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The Pension Benefit Guaranty Corp. on Wednesday reported an improvement in its financial position for its 2006 fiscal year, with the agency’s deficit narrowing to $18.1 billion from $22.8 billion a year ago.

Much of the $4.7 billion improvement in the PBGC’s insurance program for single-employer pension plans stemmed from airline industry pension funding relief provisions in the recently enacted Pension Protection Act, which resulted in “a sharp reduction in the amount of ‘probable’ liabilities reflected on the agency’s balance sheet,” the PBGC said in a statement Wednesday, November 15.

“The PBGC’s financial condition appears to have stabilized for the time being,” Vince Snowbargerm, PBGC interim director, said in the statement. “Our current assets can cover pension payments coming due for a number of years into the future, and our exposure to additional losses has declined.”

As of September 30, the agency reported assets of $60 billion and liabilities of $78.1 billion. In addition, the PBGC noted that its potential exposure to losses from pension plans sponsored by financially weak employers decreased to $73 billion from $108 billion in 2005.

In its statement, the PBGC attributed that improvement in part to higher interest rates, better credit ratings and improved plan funding at some employers.

—Matt Scroggins

Scroggins is a reporter for Business Insurance, a sister publication of Workforce Management, where this article first appeared.

Dear One Size Doesn’t Fit:

You raise important points about the challenges associated with developing and implementing a successful performance management system.

 

More and more companies are recognizing that a “one-size-fits-all” performance management approach does not work for their organizational culture, goals, and mission. Different people occupy different jobs that require different competencies, behaviors and outcomes. Although some common expectations might apply for all job functions, it is important to think about the bigger picture. Instead of putting people in a box by using the same performance evaluation for all employees, open up the box to release the potential within each individual.

 

Consider the following steps for developing and implementing a performance management system that is results-focused and distinctive to your organization. Ask yourself the following:

 

1. Which are the major job functions within your organization (i.e., accountants, administrative, marketing, financial, information technology, human resources, operations, sales)? A performance management system should meet the needs of all major job functions.

 

2. What, if any, common expectations exist between job functions (i.e., quality of work, productivity, interpersonal skills, dependability, job knowledge and initiative)? Common expectations ensure there is some level of consistency between performance evaluations. They also provide a great opportunity to put in place expectations that may be unique to your organization’s culture.

 

3. How are expectations defined as behaviors? For instance, quality of work might include accuracy, thoroughness and neatness of work. By defining the expectation as a behavior, it becomes observable and, thus, measurable. The expectations might be enough to cover your administrative team.

 

4. What are the individual key results for each employee? For example, an individual key result for your IT director might be to create and implement a new software training program by a specific date. Individual key results must be measurable and will change as goals are attained and new ones begin.

 

5. What steps will be taken to involve employees in developing the performance management system? Involving employees this way promises a much higher level of acceptance and ownership of the process.

 

6. How will a coaching approach maximize the performance evaluation discussion? Coaching focuses and builds on employee strengths as a way to improve development areas. Two-way communication occurs that sparks solid discussion and generates keen insight. Consider a place on the evaluation form for coaching comments and employee comments.

 

7. What will keep the performance management system alive? You will need to find ways to keep things fresh and relevant to your organization’s evolving goals. If the system becomes stale, change it to keep it properly aligned with current needs.

 

Building a culture of performance throughout an organization in all job functions creates a greater sense of purpose and commitment. Results will be seen internally when employees achieve their goals. It also will be witnessed externally by strengthening your organization’s competitive position.

 

SOURCE: Dana E. Jarvis, human resources director,Snavely Forest Products, Pittsburgh, December 27, 2005. Jarvis also is an adjunct professor at Duquesne University in Pittsburgh.

 

LEARN MORE: Please read How Do We Move From Paternalism to Measuring Performance?

 

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.

Toyota Motor Co. on Friday will open a new truck manufacturing plant in San Antonio that will include a $9 million comprehensive health care facility for the automaker’s employees and its parts manufacturers as well as employees’ dependents.

Toyota, whose health care costs have doubled in the past five years, will be the first of the large auto manufacturers operating in the U.S. to address health care costs by building a full-service health care center at one of its sites. In doing so, Toyota is applying a popular car manufacturing strategy to its employees’ health in hopes of producing high-quality, cost-effective health care.

“The way we do things at Toyota in general is, the way we improve cost is to improve quality,” says spokesman Daniel Sieger. “We’re looking at health care the same way.”

The on-site health care center, which will be operated by CHD Meridian Health Care, will be open to Toyota’s 2,000 employees working at the plant and their dependents, as well as the 2,100 employees of companies manufacturing parts for Toyota Tundra pickups produced at the 1.5 million-square-foot, $1.28 billion facility.

Reflecting an integrated health care supply chain of sorts, the health care center will bundle a number of health services normally performed by unrelated specialists at different locations. The center, which will open in January, will include preventive and primary health care services, family practitioners, internists, pediatricians, dentists, optometrists, physical therapy, and radiology, pharmacy and laboratory services. The center will include the kind of occupational health services provided by employers at most manufacturing plants that are meant to deal solely with work-related injuries.

As Toyota has expanded its production capacity in the United States–the San Antonio plant will be its 13^th–its health care costs have climbed. Toyota now pays about $11,000 annually to provide health care for each employee, double what it paid five years ago, Sieger says.

Though Toyota surpassed Ford as the second-largest auto manufacturer in the world behind GM, the company does not face the same kind of crushing health care expenditures as Detroit’s Big Three automakers.

Whereas health care cost GM $1,525 per vehicle in 2004, Toyota spent just $201, according to management consulting firm A.T. Kearney. A large part of that cost may have to do with the burden of providing health care to retirees. Health care costs rise exponentially as people age. Toyota has only 250 retirees in North America.

According to representatives from Chrysler, GM and Ford, those companies do not have comprehensive health clinics on factory sites.

Despite taking cues from Toyota’s business plan in the past, the Big Three have resisted building comprehensive medical centers at their plants, according to R. Dixon Thayer, CEO of I-trax, which owns CHD Meridian Healthcare.

Thayer, a former Ford executive, says that despite some union support at other manufacturing companies, including Goodyear and Nissan, Detroit’s Big Three have not yet seen the value in on-site clinics as a way to manage health care costs.

“The Big Three see on-site health care as occupational health,” Thayer says, “so [for them] it is a risk management and OSHA issue.”

He says it takes “some enlightened HR and benefits people” to see that comprehensive on-site health centers can help manage and prevent chronic diseases, which represent a disproportionately large chunk of health care spending.

Thayer says cost savings for companies come from employees using health care when they need it without waiting to take time off and returning to work too quickly. Lower co-pays and other financial incentives will increase the use of the facility and increase the use of drugs for chronic illnesses, ultimately reducing expensive hospitalizations. Medical care at the clinic will be more in-depth. Doctors will spend 20 minutes with patients.

Companies such as Pitney Bowes, Compuware and Perdue have on-site health clinics, and the benefits often depend on employee demographics. It helps if the clinic is convenient not just for employees, but for their dependents as well. This means employees would have to live nearby or where it’s hard to access health care specialists, says Joe Fortuna, medical director for industry association Automotive Industry Action Group.

Companies in other industries have used the model of on-site health care, but with Toyota now trying it, Fortuna hopes the company can bring its expertise in improving supply-chain quality to improving health care quality.

“We don’t have an integrated supply chain for health care” in the U.S., Fortuna says. “If they use that mechanism and the quality is good, then the question becomes: Can they do it on a cost-effective basis?”

Toyota currently has no plans to expand health care clinics to other plants.

“This is kind of a test run,” Sieger says. “We will see how it works.”

Although the U.S. maintains a global lead in innovation and entrepreneurship, it is falling behind other countries in the level of education its people achieve, a factor that could undermine future living standards, according to a new report.

During the past 20 years, the U.S. has accounted for one-third of all growth in the global economy, a figure that is “nothing short of astounding,” says Michael Porter, a professor in the Harvard Business School and co-author of “The Competitiveness Index: Where America Stands.”

The report, sponsored by the Council on Competitiveness, was released in Washington, D.C., on Monday, November 13. It shows that the U.S. leads the world in productivity and household wealth growth, job creation and foreign direct investment.

Even though U.S. companies are sending research and development operations overseas, they’re increasing R&D at home by comparable levels—and America is receiving more foreign investment than any other country.

Porter cautioned that wealth is growing in the U.S. only for people who have a college education. Technological change and globalization have increased the demand for higher-level skills, such as complex communication and creative thinking.

But the U.S. is losing its lead in the percentage of people who complete higher education. In addition, the U.S. invests more in education–$83,910 per student–than most other countries, but produces lower test scores than many of them.

“This is our No. 1 economic problem in America,” Porter says. “There’s no doubt about it.”

For now, U.S. talent has a quality advantage. China graduates more engineers, but only a fraction of them are qualified to work for a multinational company.

Quantity and quality, though, may diminish over the years if more U.S. students don’t enter a math and science track.

Such a decline may not have a deleterious effect on a multinational company like DuPont, which has the wherewithal to reach further than many other firms for talent.

But its chief executive, Chad Holliday, is concerned about the possibility 10 years down the road of a lower-skill domestic labor supply that will earn less income.

“A DuPont will be fine because we can go to India; we can go to China,” says Holliday, who also is chairman of the Council on Competitiveness and was in Washington for the report rollout. “The issue is not DuPont; the issue is the country. We need a better feeder supply for all the companies here.”

The challenge goes beyond graduating enough engineers. They key is to change the way they’re educated so that they can handle higher-level jobs and stay ahead of the global economic “churn,” according to the leader of a major U.S. university.

Wayne Clough, president of Georgia Tech, says that today’s engineers need a background in humanities, communication, teamwork and leadership so that they are more adaptable.

With that kind of flexibility, they can go into nontraditional fields such as health care.

“They can help this country run better,” says Clough, vice chairman of the Council on Competitiveness. “They can fix systems. We need engineers who can get out of their comfort zone.”

A corporate executive who visited Washington last week, however, had a different view. George David, CEO and chairman of United Technologies, favors a laissez-faire approach to a possible engineering shortage. If such a shortage develops, salaries will rise and more students will go into the field, he argues.

“Markets will respond,” he said at an event at the Institute for International Economics in Washington on November 8. “Markets will take care of anything.”

Holliday is not convinced. That may work for United Technologies, but “I’m not sure it’s good for the overall standard of living,” he says.

Porter, too, favors a proactive approach. He recommends an overhaul of the K-12 educational system, beginning with reform of what he views as anachronistic local control of schools.

“We have to make structural changes,” he says. “We can’t just tinker. I don’t know whether the country is ready for that.”

—Mark Schoeff Jr.

Health insurance industry lobby group America’s Health Insurance Plans unveiled a plan Monday, November 13, that it says would help the federal government provide health insurance to millions of uninsured Americans without creating a new government agency.

The plan, broadly outlined in a seven-page pamphlet, arrives at a time of growing public concern about the dwindling numbers of Americans who receive employer-sponsored health insurance and the prospect that a new Congress controlled by Democrats will address the issue of the uninsured.

There are now 46.6 million Americans who do not have health insurance. AHIP says its plan, if enacted by Congress, would cover all children within three years and 95 percent of adults within 10 years.

“The board has been working for the past eight months or so to specifically develop a proposal to deal with the No. 1 domestic policy issue in our country, which is to provide access to health insurance coverage to millions of uninsured Americans,” says Monit Ghose, a spokesman for the insurance lobby.

The cost of providing health care to people without health insurance is passed on to employers in the form of higher premiums. As a result, covering more people could reduce premiums for employers, says Gerard Anderson, director of the Center for Hospital Finance and Management at the Johns Hopkins Bloomberg School of Public Health.

“Covering the uninsured has the serious potential to lower employers’ costs because they are the ones paying the higher bill for the uninsured,” Anderson says. “It’s not the Medicaid/Medicare program, it’s the private employers [that are paying the costs of the uninsured with higher premiums].”

Having a larger number of insured individuals and families means that health insurers’ risks are spread across a larger group of people, which could mean lower premiums for employers. Also, when people have health insurance, they are more likely to seek medical attention before ailments become big problems, thus lowering the cost of care.

How to extend coverage to the uninsured, however, is a quandary fraught with ideological conflicts and infighting among special interests.

The plan, which AHIP estimates would cost the federal government $300 billion during a 10-year span, includes:

• Expanding the eligibility of state-run health programs to include children whose families earn less than 200 percent of the federal poverty level. The federal poverty level for a single person under age 65 is currently $9,800.
• A so-called universal health account based on health savings accounts that would allow people to contribute toward health care spending and matches by the federal government.
• Establishing a $500 tax credit for families that purchase health insurance.
• Disbursing federal grants to states whose health care meets certain quality standards and other guidelines.

AHIP’s plan does not include a requirement that all residents must obtain health insurance, unlike the groundbreaking law passed in Massachusetts in April.

Covering more uninsured Americans is of fiscal importance to health insurance companies and their stockholders. Membership in health insurance companies has been shrinking as the cost of health insurance for both individuals and employers has risen. This year, health care costs for employers are expected to increase about 7.7 percent. The percentage of people with employer-based health care benefits dropped to 62 percent in 2005 from 64.4 percent in 1994.

Those with health insurance are generally healthier because they have access to timely medical care and preventive services, all of which reduce the cost insurance companies and employers–the entities paying for health care–bear in the long term.

Anderson says employers pay, on average, 25 percent more than the federal government for similar medical services, a premium that is used by hospitals to offset the cost of paying for medical services for the uninsured.

Observers say the insurers’ proposal is born out of self-preservation.

In a pre-election USA Today/Gallup poll, 79 percent of voters said they would support efforts to insure more Americans and 60 percent expected a Democrat-led Congress to focus on that issue.

Health insurance companies like Aetna and WellPoint–which recently reported quarterly earnings growth of 28 percent and 27 percent, respectively–have opposed moves toward a single-payer system because such a model would make their services obsolete. Covering more of the uninsured without a single-payer system would increase their memberships at a time when those numbers are declining, Anderson says.

Historically, lobbying organizations have come out with their own plans, particularly when there is greater public interest in health care, says Jon Gable, vice president of the Washington, D.C.-based Center for Studying Health System Change. During the early years of the Clinton administration, when health reform was a major policy goal, various health industry lobbies each offered plans.

—Jeremy Smerd

Hewitt Associates’ woes continued Friday, November 10, when the HR services company reported disappointing financial results and more trouble in its outsourcing operations.

The Lincolnshire, Illinois-based firm posted revenue for the quarter ended September 30 of $727.6 million, up 0.9 percent from the same quarter a year ago. Hewitt’s net income for the quarter was $23 million, down 43 percent from a year ago. At Hewitt’s outsourcing unit–which accounts for more than half of the firm’s business–revenue, income and profitability all fell during the quarter.

Jim Wilson, equity analyst at investment firm JMP Securities, said Hewitt fell short of Wall Street analysts’ expectations for the quarter. But the company, which acquired HR outsourcer Exult in 2004, may not be any worse off than competitors in the HRO arena such as IBM and Accenture, Wilson says. The field is still just a few years old and marked by extremely complex arrangements, he says.

“It’s not clear who, if anybody, has found a way to make money on these deals yet,” he says.

Hewitt is among the leaders in comprehensive HR outsourcing, which involves a company farming out tasks such as benefits enrollment and compensation. The firm ranked first this year on Workforce Management’s list of the top end-to-end HR outsourcing providers, with more than 30 such clients.

A study published last month by research and consulting firm EquaTerra found signs of growing demand for outsourcing services overall, which can include information technology tasks and finance and accounting duties. But the report also said outsourcing service providers face challenges including increased competition and a tight supply of skilled workers.

Hewitt, according to EquaTerra’s report, appears to be slipping in the outsourcing market. More than 35 percent of EquaTerra advisors saw Hewitt as losing market share during the third quarter of 2006, while slightly more than 10 percent considered Hewitt to be gaining market share during the period.

For the year ended September 30, Hewitt’s outsourcing revenue fell 3 percent to $1.98 billion and it registered a loss of $77.9 million, compared with income of $177 million in the prior year.

Hewitt recently appointed a new CEO, Russell Fradin. On Friday, Fradin said the year ended September 30 was “challenging” on many fronts, and he pledged to work on fixing the HRO unit. “Despite solid performance in benefits outsourcing and consulting, we significantly under-delivered on our financial objectives for the year, reflecting deterioration in the expected profitability of some of our HR BPO [business process outsourcing] contracts,” Fradin said in a statement. “Looking ahead, we’re refocusing on the areas that will drive greater value and more consistent, predictable results. Our attention in the near term will be on accelerating the growth of the benefits outsourcing and consulting businesses, and redefining our approach to the HR BPO business.”

Also Friday, Hewitt said it had “higher performance-based compensation” compared with a year ago. Analyst Wilson finds that puzzling given the poor financial performance. “It doesn’t make a lot of sense,” he says.

Hewitt could not immediately be reached for comment.

A hastily convened meeting in Washington, D.C., later this month could be the first of several nationwide to focus on steps employers can take to use their purchasing power to lower health care costs.

The November 17 meeting is sponsored by the Business Roundtable, along with the U.S. Chamber of Commerce, the HR Policy Association and other business groups. Plans for it were launched in October, when Health and Human Services Secretary Michael Leavitt agreed to speak about practical steps employers could take in their contracts with health insurance companies. The goal is for employers who pay for health insurance to use common methods that focus on making the cost and quality of medical care more transparent.

Numerous public- and private-sector employers, including the Centers for Medicare and Medicaid Services, have been working on reforming the way employers purchase health care. Medical services are paid based on negotiated prices, which, unlike other markets, does not take into account the quality of what is provided. The effort, called value-based purchasing, begins by evaluating the quality of medical care against a standardized set of measurements and then makes the results available to employers and consumers. The last phase would be to develop a system where compensation is based on performance.

“It is one of the biggest changes in health care I’ve seen in the last decade: standard measures and transparency,” says Karen Linscott, COO of the Leap­frog Group, an employer-sponsored organization that has developed quality standards for hospitals.

Leapfrog is organizing the event, which will include presentations by employers with experience negotiating contracts that foster such goals. Invited speakers include executives from Boeing and IBM; Leslie Norwalk, acting director of the Centers for Medicare and Medicaid Services; Allan Hubbard, assistant to the president for economic policy and director of the National Economic Council; and Carolyn Clancy, director of the Agency for Healthcare Research and Quality.

Federal officials crystallized their commitment to those goals in President Bush’s executive order on health care transparency in August. But not enough is happening in the private sector, Leavitt said during an October 12 speech in Chicago. He told employers he had traveled to communities where quality standardization was unfolding.

“We still have a long way to go,” Leavitt said. “We’re far from developing a scalable capacity.”

During the November meeting, employers will learn how to make sure contracts require insurance companies to rate medical providers according to universal standards of care, then make that information available so doctors will be paid based on performance.

“We are urging employers to use their purchasing power, just as the federal government is using its purchasing power to transform quality,” says Maria Ghazal, director of public policy for the Business Roundtable. “That is absolutely the goal.”

Though the timing of the meeting may be difficult, since many employers are in the middle of open benefits enrollment, Leavitt says the reforms are urgent as the clock ticks on the Bush administration.

“I have 828 days and I’m feeling an urgency on this,” Leavitt said October 12. “Every day, this is my focus.”

The initial meeting, at Washington’s Ronald Reagan Building, is expected to be replicated in other cities.

—Jeremy Smerd

Dear Keeping Everyone Happy:

Building a customer-service-oriented culture can be a huge challenge for an organization of any size or complexity. However, it can be done and done well. Just look at Southwest Airlines, Ritz-Carlton Hotels, Nordstrom and Whole Foods Market as some examples of companies renowned for providing world-class service.

 

There are four steps to building a customer-service-oriented culture:

 

Gain commitment from the top
Creating a companywide service culture begins with senior management. The importance of serving customers must be communicated and reinforced constantly throughout the organization.

 

Most of us at one time or another have heard a CEO proclaim, “We are a customer-focused company.” But when you look behind the curtain, you still see long lines, extended wait times, poorly trained staff, inadequate responses and dissatisfied customers.

 

Develop a comprehensive plan
As with any project of this magnitude, you must have a comprehensive plan to succeed. Goals must be set, tasks identified, responsibilities assigned, timelines established and resources allocated.

 

Some companies develop their customer service plans internally using an in-house project manager. Still others hire consultants. Regardless of the option you choose, the planning team should involve employees at all levels.

 

Soliciting employee opinions helps identify and resolve potential issues before they become major roadblocks to cultural change. Many companies conduct employee-satisfaction surveys to benchmark the current culture, and also to establish a baseline for measuring employee satisfaction in the future. Satisfied employees deliver satisfied customers, so measuring customer satisfaction should be an integral part of your plan.

 

Implement the plan
Implementation usually involves a series of meetings between various levels of management and staff. Although the media may vary based on the audience, the message should include the what, when, why and how of building a customer-focused culture. At these meetings, provide examples of good and bad service, communicate performance goals and identify measurement tools.

 

It is critical to frequently reinforce the goals and successes of your program. This can be accomplished with refresher sessions and reports of progress publicized via companywide meetings, newsletters, staff e-mails, other internal news media and external media outlets.

 

Measure success
Many world-class service providers link employee and customer satisfaction scores to staff performance at all levels. The scores affect salaries, bonuses and job security.Building a customer-service-oriented culture is challenging. Taking steps like those outlined above should give you more satisfied employees–and more loyal customers.

 

SOURCE: Roger H. Nunley, managing director, Customer Care Institute, Atlanta, December 30, 2005.

 

LEARN MORE: Another article discusses the role employee training plays in boosting customer service.

 

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.