Author: Rachael King

It’s 2:30 on a rainy Saturday afternoon in Pittsburgh, and Steak n Shake is packed. The hostess welcomes us and glances around to see if there’s a vacant table for three in the non-smoking section. After she spots one in the back, we weave through tables of middle-class Pittsburghers, young and old, eating steak burgers and drinking large glasses of hand-dipped milkshakes topped with whipped cream and cherries. To our right, a young couple makes a shopping list and riffles through coupons while eating lunch. After about 10 minutes, our server finally appears and apologizes for the wait, saying she didn’t see us because we were sitting at a table in the back.

    If CEO Peter Dunn could see how crowded this restaurant is–well after the lunch rush and on such a dreary day–he’d be thrilled. When Dunn took over as president of Steak n Shake 18 months ago, he began reshaping the company. The goal was to turn around the company and, ultimately, fuel an expansion. Earnings had slipped in 2001 and management turnover stood at 50 percent. By the first quarter of 2003, crew turnover topped 200 percent.

Payoff of reducing turnover
    Last year, as Dunn implemented his plan to better support employees, the crew turnover rate began to fall. In turn, guest satisfaction improved, as measured by Mystery Shops. During the first quarter of 2003, crew turnover reached 213 percent, and guest satisfaction measured 81.2 percent. By the third quarter, crew turnover had dropped to 192 percent, while guest satisfaction increased to 86 percent.

    If Steak n Shake can reduce crew turnover, it stands to reason that guest satisfaction will continue to improve, as will profits. The company’s turnover rate is markedly higher than that of other restaurants in the fast-casual segment. The People Report 2003 Survey of Unit Level Employment Practices showed that the average turnover rate in the fast-casual segment is 129 percent. During the last quarter of 2003, Steak n Shake’s crew turnover rate went down to 188 percent, but it’s still 59 percentage points higher than the industry average. The company has told investors that it can save $2 million to $4 million per year if it can only convince more frontline workers to stick around.

    So far, the company has made nominal attempts to make the workplace more appealing to employees, such as offering a self-funded dental and vision program to associates and increasing training for frontline employees. Still, the company has yet to address one of the major issues in the restaurant business: understaffing.

Satisfied Employees + Happier Guests = Bigger Profits
    Dunn’s plan to revamp Steak n Shake centers on an idea he calls the Virtuous Cycle–better known as the service-profit chain. The service-profit chain “establishes relationships between profitability, customer loyalty, and employee satisfaction, loyalty and productivity,” according to a 1994 Harvard Business Review article. This concept is based on the idea that loyal customers are the result of customer satisfaction, which comes from the value that loyal, contented employees provide. The writers of that article estimated that the lifetime revenue from a loyal pizza eater could amount to $8,000. A Steak n Shake customer could spend as much as $25,000 over a lifetime at the restaurant, according to Vic Yeandel, vice president of marketing and investor relations.

    The idea of creating a customer-focused environment is actually a return to the company’s roots. When Steak n Shake founder Gus Belt started the restaurant in 1934 in Normal, Illinois, he paid particular attention to customer service. He’d wait until rush hour and roll in a barrel of steaks–including round steak, sirloin steak and T-bones–and then grind them into burgers right in front of guests sitting at the counter. Belt also put the milkshake machines in the front window, so passersby would want to stop for a frosty shake. The friendly service kept customers returning, and before long, Belt started to expand.

    Today, the burgers at Steak n Shake are still ground from various types of steak and the food is still served on china in a diner-like atmosphere. Steak n Shake occupies a niche: a full-service environment with food that people are accustomed to eating in fast-food restaurants. “If the service is bad, all you’ve got is an expensive burger,” says Yeandel.

Involving managers in decisions
    Steak n Shake says that holding down management turnover can provide a savings of $1 million to $2 million per year. The company couldn’t say how much turnover has to be lowered to achieve that savings. Nearly a year after Steak n Shake began to pay attention to employee satisfaction and invested in training and development, the company is making progress in retaining managers. Management turnover now stands at about 30 percent. “Steak n Shake’s focus on labor, staffing and training has helped its bottom line and will continue to do so,” says Amy Greene Vinson, vice president of equity research at Avondale Partners LLC.

    Holding down turnover and grooming manager/management talent also enables the company to open more new units, says Vinson. This, she says, is the key to the growth of Steak n Shake and probably one of its biggest challenges for the foreseeable future.

    Steak n Shake’s Yeandel says management turnover is decreasing because the company has started to include managers in making decisions on how to increase revenue and efficiency. For the first time ever, Steak n Shake has given its store managers books with all sorts of statistics about the individual restaurant, such as which products produce the most revenue and profit. The information also includes turnover rates, customer-satisfaction data and drive-thru efficiency. The company has asked each store manager to come up with a plan for his or her store and to share it with frontline employees. Instead of having store goals set for them, managers now help to make those goals and feel more invested in them, says Yeandel.

“Benefits do matter”
    The challenge for 2004–one the company openly acknowledges–is to reduce frontline turnover. To that end, the Indianapolis-based company began a self-funded dental and vision plan for associates this year, which can help workers reduce dental and vision expenses by 50 percent. Quick-serve restaurants that offer dental insurance to employees have a lower turnover rate (about 176 percent) than those that don’t (195 percent), according to Dr. Joseph “Mick” Michael La Lopa, who has studied how turnover rates are affected in Indiana restaurants when benefits are provided to part-timers.

    “Benefits do matter,” says Teresa Siriani, president of People Report, a consulting firm that specializes in workforce-management metrics, trends and best practices for the food-service industry. The company’s 2003 survey of hourly turnover found that restaurants that offer dental, health care and 401(k)s have on average a turnover of 104 percent, compared with 128 percent for those companies that don’t offer such benefits. Siriani also recommends that companies survey frontline workers, which Steak n Shake is beginning to do. The company won’t release details about that survey. Theannual report, however, describes steps that frontline workers can take to provide anonymous, candid feedback to store management.

    Steak n Shake already offers its frontline employees medical and life insurance; supplemental and dependent life insurance; short-term disability insurance; vacation pay; meal allowances; a 401(k)/profit-sharing plan; and a referral bonus program. Life insurance is the cheapest benefit and produces the greatest reduction in turnover, says La Lopa, an associate professor at Purdue University. Restaurants that offer life insurance have a turnover rate of about 156 percent, versus 196 percent for those that don’t offer it. “People who go to work and have kids want to know that there will be some money for their kids or spouse to deal with the loss financially,” he says.

“Part of a whole”
    A comprehensive orientation for new hourly workers can also help reduce turnover significantly. Siriani says companies that spend an average of one to two hours on employee orientation have 120 percent turnover; companies that spend two to four hours on orientation lower turnover to 105 percent; and those that spend four or more hours on orientation enjoy an even lower turnover of 86 percent.

    Steak n Shake might also be able to increase its return to shareholders if it can improve something called the employee “line of sight,” or the ability of employees to make connections between their job and the company’s business goals. “To what extent does somebody understand that the work they’re doing is part of a bigger whole?” asks Scott Cohen, national practice leader of talent management at Watson Wyatt.

    “Organizations that have a much greater line of sight actually show four times the total return to investors,” Cohen says. Steak n Shake can assess its employee line of sight by determining if employees understand the company’s business goals and the steps necessary to actually achieve those goals. The way to assess this is throughsurveys, following up with focus groups if necessary. About a decade ago, Sears Roebuck went so far as to develop a board game that helped teach employees about its business, says Cohen. A more modern way of generating this kind of communication is through intranet chat rooms where employees can ask questions about the business and give senior leaders a snapshot of working conditions in restaurants.

The elephant in the room
    Studies show that stores with satisfied employees outperform those with unsatisfied employees, and turn larger profits. AtTaco Bell, the stores in the top 20 percent for employeeretention were 55 percent more profitable than those in the bottom 20 percent, wrote James Heskett, Earl Sasser and Leonard Schlesinger in a 1997 book titled The Service Profit Chain: How Leading Companies Link Profit and Growth to Loyalty, Satisfaction and Value.

    But what is it that workers really want from employers? “It’s simple–it’s really to deliver on the promise,” says Purdue’s La Lopa. “Companies like Steak n Shake promise incoming managers that they’ll grow with the company, their salary will increase, they’ll have days off, they’ll have the support and resources they need–that’s the promise,” he says. “The minute they sign on the dotted line, they become victimized by churn and burn–the opposite of what they’re promised.”

    In fact, the staffing numbers at Steak n Shake show that although the number of restaurants is increasing, staffing isn’t increasing at the same rate. SEC filings reveal that in 2002, the company operated 404 restaurants, with a total of 20,000 employees–an average of 49.5 employees per unit. In 2003, the number of restaurants jumped to 413, but the total number of employees stayed steady at 20,000, giving an average of 48.4 workers per unit, the lowest number of workers per unit since 1997.

    “By not hiring enough workers, companies shoot themselves in the foot three ways,” says David Lee, president of HumanNature@Work. First, overworked, stressed-out employees give lousy service. Second, employees see understaffing as senior management not caring about them. Third, employees want to feel proud of their employer, and when management doesn’t staff adequately yet touts the importance of great customer service, employees lose respect for their employer.

    La Lopa agrees that when the staff is overworked, the burnout rate becomes high. “All employees at every shift have to work twice as hard to provide high-quality service,” he says. “This happens every single day in restaurants throughout the U.S.–it’s a tragedy.” As it happens, our server at the Pittsburgh restaurant is extremely friendly and even takes a minute to talk to my daughter about her toy pony. Still, she seems overloaded with guests.

    The company won’t say whether it plans to increase hiring of associates. Steak n Shake’s annual report says the company continues to improve its labor-scheduling system to better deploy its employees when the restaurants are crowded.

    In the end, La Lopa says, all these retention efforts could actually lower food costs. “Restaurants give away so many meals every day because they’re understaffed–it’s service recovery. A trained staff isn’t making mistakes, ‘comping’ meals or redoing orders.” The companies that understand this principle–such as Applebee’s, Outback Steakhouse and The Cheesecake Factory–and keep promises to employees enjoy a higher profit, he says.

Vital signs improving
    The company’s overall financial picture appears to be improving, partly because of a slightly more stable workforce. In 2003, Steak n Shake opened 13 new restaurants, bringing its total stores to 413. This year, the company expects to open 15 to 18 new restaurants. For every 10 successful new stores that Steak n Shake builds, the company adds $2 million to $3 million in profit.

    Although the company has had to close some underperforming restaurants, same-store sales–a particular barometer of health in the fast-food industry–are on the way up. The company hit a low in the first quarter of 2003, with same-store sales dropping to -4 percent. By the fourth quarter of last year, however, same-store sales had increased by 12 percent. That crowded Pittsburgh restaurant reflects a nationwide trend.

Diana Andersen wanted to eliminate the shoebox effect. Employees at Zions Bancorporation would collect their receipts for visits to the doctor’s office or for their children’s day care in shoeboxes to submit for reimbursement from their flexible spending accounts. Andersen, the company’s vice president and director of corporate benefits, worried that the inefficient and cumbersome process for reimbursement dissuaded employees from using flexible spending accounts.

    Three years ago, Zions began offering employees debit cards so they could pay for medical or child-care expenses directly from their flexible spending accounts. The first year, enrollment went up 75 percent, Andersen says. Currently, 40 percent of Zions Bank’s 8,500 employees are enrolled in flexible spending accounts, way ahead of the average 15 percent participation among companies nationwide. About 1,200 employees use FSAs for child-care expenses, and 3,000 use them to pay for trips to the doctor or pharmaceutical meds.

    Zions Bank uses debit cards from a company called MBI, based in Waltham, Massachusetts. MBI offered the first Flex Convenience debit card in partnership with MasterCard in 1998. These are limited-access cards that work only with pre-approved merchants, so, for example, an employee would not be able to use an FSA debit card at a restaurant. Two other companies, Evolution Benefits Inc. and SmartFlex LLC, also offer debit cards for benefits programs.

    Companies are giving employees debit cards to access funds for flexible spending accounts, health reimbursement arrangements, transportation reimbursement plans and educational assistance programs. Currently, 350,000 employees use MBI’s cards–mostly for flexible spending accounts–but that number is expected to increase to more than a million by the first quarter of 2004.

Why the trend
    Several forces are converging to create this projected increase in debit card usage. First, the IRS issued a ruling in May that officially sanctioned using debit cards for FSAs. Second, the IRS issued a ruling in September that allows employees to use funds from flexible spending accounts for over-the-counter medications. Third, the use of health reimbursement arrangements is increasing as conventional health plans become more expensive to fund.

    Western Digital, a company that sells digital-storage products, is allowing its employees to use debit cards to purchase over-the-counter medications, in line with the IRS’s September ruling. “Given the fact that increasing numbers of prescription medications are going over-the-counter, employees using these medications are paying significantly higher out-of-pocket costs, frequently four or five times the amount that they paid as a prescription co-payment when these medications were covered under their health insurance plans,” says Sandie Sekely, corporate benefits manager for Western Digital.

    Of the 2,000 workers that Western Digital employs, about 22 percent participate in FSAs. The company saw an increase in FSA participation this year when it introduced the convenience of paying for health-care expenses with FSA debit cards, says Sekely. While employees will be able to use those cards to purchase over-the-counter medications, they will still have to turn in receipts for those medications later. The IRS rules dictate that there must be detailed receipts so employers and third-party administrators know that the employee was buying cough medicine and not shampoo.

    MBI has come up with a way around this rule. Employees can purchase medications online, through a pharmacy called Familymeds, and don’t have to submit receipts because MBI can verify those transactions.

Health and transportation
    Debit cards are also convenient for companies that have moved or are thinking of moving to a health reimbursement arrangement plan. Fletcher Thompson, an architectural, engineering and interior design firm in the Northeast, decided to switch to an HRA last February. Although HRAs can be structured in a number of ways, Fletcher Thompson chose an insurance plan with higher premiums to stabilize its costs. Co-pays for office visits increased from $15 to $30.

    “We didn’t want to pass those increases directly to employees,” says Susan Pellerin, Fletcher Thompson’s director of human resources, “so we gave them a specific amount of money to pay co-pays.” For instance, the company gave Pellerin, a single employee, $600 on a debit card. At that rate, she could visit the doctor 20 times a year and still not pay a dime out-of-pocket. Similarly, “if employees don’t use it, the company doesn’t have to fund it,” she says.

    The debit cards work at hospitals, pharmacies and doctor’s offices. “Ninety percent of the time, MBI’s debit cards work well,” says Pellerin, adding that there are some minor glitches, times when something might not get validated that should. Usually, these problems can be easily resolved by just sending in the receipt manually, she says.

    Companies are finding that debit cards can help with transportation reimbursement plans. National-Louis University, based in Chicago, offers a transit program to employees, and so far about 49 of the 116 employees enrolled in its FSAs use debit cards to pay for bus or train fares.

    Dow Jones also uses debit cards for its employee transit program. “We now have well-known household names using this product: the NFL, PGA Tour and WorldCom,” says Victoria Nipple, the COO of MBI. “We have gone past the early-adopter stage,” she says. “Companies are saying, if it’s good enough for Dow Jones, we should take a look at this.”

J oel Seguine’s psychotherapy bills add up fast. A few years ago, he discovered that by signing up for a flexible spending account with his employer, the University of Michigan, he could use pretax dollars to pay for his $90 sessions. While he’s not quite sure how much he saves by depositing $3,600 in his flexible spending account each year, he does know that he winds up with a little extra cash in his pocket. “It sure is nice to get that money back and reduce taxes at the same time,” says Seguine, a manager of administrative news at the university.

    Thanks to a September IRS ruling, Seguine’s flexible spending account just got a little better. Now he can use the funds to cover over-the-counter medications. “Anything that allows you to have reimbursement for your medical needs is a boon, and that makes this particular benefit that much more attractive,” he says. He hopes that he’ll be able to use pretax dollars to buy breathing strips, which help reduce snoring, since it’s a regular purchase for him.

    Seguine is among the approximately 15 percent of University of Michigan employees who enroll in flexible spending accounts each year. Of nearly 30,000 employees at the university, only 3,506 opted to use FSAs to pay for doctor’s visits and prescription medications in 2003. And only 1,102 employees are currently enrolled in FSAs to pay for preschools, day care, summer day camps or elder care.

    Marty Eichstadt thinks that more employees could benefit from using flexible spending accounts. As the university’s benefits director, she began a campaign this year to interest employees in using pretax dollars for health-care and dependent-care expenses. “Our real concern is enabling our employees to use their resources in the best way possible,” Eichstadt says. In September, her campaign got a boost from the IRS. The agency issued this ruling to address the fact that many former prescription drugs such as Claritin, an allergy medication, and Prilosec, a heartburn medication, are now available over the counter, so they’re not covered by prescription-drug plans. By using pretax dollars, employees can save up to one-third of the price of these medications, depending on their tax bracket.

    On September 12, Eichstadt’s office sent an e-mail message to faculty and staff at the University of Michigan about the new ruling: “The new IRS ruling allows reimbursement for over-the-counter medications, tax-free (federal) when the OTC product is used for medical purposes.” Examples of medications that qualify under this definition include allergy and heartburn medications, smoking-cessation products, pain relievers, cold medicines, cough syrups, topical steroids and contraceptive products. Eichstadt’s message noted that certain items would not be covered under the new IRS guidelines, including over-the-counter products that are not medicines or drugs and merely benefit the general health of an FSA participant. These items include cosmetic products like face cream, toiletries such as shampoo, and dietary and herbal supplements.

    It’s too early to tell if Eichstadt’s campaign and the new IRS ruling have substantially increased enrollment in FSAs because the final numbers won’t be in for a few weeks. But looking at the preliminary numbers, she says that an increase is likely.

Low participation in FSAs overall
    The FSA enrollment level at the University of Michigan is typical for an employer. On average, employers that offer FSAs sign up only 15 percent of their eligible employees. “It’s a tragedy it’s so low; it can save you an enormous amount of money,” says Tom Billet, senior consultant at Watson Wyatt. “Many people are afraid of the use-it-or-lose-it rule, but with a reasonable amount of forethought, that wouldn’t happen.” The new rule is a money-saver for both employers and employees. Since funds placed into an FSA are all pretax dollars, contributions lower an employee’s taxable income. This also lowers the income tax dollars both employers and employees pay to the IRS.

    For large companies such as CenturyTel, the savings can be dramatic. Last year, the 6,000-employee company, which is located in 22 states, paid over $100 million in federal income taxes. Currently, only 10 percent of the company’s employees are enrolled in FSAs. But if the company could increase the level of participation, the organization might be able to reduce its federal income taxes significantly. While CenturyTel wouldn’t give any estimates on its tax savings, companies often save about 10 cents on each dollar invested in a flexible spending account. Of the savings, about 7 cents comes from FICA tax and 3 cents from workers’ compensation. So, assuming that each employee invests $1,000–the average amount that employees contribute to FSAs–CenturyTel would save about $60,000 in taxes per year. However, if CenturyTel could convince 20 percent of its employees to enroll in FSAs, the company would save $120,000 in taxes. “We obviously see it as a benefit for the employee and the company,” says Marina Pearson, vice president of compensation and benefits.

    Eichstadt says that the University of Michigan uses any tax savings to offset the administrative fees it pays to SHPS, the third-party administrator that handles the flexible spending accounts for its employees. “It’s a wash,” she says.

    Smaller companies might not see as dramatic a savings, but still can benefit by encouraging employees to sign up for FSAs. New Edge Networks, for instance, has 286 employees, with 15 percent enrolled in FSAs. The company won’t say exactly how much money its employees contribute to FSAs, but assuming that each employee invests the average amount–$1,000–the company would have roughly $43,000 invested in FSAs each year. “For every dollar invested in FSAs, we see a 7.5 percent tax savings,” says Scott Noren, benefits administrator at New Edge. That works out roughly to a tax savings of $3,225 per year.

    For employees, the tax savings will vary according to the individual. “If you live in New York, it could be worth a 45 percent savings,” Watson Wyatt’s Billet says, factoring into his calculations a 30 percent federal tax, a 7 percent state tax and a 7 percent Social Security tax. New Edge Networks is in the process of moving from an August-July benefits year to a calendar year and so is currently in a shortened benefits season, from August to December. The company was able to offer its employees currently enrolled in FSAs the over-the-counter medication benefit. Scott Noren says that he dug through his old receipts for over-the-counter medications that he’d bought since August 1 and it saved him about 30 percent.

Dual-purpose meds
    The IRS has clearly outlined rules for eligible child-care and health-care expenses for FSAs, but the rules regarding over-the-counter medications are much broader. “While the guidelines provided by the IRS are generally helpful, they’re not as definitive as a list would be,” Billet says. And it’s up to each company or third-party administrator to determine which medications will be covered.

    “There’s confusion caused by the IRS’s lack of clarity with regard to eligible and ineligible expenses and documenting those expenses,” says George K. Reese III, president of FlexAmerica, a third-party administrator. The issue becomes fuzzy around items that serve a dual purpose. For instance, vitamins would not be covered unless they were prescribed for a pregnant woman. Sunscreen could go either way. Some third-party administrators refuse to cover it unless employees get a doctor’s note saying that it’s necessary because of a history of skin cancer. Others argue that sunscreen’s only purpose is to protect against skin cancer, so they automatically cover it.

    “It’s ridiculous what the IRS wants someone to go through to get a reimbursement documented for Advil,” Reese says. For instance, while certain quantities of Advil might be covered automatically, larger amounts, such as a 350-count bottle, might require a note from a physician. “A 350-count bottle of Advil is $14,” Reese says. “As an administrator, how much am I going to spend to see if that’s legitimate?”

Increased use of FSAs
    The new IRS rule is not mandatory. It’s up to each company to decide whether it wants to offer the option to its employees. However, third-party administrators say that most of their clients are interested in using FSAs for over-the-counter medications. Employers anticipate that this will encourage employees to use FSAs. “We expect an increase of 15 to 20 percent,” says Colleen Nelson, a senior benefits consultant at Conexis, a third-party administrator. Currently, employee enrollment among its clients hovers around 14 to 18 percent. “We expect that to increase substantially,” she says.

    Already, this ruling has increased the claims volume that Conexis typically sees. In just the first few weeks that it offered use of FSAs for over-the-counter meds, the company saw claims volume increase by 33 percent. “One out of every three claims is including over-the-counter drugs, and we haven’t actively marketed this yet,” Nelson says. Conexis hasn’t started to charge for an increase in claims, but it’s possible that some third-party administrators will raise rates to cover the administrative costs of processing claims. “We don’t anticipate raising prices at this time,” Nelson says.

    Other third-party administrators have already decided to raise rates. Wausau Benefits in Wisconsin is going to charge an extra 8 percent for companies that plan to include over-the-counter medications. “We think it will be virtually everybody,” says Jay Coldwell, the company’s product director. So far, he says, about 10 percent of its claim volume is for over-the-counter medications, and “it’s growing all the time.” Companies such as CenturyTel that pay their third-party administrators by the claim could be in for a big surprise if volume does increase 10 to 30 percent. It’s too early to guess how many employees will sign up to use FSAs to save money on over-the-counter medications. Once open enrollment is complete, many companies will have a better idea of how many employees will take advantage of the option. “Nobody is really sure how this is going to play out in January,” Coldwell says. “We are going to track the usage so we can do the research.”

Workforce Management, December 2003, pp. 66–68 — Subscribe Now!

As the band roams the hallways at Yum, employees grab noisemakers and fall in behind the tuba, saxophones, trumpets and bass guitar. The crowd grows larger as employees abandon their work, jumping up from their desks to see where the band goes.

    The Random Acts of Recognition Band plays songs you’d hear at a pep rally, except when the crowd would normally yell, “Fight, fight, fight,” employees shout, “We are here to recognize you.” By the time the band stops at the Customer Maniac of the Month’s desk, there are as many as 50 to 100 employees gathered round. The band then gives the chosen employee a card, award or gift certificate.

    Yum–the parent company to fast-food chains Taco Bell, KFC, Pizza Hut, A&W and Long John Silver’s–has spent a lot of energy branding the company as a great place to work. Its motto, in fact, is “Great things start here.” But the company acknowledges that an employment brand doesn’t mean anything if it doesn’t match the experience of employees.

    Along with investing in an employment brand, Yum began investing heavily in employee training. The company now offers quarterly training and is on its way to training 725,000 employees in Yum’s Customer Mania program, which in part empowers frontline employees to resolve customer disputes. The whole program is centered on listening to customers, and it recognizes employees who go the extra mile in the name of customer service. “The No. 1 or 2 reason why people leave companies is that they don’t feel recognized,” says Jenny Bean, employment marketing manager at Yum! Brands Inc.

    Another component of an employment brand is how much employees actually trust the company for which they work, says Mike Temkin, vice president of strategic planning and development at Shaker Recruitment Advertising & Communications. He notes that Watson Wyatt evaluates an employment brand by its share performance. Companies with high employee trust levels outperform companies with low trust levels by 186 percent. Temkin says that an employment brand is more than posters or videos. It’s about maintaining a strong line of communication within a company to secure that trust.

    Judging by Yum’s share performance, its employment-branding efforts are working. When Yum reported its third-quarter earnings on October 7, CEO David Novack said that he was increasing 2003 earnings-per-share guidance to $2.03 before special items and that looking ahead to 2004, he was confident that Yum would continue to deliver its goal of at least 10 percent growth in EPS.

Can’t fake it
    Good employment brands start from inside a corporation, says Christine Johnson, director of employee communications services at Shaker. The way to do that is to figure out what story a company’s employees have to tell. “You can’t make something up,” says Johnson. “If it doesn’t reflect the organization as it exists, the company will have high turnover.”

    “Our employment branding isn’t just to bring people in the door; it’s a message we use every time we touch our employees,” says Yum’s Bean. The message, “Great things start here,” appears on benefits materials, orientation materials and the company’s Web site, on job-posting communications and job applications, and all over store walls. The message that Yum is trying to convey is that the company has been the start of great things for many people.

    To create the branding campaign, Yum went to its employees and listened to what they had to say about the company. What they found was that the company brings upward mobility to many people. Some employees start as team members and work their way up to managing restaurants; others work their way through school using the tuition-reimbursement program.

    With employment branding, the devil is often in the details. A percentage of job applicants will decide to work at a particular fast-food restaurant because as customers they like the environment. Bean didn’t want to then lose those people because the collateral material didn’t reinforce that store quality. So she upped the quality and quantity of point-of-purchase materials such as posters and job applications. She grew the number of hires from point-of-purchase materials from 3 percent to 12 in just over two years.

    All of the creative output comes from Bean’s employment marketing group. They designed an intranet site that is used to share all of the files and materials with the various brands and franchisees around the country. Templates for classified ads, posters and job postings go on that site so she can control the graphic standards for Yum’s employment advertising across the country.

Sending the message
    Employment branding, retention and company performance are inextricably linked. Yum first began to pay close attention to this connection—especially with regard to branding–in 1999, when the labor market was tight. The company took the unusual step of hiring an employment-marketing manager to act as a sort of gatekeeper for its employment brand. It hoped not only to attract workers but also to retain the ones it already had.

    “Regularly communicating with employees, whether it’s quarterly or annually, and recognizing individuals, whether it’s a birthday or an anniversary, shows a return on that investment,” says Teresa Siriani, president of People Report, a consulting firm that specializes in workforce-management metrics, trends and best practices for the food-service industry. Communications that come from senior management to hourly employees can help reduce turnover by 10 to 15 percent, she says.

    Yum operates headquarters–or restaurant support centers, as it calls them–in various cities for each brand. Each restaurant support center recognizes employees in its own way. In many of the offices, for instance, employees fill out “walk the talk” cards that give recognition to a coworker who has done something great. These are posted in cases near the elevators, so people can read them while they’re waiting. Every so often, these cards will be put into a bin, and one is drawn. That’s when the band pays a visit to that colleague at Yum headquarters in Louisville, Kentucky. At Taco Bell’s headquarters, a colorfully dressed woman wearing striped socks pays visits to colleagues on a scooter, handing out awards.

    “Yum is moving in the right direction,” says Rick Garlick, Ph.D., director of strategic consulting at Maritz Research Hospitality. Given the high turnover in the fast-food industry, the challenge is having employment branding be about more than putting up placards in stores. An employment brand is successful if employees exhibit energy, commitment and competence, says Garlick. For that to happen, companies have to invest in training, which Yum has done.

Retention’s effect on sales
    The declining turnover rates at Taco Bell indicate that employees are beginning to feel energy around the Yum brand. In 2000, the turnover rate for hourly workers at Taco Bell was up near 200 percent. By the second quarter of 2003, the turnover rate had dropped to 98 percent, when the fast-food industry average for hourly workers is 120 percent.

    Retention also is reflected in the bottom line. At Taco Bell, the stores in the top 20 percent for employee retention had double the sales and were 55 percent more profitable than those in the bottom 20 percent, wrote James Heskett, Earl Sasser and Leonard Schlesinger in a 1997 book titled The Service Profit Chain: How Leading Companies Link Profit and Growth to Loyalty, Satisfaction and Value.

    As Yum has lowered the turnover rate among hourly employees, it has also delivered better service to customers. Taco Bell recently ranked second in an annual study on drive-thru effectiveness conducted by QSR magazine. Two years ago, Taco Bell ranked 14th.

    Although employment branding is important, it isn’t the silver bullet that will cure whatever ails a corporation. “Many organizations worldwide believe the way to keep people is to conduct internal programs such as employee appreciation, employee of the month and themed lunches,” says Dick Finnegan, chief client services officer at TalentKeepers, a provider of employee-retention solutions to corporations. But, he says, “it won’t work if employees report every day to someone they don’t respect or trust.”

David Reed, former director of recruiting at Accenture, remembers the day last fall when his bosses told him they were outsourcing his job. It wasn’t personal; Accenture management had just decided to outsource all of the company’s recruiting to its subsidiary, Accenture HR Services.

    “I struggled with the idea that somebody else could do my job better,” Reed says. Initially, he reacted defensively, wondering, “How can an outside organization do this better, cheaper and faster than I can?”

    Recruiting directors all across the corporate world may be asking themselves the same question soon. Currently, only about 9 percent of companies outsource large portions of organizational recruiting, according to a Staffing.org poll, with about 57.6 percent planning to increase their large-scale outsourcing.

Sodexho’s reduced time-to-fill
    One company that recently took the plunge into outsourced recruiting is Sodexho, a $4.5 billion global food and facilities management services company with 130,000 employees in North America. As of September 2003, Sodexho began to outsource the hiring of all exempt employees across all of its divisions in North America to Spherion. Two years ago, Sodexho began working with Spherion on a pilot program in its campus division. Since then, the company has discovered that Spherion can recruit employees more cheaply and more efficiently than Sodexho can.

“Recruiting is not our core competency,” says Diana Newmier, corporate VP of human resources at Sodexho, which hires more than 2,700 managers each year.

    “Recruiting is not our core competency,” says Diana Newmier, corporate VP of human resources at Sodexho, which hires more than 2,700 managers each year. “Spherion comes in and does for us what we do for other businesses in the food-services industry–we make them more efficient and reduce their costs.”

    Initially, Sodexho set a goal of 31 days for its average time to fill a job. Spherion far exceeded that goal, with an average time-to-fill of 16.3 days. In addition, Sodexho now has a fixed cost-per-hire, which makes it easier to plan financially, says Newmier. Still, she admits that change management–and helping hiring managers get used to the idea of outsourcing–is extremely important. Sodexho started with a pilot program, trying to prove to other departments that outsourcing can work.

Accenture’s 20 percent savings
    It took Accenture’s Reed about six weeks to come around to the idea of outsourcing recruiting. It probably helped that Accenture HR Services offered him a position as vice president of resourcing services, North America. But the decision to outsource wasn’t a sudden one. Since May of 2001, the company had been outsourcing some of its back-office recruiting functions such as background checks and production of offer letters. Outsourcing recruiting was simply the final step.

    Today, Reed has changed his mind entirely about outsourcing recruiting. “It’s virtually impossible for an in-house function to make the kind of investment in skills and knowledge and technology that a company who’s working across clients can,” he says. During this fiscal year, Accenture HR Services will hire between 5,000 and 6,000 new employees in North America for Accenture. “The cost-savings target we are on the hook to achieve is greater than 20 percent,” says Reed.

Kellogg’s culture change
    Cost savings can go even higher. Recruitment Enhancement Services has helped Kellogg’s reduce its cost-per-hire by more than 64 percent since they started working together in the late 1990s. Today, RES fills 95 percent of available jobs at Kellogg’s, versus only 10 percent in 2000. By February 2003, RES had reduced Kellogg’s average time-to-hire from 67 days to 26 days. “Kellogg’s owns the strategy behind staffing–we outsource the execution–but it has been a very positive thing for us,” says Cydney Kilduff, director of staffing and diversity at Kellogg’s, who was hired to implement the company’s decision to outsource recruiting.

    Still, Kilduff faced her share of challenges in the beginning. At first, the sweeping changes didn’t go over well with hiring managers. The company had been through a downsizing, and hiring managers were wary of further change. Since Kilduff was new to the company, she was also just beginning to learn that the corporate culture at Kellogg’s values relationships, many of which had been established between hiring managers and outside search firms. “I thought we were asking people to stop spending all that money [on search firms], but I was asking people to give up relationships they thought were important,” she says. “We had to shift their thinking about relationships and create new relationships they could also value.”

    Kellogg’s had pretty much eliminated its recruiting department in anticipation of outsourcing. That meant that when the company needed to hire again, RES had to hit the ground running. “All of a sudden they wanted us to handle hiring,” says Barry Siegel, president of RES. Both Kilduff and Siegel say that, given the opportunity to do it again, they would approach it more gradually. “The big lesson is to pilot and work out the bugs on a smaller scale,” says Kilduff.

Baby steps
    Experts generally agree that inducing a large change all at once is stressful for employees. It’s better to introduce change slowly. For Sodexho, that meant starting with a pilot program implemented by George Koenig, vice president of human resources for Sodexho Campus Services. After Koenig had successfully implemented outsourced recruiting in his department, management could use his experience as a positive example for other employees.

    If indeed the rebounding economy will soon yield more jobs, as some predict, corporations may have to think about outsourcing recruiting sooner rather than later. “Companies are not well positioned for an economic rebound or the coming demographic crunch [when baby boomers retire],” says Accenture’s Reed. “They will have to do something quickly,” he says, adding that most companies don’t want to rebuild the recruiting infrastructure they’ve hacked apart in recent years.

On a recent Friday night, 15 or so young people crowd into a chat room, posting questions and answers in such rapid-fire sequence that it becomes difficult to follow a single thread of conversation. Some eager participants repeat their questions two or three times before getting a response, and a few complain about being ignored and abruptly leave the room.

    A visitor might initially think he’s landed in a Yahoo singles chat room, except this is GoArmy.com, the recruiting Web site of the U.S. Army.

Big, big money
    In the fiscal year 2003, the Army will spend $250 million to recruit just over 100,000 new soldiers for active duty and the reserves, which makes it the largest recruiter in the country. Of all the forms of advertising the Army tracks, its Web site is the most successful at attracting new soldiers. About 4.4 percent of leads that come to the Army from the Internet will actually convert to signed contracts. Since October of last year, the Army has received 189,000 leads from the Internet. Once a visitor actually enters GoArmy.com’s chat room, the conversion rate jumps to 10.4 percent.

“The largest corporations could easily take this as a lesson in creating an experience for the job seeker that is guaranteed to produce results,” says Gerry Crispin, principal of CareerXroads, international consultants on staffing, process, technology and strategy.

  The challenge for the Army–and corporations–is to entice potential job candidates but to also give them a realistic picture of what it’s like to work there. “The problem of overselling in a corporate environment is different than in the Army,” Crispin says. “If you get the person to sign up in the Army, they’re legally obligated for the next three to five years. [But in a corporate environment], if you’ve oversold me and I walk in the door and find out you didn’t tell the truth, I turn around and walk out. I don’t stay three to five years.”

Day in the life
    Crispin and other experts say that you should give job candidates realistic expectations right off the bat. One way to do that is to show candidates the kinds of people who work in an organization and what a typical day is like for people in various positions. Instead of trying to be an employer of choice to everyone, organizations should clearly outline the types of candidates they seek, says Nick Burkholder, president of Staffing.org, a nonprofit organization.

    In a 2003 Benchmark Report, Staffing.org found that when organizations communicate the reality of their work environment, it improves their recruiting effectiveness, including the interview-to-offer ratio, offer-to-acceptance ratio and acceptance-to-start ratio. “There are even indications that it helps with retention too,” says Burkholder.

    The more information that candidates possess, the easier it is for them to determine whether a company fits their needs, a process called self-selection. For instance, theNational Security Agency takes the secrecy out of what it does by showing would-be spooks the six career paths it offers and the skills required for those positions. Other companies whose Web sites try to drive self-selection includeBurger King,Vanguard,Disney,Marconi andCorning.

    The Army’s recruiting Web site, GoArmy.com, tries to drive self-selection by featuring profiles with lots of pictures and video demonstrating the experience of various soldiers in the Army. The Web site took its current shape in January 2001, with the launch of the “Army of One” advertising campaign. Along with profiles, the site features basic information about jobs and life in the Army. And, of course, there’s America’s Army, a PC video game described as “highly realistic.” The tag line says you can “gain experience as a U.S. soldier without leaving home.”

    It’s a controversial topic. Some bristle at the thought of including a game on GoArmy.com, saying it doesn’t give young people a realistic idea of the risks associated with working in the Army. “War is not a game and it’s not safe,” says Bob Fitch, a coordinator of the draft and military alternatives program at the Resource Center for Nonviolence. “As the young men and women are testifying in the newspaper today from Iraq, they’ve experienced the anguish of killing people that are civilians and not army and are experiencing the anguish of death around them…this is not virtual reality,” he says. “Whether one enlists as a medic or a truck driver or clerk or pilot, it’s all the same.”

    The Army downplays the game as a recruiting tool, saying that potential soldiers are more interested in the soldier profiles and being able to ask questions of recruiters, who are former or current soldiers. Many candidates show a great deal of interest in Basic Training, a Web series that follows six recruits through nine weeks of boot camp. “One of our reasons for starting with Basic Training as a subject was that our research showed this was one of the things that put people off, scared them about the Army,” says Louise Eaton, a media chief in the Army.

Filtering people out
    In September, the Army will add another Web series to GoArmy.com–called 2400/7–which follows nine soldiers around the clock. One of the Army’s recruiting challenges is to differentiate itself from its sister services, and this series highlights the variety of career fields in which soldiers can serve. “All of the other services added together don’t equal the size and scope of the options we offer,” says Eaton.

    Still, even Eaton admits that because the advertising campaign resonates so well with young people, it does at times encourage a response from individuals who are not qualified. The Army uses the chat room to filter those people out, saying that its cyber-recruiters can be brutally honest. Indeed, the Friday-night chat in August included a Swedish man named Morgan who wanted to enlist in the U.S. Army. The recruiters told him that he needed a green card before he could apply.

    Another would-be soldier, with the screen name ArmyBratt, had just been caught shoplifting $35 worth of merchandise that day and wondered whether he would still be eligible for Warrant Officer Flight Training, also known as the high-school-to-flight-school program. The recruiters didn’t hesitate to tell ArmyBratt that while he could still enlist in the Army once the charges were cleared, admission to the flight school program is so competitive that he shouldn’t bother to apply with shoplifting charges against him.

    Even with all this honesty, somehow the discussion of would-be soldiers actually going to war fails to come up during a half-hour spent in the chat room. In fact, GoArmy.com stresses themes like individual fulfillment, adventure and teamwork but does not address the battlefield, or the fact that soldiers may indeed risk their lives for their country.

    What the Army has accomplished, though, is the creation of a site that is “enormously engaging for a 16-year-old male,” says CareerXroads’ Crispin. “By the time they’re 18, they can’t think of doing anything but joining.”