Author: Site Staff

Corporate boards of directors and institutional investors disagree about whether the executive pay model has helped improve corporate performance, but they agree it has led to excessive levels of compensation, according to a Watson Wyatt Worldwide study.

Some 65 percent of responding directors believe the model has improved corporate performance, compared with only 39 percent of institutional investor respondents, a Watson Wyatt survey for its study found. But 61 percent of directors and 86 percent of institutional investors believe the model has led to excessive executive pay levels, and 75 percent of each group believes the executive pay model has hurt corporate America’s image.

Some 63 percent of directors in the survey think the executive pay system is improving, compared with 36 percent of institutional investors, but the pay model system has created employee resentment, according to 60 percent of directors and 78 percent of institutional investors.

Among recommendations for improving the pay model, the study says boards should “evaluate performance-based portions of executive pay plans” and “increase the use of performance-contingent (long-term incentive) programs and the level of executive pay opportunity to reflect pay for performance.”

The Watson Wyatt 2008 Report on Directors’ and Investors’ Views on Executive Pay and Corporate Governance: Managing Executive Compensation in the Shareholders’ Interests is based on a survey of 163 directors on the boards of 230 publicly traded companies and 42 privately held companies or nonprofit organizations that earned a combined $1.5 trillion in annual revenue; and 27 investors from union or public pension fund or foundations along with 45 from private-sector institutions that manage a total of $5 trillion in assets.

Filed by Pensions & Investments, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

Prospects for broad immigration reform are dim, but legislation focusing on border security and work-site enforcement could be headed to the House floor.

The bill, written by Rep. Health Shuler, D-North Carolina, would require all employers to sign up for the government-run electronic verification system called E-Verify, which has drawn criticism from the HR community.

As momentum for the measure increases, a group of HR organizations led by the Society for Human Resource Management is backing a separate bill that would create a new electronic employment verification system based on an existing state mechanism.

Under the New Employee Verification Act, companies would enter employee identification data into a state’s new-hire reporting program, which was established in 1996 to enforce child support payments. About 90 percent of U.S. employers use the system.

The identity of the prospective employee would be checked against Social Security and Department of Homeland Security databases. The procedure would eliminate the paper-based I-9 process.

Supporters say another provision of the bill would prevent identity theft. Employers would be given the option of signing up for a secure electronic verification system that uses a network of government-approved private contractors to conduct background checks of workers and collect biometric identifiers, such as fingerprints.

“Employers want, need and deserve a reliable employment verification system,” said the bill’s author, Rep. Sam Johnson, R-Texas and ranking member of the Social Security subcommittee of the House Ways & Means Committee. “The [current] system is broken and needs to be fixed.”

Johnson’s bill, which was introduced at a Capitol Hill press conference on Thursday, February 28, would replace E-Verify. A decade old and set to expire in November, E-Verify checks I-9 information against government databases.

About 52,000 employers have voluntarily signed up for E-Verify. DHS says companies are embracing E-Verify and that it is discouraging illegal workers from applying for jobs.

Critics, including SHRM, assert that the system is inefficient, inaccurate, vulnerable to identity theft and incapable of hosting every U.S. employer. It has a 4 percent error rate, which could potentially affect 6 million workers. 

Using the system did not prevent food processor Swift & Co. from being the target of a DHS raid in December 2006 that resulted in the arrests of more than 1,000 illegal workers.

E-Verify is at the heart Shuler’s measure, which would require all companies with more than 250 employees to sign up within the first year after the bill’s enactment.

Shuler has garnered 139 co-sponsors, 91 of whom are Republicans. The popularity of an enforcement-only bill is growing following the demise last year of broad Senate legislation that included a path to legalization for undocumented workers.

Shuler is urging House Democratic leaders to bring his bill to the floor for a vote. “We’re hopeful that it will be sooner rather than later,” said Andrew Whalen, Shuler’s communications director.

Johnson hopes to persuade Shuler to drop E-Verify and replace it with his verification system. “We’re working with [Shuler] now to make it part of his bill,” Johnson said.

A co-sponsor of Shuler’s bill said that Johnson’s verification idea is better than E-Verify. “This is a smarter way to do verification,” said Rep. Kevin Brady, R-Texas and a member of the House Ways & Means Committee.

The fact that it utilizes a network of private companies to maintain identity databases prevents a national ID system run by the government, according to Rep. Paul Ryan, R-Wisconsin and a Ways & Means member.

“It allows people to reclaim their identity,” Ryan said. “It’s decentralized; it’s technologically innovative.”

The approach was shaped by the HR Initiative for a Legal Workforce, a group of HR organizations led by SHRM that worked on the bill for the last year.

SHRM president and CEO Susan Meisinger said leadership on verification from Washington is crucial. Employers are upset with the pastiche of work-site enforcement laws enacted by states after the Senate bill failed.

“It’s time for Congress to pre-empt this trend because it’s very harmful,” Meisinger said.

Given deep divisions on the issue, Congress may not be able to do much on immigration before it adjourns later this year. Meisinger is trying to position the HR community to influence whatever policy emerges.

“We’re going through a process of figuring out what is possible,” she said.

—Mark Schoeff Jr.

Flush with a fresh $10 million capital infusion, SilkRoad Technology is laying the groundwork for an initial public offering while improving its product line and expanding its markets.

“We have big plans for the company in the not-so-distant future,” said Andrew Filipowski, SilkRoad’s chairman and CEO.SilkRoad, a provider of Web-based talent management software, has raised about $33 million in total seed money.

Filipowski said he expects to grow the company’s sales team from 60 to 75 within the next two months. The new hires will primarily focus on strengthening SilkRoad’s presence in the West—California, Washington state, Denver and New Mexico are on the radar screen.

The company is also eyeing international markets, such as Brazil, Argentina and Singapore. SilkRoad is already active in several European markets, including England and Germany, but wants to expand its international footprint because it believes the demand for talent management tools is on the rise overseas.

Product development is also an important goal for SilkRoad, which is best known for its onboarding platform, RedCarpet.

Filipowski said there are plans to enhance existing software lines as well as to introduce new products. He declined to provide specifics, but said the company is taking a look at software that addresses important HR issues, such as affirmative action and litigation support.

SilkRoad’s new product development projects—and international expansion efforts—are part of a broader strategic plan to go public in about a year, Filipowski said.

The company’s bid could have a big payoff, according to Jason Corsello, vice president at HR technology consulting firm Knowledge Infusion.

SilkRoad is in the popular talent management “software as a service” arena, Corsello said. This means that clients can access software by using an Internet account, rather than by buying a disk to download the program, he says.

“Wall Street is really keen on these types of vendors,” Corsello notes. Other companies that use this model include well-known HR brands Taleo, Kenexa and SuccessFactors.

Consolidation is also on Filipowski’s mind—though he is uncertain of where the company may end up.

“I cannot tell you whether SilkRoad will be the one doing the acquiring or the one who gets acquired,” he said. “What I can say is that the industry will not be this fragmented for too much longer.”

When the dust settles, only a handful of large providers will remain, noted Lisa Rowan, an analyst with research firm IDC. She said there is no way to predict which companies will be the ones left standing.

Case in point: Workstream, a public company with a significant market presence. These characteristics should have made it an unlikely takeover candidate. Workstream recently raised many eyebrows when it announced a merger with the operating holding company of Empagio, which owns payroll application Tesseract.

“There is no telling what will happen,” Rowan said. “It is going to be interesting to watch.”

—Gina Ruiz

Continuing its push into HR applications, Lawson Software has snagged an executive in the field and is acquiring a vendor of staffing and scheduling software.

Lawson said Monday, February 25, that it has appointed Jennifer Langer as global director of HCM product management. Lawson said that Langer “has more than 20 years of experience in the health care enterprise software industry, having served in managerial and leadership positions for Oracle, PeopleSoft, Workbrain and Neoforma.”

Additionally, Lawson said Friday, February 22, that it has agreed to acquire VasTech, a workforce management software and services specialist. Lawson said that with the acquisition, it will offer customers in the health care, hospitality and gaming industries “an advanced workforce management staffing and scheduling” product to complement its HR software offerings.

In recent years, Lawson has prioritized HR software as part of a plan under chief executive Harry Debes to make the St. Paul, Minnesota-based firm a legitimate competitor to business software titans Oracle and SAP. Last year, Lawson introduced a new set of HR applications, including tools for workforce acquisition and development.

Workforce management software, which refers to applications for handling tasks such as time-and-attendance management and employee scheduling, is a growing area. Other vendors in the field include Infor and Kronos.

Lawson said the new workforce management product will help health care organizations manage a variety of compliance and reporting challenges associated with safety initiatives, labor productivity and staffing levels.

“By combining the strong staffing and scheduling offerings from VasTech with Lawson’s industry-leading products and team, we are again addressing key business challenges that confront our customers every day,” Steffan Haithcox, health care strategy director for Lawson, said in a statement.

VasTech is headquartered in Annapolis, Maryland, and employs 45 people. Financial details of the transaction were not disclosed. The deal is expected to close in March.

—Ed Frauenheim

The United Auto Workers, along with UAW retirees, filed a proposed settlement of health care claims against General Motors Corp. with the U.S. District Court in Detroit on Friday, February 22.

If approved by the court, the settlement would establish an independent voluntary employees’ beneficiary association trust, which will pay health benefits for current and future UAW GM retirees.

“This proposed settlement will put into effect what we negotiated in 2007,” UAW president Ron Gettelfinger said in a statement. “Through hard work and hard bargaining, we have negotiated an innovative way to secure health care benefits for UAW GM retirees.”

General Motors also filed a document in the case Friday that acknowledges its support of the settlement.

The UAW signed new labor agreements with Detroit’s Big Three automakers last fall, but details about how the VEBA would be structured have been limited.

In recent interviews, Gettelfinger said it was important that the settlement of the case included an ethical practices code and that it would spell out other details about how the trust would be managed.

The agreement includes a two-page code of ethics that says the trust and all employees who work for the trust must manage the VEBA’s money and its affairs in the best interest of UAW retirees.

In the statement, Gettelfinger said the VEBA trust “will be managed by independent trustees with expertise in health care, investments, finance and other key areas. We are confident it will have sufficient assets and sufficient cash flow to pay benefits to our retirees for the next 80 years.”

The settlement also includes a seven-page explanation of the duties and powers of those trustees.

Filed by Brent Snavely of Crain’s Detroit Business, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

A case involving a former Cracker Barrel employee sparked a lively debate among Supreme Court justices on Wednesday, February 20, about whether Congress intended to amend a civil rights law to encompass retaliation.

Hedrick Humphries, an African-American who worked for the restaurant as an associate manager from 1999 to 2001, alleges that he was fired after he complained about the racially discriminatory behavior of his supervisor.

He filed his suit under two civil rights statutes—one from the 1960s that has an explicit retaliation provision and one from the 1860s that lacks language about retaliation. A district court dismissed Humphries’ claims on summary judgment.

But the 7th Circuit Court of Appeals ruled that 19th century law, known as Section 1981, does address retaliation. That statute, which protects minorities in the making and enforcing of contracts, provides a four-year statute of limitations as well as unlimited damages.

A provision of the Civil Rights Act of 1964, Title VII, is more restrictive. It caps damages, requires plaintiffs to file their cases within months of a discriminatory act and establishes an administrative procedure to try to resolve the dispute.

Chief Justice John Roberts Jr. questioned whether a ruling in favor of Humphries would allow plaintiffs to “obliterate that cap [in] any case brought under 1981.”

Supreme Court thinking on the issue has changed over the years. In the late 1960s, the court ruled that Section 1981 does cover retaliation. But in 1989, it narrowed the scope of the law. In reaction to the latter decision, Congress amended the law in 1991.

Since then, courts have interpreted the congressional action as broadening Section 1981 to include retaliation.

“They haven’t been following the text of the law,” Michael Hawkins, who represents Cracker Barrel, told the court.

Several justices seemed to agree. Justice Anthony Kennedy told Humphries’ lawyer, Cynthia Hyndman, that language about retaliation was absent even from the revised version that Congress passed in 1991.

“You’re admitting none of the words in the statute as amended help you,” Kennedy said. “You want me to add a new term.”

Justice Antonin Scalia characterized Hyndman’s argument for a broad interpretation of the law as a good pitch for congressional changes rather than a Supreme Court decision. “That statute says what it says,” Scalia said. “We don’t write statutes, we read them.”

Demonstrating the complexities of the case, however, both Kennedy and Scalia pushed Hawkins on his restrictive view of the law.

When Hawkins argued that the 1989 case would not have allowed a retaliation claim even after the 1991 amendment, Kennedy and Scalia were askance.

Hawkins tried to clarify his answer, but the justices weren’t convinced.

Kennedy also questioned Hawkins’ assertion that Title VII was meant to be the avenue for retaliation cases rather than Section 1981. He said that Congress didn’t seem to want a clear delineation.

“If Congress is not concerned about [overlap], why should we be?” Kennedy asked.

Justice Ruth Bader Ginsburg asserted that it was necessary for Section 1981 to cover retaliation in order to deter bias.

“What kind of right to be free from discrimination would there be if once one complains, one can be fired, demoted?” she asked. “That would not be a very effective right, would it be?”

In supporting Humphries, the government made a similar argument.

“It seems to me that the guarantee of equal treatment quite naturally is violated not just by the basic discrimination but is also violated by retaliating against someone for exercising their rights,” said Solicitor General Paul Clement.

Between now and the end of its term in July, the court will have to decide whether Congress meant to say the same thing.

—Mark Schoeff Jr.

Corporations are making progress in disclosing more details about how executives’ bonuses are determined—but many are still far from giving regulators and shareholders the full monty.

While almost all companies now disclose the metrics used to determine executives’ annual incentive pay, only about a third of corporations in the S&P 500 actually disclose the specific targets they use to make these calculations, according to a new study conducted by the Corporate Library.

The difference between disclosing metrics and targets isn’t just semantics, according to Paul Hodgson, senior research associate at the Corporate Library. “Without knowing the actual targets, you don’t know how difficult—or how easy—it was for an executive to earn their bonus.”

So while a company may note that it considers earnings per share, for example, when determining executive pay, it likely would decline to disclose that it set a goal of $0.32 earnings per share, Hodgson pointed out.

A number of companies have not included such specific performance targets, claiming that by doing so, they could be putting themselves at a competitive disadvantage. Many companies making such claims were criticized in October by the Securities and Exchange Commission for failing to make adequate disclosures, with regulators stating at the time that these companies should look to provide more clearly defined targets in their 2008 proxies.

Despite the lack of total disclosure, Hodgson noted that in 2007, 32.7 percent of companies in the S&P 500—or 160 companies—disclosed specific performance targets, compared with only 10 companies that did so in 2004.

“It’s a significant step forward,” he said, adding that he expects more than half of all companies to reveal specific targets in this year’s proxy filings.

The Corporate Library’s findings come several weeks after a similar study by Watson Wyatt noted that just 42 percent of companies plan to disclose the exact performance measures considered in executive pay packages. About 30 percent of companies said they do not plan to make such disclosures, and the remaining 27 percent said they were not sure whether they would include such details.

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

The Supreme Court has ruled that individual participants in a 401(k) plan can sue their employers over losses, a move that many observers say could result in a deluge of lawsuits for plan sponsors.

Until now, plan participants could only sue employers over losses in their 401(k) plans through class-action suits. But in its opinion Wednesday, February 20, the Supreme Court said that under the Employee Retirement Income Security Act, individual employees can sue plan sponsors for losses on behalf of the plan.

“This should be a wakeup call to employers,” says Don Stone, president of Plan Sponsor Advisors, a Chicago-based 401(k) consultant. “They need to recognize that as fiduciaries, they have responsibilities and there is going to be a spotlight shined on them.”

In the complaint, James LaRue of Southlake, Texas, said that his 401(k) plan administrator failed to follow his instructions to move his investment from stocks to cash. As a result, he says he lost $150,000. Since LaRue’s former employer, DeWolff Boberg & Associates, was the fiduciary for the plan, the employer was named as the defendant in the case.

Wednesday’s unanimous decision by the Supreme Court, while not a surprise to industry watchers, is still “groundbreaking” because of its implications for all 401(k) plan sponsors, says Doug Hinson, a partner at the law firm of Alston & Bird.

“We are going to see a lot of small, individual negligence-based claims against employers based on this decision and that is going to have an unfortunate effect,” Hinson says.

Particularly with all of the controversy around the fees associated with 401(k) plans, this decision could really affect 401(k) plan sponsors, says Robert McAree, the retirement practice leader with Sibson Consulting in New York.

“This puts greater emphasis on plan sponsors to make sure they have reviewed all of the fee arrangements and made sure that they have provided the appropriate level of disclosure to employees,” he says.

Employers that find themselves to be targets of these claims may want to think again before they push them into litigation, no matter how great their defense is, Hinson says.

“A lot of these claims are going to be for a few hundred dollars,” he says. “Employers will have to decide if it’s really worth denying the claim or if they would be better off paying the smaller amount.”

—Jessica Marquez

HR software company Workstream has landed a merger partner, but has lost a highly touted board member.

On Wednesday, February 13, Workstream said it signed an agreement to merge with the operating holding company of Empagio, which owns the venerable payroll application Tesseract.

But on February 9, prominent Stanford University business professor Jeffrey Pfeffer resigned from Workstream’s board of directors, according to a public filing with the U.S. Securities and Exchange Commission. Pfeffer’s tenure was brief: Workstream announced his appointment to the board on January 4.

Pfeffer didn’t immediately return a call seeking comment.

Gary Damiano, Workstream’s senior vice president of marketing, said the merger factored into Pfeffer’s resignation. Pfeffer faced playing a more limited role than he was expecting, Damiano said. “We’re disappointed,” he said.

On the other hand, Workstream is pleased with the merger agreement it has signed with Empagio.

“The combination of Workstream with Empagio catapults our company to one of the top three human capital management (HCM) providers overnight, and accelerates our transformation as we immediately become the only HCM company with a payroll services capability across North America,” Workstream executive chairman Michael Mullarkey said in a statement.

The combined company will serve more than 600 Fortune 2,000 firms, including such big names as Wells Fargo, Miller Brewing and United Airlines, according to a statement from Workstream and Empagio.

Under the terms of the deal, Empagio will own 75 percent of the combined entity, while Workstream will own 25 percent. Empagio CEO Seth Bernstein will become a 60 percent majority shareholder of the company. Bernstein also is slated to become CEO of the combined company.

The deal is subject to closing conditions, including governmental approvals. It is expected to close during the second half of 2008.

Workstream is one of many players in the hot talent management software market. That market refers to applications for key HR tasks such as recruiting and performance management. Talent management applications are among the fastest-growing products within the HR software arena, which is itself the fastest-growing category of business software.

Damiano portrayed the combination of Workstream and Empagio as a good fit, in that Empagio focuses on more transactional tasks such as payroll and time and attendance while Workstream’s applications are for more strategic functions such as performance and compensation management.

News of the agreement ends weeks of speculation in the HR technology arena. Workstream first announced in late December that it he had received an “an unsolicited offer from a U.S.-based payroll business to determine the viability of a merger.”

Other companies suspected of being the suitor included ADP and Paychex.

Lisa Rowan, an analyst with research firm IDC, said the deal should calm customer worries that Workstream isn’t a viable vendor.

“It shores them up financially,” she says.

Workstream reported net income of $782,411 for the three months ended November 30. But for the six months ended November 30, it posted a net loss of $4.7 million. Workstream also laid off about 15 percent of its workers in recent weeks, Damiano said. Workstream’s headcount is now about 200 employees, he said.

—Ed Frauenheim

Democratic congressional leaders oppose regulatory changes to an employee leave law, but it’s not clear whether they will try to block them.

During and before a Senate hearing on Wednesday, February 13, the author of the 15-year-old measure, Sen. Christopher Dodd, D-Connecticut, and Sen. Edward Kennedy, D-Massachusetts, accused the Bush administration of trying to discourage workers from utilizing the law—the Family and Medical Leave Act.

Earlier this week, the Department of Labor published a 477-page proposal that would revise the FMLA for the first time since it was enacted in 1993.

Labor officials say the regulations, which they want to implement by the end of the year, would make the law more user friendly for companies and employees. They also address rules for implementing expanded leave for military families.

Democrats and FMLA advocates maintain that the regulations would undermine the law, which provides 12-weeks of unpaid leave for the birth or adoption of a child or for a worker to deal with a personal or family member’s sickness.

“A lot of these ideas seem gratuitous in many ways,” Dodd said.

He took particular exception to a proposed change that would allow employers to request a medical recertification for FMLA leave every six months.

“If you have diabetes, you have diabetes,” he said. “This is not a condition that comes and goes.”

Dodd also raised concerns about potential violation of employee privacy by allowing employers to contact directly a worker’s health care provider.

The proposals send the wrong message with the economy teetering on a recession, Kennedy said.

“When so many families are struggling, this is the worst possible time to roll back the protections of the Family and Medical Leave Act,” he said.

One way congressional Democrats could halt the regulatory process is by attaching a rider to an appropriations bill that would prevent funding for the new rules.

For now, Dodd will focus on submitting a statement during the proposal’s comment period, which lasts until April 11.

“I would hope the Department of Labor would listen to us and reject some of these regulations,” Dodd said.

Victoria Lipnic, assistant secretary of labor for the Employment Standards Administration, defended the changes.

“Without action to bring clarity and predictability for FMLA leave-takers and their employers, the department foresees employers and employees taking more adversarial approaches to leave, with workers having a legitimate need for FMLA leave being hurt the most,” she said in her prepared hearing statement.

The agency’s proposal doesn’t overhaul FMLA; it tweaks several areas in response to numerous court cases and to a request for information last year that generated 15,000 comments.

In that survey, employers indicated that the family leave part of the law was working well but they were vexed by disruptions to their operations caused by medical leave abuses. The areas that caused the most concern were serious health conditions and intermittent leave.

The new rules didn’t change the definition of a serious health condition, but they do require that two visits to a doctor for such an ailment occur within 30 days of an incapacitation.

The proposal does not amend the minimum increment for intermittent leave, which can be a few hours, but its does require employees to notify employers of an FMLA absence “prior to the start of their shift.”

Currently, about 46 percent of workers take FMLA leave without giving prior notice, according to a survey by the Society for Human Resource Management.

The Labor Department didn’t tackle any major changes, according to Jim Brown, vice president of FMLASource, an affiliate of ComPsych in Chicago.

“They tried to stay away from bigger issues, and rightly so,” he said. “It’s not up to the Department of Labor to create law. From a practical standpoint, there isn’t a lot of substance. And the substance that’s there isn’t final.”

That outcome likely disappoints the corporate world.

“From an employer’s perspective, progress has been made,” said Kevin Shaughnessy, a partner at Baker Hostettler in Orlando. “It’s perhaps not as much as [they] wanted.”

—Mark Schoeff Jr.