earnings reported by Monster Worldwide, the job board’s parent company, showed a decline of one cent per share: 11 cents versus 12 cents a year earlier. Overall, Monster Worldwide reported $508.9 million in revenues for the first nine months of this year, compared to $536.1 million during the same period in 2002. Monster reduced its workforce by 250 people over the last year, giving it a leaner, meaner look in moves the company hopes will translate into higher profits. The decline continues a slide that began in 2001, and resulted in a loss in 2002. To add to the company’s problems, deals have been struck by fierce competitor CareerBuilder with two of Monster’s biggest accounts–AOL and Microsoft’s MSN. By January, when job-seekers click on to AOL or MSN, they will be driven to CareerBuilder instead of Monster.

    Securing the prized contracts will cost CareerBuilder as much as $50 million a year. Matt Ferguson, president and chief operating officer of CareerBuilder, predicts that there will be a massive swing of more than 6 million unique visitors a month away from Monster to CareerBuilder once the contracts kick in. Taking dead aim at the top spot, CareerBuilder expects that its traffic will increase from 7 million to between 12 and 14 million unique visitors a month.

    “We expect to be number one,” Ferguson says. “It’s a massive swing. If you look at this year’s traffic, and add AOL and MSN to our numbers, we would be number one today.” Others agree that the deals surely will help CareerBuilder, but there is less certainty that Monster will lose its top spot. “Monster has a big head start,” says Bob Jordan, co-chairman of International Demographics, which puts out industry surveys under the name The Media Audit. “It’s a name that everyone is familiar with. Even if a person isn’t on AOL, it’s still easy to type Monster in a window and go there directly. At the same time, AOL and MSN is a real improvement for CareerBuilder.”

Opportunity knocks
    If it were a movie, CareerBuilder’s attack on Monster could be called Revenge of the Newspapers. The big play by the newspaper chains to knock down Monster is much more than a fight between the three dominant job boards for a bigger share of the growing online recruiting market. When the economy takes off and hiring picks up, the Internet job boards anticipate a golden opportunity to take a big slice of newspaper classified ads, traditionally a major profit center for newspapers. Forrester Research Inc. estimates that online recruitment advertising will reach $1.8 billion in five years, more than twice the $838 million expected this year. But that pales when measured against the expected $4.5 billion generated this year by newspaper job classifieds. And that is only about half the $8.7 billion worth of job ads produced for newspapers in 2000, its peak year.

    “Newspaper ads are still significant, but not to the extent that they were 10 years ago, or even five years ago, because of Monster and other employment job sites that have grown significantly,” Jordan says. “Newspapers will admit that a lot of what they lost is never going to come back.”

    Whether the frenzied fight for résumés and job listings by the big job boards means better-quality candidates for job openings is uncertain. Corporate recruiters complain that the big job boards flood the field with candidates, many of whom are inappropriate for the jobs they are advertising. As always, the name of the game in recruiting is finding the right candidate for the right job in the least expensive way in the shortest time possible. In most cases, that still means that most new hires come by word of mouth and employee referrals. “Employee referrals are by far the most effective source of new hires in terms of return on dollar invested and quality of hire, especially if you track that 6 or 12 months out,” says Bertrand Dussert, vice president of global services for Recruitmax, an applicant-tracking company that powers corporate career sites. Recruitmax software works from the inside, tracking employees who might be candidates for promotion, as well as the outside, combing through hundreds or thousands of applicant résumés for a given job opening. It is a key player in an industry that has grown up using technology to tame technology.

“The Monster is not dead. And we will not be dead a year from now. We will still be number one.”

    A survey by Staffing.org, which puts out periodic reports on recruiting metrics and performance benchmarks, came to the same conclusion. Internet recruiting tools like Monster, HotJobs and CareerBuilder were considered the most effective general source for outside recruits, but employee referral programs still ranked first. After that came organization-based recruiting, such as job listings on a company’s own Web site or job fairs. Monster job postings came in first among online recruiters, followed by HotJobs and CareerBuilder. “All Internet postings combined would just barely edge out employee referrals,” the authors concluded. Gerry Crispin, co-author of CareerXRoads, a 456-page guide to job and résumé Web sites, agrees. “Despite the large number of listings on the big Web sites, they still constitute less than 5 percent of the total number of hires. Ninety-five percent of positions are filled some other way,” he says. Crispin cites another major competitor to the big job boards–niche Web sites that cater to specific classes of professionals, like nurses or engineers, and are often operated by professional associations. It has been estimated that there are as many as 40,000 individual Web sites that provide links to jobs. “They have been slowly and quietly building job board models that are helping their constituents and becoming more visible to employers,” says Crispin, whose book reviews many of the boards. He estimates that as many as 15 percent of new hires are coming from niche boards.

Proven value
    Although Internet recruiting is just one part of the hiring puzzle, it is still an essential element for many managers. Ted Glatt, manager of talent sourcing for Lockheed Martin, uses Monster and CareerBuilder, but only as a supplement. “We’ve been successful with both of those boards,” he says. Like many other Fortune 500 companies, Lockheed Martin feeds much of its online recruiting energy into its own Web site, and it has accumulated a database of 1 to 1.5 million résumés. “We get a lot of write-ins. A lot of people come directly to us,” he says. “Our number one source for filling our openings is our own employees. Right behind them would be people who write in directly or employee referrals.”

    Glatt says that employee referrals “are becoming more and more important for us,” not less. Like other major employers, Lockheed Martin has a bonus program for employees who refer successful job candidates. Begun in 2002, the program awards $1,500 to any person who recommends a successful new hire. He says newspaper classifieds are way down. “Recruitment ads in newspapers can be very expensive, and the shelf life is not very long.” But Lockheed Martin continues to use newspapers as part of its recruitment mix.

    Jim Bowles, vice president of workforce development for Cingular Wireless, uses all three big online job boards, but keeps looking for better solutions. He says spending on newspaper job ads is down about 40 percent in recent years, and the company continues to review its sources for job candidates. Cingular is one of the companies supporting a new challenger to the big job boards, DirectEmployers.com. Formed by a group of Fortune 500 companies, it drives job-seekers directly to the Web sites of member companies, rather than have them answer questionnaires and fill out résumés by middlemen like Monster. Even so, Cingular continues to make significant expenditures for online recruiting and hiring. Big job boards, Bowles says, “have become an absolutely critical element in the way we search for candidates.”

With millions of résumés on file, the big boards are well positioned to go after an increasingly important category: top performers. In a soft job market, employers are putting a premium on quality.”

    Despite the competition, Monster is confident that it can stay on top. Among the bright spots: Monster has an agreement to provide résumé templates for the new Windows 2003, so casual job-seekers, often the kind of top performers that employers covet, can fill out a résumé and have it ready to be filed with Monster with a few clicks. Monster also has a contract with the federal government to provide résumé services, which could be another major source of candidates.

    “A year from now, Monster will have grown its customer base, increased customer satisfaction, and increased customer traffic,” Pogorzelski says. When Monster originally contracted with AOL and MSN, the job board needed high visibility and exposure to raise its profile. Now, as the best-known job site, with 30 million résumés on file, Monster figures the $50 million it would have cost to keep AOL and MSN can be better spent elsewhere. “We are spending over $100 million on marketing, we have a significant head start, and our brand awareness is such that they have a long way to go to catch up,” Pogorzelski says.

Yahoo upgrade
    Dan Finnigan, executive vice president and general manager of HotJobs, admits as much. “HotJobs and CareerBuilder have a lot to prove before we talk about Monster not being the leader,” he says. But HotJobs and its parent, Yahoo! Inc., are not standing still. Yahoo last month acquired Overture Services, Inc., a powerful search engine, for about $1.63 billion. Overture’s technology will help sift through millions of résumés online and match job-seekers with employers in a way that is “far beyond what the competition has,” Finnigan says. The hope is that HotJobs can match job-seekers with employers with the same success it has had in developing its popular and profitable Yahoo Personals. “The business is big enough for all three of us,” Finnigan says.

    CareerBuilder has the added incentive of reclaiming a field that newspapers had to themselves for more than a century. The widespread development of the Internet in the 1990s changed all that. Print ads peaked in 2000, and since then have had a series of steep declines–off 34.5 percent in 2001, down another 23.1 percent in 2002, with the drop in revenue continuing through the first two quarters of 2003, according to the Newspaper Association of America. Much of the loss, industry experts say, is due to the soft economy, but publishers acknowledge that they have felt the pressure from competitors like Monster and HotJobs. The competition for the MSN and AOL accounts shows the determination of the three big newspaper chains that own CareerBuilder–Gannett Co. Inc., Knight Ridder and Tribune Co.–to reclaim lost ground.

    Other newspapers have job boards set up in every big city. “Even with the recession and over 3 million jobs lost, print recruitment advertising is still a $4 billion to $5 billion industry,” says Charlie Diedrich, director of marketing and advertising for the Newspaper Association of America. “Internet recruiting has a bright future, which is why newspapers have been investing so heavily in it. I don’t think its promise has begun to be realized.” Until then, newspaper classifieds–ubiquitous, easy to access and pointed at local job markets–will continue to dramatically overshadow online advertising.

High price paid
    But that’s not to say newspapers don’t hear the footsteps behind them. Some think that newspapers were so eager to cut their losses that CareerBuilder paid too much for the MSN and AOL contracts. “They paid a heck of a lot of money for those deals,” says analyst Christa Sober of Thomas Weisel Partners. She says newspapers got into online job boards late, and still don’t seem to be promoting them, because they want to protect their traditional print classified-ad base. Still, she says, CareerBuilder’s aggressive moves have turned up the heat. “It’s a much more competitive environment because of CareerBuilder’s moves,” she says. The soft economy has had an effect, but she thinks online boards have shown relative strength. “A lot of the ad money has certainly vaporized, but it seems online hasn’t lost as much as offline,” she says.

    Monster last year held 39 percent of the online job-advertising market, compared to CareerBuilder’s 14 percent and 12 percent for HotJobs, says Forrester’s online principal analyst, Charlene Li. Other surveys, based on traffic, show HotJobs in second place and CareerBuilder in third. According to Nielsen//NetRatings, Monster recorded 11.7 million unique visitors in August, compared to 4.2 million for HotJobs and 3.7 million for CareerBuilder. Monster, by all accounts, still holds a commanding lead.

    Just how many jobs are filled from each source remains difficult to determine. Many companies keep close tabs on the sources of their new hires; others are said to be far more lax. Data is often tracked by position–say hourly workers or technology engineers–rather than segmented by industry, so hiring managers might know from experience whether an online board, a newspaper or in-house referrals work best for an hourly worker, an engineer or a mid-level manager. Companies like Deploy Solutions, Webhire, Peopleclick, Recruitmax and Recruitsoft have sprung up to help employers and hiring managers sort through the sometimes thousands of résumés that pour in through the Internet, define the right candidates and fill jobs quickly. Speed is important, since every day a desk is empty, revenue might be lost.

    “Data is absolutely imperative in decision-making. Am I more likely to hire more engineers from Source A, more financial analysts from Source B?” says Jim DelRosario, vice president of staffing performance for Deploy Solutions. Still, he advises clients to spread their money around–“so you cast a wide enough net to attract the people you want to attract.”

Premium on talent
    With millions of résumés on file, the big boards are well positioned to go after an increasingly important category: top performers. In a soft job market, employers are putting a premium on quality. That often means trying to reach workers with proven success, who are most likely working and not necessarily looking for a job. During the boom years of the 1990s, “employers were desperate for any employee with a pulse, so having anyone in your database was a plus,” says Peter Weddle, who researches Internet recruitment and employment issues. But the soft economy has changed things. “The war for talent has morphed into the war for the best talent.” Employers, Weddle says, “don’t necessarily want the largest database; they want the database with the most talent they want to see.”

    Given the residual hangover from downsizings, layoffs and widespread job insecurity, experts say, job loyalty isn’t what it used to be. Peter Cappelli, professor of management at the University of Pennsylvania’s Wharton School, thinks job dissatisfaction and employers looking for top performers will start job boards humming. Job boards make it possible for corporations to get “lots and lots of applicants,” he says. “On the other hand, it has made it easier for people to have access to lots and lots of jobs.”

    Cappelli believes that many workers are eager to jump jobs. “What has held this back is that there aren’t any jobs. As soon as the economy picks up again, are we going to see the same kind of job-hopping we saw in 1999 and 2000? The answer is yes. There are a lot of people who are unhappy with the jobs they have and would walk out tomorrow if they had the chance.”

    Should that happen, the three major job boards, plus tens of thousands of smaller niche boards, will be there to catch them.

Workforce Management, November 2003, pp. 37-44 — Subscribe Now!

Human resources didn’t need Bernard Ebbers to create an identity crisis. It already had one. Long before the former WorldCom executive became a symbol of colossal corporate excess, workforce managers were accustomed to being dismissed by critics as spineless wimps who couldn’t stand up to the chief. The Ebbers debacle has only made matters worse. Because of the role that human resources executives played in the alleged $11 billion WorldCom fraud, the entire field of workforce management suddenly has become a target of criticism from many new quarters.

    Ebbers, once a homespun Mississippi high-school coach and motel operator, led his company into bankruptcy, investigators say, using a unique pay and compensation system that made a mockery of conventional human resources standards. Today, Ebbers and five members of his management team face fraud and other criminal charges. Investigators say the downfall of WorldCom also represents a failure by human resources. Given the eye-popping compensation that some CEOs have been receiving in recent years, others say, a WorldCom was inevitable. The moral of this tale: Bad things can happen when human resources rolls over and plays dead.

    “None of us should be shocked,” says New York City compensation consultant Alan Johnson. “If you are going to manipulate a company, you have to have control over the motivational system, and compensation is a big part of the motivational system.” Looking beyond WorldCom, Johnson says that people managers need to rethink their roles. “In many cases, they have been advocates for management. That is not their job. Their job is to be an advocate for the company and the shareholder. They should have to have a little bit more backbone, a little bit more courage. The job of going forward is not necessarily for the weak of heart. I don’t think people are sympathetic anymore to the view that ‘The boss told me to do it.’ “

    Postmortems on causes of the WorldCom bankruptcy indicate that pay and compensation issues were a root problem. Ebbers dangled the carrot of millions of dollars in bonuses in front of his chief executives in the manner, as one investigator put it, of someone running a private family business. “Indeed, it was executive-compensation decisions more than anything else that seemed to lay the foundations for the fraud that ultimately transpired, and that represented the worst manifestation of WorldCom’s governance failures,” says court-appointed corporate monitor Richard C. Breeden in a bankruptcy report filed in federal court. The human resources department stood by and failed “to provide adequate discipline to prevent widespread compensation issues, such as lack of linkage between pay and performance, and poorly designed incentive programs.”

Imperial reign
    Passing out huge pay packages allowed Ebbers to enjoy a “nearly imperial reign” at WorldCom, Breeden says, even though the embattled executive “did not appear to possess the experience or training to be remotely qualified for his position.” Breeden lays most of the responsibility for the bankruptcy on Ebbers, his chief executives and the company’s board of directors, who have all been replaced. “With compensation in the old WorldCom for the CEO, COO and CFO divorced completely from meaningful performance standards, compensation for these individuals became an exercise in ego gratification and personal greed,” Breeden says in the report to U.S. District Judge Jed S. Rakoff.

WorldCom bankruptcy court examiner Dick Thornburgh, a former U.S. attorney general, holds up sales commissions as an example of policies that led to the company’s downfall and also says human resources shares in the blame.

    WorldCom bankruptcy court examiner Dick Thornburgh, a former U.S. attorney general, holds up sales commissions as an example of policies that led to the company’s downfall and also says human resources shares in the blame. “At least until late 2001, the company determined compensation for its sales employees under a dizzying array of commission programs that practically invited, and in fact resulted in, fraud and abuse,” Thornburgh says. No one seemed to be paying attention, he says, “including the compensation committee, senior management or the human resources department.” Thornburgh is investigating a possible link between extraordinary levels of compensation and the employees’ participation in or knowledge of accounting fraud or other misconduct at the company.

    Ebbers and his attorney, Breeden, Thornburgh and MCI, which is the company that will rise from ashes of WorldCom, did not respond to requests for comment. In previous statements, Ebbers has denied any criminal wrongdoing.

    Until now, human resources has generally stayed out of the public debate that has sparked widespread criticism of lavish pay and compensation for CEOs and other C-level executives, letting company directors, who award the compensation, take the heat. But the costs of the WorldCom fraud are a compelling example of what can happen when human resources fails to exert rational controls over pay, allows itself to get shut out of the process or simply goes AWOL. Tens of thousands of employees lost their jobs at WorldCom. Stock held by company employees that once sold for $64 a share is now worth pennies, wiping out numerous 401(k) retirement accounts. In all, the WorldCom bankruptcy erased $200 billion in shareholder value. Three California public-employee pension funds, led by CalPERS, lost a combined $318.5 million on just one WorldCom bond issue–money invested on behalf of retirees, disabled workers, teachers and other public employees. They are suing the company and its bond underwriters.

    Even before the WorldCom events, extraordinarily high levels of compensation and benefits were being condemned as excessive. Last year, citing a growing disparity between pay for top executives and everyone else, then Federal Reserve Bank president Bill McDonough called for CEOs to take pay cuts, saying that salaries are not only inflated but also morally unjustifiable. Disclosure of a nearly $200 million compensation package for Richard A. Grasso, the top executive of the New York Stock Exchange, so shocked large pension funds and other institutional investors that they pushed for–and got–his resignation. Comparisons have been drawn between $100 million-plus compensation packages for CEOs of failing companies, such as Enron, WorldCom and Global Crossing, and the equally extravagant sums going to heads of companies that are making money but whose shareholders and pension plans are taking a drubbing because of languishing stock prices. General Electric Co., Time Warner Inc. and Tyco International, Ltd., serve as noteworthy examples.

Tighter controls
    Breeden and other critics paint a picture of an extravagant compensation system that is endemic to many large corporations. Symptoms include a weak board of directors and executives who look out for their own interests at the expense of their employees and shareholders. They often focus on short-term earnings to artificially create value for their stock options, rather than the long-term stability of the company. This produces a two-tiered compensation system with a huge gap between people at the top and those at the bottom. Breeden says that WorldCom did not happen in isolation, but was part “of a broader pattern across the industry and large U.S. corporations generally of stratospheric compensation levels.”

Many companies, as well as the Securities and Exchange Commission, are moving to tighten up corporate governance to reduce the excesses in the system.

    Many companies, as well as the Securities and Exchange Commission, are moving to tighten up corporate governance to reduce the excesses in the system. Proposals include requirements for more independent directors on corporate boards, rules changes that will give outside investors, like pension funds, a greater say in corporate affairs, and stricter controls over wholesale awards of stock options. Breeden makes 79 recommendations in his 156-page report, and says that full implementation will make MCI a model for corporate governance. Among his proposals is a yearly limit of $15 million on CEO compensation. Under the old rules, Ebbers received $408 million in loans from the company during one 18-month period, and passed out $238 million to senior officers in 2002.

    Breeden breaks new ground with calls for much tighter scrutiny of human resources directors at the company in the future. He recommends that the board’s compensation committee, dominated in the past by Ebbers, appoint three independent members who possess experience with compensation and human resources issues. Under the recommendations, the human resources director would meet with the compensation committee at least twice a year to go over legal-compliance issues and consider employee complaints about compensation. He also wants the human resources director’s job performance to be reviewed at least once a year by the committee.

    The recommendations come at a time when many within corporate America are soul-searching about appropriate levels of compensation for top executives. When it comes to setting salaries for the top brass, workforce executives are often on the sidelines. “What is interesting is that HR executives play such a small role in this,” says human resources expert David Lewin, senior associate dean of the MBA program at UCLA’s Anderson School. Lewin compares the compensation systems in many companies to a golf tournament, where the winner might take home $1 million and those farther down receive a tiny fraction of that. He makes the point that in real life, corporate officers make the rules and set the prizes by choosing the boards of directors and outside pay consultants and by controlling board agendas. “When people say pay is out of control, I say quite the opposite: it is under very tight control,” Lewin says.

    AFL-CIO official Brandon Rees has a very different perspective. He doesn’t think that involving human resources in setting top compensation levels is the answer to the problem of runaway pay. “It’s a conflict of interest for HR to be advising the board on CEO pay issues, because the HR department reports to the CEO,” Rees says. “You just can’t erase that conflict. I would be concerned about any company’s compensation committee using its own human resources department.”

    As it stands, CEO compensation often bears little relation to a company’s performance, management, industry standards or recognized formulas. Compensation is bartered and negotiated in secrecy, with numbers emerging only months later in proxy statements. Years are freely tacked on to pension formulas to speed up vesting. Lip service is given to pay being tied to performance, but when a company’s business goes bad and stocks tank, boards have been known to increase cash compensation to keep the CEOs happy. Executives receive lavish “golden hellos” on the way in and golden handshakes on the way out. A study last year by Paul Hodgson of The Corporate Library noted that a $45 million golden hello went to Gary Wendt when he became CEO of Conseco, Inc., an insurance company. His signing bonus is an extreme example of the fact that money can’t buy success. Wendt resigned in 2002, the company went into bankruptcy and its stock for a time was virtually worthless, but now is recovering.

Sweet deals attacked
    As criticism of CEO compensation escalates, executives like Jeffrey Immelt, CEO and chairman of the board at General Electric Co., are finding themselves targets. No sooner had Immelt gotten the seat warm as CEO than the $22.9 million in cash, stock and options he earned during 2002 was being questioned. The man he replaced, Jack Welch, had become one of the richest individuals in America while at GE’s helm and retired with a $100 million-plus platinum handshake package. Now, here was Immelt, pulling down his own princely sum, even as GE stock languished at prices about 20 percent below what it had been worth when he took the job two years earlier. That was good enough for Immelt to make the AFL-CIO’s Executive Paywatch list, which profiles a cluster of corporations that have questionable investment and pension practices.

    In Immelt’s case, the union says it was alarmed at the disparity between pensions for General Electric’s top executives and those for regular employees. GE has a two-tier retirement system–one for senior executives and one that is less generous and more restrictive for lower-level employees, the union says. Another issue is the depressed stock price, down to nearly half of its value during Welch’s last year, because the GE employees’ 401(k) plan is heavily invested in company stock. Heat from shareholders and the concern of Immelt and the GE board are producing changes in compensation rules.

    Gary Sheffer, a spokesman for GE, defends Immelt’s salary: “The board determined that that level of pay was appropriate for someone who leads a global organization of 313,000 employees and generates $140 billion plus in revenues.” Sheffer also says that under new corporate-governance rules, Immelt has more restrictive guidelines covering stock options. Last year, he put 75 percent of his cash compensation back into company stock and pledged to hold the stock as long as he is chairman. The value of future stock grants will also be based in part on GE’s performance in the stock market.

    Earlier this year, BusinessWeek, which publishes an annual list of America’s highest-paid executives, reported a decline in the $100-million compensation club for 2002. In 2001, seven executives made more than $100 million, led by Oracle Corp. CEO Lawrence J. Ellison, $706.1 million; Jozef Straus, chief of JDS Uniphase, $150.8 million; Howard Solomon, Forest Laboratories, $148.5 million and Richard Fairbank, Capital One Financial, $142.2 million. In 2002, it was a smaller group: Alfred Lerner of MBNA took in nearly $195 million, while Jeffrey Barbakow, chief executive officer of Tenet Healthcare received $116.6 million. In 2002, BusinessWeek reported, pay packages declined 33 percent to an average of $7.4 million.

Tip-off to other problems
    Critics say that lavish compensation programs, because they often are tied to loose control by corporate boards, can be a tip-off to much bigger problems, as was the case with WorldCom, Tyco and Enron. “Compensation tends to be a fairly useful window that gives you a lot of clues about how boards are operating and aligning their interests,” says Ted White, director of the corporate-governance program at CalPERS, a public-employee pension system with assets of $149 billion. Companies that experience the largest layoffs, report the most underfunded pension funds and receive the biggest tax breaks also are among those paying the highest rates of executive compensation, according to a study published in August by the Institute for Policy Studies. The study also notes that the disparity between pay at the top and earnings of production workers remained well above historic levels. In 1982, the CEO pay gap was 42 to 1, whereas in 2002 it stood at 282 to 1. If the average annual pay of production workers had risen at the same rate since 1990 as it has for CEOs, their 2002 annual earnings would have been $68,057 instead of $26,267, the study says.

    Bruce Ellig, retired corporate vice president of employee resources at Pfizer, Inc., and long active in the Society for Human Resource Management, says that human resources managers “could make a very big contribution” in all this. But he adds that many human resources managers are way behind, and must become broadly knowledgeable in accounting and finance, Securities and Exchange Commission requirements and tax laws before they can bust into the top corporate tier where CEO compensation issues are decided. “If they had HR people who were smart enough and good enough to handle touchy issues, I don’t think a lot of this would have happened,” says Ellig, author ofThe Complete Guide to Executive Compensation.

    Other say changes are occurring already. Tony Lee, editor of CareerJournal.com, says human resources professionals have taken great strides in playing a bigger role. “Their voice is being heard more than in the past,” he says.

    With so much at stake, consultant Alan Johnson says, human resources executives ought to be far more involved in the salary process than they are now. “They should play a bigger role absolutely than they have played to date,” he says. “A lot of people didn’t distinguish themselves in the WorldCom failure. Human resources was certainly part of that. We have been too forgiving of people with too little courage.”

Workforce Management, October 2003, p. 28-33 — Subscribe Now!

Compensation consultant Jeffrey Christian knows a thing or two about breathtakingly enormous CEO compensation packages and the public heat that they inspire. He helped put together the nearly $70 million “golden hello” that CEO Carly Fiorina received in 2000 for her first year with Hewlett-Packard Co. So when he expresses shock at the $187.5 million compensation package bestowed on former New York Stock Exchange CEO Richard Grasso by a generous NYSE board of directors, it’s fair to assume that the issue of soaring CEO paychecks is reaching yet another milestone.

    In the case of Fiorina, Christian, chairman of Christian and Timbers, can at least point to HP’s huge revenue growth under the CEO. Even if HP’s stock continues to languish, Fiorina has certainly led the company to dramatic growth. On the other hand, Grasso headed a private company and got the big money from companies he was responsible for regulating. If his compensation package was based on performance, it wasn’t clear what standards were being used as a measure, he says.

    “I was dumbfounded,” Christian says, asserting that he thinks Grasso performed his job exceedingly well. Still, he adds, “I was amazed that it could happen.”

    Christian says that Grasso, who was forced to resign in September, is just the latest domino to fall in a chain that stretches back to top executives at MCI, WorldCom, Enron and Global Crossing. A common thread, he says, is what he calls “the smoke and mirrors technique of creating wealth,” meaning that Lotto-sized pay-outs often develop with no rational explanation tying them to performance or other measurable criteria. He predicts that the era of lavish compensation packages and loose board standards is coming to an end. “If you try it, you will be caught,” he says. “That is the message that is out there.”

    Another sign of change is the triumphant march through the NYSE of state treasurers and officials of large pension funds, like the California Public Employees Retirement System, representing combined investment assets of more than $586 billion. Chief investment officers in California, New York and North Carolina demanded that Grasso be fired when the compensation package was disclosed. They are credited with forcing Grasso’s exit.

    It was only last June that Tom Wamberg, chairman and CEO of Clark Consulting, along with other executives from his company, joined Grasso to ring the NYSE’s opening bell. “If you asked four or five months ago whether he would have been forced out I would have said no,” says Wamberg, who still thinks highly of Grasso. But like Christian, he believes a watershed has been reached. Finally, there was the unprecedented spectacle of the big pension funds and state treasurers conducting triumphant press conferences in New York following Grasso’s resignation.

    “They smelled blood,” Wamberg says. “CalPERS and the large managers are swinging a bigger bat these days.” Wamberg adds that much of the NYSE’s problem stems from the sudden, shocking disclosure of Grasso’s pay package. “What I am taking away from this, and what we are counseling our clients on, is disclosure, disclosure, disclosure.”

Workforce Management, October 2003, p. 32 — Subscribe Now!

Majority-party Democrats, pushed by labor, passed a paid family leave programthrough a divided California legislature. Business groups put up a strong fight,primarily over cost, but lost. One problem: they were battling a motherhood andapple- pie issue. The intent of the legislature was to provide incentives tofamily members to take up to six weeks off at more than half pay to care fornewborn or adoptive children, or provide care to ill parents or other relatives.Here, in a nutshell, are key components of the controversial new law.

Funding: Mandatory payroll deductions for the Family Temporary DisabilityInsurance program will begin January 1, 2004; benefits begin July 1, 2004.

Eligibility: About 13 million workers now paying state disability insurancewill be eligible to receive up to 55 percent of their pay for six weeks.Payments will range from $50 to $728 a week and not be taxed.

Vesting: Workers become eligible immediately upon taking a job, after aseven-day waiting period. Employers can require employees to use up to two weeksof vacation time before going on paid leave.

Coverage: Leave allowances will track the federal FMLA, providing time offfor the birth, adoption, or foster-care placement of a child, and for the careof a seriously ill child, spouse, parent, or domestic partner.

Administration: Processing claims and administering the leave program are theresponsibility of the state Employment Development Department, rather thanemployers.

Job Protection: Employees now covered by FMLA (firms employing 50 or moreworkers) receive the same job-protection guarantees they now receive with unpaidleave. Employers with fewer than 50 employees will not be required to hold jobsopen for workers on leave.

Workforce, January 2003, p. 41 — Subscribe Now!

Workforce-management terrain is littered with big financial judgments againstcompanies that thought they were doing the right thing butignored warning signs that they could be a target of lawsuits, legal expertssay. During a recent conference in Palm Springs on human resources and the law,a consensus emerged about some common mistakes. What follows is a composite of acompany, call it Clueless Inc., heading for trouble. If you recognize yourcompany here, you may want to review your policies. Orpossibly line up a good legal team.

• Clueless Inc. likely is in retailing, food services, or manufacturing–industriesthat draw a disproportionate share of discriminationcharges. It probably has strong consumer identity. Coca-Cola’s fear that itscustomers might be lining up to buy Pepsi-Cola is said to have figured in thesettlement of a discrimination suit for $192 million. But small companies aren’toff the hook, either, because they may not have human resources departmentsor staff attorneys to guide them through constantly changing legal requirements.The small company boss likes to hire on the basis of a handshake. He doesn’tkeep records.

  
  

•  Clueless engages in employee profiling, a smoking gun in anydiscrimination suit. Management might think, “This is man’s work,” andrequire a physical-fitness test such as lifting a weight so heavy that womencouldn’t do the job.

  
  

• The lawsuit-ripe company doesn’t like whistle-blowers. Complaints aregiven superficial investigations, then forgotten. The complaining worker isisolated, given an empty office with nothing to do, and harassed in other ways.

  
  

• Hiring and promotion policies at Clueless result in instances of whatAtlanta attorney Douglas Towns calls the “inexorable zero.” This means that,either company-wide or within divisions or management ranks, there are zerowomen, or no African-Americans, or older workers, or disabled workers.

  
  

• Unknown to management, plaintiffs’ attorneys use computers and insidesources to study hiring and promotion practices at Clueless until they know thecompany better than the CEO does. Management is asleep at the switch, thinkingClueless has a top-notch diversity program. They don’t realize that thecompany has such high turnover and movement up and down the ranks that it’snot the company they think it is. Plaintiffs’ attorneys realize thatAfrican-American middle managers are being blocked from further promotion. Whenthe suit ultimately is filed against Clueless, attorneys arrive with such amassive amount of evidence that corporate officers run for cover–and a costlysettlement.

  
  

• The settlement seems almost painless at first, since Clueless is rakingin big profits. Top management figures that the payoff to underrepresentedworkers will hardly affect its bottom line. What they don’t realize is thattheir problems are only beginning. The company may be forced to give power overpay and promotions to a third party, institute consciousness-raising sessions,set up hot lines, and change the makeup of its board of directors.

  
  

Workforce, May 2003, p. 30 — Subscribe Now!

Employees are never happy to learn that they’ll have to pay more money for health care, pension and other benefits. And employers abhor delivering the news. Still, it’s a problem that must be addressed, industry experts say. Recognizing the value of good, early communication can significantly smooth the way for benefit take-aways. Ignoring it can lead to misunderstandings, morale problems and even lawsuits.

    The corporate landscape is littered with problems and bad headlines stemming from proposed benefit changes that blew up on the companies that made them. A strike early this year at Lockheed Martin is blamed in part on copayment increases in the company’s drug-benefits program. A proposed change in IBM’s pension plan has created a public relations nightmare. American Airlines, after extracting promises of wage and benefit cuts of $1.6 billion from its unions, nearly blew its strategy to escape bankruptcy when it was revealed that the airline was planning to give top executives bonuses and bankruptcy-safe pensions at the same time it was cutting other employees’ pay. The ensuing uproar caused the airline to back away from the executives’ perk package.

Softening the blow
    Just how many of these problems could have been solved with better communication is uncertain. But what is clear is that better communication can soften the blow when it comes, if not eliminate harmful aftershocks. Experts say it boils down to this: Do it right or risk getting burned.

    Attorney Bruce Schwartz, a member of the Jackson Lewis benefits practice group, says that because of a widespread retrenchment, communicating benefit changes is a constant challenge. And one often not given enough attention. The first step, he says, should be to run the changes by the legal department.

    Although companies can debate whether to break the news during a town hall meeting or send a written message, Schwartz says, either way it boils down to good, clear communication. “Clarity is the most important thing,” he says. Companies have to speak with one voice. And not just with a voice that makes all the necessary legal points. Schwartz has seen many cases of benefit-plan booklets or written announcements that contain all the necessary information but are almost impossible for anyone to figure out except those who are experts on the subject.

    “It always comes down to a good written product,” Schwartz says. “Good writing takes time, and I don’t think people give it the time they should. There is nothing worse than an employee who has an expectation of something other than what the benefit is.”

    Consultant Mitchell Lee Marks, author of Charging Back Up the Hill, says that communicating benefit changes is similar to the challenges companies face when they are recovering from mergers, acquisitions and downsizing. At such times, employees are suspicious and cynical about management’s intentions, and they crave information. At the same time, senior executives are wary of saying too much to employees. His advice to companies is to begin communicating with employees honestly and openly well before there is a need to transmit bad news. A crisis “is not the time to build your credibility,” he says. “This is the time to ride on your credibility. If you’ve established credibility, you have a buffer.”

“The truth is often less negative than the worst-case scenarios that employees imagine. You have to get out there, be honest, say what’s going on, be as specific as you can.”

Information, please
    Failure to keep workers informed will only provide fuel for the rumor mill, Marks says. “First and foremost, be honest. Just say what it’s about. It’s amazing how well employees will listen,” he says. “In most cases, the rumor mill is much worse than reality. The truth is often less negative than the worst-case scenarios that employees imagine. You have to get out there, be honest, say what’s going on, be as specific as you can.”

    Marks encourages companies to tell workers what other employers in their industry or region with similar benefits are doing, an approach that he says is ignored too often. He also suggests periodic assessments to get a fix on whether the workforce hears the same message that management thinks it is sending. It’s better to over communicate than under communicate, Marks says. “You’ve got to say it over and over again. There is no substitute for saying things over and over again.”

    Finally, Marks says management should let the workforce express its feelings. If employees don’t have an outlet for their anger inside the company, it may be transferred to customers. “Give people a chance to vent internally instead of externally,” he advises.

    One of the companies most active in studying–and delivering–benefit changes is Medco Health Solutions, Inc., which generated $33 billion in revenues last year and is among the largest pharmaceutical-benefit managers in the world. Medco knows as well as any company the problems that can arise from delivering benefits. The company is battling two whistle-blower lawsuits and an investigation by the U.S. over claims, dating back five years, about drug pricing.

    David Halter, a Medco vice president, says that information about plan changes is one of the most difficult messages to deliver. He compares the process to having a root canal. Figuring out how to communicate the change is just as important as the technical aspects of the plan itself, he says. Some companies rely on a one-time communication during their annual open-enrollment period, which he believes is a mistake. What is even worse is when employees hear about changes in prescription plans when they go to a pharmacy to have a prescription filled.

Letters are a start
    Medco’s research shows that employees would much rather learn about benefit changes in letters. But the company’s internal research also shows that a multifaceted approach, including telephone calls and e-mails, is important. Companies that effectively communicate plan changes will get a significant return on investment, Halter says. Ineffective communication, on the other hand, leads to higher service costs, member dissatisfaction and delays in acceptance that can cut into potential plan savings.

    As an example of a successful new plan, Halter points to a Fortune 500 manufacturing client that tripled copayments on its drug plan without an open employee revolt. The company realized an annual savings of $250,000. Facing big increases in benefit costs, the company hired Medco to come up with a plan for communicating the changes to employees. Under the old plan, workers could buy 100 pills at retail pharmacies with one copayment, enough for a three-month supply. The new rules limited prescriptions to a 34-day supply, effectively tripling the copayment.

    But Medco developed a way to ease the pain. It told members of the prescription drug plan how they could achieve significant savings by having the drugs delivered to their home via mail. Using home delivery, employees could save $24 per brand prescription and $10 for each generic prescription. The home-delivery plan works best for patients with chronic medical conditions who have an ongoing need for daily medications, exactly the client group most likely to buy three months’ worth of medication at a time.

    The success of the plan depended on a significant change in employee behavior. Medco announced the changes through direct mail. “It was a fairly straightforward message,” Halter says. The commonly held notion that plan members don’t read written materials is a myth, he says. Letters announcing the plan went out during open enrollment. One selling point was that with home delivery, members would have to reorder prescriptions only four times a year. If they continued to buy medicine at a pharmacy, they would have to make 12 separate trips. “The plan was a complete success,” Halter says. “The client said they did not receive a single complaint.”

Workforce Management, September 2003, pp. 80-83 — Subscribe Now!

Decked out in T-shirt and tennis shorts, Howard Atkins, the chief financial officer for Wells Fargo & Co., balances precariously on two wobbly wooden planks stretched between two boxes. If he and the dozen other corporate honchos gathered on a sun-splashed lawn at a luxury hotel in Sonoma, California, successfully have worked as a team, Atkins will make it across the jerrybuilt bridge without falling off. With a final lunge, he triumphantly makes it to the other side. His team of senior financial execs clap and cheer.

    The banking leaders are part of a larger group of 73 financial executives, risk managers, accountants and group presidents that Atkins has pulled together for team-building exercises during a three-day retreat that also included more conventional business meetings with reports and presentations. The top company players are participating in seemingly silly activities for a serious purpose: improving teamwork to achieve better business results. Atkins describes them as “very high-powered, very capable, very technically skilled, very competitive people.”

    Although they are top performers, the CFO says he wants an even higher level of performance. “They are very individualistic in their approach to their work,” he says. “What I have been trying to do is get them to see the power of acting more like a team.” By the end of the day, Atkins is clearly pleased. “It’s really a terrific success,” he says, adding that Wells Fargo in recent quarters is showing double-digit gains in income and earnings, which he credits in large part to the bank’s people programs. “Success more often than not is a function of execution, and execution is really about people, so we invest pretty heavily in our people.”

When business is down
    While Atkins chose relatively low-stress challenges involving activities such as balancing on planks, building tents blindfolded and stepping through complex webs of ropes, other companies use whitewater rivers, rock walls, treetop rope bridges and even fire pits as metaphors for the business world. The idea is to get people out of the office, stretch their boundaries and create some fun, all the while reinforcing serious messages like the value of team-building and pushing personal limits. But the value of off-site retreats and physically challenging exercises is a source of considerable debate, particularly in a weak economy that puts extra scrutiny on every discretionary program that can’t show solid ROI. Retreats are billed as leadership training, brainstorming or strategic thinking, but can those really be accomplished on a mountain climb, a fire walk or a whitewater rafting trip? Are companies building loyalty? Or lawsuits over seared soles and dunked human-resources directors?

    Retreat reputations were also called into question last month with the resignation of U.S. Postal Service Inspector General Karla Corcoran. She was accused of wasting public money on $1 million-a-year retreats at which employees dressed in costume, participated in mock trials and recorded testimonials to Corcoran.

    Although some companies like Wells Fargo continue to invest in team-building events, other companies are backing away. Break-out numbers on how much is spent on team-building are not available–they get thrown into training and development budgets, which are down. A study by the American Society for Training & Development published earlier this year said that training expenditures dropped from 2 percent of payroll in 2000 to 1.9 percent in 2001, reversing an upward trend between 1999 and 2000. Susan Harper, a business psychologist who runs rock-climbing programs for corporations through her company, Synergy Consulting, is one of those who feels the pinch. While other parts of her consulting business remain strong, “team-building has definitely gone down,” she says. “People are reluctant to spend money on what they think is not an absolute necessity.” With a recent uptick in the economy, her business has improved.

“I know intuitively the payback here is huge. It’s a very small investment to make for the payback we are going to get.”

    Harper charges rock-climbing clients from $2,000 to $4,000 or more a day, depending on the size of the group. Other events can cost from $500 for a few hours with a stand-up comic at a corporate meeting to $10,000 and up for a team of professional facilitators pushing executives through physical challenges. Atkins estimates it cost Wells Fargo about $50,000 for three days and two nights at the Sonoma Mission Inn & Spa. That included a fee of $13,000 for Adventure Associates, which brought in six professional facilitators to organize the half-day program that had the CFO walking the plank. Atkins does not try to guess what kind of dollar return Wells Fargo might expect on this people investment. For one thing, the financial managers are not directly accountable for producing revenue for the company. But the CFO is convinced that teamwork can help other parts of the company make money. “I know intuitively the payback here is huge,” he says. “It’s a very small investment to make for the payback we are going to get.”

Productivity boost
    Author and professional retreat organizer Merianne Liteman thinks it’s a mistake to try to assess benefits in dollar terms. “Where good retreats have a quantifiable effect is on retention, on morale, on productivity,” says Liteman, co-author of Retreats That Work. Given that the widespread use of electronic technology, e-mails and cell phones provides filters to keep personal contact at a minimum, Liteman thinks the benefits of bringing people together in one place can be invaluable to an organization.

    Daryl L. Jesperson, CEO of RE/MAX International, a real estate company based in a Denver suburb with 85,000 franchised agents, says he sees a payoff in productivity. “We think if you work together, play together and stay together, things work better,” he says. He believes that senior management’s average stay with the company of 17 years is a direct result of an esprit de corps stemming from company-sponsored whitewater rafting and scuba-diving trips, and outings featuring golf and NASCAR races. “There is a productivity boost anytime you have one of these. People feel better about themselves, they feel better about the company, and as a result will do a better job.”

    Depending on the degree of danger involved–or the bonds of friendship that can develop–these events can define a corporate culture. Jesperson says that off-site adventures are part of his company’s DNA. It goes back to the 1970s, in the company’s infancy. Money was so tight that RE/MAX executives couldn’t afford to fly to a national Realtors’ convention, so they rented a motor home and partied all the way. “This is a group that has stuck together through thick and thin.” But a lot more goes into the mix. “Retreats are only one part of it,” he says. It begins with hiring. “We are particular when we hire. We hire personality and attitude.”

    The attitude among some of Harper’s rock-climbing clients in the late 1990s was “high fun, high risk, high energy.” These were New Technology companies, and were a nice fit with rock-climbing. Even today, clients will sometimes hire her for new-employee orientation that can include a rock climb. “It can be daunting to walk in on the first day” and see a 100-foot rock face, she says, even though no one would be asked to climb that high.

Tarzan meets Gandhi
    Cornell University’s team-building program, which has a client list that includes Corning Inc., J.P. Morgan Chase and Procter & Gamble, started out with programs designed to introduce incoming freshmen to the school and each other. Now it has expanded to provide help to corporations needing to integrate corporate presidents and vice presidents under one roof after mergers. Among the outdoor courses Cornell offers is Tarzan Meets Gandhi, a three- to four-day workshop that includes climbing a network of treetop ropes coupled with discussions about self-awareness, balance and vision. Hiking and rock-climbing are often the order of the day. “Outdoor expeditions often succeed or fail because of the lack of teamwork and leadership, not technical expertise. The same is true for corporations,” says Karl Johnson, Cornell’s team-building director.

“If a group wants to build a team, it’s more important to figure out what’s hampering them–dealing with real workplace issues–than to say because I climbed a wall with someone, I now feel I am part of a team.”

    Liteman, who has designed off-site retreats for Fortune 500 companies as well as public and nonprofit agencies, is sold on the value of retreats, but not on physical activities. She thinks they waste too much valuable time. “If a group wants to build a team, it’s more important to figure out what’s hampering them–dealing with real workplace issues–than to say because I climbed a wall with someone, I now feel I am part of a team.” She says workers may end up liking each other better but still not being able to work with each other better. “Good retreats are a lot of fun. They are not serious, plodding, heavy things. People laugh, people engage their creativity. Even when you are designing with that fun in mind, it should be for business’ sake. Let it be about business,” she says.

Fire-walking hard to sell
    While Liteman may not think fire walks have a place in a business setting, others do. Some retreat organizers are still living down the bad publicity that developed in 2001 when a dozen Burger King employees burned themselves during a fire walk. One was taken to an emergency room; others were treated for blisters on their feet. Headline writers had a field day, writing about “flame-broiled feet” and other similar themes. Cork Kallen, who organized the Burger King fire-walk fiasco, says his once thriving business is so bad that he derives most of his income these days from selling teak furniture in the Philadelphia area. “Unless a CEO wants a fire walk, they don’t happen,” Kallen says. Still, he and others believe in the power that comes from overcoming the fear of walking barefoot over 1,100-degree coals laid out over an 8-foot-long fire pit or strip of grass.

    Four-day sessions featuring motivational speaker Anthony Robbins, perhaps the world’s best-known advocate of fire-walking, still sell out. Fire-walking occurs on the first night of the Robbins events, held in venues like the Meadowlands Exposition Center, near New York City. Individuals, rather than large corporate groups, buy most of the tickets to these events, which cost from $695 to $1,290. “The experience is empowering,” says Walker Fenz, Robbin’s spokesperson. She says that the experience sets the stage for his message.

    Even when corporate adventures don’t turn out as planned, they have the desired effect of bringing people together, proponents say. Whitewater rafting trips, which can range from half-day outings to overnights, may represent the least predictable of the corporate challenges. George Johnston, human resources director for a group of community health centers in California, discovered that a half day on the Kern River was about as much as most members of his group could handle. Ten clinic executives started the rafting trip, which was organized by one of California’s oldest river-guide firms, Whitewater Voyages. Only two hardy members of the original group of 10 returned for the afternoon session after several of the morning group went headlong into the river, chilled by Sierra snowmelt. In whitewater rafting, getting wet is just part of the experience. Still, Johnston says it was worth it. The group worked as a team, and had fun, he says. “We had a heck of a nice time together. We’re still telling stories, weeks later.”

    Business consultant and Whitewater Voyages alum Jib Ellison says: “Whitewater rivers, by their very nature, are analogous to business situations.” Like business, rivers are dynamic, he says. “In rapids, you can’t stop and figure things out. You have just got to deal with things in front of you. You have to learn by your mistakes and move on. Feedback is incredibly swift, one way or the other. You are either in the boat, dry, or upside down, wet.” Ellison, managing partner of The Trium Group in San Francisco, says rafting is terrific for team-building. With uncertainty, hazards and dangers lurking downstream, he says, there is a constant need for teamwork. As for the danger, Bill McGinnis, Whitewater Voyages founder, says that there is an element of risk to any outdoor adventure, but perceptions are usually worse than reality. “The truth is that when done with professional guides, rafting is actually safer than the drive to the river.”

Proving its worth
    On this mid-July day, a platoon of Wells Fargo honchos, clad in a scruffy collection of shorts, T-shirts and running shoes, gather uncertainly after lunch on the lush green lawn at the wine country resort. They cautiously eye a half dozen challenge setups that look like garage sale items–boards, string, helmets, bits of pipe, nylon straps. Atkins, the Wells Fargo CFO leading the retreat, has to reassure some of the financial officers that they won’t be put in danger. “We’ve taken a couple of opportunities to reassure people that they are not going to be forced to fall out of trees and be caught, and things like that,” he says.

    For the next four hours, under a canopy of sycamore, pine, ficus, olive and maple trees, the bankers’ patience, their dexterity, and their imagination and good nature are put to the test. Six facilitators from Adventure Associates run the show. They are wearing shorts and knit shirts carrying their company’s logo, giving off the appearance of some sort of uber camp counselors. Ed Tilley, president of Adventure Associates, and his wife, Rebecca Tilley, are on hand. So is Don Taylor, associate dean of San Francisco State University’s College of Health and Human Services, who participates in corporate training exercises as a facilitator during summer breaks. The well-established firm, based in a suburb of San Francisco, has put on events for a long list of corporate clients, including AT&T, Yahoo, Hewlett-Packard and Charles Schwab.

    A risk manager joins hands with an accountant to make what looks like a human pretzel, an exercise designed to break the ice and promote physical contact. Taylor, a friendly sort with tufts of gray hair poking out from under a baseball cap, tells a group of 30 bankers to form a perfect square. After several tries, they succeed. “Sometimes in a leadership role we have to follow,” Taylor says. “Sometimes we have to take direction.” And sometimes, “the way to go fast is to go slow.”

    As the day wears on, blindfolded bankers will set up tents, guided by the verbal commands of team members. They will roll golf balls down narrow handheld tracks of plastic tubing or split garden hose, trying to keep the ball alive until it can be dumped over a finish line. The idea is to have fun, but with a decidedly hard-nosed goal in mind. “They know each other, but they don’t work together very often,” Taylor says. “So they are trying to learn to be more effective in the way they interact, especially around communication and trust.”

    The retreat doesn’t end in the Sonoma countryside. Ruth Ross, a senior vice president of human resources for Wells Fargo who helped Atkins shape the program and also was a participant, says the day’s ultimate success will depend on how much is remembered about building teamwork and communication. If a retreat serves only as a party, Ross says, “then I think it’s going to be a failure, and you are not going to get a return on investment.” Only time will tell if the lessons that began with webs and planks have really built a team.

Workforce Management, September 2003, pp. 38-48 — Subscribe Now!

After spending 13 years at Southwest Airlines with Herb Kelleher at the helm, human resources diva Libby Sartain understands the value of creating workplace wackiness and fun. She recalls the times when the zany CEO cracked jokes and showed up dressed like Elvis Presley. She figures that’s part of the reason she was immediately drawn to a whimsical sculpture in the lobby of Yahoo! Inc. headquarters on her first visit to the dot-com powerhouse. It is a huge, goofy purple cow, with a built-in computer jutting out of its side for MooMail. It spoke to her.

    She called her husband on a cell phone at once. “I said, ‘We’re moving to California.’ ”

    The move to Silicon Valley as senior vice president of human resources two years ago, after a lengthy career in Dallas with the successful, high-spirited airline, took Sartain from one dynamic corporate culture to another. Creating human resources programs around people-centric corporate brands such as Yahoo and Southwest–whose workforces are known for their exuberance, ingenuity and irreverence–has made her one of the best-known up-from-the-ranks workforce management executives in America. At a recent promotional event where she signed copies of her new book, HR from the Heart, the former chair of the 170,000-member Society for Human Resource Management drew long lines of fans. The initial stock of 400 books quickly sold out. “She’s definitely a role model,” said Tracie Brunt, a human resources professional from North Carolina.

    At a time when many human resources managers are stuck in an identity crisis, wondering what it will take to play a more strategic role and secure a place among top management, Sartain stands out. She’s the first to admit that her flash and outspoken style might not go over at more buttoned-down companies. But by finding her professional niche with companies like Yahoo and Southwest–and doing it her own way–Sartain has proved that a onetime back-office comp-and-benefits specialist can push herself all the way to the executive committee.

    Over the years, she has won friends within the human resources field by accepting non-glamorous roles such as chairing SHRM’s benefits and compensation committee. She is also a fellow of the National Academy of Human Resources. “She brings a great commitment to the profession,” says Susan Meisinger, president of SHRM. Friends remember when she headed the SHRM board of directors. Attorney Johnny Taylor Jr., secretary of SHRM’s board of directors, says her tenure in 2001 required skillful diplomacy. “Our board meetings were downright acrimonious,” Taylor says. “Libby had to take the egos of 17 professionals, and manage them, and not let the contentious natures of some people deter us. You want to talk about walking a tightrope. She did it.” He and others considered quitting the volunteer board. “Libby just worked the room, going from group to group, talking to the leadership, not being drawn into fights. Any less able leader would have been in trouble.”

    Despite her ease with hugs and handshakes, Sartain doesn’t want to be mistaken for a doormat. She writes that “people who think they’ve sized me up as a pushover or think that I don’t understand the hard realities of business are in for a big surprise. And probably not a very pleasant one, either, if those people are on the losing end of going mano a mano with me in a business-related face-off.”

Handling metrics and people
    Sartain is considered equally adept at handling the technical, process side of human relations, such as metrics and benefit-plan designs, and the people side, where the value is on human relationships and creating effective corporate cultures. “She brings the people piece of it as well as the business piece of it, and that’s a great combination,” Meisinger says. Dave Ulrich, a professor of business administration at the University of Michigan and a human resources consultant, will go so far as to call Sartain “the standard for the soul or heart” of the people side of human resources management. “She looks you in the eye when she talks, listens to the alternative points of view and knows that what she does impacts people,” Ulrich says. “She is tough-minded and able and willing to make decisions.” Those who have followed her career still remember a speech she gave to the Institute of Management Consultants several years ago. She took a tough stance on bringing in consultants at Southwest, requiring, among other things, that they convince her they could save the company money or improve productivity.

    Among the first decisions she had to make when she arrived at Yahoo in August 2001 was how best to handle the layoffs of 400 Yahoos, as the engineers and Web technicians are called, a number that at the time represented 12 percent of the workforce. In all, Yahoo during 2001 reduced its workforce by about 650 employees, a 20 percent drop, costing the company $15.1 million in severance and fringe benefits. The dot-com bubble had burst, and Yahoo was hemorrhaging money. Its stock plunged from $250 a share the year before she arrived to less than $9 the year after. The layoffs remain a painful memory. Sartain’s job was to execute the plan, making sure that those who were laid off were treated well and that the survivors understood the truths of the new high-tech world. One of the new realities is that the days of through-the-roof stock prices and of young high-tech companies like Yahoo churning out millionaires practically over-night are over, she says. Done. Finis.

    “The world changed. I actually think it’s a good thing. I would much rather hire an employee who wants to be here in the long term and grow with the company” than someone “who comes in with the idea that ‘I am going to stay here until my options vest and leave as a millionaire.’ The ’90s were totally crazy, and I hope we’ve learned our lesson as a business community.”

    Since the rough retrenchment, Yahoo has begun to grow again. Under CEO Terry Semel, the company is experiencing double-digit growth in revenues. Stock in the 8-year-old market leader is trading in the mid-$30s, far below its historic high of $250 but comfortably above its single-digit low. Sartain compares Yahoo at this point to Southwest when she started there–a brash, maturing company expecting a lot of growth. With the painful layoffs behind it, Yahoo again is in an expansion mode. Hiring is up, along with the stock price. Looking forward, Sartain plans to focus on developing talent. “Yahoo is only 8 years old, so as we were growing, we didn’t have all this talent to promote because we were adding, adding, adding,” she says. “We now need to get into this thought of career development, growing the talent, developing the talent and helping people learn how to move across businesses.”

“It’s very hard to keep up a positive corporate culture.”

    With its engineers, Web designers and computer technicians, many with graduate degrees, the workforce at Yahoo is much different than the pilots, aircraft mechanics and reservation agents at Southwest. But both companies promote irreverence, innovation and a fun-loving ambience that is built into their conventional focus on bottom-line results.

    Southwest, a mainstay on Fortune magazine’s list of America’s most admired companies, is widely known for its high-spirited, customer-friendly workforce and a corporate culture that engenders loyalty, both from the top down and the bottom up. Kelleher, one of Southwest’s founders, is generally credited with being most responsible for the airline’s culture. But as vice president of people at the airline, Sartain for many years provided the stewardship. It was an immense challenge. Many, inside and outside the company, believe that keeping the airline’s seats filled has as much to do with the good vibes coming from the organization’s workforce as it does with its gold-standard formula of point-to-point flights and low-cost fares. When Sartain began working at Southwest in 1988, it had 6,500 employees. Today the workforce is about 35,000. Since she left, labor problems have tarnished the airline’s glow. Flight attendants have been demonstrating at airports and organizing other protests over what they say is the lowest pay in the industry. They also complain that they have to clean their planes between flights, a job done by special crews at most airlines.

    Kevin Freiberg, co-author of Nuts! Southwest Airlines’ Crazy Recipe for Business and Personal Success, says critics keep predicting that Southwest will get so big it will outgrow its “We’re family” spirit. It hasn’t happened yet, despite the recent turmoil. During Sartain’s tenure, it took work to maintain the airline’s collective personality, Freiberg says. “Though it appears fun on the outside, on the inside it was competitive and serious. You had to produce.” Marshall Goldsmith, a nationally prominent executive coach, has seen airlines come and go. He recalls the growth and then the demise of PSA–the airline with a smile–and Pan American. “It’s very hard to keep up a positive corporate culture,” Goldsmith says.

Shaping a corporate personality
    Before joining Southwest, Sartain worked in comp-and-benefits at the Mary Kay cosmetics company, another organization with a strong sense of identity. It was there that she first learned the importance of corporate personality, though at times Mary Kay’s clashed with her own. At one point, she was advised to tone down her laughter. At Southwest, by contrast, she could be herself. The company has the kind of culture that “must be understood by everybody when they come in.” Yet new employees can’t know everything about a company when they walk in the door. “It evolves over time.”

    After spending most of her career at Southwest, Sartain decided it might be time for a new challenge. In her book, she says she was recruited by a Silicon Valley Internet company–not Yahoo–and decided it would be a good fit and then told Southwest she would accept a job if it was offered. Southwest didn’t discuss a counteroffer, and she was gone. Then the job she thought she had fell through. Recalling her departure, she says that leaving Southwest “was like getting a divorce–it was horribly wrenching.” Wherever she landed, it had to be the right fit, a place, as she likes to say, where she could laugh out loud in the hallways, wear bright colors and be herself, contribute and deliver business results.

    Yahoo prizes wacky collegiality, imagination and hard-nosed business practices. There is a Foosball game at the coffee bar on the first floor of the corporate offices. Bold splashes of purple and yellow enliven the utilitarian steel-and-glass buildings on the sprawling corporate campus. To keep employees on-site and at work, Yahoo provides dry-cleaning pickup and delivery, a masseuse, a dentist who works out of a mobile clinic and a gym.

    In keeping with its egalitarian values, everyone–including the CEO–works in a cubicle. Sartain admits that the cubicle culture is an acquired taste. She makes sensitive phone calls from a conference room or takes her cell phone outside. But she likes the banter. “Whenever I get a free moment at my desk, I love hearing what’s going on,” she says.

A transferable profession
    There are, of course, obvious business differences between Southwest and Yahoo. Still, Sartain says, “HR is pretty much the same wherever you go. One of the things I love about it is that it’s a really transferable profession.” Over the years she has had a number of mentors. One of the most influential was Colleen Barrett, Southwest’s president, who promoted her to “an HR chief.”

    She remembers Barrett’s direct style of problem-solving. “For example, when we had a morale problem in a particular location or department, she taught me to just call meetings with groups of employees. The two of us would arrive with a notepad and no agenda, and by the end of the meeting we knew the issues and could develop an action plan to fix the problem.”

    Sartain, who was raised in New Orleans, says she inherited her outgoing, friendly disposition from her father, an investment banker. Her mother was quieter. “I overheard my mom say, ‘I have two normal daughters, and then I have Libby.’ Mom thought I was totally weird.”

    After 25 years in the business, Sartain still frets about personnel decisions that disrupt people’s lives and families. “Every now and then there is a situation that eats away at me because it’s just a really bad situation,” she says. When employees are laid off, “those are often times when I am needed the most. How you treat people when they are being laid off makes all the difference in the world for them and how they go on to their next role.” Yet, she says, you have to move on. “I don’t spend a lot of time worrying about things. Otherwise, I would never get anything done.”

    She says her experience at Southwest cemented her position as a guru of human resources. “I had the great fortune of being at Southwest Airlines, a fabulously run company, and I woke up one day and was the VP for people in the No. 1 best company to work for in America,” she says. “So suddenly everyone in the world wants to know what our secrets are. And our secrets aren’t really that much of a rocket-science kind of deal.”

    She says that what matters is being straight with people. “I was honest, I wasn’t pretentious and I talked just as much about stuff we tried that didn’t work as stuff we tried that did work. I probably was the first one that came out and said, ‘Here is what it’s like in the real world.’ “

Workforce Management, August 2003, pp. 42-45 — Subscribe Now!

Employers and employees aren’t sure that the plans are the solution to rising health care costs, studies show, but many think they are worth a try.

    Consumers have long been able to do simple math and make smart choices when it comes to buying clothes, cars or appliances. Why not use the same smarts with health care? That simple-sounding idea is driving what is called the third wave in health insurance–consumer-driven health plans. If it sounds too good to be true, it just may be.

    With the plans, consumers are expected to shop for health care with the same attention to price and quality they show in buying, say, a car. Employers hope that having better-informed employees will lead to big savings by eliminating unnecessary trips to emergency rooms, excessive visits to doctors’ offices and dollars wasted on expensive brand-name drugs as opposed to generics.

    But studies show there is a substantial amount of skepticism about these plans on the part of both management and employees. Analysts question whether the plans offer real savings, or merely represent a cost shift from employers to employees. There are fears that if employees are given too many incentives to reduce health-care costs, they may forgo needed checkups to save money or begin self-diagnosis. Another problem is that although these plans depend on intelligent choices, the information available, while more plentiful than ever, is still limited.

    First, here is what’s out there. Large insurance companies are making available to members online information services offered by companies such as Subimo or Select Quality Care that pull together what limited amount of statistical research is available. Health consumers now are a couple of clicks away from getting a rundown of local hospitals that, say, have the most experience performing heart surgeries or mastectomies or meet industry standards for staffing of intensive-care units. They can find out where their physicians went to medical school and, for a nominal fee, whether there are any medical-board disciplinary actions against them. There are drug formularies that allow for price shopping. Patients with specific health concerns such as diabetes can get a checklist of what they need during regular checkups.

    For all that, accessing and interpreting the information can be tricky. The information is online, so a degree of computer literacy is required. All information comes with a warning that it is not a substitute for medical advice but is there, basically, to let consumers ask good questions, not play doctor. Drug prices are available, showing the differences between generic and brand-name drugs, but it’s far more difficult to determine if one is better than the other. Much of the information is incomplete. For example, in Subimo’s online information about hospital satisfaction rates, one hospital in Southern California showed an “average” rating, whereas others “did not participate” in the satisfaction survey, with no ready explanation for either notation.

    Faced with these and other problems, employees have been reluctant to accept the new plans in a big way. A recent study by CIGNA Corp. shows that consumers put in far more time planning a vacation or making a big purchase than they do researching a health concern before seeing a doctor.

    Employers have “significant reservations,” Deloitte & Touche researchers say in another new study. Employers question whether consumer-driven health plans will have a serious impact on rising health-care costs, and express concern about the difficulty that employees may have in understanding the plans and whether the less healthy are the clear “losers.”

    The point about who stands to lose the most stems from a belief that savings accounts and up-front money may be far more attractive to younger workers–who are less likely to need health care–than to older workers, who may be more vulnerable and worry about high backloaded copayments. The fear is that as younger workers move to the new plans, older workers will be paying a lot more for their traditional plans.

    Even so, while only 11 percent of the employers polled were using an alternative model for health-care delivery at the beginning of the year, Deloitte & Touche reports that 43 percent say they are planning to offer a plan or may offer one in the near future. Another 32 percent said they would consider a new delivery model if long-term savings and employee acceptability can be demonstrated.

    Consider the experience of Definity Health, one of the big players in the new consumer-driven health field. The company grew from three clients in 2001, its first full year of operation, to 25, and then to 65 today. The Definity plan is similar to others. It offers a broad menu of choices, with financial incentives that allow workers to carry money saved from year to year.

    Consumer-driven plans usually start with $1,000 to $2,000 of company money put into a special account, which employees can spend however they choose. For example, if they need a physical, they can shop around for the best price. Or they can fill drug prescriptions with the least-expensive generic drugs. Often, if the money is not spent, it can be carried from one year to the next. Once the employer’s money has been spent, the employee is then hit with relatively high copayments. Other features include round-the-clock “health coaches,” such as nurses who lend their expertise to sick workers, and a Web site where members can compare doctors, hospitals and drugs, and even price shop on the comparative cost of office visits.

    So far, Definity is experiencing an enrollment rate of about 13 percent of eligible workers, but spokesman Chris Delaney says acceptance is slowly building. “We tend to see a 50 percent growth in enrollment the second year we are with a company,’’ Delaney says.

    Consumer groups are among the most vocal critics of consumer-driven plans. “We hate them,” says Earl Lui, a senior attorney with Consumers Union, publisher of Consumer Reports. One danger, he says, is upsetting the risk pool by creating plans that are far more attractive to younger workers. “It might work well for younger people, but anyone over 45 will be paying a lot more,” Lui says. “Health insurance works best when the risks are spread broadly, rather than each individual bearing their own risk.”

    A survey by Towers Perrin shows that employers face a “hard sell” convincing employees that the problem of fixing the cost of rising health care is theirs to share. “Employees don’t think cost is part of their responsibility,” says Rich Ostuw, a Towers Perrin consultant. “Employees also think they are already operating as effective consumers.”

    Another Towers Perrin consultant, Ron Mason, says getting at the problem will require more than rolling out an attractive plan with a savings account. He says that an answer must be found for employees who face serious chronic diseases, like diabetes, heart disease, cancer or other health conditions that eat up the lion’s share of health dollars.

    “We spend most of our money on a very few people,” he says. “If I am a chronically ill person, the motivation to reach me cannot be a financial one.” Mason believes it’s important to get employees hooked up to good information, using resources like Subimo or Select Quality Care. “There is a lot of information out there. It’s very important that we help people find it.”

Workforce, July 2003, pp. 86-87 — Subscribe Now!