Author: Todd Raphael

Unless you’ve got dead batteries in all your radios, you know what the hotadvertisements say these days: “Get Out of Debt.” Advertisers are floodingthe airwaves because they’ve crunched the numbers and found that there’s abig market for their services. People are broke.

This problem dwarfs other money issues. Nearly four times as many employeescall Financial Finesse, a financial-education provider, about debt as call aboutstock options. You hear a lot about college costs rising, but 40 times as manyemployees call about debt. Eight times more people call about debt than aboutmortgages. Personal debt is hotter than Winona Ryder’s new clothes.

You’re thinking: Why should I care? What am I supposed to do, be myemployees’ parent? Are their personal lives really my business?

You shouldn’t be their parent. It shouldn’t be your business.Unfortunately, personal debt is not a personal issue. It’s a business issue.

Tom Garman is one of the leading experts on employee debt. For 25 years atVirginia Tech, he has studied how employees’ money woes end up haunting thecompanies they work for.

“Financially distressed workers are like a poison poured on the floor ofthe workplace,” Garman declares. “You can’t see the poison, but it’sthere. It permeates more than just the employee who has a problem. It permeatesthe workforce. And most employers don’t give a damn.”

About a third of employees say that financial problems are affecting theirjob performance, he notes. He has found this to be true with clerical employeesin Virginia, chemical workers in Louisiana, and white-collar employees in threemidwestern states. These employees are more stressed, less productive, andabsent more often than others. They make more personal calls about money, theysend more personal faxes, and they talk about the issue longer with coworkers.Their physical health is worse. They waste about 20 hours of work time a monthdealing with money problems, according to Garman’s research on employees in 25states.

Another study, by the Military Family Institute, shows that employeefinancial problems cost the U.S. Navy about $250 million annually (mainlybecause of the stress these problems bring).

Bill Pomeroy is president of The Edsa Group, a company in Baton Rouge thatprovides financial education to employees. He says that debt not only costscompanies money, but specifically causes a strain on HR departments. Whenemployees are in debt, HR spends more time garnishing wages. HR and benefitsprofessionals also spend more time handling 401(k)s, because employees borrowfrom themselves more often.

Pamia Guttenberg, a financial planner at Financial Finesse, compared thenumber of calls her company received in the third quarter of 2002 to the numberit received in the first quarter of the year. There were 40 percent more callsthat concerned debt.

Could debt cause turnover? Guttenberg says that some of her callers arespending work time looking for new jobs. “They’re just convinced a littlebit more money will help them out.”

You can do something about debt. Talk to the financial-education vendor thateducates your employees about 401(k) planning. Chances are good that they haveworkshops and materials about money management, and they’d be glad to hostbrown-bag lunches at your company.

If your vendor doesn’t offer workshops, you could switch vendors. Or keepusing Fidelity or T. Rowe Price or whoever handles your 401(k), but hire anadditional vendor that works exclusively on financial education.

Let your employees know if your employee assistance program providesfinancial advice. Bill Arnone, a partner at Ernst & Young who calls debt a”dirty little secret” no one wants to talk about, says that before you relyon the EAP, be sure the program has experienced financial experts on staff.

There are also nonprofit credit counseling programs available, and yourcompany’s credit union may be a good source of information.

Education will pay off. Research by Jinhee Kim of the University of Maryland’sDepartment of Family Studies shows that four months of financial education andone-on-one advice results in improved employee health and work performance.Dorothy Bagwell, an assistant professor at Texas Tech, found a relationshipbetween a year of credit counseling and higher job productivity.

You could wait to deal with the issue of employee debt until the economypicks up. Then again, bankruptcy filings jumped 150 percent from 1983 to 1990,during a long expansion of the American economy. This tells us that it makessense to act now.

Workforce, November 2002, pp. 96 — Subscribe Now!

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Other columns by Todd:

• Listen to This
• Crystal Gazing and the Future of Work
• Disabling Some Old Stereotypes
• Cost Per Hire: Don’t Even Bother
• Why Stars Switch Galaxies

If you and your CFO had a baby—maybe not an appealing thought, but anyhow—this is what the child, with her HR-Finance DNA, would dream about: Millions of dollars in tax credits. Retention rates that are exponentially higher than they are now. Millions of dollars of savings in lower turnover costs.

Actually, this dream came true. Pizza Hut has employed thousands of individuals with disabilities over the last decade and a half, and turnover among them is approximately 100 percent less than turnover among other new hires. Pizza Hut has saved millions of dollars from this lower turnover. On top of that, it has received millions of dollars in federal tax credits for hiring job candidates with disabilities, in this case often mental retardation.

There are about 54 million Americans with disabilities. Most don’t have jobs. Most want jobs. Most deserve them.

Many employers unintentionally discriminate against applicants with disabilities when interviewing. They’re worried they’ll be less productive and less reliable. They’ll use more health care, which will cost you more.

These are legitimate concerns for a business trying to keep costs down and make a nice profit. The problem is that they usually aren’t true.

DuPont found that employees with disabilities have above-average records in job performance, attendance, and safety.

The Job Accommodation Network is a group of consultants in West Virginia, funded by the government, who work for free to advise employers and employees about disabilities. The consultants at JAN say that about 20 percent of accommodations for employees with disabilities cost nothing. The median accommodation—like buying a comfortable stool for a grocery checkout person with a back injury, so he doesn’t have to stand—costs $250. That’s not a lot of money when your return on investment is like Pizza Hut’s. In addition, there are tax credits that can help you defray these costs.

There’s more data. In a 30-year study, DuPont found that employees with disabilities have above-average records in job performance, attendance, and safety. IT&T found that its workers who had disabilities had fewer absences than those who did not.

There are many examples of employees with disabilities who are more productive than others. Six years ago, Burlington Coat Factory in Brown Deer, Wisconsin, hired Anne Rindfleisch to run the computer room. The company projected that the job would require a full-time operator to manage incoming merchandise, print contracts, and deal with transfers.

Burlington hired Rindfleisch, who did the job, and still does the job, in only 20 hours a week. She has no arms or legs.

A Harris poll found that 82 percent of managers surveyed said that employees with disabilities were no harder to manage than anyone else. John Dziewa agrees. He’s spent more than 14 years programming, and managing programmers, at Fiserv, a financial company in Milwaukee. “People with disabilities tend to be more dependable,” he says. “They’re concerned about the disability being seen as a liability.” Dziewa is paralyzed from the chest down.

On the question of health-care costs, The Hartford, a leading disability insurer in Connecticut, says that once an employee has acquired a disability, there’s no difference in medical utilization between those who have disabilities and those who don’t.

If you want to hire someone with a disability, here are four ways to either find these candidates or get information that can help you work effectively with an employee who has a disability:

1) Contact the Job Accommodation Network— www.jan.wvu.edu. I’ve talked to them several times over the last eight years and they’re not a hard-to-get-hold-of bureaucracy, but rather a group of people who legitimately want to help. JAN can give you advice about hiring and accommodating employees who are disabled and has on its Web site a long list of suggestions on how to accommodate specific disabilities. It also can tell you where to get tax-credit information.

2) Call the Labor Department’s new toll-free number, (888) 695-8289. They’ll tell you where in your area you can find applicants with disabilities.

3) Contact Goodwill Industries International—www.goodwill.org or (800) 664-6577. Goodwill trains and places candidates with disabilities, including Anne Rindfleisch, and does a good job.

4) Ask a rehabilitation center in your state. You’ll find a list of them at www.jan.wvu.edu/sbses/vocrehab.htm.

If your results are half as good as Pizza Hut’s, hiring these candidates will help you beat the competition. The chain is one of America’s largest employers of people with disabilities. It takes a lot of ability to serve 1.7 million pizzas every day.

Workforce, August 2002, p. 88 — Subscribe Now

Other columns by Todd:

• Why Stars Switch Galaxies
• HR’s New Guru? An NBA Bigmouth
• Let’s Teach Employees to Retire
• Business Can Make Child Care Work
• It’s a Good Time for Quiet Radicals

We must find out what he’s worth.

That’s what Texas Instruments said as one of its top techies was being wooed by a recruiter working for a competitor. TI, one of the world’s great chipmakers, added up all the ideas that the employee had generated for the company, and what that was worth in terms of patents.

TI decided that the employee was probably fairly valued at about $25 million. Yes, $25 million. The company also decided it was worth its trouble to get the employee to stay. TI gave him a nice amount of stock, structured in a way that provides an incentive to stay another decade. Also, TI arranged for a week of private golf lessons for him and his wife at a famous golf resort.

If employees are so valuable, it’s silly to spend time and money trying to decide whether we should shell out $1,200, or $1,2000, or $30,000, to source and potentially relocate an employee. Measuring these expenses occasionally can be worthwhile when hiring large numbers of employees with similar skill levels. Usually, though, the whole exercise is a joke.

“Nobody gets paid what they’re going to bring in.”

John Sullivan, one of the leading recruiting experts in America, has little interest in cost per hire. Instead, he spends his time helping companies make calculations like TI’s.

Think about it, Sullivan says. If you were going to buy a steak, would you compare the cost of one at Denny’s to that of one at Morton’s? Of course not: the products are very different. And you’d buy one at one point and the other on a different occasion.

If you were getting brain surgery, would you compare its cost with that of a less complex, more standard operation? No. You’d just do whatever you could to get the best. Is a $1,800 laptop the same as a $500 laptop? No. You pay more, you get better quality. You cannot compare the price of two items and not compare their value.

Pamela Ferrell combs the entire world for people Texas Instruments can hire. She says the organization doesn’t keep track of, or care, what it spends to hire someone. Her team recently stole an employee from an Israeli competitor, racking up relocation costs and spending money to fly him across the world for interviews. “Nobody gets paid what they’re going to bring in,” Ferrell says.

Employees are such a bargain, and hiring costs are such a small percentage of an employee’s value, that fretting over the cost of a hire is like agonizing over whether the gumball machine will give you seven or eight gumballs for a nickel. Who cares?

Measuring the cost of each of your hires is one way to spend time. It takes a lot of it. Don’t do it. It’s a waste. Instead, every HR and recruiting pro should spend time measuring what a top employee is worth. Compare that to what an average employee is worth, and then sprint to your CFO’s office with the numbers. Ultimately, if you realize how much more top employees are worth, you’ll realize you can spend a ton more to hire them.

Sullivan says that Cisco’s employees each generate $700,000 to $1 million in revenue, a figure determined by dividing company revenue by the number of employees. That’s far more than you pay to acquire or pay people.

You might think if you’re not talking about technology employees, that the differences between employees would be very subtle. In other words, you might think that one McDonald’s employee is worth about the same as any other McDonald’s employee, so keeping hiring costs low is essential to fast-food success. Wrong. A top McDonald’s manager, Sullivan says, is worth 35 percent more in profits than an average employee.

A top PR person is worth far more than an average one, a calculation based on the number of newspaper columns, television news shows, or Web-site pages her client has appeared in. Sullivan has even measured something as abstract as what a strong journalist is worth. To do this, he took into account readership, name recognition, the volume of articles written, the quality of articles (assessed by an independent panel), the number of times the article was downloaded or e-mailed, comments by advertisers, rankings by fellow journalists, the number of times the journalist has been cited and quoted, and comments received.

Gosh, if we could just include negative comments, I’d be living high on the hog.

Your CFO understands this return on investment. Sullivan says that he’s repeatedly seen that whenever someone calculates the value of employees, and shows how important it is to pay more for them, that person is suddenly very valuable to her company.

“Most people who do these calculations then go in and ask for a raise.”

Workforce, June 2002, p. 112 — Subscribe Now!

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Other columns by Todd:

• Happiness May Be Overrated
• Why Stars Switch Galaxies
• HR’s New Guru? An NBA Bigmouth
• Let’s Teach Employees to Retire
• Business Can Make Child Care Work

E-mail is a beautiful thing. It is enabling you to communicate with us and with each other from the Aleutian islands, from Sydney, from Cape Town, and from Budapest. I know, because you e-mail us and post on bulletin boards online. Still, too much of a good thing can be, well, a bad thing.

George Winston, an HR development manager at Nokia, says, “E-mail is a plague. It’s killing the efficiency of organizations.”

He’s right. Winston says employees are drowning in a sea of unnecessary attachments and enclosures and cc’s and other correspondence, often sent merely to cover one’s own fanny. We send e-mails to our coworkers so that later on we can say, “It’s not my fault. I e-mailed Joey, and he never responded.”

“Most people consider firing by e-mail one of the most heartless things you can do.”

Firing people is one of the most bizarre managerial activities now being conducted through e-mail. You may not think that this is wrong. I may not think this is wrong. There are times, perhaps, when even the fired employee may not think it’s wrong. But if a manager fires someone online, and other employees—or job candidates—find out, they’re going to wonder if they’re working at the right company.

“Most people consider firing by e-mail one of the most heartless things you can do,” says Dianne Booher, who consults on e-mail usage and wrote the book E-Writing: 21st-Century Tools for Effective Communication (Pocket Books, 2001). “E-mail is a faceless, cowardly way to fire someone.”

Booher says that the worse the news is, the higher the level of effort and energy that should go into delivering it. People respect the personal delivery of bad news. It softens the blow, because they can read the facial expressions of the messenger, and know that person isn’t enjoying it one darn bit.

Booher has suggestions about what not to e-mail:

Anything related to performance. Let’s say that somewhere in your e-mail to Jane you mention that she’d be the best one to handle the McGillicuddy account, because John isn’t doing so well at it.

Now, Jane e-mails John with a question about the account. She accidentally includes the previous e-mail at the bottom. Did you really want John knowing that Jane knows about his performance issues? Probably not.

Bonuses and salary issues. If you’re trying to decide whether you should raise salaries 6 percent or 3 percent, talk about it. Don’t write about it. If it gets into the wrong hands, someone’s going to be disappointed if you choose the 3 percent.

Anything relating to product or service liability. One of Booher’s clients, a utility company, has called her in to train its employees on avoiding discussions of liability through e-mail. Here’s what happens: An employee sends an e-mail to a coworker that contains a paragraph such as:

The software has a couple of bugs. I’m not sure if we should mention it to them or not. They might want a partial refund. What do you think we should do?

A plaintiff’s lawyer for your customer knows what to do with that e-mail. Subpoena it.

Back to firing. It’s worse than all of these.

There are cases when employees are in far-flung locations, and you’d have to incur the expense of driving or flying someone in to a home office to tell them they’re terminated. Or, you’d have to set up a videoconference. Arthur Andersen, a couple of months ago, did not do any of these things. The firm laid off employees with phone messages and e-mails.

Don’t do this, warns Jim Kroh, a Harrisburg, Pennsylvania, consultant. Do a cost-benefit analysis. In the long run, the bad press and ill will created will cost the company far more in terms of its ability to recruit top talent than a plane fare ever will. “Employers have a moral, ethical obligation to sit down with the employee, to have a face-to-face, eyeball-to-eyeball discussion,” Kroh says. “Employees are deserving of better treatment than a sterile, cold, callous e-mail.”

Perhaps your managers agree that a voice mail or an e-mail is inappropriate. Still, they can’t stomach the thought of firing someone in person.

If all else fails, hire someone to do it. Kroh actually does this as part of his job. He’s paid to fire people. Kroh does it one of two ways. Sometimes the supervisor calls a meeting with the employee. The supervisor introduces Kroh, and then leaves, turning the show over to Kroh to perform his operation.

Other times, Kroh just comes in and does all the dirty work himself. The supervisor gets off scot-free.

Personally, this arrangement—hiring a terminator—doesn’t sound very thoughtful, if I’m the one getting fired. Then again, it beats an e-mail any day.

Workforce, July 2002, p. 88 — Subscribe Now!

Cartoon by Marc Tyler Nobleman.

A funny thing is happening to the idea of retirement. It’s disappearing.

We’ve already heard the horror stories about Social Security — stuff about how the retirement of the baby boomers will strain the system, and how more Gen-Xers believe in UFOs than in the possibility that they’ll ever see a Social Security check.

Still, some employees have convinced themselves that the beloved 401(k) will rescue them like Prince Charming. A nice thought, except that it’s not true. Here are a few of the problems:

• Some employees aren’t participating. Some people work at companies that don’t have 401(k)s in the first place. At companies that do have 401(k)s, about 25 percent of employees don’t participate, according to a Hewitt Associates survey.

  
  

• When they do participate, they’re not putting in enough money. This is a biggie. The single most important way for people to improve their chances of actually retiring is to save more, says Dallas Salisbury, president of the Employee Benefit Research Institute, probably America’s most respected research institution in the benefits field. “We in the United States have never saved enough,” he says. “We are doing better, but are still far short of what is needed to reach goals.” The problem is particularly bad for younger and lower-salaried employees.

  
  

• They’re not diversifying. Yes, you hear a lot about diversifying, and it sounds nice, but is that what people are really doing? Not really. In plans with 5,000 or more participants, more than 43 percent of assets are in the stock of the employee’s company, according to the Profit Sharing/401(k) Council of America. This means if the company goes kaput (see Enron), the employee is not only out of work but also short a good portion of his or her retirement savings. Lovely.

  
  

The current 401(k) system has a number of other shortcomings, including the fact that many employees just cash out their money when they switch jobs, blowing their retirement savings altogether and generating a big tax bill.

You might say, “Retirement looks pretty bleak for the younger generation, but at least the baby boomers are prepared.”

Another nice thought, but not true. The baby boomers are totally unprepared for their retirement, and their kids are going to spend their dough helping out their parents. The Allstate Financial Group says that baby boomers have saved an average of approximately $120,000 — only 12 percent of what they’d need for a 20-year retirement. On top of that, about three out of five boomers will be in debt when they retire.

So, what’s the solution? Should we not retire? Good idea, but that’s usually not possible either.

“You may think you can just keep working, but disability rates get high with older ages, and working may not be an option,” Salisbury says. “You may have to ‘retire’ with no money because you cannot physically work.”

What can HR do? Well, what this boils down to is education. We created this private retirement system for employees, but they don’t really know how to use it.

There are lots of good retirement-planning checklists and worksheets in print and online. Hunt them down and put together a set of links for employees.

Also, you can explore the idea of giving employees a voucher for financial counseling. That will help them and relieve you of some of the worries of liability if you’re giving them advice.

Most important, you can train employees in retirement planning. Of course, like many other HR professionals, you may be worried that if you try to help employees, and they end up losing money, they’ll turn around and sue your company.

Senators Jeff Bingaman, a New Mexico Democrat, and Susan Collins, a Maine Republican, want to calm your fears. Their bill, S.1677, would allow HR people to bring in investment advisers without being liable for investment advice given by those advisers. The advisers would have to meet certain criteria, such as being registered in your state.

The Small Business Council of America and the American Association of Retired Persons both support the bill. Call your two senators at (202) 224-3121 and tell them that you, too, want the Bingaman/Collins Independent Investment Advice Act of 2001 to become law.

Worried that your phone call won’t make a difference? You may be right, unless you tell your senators how much revenue your business brings in, how many people your business employs, and how much you want to help those employees retire. They’ll listen to that.

Workforce, February 2002, p. 80 — Subscribe Now!

Would declaring another national holiday help the American economy? What if it’s a month long holiday?

It might help if it’s a “payroll-tax holiday.” Under this plan, employers and employees would each not have to pay Social Security payroll taxes for a given period of time. We could party for a while — perhaps a month — to help end the recession.

Social Security would be unaffected. The government would just take the amount of money that the payroll taxes would have contributed to the Social Security system and send a check to the Social Security Trust Fund for that amount instead.

Why might this work as an alternative to the many other economic-stimulus ideas floating around in Washington, D.C.?

• Unlike other proposals, it actually offers an incentive for employers to hire more people. Let’s say we suspended both the employer’s share and the employee’s share — 6.2 percent each — of the Social Security tax for a month. It would be cheaper for businesses to hire new employees. If you decrease the price of something, in this case labor, people can buy more of it. The holiday would also apply to current employees, thus reducing the financial savings of a downsizing.

  
  

  In contrast, some Republicans in Washington want to try to stimulate the economy by giving tax breaks to corporations for expensing of equipment and building purchases. What a waste. Businesses like Intel already have buildings going unused and excess inventory that isn’t being purchased. A tax break for expenses would just provide more money for excess inventory and space.

• It’s a better idea than sending people an income-tax rebate in the mail. Professors Matthew D. Shapiro and Joel Slemrod of the University of Michigan studied what happened when Americans got income-tax rebates last fall of $300 or $600 as part of a tax cut that totaled $38 billion. The profs found that the rebate led only 22 percent of households to spend more. In other words, if the tax rebate was supposed to jump-start consumer spending and thus the economy, it didn’t do diddly. Another survey after the September 11 triple terrorist attacks showed that another tax rebate would do about the same thing.

  
  

  Senate Budget Committee member Pete Domenici, who supports a payroll-tax holiday, explained the Michigan findings in a statement that was right on the nose. “When workers get a separate rebate check, they are more likely to treat it as a special windfall gain and save the money or pay down debt,” says Domenici, a moderate from New Mexico. “Psychologically, workers are used to adjusting their spending habits based on the size of their paychecks.”

• It doesn’t favor the rich. The payroll tax is not progressive. By suspending it, we help lower-income employees as much as we help higher-income employees. A payroll tax cut of 6.2 percent to someone earning $40,000 a year is significant — about $200 for the month. If that employee worked for herself, thus paying both the employer’s portion and the employee’s portion of the payroll tax, you’re talking about a savings of about $400 for the month.

What’s the drawback of a payroll-tax holiday? Well, like anything that sounds good, it ain’t free. Domenici estimates that if it were done for the month of January, for instance, it would cost about $43 billion. This would take money away from other initiatives in Congress that are supposed to get us out of the recession. However, many of these plans involve spending on pet projects in the districts of powerful legislators. These aren’t necessarily the best thing to stimulate the country’s economy. It could also take money away from other tax-cut proposals that are floating around, including cuts in the capital-gains tax or corporate income tax reductions.

If you cut income taxes, it may not kick in until April. That doesn’t do a whole lot of good when you’re out of work right now. The Business Roundtable, an association of 150 CEOs employing 12 million people and generating $3.5 trillion in revenue, agrees. “The goal is to have an immediate impact,” says spokesman John Schachter. “A cut in the payroll tax would do that. It’s a cut for both the employer and the employee, and we certainly support that concept.”

So would many people who want to get back in the workforce. A payroll tax cut would help them, and make for a heckuva holiday to begin the year.

Workforce, January 2002, p. 88 — Subscribe Now!

We all talk about passing the workforce torch to an older generation — thegrowing numbers of senior citizens in the workplace. If our society is going toreally accept that fact, let’s start by allowing senior citizens to be in chargeof our lives when we are the most vulnerable. Let’s let them fly airplanes.

    You see, people over 60 aren’t allowed to pilot commercial planes. It’s arule that hasn’t been updated since 1959.

    “It’s long overdue, of course,” Dallas pilot Bert Yetman tells me.Yetman, 68, is suing the FAA for not letting him and 68 other pilots fly. Eachof the pilots has received a “superphysical” from a panel of doctors,and a clean bill of mental and physical health.

    I think Yetman’s right, and here’s why.

    A different era. Spokesperson Alison Duquette tells me the FAA has no plansto change the Age 60 Rule. “However, the agency is always open to any newscientific research.”

    Here’s some, Alison: In 1960, the average life expectancy at birth was only69.7 years. By 1998, life expectancy had risen to 76.7 and 60-year-olds wereexpected to live another 21 years.

    Medical advancements are enabling younger pilots with serious medicalproblems — from multiple bypasses to alcoholism — to fly planes. Are thesepeople any healthier than the 61-year-old who almost beat me in a half-marathonlast month? Heck, John Glenn has been studied more than almost any other humanbeing on earth, and NASA sent him into outer space at 76.

    Experience counts. I recently flew from Orange County, Calif. to Cincinnati,and the plane ran into turbulence (that’s a scary storm to you and me). Let’sthink about who I wanted in the cockpit. Some doofus I went to college with adecade ago who’s been flying commercial jets for two years? Or a captain mymother’s age, who’s been through 250 storms worse than this one? Judgmentcounts, baby, especially when my life is in your wings.

    Plenty of tests. To fly a commercial plane, you have to get a physical eachyear. And then another. You have to conduct a simulator ride. And then another.On top of that, the government occasionally does spot checks, showing up at thecheck-in line to join you on the flight. If we need more proficiency tests,let’s add them. But chronological age shouldn’t be one of the criteria.

    A labor shortage. You may be thinking, “Is the lack of employees (inthis case, pilots) really a good enough reason to compromise safety?” Thinkagain. The lack of employees has been exacerbated by the Age 60 Rule. Thisforces airlines to lower their standards by more quickly promoting inexperiencedpilots to the captain position.

    Experts from every continent have expressed at least some support — eitherwritten or oral — for raising the age limit. Even the Civil Aviation MedicineAssociation, which the FAA has licensed to give physicals to pilots, hasexpressed support for a change. So has the EEOC, AARP, and the NationalInstitutes of Health.

    So who in tarnation is left on the side of the Age 60 Rule? You guessed it –the union.

    The Air Line Pilots Association, which once favored higher age limits, nowdoesn’t want to tinker with the Age 60 Rule. The group believes that legislationwould cramp the opportunities for rapid promotion to captain for its youngermembers (the median age is 42). In Washington, D.C., the pilots’ union shellsout a lot of dough. It spent $400,000 lobbying in 1999, and in the 1999-2000election cycle forked over at least $870,000 in political donations. It wields alot of power.

    The balance of power is going to have to change. After all, we’re soon goingto have to meld the workforces of two very different generations.

    We’ll never get there at this rate if we are more comfortable putting ourlives in the hands of inexperienced employees who happen to be 30. I’ll take ahealthy and wise pilot twice that age any day.

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Other columns by Todd Raphael:

OnGore and Bush TheYear HR Became Cool Thoughtsfor the New Leaders of the New Dot-coms LetRocker Talk To:All E-mailers From: Todd Holidays:Some Minor Revisions WeWish You a Merry Winter Whata $252 Million Contract Means to You Walkin Her Boots, Mr. President

The cost of health-care benefits is soaring — an astonishing 11 percent last year alone, the Kaiser Family Foundation reports. Not surprisingly, employers are urgently looking at alternatives such as shifting some health costs to employees and cutting benefits. But there is another option: a carve-out.

   When a company “carves out” a portion of its health-care benefit plan, the employer is purchasing that portion of benefits from a specialty vendor. Rather than having, say, United Health Care handle every aspect of benefits, an organization might use United for everything except mental health. Dental plans could be considered carve-outs, though such a practice is so common that deciding whether to have a separate dental plan is often a no-brainer.

   Why consider a carve-out? In some cases, you may find that a certain part of health costs is growing at an unmanageable rate.

   There’s no guarantee that a carve-out will save a company money, and the method hasn’t been the panacea that was anticipated a decade ago. But specialists can sometimes use their connections and bargaining power to net good rates. John Erb, a senior manager at Deloitte & Touche, uses as an example the two major anti-depression drugs, Zoloft and Prozac. A company that manages drug benefits may have negotiated an arrangement to prescribe one or the other of these medicines at a significant discount.

   A carve-out can also potentially improve health-care access for employees. Purchasing all health care through one HMO can mean poorer access to certain specialty care. An employer, for example, may find that only a small number of optometrists in a given area are covered under its HMO. When employees have to drive a long way to see an optometrist each year, not only is it a hassle, but they may also have to go during business hours. By using a vision-care vendor, a company can potentially reduce the time that employees are out of work traveling to an optometrist, and provide more vision-care options.

Big, self-funded companies
   Carve-outs are most often used and most often effective in large companies. The smaller a company, the less willing it may be to handle the paperwork involved in dealing with many health-care vendors.

   A Deloitte & Touche study found that only 31 percent of employers with fewer than 1,000 employees carve out part of their medical plans. This compares with 78 percent of employers with 10,000 or more employees.

   With larger companies, many of which self-fund their health-care programs (claims are paid from company money rather than from the pockets of an HMO), carve-outs can offer substantial savings. If a company is large enough to spend $4 million on annual health coverage, for example, and could save 10 percent through a carve-out, that’s $400,000, a significant amount for any company.

   On the other hand, a company with just 500 employees may find that it can’t generate enough savings through a carve-out to justify the extra administrative work involved.

   Even if a company’s program isn’t self-funded, carve-outs can produce savings. Employers might be temporarily shielded from rising prescription-drug and other costs because they’re being absorbed by the HMO. Still, when the year is up and the HMO announces cost increases, those added costs are sure to be passed on to employers.

   That’s what happened to S. W. Bajus, a property management company with 150 employees on a Blue Cross/Blue Shield health plan. Four years ago, Blue Cross/Blue Shield announced a large increase in drug costs. Bajus sent out RFPs to pharmacy-benefit plans, and ended up switching to one called PharmaCare in 1998. It got worse: the following year, PharmaCare announced a 75 percent increase in drug costs. Bajus switched to another drug-plan product, called TriCast, in 1999.

   “The carve-out benefit to employees is substantial,” says Jessica Clancey, who oversees benefits for S. W. Bajus. She is also trying to limit expenses by educating employees on the advantages of an HMO over a PPO. “If you’re a single person and you go to the doctor twice a year, it’s really ludicrous to be on the best plan.”

Health Benefits Most Often Carved Out
Mental health/ substance abuse	18%
Oncology/ cancer	2%
Pharmacy	31%
Vision	25%
Source: Deloitte & Touche, Employer Survey on Managed Care, 2000

Drugs and other targets
   Conventional wisdom has it that it costs more to put people in the hospital than to give them drugs. Chuck Newton, of the reinsurance company Evergreen Re, says that’s not so true anymore. “Pharmacy costs are now either equal to or will be surpassing the average costs of inpatient services,” he says.

   With prescription drugs a quickly growing portion of overall health expenses — about 15 percent of employer health costs — they’re a carve-out favorite. Deloitte found that 19 percent of employers of fewer than 1,000 employees carve out drug benefits. Sixty percent of employers with 10,000 or more employees do so.

   Also ripe for a carve-out are areas of specialty care where future costs are unknown and hard to predict on the basis of a company’s historical patterns of health-care usage. Organ transplants are a good example. Five years ago, transplants were performed on about 7 per 100,000 people. The number has more than doubled to 15 per 100,000.

   The supply-side constraints of organ transplants are quickly disappearing. While the demand for transplants is high, there’s not enough supply. But as transplants become more readily available, employees will get them far more often. This will result in an unpredictable increase in health costs to employers. “An employer’s bottom line is going to be affected tremendously as transplants increase over the coming years,” Newton says.

   A liver transplant can cost a quarter of a million dollars, so even if a company had an increase of just one liver transplant among its workforce over a previous year, it’s big bucks.

   Hospital costs are another potentially good area for carve-outs. Scott Clendaniel, a benefits broker in New Jersey and Pennsylvania, says employers can save thousands by carving out these rising costs. Clendaniel recommends that employers carve out hospital coverage and install a $250 or $500 co-pay for hospital visits. Then, you can self-fund this portion. In other words, when employees spend time in the hospital, they just bring the bill to the company, and the employer sends the hospital the co-pay.

   “The employee maintains a high level of benefit, and the change can result in a 5 to 10 percent savings off the medical premium, resulting in thousands saved in costs,” Clendaniel says.

Problems with carve-outs

• Stop-loss: One of the biggest issues when deciding whether to carve out a portion of your health care is stop-loss coverage. This insurance coverage protects a company if its losses go over a certain barrier during a year.

  
  

  If a company were to purchase prescription drugs through a carve-out, it would likely not have stop-loss protection. Robert Christadore, president of Benefits Planning & Insurance, says a company should do a risk analysis to determine how much it would save by carving out its drug plan, and what the odds are that its costs would be high enough to trigger stop-loss coverage under a general health plan.

• Putting health in boxes: When an employer carves out a portion of its health-care benefits, the manager of the carved-out portion is concerned solely with controlling the costs of those benefits, regardless of how it affects the rest of the company’s health-care costs. This, says The Segal Company’s Stephen Parahus, can give a distorted picture of overall health-program costs, and may not contribute to an overall program that is optimally cost-effective.

  
  

  Carving out drug benefits, for example, may result in reduced drug costs but may give disincentives for some drug therapies that would reduce other types of medical expenses, such as hospitalization or surgery. Dealt with in isolation, then, a carved-out drug plan may or may not help effect overall health-plan cost efficiency.

  
  

  A good rule of thumb is that the easier it is to carve something out, the better the likelihood of success. Parahus says that benefits — such as vision — that have relatively little interrelationship with other health benefits can be carved out easily and are simpler to design and monitor than other types of benefits. Mental health or prescription drugs, by comparison, are more integrated into health-care delivery.

• Administration: As Clancey found out when S. W. Bajus carved out its drug coverage, it meant a lot more paperwork. It’s more work for both the employer and the employee.

  
  

  Craig Smith, who has spent 14 years in the insurance business as both an agent and a sales manager, says carve-outs can be a mess for a small employer. “If you’ve got a drug plan here and a vision plan there and a dental plan here, tracking all your claims could become a nightmare.”

Workforce, December 2001, pp. 40-42 — Subscribe Now!

You know that classic philosophical question: If a tree falls in the forest, and no one hears it, did it really make a noise? Let’s change it: If no one notices something you do, and it doesn’t change the world, is it worth the effort?

No, and yes. No, most of us don’t feel like it’s worth it. And yes, it’s not only worth it, it’s the only way to get things done.

Stanford business professor Debra Meyerson spent much of the last decade studying what she calls “Tempered Radicals.” In her new book by the same name (Harvard Business School Press, 2001), she found that many changes in management — work/life benefits in particular — were instituted by a new kind of workplace activist.

These are non-revolutionary people who work incrementally to create change. They do small things, in small steps — often deeds that go unnoticed and are against the norm. But their acts make big differences in the workplace.

One large consumer-products company had few women in senior management. HR facilitated brown-bag discussions among employees to discuss the problem. Senior managers, including the CEO, learned about cultural impediments to women’s success in the organization, and worked to remove the obstacles.

Brown bags aren’t revolutionary, nor is the idea of sharing information about a company’s culture. But in this company, the informal conversations were small but significant steps toward change.

In another case, Western Financial was having trouble recruiting non-white employees. Senior vice president Sheila Johnson created a much bigger pool of candidates by launching a job-posting campaign in minority communities. It was the company’s first outreach program of its kind.

How can you become a “tempered radical”?

Here are some of my ideas:

• Use this down economy to invest in technology that your company, however techno-resistant, could use to cut costs in the long run. This could run the gamut of applicant-tracking systems, benefits-administration software, or e-learning.

  
  

• Point out to your CEO the negative potential of a proposed merger or acquisition before it’s final. Or, recommend an acquisition candidate that has a similar corporate culture and values. Too often, a company’s top brass finds out after a buyout is completed that — from a workforce standpoint — the match was a failed blind date between two incompatible organizations.

  
  

• Take a hard look at the extent of your layoffs, and ask tough questions about whether they’ve gone too far. If they have, put an end to it, and start hiring the talent laid off by your competitors.

  
  

• On the other hand, take a look at your business needs. Do you still have a workforce that was sized up for the rapid growth of the 1990s? Could these fixed costs soon take a toll on your profits, stock price, and eventually, jobs? If so, you may have to slow down your hiring.

  
  

• Tell the employees who are working their tails off that you appreciate it. Tell the ones who aren’t that you don’t. It’s not a novel idea, but it’s a tough one to pull off.

  
  

• Before Congress goes home for a winter break, ask your representatives to work on changing one of the many onerous laws and regulations (OSHA record-keeping requirements come to mind) enacted during the litigation binge of the last few decades.

  
  

Finding yourself short on ideas? You don’t have to come up with them yourself. One of the best things that quietly radical HR professionals and managers can do is to develop mutually trusting relationships with employees. When employees trust their managers, and can speak their minds without fear of retribution, ideas percolate.

If you’re waiting for a better time to do this, don’t.

“By facilitating a meaningful two-way dialogue with people, managers can tap a deep well of innovation,” says Michael McLaughlin, of Deloitte Consulting in Chicago. “It’s more important now than ever.”

Why now? Because customer needs are changing faster than ever. Charles Schwab learned this from its employees, who recommended that the company start online trading. Schwab listened to these employees and beat others to the punch, giving the company an early and significant online-investing leadership position in the mid-1990s.

Your employees — or you — may see opportunities to make small changes. Go ahead. Making them will be worth the effort.

Workforce, November 2001, p. 80 — Subscribe Now!

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Other columns by Todd:

• HR and an Rx for the Bottom Line
• Ecology, the Next Apartheid
• Does HR Want to Be a Digital Snoop?
• Truths About Conventional Wisdom
• Ecology, the Next Apartheid

If you wonder whether the HR profession can be chaotic and complicated, welcometo the U.S. Centers for Disease Control and Prevention.

The CDC is a federal agency, which, among other things, practically eradicatedsmallpox from the world in the 1970s. It’s now working — every hour, every day– with a myriad of federal agencies to investigate incidents of possible anthraxexposures around the United States. It’s also responding to calls from aroundthe country from people concerned about bioterrorism.

“People are using the word ‘fried’ to describe how they feel,” saysSylvia Bell, the CDC’s chief of organizational development. “We are preparedto respond to emergencies, but this one is beyond anticipation.”

Through it all, there have been few worries about employees quitting becauseof burnout. “This is a phenomenal place,” says Bell. “The peoplewho work here, you couldn’t make them go home if there’s work that needs tobe done. They could make a lot more money somewhere else, but they’re here becausethey want to help the world. They have a passion for the health of the world.I find it a daily honor to support people here.”

Most of the CDC’s approximately 8,500 employees in 170 occupations are in Atlanta,Georgia–normally.

The CDC deployed people to Washington, D.C., and New York, sites of two ofout of the three scenes of terrorist attacks, as well as to Florida. Followingthe World Trade Center murder, the CDC had 24 hours to get trucks to New York.It took them only 12. The trucks were loaded with supplies to help people dealingwith hazardous materials. For HR, that means figuring out what to pay theseemployees, as federal employees receive extra pay for handling hazardous materials.

HR and the anthrax command center
When biological terrorism attacks turned up, so didthe second wave of the CDC’s HR effort. The organization has set up an “emergencyoperations center” in Atlanta — a sort of anthrax war room. Bell saysthat when they asked for volunteers to help staff the center, “We wereoverwhelmed. This is an agency of people who want to help people.”

It’s a 24-hour operation, which means HR has to deal not only with overtimeissues, but with “night differential” in the federal government,for compensating employees working at all hours of the night. Also, HR has to make sure unionsare notified when employees are re-deployed from one job location to another.

On top of that, the human resources team is handling the inevitable psychologicaleffects this is having on even the most resilient employees. Bell says parentsdon’t always want to talk about what’s going on when they’re at home in frontof the kids, so the workplace is the only venue. “People are very tried,very stressed. They’re running on adrenaline. I mean, we’re saving lives here.”

To this end, HR is coordinating numerous sessions on stress relief. The EAPhas conducted discussion groups in various buildings in Atlanta for employeesto share their feelings. Stress management “lunch and learns” alsoare available. “We’ve tried to respond to what we perceive to be the need,but not to overdo it or underdo it,” Bell says. “We’ve gotten a lotof feedback that (the EAP and other efforts) have been extremely valuable.”

Bell says HR’s biggest role, whether at the CDC or in another emergency, isto be a stable place for information for those people that have other thingson their minds.

“HR’s role is helping people dealing with the crisis directly, managersand employers who are focused on the task. HR needs to think for them aboutwhat the HR implications are of everything they do, and answer the questionsbefore they’re even asked. We can think about it by considering possible HRsolutions. What are the flexibilities we can offer managers they might not havethought of? I’m talking about work assignments, schedules, helping people dealwith stress–that sort of thing. We’ve had a massive shift in how people aredeployed, both in terms of hours, responsibilities, and roles. It was chaosat first and is now very orderly.”

Now on to recruiting
The CDC also is turning its attention to a potentialrecruiting and hiring binge. This may mean seeking “emergency hiring authority”to quicken the process a federal agency would normally go through when hiring.

HR will have to figure out how to get new hires through background checks quickly.The normal process, through the FBI, may be too slow. Bell’s been through thisbefore, when she prepared for a possible terrorist attack at the 1996 Olympics inAtlanta.

At the same time, the CDC is dealing with a deluge of calls from the public,from doctors, and from the media. This has meant some workforce planning forHR. Media specialists, for example, have had their schedules reworked into a seven days a week (four-days-on,three-days-off) schedule.

Bell says the CDC has been shaped by previous public-health incidents, from Lymedisease to foodborne illness. The CDC, she says, has an excellent emergency-preparednessplan, and it paid off. “You cannot have enough emergency responses andprocedures,” she says. “It was a huge crisis but our response to thathas really shown our agency at it’s best.”

There is more information on dealing with crises available, and you can watchthe Workforce Week newsletter and Workforce magazine for a large amount of upcoming, additionalinformation on HR’s role in helping businesses recover.