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Borzi Confirmed as Labor Department’s Top Benefits Regulator

Longtime former congressional pension and health care staff member Phyllis C. Borzi has been confirmed as the Labor Department’s top benefits regulator.


The U.S. Senate confirmed Borzi as assistant secretary of labor of the Employee Benefits Security Administration without objection on Friday, July 10.


President Barack Obama nominated Borzi, who served 16 years as a pension and a benefits counsel for the House Education and Labor Committee’s labor-management relations subcommittee, for the Labor Department post in March.


In her former position as a staffer for Democratic committee members, she was involved in drafting several pension and health care measures, including one Congress passed in 1996 that makes it more difficult for employers to deny coverage for new employees’ pre-existing medical conditions.


Borzi is widely known for her pro-organized labor positions.


In 1993, she served on several working groups that were part of a presidential task force chaired by then-first lady Hillary Rodham Clinton that put together a comprehensive health care reform package that Congress later rejected.


Borzi, a one-time high school English teacher, left Capitol Hill in 1995 after Republicans took control of the House of Representatives and joined the Department of Health Policy at George Washington University’s School of Public Health and Health Services in Washington as a research professor. She also was of counsel at Washington law firm O’Donoghue & O’Donoghue.



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


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Health Care Union Accuses SEIU of Card-Check Hypocrisy

One of the leading proponents of a bill that would allow workers to form a union by signing authorization cards is being accused by a California health care union of blocking such a card-check election for its members.


In January, the National Union of Healthcare Workers was established by former leaders of the Service Employees International Union-United Healthcare Workers West. They had been removed from SEIU-United Healthcare Workers West executive board and steward positions after accusing the SEIU of centralizing power at its Washington headquarters and making “corrupt deals” with employers.


Since then, about 100,000 health care workers throughout California have petitioned to leave the SEIU and join the new union. The effort has been stymied, according to the National Union of Healthcare Workers, by SEIU tactics that resemble those of businesses that want to prevent unions from forming.


The SEIU has tied up the process by filing charges in court and at the National Labor Relations Board, according to the union. It also has been accused of intimidating workers who want to change union affiliation.


According to an executive of the National Union of Healthcare Workers, the situation is analogous to the bleak scenarios offered by opponents of the Employee Free Choice Act, a bill that would facilitate unionization.


“Some of the criticisms of the right resonate as we see [the SEIU’s actions] in play,” says Sal Rosselli, the union’s president.


An SEIU spokeswoman did not respond to two interview requests. But the SEIU does address the situation on its Web site.


In a January 27 statement, SEIU president Andy Stern said that a review conducted by former Labor Secretary Ray Marshall found that leaders of the breakaway union undermined democracy and committed financial improprieties. The SEIU took over the local California union by imposing a trusteeship.


“Today’s action is being taken to correct financial malpractice, restore democratic procedures and safeguard the collective bargaining relationships of UHW,” Stern said.


One person involved in the California health care union’s defection from SEIU found it ironic that Stern would not let the decertification process occur through card check.


“He seems to be an advocate of EFCA except for SEIU members,” said John Borsos, vice president of the National Union of Healthcare Workers.


A focal point of the intra-union battle is Kaiser Permanente, the $40.3 billion health care organization based in Northern California. The National Labor Relations Board dismissed a decertification petition for 48,000 Kaiser workers on April 7.


The company, which employs about 182,000, is held up as an example of healthy labor practices that have included allowing card-check elections for the formation of some bargaining units.


But Rosselli says that a once-collaborative relationship between Kaiser and its unions has become adversarial since the SEIU imposed the trusteeship.


“The labor-management partnership is unraveling,” Rosselli says.


Prior to the trouble, Rosselli says that Laurence “Lon” O’Neil, who was at the time Kaiser’s senior vice president for HR, set a cooperative tone and included employees in decision-making.


“He’s an employer representative that has a fundamental appreciation for the involvement of workers and tremendous respect for people’s opinions, which is highly unusual,” Rosselli says. “To make Kaiser Permanente the health care provider of choice, Kaiser had to be the health care employer of choice. Lon fully believed that.”


O’Neil is now president and CEO of the Society for Human Resource Management. His spokeswoman did not make him available for comment despite repeated interview requests in May and June.


The tension at Kaiser is likely to continue. The National Union of Healthcare Workers’ petitions for decertification are still languishing after six months because of “bogus, cookie-cutter charges” filed by the SEIU, Rosselli says.


“It’s totally a logjam,” he says.


The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.

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Two Ways to Legislate Slogging Along Improves Outcomes

Employers aren’t going to embrace a bill approved by a House committee on June 24 that would require increased disclosure of 401(k) fees and toughen standards for investment advice.


But the bill has gone through a legislative process that has allowed employers to make input and soften some of the edges that they thought were sharpest. The measure was first introduced in last year’s Congress, where it died when the House Education and Labor and House Ways & Means committees couldn’t agree on the language.


This year, it was reintroduced. Hearings were conducted and, on June 17, there was a subcommittee vote on the bill—the first for the House labor committee since 2006, according to panel Republicans.


In contrast, four congressional committees are rushing to cobble together health care legislation that so far looks as if it is headed for a partisan collision. The Senate Finance Committee, which has taken a more measured and inclusive approach, may yet pull health care out of the fire by forging a bipartisan agreement.


So far, there’s nothing bipartisan about the 401(k) fee bill either. It was approved by a party-line vote by the House labor committee. Each Republican amendment was shot down along party lines too.


But along the way, subtle but important changes have been made. For instance, the bill calls for service providers to disclose fees to employers and employees in four areas: plan administration and record keeping; transaction-based fees; investment management; and all other fees.


Those categories have been whittled from the 13 that were in the bill last year. In addition, the fees can be expressed in dollars or as a percentage of total assets. In both areas, the bill is a little friendlier to employers.


Another dimension of the bill deals with investment advice.


Democratic advocates say that it eliminates a misguided part of the Pension Protection Act, signed into law in 2006, that allows investment companies sponsoring a 401(k) plan to provide advice to workers who are part of the plan. The fear is that employees will be pushed into investments that are good for the plan sponsor rather than the worker.


But during the process of putting the bill together, the conflicted-advice section has been modified to give “safe harbor” to a Sun America computer model and other advice arrangements that were approved by the Department of Labor prior to passage of the pension reform legislation.


Those developments are part of “a work in progress,” as House Education and Labor Committee Chairman George Miller, D-California, calls the bill.


“Clearly, there’s been a willingness to listen and respond to some of the concerns,” said James Delaplane Jr., a partner at Davis & Harman, a consulting firm in Washington. The changes “are helpful and noted and show there’s been some productive dialogue.”


The discussions continued at the June 24 markup. Rep. Rush Holt, D-New Jersey, offered an amendment that would strike two lines from the 69-page bill that prohibited investment advice from the plan investment provider. It was the only amendment that drew bipartisan support.


“It is quite simply a step too far in the repeal of the [Pension Protection Act],” Holt said. “The legislation as it stands would deny the employee the advice that we want them to have.”


Rep. Robert Andrews, D-New Jersey, countered that advice from plan sponsors would inherently be conflicted.


“The person giving the investment advice should have only one interest in mind, and that is the best interest of the person they’re advising,” Andrews said.


That was a rare Democrat-Democrat exchange during the 3½-hour markup. There also were lively, thoughtful and sometimes funny Republican-Democratic exchanges over the issue of “unbundling” fees, which is a key part of the bill.


Rep. Howard “Buck” McKeon, R-California, likened it to a golf club price being broken down into the cost of the head, shaft and grip. He said the only number that really matters is the total price. Forcing employers to deal with a more highly calibrated number might raise the cost of providing plans.


Miller said that middle-class workers who were investing hard-earned dollars were better off having disaggregated fee information.


“We’re talking about people’s life savings,” Miller said.


That kind of back-and-forth is part of the beauty of the sausage-making on Capitol Hill. You may not see much of it in health care reform.


Three House committees have put together a bill that they introduced on June 19. Hearings began this week in each committee.


They want to have the 850-page bill ready for a floor vote before the end of July. Their Senate counterparts are on the same timetable, a breakneck pace for Capitol Hill that probably won’t allow the kind of input that is being given to the 401(k) fee bill.


The first health care hearing of the House labor committee, on June 23, was a brittle, partisan session.


Democrats said the bill would reduce costs, guarantee choice and ensure access to quality health care. Republicans called it a “one-size-fits-all approach” that would result in government domination of health care.


Rep. Tom Price, R-Georgia, asserted that a provision of the bill that requires employers to meet a certain coverage standard or be assessed an 8 percent payroll penalty would cause those who do provide coverage to drop it—even if their employees like the plan.


Earlier in the hearing, Christina Romer, chair of the White House Council of Economic Advisers, addressed how the employer mandate would affect companies providing coverage.


“The employer mandate will tell them to keep doing what they have been doing,” she said. “There will be no effect on them.”


In the rush toward a health care bill, that may be the end of the conversation. Don’t look for a subcommittee markup on this measure. There’s no time for one.

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High Court Ruling in Employee Testing Complicates Diversity Efforts

Employers have less flexibility in implementing affirmative action and diversity programs as a result of last week’s U.S. Supreme Court decision in a reverse discrimination case brought by firefighters passed over for promotion in New Haven, Connecticut, observers say.


The Supreme Court’s 5-4 decision in Frank Ricci et al. v. John DeStefano et al., in which the court ruled in favor of 17 white and one Hispanic firefighters, also may be overturned by federal legislation, the observers say.


The case centers on whether the New Haven Civil Service Board was justified in refusing to certify the results of two fire department promotion examinations on the grounds that the tests may have had a disparate effect on blacks.


This occurred after it was learned that seven whites, at most two Hispanics and no blacks would be eligible for vacancies as a result of a 2003 captain’s test. Similarly, the result of a lieutenant’s test indicated neither blacks nor Hispanics would be eligible for eight vacancies, but 10 whites would.


The 17 white and one Hispanic candidates filed suit, alleging violation of Title VII of the Civil Rights Act of 1964 and the U.S. Constitution’s equal protection clause, among other charges.


A lower court ruled in New Haven’s favor. In June 2008, a panel of the New York-based 2nd U.S. Court of Appeals that included Sonia Sotomayor, a U.S. Supreme Court nominee, upheld the lower court in a brief ruling. The appeals court subsequently voted 7-6 against hearing the case en banc.


In overruling the lower courts, the U.S. Supreme Court majority last week said Title VII prohibits intentional discrimination, or disparate treatment, as well as disparate impact, which are practices that are “facially neutral” but discriminatory in operation.


The New Haven board decided against accepting the test results because they appeared to violate Title VII’s disparate impact provisions. The question is whether “the purpose to avoid disparate-impact liability excuses what otherwise would be prohibited disparate-treatment discrimination,” the court said in its opinion.


“Before an employer can engage in intentional discrimination for the asserted purpose of avoiding or remedying an unintentional disparate impact, the employer must have a strong basis in evidence to believe it will be subject to disparate-impact liability if it fails to take the race-conscious discriminatory action,” the high court said in its opinion.


New Haven did not meet this standard, the majority said. There is “no strong evidence of a disparate-impact violation, and the city was not entitled to disregard the test based solely on the racial disparity in the results.”


In a strongly worded dissent, Justice Ruth Bader Ginsburg criticized the majority’s requirement that there must be a “strong basis in evidence” to comply with Title VII’s disparate-impact provision.


“One is left to wonder what case would meet the standard and why the court is so sure this case does not,” Justice Ginsburg wrote.


“This decision certainly impacts the extent to which race, or even other protected characteristics, may be considered in correcting or adjusting personnel policies due to the risk of disparate impact,” said Gerald Maatman, a partner with Seyfarth Shaw in Chicago. “So there’s a new playing field, there’s new guide posts on the playing field” for employers to follow.


The decision applies to private and public employers, say many attorneys, who note it applies to other presumably neutral screening criteria, such as education in addition to testing.


Richard Meneghello, a partner with law firm Fisher & Phillips in Portland, Oregon, said that while the New Haven case involved promotions, “my guess is this case will have its greatest impact in the situations involving layoffs and downsizing and reductions in force.”


There is ambiguity over what constitutes “strong evidence,” observers say. The decision is “not necessarily going to limit the amount of litigation against employers. There’s questions here that need to be answered, and they’ll wind up being answered in other lawsuits,” said Joseph A. Saccomano Jr., a managing partner with Jackson Lewis in White Plains, New York.


Meanwhile, the decision reduces employers’ flexibility, observers say.


It “may make it harder for employers who are struggling with diversity decisions, and have always hoped there was a little more room for judgment calls in situations where you might be faced with so-called reverse discrimination claims,” said Michael W. Fox, a shareholder with law firm Ogletree Deakins Nash Smoak & Stewart in Austin, Texas.


“What it means is that employers need to be especially thoughtful when establishing selection processes and criteria,” said Katharine H. Parker, a partner with law firm Proskauer Rose in New York. “Under the decision, employers have less flexibility to disregard criteria after it’s announced and utilized.”


Observers say the decision may be overturned by federal legislation. Rep. Eleanor Holmes Norton, D-District of Columbia, last week said she plans to introduce such a bill when Congress returns from its recess.



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


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Recruiters Say Doing Business as Usual Isnt an Option

Those who have been in the recruiting business for more than a decade have likely been through this type of hiring environment before.


It can be summed up like this: Companies are waiting to hire for key positions. A slew of nonqualified job applicants are vying for the potential job openings. And companies are being extra picky about their hiring moves, even when there is clearly some top-notch talent that could fit the open position like a tailored Armani suit.


“I started my career in the mid-’90s, and I worked through the uptick of the recession of the early ’90s. And I worked through the dot-com boom and bust, which affected a lot of other industries, as well,” says Robert L.S. Boroff, managing director of San Francisco-based executive search firm Reaction Search International. And, adds Boroff, the present economic conditions haven’t been friendly to recruiters from his company or other firms nationwide.


Yet recruiters have been survivors, even dating back to the 1930s.


“The executive search industry was actually created during the Great Depression,” says Boroff, giving a quick history lesson. “It was created because there were too few jobs and too many people applying for those jobs. And companies needed an agent to basically screen through those people to find the very best.”


Similar to other tough economic times, the oversaturation in the current market can be a thorn in recruiters’ sides.


“Thousands of people are applying for jobs, which can be very frustrating and a real time-waster, especially as companies are laying off some of their internal recruiting and HR functions,” Boroff says.


New technology has come to the aid of recruiters, something that wasn’t readily available in prior years—even in the wake of the dot-com meltdown. According to Wayne Cozad, managing partner of Cube Management in Beaverton, Oregon, using Internet-related social networking and other available technology has been one key to surviving the recession.


Cozad says Cube, which focuses on placing sales and marketing managers and executives, uses “social networking sites for advertising positions and finding candidates, and for networking with folks who may not be a candidate but might know a candidate. We also use about 800 job boards to post ads, and we feel it’s important to be an Internet-savvy company. We’re definitely part of the electronic age.”


He’s also confident that adopting new technological advances will position Cube well once the economic recovery materializes.


But don’t expect that recovery soon, Cozad says. He expects the job market to affect recruiters, companies and job seekers at least into the fall.


Cozad is not alone. According to the recent Execunet Recruiter Confidence Index, a survey of executive search firms, only 28 percent of recruiters are confident or very confident the executive employment market will improve in the next six months.


Boroff isn’t quite as pessimistic, saying, “Traditionally if you look at the ebbs and flows of hiring, the first part of the year is strong. It wasn’t that way this year. Then usually it goes through the dog days of summer and things slow down. But since we missed that first big hiring influx because everyone was thinking the sky was falling, now companies don’t have a choice but to fill some of those critical roles.”


Boroff’s prediction for the job market may differ from Cozad’s, but one thing they do agree on is that too many of their colleagues in the recruiting field are hanging on to the traditional ways of doing business.


Now it’s more important than ever to listen to a client’s needs and work the referral networks, Boroff says. On top of that, he says recruiters at RSI are direct-recruiting instead of waiting for candidates to come to them.


“Things that we’re doing differently today are using sites like LinkedIn,” Boroff says. “It really gives you a chance to access people that you normally would not be able to get to on a résumé search or database search because they’re not on the marketplace.”


Astoundingly, Cozad says the number of recruiters not using LinkedIn and other social networking is higher than he would have thought. A recent example: “I just got back from a national show down in Tampa with all these recruiters,” he recalls, “and I was really surprised how many sales and marketing recruiters, in particular, still do the ‘old’ résumé/call/referral kind of work without using the Internet and other electronic means that are out there.”


Cozad insists that just tapping into online resources such as Monster isn’t going to cut it.


“Using Google AdWords and other avenues out there to promote your business will bring candidates and clients to you if you’re creative about where you place yourself on the Internet,” he adds.


In other words, adapt or become extinct.

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June’s Jobless Jump Worse Than Expected; More Economic Turbulence Ahead

Recession-racked employers in the U.S. slashed 467,000 jobs in June, the Labor Department reported, far worse than the 363,000 that economists expected and a grim signal that the path to recovery will be bumpy.


The national jobless rate rose to 9.5 percent from 9.4 percent in May, a 26-year high.


Major stock indexes were down about 2 percent on the news.


The report—one of the most closely watched economic indicators—disappointed investors who had become encouraged by positive signs recently that key areas of the economy including housing and manufacturing were showing modest signs of improvement.


Nationally, the June jobs report was the latest blow to the market’s confidence about the economy.


In some of the nation’s largest states, the economic pain continues to escalate.


Several states, most notably California, are in the midst of a budget crisis.


The New York Legislature is at odds over unemployment insurance reform and an increase in unemployment benefits.


Business groups had fought against raising the state’s weekly payout, which is among the lowest in the nation, arguing it would burden companies with added premium expenses at a time they could least afford them. But the issue had gained some traction in Albany before the Senate stalemate took hold.


Worker advocates want the benefit raised from $405 a week to $475, and they want it to be indexed to the average weekly wage.


The report says that $267 million in added benefits would have reached displaced workers in the past year had Albany taken action. Federal stimulus dollars temporarily added $25 a week to the state’s maximum benefit, but New York’s payout still lags the maximums in neighboring New Jersey, Pennsylvania and Connecticut. It has not been raised in 10 years.


“A serious casualty of the chaos in Albany is that unemployed workers, in all industries, are being forced to scrape by with benefits far less than what many other states consider acceptable,” said Andrew Stettner, deputy director of the National Employment Law Project.


Through the middle of June, 800,000 New York workers filed first-time claims for unemployment insurance in 2009, or about 33,000 per week. That outpaces last year’s claims by more than 50 percent.


In Michigan, a state devastated by the collapse of the American auto industry, times appear to be getting even tougher.


The outlook for Michigan businesses over the next six to 12 months has worsened, according to a new survey from the American Society of Employers.


Nearly 70 percent of 200 Michigan employers surveyed in early June report their outlook has worsened when compared with the previous six months.


Of the total, just 12 percent report their business outlook has improved.


The negative outlook is affecting hiring forecasts, according to the survey, with just 5 percent of employers expecting to increase hiring compared with the previous six months.


Additionally, just 15 percent of surveyed companies expect to increase hiring in 2010 compared with 2009, said Mary Schroeder, CEO of the American Society of Employers, in a release.


Automotive suppliers lead all sectors in their negative outlook, with 90 percent of those companies taking a worse view of the next six months.


The survey found:
• 89 percent of automotive suppliers surveyed said they made permanent staff reductions in 2009, compared with 54 percent of non automotive suppliers.


• 87 percent of automotive suppliers instituted pay freezes this year, compared with 52 percent of other companies.


• 73 percent of automotive suppliers reduced wages and salary, compared with 30 percent of other companies.


• 66 percent of automotive suppliers instituted mandatory, unpaid leaves for employees, compared with just 10 percent of other companies.


“This is part of the market recovery,” said Roy Williams, chief executive of Prestige Wealth Management. “You’re going to get bad news.”


Williams forecast that the unemployment rate is likely to reach 11 percent.



Filed by Daniel Massey of Crain’s New York Business and Sherri Begin Welch of Crain’s Detroit Business, sister publications of Workforce Management. To comment, e-mail editors@workforce.com.


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Obama Renews Call for Public Health Care Plan Option

President Barack Obama on Wednesday, July 1, continued his pitch for federal lawmakers to include a public health plan option as part of sweeping health care reform legislation.


A public plan option is needed to keep the health insurance market competitive, the president said in remarks at a town hall meeting in Annandale, Virginia.


“This public option is important because if the private insurance companies have to compete, it will keep them honest and help keep prices down,” he said.


Commercial insurers have criticized the proposal, warning that a public plan could drive private insurers out of the market, eventually resulting in a single-payer system.


Obama also said a primary goal of reform is to expand coverage to those who now can’t afford it.


“This is a moral and economic imperative, because we know that when someone without health insurance is forced to get treatment at the [emergency room], all of us end up paying for it—to the tune of about $1,000 per person,” he said.


Turning to how to pay for the cost of subsidizing premiums for the lower-income uninsured, Obama said one revenue source would be a reduction of government subsidies paid to insurers who provide coverage to Medicare-eligible retirees through Medicare Advantage plans.


“We are on track to spend $177 billion over the next decade in unwarranted subsidies to insurance companies that add nothing to care. … Those are your tax dollars, and you deserve better in return. That’s why we’ll direct those resources toward lowering costs, expanding coverage and improving quality for all Americans,” he said.



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


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The Last Word A Champion Leader

When you hear people talk about great managers, a lot of names are bandied about, usually starting (and sometimes ending) with Jack Welch.


Yes, the Great Jack is arguably one of the best of all time, but he hasn’t managed much of anything since leaving General Electric nearly 10 years ago. These days, he’s largely confined to just talking about good management, as he will be doing this month at the Society for Human Resource Management’s annual conference in New Orleans.


But there is another guy out there who rivals and perhaps even eclipses Welch as one of the greatest managers and workforce strategists of all time. He’s currently managing and adding new honors to his already long and impressive leadership résumé. I’m talking about the great Zen master himself—Los Angeles Lakers head coach Phil Jackson.


Some people don’t think of them in this way, but ultimately, great coaches ARE great managers. And Phil Jackson is the greatest professional basketball coach of all time, with 10 NBA titles to his credit, the latest coming June 14. He’s right up there with former UCLA basketball coach John Wooden, who won 10 titles as a head coach.


Still, Jackson gets dinged by a lot of shortsighted critics who believe that just about anyone could have rolled out the basketball and won a half-dozen titles in Chicago with Michael Jordan, or four more in Los Angeles with Shaquille O’Neal and Kobe Bryant. When you get handed great players like them, how hard can winning be? As The Dallas Morning News put it, “for coaches, there’s a thin line between lucky and legendary.”


Maybe that’s true. Certainly there is a degree of luck that every highly successful person needs to help facilitate their ultimate success, the notion being that if you have to choose, it’s always better to be lucky than good. But can you discount winning 10 championships and say it’s simply about having been handed great players? Lots of coaches have great players. If it was just about having superstar players, why haven’t more coaches who also have great talent won a bunch of titles?


Maybe it’s because Phil Jackson is different from other coaches in the way he motivates players—even the superstars like Michael Jordan—to build something larger and greater than themselves.


“[I think] it’s his ability to bring people together,” Kobe Bryant told the British newspaper The Guardian. “The biggest thing that he does so well is he continues to coach the group, continues to coach unity and chemistry and togetherness. And that’s the biggest thing, because when you’re together you can withstand adversity. If you’re not, you can easily break apart and become a team of individuals.”


This is the classic definition of a manager—someone who brings together a group of individuals to accomplish something as a unit that they could not have accomplished on their own. Plus, Jackson does it without the histrionics that all too many people believe that leadership is about.


“This championship may be Jackson’s finest hour,” The Guardian noted. “Two hip replacements mean that Jackson is no longer jumping up and down on the sidelines as he once did in Chicago. Yet quietly, in his own understated manner, he has done what he always did: prodding and cajoling when required, but otherwise letting his players utilize the talents within.”


There are timeless management lessons we can all learn from watching a great coach like Phil Jackson operate. As maddening as his Zen master philosophy and laid-back court presence can seem at times, there is a deep philosophical underpinning to Jackson’s management style. He is secure in what he needs to do to get the best out of his team and he doesn’t let anything get in the way of that. Isn’t that the essence of what great workforce management is all about?


It is for me, and that’s what I will be thinking about next week in New Orleans when I’m sitting there at SHRM’s opening session, listening to Jack Welch. And although I’m sure he’ll have some fine management wisdom to impart, I’ll be wondering—what would Phil Jackson have said if he were here instead?


Workforce Management, June 22, 2009, p. 50 — Subscribe Now!

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Companies Recoil From Incentive and Rewards Trips

It was not a good day for the rewards and recognition industry when the news broke last October that American International Group, despite having just been bailed out by the government, had sent its top-producing employees on a $440,000 reward trip to the St. Regis Resort in Southern California.


Things didn’t get better in February, when word leaked out that Wells Fargo, another recipient of the government’s Troubled Asset Relief Program, had scheduled a four-day recognition event for a group of its top-producing home loan officers and their guests at the Wynn Resort and Casino and its new sister property, Encore, in Las Vegas.


Although that trip and other Wells Fargo recognition events for 2009 were canceled, CEO John Stumpf took out a full-page ad in several major newspapers to defend the bank’s actions. But the chips kept falling in what the rewards and incentive industry now calls “the AIG effect” that has now spread outside of the financial services community to non-TARP-funded companies. Experts agree that companies are canceling their events based on fear of bad publicity.


“There’s been a knee-jerk reaction across the board,” says Eric Mosley, CEO of international rewards and recognition provider Globoforce. “Company meetings were definitely affected. They got the double whammy. Now there’s a certain amount of shame attached to it.”


Group rewards travel—corporate junkets that are a combination of education and recreation—was standard fare at many major companies until the recession hit, but it has taken a nose dive. The hospitality and travel industries, as well as the employee recognition providers that organize these trips, have been negatively affected by the fallout as major corporations such as AT&T and Hewlett-Packard have restricted all travel to hot spots such as Las Vegas and Hawaii.


“Companies that have received taxpayer assistance must be held to a different standard and conduct their business in a transparent and responsible manner,” says Roger Dow, president and CEO of the U.S. Travel Association, in a statement issued by the organization. “But the pendulum has swung too far. The climate of fear is causing a historic pullback, with a devastating impact on small businesses, American workers and communities.”


Blue Cross Blue Shield of North Dakota pulled rewards trips out of its compensation package for sales representatives after it became public that the health provider sent more than 30 employees and their families to Grand Cayman as a reward in March. A company spokeswoman explained to The Forum newspaper of Fargo-Moorhead that the $250,000 rewards trip, earned by individual employees based on performance in 2008 and paid for by the company in 2007, was figured into employees’ annual salary and each recipient paid taxes on the trip. But the explanation did not spare president and CEO Mike Unhjem from scrutiny, and he was fired a week later. The insurer has raised its rates on group policies twice in two years, with the most recent, a 7.7 percent increase, taking effect on July 1.


According to the USTA, 20 percent of U.S. companies have canceled meeting and event travel, which includes trips given to employees as performance-based rewards. The travel association has a list five pages long and growing of high-profile companies such as IBM that have canceled some or all of their employee travel, along with other meetings and special events, taking a bite out of the $240 billion business travel industry. At stake are 247,000 travel-related jobs expected to be lost this year, the association reports.


“The meetings, events and incentive travel industry has been demonized by negative public perception in the wake of the AIG effect,” says Christine Duffy, president of Maritz Travel, the unit of employee recognition provider Maritz that handles meeting, event and incentive travel for Maritz clients. “We’ve already seen significant layoffs in the group travel industry.”


Duffy’s company hasn’t been spared. In April, Maritz, which had nearly 4,000 employees in four countries, laid off or offered voluntary retirement packages to 460 employees companywide, including at least 30 from Maritz Travel, which is reporting a 20 to 25 percent decrease in travel business this year. The Maritz portfolio includes key clients in the banking and automotive industries, such as Wells Fargo, Citigroup-Smith Barney, General Motors and Chrysler.


Some companies proactively decided to forgo annual incentive trips but didn’t leave their top producers empty-handed. Citigroup, which also received a TARP bailout, gave $3.5 million in debit cards to 2,000 high-performing advisors in its Smith Barney brokerage, and $9.5 million in monetary awards to 1,900 agents in its Primerica Financial Services division, to compensate for canceled trips. Allstate refused TARP funding but wiped out all employee and agency recognition trips for the year. Spokeswoman Laura Strykowski says the company is planning other ways to recognize its employees and independent agents this year, but declined to elaborate.


“We made changes to reflect concerns customers voiced to us,” Strykowski says. “Allstate is still committed to recognizing our employees, and there is not one standard way we do it. But we’re doing so in a more sensitive way in consideration of what our customers and clients are going through in this economic climate.”


Conversely, Wells Fargo has canceled all recognition trips for the remainder of the year and employees will not be receiving any form of monetary awards to compensate for the trips they earned, says Melissa Murray, spokeswoman for Wells Fargo. In prior years, the bank established a reputation for lavishly treating its top performers and their guests to exotic events such as helicopter tours, horseback rides in Puerto Rico, and private concerts with headliners Cher, Jay Leno and Jimmy Buffett. In February 2008, the company flew 1,000 home loan officers and guests to the Bahamas, where Buffett performed.


Even companies that haven’t received TARP funds are being more prudent with how they reward their employees. IBM, which has been recognized by the travel industry for delivering standout conferences and incentive trips, is replacing its sales and incentive events with cash bonuses, American Express gift cards or traveler’s checks, depending on the country, to top achievers who would have earned those perks, according to IBM spokesman Clint Roswell. Employees will be able to choose their award, he says.


“IBM instead is giving their employees what they want—cold cash—because that’s what they said they need in today’s tough fiscal climate,” Roswell says. “It reflects our employees’ desire for increased flexibility, while recognizing a climate in which many businesses face sobering economic news.”


Previous IBM incentive trips varied by region and relationship to the company. The “Know Your IBM” incentive program for indirect distribution channel partners, for example, offers resellers and distributors a world of destinations available to them, such as Morocco for European partners and Thailand for partners based in Asia, and also included an optional philanthropic excursion with each trip. A “Beatlemania”-themed party at the Fairmont Southampton Resort in Bermuda for 1,800 employees and their guests recognized members of the Golden Circle, who represent the top 1.5 percent of IBM’s sales and service staff.


Brenda Anderson, executive director of Site (formerly the Society of Incentive Travel Executives), says that cancellations were as high as 35 percent in January but have leveled off. “Now we’re seeing postponements, where companies are delaying their recognition events until later in the year.”


Most recognition providers offer some incentive travel as part of their rewards program. “Our customers have seen individual travel options as a great enhancer of reward options to make an employee recognition program more impactful,” says Michael A. Fina, vice president of the employee recognition company Michael C. Fina.


But Fina cautions that there are tax consequences for both the company and the employee when handing out rewards with monetary value. Under Internal Revenue Service rules, he explains, gift cards for cash are treated the same as cash awards. Both are taxable income. “Once it falls into the category of taxable income, then it’s considered compensation,” Fina says. “So either the company pays the taxes due on such a reward or the employees do.” To have employees pay on a reward, Fina says, “is demotivating. Who wants to pay for what should be a gift?”


“Best practice is, the company pays, which means the tax must be factored into the recognition budget. Then, it becomes a payroll matter,” Fina says.


Globoforce’s Mosley contends that incentive trips are highly motivating rewards for employees to attain, which produces results that benefit employers.


“If, for example, a salesperson in your company reaches the President’s Club level for being the top salesperson on the East Coast, and the reward is a trip, and he’s met the requirement, then why wouldn’t you give him the trip if he’s meeting the target that was set? He earned it,” Mosley says, “In fact, you want to increase such rewards because you need more sales right now.”


Noncash incentives are two to three times more effective at motivating employee performance and companies spend less on incentive travel than on cash compensation, according to a March 4 report on the value of meetings issued by Meetings Mean Business, a coalition of reward and incentive, travel, meeting and conference providers that have united to fight the fallout. Recognition provider Maritz, along with Marriott, led meetings in March between the coalition, congressional leaders and President Barack Obama over the issue.


“In the short term, this crisis is dealing yet another blow to an already struggling industry and economy,” Maritz Travel’s Duffy says. “In the long term, companies that can’t have meetings, events or performance incentive programs are going to see their performance lagging behind those who do. It’s going to take much longer for them to recover, and it will put them at a competitive disadvantage.”

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Bill to Found Consumer Financial Protection Agency Heads to Congress

The Obama administration sent a 152-page bill to Congress on Tuesday, June 30, that would set up a Consumer Financial Protection Agency, a key component of its financial services regulatory reforms.


The legislation unveiled Tuesday is the first of a number of regulatory bills the administration will send to Congress in the coming months.


The CFPA would have the power to supervise financial companies that sell such products as mortgages, credit cards and payday loans and would improve transparency, protect consumers from unfair practices and bring together fragmented responsibility for consumer protection, said Michael Barr, assistant Treasury secretary for financial institutions, who briefed reporters on the legislation.


“It would be able to level the playing field for high standards for consumers so that we don’t have the experience … of bad practices growing up in the less-regulated, less-supervised sector and [hampering] other financial institutions [from offering] the kind of products and services that they wanted to offer and still be profitable,” Barr said.


The Securities and Exchange Commission would continue to regulate such investment products as mutual funds.


Barr argued that the legislation does not represent heavy-handed government regulation of financial institutions, even though the legislation would require financial institutions to offer “plain vanilla” products for mortgages and other consumer products.


Offering simpler products would allow consumers to compare products more easily, he said.


Despite Barr’s assurances, financial services trade groups oppose the CFPA.


The bill “would create one more agency and create more regulatory gaps at a time when everyone is trying to streamline the regulatory system,” the Financial Services Roundtable of Washington said in a statement.


FSR represents 100 of the largest financial service companies in banking, insurance and investment products.



Filed by Sara Hansard of Investment News, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.


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