Category: HR Administration

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Clocking CityTime, the Craziest Contract Ever

In March 2003, executives at software company Science Applications International Corp. were scrambling for a way out of a deal with New York City to build a timekeeping system for its 167,000 municipal employees.


The contract was worth $114 million. But SAIC executives realized soon after taking over the work from a previous contractor that there was no way they could build a system for that amount. The city’s workforce was too large, its union rules too complex.


“We should have killed the deal right there,” says Gerard Denault, vice president and operations manager of SAIC.


The company fired the employee who signed the contract, but the city didn’t let SAIC off the hook. Instead, lawyers at the Office of Payroll Administration, the agency overseeing the project, insisted that SAIC fulfill its end of the deal. With the remaining city funds plus $30 million of its own money, SAIC developed the framework for the software that would eventually be called CityTime.


But what started in 1998 as a $63 million project has ballooned today to more than $700 million and counting. Less than half the municipal workforce—about 77,000 employees—are expected to be on CityTime when SAIC’s contract with the city expires in September.


Delayed and over budget, CityTime has become an easy political target for unions expressing privacy concerns and politicians staring down budget cuts. Many of the delays and wasted dollars can be traced back to foot-dragging and internal politics within city agencies, as well as a failure by city administrators to grasp, at least initially, the technical complexity and political perils of the enormous project.


As the project nears its final phases, the completion of CityTime is in no way assured.


SAIC needs the board of the Office of Payroll Administration to approve a three-year contract extension worth $108 million to transfer all remaining workers to the system, and then transition the maintenance of the system over to city workers.


The two-person board that approves CityTime contracts is split, however. While the member representing the Bloomberg administration stands behind CityTime, recently elected City Comptroller John Liu and his board member do not. Liu says he will not approve any new contracts until the completion of an audit of the project by his office this fall.


The Office of Payroll Administration and its executive director, Joel Bondy, who has already come under attack for lax management of $200-an-hour CityTime engineers, have kept a low public profile. SAIC, angered over the way it has been portrayed in the media, broke its silence by speaking with Crain’s New York Business, a sister publication of Workforce Management.


 The private contractor
“I don’t think people understand the complexity of this system,” Denault says.


He then lists a number of reasons why CityTime took so much money to build and why it is an important step in modernizing the city’s operations. New York City employs 6,000 people solely to track the time of workers, and there are 4,000 different ways to classify “time” in the city workforce. Every month, the Police Department generates 1.5 million time sheets, and each one must be stored for 55 years by law. Timekeepers at the department have a 30 percent error rate, costing the city hundreds of millions of dollars annually in overpayments and miscalculated pensions. And underpaying workers leads to costly labor grievances.


An assistant to Denault opens a 2-foot-wide green metal binder. Inside are timekeeping sheets that look like box scores for a very long, very high-scoring Yankees game. This is how the Department of Sanitation used to keep time, Denault says. The time sheet’s bewildering system of marks and scratches reflects the complexity of union contracts, each one representing a different pay rate: regular shifts, Saturday shifts, plowing snow on Saturdays, plowing on a Tuesday, driving a garbage truck, driving a pickup truck.


CityTime has changed all that.


Now timekeepers use drop-down menus to take roll call. Employees report in when they arrive and leave work using electronic hand readers or a Web-based time-tracking system. CityTime translates the hours a person works into how much a person gets paid.


“Now, what took an hour takes 15 minutes,” Denault says of how CityTime has simplified the work of the city’s timekeepers.


 Bureaucratic roadblocks
Building the system was a technical challenge; implementing it has been a political one. The mayor’s OPA board member, Mark Page, urged SAIC to roll out the system at a pace each agency felt comfortable with, according to the company. “You can’t push this system onto agencies before they’re ready,” he told SAIC executives through an interlocutor, OPA executive director Bondy.


The Office of Payroll Administration says most requests to delay the implementation of CityTime “are usually granted, despite the fact that the agencies and their staff are already fully prepared.” Ensuring acceptance of the system by city employees was “deemed to be more important than simply implementing CityTime as quickly as possible.”


SAIC expected some pushback from agencies—and got it. One delay SAIC says has become emblematic of the pointless waste that has endangered the project came from the Human Resources Administration. SAIC says it was ready to bring the agency’s 15,000 employees onto the system three years ago, but Jane Roeder, a deputy commissioner who oversees AutoTime, its current time-management system, refused to cooperate.


It was only when Roeder announced her June 18 retirement that SAIC was able to schedule the transition. SAIC says it plans to bring 5,000 employees onto CityTime the weekend of July 18 and the rest of the department by the fall.


“This should have been done three years ago, and it cost the city millions of dollars,” Denault says.


Roeder declined to comment. A spokeswoman for HRA would not address whether Roeder’s departure cleared the way for bringing the agency onto CityTime, except to say that Roeder is one of several officials in charge of the agency’s time management system.


The Office of Payroll Administration said HRA was not brought over to CityTime sooner because it had a timekeeping system and “was already realizing some benefit.”


But SAIC rejects this logic. The AutoTime system was costing the city $3 million a year simply to license the software. Ending it would have been easy and would have brought immediate savings, in part because the maintenance of the entire CityTime system is more cost-effective. When fully rolled out to 167,000 employees, the system—including software, hardware and personnel—will cost the city $29 million a year to maintain. It would be even more cost-effective if the city eventually rolls out the system to the Department of Education’s 136,000 employees as well.


By next year, CityTime should start paying for itself in cost savings, SAIC says.


 Union opposition
One of the most vocal opponents of CityTime has been Local 375 of DC 37, the Civil Service Technical Guild, whose 6,800 members have a presence in 30 city agencies. Jon Forster, a union representative, says his members objected to having to place their hand on palm readers that he says are unsanitary. Having to “punch in” makes the employees, who are primarily engineers and architects, feel like “we’re on the factory floor,” all of which he calls bad for morale.


The union mounted a campaign to derail CityTime, outmaneuvering both the city and SAIC. Its protests outside the Parks Department and the Department of Design and Construction forced SAIC to develop a Web-based alternative to the palm scanners, at a cost of “several million dollars extra,” Denault says. In the end, many of the union members for whom the system was designed were not permitted by their managers to use it. Those managers, instead, preferred the original palm scanners.


One of the biggest grievances among union members is that CityTime may hit workers’ paychecks. “Now you’re going to turn around and nickel-and-dime us with these time clocks,” Forster says.


What unions call nickel-and-diming, city officials call accurately tracking labor costs. CityTime will ultimately help managers identify workers with high overtime costs or excessive sick-day absences. It can also be used during labor negotiations to gauge the cost of small changes in labor contracts.


 Comptroller’s control
Regardless, both SAIC and the city—which answered questions by e-mail and turned down requests for an interview with Bondy—say the delays should not come as a surprise to John Liu’s office. “The offices of both [OPA] directors reviewed and approved all contract amendments and encumbrances in their administrative roles,” OPA’s response reads. “The Comptroller’s Office registered all contract actions.”


Although Liu took over from his predecessor in January, he retains the same chief information officer, Michael Bott, who attended quarterly meetings that monitored CityTime’s progress and discussed its delays.


Liu is following up on concerns raised during his tenure on the City Council contracts committee that SAIC and its contractors were paid rates labeled exorbitant by at least one council member. SAIC billed the city $400,000 for about 2,000 hours of work by one of its contractors—a rate of around $200 an hour that covers salary, administrative and other SAIC expenses.


SAIC is desperate to complete the project, in part to sell the system to other municipalities under a proposed revenue-sharing deal with the city. CityTime, it says, is the only software of its kind that can manage the complexities of tracking a big, unionized government workforce.


If SAIC’s contract is not extended by the end of September, however, the system will be not only incomplete, but also worthless.


“If we walk out on September 30, the system shuts down,” Denault says. “The city cannot maintain the system without us. They have no staff to support it. The option is: Give us an extension, or carry the system out [yourself].”


Workforce Management Online, July 2010 — Register Now!

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Unions No Chicago-Like Wal-Mart Deal for New York

Wal-Mart has cleared a major hurdle to opening a second Chicago store.


A community and labor coalition dropped its opposition Thursday, June 24, after the Arkansas retail giant reportedly agreed to start workers at a minimum of $8.75 an hour and pay them $9.15 to $9.35 an hour following their first year on the job.


New York labor officials were quick to cast aside any notion that the Chicago agreement meant Wal-Mart was any closer to gaining a foothold in New York City.


“This is New York; this is not Chicago,” said Stuart Appelbaum, president of the Retail, Wholesale and Department Store Union. “They’ve got a long way to go before they would be welcome here.”


The Chicago Federation of Labor announced that a coalition had reached an agreement with the retailer on the wages and had secured a commitment to build the project using union labor, among other measures. The project subsequently cleared a major zoning committee vote in the Chicago City Council.


Wal-Mart would not confirm the pact with labor groups; a spokesman said the retailer had a deal “with the residents of Chicago.” The agreement was only for a store in Chicago’s Pullman neighborhood, though the retailer announced earlier last week plans to build dozens of stores in Chicago in the coming years.


The deal came a day after union leaders and elected officials rallied at New York’s City Hall in opposition to Wal-Mart opening its first store in Gotham. The rally was organized amid reports that the company is eyeing the Gateway II site in Brooklyn.


Appelbaum and United Food and Commercial Workers Union Local 1500 leaders say they’d be happy to sit down with Wal-Mart officials to discuss their desire to open a store in New York. But it’s clear that in New York, the retailer would have to move beyond what it agreed to in Chicago if it wanted labor’s imprimatur on a project.


Union leaders say they wouldn’t consider negotiating a specific wage amount, but would want any agreement pegged to the prevailing wage for grocery workers in the area. Full-time unionized supermarket workers here start at $12 an hour, plus benefits. And though local unions’ opposition to Wal-Mart has often been framed around issues of low wages, pay rates are not the only obstacle Wal-Mart would have to surmount in talks with worker groups.


“There’s absolutely no question there’d have to be some sense of how they’d deal with unionization,” said Pat Purcell, assistant to the president of Local 1500. “They can pay $10 or $11 an hour, but if they’re going to fire workers like they’ve done in the past when we try to unionize them, that won’t work for us.”


Union leaders worry that if Wal-Mart were to come to New York, its stores would likely eat into the market share of unionized retailers such as Pathmark, Key Food and Duane Reade and put mom-and-pop shops out of business.


At the Wednesday rally, City Council Speaker Christine Quinn said that Wal-Mart’s less-than-pristine labor record is also at issue. “We don’t want companies that have led the nation in lawsuits being brought against them by workers,” she said. “We don’t want companies that have the largest class action in history brought against them. We don’t want companies where women are, over and over, paid less than men and not promoted.”


It’s possible that Wal-Mart could bypass the unions and City Council altogether in New York. They’re likely looking for an as-of-right site that wouldn’t require City Council approval, or one that has already gone through the land-use process.


Those sites are a rarity in the city, though Wal-Mart has come close to finding such a location in the past, Mayor Michael Bloomberg said at a Crain’s New York Business forum in October. “It’s not the city’s business to tell companies they can or can’t be here,” the mayor argued, citing the retailer’s efforts to improve its benefits policies and labor practices. “That’s what the marketplace is for.”


As it did in Chicago, Wal-Mart could try to drum up public support for such a move by partnering with religious leaders who are concerned about high unemployment in minority neighborhoods. It’s also likely to follow its Chicago strategy of focusing on poor neighborhoods where there is a pent-up demand for jobs and supermarkets. New York residents already spend $125 million a year at area Wal-Mart stores, according to the company.


The Gateway II site, which is owned by the Related Cos., has already received land-use approval, though a Wal-Mart spokesman continues to insist the company has no projects to announce in the city.  


Filed by Daniel Massey of Crain’s New York Business, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.


 


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Shareholders Demand Better Window Into Succession

B uried inside Bank of America’s 2010 proxy statement is a shareholder resolution that requires the company’s board to give stockholders details of how they’d pick a new CEO if the current one gets sick, quits or—as CEO Ken Lewis did in 2009 with calamitous results—unexpectedly announces his retirement with no clear successor in place.


Whole Foods Market’s 2010 proxy included an almost identical resolution, put forward by the Laborers National Pension Fund, a Texas-based labor union retirement fund that owns shares in both companies.


The resolutions are among the first to surface following revisions in Securities and Exchange Commission guidance governing CEO succession planning.


In the end, neither BofA nor Whole Foods shareholders adopted the resolutions, which both companies’ boards opposed.


But while some Fortune 1,000 companies have fought the changes as unnecessary and potentially harmful, others are working with shareholder groups to make policies more transparent in an effort to stave off a proxy-vote battle.


“Succession planning is quickly moving from a staff administrative exercise to a risk management process driven by investors,” says Jeff McCutcheon, an executive pay expert with consultant Board Advisory LLC.


Historically, the SEC treated CEO succession planning as “ordinary business matters—information that companies weren’t required to share with shareholders.


But in an October 2009 legal bulletin, the agency reversed its position, saying that “recent events” underscored the importance of a board’s role in choosing a company’s top executive.


Preparing for an orderly transition from one CEO to another is an area that corporate boards agree they need to work on. In a 2009 survey, the National Association of Corporate Directors found that 89.2 percent of corporate directors ranked CEO succession as critical, while only 15.7 percent saw themselves as highly effective in that area.


One of the first resolutions put to a vote was at Whole Foods’ March 8 annual meeting. The proposal didn’t pass, but 30 percent of the food chain’s shareholders approved it. That’s not bad for a first-time resolution, according to O’Dell, who says succession planning will be the main focus of the fund’s shareholder resolutions in 2011.


BofA and Whole Foods officials did not return calls requesting comment. However, in its 2010 proxy, BofA’s board urged against approving the proposal, saying its existing corporate governance guidelines address succession planning and that information on the process “is expected to be included annually in our proxy materials.”


Given the circumstances of Lewis’ retirement and the lawsuits filed because of it, industry watchers expected—and got—fireworks at BofA’s annual meeting. In the end, 40 percent of the bank’s shareholders voted in favor of the resolution—not enough for it to pass, but enough to send a powerful message, according to McCutcheon.


The fact that so many shareholders voted for it against management recommendation indicates “substantial support for increased transparency around Bank of America’s executive succession management,” he says.


Workforce Management, June 2010, p. 14 — Subscribe Now!

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SHRM Seeks to Put HR Into C-Suite, Policy Conversations

Both ends of the political spectrum will be covered by keynote speakers at the annual conference of the Society for Human Resource Management this month in San Diego.


The party affiliations of Steve Forbes, publisher of Forbes magazine and a former Republican presidential candidate, and former Vice President Al Gore, however, were not as important for SHRM as the trends they represent.


Forbes, who is slated to open the event June 27, will provide insight on the dynamic—and sometimes confusing—media environment. On June 28, Gore will delve into the complexities of environmental stewardship and sustainable business practices.


“HR has to be aware of what the discussions are in the C-suite and among political leaders,” says China Miner Gorman, who recently left SHRM as the organization’s chief global member engagement officer. “We think that Steve Forbes and Al Gore provide a really interesting point/counterpoint to our attendees to jump-start conversations.”


SHRM hopes that the conference also will generate a dialogue about how HR can help companies deal with two of the biggest challenges they face—a recovering but not yet vibrant economy and major policy changes coming out of Washington.


Just as people management was crucial when the economy spiraled in 2008, it is also going to be central to a business environment in which millions of people are put back to work.


Business performance “rests on the ability of the corporation to attract, engage and retain the best talent available—and that’s HR’s job,” Gorman says.


This point will be explored in a featured panel the morning of June 29 that will include HR executives from Google, Northrop Grumman and Deutsche Bank.


Eric Oppenheim, vice president for operations and HR at Republic Foods in Bethesda, Maryland, says that developing a strategic approach to an improving economy will be relevant for most conference participants.


“As soon as the [job] market opens up, people are going to take off because they’ve been suppressed for a couple years,” Oppenheim says. “They’re going to leave just to leave. That’s going to cause a huge strain on HR departments.”


Employment policy changes also are putting stress on companies and giving HR an opportunity to step up—a trend reflected in the SHRM conference program. Gorman says that placeholders were put in the schedule to allow for timely offerings.


“Several of these slots have been filled with legislative sessions, particularly on health care legislation,” Gorman says.


SHRM expects those meetings to be fuller than they were at last year’s annual conference in New Orleans, which attracted about 7,000 participants. The expected attendance in San Diego is more than 9,000.


The exhibit hall also will be more populated in San Diego than in New Orleans. This year’s conference will attract about 650 vendors, compared with last year’s 600.


“The good spots [on the exhibit floor] have been gone for months,” Gorman says.


As usual, attendees will have to keep a tight schedule to take advantage of the show.


“You have to be careful to plan ahead and target your time appropriately because it can be overwhelming,” Oppenheim says.  


Filed by Mark Schoeff Jr. of InvestmentNews, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com


 


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Knowing Auto Features in DC Plans Doesnt Mean Theyre Used

Ninety-four percent of large employers with defined-contribution plans are familiar with 401(k) automatic enrollment and 78 percent are familiar with automatic escalation, but only 42 percent use auto enrollment and 28 percent use auto escalation.


Of those using automatic enrollment, 58 percent enrolled only new hires when first adopted, and 35 percent automatically enrolled all nonparticipating employees upon adoption.


“Employers were most likely to identify the following as ‘major reasons’ that companies offer automatic features: it helps employees save more for retirement (74 percent), it is easier to pass nondiscrimination testing (49 percent), and it demonstrates that we are a socially responsible company (35 percent),” according to an AARP news release detailing the survey’s findings.


Of the employers without automatic enrollment, 30 percent cited concerns that employees would not like it, 20 percent cited costs, 14 percent cited contentment with the status quo, and 10 percent cited a lack of information about automatic enrollment.


Sixty-six percent of employers without automatic escalation said they believe employees would not like it, 52 percent said employees would find it confusing, and 35 percent cited a concern about employer matching costs.


AARP commissioned Woelfel Research to conduct the survey of 806 large employers with 401(k) plans between December 15 and February 24.


S. Kathi Brown, senior research advisor at AARP Research & Strategic Analysis and author of the report, could not be reached for comment. 


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


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Xerox Unit Buys Outsourcing Unit From Hewlett-Packard

A unit of Xerox Corp. said Tuesday, May 25, that it is buying a benefits and human resources outsourcing unit from Hewlett-Packard Co. for $125 million.


A spokesman for Dallas-based Affiliated Computer Services Inc. said its purchase of ExcellerateHRO is expected to close this summer.


“This acquisition clearly demonstrates Xerox’s commitment to invest in human resources that will ultimately benefit all our clients,” Ann Vezina, ACS executive vice president and group president of ACS Human Resources Services, said in a statement.


ExcellerateHRO, which does not disclose revenue, currently has 350 to 400 clients and about 1,800 employees.


The benefits and HR outsourcing operation was formed in 2005 by then-Towers Perrin and EDS Corp., combining Towers Perrin’s benefit administration services and EDS’ payroll and HR-related outsourcing services. EDS held a roughly 85 percent share in ExcellerateHRO, and Towers Perrin owned the rest.


In 2008, HP acquired EDS and its interest in ExcellerateHRO.


In June 2009, Towers Perrin, which merged this year with Watson Wyatt Worldwide to form Towers Watson, sold its minority share to HP.


ACS’ purchase of ExcellerateHRO is its first since Xerox acquired it in February in a deal valued at $6.4 billion.


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

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First Mover vs. Disruptor How Would You Change HR if You Could Start From Scratch

How does the conventional wisdom go? First-mover advantage in business is key, right? Be the first to market and build a solution or product that’s good enough, and to the victor go the spoils. Combine first-mover advantage with some barriers to entry for potential competitors, and you’ve got a market position that has cash cow written all over it.


Without question, first-mover advantage is great to have. However, I’d offer this alternative view: The first-mover advantage can and will diminish over time, especially as that nimble approach/solution you started with grows into a legacy battleship that’s hard to move and vulnerable to the disruptor.


More on the HR connection in a moment; first, what does a “disruptor” look like?


Case in point: Microsoft Money vs. Mint.


I’ve been a Microsoft Money user for at least five years, using Money to track my finances and do budgeting for our household. Unfortunately, 2009 was so busy I didn’t use the product at all.


One of my resolutions for 2010 was to get back on the budgeting front and understand where our money was going and to save more. So I fired up my copy of Money on a home laptop and proceeded to attempt to load up the first three months of transactions for our household in 2010.


What I found out shocked me. Microsoft Money has been discontinued. No more downloads; too much competition.


Too many competitors like Mint.com who changed the game.


While Microsoft had a nice run at the money management segment, their advantage (No. 2 market position after Quicken, but tons of market power in the personal finance segment) faded over time.


Their solution was based on the local license model, whereby you had to install the software on your PC. As the complexity of their solution grew, it became hard for the end user to maximize. Usability was also an issue given the fact that you couldn’t grab your account from any computer like Gmail and other on-demand services.


Enter Mint.com. Mint is a Web-based personal finance solution. There’s nothing to install, with your account being on-demand from any computer you need it to be. That’s two things Money was not: free and simple.


After Money shut down, I remembered the glowing reviews I had seen of Mint and opened an account. What I found was an interface that was simple to use, and while Mint had only 50 percent of the features of Money, it easily had 90 percent of the functionality I needed, including an iPhone app.


Mint’s a great example of a disruptor that was able to overcome the dominant market advantage of a giant like Microsoft. Change the game dramatically enough with your solution and make it simple yet functional and you’ve got a shot to unseat the first-mover who’s printing cash and unable to turn the battleship as quickly as you.


And that serves as a nice transition to the HR focus of this column: If you were going to disrupt the first-mover advantage of the traditional HR practice, what features would your new solution (we’ll call it HR Disruption) have?


If I were building it, HR Disruption would include the following features:


• I’d make sure every HR manager and up (director, vice president) had recruiting in their active skill set. The best way to get the respect of the line manager is to find the talent they don’t have the time or the will to identify and secure on their own. HR Disruption would have a lot of features to enable higher-quality results when it comes to talent acquisition.


• I’d design HR Disruption so it was non-negotiable that a substantial investment was made in managerial skills over the first two years of a new manager’s career. I don’t mean a couple of classes at Dale Carnegie. I mean a $30,000 to $40,000 investment in the new manager’s ability to communicate, motivate and draw higher performance from his/her team. Without question, some folks would use HR Disruption for a few years and then leave, but trust me, once word got out that HR Disruption had this training feature set, my turnover over time would go way down.


• I’d design HR Disruption so it was non-negotiable that a substantial investment was made in career planning for team members, regardless of whether it resulted in that career path taking them away from my company—same product strategy as the managerial skill training outlined above. We hire new team members at a brisk pace, put them through some onboarding and then expect them to figure out what they want out of the next five years of their career. No wonder people leave us at times for inferior products/companies. They’re just flailing about, trying to find the right fit. A robust career planning model would fix that pain point.


• I’d design selection practices so that the capacity to coach (or capacity to learn how to coach) was the first priority when promoting an individual contributor to a manager role, not subject-matter expertise. What’s the most important role of the manager of people in your organization? Coaching for performance, of course. I’d design HR Disruption to include screening tools to tell me which managerial newbies had the capacity to coach with the right training and tools, then I’d hire those people even if there were candidates with stronger technical skills available in the same selection pool.


That’s my list of how I would disrupt the HR battleship, if I was designing a new HR product offering/service model. What would you do if you wanted to be the Mint.com of HR?


There’s good news, should you decide to pursue the role of the disruptor, when it comes to the traditional HR practice. Established products (in this case, traditional HR) will laugh at you initially, then they’ll start to become reactive once they see your solution gaining traction.


That means you might not get a chance to change the world, but you might get acquired. Mint.com got acquired in 2009 by Intuit (makers of the No. 1 personal finance software, Quicken) for $170 million just two years into operation.


You might not make $170 million, but disrupt the HR game in a meaningful and visible way and you can bet there’s someone out there willing to snap you up for a fresh look at the HR game.


What are you waiting for? Disrupt!


Workforce Management Online, May 2010 — Register Now!

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Laparoscopic Surgeries The Better Surgical Cut

In their pursuit of cost-effective medical treatment, officials at a Colorado Springs school district wanted to move beyond prescription drug and chronic disease management programs. So they trained their sights on surgery, specifically laparoscopic procedures that involve smaller surgical incisions.


Studies have shown several related benefits, including shorter recovery time and reduced risk of infection, says Ken Detweiler, the former director of risk-related activities for the district, Colorado Springs School District 11. Plus, the price difference can be substantial, ranging from $1,700 to $7,800 per procedure, depending on the surgery involved.


Detweiler, then the director and now a school district consultant, decided to act on that information, launching a program to encourage the district’s 6,000 medical plan enrollees to consider laparoscopy—also known as minimally invasive surgery—for five common surgeries.


Working in conjunction with the district’s insurance administrator, school district officials talked up the medical benefits and offered employees a lower co-pay, beginning in mid-2007. A preauthorization step also was added, to scrutinize medical necessity when a more traditional open incision was recommended.


“I think a lot of employers would say, ‘Why would you deal at this level?’ ” Detweiler says. “It almost sounds like I’m getting in the middle of the patient and the doctor. And that was not the case at all.


“The surprising thing to me was, the secret to making this happen was the employees,” he says. Teachers don’t want to be out of the classroom, he says. And once they understand the shorter recuperation time, “Word-of-mouth gets out.”


In an analysis prior to the initiative, the district determined that its employees’ use of laparoscopy already had saved nearly $1 million over a two-year period. That savings translates to at least $6 per member per month for the district, which is self-funded. Detweiler presented the data in February to a San Antonio forum hosted by the National Business Coalition on Health and the Integrated Benefits Institute.

Once the educational effort kicked in, the laparoscopy rate increased significantly for some procedures, including hysterectomy and colectomy (in which a portion of the colon is removed). Within 18 months, the percentage of employees getting their hysterectomies through a small incision increased from 28 percent to 81 percent. For colectomy, the rate increased from 33 percent to 100 percent.


Education versus coercion?
Detweiler cites a couple of other Colorado employers that are taking a similar route by providing incentives or education related to minimally invasive surgery. Another frequently cited adherent is Hannaford Supermarkets, which launched a minimally invasive surgery program, including lower co-pays, in 2008.


Such surgery-focused efforts are still relatively rare, but the Colorado initiative is a “signal of things to come,” says Andrew Webber, president of the National Business Coalition on Health.


 Employers first started providing incentives in regard to preventive services and chronic conditions, he says.


“Now, I think we will move in progression into more acute care and clinically based intervention strategies,” he says. “I think the basic theme here is we should be rewarding the higher-value services.”


The first three procedures selected by the Colorado school district—colectomy, gallbladder and hysterectomy—were chosen in part due to their potential cost savings and reduced time away from work. In mid-2008, bariatric surgery and appendectomy were added.

Laparoscopy Adoption Rates

The Colorado Springs school district compared laparoscopy rates before and after its educational effort. The after data was collected for calendar year 2008. Bariatric surgeries and appendectomies were added July of that year, and the remaining three procedures in July 2007.

Procedure

Before

After

Colectomy

33%

100%

Hysterectomy

28

  81

Gall bladder

93

100

Bariatric

93

100

Appendectomy

63

  50

Source: Ken Detweiler, Colorado Springs School District 11

Working with its insurance administrator, the school district provided education via newsletters and e-mails. Employees also pay a lower co-pay for laparoscopy than they do for a procedure using the larger incision: $200 less for outpatient surgery and $400 less if hospitalization is needed. They also were given a list of local surgeons who perform laparoscopy.


It’s the source of that educational literature that makes Michael Gusmano, a research scholar at The Hastings Center, a bioethics research institute, a bit uncomfortable. While such employer-driven efforts might be well-intentioned, it’s a “bit of a problematic scenario,” as he describes it.


“I wouldn’t want my employer, who has a direct financial incentive for having me take the cheaper [medical] option, to be the one charged with providing me with all of the relevant information,” he says. “There is a legitimacy and a trust issue here, I think.”


Employee driven
Previously, employees weren’t necessarily aware of their surgical options. Instead, they simply used the surgeon to whom they had been referred, Detweiler says. After all, he points out, laparoscopic techniques date back some 20 years, but that doesn’t mean the patients always knew about them.


“The question is, why would I have a 28 percent adoption rate on hysterectomies,” if not for the fact that employees hadn’t previously realized they had an option to traditional surgery?

By calendar year 2008, 100 percent of the school district’s gallbladder and bariatric surgeries involved the use of small incisions. Of the five surgeries in the program, only appendectomy fell below 81 percent usage of laparoscopy, in part because the surgery tends to be an emergency procedure with less opportunity to pre-select the surgeon, Detweiler says. If the laparoscopy rate had exceeded 85 percent for all five procedures, the school district would have saved $127,000 across the two years studied, ending in fiscal year 2007, he says.


The American College of Surgeons hasn’t taken a position on such employer initiatives, according to a spokeswoman. But a surgeon whom the college suggested to comment, but who was not speaking for the college, said that employers should keep in mind that not all surgeons are equally skilled or trained.


“Not all surgeons are good at everything,” says Dr. Daniel B. Jones, chief of minimally invasive surgery at Beth Israel Deaconess Medical Center in Boston. One way for employers to check surgeons’ training, he says, is to ask if they hold a certification in the fundamentals of laparoscopic surgery or have completed laparoscopic training following their general surgery fellowship.


Detweiler says the school district doesn’t review the surgeons’ training or the number of procedures they perform. But the district does make sure that employees aren’t penalized if medical necessity requires a larger incision, he says, responding to a concern raised by The Hastings Center’s Gusmano.


If the preauthorization coordinator makes that decision, or the surgeon changes approach mid-surgery, the employee doesn’t pay the higher co-pay. “I’m not out to make a couple of hundred bucks on co-pays,” Detweiler says. “I’m more interested in getting them back to where they want to be. Back to work, return to their normal lifestyle.”


Launching the initiative was inexpensive, amounting to a few meetings and some educational materials. The primary investment was the cost of the reduced co-pay for laparoscopy patients, Detweiler says. Thus, for each dollar spent, the savings ranged from $5.7 for a colectomy to $26 for gallbladder surgery.


That analysis, he adds, doesn’t include other costs, such as reduced physical therapy and pain medication with the smaller incision. Neither does it factor in lost educational time and the cost of a substitute, which rings up an additional $90 per day.


Workforce Management Online, May 2010 — Register Now!

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A Dangerous Leap Through the Brokerage Window

In its survey, Trends and Experience in 401(k) Plans for 2009, Hewitt Associates noted that more plan sponsors were offering employees the option of a self-directed brokerage window. Hewitt indicated that usage had grown by 44 percent since 2007 and that, as of 2009, 26 percent of plan sponsors were offering this investment option.


This trend is alarming to those who believe that self-directed brokerage windows represent a fiduciary quagmire and see it as the antithesis of investment prudence, running counter to the emerging view of many investment experts that participants should be removed entirely from the investment process. Letting participants jump through the brokerage window is tantamount to giving the inmates run of the asylum.


A self-directed brokerage window is an arrangement allowing participants to establish a brokerage account as an investment option within their 401(k) plans. Originally favored by professional firms, the windows provide those wishing to actively manage their own investments the opportunity to select mutual funds not otherwise offered as core investment options.


Indeed, except for a few investments foreclosed by the Employee Retirement Income Security Act of 1974, such as options, commodities, short selling and margined transactions, few restrictions apply to brokerage windows unless they are imposed by the plan sponsor. These restrictions might place further limits on investments available through the window or limit the percentage of a participant’s total account that the brokerage window may represent. Given that some arrangements place minimums on initial investment or impose additional setup and/or recurring fees, brokerage windows do not appeal to every participant, but clearly there is sufficient demand that they should warrant attention among plan sponsors.


Regulations under Section 404(c) of ERISA relieve the plan sponsor and other fiduciaries from liability for participants’ investment decisions, provided certain conditions are met. One of these is that the plan offers a “broad range of investment alternatives” from which a participant may select in order to meet different investment objectives and avoid the risk of large losses.


The brokerage industry and other proponents argue that a self-directed brokerage window is inherently compliant with the section because it essentially offers unrestricted access to the entire universe of investment alternatives. While nothing in the regulation specifically speaks to this, this is the thinking that underpins the marketing of brokerage windows. Indeed, there may be some merit to that claim as discussed below.


The selection of an investment option for inclusion in a plan’s investment menu is a fiduciary function and requires that the plan fiduciaries act prudently in evaluating the option and how it may be used to assist participants in achieving retirement income security. Once selected, the fiduciaries must monitor and evaluate the performance of each investment option within the plan to ensure that it continues to conform to the plan’s selection criteria. The requirement is no less applicable to a brokerage window than it is to a mutual fund. However, in the case of a brokerage window, no meaningful evaluation can take place without examining the investment activity within the brokerage account of each participant who takes advantage of this investment option.


Some will say that if the plan conforms to ERISA section 404(c), the participants are responsible for their own investment selection among plan options and the fiduciaries are relieved of liability for losses. But this relief applies only to the extent that losses incurred by a participant result from the participant’s “exercise of control” over the assets in his or her account, and not if losses result from imprudent selection of the investment option by the fiduciaries. Therefore, fiduciaries remain responsible for prudently selecting, monitoring and evaluating an investment option. One is left with the conclusion that if evaluation is to have any meaning from a prudence perspective, fiduciaries have no choice but to monitor how participants are making use of the brokerage window.


As an example, let’s say a plan has 200 participants and 15 percent of them use the brokerage window. That means in monitoring the investment performance of the plan investments, the fiduciaries must evaluate 30 separate accounts in addition to the plan’s other options. Getting monthly or quarterly statements from the plan’s brokerage window provider should be relatively easy, and a quick review will identify how participants are making use of the broad flexibility that the brokerage window affords. The more difficult issue is what to do with the results of the review.


A fiduciary has no obligation to provide participants with investment advice and may incur liability for doing so. ERISA does not permit the plan to refuse to implement a participant’s investment direction simply because the plan fiduciaries think the participant is making imprudent choices. So if participants are making imprudent use of the brokerage window, the only prudent solution is to cease offering this as an investment option. Recognizing this potential outcome in advance, wouldn’t prudence suggest that plans should avoid brokerage windows altogether?


Some will argue just the opposite: that section 404(c) was intended to extend relief from liability to fiduciaries of plans that offer brokerage windows, irrespective of whether or not prudent use is made of that investment option, and that removing both the right of a plan to interfere with a participant’s investment direction and the obligation to provide investment advice are part of the regulatory relief regimen. This argument has merit, but a court has yet to support it and, in the meantime, fiduciaries that ignore the activity within participants’ 401(k) brokerage accounts do so at their peril.


Finally, leaving aside the issue of regulatory relief from liability, should an employer who is truly committed to ensuring that employees use their 401(k) plans to achieve a secure retirement income offer an investment vehicle that— more likely than not—will thwart that goal? Would it ever be prudent to offer generally unsophisticated investors, who might not otherwise have a brokerage account, so much latitude with their retirement nest eggs?


Consider the participant who does not take advantage of the breadth of diversification offered by a brokerage window but instead invests his entire brokerage account in the stock of a single issuer that goes belly up? What’s the prudence of such a strategy, which is entirely feasible within the brokerage window? Consequently, from a best practices or “prudent expert” standpoint, does a brokerage window make sense?


A study conducted by Vanguard, “Red, Yellow and Green: A Taxonomy of 401(k) Portfolio Choices” (June 2007, the Pension Research Council), found that 57 percent of 401(k) participants make asset allocation errors in terms of diversification and/or equity weighting (meaning they are too aggressive or not aggressive enough). This suggests that such errors may arise, if not multiply, within a brokerage window.


Lifestyle and target-date funds point the way to placing investment decisions in the hands of professional managers, and many experts argue that 401(k) plan participants should no longer have the right to direct their investments. This stands in stark contrast to the use of a brokerage window. But even if one does not go so far as to remove participants from the investment process, there are clear questions of prudence that employers should consider when evaluating a brokerage window. They must decide whether this option will truly help employees achieve retirement income security.


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When Your Employee Complains About Being Sexually Harassed by a Customer

One of the most emotionally charged situations you can encounter with a customer is when one of your employees complains of being sexually harassed by a customer’s employee or employees.


This can and does happen in a wide variety of situations. Common situations would include those in which your employees are working on a project at the customer’s location or under a customer’s supervision. In the staffing industry, this is a very common problem. By definition, temporary employees are always working under customer supervision. An isolated sales call by one of your employees also can result in a complaint when the customer’s representative goes a bit too far in expressing his or her admiration for your employee.


If your employee is a visitor at a customer’s work site, one of your customer’s employees may consider your worker to be a potential target: There is a misconception that a non-employee is not protected by the anti-harassment laws. Very often, the customer—the alleged harasser’s boss—may feel threatened about potential liability and may attempt to take control of the situation in one way or another. You, on the other hand, will want to handle the situation properly without unnecessarily upsetting the customer.


Although the customer does have substantial responsibility in following through with an investigation following the complaint, you should maintain control over certain procedures, such as the intake of the complaint, reporting the complaint to the customer, making sure your employee is provided with all of the necessary legal protections, and that your other employees are protected from potential harassment. Consideration should also be given to potential conflicts of interest with the customer. A typical example would be the tendency of uninformed customers to basically ignore the complaint, thinking, “This is your employee and your problem.”


The following is a step-by-step guide on how this procedure should be handled by your company and the customer:


1. Your employee, your procedure: If you want to maintain your status as an employer—and most customers would expect you to do so—it is very important that your employees are aware of and follow your company’s procedure for incidents of alleged sexual harassment. Most important, they should understand the person or persons to contact about the complaint.


This procedure is an important and mandatory legal requirement that should be in included in your sexual harassment training. There are various methods of communicating this information to your workforce, and the procedure should be carefully developed by your HR and/or legal departments. The procedure should be posted at the customer location where your employees have regular access. The people responsible for obtaining the complaint information from the employee should be trained members of your staff or, in some cases, a trained on-site supervisor.


2. The complaint: One of your most important legal responsibilities as the employer is to obtain information on the allegations from the employee. It is also in your best interest to know about the allegations so that you can ensure, within your ability to do so, that steps are being taken in accordance with legal requirements.


Although at first most employees speak to a supervisor about the incident, it’s preferable that the employee be requested to prepare a written complaint. If the employee is not willing to do that, the person receiving the complaint should take notes and, time permitting, prepare a written report.


Putting the report or complaint in writing will preserve all the information available at the time and also provides for an easy way of presenting a written account to the customer. The written report or complaint should include all relevant details, including identification of the alleged harasser, when the harassment occurred, a detailed description of the harassment, how many times it occurred, whether the complainant objected to the behavior. Most important, it should indicate whether there were any witnesses to what happened and identify them. You should thank the employee for coming forward and inform the employee that it will be necessary to disclose the employee’s identity and the identities of any witnesses when you report the complaint to the customer.


After making a complaint, some employees will request that you not take any further action. You should let them know that you are legally required to take further action and have no choice but to report the complaint to the customer. From a practical standpoint, assurances of confidentiality usually prove to be impractical as the case moves along and should be avoided.


Please keep in mind that whether or not the behavior that your employee experienced actually constituted sexual harassment is not an issue on which you should pass judgment. If the employee believes that there was harassment, you have a duty to promptly report the complaint to the customer, regardless of the nature of the complaint or your personal evaluation of it. It is then the customer’s responsibility to determine whether the alleged behavior constituted sexual harassment and to take whatever action may be appropriate.


3. The customer: After you have received all relevant information about the complaint and made sure that information is included in written form, the allegations should be promptly referred to an appropriate customer representative.


Since the alleged harasser is a customer’s employee, the customer is legally obligated to make the investigation. The law requires that the complaint be reported at the earliest possible opportunity, which should usually be on the same day you receive the complaint. The person you choose to contact should be considered carefully and should be in a position to both understand the implications of what has occurred and have the authority to take appropriate action. Appropriate contacts could include a representative of the human resources department, an officer or a manager. When in doubt, in most cases, the HR supervisor should be contacted.


The person to whom you report the complaint should not be the alleged harasser or be implicated in any way in the harassment that’s been alleged. When you report the complaint, you should ask that the customer investigate, take whatever corrective action is necessary and keep you informed. The law requires that prompt corrective action be taken if warranted. If it appears that the customer is dawdling, you should discuss that issue with the customer.


4. The complaining employee: Any action that adversely affects the employee after the complaint is made could be considered retaliation for having filed the complaint. Retaliation is strictly prohibited and can be the basis for a cause of action in itself, regardless of what actually happened.


The complaining employee has every right to continue working at the customer’s location if the employee chooses to do so. Do not suggest, request or require that the employee accept another work assignment. You should ask the employee to notify you immediately if the harassing behavior continues. If the employee decides to leave the assignment, you should attempt to locate another assignment for the employee on a priority basis and, if possible, avoid any discontinuation or reduction in salary. It would also be helpful if the employee would confirm in writing his or her wishes to leave the assignment. This could be used to protect you from any future allegations that the employee was unwillingly removed from the assignment.


There is one exception to this approach. The customer may have a legitimate concern about having the employee continue to work at the same location during the course of the investigation. The employee may be working in a gossip mill or in other adverse circumstances.


It may be possible to avoid the ramifications of retaliatory action if the employee is put on paid leave with the expectation of returning after the investigation is completed. However, the risk with that approach is that the employee may feel victimized by being made to leave, will not return and may be more inclined to file a discrimination charge with the Equal Employment Opportunity Commission or a state agency, regardless of the result of the investigation. If it is necessary for the employee to leave the location, it would be only fair for the customer to reimburse you for the compensation paid to the employee during the leave.


5. Other employees: If there are other employees who are working in the same area with or for the alleged harasser and who may also be subject to sexual harassment, you should discreetly check with them to determine whether they are encountering any similar problems. This does not mean that you should relate that a complaint was made. A simple inquiry about how things are going should be sufficient. These discussions should be documented.


6. Conflicts of interest: Under EEOC regulations, if you accede to a request by the customer to take adverse action against the employee—which is considered retaliation—you will be considered as guilty as the customer. If the customer takes or proposes to take adverse action against the complaining employee, you should attempt to educate the customer about retaliation and to convince the customer that such actions are dangerous and unwarranted.


Another way to prevent this from happening is to put the customer’s legal representative in touch with your legal representative. Attorneys and other advisors will readily recognize the danger of retaliatory action and may be in a good position to exert their influence.


If all else fails, you should make it clear to the employee that you were not responsible for the action being taken and that in fact you objected to it. You should also inform the customer in writing of your concern about the adverse action and make it very clear that you disagreed with it. A letter may be very helpful as evidence to demonstrate that you had no part in the retaliatory action.


You may think that the customer can be trusted and that a letter is an unnecessary formality. However, when the customer is being investigated, the customer and those of his employees who are responsible for the retaliation will have a strong motive to place the blame on you. You should also seriously consider discontinuing service to such customers. A customer that, in spite of your warning, takes retaliatory action is reckless, uninformed or both.


Carefully review all customer contracts to avoid accepting responsibility for the customer’s illegal actions. It is very common for contracts to include provisions in which you agree to “defend and indemnify” the customer against any liability arising from the presence of your employees at the customer’s facility. Such language could be interpreted to extend to sexual harassment complaints by your employees against the customer. It may seem absurd and unfair, but in many states, those provisions are enforceable. Rather than just accept such contract language, you may be able to negotiate an agreement at the outset of the relationship by making it clear that both parties assume responsibility for the legal consequences of their actions.


7. Follow-up: When the customer has completed the investigation and determined what disciplinary action, if any, is necessary, it is important to provide the complaining employee with a status report. It would be appropriate for the customer to provide this information directly to the employee. If the customer requests that you do so, you should simply report the information the customer gives you, and explain to the employee that you were not involved with and had no control over the investigation or the determination of what action should be taken.


If the employee disagrees with the investigation’s result, she or he should be referred to the appropriate representative of the customer for further discussion. If you believe that the customer did not take the allegations seriously, you should seriously consider severing your ties.


8. Records: A copy of the complaint, your notes and any other written information regarding the alleged harassment, its investigation and its disposition should be kept in a separate file. Do not record any information regarding the complaint under the employee’s employment records. It may also be a good idea to forward the file to your attorney or your legal department to preserve attorney-client privilege.


A final thought: These recommendations for dealing with your customers are intended to protect you from potential legal liability. They do not take into consideration your relationship with the customer and other intangible factors. If your attorney and the customer’s attorney are cooperating, or if you are confident that the customer will take responsibility for the actions of an employee, some of these formal protective measures may be unnecessary. There is no doubt that allegations of sexual harassment across company lines can strain relationships. It is wise to keep a close eye on these situations and hope for the best, but plan for the worst.


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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.