Author: John Hollon

If you want to get a good look at the changing state of workforce management in the 21st century, look no further than the drama going on with General Motors and Delphi Corp., GM’s largest parts supplier.

   Both Delphi and GM suffer from the same self-inflicted troubles–they both have too many workers who are getting paid too much money to produce too many products that too few consumers are buying. Add in horribly restrictive and inflexible work rules, plus huge costs for retiree pension and medical benefits, and you can see why both companies are hemorrhaging money.

   GM’s answer to the problem is to offer early retirement and buyouts ranging from $35,000 to $140,000 to as many as 131,000 workers, including all 105,000 represented by the United Auto Workers. It’s a drastic plan, to be sure, but perhaps less so when you consider that GM lost more than $10 billion last year.

   Delphi’s strategy is no less radical. Late last month, the company filed plans in bankruptcy court to get rid of 25 of its 33 U.S. plants and cut some 30,000 hourly and salaried workers. In addition, Delphi asked the court for permission to dump all its labor contracts and retiree benefits for its 34,000 union workers and 12,000 retirees.

   If Delphi gets its way in bankruptcy court, it would impose work rules and drastically cut wages, and the old labor contracts would disappear. That would probably force the UAW and other unions to strike Delphi, and a strike would hammer GM by leaving the world’s largest automaker short of parts. Analysts say a strike could cost GM $7 billion to $8 billion in the first 60 days alone.

   Union workers are understandably bitter about all this, and the bitterness and anger are probably best summed up by this quote from a veteran Delphi worker in the Detroit Free Press: “As long as corporate America is unloyal to this country–they’re not loyal to anybody but to their stockholders–we’re going to have these problems, and it’s not just going to be the auto industry.”

   I feel for the union workers and retirees who negotiated their contracts in good faith and made life decisions based on them. No one likes to have the rug pulled out from under them, and that’s surely how union workers at Delphi are feeling right now.

   But maybe we need something really drastic to happen to focus everyone’s attention on this problem. Delphi said in its latest bankruptcy court filing that it is paying its 31,000 hourly workers $78.63 per hour, a figure that includes health care, vacation and retirement costs.

   I don’t know of any American company that operates in today’s global economy that can stay in business paying blue-collar workers nearly $80 an hour. U.S. automakers (and their suppliers, like Delphi) are finally confronting the sober reality that other carmakers, such as Toyota and Honda, can make good cars that Americans want to buy and can do it with workers making a lot less.

   If Delphi gets its way in bankruptcy court and can throw out its labor contracts, union workers will almost surely strike. If they do, there is a good chance that a strike will end up not only killing Delphi, but maybe even killing GM too.

   No one wants to see that happen, but maybe it would take something like Delphi liquidating and GM going belly-up to finally convince the unions that the costly and inflexible labor contracts they cling to make it virtually impossible for a company to operate profitably in today’s hyper-competitive global economy.

   Something radical needs to happen if the U.S. auto industry is to survive, and maybe it will take the demise of a Delphi or a GM to finally wake up both the unions and management, once and for all.

Workforce Management, April 10, 2006, p. 58 — Subscribe Now!

President Bush had a lot on his agenda during his recent visit to India and Pakistan–including letting everyone know exactly where he stands on the issue of outsourcing American jobs overseas.

    “People do lose jobs as a result of globalization, and it’s painful for those who do lose jobs,” Bush told a group at the India School of Business in Hyderabad. “But the fundamental question is, how does a government or society react to that?

    “And it is basically one of two ways. One is to say losing jobs is painful, therefore let’s throw up protectionist walls. And the other is to say losing jobs is painful, so let’s make sure people are educated so they can … fill the jobs of the 21st century.”

    Outsourcing is one of those emotional issues that Americans have a hard time dealing with rationally. Many jobs that were traditionally handled by Americans are now going to places like India, where they can be done a lot more cheaply.

    “This is about how to redesign the supply chain,” Girsh Paranjpe, president of Wipro Ltd., told The Wall Street Journal. Wipro is one of India’s biggest outsourcing companies and recently picked up some additional American business as part of a $7.5 billion computer services contract with General Motors.

    The Journal also pointed out the huge cost differential between India and the U.S. that is fueling the outsourcing boom. For example, a telephone operator makes less than $1 an hour in India and $12 an hour in the U.S. A medical transcriptionist makes $2 an hour in India and about $14 an hour in the U.S. And, an experienced systems analyst in India makes just $11,000 a year, versus $53,000 a year in the U.S.

    Wipro president Paranjpe is right; the outsourcing boom is simply evidence that the global supply chain is changing, evolving and becoming much more efficient. Just as Wal-Mart was able to gain a huge cost advantage by leveraging technology in building its supply chain, so too are other American companies finding that there are big financial savings to be had by outsourcing jobs overseas.

    But the runaway outflow of American jobs to places like India may not be as bad as you think. A recent editorial in The New York Times pointed to a study by the Association for Computing Machinery, an American trade group, that says there are more jobs in information technology today in the U.S. than at the height of the dot-com boom. And, the report added, although 2 percent to 3 percent of American jobs in IT migrate to other countries each year, new jobs are being created here in the U.S. that more than make up for the loss.

    The bigger problem, the report said, was that interest in computer science is falling among American college students. The IT and computer sector is booming, despite the fact that there are fewer and fewer students going into the field.

    This is what President Bush means when he says that Americans need to be educated so they can fill the jobs of the 21st century. But Americans are falling behind in educating themselves for those kinds of jobs. India graduated some 200,000 engineers from college in 2004. China graduated 500,000. The U.S. turned out just 70,000 engineering graduates, according to a report titled “Rising Above the Gathering Storm,” by an advisory panel of the National Academies.

    Like it or not, globalization is here to stay, and the outflow of jobs to places like India is just another adjustment being made in the global supply chain. Americans like the lower prices for goods and services that globalization brings, but they balk at the cost–the outflow of jobs.

    America needs to get over its angst about outsourcing. We can continue to gnash our teeth and complain about the jobs being lost to lower-cost workers overseas, or we can focus on training and getting our workforce better prepared for the jobs that will be left here in the U.S.

    President Bush is right. We may not want to hear what he is saying, but we should be prepared for the consequences if we don’t.

Workforce Management, March 13, 2006, p. 58 — Subscribe Now!

Two weeks ago, United Airlines finally came out of bankruptcy, ending, as the Associated Press put it, “the longest and costliest bankruptcy of any airline.”

As someone who has flown many hundreds of thousands of miles on United, this was a big deal for me. Over the years I’ve been treated every way a passenger can be treated, but it usually breaks down into three areas: the good, the bad and the ugly.

    The bad and the ugly incidents on United stick out only because they have been infrequent and few. Like the time last November when I was racing to get through security in Chicago only to be told that the garment bag I had carried with me on the flight into O’Hare the day before was now too big and had to be checked instead. The bag hadn’t magically changed overnight, but United wasn’t about to explain why their bag policy had.

    Or, the time a few years ago when I had a United ticket agent tell me that I would have to pay some huge change fee to rebook a ticket. When I complained and told her I was a 100,000-mile-a-year flier, she told me she didn’t care how much I flew. My response was simple: If you don’t care about your best customers, who exactly do you care about?

    Thankfully, those incidents are the exceptions. What I remember most are good experiences when I was treated exceptionally well. Like the time when I was living in Hawaii and had my overnight flight to Chicago canceled at 1:30 in the morning. That wasn’t the good part. What was good was the next night, when, as I was finally getting on my rebooked flight to the Mainland, the United station manager came on the plane to personally and profusely apologize, at my seat, about the inconvenience I had been caused. Or all the times I had a ticket agent or gate clerk or phone agent go through all sorts of contortions to try to satisfy some demand I had–and sound happy while doing it.

    And that’s the single thing that sticks out in my mind about United’s 38 months in bankruptcy –how pleasant and nice most of the airline’s employees were despite all the tough times they were going through.

    It couldn’t have been easy. United comes out of Chapter 11 with 30 percent fewer employees and $3 billion less in annual labor costs. Those workers who made it through and continued with the airline took two steep pay cuts and had their defined-benefit pension plan eliminated. How do you stay upbeat and smiling to customers through all of that?

    I don’t know that I could have done it, but this shows the great strength that a company like United can bring to bear even in the wake of such a massive financial restructuring–the strength of its workforce.

    As one of America’s big “legacy” air carriers, United has a proud history. Remember “Fly the Friendly Skies”? It was United’s workers who personified the “Friendly Skies” campaign, and they made customers feel that it wasn’t just another slick marketing slogan.

    United has a tough path ahead, but that’s true for all U.S. airlines as oil prices approach $70 a barrel. Industry analysts, however, say that the “new” United comes out of bankruptcy leaner, smarter and more competitive. It is starting fresh financially, has a great name, an honorable tradition and a golden opportunity to build a new, stronger future.

    The most successful of today’s U.S. air carriers are Southwest and JetBlue. Their success, in large part, is due to their people and the added value they bring to the business.

    United can get there too. It has a clean slate, a strong name and a gutsy workforce, but this may be the last, best chance to make it. For the sake of all those United employees who treated me well over the years, I hope it does.

Workforce Management, January 30, 2006, p. 58 — Subscribe Now!

One thing is clear from last week’s big restructuring announcement by the Ford Motor Co.: It’s all about the workforce.

    If Ford is to be successful in reversing the downward trends and growing losses in its North American operations, it must get the company’s most critical asset–its people–fully engaged and enthusiastic about the challenge ahead. That’s no small task when management just announced that it is cutting as many as 30,000 workers and closing 14 plants and other facilities.

    America’s No. 2 automaker can probably make this restructuring work, but it is going to take tough talk, tough decision-making and maybe even a little tough love. And Ford has some huge hurdles to overcome:

    The company has too many factories and plants making too many cars that people don’t want to buy. And, Ford has failed to match the big Asian carmakers that have taken over the U.S. passenger car market. To have any credibility in this restructuring, Ford management must acknowledge its past failure to figure out what its rivals are doing and come up with a battle plan to beat them.

    Ford has too many employees and too little ability to bring costs back in line. Not only does the company have too much manufacturing capacity, but the job bank that Ford negotiated with the United Auto Workers gives workers in the program who have their jobs eliminated full pay and benefits–a cost of about $130,000 per worker. Health care costs for current and retired workers also continue to rise, costing the company $1,300 or more for every car Ford makes.

    Management must tread carefully with UAW leadership and make the union a partner in the restructuring effort. Yes, union leaders are loath to cut any hard-earned benefits, but even the most hard-line unionist can see what is going on at Ford, GM and the other American carmakers. This is a time for Ford management to be both pragmatic and sensitive to realistic union concerns if they are to have any chance to get them, and their members, help in this effort.

    Mark Fields, the head of Ford’s North and South American operations, is leading Ford’s big restructuring effort. According to The Wall Street Journal, he’s been working with employees throughout Ford for months on the “Way Forward” plan, which is described as no less than a massive cultural shift at a company known for its top-down, hierarchical culture.

    “The workers are more invested in this than if it were some plan dropped from them from on high,” Fields told the Journal. “We are confront­ing reality here.”

    The good news, according to Fields, is that workers are ready and willing to help Ford move ahead. “Since I came into this job last year, I have had e-mail in the thousands,” he said, “and the ones that stick out are people who have said ‘I can do anything you want, but I need to know what we are doing.’ ’’

    That’s really the key. Grand plans and intricate business strategies are great, but sometimes the key to getting something to work is to get the workers engaged by simply saying what you need them to do.

    Once upon a time, there was a famous marketing campaign declaring that “Ford has a better idea.” It was a catchy slogan and a successful effort because it leveraged the company’s traditional strengths–its heritage, its name, its reputation for innovation.

    Now, it’s Ford that needs a better idea. It needs to build better cars that people want to buy, and it needs to build them for a reasonable cost that generates a reasonable profit.

    Ford can be prosperous again, especially if it can fully engage and motivate the workforce in the effort. The trick, as former Ford executive Lee Iacocca once observed, “is to make sure you don’t die waiting for prosperity to come.”

Workforce Management, January 30, 2006, p. 50 — Subscribe Now!

Never let it be said that Ken Lay didn’t try to rally the troops and use his personal willpower to motivate the workforce.

    Just before Christmas, the former Enron chairman and CEO gave an impassioned speech that was described by The Houston Chronicle as “a call to arms to Enron employees to defend the honor of the company and Lay himself.” He called on Enron people to “stand up now–and prove that Enron was a real company, a substantial company, an honest company, a company that had a vision and values.”

    This is what a leader does best: use the power of his or her position, the bully pulpit, to set a vision that drives others to take action and help move the business ahead.

    Unfortunately for Enron, there is no longer a business to move ahead. Once one of the 10 largest companies in America, Enron collapsed from a huge business and accounting scandal in 2001. Thousands of employees not only lost their jobs but also had savings and pensions wiped out when the company went bust. And Ken Lay faces conspiracy and fraud charges for his alleged role in the Enron scandal that could put him in prison for the rest of his life.

    Lay’s pre-Christmas speech wasn’t about motivating his former employees. It was a self-centered attempt to publicly frame his defense strategy and maybe even lobby the jurors who will be sitting in judgment when his case goes to trial later this month.

    He’s entitled to that under our system of justice, of course, but it made one wonder: Where was this rallying cry from Ken Lay when it still mattered, when Enron was still a going concern?

    It’s debatable that anyone, much less Ken Lay, could have fixed Enron, but it doesn’t get past the truism that strong leaders can use the power of their positions and personal persuasion to motivate people and point them the right way.

    And, there’s something else a leader can do to send a strong and powerful message to the workforce: lead by example.

    For instance, when Jan Carlzon was CEO of SAS Airlines, he reinforced the notion that quality service was a key to the company’s strategy (and ultimate success) by flying coach instead of first class, giving up his seat to wait-listed customers. His personal example sent a powerful message to the workforce that even the CEO was willing to accept responsibility to do the right thing and help the business achieve its goals.

    Alas, this is a lesson Ken Lay seems immune to. He’s never really taken any responsibility for Enron’s collapse, blaming the company’s problems on the illegal conduct of a few key employees, overzealous prosecutors and public hysteria that drove the stock from a high of $90 down to about 25 cents.

    “This is what I call the Elmer Fudd defense–that I went to work every day and was paid $6 million a year and had a Ph.D in economics, and somehow, despite all of this, I didn’t know anything that was going on. It’s laughable,” attorney Bill Lerach told the CBS news program 60 Minutes. Lerach has been involved in the investor lawsuit against Ken Lay and the company as well as its bankers and accountants.

    “What was he doing in his office? Reading comic books? The man was CEO of the company,” Lerach says. “He had an obligation to be informed about what was going on in that business every day in every way. And he utterly failed to do it.”

    That’s the real lesson of Ken Lay. Executives can lead a workforce by personal willpower and rallying the troops. Or, they can lead by example–either for the good, the not so good, or the very bad.

    Ken Lay has set an example of how not to lead, and no impassioned speeches can change that. Now it’s up to 12 good citizens of Houston to pass judgment on him, his leadership, his vision and his values.

Workforce Management, January 16, 2006, p. 46 — Subscribe Now!

I’ve been in the workforce long enough to understand the cardinal rule of the Christmas bonus: Be humbly grateful for whatever you get no matter how odd, inappropriate or paltry the gift or bonus might seem.

    This is a rule I didn’t really appreciate until the year that the president of the company I was working for decided that the holiday gift should be–and I am not making this up–lambskin fanny packs. No one knew what to make of such a “gift,” but some enterprising employee actually figured out where the fanny packs had been purchased and returned his for store credit. He received the grand sum of $17, and in short order there was a run on the store of other employees trying to get rid of their “gift.”

    Christmas bonuses and holiday gifts are a fading tradition, as we note this month on Page 12, and to those of you who have gotten some version of the lambskin fanny pack, this is not any great loss. What is more troubling than the Disappearing Christmas Bonus is another management trend that seems to be growing: the Puny Pay Raise.

    This is a trend that started after the dot-com bubble burst in 2000, accelerated in the wake of the 9/11 attacks and continues today as the economy struggles with inconsistent job growth. In other words, this means that we still are experiencing a soft job market that puts little pressure on businesses to compete for talent and increase wages more than the bare minimum.

    That all makes sense until you read, as I did, in the Los Angeles Times last month that “corporate earnings keep rising at a double-digit pace while workers are lucky to get even low single-digit wage increases.” The Times noted that operating earnings of companies in the Standard & Poor’s 500 rose 11.5 percent in the third quarter of 2005, the 14th straight quarter of double-digit corporate growth.

    Corporate dividends are also growing. The Wall Street Journal said that S&P 500 companies “are on track to pay out more than $500 billion to shareholders in the form of dividends or share repurchases. … That’s up more than 30 percent from last year’s record–and equivalent to nearly $1,700 for every person in the U.S.”

    And this month, the Commerce Department reported that the U.S. economy grew at a 4.3 percent rate in the third quarter–the fastest rate since the first quarter of 2004 and the 10th consecutive quarter of GDP growth close to 4 percent on an annual basis. All of this came despite Hurricane Katrina and the worries about the price of oil.

    This is all great economic news, except, as we point out in this month’s Data Bank Annual, real wages for American workers will finish 2005 down by about 2 percent because of the combination of rising prices and small annual pay increases. Next year doesn’t look any better, either: Salary increases for 2006 will fall in the 3.5 percent to 3.7 percent range, which is at or below the various forecasts for inflation.

    There’s been a lot written in the wake of Peter Drucker’s passing last month, but one of his core principles was that successful businesses create the conditions that allow their employees to do their best work. Some of these conditions surely include knowing when to make a prudent investment in the workforce–in pay increases that keep the talent on board, in training that improves skills and increases productivity, and in incentive compensation that better aligns workers and the business to reach ever higher goals.

    While my personal experience makes me appreciate the thinking behind the Disappearing Christmas Bonus, I just don’t get the ongoing obsession with the Puny Pay Raise.

    So here’s my New Year’s wish: that businesses everywhere continue to harvest the fruits of our robust economy, and that they reinvest some of their harvest in growing the wages of their employees and creating the workforce conditions to reap an even greater bounty in the year to come. wƒm

Workforce Management, December 12, 2005, p. 82 — Subscribe Now!

Business book publishing must be pretty profitable if you judge it by the number of new books released each month.

A lot of them cross my desk, and they all seem to be touting some new or unique insight into management. The people who write these books are well-meaning, I’m sure, but very few of their works are worth reading because, for the most part, they have very little to say.

    I have only two management books that I keep on my desk, both written by the same guy. The one I refer to the most is The Practice of Management, by Peter F. Drucker, and it is as current as any management book you’ll ever pick up–despite being written in 1954.

    Drucker, who died in California on November 11 at the age of 95, is widely considered to be the father of modern management. Generations of managers and executives have been guided by his work over the past 60 years, including, according to one obituary, Winston Churchill, Bill Gates, Jack Welch and the Japanese business establishment.

    It would be easy to simply view Drucker’s contributions through the well-known executives he influenced, but that would miss the point. His real contribution to management–workforce management–is through the critical insights, observations and guidance he provided to generations of middle managers everywhere. As The New York Times noted, “Mr. Drucker staunchly defended the need for businesses to be profitable, but he preached that employees were a resource, not a cost. His constant focus on the human impact of management decisions did not always appeal to executives, but they could not help noticing how it helped him to foresee many major trends in business and politics.”

    For example, Drucker anticipated the current debate about the relevance of human resources in a chapter in The Practice of Management titled “Is Personnel Management Bankrupt?” He noted, in 1954, that personnel administration (now HR) people persistently complain that they lack status and worry about their inability to prove that they are making a contribution to the business. And he added that the work usually performed by HR “does not produce a major function entitled to representation in top management or requiring the services of a top executive.”

    He also coined the term “knowledge worker” long before anyone really knew what knowledge work was. “Knowledge work is not defined by quantity,” Drucker wrote. “Neither is knowledge work defined by its costs. Knowledge work is defined by its results.”

    If you haven’t read Drucker, you’ll be surprised at his focus on people and how management should look for ways to give workers more control over their work and work environment. Surprisingly, how­ever, The Wall Street Journal’s obituary stated that “Mr. Drucker contributed much to the modern cult of the chief executive.” That may be true in part, but Drucker also said in 1997 that “in the next economic downturn, there will be an outbreak of bitterness and contempt for the super-corporate chieftains who pay themselves millions.”

    My favorite Peter Drucker article is one he wrote for the Harvard Business Review in 1999 titled “Managing Oneself.” In it, he proposes that success in today’s knowledge economy comes to those who know themselves, know what they are good at, and know how they best perform–especially in conjunction with those around them.

    “Organizations are no longer built on force but on trust,” he wrote. “The existence of trust between people does not mean that they like one another. It means that they understand one another. Taking responsibility for relationships is therefore an absolute necessity. It is a duty. Whether one is a member of the organization, a consultant to it, a supplier, or a distributor, one owes that responsibility to all one’s co-workers: those whose work one depends on as well as those who depend on one’s own work.”

    Peter Drucker may be gone, but he left us a lifetime of lessons. If you manage people at any level, you would do well to take heed.

Workforce Management, November 21, 2005, p. 58 — Subscribe Now!

Only in America can a company be vilified for having the temerity to suggest that it would be a good thing if it hired healthy workers.

    But that’s what happens if the company in question is Wal-Mart, and when the point about healthier employees is just one suggestion in a larger discussion about how the company can cut rising employee benefit costs.

    It’s easy to beat up on Wal-Mart because it is big and successful, and has gotten that way in large part because of its hard-nosed business practices. As philosopher and basketball legend Wilt Chamberlain once observed, “Nobody roots for Goliath.”

    Yes, sometimes it is hard to root for a giant like Wal-Mart, the biggest retailer on the planet, with $285 billion in annual revenue. One thing about having big revenue, however, is that operating costs are equally big. For example, Wal-Mart recently said that its operating costs in the second quarter rose 0.3 percent. That doesn’t sound like much until you realize that for Wal-Mart, a 0.3 percent increase translates into $230 million in additional operating costs.

    Hiring healthier workers is just one suggestion being offered by Susan Chambers, Wal-Mart’s executive vice president for risk management and benefits administration, in her well- publicized memo to the company’s board of directors on how to hold down the growing cost of employee benefits.

    If you haven’t read the entire memo, you should. The document (in two slightly different versions) is available online at WalMartWatch.com and on The New York Times’ Web site, as well as on Wal-Mart’s own site. It is a fascinating look into how even a company as large and successful as Wal-Mart struggles to control benefit costs.

    This is starting to sound like a broken record. Companies everywhere, from Delphi to Delta Airlines, are filing for bankruptcy, discarding pensions and paring benefits in a desperate attempt to try to keep costs down and remain more competitive.

    Some might pooh-pooh this notion as it applies to Wal-Mart, but if you manage a workforce and are concerned about the cost of benefits, it is sobering to read Chambers’ memo. At one point she says:

    “From 2002 to 2005, (Wal-Mart’s) benefit costs grew significantly faster than sales, rising from 1.5 percent of sales to 1.9 percent. Benefits spending grew from $2.8 billion to $4.2 billion during this period, at a rate of 15 percent per year. … A few benefits made up the bulk of this increase: health care ($1.5 billion) grew by 19 percent, paid time off ($1.4 billion) grew by 14 percent, and profit-sharing and the 401(k) program ($740 million) grew by 13 percent.”

    And she adds: “Growth in benefits costs is unacceptable (15 percent per year). … Unabated, benefit costs could consume an incremental 12 percent of our profits in 2011,”equal to $39 billion to $35 billion in market capitalization.

    Wal-Mart’s efforts capture the struggle that all of Corporate America is having in trying to control fast-growing health and benefit costs. And the most frightening statistic in Chambers’ memo is this: Only 48 percent of all Wal-Mart employees are covered by the company health plan. That compares with 68 percent of employees who are covered by a health plan at similar national employers. If Wal-Mart even approached that percentage of health care coverage for its workforce, the huge costs highlighted in the Wal-Mart memo would be astronomical.

    “These are indications of the gaps in the health care system that are exposed by Wal-Mart,” Len Nichols, a health economist at the New America Foundation, told The New York Times. “You can’t blame Wal-Mart.”

    Nichols may be right. Wal-Mart is simply an indicator of a larger problem. Our health care system is at a crossroads, and it is hard to see how Corporate America can continue to foot so much of the bill.

Workforce Management, November 7, 2005, p. 58 — Subscribe Now!

Two weeks ago, aerospace giant Lockheed Martin Corp. made a decision that is getting all too common: The company replaced its traditional defined-benefit pension plan with a 401(k) defined-contribution plan for any new and rehired employees who begin work in 2006.

    The reason is simple. Lockheed’s pension plan has grown to $23 billion. Not only is the size of its pension obligation staggering–it is one of the largest in the U.S.–but the company’s ever increasing cost of funding the plan is a major concern to investors.

    Lockheed hires 10,000 new workers annually, and CFO Chris Kubasik told The Wall Street Journal that “10 to 15 years out, the savings from the new plan could be $125 to $150 million a year.” The company will still contribute 3 percent to 6 percent of a worker’s salary into the new plan, but the responsibility for how to manage and invest this money falls squarely on the employee.

    That’s one of the big benefits of a defined-contribution plan–freedom of choice. Workers are free to choose how much they want to contribute and what specific investments they want to put their money into. It’s a great system, in theory, but only if employees take the time to make sensible decisions. Unfortunately, many don’t.

    “People spend more time choosing a TV than choosing their 401(k) investments,” says Jeffrey Miller, president, Mercer HR Services. And, he adds, there are 20 million workers who could be contributing to a 401(k) plan who aren’t. “What are they going to do at retirement?” he asks.

    Miller, who spoke at this month’s West Coast Defined Contribution/401(k) Conference sponsored by Pensions & Investments and Workforce Management, thinks that companies with 401(k) plans need to be a lot more aggressive in getting workers to face the fact that their retirement is coming and they need to be ready for it. To back up his argument, he cited two sobering statistics: 1) That 48 percent of employees are not confident they know how much money they need for retirement; and 2) that three of four workers ages 55 to 64 have less than $60,000 saved for their 20 to 25 years of retirement.

    To Miller, there is only one answer to this problem–auto enrollment, where management makes the decision to automatically enroll workers in the company’s 401(k) plan unless the employee specifically requests to opt out of it. “Selling a 401(k) to workers as a choice does a disservice,” he said.

    He lists five steps that companies with 401(k) plans should take to help workers get ready for retirement:

• Automatically enroll every employee in the company’s 401(k) plan, forcing them to opt out if they don’t want to participate. “And we need to put a box on the (opt-out) forms saying ‘I choose not to retire,’ ” Miller says.

  
  

• Enroll every participant at a 7.5 percent contribution level. Miller notes that in Australia, the system automatically enrolls workers at a 9 percent contribution level. “They are either better at math, or better at confronting reality,” Miller says.

  
  

• Make sure that every participant is mapped into a diversified, age-based investment.

  
  

• Make sure that every participant gets a 2.5 percent auto-deferral increase annually.

  
  

• See that every participant has a professional investment adviser available for retirement.

  
  

    If this sounds tough, it is. Miller recommends 401(k) hardball because he believes that top management must be more aggressive in helping workers plan for retirement–especially since more companies are following the Lockheed example and pushing their workforce out of traditional pensions and into 401(k) plans.

    “It’s not easy,” he says. “Saving for retirement is one of the hardest things you’ll ever do.

    “It’s not a choice,” he says, “it’s a requirement. Savings doesn’t just happen. The message to your employees needs to be simple: Save more.”

Workforce Management, October 24, 2005, p. 58 — Subscribe Now!

When Jack Welch speaks, everyone listens.

    At last month’s World Business Forum on leadership at New York’s Radio City Music Hall, a couple thousand executives paid a couple thousand dollars each to hear a who’s who of leadership impart some words of wisdom. The lineup was impressive–Rudy Giuliani, Colin Powell, Tom Peters, Yahoo’s Terry Semel and Richard Branson of Virgin were just some of the speakers–but Jack Welch was the only one who could generate an edge-of-the-seat, “I don’t dare miss a word he’s saying” reaction from the business crowd.

    But that made me wonder: Why is Jack Welch such a management superstar five years after retiring as chairman and CEO of General Electric?

    Maybe it’s because three of his former top lieutenants now head Fortune 500 companies (Robert Nardelli at Home Depot, Jeffrey Immelt at GE and James McNerney, who was at 3M and has recently moved over to Boeing). Or maybe it’s because he was able to weather a nasty public divorce and the airing of his generous (some would say whopping), perk-filled retirement package being splashed all over The Wall Street Journal without any lasting harm.

    More likely, however, Jack Welch’s cult status as America’s management icon comes from two things:

1. His tough-talking, common-sense approach to business and managing the workforce.

2. His surprising ability, despite all the tough talk, to treat people with fairness and sensitivity.

    Fairness and sensitivity? You may ask how that can be said about the guy who developed the famous 20-70-10 employee assessment plan (known fondly by its critics as “rank and yank”), where the top 20 percent of GE’s workforce each year got a big raise, while the bottom 10 percent got shown the door.

    Well, what you may hear about Jack Welch and his people management practices anecdotally is very different from what you hear from Jack Welch in person.

    For example, during a Q&A session in New York he was asked how he would handle two different types of workers: a high performer who delivered the numbers but didn’t buy into management’s philosophy for the company, and a low- to mid-level performer who struggled to deliver the numbers but enthusiastically bought into the corporate vision and embraced what top management was trying to do.

    Jack’s answer? Get rid of the high performer who delivered the numbers and give the low- to mid-level person another chance–maybe two or three more chances–because they buy into what top management is trying to do. His philosophy is that you need people with “positive energy” and need to get rid of the people who inject the workforce with “negative energy”–even if they are high performers.

    He had some of his strongest words for human resource departments, calling HR the “backwater of most companies.” To his way of thinking, HR should be “the most vital part of the company,” as important as finance. He went on to draw this analogy: If you were managing a baseball team, who would you rather talk to–the team accountant or the director of player personnel?

    In Jack Welch’s world, HR is not only a key part of the business, but HR people in the organization need to have special qualities to help the managers throughout the organization build leaders and careers.

    Most of what Jack told the business executives at Radio City was straight from his new book, Winning, but reading words on a printed page is not the same as hearing it uncensored and unfiltered from the master himself.

    There’s a reason Jack Welch can dominate a room and grab a crowd in a way that the other big-name mucky-mucks on the stage in New York couldn’t. It’s because after five years away from GE, he’s still got a powerful message that hits home for just about anyone in a leadership role.

    Whether you subscribe to the concept of “rank and yank,” the push for “positive energy” or the thinking that HR should be as important as finance, Jack Welch has a lot to say.

    If you manage a workforce, you would do well to listen.

Workforce Management, October 10, 2005, p. 74 — Subscribe Now!