Author: Site Staff

The Census Bureau reported Tuesday, August 28, that the percentage of people covered by employer-based health insurance decreased to 59.7 percent in 2006, from 60.2 percent in 2005, a factor contributing to the rise in the number of uninsured throughout the population.

The percentage and number of uninsured Americans rose in 2006 to 15.8 percent, or 47 million, up from 15.3 percent, or 44.8 million, in 2005.

Similarly, the percentage of children under 18 without health insurance increased to 11.7 percent, from 8.7 percent in 2005.

The percentage of Americans covered by government health insurance programs dropped to 27 percent, from 27.3 in 2005.

The high cost of health insurance has for years been a top concern for American businesses. Hospitals regularly charge employers more for medical services than the rates set by the Centers for Medicare and Medicaid Services as a way to make up for revenue lost by treating people who do not have health insurance.

—Jeremy Smerd

If things go as planned, industry experts say Monster Worldwide’s sweeping cutbacks, which resulted in a 15 percent reduction of full-time staffers, should not have an adverse effect on the products and services that draw HR professionals to the job board.

“It is unlikely that customers will feel a difference from the reduction in headcount,” says Ashish Thadhani, who tracks Monster as senior VP of research for Gilford Securities in New York.

The restructuring eliminates 800 of the company’s more than 5,500 full-time positions, but most of these are in HR, finance and general administration.

Monster’s transformation into a flatter, more centralized organization should enable workers to respond faster and more efficiently to the needs of customers, says Neal Bruce, vice president of alliances at Monster.

The product development division won’t be cut, and Bruce adds that an expansion of the worldwide sales force is likely as international business has become a key element in Monster’s growth. Some 35 percent of Monster’s revenue is derived from overseas markets.

Monster says the cutbacks will save $150 million to $170 million annually, with $80 million earmarked for new products and services geared toward improving recruiting efforts for HR professionals.

“Reinvesting back into the business is a smart move,” Thadhani says.

Industry experts don’t expect problems with Monster’s core job-postings business in the wake of the restructuring, since the functions are relatively simple and highly automated.

Yet there are concerns for clients who use complex functions like Web site hosting and database integration, which require far more management than job postings, says Ed Newman, founder and CEO of the Newman Group, a talent recruiting consultancy.

“There are certain operations that are very client-intensive because there is always something that needs to be ironed out or upgraded,” Newman says. “This is where Monster needs to be most vigilant against potential defection rates.”

—Gina Ruiz

The AFL-CIO wants auditors to step up their reviews of corporate books and records in order to curb illegal stock option backdating.

In letters to the Big Four accounting firms, AFL-CIO treasurer Richard Trumka said independent auditors should dig deeper into corporate disclosures and stock option practices from the past five years—especially during the months surrounding passage of the Sarbanes-Oxley Act, which tightened disclosure rules for backdating.

Backdating and spring-loading—in which stock option grants are made before good news or after bad news—occurs mainly because the grants are made between senior management and the board of directors without any counter-party oversight, Trumka wrote.

“We are especially concerned because stock option abuses appear to have been endemic at U.S. corporations,” including Apple and UnitedHealthcare, Trumka wrote. “In order to properly deal with the manipulation of stock option grants, independent auditors need far broader access to senior management and the board of directors than they have typically been granted.”

Calls to the accounting firms—Deloitte & Touche, Ernst & Young, KPMG and PricewaterhouseCoopers—were not returned.

The union, which has met with accounting firms recently over the issue, suggested that auditors go back through old filings to search for illegal backdating, including filings 34 days before and 48 hours after Sarbanes-Oxley was enacted in 2002.

Trumka also suggested that auditors examine equity award plan documents and board minutes, including minutes from a company’s compensation committee meetings. Companies that have granted an “inordinately large” amount of stock options, especially to the CEO or senior executives, should warrant extra attention, he wrote. Companies that granted options during stock “blackout” periods and immediately preceding significant increase in stock price should be vetted heavily, he added.

The letters are a shot across the bow to corporations.

“It’s something [shareholders and union members] have already lost hundreds of millions of dollars on,” said Dan Pedrotty, director of the AFL-CIO office of investment, adding that auditors can face difficulties from stonewalling boards of directors and their law firms. “There are ways [to catch backdating] if auditors are more aggressive.”

More than 200 companies are reportedly being investigated by the Securities and Exchange Commission and the Department of Justice for alleged backdating. The stakes for top executives rose significantly this month when former Brocade CEO Gregory Reyes was convicted on 10 counts of fraud related to backdating, record manipulation and conspiracy. Mr. Reyes’ sentencing is scheduled for November.

Some research suggests that roughly 2,000 companies may have engaged in backdating, but have either not reported it or have not been snagged by the federal sweep into backdating and spring-loading.

The Delaware Chancery Court ruled earlier this year that companies could not rely on statutes of limitations to avoid shareholder lawsuits over backdating if the backdating was concealed from shareholders to begin with. Furthermore, the court’s rulings stated that intentional stock option backdating is a violation of a board director’s duty, and that directors are not granted liability immunity in such cases.

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

 

Hewitt Associates has acquired RealLife HR, a Hunt Valley, Maryland-based health and welfare benefits administrator, signaling that the company is in growth mode again.

On Monday, August 27, the Lincolnshire, Illinois-based HR services provider announced the acquisition of RealLife HR, which has 85 employees and services employers with 15,000 or fewer employees.

The acquisition, although small, indicates that the HRO provider is back in the game after a few stumbles, observers say. Hewitt has spent the past several months working to revive its HRO business. In May, the company announced a new head of its HRO business, Jay Rising, to replace Bryan Doyle, who left last year.

“This shows that Hewitt is no longer in triage mode,” says Michel Janssen, managing director at the Hackett Group.

While the acquisition of RealLife is not a big one, it’s a positive sign to the market that Hewitt is being proactive.

“It’s good news that Hewitt is playing a little bit of offense here,” Janssen says. “It’s a step in the right direction.”

While the acquisition of RealLife HR allows Hewitt to offer benefits administration to middle-market clients, the company has no plans to target middle-market clients for HR business process outsourcing deals, Hewitt spokeswoman Maurissa Kanter says.

“Combining with RealLife HR enables us to move aggressively and more quickly pursue the health and welfare outsourcing midmarket,” says Craig Maloney, who was just named Hewitt’s middle-market business leader. Previously he was North American sales manager for benefits outsourcing.

Given the increasing popularity of the midmarket HRO space, analysts say they wouldn’t be surprised if Hewitt eventually expands this offering to target midmarket HR business process outsourcing clients.

“We are looking at it the midmarket space more closely and many of the other service providers are talking about going after the midmarket,” says Stan Lepeak, managing director of research at EquaTerra.

“The 15,000-employee market seems to have stuck in people’s minds,” he says.

—Jessica Marquez

Health insurance coverage provided to employees represented by labor unions costs more on average than coverage offered to nonunion employees, according to a survey.

The survey, released Wednesday by the U.S. Bureau of Labor Statistics, found that for single coverage in which employee premium contributions are required, total monthly premiums average $399.96 for union plans, compared with $341.13 for plans covering nonunion employees.

Additionally, premium contributions made by union employees are, on average, much lower compared with those of nonunion employees. Among employers that require employees to pay a portion of the health insurance premium, union-represented employees, on average, pay a monthly premium of $62.45 for single coverage compared with a monthly average of $83.51 for nonunion employees.

In addition, only half of union-represented employees pay a portion of the premium for single coverage, while 81 percent of nonunion employees do so.

The same patterns hold true for family coverage. For example, in plans in which employee premium contributions are required, the total average monthly family premium for union-represented employees is $970.06, while the total premium for nonunion employees averages $953.13.

On average, nonunion employees pay $323.80 a month for family coverage, compared with $211.91 for union-represented employees. Ninety-three percent of nonunion employees pay a portion of the premium for family coverage, compared with 57 percent of union-employees.

The results are based on plan information as of March 2007 and on the responses of 8,256 employers.

Copies of the survey, “National Compensation Survey: Employee Benefits in Private Industry in the United States, March 2007,” are available at www.bls.gov.

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

The New York Attorney General’s Office is seeking information about programs used by Aetna Inc. and a Cigna Corp. unit to rank doctors based on quality and cost-effectiveness.

In letters sent to the two insurers on Thursday, August 16, Attorney General Andrew M. Cuomo expressed concern that the physician rating programs of Hartford, Connecticut-based Aetna and Philadelphia-based Cigna carry “a significant risk of causing consumer confusion, if not deception.”

The attorney general expressed similar concerns in a letter sent to a unit of Minnetonka, Minnesota-based UnitedHealth Group Inc. last month.

The programs—Aetna’s Aexcel and Cigna Care Network—are designed to encourage consumers to choose specialists based on quality and efficiency metrics and may be used by employers offering financial inducements such as lower co-payments and deductibles to promote cost-effective doctors, according to the letters.

The companies rely on claims data in ranking specialists, but claims data is known to carry “significant risks of error,” such as not including all relevant clinical information and not accounting for situations when one patient is treated by multiple physicians, according to the letters.

“Consumers are entitled to transparency when making the important decision of choosing their doctors, including specialists,” the letters say. “The goal of transparency is defeated, however, if the information provided is itself inaccurate or misleading or based on flawed data.”

In addition, the networks were developed without disclosing the data used to rank the doctors, even to the physicians themselves, giving doctors and consumers no ability to point out errors in the rankings, the letters say.

The attorney general is seeking information on numerous aspects of the program, including how a physician’s performance and cost-effectiveness is measured and the process for physicians who wish to challenge their rankings.

“We learned about the letter today and are still in the process of reviewing it, so it would be inappropriate to make any substantive comments,” a spokesman for Cigna said in a statement. “We take the attorney general’s concerns seriously and will respond to his request for information.”

In a statement, an Aetna spokeswoman said the company is “fully committed to transparency,” including publishing the criteria for the selection of specialty physicians on member and provider Web sites. The company discusses its programs with physician organizations prior to rolling them out—as it did in New York, where the program has been available since 2005—and also has mechanisms for physicians to raise concerns they may have with their own data, the spokeswoman said.

“Doctors are designated if they meet certain thresholds first for clinical performance and, only then, cost-efficiency,” the spokeswoman said in the statement.

Aetna will review the attorney general’s request and cooperate fully, she said.

The assertions featured in the Aetna and Cigna letters are similar to the ones featured in a July letter sent to UnitedHealthcare. For example, in all three letters the attorney general’s office expressed concern that the insurers’ profit motives may affect the accuracy of its quality rankings because high-quality doctors may be more expensive, creating a potential conflict of interest.

Unlike the UnitedHealthcare letter, though, the attorney general’s office simply asks for more information regarding the programs from Aetna and Cigna. The letters sent Thursday to the two insurers do not ask them to cease their doctor ranking programs, and they do not discuss the possibility of an injunction against the programs, as in the UnitedHealthcare letter.

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

The 3rd U.S. Circuit Court of Appeals has declined to review a ruling upholding the ability of employers to reduce health benefits to retirees when they become eligible for Medicare, bringing a long-running legal battle near an end.

On an 11-1 vote Tuesday, August 21, the 3rd Circuit denied a request by AARP for the full appeals court to review a unanimous decision by a three-judge 3rd Circuit panel. In that June ruling, the panel said the Equal Employment Opportunity Commission has the authority to implement a rule that would exempt from the Age Discrimination in Employment Act health plan changes for retired workers when they become eligible for Medicare.

The rule was proposed by the EEOC in 2003 as a way of counteracting an August 2000 decision—also by the 3rd Circuit, which is based in Philadelphia—that found the plans were subject to the ADEA, potentially exposing employers with mainstream retiree health care plan designs that reduce retiree benefits to big damage awards.

Experts predicted—and the EEOC later agreed in proposing its rule—that the threat of age discrimination charges would have resulted in employers cutting benefits for younger retirees or eliminating retiree health care programs.

The practical effect of the EEOC rule, which never was implemented because of the AARP challenge, would allow employers to continue to provide—without fear of litigation—a two-tier system of retiree health care coverages, with younger retirees receiving richer benefits than Medicare-eligible retirees.

Laura McCann, a senior attorney with AARP in Washington, said the organization is considering whether to seek a Supreme Court review of the panel’s decision.

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

Final Internal Revenue Service regulations published Tuesday, August 21, update and clarify expenses that employees can pay through dependent care flexible spending accounts.

The final regulations, which take effect immediately and largely affirm rules the IRS issued in May 2006, provide numerous examples of expenses that may and may not be funded through a dependent care FSA.

For example, expenses for day camps, including specialized camps, are eligible for reimbursement. Additionally, preschool expenses, including food, can be reimbursed through an FSA.

On the other hand, expenses for kindergarten and higher grades are not eligible because those programs are primarily for education rather than for child care—part of the regulations that affirm an earlier IRS information letter.

The final regulations also say fees paid to an employment agency to obtain the services of an au pair can be covered through an FSA, as can the cost of bus service that delivers a child to a daycare facility.

However, the employee’s cost of driving his or her child to the facility is not reimbursable through an FSA.

Only a small percentage of employees are eligible to make contributions to dependent care FSAs because of federal restrictions. For example, in the case of employees’ children, FSAs can be used to cover eligible expenses for children only under age 13.

In addition, dependent care expenses related to children in two-parent families in which only one parent works cannot be covered.

Lower-income employees may find it more effective to take the federal dependent care tax credit than make pretax contributions to a dependent care FSA.

While only a small percentage of employees contribute to dependent care FSAs, those who do cut the true cost of such expenses by as much as one-third because they are paying with pretax contributions.

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

Employees who received less credited service time while on pregnancy leave compared with other disabled workers—before that inequality was addressed by the Pregnancy Discrimination Act of 1978—can regain that lost time retroactively, a federal appellate court has ruled.

The 11-4 decision on Friday, August 17, by the en banc court in Hulteen v. AT&T Corp. overturns a 2006 decision by a three-judge panel of the 9th Circuit U.S. Court of Appeals in San Francisco. The majority total does not include a judge who partially affirmed the majority opinion but also participated in the dissent.

The plaintiffs in the case were four current and former AT&T Corp. employees who had each taken partially uncredited pregnancy leave before the Pregnancy Discrimination Act’s 1979 effective date, and their union, the Communications Workers of America. As a result of the uncredited time, they received less favorable benefits or retirement opportunities, according to the opinion.

A district court ruled in the plaintiffs’ favor. However, the three-judge panel said in a 2006 opinion that a 9th Circuit decision in 1991 in a similar case, Pallas v. Pacific Bell, in which a plaintiff was granted the extra time, could no longer be used as precedent because of an intervening U.S. Supreme Court decision that prohibits applying federal law retroactively.

However, in its most recent decision, the court ruled that the 1991 decision was not “clearly irreconcilable” with “intervening authority.”

“A statute does not operate ‘retrospectively’ merely because it is applied in a case arising from conduct antedating the statute’s enactment, or upsets expectations based in prior law,” said the decision.

“Rather, the court must ask whether the new provision attaches new legal consequences to events completed before its enactment,” says the decision. “The conclusion that a particular rule operates ‘retroactively’ comes at the end of a process of judgment concerning the nature and extent of the change in the law and the degree of connection between the operation of the new rule and a relevant past event,” said the court. “ … Pallas was premised on a discrete act, the decision to deny a retirement benefit, that gave rise to a current violation of the PDA.”

According to an AT&T spokesman, “We believe the decision is inconsistent with current law and we’re reviewing the decision to determine our next steps.”

Plaintiff’s attorneys 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.

More corporate boards are looking outside their company’s ranks to fill CEO vacancies despite dramatic cost differences to hire from within. And now there’s a new academic theory to help explain this trend that has many an ambitious inside executive seeing red.

In a recently published paper, professors Kevin Murphy of the University of Southern California and Ján Zábojnik of Canada’s Queen’s University suggested that during the past few decades, the CEO market has come to value “general managerial ability,” or skills that translate across companies and industries (read: outsider), over “firm-specific managerial capital,” or all knowledge and experience that’s recognized as valuable only within a company (read: insider).

Furthermore, general management ability—including previous CEO experience, as well as a mastery of economics, accounting, management science and other disciplines—is transferable and “priced” into the labor market, the authors argue.

Conversely, firm-specific capital, such as understanding the company’s operations, markets, suppliers and clients, is “unpriced” in the CEO market.

The old-school CEO needed to acquire a certain amount of firm-specific information. The modern CEO lets an assistant sweat those details.

“Bottom line is that you don’t have to pay very much to promote someone internally to the CEO chair,” Murphy said. “You could probably ask that executive to take a cut and they’d agree to it just to get the general managerial experience. But you have to pay a lot to compete with other firms for the top managers, and that pay will depend on how much of a CEO’s skills are transferable across firms and industries.”

It’s a counterargument to a theory proposed by Harvard professor Lucian Bebchuk, which argues that the escalation in executive pay has been determined by board cronies rubber-stamping fat packages.

CEOs from outside the company certainly fetch bigger pay packages than insiders. The authors found that external CEO hires in the 1990s made 22 percent more than promoted execs. In 2005, outsider CEO hires at S&P 500 companies earned a median pay of $13 million, compared with $5 million for insiders, according to the Corporate Library, a corporate governance research group. Of the 52 CEO appointments at S&P 500 companies that year, just 32 were internal promotions.

And not only are these outsider CEOs costlier than promoted execs, they’re riskier, said Dan Dalton, director of the Institute for Corporate Governance at the Kelley School of Business at Indiana University. “These outsider CEOs are usually dropped into really tough situations and have a hard time making it. So you pay more, take more risk, and then pay again if the exec fails [via a golden parachute].”

The Center for Creative Leadership, a management consulting firm, found that 55 percent of external CEO hires leave their posts within 18 months, compared with only 35 percent of those internally promoted.

The preference for outside hires has been growing for three decades. Murphy noted that during the 1970s and ’80s, outside hires accounted for 15 percent and 17 percent of all replacements, respectively. In the 1990s, they accounted for 25 percent—by 2005, 40 percent.

Last fall, Ford Motor Co. snagged top Boeing exec Alan Mulally as its new chief executive for $18.5 million.

Earlier this month, Cerberus Capital Management named former Home Depot chief Robert Nardelli to run Chrysler. (Cerberus won’t reveal the details of Nardelli’s pay.) And last week, Qwest appointed former Williams-Sonoma chief Edward Mueller to replace its retiring chairman and CEO. Mueller will receive an annual base salary of $1.2 million, plus a bonus of up to twice that amount.

Some argue that boards aren’t placing a high enough priority on succession planning, which leaves them scrambling for talent when a crisis hits. Half the boards of public, private and nonprofit companies recently surveyed by the National Association of Corporate Directors said they were “less than effective” at CEO succession planning.

Pearl Meyer, a partner at Stephen Hall & Partners, a compensation consulting firm, said boards are responding to shareholder criticism of their succession planning.

“Hiring from within is less expensive and less disruptive to the company,” she said. “Plus, a lot of these external recruits aren’t sticking. Promoting someone means you get the devil you know.”

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