Author: Site Staff

A number of companies are investigating the feasibility of amending their §401(k)/savings plans to convert all or a portion of the plan that is invested in company common stock into an ESOP. The interest in this idea stems from the potential benefits that could be realized by both plan sponsors and participants under Code §404(k).

• Code §404(k) enables plan sponsors to currently deduct dividends paid on company stock that are passed through directly to plan participants in cash. In effect, this converts what would normally be a nondeductible payment into a deductible payment. What’s more, this feature has several other appealing attributes from the plan sponsor’s perspective, including that the deduction:
  • is available permanently and annually and without having to make an additional cash outlay;
  • has a clearly supportable legal basis; and
  • can encourage greater employee ownership.

• From the participant’s perspective, the §404(k) feature can be structured to offer more flexibility than might otherwise be possible. Consider, for example, the following designs:
  • the arrangement can incorporate a recontribution feature (i.e., participants are allowed to defer—pursuant to a cash or deferred election under §401(k)—an additional amount which does not exceed the dividends paid under §404(k)).
  • the arrangement can incorporate a mechanism whereby participants—on an individual by individual basis—can choose whether to receive a given dividend in cash or not. For all intents and purposes, the result is akin to a cash or deferred election without any strings.

Of course, if every silver lining has a cloud around it, in this case the cloud might be the additional costs and complications associated with incorporating a §404(k) ESOP dividend passthrough feature into a preexisting §401(k)/savings plan. Of particular concern is the effect of the so-called mandatory disaggregation rules—which require that the ESOP portion of a plan be disaggregated from the nonESOP portion of the plan for purposes of running the coverage and nondiscrimination (i.e., the ADP and ACP) tests. In effect, what this means is that the ESOP and nonESOP portions of the plan must be treated as separate “plans” for purposes of running these tests. The fear is that this will not only be costly and cumbersome to administer, but—depending on who elects what—may even turn a testing pass into a failure.

Therefore, a natural question arises: Might a mechanism exist whereby a plan could add an ESOP feature that enables plan sponsors and participants to avail themselves of the §404(k) dividend passthrough opportunity—without incurring the costs and complexities of complying with the mandatory disaggregation rules? Surprisingly, the answer may be yes.

The idea involves taking advantage of the rules that address the circumstances under which a plan sponsor must take a given employee into account when running the coverage and nondiscrimination tests under “plans” required to be disaggregated for testing purposes for a given plan year. The touchstone for making this determination is whether or not a given employee is benefiting under the particular “disaggregated plan” for the plan year in question. The term “benefiting” in this context means that the employee receives an allocation for the year (or in the case of a 401(k) or (m) arrangement, the employee is eligible to receive an allocation under the arrangement for the year).

So, the idea would be to “carve out” from the ESOP the contributions allocated in the current year to company stock and maintain those contributions in a separate non-ESOP subaccount. At the end of each plan year this non-ESOP subaccount would automatically become part of the ESOP (and, as such, the dividends thereon could thereafter be passed through via §404(k)). The thinking behind this approach is that—because allocations made to company stock would always be made under the non-ESOP portion of the plan—no disaggregation would be required.

Note that there would be some recordkeeping implications of an approach along these lines (by reason of the fact that contributions for the current plan year invested in company stock would have to be separately accounted for). However, this would still be much less onerous than the complications associated with mandatory disaggregation.

Of course a company would want to run this idea by outside counsel before proceeding with this approach.

SOURCE: By Dennis Coleman and Marilyn Scalia. Appeared in Kaleidoscope, by PricewaterhouseCoopers, Kwasha, January/February 1999.

Culturally speaking,” how do you convert from traditional performance reviews to 360-degree reviews? Michigan State University Professor Pamela L. Pommerenke offers Workforce Online users her advice:

As with any change attempt, the first thing is to identify who the supporters are and who are against it. It’s important to understand the reasons some employees have for supporting the new type of review system as well the reasons of those who do not. Small-group sessions where workers feel safe to express themselves would help to elicit honest communication of the fears and concerns of those with varying perspectives.

Before creating a new 360-degree review system that is cast in stone, give employees a second opportunity to communicate their concerns over a specific new model program, this time allowing for the airing of possible changes and modifications which may address still outstanding issues.

Finally, I would explain that any program or policy is always evolving to meet the changing needs of employees and the organization. As such, this new 360-degree review can be presented as one which is open to modification and adaptation over time as deemed appropriate by all involved.

SOURCE:Pamela L. Pommerenke, a professor of Human Resource Management at Michigan State University’s Eli Broad Graduate School of Business, September 1998.

Your biggest problem is you can’t get enough employees to keep up with your work. Your absenteeism is high as well as your turnover. You keep telling management that you need to become a more employee-oriented employer, but they are stuck in “their normal” rut. How can you convince them to adapt to employees’ needs more to be able to keep people working? Michigan State University Professor Pamela L. Pommerenke offers Workforce Online users her advice:

Take the question in two parts. First, the need to persuade management that this is an important issue and worthy of their attention. Second exactly what sorts of changes might be made.

First, upper management is usually convinced by a business case in which the bottom line is emphasized. A simple cost-analysis of what the losses are to the company due to absenteeism and turnover would be an eye-opener. Once a plan of action is be put together, a cost-benefit analysis of the proposed changes would also help to appeal to the powers-that-be that these actions are appropriate and worthwhile.

The second issue of what to do is more complicated. I would recommend taking a hard look at the compensation and reward structure in your organization. Pay attention to how rewards tie in to motivation. Are you rewarding what is important to the company? Do workers see a direct link between their efforts and the outcomes the produce? Do they value the rewards offered? Are the reasonably secure in the realization of the rewards if they in fact do produce accordingly? Are employees’ basic needs being met? How about more elusive but equally important intrinsic values? Is respect, independence, and self-direction a part of the value system in your company? Any basic text in human resource management or organizational behavior can provide a good review of the basic concepts and tenants of motivation theories.

Finally, you might want to find out from your employees what they truly desire that they currently aren’t getting. Maybe it’s more autonomy. Maybe it’s more flexibility. Flexibility can be incorporated in a number of ways, including flex-time, job sharing, telecommuting, and job rotation. Obviously, certain types of jobs are going to be more amenable to the incorporation of different types of flexibility than others. The trick is to be open to what is possible and let your employees guide the direction that you take. Good luck!

SOUCE:Pamela L. Pommerenke, a professor of Human Resource Management at Michigan State University’s Eli Broad Graduate School of Business, September 1998.

Pillsbury employs an anonymous hot line to solicit frank employee feedback. Peter Lilienthal, creator of the InTouch hot-line system Pillsbury uses, offers ideas to ensure such hot lines are effective.

1. Differentiate the hotline from other employee services: It isn’t a counseling line like an EAP. It isn’t a whistle-blower line. It isn’t solely for venting or for voting on company policies. It’s a means to make employees heard on any number of issues.

2. Publicize: Send out stickers, magnets and pamphlets with the phone number.

3. Make sure management leads the way: If management isn’t involved at the highest levels, nothing will get done.

4. Make sure to offer progress reports: Use postings, newsletters and CEO communications to tell employees the different ways that the company is using feedback from the hotline.

5. Use feedback to fix problems, not to punish: If managers work in fear that every anonymous tip an employee leaves will get them in trouble, you’ll face a big backlash.

6. Have legal counsel look over the transcripts: It will save big money if the company can act on feedback to stop discrimination, sexual harassment or wrongful demotion.

7. Trust employees: Let employees know what the hotline is for, but don’t put too many boundaries on it. Most employees appreciate the opportunity to use the hot line and do so responsibly.

8. Ask for site or department identification for feedback: This helps focus management response better. But–don’t force it.

9. Use the hotline as a survey tool: Some companies include a specific question or issue on the hotline recording and ask employees to respond. This offers two-for-one feedback.

10. Enjoy the frankness: Don’t expect all hearts and flowers. Remember that the most effective feedback isn’t always glowing. It does, however, offer a chance for growth you didn’t have before.

SOURCE:: Management Communications Systems Inc.; 3100 West Lake St., Suite 430; Minneapolis, MN 55416; 612-926-7988.
Workforce, February 1998, Vol. 77, No. 2, pp. 56-59.

Are you taking part in a business initiative that involves substantial change? If so, you’ll be interested in what two experience corporate veterans say are four of the most common problems that can derail a change effort.

Lack of employee support. If there aren’t enough people who buy into it and believe it’s necessary, you’re in trouble.

Underestimating the time and resources required.It takes a lot of time, energy, and sometimes money to provide employees the necessary “equipment” whether it be software or negotiation skills.

Insufficient infrastructure.Your HR systems and other infrastructure will be put to the test.

Even when your change process appears to be moving along nicely, it can still get stymied if there are no signs of progress. There needs to be some level of urgency to the situation to gather enough momentum for the effort to succeed.

SOURCE: Collaborative Change: Improving Organizational Performance, V. Gelinas and Roger G. James.

Gift Guide Mock

As a function of layoffs and volatility in the business environment, companies are rethinking their permanent full-time workforce. Contract staff and outsourcing of all but core competencies will be “business as usual” in the year 2000 and beyond. The implications are widespread.

Volatility in the marketplace, mergers and acquisitions, and accelerating rapid change in technology are forcing companies to rethink their workforce. No longer can companies afford the overhead for a large full time staff. Companies need a flexible workforce to protect against volatility. This need for flexibility is driving long-term growth in the contract staffing industry.

Overall Trends in Contract Staffing:

• Overall contract staffing is expected to increase in the foreseeable future for solid business and economic reasons. While in 1998 with the volatility and “Asian Flu” only 39% of the over 100 companies canvassed increased contract staff headcount, this year 54% expect an increase, and looking five years out, 66% expect contract staff to grow.
• Importantly, more than half those who experienced headcount growth in 1998 and those who expect growth in 1999 experienced or expect dramatic growth over 15%. Roughly 10% – 15% of those canvassed experienced or expect growth in 1998 and 1999 of 25% or more and several expect to more than double their contract staff.
• Of the over 100 companies canvassed, on average 16% of the staff was contract. This varied widely, however, with some companies with less than 1% contract and others 50% or higher. In over half the companies contract staff represented 10% or less of the staff.
• Reasons for contract staff being up are solid:
  • The employee market is tight—finding good people tough, especially in technical areas.
  • Scarce availability of skills, particularly IT and highly specialized technical areas.
  • Volatility in the marketplace requires a flexible staff that can be moved out when projects are finished.
  • Need for project work in specialized technologies more suitable/conducive to short term contract and a flexible workforce to increase productivity.
  • Full-time employee overheads are expensive. One company quotes a $25/hour employee costing as much as $53/hour with employee benefits and overheads (401K, medical, vacation time, company picnic, etc.). Another company says a $50/hour employee costs $72.50/hour reflecting fringe benefits from 45% – 60%.
  • The “temp to perm” employee model is attractive. Companies bring in temps for a 90-day probation period and then have the option to hire them full time. This is a great “try before you buy” concept and avoids “finder” fees.
  • Revenue per employee is higher with more contract and less full time staff. This is attractive to Wall Street.
  • More and more employees prefer being independent contractors, because they earn higher salaries, like the independence and mobility, and because their spouse is often earning benefits for the household.

• As an extension of the trend to contract staffing, there is a trend being looked at where companies will totally outsource functions which are not core competencies. Specifically, companies will focus on core competencies and partner with other companies to manage non-core functions. For a high tech manufacturing company, for example, non-core functions might include accounting, benefits administration, facilities management, cafeteria and food service, mailroom, and even purchasing.

Outside Factors Affecting Contract Staffing Trends:

• Most respondents agree that outside economic factors such as the Asian crisis, downsizing, and the stock market affect contract staffing trends.
• Downsizing has fueled and paved the way for the whole culture of contract staffing. In the 1990s, supplemental contingent workers are more and more common—contracting is now business as usual. While the contract staff is usually the “first to go” in a downsizing situation, ultimately downsizing makes contract staffing go up as companies realize they need a flexible workforce to weather the hard times. It’s an interesting phenomenon—companies cut heads to keep costs down, but expenses go up.
• As we continue to see more and more volatility in the business climate, companies recognize a need to change strategy for their workforce—more and more it is openly “OK” to employ a largely outside or contract employee base.

Specific Contract Staffing Needs:

• There has been a drastic shift in the past few years from Administrative/Clerical to the IT sector and highly technical areas for contract staffing. Of the over 100 companies canvassed, 63% indicated an increasing need for IT skills and 52% for technical engineering versus just 23% for clerical/administrative, 19% for manufacturing, and 4% for warehouse.
• The supply of technical engineers is lower than the demand so that this area is “hot.” The low supply and high demand forces wages up, particularly for mechanical, electrical, and software engineers.
• While technical skills are in high demand, what companies thirst for most is project management skills. Companies need people who can manage projects from start to finish. It is rare to find people with the technical savvy who can also manage people well to take a project through to completion.
• Specific technical programming skills needed include specific languages—most in demand being C++, NT, Java, SAP, UNIX, and Oracle. Also mentioned are People Soft, Visual/Basic, Novel Cobalt, and Tandem. Computer Networking skills, Web, Internet, MCSE certified tech people, and CAD/CAM engineering Design are also mentioned.
• There is a big and growing need for PC Technicians and people who can “man” the HelpDesk and Customer Service areas.
• Manufacturing is down, in part due to automation and greater efficiencies.
• Consultants tend to be used for more specialized specific defined assignments and projects.

SOURCE: TAC Worldwide Companies, Inc. For more information, call Dan Leinweber of Leinweber Assoc. at 978/440-7878 or e-mail dan@leinweber.com.

Do you make single workers work more, travel more, and have less flexible schedules? If so, a lot of them aren’t too happy about it. Ask yourself these questions about your work/family benefits.

Are employees with children given more flexibility with their schedules?

Are employees without children (unofficially, usually) expected to work longer hours?

Do employees with children get more benefits coverage for dependent care?

Do married employees get to choose vacation and holiday time first?

Are single employees or childless employees expected to travel more?

When you ask for feedback on work/family programs, do you ask everyone?

SOURCE: Positive Leadership newsletter, Ragan Communications, Chicago, IL.

Knowledge Management is a popular buzzword nowadays. If you’re beginning a KM initiative, here are some questions you should ask yourself about the office environment before you begin.

1. Is useable information systematically inventoried, catalogued and stored with the appropriate technology?

2. Is knowledge easily accessed and disseminated by everyone in the organization?

3. Is research and development at all levels encouraged?

4. Are new ideas actively developed and marketed to provide new sources of revenue?

5. Is training provided in IT systems, which enable people to acquire, inventory and disseminate the information they need?

6. Do the formal and informal reward processes reward knowledge sharing?

7. Are senior managers good role models for knowledge management and sharing?

8. Does the physical office/work setting facilitate shared learning and knowledge?

9. Are negative politics and institutional silos effectively challenged?

10. Is there a clear shared vision, and are values clearly stated, about the effective creation and sharing of knowledge?

SOURCE: Trans4mation Training Ltd., March 4, 1999.