Author: Fay Hansen

Jane Paradiso, practice leader for workforce planning at Watson WyattWorldwide, offers this cautionary message: “Before you begin cutting benefits,take a step back. HR executives tend to be reactive and often don’t have themetrics needed to look strategically at what is best for the organization.”

    Cutting benefits without clear objectives and consideration of the impact onemployees can undermine performance. Any changes in benefit plans should be partof workforce planning, which entails analyzing the demographics for employeesand their dependents, identifying the most important positions, and calculatingturnover and replacement costs. “With this information in hand, you can createan ROI model to determine which cuts make sense and what savings can beanticipated,” she says. “This is an unemotional analysis that looks at costsand the level of risk involved.”

    Paradiso advises executives to look at the problem holistically andscientifically, and aim for a package of solutions–a combination of cuttingsome benefits and adding others–that is attuned to the needs of theorganization, particularly in terms of retaining key people. “Otherwise, you’llbe left with a company of lower performers, and any cost savings derived frombenefit cuts will be lost,” she says.

    Effectively communicating the changes to employees is absolutely critical.”Make it honest, and make sure employees understand why the cuts arenecessary.” She advises against asking employees for input on possible benefitcuts. “This approach frequently backfires,” Paradiso says. If you find thatyou cannot act on their recommendations, which is often the case, then you arein difficult situation. It’s best for executives to make the decisions aboutcuts on the basis of business needs and objectives. This is their job and whatthey get paid for.”

Workforce, March 2003, p. 42 — Subscribe Now!

The salary-management systems atMarriott International, Dow Chemical, andKoSa, with significant pay decisions pushed down to line managers, are part of abroader movement. “It’s a continuation of a trend that started 10 or 12years ago with broadbanding and the idea that managers need to take a moreactive role in linking pay to performance,” says Laury Sejen, nationaldirector of strategic rewards consulting, Watson Wyatt. “It’s also just agood business practice because managers are clearly in the best position tojudge performance.

    “The decentralized approach to pay is effective, but there are lots of waysto run the train off the track.” Human resources and line managers mustunderstand market data and the relevant performance factors. The key question iswhether managers really have both the information and the discipline they needto make salary-increase decisions. “Companies are getting better at this, butthe economic downturn means that there are fewer dollars available,” Sejensays. “If you have a 5 percent salary-increase budget, it’s easy. But if youhave a 2 or 2.5 percent budget, tough decisions arerequired.”

    Under KoSa’s new salary-management system, annual evaluations for managershinge, in part, on how well they differentiate employee performance. The system”weeds out” managers who cannot make tough pay decisions, says Peter Sparber,global compensation manager. About one-third of the employees under the newsystem receive no incentive pay in any given year.

    Managerial discipline can be instilled through constant education andcommunication. “We now have numerous studies that show the value ofsuccessfully differentiating pay for top performers,” Sejen says. “Thestudies show compelling results. To the extent that these studies gain moreairtime, managers will become more aware of the necessity for discipline inmaking pay decisions.”

Workforce Online, June 2003 — Register Now!

Step right up, ladies and gentlemen, for the latest in diversity goods. Howabout a game of Diversity Bingo, or perhaps a camp shirt with a diversity logo?Consider buying a box of diversity lapel pins as a reminder to employees tospend time “honoring differences” or experiencing an “inclusionbreakthrough.” Be prepared to break out a Diversity Tool Kit–“a completetraining-program-in-a-box”–or perhaps a corporate fable such as A Peacock inthe Land of Penguins, or a copy of the video From Sex to Religion … andEverything in Between.

    The multibillion-dollar diversity industry is thriving in corporate America.But before you spend another dime on your diversity program, carefully considerthis conclusion reached by Thomas A. Kochan, one of the most respected humanresources management scholars in the country: “The diversity industry is builton sand,” he declares. “The business case rhetoric for diversity is simplynaïve and overdone. There are no strong positive or negative effects of genderor racial diversity on business performance.”

    Kochan, a professor of management at MIT’s Sloan School of Management,bases his conclusions on a recently completed five-year study of the impact ofdiversity on business results. The investigation involved a detailed examinationof large firms with well-deserved reputations for their long-standing commitmentto building a diverse workforce and managing diversity effectively. It built ona growing body of research that raises painful questions for companies that pourmoney into diversity programs, and for the diversity industry that supplies themwith a dazzling array of diversity products.

    At a time when charges of racial harassment are way up, and racialdiscrimination class-action lawsuits are enjoying a renaissance, diversityprograms are flourishing. Organizations appoint diversity officers. They hirediversity consultants, coaches, and trainers. They adopt diversity scorecards,benchmarks, and best practices, and send executives to diversity conferences andleadership academies. But despite the astonishing number of products andservices–ranging from the worthy to the banal–one item is in very shortsupply: hard metrics for measuring performance results or the return ondiversity spending.

    For years, the industry has claimed that diversity programs yield higherperformance and greater productivity, but the evidence offered is largelyanecdotal or based on limited data collected through questionable methods. Thelink to the bottom line, an entrenched part of diversity rhetoric, remainslargely undocumented. Of the 20 large corporations with well-establisheddiversity programs that Kochan initially contacted for his study, none had everconducted a systematic examination of the effects of their diversity efforts onbottom-line performance measures.

    “Some companies have completed limited studies at a divisional level, butthere are no formal reports with valid and scientifically determined numbers,”says Michael C. Hyter, president and CEO of J. Howard & Associates, a largediversity consultancy in Boston. “Organizations like having the flexibility ofnot being put in a box about whether this does or doesn’t work. Too often,they are given a lot of credit for their efforts anyway.”

“Diversity can enhance business performance, but only if the proper training is in place and the climate and culture support it.”

    If there is little evidence on performance results, there’s even lessindication of effectiveness in the aggregate compliance data. Although mostdiversity programs trace their roots to compliance efforts and, in some cases,the struggle against racism, the number of job-discrimination charges filed withthe Equal Employment Opportunity Commission, including race-based charges, hit aseven-year high in 2002. The recent increase in charges can be linked to therecession–work-related lawsuits typically rise during economic downturns–butthere was no evidence of improved compliance before the recession hit. Many companies that are routinely praised for their diversityprograms–including Coca-Cola and Ford Motor Company–still find themselves incourt fighting epic racial-discrimination lawsuits. Wal-Mart, ranked number oneon Fortune’s prestigious “America’s Most Admired Companies” list for2003, is facing the largest sex-discrimination lawsuit in U.S. history, with asmany as 500,000 plaintiffs. Charges of racial harassment filed with the EEOChave increased fivefold in the past decade.

    The diversity industry and its corporate clients continue to promotediversity programs as a “strategic imperative” that boosts performance byunleashing the creative power of diverse groups. As Xerox Corporation chairmanand CEO Anne M. Mulcahy observes, “Somehow, diversity breeds creativity.”Unfortunately, the “creativity” that some Xerox employees demonstrated wasclearly not what Mulcahy had intended. They fashioned a workplace display ofAfrican-American dolls with nooses around their necks, igniting a lawsuitagainst the company in 2002. EEOC charges against the company in the same yearincluded racial discrimination in promotions and compensation and systematicretaliation.

    Xerox launched its first workplace equality efforts almost 40 years ago. Thecompany draws 30 percent of its workforce from racial minorities and winsnumerous awards for its diversity program. Yet it still faces multiplediscrimination lawsuits. The number of racial-harassment cases involving hangman’snooses has exploded in recent years, according to the EEOC, with incidentsreported at dozens of leading companies, including Home Depot, Lockheed Martin,Boeing, Texaco, and Northwest Airlines.

State of the industry
    “Diversity has been promoted on thebasis of a very weak construction of the business case and on grounds ofsocial justice, but to be successful, programs must be built on scientificevidence,” Kochan says. Without this evidence, especially in the context ofbudget constraints forced by the economic downturn, diversity programs may comeunder the same scrutiny routinely turned on most business functions.

    Hyter believes that an industry shakeout is on the horizon. “Five or 10years from now, there are only going to be a few serious practitioners left–thosewho have demonstrated the ability to help organizations with measurable results,”he says. Kochan believes, however, that the change must begin in human resourcesmanagement. “Consultants sell what they are good at,” he says. “They willshift what they provide when human resources executives become moresophisticated in what they demand.”

    Kochan’s study builds on earlier academic research that questions theeffectiveness of diversity-management programs and notes the unwillingness ofmost companies to explore the issue of results. “Meaningful discussions andanalyses do not occur because companies are concerned about legal issues andbecause people simply want to believe that diversity works,” Kochan says. “Thereis a great deal of defensiveness. Even when diversity is managed well, theresults are still mixed. The best organizations can overcome the negativeconsequences of diversity, such as higher turnover and greater conflict in theworkplace, but that still does not mean that there are positive outcomes.”

    Luke Visconti, partner and cofounder of DiversityInc, which runs one of thelargest Web sites in the industry, dismisses Kochan’s conclusion. “It defiesgravity and flies in the face of logic,” he says. “I can’t even imaginehow someone could come up with that conclusion unless there was no diversityamong the people doing the study.” (Kochan’s team, in fact, is a diversegroup.) Visconti’s Web site includes extensive resources on diversity, butdoesn’t reference any of the studies that raise questions about results.

    Kochan’s team of researchers, supported by Business Opportunities forLeadership Diversity and the Society for Human Resource Management, struggled tofind companies willing to participate in its diversity study. “Althoughextensive academic studies show that there is little evidence to support thebusiness case for diversity, the business community has not embraced theliterature,” Kochan says. “Instead, there have been a lot of superficialanalyses of how diversity works in organizations.

    “There are estimates that companies spend $8 billion on diversity trainingannually,” he adds. “Much of this is wasted because it is spent on programsfor awareness and valuing diversity that do not give people the skills theyneed.” Kochan’s study, forthcoming in the Human Resource ManagementJournal,presents findings that have dramatic implications for the kind of diversitytraining that must be provided to achieve performance improvements. Trainingprograms aimed at “valuing diversity” and addressing subtle forms ofdiscrimination and exclusion do not lead to long-term changes in behaviors, thestudy notes. Instead, group members and leaders must be trained to deal withgroup process issues, with a focus on communicating and problem-solving indiverse teams.

    Hyter says the diversity industry includes “all types of people who professto be experts in this area and who have a stake in companies’ programs,” butthat no recognized set of credentials or professional certification exists forpractitioners. Diversity consultants are chasing what he estimates to be $400 to$600 million annually in consulting fees alone. Human resources executives oftendon’t demand documented results from outside consultants or in-house diversitystaff because “it’s easier to create activities and get credit for doingsomething than it is to create metrics and measures and hold people accountable,”he says.

Missing metrics
    Some companies measure diversity results with recruitment, promotion, orturnover rates, but few look beyond simple head counts to measure the fullfinancial or performance impact of their programs. The difficulty of creatingvalid measures is part of the problem. “There is a connection betweendiversity and financial success, but typical profit-and-loss systems don’tcapture the benefits that diversity creates,” says Laura Liswood, senioradviser to Goldman Sachs on diversity issues and a senior scholar at theUniversity of Maryland’s Academy of Leadership. “A lot of the benefits arenot quantifiable, but it’s also true that we have not devoted the same levelof resources to attempts to quantify diversity results.”

    The business community has not pursued the implications of the academicstudies, in part, Kochan says, “because of the traditional breach between thecorporate and academic realms.” Liswood retorts that “the academics might doa better job of marketing their work.”

    Kochan acknowledges that quantifying performance results is problematic. “Theneeded data cannot, in most cases, be culled from existing human resources data,”he says. “To create the needed data and analysis, human resources executivesmust run experiments within their organizations. They must invest in efforts totrain departments in group processes, and then follow their performance overtime, comparing the performance of groups that have been trained with that ofgroups that have not, using hard performance measurements based on the goals ofthe unit.” These measurements might be time-to-market, error rates, salesgrowth, or any number of other productivity measures.

   The lack of sophisticated metrics for measuring diversity results derives, inpart, from a broader problem. “Human resources metrics in general don’t havethe same analytical power as other business metrics,” Liswood says. Inaddition, diversity programs often center on training, a human resources fieldwhere metrics are particularly weak. According to the American Society forTraining and Development’s 2002 state of the training industry report, onlyone in 10 companies attempts to create results-based evaluations of its trainingprograms.

    The business case for diversity that dominates industry claims and corporategoals focuses on three related objectives: to allow organizations to tap talentpools and incorporate new ideas and perspectives from employees of differentbackgrounds; to expand market share; and to ensure legal compliance.

    The workplace objective may be simply a function of local labor marketrealities, or it may center on the ability to attract and retain female and minority candidates who will bring fresh viewpoints towork. Market-share objectives target the growing purchasing power of female andminority consumer groups, which many companies believe can be tapped onlythrough an employee population that matches the customer base. Complianceobjectives stress the need to avoid costly discrimination lawsuits and thedamage to reputation that occurs when companies are charged with illegalworkplace practices.

Trivializing racism
    One of the consequences of the nonanalytical approach adopted by thediversity industry and accepted by many companies is that the most seriousdiscrimination issues may be trivialized. “Lapel pins and slogans on the wallmay encourage people to think that diversity is just the special of the week,”says Liswood. “Diversity requires real mind-set and cultural change.”

    Trivialization also occurs as the number of groups covered by diversityinitiatives expands to include every conceivable cultural minority, far beyondhistorically underrepresented or oppressed groups. “There are practitioners inthis business who push a very broad definition of diversity because they aretrying to appeal to a larger audience to secure their own fate,” Hyter says.

    Microsoft’s diversity program, for example, now includes “employeerelations groups” for single parents, dads, Singaporean, Malaysian, Hellenic,and Brazilian employees, and one for those with attention deficit disorder. “Companiesrun a very high risk of allowing the broader definition of diversity to lead tothe neglect of certain groups,” Hyter says. “This hits a critical and rawnerve, and it’s a valid point.”

    Patricia Pope, CEO of Pope & Associates, a diversity-management firm inCincinnati, adds that “there’s been this desire to get away from race andgender issues because they are so uncomfortable. It’s often easier forcompanies to tackle other differences, such as diversity of thought or diversityof birth order.”

    Several studies, including Kochan’s, have found that companies generallyare more successful in managing diversity with respect to gender issues thanracial and ethnic issues. The empirical studies indicate that racial and ethnicdiversity may, in fact, have a negative impact on business performance unlessspecific forms of analysis, training, and monitoring are in place. If leftunattended or mismanaged, diversity is likely to produce miscommunication,unresolved conflict, higher turnover, and lower performance.

Truth or consequences
    The current economic downturn may prompt greater scrutiny of diversityspending and a growing demand for documented results. Hyter says that some ofhis clients are “becoming much more aggressive about measuring the return ontheir investment in diversity training and consulting.” He also believes thatin-house staffing for corporate diversity programs is changing. “You can tellby the number of people with P&L responsibilities who are being tapped tomanage diversity efforts, as opposed to people with just human resourcesbackgrounds.”

    With little evidence of improved business performance, financial results, oraccountability, there is much work to be done, Kochan says. “Diversity canenhance business performance, but only if the proper training is in place andthe climate and culture support it. If companies can’t do this, they will losethe opportunity that diversity represents. There could be backward movement, andthe negative consequences of diversity could predominate.”

    The industry’s singular focus on success stories, and corporate reluctanceto track and report results, makes it difficult to determine if diversity programs have fulfilledtheir objectives. Kochan’s research indicates that they haven’t. R.Roosevelt Thomas Jr., CEO of R. Thomas Consulting and Training, Inc., a largediversity consultancy in Decatur, Georgia, says that companies may succeed in”building a pipeline of people with all kinds of demographic characteristics”but then fail at dealing with different behaviors.

    Building diversity programs on bedrock instead of sand begins withrecognizing “that there is virtually no evidence to support the simpleassertion that diversity is inevitably good or bad for business,” Kochan says.

    “Unable to link HR practices to business performance, HR practitioners willbe limited in what they can learn about how to manage diversity effectively, andtheir claims for diversity as a strategic imperative warranting financialinvestment will be weakened accordingly,” Kochan says. The first step inlaying the new foundation, he says, is adopting “a far more analyticalapproach.” And dropping the hype. 

Workforce, April 2003, pp. 28-32 — Subscribe Now!

Robert B. Catell, chairman and CEO of KeySpan Corporation, the largestdistributor of natural gas in the Northeast, closed out 2002 with anannouncement that no CEO wants to make: Rising expenses from employee benefitswill shave 20 to 30 cents off earnings of $2.86 per share that had been expectedfor 2003. Something has to be done.

With 12,000 mostly long-tenured employees spread over several states andorganized into different unions, the Brooklyn-based company is short oncost-cutting options. The CEO’s aim traditionally has been to keep costincreases in line with the general rate of inflation. “In the past, this was areasonable goal,” says Elaine Weinstein, senior vice president of humanresources. “However, given the escalating cost of health care, this is now avery aggressive target.” In 2002, KeySpan’s benefit costs rose 13 percent.For 2003, “our stretch goal is to keep the increase at 7 to 10 percent. If Iachieve 7 percent, I’ll be a hero.”

Weinstein faces the same deadly combination of rising pension contributionsand runaway health-benefit costs that now preoccupies human resources executivesat other top companies. Employers absorbed health-benefit cost increasesaveraging 15 to 20 percent in 2002 and budgeted for increases averaging 15percent this year. Many must also ante up huge pension contributions forced bypoor investment returns. “Equities have tanked, so our cash contribution is updramatically,” she says. “Our assumption is that equity markets will remainflat for 2003, and all HR planning is based on that assumption.” Watson WyattWorldwide reports that 30 percent of companies were forced to make cashcontributions to their pension plans in 2002; 65 percent will have to do so thisyear.

With little or no revenue growth to cover these additional expenses, risingbenefit costs are ripping a hole in the bottom line. Human resources executivesare on notice from top management to contain or cut costs–now. Depending on thedegree of economic pressure, the composition of the workforce, and conditions inthe local labor market, executives are pursuing different objectives andstrategies. Some are cutting benefits and slicing salary budgets to offsetrising costs. Others are turning to aggressive vendor management to achieve costreductions without cuts or greater employee cost-sharing. In all cases,successful cost control hinges on well-defined objectives, careful workforceanalysis, and a holistic approach to the problem.

Long-term, incremental change
    Given KeySpan’s workforce composition, Weinstein’s goal of simply holdingcosts constant is daunting. Hemmed in by heavy contractual obligations andextremely low employee turnover, she focuses on long-term, incremental changesin both retirement and health-care benefits, and begins laying the groundworkbefore cost increases hit crisis proportions. “HR is extremely tough thesedays,” she says, “and controlling costs is difficult, but my job is easierbecause my CEO and my company are very employee-sensitive, and I have tremendousaccess to and dialogue with top management.”

Weinstein has the information and leverage she needs to make major changesbecause she sits on the company’s executive committee. “When I came into thecompany seven years ago and saw that there was no cash-balance plan, forexample, I said to the committee, ‘Let me show you some best practices andwhat we can do for new hires.’ I drove the pension issue.” She launched acash-balance plan for managers in 2000 and for some unions in 2001 and 2002.

Of all the issues related to benefit cost increases at major companies,pension funding is now the most expensive and the most intractable. KeySpan’snew cash-balance plan will cut the company’s annual pension costs by 30percent for each new hire, but moving existing employees into the new plan is aslow process. “Two-thirds of our employees are unionized, so we attempt tonegotiate the cash-balance plan as various contracts come up, but ourdefined-benefit plan is still very dominant,” Weinstein says. Cash-balanceplans help control costs because final retirement benefits are notpredetermined, as is the case in traditional defined-benefit plans. Benefits arebased solely on the amount that accumulates in each employee’s account fromannual employer contributions, which are usually a percentage of salary, plusearned interest.

“We negotiate very aggressively with our health-benefitcarriers, and because of the pressures they face, we have been able to extractsome concessions.”

With a viable solution in place in the area of pensions, she is focusing onhealth-benefit costs. “We negotiate very aggressively with our health-benefitcarriers, and because of the pressures they face, we have been able to extractsome concessions,” she says. The company is also inching up employeecontributions for both union and nonunion workers. Management employees nowcontribute 23 percent of their premiums, up from 20 percent in 2002. KeySpanalso adopted a three-tier design for its prescription program and eliminatedmultiple vendors to reduce administrative costs. A new mandatory mail-orderprogram for recurring prescriptions has saved the company $1 million.

KeySpan’s limited ability to find sufficient immediate savings in benefitcosts has forced it to take a holistic, total-compensation approach to costcontrol. In February 2003, KeySpan froze all merit increases for 12 months formanagerial employees and for 24 months for executives. “This has beentraumatic for our company,” Weinstein says. “The decision came from the top,and the impact starts at the top.”

For some cost issues, top management approaches Weinstein with questions, andshe does the research and provides the information that the executive committeeneeds. “Then we discuss it and vote on it,” she says. In other cases, sheinitiates proposals for change. “There’s a lot of verbal noise about HRbeing a business partner, but you must bring to the table a knowledge of thebusiness or you can’t possibly play a partnership role. If you can’t dothat, then all the talk is just garbage. I understand the business, which is whyI can take an aggressive approach to defining the problems and proposingsolutions.”

Deep cuts without layoffs
    Human resources also took an aggressive approach at CUNA Mutual Group, whichprovides financial services to credit unions and their members. Vice presidentof compensation Teri Edman spent the better part of three months handling 80percent of the analysis, design, and approval process to cut $23.2 million fromthe company’s compensation and benefit costs for 2003. Like Weinstein, Edmanoperates in relatively tight spaces. Half of the company’s 5,000 employees areat corporate headquarters in Madison, Wisconsin, two thirds of them unionized.The company wanted cost improvements without significant staff reductions.

“Both our revenues and expenses have been dramatically affected by theeconomy, and the majority of our controllable expenses are staff-driven,”Edman says. Human resources developed proposals for the changes; top managementdiscussed them over a two-month period and gave final approval. Edman took atotal-compensation approach. A substantial $15 million in savings will come fromthe elimination of the 2003 salary-increase budget, with no merit or across-theboard increases for any employee group. The company also eliminated the annualholiday gift– $300 per employee–for both 2002 and 2003.

An additional $8.2 million in savings will come from health-care andvacation-benefit changes based on careful market analysis. “We targetedbenefit plans in which we were over market and obtained feedback from ouremployees about what types of changes were most acceptable to them,” Edmansays. To minimize the impact on recruitment and retention, “we modeled thecost savings of various alternatives and compared the proposed changes tomarket-competitive data and to our own experience in recruiting.”

Although many employers have eliminated HMO plans, which now register thehighest cost increases of all plan types, CUNA Mutual kept its HMO but addedco-pays for office visits. It also joined the significant employer shift to athree-tier prescription plan, increased drug co-pays, and obtained new networksfor its medical indemnity and dental plans. Edman anticipates saving $3 millionfrom the combined health-benefit changes.

The company will save $5.2 million from a new vacation-buyback program. “Wehad a very generous carryover provision that allowed employees to accumulate upto two years’worth of vacation earnings,” Edman says. “This unusedvacation had grown to an expense liability of $24 million. We needed to decreasethis expense, but because of our workload, we could not afford to have employeestaking larger than normal amounts of vacation.” Under the new program,employees can elect to give up earning new vacation for 2003, and in exchangecan sell for cash an equal number of days from their carryover. They also committo using an equal number of days from their carryover for time off this year.

CUNA Mutual carefully communicated the reasons for the changes to employees.”We illustrated the negative trend in our revenues and expenses over the pastfew years and our projections for 2003 and beyond,” Edman says. “Weexplained the environmental economic factors that are beyond our control, anddemonstrated our need to take action now to protect our future.” The companyhas not experienced higher turnover or a drop in benefit enrollments because ofthe cost-reduction measures, but Edman continues to monitor employee reaction.”We stay in touch with our employees through various feedback methods,including electronic communications, departmental meetings, staff forums withthe CEO, and culture surveys.”

KeySpan provides comprehensive information to its employees about its benefitchanges. “Our communication strategy is a cascading model,” Weinstein says.”After the executive committee approves the changes, we first present them tothe officers, who then present the information and explanations to theiremployee groups.” For the presentations, KeySpan uses a program called “StraightTalk,” which scripts the communications delivered by officers. The scripts forbenefit changes are “a way to assist employees in managing their expectationsabout employee contribution increases and to explain why changes are necessary,”she says. An employee-benefits newsletter, the company’s intranet, andopen-enrollment packages also explain benefit changes in detail. “By the timeemployees receive the open-enrollment packages, they have already heard themessage three or four times.”

Working in relatively restricted environments and with specific mandates tocontrol costs without jeopardizing employee relations, Weinstein and Edman havefound substantial long-term savings. KeySpan and CUNA Mutual are among a growingnumber of employers that are adjusting total compensation to address the crisisin benefit costs. Benefit cost increases have outpaced wage and salary costincreases for the past three years and will continue to do so for theforeseeable future. Almost one-fourth of employers have decreased or areconsidering decreasing 2003 salary-increase budgets to offset rising health-careand pension costs, according to a survey by Mercer Human Resource Consulting.The holistic approach to cost-cutting at KeySpan and CUNA Mutual erases the linecommonly drawn between salary and benefits budgets and allows executives fullrange of movement to tackle rising costs.

Most companies have already picked all the low-hanging fruit among benefitcost-cutting options without achieving sufficient results. Many continue toapproach cost-cutting on an ad hoc basis, without careful analysis of which cutswill yield the greatest long-term savings with the lowest impact on businessobjectives. Executives at companies with focused strategies can push their costsinto more acceptable territory, secure support from top management, and minimizethe impact on employees.

Workforce, March 2003, p. 36-42 — Subscribe Now!

When Humana Inc. CEO Mike McCallister saw the 19.2 percent increase in thecompany’s health-care benefits costs for its 5,000 headquarters employees for2002, he knew that changes had to be made. Managed care was no longercontrolling health-care costs.

McCallister instructed Bonnie Hathcock, chief human resources officer, tofind a solution. Hathcock launched a collaborative internal effort that includedthe company’s product-development, communications, and actuarial staffs. Theteam turned to the consumer-driven model, the newest approach to providinghealth-care benefits. Hathcock presented the new plan design to McCallister, whoasked for minor modifications and then gave his approval.

Humana, the Louisville, Kentucky-based health-care giant, introduced twoconsumer-driven plans and modified its existing health-care benefits in 2002with three objectives in mind: reducing costs, modifying employee utilizationbehavior, and maintaining employee satisfaction. Results from the first yearindicate that the company has achieved all three goals. Cost increases droppedfrom double digits to 4.9 percent, and the company saved $2.1 million on medicalclaims for the initial test group of 5,000 employees. “We found that 60 percentof these savings came from behavior modification,” says Debbie Triplett,director of benefits.

Managed care, as a cost-control strategy, has been dead and cold for threeyears. Some corporate executives are still kicking the body, desperately lookingfor signs of life in what was once thought to be a lasting solution to thesoaring cost of health-care benefits. But like McCallister and Hathcock,executives with a better grip on reality are moving on to the most promisingsolution on the horizon: consumer-driven health care. Such plans include avariety of models designed to compel employees to take a more aggressive role intheir health-care purchasing decisions and, ultimately, to modify theirutilization behavior.

Consumer-driven plans commonly combine an employer-funded, tax-free personalaccount or allowance with a high-deductible medical plan. Account balances carryover from year to year. Because employees hit the high deductible when theiraccount is exhausted, these plans create a compelling incentive for employees tobecome better informed and make careful decisions about their medical spending.Employers can use the plans to drive changes in utilization that produceimmediate savings and create a more competitive environment among health-careproviders.

“The long-term objective is to change the market, so that buying health careis more like buying a car.”

“The long-term objective is to change the market, so that buying health careis more like buying a car,” says Mark R. White, senior health-care consultantfor Watson Wyatt Worldwide. “Employers need to make information available to thehealth-care consumers–their employees–to stimulate competition amongproviders, which will improve quality and lower costs. Information is the key tomarket dynamics. In health care, this is a huge, long-term change.”

Whether consumer-driven plans can create this change is an open question. Butthe proliferation of vendors pushing these plans and companies willing to testthem is breathtaking. And the Herculean task of making them work clearly lieswith human resources executives. Meanwhile, some companies are achieving goodresults from them.

Humana heals itself
    If any company has the knowledge and experience to force a radical reversalin cost escalation, it’s Humana, an industry leader in cost-control methods. Assavings from managed-care plans disappeared in 2000, Humana faced double-digithealth-benefit cost increases for its own 14,000 employees. “As an employer, wewere experiencing the same cost increases as other companies,” Hathcock says.

Humana’s new consumer-driven plan offers two options. The first provides a$500 allowance, with a $1,000 deductible for expenses beyond the first $500,followed by 80 percent insurance coverage and a $2,000 maximum out-of-pocketlimit. The second option provides the same $500 allowance, with a $2,000deductible, followed by 100 percent coverage. Employees may select one of thetwo consumer-driven options, or continue to use modified versions of Humana’straditional HMO or PPO offerings, but with much higher employee premiumsattached to the traditional plans.

When Humana rolled out the two consumer-driven options for its Louisvilleemployees, only 6 percent selected the new plan. “We weren’t disappointedbecause the new options represented a completely different benefit model,”Triplett says. “We learned that we needed to provide better tools for employeesto calculate their savings.” The human resources team modified the tools,revised the communication package, and then rolled out the new plan to Humanaemployees across the country. Enrollment jumped to 18 percent, triple theoriginal rate in Louisville.

“We never intended to drive employees out of the rich plans,” Triplett says. “Someemployees need rich plans and pay more for them. The idea was to offer employeesreal choice.” Humana helps employees choose the right plan with a package ofonline education and information tools, including an interactive program thatasks enrollees questions about their health-care and budget needs, and thenranks the plan offerings according to the responses.

Humana’s HMO participants have high utilization rates and continue to do so,but across the three PPOs and the two new consumer-driven options, the companysaw changes in behavior that helped reduce overall costs. For example, moreemployees opt for outpatient care and fewer see specialists. “We’ve learned thatyou can change behavior,” Triplett says. Employee surveys conducted after thefirst year indicate high levels of satisfaction with the health-care options.

Companies go beyond dabbling
    White believes that enrollments in consumer-driven plans will more thandouble in 2003, as enrollments in existing plans rise and as more companiesadopt the plans. “Most employers with these plans are dabbling in them andseeing 5 to 10 percent of their employees select them,” he says. “But many ofthese employers are leaving the door open for these plans to become totalreplacements. If the consumer-driven concept plays out successfully, it couldbecome a common plan design.”

Xerox Corporation, based in Stamford, Connecticut, is not dabbling. Thecompany launched a consumer-driven plan in 2002 as an option for all of its40,900 U.S. employees. The plan uses company-funded health-care accounts with ahigh-deductible PPO. “The idea for consumer-driven health care had beendiscussed for several years,” says Larry Becker, director of benefits. “Itoriginated within the human resources department. We had many discussions withsenior management as both the cost and complexity of health care increased.”Discussions were held among human resources, tax, and legal experts to craft aplan.

Xerox will continue to provide traditional plans while it monitors theperformance of its new consumer-driven option. “Much needs to be learned aboutthese plans before, and if, they are to become the primary health insuranceoption,” Becker says. “As experience with the consumer-driven plan develops, wewill look at election patterns, the cost of the plan, and the use of thehealth-care account.”

At CompuCom Systems, Inc., an IT services provider based in Dallas, 27percent of the 3,800 employees have selected the company’s new consumer-drivenhealth plan. “The HR department looked for a way to slow down double-digithealth-benefit cost increases through new plans that address the issue,” saysCyndie Ewert, human resources director. “In presenting this to executivemanagement, we addressed issues of great concern, such as operating expenses,head count, and associates’ concerns about receiving more information andchoices when making health-care decisions.”

CompuCom contributes $1,000 to accounts for employee-only coverage, $1,400for employees with one dependent, and $2,000 for employees with more than onedependent. Out-of-pocket maximums protect employees from the financialconsequences of catastrophic events. The company continues to offer PPO and POSplans. “We have eliminated most HMO plans, as they were the most costly andprojected the biggest increases,” Ewert says.

CompuCom is actively monitoring the effectiveness of the consumer-drivenplan. “HR will keep a close eye on employee behavior changes,” Ewert says. “Asassociates become more aware of the costs of health care, do they modify theirbehavior, such as purchasing generic medications instead of regular brands? Dothey wait to see a doctor, as opposed to visiting an emergency room when it isnot truly necessary? Also, we will measure our associates’ level of satisfactionand the plan’s ability to meet their needs.”

Long-term prognosis
    Whether these consumer-driven plans are successful, White says, hinges onthree key elements: introducing additional financial tension to encourageemployees to think about treatments and costs; providing education to changebehaviors; and issuing timely information that helps employees understand costsand treatments. “This final element is the most important of the three, but alsothe hardest to do,” he says. “HR must emphasize the information component tomake the plans work.”

Human resources executives must also “work through the laundry list typicallyused in any bid process,” White says. This includes looking at the cost of thespecific program under consideration, addressing access issues, andinvestigating the experience of vendors with respect to quality and informationissues. “Because these plans are in the early stages of development, the HRexecutive needs to ask vendors how they see their information flows and Websites evolving in the coming years,” he says. “Vendors should have substantialplans in place for improving the information flows and investing in thoseimprovements.”

Initial savings may come from plan design, but long-term savings come fromimproved information flows, which drive changes in behavior. “The changes ininformation flows and behaviors tend to be cumulative, so the real payoff fromthese plans may be down the road,” White says. Employers with a relativelystable workforce may be in the best position to make the investment in planchanges and to reap the rewards.

“Changing behaviors and the way the market works is a very exciting idea, butit is not clear that the personal account type of consumer-driven plan is theright one,” White says. “We won’t know until the experience of the initialadopters is clear. These plans may not be the panacea; the more generalprinciples may have a longer shelf life.” This year, employers that are testingthese plans will be able to determine whether their employees are beginning tobehave like true consumers. If more employees are comparing treatments,providers, and prices, employers will know they’re headed in the rightdirection.

Workforce, February 2003, pp. 36-40 — Subscribe Now!

A full decade has passed since leading corporations first installed comprehensive work/life programs designed to draw more talent into the workplace and help employees focus on the tasks at hand. Despite the time and money poured into these programs, few claim unmitigated success, and on an aggregate level, little has changed.

Workplace surveys still register high levels of employee stress stemming from work/life conflicts. Large groups of women and minority workers remain unemployed or underemployed because of family responsibilities and bias in the workplace. And in too many cases, the programs have reached only the workers who need them least.

Workforce sat down with HR executives from leading corporations to take a closer look at work/life policies and benefits and their tangible results. The September roundtable discussion, sponsored by The New York Times Job Market,produced both solid responses and notable silences.

The participants, a group of nine HR executives and experts from top companies and consultancies, uniformly agree that their companies are committed to promoting work/life balance. Most offer flextime and extensive work/life benefits. Many acknowledge the difficulty, however, in creating a culture that supports these programs, extending flexibility to nonprofessional employees, and building solid tools to measure results.

Culture and communication
Jennifer Lacy, director of research for The New York Times Job Market, presented the findings of a survey of 300 job-seekers in the New York are conducted for the New York Times. Seventy-five percent of the respondents reported that workplace stress had an impact on their decision to look for a new job. However, “there is a general perception among employees that working long hours is important for career advancement,” Lacy says. This notion, and the pay and promotion policies that support it, often undermine attempts to promote work/life balance.

All of the roundtable participants say that corporate culture and the examples by top managers can make or break work/life programs. “A culture can be very subtle,” says Joseph Gibbons, a Brooklyn-based consultant in human capital management at FutureWork Institute, a workforce consultancy. “It might be a manager who is permitted to roar at others, but it can also be a feeling of subtle competition in the culture—that 28-year-old who is putting in 60 hours a week and got the promotion. Senior-level modeling of work/life balance may be a key issue here.”

Within a company, “culture may vary from department to department,” says Marcia Brumit Kropf, vice president for research and information services catalyst, a New York City-based nonprofit research and advisory organization.”In one department or location, employees may feel very comfortable using flexible hours, for example, while at another location in the same company with the same policy, no one would consider using flexible hours.”

At the New York Times, modeling work/life balance at the managerial level meets department boundaries. “We have a senior vice president who works four-day weeks, so we work with that and try to promote it, but it has limitations,” says Dennis Stern, vice president for human resources. “The vice president has a small department where there is flexibility in scheduling, but it doesn’t automatically translate to other parts of our business.”

Ana Mollinedo, vice president of diversity, communications, and community affairs at Starwood Hotels and Resorts Worldwide, Inc., headquartered in WhitePlains, New York, says their work/life program has support from the top down. The hotel giant employs 110,000 people worldwide. “If you don’t have support from the top, you’re somewhere in the middle trying to push up and spinning your wheels.”

For senior management at Macy’s, a New York City retailer with 30,000employees, “work/life balance was a foreign concept and it was not embraced automatically,” says William Ives, group vice president for benefits, compensation, labor, and employee relations. “Now, as a company, we are beginning to believe that a satisfying personal life affects an employee’s job.”

Limited flexibility
Participants from companies with large numbers of professional employees, such as Cap Gemini Ernst & Young and Goldman, Sachs & Co., easily incorporate flextime and flexplace arrangements that help create balance. However, for employers with substantial numbers of administrative, maintenance,or customer-facing employees, flexibility is clearly more problematic.

Starwood offers flexibility for employees at corporate headquarters but often can not extend the same consideration to workers at the hotel properties, where shift work is common. Macy’s faces similar limitations on flexibility for employees at its stores, where the hours of work are customer-driven.

Arthur Brown, university director of human resources management services, City University of New York, sees the same limits on flextime opportunities forCUNY’s 30,000 employees. “Academia has the image of having a lot of free time, but there are many more administrative staff than faculty,” he says. “Weare also facing a shift to the idea that students are customers. We now often have someone at the registrar’s office and the bursar’s office at 7:00 a.m.because that’s when students want to go there. That makes it difficult to create work-life balance programs everyone can use.”

Diversity as the driver
What motivates companies to provide work/life programs, particularly when top management may not readily recognize the problems addressed? “We would like to say that we have a senior management team with an altruistic view of workforce needs, but we recognize, as many employers do, that there is a direct line of sight to our bottom line,” says Emmett Seaborn, principal at Towers Perrin in Stamford, Connecticut. “Towers Perrin sees work/life as an enabler ofdiversity, and diversity is critical to our existence. We have to have diversity of thought and diversity of connections with our clients, or we become irrelevant.”

Building a diverse workforce rests on an employer’s ability to attract and retain female and minority employees who may not be able to work without flexible scheduling or benefit programs designed to help them meet personal needs and family responsibilities.

At the New York Times, “diversity certainly motivates work/life programs,”Stern says. “We spent time defining diversity, and one of the important points is encouraging a diverse workforce by promoting work/life flexibility.” Goldman Sachs, work/life benefits are a recruitment tool. “For the company as a whole, work/life balance is a priority because it allows us to be competitive and attract a diverse slate of candidates,” says Michael DesMarais, vice president, of human capital management, for the New York City-based company, which has 20,500 employees worldwide.

Macy’s also associates work/life programs with the need to build diversity in the workforce. “When we speak of diversity, we speak of work/life, and it’s always in the same context,” Ives says. “We asked, ‘How do we promote the company as an inclusive work environment that respects different thoughts and needs, and then, how do we meet those needs?’ Diversity and work/life go hand-in-hand.”

At Starwood, where more than 50 percent of the U.S. workforce consists of people of color from a wide range of ethnic backgrounds, “a lot of work/life issues are tied to differences in culture,” Mollinedo says. “For example, for many Hispanics, parents are dependents. Starwood is sensitive to that. Different work/life issues arise with other cultures. If the internal culture of the company is not inclusive, you are less likely to have an understanding of the issues that show up in work/life.”

Measuring ROI
How do employers measure the return on their investment in work/life programs, and what metrics do they use to justify programs and budgets? Starwooduses an annual associate satisfaction survey with questions about all aspects of the workplace, including work/life issues. “The survey is detailed and extensive, and it’s successful because employees see that senior management take the results seriously,” Mollinedo says.

Macy’s also uses employee-satisfaction surveys that include work/life questions, but Ives believes that the experiences of individual employees provide additional evidence of the success of the programs. “We have vice presidents who work four-day workweeks because they want to be home with their children, and we know they would have left the company without that accommodation. So we have tangible evidence that these programs make a difference on an individual case basis, and we believe that’s enough,” Ives says.

Some companies also use exit interviews to monitor program effectiveness. Information requested from participants after the roundtable, however, revealed that few of the companies systematically collect and review data on employee participation in work/life programs and the impact of these benefits on unscheduled absences and turnover.

From his vantage point as a consultant in the field, Seaborn offers a more detailed approach to calculating ROI. “We look at the linkages between three components: the impact of programs on employee behaviors, how these behaviors drive customer intent to repurchase, and how the customer intent to repurchase drives financial results. To maximize ROI, we compare one portfolio of programs with another, including the more quantifiable items such as pay and benefits, as well as environmental factors such as work/life balance. Relevant questions are: If we increase our investment, what will be the impact on employee behavior in terms of turnover, engagement, and commitment to the organization? Then, if we enhance those factors, what will be the customer and bottom-line impact?”

Stalled out
Data from the U.S. Bureau of Labor Statistics suggests slow or no growth in work/life programs in recent years, and the companies at the roundtable report few new programs. At Towers Perrin, sabbaticals are under consideration, “but we are struggling with the impact on our bottom line,” Seaborn says. Goldman Sachs has introduced emergency on-site daycare for people with children who learn that school has been canceled or whose regular daycare is not available.”We offer employees an allotted number of days that they can bring their children site to our licensed facility and staff,” DesMarais says. Goldman Sachs, Starwood, and Macy’s have installed programs for employees to do volunteer work.

When asked about work/life programs that employees have requested but companies have not been willing or able to provide, only two participants could recall such requests. In both cases, on-site daycare was the desired benefit. Mollinedo says that Starwood employees have asked for daycare and “we are talking this through to see if it is feasible given our location and space.”At Macy’s, “daycare has been a major request for many years, but it’s difficult to put in because of the liability and costs,” Ives says. Macy’s offers a daycare referral program and created an emergency daycare service five months ago.

The past decade has produced notable advances in work/life programs. Still, progress may be stalled. Until employers build a supportive corporate culture across all departments, the talent pool will remain underutilized, and diversity may be a fragile and tentative achievement. n

Workforce, December 2002, pp. 34-39 — Subscribe Now!

 

Corporate people-moving is becoming so pricey that employers are going togreat lengths to curtail transfers, and to distance themselves from anythingresembling cardboard boxes, moving vans, or For Sale signs. Last year alone, thecost of relocating an employee who is a homeowner jumped 6 percent. The averageprice tag: $60,000.

    For many organizations, of course, moves are a must–and so is substantiallyshaving the cost of big-ticket items like home sales. Experts concur that thesethree techniques are proven ways of curtailing runaway expenses: home-saleprograms, tiering, and cafeteria plans. At the same time, they also are shiftingto cost-containment methods that create a tighter link between the cost of amove and an employee’s long-term value to the firm.

    When large numbers of relocations are unavoidable, cost containment becomesparticularly crucial. Last year, Lafarge North America, a construction materialscompany with 15,500 employees, launched a major restructuring. The company hadto face up to an inevitable increase in the number of relocations. “We began athree-month crash course to centralize our relocation policy,” says BobShepard, director of compensation. “The focus was on updating the policy withcurrent best practices, improving cost controls on home sales, and standardizingthe relocation process by putting it on a national basis.”

Home-sale programs
    In recent years, the Herndon, Virginia, construction firm has grown rapidlythrough mergers and acquisitions. The result has been a decentralized and looserelocation policy. “Employees were negotiating their own relocation deals,”Shepard says. For assistance with its relocation program, Lafarge turned toCendant Mobility, a relocation services company in Danbury, Connecticut, with2,100 corporate clients worldwide. With home prices rising quickly in many partsof the country, home sales are among the most expensive components of arelocation program. “Companies are addressing home-sale programs because theycan have such a huge impact on costs,” says Pete Klein, Cendant Mobility’svice president of consulting services.

    Cendant’s objective is to keep the company from owning the home. That’sbecause the cost to the employer doubles once the home moves into inventory.Consequently, Klein says, companies are adopting the following techniques tohasten the sale process:

• Mandatory marketing. Companies require the relocating employee to workwith a marketing consultant to help sell the home.

  
  

• List-price requirements. Employers require the employee to list the homeat a price that is within a certain percentage of an appraiser’s value.

  
  

• Selling incentives. Companies offer an incentive, usually 1 to 3 percentof the home’s sale price, if the employee completes the sale within aspecified time.

  
  

• Buyer value option programs. The tax-advantaged status of these programsreduces selling costs and gross-ups, which are the allowances employers pay forthe taxes that employees will owe on reimbursements.

  
  

    Lafarge adopted a new policy that requires a home-owning employee to use arelocation company to sell the home and pays the employee a generous incentiveof 5 percent of the sale price if the house is sold within a specified period.”This program has been successful in vastly reducing the number of houses wetake into inventory,” Shepard says. “Carrying a house in inventory is likestepping into a black hole. It costs us 1 to 1.5 percent of the value of thehouse per month, so it’s very advantageous to avoid this.”

Different cost tiers for different employee levels
    Another major trend in relocation cost containment is tiering, which setsdifferent levels of benefits for specified groups of employees. “Companieshave turned to tiering to cut costs and provide flexibility for hiring managers,”Klein says. Today, 61 percent of Cendant’s clients use tiering, up from 34percent five years ago. A typical structure provides four tiers. According toKlein, a tier 1 complete relocation package for executives averages $70,000 permove. A tier 2 package for middle managers carries an average cost of $45,000 to$50,000, and a tier 3 move for all other exempt employees typically averages$35,000. A tier 4 relocation for a newly hired college graduate is commonly a$3,000 lump sum.

    Lafarge doesn’t use a formal four-tier structure but offers two differentpackages for new hires and existing employees. The company typically does notoffer new hires a home buyout or the 5 percent incentive for selling the home,and does not pay the settling-in allowance that is provided for transferees.

    Companies are also capping their payments for specific relocation expenses,Klein notes. For example, for miscellaneous expenses, companies commonly coveredan amount up to one month’s salary, but many are now capping the payment at aspecific salary level. Lafarge has instituted some caps but tries to strike abalance between cost issues and the needs of relocating families. “We havebeen somewhat flexible in areas such as temporary living expenses for familieswith school-age children or a spouse with career needs,” Shepard says.

Cafeteria plans
    The integrated systems sector of Northrop Grumman Corporation, the aerospaceand defense company, is based in El Segundo, California. The group employs12,000 people and relocates about 350 annually. In 1999, the divisioncentralized its relocation program under one department, representing 16 sitesin six states. Before the reorganization, “we were lucky to operate smoothlywith relocations, because our program was so decentralized,” says Mickey Leong,relocation project manager.

    Prior to 1999, the company used a two-tier program with benefits based on joblevel. With centralization, the company introduced a new third option–acafeteria plan with a dollar cap based on tiered job levels that allowsemployees to select the relocation benefits they will receive. “We added thethird option for greater flexibility for the employees and to help control andpredict costs,” Leong says. Program constraints and requirements determinewhether the original two-tier plan or the cafeteria plan is utilized for aspecific relocation.

    In a recent group move that involved transferring 40 employees from Floridato Georgia, all of the employees were offered the cafeteria plan with a dollarcap. The program manager negotiated the budget with the customer. “It was verysuccessful,” Leong says. “The cost savings were so significant that therelocations came in under budget, so Northrop Grumman was able to raise the capby 10 percent and allow the transferees to select additional benefits.”

    Northrop Grumman works with GMAC Global Relocation Services in Warren, NewJersey, to achieve effective relocations. Rita Triano, client relations manager,says company relocation consultants work with Northrop Grumman’s transfereeson a one-on-one basis to help them assess their needs, evaluate benefit options,and give them an approximate dollar value for the benefits in the cafeteriaplan. GMAC Global Relocation Services also tracks and reviews all reimbursementsso that Leong can communicate to program managers exactly what they are spendingfor relocation-program expenses.

    “The move to the cafeteria plan with the dollar cap has been verybeneficial for employees because they select what they need,” Leong says. “Ifan employee does not have a home to sell, the employee can choose other benefitsthat are more useful for renters. The program is also beneficial for programmanagers because they can budget costs and come up with solid numbers. They knowthat they may come in under budget, but they will not go over budget because ofthe cap.”

    Northrop Grumman also converted its home-sale plan with direct reimbursementto a buyer value option plan, which eliminated the costly gross-ups needed tocover tax consequences. “This change, instituted in 2000, has already savedthe company almost $1 million,” Triano notes. Leong reviews the NorthropGrumman relocation policy annually, with careful attention to benchmarking andcost containment.

Monitoring results
    Any company that installs new cost-containment programs must measure theireffectiveness and monitor employee reactions. Hewlett-Packard Company, the PaloAlto-based technology solutions giant, tracks relocation cost containmentresults carefully. The company relocates more than a thousand employees annuallywithin the United States. In 2000, it outsourced its domestic relocationprograms to Prudential Relocation.

    “After successfully managing our relocation programs for a number of yearsin-house, it was determined–after significant research and cost analysis–thatit would be more cost-effective to outsource to a third-party company,” saysRegina Richardson, domestic vendor program and policy development manager.Hewlett-Packard also simplified its programs by reducing the overall number andinstituting cafeteria plans.

    To measure its cost savings, Hewlett-Packard regularly reviews the costsassociated with administering the programs as well as those related todelivering the provisions within each program. “These costs are measuredagainst our anticipated targets for a given quarter or year,” Richardson says.To date, the cost-savings targets have been met. “To ensure that our managersand transferees are receiving satisfactory services, we conduct an annualinternal survey,” she says. “In addition, the third-party company conductsits own survey at the close of each relocation. Both surveys are used to monitorand enhance service levels.”

Employee and managerial acceptance
    Companies that install cost-containment programs are running into littleresistance from employees because they see cost-cutting trends across the board,Klein says. “Now cost-containment policies are so common that employeesgenerally find them acceptable.”

    Communication is, of course, still important. At Lafarge, Shepard reports,”the change in relocation policies has not been smooth because the companyimplemented the changes so quickly and did not solicit as much input frommanagers and other employees as it normally would have.” The shift from loose,decentralized rules to a tightly written policy roiled some managers, but didnot create major disruptions in the relocation process. The new policy hasreceived solid support from senior executives, many of whom have personallyexperienced relocations under the new program.

    Under the old relocation policy, hiring managers had a free hand innegotiating deals. Now they don’t. “But they are adjusting,” Shepard says.”These adjustments required a lot of face-to-face discussions, but the companyhas been fairly firm about the need to centralize and formalize the relocationpolicy.”

    He stresses the importance of fast and efficient relocations. “If you arespending a significant amount of money to move someone, complete the relocationrapidly to maximize the employee’s efficiency and productivity,” he says.”Balance the need to control costs with the need to re-establish the employeeand his or her family quickly in the new location.”

Workforce, November 2002, pp. 34-38 — Subscribe Now!