Author: Jessica Marquez

It takes guts for a CEO to conduct a first-ever employee survey just months after the company he’s just taken over has been named in SEC and state regulatory investigations.

    In May 2004, seven months after becoming CEO, that’s exactly what Charles “Ed” Haldeman did.

    Haldeman wants employees to feel comfortable providing feedback on what they like and don’t like. Too often companies conduct surveys for the sake of doing them, but Putnam’s approach shows what can come if companies use surveys as a starting point for dialogue with their employees.

    The online survey found that employees who didn’t directly interact with Haldeman didn’t feel there was the open culture that he was trying to create.

    Haldeman met with Putnam’s human resources team to discuss what to do.

    “Ed made it clear that he wanted the employees’ voices embedded into all of the human resources programs,” says Richard Tibbetts, a managing director and chief of human resources.

    For example, employees suggested creating an Employee Advisory Council. Set up in October 2004, the group of 12 employees meets with Haldeman four times a year.

    One issue that the council brought up was Putnam’s parental leave policy. The policy allowed for 12 weeks of paid time off for executives, but only six to eight weeks for the rest of Putnam’s employees. Putnam responded immediately to the issue, and by January 2005 the firm had changed the policy so that all employees now get 12 weeks off.

“We want to ensure that the employees’ voices are not just being heard, but being responded to.”  –Richard Tibbetts, chief of human resources

    Another concern that employees voiced was that Putnam wasn’t doing enough to create a diverse workforce. Haldeman met with a number of employees, including Thalia Meehan, managing director and team leader for tax-exempt research, and Richard Robie, chief administrative officer, to discuss this.

    Out of that meeting came the creation of the Diversity Advisory Council, a group of 30 people, including two members of Putnam’s executive board.

    Haldeman meets quarterly with the Diversity Advisory Council and with the Women’s Leadership Forum, a group of 12 female employees.

    Based on feedback from the council, Putnam offered its first diversity training session in November. The two-hour program focused on raising awareness of what employees can do to promote a culture welcoming of minorities and women. More than half of the firm’s 3,000 employees attended.

    Also, in response to a request from the council, Putnam published a new recruiting policy in the fall. In it, the company promised to make its best effort to look at a diverse set of candidates.

    Putnam is no longer recruiting only at Ivy League schools and top business programs, widening its scope to include several local schools, such as Boston University and Dean College.

    Over the past five years, the percentage of women and minorities in vice president and senior vice president positions has increased 8 percent and 6 percent, respectively.

    But the real test of how well the company is keeping its communication promises is being judged now. Putnam just completed its second all-employee survey and is reviewing the results.

    “We want to ensure that the employees’ voices are not just being heard, but being responded to,” Tibbetts says.

Workforce Management, May 22, 2006, p. 21 — Subscribe Now!

As companies get serious about tying employee pay with performance, many are starting at the top.

   Last year, 30 out of 100 major U.S. companies based a portion of stock granted to CEOs on performance targets, up from 23 in 2004 and 17 in 2003, Mercer Human Resource Consulting reports. Companies that are trying to create a pay-for-performance culture have to begin with their chief executive officers or they’ll face the wrath of the rank and file, says Diane Gerard, a vice president at Aon Consulting.

   “If employees feel they are being treated differently than their CEOs, they are going to complain bloody murder,” she says.

   This is a big issue for employers that have terminated their companywide stock incentive plans, because those employees often resent the CEO who continues to get options when they do not, says Ira Kay, global director of executive compensation consulting at Watson Wyatt Worldwide.

   These employees will pay more attention to how CEOs are paid next year, when the Securities and Exchange Commission rule requiring companies to disclose what metrics they use to align executive pay with performance takes effect, says Mark Reilly, a partner at 3C-Compensation Consulting Consortium in Chicago.

   In the past, companies have just handed executives stock option grants. But the recent accounting rule change that requires companies to expense those options in their financial statements has prompted many companies to move away from these compensation tools. That trend, along with increasing shareholder criticism that options do not truly align executive pay with performance, means that companies are setting more specific performance metrics, says Doug Friske, managing principal at Towers Perrin.

   In many cases, companies are replacing stock options grants with performance-based restricted stock. By doing this, companies provide a timeline with their performance targets. If the company reaches its targets early, the CEO receives shares early, but they may vest at a later date.

   For example, the company could advise the CEO that if the firm reaches a certain performance target within the next 12 months and the CEO stays for two more years, the executive will receive 1,000 shares of stock. But if the company does not meet its goal, the CEO will only receive 500 shares of stock. “More than half of large companies are doing this today, up from one-third two years ago,” Kay says.

   Some companies are taking a more aggressive stance and adding forfeiture clauses to their performance targets. Under this arrangement, the CEO would not receive equity grants unless the company meets certain performance goals. Thirty-three percent of large U.S. companies are using this approach, says Jamie McGough, a principal at Hewitt Associates. This is going to be the more prevalent practice for companies from now on, he says.

   The challenge for employers is maintaining a balance between setting the CEO’s pay for performance and making sure that the goals to which pay is tied are reasonable, Kay says. With CEO turnover rising, turnover is an issue that every company has to take seriously.

   “If you make the carrot too hard to bite, there could be unintended consequences,” he says.

 

CEO COMPENSATION TRENDS
CEO compensation changes in 2005 were modest, according to Mercer Human Resource Consulting. Pay and corporate performances were “closely aligned.”
PERCENTAGE CHANGE FROM PREVIOUS YEAR
Year	CEO annual compensation (salary and bonus)	Exempt employee annual compensation	Corporate profits	Annual CPI
1996	5.2%	4.0%	11.0%	3.0%
1997	11.7	4.2	8.9	2.3
1998	5.2	4.2	5.0	1.6
1999	11.0	4.2	15.1	2.2
2000	10.0	4.2	8.9	3.4
2001	-2.8	4.4	-17.8	2.8
2002	10.0	3.8	14.8	1.6
2003	7.2	3.6	19.2	2.3
2004	14.5	3.4	23.0	2.7
2005	7.1	3.6	13.0	2.4
Source: Mercer Hunan Resource Consulting

Workforce Management, April 24, 2006, p. 33 — Subscribe Now!

When TriQuint Semiconductor implemented a more formal pay-for-performance system for its 1,600 employees, people were outraged.

   “Managers were furious. Employees were furious,” says Deborah Marsh, director, worldwide human resources. “We had one person quit because he said he had never been called average before.”

   As companies like TriQuint implement more rigid performance-based compensation programs, many are being confronted with pushback from both managers and employees. The introduction of formal ratings to determine compensation is particularly hard for employees who have been meeting expectations but are rated as 3s, which implies mediocrity, says Ravin Jesuthasan, managing principal at Towers Perrin.

   “Companies need to spend a lot of time communicating to employees that the definition of success has changed and this is what it means for you,” he says.

   Some employers are addressing this by divorcing the discussion about performance from the discussion about pay, says Steve Gross, a compensation consultant with Mercer Human Resource Consulting. “Otherwise, employees are just keeping a scorecard in their head while the manager is trying to talk about their goals,” he says.

   TriQuint, which is based in Hillsboro, Oregon, had a five-point employee rating system in place for years, but it was only when the company’s new CEO, Ralph Quinsey, joined the firm in 2002 that the company started applying it in earnest, Marsh says.

   Under the program, 20 percent of employees could receive 4s and 5s, 50 percent could receive 3s, and the rest were 1s and 2s.

   For employees, the change was significant because these ratings, along with how their managers ranked them within the organization, determine how they get paid.

   Managers reviewed these ratings when deciding merit increases, stock option allocations and promotions, Marsh says.

   “People were up in arms and many weren’t reading their reviews,” Marsh says of employee reaction.

   The issue was that employees were getting so wrapped up in their ratings that they weren’t paying attention to the content of the review, she says. “The ratings became demoralizing instead of motivating.”

   In June 2005, TriQuint took the ratings out of the conversation.

   “Now the conversations are around goal setting and competencies rather than ratings,” Marsh says.

   Rather than hear about their ratings, employees talk to their managers about how their contributions are aligned with their business division’s goals. The compensation part of the conversation is held months later.

   Managers still use employee rankings to determine their compensation, but those rankings are not shared with employees, Marsh says.

   How well this approach works remains to be seen. Employees are going through the revised compensation process now.

   To determine the program’s success, the company will review turnover among highly ranked employees and check on how well each department did in meeting its goals.

   “The new process may not be as cut and dried as before, but so far managers seem to like it,” Marsh says.

Workforce Management, April 24, 2006, p. 35 — Subscribe Now!

Linda Herman joined Best Buy as senior manager, executive compensation, knowing that the pace was going to be faster than she was accustomed to at her old job in financial services.

   “In retail, you need to be able to turn on a dime,” she says.

   That’s why she shouldn’t have been surprised when she came back to work after a long weekend last July to a request, by CEO Brad Anderson, to be more creative with the 2006 long-term incentive program. Specifically, Anderson asked Herman and her staff why the company couldn’t offer employees a plan that provided an array of options.

   “He asked why we couldn’t have an innovative incentive program to foster our innovative culture,” she says.

   To get a plan together for 2006 would require soliciting feedback from the 2,600 managers and executives who participated in the long-term incentive program, designing choices, getting board approval and communicating it effectively to employees–all by the end of September, a scant three months from Anderson’s challenge.

   That was the genesis of Best Buy’s choice-based incentive program.

   Companies have largely stayed away from offering flexible compensation programs because of the communications and administrative burdens associated with offering employees choice, says Jack Dolmat-Connell, CEO of DolmatConnell & Partners, an executive compensation consulting firm in Waltham, Massachusetts.

   A number of firms learned this lesson a few years ago when they rushed to offer this cafeteria approach with their benefits plans and couldn’t handle the administrative and communications headaches, he says.

   Another reason employers are hesitant to offer choice in their incentive programs is out of fear that if two employees receive different levels of rewards from their choices, the ones who received less could come back and sue the company, Dolmat-Connell says. “They are concerned about having a sense of equity,” he says.

   But providing choice is a great way to recruit and retain employees if it’s done right, Dolmat-Connell says.

   “Offering flexible compensation programs is important for workforce management because it recognizes that employees are in different places in their lives and have different needs,” he says.

Designing a plan
   Up until 2003, Best Buy relied primarily on stock options to retain and reward those 2,600 managers and executives. But the Minneapolis-based electronics retailer, like many employers, realized that stock options aren’t always the best retention tool, particularly during times of market volatility, Herman says. And the company knew that accounting rule changes were looming. The rules have since come to pass, and they require companies to expense options.

   With all that in mind, the firm wanted to try alternatives. So in 2003, the retailer replaced its stock option plan with a mix of performance shares, which employees would get if they reach specific performance criteria, and restricted stock, which are grants of shares that vest at the end of a given period if an employee remains on staff.

“Offering flexible compensation programs is important for workforce management because it recognizes that employees are in different places in their lives and have different needs.” –Jack Dolmat-Connell, DolmatConnell & Partners

   In coming up with a tailored replacement to this long-term incentive plan, Herman and her team had concerns about offering too much choice. They also wanted to know how best to explain the options to employees, so they teamed up with Ayco, a Saratoga Springs, New York-based communications specialist.

   The company also spent months surveying its managers and executives to make sure that the options it offered were the right ones, Herman says.

   “As we designed the plan, we were also working to get the communications plan together so that when the plan was approved by the board, we could start talking to employees right away,” Herman says.

   The final plan, introduced on September 30, 2005, offers participants four choices.

   Choice 1 is 100 percent stock options with a four-year vesting schedule and a 10-year life. Choice 2 is 50 percent stock options and 50 percent performance shares, which are based on the company’s total shareholder return compared with the S&P 500 over a three-year period.

   “The first two choices are catering to people who are willing to roll the dice,” Herman says, adding that the payouts are vulnerable to market conditions.

   The third and fourth choices are quite different. They are based on “economic value added,” a metric devised by Best Buy that uses an internal formula that changes from year to year. They involve the meeting of one-year performance targets, but employees can’t access the rewards for three years.

   Choice 3 offers 50 percent stock options and 50 percent restricted stock, which is awarded at the end of three years for performance measured against the company’s economic-value-added goal at the end of 2007. Choice 4 offers 50 percent restricted stock and 50 percent performance units, both earned at the end of three years, based on company performance against the economic-value-added goal at the end of 2007.

   It might sound like a lot of delayed gratification, but at the end of 2007, employees can clearly see what they will get three years later, Herman says.

Communicating choices
   Communicating these choices posed a huge challenge, particularly since employees only had from October 10 to 28 of last year to make a decision. Also, since Choices 3 and 4 are based on an internal metric, it was hard to explain to employees what that meant without giving away competitive information, Herman says.

   Ayco sent out e-mails and worksheets and offered a webinar and one-on-one phone counseling to employees to help them with the decision.

   Although only 25 percent of the employees eligible for the plan took advantage of the one-on-one counseling, a majority attended the webinar. By the October 28 deadline, 73 percent had made an election. The rest were defaulted into Choice 2: 50 percent stock options and 50 percent performance shares.

   A majority of eligible employees opted for Choice 1 or 2, while only 11 percent took Choice 3 and 2 percent chose Choice 4. Herman attributes this imbalance to the difficulty of explaining economic value added to its employees.

   “It’s hard to get people comfortable with a metric without giving too much information,” she says. To address this, the company is sending out quarterly communications about the metric to better explain it and will update employees how the company is faring.

   Time will tell whether the new incentive program will help retain the company’s best employees, Herman says. One pitfall the company may come across is that offering choice could actually create discord among employees, says Jude Rich, chairman of Rich Associates, a compensation consultancy in Princeton, New Jersey.

   “What happens when you have two employees who opted for different choices sitting next to each other and one has done much better than the other?” he says. “For recruiting, offering choice can be great. But for retention it could really backfire.”

   But according to a recent survey Best Buy conducted, so far employees seem to feel good about the offer, Herman says.

   Eighty-seven percent of respondents say they feel that Best Buy’s reward program is better than it used to be, and 99 percent say they understand the program better now than before.

   “Eighty-three percent say that offering choice positively impacted their decision to stay with Best Buy,” Herman says. “That’s a good sign.”

Workforce Management, April 24, 2006, pp. 42-43 — Subscribe Now!

It’s not often that you find a head of human resources on his hands and knees scrubbing the bathroom floors of his company’s restaurants. But two years ago, that’s exactly what Rich Floersch, executive vice president of worldwide human resources at Mc- Donald’s, was doing.

   After just a few days on the job, Floersch decided to spend two weeks working at a McDonald’s in Darien, Illinois, to find out what makes a good store manager or restaurant worker.

   For McDonald’s, the exercise was crucial. After posting straight quarterly gains over its 47-year history, in the fourth quarter of 2002 the company saw its first loss—$344 million.

   In reaction to the decline, McDonald’s management brought former CEO Jim Cantalupo out of retirement to run the business. Within a year, Cantalupo announced a revitalization plan that would focus on people development, among other things, and hired Floersch to lead the charge in this arena.

   Big-name companies like McDonald’s traditionally could rely on their brands to attract good job candidates. But as the war for talent heightens, these companies recognize that they need to do more. As a result, firms with strong and names are revamping their recruiting initiatives to focus more on communicating to prospects the key aspects of their corporate cultures that they believe will attract the best candidates.

   So far the new recruiting approach seems to be working. McDonald’s has seen its turnover decrease consecutively for the past three years, Floersch says. Now it is below the industry average, which hovers around 130 percent for restaurant staff and 42 percent for managers, according to People Report of Addison, Texas.

Employment branding
   After working at a restaurant and interviewing 50 senior managers and 120 human resources staff members, Floersch sat down with his team to figure out what message McDonald’s should convey as part of its recruiting effort.

   The company wanted a contemporary message that would really speak to its corporate culture, he says. One fact that really struck Floersch about McDonald’s was that 40 percent of its top 50 executives started out working at the restaurants. “This was really not a message that we had communicated before,” he says.

   Floersch and his team made sure that all of their recruiters emphasized at job fairs and recruiting events the skills that people could get by working at McDonald’s. “We wanted to instill pride in our employees and get them to think about the skills they are learning,” he says.

   To get the message out to the public, McDonald’s launched a television commercial in September that features people whose first jobs were at its restaurants. The “My First” campaign includes celebrities like Olympic gold medalist Carl Lewis as well as less-well-known people—like Leo Lopez, a franchisee from Florida—talking about how the skills they learned from working at McDonald’s have helped them in life. For example, Lewis learned about the value of teamwork, which came in handy as a relay racer, Floersch says.

    Talking about opportunities rather than just relying on corporate brand in its recruiting has been a turnaround for American Express as well, says Murray Coon, director of recruiting. Five years ago, it would have been enough to talk about the brand and breadth of products at American Express to bring in candidates. But as the market has become more competitive, the company has decided to take a more aggressive approach at communicating the corporate culture.

   Like McDonald’s, American Express in 2002 took a hard look at its business processes, including its recruiting, as part of a companywide effort to become more competitive. Not only was the financial services industry still reeling in the aftermath of 9/11, but American Express was grappling with increased competition and wanted to make sure it was focusing on the right aspects in its recruiting, among other areas, Coon says.

    The company conducted focus groups of its employees worldwide to find out what they valued most about their corporate culture. Through the focus groups, Coon and his team identified eight points that all of the company’s 500 recruiters should touch upon when talking to job candidates: brand, culture, the company’s position within the financial services industry, global opportunities, career path, compensation, training and development, and location.

    “Five years ago, when we went to a career fair we would have talked more about the American Express brand and products, but now we are talking more about these eight areas,” Coon says. “Now it’s more about the industry, the people and the culture.”

   Ultimately, the company’s goal is to appeal to candidates’ emotions, says Joan Gutstein, who has been a recruiter for American Express for 20 years. “We want candidates who, like our card members, aspire for more,” she says.

Finding the right people
   Just getting the right message out there is not enough, Floersch says. McDonald’s also wanted to make sure that the people it hired were the right candidates. To make sure of this, McDonald’s, with the help of Aon, developed an online questionnaire for job candidates in the U.S. The questionnaire asks candidates an array of questions about their work experiences, preferences and how they would respond to certain situations.

   Based on the results, the questionnaire will either prompt a green light to the hiring manager, signaling that the candidate would be a good hire; a yellow light, meaning that the manager should ask more questions; or a red light, meaning not to hire the person.

   “Basically, we are taking the subjectivity out of the store manager’s interview process,” Floersch says.

   McDonald’s has seen good results from the program, he says. “We are seeing that hires that have gone through this system and received the green light are getting higher performance ratings in their jobs and higher salary increases,” Floersch says. The company is discussing introducing the tool internationally.

   To get the right people in the door, American Express is prompting its recruiters to be more aggressive, Coon says. “Instead of a recruiter passively posting jobs on the Web and hoping they get filled, they are now seeking out competitor intelligence and looking to see how they can make a difference in terms of sourcing competition.”

   When Avaya, a Basking Ridge, New Jersey, communications company, was spun off from Lucent Technologies in 2000, it had the dual task of defining its own corporate culture while trying to figure out what to emphasize to job pro­spects, says Doreen Amorosa, director of talent acquisition.

   “We wanted to communicate that we were established but also had the drive and ambition of a startup company,” she says. To make sure that the company appealed to the right type of job prospects, Avaya’s recruiters focus a lot of questions around leadership, no matter what type of position they are looking to fill. “We ask questions around whether the candidate is competent to do the job, but we also ask how good they are at impacting others,” she says.

Establishing metrics
    To gauge the success of Avaya’s recruiting, Amorosa has set goals for how many experienced hires it acquires from competitors. Additionally, the company measures performance of individuals who move internally from one business to another compared with the average performance in that division.

   “Most companies will say their recruitment is successful if they retain the people that they hire,” she says. “We look beyond that and set very specific goals for ourselves.”

    Amorosa won’t comment on specific numbers, but she did say the company is seeing a steady number of candidates come from competitors. The goal of this approach is not to just keep bringing in new people, she says, but to get people who are better than who the company has. “It’s not about retention rates; it’s about bringing in people who can grow the business in a way that someone else isn’t,” Amorosa says.

   It is too early to tell how successful American Express’ new recruiting method is, but the company is keeping a close eye on 15 to 20 different metrics for experienced positions, including how long it takes to fill jobs, how many offers the company makes before a job is filled, and retention rates. For campus hiring, the company is looking at acceptance rates as the key metric, Coon says.

   On top of looking at its turnover rates and quality of hires though its online questionnaire, McDonald’s also looks at its employee commitment surveys, which restaurant workers and store managers take every year.

   The survey asks employees to say how they feel about the company’s offerings in 12 different areas, such as skills development and compensation and benefits. In its 2005 survey, McDonald’s found that the company was up in its commitment ratings for eight categories, flat for four and down in none.

   The company also has seen an increase in the number of workers who take advantage of its training and development programs, dubbed Hamburger University, Floersch says. The number jumped by 45 percent in 2004 and 38 percent for 2005.

    Focusing on training and development and communicating about those programs will continue to be a growing part of recruiting, Floersch says.

    “I really believe that the strongest employment brand that you can have is one where employees say they are proud to work for their companies,” he says. “Our goal is to continue to build that sense of pride.”

Workforce Management, March 13, 2006, p. 1, 39-41 — Subscribe Now!

It’s been six months since Hurricane Katrina swept through the Gulf Coast, and many employers in the region are still struggling to figure out how they can staff their operations to get them up and running.

Many companies have repaired their stores and facilities, but have been forced to keep limited hours because of staffing shortages. There’s very little housing in the area, and without it, companies are hard-pressed to find workers.

“The population has shrunk significantly,” says Myrna Shultz, vice president of marketing and development for Strategic Restaurants Acquisition Corp., which franchises 227 Burger King restaurants on the Gulf Coast. “Everyone is fighting the same battle, and it’s harder than ever to keep employees.”

To deal with these challenges, companies are relying on tactics such as supplying housing, offering flexible hours, giving hiring bonuses and recruiting former staff to fill vacant positions.

Companies also are planning on what they’ll have in place before another disaster strikes. On the most basic level, that can include permanent emergency contact numbers for employees to use and pay cards that can take the place of payroll checks. In a more profound way, companies like Entergy, which supplies power in the region, plan on letting employees know that it will be acceptable–and necessary–to break rules in future crises, as long as the company’s values and culture stay intact.

Entergy has indefinitely moved its headquarters from New Orleans to Clinton, Mississippi. It is keeping operations running by relocating employees and maintaining communications with them. Of the 2,000 employees in the areas affected by the hurricane, only 1,000 have houses that are inhabitable, says Jennifer Raeder, director of human resources at Entergy. Raeder, whose home got 18 inches of water, doesn’t expect to be able to return until June. Even then, however, she may not return.

“It’s a very different New Orleans right now,” says Raeder, who is now working out of Entergy’s Jackson, Mississippi, office and living in an apartment supplied by the company. Many people feel like Raeder does about the city, making it even more difficult for employers to anticipate who in their workforce will be ready or willing to come back whey they do open for business.

Entergy could reopen its corporate headquarters, but without housing and transportation within New Orleans it’s impossible to work, Raeder says. For now, the company is redeploying employees to other locations and allowing many to telecommute.

So far, Entergy has redeployed 900 employees to cities like Jackson, Houston and Little Rock, Arkansas, and has 100 people telecommuting. The company has put other employees in temporary housing.

To oversee this process, Raeder and her staff made some cold calls and identified eight Entergy retirees who live in the areas where workers were being redeployed. Because they are familiar with Entergy’s culture and processes, they’re able to get the redeployed workers settled, Raeder says.

“These redeployment coordinators helped employees get apartments, utilities hooked up and rental furniture,” she says. “Now they are acting as a liaison between the employees and the company to make sure we have a consistent approach among all redeployed workers.”

Housing race continues
Many companies–like Sodexho, a food and facilities management services company based in Gaithersburg, Maryland, and Las Vegas-based casino operator Harrah’s Entertainment–are reopening facilities in the affected areas and are racing to secure housing for their employees.

“It’s particularly difficult because there are still a lot of areas where there is no electricity or running water,” says Peter Gerard, senior director of human resources for Sodexho.

To address this, Sodexho has teamed up with low-income housing providers and hotels to secure housing for some employees. Still, there are 200 employees looking for housing. Getting these employees places to live is crucial, as more of Sodexho’s clients, such as Tulane University and Loyola University, have reopened.

Harrah’s Entertainment, which had three casinos and 8,000 of its 90,000 employees in the areas affected by Hurricanes Katrina and Rita, has established partnerships with real state companies to secure housing for the 1,500 employees who lost their homes, says Jerry Boone, regional vice president of human resources.

On February 17, Harrah’s reopened its New Orleans casino on a scaled-down basis with 1,600 employees. The company hopes to eventually get the casino back to full capacity with its pre-hurricane workforce of 2,500 employees, Boone says.

The company is taking into consideration employee performance in deciding who comes back to work first and gets the housing, he says. “There is no shortage of interest in employees who want to return,” he says. As for its other casinos in the affected areas, Harrah’s is rebuilding its Biloxi, Mississippi, property and selling its location in Gulfport, Mississippi.

Similarly, New Orleans-based Hibernia Bank, which had 3,150 employees living in the affected area, has found hotel rooms for more than 200 employees who were able to come back to work, says Michael Zainey, executive vice president and director of human resources. Hibernia was acquired by Capitol One just weeks after Katrina.

So far, Hibernia has reopened all but 20 of its 320 branches in the region. The problems of housing and lack of infrastructure remain, however, and Zainey estimates that five Hibernia branches cannot open because there is no place for employees to easily live nearby.

Hourly challenges
Recruiting and retaining employees has been taken to a whole new level of complexity for employers of hourly workers. At Strategic Restaurants’ franchised Burger King locations, there have been instances of competitors walking in and recruiting employees while they are working behind the counter, marketing VP Schultz says.

“We realized we had to do something and we had to be creative to retain people,” Shultz says.

On October 1, the company implemented a hiring bonus program, giving as much as $6,000 per year to full-time employees who stay a year. Part-timers can receive $3,000 for staying 12 months. So far, 85 managers and 1,594 crew members have been hired under the plan.

But now Shultz and her team are being forced to come up with a new plan. Competitors like McDonald’s have begun matching its offers, she says.

The company is considering offering housing as part of its recruitment and retention strategy. For example, an employee who agrees to stay on for a certain period of time would be guaranteed housing. But the company has not yet made a final decision, Shultz says.

McDonald’s has started offering $50 hiring bonuses to employees, but is trying to take a more long-term approach to the staffing shortage, says Steve Russell, the company’s senior vice president of human resources. The company has made its salaries “very competitive with the market,” he says. He declined to say how much the company is paying hourly workers in the area.

The company is offering flexible hours to workers, and all of its franchisees have elected to offer employees access to the employee assistance line as well as the company’s Gold Cards for free. The cards give employees discounts at 60 different retailers.

For its part, Hibernia has always offered hiring bonuses on a case-by-case basis, but in the wake of Katrina, prospective hires are bringing the topic up more often, the company’s Zainey says. “Potential employees have a little bit more leverage,” he says.

Entergy is experiencing different kinds of challenges in staffing redeployed positions, Raeder says.

“It’s very hard to get someone to accept a job when you can’t say where the job will end up,” she says. For example, there are about 20 positions open at Entergy’s Jackson office, but those jobs could all end up back in New Orleans.

Lessons learned
As companies try to return to business as usual, they are also reviewing what they did in the months after the hurricanes to figure out what they could do differently next time.

Sodexho is discussing implementing a pay card arrangement, similar to what McDonald’s did in the wake of last year’s hurricanes. Companies can electronically transfer employees’ salaries to pay cards, which are similar to debit cards and can be used in stores or at ATMs.

Also, Sodexho is revamping its disaster recovery plan to make sure that employees have all emergency contact information before a disaster strikes. The company has established a permanent 800 number for employees to call in the event of a disaster.

The company hopes this will ensure that it knows where all of its employees are within weeks of a disaster. As it stands now, the company is still missing 68 employees. “These people are either not living anymore or they just haven’t gotten around to contacting us,” says Gerard, the company’s senior director of human resources.

Sodexho has brought back a former human resources manager, Deloris Co, to focus on finding missing employees. Since she started in early October, the company has located 282 employees.

Entergy learned that it was key to be flexible with its procedures and policies. It decided that such flexibility would be fine as long as any steps taken reflected the company’s values and culture. For example, in the wake of the hurricanes the company enacted an interim housing policy, agreeing to pay for housing and utilities for employees who were redeployed. While this was not consistent with Entergy’s past practices, the company knew it was the right thing to do for its employees, Raeder says.

As the company decides the fate of its headquarters over the next few months, Raeder says she is secure in knowing that the company’s employees feel that Entergy did everything it could to help them through this time.

Now, Entergy has started running weekend buses to New Orleans so that redeployed employees can return to their homes and assess any work being done on their homes and neighborhoods. The buses run from Houston, Jackson, Little Rock and Belmont, Louisiana. But like its workers, the company isn’t sure it can ever go home.

“We know that it’s taxing for employees to not know where their jobs are going to be,” Raeder says. “But we need to wait for the city to be able to support a Fortune 500 company.”

Workforce Management, February 27, 2006, pp. 42-45 — Subscribe Now!

As the new president and CEO of Washington Group International, Steve Hanks recalls 2001 as the year he was buried in financials. He had the monumental task of getting the Boise, Idaho-based engineering, construction and management services company out of bankruptcy and turning it into a profitable business.

    “People didn’t know if we were going to make it or not,” he recalls.

    Then he heard that Wash­ington Group had been awarded two contracts–each worth more than $500 million. He was speechless. He immediately got on a plane to thank the clients in person, but also to ask why they had chosen Washington Group when there had been so many other good bidders whose future was so much more certain.

    “I will never forget what they said to me,” Hanks says. “They told me ‘We didn’t hire Washington Group because of its balance sheet; we selected you because of your people.’ “

    That was the genesis of Washington Group’s top-rated, $50 million-a-year employee development program–no small chunk of change given that the company’s annual after-tax income at that time had never exceeded $46 million.

    In the past two years, the company has spent more than $103 million developing workers. Since 2002, its net income per employee has jumped 60 percent. And for 2005 the company expects, based on third-quarter guidance, to report net income of $55 million to $60 million, exceeding its goal of 10 percent compound annual growth, Hanks says. Ninety-five percent of its customers are repeat clients. The firm has seen job applicants jump from 2,000 a month to 5,000. And in 2005, Washington Group was named one of the top 20 U.S. companies for leaders by Hewitt Associates, joining the ranks of General Electric and Johnson & Johnson.

    Washington Group’s investment in employee development shows how recruiting and retaining top talent are crucial for success in an industry faced with an aging workforce, increased competition for skilled employees and an unprecedented demand for work. Because many of the company’s 25,800 employees–including 2,330 in other countries–work in hazardous conditions, such as handling nuclear waste or working in hostile territories like Iraq, the firm has to do more than the average employer to retain and develop its workforce.

    In the past 28 years, Hanks has seen firsthand what good mentoring can do for an employee. In 1978 he joined Morrison Knudsen, which later was acquired by Washington Group, as a law clerk. Today, the 55-year-old top executive is involved in every day-to-day aspect of employee development, from going over coursework to monitoring attendance and reviewing participants’ feedback, says Larry Myers, senior vice president of human resources. Other CEOs talk about how people are important for the business, but Hanks actually gets it, Myers says.

The Washington way
    In 2001, the company was hit hard by several factors, Myers says. The number of engineering school graduates had plummeted 18 percent since 1985 as students opted to study hotter topics like computer science. At the same time, Washington Group was facing an imminent worker shortage, with 25 percent of its workforce becoming eligible for retirement in the next five to 10 years.

    Hanks and Myers realized that employee development had to be a core part of the corporate culture. Until then, Washington Group was an amalgam of about 20 companies, assembled through a string of acquisitions over past decades, each with its own policies and procedures and nothing binding them together, Myers says.

    Their first priority was to create a standard annual performance review for all salaried workers. Until then, the different companies each had their own review process at year’s end, but those discussions were often ineffective and rushed, Myers says. Under the new program, managers review 10 percent of their staff each month from January through October, leaving some time at the end of the year to catch up. Myers and Hanks shifted the focus of the reviews to future goals rather than past performance.

    As part of the process, each year the company’s top seven executives visit all of Washington Group’s business heads, give them reviews and get a list of their top performers and find out what they’re doing to develop those people. Hanks then takes the findings to the board of directors, explaining in detail what each business head is doing to develop talent and rating how well they are doing it.

“You can be in a classroom and see a graph of the factors to consider during a project, but until you are out there dealing with real people, you just don’t fully understand.” –Noe Hernandez-Saenz

    To make executives accountable, last year Hanks began basing 30 percent of managers’ annual incentive compensation on their talent development efforts. Incentive compensation, which applies to 130 executives and 270 managers, makes up 15 percent to 50 percent of a top employee’s base pay.

Developing the ranks
    A key focus of Washington Group’s employee development program is training in management skills such as controlling costs and time management. Having a pool of employees with these skills can save money and time, says Mark Stone, vice president at We Power, a Milwaukee subsi­diary of Wisconsin Energy and a Washington Group client.

    In 2002, We Power contracted Washington Group to build two natural gas plants. The companies set target prices for each plant. If the construction of the plant was less than the target, the companies shared the savings. If it was more, they shared the costs. The model requires a high level of teamwork to make sure that things get done on time and under budget.

    During construction of the first plant, Stone saw instances where people were not working as a team. Rather than keep the scaffolding up for weeks to let each subcontractor do its job, for example, each team would take the scaffolding down after one task and the next group would have to reconstruct it.

    “We realized that if we repeated the same type of situation on the second plant that we were both going to lose money,” Stone says.

    In response, Washington Group reorganized its team, bringing in employees who showed expertise in team-building and weeding out workers who did not. By having a pool of employees trained in project management and team-building skills that could jump into the project, Washington Group stands out from its competitors, Stone says. As a result, he estimates that We Power will see cost savings of at least $10 million on the construction of the second plant.

    Getting more than technical training also builds loyalty among employees, says Noe Hernandez-Saenz, a Washington Group project manager based in Mexico City. In his last year at Universidad Autonoma de Coahuila in Saltillo, located in northeast Mex­ico, Hernandez-Saenz worked part time for Morrison Knudsen on a construction project. After graduation, his project manager recommended him for a yearlong training program in which he worked on the construction of six auto plants and was able to see each stage of the project.

    “You can be in a classroom and see a graph of the factors to consider during a project, but until you are out there dealing with real people, you just don’t fully understand,” Hernandez-Saenz says.

Creating leaders
    Several times a year, 20 to 30 managers like Hernandez-Saenz are invited to the company’s Leaders Forum, a weeklong series of meetings at Washington Group’s Boise headquarters. Executives present real-life business scenarios that the company is facing and ask attendees to break into teams and come up with solutions.

    Last year, participants were presented with a proposal to acquire a business in Romania. Attendees had to present their ideas to the executive review committee, just as they would in real life. Hernandez-Saenz says the experience gave him an understanding of how things work at the top of the company, and helped him to see all the variables involved in making a high-level decision, such as the political ramifications. At one point, the committee asked his team if they had reached out to the unions and government about their proposal. It was a question that hadn’t even occurred to them.

    So far, 350 employees have attended the Leaders Forum, which is held several times a year.

    During the next step, Washington Group offers the Leadership Excellence in Performance program, a yearlong initiative for managers who are chosen to work with executive mentors from different business units. With the help of their mentors, participants design an action plan for themselves.

    Hernandez-Saenz wants to develop his financial knowledge and presentation skills. He is working with his mentor to create a financial plan for another business unit and present it to a group of financial executives. At 30, Hernandez-Saenz admits the task is daunting. Still, he says he can’t believe the opportunity. “If you had told me four years ago that this is what I would be doing, I would have laughed in your face.”

    Chief executive Hanks hopes all of his employees will experience that sense of awe at Washington Group. His biggest challenge is keeping leaders focused on the individual development of employees. That’s why he and Myers have not implemented employee-development metrics. “We don’t want people getting too caught up in statistics,” he says.

    That’s a risky approach, particularly given how much money the company is spending, says Glen Miller, a consultant with Performance Essentials in Har­leys­ville, Pennsylvania, who worked with Wash­ington Group in the late ’90s on employee development. Miller thinks the company should do more to track whether employees are using the skills they are being taught.

    Paul Chinowsky, a professor of civil engineering at the University of Colorado in Boulder, raises another concern: He wonders whether the company can maintain this level of commitment, noting that employee development typically is the first thing to get the ax at the slightest market downturn.

    Hanks says that’s not going to happen, and he’s not the least bit concerned about budget cuts. “We are a constant learning organization,” he says.

    Nor is Hanks worried that he’ll develop such highly skilled employees, they will be poached by the competition. “As my friend Gary Michaels [former CEO of Albertson’s] once said, ‘The bigger fear is that if we don’t train our employees, they will stay.’ ”

Workforce Management, February 13, 2006, p. 1, 24-30 — Subscribe Now!

Women are more likely to participate in their retirement plans than men are, according to a study conducted by the Employee Benefit Research Institute. While the overall results of the study show that men actually participate more than women do in their retirement plans, the reverse is true when looking at men and women in similar income levels, says Craig Copeland, senior research associate.

    “Overall it has been well known that men have been more likely to participate than women, but this is largely due the fact that women have been in lower-paying jobs and are more likely to work part time, which accounts for their lower rates of participation,” he says. “As women are in the workforce longer, this trend is shifting.”

    The study shows that among all wage and salary workers ages 21 to 64, a slightly smaller percentage of women (47 percent) participate in their retirement plans than men (49 percent). But among all full-time, full-year workers, the study shows that 58 percent of women participate in their retirement plans, compared with 55 percent of men.

    Similarly, the study shows that within each earnings level, the proportion of women participating in their retirement plans is higher than for men.

Workforce Management, February 13, 2006, p. 12 — Subscribe Now!

N o company would argue, at least not publicly, that the Securities and Exchange Commission proposal to require increased disclosure of executive compensation is a bad idea.

    But many executives and compensation experts are concerned that the proposal, which is in a 60-day comment period after being unveiled by SEC Chairman Christopher Cox on January 17, could create more questions than answers.

   One of the most controversial provisions in the proposal, expected to become a rule by year’s end, would require companies to disclose a total compensation number for the four highest-paid executive officers. Companies question whether this number would really be meaningful given that it includes projected values for stock options, retirement payouts and other compensation, such as severance pay.

    There are other pieces of the proposal, which comes in at 370 pages, that companies are expected to protest. One is a requirement to disclose perquisites in excess of $10,000, down from $50,000 currently. There is a mandate to disclose compensation of as many as three nonexecutive employees who are more highly paid than the lowest-paid named executive officer. Then there is the addition of the new “Compensation Discussion and Analysis” section, where companies would have to explain what kind of metrics they used to determine compensation.

    “This proposal is a move in the right direction, but it has just overreached in some areas,” says Jerry Carter, senior vice president of human resources at International Paper, a Memphis, Tennessee-based paper manufacturer with 82,000 employees globally. “In some areas it will just add cost, and not necessarily produce better companies.”

    Compensation experts predict that the proposals could increase the amount of time and money that companies devote to disclosing compensation by 50 percent to 100 percent for at least the first year.

    “These proposals are a radical revision of the existing framework,” says Mark Borges, a principal at Mercer Human Resource Consulting and former special counsel in the SEC’s division of corporate finance. “Next year’s proxies on executive pay are going to look pretty different.”

The numbers challenge
   The main concern that companies and experts have about coming up with a total compensation figure is that it will be misleading because it will require companies to put an exact dollar value on projected future benefits, such as retirement benefits.

    This seems like a fruitless exercise, particularly with change-of-control benefits, which may never take effect, says Allison McBride, director of executive compensation at International Paper. Gener- ally, International Paper’s compensation committee calculates its change-of-control figures once every three years, rather than once a year, because it is costly to bring in actuaries to figure them out.

    It might be more useful if the SEC required companies to set their own caps on change-of-control agreements rather than have to report figures every year, says Mims Maynard Zabri­skie, an attorney and partner in the Phila­delphia office of Morgan Lewis & Bockius.

    Also, by projecting values of benefits like pensions and severance, companies will end up reporting final compensation numbers that are much bigger than they are in reality.

    “People are worried about mixing many aspects of current compensation with prospective compensation,” says David Swinford, senior managing director of New York executive compensation consulting firm Pearl Meyer & Partners.

    This could result in higher executive compensation levels overall as companies see inflated numbers reported by one company and follow suit, says Charles Peck, principal researcher and program manager on compensation for the Conference Board.

    Since many companies rely on benchmarking studies of their industry to determine their executives’ compensation, this is a real concern, he says.

    Instead of benchmarking to their industries to determine executive pay, these companies need to make sure their compensation decisions are better aligned with executive and company performance, Peck says.

“This proposal is a move in the right direction, but it has just overreached … In some areas it will just add cost, and not necessarily produce better companies.” –Jerry Carter, International Paper

    Many companies and consultants are also concerned that the proposal’s requirement for companies to report the value of stock options at the time of grant as well as at the time of the filing could result in double counting by companies.

    “It’s a little tricky,” says Peggy Foran, senior vice president of corporate governance at Pfizer. “People just have to realize that often they want this to be simple, and it’s going to be a little more difficult now when you get into stock options and such.” Despite the complexities, Pfizer is planning to incorporate some of the proposal’s requirements in this year’s proxies, Foran says.

Perquisite problems
   Another benefit that companies might shift away from as a result of the proposal is offering perquisites. Many executives and experts argue that the SEC is going too far by lowering the threshold of perquisites that need to be disclosed from $50,000 to $10,000. “When you look at the total scope of executive pay, $10,000 is nothing,” says Robbi Fox, a consultant at Hewitt Associates.

    Experts expect that many companies will protest this requirement because it is too time-consuming to catalog. Further, only a few companies offer such extravagant perquisites.

    Then there is the issue of how to value the perks. “For corporate jets, many companies work out the value to the cost of first class, but that figure is really much less than the cost to the company,” says Bruce Ellig, who was head of human resources at Pfizer for 25 years and is the author of The Complete Guide to Executive Compensation.

    If this requirement is part of the final rule, many companies will have to evaluate how disclosing such perquisites may affect the corporate culture, attorney Zabriskie says.

It’s one thing to quietly shower extravagances on the people in the executive suite, but when it’s out in the open, there could be a bitter backlash. “It could create a culture where employees feel they can use the company dollars and time for their personal use,” she says. Call it the little guy’s perquisite.

    Companies shouldn’t just assume, however, that if this requirement comes to pass they will have to drop all perquisites. “Some perks are justified,” says Mark Reilly, a partner at 3C-Compensation Consulting Consortium in Chicago. “Many companies have corporate jets to save their executives time as they travel all over the world. Now they will just have to explain that.”

    Companies, however, do have to look at the perquisites they offer in light of their whole executive compensation packages, says Swinford at Pearl Meyer & Partners. “I think it’s going to be very hard to argue that an executive with a $750,000 salary who is making half a million dollars in other benefits needs $14,000 paid toward a club membership,” he says.

Other employees
   Many executives and experts were surprised to see the section of the proposal that would require companies to disclose compensation of as many as three employees whose compensation was higher than the lowest-paid named executive. Although the proposal would only require that companies provide the titles, not the names, of these employees, companies are worried that by divulging this information they are highlighting their top performers to the competition.

    “These are not people who are in management,” says Carter at International Paper. “Most likely it would be a sales executive who had a great year and is reaping the rewards for it.”

I think it’s going to be very hard to argue that an executive with a $750,000 salary who is making half a million dollars in other benefits needs $14,000 paid toward a club membership.”–David Swinford, Pearl Meyer & Partners

    This requirement could be particularly onerous for financial services companies, like investment banking firms, which could have many employees that make more in commissions than top executives, observers say.

    At many companies, the compensation committees don’t even handle the compensation of these employees because they are not management, says Ronald Mueller, a partner in the securities group at Gibson Dunn in Washington, D.C. It will mean hunting down that compensation information from elsewhere in the organization.

Discussion and analysis
   The proposal’s requirement of a discussion and analysis section that explains the performance metrics companies use to determine compensation has worried many employers. They view it as the SEC forcing them to give away competitive information.

    “The final rule will have to weigh a fine balance between giving people metrics and not disclosing proprietary information,” Mercer’s Borges says.

    It’s possible to do both, says Foran at Pfizer. “You can talk about certain metrics without getting too specific,” she says.

    This requirement might actually be a good performance management tool for executives. They’ll be better able to see that this amount of effort yields that amount of compensation, says Zabriskie, the attorney.

    Still, companies are worried that requiring them to discuss the thinking behind their compensation packages may open them up to more liability.

    “There is always the possibility that something you say or didn’t say could trigger litigation,” says Larry Ribstein, a law professor at the University of Illinois College of Law.

    Also, since this discussion section would be part of an SEC filing, it would require the signatures of the CEO and the CFO, who often are not involved with the compensation committee discussions. “This is definitely going to be an issue brought up in the comment period,” Hewitt’s Fox says.

    Regardless of their misgivings, organizations need to start reviewing their compensation packages and figuring out what they will need to do to comply with the new rules, experts say.

    “Companies need to start doing mock proxy statements and see how their plans will read under the proposed rules,” 3C’s Reilly says.

    This means companies that were going to give more stock options to executives next year or bigger severance pay may want to rethink that, or at least be prepared to explain why they did it, says Steven Hall, managing director of Steven Hall & Partners, a compensation consulting firm in New York.

    “The SEC has done companies a bit of a favor by doing this in the first few days of the new year,” he says. “Right now every company has been put on notice.”

Workforce Management, February 13, 2006, p. 1, 41-44 —Subscribe Now!

The honeymoon is over for many companies that have signed human resources outsourcing contracts recently.

    A Towers Perrin study finds that although 92 percent of companies were very satisfied with their HRO providers upon signing the deals, only 56 percent still felt that way after one year and only 45 percent did after two.

    “What’s happening is that companies are seeing the cost savings they were promised within the first three years, but they aren’t seeing an improvement in service levels,” says David Rhodes, a principal at Towers Perrin.

    Sixty-four percent of client companies, however, say that they are currently satisfied with their HRO providers. But Rhodes warns that vendors shouldn’t jump for joy quite yet.

    “This is largely due to the fact that many buyers come to a point where they give their vendors some type of ultimatum if they don’t improve the level of service,” he says.

    Companies say that the biggest challenges they face when working with HRO providers is reshaping the behavior and managing the expectations of their managers and employees.

    Reshaping the human resource generalist role is also a challenge that companies say they are struggling with, the study reports.

    To address this, many companies are updating their competency development process and selecting and training people accordingly.

    “That means saying goodbye to some people,” Rhodes says. “Selectively replacing people is not a bad thing.”

Workforce Management, January 30, 2006, p. 16 — Subscribe Now!