Author: Site Staff

We all know that in the age-old economic battle between capitalism and socialism, capitalism won.

    Unfortunately, if you were to classify the actions of many human resources departments, more than a few of their actions come across like socialist actions rather than capitalist ones. As a strong capitalist, I am wondering out loud here: How do so many human resources departments get so out of focus? Some examples to illustrate the point:

Human resources as the advocate of the weak vs. the top performer
    Some human resources thought leaders and a good number of human resources departments actually declare that they are “employee advocates.” In addition, it’s a common practice for the human resources department to focus on poor-performing employees and managers despite the fact that human resources has no statistical evidence or metrics to show that focusing on poor performers results in them ever becoming top performers.

    The truth is that it’s fairly routine for the employee relations and training departments to spend a disproportionate amount of time and resources trying to “fix” poor performers. Most human resources organizations develop progressive discipline, job simplification and second-chance opportunity programs for those employees who consistently fail. But they offer little in the way of programs that support or improve the productivity of top performers.

    The problem is so widespread that I defy you to find a human resources program that focuses on improving or supporting the performance of top performers.

    From a capitalist viewpoint, all human resources organizations would spend the majority of their time and resources on the best-performing assets–in this case, top performers. Unfortunately, the reality is that top performers seldom see or get help from human resources, so their issues are seldom addressed. In a capitalist-dominated world, survival requires you to rapidly shift resources from bottom-performing assets to top-performing ones. Incidentally, I find that most companies fire less than 1 percent of their workforce for performance reasons, which is clearly an indication that poor performance is widely tolerated.

Human resources as supporters of equal pay vs. differential pay
    Capitalists learn that you must differentiate rewards in order to improve performance. What is needed is not “reward them all equally” or “reward each according to their need,” but rather “reward those who produce the best results.”

    In contrast, most compensation departments act like socialists when it comes to pay. They frequently give across-the-board cost-of-living raises that reward everyone equally for just showing up. They also frequently institute across-the-board pay freezes, which essentially punishes everyone equally. When they do reward performance, there is often less than a 15 percent differential between a top and average performer, which isn’t much of a reward differential for producing great results.

Human resources focused on seniority vs. relevant and recent performance
    Capitalist principles tell you to reward based on results. Unfortunately, all too many human resources departments instead reward based on seniority. They give preferences in job promotions, vacations, transfers and even pay increases to those with the most experience, even though others may have a higher performance level.

    In addition, by giving 10-year pins but not giving out top-performer pins, human resources is demonstrating that it is more willing to reward time in the job than it is to publicly recognize performance in the job. Although many human resources socialists and union leaders believe in seniority, capitalists measure and reward performance, regardless of one’s tenure at the firm.

Equal treatment of departments and managers vs. resources based on results
    Firms routinely prioritize their business units via the budgeting process. Chief financial officers disproportionately allocate resources based on the department’s results and its return on investment. Human resources departments, in direct contrast, routinely treat everyone, every job and every department equally.

    For example, human resources almost always puts the same dollars, time and effort into hiring individuals in low-priority departments as it does in high-priority departments. Human resources routinely treats all managers and problems equally, even though they should prioritize service offerings so that the most time and resources are spent on the most productive and high-ROI managers, jobs and business units.

Human resources as consensus decision-makers vs. innovators
    It’s quite common for human resources departments to make decisions in a meeting based on a vote or, even worse, consensus decision-making.

    A capitalist realizes that although input is important, it is essential that those with the most information and knowledge make the most critical decisions. In a world that requires risk-taking and innovation, consensus decision-making essentially dooms you to reducing all “wild ideas” to the average and the mundane.

Human resources as the protector of people and jobs vs. being a champion of profit
    Firms are in business to make a profit. Human resources professionals are often overly focused on defending people and jobs, even though that approach may be detrimental to the overall profitability of the firm.

    Human resources’ resistance to the practice of cutting the workforce is an illustration of its overconcern about protecting people. Human resources will recommend the cutting of training and the freezing of salaries and hiring in order to preserve jobs for the weak–instead of layoffs– even though freezing salaries and training, for example, might cause the majority of workers to become frustrated and less productive.

    Layoffs are a chance to cull out the weak and the unnecessary and are a method for reducing overall costs. It’s easier to find a Republican who wants to raise taxes than it is to find a human resources person who actively supports layoffs. Offshoring is another efficiency practice that human resources resists in order to protect jobs for the “little guy.” This insistence on maintaining local jobs raises costs and hurts the firm’s competitive advantage. The difference between the two approaches is clear: Socialists champion “saving” the lowest common denominator, while capitalists champion profit.

A bias toward people over capital investments, no matter what the ROI
    It’s time to face facts. In the business world, investment dollars go to the assets with the highest rate of return.

    CEOs and CFOs generally show no “human” bias, and shareholders, without a doubt, show little particular favoritism for the human element. They all just want high returns from their investments whether they are investments in people, equipment or financial instruments. In direct contrast, human resources often sees itself as an employee advocate with little or no concern about comparing the productivity of human assets versus those of technology and finance.

    Human resources inevitably sides with the people element. Capitalist human resources looks at people costs as a business investment that is no different from any other business asset. CEOs and CFOs invest money in resources based on their ROI, whether it is marketing, R&D or people; they have no preset preferences. They expect all assets to demonstrate a return, and, naturally, they invest the most dollars in those assets that provide the highest rate of return, require the least upfront capital, have the lowest risk and the shortest payback. It’s time to stop fooling ourselves by automatically believing that “human assets” have some special standing and instead support expenditures in whichever assets produce the highest return.

Other indicators that a human resources department leans toward socialism
    Additional characteristics of socialism and the bureaucratic approach to human resources might include:

• A large emphasis on “showing-up pay” (100 percent base pay and large benefit packages are all show-up pay) sends a message that showing up is more important than performing.

  
  

• An emphasis on process, organizational charts, building relationships and meetings are all indicators of a bureaucracy.

  
  

• Striving to eliminate any “special treatment” means turkeys and eagles get the same treatment.

  
  

• Tracking and maintaining headcount (thereby considering all employees the same) rather than actual employee costs (salaries and benefits) and their ROI.

  
  

    Human resources needs to be a unit that increases workforce productivity efficiencies, not a creator or protector of jobs. Businesses make money by being efficient. In the area of people management, efficiency means increasing workforce productivity (which is the dollar difference between the costs of paying and employing people and the value of the output that these people produce).

    It’s rare to find a human resources department that talks about workforce productivity at all, and only one in 1,000 actually measures its workforce productivity as a regular part of its performance measurement activities.

Why such a socialistic focus in human resources?
    Now you might be thinking, “I agree some social work mentality does exist, but why does human resources have such a social work focus?”

    It’s hard to point to a specific reason why human resources focuses on equal treatment and loves to delve into social and community issues. The best evidence I’ve seen indicates that the primary causes for this anti-capitalist approach is that most of the people in human resources do not have degrees in business, nor do they have extensive experience managing a P&L business unit. Let’s face it: Too many people in human resources are there because they “like to work with people” rather than because they like to make the firm a lot of money by increasing “people productivity.”

    You can also see this socialist bias in some human resources publications that frequently place social concerns at center stage. Even though the human resources department is a business function, some of the people who write about human resources seem more focused on outside social issues than the publication of any other business function.

    These human resources publications routinely focus on issues in the community. I’ve never met a CFO or CEO anywhere who said the role of a human resources department is to make the world a better place or to worry about the little guy. However, quite frequently I see the cover of human resources magazines highlighting social issues, obesity, housing issues and even concerns for a happy retirement. Maybe it’s because most of the writers for human resources publications are freelancers with no degree in business.

Conclusion
    The war between capitalism and socialism is over, and capitalism won because it’s a superior approach. Now is the time to pass that message along to the numerous junior psychologists, former teachers and social workers in human resources that just haven’t heard the message yet. Incidentally, these are also the individuals that fight the use of technology, ROI and metrics in human resources because they feel that they “dehumanize” people in the people function.

    OK, remember that I never said that all human resources departments are socialistic, but it is certainly true that a truly capitalistic performance culture is more of an exception then it is a rule.

    Firms like GE, Intel and Nucor are famous for their capitalist practices, while all too many human resources departments act more like government agencies that emphasize equity over differentiation based on performance.

    Now is the time for proud capitalists in human resources to become the champions of differentiation and employee productivity.

    If your goal is to increase your company’s people productivity through the effective use of human resources tools and strategies, it’s time to change the DNA of human resources. It’s time to change human resources so that it focuses on top performers and ensures that it spends most of its time and budget on high-ROI activities. In brief, it’s time for human resources to become a profit center.

Reprinted with permission from John Sullivan. E-mail editors@workforce.com to comment.

Benefit Value Comparisons by Industry
Industry	Total benefits	Time-off benefits (vacation, personal days, other leave)	Retirement/ savings benefits	Health/group benefits
Accommodation and food service	64%	80%	42%	74%
Chemical manufacturing	108%	98%	100%	111%
Computer and Electronics manufacturing	90%	101%	77%	97%
Durable manufacturing	98%	96%	94%	101%
Educational services	121%	116%	123%	115%
Finance	104%	105%	121%	94%
Information (media/ publishing)	94%	103%	81%	103%
Insurance	109%	102%	114%	108%
Government	127%	106%	129%	134%
Health care	91%	99%	87%	94%
High technology	93%	102%	79%	100%
Mining	114%	97%	138%	108%
Nondurable manufacturing	94%	93%	100%	92%
Nonprofit organizations	128%	111%	156%	115%
Pharmaceutical and medicine manufacturing	108%	105%	84%	115%
Professional, scientific and technical services	86%	103%	72%	95%
Retail	75%	87%	60%	77%
Transportation	102%	96%	84%	109%
Utilities	117%	99%	129%	116%
Wholesale	75%	86%	85%	84%
Source: Mercer Human Resource Consulting, 2004 Spotlight on Benefits Report

The $300 million purchase of a consumer-driven health care specialist by a mainstream HMO could “legitimize” the consumer-driven model and spur innovation, according to Business Insurance.

UnitedHealth Group, a Fortune 100 company, is acquiring Definity Health, which has been offering consumer-driven health care options to 23 of the Fortune 500 companies.

The acquisition could affect the health care market in three ways, according to Business Insurance. For one, it could force UnitedHealth’s rivals to more quickly adopt consumer-driven options in order to compete. Secondly, it could expand the number of consumers who have access to a consumer-driven option. Many employers would like to offer a consumer-driven plan but don’t want to switch vendors. UnitedHealth clients now won’t have to switch.

Also, the acquisition could do what many acquisitions do on Wall Street: usher in a wave of investment and consolidation because it’s a sign that “there’s definitely money to be made in consumer-driven health care,” according to Business Insurance.

One interesting wrinkle in the acquisition: It’s a near lock that UnitedHealth will have thousands of new enrollees in consumer-driven plans next year. That’s because the company is moving all of its own employees to high-deductible health care plans.

“Much to learn”
Alexander C. Domaszewicz of Mercer Human Resource Consulting says that the deal with be both positive and negative for employers.

On the positive side, Domaszewicz says, “Definity now has access to very deep pockets for development and growth.” Also, it may improve service for UnitedHealth customers who want to offer a high-deductible option to their employees. “UnitedHealth has much to learn and to borrow from Definity in terms of a new health care delivery model, tools, choice, design and consumerism. This knowledge transfer will be much more than UnitedHealth adding Definity Web capabilities to its tool box.”

As for negatives, he says, “Integrations and mergers are never pretty operationally or culturally, and this one will be no exception.” He says that if Definity continues to run semi-independently for a while, it could mitigate some of the transition problems. And Domaszewicz says the merger could slow down, not increase, innovation. “UnitedHealth owning Definity will reduce the likelihood that Definity will continue to revolutionize health care and push the envelope in terms of cost and quality transparency,” he says.

This, he says, is because while UnitedHealth has been innovative over the years, “they have a very large vested interest in continuing some version of the system that has allowed them to become one of the two largest providers of private health care in the country.” He notes that in the late 1990s, when the founders of Definity approached UnitedHealth about starting a consumer-directed health plan together, UnitedHealth turned down the offer.

Also, “the existing structure of behind-the-scenes negotiated discounts through provider networks is one of the largest value propositions of established carriers like United,” Domaszewicz says. Startups such as Definity and Lumenos have more transparent business models and have been challenging the status quo.

For more information:

• Not Everyone Sees Health Savings Accounts as a Panacea
  
• A Wait-and-See Approach to Health Savings Accounts
  
• The Alphabet Soup of Health Accounts (comparison chart)
  
• Benefits Forum (bulletin board)

Dear Bird in the Hand:



Why are you considering replacing your current pay-increase program with lump sums? Employers that implement this type of program usually do so for very specific reasons. Some companies want to control the growth of salaries that have climbed out of the appropriate market range. Other companies implement it because of financial distress. Still others try to make their pay-for-performance plans more effective by directing scarce dollars to top performers.

There are several advantages to lump-sum increases, but they apply to these very specific situations:

• They allow companies to control wage growth and growth in the cost of goods or services by turning fixed salary costs into variable costs.
  
• They permit companies to redirect increased dollars to specific areas or performance levels to motivate top performers more effectively.
  
• They enable financially troubled companies to survive by reducing wage increases (and thus potentially eliminating the need for layoffs).
  
• Used selectively, they can help bring salaries back into a competitive range (generally applied only to those employees above market).
  
• However, the disadvantages of lump-sum programs include the following:
  
• They can be hard to justify to employees; communication is difficult.
  
• Unless other compensation elements are added or enhanced, top performers can lose motivation.
  
• Your company’s competitive salary position will slowly deteriorate.
  

Probably the best reason to consider implementing a lump sum is if your company is experiencing significant financial distress. It can be an effective counter to layoffs—the lesser of two evils. The other reasons are harder to explain to employees, and require a very careful crafting of messages.

Employees need to understand why the company desires this change, what you are going to do to keep salaries competitive, and how you will satisfy top performers. In any event, use lump sums only temporarily.

SOURCE:Bob Fulton, The Chatfield Group, January 12, 2004.

LEARN MORE:Is There a Precedent for Compensating Different Employees with Different Incentives?

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.

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Dear Workforce Newsletter

Call 2005 the year of great expectations. On January 1, early adopters will roll out health savings accounts for their employees while the rest of corporate America watches, waiting to learn from their successes and mistakes.

    For all the recent attention HSAs have received–research reports, articles in the consumer press, Web sites explaining how things work–companies will probably not quickly shift to high-gear adoption of the plans.

    It’s not for lack of expectation. HSAs and the high-deductible health plans attached to them are being held out by everyone from the newly re-elected President Bush on down. They’re seen as a way to curb runaway medical insurance costs while giving people more control over what they spend and where they spend it.

    HSAs can be thought of as medical IRAs: Employees pay for health-care expenses with pretax dollars kept in accounts they control, up to $2,600 annually for individuals and $5,150 for families. Funds in an HSA can be invested, rolled over from year to year and are portable, so if an employee leaves, they do too.

    The accounts are tied to insurance plans with minimum deductibles of $1,000 a year for individuals and $2,000 for families. For employers, the attraction lies in higher deductibles and lower insurance expenses. Employees who invest wisely build up a tax-free nest egg they can use for routine care, elective surgery or retirement–if the money lasts that long.

    But while the federal law that created HSAs is nearly a year old, companies remain cautious. Treasury Department guidelines outlining how the plans could be implemented weren’t completed until summer, and insurers spent the better part of the year putting together their offerings.

    That wasn’t enough time for all but the most progressive–or financially desperate–companies to offer HSAs this year or for 2005, according to insurers, financial institutions and others familiar with the plans. The first wave of organizations offering workers HSAs includes a smattering of Fortune 500 businesses such as Textron, Pitney Bowes and Guidant Corp., and hundreds of smaller companies. The U.S. government will offer an HSA through Aetna to about 4.5 million federal employees January 1. That’s half of the federal workforce.

    Industry watchers expect most businesses to spend the coming months evaluating what’s out there and, if they opt to offer HSAs, drafting education programs so employees are prepared for open enrollment for 2006 or 2007. Big companies “will watch the dust settle in 2005, then make their move,” says Chris Delaney, vice president of marketing at Definity Health, a consumer-driven plan provider.

    While company executives do their homework, look for major insurers such as United Healthcare, Aetna and Cigna and consumer health-care specialists such as Definity Health and Lumenos to continue building awareness for their insurance and HSA products.

    Next year, expect to see investment options multiply as more banks, mutual fund companies and stockbrokers join the financial institutions that started offering HSA investment products this year including Mellon, Wells Fargo, Vanguard and JPMorgan Chase Bank. Many players will also add “smart” cards that work on MasterCard or Visa debit card readers and automatic account debits for monthly prescriptions and other regular expenses.

    If things fall into place as expected, by 2006, about 73 percent of U.S. employers are likely or somewhat likely to be offering HSAs, according to a survey by Mercer Human Resource Consulting.

    Some early adopters are seeking alternatives to traditional medical coverage to halt health-care spending that jumped 11.2 percent in 2004 alone, the fourth straight year of double-digit growth, according to a 2004 employer benefit survey from the Kaiser Family Foundation and the Health Research and Education Trust. In 2004, premiums for family coverage hit $9,950, with employers picking up about 72 percent of the tab, the Kaiser survey found.

    Other HSA pioneers will be white-collar businesses, “due to the education level of their workers” and the ability and willingness of those workers to sock money away, says Karli Dunkelberger, vice president of business development at Conexis, a benefits administrator in Orange, California.

    They’re also likely to be companies with a history of embracing innovation, says Andy Anderson, a benefits administrator attorney and HSA expert with Hewitt Associates. “For the experimenters, it’s an intellectual extension of what they’ve been doing with cafeteria plans for years,” he says.

    In 2004, investment options for HSAs were limited mainly to savings-type accounts earning 1 percent to 4 percent interest. That will change in 2005 as more banks, brokers and mutual fund companies jump into the fray. One of the most aggressive is Mellon Bank, which has deals with Definity Health, Lumenos, North American Health Plans, an administrator for self-insured companies, and Great-West Healthcare.

    Vanguard, Wells Fargo and MSAver, a banking subsidiary of Lumenos, were the first to offer mutual funds for HSAs, but Fidelity Investments expects to enter the market by 2006, according to a recent Wall Street Journal report.

The re-election of President Bush, who made consumer “ownership” of retirement and health care a campaign watch word, could put HSAs on an even faster track.

    More investment options also means more risk. Employees who park idle HSA funds in mutual funds or stocks could end up losing money if they don’t invest wisely. And come tax time, it’s the responsibility of the employee–not the company–to prove that the money they spent was on legitimate health-care costs. “It’s not smart to take it out and buy a boat, but you could,” Anderson says. “You’ll pay income taxes on it, and a 10 percent penalty, but there are people who think that way.”

    Putting pretax dollars aside to pay for health care isn’t a new concept. Flexible spending accounts have let people do that since the early 1980s. But industry watchers believe HSAs will take off faster because employees can roll over funds they don’t use to the next year, whereas in traditional flexible spending accounts, they forfeit unused funds.

    Another reason for quicker adoption is an easier payment mechanism. Unlike FSAs, which typically require people to pay expenses out of pocket and submit receipts to be reimbursed from their accounts, most HSAs are linked to debit cards–or will be soon. Whether the cards are branded by the employer, insurance company or card maker, all work through either the MasterCard or Visa debit card networks.

    The latest-generation cards, including those offered by companies such as Motivano, can funnel what someone spends into up to 50 “buckets”–for the doctor, dentist, pharmacy, chiropractor, hospital, etc.–and can block unacceptable purchases. If someone tries to use his or her HSA card at the drugstore for a prescription, potato chips and a six-pack of Coke, the medicine would go through but not the rest, says Mark Keck, Motivano’s executive vice president. “We’re ordering hundreds of thousands of cards as administrators come to us,” he says.

    The re-election of President Bush, who made consumer “ownership” of retirement and health care a campaign watch word, could put HSAs on an even faster track. Just days after the election, health industry analysts were predicting that the administration would work to make HSAs more compatible with FSAs and a third plan, the health reimbursement account. HRAs are like HSAs, but with a crucial difference: They’re not portable. The money belongs to the company and stays there when an employee leaves. Currently, companies with HRAs can’t transfer funds to newly created HSAs, but that could change during the second term of the Bush administration.

    The support for HSAs is good news for insurers, banks, debit card makers and other companies with a vested interest in making the plans work. But despite outside pressures to plunge in, industry experts counsel large and small employers to take their time determining what’s best for their situation and employee base. Says Anderson: “This is a beast the likes of which hasn’t been seen yet in the employee benefits community.”

    As companies lay their plans, they could look to BASF Corp., the U.S. arm of the German chemical company, for some pointers.

    The company is set to launch its HSA on January 1 after a positive experience with an earlier consumer-driven health plan. In 2004, BASF Corp. began offering eligible employees a high-deductible insurance plan combined with an HRA through Definity Health. To promote the new plan, BASF contributed to workers’ HRAs–up to $2,250 for employees with family coverage. Even with the contribution, the HRA cost 8 percent to 11 percent less than traditional coverage, according to spokesman Jack Maurer. That was enough to persuade BASF managers to add an HSA. For the new HSA, BASF employees can put away up to $5,250 a year in their account through standard payroll deductions.

    To get people to sign up, management should follow BASF’s lead and share part of the savings that it will gain instituting the lower-cost plan by making contributions to employees’ accounts, says Dan Perrin, executive director of the HSA Coalition, a pro-HSA advocacy group in Washington, D.C. Employees understand that the higher deductible, the cheaper the cost to the company, and that they’d be leaving money on the table because if they picked another plan, their employer would pay more, Perrin says.

    That could be happening. About half the companies to which Aetna has sold policies are making some type of contribution to employees’ HSAs, says Betsy Sell, a spokeswoman for the insurer.

    From the CEO on down, management has to be committed, says Ed Pudlowski, with Ernst & Young’s human capital practice in Dallas. At companies with successful consumer-driven health-care initiatives, managers were involved in all phases.

    Where companies haven’t been successful, executives “haven’t been doing things to interact with (employees), like offering education programs,” Pudlowski says.

    “That shows us there’s a gap in their ability to move forward and they might have to do some things before introducing consumer-driven health care.”

    Education is critical to employee acceptance–and not just education about HSAs, experts say. Many carriers and third-party administrators have added online tools to their consumer Web sites so that people can compare their out-of-pocket expenses under HSAs with other plans.

    Other tools help consumers evaluate costs of different doctors and hospitals, and give out quality ratings. Cigna’s MyCignaPlans.com, for example, uses cost-comparison tools licensed from WedMD.

    While those accounts are being phased out, many insurers will still offer a high-deductible health plan to individuals and small businesses, either coupled with an HSA or unbundled, so individuals can choose their own HSA.

    The HSA Coalition also has a Web site called HSA Insider that businesses can use to compare plans and fees from dozens of insurance carriers and financial institutions.

Workforce Management, December 2004, pp. 72-75 — Subscribe Now!

Dear Homegrown:

Forget the one-size-fits-all retention strategy. Instead, realize that the ultimate goal is to retain one focused, motivated worker at a time. The best retention efforts include a mix of personally tailored elements, in addition to the usual programmed fare.

One of the cheapest, most effective and most underutilized practices is re-recruitment. This refers to a regimen of planned measures aimed at engaging the new employee from the beginning.

Some examples:

• Once candidates accept a job, make sure they receive selected pieces of intra-company communication, including employee handbooks and benefits information but also information on what makes the brand of your company unique.

  
  

• Talk with new employees during their first day on the job to make sure the relevance of the work is understood, including how it fits within the organization. Toward the end of that first day, spend a few minutes answering any questions they may have, and learn the name of anyone who has been particularly helpful that day, so you can thank that person appropriately.

  
  

• After about two weeks, ask a manager at least two levels higher on the organizational chart to spend a few minutes with each new employee. This affirms the person’s decision to come to work for your organization and provides support and encouragement.

  
  

• After 45 days, review performance expectations with new employees, asking for candid self-assessment. Be sure to coach as necessary.

  
  

Other retention measures generally fall into one of four categories: financial, personal support, family support and career support.

Financial
In addition to cash, consider non-cash financial retention measures. If your company is publicly held, these could include the use of stock incentives distributed as options, grants or appreciation rights. Other financial measures might include targeted reimbursements for things such as automobiles, home-based personal computers, education and recreation.

Personal Support
One of the most precious commodities is time–in particular, time off from work. The use of periodic lump-sum vacation bonuses and sabbaticals has become a retention mainstay for many organizations. Similarly, affording employees the opportunity to telecommute is also a valuable time-saver.

Family Support
Increasingly, decisions about whether to change jobs hinge on factors having to do with employees’ families. Accordingly, many organizations are revisiting provisions for child care, elder care and health care.

Career Support
Decisions about staying in a job or leaving it frequently come down to whether the organization, through its leaders, takes an acute personal interest in the individual. This interest manifests itself through measures such as regular and honest appraisal discussions, personal coaching, personalized development plans, and support for personally initiated projects and interests.

SOURCE: Richard Hadden and Bill Catlette, co-authors, Contented Cows Give Better Milk, www.ContentedCows.com, December 31, 2003.

LEARN MORE:Truths and Myths of Work/Life Balance.

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.

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Dear Workforce Newsletter

The fallout of all those corporate accounting scandals has finally settled on the desk of the nation’s tax collector, and companies that aren’t ready to face IRS scrutiny could pay a heavy price.

Since the Internal Revenue Service instituted two intense corporate audit initiatives a year ago, the agency has identified dozens of companies violating tax-code provisions for executive compensation and pension plans. In pension plans alone, an undisclosed number of companies in a pool of 40 initially audited by the IRS could be on the hook for a combined $2 billion to $3 billion in corrections and adjustments, says one source familiar with the audits.

“It’s a huge amount of money. Some of the (cases) they described were corrections in the hundreds of millions of dollars,” says Chris Lipski, a partner with Ernst & Young’s human capital practice in Cleveland who’s working with several companies being audited.

It’s all part of an IRS pledge to beef up compliance and enforcement in light of behemoth executive pay package scandals at companies such as Tyco International and WorldCom, where executives played fast and loose with tax laws. Increased public attention on pension plans in light of recent instances of underfunding is behind the retirement-plan audits.

In October 2003, the IRS started a yearlong pilot to more closely examine executive compensation programs at public and private companies with $10 million or more in annual revenue. As a first step, the IRS’ large and medium-size business division targeted 24 companies for audits. The agency has not publicly named them.

What they’ve found so far: corporate executives who didn’t file individual tax returns, repay corporate loans or declare as income fringe benefits like private use of company jets, says Andrew Liazos, a Boston-based partner at McDermott Will & Emery, who has been briefed by the IRS. The agency also found irregularities in long-term compensation payouts, golden parachutes and compensation-related performance goals, among other things, according to Monique Guesnon, a PricewaterhouseCoopers human resource services manager. She is working with at least five clients who are auditing their own executive compensation plans in light of tougher IRS audits of executive pay.

According to IRS documents, the agency is already incorporating seven of eight compliance areas initially targeted in the pilot into routine audits. An eighth issue, offshore employee leasing, wasn’t found to be common among large and medium-sized businesses, but it is being looked into by the IRS’ small-business division.

Also in late 2003, the IRS launched a separate 12-month pilot project to scrutinize corporate pension programs, specifically targeting defined-contribution and defined-benefit plans with more than 2,500 participants. For the first 40 companies it examined, audits lasted 200 to 300 days, compared with five days for a typical qualified plan review, according to industry sources. Among the problems pension plan audits have uncovered: ineligible participants; calculation errors affecting contributions, deferrals and benefits; and lack of proper documentation.

To minimize the impact of these new-generation audits, companies should undertake their own comprehensive compliance reviews, say accountants, lawyers and other industry experts. In the case of pension plans, a little preventive medicine could go a long way. The IRS has begun a voluntary compliance program to which companies can apply if they’re initiating an internal pension plan review. Once a company is enrolled in the voluntary program, the IRS won’t start an audit, and if the business ends up owing taxes, it won’t incur additional penalties, according to IRS documents.

To give the audit initiatives teeth, the IRS is expanding resources and training staff, by some estimates adding as many as 200 agents. “If they’re spending money and hiring people and finding errors, they’re serious,” Liazos says.

–Michelle V. Rafter

The archetype of the “overworked American” putting in more hours than ever before is only partly true, according to a new report.

The American Sociological Association, in its publication contexts, argues that employees are “increasingly divided between those who put in very long hours each week and who are concentrated in the better-paying jobs, and those who have comparatively short workweeks.” The second group is “more likely to have fewer educational credentials and are more likely to be concentrated in the lower-paying jobs.”

What’s happening is that more people–27 percent of working men, compared with 21 percent in 1970–are working longer hours. And more people are working shorter hours–9 percent, compared with just 5 percent in 1970. Managers and professionals with college degrees are in high demand, while those employees without as many credentials are often working fewer hours than they would like

Fathers with children are working long hours and feel strained, according to the American Sociological Association. And “single parents, who are overwhelmingly mothers, are another group who are truly caught in a time squeeze.”

More information on work/life balance is available online.

Group health-care plan cost increases are slowing dramatically, with the rate of increase in 2004 the lowest in five years.

    This year, group health costs rose by an average of 7.5 percent, to $6,679 per employee, according to a national survey of more than 3,000 employers released by Mercer Human Resource Consulting in New York.

    The 2004 cost increase is the lowest since 1999–when costs increased an average of 7.1 percent–and breaks a three-year run of double-digit cost increases. Cost increases peaked in 2002, when they climbed by an average of 14.7 percent, while they rose 10.1 percent in 2003.

    Total health plan costs for large employers–those with at least 500 employees–climbed 9 percent this year, averaging $6,918 per employee; that’s down from 2003’s 10.2 percent increase. Group health plan costs for smaller employers increased just 5.5 percent this year, averaging $6,359 per employee–a significant drop from last year’s 9.7 percent increase.

    In calculating total health-care costs, the Mercer survey included employer and employee contributions for medical, dental, prescription drug, vision and hearing care and mental health coverage.

    The easing of cost increases, which was much greater than employers had earlier predicted, is the result of several factors coming together, says Blaine Bos, a Mercer consultant in Minneapolis who is one of the authors of the survey.

    For example, smaller fully insured employers benefited from a point in the underwriting cycle that saw both nonprofit and for-profit health insurance carriers cut back premium increases compared with prior years.

    Additionally, plan design changes implemented by employers, especially in the form of greater cost-shifting to employees, reduced the use of services among the employees of small and large firms, Mercer said. As their exposure to much greater out-of-pocket costs has increased, employees have become more judicious in their use of health care services, Bos says.

    Also contributing to a decrease in health-care inflation was the migration of employees out of point-of-service plans and into preferred provider organizations, which tend to be less costly, especially for larger employers.

    Among large companies, 55 percent of employees were enrolled in PPOs this year, up from 51 percent in 2003, while enrollment in POS plans dropped to 11 percent from 14percent. This enrollment trend, in turn, is swaying large employers’ plan offerings. In 2004, 86 percent offered PPOs to employees, compared with 84 percent last year and 75 percent five years ago. Simultaneously, large employers are moving away from HMOs, with 46 percent offering them in 2004, compared with 49 percent in 2003 and 51 percent in 2000.

    The cost-shifting trend shows no sign of decelerating, as just over one-fifth of the surveyed employers said they intend next year to shift more costs for health benefits onto their employees through higher deductibles, copayments or out-of-pocket maximums.

    Furthermore, many more employers are expected to embrace consumer-driven health plans, or CDHPs, in the next two years. While just 4 percent of large employers said they offered a consumer-driven plan this year, 14 percent said they are likely to offer one in 2005, and 26 percent said they are likely to offer a consumer-driven option in 2006.

    “We’re going to see geometric growth, an uptick that is faster than year-over-year straight-line growth for CDHPs in the next three or four years,” Bos predicts.

    Such arrangements feature a high-deductible health insurance plan linked to an account-funded by employers and/or employees-that covers only a portion of the deductible.

    With employees more directly exposed to costs through the high deductible and being able to roll over account balances at the end of the year, the plans give employees a strong financial incentive to use services carefully, CDHP proponents say.

    Investing in disease management programs for chronic illnesses is also becoming increasingly popular among larger employers–the two most common plans are for diabetes and heart disease/hypertension. That’s with good reason: The programs are paying off. This year was the first in which a sizable number of respondents, 31 percent, said they saw a return on their investment.

    Says Bos of long-term cost-management strategies, “We knew that they had a positive impact on quality of life and quality of care, but now we know that they are having a positive impact on financials as well.”

    When asked to predict their group health costs for 2005, employers said they expected inflation to continue to ease, estimating that cost would increase overall by 6.6 percent following plan and/or design changes.

    “I think that’s a very reasonable figure,” says Bos, because the majority of companies at this point have already transacted their renewals process or selected new vendors. “But the question becomes, how long is this sustainable?”

    Other findings in the survey include:

• Forty-two percent of large employers based in the Northeast and 38 percent of employers in the West extend same-sex domestic partner benefits to their employees. By contrast, just 14 percent of employers in the Midwest and 10 percent of employers in the South extend domestic partner benefits.

  
  

• A growing number of large employers are implementing “spousal charges.” In 2004, 7 percent had adopted special provisions that either denied or attached surcharges to health insurance premiums for the spouses of employees who could obtain coverage elsewhere, and another 8 percent of large employers plan to add such provisions in 2005.

  
  

• Nearly all–97 percent–of the respondents believe that the U.S. health-care system is “in need of significant reform,” though they are divided about who should lead the changes.

  
  

• Forty-six percent say that the private sector–employers, consumers and the health-care industry–should initiate the reforms, while 36 percent say the federal government should enact reforms to address problems in the system. In addition, 14 percent favor a federally financed system, such as Medicare, that would cover all Americans.

  
  

From the November 22 issue ofBusiness Insurance. Written by Rupal Parekh.

The search for a new Walt Disney Co. CEO was one of the most coveted assignments in the extremely competitive executive search firm industry. And Chicago-based Heidrick & Struggles emerged as the winner over Russell Reynolds Associates and Spencer Stuart due in part to Gerry Roche.

Insiders say Roche, senior chairman of the $318 million firm, snatched the assignment away from front-runner Charles Tribbett III, head of the diversity practice at Russell Reynolds.

“I heard that the (Disney) board offered Gerry 45 minutes to do a presentation, and supposedly he said he only needed 15,” says Scott Scanlon, chairman and CEO of Hunt-Scanlon, an industry market research firm.

Roche won’t discuss the Disney assignment, but his past work might point to how he intends to find candidates to succeed Michael Eisner, who plans to step down when his contract expires in September 2006.

In what Scanlon called a “brilliant headhunter move,” Roche deftly orchestrated the placement of two big-company CEOs in 2000.

His clients: Home Depot and 3M. The candidates: two of the three men who were being groomed to succeed Jack Welch at General Electric. Roche says he was in touch with the GE candidates, and all he had to do was wait for GE to tap Welch’s successor. As soon as it did, choosing Jeffrey Immelt as GE’s chairman and CEO, Roche swooped in and plucked Robert Nardelli to become Home Depot’s president and CEO and W. James McNerney Jr. to be CEO at 3M.

Perhaps Roche’s pick will be a cross-industry or cross-functional placement such as these. It is a style Roche has mastered, experts say, pointing to his placement of Pepsico president and marketing guru John Sculley at Apple Computer in 1983.

Roche, who has been in the recruiting business for more than 40 years and whose peers named him “Headhunter of the Century” in a 2000 poll conducted by Hunt-Scanlon, is said to have placed more CEOs than any other recruiter.

“Heidrick delivers quality candidates,” says recruiter Kevin Berchelmann of Triangle Performance in Bellaire, Texas. “You could mix (the candidate names) all up in a bucket and pick any of them. They are going to be dead-on.”

Roche, who has personally placed CEOs at the Gap, IBM and PricewaterhouseCoopers, discloses his technique for finding the best candidate: “The secret is putting the client, the candidate and the whole process ahead of yourself.”

How well Roche does will be determined in part by the change in Disney’s stock price the day a successor is named, which should be by June, Disney reports.

–Sheree R. Curry