Author: Site Staff

A recently introduced bill that would mandate paid sick days is generating concern among HR practitioners about how it would affect companies that already offer paid time off.

Under the Healthy Families Act, which was authored by Sen. Edward Kennedy, D-Massachusetts, and unveiled on the Senate floor March 15, companies with at least 15 employees would have to provide seven days of paid sick leave annually for each person who works 30 or more hours each week.

A prorated number of days would have to be offered to those who work less than 30 hours. Unused days could roll over from year to year. A similar bill has been introduced in the House by Rep. Rosa DeLauro, D-Connecticut.

Kennedy promotes the bill as a vehicle for economic fairness, arguing that almost half of private-sector workers—and an even greater percentage of low-wage earners—don’t receive paid sick days to care for themselves or their children.

He also says the measure would improve public health because so many workers in the food service industry don’t have access to sick days.

Most people in the HR community don’t oppose giving workers time off if they’re sick. In fact, many companies already offer paid leave as an incentive to attract talent. But that’s also the reason that the bill is raising red flags.

It’s unclear whether paid-time-off days would count toward the required seven paid sick days or whether the mandated days would be layered on top of PTO.

An aide to Kennedy, who is chairman of the Senate Health Education and Pensions Committee, says that the bill would not tack extra sick days on to voluntary leave a company already has in place.

“It wouldn’t add to their total,” says Laura Capps, a Kennedy spokeswoman. Her boss’ bill “gives a floor of guaranteed sick days. It [ensures] that people have at least seven paid sick days.”

But the chief lobbyist for a major HR organization isn’t as certain about how the bill will affect PTO days and how it relates to the Family and Medical Leave Act.

“The equivalency test is vague and it would need to be fleshed out further to see how it interacts with voluntary paid leave programs … and other federal and state-mandated requirements,” says Michael Aitken, director of governmental affairs for the Society for Human Resource Management.

Working out those details was the main concern expressed by HR professionals assembled by SHRM on March 14 to lobby Capitol Hill on a range of legislation, including Kennedy’s bill.

“It’s not a bad thing,” Angela Hamilton, director of HR services for Benefit Resources, says of the measure’s theme—providing paid sick days. “It depends on how it plays out. There are just too many unknowns.”

There is plenty of initial skepticism. “They need to be more specific and they need to spell it out,” says Miriam Feibel, HR business partner at Firmenich, a Princeton, New Jersey, manufacturer.

In addition to concerns about PTO days, there is disquiet over the bill’s definition of a full-time employee as someone who works 30 hours or more per week.

At the Dollar and Thrifty auto rental chains, the definition of a full-timer is someone who works 35 hours a week. The company is incorporating more part-time employees in part to save money from a reduction in benefits.

“We’ve solicited a lot of part-timers,” says Henrietta Berroteran, director of field employee relations for Dollar Thrifty Automotive Group Inc. About 1,500 of the company’s 8,500 employees work part time, or less than 35 hours a week.

But if the Kennedy bill becomes law, it may undermine the savings generated by a part-time workforce. “It’s eliminated,” Berroteran says.

As Kennedy’s bill winds its way through the legislative process, HR officials, spurred by SHRM, intend to register their concerns with their states’ lawmakers.

Debbie Jorgens, an organizational development consultant for Thrivent Financial for Lutherans in Minneapolis, will outline qualms about the Kennedy measure’s potential impact on PTO days to a newly elected Minnesota Democratic senator.

“I’m counting on Amy Klobuchar,” Jorgens says. “She’s always impressed me as someone who will listen. It’s one of the reasons I voted for her. We’ll find out.”

—Mark Schoeff Jr.

There seems to be growing dissatisfaction among HR outsourcing buyers, according to a recent survey conducted by EquaTerra.

Thirty-one percent of buyers surveyed said they are uncertain of whether they will renew their current HRO contracts. Ten percent say they plan to terminate their contracts and bring the work back in-house.

Seventeen percent plan to send out a request for proposals to find a different HRO provider to handle the current processes they are outsourcing, while only 10 percent plan to send out an RFP for an expanded HRO contract that includes processes beyond what they currently outsource.

The latest research marks the highest percentage of buyers saying they are planning terminations and the lowest percentage of buyers planning to expand the scope of their HRO contracts that EquaTerra has found in its studies, says Stan Lepeak, managing director of research.

“Usually the number of firms planning to eliminate HRO has been less than 10 percent and the number of firms expanding is usually around 40 percent,” he says.

While the sampling of the survey is small, ranging from 40 to 60 HRO buyers, depending on the question, Lepeak believes the findings are somewhat telling.

“There is some dissatisfaction among HRO buyers, but it’s not so much dissatisfaction with the concept as it is dissatisfaction with the execution of their arrangements,” he says.

In their comments, a number of survey respondents said they wanted more flexibility in their HRO arrangements. “Flexibility could apply to a number of issues,” Lepeak says. “They may want more flexibility in the pricing, or in the business model.” EquaTerra plans to do more research to figure out what buyers want and will publish a white paper in late April on the topic.

Providers need to get in front of these issues and talk to buyers proactively, Lepeak says.

Buyers are out talking to one another about these issues, and HRO providers need to address that, he says.

“They are all comparing notes about what they are experiencing,” Lepeak says. “And while that kind of cocktail hour benchmarking might have pitfalls, it’s happening, and service providers need to address it.”

Jessica Marquez

Employers who have succeeded in getting their employees to manage a chronic illness by taking necessary prescription medicine now face a new dilemma: harmful drug cocktails consumed by patients who are treating several chronic conditions simultaneously.

The University of Michigan is set to announce today that it will study whether counseling with pharmacists reduces the incidence of adverse reactions that occur when its employees take multiple drugs for unrelated con­ditions. Such harmful effects can occur between prescription drugs, over-the-counter medicines and dietary and herbal supplements. The university is among a handful of employers trying to learn how best to manage the use of multiple medications.

“We ought to have someone looking at the overall picture here to make sure things work well,” says Leslie Shimp, the professor at the university’s College of Pharmacy who is leading the project.

Researchers at the pharmacy school will begin a pilot program next month to provide counseling to 3,000 employees, dependents and retirees who regularly take at least nine medications. The goal will be to see what kinds of counseling best help individuals safely adhere to their drug regimens. Another goal is to encourage people to use cheaper generic drugs.

Every day, 85 percent of adults take one or more prescription drugs, over-the-counter medicines, herbal medications or supplements, while nearly one-third of adults take five or more every day, according to the Institute of Medicine in Washington.

Despite the prominent role medicine plays in people’s everyday lives, patients are not necessarily using drugs correctly or with awareness of how they interact with other medicines. The inappropriate use of medications leads to more than 1.5 million serious medical events each year, all of which are considered preventable, according to the Institute of Medicine.

“We know that adverse reactions go up almost exponentially depending on the number of drugs you take,” says Dale Christensen, a professor emeritus at the University of North Carolina’s School of Pharmacy.

Some disease management programs have focused on managing chronic illness, like the program begun 10 years ago in the city of Asheville, North Carolina, to manage diabetes.

But programs that look at the entirety of a person’s medical therapies are more recent and less studied. Federal law governing Medicare Part D, the prescription drug benefit that was introduced last year, mandates that individuals with several chronic conditions who take multiple medicines receive what is called “medical therapy management.” Since then, employer groups have taken a closer look at better managing the regimens of employees who have high health care costs associated with chronic illnesses.

“The way you get value for your dollar is to make sure that medical therapies are used properly,” Christensen says. “If not, it’s waste of money at the very least.”

The issue is one that affects more than just retired people. At the University of Michigan, the patients in the pilot program, more than half of whom are 18 to 65 years old, take an average of 12 medications daily, not including non-prescription medications. The goal of the program is to improve the management of chronic diseases, reduce side effects and harmful drug interactions, and simplify the pill-taking process, Shimp says.

The university also expects to save money by moving people to generics, eliminating redundant medications and avoiding medical errors that result in expensive hospitalizations and lost productivity. Exact savings, however, have not been adequately measured, according to the Institute of Medicine.

In order for other employers to reproduce the program, they must contract with local pharmacists who can provide a clinical setting where one-on-one counseling can take place and persuade their population to use the counseling. Other employers, like Pitney Bowes, are using on-site clinics or on-site pharmacies managed by pharmacy benefit managers to provide similar counseling.

“I think that patients are often interested in talking to somebody about their medicine,” Shimp says, “especially if they are taking a lot of them.”

—Jeremy Smerd

Affiliated Computer Services founder and chairman Darwin Deason is trying to take the company private again, a move observers say will make the company’s business, including its HR outsourcing business, easier to manage.

Deason and investment partner Cerberus Capital Management are offering $5.93 billion in cash to take the Dallas-based IT company private, according to a March 20 letter to ACS’ board of directors. The price represents a premium of 15.5 percent over the closing price Monday, March 19, of $51.29 on the New York Stock Exchange.

“We believe that our proposal is fair and in the best interests of the Company and its public shareholders and that the shareholders will find the proposal attractive,” states the March 20 letter from Deason and Cerberus to ACS’ board.

“The board will evaluate the offer in due course,” says Mike Buckley, a spokesman for ACS. He declined to elaborate.

Under the proposal, Deason will remain chairman and ACS management will remain in place.

Last year a number of private equity firms, such as Blackstone Group, Bain Capital and Texas Pacific Group, were in talks to take ACS private, but the discussions fell through.

Now, however, observers say it looks like it might happen given the fact that Deason is one of the buyers.

And given the public scrutiny around ACS, it makes sense for the company to want to go private, observers say. Last year, ACS got caught in the options backdating scandals when regulators uncovered that executives intentionally backdated the effective dates of their stock options to a date when the stock hit a low point to make the options more valuable when exercised.

CEO Mark King and CFO Warren Edwards resigned over the scandals and the firm had to restate earnings for the past 11 years.

Going private will enable ACS to focus on growing without the burden or public scrutiny, experts say.

“The big question is, who is next?” says Stan Lepeak, managing director of research at EquaTerra, a Houston-based advisory firm.

But Lepeak says that while private equity investors are interested in scooping up smaller HRO players, particularly those in the recruitment process outsourcing space, there isn’t a lot of interest in larger HRO providers.

“Hewitt is a possibility,” he says, noting rumors that bankers had been eyeing the Lincolnshire, Illinois-based company.

While the market might not see a wave of public HRO providers go private, privately owned HRO providers will probably put off their initial public offerings until the market gets better, says HRO specialist Phil Fersht.

“There are some select Indian providers who are pushing to [do an] IPO as soon as they can, but I anticipate this to slow down as valuations go through a correction later this year,” he says.

If the board approves the proposal by Deason and Cerberus, the investors hope to finish the transaction in early May, according to their letter to the board.

click here to view ACS’ 8k filing  with Securities and Exchange Commission.

Jessica Marquez

A U.S. district court judge, following an earlier appeals court ruling in the same circuit, has dismissed charges that Boeing Co.’s cash-balance pension plan discriminates against older employees.

Judge David Herndon of the U.S. District Court for the Southern District of Illinois ruled this week that it was the duty of the court “to follow the law of this circuit as expressed in Cooper [v. IBM],” referring to an August 2006 ruling by the 7th U.S. Circuit Court of Appeals in Chicago that said the design of cash-balance plans in general and IBM Corp.’s plan in particular do not violate age discrimination law.

In that ruling, the appeals court said the terms of the IBM plan were age-neutral and the credits allocated to employees’ accounts were not reduced on account of age.

In the case of the Boeing plan, “there is no dispute that the plan is age-neutral” or that credits to participants are reduced on account of age, Herndon wrote.

In addition to the 7th Circuit Court ruling, a second appellate court—the 3rd U.S. Circuit Court of Appeals in Philadelphia—ruled recently that the plans are not age discriminatory. At least two other appeals courts are expected to rule on the issue within the next year or so.

New cash-balance plans that follow certain basic standards under a 2006 federal pension funding law, however, are shielded from such suits. Since that legislation was passed, two major employers—MeadWestvaco Corp. of Richmond, Virginia, and SunTrust Banks Inc. of Atlanta—said they were adopting cash-balance plans. A third employer, package delivery giant FedEx Corp. of Memphis, Tennessee, said it was expanding an existing cash-balance plan to cover all eligible U.S. employees.

The plans are so-named because accrued benefits are expressed as a cash lump sum.

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

Event: CUE 07 (Lawson conference and user exchange)

What: St. Paul, Minnesota-based software company Lawson provides software and service products to 4,000 customers in manufacturing, distribution, maintenance and service sector industries across 40 countries. Human resource applications are part of Lawson’s portfolio of products, which also includes supply-chain management and customer relationship management software. A milestone for the company was last year’s merger with European software company Intentia.

Where: San Diego Marriott Hotel & Marina and the San Diego Convention Center

When: March 4-7, 2007

Conference info: For information about Lawson, go to www.lawson.com.

Day 1—Monday, March 5, 2007

Aiming high: Lawson officials touted a bold goal at meetings here: be the top vendor of HR software in the world. Dean Hager, senior vice president of product management, told analysts and reporters that Lawson plans to outdo big guns SAP and Oracle even as it offers a better alternative to the throngs of talent management software specialists. “We want to be No. 1,” Hager said. “We see a jugular vein and we’re going to invest and go after it.”

It may be true there’s uncertainty in the HR software arena as Oracle hammers out its Fusion applications, which are designed to blend the best of the company’s various product lines. And organizations looking to buy software from niche vendors in performance management, recruiting or learning management face the difficulty of integrating those talent management applications with core HR and other software systems.

But Lawson has a huge gap to close in its quest. According to AMR Research, Lawson ranked fifth in human capital management revenue in 2005 with $104 million, behind Sage Group, Kronos, SAP and Oracle. The two top players, though, had revenue that dwarfed Lawson’s, according to AMR Research: Oracle’s was roughly $1.4 billion and SAP’s was nearly $1.3 billion.

“We’ve got a long ways to go,” Hager conceded.

Best in suite? Lawson’s strategy centers on creating HR applications that are higher-quality than those from Oracle and SAP, yet better integrated than those from the smaller talent management vendors. Larry Dunivan, the company’s vice president for human capital management, calls the approach a “best of suite” strategy. That’s a twist on the “best of breed” phrase used by specialists.

So far, it’s hard to judge how well Lawson will do. A key will be a set of Lawson applications under development that focus on global HR, talent acquisition, performance management and compensation.

What is it about penguins and software execs? For the second time in the past 12 months, a software executive has shared the stage with penguins. Last year, Oracle’s Larry Ellison greeted the endearing birds during a speech in San Francisco focused on a Linux-related service (the penguin is the mascot for the Linux software operating system). And at Lawson’s CUE event, Lawson chief executive Harry Debes had penguin visitors during his conference-opening presentation from nearby SeaWorld. Debes managed to get a few laughs with this joke about a penguin walking into a pharmacy. As Debes told it, the penguin says, “I’d like some ChapStick please, and you can put it on my bill.”

—Ed Frauenheim
 

Succession planning pays. Or, rather, it saves.

According to a new study, companies pay their chief executives nearly three times more when they hire them from outside the company than if they promote from within. In the first year of employment, CEOs snagged from the outside earned median pay of $13 million in 2005, compared with $5 million for those appointed from the inside, according to the Corporate Library, a Portland, Maine, governance watchdog.

The study was based on the compensation packages of 52 CEOs of S&P 500 companies. Thirty-two were promoted in 2005 and 20 were hired.

Paul Hodgson, senior research associate at the Corporate Library and the author of the report, said he was surprised by how many boards continue to hunt for CEO talent outside the company, considering the high costs.

“Most boards are either not doing succession planning or they aren’t doing it effectively,” he said, adding that there are instances—like after a corporate scandal—when it’s necessary for boards to hire outside CEOs.

Corporate directors are aware of the need for better succession planning. In a separate study conducted this year by the National Association of Corporate Directors and Mercer Delta Consulting, roughly half of the corporate boards surveyed from public, private and nonprofit companies said they were “less than effective” at CEO succession, and only a similar percentage said they had a succession plan in place. Just 15% of the directors said their boards were “highly effective” in managing and developing their executive talent.

—Jeff Nash

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

U.S. health care costs continue to outpace inflation, a recent report suggests companies could do a better job of containing costs if they fine-tuned the way they wielded their main weapon: sharing the cost of health benefits with employees.

The report, from the Center for Studying Health System Change (HSC), a non-partisan policy research organization, argues that cost-sharing that is not targeted correctly may be ineffective or could even backfire.

One possible pitfall: Employees who are strapped for cash may fail to get the care they need, resulting in more serious health problems that cost employers more money down the line.

The fact that a small portion of employees account for a large part of medical costs also limits the effectiveness of cost-sharing, HSC says, because financial incentives are weaker once employees have exceeded their deductible. The report also noted that current cost-sharing measures generally are not designed to encourage employees to select more efficient providers or more effective treatments.

Ha Tu, a senior health researcher at HSC and a co-author of the report, says the 25 experts interviewed for the report were most excited about two approaches to designing cost-sharing. One involves identifying the medical services that provide the most clinical value and the employees who would benefit from those services. This approach also entails reducing cost-sharing to encourage employees to use those services. Tu notes, though, that “the clinical knowledge base isn’t where it needs to be to make those differentiations.”

The second approach is to provide incentives for employees to use efficient providers. The networks of high-performance doctors currently identified by some insurers are a version of this approach, but such networks focus mostly on cost measures, rather than on quality, Tu says.

“The very widespread feeling is that these kinds of high-performance networks won’t take off until the quality measures are developed to the point where people have real confidence in them,” she says.

Another approach is to provide incentives to employees who participate in wellness programs. The report cited Johnson & Johnson’s 1995 offer of a $500 health insurance premium discount to employees who participated in such a program. That sent participation to 90 percent from 26 percent, although it has since tapered off from that 90 percent level.

Companies may shy away from wellness programs, however, when they compare the upfront cost with the amount of time it takes to see results, if only because the employee may be working for another company by that point, explained Glenn Melnick, director of the University of Southern California Center for Health Financing, Policy and Management. Melnick predicts that companies will focus on encouraging employees to become better health-care consumers rather than on wellness programs.

The HSC report says that innovation in the design of health plans is not that widespread. Companies want very clear evidence that an approach works before they adopt it, Tu says. “Companies are just very gun-shy of rolling out some expensive program and not seeing the payoff from it.”

The report also noted that the IRS regulations governing the health savings accounts (HSAs) used in conjunction with high-deductible health plans can limit innovation by companies. For example, the regulations do not allow companies to waive the deductible in high-deductible plans for care for an ongoing chronic condition, which limits a company’s ability to provide free drugs for employees with chronic conditions.

The report suggested making HSA regulations more flexible. For example, instead of mandating the same deductibles for all employees, the regulations could allow deductibles to vary according to employees’ incomes.

—Susan Kelly

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

A number of retirement plan sponsors are taking advantage of a little-known provision of the Pension Protection Act that allows them to automatically step up older employees’ 401(k) contributions to take advantage of the “catch-up” limit available to workers 50 and older.

The pension law, passed in August, permitted employers to automatically enroll employees into their 401(k) plans and step up their contribution rates on an annual basis. The legislation also allowed for companies to use specific types of funds as the default option in their plans.

Under 401(k) law that already was in place, employees can contribute $15,500 into their 401(k) plans annually, but employees 50 and older can put another $5,000 into their plans. The idea is to give these employees a chance to catch up on their retirement savings.

But few companies are seeing employees take advantage of this provision, says James Cornell, senior vice president of employer marketing at Fidelity Investments. On average, companies see a 9.8 percent adoption rate of the provision by employees, he says.

“Employers looked at their participant basis and saw that many of those employees approaching retirement weren’t going to be ready,” Cornell says.

In response to that scenario, Fidelity is conducting a pilot program with 25 employers, allowing them to offer “automatic catch-up,” he says. The employers participating in the pilot represent all com­pany sizes and are implementing the program differently, Cornell says. Some companies are automatically setting aside up to 10 percent of employees’ pay in their accounts, he says.

So far, the feedback has been positive, Cornell says. There were two main concerns expressed by employers. The first was how participants would react, which has not been an issue, he says. Companies were also concerned they’d be assuming more fiduciary risk by offering the auto catch-up provision.

“This gets a bit complicated and we urge employers to work with their consultants and in-house counsel,” he says. “But basically the PPA provides a safe harbor up to 10 percent,” meaning that most companies should be fine as long as the employee isn’t contributing more than 10 percent of his or her salary into the 401(k) plan, he says.

But a lot of employers may be hesitant to offer this kind of automatic program for fear of seeming too paternalistic, says Don Stone, president of Plan Sponsor Advisors, a Chicago-based advisory firm.

“Conceptually this makes sense. But my guess is that you won’t see a lot of plan sponsors choose it because they will say that anyone who is old enough and is already at the point of contributing and maxing out their normal contribution rates are able to make these kinds of decisions for themselves,” Stone says.

But a lot of companies have built a culture of looking after their employees, and this falls into that concept well, says Rick Meigs, president of 401khelpcenter.com.

“If plan sponsors do this, they just need to make sure they communicate really well and let employees know what’s going on,” he says.

Fidelity is evaluating the pilot program and will make a decision in the next several weeks about whether it will offer it to all plan sponsors, Cornell says.

—Jessica Marquez

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