Author: Fay Hansen

Bill Ritchie’s office in Indianapolis sits across the street from a company where 600 mortgage officers once worked.

    “Now they are all gone,” he says. As a senior practice manager and top recruiter for MRINetwork, a large executive search and recruiting firm, Ritchie sees the tension rising as the unemployment rate soars and recruiting firms are forced to deliver bad news to the growing number of unsuccessful job candidates. Like the laid-off mortgage officers, many of the rejected candidates are out of work and are having difficulty finding a job.

    “A lot of rejected candidates are calling the employer directly and threatening litigation,” Ritchie says. “For many candidates, it might be their fourth or fifth rejection. Particularly if they are members of a protected class, their suspicions rise about whether they were simply not the right fit. Candidates have their radar up. If people have been out of work for a while, they are pretty sensitive.”

    With layoffs and high levels of unemployment forecast to continue well into 2009 and the average duration of unemployment steadily increasing, many recruiters are now entering a prolonged period of dealing with increasingly aggressive candidates. The conventional wisdom is to protect the company from exposure to discrimination charges by telling unsuccessful candidates only that another candidate more closely matched the company’s needs.

    The adequacy of this response, however, may come under question as the number of rejected candidates swells.

    “We have to give them some answers,” says Jeff Wittenberg, chief leadership officer for Kaye/Bassman International Corp. in Plano, Texas. “There is a place between saying nothing and saying everything.”

    Finding that place requires striking a balance between the company’s risk threshold and the need for effective candidate management.

Say nothing, say anything
   Michael Elkins, shareholder in the labor and employment law practice at Fowler White Burnett P.A. in Miami, is fielding a growing number of questions from clients about the best policies for responding to unsuccessful job candidates.

    “Litigation is rising because of rising unemployment,” he notes.

    Elkins represents large retailers who may receive hundreds or even thousands of résumés.

    “For a large retailer, you’re not going to call the 350 unsuccessful candidates for lower-level store positions,” he says. “At a higher level, you are going to call unsuccessful candidates, and the best thing you can tell them is that another candidate more closely fit the position. Leave it at that.”

    If a candidate presses for more information, stay on a generic level by simply reiterating that another candidate was a better fit and make sure the documentation is clear, Elkins advises.

    “You can’t stop discrimination charges and lawsuits. You are going to get candidates who will sue,” he says. “The best an employer can do is to handle the situation pre-suit. Documentation and effective communication with candidates is the key.”

    Wittenberg recognizes the legal concerns but believes that stonewalling simply fuels the frustration and anger that creates excessively persistent candidates.

    “When a candidate has been interviewed and rejected, it doesn’t serve them to tell them that another candidate more closely fit the position,” he says. “Candidates are very frustrated. They just want to know the truth instead of hearing some scripted statement.”

    Recruiters and HR staff have to walk the fine line between creating exposure for the organization and communicating effectively with candidates.

    “The market is flooded with talented, capable people,” Wittenberg notes. “No one wants to feel like they’ve been blown off. When they are given a bogus response, they are not just going to accept it. Some candidates will stay on it until they feel like they have gotten a real answer.”

    Wittenberg believes some measure of honesty can reduce the aggressiveness that unsuccessful candidates demonstrate when their questions about the rejection go completely unanswered.

    “We need to reduce the gap between total honesty, which may create exposure, and no honesty, which escalates frustration,” he explains. “The point is to avoid operating at either extreme. To reduce the gap, HR professionals may have to spend a little more time with unsuccessful candidates initially, but they may save time down the road as fewer candidates harass them.”

    When rejections occur on a large scale because the company is receiving hundreds of applications for only a few openings, recruiters may need to simply inform unsuccessful candidates about the extreme mismatch in supply and demand.

    “Let them know the reality of these uncertain times,” Wittenberg says. “Help them understand and empathize with the employer’s situation just as they want you to empathize with them.”

    When the rejections occur on a smaller scale, company policy and the specific situation set the parameters for conversations with unsuccessful candidates.

    “It can be a bit of a coaching moment,” Wittenberg says. “You can tell a candidate you are offering some feedback with the hope that the candidate might find some helpful information in it. If it is at all possible, you can extend a helping hand, for example, by referring them to another company with openings.”

Reducing risk
   In all cases, employers should minimize the potential for discrimination charges by creating clear criteria and solid documentation for every hiring decision.

    “Make sure these criteria are met by successful candidates and make sure that the successful candidates are clearly more qualified than the unsuccessful candidates,” Elkins says.

    The most common mistake companies make in managing the risk of discrimination charges is that the documentation does not provide a reason for the rejection.

    “You have to have something to back up the decision,” Elkins notes. “Be able to point to specific criteria, and be absolutely certain to maintain documentation on successful as well as unsuccessful candidates. The documentation should provide simple reasons. You don’t have to write War and Peace.”

    Elkins advises his clients to maintain documentation for five to seven years.

    “If an unsuccessful candidate threatens legal action or makes any reference to filing a charge, cease communications immediately and contact corporate counsel,” Elkins says. “Let counsel handle it from there.”

    If a candidate is so persistent that a recruiter or another employee feels concerned or threatened, HR should notify counsel.

    “State laws may come into play,” Elkins notes. “Counsel may contact local law enforcement to establish a record of any suspicious activity and to fulfill the employer’s obligation to protect employees and respond to any potential threats.

    “If recruiters are straightforward and treat candidates with respect, that goes a long way toward defusing any potential problem. People respond positively if a recruiter is genuinely responsive and interested in them and timely in communications.”

Striking the balance
   Based on his experience at MRINetwork, Ritchie reports that when recruiting occurs through a third party, unsuccessful candidates usually direct their anger at the employer, not the recruiting firm.

    “They want to tell off the offending party, and they don’t see us as the offending party,” he says. “We gain their trust, and if we’ve presented them to a client, they see the employer as the obstacle and channel their negative energy there.”

    If a candidate presses for information about why they were rejected, keep it simple, Ritchie says.

    “We assure them that the hiring authority made the decision and we often don’t know why,” Ritchie says. “Employers will sometimes give us reasons, and we may pass them along. If candidates are weak in a specific communication skill that is required for the job, I may tell them that. If they have a bad reference, I can’t tell them that. If they threaten charges, that’s the end of the conversation. And if they display poor judgment by being excessively persistent, then we won’t work with them because they have demonstrated poor judgment.”

    Ritchie believes the potential for discrimination charges often stems from what is said during interviews at the company.

    “There’s still a lot of education to do with hiring managers about what to ask and say,” he notes.

    In the current economic context, serious issues often arise from any reference to a candidate’s age.

    “Some candidates who were working at higher salary levels lost their jobs when companies looked to cut costs. They didn’t lose their job because of their age but because of their salary level. But they may see it as an age issue and become very sensitive about their age.”

    When recruiting firms are involved, the agency or the employer may handle rejections, but Ritchie believes it is preferable to let the agency deliver the message.

    “We should be the bearer of bad news,” he says. “It’s not HR’s job to inform the candidate. It’s better if we do the rejections because of the relationship we’ve established with the candidate. It’s easier for the candidate to take it and it’s less demoralizing.”

    Ritchie believes candidates who receive no response only become more aggressive.

    “You can’t just not take their calls,” Ritchie says. “If you are the fifth rejection and you won’t even take their calls, they may think it’s time to file a charge. Think about how the candidate may perceive the rejection.”

    Some companies have a zero threshold for exposure, and they will continue to be harassed by unsuccessful candidates, Wittenberg says.

    “Companies may fear the damage to their reputation that occurs when discrimination charges are filed, but they should also fear the damage to reputation that occurs when unsuccessful candidates are frustrated by the company’s response to them,” he says.

    Given the long stretch of high unemployment that lies ahead, employers may need to re-evaluate their threshold.

    “It’s the recruiters and HR executives who are in the trenches, so they should be part of the discussion with the company’s executives about the spot the company will occupy,” Wittenberg says.

W hen Verizon Business announced the completion of the first next-generation trans-Pacific undersea optical cable system in September, senior vice president for human resources Robert Toohey was buried in budget decisions. “A big struggle is deciding whether you invest more in merit pay or short-term incentives,” he says. “Am I going to get more out of higher bonuses or a 2 percent increase in fixed pay through merit increases? Which will drive employees to perform better?”

    Verizon Business, based in Basking Ridge, New Jersey, is one of the three operating units of Verizon Communications. The unit generated $21.2 billion in revenue in 2007 and employs 32,000 workers world­wide. Pay decisions carry huge consequences. “You can’t walk into finance and tell them you want to spend another $50 million on merit pay without a business case,” Toohey says.

    Human resources executives help manage the $4.5 trillion that U.S. corporations are spending on wages and salaries in 2008 and determine how to distribute the $200 billion increase in wage and salary spending for 2009. Most of this increase will take the form of merit pay, the nearly universal method for distributing wage and salary raises across the U.S. and, increasingly, around the world.

    A large part of the remainder will go to a complex array of incentive plans. Spending on variable pay plans for salaried exempt employees as a percentage of payroll will reach 10.6 percent in 2009, with 90 percent of all organizations using at least one variable plan, Hewitt Associates says.

    The seemingly self-evident premise underlying merit pay and other individual performance-based pay plans is that they produce higher employee and organizational performance. Most companies, however, do not test the actual impact of performance-based rewards on employee behaviors and financial results. The most comprehensive empirical studies flow from the academic world, where evidence is mounting that the assumptions underlying individual performance-based pay programs are wrong.

    With the drive for evidence-based management now moving across all corporate functions, the sheer force of intuitive practices and the shortage of obvious alternatives no longer suffice as justifications for rewards programs that tear into corporate resources. The real question posed by the best research is not whether companies should be spending more for individual performance pay programs, but whether they should be spending less.

Meritless Pay
    One of the most forceful advocates for evidence-based management is Jeffrey Pfeffer, the Thomas D. Dee II professor of organizational behavior at Stanford University’s Graduate School of Business. Drawing from his own work and citing three decades of empirical studies, Pfeffer testified before a 2007 congressional hearing on federal personnel reform that the idea that individual pay for performance will enhance organizational performance rests on a set of assumptions that do not hold in the vast majority of organizations.

    Pfeffer, with the full support of other recognized experts, continues to sharpen the challenge that now sits squarely before human resources executives and compensation directors.

    “The evidence is overwhelming that individual pay for performance does not improve organizational performance except in very limited cases,” he says. “Why do people, when confronted with the facts, turn their backs on them?”

    Given the lack of evidence that merit pay boosts employee performance and organizational results, should companies abandon it?

    “We’ve already abandoned merit pay,” Pfeffer says. “Merit pay is not based on merit. Performance evaluations are biased; overwhelming studies show this. Even if merit pay was based on merit, the pay increases are not enough to motivate employees, but they are enough to irritate them.”

    Survey reports show years of flat merit increase budgets that barely meet inflation rates and bear no relationship to productivity growth or profitability trends. The major salary budget surveys point to 2009 merit increases averaging 3.6 to 3.8 percent, with the highest performers receiving 5.6 to 6 percent. In effect, for the vast majority of employees, merit increases are unevenly distributed cost-of-living and market-adjustment increases couched in the language of performance rewards.

    Even when companies create seemingly significant pay differentiation between low and high performers, the actual cash increase is insufficient to sustain performance—or it drives the wrong behaviors, Pfeffer says. And, as many studies show, high levels of differentiation destroy engagement, breed distrust and undermine teamwork.

    A series of experiments conducted by Hewlett-Packard in the 1990s verified longstanding academic studies demonstrating that high incentives for top performers adversely affect organizational performance. Despite the deluge of consultants calling for companies to boost pay differentiation, Pfeffer cites dozens of studies showing that more dispersed pay distributions generate higher turnover, lower quality and a vast array of unintended results, including serious ethical breaches and business-killing behaviors.

    “Individual performance pay plans cost a lot of money and upset everyone,” Pfeffer says. Perhaps more important, when companies overestimate the power of financial rewards to affect behaviors, they neglect critical skills development and strong leadership, which Pfeffer and other experts agree play a more central role in raising organizational performance.

    “Effective management is a system, not a pay plan,” Pfeffer notes. “The mistake is that companies try to solve all their problems with pay.”

    At Verizon Business, Toohey takes a more holistic view. “I take it beyond pay,” he says. “When an employee leaves, does he leave for more money? Managers will say that the employee had a better offer. But why did the employee pick up the phone and call the headhunter in the first place? Was the employee trained and developed? Was there proper management? Are you spending the appropriate amounts on training and do employees know how much you are spending? You must have the right data to determine any of this.”

Building the Evidence
    At the heart of the performance pay problem sits the assumption that correlation implies causation. That assumption continues to pervade decision making in human resources and pay plan design.

    “There is the inferential issue,” Pfeffer says. “The CEO drank Wild Turkey; the company performed well; ergo, all CEOs should drink more Wild Turkey. The company uses individual incentives; the company performs well; ergo all companies should use more incentives.”

    Toohey encounters the difficulty of separating correlation and causation at Verizon Business. “I can look at training dollars for a sales channel and the performance of that sales channel. But does that tell me the training improved performance, or does it mean that the channel had really talented people to begin with?” Without the necessary data collected over time, the actual determinants of performance cannot be verified.

    Distinguishing correlation from causation is a substantial part of the evidence-based approach to workforce management and pay plan design. “The first step is to know what the evidence says,” Pfeffer says. “Know the research literature that pertains to your business. Diffusion and persistence do not prove effectiveness.”

    The second step is to run experiments. In companies with multiple sites or divisions, HR executives and compensation directors can take the opportunity to learn by doing. Pfeffer advises executives to run performance pay programs in specific units and test the results. “It’s not that hard to do,” he says. “Many organizations do not run one consistent pay plan throughout the company, and no law says you have to.”

    “Treat the organization as a prototype,” Pfeffer says. For research models, HR executives can look to marketing, particularly Internet-based marketing, where departments are constantly researching, testing and redesigning. It is critical, he emphasizes, to collect data in a way that does not simply confirm existing biases about pay and behavior.

    The objective is to move away from the assumptions that continue to shape pay plan design but are inconsistent with logic and empirical studies. “Evidence-based management is a way of thinking and being open to learning, as opposed to assuming that we already know, which is the ideological view supported by casual benchmarking,” Pfeffer says.

    “It comes down to how we educate people as executives and HR executives. The goal is to transform human resources into the R&D department for the human system, which is the most important system in almost all organizations,” Pfeffer says. “HR executives have to change how they think about their jobs.

    “In R&D, you go into the laboratory, you experiment and you keep up with the research that others do. You are not involved in rule enforcement but in value creation for the organization through learning and experimentation. Can you imagine walking into the R&D lab at a pharmaceutical company, asking the chief chemist about an important new study and having him respond that they don’t keep up with the literature in chemistry?”

Clearing the Obstacles
“In the whole area of pay for performance, HR has been deficient,” says Mark Ubelhart, principal in Hewitt Associates’ Human Capital Foresight practice. “When companies look at performance pay design, they look at their business strategy and prevalent practices and best practices, but you have to go beyond benchmarking.

    “Improved employee performance may or may not lead to better business performance,” Ubelhart says. “Hewitt studies show that when companies pay more, business performance is better. But you have to spend time to determine if this is predictive and causal. And if you have a good company, spending more on performance pay has to make it an even better company for there to be a causal relationship.”

    The obstacles to building an evidence-based approach are substantial, but not insurmountable. “The first problem is talent,” Ubelhart says. “You have to apply rigorous academic techniques to the performance pay issue. A lot of companies have talented professionals in human resources, but to migrate to a decision science, you have to have the in-house talent or tap it from outside. Companies are now trying to bring in analytical expertise.”

    The second problem is data. “The company has to access its own data on human capital and use it,” Ubelhart says. “We are absolutely seeing signs that this is changing. And investors want data on human capital. Not long ago, investors only looked at executive compensation, but now they are looking at human capital.”

    The third problem is the need for a common language. “You need standardized metrics for reporting, and this is beginning to emerge,” Ubelhart says. “Once one or two companies disclose human capital metrics in specific terms, CEOs will demand that their HR departments disclose human capital data as well. In two to three years, we will see HR migrate to analytics for broader disclosure, but for people with a classic HR background, it’s quite challenging.”

    Emilio Castilla, assistant professor at MIT’s Sloan School of Management and a visiting professor at New York University, advises HR executives to pursue collaboration with academic researchers. “HR has tended not to be open to collaboration or research or even to understanding the tools involved,” he says.

    “The very top executives at companies are more open to collaboration,” Castilla says. “HR is more resistant at companies where the HR function is viewed as an administrative function and the HR executive is not part of the top executive team. Where they are part of the top executive team, they are more open to collaboration.”

    Castilla reports that some HR executives are closing the knowledge gap between practitioners and academics through two methods. First, they follow the curricula at the top business schools and participate in university seminars and colloquia. Second, they call in academic experts to collaborate on research work. Both methods can produce a knowledge transfer that builds data for evaluating pay plans.

    Pfeffer notes the existing evidence points to group bonuses, profit sharing and gain sharing, which is a form of profit sharing, as more effective forms of performance-based pay than merit pay or individual incentives. “Group plans are more collective and recognize the interdependent nature of work today,” he says. “Most employees look at their total compensation and want to see that they share in the success of the organization.”

    Whether a pay plan is individual or group-based, the point is to put evidence behind the assumption that it improves organizational performance, or if the evidence is not affirmative, to make the appropriate business decision. “We’ve seen finance and marketing migrate to a decision science on spending issues,” Ubelhart says. “Now it’s HR’s turn.”

Workforce Management, November 3, 2008, p. 33-39 — Subscribe Now!

Mounting evidence indicates that individual-pay-for-performance plans do not improve organizational results. Worse yet, research shows merit pay and other individual performance-based rewards may generate discernible patterns of pay discrimination linked to gender, race and national origin.

    A new and particularly compelling study indicates that even when women and minorities receive the same starting salaries and performance ratings for doing the same job under the same supervisor, their merit increases are smaller than those awarded to their white male counterparts.

    The study, conducted by Emilio Castilla, assistant professor at MIT’s Sloan School of Management and a visiting professor at New York University, analyzed the internal records on 8,898 support staff at a large high-tech service-sector company with a workforce of 20,000. The company sits at the cutting edge in research and information technology, prides itself on its diverse workforce and strives for best-company-to-work-for status.

    But its merit pay plan produced gender- and race-based pay issues. “The disparities are small but very real,” Castilla says. “And any difference is evidence of bias.

    “When I presented the findings, the executives were shocked and immediately asked for recommendations to remedy the problem,” Castilla recalls. “The company was full of good intentions, but completely unaware of the unintended consequences of its performance system.”

    Although the company in the study separated the two stages, it still allowed unit heads some discretion to decide, for example, that an employee with a “five” rating was really a “high five” who warranted a larger increase than that given to others with the same rating.

    “The unit heads were not accountable for the discretion they exercised within the small latitude of increases for each rating,” Castilla says. “HR had to approve the merit increases recommended by the unit heads, but it basically rubber-stamped the decisions.”

    The company responded to Castilla’s findings by making the unit heads more accountable and assigning an exact increase for each rating. “You can still provide some difference and discretion, but the same formula must apply to all employees,” Castilla says. “Some units, for example, may bring in more revenues, so within that unit, the range of salary increases might be higher and all top performers in that unit would receive a higher increase than top performers in other units.”

    Pay transparency across the workforce is necessary to control bias, Castilla says. “Companies need to communicate the salary increase associated with each rating. This is another mechanism for correcting pay disparities.”

    Castilla has presented his study at several conferences. “Compensation directors tend to minimize the findings,” he says, “but the federal enforcement agencies have shown an interest.” Given the size of the study and the tight controls Castilla used, the findings represent a clear warning for any employer using a merit pay plan.

Workforce Management, November 3, 2008, p. 36 — Subscribe Now!

October 1 marks the beginning of a new annual enforcement cycle for the U.S. Office of Federal Contract Compliance Programs as the agency unfurls a long list of companies selected for compliance evaluations.

The last cycle, which covered nearly 5,000 employers, ended with a series of million-dollar settlements against companies that could not adequately defend their hiring practices against charges of systemic discrimination.

Companies selected for the new round of evaluations may see nothing more than a desk audit of their hiring procedures. But such an audit could evolve into a highly invasive on-site investigation, with federal agents conducting face-to-face interviews with hiring managers who must defend their selection criteria.

Agency staff have consistently rejected any criteria that may be subjective or “tainted” by the potential for systemic discrimination. In fiscal year 2007, systemic-discrimination charges accounted for 98 percent of the agency’s record $51.7 million in back-pay collections.

The Office of Federal Contract Compliance Programs defines systemic discrimination as a pattern or recurring practice of discrimination against a protected group.

“The OFCCP is now focused on becoming the premier agency for systemic discrimination,” says Julia Judish, counsel, employment and labor law, at Pillsbury Winthrop Shaw Pittman in Washington. “The EEOC’s [Equal Employment Opportunity Commission’s] focus is on individual charges. By contrast, the OFCCP is looking to put its limited resources to the best use by concentrating on federal contractors with systemic discrimination.

“The OFCCP has made it clear that it wants to pursue big cases.”

Self-audit protection
Employers on the OFCCP compliance list receive a letter stipulating that the agency will conduct an evaluation. The list is based on a mathematical analysis of the Employer Information Report (EEO-1) forms that companies submit as part of their federal contract obligations.

“You can’t predict whether you will receive a letter, so aim as if you might and attempt to limit the impact to a desk audit,” Judish advises.

Every federal contractor should conduct regular self-audits in anticipation of a compliance review.

“The goal of a self-audit is to position the company so that if a letter comes, the company will be ready to respond,” Judish says.

A self-audit need not be as elaborate and expensive as the multiple regression analysis of compensation data that the OFCCP recommended in its 2006 Voluntary Guidelines for Self-Evaluation of Compensation Practices, Judish notes. “Attention to a few key areas can go far in avoiding OFCCP actions, even without professional statisticians.”

The self-audit for hiring procedures should cover three key areas: evaluating technical compliance; identifying any sign of adverse impact; and reviewing compensation data for any evidence of discrimination that can be traced back to hiring.

“The OFCCP will look for technical compliance with applicant tracking and recordkeeping on race, gender and ethnicity because it affects the agency’s ability to monitor employers,” Judish says. “The company must have the right infrastructure in place. The agency also sees technical compliance as a sign of a contractor’s overall attitude and willingness to comply.”

To determine if recruiting and hiring policies and practices have had an adverse impact on a protected group, Judish advises employers to look at the numbers in the company’s annual affirmative action plan.

“Determine if there is a job group that is underutilized for females or minorities,” she says. “If you see a disparity, you have an obligation to determine its cause.”

The disparity may originate in the applicant pool or the selection process.

“Attempt to spot the areas that the OFCCP might see as problem areas and take steps to remedy them,” Judish says. “The OFCCP appreciates steps to remedy any disparity. This can make the difference between a desk audit and a full on-site audit.”

The final step in the self-audit is reviewing compensation data.

“The two big money areas for the OFCCP are hiring discrimination and compensation discrimination,” Judish says. “Generally, compensation discrimination is a separate issue, but compensation can tie into hiring if the disparities in pay are based in hiring decisions.”

If pay disparities exist, the agency will look for possible explanations.

“One explanation that the OFCCP is not receptive to is starting salaries,” Judish says.

When an employer capitulates to a male candidate who demands a higher starting salary than an equally qualified female candidate, the potential for discrimination claims appears.

In addition, if a new hire from a protected group received an artificially low and potentially discriminatory salary in a previous job and the current employer perpetuates that pay level, the employer may be open to OFCCP charges.

“A company cannot rely on an argument about starting salaries to get out from under its compensation obligations,” Judish warns. “Hiring must be nondiscriminatory and starting salaries must not set off compensation claims down the road.”

On-site actions
If self-audit precautions fail to head off an OFCCP on-site investigation, employers can still take steps to prepare hiring managers and protect hiring information to mitigate the potential for formal charges.

OFCCP officers may interview hiring managers, compensation directors and executives at corporate headquarters or at specific facilities.

“Typically, the compliance officers will start with the HR department and staffing manager,” says Robert Smith, partner in Morgan Lewis’s labor and employment practice, Washington.

If the OFCCP suspects discrimination, its agents will attempt to identify the exact point at which female or minority candidates are eliminated in the hiring process.

“If the elimination occurs with the hiring managers, they will sit down with the hiring managers,” Smith says. “The compliance officer will ask hiring managers to describe the hiring process, including the labor market for the jobs, the applicant pool, all pre-employment testing, the application process and the selection procedure. They will also ask the managers to produce hiring statistics.”

Companies can survive hiring-manager interviews with proper preparation.

“The employer’s attorney, whether it is in-house counsel or an outside attorney, should go in ahead of time to meet with the hiring managers,” Smith advises.

The employer’s attorney should also be present during the interviews. The OFCCP, however, can and will meet with employees without the presence of management attorneys.

The largest OFCCP compliance problems occur at companies with multiple facilities and decentralized hiring, where managers may or may not follow company policy and maintain crucial records.

“For example, a facility may accept applications on an ongoing basis but limit the actual pool to only the most recent applicants,” Smith notes. “Too often, candidate selection occurs on a ‘proximity to hire’ basis. The last warm body that walked in the door gets the job, regardless of the number of applicants that have applied for the position over the past months.”

Recordkeeping is essential for a defense against discrimination charges, but managers often fail to document each step for every hire.

“The company may have a list of the basic requirements for the job, but the hiring manager must be able to establish the actual reasons for the selection, and the criteria used must not be ‘tainted’ as biased with respect to gender or race,” Smith explains.
“For example, if a hiring manager states that a rejected candidate was simply ‘not sufficiently aggressive,’ the OFCCP will view that rejection as based on tainted gender-biased criteria.”

Employers should give recruiters and hiring managers lists of acceptable and unacceptable criteria. In addition, the job requisition should distinguish between basic requirements and preferred qualifications, all of which must be job-related.

“It can’t be emphasized too much that companies must be able to define ahead of time the entire recruiting and selection process and memorialize that process with full documentation,” Smith says.

At many facilities, troublesome habits linger on, Smith notes. Employers continue to use credit and arrest records in candidate screening, although federal enforcement agencies have long held that these records can adversely affect minorities.

“Employers cannot look at arrests and can look at convictions only in relationship to specific job criteria,” Smith says. Some state laws are even more restrictive than federal law in the use of conviction records.

Smith also notes that problems often arise when internal applicants, online applicants and those who apply in person at the site are not treated in a consistent manner.

“The documented applicant pool must contain all three groups,” he notes.

He advises employers to post positions online by requisition number so all applications can be attached to the pool for a specific job.

Also, when recruiters tap an applicant database, they must keep a record of the search terms used to find candidates.

“This becomes your pool and you must retain the results to show how the candidates were selected,” Smith says.

Smith counsels employers to test selection criteria for adverse impact and carefully analyze applicant-to-hire statistics. However, he cautions that employers must run the analyses under the direction of an attorney to ensure that the results are privileged information.

“Most large companies have their HR departments run these tests and then the results are open to discovery by the OFCCP and plaintiffs’ attorneys,” Smith warns. “It must be documented that the tests and analyses were conducted under the direction of counsel for internal purposes. The OFCCP and plaintiffs’ counsel will demand these test reports and they are discoverable unless the legal department or counsel takes control of them and they become privileged legal documents.”

An on-site audit is very invasive, Smith notes. But self-audit protections can help fend them off, and proper preparation can mitigate the risks when agents come knocking.

R ecruiters, hiring managers and corporate executives who still believe they operate in the relatively benign environment of the business place must have missed reports on the latest wave of workplace raids and arrests carried out by U.S. Immigration and Customs Enforcement.

The raids are no longer isolated events in marginal sectors. Instead, enforcement actions by ICE are growing more draconian by the day and now engulf whole industries.

Workers are being pulled off factory floors and put into detention centers. Employees are turning evidence against supervisors and executives, some of whom are going to jail. Sourcing is fraught with new liabilities. Even employee referral programs, once the bright light for effective recruiting, are sullied by new concerns about the risk of prosecution.

Arresting lower-level employees and flipping them to produce evidence against recruiters, managers and executives is now a standard ICE practice, according to one expert.

“No one has a greater exposure to criminal prosecution than recruiters when employees have been sweatboxed by the government,” says Robert Loughran, managing shareholder and immigration law specialist at Tindall & Foster in Houston and Austin, Texas. “The government is making the case that recruiters are conspirators in hiring unauthorized workers.”

Corporate recruiting policies and practices developed as part of a sound business model are increasingly distorted by the fear of failing to comply with immigration regulations that change daily. With immigration law splintered into a thousand federal, state and local regulations and enforcement sweeps stirring up anti-immigrant sentiment, recruiters and human resources professionals are caught in a level of ugliness rarely seen in workplace relations.

The new criminalization
   The latest ICE raid in a spate of major summer sweeps occurred August 25 in Laurel, Mississippi. Special agents executed criminal and civil search warrants at Howard Industries Inc., an electric transformer manufacturing facility, and arrested 595 workers suspected of being illegal.

One employee arrested in the Howard Industries sweep said fellow workers applauded as the alleged illegal immigrants were taken into custody, according to an Associated Press report, which also noted that a tip from an employee prompted the ICE investigation.

From October 2007 to July 2008, ICE made 937 criminal arrests in workplace investigations, including 99 arrests of owners, hiring managers, supervisors and human resources employees who now face charges ranging from harboring to knowingly hiring undocumented workers.

ICE also made more than 3,500 administrative arrests for immigration violations. When the federal fiscal year ends in October, ICE will likely top the new record for arrests set in fiscal year 2007, which represented a 45-fold increase in work-site arrests compared with 2001.

“We now see disgruntled employees or disgruntled contract workers from staffing agencies or competitor companies going to the ICE to bring to its attention any sign of unauthorized workers at a company,” Loughran says. “The government opens a file and the investigation begins.”

Created in March 2003 in the wake of September 11 fears, ICE is the largest investigative branch of the Department of Homeland Security. The agency combines the law enforcement arms of the former Immigration and Naturalization Service and the former U.S. Customs Service.

“When the Department of Homeland Security was reorganized and the ICE was formed, the legacy staff for the ICE was customs agency staff,” Loughran notes.

ICE has a different personality and experience level because of it. It takes the customs enforcement experience of its staff and applies it to immigration, he says.

“Customs agents are trained for drug interdiction and money-laundering arrests,” Loughran says. “They shake the small guy, provide incentives and, in the case of illegal aliens, threaten immediate detention or deportation. In the case of U.S. citizens who may be implicated, they offer a plea-bargain deal. People roll over.”

According to Loughran, ICE can bring 20 different criminal and civil charges to bear in immigration cases.

“It is critical for recruiters and human resources executives to understand that we are no longer dealing with the fine points of law but with a bucket approach,” he says. “Now the core objective of U.S. attorneys is to throw the entire U.S. Criminal Code, including racketeering and conspiracy charges, at recruiters, managers and corporate executives.”

ICE is looking for the biggest media bang possible, Loughran says.

“When a tip comes in from a confidential informant—for example, a disgruntled employee or a competitor—the ICE investigates and schedules a raid. The ICE press releases for the raids are prewritten. Another press release goes out a few months after the raid when the company executives are indicted, and then another when sentences and fines are handed down.”

Distorted policies
   Employee referral programs are the next target, Loughran warns.

“ICE enforcement agents see these programs as a for-profit conspiracy to defraud the federal government and violate immigration laws, with employees and recruiters acting as knowing conspirators,” Loughran says. “The government is now looking for targets of opportunity—cases with the largest numbers of workers, vulnerable executives and large potential fines—so it may take another six to 12 months before the ICE hits referral programs.”

As ICE agents turn their attention to referral programs, a chilling effect likely will set in and employers will have to turn to alternative methods for sourcing. The ICE scrutiny has already affected relations with recruiting and staffing agencies.

“Outside vendors now form the area where the risk is highest,” Loughran notes.

Loughran points to the emergence of “the Wal-Mart standard” as an example of the impact of ICE raids on vendor relations. In 2005, Wal-Mart paid $11 million and revised its vendor policies to settle a claim that it was responsible for immigration law violations stemming from its contract with a cleaning vendor that used unauthorized workers.

Wal-Mart could have defeated the federal government’s allegations because the vendor was clearly at arm’s length. But the Bentonville, Arkansas-based retailer decided to settle—probably for public relations reasons, Loughran says. Now every vendor that works for Wal-Mart must stipulate it has completed a workforce audit and is in compliance.

“The Wal-Mart settlement is the new business-place precedent because the largest employer in the United States was intimidated into a settlement,” he says. “The biggest guy in the room got punched in the nose. Wal-Mart’s response to the ICE charges is the new de facto business standard. The federal government will point to any company that does not meet the standard as ‘indifferent’ or ‘negligent’ on the issue of employing unauthorized workers.”

The scramble to revise policies and maintain compliance is vastly complicated by the layers of federal, state and local laws now in play.

“It’s a mess because rules are constantly changing and there’s no precedent,” says Jorge Lopez, shareholder, corporate migration law group, at Littler Mendelson in Miami. “Companies and their counsel have nothing to turn to.

“Companies are trying to come up with policies that make sense. They are questioning everything they’ve done and that’s created a chilling effect on efforts to set policy. The whole essence of the business model is at stake. Companies need to recruit candidates, and employees need to be able to refer potential candidates without the risk of liability.”

Lopez notes that the effect on vendor relationships is particularly severe in the lower-wage industries.

“In the past, companies were willing to rely on provisions in the contract with the vendors,” he says. “Now, it’s been pushed forward to requiring declarations and even audit statements. There is more pushback from client companies. There’s been a trickle-down effect, and that’s exactly what ICE wants.”

The only solution for HR executives is to be vigilant, especially if the company operates in different geographies.

“Policies must be monitored on a jurisdiction-by-jurisdiction basis,” Lopez advises. “The job of the HR executive has completely changed. Now CEOs are reading about the raids and criminal prosecutions and putting pressure on their general counsel and HR executives.”

Certain businesses, especially smaller companies, may have higher risk tolerance.

“For larger companies, the real threat is in field operations where a specific individual may be operating outside company policy,” Lopez says. “HR executives must constantly conduct field checks.”

Discrimination charges
   There is a growing concern that companies may become so compliance-oriented with respect to immigration law that they risk discriminatory conduct, according to Lopez. To prevent this, HR executives must ensure that they are not being overly aggressive in their immigration compliance activities.

“Sometimes the choice has to be made between immigration compliance and potentially discriminatory conduct,” Lopez says. “Companies should err on the side of lower liability, which now means risking a discrimination charge to ensure immigration compliance. But this must be a fact-based decision grounded in the specific workforce and the business line.”

If companies have to choose which gray area they will occupy, they will go with discrimination, Lopez says.

“Five years ago, they would have risked noncompliance on immigration issues to avoid any risk of discrimination charges,” he says. “Now, the opposite is true.”

Lopez notes that there has been a drop in the availability of immigrant labor in the past year, and this drop has occurred in the context of an overall long-term labor shortage.

“Employers simply cannot find suitable candidates for their open positions,” he says. “You cannot run a business if you don’t have the resources. This was the origin of Bangalore. Employers have to have a pool of workers or send the work offshore. It’s a myth that immigration provides cheap labor. If employers could hire sufficient workers without using immigrants, they would.”

The potential for discrimination charges and the climate of fear fostered by ICE raids and new rounds of local legislation have created unprecedented burdens for recruiters and HR staff.

“HR executives have a responsibility to maintain a non-hostile workplace,” Loughran says. “It is part of the obligation to be vigilant about harassment based on race, ethnicity or national origin. The failure to do so is actionable. Nondiscrimination laws have not changed, and there are federal agencies looking for cases to prosecute.”

Loughran notes the media has fueled tension surrounding immigration.

“There are hysterical media reports about immigration and job loss even in areas where unemployment is extremely low,” he says. “And there are historical precedents for what happens when one group is vilified as taking away American jobs.”

Human resources executives most commonly cite their department’s performance in recruiting and retaining employees as the primary factor in how top management evaluates HR’s contribution to the organization.

But despite the importance assigned to recruiting, budgets are stagnant and the systems deployed are often inadequate.

Recruiters are showing the strain. Early-stage recruiting tasks such as sourcing and screening chew up too much time and pull recruiters away from key later-stage tasks such as interviewing and onboarding.

This suboptimal state is reflected in the results of two new studies from BNA and ADP that offer benchmarks for recruiting performance and essential feedback from HR executives and recruiting directors.

Closing the gap between what recruiters have and what recruiters need means building a business case for additional resources. The new data from BNA, a business research and publishing firm based in Arlington, Virginia,
and ADP, a business outsourcing firm in Roseland, New Jersey, helps establish a baseline for current recruiting practices and point to the changes necessary to boost recruiting effectiveness.

Staffing and budgets
In the BNA survey, which covers a broad range of HR metrics, 48 percent of HR executives cite recruiting and retention as the top criterion in C-suite assessments of HR’s overall performance. Partnering to implement key organizational goals, often noted as a high priority for HR, falls in second place, with 39 percent of the HR executives citing this factor as the leading factor for management’s evaluation of HR’s contribution.

The BNA study, conducted annually for more than 20 years, is based on responses from 607 HR executives. Despite the softer economy and lower overall employment growth, 34 percent of HR executives identified recruitment and retention as their top priority for 2008, followed by only 13 percent citing strategic planning and management and 12 percent noting training and development. The importance assigned to recruitment and retention varies little by organizational size or industry sector.

Although the priority placed on recruitment and retention is clear, the BNA study reveals a disjuncture between this priority status and actual practices. For example, HR executives are more likely to plan and measure the results of their compensation and benefits programs than their staffing programs.

Fifty-nine percent reported that they regularly track compensation and benefits, compared with 52 percent who regularly use measurement and planning tools for staffing. In fact, 14 percent reported that they do not use any measurement or planning tools for staffing.

Median HR expenditures increased to $1,082 per employee in 2007, up marginally from $1,056 per worker in 2006, according to the BNA study. Although 54 percent of the surveyed organizations reported that they increased HR expenditures in compensation and 52 percent increased spending for benefits, only 44 percent boosted spending for employment and recruiting in 2007.

The same percentage reported they will increase spending for recruitment in 2008.

Forty-seven percent reported that their budget allocation for recruiting in 2008 will not change, and 9 percent reported that it will decline, the largest percentage reporting a drop in spending for any HR task.

In addition, despite widespread coverage of increased outsourcing, recruiting and related tasks remain largely in-house, including tasks that are not part of core recruiting work. HR departments are most likely to outsource background investigations, but only 27 percent report that they use vendors for this work. Only 23 percent outsource drug testing and only 15 percent outsource pre-employment testing.

Recruiting responsibilities for lower-level positions also remain largely in-house. Responsibilities for non-college recruiting rests solely with HR at 53 percent of employers; 39 percent share the responsibility with other departments; and only 5 percent outsource the task. At companies with 2,500 or more employees, 45 percent give HR sole responsibility for non-college recruiting.

HR handles all college recruiting at 41 percent of employers and shares the responsibility with other departments at an additional 25 percent. Interviewing remains a joint effort, with 87 percent of the organizations reporting that HR and other departments share this responsibility.

HR handles all temporary labor administration at 33 percent of companies, shares it or leaves it to other departments at 48 percent, and outsources the work at only 9 percent of organizations. For large organizations with 2,500 employees or more, 27 percent of HR departments still carry sole responsibility for temporary labor administration.

Demand and pain
The stagnant recruiting budgets and staffing reported in the BNA study do not reflect a decline in recruiting activity. The ADP survey results indicate that recruiting is an ongoing process at the vast majority of organizations.

According to the survey, average annual turnover stands at 16 percent for salaried employees and 34 percent for hourly employees at companies with 5,000 or more employees. Companies with 1,000 to 4,999 employees report turnover of 13 percent for salaried employees and 26 percent for hourly employees.

The ADP study is based on a survey of 537 senior HR executives in charge of recruiting at 175 companies with 100 to 999 employees and 362 companies with 1,000 employees or more. ADP found that recruiters are under the greatest strain at large companies with 5,000 or more employees. These companies employ an average of 10 recruiters to bring in 1,970 new hires a year with an average of 23 applicants per position.

Recruiters report that the early-stage tasks are the most time-consuming. At companies with 1,000 or more employees, finding and matching candidates to requisitions accounts for 15 percent of recruiting staff time. Initial screening, scheduling and interviewing consume another 15 percent, followed by processing, which accounts for 14 percent of recruiters’ time.

A significant percentage of recruiting directors surveyed by ADP are dissatisfied with the tools and the methods used for managing the early stages of the recruiting process, which includes sourcing, screening and tracking. Inefficiencies at this stage are particularly troublesome for organizations with 1,000 or more employees, which screen an average of 23 applicants per position, almost double the average number for companies with fewer than 1,000 employees.

Recruiting directors consistently report that they would prefer to use in-house recruiting staff more effectively by adopting better technology or outsourcing specific recruiting tasks. A sizable majority would prefer to automate or outsource sourcing, applicant tracking, background checks, skills assessment and compliance and reporting.

Building the business case
Although recruiting directors are pushing for more efficient systems, ADP found that only one in 10 midsize companies use an end-to-end system to manage the recruiting process.

“Every employer wants the best candidates,” says Dean Rehfeld, divisional vice president, market and business development for ADP’s pre-employment services. “But for HR executives and recruiting directors, the key questions are: Do they have the tools? Do the tools integrate seamlessly? And can they build the business case to get what they need?”

Building the business case for additional recruiting resources requires a full set of metrics for all the standard measures of recruiting efficiency, including time to hire, the quality of hires, the cost per hire and the cost of a bad hire, where, for example, the screening process was insufficient or a poorly conducted background check failed to reveal a serious potential liability.

“HR executives and recruiting directors should focus on the ROI for recruiting-process improvements,” Rehfeld says. “A key step is to get out in the field and interview stakeholders in the recruiting process, beginning with the hiring managers. Get input around the demand for recruiting and the level of pain involved in the various tasks. Any CFO is sensitive to this feedback.”

HR executives and recruiting directors can also design and conduct an internal survey that will capture the time consumed by various recruiting tasks and the effort involved in navigating the current system. The information gleaned from the internal survey and from hiring managers in the field allows recruiting directors to develop a baseline against which improvements can be measured at regular intervals after additional resources are deployed.

HR executives and recruiting directors must also document the cost of the improvements by soliciting bids from vendors.

“Look at the issues holistically,” Rehfeld advises. “Evaluate the tools that address each task and the degree to which they can integrate all the parts into one coherent system. In the marketplace, plenty of companies take advantage of specific solutions but don’t take advantage of integrated solutions that address all the recruiting tasks and achieve incremental value by doing so.”

A comprehensive system should offer continuity across geographies and a full set of compliance tools—features that CFOs will find particularly appealing.

“To help build the business case, calculate the cost of noncompliance and the risks entailed,” Rehfeld says. “To ensure continuity, look across multiple locations and hiring across all those locations. HR executives can end the nightmare of wondering whether recruiting-related policies and practices are actually implemented in a uniform manner. Continuity drives compliance.”

HR executives and recruiting directors can also establish costs and ROI metrics through third-party research.

“In addition, tap vendors with extra teeth for showing the ROI on a recruitment-process investment,” Rehfeld says.

During the past decade, recruiting has gained greater attention in the C-suite as top executives increasingly realize that corporate growth hinges on hiring the best talent for key positions in the organization. Meeting the mandate for effective recruiting, however, means that HR executives and recruiting directors in many organizations will have to make a successful case for additional resources.

M anagers do all the heavy lifting at AlliedBarton Security Services, the largest American-owned contract security company operating in the United States.

    With more than 3,000 clients, including 200 Fortune 500 companies, AlliedBarton must be prepared to put 400 to 500 security guards on a new site within two to three weeks if client needs suddenly shift or an incident triggers a demand for higher security. A break-in at a company’s offices or a shooting rampage on a college campus may generate a sudden unforeseen demand for massive security staffing.

    The managers at AlliedBarton’s 100 locations are responsible for meeting surges in demand and training the new hires.

    “At headquarters, we look at both macro- and micro- level demand, but our local leaders manage trends in each market,” says Jim Gillece, chief people officer and senior vice president of human capital management. “We’ve found that even with spikes in demand, we can fulfill needs. It’s a well-oiled machine.”

    At thousands of companies like AlliedBarton, local managers shoulder the responsibility for recruiting, onboarding, training and engaging new hires. Their success, according to the latest research, hinges on their ability to not only meet rapid changes in staffing needs but also to create high levels of employee engagement.

Managing swings
   Based in King of Prussia, Pennsylvania, AlliedBarton has grown from 8,000 employees to 53,000 employees in nine years through acquisitions and organic growth. Strong demand for workplace and campus security services generated $1.5 billion in revenues for the company in 2007.

    Gillece does not focus on long-range forecasts for overall workforce needs for all positions.

    “We plan future needs for different levels in the organization,” he says. “The skills needed at various levels have changed over the past few years. We are readying leaders for the next step and focusing on transitions from one level to another.”

    Security companies operate in a low-margin industry, so cost is always a factor. AlliedBarton is in a period of high growth and strong customer retention levels, but sharp shifts in demand and constant consolidation in the industry set off unpredictable staffing changes.

    “It’s difficult to project the need for employees because we have to be prepared to integrate after acquisitions,” Gillece notes.

    AlliedBarton’s managers typically maintain strong relationships with feeder pools, which include community-based organizations, the CIA, the FBI and local police.

    “We nurture these relationships,” Gillece says.

    For seasonal spikes at the national level, which include high demand from retailers during the holiday season, AlliedBarton taps flexible talent pools.

    “The key is maintaining the flexibility to redeploy where the needs are greatest,” Gillece says.

    The local managers and their direct reports onboard and train the large groups of new hires brought in to meet a surge in demand. Many of the company’s managers moved into their positions after years in the ranks. In Philadelphia, where the company was founded, 50 percent of the managers come in through entry-level positions.

    “Fifty percent is an aspirational goal for our other locations,” Gillece notes. “But there is also great value in watching the external reservoir because of the mix of new ideas that outside hires bring with them.”

    AlliedBarton has concluded that formal training programs are not the best vehicles for preparing new hires for security assignments. Instead, managers mentor new employees and assign them to shadow more experienced workers. Simultaneously, managers must ensure that both new hires and longer-term employees remain engaged in their assignments and committed to the company.

Managing engagement
   When managers at companies such as AlliedBarton bear so much responsibility for both hiring and training new employees, the science of selecting the right candidates for managerial positions becomes all the more critical.

    Candidates for managerial jobs must have the skills to handle recruiting and the ability to engage employees.

    “We know that managers are the key to engaging individuals,” says Tom Rath, global leader for the workplace research and leadership consulting practice at Gallup, Inc., which conducts massive worldwide studies on employee engagement. Gallup has studied 10 million employees in the past decade to establish global benchmarks for engagement.

    Engagement metrics have emerged as a leading indicator of future financial performance.

    “Executives at the Fortune 50 are talking about employee engagement in their analysts calls,” Rath reports.

    Extensive research by Gallup and other consultancies shows that engaged employees are more productive and profitable, more custom-focused, more likely to refer their company as a good place to work, more likely to recommend the company’s products and services and less likely to leave the organization.

    Gallup measures employee engagement with a set of 12 questions that gauge employee attitudes linked to business outcomes. Gallup refers to this set as Q12. Corporate leaders, local managers and other employees can have a direct impact on the attitudes identified through the Q12 process.

    Gallup has also documented the cost of disengagement. It calculates that of all U.S. workers age 18 or older, 18 percent are actively disengaged at a cost of $382 billion a year to the U.S. economy as a whole. Gallup’s semiannual engagement surveys show a steady rise in disengagement levels since the second half of 2006.

    Other studies have reported the effect of disengagement on employee performance across all geographies and age groups. A Watson Wyatt Worldwide study found that Canadian companies with high employee engagement levels demonstrate greater annual total returns to shareholders—known as TRS—higher market premiums and higher productivity levels than those with low engagement.

    In 2007, the high-engagement companies reported TRS of 24.1 percent and $484,000 in revenues per employee compared with TRS of 14.6 percent and $328,000 in revenues per employee for companies with low engagement levels. These financial measures of the importance of engagement indicate that companies must modify their recruiting and selection processes to include engagement factors.

    Employers commonly focus on whether a candidate has the skills to fit the job and the role, Rath notes.

    “But this misses the larger question of whether the candidate can boost the engagement of other employees. It’s crucial to know whether the candidate will be not only a great individual worker, but also an employee who can build the engagement of the team.”

    These employees have the greatest potential for managerial work.

    Rath draws a distinction between core personality traits and the acquired attitudes measured by Q12, which can be affected by the employee’s experience on the job.

    “The goal now is to perfect a set of pre-employment questions that measure the core traits which create the potential for creating engagement,” Rath says.

    Gallup has been using core trait engagement testing for some time in hiring managers internally and now has the tools to score candidates based on their ability to boost engagement at the team level. It is now refining the testing to identify specific components within the trait.

    The science behind it
Pre-employment testing for the ability to build engagement is now a science, Rath says.

    “We can identify people who have the ability to drive engagement. If you have three or four candidates whose skills are comparably matched, this can be the tie-breaker.”

    Because the characteristics Gallup has identified as the essential predictors of the ability to engage others are personality traits rather than learned skills, the candidate selection process is the only opportunity to ensure the organization benefits from the best managerial talent.

    “The skills necessary to perform a specific job are still the key to evaluating a candidate, but the second factor is the ability to engage,” Rath explains. “It is the natural ability to create esprit de corps, not just for the sake of the candidate’s own self-interest but for the sake of the team as a whole.”

    Gallup’s research indicates that it is possible to identify and measure this trait through behavioral questions. To pinpoint the right questions, Gallup reviewed nearly 10,000 validated pre-employment questions to uncover a subset that enables organizations to assess whether a candidate has the ability to boost engagement levels.

    This approach allows companies to hire managers with strong potential and to select candidates for other positions who have the ability to raise engagement levels among their co-workers.

    “Some of the questions elicit answers that are easily identified as socially desirable, so we also use different questions that do not call for socially desirable answers to avoid people outsmarting the test,” Rath notes. “If someone is trying to game the system, we can discover that at some point in the process.”

    Although Gallup does not publicize the full results of its research findings on the exact traits that mark the potential for outstanding managers, Rath readily describes the general characteristics documented by the studies.

    “The best managers create strong relationships and see each person as a whole rather than as a means to an end,” he says. “This gives them the basic ability to get people to move toward a goal.”

    Gallup’s research indicates that once a manager is on the job, the key question is whether the manager focuses on the employee’s strengths, directs attention to the employee’s weaknesses or ignores the employee. If the manager focuses on the employee’s strengths, the probability that the employee will be disengaged is 1 in 100.

    If the manager focuses on the employee’s weaknesses, the probability rises to 20 in 100. But if the manager ignores the employee, the rate for active disengagement is 40 out of 100.

    The point is that most employees can be moved out of active disengagement by the right managerial practices. Selecting the right candidates for crucial managerial positions ensures not only the skills necessary to adjust staffing levels but also the ability to engage the workforce as a whole.

FedEx Corp., with $37 billion in annual reve­nue, 290,000 employees and contractors, and operations in 222 countries, ranks seventh on Fortune’s list of America’s Most Admired Companies and sixth on the World’s Most Admired Companies list. For 10 consecutive years, it has also appeared on Fortune’s list of the Best Companies to Work For.

    Judith Edge, corporate vice president for human resources, signed on with FedEx in 1983, when she was 22 years old, and worked up the HR ladder to become corporate vice president for global human resources in 2007. Edge earned her master’s degree in business administration from Heriot-Watt University in Edinburgh, Scotland.

    “The MBA has been absolutely critical to my success,” Edge says. “HR has come a long way, but the MBA brings credibility to my role as a business leader. I can sit with finance and build out a business case.”

    “You need an MBA to speak the same language as the other business functions,” she says. “For example, in the marketing courses, you learn about the models that marketing uses. That allows you to more fully understand your own marketing people, and some of the models can be incorporated into compensation plans.”

    Edge reports to Frederick Smith, one of the country’s most respected CEOs. “He gives you total autonomy and has complete faith in you to execute your assignment for the organization,” she says. Edge also sits on the nine-member strategic management committee, which includes Smith and his direct reports: the CEOs from the four operating companies, the CFO, the chief information officer, the head of marketing and communications, and Edge. “I have a very tight relationship with finance and legal,” she reports. “You can’t operate in a silo in a company that is as complex as FedEx.”

    To keep HR focused on business objectives, Edge shadows Smith. “Fred sets the MBOs [management by objectives] every year and then I set mine,” she says. Edge also oversees different task forces on specific issues within HR to pull in the operating companies and make sure that HR objectives are consistent across the organization. “We leverage best practices from corporate and all the operating companies,” she notes.

    Edge manages leadership development for the top 400 positions in the company and ensures the company’s color-coded leadership pipelines are full. The FedEx “purple” pipeline, for example, feeds high-performing managers into director positions after a yearlong training program. “The objective is to help them think broadly and strategically,” Edge says.

    An outside firm assesses the managers’ leadership skills before and after the program, and Edge tracks how many are promoted within 18 months of program completion. More than 90 percent of the company’s managerial and executive positions are filled from within.

    Edge also oversees the “Excel” program for high-performing vice presidents, which reinforces cross-functionality throughout the organization. In the six-month program, vice presidents learn about the differences in the com- pany’s various operating units and complete an international assignment in China to broaden their understanding of differences in political environments.

    The FedEx HR function includes a team at each of the four operating companies plus a team at its corporate headquarters to develop strategy and thread it through the operating companies. In the FedEx operating companies, the HR leaders have law degrees or MBAs. In looking at a successor for her own position, Edge notes, “I would see an MBA as a big plus.”

Workforce Management, June 23, 2008, p. 32 — Subscribe Now!

The Infosys Leadership Institute in Mysore, India, pumps out executive talent for Infosys Technologies, the global IT solutions provider with fiscal 2008 revenue of $4.18 billion and year-over-year growth of 35 percent. Infosys employs 91,187 people and has offers out for an additional 18,000.

The HR function is responsible for the institute’s curriculum and an on-site staff of 80. HR is also responsible for all leadership development programs, including designing the curriculum and monitoring the results.

“Our underlying philosophy is that leadership cannot be taught, but it can be learned,” says Girish Vaidya, Infosys, head of the institute. “Leaders must first master themselves, but we all have blind spots.”

Infosys splits its leaders into three tiers. Tier 1 leaders are the top 50 people in the organization, including the heads of the business units, who have an average of 20 years of experience. Board members mentor these 50 leaders. Tier 2 consists of 180 leaders with an average of 15 years of experience. They are mentored by Tier 1. Tier 3 represents 550 people who average 10 years of experience and are mentored by Tier 2.

Employees from all three tiers apply for formal leadership training. “Applicants are evaluated on the basis of their achievements within a nine-dimension model and selected on that basis,” Vaidya says. All of the leaders selected move through an anonymous 360-degree feedback analysis, which becomes the basis for constructing a personal development plan.

They also attend sessions with senior leaders, who discuss their own learning within the company. Some are sent out for educational programs at the top universities in India or Ivy League universities in the United States.

Every quarter, HR reports to the board on the number of personal development plans in progress and the status of the leadership development programs. Infosys also conducts an annual survey of the participants from all three tiers. HR reviews the list of participants and determines whether anyone should be dropped from the program for performance reasons.

To gauge the results of the leadership development program, HR uses a leadership index based on the nine dimensions and rates each participant on a 1 to 5 scale, with 5 as the highest rating. The rating hinges not only on each leader’s actions but also on the leader’s efforts to share learning with others in the business unit or function.

“When leaders share what they have learned, you get alignment with others in the unit,” Vaidya notes. “The rating is two-sided: It reflects what you have learned and achieved and how well you have communicated it to others. For example, strategy development is important, but getting buy-in from the rest of the organization is also important.”

” ‘Leadership’ is an overused term,” he says. “You must begin with a clear definition of what a leader is in the context of your company. You have to define the competencies required, and that will define the path you need to take.”

At Infosys, however, accountability for leadership development rests with the individual. “The organization can provide access to all the tools that are needed, but in the end, the individual must take on the responsibility,” Vaidya says.