U.S. pension plans’ funded status improved to 85 percent with a deficit of $225 billion at the end of 2009, compared with a funded status of 75 percent and a deficit of $409 billion at the end of 2008, according to a Mercer analysis released Monday, January 4.
Adrian Hartshorn, a New York-based member of Mercer’s Financial Strategy Group, said in a statement that the improved funding statement status will help pension fund earnings and reduce the need for future cash contributions.
“However, in 2010, some companies may see increased cash contribution requirements or higher [Financial Accounting Standards Board] pension expenses because of smoothing methods, which deferred 2008 losses,” Hartshorn said.
Hartshorn said one reason for the improvement in funding in 2009 is higher corporate bond yields, which has reduced pension plans’ liabilities. A second is the rise in stock market values over the past 12 months.
The Mercer analysis says most plan sponsors continue to have assets invested predominantly in return-seeking assets, mainly equities. As a result, pension plans’ funded status is likely to remain volatile, Mercer said.
Health care spending in the U.S. grew 4.4 percent in 2008 to $2.3 trillion, the slowest rate of growth in nearly 50 years, the Centers for Medicare and Medicaid Services reported.
Spending growth was down from 6 percent in 2007 as spending slowed for nearly all goods and services, according to the report, “Health Spending at a Historic Low in 2008,” published in the journal Health Affairs.
Hospital spending in 2008 grew 4.5 percent to $718.4 billion, compared with 5.9 percent in 2007, “the slowest rate of growth since 1998,” CMS statistician Micah Hartman, who co-authored the report, said at a briefing to discuss the findings. Nevertheless, 31 percent of the nation’s health care money went to hospital care in 2008, making up the largest percentage of spending, followed by other spending (25 percent) and physician and clinical services (21 percent).
“Health care spending is usually somewhat insulated from the immediate impact of a downturn in the economy. But this recession has exerted considerable influence on the health care sector,” Hartman said.
Private insurance benefits and premiums in 2008 grew at their slowest rate since 1967, while public programs such as Medicare and Medicaid grew 6.5 percent, the same rate as in 2007. Retail prescription-drug spending slowed to 3.2 percent in 2008, reflecting a decline of per capita use of prescription medications.
Despite slower growth, health care spending continued to outpace overall economic growth, which was 2.6 percent in 2008 as measured by the gross domestic product.
Ending weeks of uncertainty, Congress gave final approval and President Barack Obama signed into law late last month a Department of Defense spending bill that includes provisions extending COBRA premium subsidies.
Under the measure, H.R. 3326, the nine-month 65 percent premium subsidy—established by an economic stimulus measure Congress passed early last year—would be extended by six months to 15 months for employees involuntarily terminated from September 1, 2008, through December 31, 2009.
In addition, workers who lose their jobs through February 28, 2010, would be eligible for the 15-month subsidy. Without an extension, employees who lose their jobs after December 31, 2009, would not have been eligible for the subsidy.
The extension of the subsidy will provide significant financial relief to employees who lose their jobs and group health insurance during the first two months of this year, as well as the hundreds of thousands of individuals who have collected the subsidy for nine months and had lost or were soon to lose the subsidy.
“Losing one’s job is difficult enough. But losing one’s health care along with it and worrying about being able to get treatment for oneself and one’s family, or fearing bankruptcy in the event of injury or illness is something Americans should not have to cope with in this difficult time,” U.S. Rep. Joe Sestak, D-Pennsylvania, said in statement. Sestak previously introduced a COBRA premium subsidy extension measure, a portion of which was incorporated into the military spending bill.
The extension will mean more work for employers and their COBRA administrators.
For example, many employers in late November began sending bills to COBRA beneficiaries whose eligibility for the subsidy ran out, asking beneficiaries to pay the full December premium rather than 35 percent of the premium.
Those employers now will have to calculate the overpayments and decide to either offset future COBRA premium payments by the amount of the overpayments or issue refund checks.
A more complicated procedure involves beneficiaries whose eligibility for the subsidy ended in November and who didn’t pay the full unsubsidized December premium.
Under the legislation, those individuals—if they paid their 35 percent share of the premium in the month prior to losing the subsidy—will have a right to pay 35 percent of the premium later and receive retroactive coverage. Beneficiaries could receive retroactive coverage if they pay the 35 percent share within 60 days of the bill’s enactment or, if later, 30 days later after their former employer sends them notice that describes the new 15-month premium subsidy.
That will require employers and COBRA administrators to identify beneficiaries whose eligibility for the subsidy ended, send them the required notice and, assuming they pay the required premium, retroactively restore their COBRA coverage.
Some employers and plan administrators may ease this complication by expediting notice to participants about the subsidy extension and sending out a revised billing statement, said Karen Frost, a health and welfare outsourcing leader for Hewitt Associates in Lincolnshire, Illinois.
COBRA premiums aren’t due until 30 days from the start of a monthly coverage period. So, if they received rapid notice, beneficiaries would have time to make their December premium payments reflecting the 65 percent federal subsidy.
The legislation also requires employers to send a special notice that describes the 15-month subsidy to all beneficiaries who are eligible for a premium subsidy who are on COBRA beginning on or after November 1, 2009.
“That will create work. Language will have to be developed for the notification document. And you will have to identify everyone affected and send them the notification. That is not a small effort,” said Linda Anderson, benefit administration consultant at Towers Watson & Co. in Chicago.
On the other hand, the legislation ends a problem created by the original subsidy law. That law required individuals to satisfy two conditions to be eligible for the premium subsidy: They must have been involuntarily terminated from September 1, 2008, through December 31, 2009, and they must have been eligible to receive the subsidy during that period.
That second condition was not widely understood and may have resulted in employees laid off in December not being eligible for the subsidy.
That could happen in situations where employers allowed laid-off employees to continue regular group coverage through the end of the month. As a result, those individuals would not be entitled to the subsidy because their COBRA eligibility didn’t begin until January 1, 2010, one day after the cutoff date.
The military spending bill ends what some experts say was a fairness issue by amending the law to tie subsidy eligibility to the date of involuntary termination.
And any additional work the new legislation creates is a fraction of the burden that employers incurred under the original law, Anderson notes. In that case, employers had to locate and provide notice of the COBRA subsidy to former employees who, in some cases, hadn’t worked for them in half a year, while employers, at first, did not have official guidance on what constituted involuntary termination. The new COBRA subsidy extension, though, may not be the last, especially if unemployment remains high.
“This may not be the end of it,” said Rich Stover, a principal with Buck Consultants in Secaucus, New Jersey.
The likelihood of a future extension will depend on where the unemployment rate goes in the coming months, said Anderson of Towers Watson.
Statistics are not available on how many laid-off employees took the subsidy. But a congressional Joint Committee on Taxation report, developed when Congress approved the initial subsidy, estimated that the subsidy would benefit about 7 million laid-off workers and their families at a cost of about $25 billion.
One survey found that the subsidy resulted in a surge in COBRA enrollment rates. Hewitt Associates reported last August that the COBRA opt-in rate for terminated employees more than doubled after the subsidy program.
From March 1, 2009—when the subsidy generally first became available—through November 30, 2009, monthly COBRA enrollment rates for laid-off employees averaged 39 percent, according to a Hewitt analysis of COBRA enrollment among 200 large employers. By contrast, from September 1, 2008, through February 28, 2009, an average of 19 percent of involuntarily terminated employees were enrolled in COBRA.
“There is no question that the subsidy has made a difference. It has been of huge value,” Frost said.
With nonsubsidized COBRA premiums often about $400 a month for individual coverage and $1,200 a month for family coverage, the subsidy slashed health insurance premium costs for beneficiaries when they no longer had a regular source of income.
AIG also said Suzanne Folsom, its chief compliance and regulatory officer, has left to pursue other opportunities.
AIG president and CEO Robert H. Benmosche said in a statement that AIG has started a process to find successors to Kelly and Folsom and expects a smooth transition. People who previously reported to Kelly will report to Benmosche in the interim.
AIG said Kelly joined the company as general counsel in September 2006 and was promoted to vice chairman in 2009. Folsom joined AIG in April 2008.
Numerous studies show clear links between employee engagement, retention and financial success. Measuring and improving employee engagement is time-consuming and difficult to do, but it can be extremely rewarding.
Three key steps help ensure that you will be successful:
1. Define terms and understand benefits and risks.
Benchmarking is used by organizations to evaluate various aspects of their processes or results in relation to “best practices,” usually within their own sector. Employee engagement generally is defined as the strong emotional connection an employee feels for the organization—a connection that causes the employee to exert greater discretionary effort at work.
Organizations benchmark this to compare best-practice engagement scores with their own employee engagement results. Simple, right?
Not really—and there are two risks you need to anticipate.
Risk 1: Benchmarking may not help you to determine what engagement scores actually mean. Although some benchmarking services claim to be the definitive engagement standard for an industry or geography, it pays to be cautious. Identifying a reliable benchmarking source—especially one that is relevant to your organization and sector—is not easy.
Even within the same industry, geography or company size, companies are as different as people and have different cultures, values and ways of getting work done. This makes comparing across companies one of the most widely misused practices. It’s akin to comparing your personality test results with that of one of your peers in another company: interesting result, just not very relevant.
Risk 2: Engagement is defined differently at many organizations. Most of the major recent studies on employee engagement have defined the term differently, and as a result, studies have come up with different key drivers and implications. Companies have different definitions too. If your employee survey results indicate a pattern of low engagement, you know there is a need for improvement. If 60 percent of your employees indicate that they intend to stay with your company, and the benchmark is 52 percent, should you rest on your laurels? If you do, you miss an opportunity to reach an even higher level of engagement.
Given this, you ought to challenge your assumptions about benchmarking and reconsider its value. It may make more sense to establish your own baseline engagement score, set improvement targets, track progress to the target or goal, and seek out the relationships between rising engagement scores and financial or operational success.
2. Design a survey instrument with an engagement index.
Employee surveys are commonly used to determine the level of engagement, which results in an “engagement index” that measures respondents’ attachment, or emotional connection, to the organization. The index is calculated by grouping together questions that are closely linked to employee engagement. For example:
• I would recommend my company as a good place to work.
• I am proud to work for my company.
• At work, I have the opportunity to do what I do best.
• My company can win in the marketplace, and I want to be part of this success.
• I receive the resources I need to do my job well.
Statistical analysis can reveal that performance on these engagement questions is influenced by performance in critical areas, known as key drivers. A key driver analysis is a statistical procedure that identifies a small number of survey issues that have the greatest overall impact on important outcomes. Determine your strategy to improve on a baseline and/or benchmark results before finalizing the survey design.
3. Establish and implement a strategy to improve baseline results and/or consider internal benchmarking.
Here’s a little secret: There are greater differences between departments within your own company than you will find between companies. The most meaningful and actionable benchmarking is done internally, among groups and departments over time.
Given that employee retention is critical, it’s important to understand how employee engagement scores can be improved. It is, however, less critical how these scores compare with your competitors’. Actions that will improve your baseline scores year over year can help you discover the link between engagement and key financial metrics.
LEARN MORE: The best talent comes down to three essential ingredients: competence, commitment and contribution. Please click here to learn more.
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.
An overwhelming majority of respondents, however (nearly 82 percent), believe health reform is crucial to reviving the economy. After a sharp rise in confidence in October, the foundation’s monthly Health Care Consumer Confidence Index fell in November from 104.4 points to 96.9 points, “returning to a confidence level closer to those seen throughout most of 2009.” Since the index began in April 2009, confidence has averaged 99.2 points, the foundation reported.
Despite monthly fluctuation, “over time people’s concern regarding their ability to access and pay for care has remained consistent. That suggests that Americans’ confidence in the future of their care is more affected by personal concerns than political rhetoric,” said Risa Lavizzo-Mourey, president and CEO of the Robert Wood Johnson Foundation.
In recapping 2009 results, the index revealed that 26.5 percent of Americans each month worried that they would lose health care coverage and nearly half were concerned that they would not be able to afford future health care needs if they or a family member became seriously ill.
The poll’s results reflected telephone interviews with 508 randomly chosen people and was conducted October 29 to November 23.
The Pension Benefit Guaranty Corp. is taking over the pension fund of PTC Alliance Corp., a bankrupt steel products manufacturer, PBGC spokesman Marc Hopkins confirmed this week.
The Wexford, Pennsylvania, company filed for Chapter 11 bankruptcy protection October 1. It plans to sell most of its assets in a transaction that will not include the pension fund, according to a PBGC news release.
The pension fund, which covers 750 employees and retirees, was terminated December 28, the PBGC said in the release.
The plan is 51 percent funded, with $39.7 million in assets and $77.1 million in liabilities; the PBGC expects to cover $37 million of shortfall, according to the release.
Earlier this month, auto-parts maker Visteon Corp. proposed that the PBGC take over its underfunded pension plans as part of its plan to emerge from bankruptcy.
The PBGC said the three plans sponsored by Van Buren, Michigan-based Visteon are underfunded by about $544 million. The PBGC would be liable for about $444 million in unfunded guaranteed benefits. The plans have about 21,000 participants.
Visteon filed its proposal December 17 in U.S. Bankruptcy Court in Wilmington, Delaware.
Recognition expert Bob Nelson was the keynote speaker for Workforce Management’s inaugural online conference, “Road to Recovery: HR Strategies for 2010,” which drew more than 4,000 registrants. Nelson agreed to answer all the questions that were asked during his keynote session. Here, arranged by topic, are his answers to more than 40 questions on topics ranging from how to honestly communicate about layoffs to how to gently reject employee ideas that aren’t viable without demotivating the people suggesting them.
Dealing with the down economy—particularly during layoffs
Workforce: How do you handle “open and honest communication” with employees when managers are prepping for layoffs?
Bob Nelson: I’d especially be open about potential layoffs with employees, sharing why that is being looked at and what needs to happen to avoid a layoff. The last place any employee wants to read about a layoff at their firm is in the newspaper. And if managers are suddenly in closed-door meetings all the time, employees will already expect that layoffs are being discussed.
Employees expect to get important information directly from their managers or leadership of the organization, even when it’s negative. This treats employees in an honest and respectful manner and gives them a chance to respond proactively with ways to help cut costs and impact services (such as customer service) in ways that can increase the firm’s revenues.
One caveat: The deal management should make with employees is that they will share information when they have it, provided that employees realize it is subject to change with circumstances. When I’ve seen management that was reluctant to share information with employees, there was often a fear on management’s part that the information they shared might be wrong sometime later. That’s the risk in sharing real-time information in dynamic times: Things change.
Workforce: Many organizations downsize due to the economic situation and not because of performance. HR always tries to motivate staff, but sometimes, in spite of better performance of staff, the organization still cuts jobs. It is very challenging and sometimes employees lose trust in HR. How do we manage this aspect?
Nelson: Well, first, management shouldn’t be hiding behind HR so that they are the “bad guys.” Management and HR need to work together to educate employees as to why the organization cuts or adds positions and how those decisions directly relate to the financials of the organization. In fact, I know some organizations in which HR is perceived as the “hero” when layoffs occur.
By being diligent in working with management to offer employees other options—such as transferring to other positions, taking a temporary pay cut, or cutting back their hours rather than to lose their job—often the total number of layoffs can be greatly reduced. Providing employees options and choices in tough times helps give them some sense of control in the situation and lessens the negative impact of a negative situation.
Workforce: If we aren’t going to see a real recovery until mid-decade, where are all these unhappy workers going to go? Won’t their unhappiness deepen and grow? How can both managers and workers cope with that?
Nelson: The reference I made was to a recent projection by UCLA economist David Shulman: “By mid-decade, economic growth could return to the 3 to 4 percent range, with unemployment back into mid-single digits.”
Youch! Again, this is why I believe companies are going to need to become more proactive in dealing with the impact of a recessionary economy on their existing employees (that is, those who haven’t been laid off). According to CareerBuilder.com, nearly 50 percent of workers surviving layoffs have indicated they’ve taken on more responsibility; 37 percent are handling the work of two employees; 34 percent are spending more time at the office; and 22 percent are working more weekends.
Tough times require strong leadership, and management in every company is going to have to suck it up and be better at boosting the morale of workers. This leads to asking: What are we going to do for our managers? Hopefully that will be on the radar for companies as well.
Workforce: You seem to concentrate on motivating employees. However, in a down economy, the first thing done by the employer is cutting the number of employees through restructuring and other means. As result, an insecure atmosphere among employees will be created. So how you are going to motivate them when they see their colleagues are laid off, expecting that they are next on the line?
Nelson: This is, in fact, the challenge. Given tough economic times and the likelihood of having to have done layoffs or salary and bonus freezes, etc., my view is that you have to work doubly hard to overcome those circumstances and the ongoing negativity of the stagnant economy. Granted, this starts with the decisions you’ve already made and how the “people issues” were handled with those changes. Was communication open and honest, or guarded and secretive? Was management empathetic and helpful as best could be expected, or cold and calculating? After negative changes in the organization, if you are not aggressive in reaching out to employees, describing a possible future with a solid plan to achieve it and challenging employees in new ways, they will be apt to become increasingly scared, nervous and myopic. This makes it harder for them to focus in their jobs on those things you most need them to do, such as exceptional service, enhanced efficiency, increased suggestions regarding cost savings, client referrals, up-selling and so forth.
Workforce: Although [we’re] trying recognition methods and praise, employees feel insecure because of large-scale obligatory terminations. So what is the best way to keep solid relationships between employees and management?
Nelson: There’s no substitute for direct, honest and sincere communication, plus systematically showing employees through your actions that “We’re in this together.” As Stephen Covey once said, “You can’t talk yourself out of a situation you acted yourself into.” So what is going to speak loudest are your behaviors over time, more so than the things you say. You’ve got to walk your talk and show that your employees are truly important through your actions—hopefully as consistently as possible during these dynamic times.
Workforce: Our company has announced to our population that salaries have been frozen, due to the economy, yet departments considered revenue generators are receiving increases and bonuses. These discretionary increases have become public knowledge and many employees are disappointed by this news. Can you provide advice on how the company and top management should honestly address the fact that some departments are still receiving increases and why others are not?
Nelson: These types of perceived inconsistencies are difficult to defend if you are trying to build team spirit in challenging times. To avoid the situation from looking arbitrary or like a case of playing favorites, management would need to justify why it’s important for those positions to continue to receive salary increases and/or bonuses. For example, in hospitals today there is a national nursing shortage so there is a logic to continuing to pay nurses financial incentives, even as those financial incentives are being cut elsewhere throughout the hospital. Right now, nurses are too scarce and indispensable to the successful operation of the organization and its mission. This may be the case with the revenue generators in your organization.
But if those revenue generators are not making their financial goals (thus the organizational cuts), rewarding them with financial incentives would be rewarding poor performance. Beware! That will be a slippery slope that may very well lead to a much worse situation.
Workforce: When job markets reawaken, will management be able to hold on to people they now employ—people who are waiting to escape to better jobs, leadership and work conditions? Do you believe many companies are in for turnover shock, and do any employers know where they are vulnerable?
Nelson: I believe many employers will be surprised at the number of employees who choose to leave their firms as the economy improves—especially those firms that openly treated employees differently (and poorly) under the notion that “It’s a tough market out there and you should be glad you even have a job.” Hate to break it to you employers who believe that, but being told what they should appreciate really doesn’t make any employee feel special. It can, however, convince them that they are working for a jerk.
I remember working for a 7-Eleven when I was in college, during a previous recession, and one day the regional manager came in and gave us all a speech along the lines of “If you don’t like it here, there’s a lot of other people that are willing to take your place.” “Really?” I thought. “They can have it.” I quit the same day.
Workforce: What happens when you have cut all types of benefits that cost money—even the little ones?
Nelson: Hopefully that helped your company be solvent during these tough economic times, but on the human side of enterprise such draconian financial cuts are apt to take a toll on employee morale and motivation. Try to take up some of that slack with creative low- or no-cost forms of recognition, simple celebrations, personal thanks, etc. When money does become more available, remember to take care of your people first—especially those who have best helped you weather the storm.
Workforce: What are some strategies for retaining employees when there isn’t any money available for promotions, bonuses or training?
Nelson: I’ve mentioned several strategies in the answers here, but one I haven’t discussed relates to career development.
You can’t guarantee employees that they will be promoted, but you can work with them to guarantee they will learn new skills and let them know that developing their abilities will help put them in line for promotions when those are available. In this way, a recessionary time provides ample opportunities for employees to take on needed work, pursue ideas that can help the organization and generally increase the contribution they can make at work. These skills, abilities and visibility for achieving desired results all help to put them in line for future advancement opportunities within your organization.
Workforce: What is your recommendation: big bang or small changes as you edge forward through the uncertainty? Talent loss is very costly.
Nelson: I’m more partial to the incremental approach to improving things over time. However, there is merit to doing some very visible items that send a message to everyone that you care as an organization, or that you’ve turned the corner in your firm’s recovery.
Workforce: I would be interested to hear if Dr. Nelson has any thoughts on the role of leaders role-modeling desired behaviors. Granted, this is desirable under the best of times, but any thoughts on whether this takes on more significance during tough times?
Nelson: Yes, it does indeed take on more significance.
Leaders have to be much more visible during times of crisis. They also need to be more accessible, more collaborative and more supportive, openly thanking and acknowledging others as that recognition is deserved. As they demonstrate these behaviors in their daily routine, they send a behavioral message to all other leaders in the organization as to what is expected of them. Other leaders can conclude, “If top management has time for this type of activity, I need to find time for it in my job as well.”
Workforce: You said that 75 percent of younger employees plan to look for a new job when economy improves. What age range does this apply to?
Nelson: Now that I look at it again, it’s actually 71 percent. This applies to those employees who are 18 to 29 years old, as reported by Adecco Groups North America’s Workplace Insights Survey (June, 2009).
Workforce: Bob, how does innovation link onto the six strategies to use during tough times?
Nelson: As a recap, the six strategies are:
1) Create a clear and compelling direction.
2) Direct, open and honest communication.
3) Involve employees and encourage initiative.
4) Increase employee autonomy, flexibility and support.
5) Career growth and development.
6) Recognize and reward performance.
And they link very well to innovation, thank you! As you involve and encourage others on a systematic basis, it leads to them trusting and developing their ideas and, voila: innovation. You can’t legislate or force employees to be creative, although there are many things you can do to support and encourage innovation at work.
Workforce: Can you tell us more about the research that these best practices came from?
Nelson: The research for best practices for firms during recessionary times is my own research, combined with that of other studies—most notably by Quantum Workplace, an engagement research firm that did a national comparative survey of U.S. companies in 2007 and 2008. It found that 66 percent of the firms surveyed had decreases in their employee engagement, while 33 percent had increases in their employee engagement scores. “Employee engagement is measured by the ability and willingness of individuals to exert extra effort for the benefit of the company, their tendency to speak highly of the organization and their intent to stay,” according to Greg Harris, the firm’s CEO.
Quantum Workplace surveys more than 1.5 million employees among 5,000 companies nationwide. The surveys are conducted at different times of the year, but at the same time of the year in each location. By an almost 2-to-1 margin (134 to 76), more employers surveyed had lower overall employee engagement scores in fall 2008 than in fall 2007. This result was out of the ordinary from trends over the previous five years, and strongly suggested that external circumstances regarding the economy may well be influencing employees’ attitudes about their jobs and workplaces.
To explore the issue further, the firm conducted an analysis of the 210 companies, including those that had higher engagement scores and those whose scores had dropped off. The analysis uncovered key differentiators that reveal how some employers are increasing engagement while others may be losing their hold. The engagement winners were:
1. Setting a clear, compelling direction that empowers each employee.
2. Maintaining open and honest communication.
3. Continuing focus on career growth and development.
4. Recognizing and rewarding high performance.
5. Providing employee benefits that demonstrate a strong commitment to employee well-being.
These key differentiators served as a focus and discussion of Keeping Up in a Down Economy, with several added dimensions from my own research (involving employees and encouraging initiative, as well as increasing employee autonomy, flexibility and support).
Workforce: Where is the best place to give recognition—in front of teammates, or privately?
Nelson: This depends upon the individual, which is why you should try to ask and involve employees in determining those things that are the greatest motivators for them. As a rule of thumb, you should praise publicly and reprimand privately, but some 20 to 30 percent of employees are more introverted and do not want public praise.
An example: An employee who was to receive a perfect-attendance award at his company from the president in front of the entire company was so nervous that he called in sick on the day of the presentation.
What definitely doesn’t work is to force on employees a recognition that they don’t value. One size doesn’t fit all anymore, and just because you have an established recognition program (e.g., employee of the month) doesn’t mean everybody wants what that program offers, such as a plaque, a luncheon with management or a gift out of a rewards catalog. The best recognition is tailored to what the recipient most wants. When in doubt, you can at least give employees a choice of things that are truly different from one another. That improves the chances that your employees will find something of value to them.
Workforce: Have you ever experienced overused praise or recognition that no longer seemed fresh or sincere—or no longer seemed special?
Nelson: Yes. Although I feel the value of praise is almost universal, if it is poorly done—becoming mechanical, for example—it can lose its specialness. That’s why it is important to keep praise timely, sincere and specific with each and every use. If you do it correctly, I’ve never found an employee who is tired of being told that they have done a good job! If it comes from the heart, praise will resonate in the soul.
Workforce: What are the challenges in employee recognition in an offshore environment or multilocation businesses? How can those challenges be overcome?
Nelson: The more distributed your employees are, the more difficulty you will have in connecting with them in meaningful ways. Everything—communication, recognition—in such circumstances takes more effort to do well.
You can rally around core values that are reinforced both centrally and locally. That’s one successful strategy many firms have adopted. You can allow for a greater local focus on recognition—that can also be successful. For example, set up a voluntary recognition task force at each facility or location to systematically focus on the topic in ways that employees at each location find meaningful.
Sometimes organizations get hung up on trying to do the exact same things for employees wherever they are located, but this is silly if the employees’ needs and expectations vary greatly from location to location.
For example, an international company will have great difficulty in recognizing employees if they decide to reward them all across borders in exactly the same way—with, say, a $50 item. In one country, this item may end up costing $150 due to exchange rates, while in another it might represent a week’s pay for an employee. It’s better to make local adjustments that make sense in meeting the motivational needs of employees at each location.
Q: How do you get all employees on board with a recognition program?
Nelson: Involve them in developing all aspects of the program so that it is truly their program and not the company’s, corporate’s or HR’s program. Build the program over time to affect an increasing number of employees in your organization. Look at who is served by your existing recognition tools and programs and seek to fill the gaps of those that aren’t being reached over time.
Workforce: How do you “reject” ideas that are not viable without discouraging people?
Nelson: Thank them for their ideas and the time they took to submit them, while sharing why it isn’t plausible for the firm right now. I know of one company where the president is the one who personally takes undoable suggestions back to the person who suggested them (within 24 hours of the idea being submitted, by the way) and thanks and discusses each idea with the individual. That positive, proactive approach sends a big message that underscores the importance of generating ideas over the merits of any one idea that has been suggested.
Workforce: Our company has done some brainstorming meetings, but nothing seems to happen with the ideas because we are short-staffed and management gets distracted from following through. Do you have ideas for keeping this momentum moving forward?
Nelson: Yes. We know from basic social psychology that when many people could do something about a problem, no one person tends to do anything. The key is to assign individual responsibility for items so that someone can be held accountable. At the end of your next brainstorming, ask everyone to volunteer to follow up on a single idea that was discussed, creating a set of “action steps” for each item, each with a due date. Capture that list of items with names and use it to start the next brainstorming session, which will naturally take you further into the implementation of previous ideas and not just the generation of new ones.
Workforce: I work in a very diverse group. We all do different things and really don’t know what others are doing. So I suggested we do a “kudos” portion in staff meetings, where I can say one thing that I did or accomplished that I am proud of that others may not know about. People don’t want to participate. I must have approached it wrong, but I think the concept is good. Any thoughts?
Nelson: If at first you don’t succeed … . I think you have a winning idea here as well. But some people may not want to brag about themselves and others may feel pressure to come up with something or risk looking like a slacker. Perhaps you could modify your approach to this: allowing anyone a chance to thank or recognize another person in the group. Let those who want to share do so. After doing this a few times, you will likely find more people wanting to contribute.
Another version of this is to start each meeting with the group listing five things that are going well. I know a manager at Disney who does this and it works well.
Workforce: Is there any different pattern in employee recognition between service-oriented organizations and research-oriented organizations?
Nelson: Yes, just in that these two types of organizations tend to have very different employee populations. Service-oriented organizations, which currently make up 80 percent of all jobs, are often lower-paying positions with higher amounts of customer contact (there are exceptions to this, of course). Having these employees be truly excited about wanting to deliver great service would suggest that a higher frequency and variety of forms of recognition be used.
A research-oriented organization suggests (to me) a more highly educated and technical workforce that would likely respond better to a different mix of recognition. For example, for most technical employees, the chance to work on the “hot” project or to learn new skills that will increase their worth now and in the future is paramount. Giving such employees a chance to select the projects they can work on would thus be a big motivator to most. Technical employees also tend to be (another generalization!) more introverted, so they might better appreciate a thoughtful gift over a splashy public form of recognition in front of the whole staff. When in doubt, ask them what would be most motivating and you’ll be surprised by the responses!
Workforce: How should you recognize tenure?
Nelson: Honestly, the best way would be to ask your employees how they’d like to have it recognized! They did just that at Medtronic in Minneapolis, and employees reported that they’d most like additional vacation time for their anniversary awards. The company complied and phased out its gift-selection program and moved to giving more time off instead. Of course, saying something, having a note or card or—for more significant anniversaries— creating a “memory scrapbook” that everyone can contribute to are items that are long on value and short on cost.
Workforce:We used to have what we called “on-the-spot” rewards, which were gift certificates that could be given out immediately to an employee for doing something extra or doing something well. However, our new CFO told us we needed to then add the dollar amount of the reward to the employees’ W-2s, and that it’s taxable. Have you run into that anywhere? Know any solutions to avoid that?”
Nelson: There are several ways to minimize this negative impact on employees. First, use reward items that don’t have a financial cost!
Second, keep rewards that do have a financial cost to a minimal level of $25 per year, known as “de minimis fringe” by the IRS. These are then not considered taxable.
Third, if financial items are required to be taxed, you can pay the employee’s tax out of the award. For example, give them a $40 valued item that may cost the company $50. Or you can bulk the award up, so that the company pays the tax on the reward item—perhaps $10 on a $50 item. There are other creative strategies that you can do that are still within the letter of the law. Please see my article “Beware Tax Implications of Recognition Programs,” or a short Q&A on the same subject, “Tax Implications of Recognition Rewards.”
Workforce: How many of your strategies tie specifically to the varied generations in the workplace?
Nelson: I think most all of them can. By having the widest spectrum of recognition and reward possibilities, you can provide the greatest choice for employees of different generations to select those things, activities or privileges that they each find most motivating. An older employee might respond better to a traditional award while a younger employee might be more attracted to a fun, social activity.
Workforce: What do you think is the No. 1 incentive for employees?
Nelson: After money, it’s to be trusted and respected, as evidenced by how you are treated on a day-to-day basis. That means being asked your opinion, supported in your job, involved in decision making, thanked and recognized as appropriate when you have performed well.
Q: Reward and recognition are critical, agreed. Any statistics on the role of nonfinancial rewards versus financial in terms of how people rank these two types of rewards—especially in challenging times?
Nelson: I try not to pit financial against nonfinancial incentives, in that they are both important. Would you rather have air or water to live? Gee, don’t we need both?
No one is every going to say no to getting paid more, either in their paycheck, as a merit raise or bonus or an “on the spot” award. (Although my wife, Jennifer, did once decline a pay increase in a job she had. She told her manager that she thought she already was fairly paid. They still gave her the raise, by the way.)
Especially in tight times, as people have a higher need for money to meet their financial commitments, money is, and is going to remain, a top priority and motivator. But as financial rewards are harder to come by in recessionary economic times, it is important to realize that nonfinancial rewards can be highly valued by employees as well.
For example, consider time off of work, in its many forms (flextime, comp time, an extended lunch, an afternoon or day off, etc). Studies clearly indicate time, and the availability of time, has an expanding importance to today’s employees, 86 percent of whom report that they “wish they had more time to spend with their family,” for example (this is from survey research I’ve conducted).
Likewise, a nonfinancial motivator such as telecommuting (which 42 percent of current employers allow some form of with their employees) speaks to time needs, such as saving commute time. It also helps an employee balance their work and personal priorities, and it carries a sense of autonomy, as well as the employer’s trust and respect. All of these are important needs to most employees today.
I would say that in challenging times, intangible rewards such as those I’ve referenced are still high in importance. But if companies are able to provide financial incentives as the economy and the company’s financials improve, employees do expect to see those financial rewards in their pay as they continue to perform well.
Workforce: What do you do when you do not have the money for monetary rewards such as merit increases and bonuses? Eventually, people want their bonuses and increases for the work they have done.
Nelson: Yes, agreed, and there will be a pent-up demand for lost or postponed merit increases and bonuses that need to be addressed when the company is financially able to do so. In the meantime there are LOTS of other ways to show employees that you know and appreciate the hard work they are doing, some of which can be symbolic in just showing “We’re all in it together.”
That’s why I love examples like the executives at Proforma Worldwide Support Center in Cleveland, who recently agreed they will scrape the snow off of all 100 employees’ cars this winter. Silly? Perhaps. But it’s impactful in showing through their behaviors that they are rallying with their employees during these challenging times.
Workforce: Please share information regarding setting up a pay-for-performance plan.
Nelson: Pay for performance is a financial incentive plan, which is really outside my area of expertise and experience. I will say, however, that it’s important to be very clear about the priority of those things you want to incentivize. Employees will “game” incentives to maximize their financial gain.
Workforce: Beyond pay for performance, what type of recognition is relevant for today’s employees?
Nelson: I’d call pay for performance a compensation factor, not a recognition factor. But in terms of what type of recognition is especially important during recessionary times, I’d say it’s looking harder for incremental improvements toward desired goals that you can acknowledge, recognize or celebrate. I also believe increased communication, involvement and autonomy on the part of your employees to be important recognition factors.
I don’t know a more motivating thing to do with employees than asking them their opinion, or asking for an idea or suggestion as to how they believe things could be improved. Having done that, you encourage them to pursue that idea or suggestion and you support, thank and acknowledge any success they might have for their efforts. When they make a mistake, you handle it as a learning opportunity, not a chance to find fault.
Workforce: What about the large institutions (such as AIG) using this approach (as opposed to large bonuses that infuriate the public) for better PR during tough times?
Nelson: It’s funny, but someone from AIG contacted me a few years ago and wanted help on exactly this! But it’s very difficult for nonmonetary recognition to compete with financial compensation, which trumps the discussion. I think there is no way to justify the insane executive bonuses that were given, other than saying that they did it because they could. The only fix to such excess is to stop it, and add some guarantees so that it doesn’t happen again. Also, doing things just for their PR value is a pretty manipulative approach that most of the now-jaded public would see through.
Workforce: How do you deal with a supervisor who does not believe in recognition or believes that the employee is just doing their job? Are there some criteria that could be provided to outline possible acts that could be recognized?
Nelson: I wish I had a dollar for every time I’ve heard this concern! Clearly there is a significant percentage of the management population that doesn’t “get” recognition—why to do it, when to do it, how to do it, how to keep it fresh, when they’ve done it enough, etc. In fact, in my doctoral research I found that the No. 1 reason why managers don’t recognize their employees is that they weren’t sure how to do it well. You need a “head, hands and heart” approach to changing this situation with managers.
You’ve got to raise their awareness about the importance of this activity—that is, their conceptual model for managing (the head). You need to show them explicitly how to do recognition—that is, the tools, practices and behaviors of what it looks like in practice (the hands). You do all this to the point where they try and succeed at the behavior, which then tends to affect their beliefs and passion in doing it (the heart).
As to specific criteria that could be provided to outline possible acts that could be recognized, many organizations tie recognition to core values of the organization, but more specific recognition needs to be a function of the desired performance in each employee’s job. That is, it needs to be individualized for each employee. Managers need to set specific goals with each employee and then be on the lookout for successes each employee has in the implementation of his or her job.
Workforce: How do you persuade your employer/sole owner that he needs to involve other people in decision making besides his three favorite top managers? He is a micromanager and likes to hold information only for himself.
Nelson: What I’ve seen work best with this is getting the person to try involving others—because they might just like it! If top managers open up discussion to other committed employees of the firm, each of whom has a valued perspective and contribution to make, they can be pleasantly surprised at the quality of contributions and what they themselves can learn from their employees.
A micromanager is someone who has trust problems with employees—perhaps well learned from his or her own experience in having been burned by past employees. You can help this employer learn new behavior. It doesn’t have to be all or nothing (i.e., “I do the work or you do the work, but there’s no option in between”), but instead a gradual evolution toward including others.
You can also start at the bottom and work up. There’s a level of decision making that can start with employees in those areas in which they feel they can have the greatest impact. As they make changes and have positive impact, you can use that success in leveraging their greater involvement with top management.
Workforce: What is the most critical skill that leaders need to help their organization and its employees handle the stress and concerns during these tough times?
Nelson: I tried to focus on a short list in my new book, Keeping Up in a Down Economy, but if there was one single critical skill I’d advocate, it would be communication—specifically open, honest and direct communication. Earlier this year, Accountemps released a survey of executives that focused on employee morale. It found a lack of honest communication to be the behavior that has the most negative effect on employee morale. Thirty-three percent of those surveyed cited it. Meanwhile, 48 percent said communication was one of the best remedies for poor morale.
Workforce: What is the one biggest derailer that leaders are guilty of with respect to keeping employees up in a down economy?
Nelson: We all have fallback styles when we’re under stress or pressure. And for many leaders, their fallback style is to “take charge” and be in control at all costs, which often serves to exacerbate the situation.
When a leader takes greater control, it sends the message to employees that they are trusted less, and the employees’ behavior will follow suit. They will exert less effort, rather than more. Instead of becoming insecure micromanagers during challenging times, the best leaders reach out to their people and challenge them to be better and to rise to the situation required by external circumstances.
Q: Some of my managers associate power with projects; they don’t want to delegate a thing (not even as a reward and recognition tool)! How do I get them to think differently about this and see how it could help us build morale?
Nelson: Effective delegation is a skill set that, unfortunately, many managers never have had a chance to learn. Many are promoted to management and interpret the job to mean that they now need to be a “super worker” instead of being someone who gets work done through others. By holding on to all work and related projects themselves, they may have a feeling of power, but their effectiveness will diminish over time; they truly aren’t doing the job they were hired to do. Being a super worker may stroke their ego and their importance, but it does little to develop the skills and abilities of their staff members, who will be inclined to leave, due to how little real responsibility they have been given.
I’d recommend some coaching or training on the topic, which can start with a good book that addresses the problem. I’ve done two books on effective delegation, including Delegation: The Power of Letting Go.
Workforce: If your organization is widely dispersed geographically in many small locations (bank branches, chain retailers, service-management providers at client locations), how do you determine which of your unit heads are leading well, and which ones may be dictatorial, arbitrary, bullies, etc., when you do not have all employees in big locations with HR people handy?
Nelson: A good survey mechanism would help you capture this information. And part of that survey needs to have open-ended questions on what is going well and what could be improved. Open-ended questions are especially important around those items that employees rank either very high or very low. Focus groups or informal interviews are another way to get at the real story of how managers are leading. Then you need to develop a follow-up plan for addressing deficiencies within the organization.
Workforce: How do we get top management buy-in on HR strategies, especially those that border on welfare?
Nelson: If the strategies you are discussing border on welfare, you’re likely to never get top management to buy into them, and perhaps rightfully so. American business and capitalism are meritocracies in which there is an underlying value of earned rewards for valued results and performance.
You didn’t explain what you meant by “welfare” in a business environment, but if you are advocating HR strategies that treat employees based on their needs over the needs of the organization and its ability to thrive and survive, this will never be a winning strategy for any company that wants to remain competitive in changing, dynamic times.
If, on the other hand, you can show that the HR strategies you are advocating are directly linked to the firm’s performance and productivity, and you can demonstrate that those HR investments give the firm the ability to hold on to your employees (especially those that are the most significant contributors) and that they help attract additional needed talent as the organization’s demands require that talent, that’s quite a different proposition. There’s quite a lot you can do to make the case for an HR strategy to be a hard-edged, strategic decision, not a warm and fuzzy people issue.
Translate what you want to do into terms your top management can understand and value. Talk top management’s language in terms of costs and benefits and quantify any discussion on its impact on the organization’s strategies and finances. For more discussion and effective strategies for “selling” HR initiatives to those above you in your organization, see Chapter 13 of The 1001 Rewards & Recognition Fieldbook: The Complete Guide.
What to do when employees don’t seem to appreciate your recognition efforts
Workforce: Your example of allowing employees to work nine-hour days to get Fridays off is a nice benefit. However, how do you avoid employees from abusing this, such as an employee not working the full nine hours for four days but still expect to be off on Friday? If they don’t get it, they think it is unfair or discriminatory in some way.
Nelson: This is a matter of being clear in your criteria and then holding to it. For example, I know a department manager who allowed employees to leave early on Fridays if the department’s work was done. Some of the employees took this as a given that they would always get Friday afternoons off. This department manager had to be diligent in catching employees on busy weeks to say, “Our work isn’t all done this week.”
A good way to try a program like this is to make it a pilot. That lets you test the maturity of your workers in handling this type of freedom. Make it clear from the beginning that if there are any problems, the program will be suspended. Some workers might abuse the benefit, but others will be quick to catch them on it, since they want the pilot program to succeed. Don’t expect it to work perfectly when you launch the program—it’s more important that you are flexible in making adjustments over time that will result in a better program that ultimately becomes a success.
Workforce: What do you do for employees who believe that even though they received a reward, it’s just not enough?
Nelson: It’s not clear if you are referring to a financial reward or some other type. If it’s the former, you certainly should not provide them with more financial rewards, just based on their desire to have more (the squeaky-wheel syndrome). The financial rewards need to be in proportion to the value of the employee’s contribution.
I’d have a discussion with the employee about the reward. Discuss what is needed from the organization’s perspective in order to grant more money. Maybe you want employees to increase their work contribution or share of responsibility, for example. Then help show the employees how they can learn new skills and take on more responsibility in their current positions, which will likely lead to greater financial returns over time.
If the reward was not financial, but it was perceived as not enough, I’d also have a discussion with the employees to see what reward might have been more motivating. You could provide exactly that—either now or in the future, when performance merits it.
Workforce: Our company has done several [of the things] on your list of Recognition and Rewards for Tough Times, but our employees are still not grateful. Is there some underlying issue that we are missing?
Nelson: No. Many employees today are hurting and suspicious right now, even if you are doing your best to be fair with them. You just have to be patient in showing that you are with them and will continue to act in ways that are consistent with showing they really are a priority for you and your organization.
Average monthly COBRA enrollment rates increased by 20 percentage points since the federal COBRA premium subsidy program took effect, according to a Hewitt Associates Inc. analysis.
From March 1—when the 65 percent premium subsidy generally first became available—through November 30, monthly COBRA enrollment rates for eligible laid-off employees averaged 39 percent, according to Hewitt’s analysis of COBRA enrollment among 200 large employers.
By contrast, from September 1, 2008, through February 28, 2009, an average of 19 percent of involuntarily terminated employees were enrolled in COBRA.
The largest percentage-point increases in COBRA enrollment were seen in the sectors of industrial manufacturing—to 67 percent from 7 percent—and aerospace and defense, where enrollment rose to 63 percent from 30 percent, according to Hewitt’s analysis.
“The increase we’ve seen in COBRA enrollments since March highlights how important the subsidy benefit has been to families who have been affected by the high rate of unemployment,” Karen Frost, health and welfare outsourcing leader for Lincolnshire, Illinois-based Hewitt, said in a statement.
With nonsubsidized COBRA premiums often about $400 a month for individual coverage and $1,200 a month for family coverage, the subsidy has slashed health insurance premium costs for beneficiaries laid off from their jobs.
President Barack Obama last week signed a bill that extends the nine-month, 65 percent premium federal subsidy by six months. The change applies to those who are involuntarily terminated through February 28, 2010.
The legislation also provides an additional six months of subsidized coverage for beneficiaries whose nine-month COBRA premium subsidy has run out.
With a filibuster-proof majority intact, Senate Democrats are poised to approve an $871 billion health care reform bill containing small but consequential last-minute changes for employers.
Following a procedural vote early Monday, December 21, it appears Democrats are likely to pass the measure by the holiday recess. The effort to reshape health care coverage would resume in 2010 when the separate reform bills passed in the House and Senate will have to be reconciled into one piece of legislation.
Over the weekend, Democratic leaders in the Senate introduced the final changes they had made to the bill. One amendment that rankled employers is a new rule that would allow certain employees to cash out of their employer-sponsored health insurance and use their employer’s health care money to buy insurance on their own.
Employees who spend between 8 and 9.8 percent of their income on insurance premiums would qualify for the “free choice voucher,” as it is called by the amendment’s sponsor, Sen. Ron Wyden, D-Oregon. Wyden has long favored severing ties between employment and health insurance coverage, and the amendment would allow certain employees to buy their own coverage with employer money.
Other amendments likely to be of interest to employers:
• A requirement that employers limit waiting periods before an employee can enroll in an employer health plan to 60 days or face a fine of $600 per full-time employee.
• A requirement that the secretary of health and human services determine whether contributions to health savings accounts count toward the actuarial value of a plan. This would clarify whether certain high-deductible plans would meet the legislation’s minimum actuarial value of 60 percent—meaning a health plan would have to pay 60 percent of the cost of insurance.
• A study by the secretary of health and human services of the differences between self-insured and fully insured health plans to determine whether the new health care reform laws create adverse selection—a scenario in which only those who use a lot of medical care, namely the sick and older people, sign up for a group health plan. Employer groups are concerned this study will create political pressure to prohibit employers from self-insuring.
• An increase in a payroll tax from 0.5 percent to 0.9 percent for individuals making $200,000 or more and couples making $250,000 or more a year to help pay for Medicare’s hospital insurance trust fund. Employers have criticized the amendment as a tax on small businesses structured as tax pass-through entities, such as S corporations.
• An appropriation of $200 million to small businesses that want to establish work-site wellness programs.
The Senate health care reform plan would newly insure 31 million people and reduce the federal deficit by $132 billion over a 10-year period ending in 2019. While considerably less onerous on employers than the reform bill passed by the House in November, the Senate bill would come with new employer requirements and penalties.
Employers with 50 or more full-time employees that do not offer health insurance would face a penalty of $750 per full-time employee if an employee receives a premium subsidy from the federal government.
Individuals would be required to carry insurance or face a fine.
