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Next month’s executive changes at HR software firm Spectrum Human Resource Systems are less revolution than evolution. In fact, Spectrum’s top post isn’t even leaving the family.

The Denver-based vendor, which focuses on selling human resource management systems to midsize companies, recently announced that founder, chief executive officer and chairman Jim Spoor is stepping aside as CEO effective September 1. In addition, his wife, Nancy, is retiring from her post as executive vice president and COO.

Their daughter, Sybll Romley, is taking over as CEO. Matt Keitlen, who is not a member of the Spoor family, will become executive vice president and COO.

The change should be a positive one for Spectrum clients, says Nov Omana, an industry consultant and chairman of the International Association for Human Resource Information Management professional group. Omana says Jim Spoor has established a reputation as a solid businessman and mentor in the field, and Sybll seems likely to extend the family legacy.

“From everything I’ve seen, she is her father’s daughter,” he says.

Founded in 1984, Spectrum concentrates on selling HR management applications to companies with 500 to 5,000 employees. It offers to install software on a customer’s own computers or host products remotely, allowing clients access to the application via the Internet.

Spectrum employs about 110 people, primarily in Denver. It has been profitable for all but one of its years. And business is healthy at the moment. Revenue rose 11 percent last year and is on pace to grow another 20 percent in 2006, the company says.

Jim Spoor prides himself on having been a leader through various eras of HR software, including the shift to Web-based applications. Earlier this year, IHRIM gave Spoor its Summit Award for long-term contributions to the HR technology field. But Spoor, who only will admit to being over 55, says he is ready to ease back on the day-to-day demands of running the business.

“I’m looking forward to getting some more fly-fishing in,” he says.

Jim and Nancy Spoor remain majority owners of Spectrum. Other family members and employees also have ownership stakes. All three of the Spoors’ daughters work at Spectrum, as do two sons-in-law.

Keeping control of a business within a family risks charges of nepotism and leadership that’s been bestowed rather than earned with hard work. But Sybll Romley, who has worked at Spectrum for about two decades, says it’s obvious that family favoritism isn’t a factor at the firm.

“Family members at Spectrum work twice as hard to prove that they truly earned the position,” she says.

Romley has more work ahead. Paul Hamerman, an analyst at Forrester Research, says Spectrum faces competition from big software vendors SAP and Oracle, who are looking to serve smaller customers, and companies that already focus on midsize and smaller firms, such as Sage Software and Employease. “They’re kind of in a cauldron,” he says.

—Ed Frauenheim

In a frank admission of the limits of high-deductible health plans, a national medical director for Aetna said the plans would not by themselves reduce health care costs for employers.

“I don’t think high-deductible health plans are the cure-all for bringing down health care costs,” said Charles Cutler, Aetna national medical director for quality and clinical integration, during a July 25 Kaiser Family Foundation webcast on the subject of transparency in health care cost and quality.

Advocates of high-deductible health plans have long argued that individuals forced to spend their own money before health insurance kicked in would be more sensitive to price and, with a financial stake, become more cost-conscious.

This in part has led to the widespread belief among employers interested in offering high-deductible health plans that doing so would cut costs. In a survey released two days after the webcast, Buck Consultants reported that 84 percent of employers surveyed said reducing costs was their primary reason for offering a high-deductible health plan with a health savings or health reimbursement account.

Savings depend on the health of employees. Unhealthy employees who quickly burn through their deductibles are no longer sensitive to price, says Gerard Anderson, director of the Center for Hospital Finance and Management at the Johns Hopkins Bloomberg School of Public Health.

“He was, in a sense, being honest,” Anderson, a webcast co-panelist, said of Cutler. “What you recognize is that most of the spending occurs after the deductible is reached. Once that happens, you don’t care how much things cost. Any hospitalization puts you above the deductible.”

Though growth of the plans among companies remains strong, it has slowed in recent months, according to a midyear survey of health plans conducted by industry newsletter Inside Consumer-Directed Care. The data correspond to sentiments at a recent conference sponsored by the Midwest Business Group on Health in Chicago.

“Our membership is not embracing that as much as the consultants would lead you to believe,” says Cheryl Larson, the group’s director of membership and education. “Five years ago, CDHPs were being pushed and pushed and employers were scratching their heads. And the reality is that penetration is still pretty low.”

Instead, Larson has seen a renewed interest in companies wanting to take a hard look at managing employees’ health by offering incentives—discounts on premiums—to those who take blood tests that can determine health risks. The employer then can use the information to manage employee health. Opinion varies on whether such a hands-on approach represents a philosophical difference from the consumerism model of health care.

In April, Watson Wyatt released a survey showing that people who would benefit from a high-deductible health plan would by and large be healthy employees—about 75 percent of the population—who incur 11 percent of health care costs.

To demonstrate their support for high-deductible health plans, insurance companies have moved a lot of their own employees into them, says Paul Fronstin, director of health research and education at the Employee Benefit Research Institute. (Aetna sits on the institute’s board.)

“But they have been doing a lot of other things all along as well,” such as wellness programs and lower co-pays for drugs that manage chronic diseases, he says. “There is no silver bullet, and you have to address cost increases among many fronts.”

—Jeremy Smerd

Jared Bernstein
Economist, Economic Policy Institute

   Jared Bernstein’s new book combines a sober critique of economic policies with a clever set of acronyms. Bernstein labels the Bush administration’s approach to the economy as “YOYO” thinking—that is, a “you’re on your own” philosophy. The better alternative, Bernstein argues in All Together Now: Common Sense for a Fair Economy, is the “WITT” stance. Some “we’re in this together” policies include an end to the Bush tax cuts and some flavor of national health care, Bernstein says. He recently spoke to Workforce Management staff writer Ed Frauenheim.

    Workforce Management: It seems this idea of “we’re in this together” is mostly a call for government action. How does it apply to employers?

    Jared Bernstein: Employers benefit when they operate within an environment where rational and efficient economic policy prevails, as opposed to policies that generate greater insecurity—insecurity among working families, but also insecurity regarding some fundamentals of the macro economy, including indebtedness. The YOYO agenda, where policies are crafted to basically shift risk from government and firms onto people, leads to greater economic insecurity, and it leads to much higher levels of government indebtedness.

    WM: How so?

    Bernstein: One of the main strategies of YOYO economics is to “starve the beast”—that is, to cut tax revenues by regressive tax cuts. They’re much less willing to cut spending. So what you end up with is big budget deficits. Many in the business community worry about the impact of budget deficits on the economic environment, both in terms of crowding out private investments but also in terms of simply hobbling the government’s ability to meet basic functions. That comes anywhere from providing America’s employers with a trained and educated workforce to protecting us from Force 5 hurricanes.

    WM: Employers might be interested in your argument for just the health care reason.

    Bernstein: This notion of a universal, single-payer approach to health care, or something that takes it out of the employer-based system, is something that’s no longer viewed as a radical, left-wing idea. It’s viewed under the heading of competitiveness. It’s difficult to compete in world markets if you’ve got this albatross around your neck.

    WM: The counter-trend that many employers are moving toward is consumer-directed health care.

    Bernstein: I think that that’s a big mistake. Every other country has solved this riddle by taking health care out of the market, because market solutions are incompatible with health care—which in an advanced economy like ours is correctly viewed as a right. If you need heart surgery, you’re not going to go shopping for it.

    WM: A counter-argument to what you’re saying is that people are most creative when their backs are against the wall.

    Bernstein: You don’t want to create disincentives to be creative and to work and to get ahead. But, paradoxically, individuals cannot realize their economic potential if there are no safety nets in place. If those safety nets become too cloying, then sure, you’ve got a different problem. But that’s never been our case.

Workforce Management, August 14, 2006, p. 7 — Subscribe Now!

Although provisions of a landmark pension bill approved by Congress don’t take effect until 2008, companies may start increasing payments into their plans immediately to achieve better terms for completely shoring up underfunding in the future.

The bill, which was approved by large margins in the House and Senate and has been sent to President Bush, requires that companies fund 100 percent of their pension promises over seven years. But the healthier a plan is by September 2007, the more time it will receive to make the transition—perhaps a total of 10 or more years.

“There will be a real incentive to fund these plans over the next 12 months,” says Kevin Wagner, retirement practice director in the Atlanta office of Watson Wyatt.

Generous transition means the Pension Benefit Guaranty Corp. probably won’t eliminate its $23 billion deficit anytime soon, according to Bradley Belt, former PBGC executive director.

Belt, who helped formulate Bush’s stringent pension proposal, gave the congressional reform a mixed review.

“It’s a partial long-term solution,” he says. “In certain key areas, it’s an improvement over current law. It’s clearly not a panacea. It won’t ensure that taxpayers won’t bail out (the PBGC) over the long haul.”

After years of effort, Congress finally reached agreement on the complex bill in late July. Legislative activity has been fostered by several recent large pension defaults and estimated total underfunding of more than $300 billion in defined-benefit plans that cover 44 million employees.

The pension bill prohibits the use of credit balances in plans that are less than 80 percent funded. It subtracts the balances to determine the funding level. It forces companies to pay higher “at risk” premiums if plans are below 80 percent and slip to less than 70 percent, assuming that workers eligible to retire in the next 10 years do so as early as possible. It reduces interest-rate smoothing to 24 months. And it proscribes increasing benefits if a plan is below 80 percent funding.

In a concession to airlines, carriers will receive between 10 and 17 years to reach 100 percent funding, depending on whether they have frozen their pension plans. Despite the break, Delta terminated its pilot pension plan on August 4, a move that it foreshadowed even as it appealed to Congress for extra time to save pensions covering other employees.

“You still have a hodgepodge of rules,” Belt says. “It’s a reflection of the sausage-making process.”

Analysts agree that the new sausage will be spicy—in the form of higher payments, either to meet the 100 percent funding mandate or to avoid costly “at risk” status.

“Plan sponsors are much more focused on staying above these trigger points,” says Jon Waite, chief actuary of SEI Global Institutional Group. The new rules “are going to drive a lot more money into pension plans.”

Waite estimates that a $100 million plan funded at 90 percent, the requirement of current law, would pay an extra $2 million annually, or a 30 percent to 40 percent increase, to meet new funding targets.

Despite the rise in costs, companies are relieved to have certainty after years of limbo.

“This bill in and of itself doesn’t make plans onerous,” Wagner says. “This should stop some of the momentum (to dump defined-benefit plans) because we know what the rules are.”

—Mark Schoeff Jr.

Sun Microsystems may be emerging from its darkest days, as the computer maker trims its headcount and continues to announce new products.

Sun’s decision in May to cut 4,000 to 5,000 jobs—or 11 percent to 13 percent of its workforce—received a warm welcome from a number of analysts. But the firm erred by not trimming more jobs sooner, says Jonathan Eunice, an analyst at technology advisory firm Illuminata.

“There aren’t many examples of especially advantageous products that Sun has now that it needed thousands of additional folks to develop,” he says. “It wasn’t any masterpiece of talent management to keep those folks on over the past five years, only to cut them now.”

Sun spokeswoman Stephanie Hess counters that the firm’s investment in research and development in recent years has helped with its current product set. She also says new chief executive Jona­than Schwartz is “not going to hack his way to a higher stock price.”

Sun, which took the dot-com bust on the chin, reported net losses for its fiscal years 2002 to 2006. Thanks partly to restructuring charges, Sun posted a net loss of $301 million for the quarter ended June 30. Revenue for the quarter rose 29 percent year-over-year to $3.8 billion.

Sun has been an innovative maverick in the computer world. Founded in 1982, the company came to dominate a class of powerful computers called workstations. And Sun machines helped power the rise of the Internet in the late 1990s. But its culture of engineering excellence didn’t sync well with the ensuing era of belt-tightening, says Clay Ryder, president of technology consulting firm the Sageza Group.

As the economy contracted around 2001, companies began turning to lower-cost or free computing products such as the Linux operating system, he says. “Think of Sun as being a gourmet chef when most people are willing to eat at Togo’s or McDonald’s,” Ryder says.

Schwartz, who had been Sun’s chief operating officer, took over as CEO in April from Scott McNealy, one of the company’s co-founders. McNealy had a reputation, not wholly deserved, for holding on to employees despite financial losses. Sun’s headcount dropped by 12,000 from 2001 and 2005 because of attrition and job cuts.

The recent layoffs, part of a plan to return to steady profits, were less than Wall Street had expected. “We had projected a slightly higher 15 percent reduction in headcount,” Merrill Lynch stock analyst Richard Farmer wrote in a research note last month. But, he wrote, “we still see this action as a meaningful proof point of new management’s commitment to profitability.”

Layoffs have come under increased scrutiny recently. Louis Uchitelle, author of The Disposable American, says companies underestimate the damage layoffs do to morale among remaining workers.

Eunice, however, says Sun’s morale suffered as employees saw the company floundering in red ink.

On the other hand, he gives Sun credit for turning things around beginning early this year. That’s partly due to new chips for high-end computer servers—machines used for tasks such as logging bank transactions. Sun is “looking better these days,” he says.

In July, Sun unveiled a new product in the category of thin “blade” servers, designed to save space and energy.

Not everyone thinks the clouds have cleared for Sun. Hugh Mai, a stock analyst with First Albany Capital, said in a recent report that Sun’s long-term goal of 10 percent operating profit margins may require additional cost-cutting.

Ryder says Sun could manage a recovery similar to IBM’s. Big Blue sagged in the early 1990s but reshaped itself as a services-oriented company.

Key for Sun and its leaner workforce will be creating a new identity, Ryder says, just as the firm did during the Internet boom. “They really need another way to reinvent themselves.”

—Ed Frauenheim