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Temp-to-Perm Trend Still Strong

Pinched by a tight labor market and demands for more effective talent recruitment, companies are increasingly turning to temporary agencies as a source of permanent hires.


Richard Wahlquist, president and CEO of the American Staffing Association, says the number of temporary workers retained as full-time employees in a process known as temp-to-hire is expected to grow by 15 percent this year, equaling the healthy rate of expansion seen last year.


“Temp-to-hire, according to our members, has been one of the fastest-growing segments of the business over the last two years,” Wahlquist says. “It is hot.”


Some staffing firms report that temp workers are now regularly being screened like potential permanent hires by human resources departments, with full job and education backgrounds requested. As the demand for temp-to-hire increases, staffing agencies are raising fees for temp-to-hire arrangements.


Express Personnel Services, an Oklahoma City-based staffing firm, has seen its temporary staffing business shift into an operation that serves primarily the temp-to-hire sector. Twenty years ago, temp-to-hire accounted for about 20 percent of the company’s temporary staffing business. Today, nearly three-fourths of its temporary recruiting is temp-to-hire, much of it in skilled fields like accounting. That experience mirrors the changes reported by the ASA; Wahlquist says 65 percent to 75 percent of temporary staffing today is temp-to-hire.


“Ten years ago, all we did was drug screening,” says Bill Stoller, co-founder of Express Personnel. “Today we do background checks, credit checks. We are doing so much more because of the eventual decision that the company wants somebody to be full time.”


Requests for more background information come from HR departments, which are turning to temp firms as a source of permanent hires in part because shrinking labor pools make it harder to find qualified candidates, particularly for critical skills like information technology. HR departments are also feeling pressure to fine-tune hiring to avoid mistakes that may require dismissal and new recruiting. By using temp-to-hire, companies can test-drive potential permanent hires without the costs associated with an immediate full-time hire.


Elissa Tucker, a senior consultant with Hewitt Associates, a human resources consulting firm, says temp-to-hire has become a fixture in hiring solutions. “Companies that are starting to feel the talent shortage are coming to us and saying, ‘We are having a crisis; help us come up with a solution,’ ” Tucker says. “Temp-to-hire is one option we might recommend.”


But she cautions that projections of an increasingly tight labor market could result in friction between temp agencies and their clients. “If the labor market gets really tight, there could be an issue between companies and staffing agencies, because they need to compete for the same talent,” Tucker says. “Staffing agencies want to hold on to employees for their own needs.”


Tucker says HR departments that use the temp-to-hire option need to carefully monitor contracts with staffing agencies to ensure that the terms of the transition are acceptable and that the fee for hiring a temp as a full-time worker is reasonable.


On the other side, Wahlquist says temp agencies need to prepare for more temp-to-hire requests with more focused recruitment efforts, particularly for sought-after jobs in tight labor markets. A temp agency that can’t supply talent on demand will quickly lose its usefulness to clients.


“There is a tension that exists between fulfilling increasing client demands for temp-to-hire assignments and maintaining a sufficient bench of talent to meet client staffing requests,” Wahlquist says. “If my business model is to make contract talent available, and I end up becoming a source for full-time employees, where do I get the talent to put on my bench?”


Finding qualified workers is among the top challenges faced by staffing agencies today. But according to a recent ASA survey, the No. 1 reason workers sign up with temp agencies is for help in finding permanent employment.


Wahlquist estimates that 30 percent to 40 percent of temp workers get asked to stay on full time after their assignments end. In most cases, the offer is made with the staffing firm’s participation and under the temp-to-hire clause in the staffing contract. But some companies may try to go around those contracts and hire temps without notifying the staffing firm or paying the temp-to-hire fees.


“We have heard reports of stealth hiring over years,” Wahlquist says. “What we advise staffing companies to do, as part of employee orientation, is to let employees know that they have an absolute obligation to inform the staffing firm of any requests made by a client to take a person on as a full-time employee. We also advise that staffing companies try to have the same sorts of conversations with clients—that if they want to hire staffing workers as full-time employees, here are the conditions.”


Tucker says that as temp-to-hire usage increases, companies need to do their homework before engaging staffing agencies. Ideally, she says, companies should look at temp-to-hire as part of a long-term workforce planning strategy. Such a strategy would include estimating talent needs up to five years into the future and determining where shortages might appear and which types of jobs might be best suited for temp-to-hire use, she says. Companies also need to carefully negotiate contracts with staffing agencies for temp-to-hire arrangements.


“Any company looking to use this as a strategy needs to go in upfront and try to have the best possible cost in the contract,” Tucker says. “In order for this to be a successful strategy, you want it to be cost-effective.”


That’s fine with staffing agencies, which are just as keen on protecting their own interests in temp-to-hire arrangements and want the details spelled out in advance.


“We need to get our return for recruiting people,” Stoller says. “We don’t want to come to the end of the process and feel we are not getting what we feel is a justified return out of recruiting these people. We are a little more upfront in discussing what fees are going to be—even more upfront than in the past.”


Stoller says fees for temp-to-hire are generally on the rise as labor supplies tighten and the competition for talent increases. He also notes that one reason for higher overall fees is that the skills in demand are also rising. That increases the level of screening and pay rates, as well as the temp-to-hire fees.


Wahlquist says that temp-to-hire clients now routinely request résumés from temp workers. Once those temps start working, their performance and progress is more closely monitored today by clients who want to see how well the temp workers fit and adapt during the term of the contract. If the temp passes the test, the company might then exercise the temp-to-hire clause and make an offer.


“The big thing that companies take into consideration in temp-to-hire is that they can eliminate the cost associated with bad hires or bad matches,” Wahlquist says. “If I guess wrong based on a good interview, now I have lost all the cost of recruiting, screening and employing a full-time employee, and I will face the separation costs of letting that bad employee go.”


By test-driving the worker in a temp-to-hire arrangement, the company gets a firsthand look at how a prospective employee performs in an arrangement where the temp agency is the employer of record.


But while the general trend in staffing is for increased temp-to-hire business, not all staffing firms are embracing the shift. Philadelphia-based Yoh Services, which specializes in higher-level temporary workers like engineers, computer programmers and health sciences researchers, has kept temp-to-hire at less than 5 percent of its overall business.


Jim Lanzalotto, vice president of strategy and marketing at Yoh, says his company has carved out a niche that focuses on providing highly skilled consultants for short-term projects. If a company wants to hire one of those consultants full time, Yoh would certainly oblige, he says. But the workers Yoh recruits tend to prefer roving, short-term assignments to permanent placements and might not adapt well to full-time employment.


“It is almost like a round peg in a square hole,” Lanzalotto says. “Some people want to work full time, but if someone is a consultant, let them continue to be a consultant. The biggest message here is that you want to be sure you have the right people doing the right things.”

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N.Y. Attorney General Focuses on Health Plans’ Doctor Rankings

The New York Attorney General’s Office is seeking information about programs used by Aetna Inc. and a Cigna Corp. unit to rank doctors based on quality and cost-effectiveness.


In letters sent to the two insurers on Thursday, August 16, Attorney General Andrew M. Cuomo expressed concern that the physician rating programs of Hartford, Connecticut-based Aetna and Philadelphia-based Cigna carry “a significant risk of causing consumer confusion, if not deception.”


The attorney general expressed similar concerns in a letter sent to a unit of Minnetonka, Minnesota-based UnitedHealth Group Inc. last month.


The programs—Aetna’s Aexcel and Cigna Care Network—are designed to encourage consumers to choose specialists based on quality and efficiency metrics and may be used by employers offering financial inducements such as lower co-payments and deductibles to promote cost-effective doctors, according to the letters.


The companies rely on claims data in ranking specialists, but claims data is known to carry “significant risks of error,” such as not including all relevant clinical information and not accounting for situations when one patient is treated by multiple physicians, according to the letters.


“Consumers are entitled to transparency when making the important decision of choosing their doctors, including specialists,” the letters say. “The goal of transparency is defeated, however, if the information provided is itself inaccurate or misleading or based on flawed data.”


In addition, the networks were developed without disclosing the data used to rank the doctors, even to the physicians themselves, giving doctors and consumers no ability to point out errors in the rankings, the letters say.


The attorney general is seeking information on numerous aspects of the program, including how a physician’s performance and cost-effectiveness is measured and the process for physicians who wish to challenge their rankings.


“We learned about the letter today and are still in the process of reviewing it, so it would be inappropriate to make any substantive comments,” a spokesman for Cigna said in a statement. “We take the attorney general’s concerns seriously and will respond to his request for information.”


In a statement, an Aetna spokeswoman said the company is “fully committed to transparency,” including publishing the criteria for the selection of specialty physicians on member and provider Web sites. The company discusses its programs with physician organizations prior to rolling them out—as it did in New York, where the program has been available since 2005—and also has mechanisms for physicians to raise concerns they may have with their own data, the spokeswoman said.


“Doctors are designated if they meet certain thresholds first for clinical performance and, only then, cost-efficiency,” the spokeswoman said in the statement.


Aetna will review the attorney general’s request and cooperate fully, she said.


The assertions featured in the Aetna and Cigna letters are similar to the ones featured in a July letter sent to UnitedHealthcare. For example, in all three letters the attorney general’s office expressed concern that the insurers’ profit motives may affect the accuracy of its quality rankings because high-quality doctors may be more expensive, creating a potential conflict of interest.


Unlike the UnitedHealthcare letter, though, the attorney general’s office simply asks for more information regarding the programs from Aetna and Cigna. The letters sent Thursday to the two insurers do not ask them to cease their doctor ranking programs, and they do not discuss the possibility of an injunction against the programs, as in the UnitedHealthcare letter.


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

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Final Dependent Care FSA Rules Issued

Final Internal Revenue Service regulations published Tuesday, August 21, update and clarify expenses that employees can pay through dependent care flexible spending accounts.


The final regulations, which take effect immediately and largely affirm rules the IRS issued in May 2006, provide numerous examples of expenses that may and may not be funded through a dependent care FSA.


For example, expenses for day camps, including specialized camps, are eligible for reimbursement. Additionally, preschool expenses, including food, can be reimbursed through an FSA.


On the other hand, expenses for kindergarten and higher grades are not eligible because those programs are primarily for education rather than for child care—part of the regulations that affirm an earlier IRS information letter.


The final regulations also say fees paid to an employment agency to obtain the services of an au pair can be covered through an FSA, as can the cost of bus service that delivers a child to a daycare facility.


However, the employee’s cost of driving his or her child to the facility is not reimbursable through an FSA.


Only a small percentage of employees are eligible to make contributions to dependent care FSAs because of federal restrictions. For example, in the case of employees’ children, FSAs can be used to cover eligible expenses for children only under age 13.


In addition, dependent care expenses related to children in two-parent families in which only one parent works cannot be covered.


Lower-income employees may find it more effective to take the federal dependent care tax credit than make pretax contributions to a dependent care FSA.


While only a small percentage of employees contribute to dependent care FSAs, those who do cut the true cost of such expenses by as much as one-third because they are paying with pretax contributions.


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

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Hiring Surge is Draining the Overseas Candidate Pool for Some Skills

Multinationals based in the U.S. are investing most of their money where they always have—in Europe.


    Almost 60 percent of U.S. foreign-direct investment still flows to the United Kingdom, France, Germany and other major European nations, where U.S. firms have time-tested methods for recruiting new staff. Most of the direct investment in Asia still flows to the advanced nations of Japan, Singapore and Australia, where recruiting operations are well-established.


    But 2006 marked a watershed in the amount of U.S. firms’ direct investment in China, India and a new tier of less-developed markets. As investment spreads geographically, recruiting functions must evaluate the approach to candidate attraction for each new market.


    The investment boom in China and India is driving up wages and generating recruiting and retention problems for multinationals. Towers Perrin reports that 59 percent of employees in China and 63 percent in India are either actively looking for a new job or are open to offers. Massive hiring by both multinational and domestic firms is quickly draining the candidate pool for some skill sets.


    India’s engineering schools produce about 400,000 graduates a year, but in 2007 the best 125,000 will snapped up by the five big IT companies—Infosys, Tata Consultancy Services, Wipro, Satyam and Cognizant—according to a report by the Hay Group. Smaller software firms recruit an additional 100,000, leaving a limited number for all other sectors. In recognition of the challenge that the skills shortage presents, Infosys recently moved its finance director into the top HR position.


    Multinationals are now moving into China’s and India’s third-tier cities and turning to relatively untapped regions for fresh labor markets where employee retention is less troublesome and costs are lower. Intel’s 2006 move into Vietnam signaled the beginning of this trend, which is taking hold across Southeast Asia, Africa and Latin America. In Vietnam alone, foreign direct investment is set to double this year to $10 billion.


    Although investment in Latin America is still limited by relatively high risk factors, call center investment is booming. In Central America, the number of call center agents will rise from 21,000 in 2006 to 40,000 by the end of 2007, according to the Zagada Institute. Nine call centers are already up and running in El Salvador, operated by companies such as Dell, GMC and Sykes. Datamonitor predicts that the number of call center agents working for outsourcing firms in Mexico will rise from 33,500 agents in 2006 to 80,000 by 2010. Argentina, Brazil, Chile and Mexico are also moving into IT outsourcing.


    The emergence of new outsourcing markets continues within Europe’s nearshore, with Ukraine hosting new IT facilities and Malta positioning itself as a location for multilingual call center services, according to Datamonitor. In Mongolia, new tax incentives for multinationals, proximity to both Russia and China and low labor costs provide strong inducements for multinationals expanding into Central Asia.


    Instead of small procurement or marketing operations staffed by expatriates or local partners in the more remote locations, multinationals are setting up full-scale operations staffed by local nationals, with substantial recruiting required. Although the most effective candidate attraction models for these regions bear more similarity to the models for China and India than established Western models, recruiting in the new markets requires a fresh look at attraction drivers.


New recruiting markets
   “Among the major multinationals, we see rapidly growing interest in locations beyond India and China, especially Vietnam, [the] Philippines and South Africa,” says Pramod Khera, CEO of Aptech Ltd., a Mumbai, India-based IT training company. “Latin American locations such as Peru and Colombia and eastern European locations such as Ukraine are also drawing more interest.”


    In many ways, training firms such as Aptech and staffing firms like Manpower serve as leading indicators of trends in foreign direct investment because they must be operational in new locations before their client companies begin staffing there. Manpower’s revenue from emerging markets hit $136 million in 2006, up from just $15 million in 2003.


    Aptech’s global expansion and its experience in recruiting staff for its new training centers bear out the new trend. From its base in India, Aptech moved into China seven years ago and now commands 32 percent of the market share for IT training there. In recent years, Aptech expanded its operations into Vietnam, Nigeria, Syria and other less developed markets. In 2006, the company added training centers in Russia, the Philippines, Malaysia, Mexico, Thailand and Turkey. In the first quarter of 2007, the company opened new centers in Mongolia, Iran, El Salvador, Kuwait, Dubai and Iran.


    To staff its training centers in the less developed markets, Aptech recruits locally and brings in trainers from India as needed. Khera reports that locations such as El Salvador and Mongolia provide a solid education system for engineers and provide high-quality IT candidates, but Aptech must still train them on the newest technologies to upgrade their skills.


    With Aptech’s global growth in staffing up 12.3 percent over 2006, the company is constantly recruiting. Aptech’s in-house function employs 16 recruiters, divided into IT and non-IT teams. Based on the required profile for employees for the new centers, Aptech’s recruiters source through job portals and postings, existing databases, networking and community sites, institute and skills-related sites, mass mailers and print ads. Aptech also uses campus recruiting and job fairs and taps outside recruitment firms when necessary.


    Recruiting the training faculty for each center is governed by a process designed to ensure that uniform standards are maintained in candidate selection and new hires adhere to the norms set by the global parent. Managers at each center review résumés and conduct interviews.


    Candidates who are short-listed by the center undergo online aptitude tests, with the results reported to the central office in Mumbai. Managers there conduct telephone interviews or videoconferences with applicants and forward their recommendations back to the center.


    Candidates are screened based on skills, education, experience, relocation preferences and communication capabilities. Testing includes aptitude, functional and language tests, psychometric tests and an additional assessment of candidates’ potential to grow and their awareness of the industry and technology. Finalists take technical-skills tests with fixed minimum score requirements.


Attraction drivers
   In the new locations now drawing heavy U.S. direct investment, recruiters must refocus job offerings to meet the interests of local nationals. New survey data from Towers Perrin confirm a fundamental difference in the primary concerns of the top job candidates in the advanced nations and those in the developing regions. The key to effective recruiting on a global basis is to tailor job offerings to meet the needs and interests of candidates in local markets.


    Candidates in the developing regions do not share the same concerns that recruiters encounter in the U.S. markets, where pay and benefits remain the key attraction drivers. Pay remains the top issue for candidates in the U.S. under the age of 55, when benefits become the primary concern, according to the Towers Perrin data. In the advanced nations of Europe, challenging work and work/life balance are the two most important factors in attracting employees, followed by pay. Career opportunities rank fourth.


    In the developing markets, however, career advancement opportunities and learning and development opportunities often hold the top spots as the key factors in attracting employees, with pay ranking second or third. In Brazil, for example, career advancement ranks first, followed by learning opportunities and then pay. In Mexico, career advancement ranks first, followed by pay and learning opportunities. In China, leaning opportunities rank first, followed by pay and career advancement.


    The key challenge for Aptech in staffing its own operations is recruiting and retaining employees who place a high value on career opportunities and learning and development. “All companies suffer from high attrition in the markets where we are located, so we look specifically for candidates who see training as a career opportunity,” Khera notes.


    Aptech’s recruiters focus on finding candidates who have both the communication skills necessary for a trainer and knowledge of technology.


    “We find people with a good technology background and provide them with training, but the risk of them leaving is high, so we motivate them to stay by providing them with the opportunity for ongoing training in the latest technologies,” Khera says. “These incentives are important to them.”


    In India, retention is particularly difficult. The Towers Perrin survey reports that 28 percent of employees in India are actively job hunting. Wages in the IT and business process outsourcing centers are rising 10 percent to 20 percent annually. For top computer engineers, annual increases in first-tier cities are running 30 percent.


    Aptech redoubles its retention efforts at its Indian centers. “We try to bind employees with a written agreement that they must reimburse us for training if they leave the organization,” Khera says. “It looks good on paper, but it’s not very effective. Legally, it is very difficult to enforce, so it really only enforces a sense of moral obligation.”


    Aptech also offers its trainers the opportunity to move into management and charts out a career plan for them.


    “We are much better equipped to hold on to our trainers than our client companies, which view in-house training as a core activity and cannot offer trainers as much of a career opportunity,” Khera notes.


    Companies expanding their operations in China and India or moving into relatively untapped sites in Asia and Latin America may have to mimic Aptech’s emphasis on career development and ongoing training as the key attraction drivers for recruiting the best candidates.

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Facebook Users Get a Look at New Job Opportunities

Jobster has joined forces with more than 230 employers to enhance its career networking platform on social networking site Facebook. The partnerships enable Facebook users to sign on to a new initiative, the Employer Talent Network, through which they can establish contact with companies they’d like to work for.


    Facebook users then can have their information forwarded to recruiters at specific companies for potential jobs or to learn more about that organization.


    The new application was created based on feedback Jobster gathered from Facebook users over the course of six months, says Christian Anderson, director of corporate communications for the Seattle-based career network company.


    “Users told us of various ways in which we could help them with their professional and career objectives, and we have responded,” Anderson says.


    The partners within the Employer Talent Network, which include Verizon and Boeing, benefit from participating in the network because they can gain access to a fresh pool of prospective workers, as there are more than 31 million active users on Facebook.


    Employers also can access information regarding potential candidates, such as career interests, location and e-mail addresses.


    Building the Employer Talent Network took significant coordination, Anderson says. Jobster talked to employers to explain the network, hosting webinars and other initiatives to educate the companies. The list of companies grew and interest continues to mount, Anderson says.


    Jobster says it has launched other upgrades, including the ability to let Facebook users track the professional trajectory of their network friends to facilitate communication between a user and somebody who can provide insightful career tips about working for a particular company.


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Court Lost Pregnancy-Leave Credit Can Be Regained

Employees who received less credited service time while on pregnancy leave compared with other disabled workers—before that inequality was addressed by the Pregnancy Discrimination Act of 1978—can regain that lost time retroactively, a federal appellate court has ruled.


The 11-4 decision on Friday, August 17, by the en banc court in Hulteen v. AT&T Corp. overturns a 2006 decision by a three-judge panel of the 9th Circuit U.S. Court of Appeals in San Francisco. The majority total does not include a judge who partially affirmed the majority opinion but also participated in the dissent.


The plaintiffs in the case were four current and former AT&T Corp. employees who had each taken partially uncredited pregnancy leave before the Pregnancy Discrimination Act’s 1979 effective date, and their union, the Communications Workers of America. As a result of the uncredited time, they received less favorable benefits or retirement opportunities, according to the opinion.


A district court ruled in the plaintiffs’ favor. However, the three-judge panel said in a 2006 opinion that a 9th Circuit decision in 1991 in a similar case, Pallas v. Pacific Bell, in which a plaintiff was granted the extra time, could no longer be used as precedent because of an intervening U.S. Supreme Court decision that prohibits applying federal law retroactively.


However, in its most recent decision, the court ruled that the 1991 decision was not “clearly irreconcilable” with “intervening authority.”


“A statute does not operate ‘retrospectively’ merely because it is applied in a case arising from conduct antedating the statute’s enactment, or upsets expectations based in prior law,” said the decision.


“Rather, the court must ask whether the new provision attaches new legal consequences to events completed before its enactment,” says the decision. “The conclusion that a particular rule operates ‘retroactively’ comes at the end of a process of judgment concerning the nature and extent of the change in the law and the degree of connection between the operation of the new rule and a relevant past event,” said the court. “ … Pallas was premised on a discrete act, the decision to deny a retirement benefit, that gave rise to a current violation of the PDA.”


According to an AT&T spokesman, “We believe the decision is inconsistent with current law and we’re reviewing the decision to determine our next steps.”


Plaintiff’s attorneys could not be reached for comment.


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

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Why More Companies Look Elsewhere for CEO Talent

More corporate boards are looking outside their company’s ranks to fill CEO vacancies despite dramatic cost differences to hire from within. And now there’s a new academic theory to help explain this trend that has many an ambitious inside executive seeing red.


In a recently published paper, professors Kevin Murphy of the University of Southern California and Ján Zábojnik of Canada’s Queen’s University suggested that during the past few decades, the CEO market has come to value “general managerial ability,” or skills that translate across companies and industries (read: outsider), over “firm-specific managerial capital,” or all knowledge and experience that’s recognized as valuable only within a company (read: insider).


Furthermore, general management ability—including previous CEO experience, as well as a mastery of economics, accounting, management science and other disciplines—is transferable and “priced” into the labor market, the authors argue.


Conversely, firm-specific capital, such as understanding the company’s operations, markets, suppliers and clients, is “unpriced” in the CEO market.


The old-school CEO needed to acquire a certain amount of firm-specific information. The modern CEO lets an assistant sweat those details.


“Bottom line is that you don’t have to pay very much to promote someone internally to the CEO chair,” Murphy said. “You could probably ask that executive to take a cut and they’d agree to it just to get the general managerial experience. But you have to pay a lot to compete with other firms for the top managers, and that pay will depend on how much of a CEO’s skills are transferable across firms and industries.”


It’s a counterargument to a theory proposed by Harvard professor Lucian Bebchuk, which argues that the escalation in executive pay has been determined by board cronies rubber-stamping fat packages.


CEOs from outside the company certainly fetch bigger pay packages than insiders. The authors found that external CEO hires in the 1990s made 22 percent more than promoted execs. In 2005, outsider CEO hires at S&P 500 companies earned a median pay of $13 million, compared with $5 million for insiders, according to the Corporate Library, a corporate governance research group. Of the 52 CEO appointments at S&P 500 companies that year, just 32 were internal promotions.


And not only are these outsider CEOs costlier than promoted execs, they’re riskier, said Dan Dalton, director of the Institute for Corporate Governance at the Kelley School of Business at Indiana University. “These outsider CEOs are usually dropped into really tough situations and have a hard time making it. So you pay more, take more risk, and then pay again if the exec fails [via a golden parachute].”


The Center for Creative Leadership, a management consulting firm, found that 55 percent of external CEO hires leave their posts within 18 months, compared with only 35 percent of those internally promoted.


The preference for outside hires has been growing for three decades. Murphy noted that during the 1970s and ’80s, outside hires accounted for 15 percent and 17 percent of all replacements, respectively. In the 1990s, they accounted for 25 percent—by 2005, 40 percent.


Last fall, Ford Motor Co. snagged top Boeing exec Alan Mulally as its new chief executive for $18.5 million.


Earlier this month, Cerberus Capital Management named former Home Depot chief Robert Nardelli to run Chrysler. (Cerberus won’t reveal the details of Nardelli’s pay.) And last week, Qwest appointed former Williams-Sonoma chief Edward Mueller to replace its retiring chairman and CEO. Mueller will receive an annual base salary of $1.2 million, plus a bonus of up to twice that amount.


Some argue that boards aren’t placing a high enough priority on succession planning, which leaves them scrambling for talent when a crisis hits. Half the boards of public, private and nonprofit companies recently surveyed by the National Association of Corporate Directors said they were “less than effective” at CEO succession planning.


Pearl Meyer, a partner at Stephen Hall & Partners, a compensation consulting firm, said boards are responding to shareholder criticism of their succession planning.


“Hiring from within is less expensive and less disruptive to the company,” she said. “Plus, a lot of these external recruits aren’t sticking. Promoting someone means you get the devil you know.”


Filed by Jeff Nash of Financial Week, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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Firms Hit Wall on Tech Worker Hiring in New York City

High-tech employees are so hard to find in New York City that some firms are giving up and expanding elsewhere, threatening one of the city’s fastest-growing industries.


Bart Feder, chief executive of the FeedRoom, a Manhattan-based firm that delivers online video for Web sites, searched for six high-end software developers for months. After it became clear that he wasn’t going to find them in New York, he opened a satellite office in Toronto, which has a wealth of untapped tech talent. It is also just a 90-minute plane ride away, he says.


“In New York, you’re competing against banks, media companies and Google for good software developers,” Feder says. “Right now, the demand is exceeding the supply.”


Brooklyn-based Etsy, an e-commerce site for homemade arts and crafts, is in dire need of software engineers as it continues to grow. With more than 250,000 registered users, 500,000 items listed on its Web site and more than $1 million in annual sales, it relies on engineers to maintain and increase its volume of business. So a few months ago, the two-year-old firm opened a San Francisco office, where it now has four engineers.


“There are more applicants out there,” says Etsy founder Rob Kalin, who expects to hire five more engineers by the end of the year. “More people come out with computer science degrees and want to work for startups.”


New York has enjoyed steady growth in tech jobs since mid-2003, and the sector is still healthy. As of June, there were 44,000 computer system design jobs in the city, 3,600 of which were added in just the first half of this year. Employment is up 12 percent compared with last year and is approaching 47,000, the peak number of tech jobs before the dot-com bubble burst in 2000.


But some observers question how long the growth will last, as companies continue to expand and wrestle for a limited supply of talent.


“Computer jobs are commodities. Employers can move jobs out,” says John Tepper Marlin, former chief economist with the city comptroller’s office and now a principal at consulting firm CityEconomist.


Looking overseas
More firms are considering doing just that. Online ad firm 24/7 Real Media started a foreign-exchange internship program in Paris and hired four interns in June. Full-time offers may be extended at the end of the program, but the company hasn’t determined where the jobs will be based—New York or Europe.


Companies are also becoming more accommodating just to retain the talent they already have.


When one of M5 Networks’ top employees had to move to Rochester, New York, for personal reasons, the Internet phone services provider opened an office there just to keep him on board. When the company hired someone in Chicago, it did the same thing—and now has a team of seven in the Windy City.


“You have to be flexible in this economy,” says chief executive Dan Hoffman, who originally had no intention of opening offices in those cities.


Almost a quarter of M5’s 110 employees work from their homes in other cities, such as Washington.


Not all tech employers are ready to give up on the Big Apple. Some companies are pouring more money into recruiting efforts. It used to be common to offer employees $250 to $500 per referral, but now companies are paying thousands, says Rick Dionisio, a director at executive search firm Staffmark.


Referral bonuses
The New York office of interactive ad agency Avenue A|Razorfish, with about 400 employees, recently boosted its bonus to $4,500 for referrals received between July 23 and August 3. Manhattan-based online job site TheLadders.com offers employees bonuses of up to $5,000.


The talent shortage is also forcing companies to be more creative. TheLadders.com plans to rent out a billiard parlor in the city in October and host a one-day event of fun and games where local techies can win cash prizes. It will be a first for the four-year-old company, which has grown to 146 employees.


David Carvajal, a vice president at TheLadders.com, doesn’t know how much the event is going to cost yet, but if the company spends $20,000 and can find two or three good people, he says, the event will be worth it.


“We are not ready to abandon New York,” Carvajal says. “Talent is here; you just need to know how to compete.”


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

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Latest 401(k) Feature Debit Card to Tap Retirement Savings

The ease of plastic is coming to retirement plans. The Reserve, the fund company that pioneered the money market fund, now offers a product that lets 401(k) participants borrow from their accounts using either a debit card or checks.


After signing up for the ReservePlus loan program, participants transfer a portion of their 401(k) assets into a money market fund from which they are free to draw whenever they wish. They can either use a ReservePlus loan card at an ATM or store, or ReservePlus checks.


Eric Lansky, a managing director at the Reserve, says the goal was to create a product that resembled a home-equity line of credit. “You get this debit card or checks, and you can now tap into that 401(k) if you need to borrow.”


To borrow, participants pay an annual rate that’s 2.9 percentage points above the prime rate; the portion represented by the prime rate goes back into their account, while the 2.9 percent is the Reserve’s fee. Borrowers also pay an initial setup fee and a yearly maintenance fee, which are set by the record keeper. (ReservePlus is currently available on the Omniplus record-keeping platform and will soon be available on the SRT and InvestLink platforms.)


Making it easier for 401(k) investors to borrow from their savings seems to run counter to the goal of helping workers build a nest egg for retirement. But most 401(k) plans do allow loans, in the belief that workers are more likely to participate if they can access their money prior to retirement. A 1997 study by the Government Accountability Office confirmed that allowing loans increases participation in 401(k)s, especially among lower-income employees, and it also concluded that employees in plans that permit loans contribute more.


A survey by the Profit Sharing/401k Council of America (PSCA) found that 85 percent of 401(k) plans allow loans, and about 25 percent of workers in those plans take them.


But PSCA president David Wray says that in the past, plan sponsors were wary of proposals to enable 401(k) loans with credit cards.


“They have a loan program so that they can entice employees who would not save in the plan without some kind of access to their money,” Wray says. “But they typically do this as an accommodation, not as an additional employee benefit.”


Lansky says that ReservePlus relieves plan sponsors of the administrative work involved in 401(k) loans. “We originate the loan and we collect the loan,” he says.


Christopher Van Aken, an account manager at GMR Associates, an investment advisor in Rochester, New York, that offers ReservePlus to its clients, says that when “HR and payroll people find they’re no longer going to be in the loan business, they’re the happiest people in the world.”


Filed by Susan Kelly of Financial Week, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com

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Green Recruiting Helps Bring in Top Talent

When GE teamed up with mtvU, MTV’s 24-hour college network, in 2006 to float an enticing challenge to U.S. college students, its motives weren’t completely altruistic. The challenge to students was if $25,000 in grant money were on the line, could they develop an environmental project to implement on their own campus?


    The contest’s primary goal was to boost GE’s profile among collegiate consumers, says Steve Canale, manager of recruiting and staffing services.


    “But as a byproduct, we were helping to attract and recruit students,” he says. “It definitely helped with the overall image on campus of GE as an employer.”


    The contest, called the Ecomagination Challenge, fielded more than 100 proposals, later winnowed down to 10 finalists. Earlier this year, a team from the Massachusetts Institute of Technology won for its solar-powered processor. Throughout the contest, a snazzy Web site detailed its progress. On the lower left-hand side, a discreet link glowed in a moss-green color, announcing: “Jobs at GE.”


    In the race to attract the most talented, innovative employees, some companies like GE are painting themselves in green—a rich environmental green—to boost their recruiting leverage. An environmental pedigree, recruiting experts say, can help lure applicants.


    In a 2006 Conference Board report, 78 percent of 198 multinational companies surveyed described corporate citizenship, including good environmental practices, as very or extremely important in recruiting and retention. And employees are paying attention: One-third reported that they would prefer to work for an environmentally sensitive company, according to a 2007 Harris Interactive survey of nearly 2,500 U.S. adults conducted for staffing firm Adecco USA.


    Still, so-called green recruiting has only emerged in the past couple of years, even among companies with ample reason to tout their credentials, says John Sullivan, a human resources consultant and professor of management at San Francisco State University’s College of Business. “If you want an advantage in recruiting, here’s one of them,” he says. “At this point, it’s not one that many companies are using.”


Grooming talent
   Job applicants themselves are driving this recruiting shift, says Nicholas Eisenberger, a managing principal at Green Order. The New York-based firm, which consults with companies on environmental strategy, helped develop the Ecomagination Challenge.


    At a law firm, Eisenberger says, it’s not uncommon now for applicants to ask: Where does that wood paneling come from in the lobby? Paul Richard, vice president of human resources at Shaw Industries, says younger applicants don’t mince words, asking: What are you doing for the environment?


    Midcareer professionals, those with a spacious office and title to match, also may be searching for a new job, one with a higher purpose, says Lisa Walker, a senior client partner at Korn/ Ferry International, the Los Angeles-based executive recruiting company. Environmental sensitivity is one shorthand way to assess how a company treats its employees, she says. “It shows that this company cares for something more than just profits.”


Burnishing your green … credentials
   Want to highlight your company’s green credentials? You need to offer potential employees more than a hybrid car reimbursement, although that’s a good start, Sullivan says.


    Plug environmental successes wherever possible—in job descriptions, recruiting advertisements and during interviews with applicants, Sullivan says. Raise your stature as a “green” resource by getting quoted in the press. And maximize the company Web site, Sullivan says. Don’t just describe your company’s recyclable products, but also estimate how many pounds they keep out of the landfill.


    On its Web site, GE does just that, touting that the company’s wind turbines “prevent as much as 18.3 million tons of greenhouse gases annually, an amount roughly equal to keeping over 3 million cars off the road.” But there’s always room for improvement, Canale says. An ongoing redesign of the careers section will more prominently display such environmental information, he says.


Assessing results
   To sell green recruiting to upper management, be sure to track data and measure results, Sullivan suggests. A good strategy is to survey job prospects, once they accept a position, to determine whether the company’s environmental record played a role, he says.


    During Shaw’s latest employee survey, conducted in late 2006, a few environmental questions were added, Richard says. Shaw has a number of environmental initiatives, including a recycling program projected to keep as much as 300 million pounds of carpet waste annually out of the landfills.


    The employee responses to the survey were overwhelmingly green, Richard says, revealing a recruiting sweet spot. Of the 2,520 Shaw employees surveyed, 80 percent said they were very or extremely interested in environmental concerns.


    Assessing the direct impact of green recruiting isn’t always easy, GE’s Canale says. During the college challenge, job applications did increase, he says. But those related to the challenge weren’t tracked separately from other college recruiting activities.


    Canale, however, doesn’t need to be convinced. To his recruiting list, he’s added at least one member of MIT’s winning team.


    Shaw’s Richard says, half-jokingly: “I hope that other companies don’t catch on too fast, because that will continue to give us a competitive edge.”