Category: Archive

Posted on

After the Buyout Hr’s Rising Equity

Suzanne Perry has heard the horror stories about private equity buyouts. She has read the headlines about these firms swooping in and slashing workforces and listened as fellow HR executives talked of micromanaging investors running the company with an iron fist.


    But in 2001, private equity deals were few and far between. So when Perry took the job that year as head of HR at CBS Personnel Holdings, a Cincinnati-based staffing company, just months after it was acquired by Westport, Connecticut-based private equity firm Compass Diversified Trust, she didn’t know what was ahead.

“I had never been in a situation where private equity had bought a company,” says Perry, who has been in HR for 21 years. “I didn’t really grasp the full context of what was going on.”


    Perry’s ignorance turned out to be a blessing for her career. During the past seven years, she has worked closely with the CEO and private equity investors to revamp HR reporting, compensation practices and talent management to make sure the company’s 850 employees emphasize the return on investment while maintaining CBS’ corporate culture.


    Private equity investors don’t generally embrace HR the way Compass has with Perry, observers say. However, with the current market volatility, many such investors are realizing that HR executives can be key in honing the skills of the workforce and helping them to make a profit more quickly.

“The guys driving these deals are numbers guys and they tend to be dismissive of HR, viewing it as softer and not as serious,” says Ron Bloom, a former investment banker who is now the special assistant to the president of the United Steelworkers.


    But that’s changing, particularly as recent high-profile deals—like Cerberus Capital Management’s acquisition of Chrysler Group, which was finalized in August—draw public scrutiny. The recent chaos in the subprime mortgage sector has only increased pressure on buyers to get a quick return on their investment.

“Private equity firms are just now starting to say it’s not enough to manage money and sniff out a good deal,” says Gary Rich, president of Rich Leadership, a Pound Ridge, New York-based executive development consultant. “They are looking at how effectively they are managing their workforces.”


“The typical private equity firm holds an investment for three to five years and then sells it. So at the end of the day, you don’t know what’s going to happen. I told employees the best thing we could do was position the company and themselves as strong players in the market.”
—Suzanne Perry,
CBS Personnel Holdings

    Even as some private equity firms slow the torrid pace of acquisitions because of the stock market’s recent swings, experts say these deals aren’t going to go away.

“There are a lot of factors, like Sarbanes-Oxley and other regulations, that are driving companies toward private equity,” says Paul Platten, vice president and global practice director of the human capital group at Watson Wyatt Worldwide. “And there is still a lot of money around to be spent.”


    The trend could prove to be a huge opportunity for HR executives who understand financials and focus on business results, experts say. But it’s not for the faint of heart, according to Mark Nadler, a partner at Oliver Wyman, a global development company and a subsidiary of Marsh & McLennan.

“The new owners will turn to HR and ask for them to help figure out where they can trim the fat within the organization,” he says. “HR can help them think through this, but also they can help investors map out a strategy beyond the budget cuts to more organizational design issues.”


    HR managers who view themselves as primarily employee advocates and little else don’t have a place in this new corporate structure, says Jo-Anne Kruse, executive vice president of human resources at Travelport, a Parsippany, New Jersey-based travel services company that was bought by private equity investor Blackstone in August 2006. Over the past year, Travelport has laid off 841 people, or 10 percent of its workforce. The company has hired 1,600 employees during the same period.

“The days of the blind employee advocate are long gone,” Kruse says. “We are here to manage cost and productivity of labor.”


Balancing act
    Striking a balance between being an employee advocate and working with new owners can prove challenging during a private equity buyout, Perry says.


    When she started as head of HR at CBS, Perry entered an organization that was still adjusting to no longer having an owner down the hall who knew most employees by name. Not surprisingly, workers turned to Perry with concerns about their jobs.


    For the first several weeks she was there, Perry didn’t know what to tell them.

“I didn’t have the answers at the time since I was still learning,” she says. “So in those first few one-on-one meetings with managers, I did a lot of listening and taking notes.”


    A couple months into her new job, Perry met with the Compass investors and got a sense of their vision. While there were no plans for layoffs, Perry didn’t want employees to have a false sense of security.

“The typical private equity firm holds an investment for three to five years and then sells it,” she says. “So at the end of the day, you don’t know what’s going to happen. I told employees the best thing we could do was position the company and themselves as strong players in the market.”


    Being honest with employees while trying to alleviate their fears is one of the hardest parts of managing a workforce during a buyout, Kruse says.

“It’s always a balancing act because you want to be upfront about the future without creating a lot of anxiety,” she says.


“The days of the blind employee advocate are long gone. We are
here to manage cost and
productivity of labor.”
—Jo-Anne Kruse, executive
vice president of
human resources, Travelport

    Management at Travelport knew early on that layoffs, particularly in the technology group, were likely. Kruse decided to address that head-on. “If employees didn’t bring it up to me, I would bring it up to them,” she says.


    By being proactive and focusing on the opportunities the buyout presented for Travelport, Kruse and the other managers tried to stem employee anxiety. “This was the opportunity for us to be our own company,” she says.


    Kruse and her team prepared scripts to help managers answer employee questions. Travelport CEO Jeff Clarke addressed the potential for layoffs in his blog to employees, and executives held town hall meetings at larger corporate sites as well as small-group meetings to field questions about the buyout.


    Regardless of how much effort Kruse and her team put into the communications campaign, it was impossible to reach everyone, she says.

“We are in 145 countries, so it’s not like you can sit down in an auditorium with everyone,” she says.


    After months of planning and executing the communications campaign, Kruse was disappointed to see a July 27 front-page article in The Wall Street Journal quoting six Travelport workers discussing their surprise about being laid off.

“I immediately called the people I knew at the site to find out if that’s how more employees felt,” she says.


    It turned out that two of the six employees were temporary contract workers whose contracts were already up. Most employees felt that the situation was handled fairly, Kruse says.

“That was a huge relief for me personally,” she says. But the media coverage serves as a warning to all HR managers of one more issue they need to prepare for when a buyout occurs, experts say.


    Employee morale issues can draw outside attention, particularly when there is a union involved.


“Private equity firms tend to believe less in high base pay and more in bonuses based on performance.”
—Paul Platten, vice president and
global practice director,
Watson Wyatt Worldwide

    In recent months, unions have increased their public criticism of private equity buyouts and the implications for workers. In May, the Service Employees International Union, which has 1.8 million members, launched a Web site and published a paper called “Behind the Buyouts” that discusses examples of private equity buyouts where workers lost benefits, jobs or both.


    HR executives with labor relations experience can help act as a mediator between labor and invest ors, experts say.

“If HR has a good relationship with the union, that is incredibly valuable to the new owners,” says William J. Morin, chairman and CEO of WJM Associates, a New York organizational consulting firm.


    Yucaipa Cos., Los Angeles billionaire Ron Burkle’s private equity firm, often works with unions to transform the companies it buys, and finds that HR is integral to that process, says Steve Sleigh, a principal at Yucaipa. “We get a call a week from unions asking us to look into their companies,” says Sleigh, who is also the former director of strategic resources at the International Association of Machinists. Yucaipa currently owns stakes in Wild Oats, Pathmark and SuperValu.


    When Yucaipa invests in or acquires a company, it works closely with HR to align everyone’s interests, Sleigh says.

“HR is critical in getting everyone marching in the same direction and focused on the value of job security,” he says.


Creating change
    HR also helps private equity buyers understand where to find the organization’s key talent. This is important both when the investors are doing their due diligence before they agree to buy the company and after the deal closes.


    Kruse gave presentations about the workforce management aspects of Travelport’s business for several potential buyers before Blackstone, she says. These presentations included discussion of the company’s culture, retention challenges and turnover.


    But as the number of buyers narrowed, the discussions focused on specific talent management challenges, she says. “There were more pointed discussions around the status of our talent and where there were retention issues,” she says.


    After a deal closes, investors often will turn to HR to help them understand where they can cut and whom they should retain, says Chris Hagler, national managing director of strategic services at Resources Global Professionals, an international professional services firm.


    Hagler says she didn’t play a key role in determining who needed to be laid off. “That’s really the decision of the line managers,” she says.


    However, she made sure managers followed termination compliance procedures, and in some cases contacted other local employers to inquire about openings for displaced employees.


    At Travelport, Kruse put together financial incentives to retain key employees, which is standard procedure during any transition period, experts say.


“In the past, [compensation] was much more individual-based since the owner knew everyone. Now there is more standardization, and compensation is better tied to people’s job responsibilities and objectives.”
—Suzanne Perry,
CBS Personnel Holdings

    It’s up to HR executives to inform the new owners which employees and executives need to be kept if the transition is going to succeed, says Law rence Costello, senior vice president of human resources at American Standard Cos., a Piscataway, New Jersey-based manufacturer, which recently announced it is selling its bath and kitchen business to Boston-based private equity firm Bain Capital Partners.

“The new buyers will want continuity, and that means putting good retention plans in place,” Costello says. “As HR, we need to help them understand what this means and how to do it.”


    Private equity investors also turn to HR to help create a new employee compensation program aimed at quickly boosting company profits, observers say. Since these companies are no longer publicly traded, they often do away with stock option programs and find something new, Watson Wyatt’s Platten says.

“Private equity firms tend to believe less in high base pay and more in bonuses based on performance,” he says. Since private equity firms often are looking to sell the company for a profit within three to five years, investors tend to favor incentive plans with short-term measures of generating cash, he says.


    At CBS, Perry helped implement a performance-based compensation program throughout the company. Previously, employee compensation was determined on an individual basis, but Perry’s new system provided a standard across the company for performance-based pay, she says.

“In the past, it was much more individual-based since the owner knew everyone,” she says. “Now there is more standardization, and compensation is better tied to people’s job responsibilities and objectives.”


    Perry says an increased focus on return on investment requires her department to do more reporting. When Perry joined Compass, investors wanted more information about the company’s health insurance plan.

“They wanted details about the vendors we were using, the brokerage fees and the plan designs as well as the details of how much employees were paying in health care at our company versus at other companies within the industry,” she says.


    Perry hired vendors to conduct compensation surveys and did a lot of networking to gather competitive data to provide the answers.

“There is always a constant question of whether we are getting the return on investment on all the processes and software we use,” she says.


    Any HR executive entering a private equity situation should be prepared to speak in terms of return on investment, Kruse says.

“The focus on ROI always comes up,” she says.


    As the markets continue their unpredictability, private equity firms will likely push harder than ever to quickly realize profit from their purchases.


    And that means that more than ever before, HR executives entering these situations might have to take a hard-nosed approach to their jobs, Perry says.


    It can be a challenging stance to take sometimes, but Perry’s attitude has helped CBS reach many of its workforce management goals. Turnover today is slightly below the industry average of 45 percent, down from the low 60s when Perry joined the company, she says.


    Seven years later, Compass has held on to CBS much longer than Perry and others anticipated, and shows no signs of selling it.


    But if things should change and Compass does decide to sell the company, Perry says the workforce is ready.

    “My goal has always been to position ourselves so that we can be valuable to a new owner,” she says. “As the HR manager, you have to be able to separate the personal and the business and look at the big picture.”


Workforce Management, September 24, 2007, p. 1, 16-23 — Subscribe Now!

Posted on

Yes, You Can Enforce Non-Compete Clauses

Employers today face increasing difficulty in the enforcement of covenants not to compete. In recent years, several states have considered or passed legislation limiting the use of employee non-competition agreements. Courts in other jurisdictions have cut back on the ways in which such agreements may be used, often in contradictory and confusing decisions. While the law of most states still is not as draconian as California’s strict prohibition on non-competes, this new trend represents a sea change in the litigation and enforcement of non-competition agreements.

The trend is not only discomforting, but also creates practical problems for multi-state employers. In-house lawyers and HR professionals now must keep abreast of changing legal requirements in all jurisdictions in which their companies do business at the risk of losing the right to protect the company’s assets everywhere.


However, all is not lost, and employers still can use non-compete agreements to protect their business good will from wandering employees and vying competitors. This article explores some lesser-known methods for protecting against competition while avoiding the thicket of contradictory state laws on the subject.


The root of the problem: California’s ban on non-competes
   Because many states are moving toward the California “model” on non-compete agreements, it is helpful to understand the basis for that state’s prohibition, which is found in California Business and Professions Code Section 16600: “Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”


California courts interpreting Section 16600 strictly construe it to void most types of non-competition covenants in employment contracts. Besides the standard promise not to directly compete with the employer post-employment, courts also have invalidated agreements that prohibit the solicitation of customers, that penalize employees who compete (rather than outright banning competition) and that prohibit the hiring away of other employees.


And when a California court deems a non-compete to be invalid, the court is not likely to simply strike or “blue pencil” the offending language from an otherwise valid employment agreement. Instead, to deter employers from “stretching the boundaries,” California courts historically invalidate an entire agreement if it contains a prohibited non-competition clause.


Even in jurisdictions that allow the enforcement of non-compete agreements, courts usually impose geographic and time limitations on such agreements. Most courts scrutinize non-compete agreements to ensure that they both are reasonably limited to protecting the employer’s legitimate business interests and will not unduly limit the employee’s ability to pursue other work opportunities. Covenants not to compete generally also must be supported by independent consideration.


Nevertheless, employers still have tools available to them to help prevent competition by former employees, regardless of where they work or reside.


Forfeiture clauses
One of the most powerful but least understood methods of restricting post-employment competition is the ERISA pension plan. Congress enacted the Employee Retirement Income Security Act of 1974 to address numerous problems with unregulated employee benefit plans for the growing U.S. workforce. Despite the enormous growth in such plans at the time of ERISA’s enactment, “many employees with long years of employment [were] losing anticipated retirement benefits owing to the lack of vesting provisions in such plans.”


ERISA helped correct this problem, and provided greater mobility to the growing workforce, by mandating minimum benefit vesting schedules for certain pension plans and by harmonizing the regulation of employee benefit and pension plans in all 50 states.


Somewhat ironically, this need for uniform regulation and minimum vesting is the source of ERISA’s power in the non-compete arena; Section 1144(a) of ERISA states that ERISA “shall supersede any and all State laws insofar as they many now or hereafter relate to any employee benefit plan” covered by the statute. By pre-empting state law, ERISA provides employers with an alternate forum in which to litigate and enforce non-compete agreements that are contained in ERISA-covered plans. Because ERISA plans are governed exclusively by federal law, state law prohibitions on non-competes do not apply, regardless of the employer’s, employee’s or transaction’s locale.


Even with respect to California employees, employee non-competes are permissible under ERISA. As long as a non-competition covenant respects the statute’s minimum vesting requirements, employer contributions in excess of those vesting requirements can be tied to a post-employment promise not to compete. In other words, an ERISA plan may lawfully provide that an employee will forfeit employer contributions that exceed ERISA’s minimum vesting rules if the employee competes with the employer after the employment relationship ends. The employee remains free to compete with the employer, just not with her full pension.


Not every pension plan is covered by ERISA, however. To fall within the protective shield of ERISA pre-emption, a pension plan must have an “ongoing administrative scheme” that, in particular, requires the plan administrator to exercise discretion in administering the plan.


Just as important, most ERISA pension plans are subject to a series of vesting requirements. First, an employee’s right to his normal retirement benefit is non-forfeitable upon the attainment of the employee’s normal retirement age. Second, an employee’s rights to accrued benefits derived from his own contributions are non-forfeitable. Finally, an ERISA pension plan must satisfy one of two vesting schedules: Either 100 percent of accrued benefits must vest after five years of service (so-called “cliff vesting”) or accrued benefits must vest over a seven-year period in 20 percent increments beginning no later than the third year of service.


However, ERISA does not prohibit forfeiture of benefits in excess of the minimum vesting requirements. Accordingly, by incorporating a non-competition forfeiture clause into an ERISA pension plan, an employer can penalize former employees who compete—regardless of which state they live in—by requiring them to forfeit their ERISA pension benefits (in excess of the statutory vesting minimums).


For example, the employer in the case Lojek v. Thomas offered a pension plan with a vesting scheme more generous than the minimum ERISA requirements. At the time, ERISA only required cliff vesting after 10 years, not five. The plan provided that all benefits vest after five years, but required employees to forfeit all benefits if they left before 10 years and competed with the employer. Lojek left his job for a competitor before completing 10 years of service, and the employer required him to forfeit his benefits.


The 9th Circuit ruled that because the plan provided a vesting schedule more liberal than the minimum requirements of ERISA, and because no benefits were forfeitable after 10 years, the plan did not affect non-forfeitable interests and the forfeiture clause was an enforceable. Such forfeiture clauses provide a powerful incentive for former employees to refrain from competition.


As a practical matter, ERISA’s minimum vesting requirements create a relatively short “shelf life” for most pension plan non-competition forfeiture clauses, which leads to the next option for multi-state employers: top-hat plans.


Top-hat plans
ERISA top-hat plans are “maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees.” Top-hat plans often take the form of pension or deferred compensation plans provided to key executives in a company. To qualify under ERISA, they must be “unfunded,” meaning that benefits are paid solely from the general assets of the employer, and only a small percentage of the employer’s workforce can be eligible for the plan.


While top-hat plans are subject to some ERISA regulations (and therefore benefit from ERISA pre-emption of state law), they are not subject to the strict vesting requirements placed on most ERISA pension plans. For this reason, non-competition forfeiture clauses can be more freely incorporated into top-hot plans, and the effects of such clauses are much longer lived. For example, an employer can include a clause stating that all future benefits payable under a top-hat plan will be forfeited if the employee competes with the employer any time after the employment relationship ends. Note that while courts have not held that forfeiture clauses in ERISA pension plans must be reasonable in geographic scope or duration, good practice dictates that such clauses be reasonably limited.


Overall, forfeiture provisions in ERISA pension and top-hat plans provide a powerful disincentive for post-employment competition, regardless of where employees live or work. However, they are not the only tools available to employers.


Other options to limit competition
Employers have several other options in creating enforceable non-compete agreements. First, even those states that outright ban the use of non-compete agreements do so only with respect to post-employment competition that is conducted fairly and legally. Employers can and should contract against both competition during the term of employment and unfair post-employment competition.


With respect to the latter, employees should be asked to specifically agree in their employment agreement not to use or disclose the employer’s trade secrets or confidential information or otherwise unfairly compete with the employer. While employers already have tort remedies for unfair competition and trade secrets misappropriation in most jurisdictions, including an anti-unfair competition clause in an employment contract also provides employers with contractual remedies, such as attorneys’ fees or liquidated damages. Inclusion of these provisions in employment contracts also makes employees more cognizant of their duties and responsibilities after they leave the company’s employment.


Second, when employers are faced with unfavorable local non-competition laws, they sometimes can take advantage of the more favorable laws of other jurisdictions by incorporating both a choice-of-law clause and a forum selection clause into employment contracts that contain non-compete covenants.


If an employer is able to contractually designate a forum that allows non-competition agreements as the one for the resolution of employment-related disputes, the employer has a better chance of obtaining judicial enforcement of a non-compete provision. While a choice-of-law clause alone generally will not compel courts to enforce non-compete agreements that violate local public policy, the combination of provisions often results in the litigation being transferred out of state. For example, California courts typically will give effect to a contractual forum selection clause—even in cases involving non-compete disputes—unless there is a showing that enforcement would be unreasonable or would contravene a fundamental public policy. And California federal courts have specifically held that enforcing a forum selection clause does not contravene the public policy behind Section 16600 because the employee is free to assert in the designated forum that California law should govern the dispute. Thus, where there is a reasonable connection between the designated forum and the employer, employee or dispute, even California courts often will uphold the parties’ contractual forum selection clause and allow the case to be litigated in the foreign venue.


Finally, employers also can include “anti-raiding provisions” in employment contracts to prohibit former employees from soliciting or encouraging current employees to end their employment. Such clauses can effectively protect an employer’s workforce from being siphoned off by competitors, and may even be indefinite in scope and duration.


Conclusion
Despite increasing legislative dislike of non-compete agreements, employers are not left completely without protection. ERISA pension and top-hat plans, unfair competition clauses, forum selection clauses and anti-raiding provisions all provide avenues for the creation of enforceable non-compete agreements.

Posted on

Normally Lax Musicians Step to the Beat of This Director

■ The key: Always stack the deck in your favor.


■ The leader: Cliff Colnot, conductor and arranger


■ The challenge: Getting the best performance out of creative people, some of whom are accustomed to lax schedules and tremendous personal freedom.


■ The techniques: Set high expectations, make rules clear and enforce them. Also, hire the right people and take responsibility for your actions.


Musicians who are used to rolling into jam sessions late would never dream of doing so when working with Cliff Colnot, a renowned Chicago jazz arranger, educator and conductor of the Civic Orchestra of Chicago and the Chicago Symphony Orchestra’s MusicNow Ensemble.


The penalties are too severe. If you aren’t more than 15 minutes early for a recording session or a rehearsal, you’re late. Colnot, 55, won’t hire someone who can’t arrive at the appointed hour. As for his students at DePaul University, the University of Chicago and elsewhere, they lose a letter grade for every late arrival.


Colnot makes no apologies for the policy, which grew out of his years of experience working in recording studios and under union rules, where time is money.


“This is business,” he says. “I am going to hire you to play on these gigs, which are very sweet. The environment is excellent, and I try to make it challenging and interesting. I want to be ready to go 15 to 20 minutes before. If you can hang with that, great. If you can’t, I am not going to hire you.”


Such rigid scheduling is just the beginning of Colnot’s strategy for getting the best out of creative personalities.


Good leadership, he says, also requires good casting. “What I have always tried to do is cast someone in a setting in which they have a high probability of succeeding. I wouldn’t put a night person into a daytime recording session. There is a risk that the person may not be able to reach their potential because I have made a tactical error in scheduling or staffing or location,” he says. “If I hire the wrong person for the job, that’s my fault.”


To cobble together the right combination of musicians, and to stack the deck in his favor, Colnot pays attention to nuances of personalities to make sure they match. In the old days, that meant not putting a musician who could read music next to one who couldn’t. It was too embarrassing, even for musicians who were seminal influences in jazz.


“Cliff is brilliant when it comes to the psychology of these situations,” says Ryan Cohan, a professional jazz pianist in Chicago who has known and worked with him for 16 years.


The key? Leaders must always demonstrate respect for their subordinates, which is critical to Colnot’s approach. “You have to make it clear you have tremendous regard for their contribution, that they are not just a cog in the big production,” he says.


Nor does he play dictator to get his point across. Colnot often cedes musical decisions in rehearsals to the most experienced musicians—the lead trumpet or first tenor sax player, for example. “It’s better to have three of me in a recording session,” he reasons. “It’s also more efficient.”


More important, this diffusion of power leads to a sense of ownership in the work among musicians, which Colnot believes produces a better product.


All that pays off in his performance, says David Bloom, owner of the Bloom School of Jazz in Chicago and a frequent collaborator with Colnot. Colnot can produce the musical track for a one-minute commercial in just 25 minutes, using 57 musicians, a remarkable feat, Bloom says. “I consider myself a damn good musician, but when I see Cliff direct, I feel like I fell off the turnip truck,” he adds.


Colnot says it took years to achieve his level of leadership, and he’s learned from his mistakes. For one, he wasn’t always so sensitive. “When I was much younger, I would act as if the ends justified the means,” he admits. He’d bark orders. ” ‘Go here. Do that.’ People later said to me, ‘You were a little insensitive,’ ” he says.


Experience has taught him the benefit of being more considerate. At a recent recording session, Colnot held his tongue when one musician was having trouble with a difficult technical passage, even though he thought the problem was the man hadn’t practiced the part.


Instead, Colnot patiently asked the musician to try the figure several times before calmly resorting to other face-saving strategies, such as having him play it with other musicians and quietly considering ways to correct it in final mixing. Had Colnot yelled or criticized the musician in front of the group, he would have created even bigger problems.


“It would have ruined the vibe in the room immediately. It is not about this one guy—it’s about all the other musicians in the room,” he says.


It would also have required him to apologize to the musician, or vice versa, to restore their working relationship.


Once again, it all goes back to respect, a philosophy that Colnot believes works on the bandstand as well as in the boardroom or storeroom. “It is much better to treat people with dignity.”

Posted on

Guiding the Smart, the Opinionated and the Hard to Please

■ The leader: Joe Garcia, hospital boss


■ The challenge: Persuading hundreds of independent-minded colleagues to support common goals.


■ The techniques: Identifying individual motivations, rewarding collaborators and starving non-cooperators of resources.


At its worst, academic medicine is akin to politics, with dueling egos jockeying for position and space. If left unchecked, petty disagreements can become longstanding feuds that impede recruitment of junior faculty and derail efforts to secure federal grants.


Getting a group of physicians to support a single vision for a program takes a special person.


“You need to have a nurturing style,” says Edward Benz Jr., president of the Dana Farber Cancer Institute in Boston. “There’s a lot of insecurity,” despite the tremendous accomplishment of such faculties.


At the same time, the leader can’t be so soft that divisive personalities are allowed to run roughshod over others.


Joe Garcia, physician and chair of the University of Chicago’s Department of Medicine, has that unique combination, says Benz, who recruited him from Indiana University in the late 1990s to turn around Johns Hopkins University’s troubled pulmonology division. “They didn’t quite realize who they had,” he says.


Indeed, Garcia, a lung disease specialist who ranks in the top 3 percent of all National Institutes of Health grant holders nationwide, made quick work of the assignment at the Baltimore university. He restructured to eliminate or minimize the role of faculty members who were destructive to morale.


“An overarching way to deal with these folks is to basically starve them of key resources, including money, people and titles,” Garcia says. With more collaboration in the department, he was able to secure NIH grants worth more than $30 million. He also doubled the faculty to 60.


Soon after, the University of Chicago came calling. “If you are a success at Hopkins, you’re on everyone’s dance card,” he says.


When Garcia, 52, took over U of C’s Department of Medicine in 2005, he first articulated a vision for the department, which has a faculty of 400 physicians and a budget of roughly $200 million, five times the size of the one he oversaw at his previous post.


“It doesn’t have to be complex. It doesn’t have to be dramatic. It has to be clear,” he says.


He wants U of C to lead the way in translating scientific discoveries into clinical practice and to train the next generation of academic leaders. That goal includes everyone in the department, where some specialize in research, some in training and others in treating patients.


Garcia doesn’t deny some members of his faculty are more important than others. He values those who can build bridges between departments and institutions to enhance research and medicine, such as a faculty member who brings scientists, statisticians and physicians together to identify the genetic basis of a disease.


“You can have an accomplished scientist who runs a really good lab but has not built a program around that to make other people around him better,” he says. “Someone who does that is invaluable.”


He feeds resources to those people, including bigger budgets, higher salaries, titles and space. Such physicians are often targets of the competition, so he offers them leadership roles or creates a center around their work to retain them.


“It hits the ‘I feel valued by the institution’ button very effectively,” Garcia says.


He also considers himself a quick study of people. He can figure out what will motivate someone in their first meeting, he says. “One of the things I have learned in leadership positions is that for some individuals—a very small percentage of individuals—it is about physical or monetary things you do for them,” he says. “You give them more space. You give them more money. You give them titles. But I am always impressed by how meaningful it is for a leader to demonstrate value through simple things—a phone call, a meeting, a pat on the back, a handwritten note.”


Demonstrating value is essential, he says. As their leader, he has no trouble praising his faculty and staff.


“In any accomplished group you find egocentric folks constantly needing the feelings of being valued,” he says. “These things are easy for me to do because I feel them. I admire these people.”

Posted on

Sponsors Seek More Democratic Support for Sexual Orientation Bill

So far in the Democratic-controlled Congress, employment-law bills roll through the House and then get stuck in the Senate, where Republicans have a large enough minority to block legislation.


But a measure that would ban workplace discrimination based on sexual orientation is being held up because it lacks enough support in the House.


The Employment Nondiscrimination Act (ENDA) received a hearing in the House Education and Labor Committee in September. On Tuesday, October 2, the panel was scheduled to vote on the bill.


That action, and consideration on the House floor, has been postponed because sponsors have not yet brought enough of their Democratic colleagues on board.


In addition, a few Republicans have co-sponsored the bill, which would prohibit workplace discrimination against gay, lesbian, bisexual and transgender people. It also would protect those who have changed their gender identity.


That provision may be causing misgivings among Democrats seeking re-election in conservative districts next year. It also prompts fears among employment lawyers that it will subject businesses to new kinds of lawsuits.


Rep. Barney Frank, D-Massachusetts and author of the original bill, introduced a streamlined version September 27 that removed the gender identity provision. The issue was addressed in separate legislation.


“We did not believe the votes were there for a gender-identity ENDA bill,” says Steve Adamske, Frank’s spokesman.


On September 28, House Speaker Nancy Pelosi issued a statement saying she supported including gender identity but that “the new ENDA legislation proposed by Congressman Frank has the best prospects for success on the House floor.”


That spurred a backlash by many gay, lesbian, bisexual and transgender groups. So, on Monday, October 1, Pelosi, Frank and Reps. Tammy Baldwin, D-Wisconsin, and George Miller, D-California and chairman of the House labor committee, issued a statement saying the October 2 committee vote is postponed until later this month.


“This schedule will allow proponents of the legislation to continue their discussion with members in the interest of passing the broadest possible bill,” they said.


The business community, however, prefers the streamlined approach. Michael Eastman, executive director of labor law policy at the U.S. Chamber of Commerce, stressed that his organization has not taken a position on gender identity.


And it’s not necessarily endorsing the alternative version. “We plan to be neutral on the narrower bill,” he says.


But the new version assuages business concerns about the original bill, including its potential to erode federal employment-law pre-emption, broaden whistle-blower protections and foster disparate-impact lawsuits, according to Eastman.


“We feel comfortable that the narrower bill would limit opportunities for frivolous litigation and difficult implementation,” he says.


Rather than flatly opposing the legislation at the outset, the chamber is trying to help shape it. One reason the group is taking a cautious approach may be that 46 large companies, including such corporations as Cisco Systems, Coca-Cola, Marriott International, BP America and NCR, are backing the bill. Along with the vast majority of the Fortune 500, they already have inclusive employment practices in place.


But during a House hearing on the legislation in early September, the first business community opposition started to emerge. Employment lawyers raised concerns that it would create a new protected class for gender identity.


Mark Fahleson, an employment lawyer with the firm of Rembolt Ludtke in Lincoln, Nebraska, asserted that the definition was vague and too broad, allowing employees to declare a change in their gender identity at will without giving the employer advance notice to prepare for such a change in the workplace. The bill requires that companies provide shower or dressing facilities to accommodate actual or perceived gender.


Even though most major employers welcome homosexuals, they are doing so through voluntary policies. A statute would codify a particular approach for companies to follow and would burden small firms that don’t have the HR and legal staffs to manage compliance, according to Fahleson.


“This would put into law definitions and procedures and remedial schemes that include litigation,” Fahleson says.


Advocates, however, stress that the measure simply extends to homosexuals the same protections that have been put in place for women, minorities and ethnic groups the past 40 years. Currently, an employee can be fired for sexual orientation in 31 states and for gender identity in 39.


Food giant General Mills is one of the large corporations going to bat for the measure. It argues that companies can’t exclude any groups in the search for outstanding employees.


“A culture of respect and inclusiveness is important for retaining top talent and recruiting new stars,” Kelly Baker, vice president for diversity at the company, said at the House hearing. “We believe fundamentally that diversity drives creativity and innovation and links to our success.”


The company is not supporting the anti-discrimination bill as a way directly to improve its bottom line. Rather, it takes an altruistic, perhaps even patriotic, approach.


“It’s the right thing to do for American citizens,” Baker says.
Such sentiment bolsters the confidence of the measure’s sponsors. “One way or the other, we’re going to pass an historic ENDA this Congress,” Adamske says.


—Mark Schoeff Jr.


Posted on

SAP Pushes Back

Lawson and Workday have big plans for their new human resource management systems, but Oracle and SAP—giants of the core HR software world—have no plans to fade away.


    SAP says its software can accommodate modern corporate practices like matrix systems for managing people. This is true even though much of the data model of the core HR product has remained the same for about 15 years. SAP has steered clear of a major overhaul of that data model to avoid causing significant disruption to customers when they upgrade. But that hasn’t prevented the Germany-based firm from staying up to date with its software, says David Ludlow, SAP vice president for human capital management strategy.


    “Over the years, we have made the necessary changes to modernize it,” he says.


    SAP also offers a warning of sorts to Lawson and Workday: Keeping core HR and payroll applications current with country and state legislation around the globe is no easy trick.


    SAP charges HR software product managers with monitoring U.S. federal and state laws and has a full-time employee focused solely on shifts in payroll laws.


    “It’s getting more complicated. You’ve got changes to existing rules all the time,” Ludlow says. “It takes a tremendous amount of resources on our side.”

Posted on

Workday Right for RightNow

Workday has persuaded close to 20 clients to sign on for its human resource management system, which was launched last year.

    Among the initial customers is RightNow Technologies, a Bozeman, Montana-based maker of customer relationship management software. Kevin Boylan, HR director for the 700-employee firm, says Workday is as nimble as promised. Soon after RightNow began using the HR software in April, the company restructured itself from departments and department executives to geographic business units and regional general managers.


    To capture the shift, Boylan says, a traditional HRMS would have required a lengthy updating and probably the help of an expert system administrator. Not so for Boylan and his team.


    “We were able to do it within an hour in Workday,” he says. “We did it ourselves.”

Posted on

Job Boards Tap Facebook For Gen Y Workers

Recruiters are getting a vital new tool to hire Generation Y workers as job boards begin linking to the social networking site Facebook.


CareerBuilder, Jobster, Yahoo HotJobs and JobsinPods.com are among those developing Facebook applications in hopes of helping recruiters and hiring managers reach out to some 41 million active users of the popular site.


Many experts consider Facebook the leading Generation Y networking platform, not only for its reach but also because of the audience it attracts. Facebook’s fastest-growing demographic is people 25 years or older. More than half of the site’s users are out of college and many are seeking full-time jobs in a career-oriented environment, which makes them a coveted workforce group among employers searching for young talent, recruiting specialists say.


“Facebook is the sixth-most trafficked site in the country,” says Richard Castellini, vice president of consumer marketing at CareerBuilder. “It is a great medium for employers to become more relatable to this important segment of the workforce.”


CareerBuilder launched its Facebook application in late August. It matches Facebook users with job and internship opportunities. CareerBuilder’s technology sifts through Facebook users’ profiles, gathering information such as college major and hometown.


Job boards testing Facebook applications are ahead of the curve, says industry consultant John Zappe.


“It’s a fairly inexpensive way to help their clients—recruiters and hiring managers—gain brand awareness among young, passive job candidates,” Zappe says.


Chris Russell, founder and president of JobsinPods.com, developed a Facebook application because it gives employers additional visibility among members of Generation Y, who typically are defined as those born between the late 1970s and 2000. Launched in March, JobsinPods is an audio job board allowing employers to record podcasts containing information about career opportunities within their companies and distribute them electronically.


The company’s Facebook application was introduced this month and allows recruiters and hiring managers who are members of Facebook to embed their podcast in their personal page. Russell hopes to enhance his Facebook application, making it more interactive and creating a function to allow podcasts to be e-mailed.


“The iPod generation is bored with the conventional communication techniques that employers use to reach them,” he says. “They want something fresh and real, like podcasts, which are very commonly used within this group.”


Jobster also has launched a Facebook application. The Seattle-based job board has partnered with more than 230 companies, including Verizon and Boeing, to create an employer talent network.


“Facebook’s open philosophy makes it easy for job boards to develop applications for the networking site,” says Jonathan Duarte, president and CEO of Go Jobs Inc., a job board and recruiting consultancy in Orange, California. “I anticipate a lot more recruiting specialists will be turning to this tool for reaching Gen Y’ers.”


—Gina Ruiz

Posted on

Medicare Claim Data Ordered Released

A judge’s order requiring the federal government to release information on the quality and cost of thousands of physicians could embolden employers to steer employees to better-performing doctors.


Consumers’ Checkbook, a consumer advocacy group in Washington, brought the lawsuit against the Department of Health and Human Services in hopes of making public every health care claim paid by Medicare. The consumer group initially sought the claims data through a Freedom of Information Act request in March 2006.


The information, which was scheduled to be made public September 21, will be the largest existing data set publicly available about the way doctors practice medicine as detailed by claims paid by Medicare. The group will use the data to measure the quality and efficiency of doctors and plans to launch a Web site that tells consumers how much experience doctors have performing certain procedures.


“This will make the efforts to rate doctors more reliable, more valid,” says Robert Krughoff, president of Consumers’ Checkbook.


The information could be a boon to employers and other groups looking for greater cost and quality transparency in the heath care marketplace.


“We have quite a bit of evidence that many patients have major complex procedures done by physicians that don’t have any experience at all,” Krughoff says. “This can help employees choose physicians for major procedures.”


Making the information public, he says, will encourage physicians to improve.


Though Health and Human Services was named as a defendant, experts believe the ruling, made by U.S. District Judge Emmet G. Sullivan in Washington, will not be appealed by the Bush administration. Last year, in an executive order, President Bush called for greater cost and quality transparency in the health care system, something that the release of this data will achieve, experts say.


“It honestly is a treasure trove,” says Francois de Brantes, the national coordinator for Bridges to Excellence, a program that rewards doctors for improving the quality of their medical care. “There is an unbelievable amount of analysis that can be done with the data that up until today just hasn’t been possible.”


Doctors have staunchly opposed the use of claims data to measure the way they practice medicine. The American Medical Association says Medicare data paints an inaccurate picture because it does not focus on whether a patient’s care led to recovery—only how much the care cost and what it consisted of.


“The AMA is concerned that the indiscriminate release of raw Medicare claims data has the potential to put patient privacy at risk and will paint an inaccurate and incomplete picture of the quality of physician care, misleading patients,” according to a statement by AMA board chair Dr. Edward Langston. “The risks and harm associated with the release of this information far outweigh any potential benefits.”


Consumer groups say the data has limitations but it nonetheless can be used to accurately rate physician quality.


The specificity of the data can paint an intimate portrait of a doctor’s practice, experts say. Without releasing patient information, the data can detail what kind of medicine a doctor prescribed and whether a patient experienced complications or died after surgery. The quality of the Medicare data is noteworthy as well, because it tracks a patient over a long period of time—from when they turn 65 until a patient’s death—when health care use is highest.


The information could eventually subject doctors to the twin consumer demands of high quality and low cost, says Paul Ginsburg, president of the Center for Studying Health System Change.


“This is significant,” he says.


—Jeremy Smerd


Posted on

Health Care Cuts a Dicey Move for Retailer Pier 1

Pier 1 Imports soon will learn whether cutting health care benefits for the very employees who deliver what the company calls its signature in-store shopping experience will help resurrect the failing retailer or exacerbate its multimillion-dollar losses.

The predicament of Fort Worth, Texas-based Pier 1, which reported losses that widened to $56.4 million in the first quarter from $23.2 million a year earlier, reflects the quandary of employer-sponsored health care for service businesses whose low-wage employees are the face of the company to customers.


Analysts see reducing health care costs as a short-term savings that would likely harm employee morale, increase attrition rates and lead to deteriorating customer service.


“When you actively reduce costs at a company where the selling environment is such a big part of the brand, you have to be careful that you don’t damage the brand,” says Bryan Gildenberg, chief knowledge officer at retail research and consulting firm Management Ventures. “There’s a much greater risk in the high-touch, high-service model of retail of disenfranchised employees hurting business performance.”


Part of what Pier 1 CEO Alex Smith is calling a “cost-efficiency mission” is to cut employees’ hours in some stores to disqualify them from health benefits.


In May, hourly employees were told the number of work hours needed to receive health care benefits would increase. The next month, Pier 1 executives raised the number of stores it would close from 60 to 100. Then employees in Ohio, Colorado and Texas were told they would not be allowed to work enough hours to receive health care.


One assistant store manager in Ohio who makes $11 an hour and has worked at Pier 1 for several years feels betrayed.


“They are slashing the throats of the people who have been there the longest,” says the assistant manager, who spoke on condition of anonymity because talking to the press could mean termination. That employee’s hours were cut to 22 hours a week on average from 32 hours a week. Meanwhile, the company has hired part-time employees at $7 an hour who are working 31 hours a week—one hour shy of the 32 needed for health care benefits.


Pier 1 declined to comment or to confirm the policy changes, saying the company does not discuss personnel matters publicly.


Balancing part-time and full-time labor costs is common in retail. Annualized savings from cost reductions—which also include layoffs at the company’s Fort Worth headquarters, refining the management structure and closing 100 stores—will amount to $150 million, Smith told analysts during a recent conference call.


Cutting labor costs may be the norm for troubled retailers, but it is also a sign of desperation, says Leon Nicholas, a retail analyst at Global Insight, and is reminiscent of last-ditch efforts of defunct retailers Caldors and Bradlees. The problems of Pier 1 are compounded by what he sees as a lackluster strategy to sell more goods.


“Unless the fundamental problem is employee costs, [cutting those costs] doesn’t fix the fundamental problem,” Nicholas says. “Pier 1 hasn’t addressed fundamentally how to compete with Wal-Mart and Target at the bottom end and the boutiques at the higher end. They’re in the middle, which is no place to be in retail.”


—Jeremy Smerd