Tough times make it essential that organizations get the most out of talent at all levels. But those that focus exclusively on employee engagement are likely to be disappointed by the extent to which improvements in this area translate into enhanced performance. To maximize individual and team contributions, engagement alone is not enough. The commitment and discretionary effort offered by engaged employees can easily be squandered if leaders do not also enable them to succeed by putting them in roles that fully leverage their potential and providing them with the workplace supports they need to carry out their responsibilities.
A path to performance
The drivers of employee engagement and employee enablement can be organized around four major themes, representing a âpath to performanceâ for generating business results through enhanced levels of employee effectiveness.
Organizations first need to clarify strategic objectives to promote understanding and line of sight at all levels. They need to instill confidence in leaders and ensure appropriate market positioning and focus on customers and quality. Next, organizations need to align structures with strategy and ensure that resources, decision-making authority and support from co-workers are adequate to put employees in a position to succeed.
With the structure in place, organizations then need to attend to getting the right people âon the bus,â providing training to enhance employee skills today and development opportunities to build capability for the future. Finally, organizations need to motivate high levels of employee performance through appropriate performance management systems, along with compensation and recognition approaches that reward employee contributions.
Below we highlight key considerations in each of these areas in challenging economic environments.
Key considerations in a downturn Leadership and direction:
Leaders need to help employees understand that the company has a coherent strategy that will allow it to succeed in the current business environment. They must communicate that both the company as a whole and its individual divisions are making progress relative to strategic objectives, and that all employees have a role to play in helping the organization carry out its plans. To win trust and confidence in a downturn, leaders are well advised to:
⢠Communicate, communicate, communicate: In the midst of change, communication channels in organizations often dry up. Yet in times of uncertainty, employees are most in need of communication. If leaders are not meeting this need with credible messages, gossip and rumor often fill the vacuum.
⢠Be transparent: As employees are asked to make sacrifices for the organization, it is important that they have a sense that decisions are being made rationally and equitably and that the changes will result in increased organizational effectiveness and the eventual betterment of the work environment.
⢠Enlist supervisors: If middle managers and first-line supervisors are supportive of senior executives, they can foster high levels of confidence in the organizationâs leadership and direction. If, on the other hand, middle managers and supervisors signal to employees through their words or actions that they lack faith in organizational leaders, employeesâ trust can be expected to decline rapidly.
Work structure:
Faced with challenging economic environments and competitive pressures, many organizations have reduced headcounts without reducing the amount of work to be done, resulting in higher workloads for remaining staff. To promote efficient execution of key tasks, leaders need to ensure that employee efforts are backed by efficient processes, adequate resources and support from co-workers:
⢠Solicit broad input: While effective job and organization design is part of the solution, so too is harnessing the creative ideas of employees at all levels. To draw out improvement suggestions broadly, organizations need to ensure that leaders and the organizationâs overall culture encourage employees to come forward with innovative suggestions for improving the way work is done and reinforce the value of employee creativity by appropriately translating ideas into action.
⢠Clarify must-win battles: In high-workload environments, leaders must clearly state which personal goals and priorities are critical. Doing so allows employees to focus their efforts on essential, value-added tasks.
⢠Make sure managers wear âenterprise hatsâ: In transition environments, some managers and employees may be inclined to hunker down and focus on the achievement of individual or departmental priorities. It is imperative that organizational cultures, performance management systems and hiring and promotion processes reinforce the need to balance local concerns with broader organizational concerns.
Capability:
Faced with a difficult economy, some organizations may be tempted to shift their focus away from training and career development activities. But doing so is a big mistake. Recognizing that personal development and growth are among the most important drivers of engagement and enablement, organizations should instead:
⢠Be surgical in training and development cost reduction: In tough times, organizations are often forced to make cuts in training budgets. In doing so, however, organizations should identify and protect high-value training offerings and training that is focused on high-potential employees.
⢠Emphasize the role of line managers: Through coaching and regular performance feedback, supervisors can help employees identify developmental needs and enhance their skills. Supervisors also serve as mentors and sponsors for employees by helping them understand organizational expectations, develop supportive networks and work the informal systems that are a part of every organization.
⢠Promote equity and fairness: Where promotion opportunities are constrained, it is important that leaders effectively communicate the resources that are available to help employees manage their careers and clarify how promotion decisions are made. These messages build employee trust that development processes are fair and equitable.
Rewards:
In high-workload environments, employees are very sensitive to compensation issues. Acutely aware of all they are contributing, they can be expected to pressure their organizations to balance rewards and contributions. Managing rewards in a downturn requires that organizations:
⢠Focus on rewards, not just ratings: Many organizations spend an agonizing amount of effort to ensure that managers comply with prescribed distribution curves for performance ratings. But what is the value if the highest performer still receives only marginally more in merit or incentive pay than the average performer? Instead, organizations need to ensure that performance ratings translate into differentiated rewards.
⢠Clarify reward philosophies: In partnership with WorldatWork, Hay Group recently undertook a study of compensation practices and policies by surveying top compensation managers in member companies. Notably, more than two-thirds of more than 1,200 respondents rated their pay-related communications to be ânot effectiveâ or only âmarginally effective.â Not surprisingly, these respondents also expressed much less favorable views of the motivational impact of their compensation systems. While 91 percent of respondents indicated that their companies have a pay philosophy, nearly two-thirds indicated that âabout halfâ or âless than halfâ of employees understand it.
⢠Leverage tangible and intangible rewards: Especially when compensation budgets are tight, organizations need to think more broadly about the value propositions they are offering to employeesâthat is, the totality of financial and nonfinancial returns employees can expect based on their contributions.
Conclusion
Organizations that manage dynamics in all four âpath to performanceâ areas successfully during the downturn are likely to foster the engagement and enablement necessary to cope with economic challenges and set the stage for enhanced performance when the economy recovers. When it comes to employee issues, a downturn is not the time to take your eye off the ball. For organizations as for individuals, character is revealed in tough times. The organizations that continue to put people first in tough times will win loyalty for the future.
The new agreements call on workers to give up lump-sum bonuses over the next two years and their cost-of-living allowances, said two UAW sources familiar with the talks. The contracts also limit overtime pay and supplemental unemployment, the sources said.
At Chrysler, workers also will forfeit a $600 Christmas bonus, the sources said. Automotive News first reported the concessions on bonuses, overtime and supplemental unemployment Tuesday.
Detroit Three and UAW officials are keeping mum on the agreements until workers have an opportunity to vote on the provisions. Details about the concessions were not released when GM and Chrysler revealed the viability plans to the U.S. Treasury Department.
UAW vice president Bob King and GM manufacturing and labor chief Gary Cowger declined to comment when asked about the changes at an event Wednesday in suburban Detroit.
Still left to be negotiated is future funding of retiree health care trusts. Loan provisions require the union to take carmaker equity in lieu of cash for half the remaining money owed the multibillion-dollar voluntary employeesâ beneficiary associations.
In the case of GM, the UAW is being asked to take GM equity for half of the $20 billion that the carmaker owes the VEBAs.
Nevertheless, the UAW engaged Detroit Three negotiators in marathon bargaining over the past week to meet the filing deadline for the viability plan. As a requirement of $17.4 billion in federal rescue loans, GM and Chrysler must bring their work rules and labor costs in line with their Japanese counterparts in the U.S.
Although Ford isnât getting loans, it may ask for a $9 billion line of credit and wanted to be a part of a contract pattern to stay competitive with Chrysler and GM. Ford said the UAW agreement would help it avoid asking for financial assistance.
In the plans released Tuesday, GM and Chrysler said they would need up to $21.6 billion to weather the current dismal sales climate.
The Detroit Three got the UAW to move on several fronts, one of the sources said. Instead of paying overtime for work beyond eight hours, they will pay overtime only for work beyond 40 hours during a week, the source said.
The union gave up two of the four lump-sum bonuses due workers during the four-year contract, the sources said.
Supplemental unemployment benefits, or SUB, also have been limited.
Idled workers with more than 20 years of service can collect SUB pay for 52 weeks at the traditional 72 percent of gross pay and another 52 weeks at half pay, the source said. Workers with less than 20 years get 72 percent SUB pay for 39 weeks and half pay for an additional 39 weeks, the source said.
Those SUB provisions are all that UAW members can get now that the Jobs Bank has been eliminated. The Jobs Bank was a program that guaranteed idled workers 95 percent of pay and full benefits indefinitely if no other job could be found for them.
Chrysler and GM were required by the 2007 contract to pay up to $4 billion for the Jobs Bank and SUB pay during the four-year agreement.
Details of total cost savings have not been made public.
In 2000, there was a very public horse race going on at GE. Who would succeed Jack Welch? Here, GEâs Bill Conaty discusses how he and Welch handled the business worldâs equivalent of the Kentucky Derby, with the media betting on one of three CEO candidates: Robert Nardelli, who at the time was CEO of GE Power Systems, and who recently stepped down as CEO of Home Depot; James McNerney, then-CEO of GE Aircraft Engines, who went on to be CEO of 3M and now is president and CEO of Boeing; and Jeff Immelt, then-CEO of GE Medical Systems, who ultimately won the top job.
   WM: How did you keep morale up when everyone in the media was making bets on who would win?
Conaty: We just banned running for office. In fact, running for office still is the kiss of death at GE, because when you have people running for office you have competition going on within the house. We are competitive as hell, but we want to direct that at our real competitors. So when the media got involved, we just let them do their thing. But internally, we just kept drilling down and watching the top three individuals at the time.
   WM: But how did you make sure that the three candidates didnât start competing with each other in a negative way that affected morale?
Conaty: Jack told them within the final six months that, No. 1, we were putting their replacements on the job. There would be one winner, and the two that didnât get the job would have to leave. Putting their replacements on six months in advance was more of a shocker for them than it was for us. We also got the opportunity to see how they managed their successors.
   WM: These individuals represented some of your strongest talent. Isnât there something to be said for trying to keep the two candidates who didnât get the CEO position?    Conaty: There is, but in this case we feltâand Jack felt stronger than I did on thisâthat the level of interest in the candidates as future CEOs of other major companies would just be intolerable for us. While I personally was trying to make the case that we could retain two of the three, Jack listened to me, gave me my day in court, but decided that the pressures to leave would be too intense. And he was absolutely right. There were companies that were holding their CEO positions open at the timeâ3M was one of them, so was Home Depot. And there were a couple of others. I think Jack felt that when he took over as CEO, there was an internal horse race. There were five or six candidates in the running and he just found that environment and internal competition to be distasteful and dysfunctional for the company. He also felt that you have to give one person the job and not have somebody looking over their shoulder hoping they slip on a banana peel.
Workforce Management, July 23, 2007, p. 28 — Subscribe Now!
American Express sees HR as such an important part of driving business performance that the company has assigned an executive specifically to the task of developing future HR leaders.
” âHR for HRâ is one of our five âbig betsâ for the HR function this year,” explains Patricia McCulloch, vice president for HR capacity and development. “Itâs really elevated the importance of the subject. Iâve got a standing spot in every one of our town hall meetings for the HR group and in our HR leadership team meetings to talk about it.”
The companyâs plan for developing HR leadership centers on a competency model with five components: applying knowledge of the American Express business; driving creativity and change; demonstrating value as HR professionals to internal partners and employees; leveraging HR expertise; and transforming ideas into tangible, measurable outcomes. American Express lists behaviors at different career stages that meet parts of the competency model, and uses these to plot an HR leadership candidateâs current proficiency level.
American Express recruits leadership candidates with business or HR degrees from a small number of core graduate schools and puts them through a program of three eight-month rotationsâa position as an HR generalist partnered with a business unit, a stint in an HR functional area and a job outside of the HR field. “This way, theyâve started their career with a mind-set that it is OK to move around and experience various parts of HR,” McCulloch says.
At the end of the two-year program, theyâre placed in an HR job somewhere in the company.
American Express also provides future leaders with Project Endeavor, a training program designed to build their financial and business acumen, with American Express itself as the case study. The company is developing additional programs to augment Project Endeavor and sustain the learning experience.
“Thereâs the piece around what people do in the two and a half days in the class,” McCulloch says. “But another part is what they do six months later to keep that knowledge alive.”
Workforce Management, June 25, 2007, p. 36 — Subscribe Now!
It took more than seven hours before a congressional hearing on spying by Hewlett-Packard got around to a discussion about the impact of the scandal on employees.
A day that featured 10 former HP executives and security consultants exercising their constitutional right to decline to testify and the relentless grilling of former HP chairwoman Patricia Dunn concluded with a query from Rep. Michael Burgess, R-Texas, about the companyâs outreach to its workers.
“Weâve made an effort to communicate with them as often as possible,” HP chief executive Mark Hurd replied to Burgess, whose district includes an HP facility. “Weâve communicated with them about our governance changes and the issues around the investigation.”
Hurd was the last witness in a hearing of a House Energy and Commerce subcommittee on September 28 that lasted from 10 a.m. until nearly 6 p.m. The panel delved into the unfolding drama surrounding HPâs efforts to ferret out boardroom press leaks about company strategy.
The investigation involved HPâs obtaining phone records and other personal information about board members, journalists and its own staff through clandestine methods, including the use of false identities, or “pretexting.”
Even as HP tries to recover, lingering concerns about corporate spying may become an issue for employers.
“Every company in America is examining itself to see if it has the same kind of problem,” says Nell Minow, editor of the Corporate Library, an independent research firm in Arlington, Virginia, that specializes in corporate governance.
Congress may also take up the issue. “This gives us a good opportunity to open the window on some of the practices going on in companies around the country,” said Rep. Diana DeGette, D-Colorado.
HP, which has built a reputation as an exemplar of ethical corporate behavior, may now find itself lumped with other rogue companies, according to Rep. Tammy Baldwin, D-Wisconsin.
Enron and WorldCom shook Americanâs confidence in the finance and accounting arena. “HP is shattering their expectation of telecom privacy,” Baldwin said during the hearing.
The companyâs employees may have similar concerns, which could even outweigh the fretting about damage to HPâs brand. “Itâs not the reputation issue; itâs the paranoia issue,” Minow says.
House members on both sides of the aisle spent the first hour and 15 minutes of the hearing castigating the company with variations on the same theme: What were you thinking?
Hurd apologized for HPâs behavior and said that he is ultimately “responsible for everything that goes on at Hewlett-Packard.”
Although he admitted to approving the content of a bogus e-mail to a journalist, which was intended to monitor her sources, Hurd said that he ignored the scope and tactics of the investigation.
In part, he blamed the demands of running a huge company. “A CEO cannot be the backstop for every process in the company,” he said. “I pick my spots when I dive for details. Thereâs no excuse for that.”
But at the end–perhaps because the questioners were exhausted after working over Dunn and others–Hurd was both unbloodied and unbowed.
“We are committed to our core to redefine our company in a way that not only we can be proud of, but in a way that all corporations in America can be proud of,” he said.
Q:Â What should we do when a salesperson is terminated involuntarily or the company is sold/acquired? Is there a standard practice regarding how commission is paid? We have salespeople who earn two kinds of commission: one on the sale of products and services, and another for subscription services billed monthly. What should we do when a salesperson is terminated involuntarily or the company is sold/acquired? Is there a standard practice regarding how commission is paid?
— New Start in Sales, controller, software/systems, Costa Mesa, California
Dear New Start:
This is an area where the maxim “you get what you pay for” truly applies. Your sales-incentive program should directly and effectively support business goals and sales strategy. Design the plan so it is easy to understand. Communicating with the sales force about the intent and operation of the plan also proves a great help. Your plan should detail the administrative rules on how payments get distributed. However, if you do not have a plan document, here are some questions to research before deciding how to proceed.
What has the company’s practice been? This doesn’t necessarily govern your decision, but you may find upon examination that sales administration or payroll does things that the human resources folks are unaware of.
How do competitors handle this? Ask your counterparts in companies against which you compete for sales and labor.
If an employee leaves, when does another salesperson take over the customer accounts? This is probably the most important question, as you will not want to pay a double commission, nor will salespeople be willing to work on accounts for which they receive no pay.
What can your company afford?
In our experience, most companies do not pay commissions to employees who are involuntarily terminated unless there are extenuating circumstances (reduction in force, significant number of layoffs, job eliminations, etc.). Certainly, when employees are let go because of poor performance or incompetence, incentives stop immediately. Remaining monthly commissions are transferred to the employee who assumes responsibility for managing those accounts for the duration of the contract. The terminated employee may be paid commissions earned for the month of termination and not beyond. Plans that we design specify that an employee must be active and on payroll at the end of each performance period (in some cases a pro-rated amount is provided for partial periods). If the employee leaves voluntarily, he or she typically forfeits the right to additional monthly commission. Acquisitions or changes in control of the company do not have an immediate impact on sales compensation or commission payments. However, the change enables new management to examine whether existing compensation systems meet corporate goals. It also offers a chance to change previous incentive programs if they don’t live up to expectations. One final note: consult an attorney about state wage and hour laws that apply to you. Legal expertise also can help ensure that you are complying with federal and state FLSA regulations, particularly those that apply to inside sales reps. SOURCE: Bob Fulton, managing director,The Chatfield Group, Glenview, Illinois, Sept. 15, 2004. LEARN MORE: Termination Checklist 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.
Thereâs something comforting and classy about Starbucks. Itâs not just the enticing aromas and blues tunes wafting through the air, the handsome surroundings or the likelihood of running into a friend or neighbor. Itâs more the way the baristas (never called “counter help”) greet people, perhaps offering a blueberry scone sample, or remembering a customerâs preference for nonfat soy latte with extra foam.
Starbucks attracts a near-cult following, serving 25 million drinks a week at nearly 7,000 locations worldwide. In a four-week period ending in August, the company–which is growing by three to four stores a day–reported net revenues of $335 million, an increase of 26 percent over the same period last year. The Seattle-based coffee empire was among the top 10 on Fortuneâs most recent “Americaâs Most Admired Companies” list. The magazine also rated it the most admired food-services company in 2001 and 2002. Business Week named founder Howard Schultz one of the countryâs top 25 managers in 2001.
Since Starbucks began with a single store in 1971, its overriding philosophy has been this: “Leave no one behind.” With that in mind, new employees get 24 hours of in-store training, steeping themselves in information about coffee and how to meet, greet and serve customers. Full health-care benefits (medical, dental, vision and alternative services) are offered to all employees, including part-timers who work at least 240 hours per calendar quarter. The EAP is available to all employees. Employees share in the companyâs growth via “Bean Stock” (stock options) of up to 14 percent of their gross pay, and a stock-investment plan allows them to buy shares of Starbucks common stock at a discount (85 percent of fair market value) through payroll deductions. The company also matches employeesâ contributions to their “Future Roast” 401(k) plans, adding from 25 to 150 percent of the first 4 percent of pay, depending on length of service.
As a result of such measures, Starbucks employees have an 82 percent job-satisfaction rate, according to a Hewitt Associates Starbucks Partner View Survey. This compares to a 50 percent satisfaction rate for all employers and 74 percent for Hewittâs “Best Place to Work” employers. Though the company wonât release specific numbers, it also claims that its turnover is lower than that of most fast-food establishments. But itâs not just the benefits that attract employees. Another company survey found that the top two reasons why people work for Starbucks are “the opportunity to work with an enthusiastic team” and “to work in a place where I feel I have value.”
Omollo Gaya, who grew up on a coffee farm in Kenya and immigrated to San Diego to attend college, was drawn inside a Starbucks store seven years ago by the heady aroma. He bought a pound of coffee, struck up a conversation with the employee behind the counter, and was impressed by the baristaâs knowledge. As he sipped his brew, “something clicked,” Gaya says. After researching Starbucks, he applied for a job and spent the next four years in a San Diego store before being promoted to his current position as one of eight coffee tasters at company headquarters. After six years, Gaya exercised his Bean Stock options, which netted about $25,000 after payment of the exercise price, to build a new four-bedroom house for his widowed mother on 15 acres in her home village.
“The health benefits, the 401(k) and the stock options really surprised me, and confirmed what this company is all about,” Gaya says. “From my first day on the job, I got a lot of satisfaction when I offered a cup of coffee to customers and saw the smile on their faces, when I answered their questions about coffee, and when I saw their enthusiasm when they returned with a friend or colleague. My love for coffee started when I was 5 years old, but I never thought it would come to mean so much to me. Buying a home for my mother is the highlight of my being with Starbucks.”
Maintaining that kind of feel-good atmosphere in a small mom-and-pop company is one thing. The question is how Starbucks manages to keep the spirit flowing with 11,000 full-time and 60,000 part-time employees in North America, and an additional 7,400 workers globally. “Staying âsmallâ while we grow is one of our biggest challenges,” says Dave Pace, executive vice president of partner resources (the companyâs term for human resources). “It sounds clichĂŠd, but we do it by taking our mission statement seriously. Almost all companies have a mission, but at Starbucks, we use it as our guiding principle and hold it up as a filter for decision-making.”
Providing a great work environment and treating employees with respect is number one on Starbucksâ six-point mission statement. The list also includes a commitment to diversity; excellence in purchasing, roasting and delivering coffee; keeping customers satisfied; contributing to communities and the environment; and, of course, achieving profitability.
Starbucks encourages its employees, who are called partners, to keep in mind its mission statement, monitor management decisions, and submit comments and questions if they encounter anything that runs counter to any of the six points. Employees submit about 200 such Mission Review queries a month, and a two-person team considers and responds to each one. As a result of one such review request, Starbucks extended its military-reserve policy to protect the jobs, salaries and health-care benefits of employees who were called into action after September 11 and again during the Iraq war.
The company also encourages community involvement by donating $10 for each hour that an employee volunteers to a nonprofit or charitable organization. Profits from sales of the companyâs logo-emblazoned “coffee gear” are channeled into clubs and services for employees, which include everything from running groups and bowling leagues to quilting and book clubs. Employees can donate an amount of their choice to a voluntary “CUP (Caring Unites Partners) fund,” which is used to provide grants to fellow employees who fall on hard times. And every year, as part of its Earthwatch program, the company selects a few employees to travel to coffee-producing parts of the world, where they learn firsthand about environmental and conservation issues from the growers. Last year two were selected; this year five are going.
“People come to Starbucks to socialize and interact, so our partners do much more than just make coffee,” Pace says. “They are the ones who create that environment in our stores and make this a place that people feel good about. So they feel empowered and know they are making a contribution. This is a company where we look out for each other and look out for the community. And when people see us responding to them, they feel like this company really âgets it.â ”
Workforce Management, October 2003, pp. 58-59 — Subscribe Now!
Despite encouraging signs of recovery in the stock market and elsewhere, one aspect of corporate health is likely to remain in “critical” condition for some time. The Pension Benefit Guaranty Corporation (PBGC), a quasi-public institution that insures private pensions, continues to face falling income, rising liabilities and expected losses that could exceed its assets.
In addition, the pension programs of the companies insured by the PBGC have alarming levels of underfunding. The General Accounting Office classifies the PBGC as a “high risk” program requiring urgent transformation and reform. Tough luck for pensioners getting ready to retire? Not yet, but someone else–the American taxpayers who guarantee their pensions–should be worried right now.
More failures
During the past two years, falling asset prices and failing manufacturers have eroded the financial foundation of the PBGC, and the crushing weight of the troubled programs it insures portends a potential collapse that would obligate taxpayers to rescue them. The plans of the companies in the Standard & Poorâs 500 that offer defined-benefit pensions face deficits totaling at least $182 billion, and possibly more if the economy performs erratically.
Furthermore, pension failures have been on a rising trajectory. In 2002 and 2003, the PBGC sustained losses significantly greater than its assets and posted the worst deficit in its 29-year history. The PBGC manages more failed pensions than ever before, and the yearly benefits it disburses have more than doubled over the past two years.
In the past, the agency covered bankruptcies with little difficulty because its premium income exceeded the losses. However, losses sustained from completed and probable terminations of pension plans increased nearly 50-fold over the past two years, and the PBGC estimates that it will sustain a $35 billion loss from plan terminations in 2003. Unfortunately, its assets total only $25.43 billion, making its projected losses for the current year 138 percent of its total assets.
Why such huge shortfalls? As interest rates decrease, a company must place more money in its pension program to guarantee its ability to meet its future pension obligations. Most companies did not take this step as interest rates fell during the end of the last decade because the significant appreciation of the equity assets in the funds covered the assumed future decline in returns from a lower interest rate. Because of this poor planning, a study by Goldman Sachs reports, these firms may have to direct $160 billion toward their pension plans over the next two years to reach an adequate level of funding.
Chronic headache
Recent changes in interest rates notwithstanding, certain structural issues surrounding pensions themselves will ensure that PBGCâs headaches wonât go away.
For one, the defined-benefit pension plan is fast becoming a relic of past decades in which workers spent their entire careers with the same company. The PBGC was designed for that rigid employment structure, and is struggling to stay ahead of the changing demographics, which threaten to stretch the agencyâs responsibilities beyond its resources.
The PBGC manages more failed pensions than ever before, and the yearly benefits it disburses have more than doubled over the past two years.
Further exacerbating the flight from the traditional pension system is the fact that healthy firms, responsibly managing their pensions, essentially cover the losses incurred by mismanaged funds. As a result, these “good corporate citizens” understandably restructure their pension programs into defined-contribution plans to eliminate the cost of subsidizing poor performers through insurance premiums.
Moreover, the average length of retirement increased 20 percent between 1975 (the year of the PBGCâs inception) and 2000. Consequently, the number of beneficiaries supported and the amount of benefits paid by the agency continue to grow at accelerating rates. In the past two years alone, the benefits paid by the PBGC increased by 140 percent.
Where to begin
Clearly, reform is necessary to prevent a taxpayer-financed bailout. One place to start is correcting the PBGCâs pricing to better reflect risks. Current insurance premiums ($19 per pension participant, plus a small charge on underfunded plans) donât adequately account for the differences in management style among plan administrators.
Conversion to defined-contribution plans to ease long-term fiscal pain is another measure worth taking. This would eliminate the PBGC “risk subsidy” and help end a market distortion that may be dissuading some from making the retirement-benefit choice that best suits their individual circumstances.
Finally, competition should be instituted. This creates healthy market-based pricing, which increases consumer choice and minimizes risks to taxpayers. The modern insurance industry is capable of underwriting pension risks and freeing the federal government from an outdated, unnecessary obligation.
Government-sponsored enterprises are renowned for their economic inefficiency, and the PBGC is no exception. Congress must reform its regulation of the private-pension system to ensure the security of pensions (correction), expand the personal pension choices available to employees (conversion), and remove the potential cost to taxpayers (competition). Solving the PBGCâs conundrum may not be as easy as A-B-C, but remembering the Three Cs is sure to save tax dollars and give lawmakers a valuable economics lesson to boot.
Relocation isn’t normally associated with litigation. Yet the issue isn’t as cut-and-dried as many HR professionals think. Something as seemingly simple as a corporate move can trigger any number of legal difficulties. Robert W. Sikkel, a partner in theHolland, Michigan, office of Warner, Norcross & Judd LLP, offers the dos and don’ts of employee relocation.
To begin with, how much control does an employer have over whether an employee relocates?
That’s a common question: Can you force or require an employee to relocate?The answer is almost always no. It can’t be required. Occasionally you’ll havean employee who is hired with the understanding that he or she will be moved around the country as part of training or the business practice. You see thata lot in retail with managers and assistant managers. And while it would be understood that the employee should take the relocation, there’s no way youcan physically force them. But most of the time, when the relocation comes,the employee has not necessarily anticipated it or agreed to it up front. Therefore,an employer needs to present the relocation as if it is the employee’s (only)option to remain employed by the company.
How do you present this relocation ultimatum?
Typically it would be approached conversationally with the individual. The opportunity to relocate would be presented. Employers should also think about the alternative. If the employee declines the relocation, then be prepared to address the status of that individual. It likely means the employee loses his or her current position. So HR might then offer some severance pay, and typically also ask for a waiver of claims in exchange for the severance pay. So the employee should be presented with a good-faith option to either stay with the employer and accept the relocation, or — you need to fill in the blank as to what the other choice is.
So if the employee refuses the relocation, HR should have that person sign a waiver?
If the employee doesn’t take the relocation and instead accepts some sort of severance package, that all needs to be documented, and the release must bein accordance with applicable state and federal laws today.
How else should an employer protect itself from an employee who loses his position because of his refusal to relocate?
That comes up in the area of forced relocation. For example, the employee declines a move to Montana. The employee’s position at the company is then forfeited.The legal question at that point is, what has just happened? The typical model is: when an employee leaves a company, he or she either quits or is fired. The employer might say, “I did not terminate this employee. I offered this employee another alternative, and this employee said no. This employee quit.”The employee says he didn’t quit. By requiring him to take a position miles away in a different state, the company created a circumstance where — while he wasn’t specifically fired — constructively that’s what has happened.
And what’s the significance of the employee’s termination claim?
The significance of that is, No. 1, an employer should recognize that simply terminating the employment after offering relocation doesn’t automatically mean the employee quit. And it does not alleviate the potential for challenges like constructive discharge. Most times, this kind of claim will arise when someone’s pay or benefits have been so significantly reduced that, although they’re still employed, it’s not with the same function, status, or pay. That’s the most common pattern. But asking someone to uproot and relocate could give rise to the same thing.
If the employer is choosing specific employees to relocate, does a company have to be aware of their race and gender?
If it turns out that all the employees who have to move to Toledo are women or people of color, that’s grounds for a disparate-impact claim. Absolutely,it happens all the time. If, during a relocation, some employees are being allowed to stay in the office, while others are being relocated, that should really be assessed. Who is getting the option to stay and who isn’t? Look at all the protected categories — race, age, gender — to make sure these people aren’t the ones being forced to relocate.
If an employee does accept a transfer, what are the company’s legal responsibilities as far as paying for or assisting in the relocation?
There are no state or federal requirements as far as what you must offer on relocation. It’s left to employers and their policies and their practices exclusively– including any prior contractual arrangements with the employee.
What about in a merger or takeover situation, in which your employees are being required to move to a new city — what’s the responsibility then?
Generally you’d work that out during the merger as to which of the policies would be applicable. You’ll see that a lot, where you have a collision of policies dealing with things like severance pay. Usually the merger agreement itself will dictate it.
What if an employee relocates, but then must be let go after the move occurs?
Those are common areas of challenge, where the employee relocates and in a short period of time their employment is terminated at the other end. Managers need to be careful not to overcommit to the job security of the employee post-relocation.So the first step would be to avoid verbal overcommitment. Second, avoid any written overcommitment in any transfer or relocation letters. So make sure there aren’t contractual commitments made to the employee. This is true even if your company has an at-will employment policy. We’re seeing areas where misrepresentation can legally negate even at-will employment policies. So the greatest caution to an employer on transfer is not to overcommit.
What if the company relocates an employee and that person quits soon after the move?
That’s a question we’ve been receiving a lot in the last nine months, as the economy has changed. If an employee quits after the company spends thousands on their relocation, can the employer recoup those expenses? More and more employers are developing or contemplating arrangements to address that issue. They deal with time period: If you stay in this position for at least a year, I’ll forgive the relocation expenses. If you stay for three years, for every year worked,I’ll forgive a third of it. This is normally for the employee-driven move or the recruitment of new employees. A year ago, employers weren’t thinking about this — they were just happy to fill positions. As the market is changing and employers view the cost of relocation as potential risk, they’ll address that now.
The information contained here is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion.
It’s an overcast March morning and Adam Mentzell, director of human resources for Sounds True, is discussing the painful experience of laying off 15 percent of his company’s workforce last summer.
“What did I learn from it?” he asks. “I learned that people are tremendously capable of dealing with hardship. If you hire mature people and treat them well, they can be very resilient.”
As Mentzell finishes his last sentence, the alarm on his sports watch starts beeping. He excuses himself, walks to his desk, switches his telephone to the intercom mode, and strikes a small brass bell sitting next to the phone. He strikes the bell three times, creating low, calming tones that resonate throughout the company’s offices.
“Sorry about that,” Mentzell says as he sits back down to explain that the bell is rung at precisely 11:00 each day to call employees to group meditation — which he usually observes — or to practice 15 minutes of silence. The bell of mindfulness, as he calls it, is a way of reminding employees to slow down and become more present and aware.
Meditation? Mindfulness? These aren’t words normally discussed by corporate HR people. But at Sounds True, it’s fitting that the bell of mindfulness was rung during a conversation about downsizing, for this is a company that deals with all the routine struggles of a growing business, including layoffs, but does so with an eye — and heart — toward the human side of work life.
Sounds True is an audio publishing company based in Louisville, Colorado, a town located 20 miles northwest of Denver along the Front Range of Colorado’s Rocky Mountains. The privately held company was started in 1985 by Tami Simon, a 22-year-old woman who had a $30,000 inheritance and a vision to disseminate spiritual wisdom.
Today, Sounds True is a $9.3 million company that produces spoken-word audio tapes and CDs on topics related to world religion, psychology, and alternative medicine. The company boasts a catalog of more than 500 titles, including Women Who Run with the Wolves, by Clarissa Pinkola Estes, Energy Anatomy, by Caroline Myss, and Breathing: The Master Key to Self-Healing, by Andrew Weil, M.D. In 16 years, Sounds True has grown from a one-person labor of love into a 60-employee enterprise. Along the way, the challenge has always been how to maintain the company’s spiritual focus — and spiritual integrity — while also responding to the gritty, mortal demands of business.
At first glance, Sounds True does seem different from most buttoned-down corporate settings. Walk toward the company’s main entrance and you’ll pass a serene white marble statue of an angel. Once you’re inside, a golden retriever will click across the lobby and greet you. And as you tour the quiet offices, you’ll find employees wearing fleece and khaki and hiking boots. They work alongside rippling desktop fountains, or to the accompaniment of bamboo flutes, or underneath warm reading lamps.
But these are just superficial differences. Within this casual, fleecy environment, employees also have to negotiate contracts, meet deadlines, fulfill orders, and generate profits just like any other corporate workforce. How does Sounds True balance the realities of competitive corporate life — profit goals, employee conflict, and customer demands — with its goal to promote spiritual wisdom? How does the company instill self-awareness in employees alongside the requisite business awareness?
Spend a day with Mentzell and you’ll learn that the company’s desire to create an aware workplace is much like an individual’s attempt to find spiritual wisdom: it’s something that needs continual attention. Just as there is no path to permanent spiritual enlightenment — faith and spirituality being ongoing disciplines — there is also no such thing as an unwavering workplace culture.
The best that Sounds True or any HR department can do is to be continuously mindful of those things that contribute to a positive working environment: hiring the right employees, adhering to core values, and conducting business in a way that fosters both individual awareness and business accountability. Simply stated, creating cultural wisdom is a discipline, not a destination, a discipline that might best be called enlightened leadership.
Hiring: It’s not just a job
The path to enlightened HR starts with hiring, and fortunately, Sounds True is one of those lucky companies that attracts people with a natural affinity for their products. Just as techies head to Microsoft, metaphysically focused people gravitate toward Sounds True, supplying the small company with about 20 unsolicited rĂŠsumĂŠs a week. “We attract employees who want to work in a different kind of way,” Mentzell says.
But even though many people have an interest in working for the company, it’s the job of Mentzell and other managers to make sure that those who are hired fully understand and embrace the company’s mission. “In key positions, such as those in the editorial department, it’s imperative that employees have a deep connection to our product line,” he says. This means recruiting people with education and experience in world religions, and having them demonstrate that knowledge both orally and in writing.
For most of the company’s positions, however, religious knowledge is not as important as the right skill set, which is determined by past experience; the ability to communicate honestly and respectfully, which is assessed through a series of team interviews; and support for the overall mission. The last criterion is trickier to assess, because the mission is spiritual and it’s illegal to ask questions about religion in interviews. How does Mentzell determine whether candidates will uphold the mission to disseminate spiritual wisdom? By asking them to listen to taped products, review the catalog, and visit the company Web site.
“During follow-up interviews, I ask a series of open-ended questions about the candidate’s reaction to our products and ask whether or not it is a problem for them that Sounds True produces products from a wide variety of wisdom traditions and schools of thought,” he says. “Rather than looking for adherents, we are looking for capable people who do not have a problem with our material and support our overall mission.”
Sounds True Interview Questions
How will you make contributions to our core values?
If you were hired and we could jump ahead six months, what do you think we would be saying about how you helped forward our core values?
What core aspirations excite you or interest you?
Why in the world do you want to work here?
Tell me what is important to you — what do you value deeply?
Tell me about the last time you lost your cool. What was the cause? What action did you take? What did you learn?
What are your expectations from an employer? Name at least four.
Tell me about a specific situation when you were disappointed by an employer or manager.
Whom do you admire? Why?
Tell me about a time when you were overwhelmed at work. What was the cause? What action did you take? What did you learn that you can carry forward?
What in your history are you most proud of and why?
Conversely, what in your work history do you regret the most and why?
What do you understand the mission of the company to be?
The interest of spiritual seekers in working for Sounds True, combined with the company’s diligent hiring practices, makes it possible for the culture to be almost self-generating. Case in point: Three years ago, the company hired a longtime customer to manage its warehouse, a department where profanity and gruffness are the norm in most companies, Sounds True included. The new manager, thanks to his long-term interest in Sounds True products, used professional language, treated employees with respect, and lived the company’s value system. “He changed the way the warehouse was run not by dictating change, but by setting a good example,” Mentzell says.
Honesty, openness, and accountability
Let’s face it. Even if companies hire the right people, the ugly demands of business have a way of inflicting pain and uncertainty on even the wisest and most aware individuals. How does Sounds True make sure that employees don’t revert to nasty reactive behavior in the wake of tough business demands? They do it by adhering to company values. Sure, many companies pay heed to the importance of values. But at Sounds True, the company’s 20 values are integrated into daily business practices — with the emphasis on the word “practice.”
“One thing we are clear about is that our work is a work in progress,” Mentzell says. “We have set aspirations that we continually strive for, but sometimes we fall short of our goals.”
The guiding principles underlying all of Sounds True’s values are mindfulness, honesty, and kindness. “These are the spiritual or wisdom qualities that are taught on the tapes we publish, so we also want to live them in our own work lives,” says company president Tami Simon.
Let’s start with the practice of mindfulness, which Mentzell describes as the art of paying attention and seeing things in a fresh and non-habitual manner. Sounds True promotes mindfulness by encouraging employees to stop what they are doing and become aware of their thought patterns. This is done through the 11:00 call to meditation, by providing an on-site meditation room, and by opening every large staff meeting with a two-minute period of silence. “This contemplative space provides the opportunity, if only for a moment, for employees to set aside their individual agendas,” Mentzell explains.
The ability to set aside individual agendas allows employees to fully engage in the second guiding principle: honest and open communication. “In many companies, people waste a lot of time through backstabbing and office politics,” Simon notes. “This happens because people don’t trust each other.” She believes that the only way to foster trust is to promote open communication, even if employees don’t always like what they hear.
Sounds True encourages open communication in several ways. First, every Monday morning, employees gather in the lobby to discuss business issues with the management team. During this time, employees can ask any manager, including the president, pointed questions about budgets, the hiring processes, whatever. “Tami has admitted to making mistakes on more than one occasion,” Mentzell says.
Second, the company makes extensive use of peer-review processes that allow team members to provide direct feedback to coworkers about how they may be affecting others. Upward review processes are also used to give managers anonymous feedback from those they manage.
Third, the company promotes collaborative decision-making so that managers jointly make key business decisions, and departmental teams determine their own best way of working together. The only way to arrive at mutually beneficial decisions is for managers and employees to engage in honest communication.
Is there any downside to having such an open and honest culture? “Oh my god, yes,” Simon says. “People who are used to being in corporate environments where there is more strategic game playing don’t always make it here.” Why? “Because it often takes a while for people to realize that honesty, even if it pinches, can lead to much higher levels of trust. Some people just don’t make it that far.
“Many people here are very genuine, and they expect you to be genuine, too. If you are a person who doesn’t want to bring your emotional life to work, you may think that coworkers are poking at you to find out what’s going on in your life.”
Tim Bucher, a recently hired network administrator in Sounds True’s IT department, agrees with Simon. “I had wary thoughts coming in,” he admits. “I was used to a large corporate structure, and I was a bit intimidated by how different the culture was here. Now, I’m used to it. I don’t have to work to weed out truth from lies, because everybody here is so honest.”
The other guiding principle embedded in all of Sounds True’s values is kindness, which simply means respecting others and honoring individual differences. The company honors individual differences through such practices as a nonexistent dress code, flexible working hours, and allowing employees to bring their dogs to work.
Sounds True Values
Sounds True is both mission-driven and profit-driven.
We build workplace community.
We encourage authenticity in the workplace.
Open communication.
Animals are welcome.
We place a high value on creativity, innovation, and ideas.
Opportunities exist for flexible work schedules.
Teams determine the best way to reach their goals.
We honor and include a contemplative dimension in the workplace.
We reach out to a diverse community.
We strive to protect and preserve the Earth.
We have a relationship with our customers that is based on integrity.
We take time for kindness, have fun, and get a lot done.
We acknowledge that every person in the organization carries wisdom.
We encourage people to speak up and propose solutions.
We encourage people to listen deeply.
We honor individual differences and diversity.
We strive for clarity of expectations.
We encourage people to realize their creative potential.
Employees participate in profit sharing and ownership.
A complete description of each Sounds True value can be found on the company’s Web site, www.soundstrue.com.
Building financial acumen
In a company driven by spiritual values, capitalistic concerns such as cost and profit easily can become secondary. Such was the case at Sounds True last year, when the company tried to expand in too many different directions at once and ultimately lost money for the first time in 15 years.
Smarting from the loss, the company was forced to lay off employees in unprofitable divisions and also pay stricter attention to financial concerns. This upset a few longtime employees, who felt that the company was “selling out” to capitalism and chose to leave on their own.
“We had to work to create business-mindedness,” Simon explains. “For 15 years the people who worked here did not pay much attention to the critical drivers of financial success such as cost of goods, margins on product lines, and product formats.”
“What we had to communicate to remaining employees,” Mentzell adds, “is that our mission to disseminate spiritual wisdom is not possible unless the company can also pay its bills.”
To make sure that employees are conscious of the relevant measures of financial performance, Sounds True launched an open-book management program called the Great Game of Business, wherein all employees were trained in financial literacy. Today, department representatives provide weekly forecasts against their specific budgets and then present this information in bimonthly business “scoreboard” meetings. All managers are in attendance at this fast-moving meeting and are expected to report financial information to their teams immediately afterward.
“Information on our performance against budget quickly travels to all areas of the organization,” Mentzell explains. This raises employee awareness of financial measures and stimulates employees to take corrective action when necessary.
Although speaking freely about finances has helped the company get back on track, there are some risks involved. “There is a certain kind of anxiety introduced in an environment where people know all about the business and its accompanying uncertainties,” Simon explains. “In companies where the executive team acts like parents who withhold difficult information from workers, people are protected from this anxiety. But I think that approach gives people a false sense of safety. Here, employees may feel anxious about finances more of the time, but at least everyone knows where they stand.”
The role of HR
It may come as no surprise that Sounds True’s HR director personally embodies the company’s mission. On the door of Mentzell’s office are in and outboxes marked with the signs: Breathing IN I feel calm; Breathing OUT I smile. “I’ve been on my own spiritual quest for 10 years,” he says, adding that he not only meditates regularly but also is a serious student of Western psychology and Eastern religion and philosophy.
Mentzell’s personal connection to the company’s mission helps him to be mindful of the never-ending work involved in creating an aware culture. As HR director, an unusual position in a company of this size, he oversees hiring, mediates disputes, communicates financial results, negotiates benefits, and trains managers. He reports directly to the CEO. “I’m responsible for how management happens here,” he says. Other than that, most of Mentzell’s job is typical HR: recruitment, benefits, compensation, performance reviews, and training.
“I’m surprised how much of my job is routine,” he says, almost sheepishly.
It could be routine because Sounds True is as mindful of human needs as it is of business needs, although Mentzell would be the first to say that maintaining the balance between financial and human goals is not easy. Shift too far in one direction and business suffers. Shift too far in the other and morale withers. But by staying aware that both goals are important — and by integrating that awareness into daily business practices — Sounds True has been able to weather hard times.
“Enlightened HR?” Mentzell asks. “Sounds True should not be portrayed as having figured it out, but merely striving to find a better way of doing business.”
Key considerations in a downturn
