Category: Staffing Management

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Inside Outplacement

Nearly 20 million Americans were either laid off or discharged from their positions in 2013. While it’s a startling figure, it’s still 928,000 less than the total in 2012 and 4.1 million less than in 2008 as the Great Recession hit its peak, according to the U.S. Bureau of Labor Statistics.

While the path toward full-fledged economic recovery is still far from complete and layoffs continue, executives are increasingly recognizing that the ways in which restructuring is implemented and organizations are positioned for growth are directly affected by the way they treat both exiting and remaining employees.

The benefits of offering outplacement services to affected employees — one-on-one career coaching and support that the employer provides to employees leaving the organization because of a restructuring, layoffs or a reorganization — goes beyond the altruistic motivation of helping them get back on their feet. Outplacement can help drive an organization’s productivity, profitability and brand value, as well as support former employees in need at a critical time.

Although a half-century has passed since outplacement services were first initiated, they are increasingly tied to employer brand during times of change. Such branding is of the utmost importance to companies, as it can have a direct impact on attracting prospective employees, driving engagement and overall productivity. In fact, research from LinkedIn Corp. reports that employees are driven by employer brand twice as much as company brand when it comes to seeking new positions. Thinking about a company as a good place to work is becoming as important as knowing about a company’s products and services.

48 Hours

By offering outplacement services
within 48 hours of job-loss notifications, companies will gain positive returns
on investment, as well as an enhanced employer brand.

Timing matters when it comes to protecting your employer brand during restructurings. Whether your departing employees speak highly of your company and recommend it to friends and family, or discuss their terminations negatively, lies primarily on how they were exited and how quickly they were offered outplacement support.

The first 48 hours after being notified of a job loss are critical. Early intervention makes a difference in encouraging individuals to look forward to a new future, rather than look backward angrily at their former employer.

Needless to say, looking backward has a much greater incidence of negativity, litigation and potentially harmful social media exposure. By receiving guidance early on, affected employees can start their new job search with a forward-looking mindset that helps them engage early and often with personalized coaching, assessments and all the tools and technology that can really set their job search apart from others.

As you help exiting employees re-enter the job market easily and quickly, they will be more secure about their futures and be more willing to endorse your company online and in person, and especially among their peers and former colleagues.

At the same time, remaining employees will be comforted to know that even when terminations are happening around them in the workplace, their companyis doing the right thing by taking care of departing colleagues and providing them with the support they need to restart their careers quickly. In the end, timing matters. The sooner you prepare exiting employees for their future careers, the sooner you can reduce your unemployment benefit costs and further enhance your employer brand, both in-house and publicly.

For a noticeable return on investment, enact your outplacement services in a timely manner — preferably within 48 hours of job loss notifications.

—Bram Lowsky

With employer brand becoming a vital initiative, Right Management recently commissioned a survey to examine how organizations make decisions on outplacement. (Editor’s note: The author works for Right Management.) Our survey also focused on how employers assess the benefits of outplacement and how these services can contribute to future growth after times of change.

At face value, top employers choose outplacement to manage their obligation to help exiting employees find new employment. However, in today’s world, where social media can generate both positive and negative brand awareness in minutes, there are additional corporate motives to offer outplacement. Our survey showed that 85 percent of organizations that offer outplacement reported it was either “very” or “extremely important” for them to maintain positive relationships between current and departing employees. In addition, 82 percent believe outplacement is a necessary service to initiate in order to protect their company’s brand during times of change and economic uncertainty.

There’s more than what meets the eye when thinking about outplacement as a benefit to the bottom line. And to learn more about the employer motivations for investing in outplacement services, Right Management surveyed more than 1,700 business leaders and human resources professionals from 10 countries in 2013. The research identified critical ways outplacement services positively affect productivity, engagement and cost reduction.

Companies that offer outplacement services to former employees reinforce their commitment to their workforces, even in the midst of change management, acquisitions, mergers or financial losses. This commitment has a big impact on the employees who remain on staff, as they also must accept new responsibilities and working within a leaner team. The survey found that more than a third of companies offering outplacement services notice an increase in worker productivity within 12 months of a major restructuring.

Outplacement also positively affects employee morale, as workers have more confidence and trust in their employers. As evidenced by the survey, outplacement has a measurable effect on employee morale, which rose for 28 percent of the employers that provided it to transitioning staff compared with 20 percent of employers that did not offer outplacement after announcing a major restructuring or layoff.

At the same time, 38 percent of employers offering outplacement services reported a rise in employee satisfaction within one year of a company downsize, compared with only 14 percent of employers that do not provide outplacement services to individuals leaving the organization.

“At Procter & Gamble we care about our employees, and during times of change we offer outplacement services to those impacted to give them career guidance and support to find new employment and lead successful careers,” said Bruce Williams, North America associate director of employee relations at Procter & Gamble. “What’s more, employees that remain are reassured of our company’s commitment to our purpose and values, knowing that we are being responsible and respectful with our change management.”

Last year, LinkedIn’s Hiring Solutions Insights team conducted a survey of 7,250 LinkedIn users focusing specifically on employer brand. The survey found that respondents under the age of 40 were 61 percent more likely to relate job consideration with employer brand than older employees; furthermore, companies’ turnover rates were 28 percent lower if they had reputable brands, in comparison to companies with weaker brands.

As the LinkedIn survey suggests, the growing importance of employer brand adds a new dimension to HR’s role in protecting and building employer brand during times of change for the organization. By offering outplacement, HR can help minimize the risks of creating negative employer perceptions among future job candidates. 

Ultimately, exiting employees are more motivated to speak highly about their former employers if they receive outplacement assistance, whether they are sharing their viewpoints during in-person conversations or on social media outlets, job boards and employer review websites. When former employees describe companies in a positive light, their employer brands will be protected and promoted, ultimately making it easier to recruit “cream of the crop” employees in the future.

Although a main motivation for offering outplacement is to treat exiting employees with support and respect, and to help them find new jobs quickly, the importance of building relationships and engagement within the organization cannot be overlooked.

The Aberdeen Group, a business intelligence research company, found that 48 percent of surveyed companies, which offer outplacement programs, have mostly “highly engaged” employees — more than 60 percent of their staff members in all. To compare, only 33 percent of companies not offering outplacement had as high of a percentage of highly engaged workers. Moreover, sick days decreased for 28 percent of Right Management’s survey participants that purchased outplacement programs, compared to 18 percent of respondents that did not.

Reduced Exposure to Litigation

Outplacement also can have a positive influence on employees departing from companies, especially with regards to litigation. When offered outplacement assistance, laid-off or discharged employees are typically less discontented with their former employers and tend to focus more on their future careers.

According to the survey, within the Americas, only 34 percent of businesses offering outplacement programs reported lawsuits from former employees, whereas 42 percent of companies that did not offer outplacement services were sued. Litigation is certainly one of the top concerns for companies that discharge or lay off employees. It’s clear that offering outplacement and encouraging exiting employees to participate in the program helps to limit legal risk.

For a wide array of reasons, employee recruitment and unemployment benefit costs often decline when outplacement solutions are in place. Employers can experience significant decreases in turnover, employee recruitment expenses and unemployment costs as a result of outplacement. 

Case in point: 17 percent of survey respondents with outplacement service programs verified their employee turnover diminished ever since they initiated the programs. Our survey also reports that 24 percent of outplacement purchasers in the Americas documented a decline in employee recruitment costs — double the amount of nonbuyers that reported cost containment. And as outplacement accelerates connections to new employment for those leaving the organization, unemployment benefit costs regularly diminish. After all, the total cost of unemployment benefits is directly influenced by the frequency and duration of employees’ joblessness.

Outplacement offerings have come a long way with the advent of job boards and new technologies that accelerate connections between candidates and employers. That said, nothing can replace the value of one-on-one coaching that provides individualized assistance to landing a new opportunity. Right Management data show that career assessment, counseling and résumé support are viewed as the most valued and frequently used component of an outplacement program.

Bring in the Coach

Career coaches provide personalized assistance that helps reset the employability mindset of someone who may be uncertain about how to build a winning job search plan and who may also have low self-esteem and lack of confidence after being laid off. When individualized coaching is combined with new technology, separated employees receive the multiplier effect that enables successful and accelerated outcomes.

• Personal website technology. Personal websites help individuals establish personal brands, clearly communicate strengths and break through the clutter from other job seekers. Increasingly, hiring managers are turning to personal websites when vetting candidates. An outplacement provider should have access to and provide coaching on how to build personal websites for transitioning employees.

• Career fairs. Virtual and in-office career fairs are changing how candidates connect with employers across industries and geographies. New virtual technology bridges the gap between a captive hiring audience of leading employers and skilled professionals looking for employment after a transition. The best outplacement providers offer innovative technologies to connect employers and candidates readily and easily.

• Exclusive job platforms. Insider job platforms that offer access to hidden jobs and hiring decision-makers must be an essential component to any outplacement solution. There’s real value in providing quality, targeted job postings and insights that are not offered to the general public.

• E-learning connections to build skills. At times, exiting employees will decide to pursue new job opportunities within entirely different industries or they simply need to upgrade a particular skill set. To prepare employees for new career opportunities, outplacement experts will provide training options and e-learning courses to help candidates advance their knowledge and/or develop transferable skills to help them land the new job.

Whether companies are shrinking their labor forces to cut costs or readjusting their strategies, outplacement services can help brand image, bottom-line performance and provide needed assistance to employees transitioning to new jobs.

Bram Lowsky is group executive vice president of the Americas and global head of career management for Right Management. Comment below or email editors@workforce.com. Follow Workforce on Twitter at @workforcenews.

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‘Hardcore Pawn’s’ Les Gold: The Motor City’s Wheeler-Dealer Dishes on Management, Part One

Les Gold is the star of the truTV reality show “Hardcore Pawn.”

When I wished Les Gold a happy belated birthday, the 64-year-old star of the show “Hardcore Pawn” jokingly retorted: “What’d you get me?”

I quickly responded, “It’s in the mail,” which got a laugh, but what I should have said is: “Like you of all people need more stuff!”

Anyone who has watched the reality show on truTV knows Gold — a lifelong pawnbroker who runs American Jewelry and Loan in Detroit with his children, Ashley Broad and Seth Gold — has purchased and pawned everything from electronics to jewelry to sports memorabilia to the infamous van once owned by Dr. Jack Kevorkian. The show is known for the wheeling and dealing, testy exchanges and unruly customers who sometimes come into the store and then get shown out the door.

Gold has been in the pawn business since he was kid. He used to go into his grandfather’s pawnshop where he learned the business. His grandfather, who he called “Popsie,” was Gold’s greatest mentor. His father also worked at the store, but they had a rocky relationship.

Occasionally Gold’s cantankerous side comes out on TV when he’s dealing with customers, but he says he can always control his temper, something he attributes to astrology. Well, almost always. One customer, Gold said, got “moved into a planter” when that person acted inappropriately toward his daughter.

Gold answered a range of questions on management, business issues and the reality of reality TV, but the one question he had the most trouble answering was what his title is. He had to confer with his daughter who was in the car with him, and then he finally came back with “owner.” Hey, he’s the boss.

An edited transcript of our talk follows.

Whatever Works: I just read your book over the weekend and I was fascinated by your relationship with your grandfather, who you called ‘Popsie.’ How important do you think mentors are in the workplace, and what constitutes a great mentor? It seems like a lot of companies don’t really take into account the importance of mentoring and what it means for succession planning.

Gold: You know one of the things that people don’t understand is you can come out of college and be book smart, but until you really get into the workplace, you don’t really know how to perform. And my theory is that somebody teaching you and taking you under their wing is probably the most important thing anybody could ever have. And the gratitude that you get, once you do that, speaks volumes. I can only speak about a young man that works for me. His name is Brian Lattin. And when Brian Lattin was 17, he was a stock clerk at [Arbor Drugs]. It was taken over by CVS. And throughout his tenure, he went to college, and … he wanted to work part time at American Jewelry and Loan, and I took him under my wing and I groomed him into the type of employee that could run the operation. And I said, ‘If you listen to what I have to say and if you listen to the wisdom that I give you, you will have a beautiful life, a beautiful house, a wonderful experience.’ And right now, 18 years later, he runs my business.

WW: What was the greatest ‘gift’ you received from your grandfather in terms of mentoring?

Gold: Being a pawnbroker’s a little different industry. There was so much advice that he gave me about negotiating and selling that there was [not] one specific idea that he gave me. It was a multitude of ideas. And any mentor’s going to give you a multitude of ideas. There’s not one specific item. Taking care of the customers is very important, but because of the pawnshop, there’s different areas that you have to be an expert in.

Dealing on Detroit

Whatever Works: So you’re a big supporter of the Detroit area.
Les Gold: I am.

WW: I recently came across a study from a website called WalletHub.com, and it listed the 150 best cities to start a career, and Detroit came in at No. 145 on that list. What do you make of that?
Gold: I think that’s low on that scale. I think that it should have been much higher. Right now we’re having a resurgence in Detroit. Dan Gilbert [of] Detroit Venture Partners is doing a lot of investing in Midtown Detroit with a lot of startup companies. You can’t get a loft in Detroit right now because all these new entrepreneurs are moving to the city. There’s a big resurgence in technology development. We are moving away, too bad to say, from the old era of car manufacturing. So the manufacturing industry in Detroit is diminishing, but the technology portions are coming in strong. And there’s a lot of work. There’s a lot of labor needed in Detroit. It’s a great place to put a startup company.

WW: So the bankruptcy is obviously not behind Detroit, but you think it’s going in the right direction?
Gold: You know, it’s been a while. You don’t just get bankrupt overnight, and it’s not going to be an overnight recovery, but the way it’s going right now, it’s going to be a much faster recovery than anybody could have ever imagined.

WW: How important is it for a business to innovate during those hard times?
Gold: We are in an industry [pawnbroking] that’s 3,000 years old. … Within the past 40 years that I’ve been in the business, there’s been such a swing every single day, and especially in 2008 when the economy went bad. I had to make sure that I had enough money to support the needs of my customers. … In the downturn, when the economy went south, I started selling little diamonds, which are called ‘melee,’ to Israel and to India to remanufacture jewelry, because I needed to keep an influx of money. … To answer your question, innovation in any industry is most important. If you have blinders on and all you’re looking for is the end of the road, you’re never going to be innovative. You’re never going to be successful.

—James Tehrani

WW: So let’s talk about running a family business. It’s got to be pretty tricky to run a family business.

Gold: One of the things that I’ve always been an advocate of is: Family’s most important. And when Ashley and Seth came to work in the business, one of the things I said is, ‘I’m your boss from 9:30 to 6. I’m still your father, but I’m the boss of the business.’ And one of the things that I have to make sure of is whoever has the best idea, we’re going to utilize that idea. When one of them is right and one of them is wrong, I don’t have a problem calling them out on that. So that’s one of the things that I have to be is neutral to the point of being their father, but I’m definitely one-sided when it comes to who’s right in the business.

WW: And you win at the end of the day.

Gold: Well, the store wins at the end of the day. … One of the things that I’ve learned when you talk about the next generation is: A lot of times the next generation screws up the business. I have to make sure that when the day comes that I depart this world, that American Jewelry and Loan is run correctly, and I have to make sure that Ashley and Seth know the fundamentals and the things I expect them to do to make sure the business survives after I’m gone.

WW: So how do you balance what’s good for your family, what’s good for your business and what makes good television?

Gold: Television is going to come and go. When we film the show, we film from 9:30 to 6, six days a week. American Jewelry and Loan is in business 9:30 to 6 365 days a year. When the cameras aren’t there, we still know what the importance is of running a pawnshop. The family’s always going to be together, so that’s not even an issue. But what makes good TV is just that the TV cameras are there, and they pick up everything that goes on during the day. We don’t do anything specific to enhance the cameras. When you’ve watched Ashley and Seth argue and you see Ashley cry and run out of the store, she’s not an actor — well, she’s a good actress as far as getting our emotion out, but for the TV cameras, it’s the way it is. We give the cameras the real feelings that we possess. One of the things that I did specifically when we signed our deal with the production company is, I said, ‘Listen, we’re not make-believe. Every dollar that you see me spend is going to be our money. I don’t want to know what’s coming in. I don’t want to know what the customers are going to do because then it would take away from the most realistic television show on television.’

WW: In your book I found this fascinating, you talked about how you can turn it on and turn it off in terms of when a customer gets unruly with you and you lose your temper. You say that you’re always under control and it’s not an act. How are you able to do that?

Gold: I’m a Gemini. One of the great things about being a Gemini is there’s two of me inside of me. So when I start arguing with a customer or I start getting a little irate, the other person inside of me is still the calm, collected Les Gold that can run a business. I want to make sure that I never overreact to the point of I can’t reel myself back in.

WW: Have you ever gotten to that point?

Gold: Maybe there was a time when somebody did something inappropriate to Ashley that I lost my cool and kind of moved the guy into a planter. But other than that, I always make sure that I have a cool head inside that wild exterior.

WW: When the cameras aren’t rolling, are the customer more easy-going? Is it just because of the cameras that some people feel like they need to do crazy things to get on TV?

Gold: We deal with customers every once in a while that once we say no, they have no options. So their emotions take over. Maybe the cameras heighten it up a little bit, but sometimes people once we say no have this emotional level that they can’t control themself because where are they going to go? Twenty-five million Americans don’t have a bank account or a credit card. Their last resort is coming to the pawnshop. Sometimes when we say no, their emotions take over and they have no other option. They don’t have that cool, calm, collected self-control that Les Gold has.

Note: To read part two of this interview, please click here.

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Three Tips to Protect Employees Overseas

With the globalization of the marketplace, more employers are sending employees overseas to work.

While the business opportunities for a global employer may be limitless, so is the potential liability for failing to protect employees from myriad dangers they could face while traveling or working abroad.

From political upheaval in the Ukraine to a breakout of viral hemorrhagic fever in Guinea to kidnapping in Pakistan or a poisonous spider bite in Australia, employers have a legal and moral duty to protect their employees from harm where the harm can be reasonably anticipated. Advanced planning can help employers avoid or mitigate any emergencies that might occur. 

1.    Assess risks and develop a plan:

A thorough risk assessment should be made before sending any employees overseas. Maybe the travel destination is not known for kidnappings political unrest or terrorism, but what if an employee falls in the shower and hits his head? What if the employee is in a serious car accident? Will your U.S. medical insurance cover the employee’s medical expenses? Will the employee be covered under state workers’ compensation plans even while on overseas assignment?

Employers may want to contract with a specialty firm that provides in-country medical and evacuation services in the event of a medical emergency.    

At a minimum, employers should be familiar with the country’s medical system and understand what an employee needs to do to access emergency medical care. What if the employee needs surgery? Is the local blood supply safe? Depending on the destination-country’s health care system, employers may want to consider contracting with a local medical group to provide care or evaluate an employee’s need for evacuation.

Prudent employers will also plan for less likely possibilities. What if the employee or a close family member is kidnapped? How will employees be assisted in the event of prolonged political unrest or rioting?

The U.S. State Department website (state.gov) is a good place to start with any risk assessment, and provides a helpful outline of risks for a particular country. An international risk management firm also may be able to assist the employer to determine a plan for any particular country, and may even be able to provide in-country assistance should a security or medical emergency arise. 

2.    Train employees before departure:

While it is always a good idea to provide employees with cultural sensitivity training for the travel destination, personal safety and security training targeted to the travel destination should be included, and employees should be aware of any plans to protect their safety. The most frequent problems encountered by employees traveling overseas are petty theft and minor illnesses, but even minor incidents can escalate into big problems if the employee is unprepared.

In addition to warning employees about the inherent risks of travel and any specific risks associated with the travel destination, employers should spell out the types of assistance available and give contact information for emergencies. Before designating a resource, be sure that a person or group is available at all times (employees may be traveling to a country in a different time zone) and has enough local knowledge to assist in the event of a crisis.

3.    Track your traveling employees:

Although employers must be sensitive to employee privacy concerns, prudent employers should have a general sense of where their employees are at all times. Consider asking employees to “check-in” whenever they arrive in or leave a country, and security or human resources staff should continually monitor the political and security situation in each country to which employees travel.  

Danielle S. Urban is an attorney in the Denver office of national labor and employment law firm Fisher & Phillips. Contact her at durban@laborlawyers.com. To comment, email editors@workforce.com. Follow Workforce on Twitter at @workforcenews.

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SAP Acquires Contingent Staffing Tech Firm Fieldglass

employee communication co-worker

German tech firm SAP announced plans to acquire contingent staffing software maker Fieldglass. Terms of the deal, which is scheduled to close in the second quarter, were not disclosed.

Fieldglass’ cloud-based vendor management system meets the growing demand among employers to manage flexible workforces that can be quickly engaged and on-boarded to support rapidly changing business and customer needs, according to an SAP release announcing the March 26 deal.

Combined with the collaborative, network-based procurement capabilities of Ariba and the human resources expertise of SuccessFactors, the acquisition uniquely positions SAP to deliver a platform for businesses to manage their entire workforce — both temporary and permanent staff — from initial recruiting and on-boarding to ongoing development, performance management, retention and retirement, SAP said.

The combination of Fieldglass’ market-leading VMS solution with SAP promises to transform workforce management. It will enable a flexible and comprehensive approach to managing the entire workforce and life cycle, beyond the traditional focus on the employee record that characterizes many systems today, SAP said.

Contingent labor and statement-of-work services is a $3.3 trillion, high-growth market according to industry analyst estimates.

Fieldglass will continue to build out its global team and operations and retain its identity and continue to operate independently as an SAP company in its cloud line, according to a press release.

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Nondisparaging Remarks

I'm a litigator. I prepare cases for trial, and, when all else fails, I try cases for businesses. Most people would think that I do my job best when a jury returns a verdict in favor of one of my clients. In that instance, it likely means I prepared the most, or argued the best, or thought the quickest on my feet in front of the judge or jury.

It does not, however, mean that I performed my job the best I can. In reality, I perform my job the best when I keep my clients outof court.

“That’s sacrilege,” you scream from the rafters. I respectfully disagree.

In the example where I take your case to trial and gain a defense verdict, your company has spent, on average, anywhere from $100,000 to $250,000 in legal fees (not counting the likely appeal). You’ve also tied up your business with the headaches, distractions and stress of pretrial conferences, document production and depositions, not to mention taking a huge risk that you might actually lose (no matter how well I do my job), costing your company even more.

On the other hand, if, before you terminate an employee, you call me, I might be able to save you the time, expense, aggravation and stress of a lawsuit, all for the cost of a phone call. Careful drafting of policies and agreements often achieves the same goal of keeping you out of court.

If a separation leaves bad blood between the parties, a nondisparagement clause is an easy way for a spiteful ex-employee or ex-employer to drag the other back into court.

Consider nondisparagement clauses in settlement and separation agreements. A nondisparagement clause restricts the parties to an agreement from speaking ill of the other. I hate them. OK, hate is a strong word. Let’s just say I detest how most people use them.

Yet, these clauses are exceedingly common in agreements. Familiarity, however, does not breed sensibility. They are hard to control, hard to enforce and encourage more litigation, not less. Thus, they fail my test of keeping my clients out of court.

Nevertheless, most employers insist on including these clauses in their agreements to hedge against the dead speaking ill of them.

For your consideration, here are three drafting points for your next nondisparagement clause:

1. Hard to control? Who does a nondisparagement clause bind? If it just says, “employer,” how does the agreement define “employer?” Even if you’re a small organization, can you control what Joe Coworker says about your departing employee, and do you want to have to advise every employee in your organization about potential nondisparagement obligations and control what they say? I have two suggestions to help ease the pain of this issue. First, define who, specifically, the clause covers; don’t leave it open-ended to bind your entire organization. Second, at least as job references are concerned, put some controls in place. Define who is to be contacted and what that contact-person is permitted to say. Even consider a predetermined script to limit any potential violations.

2. Hard to enforce? Most nondisparagement clauses say something like, “Employer [and Employee] agree not to disparage, or make any negative comments about the other,” which simply begs the question, what do “disparage” and “negative comments” mean? If you are serious about including this clause, define the terms. For example, your state will have a well-developed body of case law discussing and defining the meaning of defamation. This case law is a great starting point (and, maybe, end point) for this definition.

3. Encouraging litigation? If a separation leaves bad blood between the parties, a nondisparagement clause is an easy way for a spiteful ex-employee or ex-employer to drag the other back into court. Separation and settlement agreements are supposed to end the parties’ relationship and cease litigation, not act as a breeding ground for more. To cure this ill, tie a loser-pays clause to this provision. If a losing party has to pay everyone’s fees, one will think long and hard before exercising the right to sue for a breach of a nondisparagement clause. For this same reason, these clauses should be mutual, equally binding both sides.

Nondisparagement clauses are ripe for sloppy and vague drafting, which can result in parties ending up where they wanted to avoid — the courthouse. Following these three tips will help you shore up your language to create nondisparagement clauses that you can actually rely upon, and should, except in the most egregious of situations, discourage future litigation.

Jon Hyman is a partner in the Labor & Employment group of Kohrman Jackson & Krantz. Comment below or email editors@workforce.com.  For more information, contact Hyman at (216) 736-7226 or jth@kjk.com. Follow Hyman on Twitter at @jonhyman.

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The Insiders or the Outsiders?

"Insiders" who went on to lead large companies include Mary Barra, Tim Cook and Satya Nadella. Some “outsiders” include Marissa Mayer, Alan Mulally and Lou Gerstner Jr.

After a search that stirred anxiety among other boards of directors that it would poach an outsider as its new leader, Microsoft Corp. instead appointed a 22-year insider as its new chief executive.

Satya Nadella, who had served as executive vice president of Microsoft’s Cloud and Enterprise group, succeeded Steve Ballmer as the world’s largest software-maker struggles with disappointing sales of Windows 8 and to expand beyond software.

Microsoft’s announcement on Feb. 4 of its leadership transition comes after a number of other prominent companies have chosen longtime company insiders for their top jobs. At General Motors Co., a 33-year veteran of the automaker took its helm in January. At Wal-Mart Stores Inc., a 23-year company veteran became CEO on Feb. 1. And at defense contractor The Raytheon Co., a 10-year insider is slated to take charge on March 31.

By the end of 2013, more than 1,245 organizations had changed CEOs, according to Chicago-based outplacement firm Challenger, Gray & Christmas. That’s the highest rate of CEO turnover since 2008, just after the dawn of the Great Recession.

At the same time, CEOs appear to be serving shorter terms. The average CEO tenure was 8.1 years in 2012, according to The Conference Board, a business research and consulting group, compared with a decade high of 11.3 years in 2002.

The pace of change and the number of prominent transitions has corporate America again debating where to look for the next generation of leaders. The answer? A company’s decision whether to select an internal or external candidate should hinge on the skills and competencies needed to achieve the strategy of the future — and on the bench strength, experts say.

“Internal is better in every case unless you have a really deficient internal candidate,” said John Thompson, vice chairman of the global CEO and board practice, at executive-search firm Heidrick & Struggles, whose clients have included Amazon.com Inc., Microsoft and The Walt Disney Co. “External candidates should really be head and shoulders above internal candidates to be chosen.”

Indeed, companies with insider CEOs delivered better shareholder returns during their tenures, according to research from management consulting firm Booz & Co. From 2009 to 2011, insiders outperformed their regional stock market index by a median 4.4 percent, while outsider CEOs delivered 0.5 percent shareholder return.

From Within

Most companies appear to be developing their future leaders from within. Booz found that public companies selected insiders as CEOs 71 percent of the time in 2012, the most recent year from which data were available. A quarter had worked at the company their entire careers.

Boards of directors have become more involved in succession planning since the Sarbanes-Oxley Act of 2002. The reduced average CEO tenure reflects their increased oversight, Thompson said. Board members face scrutiny by investment advisers such as Institutional Shareholder Services Inc. and Glass Lewis & Co., which will recommend that shareholders withhold votes during elections if the firms believe that board members haven’t been good stewards. Activist investors also will pressure the board to act if they feel a company’s performance has lagged, he added.

Even organizations enjoying success shouldn’t reflexively seek a clone of the outgoing chief executive, said Steve Krupp, CEO of the Conshohocken, Pennsylvania-based leadership-development consultancy Decision Strategies International. They need to identify the leadership skills and attributes needed to achieve the future business strategy.

“There has to be time spent developing what the criteria are: What is the profile of the CEO of the future?” Krupp said. “That is the conversation that happens first.”

Working with the chief human resources officer, boards then can use the criteria to identify potential candidates internally and compare them with executives externally, said Jane Stevenson, who leads the global CEO succession practice at Korn Ferry International.

Some companies hire search firms to identify outsiders who match the future CEO profile, and look at their experience but never meet with them. Other boards get to know external executives.

‘Internal is better in every case unless you have a really deficient internal candidate.’

—John Thompson, vice chairman, Heidrick & Struggles

“It helps boards to hold leadership to a different standard because they start to see where the leadership stacks up and to have a firsthand perspective,” Stevenson said.

Comparing internal to external candidates also gives the board something to trumpet, said Charley Polachi, managing partner at Boston-based Polachi Access Executive Search.

“When that happens,” Polachi said, “the board can say to the press and the industry analysts, ‘We did a thorough and exhaustive search. We looked at a dozen candidates, and at the end of the day the best person to do this job is right here. And is that a testament to how good we are at developing talent?’ ”

Many companies identify an “heir apparent,” said Jim Westphal, a professor of strategy at the University of Michigan. This approach lets the current CEO mentor and train the next one.

Some of the biggest transitions in recent years followed this model.

Apple Inc. co-founder Steve Jobs promoted Tim Cook several times after he joined Apple in 1998. Jobs named Cook acting CEO during the co-founder’s three medical leaves before the terminally ill Jobs resigned in August 2011. Chip-maker Qualcomm Inc. recently promoted Steve Mollenkopf, who had been second-in-command, after news broke that Microsoft’s board was eyeing him. And before Ford Motor Co. CEO Alan Mulally took himself out of the running for the Microsoft job, Wall Street interest intensified in Ford Chief Operating Officer Mark Fields, who is widely considered Mulally’s heir apparent.

“Ford has taken grooming the next generation of leadership very seriously,” said Washington and Lee University Professor Michael Smitka, who specializes in the economics of the auto industry.

Succession planning should extend beyond one potential CEO turnover, says Korn Ferry’s Stevenson. Companies should be identifying and preparing three generations of leaders.

The first-generation leader is for the role tomorrow if the current chief executive is hit by the proverbial truck, Stevenson said, while the third generation includes candidates for a decade from now.

“What you’re looking for in the third-generation leader is probably not what you want in the first-generation leader,” Stevenson said. “Why? You would hope that the business strategy is going to change and develop over time.”

The board and CEO should be looking at strategic priorities today and down the road and linking them with the evaluation of the organization’s leadership bench strength, she said. It serves two purposes: understanding today’s talent and helping to prepare tomorrow’s leadership.

To be set on a path to the corner office, high-potential talent needs to be given rotational assignments, to evolve from functional experts to business leaders and to direct businesses within the company, said Tracy Benson, founder and CEO of the business consultancy On The Same Page, whose clients include Merck & Co., PepsiCo Inc. and Travelocity.

“They’ve got to give them a hot-seat opportunity to perform,” Benson said.

The Outsiders

Sometimes the profile of the next CEO calls for an outsider. Think Mulally, who helped turn around Ford, or Marissa Mayer who now heads Yahoo Inc. after a successful stint at Google Inc. There’s also Lou Gerstner Jr., who came to IBM Corp. in 1993 from RJR Nabisco Inc. and guided the company from the verge of bankruptcy to one of the turnaround stories of the decade.

Chief executives plucked from outside the company are more willing to make big changes, Westphal said. When a company needs dramatic change in strategy, it should at least consider outsiders.

Car rental company Dollar Thrifty Automotive Group changed chief executives twice during Maryann Keller’s 12 years on its board.

The first time, the board tapped an insider.

The second time, the board chose someone who was essentially an outsider. Scott Thompson, hired as chief financial officer in May 2008, was elevated to CEO that July. A key criterion: someone who could help the company, which Keller described as in “a desperate financial situation,” talk to banks.

“We found the right person who had that skill set, and he was able to effect change,” said Keller, who once served as head of Priceline.com’s automotive unit.

The stock rose to $87.50 a share, the price paid by Hertz Global Holdings Inc. when it acquired Dollar Thrifty in 2012, from a low in March 2009 of 62 cents a share.

Outsiders come at a price. Compensation-research firm Equilar found that — based on data from CEOs hired between January 2010 and April 2013 — externally recruited CEOs cost more. Chief executives externally hired into companies in the Standard & Poor’s 500 index received median compensation of $9.5 million, according to Equilar, compared with $7.5 million for those internally promoted.

The difference holds true across company size. Smaller companies paid external candidates an average of $2.6 million compared with $1.9 million for internal ones.

External CEOs cost more because they’re walking away from long-term incentives, said Tony Preston, chief customer strategy officer at SilkRoad, a cloud-based HR software provider. Boards also pay more for what they “perceive the value of someone is,” he said.

Preston cautions that turnover tends to be higher when an outsider takes the reins. Those executives often fill the C-suite with their own people, Preston said, and assume that “they need to fix things that are broken.”

But turnover is a risk for companies that promote from within, too. Employers risk losing runners-up, especially when the selection devolves into a “public horse race” between two or three candidates.

Executive compensation consultancy Pearl Meyer & Partners surveyed 153 Fortune100 companies and nonprofits in 2011. Of those that had changed CEOs within five years, 32 percent said key internal candidates left the firm to work for another organization or retired after being passed over. Another 31 percent said they adjusted the pay or position of those internal candidates so they would stay.

At General Motors, the board changed the automaker’s leadership structure after Dan Akerson stepped down as chairman and CEO, giving top spots to two leading internal candidates. Mary Barra, who had been the global product development chief, became CEO. Daniel Ammann, who had served as GM’s CFO and was widely considered a candidate for CEO, became president. In addition, Theodore Solso, a former CEO of engine-maker Cummins Inc., became the nonexecutive board chairman.

“While Mary Barra got the title CEO, she did not get what I would consider the kind of totality of control that her predecessor had,” said Keller, an auto industry consultant.

Boards can reduce the chances of losing runners-up by avoiding a public competition, experts say.

“When you have a visible horse race, the stakes get higher and egos get bruised,” said Krupp, who has worked with Deutsche Bank, Johnson & Johnson and United Airlines Inc.

Emphasizing leadership development helps make succession planning “invisible,” said Korn Ferry’s Stevenson.

“The more the company focuses on leadership development as a course of business all day, every day, all year, every year, the less it created a horse race,” Stevenson said. “Where it becomes problematic is when a process is started around a transition.”

If executives know they were runners-up, board members should tell them that they’re valued and point out what they could gain by working with the new CEO, said Heidrick & Struggles’ Thompson.

“If you go outside, how do you keep internal people from bolting?” Thompson says. “Sometimes, you can’t.”

Todd Henneman is a writer based in Los Angeles. Comment below or email editors@workforce.com. Follow Workforce on Twitter at @workforcenews.

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One Size Does Not Fit All: A Parable About Equity

WF_WebSite_BlogHeaders-12I’m on planes a lot for business. Recently, on a full Southwest flight, I ended up in the middle seat of an exit row next to a very large man who was seated by the window. He was cordial, but visibly uncomfortable. His long legs extended into the empty space in front of him where a seat would have been had he occupied any other row. He politely tried to retract his substantial arms enough to allow my petite frame to have some room on the arm rest. I thought about what it must be like for him to have to cram his generous body into a “regular” seat, among unfamiliar faces, smiling uncomfortably next to a tiny porthole of a window, for three hours. I wondered how he’d gotten this particular seat — one of only two on the plane he fit into. Did he pay extra for business select priority seating? Did he wait by his computer to check in exactly 24 hours before his flight to win a low boarding position? Did he just hope an exit row seat would be available, or rely on the generosity of an earlier stranger to willingly give one up?

The airline’s well-intended, equal approach to seating was having an inequitable impact on its passengers. And such is the status quo in many well-intended organizations.

Equality does not equal equity. Equality is about being fair by treating everyone the same. It’s centered within the actor and focuses on their intent. Equity is about being fair by treating everyone differently, because people are different. We have different strengths, perspectives, qualities and needs — therefore treating everyone equally (the same) lands inequitably. Equity is centered within the recipient of the action and focuses on the actor’s impact. Equity requires more thought, creativity and collaboration, but equity is superior to equality when it comes to creating an inclusive environment where people can bring their full selves and do their best work.

Good intentions aren’t enough. A well-intended, equal approach can create inequities like suppression of creativity, diminishing of talent, unfair advantages and harmful conformity. Even well-intended organizations with a commitment to inclusiveness run rampant with “covering” — employees downplaying their differences in response to overt or subtle messages of “Don’t be 100 percent you, that will hurt you. Fit in to the dominant group.”

Even equal approaches aren’t always equal. The airline’s “first come, first served” approach still privileges those who know about it, who have a computer and Internet access, and who know how to work the system to their advantage. There are options to bypass the system altogether, such as paying extra money to purchase early boarding privileges.

There’s a common metaphor about organizational and team effectiveness that you have to have the right people in the right seats on the bus to move forward. But how do we determine what “right” means? How can we create an environment that celebrates the myriad ways people are unique and brilliant when all the seats are the same size (and move the same way, face the same direction, are served from front to back, etc.)? And where exactly is this bus going?

Creating a more inclusive environment requires clarity about what is needed to support brilliance and diversity, plus ongoing responsiveness to the diverse needs of individuals. It may be as involved as tearing out all the seats and starting over, reupholstering them in some colorful new fabrics and textures, or charting an entirely new destination. But it may be as simple as just noticing who’s lined up to board, and allowing the larger people to go first or saving them a seat that fits them better than anyone else.

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Can Low-Potential Workers Become High-Potentials?

Dear What About the Also-Rans:

Most talent management initiatives focus on so-called high potentials — employees than an organization believes are capable of advancing at least two levels beyond their current position. If you consider the traditional bell curve, high potentials may represent up to 15 percent of your organization. At the bottom of the curve, poor performers represent 15 percent — leaving at least 70 percent of your people in the middle. Conventional wisdom is that organizations invest most of their training and development budget on high-potential programs, since the return on investment generally is greater. But your inquiry alludes to a bigger question: What happens with the remaining 70 percent of employees?

As HR professionals, we should be careful about labeling employees. While “high potential” is a common term applied to some people, I recommend you avoid the low-potential label. All people have potential.

Just as one cannot turn a fox into a leopard, an organization cannot turn an individual into a high-potential employee. However, your company can provide every employee with an opportunity to develop their talents, skills and competencies, which indeed reflect their potential.

The question you’ve raised also points to a larger fundamental issue: Who within the organization takes responsibility for employee development? Is it the organization itself or the employee? It’s my belief that the employee is responsible for his or her own development — but your organization must serve as a catalyst to help unlock their full potential.

Not everyone wants to advance two levels and frankly, even if they did, your organization likely would be unable to meet the sustained demand. Your goal: facilitate processes that enable each person to strive to reach their potential. This begins with conversation between your managers, employees and immediate supervisor about career aspirations, strengths and developmental needs. 

While seminars, classroom training and degree programs are worthy endeavors, the most effective learning occurs from on-the-job-experience. Short-term special projects, stretch assignments, task forces, cross-training, broadening responsibilities and lateral job rotation enable employees to demonstrate potential beyond their current roles. Some employees may welcome the additional opportunities. Others value stability and may simply be content to perform their job to the best of their abilities and remain in their current position, and that has value too.

Perhaps only a small percentage of your employee population will ultimately be designated as high potentials and capable of advancing two levels. However, you strengthen your talent base, enhance performance and create a desirable workplace by helping people unlock their full potential. That’s the essence of HR professional.

SOURCE:Jeffrey Husserl, CoralBridge Partners,Chicago, Feb. 13, 2014.

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It’s Time to Update Your Severe-Weather Policy

How bad is the weather going to be in Cleveland today? It’s so cold that even the Horseshoe Casino is closed. You can’t even get hot at the tables.

In light of these historically frigid temperatures, I’m re-sharing a post I ran all the way back in 2010 on workplace severe-weather policies, including including how to handle issues such as attendance, wage and hour, and telecommuting:

  1. Communication. How will your business communicate to its employees and the public whether it is open for business or closed because of the weather? Are there essential personnel that must report regardless of whether the facility closes? Phone chains, email blasts, text messages, and even social media updates are all effective tools to communicate this essential information.
  2. Early closing. If a business decides to close early because of mid-day snowstorm, how will it account for the orderly shut-down of operations? Which employees will be able to leave early and which will have to remain to ensure that the facility is properly closed? Is there essential crew that must stay, or is there an equitable means to rotate who must stay and who can leave?
  3. Wage and hour issues. To avoid jeopardizing exempt employees’ status, they should be be paid their full salary when a company closes because of weather. For non-exempt employees, however, it is entirely up to the company whether to pay them for a full day’s work, for part of the day, or for no hours at all. Will employees have to use vacation or other paid time off if they want to be paid for the day, or will the company consider it a freebee? If your company closes but an employee does not get word and reports to work, will the company pay that employee anything for reporting?
  4. Attendance. Will the absence be counted against employees in a no-fault or other attendance policy, or defeat any perfect attendance bonuses?
  5. Telecommuting. If your area has frequent bouts of severe weather, consider whether you want to allow employees to telecommute. Even if your business does not typically permit employees to work from home, exceptions for exceptional weather could potentially save you lost productivity.

Please be safe and stay warm.

Jon Hyman is a partner in the Labor & Employment group of Kohrman Jackson & Krantz. Comment below or email editors@workforce.com.  For more information, contact Hyman at (216) 736-7226 or jth@kjk.com. Follow Hyman on Twitter at @jonhyman.

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How the ADA Covers Organ Donors

Every now and again I come across a case that offends my sensibilities. Rope v. Auto-Chlor Sys. of Wash., Inc. (Cal. Ct. App. 10/16/13) is one of those cases.

When Auto-Chlor hired Scott Rope as a branch manager in September 2010, he told his new employer that he planned to donate a kidney to his physically disabled sister in February 2011. In November 2010, he formally requested a 30-day leave of absence for the kidney donation and his recovery thereafter. His manager promised to “look into it.” Instead, on December 30, 2010, he fired Rope.

The court had little issue concluding that Rope’s disability discrimination claim could proceed. “Rope has thus met his burden to show the adverse employment action occurred under circumstances raising a reasonable inference that the disability of his or her relative or associate was a substantial factor motivating the employer’s decision.”

A few points to consider about this case:

  1. The Americans with Disabilities Act does not require an employer to provide a reasonable accommodation to a person without a disability due to that person’s association with someone with a disability. Only qualified applicants and employees with disabilities are entitled to reasonable accommodation. Thus, Rope could not claim that Auto-Chlor discriminated against him by denying time off as a reasonable accommodation.

  2. California has a specific statute that requires 30 days of paid time off “to an employee who is an organ donor … for the purpose of donating his organ to another person.” Rope claimed that Auto-Chlor terminated him avoid having to incur the expense of his paid leave pursuant to that law, which, in turn, equated to disability discrimination. The court agreed.

  3. Even without this specific organ-donation statute, however, the ADA likely nevertheless requires time off (albeit unpaid) for organ donation and the recovery thereafter. The ADA mandates that an employer avoid treating an employee differently than other employees because of an association with a person with a disability. Thus, if an employer grants time off to employees for their own surgeries, the ADA will require similar treatment to employees taking time off to donate an organ to one’s association or relation.

I’ve written before about the need to put the “human” back in “human resources.” This case is a textbook example. When Auto-Chlor hired Rope, it knew: (1) he had disabled sister, and (2) he needed time off to donate a kidney to her. Is is inconvenient for an employer to provide a month off to a new employee? Absolutely. Do you want to be in a position of defending your decision to fire that employee in the face of that leave request? Absolutely not. This decision is likely illegal, but it is also undoubtedly inhuman. It is that inhumanity that will cost your company dearly in front of a judge or a jury.

Written by Jon Hyman, a partner in the Labor & Employment group of Kohrman Jackson & Krantz. For more information, contact Hyman at (216) 736-7226 or jth@kjk.com. You can also follow Hyman on Twitter at @jonhyman.