Author: Site Staff

High-tech employees are so hard to find in New York City that some firms are giving up and expanding elsewhere, threatening one of the city’s fastest-growing industries.

Bart Feder, chief executive of the FeedRoom, a Manhattan-based firm that delivers online video for Web sites, searched for six high-end software developers for months. After it became clear that he wasn’t going to find them in New York, he opened a satellite office in Toronto, which has a wealth of untapped tech talent. It is also just a 90-minute plane ride away, he says.

“In New York, you’re competing against banks, media companies and Google for good software developers,” Feder says. “Right now, the demand is exceeding the supply.”

Brooklyn-based Etsy, an e-commerce site for homemade arts and crafts, is in dire need of software engineers as it continues to grow. With more than 250,000 registered users, 500,000 items listed on its Web site and more than $1 million in annual sales, it relies on engineers to maintain and increase its volume of business. So a few months ago, the two-year-old firm opened a San Francisco office, where it now has four engineers.

“There are more applicants out there,” says Etsy founder Rob Kalin, who expects to hire five more engineers by the end of the year. “More people come out with computer science degrees and want to work for startups.”

New York has enjoyed steady growth in tech jobs since mid-2003, and the sector is still healthy. As of June, there were 44,000 computer system design jobs in the city, 3,600 of which were added in just the first half of this year. Employment is up 12 percent compared with last year and is approaching 47,000, the peak number of tech jobs before the dot-com bubble burst in 2000.

But some observers question how long the growth will last, as companies continue to expand and wrestle for a limited supply of talent.

“Computer jobs are commodities. Employers can move jobs out,” says John Tepper Marlin, former chief economist with the city comptroller’s office and now a principal at consulting firm CityEconomist.

Looking overseas
More firms are considering doing just that. Online ad firm 24/7 Real Media started a foreign-exchange internship program in Paris and hired four interns in June. Full-time offers may be extended at the end of the program, but the company hasn’t determined where the jobs will be based—New York or Europe.

Companies are also becoming more accommodating just to retain the talent they already have.

When one of M5 Networks’ top employees had to move to Rochester, New York, for personal reasons, the Internet phone services provider opened an office there just to keep him on board. When the company hired someone in Chicago, it did the same thing—and now has a team of seven in the Windy City.

“You have to be flexible in this economy,” says chief executive Dan Hoffman, who originally had no intention of opening offices in those cities.

Almost a quarter of M5’s 110 employees work from their homes in other cities, such as Washington.

Not all tech employers are ready to give up on the Big Apple. Some companies are pouring more money into recruiting efforts. It used to be common to offer employees $250 to $500 per referral, but now companies are paying thousands, says Rick Dionisio, a director at executive search firm Staffmark.

Referral bonuses
The New York office of interactive ad agency Avenue A|Razorfish, with about 400 employees, recently boosted its bonus to $4,500 for referrals received between July 23 and August 3. Manhattan-based online job site TheLadders.com offers employees bonuses of up to $5,000.

The talent shortage is also forcing companies to be more creative. TheLadders.com plans to rent out a billiard parlor in the city in October and host a one-day event of fun and games where local techies can win cash prizes. It will be a first for the four-year-old company, which has grown to 146 employees.

David Carvajal, a vice president at TheLadders.com, doesn’t know how much the event is going to cost yet, but if the company spends $20,000 and can find two or three good people, he says, the event will be worth it.

“We are not ready to abandon New York,” Carvajal says. “Talent is here; you just need to know how to compete.”

Filed by Amanda Fung of Crain’s New York Business, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

The ease of plastic is coming to retirement plans. The Reserve, the fund company that pioneered the money market fund, now offers a product that lets 401(k) participants borrow from their accounts using either a debit card or checks.

After signing up for the ReservePlus loan program, participants transfer a portion of their 401(k) assets into a money market fund from which they are free to draw whenever they wish. They can either use a ReservePlus loan card at an ATM or store, or ReservePlus checks.

Eric Lansky, a managing director at the Reserve, says the goal was to create a product that resembled a home-equity line of credit. “You get this debit card or checks, and you can now tap into that 401(k) if you need to borrow.”

To borrow, participants pay an annual rate that’s 2.9 percentage points above the prime rate; the portion represented by the prime rate goes back into their account, while the 2.9 percent is the Reserve’s fee. Borrowers also pay an initial setup fee and a yearly maintenance fee, which are set by the record keeper. (ReservePlus is currently available on the Omniplus record-keeping platform and will soon be available on the SRT and InvestLink platforms.)

Making it easier for 401(k) investors to borrow from their savings seems to run counter to the goal of helping workers build a nest egg for retirement. But most 401(k) plans do allow loans, in the belief that workers are more likely to participate if they can access their money prior to retirement. A 1997 study by the Government Accountability Office confirmed that allowing loans increases participation in 401(k)s, especially among lower-income employees, and it also concluded that employees in plans that permit loans contribute more.

A survey by the Profit Sharing/401k Council of America (PSCA) found that 85 percent of 401(k) plans allow loans, and about 25 percent of workers in those plans take them.

But PSCA president David Wray says that in the past, plan sponsors were wary of proposals to enable 401(k) loans with credit cards.

“They have a loan program so that they can entice employees who would not save in the plan without some kind of access to their money,” Wray says. “But they typically do this as an accommodation, not as an additional employee benefit.”

Lansky says that ReservePlus relieves plan sponsors of the administrative work involved in 401(k) loans. “We originate the loan and we collect the loan,” he says.

Christopher Van Aken, an account manager at GMR Associates, an investment advisor in Rochester, New York, that offers ReservePlus to its clients, says that when “HR and payroll people find they’re no longer going to be in the loan business, they’re the happiest people in the world.”

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

Companies that offer their own stock as an investment option in their 401(k) plans have been put on warning by the Department of Labor: If they fail to let workers know when they are eligible to sell their company stock holdings, they could be fined as much as $100 a day per violation.

The regulations the Department of Labor published in the Federal Register on Thursday, August 9, stem from last year’s Pension Protection Act, which made it easier for workers to move their retirement savings out of company stock holdings and into other investments in the 401(k) plan.

In the past, companies often put strict limits on 401(k) participants’ ability to diversify out of company stock. The PPA said that employees who invest in company stock with their own contribution to the plan can switch out of it at any time, while employees who acquire company stock from the company’s contribution can diversify out of it once they’ve achieved three years of service.

Employers are required to give workers 30 days’ notice of the point at which they’re eligible to diversify out of company stock, and the department’s regulations put some teeth into that requirement by setting the fine of as much as $100 a day per violation.

Enron’s collapse illustrated the dangers of putting too much of one’s retirement savings into an employer’s stock, and that message seems to be getting through to workers. The latest look at 401(k) plan activity by the Employee Benefit Research Institute and the Investment Company Institute found that employees’ holdings of company stock fell two percentage points in 2006, to 11 percent; that compares with the 1998 peak in company stock holdings of 18.6 percent.

The regulations take effect October 9.

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

Dear Looking at the Big Picture:



Strategic HR is more an evaluation of the senior HR staff’s performance rather than a checklist of items. Pre-selling your management on the popular-but-vague idea of strategic HR is likely to prove less effective than repeatedly demonstrating that you have a strategic approach to your role.

• How well do you understand your company’s business economics?
  
• Do you read the data and business publications (not HR publications) that your top management reads and relies on, so they are not frequently bringing you up to speed–or worse, leaving you out of the discussion?
  
• Do you show awareness that HR is a cost center, not a profit center, and constantly and conspicuously seek returns on the investment your company makes in its HR function?
  
• Do you look for ways to keep your highest producers at the company, and let your lowest producers leave and go to work for your competition?
  
• Do you resist adding faddish, low-value benefits and instead fight for important benefits that have greater impact on employee loyalty, motivation and retention? (Read more about the negative reactions when Hewlett-Packard slightly reduced the number of telecommuters in its huge workforce.)
  

Checklists, unfortunately, are typical of how senior management often view the HR function. Although it may serve some purpose, a checklist seems more likely to address effective HR than strategic HR. Over time, your executive management will form its opinion of how strategic your HR function is from the dozens of examples that result from your analytical thinking, your overall business sense, your orientation toward future company goals, and the quality, not quantity, of your initiatives. Good luck as you proceed down this path.

SOURCE: Harold Fethe, MindSolve Technologies, Gainesville, Florida, July 21, 2006

LEARN MORE: Please read Strategic Human Resources Actions for some proven metrics.

The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.

Dear Not a Mind Reader:



It is difficult to understand what candidates are thinking before any interview, regardless of culture. However, armed with the applicant’s résumé and some market knowledge, you can come to the initial meeting with an understanding of how to move forward.

First is the market. Cash is king in India at the moment, especially in engineering. It is important to know the type of package your company will offer before negotiations on salary begin. Many companies have instituted retention bonuses paid out after years one, two and three. Most are equal to 50 percent to 100 percent of annual salary.

Second is the employee’s international background. If the employee has previously worked for a multinational, she/he should have a baseline understanding of multicultural communication. But do ask about their orientation to international teams. For candidates who have not previously worked for multinationals, it will be important to elicit, in the interview, the candidate’s views/perceptions of working on a multicultural team. Outside of technical skills, the ability of a candidate to lead a local team, but communicate and partner with the company’s U.S .corporate office is going to be seminal.

Third is the personal relationship. Professional and personal relationships are intertwined in the Indian office setting. It is quite common to be familiar with colleagues’ personal background. It is recommended that the functional and hiring teams include a “get-to-know-you” aspect as part of the recruitment process. In general, Indian culture builds heavily on group dynamics, so strengthening the personal relationship with the corporate office is key.

Taking these three points into consideration should help you formulate a recruitment strategy for the interviews.

SOURCE: Jeremy Hollister, Watson Wyatt & Co., San Francisco, July 19, 2006.

LEARN MORE: Please read What Role Do Job Descriptions Play When Recruiting Top-Notch Employees?

The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.

Major immigration reform legislation may be dormant, but the regulatory process is about to bloom with new—and potentially costly—demands on employers to ensure that their workforces are legal.

Under a pending rule from the Department of Homeland Security, companies will have to take steps upon notice from the government to resolve discrepancies in workers’ tax information that they previously could ignore.

The clock would start ticking when companies receive a letter from the Social Security Administration indicating that employees’ names or Social Security numbers on tax forms don’t match federal records.

If work authorization or identity can’t be confirmed within about two months, companies would have to fire employees or face steep fines.

Currently, an employer is not compelled to do anything with what are called “no-match” letters. The document states explicitly that no assumption should be made about a person’s legal standing.

In 2005, 8.1 million letters were sent to workers and 1.5 million to employers if a home address couldn’t be found for the employee.

In the new approach, which could be implemented within months, a company’s failure to act on a no-match letter is effectively a violation of immigration law.

“They’ve turned the presumption completely around,” says William Manning, a partner at Jackson Lewis in White Plains, New York.

The agency has taken another step in its renewed efforts to crack down on illegal employment. Although the rule was proposed more than a year ago, it is being put into effect now that immigration legislation has died on Capitol Hill.

“It’s a strong tool to use when they’re conducting an audit or they’re undertaking a work-site enforcement action,” says Montserrat Miller, a lawyer at Greenberg Traurig in Washington.

The agency uses the same metaphor but says that it is giving companies a tool to better understand no-match procedures. It also intends to hold them accountable for hiring practices.

“If they continue to choose not to follow the law, there will be sincere and severe penalties,” says Laura Keehner, a DHS spokeswoman.

One problem with the DHS initiative, according to employer advocates, is flawed government databases. Discrepancies occur in about 4 percent of the 250 million earnings reports that businesses send annually to the Social Security agency, according to the Government Accountability Office.

About 5 percent to 10 percent of the U.S. workforce could get caught in the net, including legal workers, Manning says.

“If the government goes around disenfranchising those people, you could have a recession or depression,” he says.

Food services and processing and the hospitality and construction industries would be hit hard, industry representatives say.

John Gay, senior vice president for government affairs and public policy at the National Restaurant Association, says that millions of workers could be removed from the labor market.

“You could see doors closing on businesses,” he says.

The homeland department is not seeking to cause economic disruption, but it does want to shut off the “jobs magnet” that fosters illegal immigration—a move called for by many members of Congress.

“It’s part of the administration’s effort to show they’re willing to enforce the laws we currently have,” says Lynn Shotwell, executive director of the American Council on International Personnel.

Under failed immigration proposals, bitter crackdown medicine would have been sweetened by establishing legal channels for bringing in foreign workers.

“We warned against doing this—enforcement without reform,” Gay says.

—Mark Schoeff Jr.

Participants in 401(k) plans have the right to sue plan administrators under ERISA even if the participants have taken all of their money out of the plan, according to a recent ruling from the 3rd Circuit Court of Appeals.

The decision “cleared up an area where there was some ambiguity,” said John Nixon, vice chairman of the employment services group in the Philadelphia office of law firm Wolf Block.

The 3rd Circuit reversed a lower court’s dismissal of Howard Graden’s lawsuit against Conexant Inc. on the grounds that Graden’s cashing out of the plan meant he had no standing to sue.

“The lower court followed what everyone understood the law to be,” Nixon said. “You had to have an [401(k)] account balance to have standing.”

Graden participated in Conexant’s 401(k) until October 2004, investing only in the company stock fund. At the time he cashed out, Conexant’s stock had fallen to $1.70 from a 52-week high of $7.42 in March 2004.

He sued, alleging that Conexant’s pursuit of a risky merger was to blame for the stock drop. Conexant argued that since Graden had cashed out of the plan, he was no longer a participant and did not have standing to sue.

But the 3rd Circuit’s decision notes that ERISA entitles 401(k) plan participants “not only to what is in their accounts, but also to what should be there given the terms of the plan and ERISA’s fiduciary obligations.”

“From this, it is not difficult to conclude that Graden has standing as a plan participant,” the court said, noting that if his lawsuit succeeds, it “will restore assets to the plan that are allocable to Graden’s account, and he will then get a distribution from that restored account.”

“When determining participant standing under ERISA, the relevant inquiry is whether the plaintiff alleges that his benefit payment was deficient on the day it was paid under the terms of the plan and the statute,” said the panel’s decision. “If so, he states a claim for benefits, which, if colorable, makes him a participant with standing to sue.”

Both the Department of Labor and AARP filed amicus briefs supporting Graden, while the National Association of Manufacturers filed an amicus brief supporting Conexant.

Nixon said the decision will create some challenges for companies that sponsor 401(k) plans. When working with plan sponsors, “We try to always draw as small a circle as possible around possible claimants,” he said. “Now, even if you encourage them to take their money out, they’re still a possible claimant.”

The decision also raises issues with regard to the administration of 401(k) plans, and especially record keeping, Nixon said. “If in fact this case becomes the rule of the day, people are going to have to re-examine their service provider agreements to see, post-termination, to what degree the service provider has to retain records for them.”

But he noted that the Supreme Court is due to consider a case, LaRue v. DeWolff, that raises the same issue about the standing of plan participants after they cash out of 401(k) plans. Nixon predicted that if the Supreme Court rules on this issue, “they will read the term ‘participant’ literally and basically restore the status quo.”

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

The average 401(k) account balance posted an increase for the fourth year in a row in 2006, but the cash totals in those accounts are still too low to provide a decent retirement for many workers.

Still, the annual report on 401(k) plan activity released last week by the Employee Benefit Research Institute and the Investment Company Institute suggests that plan participants are becoming savvier investors.

For workers who have participated in a company’s plan consistently at least since 1999, the average account balance rose 17 percent, to $121,202 in 2006 from $103,952 in 2005.

“The discipline of saving through a 401(k) plan continued to pay off for these 401(k) plan participants,” said Jack VanDerhei, co-author of the report and an EBRI fellow.

Average balances get bigger as workers get older: Employees in their 60s had an average account balance of $157,727 in 2006, up 9.3 percent from $144,269 in 2005, while those in their 20s ended the year with an average balance of $28,248, up 27 percent from $22,236.

VanDerhei cautioned against reading too much into the information on account balances, since the data, provided by record keepers, show only what workers have accumulated at their current job and not assets they may have rolled over into IRAs or left with previous employers.

When asked whether workers were saving enough, VanDerhei cited a study that he and Sarah Holden of ICI conducted in 2002 that showed 401(k) accumulations would replace one-half to two-thirds of workers’ pre-retirement income. The automatic enrollment encouraged by last year’s Pension Protection Act could improve those results, VanDerhei said.

The Center for Retirement Research at Boston College released a somewhat bleaker analysis last week that indicated 43 percent of households will not have enough income in retirement to maintain their standards of income.

VanDerhei noted that the Center for Retirement Research analysis looked at all households, many of which do not have access to a 401(k) plan, while the EBRI/ICI report only covers 401(k) plan participants. “That emphasizes the importance of getting people into 401(k) plans,” he said.

According to the EBRI/ICI report, about two-thirds of 401(k) assets are invested in stocks and about a third in fixed-income instruments like stable-value, bond and money-market funds, a breakdown that has changed little over the past 11 years.

The data show, though, that participants are moving away from putting too much money in company stock. Allocations to company stock declined two percentage points in 2006, to 11 percent. Assets invested in company stock have been falling since 1999, after peaking at 18.6 percent in 1998.

The EBRI/ICI data also show that plan participants are making more use of balanced funds, which include stocks and bonds, a category that encompasses lifestyle and lifecycle funds. Such balanced funds held 24 percent of the account balances of recently hired participants in their 20s at the end of 2006, compared with 19 percent in 2005 and 7 percent in 1998.

The EBRI/ICI analysis is based on data on almost 54,000 401(k) plans with 20 million participants and $1.2 trillion in assets, about 46 percent of the total $2.7 trillion held in such plans.

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

Nike Inc. has agreed to pay $7.6 million to settle a class-action lawsuit charging the company with racial discrimination at its Niketown store in downtown Chicago.

Plaintiffs in the case were about 400 current and former African-American employees at the store. The suit, originally filed in December 2003, was granted class-action status in March 2006 by a federal court judge in Chicago. The court gave its preliminary approval to the settlement Monday, July 30.

The plaintiffs charged Beaverton, Oregon-based Nike with segregating its black employees into its lowest-level and worst-paid jobs; denying them equal opportunities for promotions to more attractive positions; applying workplace rules and meting out discipline in a racially biased manner; and routinely denying minorities employee benefits by predominantly hiring them into part-time rather than full-time positions.

In addition to the settlement, Nike also agreed to several other measures, including a court-appointed diversity consultant to monitor and periodically report to the court and the appointment of a compliance officer at Nike’s headquarters.

Nike said in a joint statement issued with the plaintiffs’ counsel, Chicago-based Brennan & Monte Ltd. and Randall Schmidt of the Edwin F. Mandel Legal Aid Clinic of the University of Chicago, that it continues to deny all allegations of wrongdoing and liability in the litigation. A spokesman had no further comment.

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

Dear Soft Sell Not Working:

Experts are still debating whether there will even be a major labor shortage in the future. Continued offshoring, immigration, technological advances, postponed retirement of baby boomers and other factors could exert a significant impact on the labor pool’s adequacy during the next 20 years.
That being said, the best way to help clients prepare for a potential shortage is to help them zero in on current problems that will negatively affect them over time if not fixed.
Most HR departments are so busy putting out fires that they don’t have time to think about future problems and solutions. They often feel overwhelmed and don’t know where to start to make things better. You have a great opportunity to guide HR practitioners to better long-term outcomes by helping them focus on areas they can improve now.
Start a real dialogue
What causes your clients pain? They may know things are not right but be unable to pinpoint the problem. This is your opportunity to walk them through current processes and discover issues that pose a barrier to future success. Do they have significant short-term turnover? Are their employee satisfaction scores alarming? Do they have too high or low usage of their employee assistance program?
Take action now
Isolate a few specific items that will make a difference in the company’s ability to maintain a workforce in the future. Help them make a doable action plan for each item that can be implemented right now.
For example, if a company has an issue with high turnover occurring within six months of hire, help them fix their hiring processes. Make sure their job descriptions address cultural, technical and interpersonal skills needed for success. Ask if supervisors are getting training on interviewing techniques. Check their background screening procedures. Find out if they are paying competitively.
Be willing to be incremental
Few organizations do a truly good job of optimizing the value of their human capital right now. They must take the time to hire better, train new hires and existing employees better, treat employees with more respect, and reward and recognize them properly. They need to develop succession and knowledge-transfer plans to cope with both current needs and those they will encounter as baby boomers retire, and the general pace of global competition continues to increase.
Break down problems into small chunks and work on them one piece at a time. Encourage your clients to focus narrowly and achieve specifically. They’ll get more done and be happier in the process.
Don’t resort to “fear selling” to organizations. This approach prevents logical discourse, proper focus on vital issues at hand and the optimal allocation of scarce resources. The notion of looming labor shortages is consuming valuable time and resources and deflecting attention from practical, important, day-to-day concerns of American businesses.
Fixing the problems your clients encounter right now will lay a solid foundation for dealing with a future labor shortage, and will make them much more willing to consider the other workforce solutions you provide.
SOURCE: Richard D. Galbreath, president, Performance Growth Partners Inc., Bloomington, Illinois, August 13, 2006.
LEARN MORE: Please read how to hire with a view toward retention and reduced turnover.
The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.