Author: Fay Hansen

L owe’s, the second-largest home improvement retailer worldwide, opens a new store every three days and recruits more than 60,000 employees a year. The monthly recruiting average includes 130 new hires for the corporate office in Mooresville, North Carolina, and 5,000 for the 1,442 stores scattered across the U.S.

   The Fortune 50 company employs a total of 210,000 workers in 48 states and pulls in $44 billion a year in revenue. With compound annual average sales growth topping 19 percent since 1994 and annual net income growth averaging 26 percent, the company is in hyperdrive, quietly outpacing Home Depot with superior service and newer stores.

   Although analysts predict that Lowe’s will continue to steal market share from Home Depot in 2007, the entire $312 billion home improvement products industry is under pressure as the housing market continues to cool. Still, with profits rising for 23 consecutive quarters, Lowe’s plans to continue new store openings in the U.S. and Canada through 2007, with its massive recruiting machine still moving in high gear.

   Catherine Keown, Lowe’s director of recruiting, manages all recruiting with an internal staff of 35. Twenty-six recruiters are assigned to the company’s headquarters to handle the full cycle of recruiting for the corporate workforce of 5,000, aided by two search firms for hard-to-fill positions.

   An additional nine recruiters work in the field to source managerial candidates for the stores and distribution centers. Each store, which typically employs 125 to150 workers, has one HR manager, who handles all hiring for hourly positions.

   “The store positions, which generally require a high school degree and some retail experience, are not difficult to fill,” Keown says. “The corporate positions are more of a challenge.”

   Lowe’s meteoric sales growth and enviable earnings-per-share record reflect the company’s success in building a strong customer brand. Keown has turned her attention to building an equally strong employment brand that will ensure a steady flow of top candidates for headquarters.

Illuminating weak spots
   Lowe’s consumers know its stores for its wide, well-lit aisles and bright, easy-to-shop displays.

   “We want our recruiting tools to simulate our stores with a brighter electronic environment that will entice candidates to work for Lowe’s,” Keown reports. “We want new college graduates and professionals to look at Lowe’s as a career destination.”

   About 75 percent of all corporate-level candidates come in through the Lowe’s Web site.

   To glean the information needed to build the employment brand, Keown implemented Bernard Hodes’ QTrac recruiting and employment branding analytics in October 2006.

   “We wanted to gauge the effectiveness of the recruiting process and more fully capture the candidate experience,” she says.

   QTrac is designed to measure the effectiveness of the employment brand and its impact on recruiting and retention. The goal is to provide measurements, analytics and benchmarks for gauging the ROI of employment branding efforts. Six Fortune 500 companies, including Lowe’s and Bank of America, piloted QTrac in 2006—ahead of Hodes’ national QTrac rollout in January 2007.

   QTrac uses a new-hire survey that covers every step in the recruiting process. The online survey takes 10 to 15 minutes and is administered to new hires after 30 days on the job and again at 90 days, 180 days and 365 days to capture the new hire’s experience with the company four times during the first year of employment.

   “QTrac allows me to see how the recruiting process impacts candidate perceptions of the company, and confirms our internal research findings about the process and the candidates,” Keown says.

   The point is to capture any weakness in the recruiting, onboarding, training and new-hire experience that HR needs to address to ensure effective recruiting and retention. Lowe’s is now using QTrac for all corporate hires, and averaging an 85 percent response rate to the survey on a voluntary basis.

   “The first 30 days are critical to retention,” says Bradley Savoy, director of strategic development at Bernard Hodes. “The first 90 days are a key point for referrals. The six-month and one-year surveys capture the full year of the employment relationship.”

Tracking the relationship
   The survey for each time period asks different questions that are most relevant to a new hire at that mark.

   “We can map how a new hire’s view of the company changes over the first year,” Savoy says.

   Keown receives QTrac reports on Lowe’s new hires each month and discusses the results with the business units to improve recruiting techniques and the candidate experience. After only two months of QTrac reporting, she gained information that her recruiting team could translate into tangible plans for improving the process.

   “For example, QTrac told us that candidates want more information about the company upfront,” Keown says. “Throughout 2007, we will be revising our online career site to provide that information. The QTrac results allowed us to develop a stronger action plan to meet this need.”

   Keown’s overall strategic recruiting plan for 2007 is geared toward enhancing the candidate experience.

   “In addition to providing more information about the company upfront, we will try to make the candidate experience more like the customer experience,” she says. Changes in the company’s online career site are under discussion.

   Lowe’s adoption of QTrac is part of a larger movement toward the greater use of analytics to improve recruiting and employment branding.

   “We’ve seen a progression toward analytics and a scorecard view in HR,” Savoy says. “Over the past three years, I’ve seen a higher level of awareness in our client base about analytics. Providers are now stepping up to bring products to the market.”

   In December 2006, ATS provider Cytiva Software launched a new analytics dashboard for its SonicRecruit system. The Recruiting Roundtable also launched a new recruiting dashboard available for its members.

   The ATS community has adopted analytics and dashboards, taking data out of ATSes and putting the information into graphic form.

   “Oracle has been offering HR dashboards for years,” Savoy notes. “But one of the drawbacks with data from ATS is that recruiting professionals are inputting the data, and that may create bumps in what is reported. Most of the dashboards and analytics available are based on ATS data, which is only part of the picture.”

   The push now is to offer companies more complete data on the effectiveness of the recruitment process and related data on the effectiveness of branding initiatives.

   “Companies like Lowe’s and Bank of America are spending money to build their employment brand,” Savoy says. “They perform very well and have deep experience in building their consumer brand, but the value proposition for the employment brand is quite different.”

   The key indicators are the employment brand and the job brand, which consists of whether or not the job is what the new hire thought it would be. QTrac’s analytics measure the ROI for an employment branding initiative and help validate the data coming in through the ATS on the quality of sourcing methods and other recruiting factors.

   The ability to pinpoint weaknesses in the recruitment and branding process hinges on detailed analytics.

   “For example, QTrac may report that candidates have problems in face-to-face interviews with specific hiring managers,” Savoy notes. “A company can determine the value proposition for the employee and implement changes necessary to strengthen it.”

   QTrac is also a retention tool. Survey questions on compensation and benefits, the working environment, the relationship with supervisors and other factors identify the top 10 areas of risk with respect to retaining employees. The responses to each survey question are graphed along with the initial baseline.

   The information that is collected and reported monthly through QTrac is also provided in more extensive quarterly reports. The benchmarking shows where the company is off the mark relative to competitors and companies in other industries.

   “The problems that clients are seeing through the use of QTrac are with the job brand and whether it effectively sells the job and clearly portrays what is entailed in the job,” Savoy reports.

   QTrac strips off each layer of the recruiting process to undercut erroneous assumptions about new hires. For example, one question in the survey that is administered after 30 days on the job asks the new hires if they would be willing to recommend the company to a friend.

   “One client found that 95 percent of its new hires would be willing to recommend the company and refer friends, but the company wasn’t tapping these employees for referrals until much later in their employment,” Savoy says.

   The survey results launched a discussion about whether the company might ask for referrals as early as the onboarding process.

   “Companies still have a long way to go in obtaining data and then understanding its value and acting on it,” Savoy reports. “HR executives can take data into the C-suite, but the challenge now is to show the actions taken as a result of the data and the results produced from those actions.”

   Keown is ready to do just that as she builds the employment brand at Lowe’s and tracks the impact of the effort on recruiting for the company’s most important positions.

U.S. employers exhausted the supply of 65,000 H-1B visas available for 2007 on May 26, 2006, a full 17 months before new visas would be issued. Although experts are cautiously optimistic that Congress will raise the cap in 2007, recruiters still face a full year of inadequate supplies of engineering and IT candidates.

    Recruiters should explore all possibilities before they conclude that tapping foreign labor markets for U.S. positions is simply not feasible. Alternative visas may offer some limited relief from the recruiting nightmare created by the closing of the H-1B door.

    Free trade visas, training visas and intra-company transfer visas apply only to narrow categories of workers, but may provide recruiters with options for global recruiting until Congress creates a more permanent solution.

Free trade visas
    The H-1B visa quota has a carve-out of 1,400 free trade H-1B visas for Chilean nationals and 6,100 H-1B visas for Singaporean nationals.

    “These visas are the product of free trade agreements between the United States and these countries, and we have not reached the quota on them,” says Susan Cohen, manager of the immigration section at law firm Mintz Levin Cohn Ferris Glovsky and Popeo in Boston.

    Unlike traditional H-1B visas, which are valid for three years initially, with extensions up to six years, these free trade visas are good for only one year at a time.

    “Despite these limitations, the free trade H-1B visas are a welcome option when no other H-1B visas are available,” Cohen notes. “Indeed, some employers have decided to focus their recruiting efforts on these countries since visas are available for these nationals if they meet the ‘professional worker’ criteria.”

    Another relatively new work visa created as a result of a trade agreement is the E-3 visa for Australian nationals. The criteria for this visa are similar to those for the H-1B. As with all types of H-1B visas, the employer must make certain attestations to the Labor Department about the wages and working conditions for the position.

    “But the application process is streamlined so the visa can be obtained quickly,” Cohen reports.

    “Not only are Australians who come to work on E-3 visas admitted for two years, they can continually extend their visa status as long as they still qualify for the visa,” Cohen says. “Also, the E-3 spouse is allowed to work in the United States, which is not the case for H-1B spouses who arrive with H-4 dependent visas.”

    With the E-3 visas now available, Australia may prove to be a fertile recruiting site for scientific and engineering talent in short supply in the U.S.

    Another alternative to the H-1B visa is the TN visa created for Mexican and Canadian professional workers under the North American Free Trade Agreement.

    “These visas are only for certain occupations listed in NAFTA, but if the potential employee is Canadian or Mexican and the job is on the NAFTA list, it is a straightforward matter to obtain this visa, which is valid for one year at a time,” Cohen explains.

    About 65,000 TN visa holders currently work in the U.S.

Training, foreign firm and transfer visas
   Visas are available for employees brought into the U.S. for training purposes, but employers face strict limitations.

    “Employers may be able to fit candidates into H-2, H-3 or other visa categories, but they are very narrow,” says Elena Park, head of the immigration practice at Cozen O’Connor in Philadelphia.

    There is no cap on H-3 visas, but they carry a two-year time limit.

   “The H-3 is not for work purposes; the employee must participate in an established training program,” Park notes. “But some employers have been able to create training programs under specific circumstances. In the initial petition stage for H-3 visas, immigration will look at the training program.”

    About 3,000 foreign nationals currently train in the U.S. under H-3 visas.

    The J-1 visa is similar to the H-3, but the definition of training is somewhat broader.

    “It can be used for an employee to shadow a senior worker, for example,” Parks says. “But the J-1 contemplates that the person is coming in with a lack of knowledge.”

    J-1 visas are issued for one year and can be extended, but the conditions for an extension are fairly strict, and the visas must be processed though approved sponsor agencies. About 350,000 foreign nationals hold J-1 visas in the U.S.

    “J-1 sponsors are regulated by the State Department, and these sponsors will not issue the paperwork if the employer is not above board,” Cohen warns. “Proposed changes for J-1 regulations in 2007 will subject employers to more scrutiny.”

    For entry-level employees, employers can try to use J-1 visas, but if the candidate has several years of experience, it’s difficult to prove the case that training is necessary, notes Ted Ruthizer, business immigration chair at Kramer Levin Naftalis & Frankel in New York City. Ruthizer suggests that recruiters may be able to hire abroad if candidates qualify for an O-1 visa, designed for employees with extraordinary ability in their field.

    “But for business purposes, the toughest standard of ‘pre-eminence’ in the field is applied,” he cautions. “O-1s require a track record of awards, published articles, media reports or other indications of recognition.”

    For example, a new MBA graduate, no matter how talented, is unlikely to obtain an O-1. Currently, about 30,000 O-1 workers are in the U.S., with only a few thousand new O-1 visas issued each year.

    Where a U.S. business is majority-owned by a foreign company that has made a substantial investment in the U.S. business or engages in trade with the home country overseas, recruiters for the U.S. business can use an E visa option to hire workers of the same nationality as the business’ majority ownership. The person applying for the visa must have essential skills necessary for the U.S. business or must be coming to fill a managerial type role within the company.

    “Once the employee has obtained the visa, he or she may enter the United States for two years at a time and may extend the visa indefinitely,” Cohen says. “Again, a big selling point is that the spouse can work in the United States.”

    L-1 visas are issued for intra-company transfers for up to five years for workers with specialized knowledge or seven years for managers or executives. The employee must have worked in the affiliated company for at least one year out of the past three. About 315,000 foreign workers in the U.S. hold L-1 visas.

    “Companies are hiring abroad for the purpose of establishing the one year of employment and the specialized knowledge required, but the employer must be careful that the knowledge is specialized, meaning that it is specific to the company,” Park cautions. “It doesn’t have to be proprietary knowledge or a trade secret, but it must be specific to the company.”

    The specialized-knowledge requirement under the L-1 is different from that of H-1B, which basically requires only that the employee has a bachelor’s degree.

    “The employer cannot use L-1s to bring in generic engineers or programmers,” Park warns.

    But a marketing manager or an IT professional with knowledge of the company’s clients and operations may meet the L-1 criteria.

“Creative” approach
   “Sometimes a candidate does not fit any visa category, and the employer is simply unable to hire,” Park says. “If you become overly creative with your use of alternative visas, you risk violating immigration laws.” Although enforcement of the regulations for non-H-1B visas is relatively lax, L-1 visas may be scrutinized and improper use of any visa opens an employer to legal risks.

    While recruiters may be able to piece together a sufficient talent pool using some combination of the non-H-1B visas, the best solution clearly lies in higher H-1B caps. Ruthizer is advising all of his clients to lobby for raising the H-1B cap in 2007.

    Park is hopeful that the H-1B cap will be raised.

    “The biggest obstacle is that all immigration issues, including the problem of illegal immigrants and porous borders, are lumped together, instead of segmenting the issues and addressing them separately,” she says.

    Legislation on the table would increase the H-1B cap from 65,000 per year to 115,000.

    “Also, it would provide a complete exemption from the cap for those individuals who have achieved a master’s degree or higher from a U.S. school in the fields of science, mathematics and/or technology,” notes Dave Ceccanecchio, an associate in the immigration services team at Wolf, Block, Schorr and Solis-Cohen in Philadelphia.

    The emergency exemption of 20,000 visas for foreign students who received an advanced degree from a U.S. university was exhausted before the fiscal year began. In 2005, U.S. companies needed but could not find an additional 50,000 master’s and Ph.D. graduates, according to a Duke University/Booz Allen Hamilton study.

    Raising the H-1B cap and exempting advanced-degree graduates will reduce the pressure on recruiters in the final quarter of 2007, but a more permanent solution for both temporary and permanent immigration will be necessary to resolve ongoing recruiting difficulties for critical positions in the U.S.

The White House sent Steve Casteel to Iraq for two years to recruit 200 people to rebuild the Interior Ministry under the Coalition Provisional Authority. In Iraq and in his previous position as chief of intelligence for the U.S. Drug Enforcement Administration, Casteel learned how to screen candidates in Latin America and the Middle East.

    “Recruiting in Iraq is not that different from recruiting in Jordan or Egypt, or China, for that matter,” Casteel says. “You can use any databases that are available–military and police data, for example–but in the end you have to rely on local contacts to research an applicant’s reputation and history in the community. You can’t just use a Western approach.”

    Casteel is now senior vice president for international business development at Vance International Inc., an investigation and security consulting firm based in Oakton, Virginia, with 3,200 employees worldwide. His approach to screening and background checks will become increasingly relevant as globalization accelerates in 2007 and corporations pursue a broader mix of geographies and less familiar locations.

    Business reports indicate that companies will continue the trend toward staffing new facilities with local nationals instead of expatriates.

    “Multinationals have found that they can reduce costs and eliminate many problems by hiring locals,” Casteel notes. “Shell, for example, has moved to local hiring in Nigeria.”

    As Shell has discovered in Nigeria, however, recruiting in the developing nations requires extreme due diligence.

    “By far, the biggest risk in recruiting in less-developed markets is corruption, most likely in the form of political corruption but also, in some locations, organized crime,” Casteel reports.

    In 2005 alone, Shell Nigeria investigated 74 cases of employee fraud and ethics violations, ending in the dismissal of 24 career and contractor staff, warning letters to 49 employees and delisting for six contractors. In addition to the recruiting difficulties that arise from corruption among candidates and employees, Shell is also plagued by local scam artists who make bogus offers of employment at Shell Nigeria and then shake down job seekers for money or personal financial information.

Digging deeper
    “The biggest weakness among companies that are recruiting in the developing countries is their lack of knowledge about the local market and their willingness to rely entirely on cheap background checks,” says Bob Sikellis, managing director and associate general counsel at Vance. “In the U.S., the quality of standard pre-employment screening is good enough for entry-level positions. But outside the U.S., the quality is abysmal. The databases are simply not available.”

    Instead, companies must develop the capacity for deeper pre-employment investigations, often working with local partners. Even then, the company must know which local security companies do quality work.

    “In Iraq, there are 52 security companies, and you need one that has local operations in the city where you need to recruit,” Casteel notes.

    “Companies need to be very cautious and do full due diligence on the security companies they choose to work with,” Casteel says. “Just because a local vendor seems to take a Western approach and shows up in a business suit does not mean you will get high-quality work. This is true anywhere.”

    The client company should ask the security firm exactly what information they will provide.

    “And, as the Hewlett Packard case demonstrates, the security firm should also explain exactly how they will get that information,” Sikellis says.

    The fact that negligent hiring lawsuits are uncommon abroad does not reduce the need to screen applicants carefully.

    “To focus on the potential for negligent hiring lawsuits or other legal actions is a dangerously narrow approach,” Sikellis says. “Outside of the U.S., the ability to remove employees is so limited that you want to be extremely careful about who you hire. In many countries, a company that removes an employee faces long unemployment payments and other significant costs.”

Local demand
    Originally, the push for screening in the developing markets was driven by the multinationals, but now local employers are increasingly recognizing the need for background screening, according to Chuck Papageorgiou, executive vice president of international services for First Advantage, a risk mitigation and business solutions provider. The company, based in St. Petersburg, Florida, employs 4,500 people, with 1,200 outside the U.S. devoted to employee screening.

    Papageorgiou reports that screening by local employers in the developing markets has accelerated during the past three years, driven by different factors in each country. In India, for example, the rise of diploma mills has generated a new focus on education credentialing.

In other developing countries, concerns about cyber-crime, corruption and terrorism have spurred local employers to institute screening policies along with the multinationals that operate there.

    In addition, developing-market BPO providers that work for financial institutions must screen applicants to meet their contractual obligations.

    “Some of the contracts are very explicit,” Papageorgiou says. “This is spreading to other industries, especially design firms and manufacturers with high-value intellectual property. Also, more companies are screening all management applicants because they see credentialing managers as very important.”

    India’s outsourcing industry has been rocked by cases of data theft and fraud. KPMG’s 2006 survey on fraud in India reports high levels of deception in CVs, fueled by unethical practices at placement agencies. In March 2006, Wipro cleaned house after discovering major screening shortcomings in the placement agencies it used.

    The National Association of Software and Service Companies, the trade group representing the Indian IT software and services industry, launched a national skills registry in early 2006 that provides information on employees’ backgrounds. Job candidates authorize release of the information to employers.

    Papageorgiou does believe that other nations will soon follow with the same level of self-policing.

    “But we are seeing professional associations in some countries building membership rosters, and we can work with this information to verify certifications,” he says.

    According to Papageorgiou, companies in India are also plagued by scammers posing as recruiters who demand money and personal financial information from job seekers.

    In both India and China, candidates and employers can no longer rely entirely on familiar village contacts to make recommendations. Dramatic increases in worker mobility in recent years leave candidates and employers more vulnerable fraudulent practices

Living with limitations
    In some countries, full accurate screening is simply not possible.

    “We deem screening in these countries as ‘nonreliable’ for background information,” Papageorgiou says. “The limits on the amount of information available about candidates may enter into site location discussions, and some companies may decide that they cannot expand into these areas.”

    “There are many ways to get information in many countries if you are willing to break the law, which we are not,” Papageorgiou says. “We advise clients of these restrictions and then use research teams to gather as much information as possible on criminality, for example. The key is to make sure that the client is well aware of the limitations.”

    In India, the crime rate is relatively low and some information is available about most job applicants.

    “If all the education and employment checks are clean, it is highly likely that the candidate is clean,” Papageorgiou says. “In other locations, a clean check may not mean the same thing.”

    In China, educational and professional qualifications, employment history and employment performance history can be secured, but criminal record checks are more difficult.

    First Advantage is developing statistical models that provide some indication of the probability of criminal records and other negative factors for specific groups of applicants. These models are in place in some locations and in development for others.

    First Advantage abandoned the idea of screening candidates abroad from offices in the U.S., and now has offices staffed with its own employees in the Philippines, Singapore, China, Japan, India, New Zealand, Australia, Canada and the United Arab Emirates. It will open an office in South Korea by the end of 2006 and new offices in Europe, Africa and the Middle East in 2007.

    The international portion of First Advantage’s screening services now represents 25 percent to 30 percent of its total screening revenues. The company expects 20 percent growth in the international portion in 2007.

    “In this industry, it is extremely expensive to have a physical presence on a worldwide basis, but there is a competitive advantage in expanding our international presence,” Papageorgiou says. “In addition, the market for screening is relatively saturated in the U.S.; the real growth in screening is abroad.”

    For clients, the biggest advantage in using screening firms that have a physical presence overseas is speed and more control over compliance. Also, firms with offices abroad may be more effective in managing costs because they utilize their own staff and operations.

    In any developing market, screening must be tailored for the specific risk level, legal environment and infrastructure, and executives should be aware of any limitations.

    “When a company moves into a new location, it must develop a market-entry strategy,” Sikellis says.

    “Recruiting should be part of the discussion and HR should have a seat at the table.” Sikellis says. “HR executives need to analyze the personnel risks and maintain a close relationship with legal counsel while they do this.”

As the investigation of former U.S. Rep. Mark Foley unfolds, workforce management executives recognize all the makings of a negligent hiring and supervision lawsuit, blocked only by congressional immunity. What did congressional leaders know about Foley’s past behavior, and when did they know it?

    “If Foley worked at any Fortune 500 company, we’d be picking the jury right now,” says David Curtis, a partner and employment law specialist at Shackelford, Melton & McKinley in Dallas.

    Although the most infamous negligent hiring and supervision lawsuits arise from incidents of workplace violence, employers may be liable for many types of unlawful behavior by their employees, including acts of harassment, identity theft and fraud. Reports of applicants seeking jobs purely for the purpose of gaining access to sensitive information have fueled concerns about negligent hiring liabilities.

    “An employer is ultimately judged–if not in court, then in the public eye–on what it should have done to protect its employees and the public given what it could have inferred from the available information about an applicant,” says Ann Margaret Pointer, partner in the Atlanta office of employment law firm Fisher & Phillips. “Sophisticated HR executives know this.”

    Negligent hiring lawsuits were once relatively uncommon.

    “The real drumbeat began three or four years ago, driven by the plaintiffs’ bar and by the increasing frequency and notoriety of incidents of workplace violence,” Curtis says.

    Sixteen states have specifically addressed negligent hiring in legislation and other states recognize the tort concept entailed.

    Although negligent hiring cases are less common than many types of employment-related lawsuits, the size of the risk is large. Claims arising from workplace violence can result in a huge exposure because there are no caps on punitive damages.

    “We’re talking about millions of dollars,” notes Jody Ballmer, an attorney in the Chicago office of employment law firm Littler Mendelson.

    “These cases revolve around the failure of companies to act ‘reasonably’ in the hiring process,” Curtis says. “With these lawsuits, if the employer has not taken reasonable care in hiring, then there is no defense and the employer must settle the case.”

    HR executives can take specific actions to reduce the risk of a negligent hiring lawsuit, but the process is complicated by conflicting legal concerns about privacy laws, discrimination charges and defamation claims. Skilled interviewing techniques and a more thoughtful approach to reference letters can minimize these difficulties and limit the potential for a claim.

Skilled interviewing
   To show reasonable care in hiring, employers must make a systematic effort to gain relevant information about the applicant, verify documentation, follow up on missing records or gaps in employment, and keep a detailed log of all attempts to obtain the information, including the names and dates for phone calls or other requests.

    Wide variations in state privacy laws restrict screening efforts.

    “Most states allow some access to conviction records, for example, but some limit the number of years that can be covered in a search.” Ballmer says. “The key is what the employer could have and should have known.”

    Interviewers commonly fail to pursue the lines of questioning that might help protect an employer from a negligent hiring claim.

    “Most interviewers are not sufficiently familiar with the open position to ask the right questions,” Curtis says. “And some companies have outsourced interviewing to people who don’t know what the job entails.”

    To reduce the risk of a negligent hiring lawsuit, the interviewer must have a detailed understanding of the work performed, the degree of contact with other employees and the public, the amount of access to sensitive information, and the level of independent judgment required.

    “If you know the position, you know what ‘reasonable’ questions to ask to screen applicants,” Curtis says.

    For example, hiring a candidate with a history of difficulty in dealing with minority groups for a position that requires direct contact with those groups may open claims of negligent hiring if the new hire engages in harassment or violence.

    “You must attempt to unearth any difficulties the applicant had in the past,” Curtis warns.

    In many cases, interviewers are keenly aware of the discrimination charges that may occur if they ask certain questions, but are unaware of the negligent hiring claims that may arise if they fail to pursue certain topics.

“There is a lot of irrational paranoia about discrimination claims stemming from the interviewing process,” Curtis reports.

    Curtis suggests that interviewers mentally place themselves on the witness stand in a negligent hiring trial and explain to the jury why they did or did not ask the job candidate certain questions that might have revealed red flags.

    “The people who were responsible for the hiring will have to describe exactly what they did. An interview is not just talk and intuition,” Curtis says. “A trained interviewer knows how to read an application and ask tough questions.”

Shared liabilities
   Policies on reference letters can create additional risks because many companies will provide only the most basic information on a former employee.

    “But getting at least this basic information is important to spot gaps in employment and confirm the job titles for previously held positions,” Pointer says. “And for some occupations, employers have an affirmative duty to inform a prospective employer about any negative conduct or behaviors.”

    In addition to reviewing reference letters, Pointer recommends that HR staff should attempt to talk to the candidate’s former supervisors.

    “Sometimes they will be forthcoming,” she says. “When you talk to them, you not only learn what they say and–equally important–what they don’t say, but you can also note the tone and the nuance of the conversation.”

    HR should keep written records of the phone calls, including the names and dates and any follow-ups based on the discussion. The key is to document all elements of the screening effort. Pointer also recommends that employers request official transcripts directly from the schools so they can verify the degrees earned and check for time gaps.

    The liability for a previous employer is generally limited if that employer has a clear policy that it will only release a limited amount of information, Ballmer says.

    “The real question is what the prospective employer asks, not what the previous employer reports,” Ballmer says. “It is important to record all attempts to gain information and any results.”

    Curtis notes, however, that the extent of a previous employer’s duty to reveal information about a former employee is now a developing area of law.

    “For example, if an employee was fired after multiple incidents of sexual harassment, and the former employer fails to reveal this information in a reference, that employer could share some liability for the employee’s unlawful behavior in the new workplace,” he says. “This is the next wave in negligent hiring lawsuits.”

    Curtis advises employers to revisit their policies on the information they reveal in reference letters.

    “Companies are afraid of defamation lawsuits, but that position is being pierced now,” he says. “There may be greater risks in withholding information.”

    The prospective employer can find protection in a properly constructed waiver. The waiver should explicitly list all references requested.

    “Make sure that the waiver particularizes each employer and complies with state law,” Curtis advises. “Once you’ve done that, if a previous employer refuses to release information, your liability is limited.”

    Liability issues are also complicated when a third party is involved in the hiring and screening process. When a negligent hiring claim arises from the behavior of a temporary or contract employee, the employer and the employment agency may be held in joint employer status and incur joint liability, according Ballmer. When screening is outsourced, both the employer and the screening firm may be jointly liable.

    In selecting a screening vendor, the employer should ensure that the firm is complying with federal and state privacy laws. Particularly if the screening firm handles sensitive jobs, the employer needs to exercise due diligence in its investigation of the vendor.

    Recruiting and hiring staff should exercise extreme caution in screening applicants for HR positions.

    “Research indicates that some people are taking jobs in human resources and other corporate departments purely for the access they gain to other employees’ Social Security numbers and other personal information,” Pointer cautions.

    Budget-stressed companies may bring in temporary workers without considering the type of information they will have access to.

    “This is a real flash point for danger,” Pointer says. “Some applicants may be looking for access to trade secrets. This is a growing concern for HR executives. The point is that the downstream negative consequences of insufficient screening go well beyond the threat of a negligent hiring lawsuit.”

    Too often, recruiting risks are not properly evaluated because recruiting is not a priority for operations, Curtis says.

    “In these situations, the role of the HR executive is to provide vertical education—informing the COO, CFO or CEO about the potential liability that occurs when exercising ‘reasonable care’ is not part of hiring process,” Curtis says. “If the top executives understand that the threat is a verdict with a seven-figure price tag, they will pay attention.”

Multinationals are quickly moving to global compensation systems for their top employees. Fifty-six percent of multinational corporations plan to shift to a more centralized compensation structure during the next two years, up from 42 percent in 2004, according to a 2006 survey of 275 companies by Watson Wyatt Worldwide.

    Most companies, regardless of home country, are addressing long-term incentive design in a homogeneous manner, using similar vehicles and delivering equivalent values to employees across geographies regardless of local market practices, according to a new study by Mercer Human Resource Consulting.

    Among U.S.-based multinationals, 63 percent use the same long-term incentive vehicles and 59 percent use the same grant values across all global locations. Multinationals based in Canada and Europe are even more likely to apply the same vehicles and values across all geographies.

    At Direct Energy, a North American company with more than $6 billion in annual revenue and 5,200 employees, compensation for the top 100 employees is determined by parent company Centrica, the U.K.-based energy giant with annual revenue of $22 billion. Centrica’s board of directors shapes the pay programs; approvals and adjustments are managed through the company’s global compensation system.

    With its workforce split evenly between the U.S. and Canada, Direct Energy controls compensation for the 1,800 employees directly below the top 100, but models the plans and payout formulas on the Centrica program. In this sense, the global plan established by the parent extends to almost half of the Direct Energy workforce.

    Within the second workforce segment, metrics are adjusted to have less emphasis on financial goals and more emphasis on personal and group goals such as customer satisfaction improvements. Payouts range from 4 percent to 40 percent of base pay.

    Employees below the second segment do not participate in Direct Energy’s variable pay plans. In aggregate terms, the company blends into the survey landscape, with unremarkable merit increases averaging 3.3 percent in 2006 and variable pay averaging 12 percent of payroll for employees included in the company’s incentive plans.

    “The overall philosophy is to reward people for high performance and to drive corporate goals through the compensation program,” says Terry Fox, director of HR operations.

    “Overall, we do not want to be a market leader in pay; we want to be at the market for base pay and above the market for variable pay.”

    Direct Energy uses SuccessFactors’ talent management software to automate reviews and allocate merit increases. End-of-the-year performance reviews are managed online and yield payouts in March. In the meantime, information on high performers flows into a succession planning process that occurs in June. Midyear performance reviews feed back into goal-setting for each employee.

    “With the goals and performance ratings online and clear communications about what will drive bonus payments, every employee can practically calculate their own payout,” Fox says.

    All salary budgets are managed online, so if a manager uses increases averaging only 2.8 percent instead of the budgeted 3.3 percent, Fox knows in real time exactly how much money can be pulled over to another unit where market conditions may require above-average spending.

Workforce Management, October 23, 2006, p. 28 — Subscribe Now!

San Francisco-based Freeborders reviewed 25,000 job applications in China last year, conducted 3,400 first-round and 800 second-round interviews, and hired 251 new employees for its IT outsourcing services facility in Shenzhen. Recruiting is proceeding at roughly the same pace this year, with more than 2,000 résumés flowing in each month for 30 to 50 positions.

    Gomez Inc., another U.S.-based high-tech firm, moved from no presence in China to a fully functioning R&D facility for new-product development in less time than it takes many companies to hire a single advanced-degree engineer in the United States. The company posted positions in May and opened its new Beijing office in July.

    Despite widespread predictions of looming talent shortages in China, where GDP growth is now clocking in at 10.2 percent, Freeborders’ recruiters are swimming in résumés in Shenzhen and the company’s CEO discounts reports of acute shortages of managerial and high-level technical workers. Gomez’s executives anticipate no difficulties in building headcount in Beijing.

    Broad statements in the U.S. media about an impending talent shortage in China are not borne out by more granular data on the labor supply and direct reports from companies engaged in heavy recruiting.

    Hard data offer no evidence of tighter labor markets, even in China’s first-tier cities. In 2005, 295,000 new university graduates looked for work in Beijing alone. The highly developed Chinese university system is pumping out an ever-larger annual pool of candidates whose skills more closely match the needs of high-growth multinational companies than graduates in the United States and most of Europe.

    Simultaneously, China’s recruiting infrastructure is growing to meet the needs of employers, including multinationals expanding in the urban areas. The number of online job boards in China hit 2,000 this year and online sites have become the dominant form of recruiting for large companies, according to BusinessForum China. Last year, Monster Worldwide bought a 40 percent stake in one of the largest players, ChinaHR.com, which currently offers 480,000 jobs and 7.5 million registered job seekers.

Bulking up
   Freeborders announced in June that it plans to quadruple the size of its Shenzhen facility to accommodate 2,000 employees, who will work in coordination with the company’s U.S. and European project managers. Freeborders has stepped up its recruiting efforts to sign on hundreds of new employees in short order.

    “We plan to hire several hundred graduates majoring in software development in a month or two as trainee developers,” Freeborders CEO John Cestar reports.

    With revenue up 45 percent in 2005 and year-over-year bookings up 30 percent, Freeborders is a high-growth firm recruiting in a high-growth market.

    In Shenzhen, Freeborders can pull from the 600,000 technology professionals who live there or the thousands who pour in from other regions of China every month. Most of Freeborders’ new hires come from outside the Shenzhen area.

    Shenzhen is home to 3,000 software companies. GDP growth for the metropolitan area is topping 15 percent a year. IDC forecasts that China will be the largest IT services market in the Asia-Pacific region by 2010, with a 24 percent share of IT spending in the region.

    But those growth rates do not necessarily translate into tight labor markets. Instead, they act as a magnet for new investment and job seekers. China’s Ministry of Science and Technology is pouring money into incentives for investment in new technologies, particularly in e-commerce, logistics, design and finance, and the Education Ministry is moving in tandem with university programs that boost the supply of tech candidates.

    When Freeborders moved into China five years ago, it recruited 20 Chinese nationals who were working for software multinationals in North America and Europe. This core group then recruited for Freeborders’ Shenzhen expansion. The company now runs a nationwide recruitment program through its own network, Web sites and job fairs.

    “Our strategy is to focus our hiring for the key technologies that we know North American and European companies have demand for,” Cestar says. “We determine these needs through client surveys and training-needs questionnaires with our workers. Our software graduates speak good English and become highly valuable resources after going through our rigorous training program.”

    Freeborders has not been forced to accelerate salary increases or bonuses to meet its recruiting goals.

    “We find that many of our employees choose us because of the opportunity to work with Western clients,” Cestar says. “It’s a source of prestige and they know it’s good for their careers to deliver services to Western companies. That’s our main selling point. When we survey our teams, compensation is usually the third or fourth reason they chose Freeborders.”

    Freeborders minimizes its use of expatriates, but most of its senior managers in China have worked or been educated in the United States. This is changing, however.

    “We are leveraging our current employees to recruit heavily within their personal networks to find managerial talent,” Cestar says. “We also plan to promote the next group of managers from within.”

    Securing the managerial talent in China is a top priority for the company.

    “It is a challenge simply because the universities are churning out so many young and highly skilled technology workers that there are not enough middle managers to handle the massive labor pool,” Cestar notes. “But it’s a manageable challenge. Over time, this shortage will shrink as the junior-level technology workers grow in experience to become middle managers. It’s only a matter of time.”

    Meanwhile, Freeborders’ global structure allows the company to segment tasks when necessary.

    “Because we’re a U.S.-based company, we mitigate a lot of the risk by having a strong U.S.-based project and technical management component to our teams,” Cestar reports. “They essentially work with the client on site and with our offshore teams at all hours of the day.”

Starting from scratch
    While Freeborders is calmly recruiting more than 1,000 IT workers in Shenzhen, Gomez is expanding its R&D staff in Beijing, bringing in additional support staff and basking in the new recruiting environment that China offers.

    “We were up and running in Beijing with 20 R&D employees in 12 weeks,” reports Richard Darer, vice president and CFO of Gomez.

    “We never could have done that in our U.S. office near Boston, no matter what we threw at it. The talent pool is so much smaller in the United States that there simply isn’t sufficient résumé flow.” The company pulled in 3,000 résumés to fill the Beijing jobs.

“In the United States, we use job boards like Monster, but we end up hiring contract recruiters,” Darer says. “The universities in China are turning out so much talent that it’s a different situation.”

    In its site search, Gomez considered Shanghai, but it settled on Beijing because of its exceptionally strong university system. The company’s new facility is located near Tsinghua University, China’s leading science and technology institution. The Beijing area is home to 274,000 tech workers, with scientists and engineers accounting for 83 percent of the total, according to the Beijing Municipal Science and Technology Commission.

    Gomez provides Web application performance management solutions for 400 companies worldwide, including Amazon, Yahoo and Best Buy. Headquartered in Lexington, Massachusetts, with European operations centered in Hamburg, Germany, the company reported Q1 2006 revenue growth up 50 percent compared with Q1 2005. As its first step in expanding into China, CEO Jaime Ellertson personally recruited Yuan Cheng, a Chinese national with an engineering degree from Tsinghua University and a doctorate from MIT, as general manager for China.

    The new office will triple Gomez’s product development staff by the end of 2006. To recruit the first group for the Beijing location, Cheng tapped job boards such as ChinaHR.com and targeted university online job sites. The company’s online job postings for China include JavaScript software engineers and technical support engineers.

    “Cheng screened the résumés to find candidates with the right technical skills and to eliminate job jumpers,” Darer says.

    From the 3,000 résumés, Cheng invited 200 candidates for interviews, most with two to five years of experience and 40 percent with graduate degrees.

    Large groups of candidates attended high-level presentations on the company, followed by one-on-one interviews that used the presentations as the context for detailed technical questions.

    “Our challenge was screening out candidates, not finding sufficient talent,” Darer says.

    He worked with technology companies operating in India before joining Gomez, and notes the sharp differences there.

    “If you want to fill two positions in India, you make offers to four candidates because only two of those will actually show up to start the job,” he says.

    During Gomez’s initial recruiting drive in Beijing, a few candidates who received offers didn’t accept because of compensation issues.

    “Our challenge in China is that compensation is beginning to move up,” Darer says. “But the economic cost ratio for the United States and China is 3-to-1, so even if compensation creeps up in Beijing, there is still a huge cost advantage.”

    Darer is not concerned about retention in the Beijing office.

    “We work on the cutting edge of the Web and e-commerce, and part of the attraction for our employees is the opportunity to work on exciting and sexy stuff,” he notes. “You can see the gleam in their eyes.”

    The R&D employees in Beijing develop new products with worldwide reach and the company now plans to hire direct-sales and support staff, but with different language skills.

    “When companies set up R&D in China, they have to think about language proactively,” Darer advises. “For some of our key managerial and customer support positions, our employees must be fluent in English. But we do not require fluent English from our engineers.”

    Darer, who received an engineering degree and an MBA from Harvard, sees his HR responsibilities as a logical part of his work as CFO.

    “As we all know, our assets walk out the door every night at 5,” he says.

    Managing talent is a critical component in the company’s financial success.

    “And the talent in Beijing is well beyond our expectations,” he notes.

A sudden change in production requirements in September 2005 forced pharmaceutical giant GlaxoSmithKline to issue new goals for its global manufacturing facility in Ontario, Canada. The 250,000-square-foot plant adjacent to the company’s Canadian headquarters in Mississauga fell under a mandate to triple manufacturing volumes immediately.

    Meeting the mandate meant hiring 240 new employees, including highly skilled specialists, on short notice. In the past, Frank Newman, HR director for the GSK Ontario plant, had used an SAP system and recruiters imported from other GSK sites to handle hiring surges, but the new needs were far larger and more urgent.

    The quantity of new hires GSK required was not the only problem.

    “We have to have people with superb training,” Newman says. “This is a burning platform. We produce life-saving drugs. The quality is absolutely critical. The last thing we would ever want to see is a recall.”

    The plant produces more than 100 medicines, including drugs for HIV/AIDS, Parkinson’s, epilepsy, diabetes, cancer and cardiovascular disease.

    Based in the United Kingdom, GSK pulls in $40 billion a year from facilities in 116 countries with 110,000 employees, including $1 billion a year from its Canadian export-oriented facilities. Like most pharmaceutical firms, it increasingly faces sudden hiring surges and workforce deployment changes generated by new research findings and mercurial government regulations.

    Beyond pharmaceuticals and other high-tech sectors, steady recruiting has succumbed to the same business pressures that have redefined the time frames for all other aspects of workforce management. Not only has staffing become even more sensitive to business and budget cycles, but companies are increasingly engaged in just-in-time hiring to keep staffing lean and responsive to shifting business needs.

    Just-in-time hiring has long been a standard for low-skill positions, but the 2001 recession pushed the technique deeper into organizations. High-tech and life sciences companies burned by overstaffing turned to lean hiring for both low- and high-skill jobs. This approach entails far more careful long-term planning and developing and maintaining a candidate network–arduous tasks–and creates a perfect opening for outsourcing the recruitment process.

RPO relief
   Newman viewed RPO as a possible solution to the hiring push and an opportunity to revamp the entire recruiting process.

    “Too many companies are locked into a HR hiring process that caters to hiring managers,” he notes. “We wanted to have a robust process with less customization.”

    To meet the new demand at GSK and re-engineer the process, Newman looked for a company that could literally drop in and handle the whole piece. He turned to Hudson Talent Solutions, part of the Hudson Highland Group, a global staffing and talent management firm with more than $1.4 billion in annual revenue and 3,800 employees in 20 countries.

    Newman sat down with John Hancock, Hudson’s senior business director, to negotiate the two-year agreement.

    “I met with Frank for a detailed risk analysis,” Hancock recalls. “We identified the risks and determined who would wear them.”

    Hudson took on sourcing, screening, administration, internal recruiting, Web site management, managing the interview methodology, building tests and creating assessment centers. Its first step was to create a screening methodology that was far more detailed than GSK’s model.

    GSK retained responsibility for the starting salary negotiations, but Hudson agreed to brief candidates to ensure that they were in the right salary range and had appropriate expectations.

    “Then we took the ball back to conduct reference checks, security screening, put out the offer letters and arrange the start dates,” Hancock says.

    GSK handled the onboarding process. About 30 percent of Hudson’s full-scale RPO contracts leave induction with the client company, but Hancock notes that including the RPO provider in the onboarding process is becoming more common.

    Hudson and GSK kicked off the campaign to fill the 240 jobs with full-page ad in the Toronto Star announcing the open positions. The ad generated 18,000 online applications, which would have drowned Newman and his HR staff of three.

    Hudson harvested the applications, put them through electronic screening, followed up with phone screening, and sent the finalist applications to GSK’s hiring managers. Newman and his team conducted the interviews and set the terms of employment for the new hires.

Scale and strength
   Hudson filled the 240 positions in a matter of months, and is now filling 100 more new openings for GSK. All of the 240 new hires have completed their three-month probation, and only two–less than 1 percent–were dismissed. Annual performance reviews will track the quality of the hires brought in through the RPO arrangement; Newman and Hancock will make any refinements necessary to create optimal results.

    “Our recruiters are co-located to maintain a cultural fit with GSK,” Hancock says. “They have reworked the process so that it delivers both quantity and quality with the greatest efficiency.”

    “Moving to RPO requires change management in both the client firm and in the RPO provider,” Hancock notes. “We have to construct an integrated approach. Without the right process for RPO, it can become a project without an outcome.”

    Newman says that his HR managers are “thrilled” with RPO, but it took two to three months to coach the hiring managers through the new arrangement and help them establish a relationship with Hudson. Hudson recruiters now work directly with the GSK hiring managers.

    Hancock notes that bringing hiring managers on board is a critical part of any successful RPO arrangement.

    “One of the most important parts of the GSK job was ensuring that hiring managers were equipped with the tools and training they need to make timely and effective decisions so they don’t become a bottleneck,” he says.

    Hudson’s RPO unit can leverage both its own specialized recruiting resources and other Hudson divisions to meet large-scale projects. Hudson now has more than 20 full-service RPO arrangements and another 50 to 60 project-basis RPO deals. The company signed its first full-service RPO deal in 1996, and that arrangement is still in operation.

    Under that first contract, Hudson cut time to hire from 26 weeks down to three weeks.

    “We are completely wedded to the organization’s workforce planning, which is a difficult and complex task with no good standardized set of tools,” Hancock says. “Workforce planning hinges on expert analysis, which the RPO provider can bring to the organization. The real value in long-term, full-scale RPO is that the provider creates intellectual capital for the client and hands it over.”

    GSK did not track time to hire before the RPO arrangement, but Newman believes that recruiting speed has improved significantly. Hudson now provides GSK with a number of efficiency metrics.

    “Frank now knows exactly how many days it will take to fill any position,” Hancock says.

    Cost-reduction information is proprietary under the GSK contract.

    “But RPO costs can’t even be compared with the cost of using outside recruiters,” Hancock notes.

    Experts estimate RPO cost savings at 20 percent to 50 percent, but all agree that the largest value lies in the provider’s ability to restructure the recruiting process.

    “At this point, I consider RPO to be a best practice,” Newman says. “We’re a Six Sigma company and we take innovation very seriously. It’s part of my job to develop and evaluate best practices and communicate them to other GSK divisions.”

    GSK is now exploring RPO arrangements for two additional divisions, with a decision expected by late spring 2007.

    “The surge in RPO stems from an interesting dynamic in the overall search for talent in North America,” Hancock says. “Organizations have had to be far more diligent in how they scope talent needs over the next five years and how they decide to meet those needs.”

    Hancock believes that employers in North America will continue to see increasing competitiveness for talent. Because of the Internet, access is no longer a problem, but addressing both volume and quality is the new challenge.

    “Constructing the screening methodology, which requires expertise, is central to making the right hires,” he notes.

    “There are always people who want to work for a company like GSK or PricewaterhouseCoopers, for example, and we see plenty of mobility,” Hancock says. “There are tens of thousands of applicants, but only 2 percent are the right people because the level of specialization that organizations require and the expectations that organizations have are so high. Companies are looking for exceptional people who can fulfill longer-term growth goals.”

    Hancock reports that large-scale full-service RPO is growing more slowly than project-based arrangements.

    “There is a larger risk in full-service RPO, and some of the deals have not operated as they were supposed to,” he says.

    Some companies are testing RPO by moving from short-term project-based arrangements into long-term agreements.

    Like a growing number of HR executives, Newman is an RPO convert.

    “HR’s job here is to build great teams,” he says. “Before our RPO arrangement, recruiting was the biggest consumer of HR time. Now HR has become the sponsor of recruitment. We’ve moved from processing résumés to talent assessment and development. RPO allows us to add a whole new dimension to HR.”

Sydney-based St. George Bank, one of the top 15 publicly listed companies in Australia, just outsourced its recruiting process to Los Angeles-based Futurestep under a three-year contract that will add 1,000 new hires a year to the bank’s current workforce of 7,500. Futurestep CEO Robert McNabb recently returned from Australia, where he finalized the agreement.

    “The Australian market is very astute, and some gifted people work in client companies there,” McNabb reports.

    Futurestep, a Korn/Ferry International company, runs two offices in Australia and 70 offices in 20 countries worldwide. The company’s global database contains information on more than 1 million prescreened professionals.

    “Global RPO is an explosive market,” McNabb says. “It’s not just about talent acquisition but about end-to-end solutions.”

    For decades, companies have outsourced one or two elements of recruiting or sourcing for specific positions, but RPO means handing the process itself over to the provider and, most important, using the provider’s expertise and scale to re-engineer the process for greater efficiencies.

    “It’s difficult to gauge the size of the RPO market because providers are coming in from all different areas–ATS and contingent search, for example–with what they call RPO products, but they may really be offering little more than project recruiting,” says Brett Gerard, project director and RPO practice leader at Houston-based TPI, a global outsourcing advisory firm.

    End-to-end or full-service RPO is still in the early stages of development, with the greatest growth occurring in North America, followed by Europe and the Asia/Pacific region. The emerging model is assuming a global form, but global RPO is still in its infancy, with no dominant provider.

    “Most RPO providers are national or regional in their reach and don’t have the capacity to go out into global markets or to source on a global basis,” McNabb notes.

Growth drivers
    Many of the early adopters of end-to-end global RPO are multinationals that turn to providers to manage recruiting for all locations and facilitate cross-border staffing. Futurestep, for example, is under contract with a large energy company based in Madrid, Spain, with major recruiting needs in both Europe and Latin America. The company wanted a single recruiting strategy for all its locations, with the ability to recruit effectively within each region and to source across borders when necessary.

    Futurestep now pulls almost 30 percent of its global revenues from full-service RPO.

    “In the not too distant future, we expect to pull 50 percent of our revenues from global long-term end-to-end RPO contracts and 25 percent from large shorter-term end-to-end projects,” McNabb notes. “The global RPO market is a strategic segment for Korn/Ferry because it addresses an emerging challenge in workforce management.”

    The demand for global end-to-end RPO is growing as multinationals move deeper into a wider range of markets and step up hiring.

    “Multinational companies may receive 1,000 résumés a day, and they also need to tap good passive candidates who may be entertaining four or five offers,” McNabb says. “But even the largest global companies may not know how to care for candidates and manage internal talent. Companies with big world-class brands have discovered that the perception in the marketplace is that their recruiting process is broken.”

    RPO growth is also a function of the continued growth of multi-process HRO contracts.

    “End-to-end or enterprise RPO is gaining momentum globally, driven by HRO providers who make comprehensive commitments and then struggle to meet them,” McNabb says. “These providers are negotiating huge enterprise HRO agreements. Each provider has its own core capabilities, such as technology or compensation and benefits, with other services added on. Recruitment is clearly a key portion of the total HR package, but none of the big HRO providers have a core competency in recruiting.”

    Consequently, RPO has boomed, in part because HRO providers are calling on RPO firms to take on the recruiting piece as subcontractors. In addition, client companies that are not satisfied with HRO recruiting capabilities are turning directly to RPO providers for full-service recruiting.

    Another force driving global RPO growth is the tight labor market for key positions such as engineering and R&D.

    “Companies are predicting their talent gaps three years out and then looking at where the talent is located and how they can best tap it,” Gerard says. “Companies are using a RPO or a knowledge process outsourcing (KPO) model or some combination to meet these needs.”

    RPO provides a strong engine to bring in candidates, while KPO brings in the highest levels of talent in engineering and science. According to Gerard, there are only are four pure KPO firms–all Indian-owned companies based in India. These four firms supply talent primarily to multinationals operating in India but are moving quickly to broaden their reach.

    “Huge cost savings are available through the KPO model because the provider can bring in talent at much lower costs from locations such as India,” he says.

Structuring the agreement
    End-to-end RPO is commonly a long-term commitment. Most recruiting functions are highly decentralized, with great variation in how managers and recruiters at different sites pursue candidates and move them through the recruiting process to an offer. Part of the purpose of RPO is to bring consistency and discipline to the process.

    “The three key elements of full-scale RPO include managing the people resources for recruiting and staffing; managing the technology, especially for reporting purposes; and, perhaps most importantly, managing the external vendors–for example, contingent recruiting agencies,” Gerard says.

    He advises employers and their RPO providers to structure an agreement only after the provider has received detailed data from the client company.

    “The provider needs to get a clean look at the client’s existing recruiting process and hiring needs, the client’s technical capabilities, and its use of third-party providers such as search firms and staffing agencies,” he says.

    The client company and the RPO provider then review this information and construct a strict service-level agreement.

    “The best arrangements occur when the agreement includes provisions for the implementation of a required change management plan, so that the provider re-engineers the client’s recruiting process for optimal performance and efficiency,” Gerard notes.

    Gerard reports that resistance from hiring managers is not uncommon because they may not have had what they felt was adequate internal support in recruiting and hiring, and may have turned to outside recruiting agencies.

    “The point is to create a high-quality recruiting process so that hiring managers are not tempted to go outside to agencies for candidates,” he says.

    To engage hiring managers in a more efficient process, the client company and the RPO provider must put together a change management plan that communicates to hiring managers exactly how the recruiting process will be altered and what will be expected of them.

    “RPO will fail without implementing a change management plan,” Gerard warns.

    One of the most critical areas in RPO is managing outside vendors.

    “The RPO provider should never get rid of the key external agencies that supply talent to the client company, but the RPO provider must consolidate and manage these vendors and should have full control over them,” Gerard says.

    Gerard advises companies to build realistic expectations for their RPO agreement by establishing a detailed baseline that describes current recruiting practices, including how many external recruiting agencies the company uses and how much they cost. In addition, the baseline should define each step in the existing recruiting process and the timeframe and cost for each step.

    “For cost reductions through RPO, the sky is the limit,” Gerard says.

    The biggest savings often come from managing the outside recruiting agencies and cutting the number of positions these agencies handle.

    “This can generate cost savings or 35 percent to 40 percent,” Gerard says. “The RPO provider becomes part of the client company’s organization and consolidates and drives efficiencies among the vendors.”

    This approach does not apply to executive search firms, which typically remain outside the scope of RPO.

    Futurestep’s goal with its RPO clients is to create long-term multi-year contracts, with a Futurestep team on site and seamless work with the client. Futurestep may handle all recruiting with its own staff or use outside vendors.

    “We manage the process tightly to meet the company’s goals, achieve its business objectives and build a better image for it in the marketplace,” McNabb says.

    McNabb identifies both hard and soft cost savings available through RPO.

    “Purely from a recruitment standpoint, it’s easy to guarantee minimum hard-cost savings of 10 percent,” he says. “But the larger savings come from reducing soft costs by drawing in better candidates, improving the image of the firm and building a database of pre-assessed candidates. As a CEO myself, I worry less about costs and more about finding better talent.”

    Gerard believes that the quality of RPO services is improving as the size and scale of RPO deals grow. Companies will increasingly turn to RPO to gain access to better-quality talent, construct a better recruiting process and create greater recruiting efficiencies.

    “This leaves HR free to focus on the absolutely critical function of strategic workforce forecasting–looking at where the CEO and CFO want to go and leveraging the RPO provider to take on the tasks of recruiting,” he says.

As Congress stumbled through yet another doomed attempt to raise the federal minimum wage this summer, aldermen in Chicago took matters into their own hands and passed a new “big box” ordinance that sets minimum wages and benefit spending for the city’s largest retailers.

    The Chicago ordinance is now one of hundreds of state and local laws that form a crazy quilt of minimum wage regulations across the United States. Worse yet, this regulatory mess is increasingly incorporating mandatory benefit provisions that push well beyond the already complex assortment of legally required benefits.

    The Chicago ordinance forces stores inside the city limits with more than 90,000 square feet and $1 billion in annual parent company revenues to pay a minimum wage of $9.25 per hour plus $1.50 per hour in benefits, effective July 1, 2007. That rises to $10 per hour in wages and $3 per hour in benefits by 2010 and is indexed to inflation thereafter. Stores with less than 90,000 square feet remain subject to the Illinois state minimum wage of $6.50 an hour and can look forward to a huge labor cost advantage over their competitors.

    If the Chicago ordinance survives a possible mayoral veto and legal challenges, it will spur on the national movement to regulate wages and benefits on state-by-state and city-by-city basis.

    “We’re staring at this patchwork right now,” says Jim Hendricks, a partner in the Chicago office of law firm Fisher & Phillips. “If the ordinance survives, any municipality could pass these laws.”

    Employers already cope with minimum wage rates set higher than the federal level in 22 states, each with their own set of rules. Add into this mix the more than 100 “living wage” city ordinances for local government contractors, plus a half a dozen cities with their own all-sector minimums and other cities pushing for sector-specific minimums and mandatory benefits, and you have a compensation head­ache of unprecedented proportions.

    “Employers should be deep in prayer,” Hendricks says with a long laugh. “And they should be moving proactively to gain more political influence. In Chicago, we call it ‘clout.’ ”

    But clout was ineffective in Em­eryville, California, where employers faced not the city council, but a ballot initiative that allowed 194 citizens to cast the deciding votes in setting minimum wages for the city’s hotels. The November 2005 Em­eryville law mandates a minimum wage of $9 per hour and an average wage of at least $11 per hour for employees at hotels with more than 50 rooms. Like the Chicago ordinance, the Emeryville initiative was spearheaded by unions.

    Employers operating in the “tourist zones” in Santa Monica and Berkeley, California, must pay a higher minimum wage rate than employers in other parts of these cities. In Santa Fe, New Mexico, employers with 25 or more employees—less than 10 percent of all employers in the city—must pay a minimum wage of $9.50.

    A Washington, D.C., big box bill under consideration would require retailers with at least 75,000 square feet to pay a minimum wage of 115 percent of the federal poverty level for a family of four, plus at least $3 an hour in benefits. Advocates in Spokane, Washington, are collecting signatures for a big box ballot initiative that would set minimum wages at large retailers at 135 percent of the state minimum wage if the employer provides health benefits, or 165 percent if the retailer does not.

    The November 2006 elections will include minimum wage ballot initiatives in six states and dozens of cities. Handing over minimum wage and benefit regulation to the voting public is a development that few employers envisioned a decade ago when the last federal minimum wage increase passed but failed to include an indexing mechanism that would ensure its efficacy.

Unlikely targets
    Wal-Mart is the whipping boy for both the wage and benefits issue in Chicago and across the country, but the big box retailers are unlikely targets for advocates who are truly concerned about minimum wage workers.

    The retail industry accounts for only 9 percent of the 1.9 million U.S. workers who earn the federal minimum wage or less, according to the Bureau of Labor Statistics. And large retailers are far more likely to offer benefits than are smaller retailers or companies in the food service industry, which employs more than 60 percent of all minimum wage workers.

    Chicago’s large retailers are particularly poor candidates for minimum wage reform. According to the Illinois Retail Merchants Association, the ordinance covers 38 existing stores with a combined workforce of fewer than 8,000 employees in a city with 1.3 million workers. According to the association, workers in the 38 stores average $9.40 per hour. In addition to big box retailers, the parameters established by the ordinance sweep old-line department stores such as Saks and Bloomingdale’s into the regulatory bin along with Target and Home Depot.

    With both entry-level and average wages for all Chicago retail sales workers already well above the state and national industry averages and substantially higher than wages for the lowest-paid jobs in the city, the Chicago ordinance is an odd piece of work. Clearly, improving the lives of Chicago’s working poor is not the only item on the agenda.

    “The Chicago ordinance is straight politics,” says Brian Arbetter, partner and member of the compensation and employment practice at Baker & McKenzie’s Chicago office.

    “Aldermen are playing to constituents on the wage and health insurance issues. The irony is that the people supporting the ordinance were not from the areas of Chicago where people stand to lose from it.”

    In fact, many of the aldermen with minority constituencies opposed the ordinance because of their well-placed concerns about the loss of entry-level jobs and sales tax revenues if the big retailers abandon the city.

    “The Chicago ordinance is all about unions,” Hendricks says. “They have retail stores that are organized, but they can’t organize the competitors, and they are under pressure in collective bargaining because of the lower wages at the nonunion retailers. If you looked out over the demonstrations in favor of the ordinance in Chicago, they were clearly driven by unions.”

    “The ordinance is unquestionably a union-led push,” says David Vite, president and CEO of the merchants association. “Labor is attempting to accomplish at the local level what it has failed to do at the national level, by requiring unorganized companies to pay more by legislative fiat. The ordinance should be terrifying for all employers.”

    Joseph Moore, the Chicago alderman who was the lead sponsor of the ordinance, said big box retailers were selected because they could best absorb increased labor costs. “Most of them are corporations with in excess of $1 billion in profits last year,” he says.

    Moore acknowledges that only a limited number of workers will actually see their wages increase as a direct result of the ordinance. “But the big box retailers have a far larger impact,” he says. “They set the standard for the rest of the retail industry. The big box retailers are moving into the city, and we don’t want other retailers to feel like they have to cut their wages and benefits to compete with them.”

Mandatory benefits spend
    Chicago’s slice-and-dice approach to regulating minimum wages imposes higher labor costs on a small subset of employers who have pursued rational economies of scale.

    “The Chicago law singles out not just an industry, but a portion of an industry,” Hendricks notes. “Marshall Fields and Nordstrom will be hit by the ordinance, while their competitors—the small boutiques along Michigan Avenue—will not be affected.”

    But a far larger threat to effective workforce management looms in Chicago’s mandatory benefits spend and the growing attempt to address the national health care crisis through state and local benefit mandates, with Wal-Mart once again at the center of the issue. In January, the retailer became the target of Maryland’s new law that requires nongovernmental employers with more than 10,000 employees to spend at least 8 percent of their payroll on health benefits.

    On July 19, 2006, the U.S. District Court in Baltimore struck down the Maryland legislation on the grounds that it violates ERISA’s fundamental purpose of permitting multistate employers to maintain nationwide health and welfare plans with uniform benefits and consistent administration. An appeal to the 4th Circuit in Richmond, Virginia, is pending.

    Employers across the U.S. heaved a sigh of relief when the Maryland law was struck down, but the Chicago ordinance may escape an ERISA challenge.

    “The Chicago ordinance avoids the ERISA pre-emption issue by defining benefits as payments made for ‘any bona fide fringe benefits,’ ” says John Raudabaugh, a partner in the Chicago office of law firm Baker & McKenzie who focuses on labor relations. “In other words, the Chicago ordinance does not specifically limit or require payments or regulate payments for an ERISA-regulated benefit—for example, health benefits—as opposed to any other benefit.”

    Although the push for mandatory benefits in state and local laws is commonly framed as an attempt to address health care needs, skirting ERISA with a blank benefits spend requirement does little to solve the problem and opens the door to extraordinarily poor benefit practices. “Benefits are generally based on group plans that allow employers to negotiate the best benefits for a large pool,” Arbetter notes. “If employers have to negotiate coverage for separate locations, insurers will go to town, and ultimately it will hurt employees.”

    The most likely legal basis for a challenge to the Chicago ordinance is a lawsuit based on the equal protection clause, rather than the ERISA-based challenge that worked in Maryland.

    “Absent a mayoral veto, the Chicago ordinance will be challenged on equal protection grounds for arbitrarily imposing regulatory requirements on a narrow class of retail establishments,” Raudabaugh says. A lawsuit may also raise regulation of commerce issues and challenge Chicago’s home-rule authority.

    The board of the Illinois Retail Merchants Association has already authorized the group to file a lawsuit on behalf of its members. But even if the Chicago ordinance is voided or forced to take a different form, the already burdensome variations in state and local wage and benefit laws will only become more unmanageable as local governments continue to assume what used to be federal responsibilities.

    Many employers still oppose any increase in the federal minimum wage and rail against a national solution to the health care crisis. Some still strive for a complete deregulation of wages and benefits and favor severe limitations on union organizing and collective bargaining rights.

    But as employers in Chicago now know, deregulation at the federal level may mean re-regulation at the local level, with aldermen and voters setting wage rates and benefits spend. Instead of one large wrench thrown into the market, employers now face hundreds of much smaller ones, with predictable inefficiencies in the offing.

Workforce Management, August 28, 2006, pp. 1, 43-45 — Subscribe Now!

If you’re in the market for a yacht, you’ll probably be talking to an “A player” salesperson at MarineMax, Inc., the nation’s largest recreational boat retailer, with 2,000 employees in 85 locations.

    MarineMax’s record-breaking results for the second quarter of 2006 showed revenue up 25.8 percent to $1 billion, same-store sales up 14.4 percent and net income up an enviable 22.5 percent. During the past five years, its stock price has soared 330 percent.

    These high growth rates translate into heavy hiring, but MarineMax does not recruit from competitors.

    “It would just recycle mediocrity,” says Jay Avelino, vice president of team development, the company’s chief HR executive. Instead, the company only recruits what it considers to be A players—almost always from outside its own industry—to meet new growth targets.

    MarineMax upgraded guidance for the rest of 2006 based on second-quarter results, but it needs to fill 130 open positions ranging from sales consultants and administrative assistants to marine service technicians and parts managers. With a formal topgrading policy in place and a mandate to interview only A players, MarineMax relies on a complex process to screen and select candidates and negotiate starting salaries for a constant flow of new hires.

    But Avelino refuses to throw money at A-player candidates. Negotiating their starting salaries centers on tapping market data and pushing intangibles.

    “Under our topgrading policy, an A player is in the top 10 percent for that position across the galaxy, but at an appropriate compensation level,” he notes.

    MarineMax’s topgrading process begins with psychometric testing, reference checks and an initial interview to eliminate any candidate who is not A-player material.

    “We may start 10 candidates through the process, but end with only one or two who go on to the final stage, which is a four-hour chronological in-depth structured (CIDS) interview,” Avelino reports.

    “Top performers command higher rates of pay,” he says. “We pay more than our competitors, but A players are also looking for intangibles such as challenging work and advancement opportunities.”

    The company requires candidates to provide a full salary history and then uses salary surveys and information about the markets to shape the offer. To avoid high fixed costs, the company relies on performance pay programs and may negotiate guaranteed performance bonuses for the first year to lure A players.

    For example, for a store manager, who is responsible for P&L at a facility where revenues range from $10 million to $50 million, MarineMax offers base pay of $50,000 to $125,000, typically about $75,000. Bonuses based on store revenue and pretax profits boost total cash compensation up to a range of $90,000 to $200,000.

    “To bring an A player on board, we model total compensation for the candidate and we may guarantee a performance bonus of a certain amount for the first year, regardless of results,” Avelino reports. “Also, we may offer stock options, which are uncommon in the industry. We are at the top of the food chain, so candidates know they are looking at significant upside.”

    A players for service technician positions are pulled in with a guaranteed opportunity to bill out a certain amount of work and increase their hourly rate by obtaining additional credentials. “A-player technicians recognize this as a job that will pay well,” Avelino says.

    MarineMax’s standard package includes health benefits, a 401(k) plan with an employer match, an employee stock purchase plan and an attractive discount on its boats. Avelino remains confident in the company’s ability to attract the talent it needs without ratcheting up fixed labor costs.

False positive
    Survey results for 2006 starting salaries captured headlines earlier this year when the National Association of Colleges and Employers reported 2006 increases averaging 5.4 percent for new accounting and engineering graduates. But a closer look reveals that the 2006 average starting salary of $50,892 for new computer science graduates is 3 percent below the $52,473 average for 2001 in nominal terms. If the current average starting salary is adjusted for inflation, it is 16 percent below the 2001 level.

    New accounting degree graduates are currently commanding starting salaries that average $46,188, 5.4 percent higher than last year, but in inflation-adjusted dollars, the 2006 average is only 1.2 percent above the average for 2001.

    MarineMax fills positions in high-demand fields such as accounting with three-day “speed dating” programs that use mini-interviews to quickly screen large numbers of applicants. The company’s May 2006 round of “speed dating” for accounting candidates netted 40 applicants for 11 positions. The company hired five applicants and is still processing others.

    “We have not felt the need to use signing bonuses,” Avelino reports. “For all positions, we look for ‘water genes’–-candidates who are attracted to the boating industry and bring that enthusiasm to the job.”

    Sixty-five percent of employers are offering signing bonuses for IT positions, according to a Mercer Human Resource Consulting survey of 1,350 employers. Almost half are using signing bonuses for sales and marketing and accounting and finance positions. Thirty-six percent of employers are offering them for engineering jobs.

    Tighter job markets for some positions have spurred the use of signing bonuses and encouraged job candidates to raise their demands for higher starting salaries. In addition, the relatively recent availability of online salary data has boosted starting salary expectations for candidates, who may overestimate the relevancy of the data for the particular position they seek.

    Career counseling Web sites encourage job applicants to use various online salary calculators that provide aggregate data. Candidates may enter salary negotiations with information that does not reflect the highly specific geographic and industry considerations that determine wage levels.

    Media reports about “talent wars” also feed higher salary expectations, but employment growth for the first five months of this year averaged only 108,829 jobs per month, well below the estimated 180,000 per month needed to absorb new entrants. Rising interest rates, higher inflation and stock market volatility could easily snuff out any significant job growth in the second half of 2006 and mitigate any upward pressure on starting salaries.

Selling intangibles
    Although MarineMax successfully leverages variable compensation and intangibles to attract A players, most companies need to do a better job of selling nonmonetary rewards to job candidates, says Tom Johnston, president and CEO of SearchPath, a talent acquisition firm headquartered in Cleveland.

    “It’s crucial to identify the candidate’s hot buttons, which may be compensation, lifestyle, location, opportunity or benefits, depending on the candidate’s specific situation and background,” Johnston says. “If location is a key factor, for example, you can leverage that in salary negotiations.”

    At SearchPath, a managing partner conducts the negotiations for the employment offer between the hiring company and the candidate, including the starting salary.

    “Negotiating the starting salary is tough because there are no rules or guidelines,” Johnston notes. “The key is to understand the ultimate goal, which is to hire the best candidate.”

    Candidates should state their current total salary and bonus and what they are looking for above that.

    “If a candidate will not report this information, the employer has every right to end its consideration,” Johnston says.

    The employer will usually need to go 5 percent to 10 percent higher, or more if the cost of living in the location for the new position is higher.

    Johnston advises employers to be open and aggressive in determining whether a candidate is worth bumping up the base salary offer. Employers may be reluctant to set a precedent by offering a higher starting salary, or they may be working within financial constraints.

    “Put all of the pieces of the process together before you open compensation issues,” Johnston advises.

    He also recommends that employers bring other factors into play, such as flexible hours, a performance and salary review after six months, additional weeks of vacation and flexibility in the start date.

    “These techniques are usually successful because by the time the company and the candidate reach the compensation issue, there is already an emotional component to the relationship,” Johnston says. “The employer wants the candidate, and the candidate wants the job. Once you have this commitment, you can almost always close the deal. We suggest offering a leveraged compensation plan with a very high upside.”

    Some employers may be put off if a candidate becomes particularly aggressive in starting salary negotiations.

    “But we remind the hiring company that if it hires the candidate, that candidate will be negotiating with this same aggressiveness for the company in the future. The same skill sets that a candidate uses in the hiring process will be brought to the job.”

    Johnston also notes that companies are often too narrow in their idea of a perfect candidate.

    “Don’t eliminate a candidate based on some rigid statistical criteria such as grade point average,” he advises.

    Other common mistakes including initiating salary negotiations too early in the hiring process and low-balling candidates even when there is a good fit.

    “The key is to make the right hire, and there are many elements in reaching that goal that are at least as important as compensation,” Johnston says.