Author: Site Staff

CFOs on Wall Street have been walking away from the bonuses that typically made them some of the highest-paid finance officers in the country.

The trend continued Monday, December 8, when Merrill Lynch indicated that finance chief Nelson Chai has elected to forgo his annual bonus payment.

Chai’s action follows a similar move last month by Goldman Sachs’ top management, including CFO David Viniar, who was ranked as Financial Week’s top-paid CFO last year with a $58.5 million package.

Merrill Lynch said in a statement Monday that Chai, along with CEO John Thain and three other top executives at the company, had requested that Merrill’s board not award them any bonuses for 2008, a year in which the company’s stock price declined by roughly 30 percent. The brokerage was officially acquired by Bank of America on Friday after Merrill and BofA shareholders approved the transaction.

The bonus back-offs at Merrill come after a report in The Wall Street Journal suggested Thain had requested a bonus of as much as a $10 million. The article said Thain thought he deserved a bonus because he helped avert what could have been a much larger crisis at the company.

Either way, total compensation for Merrill Lynch executives this year will be a far cry from what they made last year. Indeed, the brokerage’s top officers earned more than $90 million in combined bonuses, stock and options awards in 2007. Chai, who joined Merrill in December 2007, earned a $1.25 million bonus for 2007, according to the company’s proxy filing.

Meanwhile, executives at Morgan Stanley will receive substantially lower bonuses for 2008, with CEO John Mack and co-presidents Walid Chammah and James Gorman asking the board Monday to forgo their bonuses entirely for the year.

The 14 members of Morgan Stanley’s operating committee—which includes CFO Colm Kelleher, one of Financial Week’s highest-paid CFOs for 2007—will receive total compensation packages that are worth 75 percent less, on average, than their pay last year.

Kelleher was paid $11.7 million in total compensation for 2007, which means he would be in line to take home roughly $2.9 million in total pay for 2008.

Now that Goldman, Merrill and Morgan Stanley executives have chosen to forfeit their bonuses for a dismal 2008, all eyes will turn to Citigroup.

Last week it was reported that executives at the bank—including CFO Gary Crittenden—would give up their bonuses. As of yet, however, there has been no formal announcement of the move.

If Citi were to follow its rivals, Crittenden would see his pay dramatically reduced. Nearly three-quarters of his nearly $20 million in compensation last year came from his bonus. Crittenden came in at No. 5 on Financial Week’s list of top-paid finance officers in 2007.

The highest-paid non-bank CFO on the list was Occidental Petroleum’s Stephen Chazen. Of his nearly $30 million in total compensation, Chazen received a bonus of just $633,600.

Filed by Mark Bruno of Financial Week, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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Given the dramatic dive in the U.S. equity markets this year—and the ever-present risk of being slapped with a stock-drop lawsuit during a downturn—companies are looking for ways to protect both themselves and their workers from too much exposure to company stock in 401(k) plans, according to sources throughout the retirement industry.

One potentially straightforward solution to the problem: Close off company stock funds to plan participants until a corporation’s financial health improves or becomes a bit more certain.

“In very volatile industries, where there are real concerns about an employer’s financial well-being and viability, allowing your workers to invest their retirement savings in company stock may not prove to be a prudent investment option,” said Robyn Credico, head of the defined-contribution practice at Watson Wyatt Worldwide. “With participants already suffering significant losses, this could make employers even more vulnerable to litigation.”

American International Group, Bear Stearns, Fannie Mae, Fifth Third Bancorp, Hartford Financial Services, Lehman Brothers and Wachovia, to name a few, have already been the targets of stock-drop lawsuits or investigations.

Yet some of these companies had made efforts earlier to wean workers off company stock. Lehman, for one, reduced the maximum amount of company stock that workers could hold in its employees’ common stock fund, to 20 percent from 50 percent, and stopped steering its contributions into the fund.

Such changes, however, might not go far enough. Credico and other consultants report a movement by large corporations in recent months to bar workers from investing in company stock.

The most notable example: General Motors, which late last month revealed in a memo to workers a “trading blackout” on GM’s common stock in two defined-contribution plans for executives and directors. The freeze will remain in place “for the foreseeable future,” a GM spokeswoman said.

One interesting wrinkle here: The decision to suspend purchases of company stock was not ultimately made by GM executives. Rather, officials at State Street Bank & Trust, which serves as the independent fiduciary to GM’s stock plans, determined that “due to GM’s recent earnings announcement and related information about GM’s business, it is not appropriate at this time to allow additional investments by participants [into the GM plans].”

Ever since the tech bubble popped earlier this decade, large companies increasingly have hired independent outside fiduciaries that serve as the outsourced decision makers for any moves involving company stock as it relates to employee holdings, said Marina Edwards, a senior consultant at Towers Perrin. “Their role is to be an objective watchdog for participants, and exercise control over company stock when necessary.”

The presence of these outside players, combined with the recent rapid declines in many public companies’ share prices—the companies in the Dow Jones Wilshire 5000 are down a collective 45 percent for the year—could spark a big drop in the number of employers offering company stock in their retirement plans. And this is no small group: Roughly 77 percent of large corporations have a company-stock option in their plans, according to consulting firm Hewitt Associates.

Observed Credico: “Many executives have, in the past, been reluctant to get rid of their company-stock option because it may not send a great message to the markets. An independent fiduciary, in theory, should eliminate any such inherent conflicts in managing company stock.”

Corporations that have allowed their workers to invest in company stock during this period will likely wind up vulnerable to lawsuits from participants, said Pam Hess, Hewitt’s director of retirement research. “Company stock still accounts for a significant portion of people’s retirement savings—and participants will want to do what they can to recoup some of those losses.”

Filed by Mark Bruno of Financial Week, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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Illinois Gov. Rod Blagojevich, who was arrested Tuesday, December 9, for allegedly trying to sell President-elect Barack Obama’s vacated Senate seat, considered a deal that would make him the head of a 6 million-member union-backed organization pushing for the passage of the Employee Free Choice Act, according to a criminal complaint.

Using wiretaps, federal authorities said Blagojevich discussed approaching an official of the Service Employees International Union, one of the seven unions that joined together in 2005 to create Change to Win, to seek a high-paying job at Change to Win in exchange for filling the vacant Senate seat with a candidate believed to be favored by the union.

Change to Win spokesman Greg Denier said in a statement that the organization first learned of the governor’s alleged activities when the complaint was made public Tuesday.

“No one connected with Change to Win ever considered, discussed or promised any position at Change to Win to Governor Blagojevich, his staff or his advisers. In the affidavit released by the United States Attorney, a position at Change to Win is discussed only in conversations between the governor and his advisers.”

Though an unnamed SEIU official allegedly met with Blagojevich to discuss his appointment of a Senate candidate, prosecutors did not charge the union or the official with any wrongdoing.

SEIU spokeswoman Ramona Oliver said in a statement: “We have no reason to believe that SEIU or any SEIU official was involved in any wrongdoing.”

The Employee Free Choice Act, a bill that would make it easier for workers to join a union, is among labor’s top priorities. It requires companies to recognize a union when a majority of workers sign cards authorizing one.

Obama’s victory in November provided new momentum to the bill, which was approved by the House in 2007 but was blocked by Senate Republicans.

A governor’s aide said during wiretapped phone conversations between the governor and an advisor that Blagojevich, in return for being appointed head of Change to Win, could then help the Obama administration to pass legislation favored by the union.

Blagojevich, who complained that he was struggling financially, said he wanted to make between $250,000 and $300,000. He said he did not want to be governor for the next two years.

Later, Blagojevich asked if the union could hire his wife at Change to Win until the governor himself took a position there.

—Jeremy Smerd

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Employers have long known they pay more for the same medical services than the federal government.

This difference is often described as a subsidy that helps hospitals and doctors make up for the low—and sometimes money-losing—reimbursement rates paid by Medicare and Medicaid.

Now, actuarial firm Milliman has quantified the impact of the subsidy on employers and employees, revealing that the difference tops $88 billion annually.

According to a study funded by the insurance industry and released Tuesday, December 9, employers pay an additional $1,115, or 10.6 percent more, for a family of four’s health insurance premium to help doctors and hospitals make up for lower payments they receive from Medicare and Medicaid. Employees pay an average of $397 more annually in premiums and $276 more in coinsurance and deductibles.

Milliman said its report was the first to quantify the employer cost of low reimbursement rates to both hospitals and doctors.

The industry said the report did not attempt to assess whether the levels of reimbursement were appropriate. The report only attempted to quantify the difference between what Medicare and Medicaid pay and how much it costs private employers for identical health services.

In a statement, the health insurance industry called this difference a “cost shift,” or a “hidden tax,” on employers and employees.

Using data from 2006 and 2007, the report estimates that annual cost shift to employers is $88.8 billion.

“Medicare and Medicaid are not paying providers enough to cover their costs, and so employers and employees end up footing the bill,” said Robert Zirkelbach, a spokesman for the Washington-based insurance lobby America’s Health Insurance Plans.

With skyrocketing health care costs, Congress has attempted to reduce Medicare reimbursement rates to physicians and hospitals. But a bill to reduce payments by 10 percent failed. Congress eventually increased payments for 2009 by 1.1 percent.

The insurance group says health care reform efforts to increase the number of people with health insurance should focus on reducing costs, but not simply by slashing reimbursement rates to doctors and hospitals. The report was endorsed by the American Hospital Association and the U.S. Chamber of Commerce.

Doctors say low reimbursement rates mean they must see more patients per day to make up the lost revenue. The result is that patients often do not get the time they need with their doctor, says Khurrum Pirzada, a doctor at a primary care practice in suburban Detroit.

More than half of his patients have either Medicare or Medicaid. His office has focused on improving its operational efficiency to keep up with an increase in the number of patients and improve the quality of care its doctors provide.

“Every year, we’re just treading water financially,” he said.

—Jeremy Smerd

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Faced with increasing economic uncertainty, a Las Vegas gaming company and one of Utah’s largest employers became the latest companies to suspend their 401(k) matching contributions as a cost-cutting move.

Station Casinos Inc. and the Salt Lake City-based Intermountain Health Care System last week joined carmakers General Motors Corp. and Ford Motor Co., real estate firm Cushman & Wakefield and Frontier Airlines, which had announced in November they would temporarily halt their matching contributions to their companies’ 401(k) plans.

While the vast majority of employers likely will resume their corporate matches when the economy improves, some, like Ford, may do so with lower contributions, benefit consultants say.

In 1994, Ford’s match was 60 cents per $1 contributed by employees up to 10 percent of base salary, but in 2004, after a 2½-year suspension, the match dropped to 60 cents per $1 contribution up to 5 percent of base salary, a company spokeswoman said.

When the boom of the late 1990s faded, the average employer match fell from 3.3 percent of earnings in 1999 to 2.5 percent in 2001, according to the Center for Retirement Research at Boston College.

Today the average employer match is 3 percent of earnings, according to David Wray, president of the Profit Sharing/401(k) Council of America in Chicago. Although employers are not obligated to make contributions to 401(k) plans, 80 percent match employee contributions, while 75 percent of the other 20 percent make some other contribution, such as company stock, he added.

But the reduction or suspension of a company match, coming at a time when average 401(k) balances already are being hammered by stock market declines, could discourage workers from continuing to make their own contributions, retirement plan experts warn.

And if too many employees at the lower end of the pay scale stop making 401(k) contributions, the plan could fail Internal Revenue Service nondiscrimination tests, retirement plan experts point out. Those tests are run to determine that contributions by highly compensated employees don’t exceed contributions by rank-and file employees by an amount set by law. Highly compensated employees are defined as those who earn $105,000 or more annually.

To prevent such a scenario, experts urge employers that suspend their 401(k) matches to continue and perhaps even increase benefit communications and education to encourage employees to save so they are financially prepared for retirement.

According to a survey of 248 employers conducted in October by Watson Wyatt Worldwide, 2 percent said they either had reduced or suspended their 401(k) and 403(b) matching contributions, while 4 percent said they planned to make similar moves in the next 12 months.

“It’s not like there’s a groundswell, but some employers are either cutting back or suspending their 401(k) matches,” said Robyn Credico, national director of defined-contribution consulting for Watson Wyatt in Arlington, Virginia.

“Literally, in the last couple of weeks, we have seen more plan sponsors inquire about the implications of cutting or eliminating their match,” said Eric Levy, worldwide partner and retirement business leader for Mercer’s outsourcing business based in Norwood, Massachusetts.

The topic of scaling back 401(k) matches usually arises during discussions about reining in overall human resource costs, according to Marina Edwards, a senior consultant at Towers Perrin, based in Madison, Wisconsin.
 
Employer response was similar during the recession of the early 2000s, according to Pamela Hess, director of retirement research at Hewitt Associates in Lincolnshire, Illinois. She estimated 5 percent of employers sponsoring 401(k) plans suspended their corporate matches for anywhere from six months to two years between 2001 and 2003.

While for many employers, cutting the 401(k) match may be necessary to avoid layoffs or stay in business, “one of the potential dangers of cutting the match is employees might stop participating,” warned Julie Stitch, senior information/research specialist at the International Foundation of Employee Benefit Plans in Brookfield, Wisconsin.

Already, 4 percent of U.S. workers have stopped contributing to their 401(k) plans in response to recent market losses, according to Hewitt.

“The changes started in October,” when the average 401(k) balance slipped 14 percent to $68,000 from $79,000 at the end of 2007, according to Hess. “While it’s not a huge move, it’s a lot for one month.”

Because lower-paid workers are more likely than those who are highly compensated to stop making 401(k) contributions, some plans may fail nondiscrimination tests, forcing employers to return contributions to the highly compensated, “which can be administratively difficult,” Stitch pointed out.

Filed by Joanne Wojcik of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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A California state appellate court has denied punitive damages in a case involving meal and rest breaks and minimum wages, reversing a lower court’s jury verdict.

According to the decision Wednesday, December 3, in Christine Brewer v. Premium Golf Properties, Brewer was a longtime waitress at Premium Golf Properties’ Cottonwood Golf Club in Rancho San Diego, California. After returning to work following a back injury in 2005, Brewer was assigned the less lucrative morning shift rather than her normal afternoon shift. Cottonwood denied her request to be assigned the afternoon shift, and Brewer resigned. She then filed a lawsuit claiming, among other things, that she was denied meal and rest breaks and was not paid for the wages she earned.

The jury found that Cottonwood had acted with “oppression, fraud or malice” and awarded her $195,000 in punitive damages in addition to $956 in compensatory damages. The state’s 4th District Court of Appeals reversed the punitive damages award.

According to the three-judge panel’s unanimous decision, under the state’s “new right-exclusive remedy” doctrine, when a statute creates new rights and obligations that did not previously exist in common law, “the express statutory remedy is deemed to be the exclusive remedy available for statutory violations, unless it is inadequate.” The labor code did establish these new rights, the decision said.

Furthermore, said the court, “The breach of an obligation arising out of an employment contract, even when the obligation is implied in law, permits contractual damages, but does not support tort recoveries,” according to the decision, which means Brewer is not entitled to punitive damages.

Lisa Perrochet, a defense attorney with Horvitz & Levy in Encino, California, said the decision is significant “because it’s the first time a California court has applied [the exclusive-right remedy] in this particular context,” although it was a foreseeable development.

Horvitz & Levy attorney Felix Shafir said plaintiff attorneys have increasingly been seeking punitive damages in these cases, which are being filed more frequently.

The attorneys in the case could not be reached for comment.

Filed by Judy Greenwald of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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Efforts to provide corporations with relief from new pension funding rules that are kicking in just as stock and bond markets have conked out have drawn opposition from the Bush administration.

It’s a twist that could derail corporate hopes for speedy approval of changes to pension laws, leaving large private employers potentially on the hook to pump billions into their underfunded pensions after closing the books on 2008 in just a few weeks.

Lawmakers and lobbyists have been angling to push through changes to the Pension Protection Act of 2006—either as a stand-alone measure or as part of any Big Three automaker bailout package—that would ease new contribution requirements the PPA triggers this year. But shortly after leaders in the Senate formally introduced proposals at the behest of hundreds of corporations, the Bush administration weighed in with several concerns.

As administration officials noted in a memo circulated to members of Congress and lobbyists late last month, allowing companies to forgo new contribution requirements could cause plans that are already significantly underfunded to grow even more underfunded over time.

This could translate into an estimated $3 billion in new claims placed on the Pension Benefit Guaranty Corp. over the next decade, the officials estimated. In addition, “workers would lose billions in unfunded pension benefits not guaranteed by the pension insurance system,” according to the memo.

While $3 billion is not insignificant, it pales in comparison with the projected record $280 billion combined pension deficit that large companies currently carry, consultants at Mercer say. Such a deficit could force companies to make up to $150 billion in new contributions next year, according to estimates from the Center for Retirement Research at Boston College.

Employer advocates argue that corporate earnings could suffer next year because of the stiffer funding requirements, which could force companies to cut back benefits or reduce their workforces.

“There are always going to be trade-offs,” said Mark Warshawsky, director of retirement research at Watson Wyatt and a former assistant secretary for economic policy at the Treasury Department. “But given the broader economic implications if these relatively modest levels of relief are not granted, that $3 billion [potential burden on the PBGC] strikes me as a fair trade-off.”

The White House opposition to corporate pension relief has intensified over the past week, several sources said, noting there still are individuals in the current administration who helped construct the PPA, widely cited as the most important pension legislation in decades.

“It may be a pride-of-authorship issue,” said Kathryn Ricard, vice president of retirement policy at the ERISA Industry Committee, one of a dozen employer advocates leading the movement to change the new PPA funding provisions. “Any talk about rolling it back may send grave concerns up their backs.”

The opposition to PPA relief is drawing the ire of some lawmakers and lobbyists. No one appears to be more irked than Rep. Earl Pomeroy, D-North Dakota, who is blasting both the administration and the pension insurer for their stances.

“[The] PBGC and the administration have no plan to help workers and employers except to suggest that Congress should wait and see what happens to pensions over the next few years,” Pomeroy wrote to PBGC Director Charles Millard in a letter dated November 26. “This is as unacceptable as it is irresponsible.”

Pomeroy said in an interview last week that when Millard testified before the House Ways and Means Committee in September, the administration did not have a position on tweaking the funding requirements included in the PPA.

“It was only at the 11th hour that the administration chose to voice its opposition,” he said, adding that he has arranged for a meeting with PBGC officials this week. “They have been moving, behind the scenes, to try and kill the possibility of granting any form of contribution relief to corporations.”

PBGC officials declined to comment. The White House press office did not offer a comment.

The PBGC, which takes over plans from corporations when they can no longer meet their pension obligations, has managed to shrink its deficit to $11.2 billion at the end of September from $14.1 billion last year. It’s an improvement, but there’s still a significant deficit. The number also does not factor in the violent October and November market collapses that have further eroded scores of defined-benefit pension plans’ funding levels.

There should be no immediate concerns about the PBGC’s solvency, insisted Bradley Belt, executive director of the agency until early 2006. The PBGC still has a large pool of available assets—$61.6 billion—to cover $72.3 billion in pension promises that are “very long-term liabilities,” explained Belt, now chairman of Palisades Capital Advisors, an investment firm with offices in New York and Washington.

“There is no need to pay out these obligations right away,” he said, adding that the PBGC has paid out total benefits of just over $4 billion in each of the last two years.

Still, if the PBGC were forced to take over a number of underfunded pension plans in short order—particularly plans that have a large number of retired workers—then the agency would need what Belt called “additional budget authority” from the government to handle the increased workload.

“Although the long-term solvency of the agency would be further impaired, there likely would be no need for an immediate bailout,” he said. “It would take an extraordinary set of circumstances to create a liquidity crisis at the PBGC.”

Filed by Mark Bruno of Financial Week, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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Employers have slashed nearly 1.9 million jobs since the recession officially began one year ago, with the majority of these cuts taking place in the last three months, according to the latest Labor Department data released Friday, December 5.

The recent acceleration is leading some to predict that employers are just getting started and that a massive wave of job cuts will continue well into next year.

“As corporations attempt to put some balance back in their balance sheets, many are finding that the only way to do this is to start cutting staff—and in big numbers—right now,” said Madeline Schnapp, director of macroeconomic research at TrimTabs Investment Research.

That’s evident in the latest jobs report, which showed employers cut 533,000 positions in November, the largest loss for a single month since December 1974. Schnapp predicted employers will continue to drastically reduce headcounts and said companies could eliminate anywhere from 1 million to 1.5 million more jobs through the end of February.

“Employers are saying, ‘If we’re going to do this, let’s do this and get it over with,’ ” she added.

Along with the 533,000 cut in jobs that the Labor Department reported for November, it revised its previous estimates of job losses for both September and October.

Instead of the 284,000 cuts it previously estimated took place in September, the Labor Department is now reporting that employers actually shed 403,000 jobs during the month—a 41 percent increase over its original projection. For October, the Labor Department now says 320,000 positions were eliminated, a 33 percent spike from the 240,000 it reported previously.

All told, 1.26 million jobs have been cut over the last three months. That works out to roughly two-thirds of the total number of payroll positions eliminated in 2008.

The latest reductions brought the unemployment rate to 6.7 percent in November, up from 6.5 percent in October.

Filed by Mark Bruno of Financial Week, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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The fallout from the recent terrorist attacks in Mumbai, India, will most likely be felt in U.S. boardrooms, as officers and directors reassess the risks involved in running outsourcing operations in that tension-racked country.

Granted, it’s not likely many U.S. businesses will immediately cancel outsourcing contracts with Indian vendors in the wake of the attacks, which may have killed more than 300 people. India has become the preferred outsourcing destination for U.S. corporations, with American businesses sending approximately $24 billion in technology work to Indian cities such as Mumbai, Kolkata, Chennai, Hyderabad and Bangalore in 2008. All told, U.S. companies will probably ship around $36 billion in outsourcing assignments (including IT and nontech work) to India this year, says Sanjay Puri, president of the U.S. India Business Alliance.

Typically, outsourcing deals with Indian vendors cover several years. Breaking a contract could prove to be costly, and might also threaten a client’s back-office operations or supply chain.

But Indian outsourcers are undoubtedly nervous about the situation. While the attacks last month targeted hotels, public transportation, a hospital and a Jewish center, published reports in India say the nation’s IT and outsourcing sectors remain a top target of extremists.

To guard against attacks, outsourcing vendors most likely will have to beef up the already-tight security at their facilities. Vehicles attempting to enter the Tata Consultancy Services facility in Kolkata, for example, are routinely searched by armed guards and police dogs.

More stringent precautions will cost money and boost the price of outsourcing vendors’ services. Insurance rates for the vendors are sure to go up as well, further jacking up operating costs and eroding the price advantage of doing business in India.

That’s the last thing Indian outsourcing vendors like TCS, Satyam Computers and Infosys need. Although India is still a low-cost-labor country, it’s not nearly as cheap as it once was.

Compensation consultant Hewitt Associates is predicting that the average Indian worker’s wages will increase 15.2 percent this year. That follows the 15.1 percent increase in 2007 and marks the fifth consecutive year of double-digit wage increases in India. Hewitt projects annual wage increases will stabilize at around 10 percent by 2012.

In fact, managers at some U.S. companies have discovered that offshoring in India is not quite the cost saver they imagined. That’s particularly true for captive offshore operations, in which the U.S. parent sets up and runs the outsourcing operation, usually employing local workers to staff much of the operation.

A TowerGroup report on offshore outsourcing of financial services businesses predicts that the erosion of India’s wage advantage and the country’s increased political risk “will lead [financial services] firms to sell off more captives, just as CitiGroup sold its Citi Global Services to TCS in the fall of 2008.”

Analysts agree that the attacks in Mumbai—which extracted a terrible human price—will add to the bill for captive offshoring. “Outsourcing is definitely going to cost companies more money now because they’re going to have to beef up their security, they’re going to have to take precautions regarding traveling and where to stay, and they’re going to have to pay their people more money to compensate for the danger,” said Don Jones, international tax partner at consulting firm BDO Seidman.

Puri noted that U.S. corporations may experience additional costs associated with managing employees after the attacks. This could include the cost of communicating clear safety procedures, paying for stricter background checks on employees and dealing with “psychological issues” stemming from the attacks.

“If something happens to some of their employees, directly or indirectly, they have some level of responsibility, whether it’s legal or moral,” he said.

U.S. companies will also spend time and money devising alternatives for their outsourcing operations in India.

“They are making sure they have contingency plans in place and making sure the provider they are using does have the appropriate policies, processes and systems in place to handle such an event were it to occur,” said Stan Lepeak, managing director of global research at business advisory firm EquaTerra. “Any good provider is going to have redundancy in multiple locations so that if something did happen, the impact to the buyer of the services would be negative.”

But many corporations are taking the issue of redundancy out of the hands of their providers.

“These are large multinational companies, so we are not seeing a one-center strategy where they are only located in India or any one place,” said Charlie Aird, a senior managing director at PricewaterhouseCoopers.

He said companies are broadening their outsourcing to better correspond to the language and cultural needs of their client base. For example, they may place the bulk of their Latin American outsourcing in Brazil or Chile and their European outsourcing in Poland or Romania. Expect to see companies protect themselves by diversifying their outsourcing operations globally.

In the meantime, they can expect to pay more in India. Jones of BDO Seidman said corporations with captive operations already have to pay executives about 20 percent more to relocate overseas. Even companies that simply source material in India will now have to increase the pay of executives who fly there to monitor those operations.

“I’ve seen people paid up to two times the salary just for the risk factor,” he said. “Nobody wants to go over there and get shot.”

Filed by Matthew Scott of Financial Week, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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The Washington Department of Labor and Industries announced Monday, December 1, that workers’ compensation premiums will increase an average of 3 percent for 2009 policies.

Actuarial calculations indicate a need for a 6.3 percent rate increase because of medical inflation and other factors, the department said in a statement. But the increase will be limited to 3 percent because “we recognize the difficult economic environment for business and workers and wanted to limit the increase as much as possible,” director Judy Schurke said in the statement.

Lowering the premium increase to 3 percent from 6.3 percent will result in an expense shortfall of $62 million, which will be absorbed by a contingency reserve, the department said.

(Read related stories “North Carolina Approves Comp Rate Decrease,” “Florida Approves Comp Rate Decrease” and “California Comp Rate Increase Is Approved.”)

Filed by Roberto Ceniceros of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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