Author: Jessica Marquez

Like many senior executives, Jody Greenstone Miller has experienced the frustration of wanting to try a new business initiative but not having the right talent to do it. And she has seen the other side of the equation: executives wanting to use their skills, but not wanting to sign their lives away. That’s how Business Talent Group was born. The Los Angeles company has more than 600 senior execs who can be placed quickly for temporary-to-permanent positions. Greenstone Miller spoke with Workforce Management New York bureau chief Jessica Marquez.

    Workforce Management: How does your organization address the need for companies to develop and hire talent that can respond to business needs as they change?

    Jody Greenstone Miller: When I described the business to two senior executives of Fortune 500 companies [in separate discussions], they both said that if they had confidence that they could access really great talent quickly, they would try a lot more things. At the same time, I personally believe that the future of management is people coming together in teams, doing projects and then disbanding.The talent pool is increasingly frustrated with the options they have—it’s all or nothing. We recently placed someone in one of the most senior positions at a Fortune 100 company who would only give them three days a week. This firm had never taken someone for three days a week, but they were desperate and they found that he could do it and it was more cost-effective for them.

    WM: How do you find and screen the talent?

    Greenstone Miller: Our talent comes to us from a variety of trusted sources through our personal network. We have all been in a lot of different industries and know a lot of talent. And once we engage good talent, those people will send us others who they think are good. And often clients send us talent. We do extensive screening, which includes a résumé screen, interviews with one to four people, background checks, and we have extensive reference checking. Often companies check references to find something wrong with the person, but since we are looking to put people potentially in a series of roles, we need to understand them and understand what environments they are going to like and be successful in.

    WM: What is your revenue model?

    Greenstone Miller: We do a 70/30 split, with the talent getting 70 percent. If there is a conversion to a permanent position, which happens 25 percent of the time, we will take a conversion fee similar to what recruiting firms take.

    WM: How is the recession affecting your business?

    Greenstone Miller: People are more focused on making their current businesses more efficient. We are seeing more requests for supply-chain management that can focus on cost reduction. And we are starting to see clients taking longer to make decisions on their end.

    WM: You mentioned that it’s rarely HR that contacts you for help. Why do you think that is?

    Greenstone Miller: Most of the companies calling us are in a bind and don’t think HR can solve it. Some of the more visionary HR executives are starting to see us as a unique service.

Workforce Management, July 14, 2008, p. 8 — Subscribe Now!

Julie Currie couldn’t help but laugh when her 4-year-old daughter, Caroline, declined a soda at a friend’s birthday, declaring “sugar is bad for you.”

    Currie also gets a kick out of the fact that her 2-year-old, Jack, now asks for a piece of fruit for snack time instead of the usual packet of cheese and crackers.

    Caroline and Jack’s newfound interest in nutrition is a direct result of a wellness program offered by Currie’s employer, IBM.

    This year, the Armonk, New York-based technology company introduced the Children’s Health Rebate, which encourages families to set “healthy living goals” for themselves and keep track of whether they are meeting those targets over a 12-week period. Participants are eligible for a $150 rebate on their health insurance premiums. This year, 22,000 of the 52,000 families in IBM’s health care plan have signed up for the rebate.

    With health care costs increasing and childhood diseases, including obesity, becoming more prevalent, an increasing number of employers are including children in their wellness initiatives.

    IBM views its Children’s Health Rebate as a natural evolution of its wellness programs, which target employees, says Joyce Young, IBM’s director of wellness. “Some of the behaviors that we try to address through our wellness programs naturally transfer to families,” she says.

    “Employers that just focus their wellness programs on their employees are missing the boat,” says Hewitt Associates principal Tim Stentiford, who refers to plan participants’ dependents as “the forgotten majority.”

    On average, 20 percent to 25 percent of large employers’ total health care spending is on employees’ children, Hewitt reports. And this number may rise if childhood obesity continues to become more prevalent, experts say.

    Childhood obesity rates have nearly tripled among children ages 2 to 5 and almost quadrupled among those 6 to 11, according to the National Academy of Sciences’ Institute of Medicine.

    Experts also think that employees may be more likely to act on behalf of the health of their children than they would be to do something on behalf of their own health, Stentiford says.

    “If employers are looking to get people’s attention, focusing on children’s health issues is a way of getting people to act,” he says.

    And by positioning wellness programs as a nice thing for the whole family, employers can take a softer approach than penalizing unhealthy behaviors, he says. It comes off more like they are looking out for their children and loved ones rather than trying to just cut health care costs, Stentiford says.

    “If employers approach wellness from a holistic family basis, they have an opportunity to mitigate some of the concerns that employees have about their companies checking up on their health,” Stentiford says. “Instead, these programs are viewed as tools that are for the entire family.”

    All of these factors went into IBM’s decision to offer its Children’s Health Rebate, Young says.

    Participating families go online and fill out a form detailing their habits, such as taking an inventory of things like how much time they spend in front of computer and television screens, whether they eat meals together and what kinds of food they eat.

    After filling out the online form, the families then set three goals for themselves for the next 12 weeks. Choices of goals include making their own lunches or doing a physical activity together.

    Participants have access to a host of online materials on health topics and are sent a pamphlet from Weight Watchers called “Family Power,” focusing on healthy living for families.

    Each week, families reconvene to fill out a form about whether they met the goals.

    “We have heard from parents that often it’s the kids who are doing the tracking,” Young says. At the end of the 12-week program, they fill out a final questionnaire and receive the $150 rebate.

    Similarly, Texas Instruments allows employees’ children to take its online wellness assessments, but doesn’t offer monetary incentives for them to do so, says Linda Moon, manager of health promotion. Children account for 27 percent of the technology company’s total health care spending.

    Employees’ children are also allowed to use the company’s three fitness centers in Dallas, Plano and Sherman, Texas as long as they are supervised. Each of the centers has personal trainers who are available to work with children, Moon says.

    Texas Instruments also offers teen and younger children’s camps during school vacations at all three centers. The sessions cost $170 per week and allow children to engage in a number of activities with fitness instructors, such as swimming lessons. A couple of years ago, Texas Instruments added nutrition seminars to the camp sessions.

    While the company isn’t capturing any hard data on how the camps might benefit children’s health, Moon says that it seems obvious that they would have a positive effect.

    “We think it’s important to target children at a healthy age because we know that many of them will be on our plan until they are 18 years old,” she says. By instilling healthy eating habits and exercise in children when they’re young, the company hopes that it can help them prevent health issues such as obesity in their teens.

    Minneapolis-based Medtronic has included children in its wellness initiatives for the past 10 years, says Gen Barron, benefits manager and head of the company’s wellness programs.

    It makes sense that a medical technology company would make wellness a core part of its culture, Barron says. Many of Medtronic’s employees are parents of young children, so including kids in the company’s wellness programs was an obvious decision, she says.

    “If kids are excited about being healthy, they can get their parents excited about being healthy,” Barron says. “We feel that it’s important to reach the whole family.”

    To this end, Medtronic hosts annual Fun Days during the summer, where employees’ children are invited to the company’s headquarters to participate in activities such as bike safety events and yoga classes.

    “We often have a nutritionist come in and talk to the kids,” Barron says. The company usually gets 50 to 100 children at the event.

    Last year, Medtronic went a step further. Since the company is a sponsor of the Medtronic Twin Cities Marathon, it participated in a kids’ marathon program. Through the program, which has been marketed to schools and the local community, Medtronic employees’ children can sign up online and do a virtual marathon over the course of the summer.

    While Barron isn’t sure that it’s possible to track the return on investment from its Fun Days, she says that at least the company knows that it’s reaching children through its messages. “Often the question can be raised that you don’t know if your message is getting into the homes. But by bringing the kinds on site, we know that we are reaching them,” she says.

    Experts believe that the next iteration of wellness programs will include health risk assessments that are customized for children.

    “I think we have to begin to include children in some fashion,” says Fred Williams, director of health benefits management for Quest Diagnostics. “These are going to be our employees of tomorrow.”

    While no one interviewed for this article knew of vendors that offer a wellness assessment specifically for children, officials at IBM, Medtronic and Texas Instruments each say they would be interested in such a tool.

    The challenge is that companies don’t want to be viewed as encroaching on parents’ domain, says LuAnn Heinen, a vice president at the National Business Group on Health.

    “Companies have to be cautious,” she says. “They don’t want to offend parents, but they want to include kids.”

Workforce Management Online, June 2008 — Register Now!

It’s said that it often takes more than four months to transform a company’s culture. But Vikram Pandit, the CEO of Citigroup, may not have much longer than that.

    Since Pandit took over in December, the New York-based financial services company has posted $15 billion in losses and announced plans to eliminate 9,000 jobs, frustrating shareholders and employees and putting Pandit on the firing line.

    Despite scrutiny from the media and shareholders, Pandit has been consistent in calling for a culture based on teamwork. In March, he announced a new regional structure that allows regional CEOs to make decisions for their businesses rather than having everything go through headquarters.

    “The success of our organization lies in the strong partnership and collaboration of our people in our global businesses and geographic regions,” Pandit said in a March 31 internal memo announcing the changes.

    While establishing a culture around teamwork makes sense, experts say it’s going to take a lot of communication and revamping of HR pro­cesses for Citigroup to achieve this goal.

    “The question is not whether Citigroup can prevail in this uncertain environment,” says Terri Kassel, head of the HR practice at GloCap Search, a New York-based search firm. “The question is, can they create a culture of teamwork regardless of the environment?”

    Citigroup executives were unavailable to comment, according to spokes­man Michael Hanretta.

    Establishing a more collaborative culture would help Citigroup—particularly given the fact it has 370,000 employees around the world—but it’s going to take time.

    “Taking this approach makes sense because change is occurring so rapidly in today’s world that the old command-and-control mentality doesn’t work,” says William J. Morin, chairman and CEO of WJM Associates, a New York organizational consulting firm. “But it’s going to require getting the trust and buy-in of employees, and that’s tough.”

    This could be particularly difficult given that many employees are concerned about job security and are only focused on their individual performance, says Peter Cappelli, director of the Center for Human Resources at the University of Pennsylvania’s Wharton School of Business.

    “The challenge will be for Citigroup to find an objective way to assess employees’ performance with regard to this cooperative approach,” he says. “It’s up to HR to help figure out how to develop assessments that will drive employees to think in this way.”

    Like many financial services companies, Citigroup must break through its silos to achieve Pandit’s vision for the company, says Kassel, who headed up global HR at Merrill Lynch for 20 years. Too often, financial services companies don’t view HR as a high-level function, but that has started to change over the past few years, she says.

    “This is going to require Citigroup to give its HR executive real power,” she says. “If HR exists apart from the executive team, then the team-based strategic goals are worthless.”

Workforce Management, May 19, 2008, p. 1-3 — Subscribe Now!

For an example of the bitterness that exists between FAA management and air traffic controllers, look no further than the agency’s 2007 employee satisfaction survey.

    The survey was sent to 10,000 employees randomly through e-mail. Since many controllers aren’t online during the day, the agency mailed them cards with the URL to the survey so that they could do it at home.

    “Well, apparently the URL was shopped around to a much wider audience than the randomly selected group, and its new recipients were urged by bloggers to send a loud message about how dissatisfied they are with management,” said Gerald E. Lavey, deputy assistant administrator for corporate communications at the FAA, in an online memo to employees about the survey. “So when the results came in with this unprecedented rate of return from one segment of the workforce, we had more than ample reason to believe something was amiss.”

    As a result, the agency scrapped the survey. “Management still has to deal with the 2006 survey results, and prior survey results, showing that we need to do a lot of work to improve management effectiveness and accountability,” the memo states.

    Indeed, the 2006 employee attitude survey does not paint the picture of a happy workforce. The survey results demonstrate that the controllers are not alone in their distrust and dislike of FAA management.

    Sixty-four percent of respondents indicated that they distrust FAA management. Forty percent of respondents said they don’t believe that supervisors are effective in providing periodic coaching to improve performance. More than half of the respondents said they seldom hear that they do a good job.

    Two-thirds of respondents indicated that they had not seen a positive change in the agency’s emphasis on managing people over the previous two years. Sixty-one percent said they didn’t agree with the statement: “The organization has a real interest in the welfare and satisfaction of those who work at the agency.”

    John Palguta, vice president for policy at the Partnership for Public Service, isn’t surprised by the employee satisfaction survey results. Palguta helps put together the annual “Best Places to Work in the Federal Government” list, in which the FAA ranked 204 out of 222 agencies.

    The rankings in his organization’s survey, he says, are weighted, based on the average of three questions from the 2006 Federal Human Capital Survey, conducted by the Office of Personnel Management: How satisfied are you with your job? How satisfied are you with your organization? Would you recommend your organization as a good place to work?

    “The FAA has been working for years to improve the people skills of its managers and supervisors,” he says.

    Palguta, who has worked in federal government for 37 years, is nevertheless hopeful that the agency can turn things around.

    “Government agencies may not be able to control their own appropriations, but they can control their own fate,” he says. “They just need to figure out what will improve employee engagement and get employees to feel good about themselves.”

Workforce Management, June 9, 2008, p. 21 — Subscribe Now!

In his recent book Corpocracy, Robert Monks discusses how companies today are too beholden to making a profit—and as a result their workforces often suffer for it. He denounces the levels of executive compensation today and calls on shareholders to get more involved in these issues. Workforce Management New York bureau chief Jessica Marquez recently sat down with Monks.

Workforce Management: Why should HR executives be concerned about the levels of executive compensation?

Robert Monks: Peter Drucker used to get very impatient with me about my talking about CEO pay. He would say, “Bob, you don’t understand the problem. The problem is that this has destroyed the teamwork between the people coming up in the company and the top people.” HR is the place where rubber hits the road on this.

WM: Do you think employees will start looking at executive compensation issues when choosing where to work?

Monks: I do think companies that have employment practices that are partnership-oriented are going to be much more attractive in terms of getting people to work there. I think for people to go work at a place where they have opportunity to be a partner in building something—well, that’s a very attractive prospect. Whereas going to a place where someone clearly has an advantage over you and he is going to be the boss over you is less attractive.

WM: Is there an opportunity for HR executives to work with shareholders?

Monks: I would hope that companies would come to a viewpoint that working with shareholders is a very important corporate objective. For example, Coca-Cola for years had very good HR people assigned to work with shareholders. As a result, they have been able to get through some very difficult situations with very little public adverse reaction to their reputation. Whereas when you file a shareholder resolution at Exxon, you don’t get a call from someone asking, “Can we talk about it?” You get a letter from a lawyer saying [what you are doing] is illegal. The contrast is sharp. Having long-term informed shareholders is in the company’s best interest.

WM: This year there have been a few shareholder proposals asking that shareholders be more involved in companies’ succession planning. What are your thoughts on this?

Monks: I think shareholders probably ought to have periodic access to management to make suggestions and nominate people. But shareholders aren’t competent to make the choice of who should be the principal executive of the company.

WM: Public companies often complain that they can’t invest in workforce management practices to the degree that they would like because shareholders are pushing them for short-term results. How do you respond to that?

Monks: Forty percent of ownership of American companies is by index funds or people who are constructively index managers but don’t want to admit it for fee purposes. That means they are permanent shareholders. There is so much talk about how much stock is bought and sold on a short-term basis. But for most companies, 40 percent of their stock owners are going to be the same people in and out, and they can very well count on that.

Workforce Management, March 3, 2008, p. 11— Subscribe Now!

Kim Tuffarelli couldn’t kick her cold. Stuffed up, congested and six months pregnant, she was dying to take some medicine, but knew she probably shouldn’t, since pregnant women are advised not to take cold medication. Still, Tuffarelli, a workforce relations consultant at Pitney Bowes, was finding it hard to get any work done and was seriously considering going to her doctor to see if he could do anything.

As if she could read Tuffarelli’s mind, a registered nurse with Nationwide Better Health, a Columbus, Ohio-based wellness provider, called to see how Tuffarelli was feeling. She suggested a number of home remedies for her to try, such as drinking lemon tea and boiling water to breathe in the vapors. A few days later, Tuffarelli was feeling much better.

The nurse is part of a service that Pitney Bowes provides pregnant employees and dependents as part of its Great Expectations program. Once women sign up for the program, they are given a dedicated nurse who will call to check up on them throughout their pregnancies and after.

Pitney Bowes is among a number of companies that are offering wellness programs that target mothers-to-be. While 10 years ago many employers viewed pregnant employees as liabilities, today companies are seeing the potential for cost savings by reaching out to this group, experts say.

Maternal and child health care services account for one out of every five dollars large employers spend on health care, according to a recent report by the National Business Group on Health. That doesn’t account for the productivity time employers lose when their employees are tending to sick babies and children, experts say.

And as more women seek to have babies later in life, many are turning to fertility treatments—which can often result in high-risk pregnancies and births of multiples. The birthrate of twins has jumped 42 percent since 1990, according to the U.S. Department of Health. The percentage of babies delivered prematurely—before 37 weeks—has jumped 21 percent over the same period. Each year employers spend $9 billion on claims related to prematurity, according to the March of Dimes, which aims to prevent birth defects, infant mortality and premature births.

“Helping women to have healthy pregnancies is not just a nice thing to do; it’s a business imperative,” says Helen Darling, president of the National Business Group on Health. The business case for these programs is even more pronounced for companies that cover fertility treatments under their health care plans, says Patti Freedman, a senior health care consultant at Watson Wyatt Worldwide.

“If I was an employer with fertility benefits, I would tell employees that in order to get these benefits, they have to take part in the wellness program,” she says.

Dulles, Virginia-based AOL, which does cover fertility benefits, began offering its WellBaby Program in 2003. Before that, the company offered over-the-phone counseling for pregnant employees and dependents, but then decided it wanted to do something that would reach out to more employees, says Michaela Oliver, senior vice president of HR.

“The No. 1 reason AOL employees go on disability is to have babies,” Oliver says. “So we try to take a proactive approach to make sure babies and families are healthy.”

Also, AOL has a large female population. Thirty-eight percent of benefit-eligible employees are women, and the average age at AOL is 37. Eighty-six percent of participants in the WellBaby program had high-risk pregnancies.

Like Pitney Bowes’ GreatExpectations Program, AOL’s WellBaby service provides pregnant employees and beneficiaries with a case manager who works to answer questions and provide support. AOL also offers a lactation program that lets employees receive lactation counseling both in-person and over the phone.

Just last year, AOL added a preconception component to its WellBaby program. In it, care managers are assigned to women and their partners to help them with preconception planning, nutrition, and financial and emotional issues and to offer more information on infertility treatments if needed.

“Until this program, we would usually only hear from women once they were finished with their first trimester of pregnancy,” says Jackie Gillispie, compensation and benefits consultant at AOL. “But this way, we can help them from the very beginning.”

And AOL has seen results. Of the 650 beneficiaries and employees who had babies last year, 215 were participants in the program. In 2007, AOL saved an estimated $400,000 in just preterm labor prevention. Of the five sets of twins born last year, only one set was born prematurely.

Executives agree that the biggest challenge to offering a program like this is getting the word out to employees and dependents. Pitney Bowes sends mailers out and features its Great Expectations Program on its employee portal.

To generate buzz about the program, the company, which makes postage meters and other products for business mailing, gives participants a jumper when their babies are born. It features a “special delivery” stamp announcing the baby’s name, weight, time of birth and city.

“It’s a $25 item, but people just love it,” says Dr. Brent Pawlecki, corporate medical director. The company also provides discount coupons for breast pumps as an incentive to participate.

Employers also can use these kinds of programs to get the word out about other wellness programs provided by the company, says Lesli Marasco, director of work/life and dependent care solutions at Abbott Laboratories, an Abbott Park, Illinois-based health care company that offers a Healthy Pregnancy Program.

“We make sure that the nurses know about all of the various vendors we work with and services we offer,” she says. “So for example, if a nurse in our Healthy Pregnancy Program senses depression, she could recommend our employee assistance program.”

The challenge that many companies face with regard to marketing these programs to employees is that while they want to get the word out and increase participation, they don’t want employees to feel that their privacy is being violated, Freedman says.

“Women often try to keep their pregnancies a secret from their employers as long as possible because they are worried about the ramifications,” she says. “Employers have to tread lightly with these programs.”

But when done right, the return on investment is worth it, executives say. “As little as tens of dollars [of] investment can impact thousands of dollars of costs,” Pawlecki says.

Tuffarelli, for one, believes that having her own private nurse checking up on her helped her to be more productive and engaged throughout her pregnancy.

Even after her daughter Camryn was born in June, Nationwide Better Health’s nurse checked in to see how things were going.

“My girlfriends would be amazed that it was a service being offered by my company,” she says. “It really is a helpful program, particularly for new moms like me.”

Workforce Management, March 3, 2008, p. 23 — Subscribe Now!

Abbott Laboratories has long prided itself for being innovative with work/life programs for its 33,000-plus U.S. employees—from its $10 million state-of-the-art child care center at its headquarters outside of Chicago to its extensive flextime initiative. And the medical technology giant is constantly looking for new ways to attract and retain talent, says Lesli Marasco, director of work/life solutions. Marasco recently spoke to Workforce Management New York bureau chief Jessica Marquez about Abbott’s plans.

Workforce Management: What are some of the newer programs that Abbott has introduced to its employees?

Lesli Marasco: The programs we provide span all generations. We try to think about what employees need and what is distracting them from their work. So it’s not just about offering day care. For example, we offer a program for “tween” kids—between sixth and ninth grade—who are too old for camp but too young for work, where they can do community service like visiting animal shelters and nursing homes.
We also offer coaching support to baby boomers who are taking their kids on college visits and going through that whole process. Many of these workers are also dealing with elder care issues, so we provide free access to experts to help them find care and deal with the stress and guilt that come with supporting older parents. Over the past year we have seen an 85 percent increase in employees accessing elder care services.

WM: How do you come up with the ideas for new programs?

Marasco: We survey employees. A few years ago, we did a survey on child care and found that employees were having a hard time finding quality child care. That led to the building of our child care center as well as providing training to outside day care providers.
We also do a lot of targeted surveys. For example, we did one recently at our Worcester, Massachusetts, office and found that they were also having trouble finding care for parents and kids. So we developed a backup care program by which employees can get $50 a day up to six days if their home care falls through.

WM: How does Abbott measure how these programs affect its bottom line?

Marasco: Our CEO, Miles White, always is saying that it’s employees leaving that costs money, not offering work/life programs. We get returns every day in terms of employee loyalty and productivity. Our turnover is 7 percent, which is almost unheard of.

WM: But is there accountability around the costs of these programs?

Marasco: The reality is that there isn’t too much cost associated with a lot of these programs. Flexibility is probably something that any company can do that has the most impact and gains.

WM: How do you get manager buy-in?

Marasco: It comes from the top, but we also have a lot of resources and tools for both employees and managers to help them understand how these programs are effective. For example, we have a part-time network of employees and we encourage employees and managers to have conversations about how the programs are going and to check in with each other at certain intervals—like three months, six months and a year. That has helped build a lot of success.

Workforce Management, October 22, 2007, p. 8 — Subscribe Now!

In her book The House of Mondavi, Julia Flynn-Siler tells the story of how family politics ultimately destroyed the Mondavi Corp. The book, which details how the Mondavi family founded the hugely successful winery of the same name, brought it public and ultimately ended up losing it, serving as a warning to executives in family owned businesses of what to avoid. Flynn-Siler, a writer for The Wall Street Journal, recently spoke to Workforce Management New York bureau chief Jessica Marquez.

Workforce Management: What does the story of the Mondavi family say about the dynamics of running a family business?

Julia Flynn-Siler: The big picture is that mixing family and business can be very challenging. Oftentimes, business decisions get mixed up with emotions. In the Mondavi family, you saw recurring sibling rivalry ending with Robert Mondavi pitting his sons to compete for the CEO position.

WM: What’s the key to making it work?

Flynn-Siler: Early on in my book, one of Mondavi’s advisors tells Robert that he needs to make decisions with his head and not with his heart. That was in the late 1970s and Robert wanted both of his sons to be part of the business. I think the lesson is that if you have outside advisors telling you that your son is not the right person to run the business, then it’s probably wise to listen to them. Robert had some of the best advisors that money could buy, but in the end, he didn’t listen to them.

WM: The House of Mondavi demonstrates how difficult it is to plan for a successor to the CEO in a family-operated business. How can this be done without family politics and emotion getting in the way?

Flynn-Siler: One pattern that I have seen is that many families give the job of managing the succession planning process and the final decision to an outsider. So instead of Dad making the decision, he hands that out to someone who is neutral. This could be a consultant or it could be someone on the board of directors.

WM: Are there advantages to running a family-owned business? Or is disaster inevitable?

Flynn-Siler: The ultimate value of the Mondavi Corp. is a positive testament to families working together. In the beginning it was Robert and his son Michael, and they worked really hard and well together. Even though it ended so sadly, the business did very well.

WM: What processes can family-run businesses put in place to make sure that emotion doesn’t get in the way of the company’s success?

Flynn-Siler: One pattern that I saw with the Mondavi Corp. was that often family members played by different rules than the rest of the employees. For example, there was a rule they put in place that employees couldn’t date each other. But then Robert Mondavi had a long-standing relationship with an employee and Timothy had an affair while he was married with an employee. But then a vineyard manager had an affair with his secretary and she ended up getting fired. That’s a double standard and it caused problems for the company.

Workforce Management, October 8, 2007, p. 8 — Subscribe Now!

Two years ago, the phrase “cash-balance plan” sent shivers down the spines of benefit managers. In fact, about the only time the term came up was when executives discussed how to get out of the plans.

But now, thanks to the Pension Protection Act and a key court decision favoring cash-balance plans, which are a hybrid of defined-benefit and defined-contribution plans, a number of large organizations are considering them as part of their benefits package.

In the past year, Dow Chemical, MeadWestvaco and SunTrust Banks have announced plans to make cash-balance plans available to employees, while FedEx has expanded its existing cash-balance plan.

Despite the trend, industry observers say most companies are cautiously approaching such plans. Although cash-balance plans were initially viewed as a panacea, particularly for those employers with defined-benefit plans, the past few years of regulatory and judicial scrutiny have taken a toll, experts say.

“Over the past few years, cash-balance plans have been vilified in the press,” says Alison Borland, senior benefits consultant at Hewitt Associates. And that might mean it will take some employers longer to adopt such plans, she says.

Cash-balance plans were initially attractive to employers when they came about in the 1980s because they provided many of the benefits of a traditional pension but allowed companies to share the risks with employees.

These plans set up individual accounts based on a percentage of a worker’s salary and interest credits, similar to a traditional defined-benefit plan. However, like a defined-contribution plan, they allow employees to take the benefits with them if they leave the company, a trait much more popular in today’s world, where employees often don’t spend their entire working lives at one company.

The cash-balance controversy began in 1999, when the Internal Revenue Service announced it would no longer issue determination letters for cash-balance plans. This meant that employers no longer could receive assurance that the agency approved of their cash-balance plans.

“The fact that the IRS said it would not review these plans caused many companies to be concerned about offering them,” Borland says. “Determination letters are not a sure thing, but they do provide some comfort to employers.”

Then in 2003, cash-balance plans got another strike against them when a U.S. district court ruled that IBM’s cash-balance plan violated age discrimination laws. In that decision, the judge sided with employees who claimed the plan’s calculations to pay benefits discriminated against older workers. The case caused a number of companies, including IBM, to freeze their cash-balance plans and offer defined-contribution plans instead.

Despite these events, employers and consultants have remained cautiously optimistic that the courts and Congress would address the issue of cash-balance plans.

“Everyone knew that sooner or later new legislation would have to be passed to recognize the unique nature of hybrid plans,” says Jack Vanderhei, a fellow with the Employee Benefit Research Institute and a professor at Temple University in Philadelphia.

That’s exactly what happened with last year’s Pension Protection Act, which was passed into law in August 2006 and gave employers the green light to offer new cash-balance plans without fear of litigation.

That same month, a three-judge panel of the 7th Circuit Court Appeals in Chicago reversed the decision on the IBM cash-balance plan, saying it did not discriminate against older workers. Then, in December 2006, the IRS ended its moratorium on determination letters for these plans, marking a last bit of good news for cash-balance plans.

Just two months after the Pension Protection Act was passed last year, MeadWestvaco, a Richmond, Virginia-based packaging company, became the first large employer to announce it would offer cash-balance plans to new employees in 2007 and transition existing employees to the plan in 2008.

Executives at MeadWestvaco and Dow Chemical, which in July 2007 also announced plans to offer a cash-balance plan to new employees, say the portability of these plans was a big selling point.

“We know that many of our newer employees compare 401(k) matches [before accepting a job], so we wanted to give a benefit that was transparent and comparable, but also was portable if employees leave,” says Janet VanAlsten, global benefits director at Dow Chemical, which has 21,500 employees in the United States. The average age of a new employee at Dow Chemical is 25.

Dow executives had been discussing the possibility of offering a retirement benefit plan that would be transparent and portable and that could complement its existing 401(k) plan, but the passage of the Pension Protection Act allowed the company to take the idea of a cash-balance plan more seriously, VanAlsten says.

“Before the Pension Protection Act, we were really limited at looking at defined-contribution plans,” she says. “But we felt like we needed to be very thoughtful, so we waited for the Pension Protection Act to pass so that we could really look at cash-balance plans.”

Under Dow’s new plan, which is called the Personal Pension Account, new employees will receive annual credits equal to 5 percent of pay plus interest, and they can take the value of their pension accounts with them when they leave the company. Current employees will still be eligible to remain in the company’s traditional defined-benefit plan and all employees have access to the company’s 401(k) plan.

Dow executives believe that offering such a benefit will help the company be more competitive in recruiting and retaining talent, particularly since so many organizations are moving away from defined benefit plans altogether, VanAlsten says.

“While many companies are getting out of defined-benefit plans completely and passing all of the risk on to employees, we continue to share the risk and rewards,” she says.

And as baby boomers begin to retire, more companies—particularly those with traditional pension plans—are going to switch to cash-balance plans to use as a selling point for recruiting and retaining employees, experts say.

“Companies that were thinking of getting out of the defined-benefit system will now stay in the system with cash-balance plans,” says Ethan Kra, chief actuary with Mercer Human Resource Consulting in New York.

Transitioning to a cash-balance plan could be particularly attractive to companies with over-funded defined-benefit plans, Vanderhei says. Employers have to pay an excise tax on excess assets in their pension plans if they terminate or freeze them. However, if these companies convert to a cash-balance plan, they avoid the tax, Vanderhei says.

Although there are several good reasons for employers to get into the cash-balance game, observers say that it’s unlikely there will be a flood of companies with 401(k) plans switching to cash-balance plans.

“Some companies have moved farther along with their defined-contribution plans, so it’s unlikely they will move back to a cash-balance plan,” Borland says. “The door has reopened to cash-balance plans, but I don’t think we will see the same movement into these plans that we did years ago.”

Kevin Wagner, retirement practice director at Watson Wyatt Worldwide, believes the adoption of cash-balance plans will increase.

“It’s only been a year since the Pension Protection Act and these deliberations take a long time,” he says. “For many of these companies, these investments are worth hundreds of millions of dollars.”

In making this kind of decision, employers need to evaluate their business goals and determine whether having a cash-balance plan will help with those objectives, Wagner says.

Most important, companies should not be fooled into thinking cash-balance plans are going to solve all their problems, as many apparently did several years ago, Wagner says.

“Just as defined-benefit plans are not a panacea for all companies, neither are hybrid plans,” he says. “It’s important for each company to go through a process and find out what’s unique about the business that requires this kind of plan.”

In their new book, Myths and Realities of Executive Pay (Cambridge University Press, 2007), Ira Kay and Steve Van Putten argue that the heightened interest—and outrage—over high executive pay is unfounded. The Watson Wyatt Worldwide executive compensation consultants argue that most companies really do tie CEO pay to corporate performance. Workforce Management New York bureau chief Jessica Marquez recently spoke to Kay about his book.

Workforce Management: What are the major myths about executive pay and why do you believe they are myths?

Ira Kay: A major criticism of executive pay is that CEOs are overpaid. What people mean by that is they are overpaid relative to the performance of the companies they manage. Critics who say this believe the reason for this disconnect is due to managerial power, which basically says that executives have enormous power over their boards of directors, who just rubber-stamp their pay packages. Both aspects of that statement are false.
When people say there is no pay for performance, they are looking at the wrong measure. They are looking at pay opportunity, meaning they look at new grants of stock an executive gets in a year. Then they look at the stock price appreciation for that year and say there is no correlation between pay and performance.

For example, a CEO of a high-paying company and a CEO of an underperforming company could each get $5 million worth of stock option grants in 2006. So critics see the compensation of the CEO of the underperforming company and say that’s not pay for performance. But in fact, those stock option grants might not be in the money, while the CEO at a high-performing company might make $8 million from those grants. We need to look at realizable pay. That is what they actually make.

WM: But aren’t the floors on executive pay so high that it doesn’t even matter if it’s linked to performance?

Kay: The minimums on executive pay aren’t high because the executives are setting their own pay. It’s because of the labor market. Boards are agreeing to pay this much because they think the executives are worth it. The executives are highly motivated by the upside. There are people who are outraged by how much [former Home Depot CEO] Robert Nardelli and [former Hewlett-Packard CEO] Carly Fiorina made when they left their companies, but they were disappointed too, because they should have made hundreds of millions of dollars.

WM: How do you know that executive pay contributes to company performance?

Kay: It’s very hard to prove causality. But if you look over time, executive pay has risen with high performance at companies. These executives take enormous risks. They buy companies and they sell companies.

WM: Why do you think companies should align employee compensation with performance?

Kay: Research shows companies that give employees stock or options outperform those companies that don’t give employees access to stock or options. The recent accounting rule changes that force companies to expense options are now causing companies to move away from that model, and it concerns me.

WM: But even if a company aligns employee pay with performance, won’t employees see the huge discrepancy between what they are making and what their CEOs are making?

Kay: My impression is that while some employees think their CEOs are overpaid, most employees at successful companies do not begrudge their CEO’s high pay. I am worried about how these issues affect morale and productivity, but morale at U.S. companies is fine.

Workforce Management, September 24, 2007, p. 8 — Subscribe Now!