Category: Archive

New York state Labor Commission officials said Monday, February 11, that they have fined businesses more than $4 million for illegally classifying workers as independent contractors, but that they had only scratched the surface of an extensive problem.

State Labor Commissioner M. Patricia Smith said a task force she chaired found more than 2,000 violations at 17 companies in the four months since Gov. Eliot Spitzer created the force. Smith noted that the work requires coordination among five agencies at the state and local level, slowing progress.

By counting employees as independent contractors, rather than full-time workers, employers avoid paying unemployment insurance, overtime, workers’ compensation insurance and other benefits.

The businesses targeted are expected to pay $1.4 million in unemployment insurance and $3 million for unpaid wages owed to workers.

Ed Ott, executive director of the New York City Central Labor Council and a longtime advocate for a crackdown on independent contractors, said the action will benefit most businesses.

“Misclassification is unfair to workers, unfair to employers who obey the law,” Ott said.

The governor’s action followed a study released last year by Cornell University professor Fred B. Kotler that estimated 700,000 workers are misclassified statewide.

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

More U.S. employers are offering voluntary benefits to their employees for two main reasons: the growing cost of health care, which has led employers to shift costs to voluntary benefits, and the desire to attract and retain employees, experts say.

According to the fifth annual Study of Employee Benefits Trends by New York-based Metropolitan Life Insurance Co., 39 percent of employers ranked providing a wider array of voluntary benefits as either “extremely important” or “very important” in 2006, up from 31 percent in 2005.

By line of business, with an estimated $4.72 billion in voluntary benefit sales in 2006, disability insurance accounted for the largest share with 23 percent, followed by life insurance at 21 percent, according to Avon, Connecticut-based Eastbridge Consulting Group Inc.

A voluntary benefit program is “an easy way for employers to address” employee needs, says Lawrence Singer, senior vice president at Segal Co., a benefits consultant in New York. “The employer’s involvement is marginal, the investment is zero or quite low, and employees get the protection by buying the product with their own money.”

Randall Stram, Bridgewater, New Jersey-based vice president of employee paid products for MetLife, says employers today are in a conundrum. They want to retain employees, help them with their work/life issues and increase job satisfaction, but they also want to control benefit costs.

“The answer that many employers are coming to is that voluntary benefits are a very cost-effective way to supplement their employer-paid benefit offerings,” he says.

“Many employees are interested in [voluntary benefits] when they’re hired,” says Kathy Croley, payroll administrator for Laurel, Delaware-based Johnny Janosik Inc., a furniture retailer with about 300 employees that works with Voluntary Benefits Systems Inc., an Ellicott City, Maryland-based voluntary benefits marketer.

“Also, we like to help take care of our employees. It’s more beneficial to us in the long run,” says Croley of the retailer, which offers voluntary benefits that include short- and long-term disability, life, critical illness, dental and accident insurance.

Voluntary benefits also help employee recruitment, said Marjorie Teague, human resource manager of Mattawan, Michigan-based Ralph Moyle Inc., a 135-employee trucking firm. It “definitely gets them more motivated to come here rather than somewhere else,” said Teague, who works with Columbus, Georgia-based American Family Life Assurance Co. of Columbus, which is known as AFLAC.

Kathy McPhillips, director of benefits for Bensalem, Pennsylvania-based Charming Shoppes Inc., which operates 2,400 retail stores in 48 states, added homeowners, auto and pet insurance and a computer purchasing program to its existing voluntary benefits last year for its 33,000 employees.

The goal was “to really enhance our overall benefits package and some things we thought would be of particular value to our associates, full- and part-time,” says McPhillips, who works with consulting firm Watson Wyatt Worldwide in Washington.

Furthermore, a voluntary benefits program gives employees “access to benefits at better rates” because they are part of a group.

“Then it allows them to pay for it through payroll deductions,” says Judy Hime, Jackson, Tennessee-based benefits manager for West Tennessee Health Care, which has about 5,600 employees.

Employees are less likely to miss a small sum taken out of their paycheck twice a month than “if they had to make a monthly or quarterly payment to the insurance company,” says Hime of the hospital chain, which has coverage through Hartford, Connecticut-based Cigna Corp.

Employers also are using so-called mini-medical plans, which cover basic medical services that include physician visits and prescription drugs, as a tool to retain employees where they may not have had medical coverage before, says Phil Grece, New York-based vice president and product manager in American International Group Inc.’s domestic accident and health division.

Increased medical costs are a factor as well.

“I think [voluntary benefits are] going to increase in popularity because the health insurance costs have continued to grow” and cutbacks in employer-paid programs are creating gaps in employees’ health coverage, says Ted Bosse, president of Voluntary Benefits Systems Inc.

“There’s many more employers that are not paying for what maybe five, 10 years ago was a traditional employer-paid benefit,” such as dental and disability insurance, says Mark Sylvester, vice president of voluntary sales at Kansas City, Missouri-based Assurant Employee Benefits, an employee benefits marketer.

“Companies are not just offering benefits for the sake of offering voluntary benefits, but they are offering it for a reason that would fit into their company benefit strategy,” says Garry Sullivan, senior vice president at Aon Consulting, a unit of Chicago-based Aon Corp. “If they just had an increase in their health care contributions for employees,” they may consider introducing an auto or homeowners program that would save employees money and help offset their higher health care costs, he says.

Additionally, employers have moved away from offering concierge-type products, such as discount movie tickets and take-home dinners, which were more common about 10 years ago, says MetLife’s Stram. “We’re seeing less of that, with more focus on the financial security, financial protection products,” which is a reflection of employers’ desire “to provide supplemental benefits to their employees.”

The suite of benefits offered to the 3,800 employees at Boston-based Blue Cross Blue Shield of Massachusetts, however, includes group universal life and long-term care insurance; legal services; pet, auto, homeowners, renters, identify theft and travel insurance; and consumer product discounts for cell phones, electronics and movie tickets, says Debra Weafer, director of compensation and benefits.

There is “not a lot of opportunity to increase the benefits package,” and voluntary benefits are a way to “add something new and different for our associates,” Weafer says.

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

Newly proposed Labor Department regulations governing the Family and Medical Leave Act will ease many administrative problems that employers have faced in trying to comply with the law, experts say.

The proposed FMLA regulations, released late last week, would update rules that the Labor Department published following enactment of the 1993 law, which requires employers to provide up to 12 weeks of unpaid, job-protected leave in a year after the birth or adoption of a child; to care for a sick child, parent or spouse; or when an employee has a serious illness.

The 477 pages of proposed regulations are a response to many of the issues employers raised after the Labor Department asked for public comments in late 2006.

The revised rules “are trying to restore balance to the FMLA,” says Marc Freedman, director of labor law policy at the U.S. Chamber of Commerce in Washington.

One of the biggest gripes employers have had with the current rules is that employees can take up to two days after an absence begins to notify employers that the time already taken off was under the FMLA.

Under the proposal, though, except in emergency situations, employees would have to follow procedures employers have established for notification.

“Providing advance notice is a huge benefit for employers” in planning and scheduling, says Jason Straczewski, director of human resources policy at the National Association of Manufacturers in Washington.

“This is a big issue. It makes it a lot easier for employers to anticipate and schedule,” Freedman says.

In addition, the proposed regulations would allow employers to directly contact employees’ doctors when employers have questions about FMLA medical certification forms that the doctors have filled out.

By contrast, under the current rules employers are required to find doctors, who, in turn, would contact employees’ physicians.

“This is a huge deal,” says Matt Morris, a consultant with Hewitt Associates in Lincolnshire, Illinois. In some cases, employers have been spending thousands of dollars each year on fees that doctors have charged for contacting the physicians who filled out FMLA certification forms, he says.

If the proposed rules are finalized, that expense could be eliminated since employers could directly contact employees’ physicians on FMLA certification issues.

Other provisions in the proposed regulations would allow employers to require employees to obtain certification twice a year—rather than annually—of medical conditions entitling them to FMLA leave while simplifying the definition of what constitutes a serious medical condition.

But not all issues were resolved in the revised regulations to employers’ satisfaction, with perhaps the biggest being the minimum amount of unscheduled intermittent leave that employees can take. In some cases, employees can take as little as a few minutes of leave under the FMLA, resulting in a big record keeping burden on employers.

To address that problem, employers wanted the Labor Department to set a minimum amount of time—perhaps a few hours—whenever an employee requested leave under the FMLA.

The Labor Department, though, said it lacks the authority because of the way FMLA is written. If such a requirement were to be imposed, it would have to come from Congress, the agency said.

Additionally, the Labor Department largely dodged providing guidance on legislation Congress passed last month that expands the FMLA for employees in military families, with the department requesting comments rather than issuing rules.

“They are throwing it back” to the public, says Sanders Lowery, a Hewitt Associates consultant in Lincolnshire, who added that the Labor Department is raising issues that benefits experts already have asked about the expansion of the federal law.

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

Police radio dispatchers in Columbus, Ohio, allege in a class-action lawsuit that the city illegally required them to disclose detailed medical information to supervisors to justify taking sick leave.

The lawsuit, filed in U.S. District Court in Columbus in December on behalf of three former and two current radio operators, stems from the police department’s efforts to crack down on employees who abuse sick-leave policies. The lawsuit highlights the difficulties that arise when an employer must staff a service that operates continuously, often under stressful circumstances, revealing the delicate balance between protecting medical privacy and enforcing a sick-leave policy.

In its effort to curb abuse, the lawsuit alleges, the city erroneously labeled the plaintiffs as sick-leave abusers and then, in an effort to rein them in, required workers to send medical notes up the chain of command to their supervisor. The plaintiffs’ attorney, Michael DeWitt, says this policy is illegal.

“This information goes up the chain of command,” DeWitt says. “It doesn’t just go up to the benefits department, which can have this information.”

The lawsuit casts a wide legal net, alleging the city’s actions violate a number of federal laws and constitutional amendments, from the Family and Medical Leave Act to the First, Fifth and 14th amendments to the Constitution. The plaintiffs allege that they were wrongly disciplined and defamed.

The city says it was simply enforcing the terms of the labor contract between the city and the radio dispatchers’ union, the American Federation of State, County and Municipal Employees. According to DeWitt and a city attorney, Pam Gordon, the contract said that taking sick leave under certain circumstances—taking a sick day every Friday or taking a sick leave immediately after a holiday, for example—would automatically require employees to show their supervisor a note from a doctor detailing the medical condition that forced them to take off work.

“We have a collective bargaining agreement and that governs the city’s action,” Gordon says.

The police department has since changed its policy of sending medical notes up the chain of command to employees’ supervisors, Gordon says.

But for plaintiffs like Teresa Ruby, the change in policy came too late. Ruby says the stress of working as a police dispatcher harmed her health to the point where her doctor said she should not work beyond a normal eight-hour day. She used a broadly worded note from her doctor to take leave when she was asked to work overtime.

After being labeled a sick-leave abuser, she refused to detail to her supervisor the exact nature of her medical condition. She says she did not resist showing her detailed doctor’s note to her human resources manager.

She felt that specifying her condition to her supervisors would hurt her chances for promotion. In the lawsuit, her symptoms were described as stress, anxiety and sleep deprivation.

“I was up there long enough to hear them talk about other people,” says Ruby, who worked as a dispatcher for about 15 years. “There’s no confidentiality up there, none.”

Ruby, who was hired as a dispatcher in 1991, says she requested a transfer but her reputation as an employee who abused sick policy closed the doors to other city jobs.

After being suspended for 31 days without pay, Ruby quit. Eventually she found work as a clerk for the state of Ohio, earning half as much as she did as a radio dispatcher.

David Lefkow, a partner with Holland and Knight in Chicago, believes the collective bargaining agreement should guide the city’s actions.

He says supervisors may need guidance from human resource managers about how to best balance the needs of the employer with a person’s desire for privacy.

“The lesson for HR isi f you have a sick-leave policy, help your frontline supervisors understand it and implement it,” Lefkow says. “HR should be monitoring the frontline supervisors so they don’t get into situations that create these kinds of lawsuits.”

In a speech Friday, February 8, United Auto Workers president Ron Gettelfinger stood up for the productivity of union labor and urged the country to adopt a single-payer health care system.

Gettelfinger, who has led the 640,000-member union since 2002, told the City Club of Cleveland on Friday that the health care crisis, the lack of a national industrial policy and the need for improved trade agreements are at the top of his agenda.

“We believe health care should be a right, not a privilege for those who can afford it,” he said of the union’s push for a national health plan that covers everyone in the country.

He also blamed the problems of American manufacturing on the lack of a cohesive national industrial policy to build up American manufacturing, which, he argued, has led to the movement offshore of entire industries.

“Unless we take action, we are going to see a continued decline in manufacturing industries,” Gettelfinger said.

Fair trade agreements, as opposed to what he said are current free trade policies, would press for a level playing field on issues such as employee and human rights.

He added that he was disappointed that the economic stimulus package recently approved by Congress did not included extended unemployment benefits for laid-off workers.

Gettelfinger also argued against what he described as the conventional wisdom that because of union work rules, nonunion auto plants in the U.S. operated by foreign automakers were more efficient than union plants.

Citing the respected Harbour Report of automotive manufacturing operations, he said, “Trained, experienced, union workers with a voice on the job add value to the manufacturing process.”

Filed by Jay Miller of Crain’s Cleveland Business, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

Union membership as a part of the overall workforce in the United States grew last year for the first time in a quarter-century, according to analysis by the Bureau of Labor Statistics.

The news, published January 25, came a day after the Ford Motor Co. announced it would further reduce the number of hourly workers by 11,000 on top of the 44,000 jobs the auto¬maker has shed since 2006.

It represents part of the seismic shift in the makeup of America’s unionized workforce. Today, a union worker is more likely to be a low-skilled, low-paid service worker than a skilled, well-paid manufacturing employee.

“The future of the unions is the $8-an-hour home health care worker,” says David Gregory, professor of law at St. John’s University. The unions may have regained membership with lower-wage service workers, but they cannot regain the dues lost along with higher-paid jobs, Gregory says.

Though the growth in union membership as a percentage of the workforce is decidedly small—a gain of one-tenth of 1 percent to 12.1 percent of the workforce in 2007 from 12 percent in 2006—it represents the first increase for unions since the Bureau of Labor Statistics began collecting annual union membership rates in 1983, when 20.1 percent of the workforce was unionized.

“Union membership has been falling or stagnant year after year after year,” says Ben Zipperer, a research associate at the Center for Economic and Policy Research in Washington. “But over the past few years, unions have slowed that decline.”

Unions showed a net gain of 310,000 members, many of them coming from Western states. California added 200,000 union jobs in 2007. For the first time, a greater percentage of the workforce in the West was in a union than the workforce in the Midwest.

In 2007, 11.3 percent of manufacturing workers in the Midwest were unionized, a drop from 11.7 percent in 2006, making manufacturing workers less likely to be unionized than the average worker, according to the government’s labor statistics.

“You always think of manufacturing as a union job, but that’s no longer true,” Zipperer says.

While jobs were lost in manufacturing, the unions made gains in health care, construction and education.

“What you are seeing is a cumulative effect of new approaches,” says Joshua B. Freeman, a professor of labor history at the City University of New York Graduate Center.

Freeman says unions, particularly those representing service employees and health care workers, have renewed their focus on training and funding union organizing efforts. Union efforts, particularly the seven unions under the umbrella organization Change to Win, have centered on jobs that employers cannot easily ship overseas in sectors that have been growing: health care, construction and education.

“I think the emphasis of Change to Win, and leaders like Andy Stern, is this constant focus on the need to organize,” Freeman says. “It has changed the whole labor movement. But as an organization, Change to Win has not been a big factor.”

While new union workers may not earn as much as colleagues in manufacturing, the growing numbers could prove important in electoral politics, since union households are more likely to vote. This is particularly important in the fight over the federal Employee Free Choice Act, which would make it easier for unions to organize in a workplace.

Researchers caution that the increase, which is slight, could be a statistical error that could easily be wiped out by a faltering economy.

“There’s no telling what’s going to happen next year,” says Zipperer, “because the economy is very dynamic at the moment.”

What Were They Thinking?: Unconventional Wisdom About Management

Facing growing competition and financial pressure, many companies have responded by cutting employee benefits to maintain their profits. A 2005 survey by Deloitte found that 90 percent of the responding companies planned to rein in costs during 2006 by changing their active employees’ health plans. Companies are also cutting back pension benefits, either freezing or canceling defined benefit plans—those programs that pay retired employees a fixed sum depending on their final wage and years of service— and either eliminating retirement programs completely or substituting defined contribution plans where employees manage their own accounts and assume more of the risk of ensuring they have the financial resources to permit them to retire.

So, a 2004 Deloitte survey discovered that only 10 percent of corporate executives would offer a traditional defined benefit retirement plan if they were able to create their companies’ retirement benefit programs from scratch. Many people predict a similar movement in health care plans, with programs migrating from defined benefit to defined contribution plans. In these types of plans, employers put up some money and employees are then largely responsible for using that money to purchase insurance and manage their own health care. The advantage to employers is that their financial obligations are known—they are determined by the money to be allocated to the plans—and more controllable. In each of these changes in both pensions and health care, the trend is clear—companies are shifting risk and liability, and also decision-making responsibility, to their employees; indeed, such a shift is an explicit objective of many of these changes. But companies, in their haste to cut short term, visible costs and transfer decision making to their workforce, haven’t thought very carefully about the implications of these actions for their profitability and productivity. If they did, they would see that many of the changes will have feedback effects that can either limit or even eliminate the supposed benefits. For one thing, such changes ignore the time and expertise required to manage benefits. Moreover, the emphasis on employee responsibility for their own benefits management (1) ignores the advantages of specialization and the division of labor, (2) causes employees to spend time on issues that are far removed from their primary jobs, diverting effort from their work, and (3) removes an important way in which companies have traditionally competed to attract talent, at the very moment that talent is going to become increasingly scarce.

The move toward giving employees responsibility for benefits is striking and huge. Many companies are experimenting with insurance plans that make their people more “cost conscious” by taking an active role in health care decision making. For example, Definity Health, now part of United Healthcare, and one of the vendors of consumer-driven insurance programs, boasts on its Web site that “you, the consumer of health care services, are given direct access to your health care dollars and the freedom to make choices.” The shift to defined contribution retirement plans, already well under way, does the same thing for retirement—people are responsible for deciding whether or not to participate in an employer’s program, how much to contribute, and where and how to invest their retirement assets.

There are three big problems with these changes in who makes the decisions. First of all, remember Adam Smith and the famous pin-manufacturing factory, which illustrated the efficiency gains from specialization and a division of labor? The whole premise of specialization is that people who only have to learn about a subset of decisions and activities can become more expert than those who have to cover a broader range of issues. Specialization permits people to delve more deeply into a subject. And specialization gives people practice and experience and the proficiency that comes from that practice and experience. In other words, specialization promotes efficiency. Michael Jordan may have been a great professional basketball player, but his career as a baseball player was short and undistinguished. In every field of endeavor, outstanding achievement and great performance come from years of experience and hours of practice.

Making everyone—and I mean everyone, including people with limited education, limited resources, and possibly even limited reading and English language skills—responsible for managing their health care and retirement decisions violates the most basic ideas of specialization and expertise. It is important to recognize that decisions about health care and retirement are decisions with substantially more complexity, financial importance, and risk than the typical consumer purchase decisions so often used in the misguided analogies I see. Confronted with too many choices that they don’t necessarily want to make, many employees literally don’t do anything. There is convincing evidence, in the case of retirement benefits, that the more choices employees face, the less likely they are to sign up for any plan, thereby forgoing employer matching dollars. And the more investment options they have, the more likely they are to leave their assets in money market accounts that don’t provide sufficient returns to ensure a decent prospect of retirement.

Second, when do employers think people are going to make these benefits decisions and gain the expertise to do so? Clearly some of this learning and decision making will occur on the job. My employer, Stanford University, occasionally runs retirement seminars during the workday and provides calculators on its Web site to help people navigate the myriad choices and complexities of benefit management; and once a year we also have a series of benefits fairs that people can take time off to attend. This is all nice, and maybe even pleasurable for some—for example, a young Texans Credit Union employee remarked, “Co-pays, 401(k)s, flexible spending accounts—it was fun figuring out what everything meant.” But I wonder if anyone actually bothers to calculate how much time is diverted from people’s principal work activities to the task of managing their benefits.

Of course, every action provokes a counteraction, and employers’ decisions to force people to make time-consuming decisions that tax their abilities has stimulated the development of an industry to—surprise!—do for a fee what companies themselves used to do for their workforce in simpler times. So, Health Advocate, a firm founded in 2001 by five former Aetna U.S. Healthcare employees, charges companies a monthly fee of $1.25 to $3.95 per employee to help people deal with their health insurance decisions. Another company, in Assist, markets claims assistance to employers as an employee benefit, also charging a per-employee per-month fee. Medical claims assistance is a growing business because dealing with insurance companies and coverage can tax even the most skilled and educated workers. But how about this for an idea: instead of offering assistance and advice as an added benefit, or hoping that somehow employees can cope on their own and not spend too much company time doing so, why not offer benefits that don’t require a PhD to figure out?

It is also important to note that much of the shifting of risk from companies to their employees is economically inefficient. That’s because companies can spread risk—for instance, of incurring a catastrophic medical expense—across their entire employee base while individual employees have much more difficulty in diversifying their risk. Moreover, economists argue, for risk-diversification among other reasons, individual employees are going to be more risk averse than companies; in the case of medical insurance, for example, many employees are reluctant to retire or even change jobs for fear of losing health insurance. One survey found that more Americans were afraid of rising health care costs than terrorism or even losing their jobs.

If something like insurance is more valuable to an individual than it costs a company to provide, the obvious course is for the company to purchase that product or service and provide it to the employee—precisely the opposite of what is occurring. The current trend of off-loading of risk to employees is contrary to much of conventional economic theory, which argues for the assumption of risk by those entities—in this instance companies—that have a comparative advantage in doing so.

Finally, when companies shift decision-making tasks and risks onto their workforce, they make themselves less desirable as employers, compared with companies that offer more generous employee assistance. Here a little historical perspective helps us understand the likely consequences of such moves. Companies began offering benefits such as retirement and health care coverage in the early part of the twentieth century for several, quite self-interested, reasons. First of all, these efforts, sometimes referred to as “welfare capitalism,” helped to forestall unionization drives. Second, companies offered these benefits to attract and retain employees. Ford Motor Company, for instance, experienced such high turnover that it could scarcely operate its assembly lines. Raising wages and providing employee assistance represented an effort to build a workforce that would provide competitive advantage. Similarly, Eastman Kodak’s pension efforts arose from its enlightened self-interest in attracting an experienced, educated, and loyal labor force.

There has been much commentary on the coming shortage of labor throughout the industrialized world, a consequence of declining birth rates. In the United States, the passing from the workforce of the baby-boom generation is expected to create numerous job openings and labor shortages in vital industries such as oil and gas, air traffic control, and government, as well as throughout the economy more generally. If there is one thing that is clear from looking at Fortune’s best places to work lists, it is that most of those companies offer benefits that are more generous than standard for their industry or for the economy as a whole. Thus, it seems ironic that companies are cutting one of the ways that they have traditionally attempted to achieve an advantage in attracting employees just at the moment that the competition for labor is about to increase.

Shifting decision making and the risk for funding retirement and health care, as well as other benefits, onto the workforce at first glance looks like a shrewd way to take costs out of the system. But many of these gains are ephemeral. Individual employees do not have a comparative advantage in decision making about retirement and certainly not about medical care, and the time required to manage their various accounts is often going to come out of time spent on other work. Moreover, worrying about retirement and health care can distract people’s focus and make concentration and effort more difficult. Perhaps that’s why the best employers offer more generous benefits and use the idea of specialization and comparative advantage to have decisions made by those most qualified to make them, in partnership with their people.

Source: What Were They Thinking?: Unconventional Wisdom About Management, by Jeffrey Pfeffer. Reprinted by permission of Harvard Business School Press. Copyright (c) 2007 Jeffrey Pfeffer. All rights reserved.

Chapter 14: The Ultimate Broken Window

    If a customer in your bookstore notices that the wallpaper is a little faded, that’s a broken window. But it’s a broken window that is easily repaired: you can replace the wallpaper with a minimum of difficulty and an affordable expense (in most cases).

    What’s more important is that the customer in a bookstore probably won’t stop coming to the store because the wallpaper is faded. Yes, her image of the company might be a bit diminished, and she might indeed wonder if the books are dusted often enough, but if the titles that customer wants are in stock and the prices are acceptable to her, she will likely overlook the wallpaper unless and until another broken window makes itself known to her.

    That will not be true if the broken window occurs in customer service.

    I know, you’ve read it here before, but this point can’t possibly be stressed vehemently enough: Bad customer service is the ultimate broken window. There is nothing more damaging to your business than the consumer’s belief that you don’t care about what is bothering him or her.

    Think about it: You offer a product or service to the public or a segment of the public. Every member of that group has a right to expect that you will deliver that service or product to their satisfaction. It’s not an option; it’s a necessity, in order to have anything even resembling a successful business.

    In the case of customer service, we have the person who is meant to provide that service or product interacting directly with the public. This is the person who is the face of your business to the consumer. And if that encounter goes badly, especially because the person entrusted with delivering service doesn’t do so, it goes beyond worn carpets and loose neckties. It enters into the realm of deal breaker.

    It doesn’t take a huge amount of imagination to understand that a person who enters a business expecting something—anything—and not getting it will be disappointed. Take that idea a little further, and you’ll see that one bad customer service experience—one—can take a customer and turn him or her into a former customer in a heartbeat. No second chances.

    Think about this disturbing scenario: You go to a restaurant and order spaghetti; when your order comes, you find an insect crawling on your pasta. Here’s my question: Are you going to throw out the bug and eat the spaghetti, or are you going to insist that the entire plate be removed? Or will you leave the restaurant? And even when that is done, how likely are you to go to that restaurant again?

    Exactly.

    Customer service isn’t just the department where complaints are addressed. It’s any encounter between an employee of your company (or, if we extend this idea as far as it goes, any representative of your company, including your product) and the people who might ever be interested in buying your product or service. Any encounter. Sales personnel are involved, clearly, in customer service— they serve the customer directly. But those who deliver the product, service it, and install it are also involved in customer service. The receptionist who answers the phone is a customer service employee. The people who drive your trucks, write your press releases, design your packaging, and pay your bills are all customer service employees. You are a customer service employee.

    This means you can’t afford to have any employee of your organization have a negative encounter with a consumer (and we should make it clear that every business has consumers, not just the ones that sell a product directly to the public). Each person in your employ is an ambassador representing your company in its relations with other nations, and every human being on this planet is another nation, by our definition.

    A good ambassador keeps in mind that the art of diplomacy is his first and best tool. Are some customers going to be unreasonable? Of course, some will. Does that mean an employee is justified in treating that person in a curt or irritated manner? Absolutely not.

    Every business deals with disgruntled customers, even those that work business-to-business. And in many cases, those customers will not understand the workings of your business and will therefore demand something that you really and truly can’t deliver. Many of these will be belligerent or unreasonable and will not approach your employee in a friendly, jovial, accepting manner.

    These are the very people to whom your employees must be most accommodating. An ambassador knows that the loudest, nastiest, least reasonable representative of another country is the one who can cause him the most trouble. That belligerent diplomat will go back to his capital, report that although he was making a most understandable demand, it was met with total ambivalence or, worse, outright contempt, and he will recommend that diplomatic relations with the other country be discontinued immediately.

    By the same token, a loud and unreasonable customer does not see herself that way. She sincerely believes that her complaint is justified and natural, that her needs, indeed, demand action, and fast action at that. She thinks that your employee, in denying her request, is the one being rigid and unhelpful.

    Furthermore, trying to dissuade a customer from complaining is counterproductive. The customer should be made to believe that the company agrees that her complaint is justified and is doing everything it can to correct the problem. Thanking the complainer for pointing out the broken window (real or imagined, in your estimation) is not a bad tactic. Think of the times that you have brought a problem to the attention of a company you have dealt with, as a colleague or a consumer. Which would you have preferred: being told you were wrong in your complaint or being appreciated for your observation and told specifically what would be done to rectify the problem?

    Every relationship has a seller and a buyer. Yes, every relationship. And this means that in every situation, someone wants something from the other, and someone is deciding whether or not to grant that request. In business, the lines are usually very well drawn, and we know very clearly who is selling and who is buying. But when problems arise and one of the parties decides a complaint must be made, everything changes.

    Keep in mind that a customer who is voicing a complaint is already in a state of mind you’d rather avoid. This person is likely to be irritated and could very well be agitated to the point of behavior that is not characteristic of the relationship as it has been established to this point. Voices might be raised. Unfamiliar words (or at least those that have not been used in the relationship up to this point) might be uttered.

    The key is not to respond in kind. Two angry people are going to get a lot less done than one angry person and one who is keeping a cool head. You can make points with all your customers by making sure you remain calm and collected in all dealings, especially when they don’t do the same. It demonstrates control and reiterates the point that you are taking the situation seriously and trying everything you can to help resolve it to their satisfaction.

    All of your employees need to have this idea drummed into their heads on a regular basis. It doesn’t matter how agitated and verbally abusive a customer might get, there is no excuse for returning that attitude in kind, and any employee who does so will be fired on the spot, no matter how justified the abrasive behavior may seem at the time. No exceptions, no second chances, no excuses. Fired. On the spot.

    Poor customer service is the ultimate broken window because customer service is the one thing that every business must deliver to its consumers. A breach of that trust, an employee whose actions indicate that he or she is not interested in the customer’s concerns, is as blatant and damaging a broken window as you can imagine. And a muddled chain of command is as bad as an obnoxious employee.

    I hope you’ve never had to spend any time in a hospital, but if you have, you probably understand the idea of poor customer service. Members of the support staff (that is, anyone except doctors) in a hospital know their jobs extremely well, I’m sure. They understand the routine, speak the language of medicine, and know the reasons that things work the way they do for patients.

    The problem is, the patient is not included in this particular information stream. Patients are generally worried about their health and might not be reacting to situations the way they normally react to stress when living their normal lives. They are, understandably, on edge. But patients also don’t understand the routine of hospital work: the time at which certain things are done, the jargon that surrounds virtually any aspect of health care, the reasons that doctors appear when they appear and leave the orders that they leave. Patients don’t live in the hospital for a good chunk of their lives, and so they don’t “get” the rules the way staff members, who have had years of experience, do.

    So when patients are told that things are the way they are and that they, the patients, must adhere to rules they don’t understand and have never encountered before, they are likely to be a little less calm and pleasant than they might in another situation.

    The problem is, I’ve yet to find a hospital where the staff understands this. Indeed, they seem to think that patients should know what they, the trained staff, know and that patients are simply being obtuse—or worse, stupid— when they ask questions or challenge a rule that to the staff is perfectly justified. There is less explaining and more complaining in hospitals than anywhere else on the planet, in my experience.

    Dr. Robert Kotler, a prominent Beverly Hills plastic surgeon, says his practice is run with the idea that the patient should be included in every aspect of care, and he makes it a top priority to hire support staff (nurses, receptionist, office manager and so on) who will empathize and understand a patient’s needs.

    “Before they get to see the doctor, patients deal with the office staff on the phone, in the office, and in the examining room,” he says. “If they have an experience that is unpleasant with one of those people, they’ll have a bad taste in their mouth before I walk into the room, and I might not be able to change that. It won’t matter how well I do my job if the people who run the office can’t validate the valet parking ticket. The patient will already have a bad impression of my practice.”

    Customer service relates to every aspect of business, and once it becomes a broken window, it is remarkably hard to repair. Remember the insect in the spaghetti? No matter how apologetic the restaurant owner might be, and how diligently he might ensure that the situation can never recur, how likely do you think it is that the customer will return for another chance?

    Now, it’s possible that you might gain more customers after the changes are implemented to increase customer satisfaction, but how many have you lost for life before that happens? Find out what your customers’ concerns are by mystery shopping yourself and asking the most disgruntled of your customers to mystery shop your business for you (turn an enemy into an ally) and give them some discount or free incentive to do so. Yes, you can do it yourself, and you should, but only in addition to the people who are going to be most critical and who don’t have the emotional attachment you have to your business and the people in it.

    Poor customer service is the ultimate broken window. Excellent customer service is the ultimate pristine, clear, clean window. Which would you rather have?

CAN I HELP YOU?
• A product failure or glitch in delivery creates bad will. Bad customer service loses you a customer for life.

    • All employees are customer service employees. Everyone in the company does something that affects the consumer’s experience with the company. Doing so without respect for the consumer is fatal.

    • Each employee is an ambassador for the company, in all dealings with other people. If the employee talks to a friend about the company, the employee is representing the company. Employees must know they are important “faces of the company” and must act accordingly.

    • Support staff matters. If you think an employee who doesn’t provide the core service of the company isn’t representing the company in all dealings with the public, you are asking for trouble.

    Source: (Warner Business Books, Hachette Book Group, 2005)