Author: Patrick Kiger

Sprawled lackadaisically, sans necktie, across the sofa in his luxury hotel suite in Manhattan, Les Hayman entertains his visitors with a tale of how the KGB accidentally developed a miraculous hangover cure. “They actually set out to create a pill to keep a Soviet agent sober while he got his source drunk as a loon to pry information out of him,” says the chief officer of global human resources for German-based software giant SAP. “Unfortunately, it turned out not to work. The KGB guys got just as drunk as whoever they were with. But they never got hangovers. Since the fall of communism, of course, you can buy the pills for a euro a box. Now, when we go to dinner in Bordeaux, instead of just taking a bottle of wine, we also take a supply of those pills. They’re absolutely brilliant.”

    The ruddy-cheeked 58-year-old with the still-lush tangle of silvery-brown hair tells the story with a rollicking Australia-New Zealand accent, punctuated with a droll chuckle. His genial barroom-philosopher manner gives scarcely a hint of his life struggles–from his days as a child refugee in post-World War II Europe to his adult battle with cancer and his string of careers. Hayman is a man who has led a succession of lives on multiple continents–from would-be doctor turned computer programmer in Australia in the 1960s to Silicon Valley executive in the 1980s to Asian business mogul in the early 1990s.

    Now, as a top executive for SAP, he is reshaping human resources at the world’s leading business-software company. It might seem a daunting task for someone who notes, almost gleefully, that he’s never before worked in human resources. SAP, which controls half the worldwide market for software that companies use to administer everything from customer relations to supply-chain management, is a sprawling enterprise that employs more than 30,000 people in 50 countries. But that hasn’t stopped Hayman from jettisoning scores of programs that he found irrelevant, totally overhauling the corporate training program and telling his 500-member staff that they should spend time in jobs outside their specialty so they can learn what sort of help other departments really need.

    Hayman is not satisfied with a supporting role, either. He is determined to make human resources a player in shaping strategy at SAP. To that end, he aims ambitiously to develop a uniform method by which Wall Street can calculate the precise worth of human capital, just as analysts and investors now evaluate revenues and depreciation. Though skeptics wonder if Hayman’s idea could ever work, they also acknowledge that it could revolutionize the valuation of companies–and elevate human resources departments to vastly greater influence everywhere.

Thinking big
    Hayman’s lofty ambitions don’t stop him from treating human resources with an almost exhilarating irreverence. “Human capital is like pesto,” he declares. “Five years ago, nobody had heard of the stuff, and there were maybe three restaurants in New York that had it. Today, you stop at a hot dog stand, and the man asks you if you want mustard, relish or pesto.” He pokes fun at other current buzzwords and popular “paradigms.”

    “A few years ago, it was talent, and how you recruit and retain it and so on,” he says. “Now, they’re all asking, how do you get people to be engaged? I wish I could say what’s driving this is that executives are getting smarter about people. But that’s not it, really. The truth is that everyone is nervous, now that the economy is improving and the job market is freeing up at last. It’s always your good people, the top performers, who leave. These executives know there’s this backlog of people ready to jump, and it scares them.”

    As a 15-year cancer survivor, he’s got a no-nonsense perspective on engagement. “Life is too fleeting,” he says. “I’ve never been able to understand people who just muddle through the week, waiting for the weekend. You have to be able to get up and say, ‘I’m going to be working another day at SAP–that’s fabulous. I can’t wait to get there.’ If you don’t feel that, you’re wasting a big part of your life.”

    Hayman’s experiences as chief of SAP’s Asia Pacific operation in the 1990s left him feeling passionate about the importance of people management but dubious about the practices meant to foster human capital. “I found that human resources had wonderful theoretical understanding, but no sense of my pain points,” he says. “They’d want to put in an absolutely marvelous three-year program that was designed ultimately to not only solve all of my major business issues, but end world hunger in the process. The problem was that I didn’t have three years. I had one year. I had to make money.” Too few human resources people, he discovered, had ever actually worked in other parts of the business, something he now requires for advancement. “I tell them, ‘Go out and spend two years selling software, or working on a development team,’ ” he says. ” ‘Find out what it means to have to meet a quota. It’ll totally change your perspective.’ ”

    When Hayman took over SAP’s human resources department, he discovered to his shock that it had more than a thousand different programs in various stages of development. “We promptly culled them by two-thirds,” he says. “Everyone in human resources was under tremendous stress, but a lot of it was wasted. They were doing things that had no impact on the business.” Instead, Hayman surveyed the rest of the company and asked what they actually needed. “There were a lot of places where what we had built was really out of step. We had areas where the board had set a business strategy, but it wasn’t translated into compensation planning at the level of the field organization. If you don’t align the organization behind the strategy, it’s a hope rather than a strategy.”

    Hayman also revamped much of the curriculum at SAP University, the company’s internal training organization. “They were spending more time worrying about generic training courses, such as negotiation training and time management,” he says. “You can hire outside people to do that.” Instead, he and the institute’s director, Karen Tobiasen, devised new courses that focused on specific tasks that SAP managers handled in their jobs, such as giving performance reviews. Drawing from his own career experience as an autodidact–he taught himself computer programming, for example, by designing a computer game–Hayman also reduced the role of training in staff development. “You learn best by doing,” he says. “So we build 10 percent of development around training, and another 20 percent around coaching. The other 70 percent comes from on-the-job training.”

    He’s convinced that most companies go about development in the wrong way. “They basically treat people as if they’re buildings or equipment, that you can divest yourself of when they’re obsolete,” he says. “They rush people along too quickly, promoting them until they fail. And they do fail, because when you’ve got people on the fast track and they’re in a new job every 18 months, there’s no time to really measure them and evaluate their growth.” Instead, SAP employees stay in a job for at least three years, so they can be brought along gradually, like a boxer who takes on progressively tougher opponents.

    Ambitious career-climbers may chafe at such a non-meteoric pace, but there’s a positive trade-off. What might be a career-stunting flub at another company is simply part of the development process to Hayman, who nonchalantly notes that his up-and-coming talent will screw up one of every three tasks. “You have to give them an understanding of how to cope with failure,” he says. “You don’t just discard a boxer the first time he gets beat up. That’s how he learns to take a punch.”

    Hayman seems to relish giving up-and-comers an opportunity to make mistakes in SAP’s six-month global development program. Mid-career executives are given a strategic assignment that they must complete while still keeping up with their regular jobs. Hayman prefers to set deliberately vague goals, allocates scant resources to them and provides little guidance. “After all, that’s the way it works in reality,” he says. “Your first job is to narrow things down. You can’t solve world hunger. You’ve got to find something you can do and focus on it.” Additionally, he teams executives on several continents, so they’re forced to adjust to other business cultures.

    “The Germans will ring me up to complain about the Latin Americans and French because the Germans are very time driven,” he says with a chuckle. “But Asians and Latins think, ‘Friday gives me until Monday morning at 8. I’ll finish it over the weekend.’ And they do. But the Germans see that as lack of commitment. They’ll ring the guy before they leave the office and ask, ‘Have you finished your work package?’ Meanwhile, the Spanish and Italians ring me and say, ‘The Germans are so anal-retentive about time, it’s unbelievable.’ “

    Gradually, however, participants pick up on how to communicate and understand one another’s style. It’s a skill that Hayman himself is a master of, says Pranay Mital, director of SAP’s small and medium-sized business software operation in Singapore. The freewheeling New Zealander “had to work with Indians such as myself, who have a very conservative culture, and hierarchical cultures like the Japanese and Koreans, while also dealing with headquarters in Germany,” Mital says. “If someone can manage this region and communicate with everyone, he can do just about anything.”

    Hayman has moved among different cultures throughout his life. He is of Polish ancestry, but was born in the Soviet Union, grew up in Australia and travels on a New Zealand passport. (“He’s from either Australia or New Zealand, depending on whose rugby team is on TV,” says Martin Metcalf, SAP’s managing director for the United Kingdom, Ireland and Africa.) He’s lived in Singapore, northern California and Bordeaux, in southwest France, where he presently resides. He spends two-thirds of his time shuttling back and forth between an office in Paris and SAP headquarters in Waldorf, Germany, and the rest on the road–sometimes crossing the Atlantic several times a week. “A laptop, a BlackBerry and a phone, that’s all you need.”

    Such roaming is nothing new for him. He was born in the Ural Mountains in what was then the Soviet Union at the end of World War II, the son of a Polish cavalry officer who’d joined the Russian invaders to fight their common enemy, the Nazis. “He said it was time to flee Russia when he went to a meeting and a communist said that if all the world’s wealth was fairly divided, each person would get 1,000 rubles. My father had 2,000 rubles saved, so he knew he’d better go.”

    Hayman’s parents hiked across Europe carrying their infant son, using their old Polish documents to slip across borders. Eventually they emigrated to Australia, where young Leslie spent his youth doing gymnastics and dreaming of becoming a doctor. Those ambitions were dashed in medical school, when he worked nights in a hospital. “I realized that sick children broke my heart, and sick adults never stopped complaining,” he says.

    Fortunately, he took an elective computer-programming course and became fascinated with the school’s primitive 1960s-vintage computer, a room-sized Elliott 803. “I passed the course by writing a tic-tac-toe game for it,” he says. “Actually, it was one of the most creative things I’ve ever done.” He became a programmer for International Harvester and then in the 1970s jumped to Digital Equipment Corp., a major player in mainframes, where he tried his hand at sales. In the 1980s, he cofounded Calyx, a successful business software firm. At the same time, he and his wife Victoria were raising two adopted daughters, now grown.

    Then, in 1988, Hayman learned that he had colon cancer. “It was a total shock–I’d always been a gym junkie, a fitness freak. I’d already quit smoking. Nobody in my family had it.” The afternoon that he got the bad news, he went home to his wife, who covered him with a blanket as he lay on the couch watching TV. “After a while, I got up and said to her, ‘Let’s get dressed up and go out somewhere nice for dinner.’ She reminded me that I’d just been told that I had cancer. I said, ‘Look, there are two possibilities. If they got it early and I can be cured, that’s reason to celebrate. And if they haven’t gotten it early enough–well, I can’t afford to lie on this couch because I don’t have a lot of time left.’ ”

    After fighting for a year to regain his health, he decided to retire. “But then a guy from Sun Microsystems came around and convinced my wife that I would live longer if I worked instead of tending tomatoes in the garden,” he says. He worked in Palo Alto for five years before joining SAP in 1994. In eight years, he built SAP’s Asia Pacific business from a paltry $6 million in sales to an astonishing $800 million. Hayman credits his success to getting the most out of his staff’s talent. “If you talk to technology companies, you always hear them say that what they really need is a killer application,” Hayman says. “That’s rubbish. That’s really the by-product of what you do. You need a good strategy–not a brilliant one, but one you can execute. And you need a performance-driven culture and people who are emotionally engaged. If you have all those things, you’ll create the right product.”

    When Hayman, who was tapped for SAP’s board in 1999, decided to step down from the Asian post, he took the job heading human resources in the belief that he could have an even bigger impact. “I remember a lot of great companies from the 1970s that have since disappeared because their focus was on products, not people,” he says.

But his pragmatism tells him that human capital will be taken seriously only if it’s shown to relate directly to profits. While many are developing and utilizing metrics for measuring the effectiveness of human resources, Hayman wants to go a lot further. He aims to take the mountains of data generated by SAP’s software and crunch the numbers to calculate the impact of executive retention, the ratio of internal promotion rates to external hires, the workforce’s skills and other present intangibles on the bottom line. He’s funding a research and development effort by Boston Consulting and Accenture, a spinoff of Arthur Andersen, to see whether it’s feasible. His dream is an objective standard for human capital, similar to the Generally Accepted Accounting Principles, or GAAP. “I want people to be able to compare company A and company B. The ultimate step would be that you’d integrate it into the balance sheet.”

    Some human-capital experts, such as David Larcker, an accounting professor at the University of Pennsylvania’s Wharton School, question whether such a valuation system would work. Hayman himself boldly predicts that within five years, companies will be reporting standardized measures of human capital.

    “Of course, in five years I’ll be retired, so nobody’s going to be checking back to see whether I was right or wrong,” he says. In the meantime, he’s forging ahead with a customary sense of urgency. “I tell the younger people at our company that I’m 58, but this time yesterday I was 28, and I’ll be 88 tomorrow if I’m lucky enough to be around. That’s how quickly it seems to go. So you’ve got to make the best use of every moment you have.”

Workforce Management, August 2004, pp. 41-44 — Subscribe Now!

Imagine having to recruit a job candidate for a company that had to change its name in an effort to crawl out from under a reputation trashed by an $11 billion accounting scandal, the largest bookkeeping fraud in history. If that’s not bad enough, imagine having to try to convince that person that he or she has a bright future at an outfit that not too long ago had to lay off 20,000 employees, and that until April was still mired in bankruptcy. Imagine having to repeat that sales pitch successfully 36,000 times.

    In other words, imagine that you’re Mike Randels, vice president of worldwide staffing for MCI Inc., the Ashburn, Virginia-based corporate survivor of defunct telecommunications giant WorldCom. “Common sense might tell you that a situation like we’ve been through would derail our recruiting,” he says. “How would we convince someone to come and join a company like us?”

A “$25 billion start-up”
    Randels and MCI have faced the daunting task confronted by numerous other companies–Tyco, Computer Associates, Putnam and the like–whose reputations recently have been battered in the headlines, the stock market and in some cases the courts. These tarnished brands must overcome their reputations and recruit the new talent they need to regain their former market preeminence.

    As Randels and other workforce-management professionals with experience in crisis recruiting explain, the job is difficult, but not impossible. A company with a viable vision for its future can bring new people on board if recruiters confront the reputation problem head-on and turn candor into a selling point. For some candidates, the stress and risk of a corporate turnaround seems like an opportunity rather than a deterrent.

    MCI is an example of the results that a skillfully crafted crisis recruiting strategy can achieve. In the past year, even as it was shedding its besmirched former name and emerging from bankruptcy, the company managed to hire 36,000 new employees–33,000 at its 15 call centers across the nation, and another 3,000 in various other positions. In addition to overhauling its senior management under turnaround chief executive Michael D. Capellas, MCI has rebuilt its finance department virtually from the ground up. Randels says that MCI has recruited new hires at basically the same rate that its corporate predecessor did in its pre-scandal boom times, and at the same cost  Equally important, he says, the reborn company has attracted scores of new employees who see change as an opportunity rather than a threat. The key, he says, is getting out the right message in recruiting.

    “We’re taking on the reality of what we were, and turning it from a negative into a positive,” Randels says. The message to candidates: “Okay, this is what we were, but we’re going in a different direction now, and we’re not going back.

    “We’ve been able to get people to see the new MCI as a start-up company. When you think about it that way–well, there aren’t too many $25 billion start-up companies around, so it starts looking pretty attractive.”

    Umesh Ramakrishnan is managing director of the New York-based executive search firm Christian & Timbers. “MCI has done a tremendous job of rebuilding their brand–from a recruiting standpoint,” he says. “The scandal really has been left behind.”

    Ramakrishnan, who works out of Cleveland, and other experienced crisis recruiters say the process must start with a clear vision of the company’s future–not just how it will survive in the short term, but also how the business will regain its market position. At MCI, for example, Capellas unveiled a strategy for leveraging the company’s existing Internet infrastructure to become a leader in IP telephony and wireless communication. Capellas also has sought to reinvent MCI’s business culture, making it more aggressive and faster-moving. The workforce-management leadership’s job is to turn that vision into a blueprint for personnel moves.

Full disclosure: the only approach
    Though it’s tempting for a management team to simply clean house, experts say the best approach is a carefully targeted effort to acquire and upgrade talent. Peter Drummond-Hay, co-director of the executive assessment practice for Russell Reynolds Associates, says a post-crisis company should evaluate its existing workers as carefully as it would look at job candidates. He recommends an in-depth interview process, designed to analyze employees’ work style, motivation and other workplace behavioral characteristics. “The key is to evaluate people not just on past performance, but on their potential under the new management,” he explains.

    Specifically, a company should be looking to spot employees with a high degree of “change orientation”–that is, the ability to function successfully during the inevitably stressful and chaotic process of remaking the business. A company then may want to re-recruit those workers, offering them increased compensation or promotions to ensure that they’ll stick around. “The good people are going to want some guarantees,” says Richard Gast, a Lake Forest, California-based executive recruiter who has worked for corporate clients in the midst of comebacks. “To keep the senior people, you may have to negotiate a parachute for them in case things don’t work out.” While a company is trying to figure out whom to keep, Drummond-Hay says, it should also identify the positions for which it needs to hire people better suited for change.

    Before going out to find that new talent, however, the company’s recruiters should prepare to talk about the company’s tarnished reputation. Ramakrishnan says that full, detailed disclosure is the only approach that projects credibility–particularly when a company is trying to hire experienced middle managers, who will have the sophistication to ask tough questions.

    “When your company’s dirty laundry already has been aired in the Wall Street Journal, there’s not much point in being evasive,” he says. “To the contrary, the recruiter needs to know all the details and be ready to talk about them. If you can’t do that, you may not get past the initial contact, because when you’re a company that is trying to get out from under a cloud, you’re not going to get a second chance to make a better impression.” Ideally, Ramakrishnan says, recruiters should provide enough information to ensure that they–rather than newspaper investigations or gossip on Internet discussion boards–are the ones shaping the narrative that candidates develop in their minds.

Not about fitting in
    Once those uncomfortable questions have been dealt with, Ramakrishnan says, recruiters must be able to guide the discussion from past woes to where the business is going, and what sort of opportunities the candidate might find in the transition. “I always tell candidates that the company you go to work for shouldn’t necessarily be the one that looks great now,” Gast says. “You should go to the one that you’ll be proud of when you leave six or seven years from now to take an even better opportunity.”

    Recruiters shouldn’t paint too pretty a picture. “You’ve got to lay it out for them–here’s our vision and the opportunities, but there’s going to be a lot of noise and growing pains that they’ve got to be able to deal with,” Ramakrishnan says. “I’d say that about 60 percent of the potential hires out there are too risk-averse to handle working at a company on the rebound, and you’ve got to weed them out. You don’t want people who are going to be shaken up when the person in the next cubicle doesn’t come back tomorrow.”

    For that reason, he says, the best candidates usually are found not at stable, mature companies but at high-growth firms that tend to attract risk-takers. “It’s like the NFL draft,” explains Tom Wamberg, chairman and chief executive of Clark Consulting. “You’re looking for impact players, the ones who are going to make plays, not just fit in.”

    Randels agrees. “We interviewed some people who were put off by the situation, didn’t have that desire to be a bit of a pioneer,” he says. “We didn’t keep going after those people because, frankly, they wouldn’t have done well in our new culture anyway.”

While most American companies, sadly, don’t seem too interested in what happens to employees’ kids while their parents are on the job, Abbott Laboratories isn’t one of them. At its headquarters campus 30 miles north of Chicago, the Fortune 500 medical-technology giant has built a $10 million state-of-the-art child-care center where each day, more than 400 preschool-age offspring of Abbott workers scamper through an outdoor shrubbery maze, take yoga lessons and stimulate their minds in an art and science studio.

    For parents who didn’t land one of the highly prized spots at the center or prefer a different arrangement, Abbott offers a 10 percent discount at several national child-care chains, and works with community organizations to recruit and train local child-care providers. If an employee’s babysitter is sick, Abbott provides emergency backup. For older kids, on school holidays the company offers field trips, science experiments and games on-site to keep them occupied while their parents work. And for workers who want to be stay-at-home parents some of the time, the company offers flextime and other arrangements. “We’re trying to meet everyone’s needs, whatever they turn out to be,” says James Sipes, Abbott’s human resources director for child care.

    Abbott and other forward-thinking companies–including IBM and Procter & Gamble–have developed cost-effective models for analyzing and meeting employees’ child-care needs, and innovative approaches to problems such as the 24-7 workplace. Business once viewed child care as a way of helping out employees, says Sandra Burud, author of the upcoming book Leveraging the New Human Capital. “In the future, they may think of it as something they must do to be competitive.”

    Throughout the American workforce, the needs of parents and children are acute. Because of economic necessity and a desire to keep their careers afloat, six out of 10 American mothers return to work within a year of having children, compared to less than 40 percent two decades ago, according to U.S. Census data. About half of working families rely on child-care centers, a third for more than 20 hours a week. But finding quality, affordable child care is difficult. A 2000 Children’s Defense Fund study found that in most urban areas, fees at child-care centers were higher than tuition at a state university. “If you make $40,000 a year and you have two kids, you’re basically working just to break even,” says Kathleen McCartney, an education professor at Harvard University, who herself faced that dilemma early in her academic career. “You may decide just to drop out of the workforce.”

    Quality is another issue. Research shows that teacher interaction, learning activities and stimulating play are profound factors in preschoolers’ future performance in reading and cognitive tasks, but not enough providers measure up. Only one in eight child-care centers across the nation has earned accreditation from the National Association for the Education of Young Children, the recognized standards-setter. With salaries for child-care teachers hovering under $20,000 nationwide, qualified and talented caregivers are hard to find.

    Those who have studied the child-care problem say that employers could do a lot to help solve working parents’ worries, and in the process help themselves reduce absenteeism and improve productivity. Research shows that child-care breakdowns cause a quarter of employees to miss work at least several times a month. But even so, few companies are making the effort. A 2003 Bureau of Labor Statistics study found that only 5 percent of employers provided on-site or near-site care; an additional 3 percent helped subsidize care elsewhere, and 10 percent provided access to telephone referral services to help find child care.

    Big employers do a bit better, but not by much. In a 2003 Hewitt Associates study of 975 large companies, 10 percent offered company-subsidized on-site or near-site care, 9 percent arranged for discounts from local child-care providers and 42 percent offered referral services. Even federal and state tax incentives haven’t been enough to overcome companies’ fear of the added cost and responsibility and their shortsightedness about the larger benefits to workers and the bottom line. But the time will soon come, experts say, when employers will no longer be able to avoid the issue, as anticipated shortages of workers of childbearing age force them to view child care not as an expensive perk but as a critical part of meeting their staffing needs.

Why companies aren’t doing more
    There’s evidence that helping employees with child care pays off. A 1997 study by researchers at Simmons College in Boston found that at companies with on-site care, 42 percent of employees cited child care as the reason they’d joined the company, and one out of five said they’d passed up an opportunity elsewhere because they wanted to keep their kids at the company center. Child-care assistance can also make a major dent in absenteeism caused when the babysitter is sick or doesn’t show up, according to research cited in the Journal of Accountancy. A study of six Canadian companies that provide backup child care for emergencies found that they save $176 in lost productivity each time a worker uses it.

    At Abbott, employees whose kids attend the on-site center score at the “exceeds expectations” level in evaluations a third more often than the norm, and their retention rate is a third higher. Abbott’s child-care benefits also provide an advantage in competing for talent; one software engineer, for example, reportedly decided to jump to Abbott as soon as he heard that the company had an on-site center.

    So why don’t more companies offer child-care assistance? In a 2000 study by the opinion-research organization Public Agenda, 62 percent said they didn’t have the resources or expertise to run a child-care center, and 59 percent didn’t want the responsibility and potential legal liability. For many companies, expense is the major deterrent. Rick Brandon, a faculty member at the University of Washington’s Human Services Policy Center, pegs the cost of providing child care to employees at $4 to $8 an hour, substantially more than the $2.50 that companies typically pay in total benefits. “A lot of executives have trouble looking past their quarterly earnings report,” says Susan Seitel, president of Work & Family Connection Inc., a consulting firm in Minnesota. “They can’t see a capital investment in child care as having an impact on that bottom line.”

    Reluctant companies also view it as an equity issue. “They’re thinking that if they pay $10,000 to subsidize child care for an employee with a family, that’s unfair to someone who doesn’t have kids,” Burud says. “That only makes sense if you keep looking at child care as a benefit, and not a tool that serves your business objectives. If an engineer needs a high-powered computer to do the job, you don’t give the person a less powerful one because it would be unfair to someone else in the company. The results for the company are what matter.”

    In a 2002 study, the National Women’s Law Center reported that few companies have even bothered to take advantage of the lavish tax breaks offered by the federal government and 28 states, which cumulatively may enable a company to write off as much as 50 percent of the cost of building and operating a child-care center. (One state, Florida, is willing to match companies’ child-care investments.)

    Seitel and others point out that in the near future, companies may find themselves forced to look at child care as an essential part of doing business. “The forecasters are predicting an eventual shortage of younger workers, as the U.S. population gets older,” Seitel says. “When you combine that with the trend of age-55-plus people staying in the workforce, companies run the risk of ending up with a workforce that’s really old.” That skewed demographic balance could wreak havoc with salary scales and succession planning, and deprive a company of up-to-date skills and fresh ideas, she says. In that scenario, the company that is able to attract and retain workers of child-raising age will have an increasingly significant competitive advantage.

    But experts caution that there’s not a one-size-fits-all answer. Instead, a company has to find an approach that is tailored to the particular needs of its workforce and the location or locations in which it operates, and makes the most effective use of the resources that the company can invest. “You really can’t squeeze every company into the same mold,” says Judith Presser, a senior consultant for WFD Consulting, a firm in Watertown, Massachusetts, that helps companies find child care. She also works with the American Business Collaboration for Quality Dependent Care, a consortium of 10 companies that work together to provide employee child care and elder care. “Some companies have good on-site centers, but they’re not for everybody. If you’ve got 800 employees, you aren’t going to have enough children to make it work economically.”

    Consultants say that the first step in considering a child-care facility is to conduct in-depth research. The study should include both an employee survey and a more detailed needs assessment in which a company projects demographic patterns in its workforce 5 or 10 years into the future. After that, a corporate human-resources team should study the capacity and quality of existing child-care facilities near its workplace and in the communities where its workers live.

    That data can yield surprises and, possibly, help a company to get more bang out of the millions that it may have to invest in child care. After Texas Instruments surveyed its 11,000 workers, who are spread among three separate corporate campuses in the Dallas area, the company discovered that parents already were using existing child-care centers in their own communities. Instead of spending as much as $5 million to build a company center that wouldn’t be conveniently located for everyone, TI invested its money in improving the quality of existing centers, underwriting health and safety-training programs, and offering free management consulting expertise. The company also worked with local community colleges to recruit students to alleviate the chronic shortage of day-care workers.

    “We figure that with these [benefits], we’re affecting the maximum number of employees’ lives,” says Betty Purkey, TI’s manager of work/life strategies. The human resources team at the Calvert Group, an investment firm in Bethesda, Maryland, that is part of the Ameritas Acacia insurance family, discovered that many employees had long commutes from homes in Virginia and didn’t want to bring their kids with them to work. Calvert instead opted to set up child-care savings accounts for employees, in which the company would match a portion of their pre-tax salary deductions.

    In contrast, when Abbott Laboratories studied its workers’ child-care needs in the late 1990s, it found that the Lake County area around its headquarters had a severe shortage of quality child care, with spots available for only two out of five preschoolers in the vicinity. And very few facilities offered infant care. Abbott also sent an employee task force to visit corporate child-care centers around the nation to benchmark quality and compile best practices. Experts heartily endorse such an approach, because quality is an area where community child care is often lacking–and where corporate-caliber resources and planning expertise can make a major impact.

    Burud, who has found that corporate centers are about eight times as likely to be accredited as the norm, says that companies often provide superior care because they don’t want to attach their names to something shabby. Not only does that quality emphasis result in nicer carpeting and plenty of avant-garde educational toys, but it also is a solution to one of the child-care field’s persistent woes–the difficulty of finding and retaining qualified workers. A University of California at Berkeley study found that in community day care, turnover among $10-an-hour teachers averaged 75 percent over a five-year period.

    At SAS, a software company in Cary, North Carolina, turnover is very much lower. Teachers at the four SAS on-site centers make above-market salaries, and many have been on the job for 10 years or more. “Everybody knows the teachers, and that makes parents really comfortable,” says Dianne Fuqua, director of the program. At Procter & Gamble’s $2.5 million near-site facility in Cincinnati, child-care workers usually are college educated and often have master’s degrees.

    Companies increasingly are realizing that basic daytime care fills only part of employees’ needs. Procter & Gamble’s new on-site center at its plant in Albany, Georgia, will be open around the clock to accommodate night-shift workers who can’t leave their kids at home alone. About seven million Americans whose work hours fall outside the 9-to-5 norm have kids, and about half of those workers are mothers, according to Circadian Technologies in Lexington, Massachusetts. Circadian found that by providing after-hours care, companies could reduce absenteeism by 20 percent, and recover the cost of an on-site center in five years.

    Companies also are trying to help workers who either don’t have access to a corporate on-site or near-site center or prefer having relatives take care of their kids. The problem becomes what to do when the babysitter comes down with the flu or the church day-care center is closed for a religious holiday. Backup care is the fastest-growing new service, says Kathie Lingle, the former work/life director for KPFG Insurance and now membership director for the Alliance for Work-Life Progress. “With backup care, you can cover a far greater number of people than with conventional on-site care because they’re not going to be using the center every day.” The return on investing in backup care, she says, is high. KPFG found that it generated $5.50 in saved productivity for each $1 it spent. Some companies are creating on-site backup care; others are reserving spots in local child-care centers for employees’ emergency use.

    Forward-thinking companies also are looking at child care not as a stand-alone program but as part of a larger work/life balance that will benefit both employees and the company. “It’s one thing to provide child care, but when you start peeling away the onion on the issue, you see that it’s only part of the equation,” consultant Judith Presser says. “Even if you’re giving me access to an on-site center, if I end up having to work 12-hour days, I’m just going to be driving home every night with my kid asleep in the backseat.” Instead, increasingly, companies are utilizing child-care programs to mitigate one of the most painful and destructive ills of the 21st-century economy: parents’ decreasing contact with their kids and increasing alienation from family life.

    At SAS, parents who use the on-site child-care centers can visit their children during the day or join them for lunch in the company cafeteria. “When the kids have Easter-egg hunts at the lake, parents can watch them from their office windows,” Fuqua says. “You see people on campus walking with their kids all the time. It’s got to make a really enormous difference in morale, and people’s performance.”

Workforce Management, April 2004, pp. 34-40 — Subscribe Now!

When Ohio legislators passed an anti-gay-marriage law in February that also barred state agencies from providing benefits to same-sex partners, it wasn’t only gay activists who protested. Some of the most insistent opposition to the bill came from companies such as Nationwide Insurance and Limited Brands, Inc., which operates The Limited, Victoria’s Secret and Bath & Body Works stores. The employers weren’t motivated so much by the conviction that gays deserved equal rights as by a more pragmatic concern. They worried that the negative ambience fostered by the law might hinder their recruiting of gay talent.

    Take, for example, NCR Corp., the old-line Ohio company that made the first mechanical cash register in the 1880s, and has since grown into a global supplier of computer technology to food warehouses and retail stores. “We’re based in Dayton, but we’re competing in a global marketplace, not just for sales but also in hiring and retaining employees,” says NCR spokesman John Hourigan. “Because of that, we see workplace diversity as an imperative.”

    Hourigan, who is careful to use the politically correct term “GLBT”–short for gay, lesbian, bisexual and transgender–touts NCR’s efforts to create a workplace that’s attractive to gay job candidates. Not only does the company offer benefits for same-sex partners and an anti-discrimination policy, but it also has a company-sanctioned “resource group” of gay employees who are encouraged to communicate any concerns directly to management.

    To make sure that potential job applicants get the message that the company is gay-friendly, its Web site touts the 2003 “Outie” award that NCR received from Out & Equal Workplace Advocates, an activist group, and the company’s second-straight perfect 100 rating for equality from the Human Rights Campaign, a gay organization in Washington, D.C. NCR has even sponsored a gay-pride parade in Dayton to increase its visibility in the gay community.

Profits and performance
    NCR’s efforts are just one sign of a subtle but growing trend in the business world. Companies are making a deliberate effort to market themselves to potential hires as gay-friendly. In some cases, they’re actively recruiting gay and lesbian talent–by advertising in gay publications, participating in job fairs run by gay professional and student groups, and utilizing job-search engines at Web sites such as Gay.com and GayWork.com.

    Some turn to a Los Angeles-based recruiting firm, McCormack and Associates, whose strong links to the gay community are its calling card. Companies aren’t necessarily investing huge amounts of money in such efforts–running a corporate visibility ad on the popular Web site GayWork.com, for example, may cost as little as $6,000 a year–but analysts say the eventual return on investment may be substantial. That’s because companies see gay employees as a particularly valuable resource for tapping into the gay consumer market, which numbers more than 14 million consumers and is projected to wield more than $607 billion in purchasing power by 2007, according to MarketResearch.com, in Rockville, Maryland.

    It’s not that companies are simply out to hire more gay workers. Rather, they don’t want to lose out on desirable job candidates who happen to also be gay, says Daryl Herrschaft, director of the Human Rights Campaign’s WorkNet program on gay workplace issues. “Companies don’t really care about sexual orientation. They care about profits and performance. But they know that GLBT people do care about companies’ policies. If a company has partner benefits, for example, they tend to see it as an indication of how friendly the workplace is going to be toward them.”

    Since by the most generous estimates only 10 percent of the population is gay, it’s likely that gays amount to a similarly small fraction of the nation’s workforce. However, that fraction may contain a disproportionately high number of desirable job candidates, since research suggests that gays tend to be better educated and more successful professionally than the population as a whole. A 1996 study by Simmons Market Research Bureau found that 48 percent of gays had college degrees and 22 percent possessed advanced degrees, more than three times the proportion in the overall U.S. population. Seventy percent worked in professional and managerial jobs. Moreover, the gay population tends to gravitate toward major urban centers, so it’s more likely that a job applicant in New York or Chicago or Los Angeles will turn out to be gay. When Richard Florida, a Carnegie Mellon University professor and visiting scholar at the Brookings Institution, amassed a list in the late 1990s of cities with the hottest high-tech sectors, he noticed that the list closely matched one that a CMU graduate student had compiled of places with the highest concentration of gays.

    Popular recruiting wisdom holds that gays are concentrated in certain well-compensated, high-status fields such as investment banking, law and management. “You get to dress well and eat well in those professions,” jokes recruiting consultant Joseph McCormack. “That’s a lot more fun than, say, working on software all night and eating from vending machines.” Nevertheless, research by Louis Thomas, an associate professor of management at the University of Pennsylvania’s Wharton School, suggests that gay workers are distributed evenly across economic sectors. Thomas has found that 13.4 percent of gays work in education–one reason why Ohio State University president Karen A. Holbrook appealed to Ohio Gov. Bob Taft not to sign the anti-gay-marriage bill. Another 7.3 percent work in health care, 7.1 percent in business consulting, 6.4 percent in government positions, 4.7 percent in manufacturing, 4.6 percent in insurance and legal work, and 4.2 percent in finance and accounting.

    Corporate recruiters, however, are still grappling with finding the best approach to reaching a group whose members don’t all necessarily want to be singled out. “A generation ago, being out of the closet was still anathema at a lot of companies,” McCormack says. “Gay workers basically were looking for a place where they would be left alone, without harassment.” While concern about privacy is still felt by many gays, the latest generation entering the job market also contains many individuals who’ve been out since high school and are less reticent about their orientation. It’s not uncommon, recruiters say, for job applicants to ask about a company’s partner benefits or nondiscrimination policies.

“Brand loyal”
    Nevertheless, those who have studied gay employment issues say that a company’s reputation for tolerance remains of crucial importance to applicants. Wharton’s Thomas says his research indicates that gay employees are likely to stay with an employer with gay-friendly policies, even if offered more money by a competitor. “GLBTs tend to be brand loyal,” says HRC’s Herrschaft. “They make purchasing decisions based on their perception of a company’s attitudes. It’s the same thing with jobs.”

    That makes it imperative for corporate recruiters to market their company as a gay-friendly brand. Participating in gay job fairs and conferences is one route. In April, two dozen companies–including such big names as Ford Motor Co., Sun Microsystems, Citigroup and Morgan Stanley–will be participating in Reaching Out MBA, a recruiting and networking conference put on by gay students at the University of Southern California and the University of California at Los Angeles graduate business schools. Another possibility is the assortment of gay-oriented Web sites such as GayWork.com in Santa Monica, California, which maintains profiles of nearly 20,000 job-seekers. More than 1,100 companies, including Microsoft and Capital One Financial Corp., the McLean, Virginia-based credit card giant, have posted company profiles on the site. “It’s a way for a company to let everyone know that it’s making the outreach, that it wants to be a comfortable place,” says the site’s founder, media consultant Matthew Skallerud.

Creating a buzz
    Some companies have found, however, that the most effective way to reach gay talent is through employee referrals and contacts. NCR, for example, has received tips on possible hires from employees who participate in its GLBT resource group, a company-sanctioned internal organization that advises management on gay workplace issues. About half the companies in the Fortune 500 have established such groups, according to Out & Equal executive director Selisse Berry.

    IBM, widely regarded as one of the most effective recruiters of gay talent, has gone a step further, using its gay resource group as an asset in both recruiting and marketing its products. Spokesman Jim Sinocchi says IBM sees both types of outreach as synergistically serving the same strategic goal–that is, marketing IBM wares and services to a gay market segment with an estimated $500 billion in purchasing power. “The nature of the gay community is strong networks, based on personal contacts, that extend through peer companies and customers,” he says. “What we’re trying to do is create a buzz, to make people want to spend their money with IBM–or to work here.”

    IBM relies on its group of gay employees not just for referrals, but also to spread the word about the company’s policies and workplace culture. IBM has 600 employees receiving partner benefits, as well as 25 openly gay executives in key positions throughout the company. In particular, Sinocchi says, IBM aims to be attractive to gay candidates who are looking for a workplace in which they can fit in and be open about their orientation. “Sometimes, gay people looking for jobs aren’t out yet, but maybe they’re hoping to find a place where they have a chance to come out, or where if people find out that they’re gay, it isn’t going to hurt their career at all. So we’re selling IBM as that sort of place.”

    Emphasizing gay employees’ opportunity to be out in the workplace has additional benefits for a company once they’re on the job, says the Wharton School’s Thomas. “GLBT employees are more likely to stay with employers that offer such policies and benefits even if they are offered a higher salary from a firm that does not offer these benefits and policies,” he says. “This of course lowers firm retention and recruiting costs.”

The collapse of Enron and other companies plagued with financial wrongdoing has shaken employees’ faith in once venerable institutions such as stock grants and 401(k) plans. Those scandals have also damaged the reputation of another important part of corporate benefits planning: the nonqualified–not subject to federal contribution limits and insurance protections–retirement plans that companies have long provided to a limited cadre of top management to supplement standard company pensions.

    In the Enron case, shortly before the Houston-based energy giant went bankrupt in December 2001, the corporate nonqualified benefits plan was used to illegally funnel $53 million in early distributions to a handful of executives, according to a February 2003 report by the staff of the congressional Joint Committee on Taxation. That abuse, which came at a time when ordinary Enron employees were losing tens to hundreds of thousands of dollars in retirement savings they had been encouraged to invest in Enron stock, stirred outrage on Capitol Hill, where some legislators have proposed tightening the regulations on nonqualified plans. It also apparently has caught the attention of the Internal Revenue Service. Since last summer, federal auditors have been scrutinizing the nonqualified retirement plans of executives at a number of U.S. companies to see whether they comply with tax laws, according to numerous consultants and law firms that advise companies on tax issues.

    “The problem with nonqualified retirement plans is that they’re often pretty complicated,” says Brent Longnecker, president of Longnecker & Associates, a Houston-area consulting firm that specializes in corporate-governance issues. “When something is tough to understand, it’s potentially easy for someone to abuse. Now the IRS audit is looking at the nonqualified plans, which is going to make due diligence absolutely key.”

    The crimes of a few corporate criminals notwithstanding, nonqualified retirement plans are getting an unfair bad rap, Longnecker and other consultants say. Most companies are using them not to launder illegal payments, as Enron allegedly did, but for a more benign purpose. Nonqualified plans, unlike traditional defined-benefits pensions which are not federally insured, provide a way to supplement standard pensions and 401(k) contributions. Corporate executives aren’t penalized unfairly by federal rules that limit their participation in such retirement plans. In addition, the plans are a useful tool for recruiting and retaining top executive talent.

    All the same, the experts also say that it’s prudent for companies to take a fresh look at their nonqualified plans, with an eye to simplifying them and eliminating any anomalies–such as an unusually complex or lucrative custom plan created in the past for a specific executive–that might turn into tomorrow’s time bomb. And it’s also a good time to make sure that both employees and shareholders are fully informed about executives’ nonqualified retirement benefits, so that they don’t come as an unpleasant surprise in the midst of some future corporate crisis.

    Despite the recent controversy surrounding nonqualified plans, they are a widespread practice in corporate America. In a 2003 study of 200 Fortune 1000 companies by Clark Consulting, a firm in North Barrington, Illinois, that advises companies on compensation issues, 93 percent reported that they offer some sort of nonqualified benefits plan. That’s up 13 percent from a similar Clark study in 1997-1998.

    For years, virtually no one questioned the common practice of offering top executives additional benefits beyond the standard corporate pension and employee savings plans, says Les Brockhurst, president of the Executive Benefits Practice in Clark’s Los Angeles office. The regulations that govern qualified retirement plans–that is, traditional defined-benefits pensions covered by federal insurance–limit the amount of salary that can be included in the calculation of benefits to $200,000. In addition, federal rules set the maximum annual contribution to a corporate 401(k) plan at $12,000. As a result, at least in theory, ordinary employees had an easier time maintaining their income level in retirement than top executives did. But federal regulations also provide a limited loophole, the “top hat” exemption, which allows companies to supplement the retirement benefits of a few executives. “Basically, it’s a way of giving the chief executive the same opportunity to save that his workers get,” Brockhurst says.

    Companies also benefit from the plans, which provide both tax benefits and a perquisite that they can offer to executive recruits. Brockhurst says that nonqualified plans are particularly advantageous as a retention incentive as well. “They can be golden handcuffs,” he says. “While you’re entitled to your own money that’s in the plan, you’re not necessarily entitled to the corporate match. And you can’t roll your nonqualified savings into another plan, so if you leave, you have to pay the tax then.”

    And while Enron helped create a sensationalized image of nonqualified plans as under-the-table payoffs for a select few fat cats, the reality at most companies is considerably different. For one thing, federal regulations are a bit vague about who should be eligible for the “top hat” exemption, except to say that an eligible employee must be “highly compensated.” In the Clark study, 44 percent of the companies granted nonqualified benefits to staffers with annual compensation of $100,000 or more, which indicates that some senior managers as well as executives are getting access to such benefits. Additionally, most companies are merely giving highly paid employees a chance to save their own money and defer taxes. About 85 percent of the companies in the Clark study stated that they allow executives to defer part of their compensation in a nonqualified plan, and 93 percent allow participants to defer bonuses and other short-term incentives. In contrast to 401(k) plans, for which 96 percent of employers made matching contributions to employees’ savings, only 41 percent of the companies contributed to executives’ accounts in nonqualified plans.

    The trade-off is that the benefits don’t enjoy the same regulatory protection that traditional pension benefits have. If a company goes bankrupt, for example, employees’ qualified pension benefits are insured under federal law. An executive with nonqualified benefits, however, simply becomes another general creditor in the bankruptcy, which probably means that he or she will lose that money.

    “At Enron, what they tried to do was work out a device to eliminate the risk,” Brockhurst says. “That basically was eliminating a key element of what a nonqualified plan is supposed to be.” Additionally, Enron paid an early distribution to its favored few without deducting a penalty–known in accounting parlance as a “haircut”–from the money, as most companies do. Such maneuvers, however, are likely to become a thing of the past. The Joint Committee’s report recommended that Congress rewrite the laws and subject nonqualified benefits to federal taxes if a company allows early distributions.

    A few companies have played fast and loose with business ethics in other ways, consultants say. Some have attempted to use offshore trusts to put executives’ retirement benefits out of the reach of U.S. tax collectors, Brockhurst says. Others have sweetened executives’ nonqualified retirement benefits by giving them credit for more years of service than they actually have worked, a recent AFL-CIO study reports. Brockhurst insists that such abuses are relatively rare. “At 99 percent of companies, the executives retire, take their payouts, the IRS gets its share and the company gets a tax deduction,” he says.

    With nonqualified benefits increasingly subject to regulatory scrutiny, consultants say that companies should take a careful look at their plans to make sure there aren’t any potential problems. One particular red flag: nonqualified benefits plans designed for particular executives, or negotiated by them. The worst-case scenario, Longnecker says, is an executive at a struggling outfit who tries to renegotiate his benefits package. “It’s one thing if he’s doing a good job and he says, ‘I want more.’ But if the company is stagnating, you may be in a situation where a guy is panicking and thinking that he needs to line his pockets because he’s going to be on the outside soon. That’s something you need to watch out for.”

    Pete Neuwirth, a senior vice president, Human Capital Practice at Clark Consulting in Berkeley, says that companies can avoid such problems by offering all executives the same nonqualified benefits package. “The guiding principle is ‘keep it simple,’ ” he says. “The fewer complications that you build into the plan initially, the fewer problems you’re likely to have down the road.”

    It’s also essential to think carefully about how nonqualified benefits plans may appear to employees and shareholders. Given recent headlines about underfunding of traditional defined-benefits pension plans at many U.S. companies, it’s risky to even appear to be giving executives excessive pension benefits, whether or not the two issues are directly related. (The presently underfunded plans remain federally insured, and regulators can compel companies to increase their funds’ reserves. Nonqualified plans, in contrast, enjoy no such protections.) Longnecker recommends a corporate communication campaign to explain to everyone, both inside the company and out, what sort of benefits are being offered to executives and why the deal is fair.

Workforce Management, March 2004, pp70-72. 15 — Subscribe Now!