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Non-Binding Say-on-Pay Votes Part of Executive Compensation Reform Proposal

Non-binding say-on-pay shareholder votes would be required of all public companies under legislation proposed by the Obama administration Wednesday, June 10.


Also, the SEC would oversee corporate compensation committees to ensure their independence, according to a statement Wednesday by Treasury Secretary Timothy F. Geithner.


The legislation is part of broader executive compensation reform that would develop a standard to “reward innovation and prudent risk taking, without creating misaligned incentives,” the statement said.


“I want to be clear on what we are not doing. We are not capping pay. We are not setting forth precise prescriptions for how companies should set compensation, which can often be counterproductive,” Geithner said in the statement.


Principles of the reform outlined by Geithner are:


● Compensation plans should properly measure and reward performance.


● Compensation should be structured to account for the time horizon of risks.


● Compensation practices should be aligned with sound risk management.


● Golden parachutes and supplemental retirement packages should be re-examined to ensure they align the interests of executives and shareholders.


● The process of establishing compensation should promote transparency and accountability in the process of setting compensation.


“This financial crisis had many significant causes, but executive compensation practices were a contributing factor. Incentives for short-term gains overwhelmed the checks and balances meant to mitigate against the risk of excess leverage,” Geithner said in the statement.


Mary L Schapiro, SEC chairman, said in a statement Wednesday that the SEC “is actively considering a package of new proxy disclosure rules that will provide further sunshine on compensation decisions.”


They include how a company and its board manage risks, potential conflicts of interest by compensation consultants, and the experience and qualifications of director nominees to serve on the board and particular board committees.


John D. Heine, SEC spokesman, said a time frame for the SEC to propose the rules wasn’t available.



Filed by Barry B. Burr of Pensions & Investments, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.


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Leave Executive Comp to Boards, Not Lawmakers, Securities Industry Group Says

Executive compensation should be decided by company boards, not imposed by legislators or regulators, the Securities Industry and Financial Markets Association said Wednesday, June 10, as it released guidelines for how financial services firms should tie compensation to long-term performance and risk management.


The association called for preserving “the industry’s ability to operate dynamically and help drive economic growth,” and pledged to work with governments globally to achieve compensation fairness, the Washington- and New York-based group said in a statement.


“We can build a better system that aligns compensation with the interests of shareholders, safeguards the financial system and strengthens the economy,” SIFMA president and chief executive Timothy Ryan said in the statement.


The guidelines included four principles: establishing compensation policies consistent with effective risk management, linking compensation to sustainable performance, allowing risk management professionals to be “appropriately independent” and communicating compensation practices to shareholders.


The brokerage industry has come under heavy attack for what are widely viewed as excessive bonuses given to executives of Wall Street firms that have experienced disastrous financial results.


The Obama administration and Congress will consider executive compensation as they take up financial services regulatory reform in the coming months.


The administration is to release its regulatory reform plan June 17.



Filed by Sara Hansard of Investment News, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.


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Southeast Michigan Has Lost Nearly Half Its Manufacturing Jobs Since 2000

Since 2000, nearly half the manufacturing jobs in Southeast Michigan have been lost, according to a new report by the Southeast Michigan Council of Governments—with more to come.


The transportation equipment manufacturing sector alone has seen a 59 percent drop in employment, with a total loss of about 446,000 jobs.


The General Motors and Chrysler bankruptcies could mean an additional 12,280 jobs lost, according to the report, among dealerships and production facilities.


It’s impossible to predict the full extent of the impact, according to the report, because GM hasn’t made public how many of the 3,000 salaried jobs and 2,200 to 2,500 dealerships it plans to cut are in southeast Michigan.


The effect will likely spill beyond the auto industry, SEMCOG says. An additional 1.26 jobs could be lost for every automotive job lost, according to the report, in industries like suppliers, services or restaurants.


That’s another 14,224 jobs, according to the report. SEMCOG has predicted a 15 percent decline in taxable property values in 2009 and 2010.


 


Filed by Nancy Kaffer of Crain’s Detroit Business, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.


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Wellness, Prevention Likely to Survive Battle Over Health Care Reform

Even before health care reform legislation has been formally introduced on Capitol Hill, skirmishes have broken out regarding proposals to establish a government-sponsored insurance program, tax health benefits and mandate employer coverage.


But an area that has drawn high-profile activity by HR professionals—wellness and prevention—may survive the coming battle because it consistently draws bipartisan support.


A bill written by Sen. Tom Harkin, D-Iowa, would provide an annual $200 tax credit for each of the first 200 employees participating in wellness initiatives and $100 for each additional employee.


The Healthy Workforce Act requires that the wellness programs include three of the following four components: health education, participation monitoring, behavioral change and a supportive environment for healthy lifestyles.


Harkin is confident that the measure will be included in comprehensive reform bills that come out of the Senate Health, Education, Labor and Pensions Committee and the Senate Finance Committee.


The finance panel, led by Chairman Max Baucus, D-Montana, and ranking Republican Charles Grassley, R-Iowa, has jurisdiction over tax policy.


“Both Grassley and Baucus have been very supportive of it,” Harkin said before the Memorial Day congressional recess.


On Tuesday, June 9, in Washington, America’s Agenda, a coalition of businesses and unions, released what it calls “a consensus-based framework for sensible and achievable national health reform legislation” that emphasized, among other things, improved disease prevention and management.


John Butler, chief human resources officer at Textron, helped the group make the case for prevention. The Providence, Rhode Island, manufacturer has held its health care costs below the national average and has not increased employee contributions for its health care plan in the past five years.


The company consolidated 154 medical plans into one consumer-driven offering for salaried employees, instituted wellness programs, encouraged the use of generic drugs and generally squeezed inefficiencies out of its system, according to Butler.


As a result, the company has saved about $47 million annually since 2002.


“It’s not about cost shifting,” Butler said at a National Press Club event. “It’s about prevention.”


At the same press conference, Randy MacDonald, senior vice president of human resources at IBM, touted the value of prevention. Between 2005 and 2007, IBM invested $81 million in wellness programs and saved about $190 million.


“We genuinely believe that IBMers have become healthier,” MacDonald said via speaker phone from IBM headquarters in Armonk, New York. “Our employees also have become more productive and satisfied.”


Dow is another prominent wellness advocate. Janet Boyd, director of government relations tax and benefits, participated in the April press conference where Harkin introduced his bill.


Later that month, Gary Billotti, Dow’s global leader, health and human performance, spoke at the World Health Care Congress in Washington.


“We’re building a strong new culture of health, with prevention at the core,” Billotti said. “It’s become a part of our annual company sustainability goals.”


Billotti said that for every 1 percent improvement in health risk factors for Dow employees over 10 years, the chemical company saves $62 million in health care costs.


Dow spent $700 million on wellness programs in 2008 and had a 78 percent employee participation rate in health services activities, a 4 percent increase over 2007. More than 18,000 employees joined at least one of more than 1,800 group activities, a 14 percent increase over 2007.


Other companies that have brought a wellness message to Washington in the last two months include General Electric, General Mills and Campbell Soup Co.


As Congress begins the arduous process of cobbling together legislation, it should focus on areas where business, labor and many other groups aligned, said an America’s Agenda board member.


“This is the very best time to be bringing this consensus forward,” said Richard Gephardt, a former House Democratic leader. “We need to start where we agree.”


Inevitably, the process also will involve warfare—like the fight breaking out over whether to tax employee health benefits to help pay for reform.


“If we begin to tax employee benefits … there will be a mutiny at the gates,” MacDonald said. “It would be counterproductive and counterintuitive as well.”


A labor official chimed in on the same point.


“It will be a revolution at the gate, if they talk about taxing existing benefits,” said Terry O’Sullivan, general president of the Laborers International Union of North America.


—Mark Schoeff Jr.


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IRS Releases More Guidance on COBRA Subsidy

New guidance from the Internal Revenue Service answers more questions that have been raised about the federal COBRA premium subsidy.


Under that subsidy, included as part of a broader economic stimulus bill President Barack Obama signed in February, the federal government pays 65 percent of COBRA premiums for employees involuntarily terminated from September 1, 2008, through December 31, 2009. The subsidy is available for up to nine months.


The IRS in prior guidance resolved major questions employers and others had raised about eligibility for the subsidy. As new questions arise, the IRS is answering them through periodic additions to its guidance, which is in question-and-answer format.


In the latest guidance, the IRS makes clear that employees called up from the reserves for active military service would be considered involuntarily terminated and thus eligible for the subsidy, assuming they opt for COBRA.


“This is the case regardless of whether the civilian employer treats the employee’s absence as a termination of employment or a leave of absence,” the IRS said.


Also eligible for the subsidy are elected officials who lost re-election or couldn’t run for re-election because of term limits, the guidance notes. In addition, employees who are hired for only a limited period of time, such as a teacher hired for only one year, would be eligible for the subsidy.


“If an employee hired for a limited period works to the end of the period, is willing and able to continue employment, and terminates employment because of the failure of the employer to offer additional work, an involuntary termination occurs for purposes of the premium subsidy,” the IRS said.


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


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Small Businesses Considering Eliminating 401(k) Match

Nearly half of small businesses said they may have to reduce or stop matching contributions.

While the majority of small businesses do not think the economy will affect their ability to offer a 401(k) retirement plan, 44 percent said they may have to reduce or stop matching employee contributions, according to a survey released Monday, June 8, by Nationwide Financial Services of Columbus, Ohio.


A small company was defined as having five to 250 employees. To qualify for the survey, respondents had to have offered a 401(k) retirement plan for at least one year and have between $500,000 and $10 million in retirement plan assets.


Some 31 percent of respondents ranked providing employees with investment education as their top concern; 29 percent selected fiduciary and legal responsibilities as the top concern; and 21 percent chose the selection and monitoring of retirement plan investment options.


A full 74 percent said that they valued an investment advisor’s ability to help them meet the legal responsibilities associated with offering a retirement plan.


The survey of 401 respondents was conducted by telephone interviews between December and March.



Filed by Sue Asci of Investment News, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.


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Employers Are Divided Over Adequacy of 401(k)s

Employers are evenly split between those who say their 401(k) plans can provide adequate retirement savings for employees and those who say they can’t or are unsure, according to a Mercer survey.


Also, 68 percent of the 180 employers offering 401(k) plans that were surveyed said achieving adequate retirement savings for employees is a shared responsibility between employers and employees, according to a Mercer news release about the survey results.


Of employers with defined-benefit plans open to new employers, 81 percent believe achieving adequate savings is a shared responsibility, and 15 percent believe it’s predominantly the employer’s responsibility.


Just over half (53 percent) of employers that have suspended matching contributions to their 401(k) believe planning an adequate savings is a shared responsibility.


All employers surveyed named a variety of obstacles to employees reaching their retirement income objectives, with 38 percent citing low participation in retirement savings plans; 32 percent citing inadequate savings rate; 17 percent, volatile markets; 6 percent, poor investment decisions; 4 percent, borrowing from retirement savings; 2 percent, cash-out at termination of the plan; and 1 percent, citing that accounts are spent too quickly in retirement.


“Some 35 years after the enactment of the Employee Retirement Income Security Act and its subsequent amendments and associated regulations, Americans may have no more secure a retirement future than in 1974,” Amy Reynolds, a Mercer principal and defined-contribution retirement consultant, said in the Mercer news release.


“Today’s employers are increasingly relying on employee savings plans, such as the 401(k), as the foundation for their workers’ retirement income—yet recent economic pressures underscore the weakness of this approach.”



Filed by Timothy Inklebarger of Pensions & Investments, a sister publication of Workforce Management To comment, e-mail editors@workforce.com.


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Most Employed Americans Feel Their Job Is Secure

Even with unemployment standing at 9.4 percent, a great majority of people who have not been laid off aren’t very worried about the possibility, according to study released Friday, June 5, by Bankrate Inc. of New York.


While two-thirds of survey respondents knew someone who had lost their job, almost 80 percent of those still working saw no pink slips in their future.


The survey of 1,000 adults, conducted May 14-17, also found that in spite of absorbing pay cuts, suspended bonuses and reduced benefits, half of the respondents remained loyal to their current employer.


In fact, 50 percent of those polled said they wouldn’t quit their job even if they won the lottery.


That is all the more impressive as the survey showed that 44 percent of those polled said they had received some kind of cut in pay or benefits.


When asked what the most important reason was for staying in the current job, 39 percent of respondents said for the income, 33 percent said because they enjoyed the work, 7 percent said because they had a good boss, 11 percent for the health benefits, 5 percent for other benefits such as retirement and 5 percent “other.”



Filed by Jeff Benjamin of Investment News, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.


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House Approves Paid Parental Leave for Federal Workers

Federal employees would be eligible for four weeks of paid leave when they become parents, under a bill approved by the House on Thursday night, June 4.


The measure, which attracted the backing of 24 Republicans and passed 258-154, carves the four paid weeks out of the 12 weeks of unpaid leave that are available to all workers under the Family and Medical Leave Act. The paid leave is provided after birth, adoption or the placement of a foster child.


A provision of the bill allows the director of the Office of Personnel Management, the government’s HR department, to write regulations to extend the paid leave to eight weeks if the agency deems it appropriate.


The prospects for the bill in the Senate, where it died last year, are unclear. But if its momentum continues, it could set an example that influences private-sector employers.


Proponents of the legislation said it is needed because too many workers cannot afford to take unpaid leave during the first few months of a child’s life—a time that they say is crucial to human development. For low-earning single mothers, unpaid leave could result in depriving the family of income.


“Paid leave ensures that having a child does not further destabilize families during tough times,” said the author of the bill, Rep. Carolyn Maloney, D-New York, during the House floor debate. “We’re here to show that this Congress doesn’t just talk about family values. It values families.”


Republican opponents also cited the economy. But they said that it is unfair for taxpayers to finance paid leave for federal employees when private-sector jobs and retirement accounts are being slashed and the federal deficit has hit $1.8 trillion.


“The economy is in recession,” said Rep. Pete Sessions, R-Texas, on the House floor. “Hello! Hello! Wake up, Washington. Somebody’s going to have to pay for this.”


The GOP pointed to a Congressional Budget Office estimate that the bill would cost $938 million over five years. Maloney, also citing CBO numbers, said the bill would cost $190 million in 2011. But she said it would not generate new government spending because the figure is based on workers substituting paid leave for unpaid time off.


The main sponsor of the bill in the Senate said that paid leave would help the government address a potential wave of retirements among its 1.8 million employees by attracting and holding on to younger staff.


“It’s an issue of recruitment and retention in the largest workforce in America,” Sen. Jim Webb, D-Virginia, said at a Capitol Hill press conference Thursday.


Webb, the author of the Senate bill, expressed optimism. “I feel very confident we’re going to get it done this year,” he said.


A possible change to the legislation while it winds its way through the Senate may have been previewed in an amendment offered by Rep. Darrell Issa, R-California.


Under Issa’s provision, a worker would have to use all accrued paid leave, such as sick time, before accessing paid parental leave. The parental time off would then be offered as a repayable advance on future leave. Issa’s amendment failed.


A 2007 survey by the congressional Joint Economic Committee showed that most of the Fortune 100 companies offer some kind of paid time off, often allowing new parents to apply accrued sick days to parental leave.


If the federal parental leave bill becomes law, it could influence private-sector policies. “It certainly will be a model,” Maloney said. Maloney, along with California Democratic Reps. Pete Stark, George Miller and Lynn Woolsey, introduced a bill in March that would provide 12 weeks of paid medical leave to all workers.


Although most of them opposed the federal parental leave bill, Republicans warned that it could become a touchstone.


“It will absolutely set a precedent for the private sector,” said Rep. Aaron Schock, R-Illinois, whose district includes the headquarters of Caterpillar.


—Mark Schoeff Jr.


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Early Draft of Legislation Offers Peek at Sweeping Changes in Health Care

A partial first draft of health reform legislation emerged Friday, June 5, confirming speculation that most businesses would be required to pay a fine for not offering health coverage to employees.


While many of the details in the draft have not been filled in—for example, how much such a fine would be—the legislation outlines a sweeping health care reform agenda that covers the establishment of a health insurance exchange, the scope of minimum coverage employers must offer, and a requirement that all individuals purchase health coverage.


A public health plan is expected to be included in the bill, but the details of such a plan, as well as the specifics around an employer pay-or-play mandate, remain a sticking point among the various constituents that have worked with legislators to hammer out legislation.


The draft legislation came from Sen. Edward Kennedy, D-Massachusetts and chairman of the Senate Health, Education, Labor and Pensions Committee. That panel has taken the lead in crafting the health reform bill, called the American Health Choices Act. Another bill with more details on how reform is to be financed is expected by June 17 from the Senate Finance Committee, chaired by Sen. Max Baucus, D-Montana.


One major proposal the Finance Committee bill will likely provide details on is whether employees can expect to have their health benefits taxed, a policy that proponents say will help pay for health care reform, which is expected to cost more than $1 trillion.


Employer groups have been lobbying against such a measure.


The draft legislation from Kennedy’s committee is prefaced by a “declaration of rights” that may assuage some conservative groups that feared health reform would empower government bureaucrats to make personal health care decisions for individuals. The bill states that “health professionals should judge what is best for their patients.”


The insurance exchange, known as the American Health Benefit Gateway, would be set up within each state to help individuals and employers purchase health insurance coverage. Employers would have to alert employees that they can purchase coverage in the individual market from the exchange.


The bill says health plans in the Gateway cannot deny people coverage based on pre-existing conditions. The Gateway would guarantee the availability of health insurance coverage in the individual and group markets, removing lifetime or annual limits on the amount of medical care insurance companies will pay for.


The draft bill did not detail what kind of plan would qualify as minimum coverage.


The federal government will offer credits to help small employers, defined as 27 or fewer full-time employees, provide coverage to employees, according to the draft.


Employers that do not contribute to the health coverage of employees will have to make a monthly payment to the federal government for each employee who is not offered health insurance. The payment amount has not been specified.


—Jeremy Smerd


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