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Cash-strapped Governments Turning Own Workers Into Public Health Consumers

While state lawmakers target private employers for not providing health care coverage, a similar issue may be brewing in many of their own back yards.

In addition to being taxed by having to provide public health assistance to a growing number of working poor, government budgets are also being squeezed by their own employees’ escalating health care costs, forcing them to shift more of the expense onto those employees. Those employees, in some cases, then turn to public health programs.

   For example, while Canton, Massachusetts-based Dunkin’ Donuts may be No. 1 on the Massachusetts Executive Office of Health and Human Services’ list of employers with 50 or more employees using public health assistance, the city of Boston is not far behind, ranking sixth on the list. In Texas, 15 of the 20 employers named in the state’s Health and Human Services Commission report of employers identified by individuals enrolling in the Children’s Health Insurance Program were public employers, mostly school districts.

   How can it be that public employers, which once made up for paying low wages by offering comprehensive benefits, are now beginning to contribute to the nation’s uninsured working population?

   It’s the same reason states are seeking reimbursement from private employers to help shore up their overtaxed Medicaid systems, observers say. Strapped for cash, many states are reducing their own employees’ access to health benefits by relegating them to part-time or temporary status, or increasing their contributions to a point where they sometimes become unaffordable.

   In July, Ohio increased state employee health plan contributions to 15 percent of premiums from 10 percent because “the state, like many other states, had significant concerns about the state budget,” according to Nan Neff, benefits administrator in Columbus. With the increase, the employee contribution for single coverage is now $47.30 a month and $128.91 for family coverage, she says.

   While Ohio offers health benefits to part-time employees, their contributions are based on the number of hours worked, so those part-time employees who work fewer hours pay more for their health care, Neff says.

   About 5,000 of the state’s 60,000 workers are not eligible for coverage because they are either seasonal or temporary workers—a growing phenomenon in the public sector, experts say.

Permatemp proliferation
   “Permatemps—people without health insurance—are almost as big a problem in the public sector as the private sector,” says David West, executive director of the Center for a Changing Workforce, a nonprofit research organization in Seattle that focuses on issues affecting low-wage and nonstandard workers. “In the last 10 years, the public-sector strategy has been to reduce the number of employees eligible for insurance.”

   He says that the center’s analysis of 2004 Medicaid enrollment found that up to 10 percent of Washington state’s 160,000 employees were receiving government health assistance.

   “I’m sure every state and local government has people on Medicaid,” West says.

   Because many government budgets provide for a specific number of full-time positions, public entities often hire temporary, seasonal, part-time or other types of contract workers who usually are not eligible to participate in benefit plans, according to Rick Johnson, senior vice president and national public-sector health practice leader for the Segal Co. in Washington, D.C.

   Dennis DiMarzio, COO for the city of Boston, attributed that city’s appearance on the Massachusetts list to part-timers, “school crossing guards and things like that.”

   Because, in his opinion, the city’s benefit package is reasonably priced—$45.12 a month for individual coverage and $121.32 a month for family coverage—DiMarzio says that any eligible employee who isn’t enrolled is “irresponsible.”

   “Even if you’re making $30,000 a year—that’s $600 a week—to not spend essentially $10 a week to get yourself coverage, outstanding coverage, to me is individual irresponsibility,” he says.

   He acknowledged, however, that it might be difficult to afford family coverage on that income.

   According to the Massachusetts list, 1,110 city of Boston employees were receiving public health assistance. The city has 17,000 active employees and about 12,000 retired employees enrolled in its health plan, according to DiMarzio.

   “I’m not surprised there are folks who can’t make it on public salaries,” because “there’s always a tug of war between pay raises and benefits,” Segal’s Johnson says. “There’s only so much tax money. They can’t raise prices like private employers—that would be called raising taxes.’’

   In general, public-sector employees “are probably over-benefited and underpaid, and some of that reflects the thinking of our members. They really value their benefits,” says Steve Kreisberg, head of collective bargaining at the American Federation of State, County and Municipal Employees in Washington, D.C., which represents about half of the nation’s public employees.

   “So when we negotiate, the members say in a very clear voice, ‘Look, if I have to sacrifice wages, I will, but hold on to my health benefits,’ “he says. “But we’re not increasing their standards of living as much as we should because health benefits are eating up an increasing share of their income.’’

   For example, New York City employees earn an average of just $28,000, which would make any kind of contribution difficult, according to Kreisberg.

   “That’s about rent if you’re going to live in a lot of neighborhoods in New York City,” he says.

Subsidized workers
   While AFSCME doesn’t track the number of public employees without health care coverage, it is looking into the uninsured program among a growing number of employees, such as home health and child care workers, who are not on public payrolls but whose wages are financed by government programs.

   These individuals are “paid with Medicaid money, but they have no health benefits,” Kreisberg says. “There are also child care workers who are getting subsidies from public programs. In the ’80s there might have been a state agency created to employ them and provide benefits, but not today.’’

   “The fact is, I don’t know of a single government that is so rich and fat and happy that it can keep up with the increased cost in employee health care,” says Darrell E. Wells, director of risk management for the city of Odessa, Texas, and chairman of the board of trustees of the Family Health Benefits Pool that provides coverage to city employees.

   “Eventually the pain level rises to the point where even government has to act,” he says.

   While Odessa is still offering benefits to employees at almost no cost—individual coverage is free and employees with two or more dependents pay just $27.85 a month—other Texas communities aren’t, Wells says.

   As an example, he described the recent experience of a police officer who left Odessa to take a job as the police chief in another town.

   “He called me on my cell phone after he was offered the job to say he had gotten his health insurance information and that something was terribly wrong,” Wells recounted.

   While the town offered to pay 100 percent of the cost of his individual coverage, he would be required to pay more than $370 per pay period for employee-plus-family coverage.

   “It was almost $10,000 for the same thing he was getting for a little over $300 a year here,” Wells says. “He asked me, ‘They pay pretty good around here in this little town. But they’ve got garbage truck drivers and low-level people—can they afford to spend $10,000 a year to insure their families?’ I said that’s the point. This city is sending a message. The message is, ‘We’ll insure our employees, but we don’t want your spouses and children.’

   “The fact is, we’re starting to see government reject the idea that we have to provide the best benefits in town,” Wells says.

   When Kip Wall, former CEO of the Office of Benefits for the state of Louisiana, discovered that about 9 percent of the state’s workers could not afford to participate in the government’s health plan, he tried to create a low-cost plan that would have provided at least basic benefits.

   “We have a material percentage of state employees making under $25,000 a year,” says Wall, who now practices law in Baton Rouge.

   Unfortunately, “we never could put together a plan of sufficient value to the employees to make it worth their while to invest in the product, and so it never did get off the ground,” Wall says.

   “There are still some public employer plans out there to die for … but comparable to what they were five years ago, they’re not common anymore. The very rich plans are the exception,” he says.

This story originally appeared in Business Insurance, a sister publication to Workforce Management.

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Communicating Beyond Ratings can be Difficult

When TriQuint Semiconductor implemented a more formal pay-for-performance system for its 1,600 employees, people were outraged.

   “Managers were furious. Employees were furious,” says Deborah Marsh, director, worldwide human resources. “We had one person quit because he said he had never been called average before.”

   As companies like TriQuint implement more rigid performance-based compensation programs, many are being confronted with pushback from both managers and employees. The introduction of formal ratings to determine compensation is particularly hard for employees who have been meeting expectations but are rated as 3s, which implies mediocrity, says Ravin Jesuthasan, managing principal at Towers Perrin.

   “Companies need to spend a lot of time communicating to employees that the definition of success has changed and this is what it means for you,” he says.

   Some employers are addressing this by divorcing the discussion about performance from the discussion about pay, says Steve Gross, a compensation consultant with Mercer Human Resource Consulting. “Otherwise, employees are just keeping a scorecard in their head while the manager is trying to talk about their goals,” he says.

   TriQuint, which is based in Hillsboro, Oregon, had a five-point employee rating system in place for years, but it was only when the company’s new CEO, Ralph Quinsey, joined the firm in 2002 that the company started applying it in earnest, Marsh says.

   Under the program, 20 percent of employees could receive 4s and 5s, 50 percent could receive 3s, and the rest were 1s and 2s.

   For employees, the change was significant because these ratings, along with how their managers ranked them within the organization, determine how they get paid.

   Managers reviewed these ratings when deciding merit increases, stock option allocations and promotions, Marsh says.

   “People were up in arms and many weren’t reading their reviews,” Marsh says of employee reaction.

   The issue was that employees were getting so wrapped up in their ratings that they weren’t paying attention to the content of the review, she says. “The ratings became demoralizing instead of motivating.”

   In June 2005, TriQuint took the ratings out of the conversation.

   “Now the conversations are around goal setting and competencies rather than ratings,” Marsh says.

   Rather than hear about their ratings, employees talk to their managers about how their contributions are aligned with their business division’s goals. The compensation part of the conversation is held months later.

   Managers still use employee rankings to determine their compensation, but those rankings are not shared with employees, Marsh says.

   How well this approach works remains to be seen. Employees are going through the revised compensation process now.

   To determine the program’s success, the company will review turnover among highly ranked employees and check on how well each department did in meeting its goals.

   “The new process may not be as cut and dried as before, but so far managers seem to like it,” Marsh says.

Workforce Management, April 24, 2006, p. 35 — Subscribe Now!

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Five Questions for Richard Cavanagh

As a partner at McKinsey & Co. during the 1980s, Richard Cavanagh advised CEOs to leave after a decade so that the business could try new things. On March 8, soon after Cavanagh reached the 10-year mark as president and CEO of the Conference Board, he took his own advice and announced he would step down by year’s end. Cavanagh’s management skills have taken him from the private sector to the White House Office of Management and Budget during the Carter administration and to Harvard’s Kennedy School of Government, where he was executive dean. Cavanagh, 59, recently spoke to Workforce Management staff writer Jeremy Smerd.

    Workforce Management: How do you motivate people at places where getting a job is the hardest part?

    Richard Cavanagh: At both Harvard and McKinsey you had high turnover rates that were induced by the organizations. At McKinsey, you’d get these incredibly bright people coming in as consultants, and one out of 10 would become partners. So you were always culling. It’s a controversial view: Should you have forced attrition and should you be cutting the bottom X percent out?

    WM: What qualities should managers possess?

    Cavanagh: Highly talented people don’t need to be supervised, they need to be provided with opportunities; they need to be provided with, maybe, some guidance. The second thing is that people realize talent is really precious. You want to treat it well and you want to develop it and you want to keep it as long as you can. It’s not a throwaway. There’s not a constant replenishment. It’s not like energy from the sun.

    WM: How is outsourcing changing HR?

    Cavanagh: What it’s done is say there’s a new skill, which is how to manage contractors. Some people have been very happy outsourcing software development to somebody in Bangalore, and others have been very disappointed. And all that has to do with how well they’ve figured out how to manage contractors. Contractors have to be managed just as workforces do, except they have to be managed differently.

    WM: In The Winning Performance you wrote that companies succeed because of their willingness to take risks. Should HR managers take risks?

    Cavanagh: Yes. When JetBlue decided they could have people working in their homes with computers selling airline seats there was a risk to that: not having all these people in one big room. Southwest Airlines—and I’ve now named the only two successful airlines in the United States—took a risk by saying work can be fun, and we can actually get pilots to help turn the planes around faster and we can get our ticket agents to go and clean. That was a risk, and yet it worked because people like being a part of Southwest Airlines.

    WM: What’s next?

    Cavanagh: I still have to get out of this job. I think leaving a job is as difficult as taking a job. At the end of your watch it’s too easy to let things slip. So you have to redouble your efforts at the end. I’m too old for hard labor and too young for shuffleboard.

Workforce Management, April 24, 2006, p. 8 — Subscribe Now!

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Web Access Transforms Compensation Surveys

Technology has dramatically changed salary surveys, giving companies—and employees—unprecedented access to information on the market value of almost any job imaginable.

   At first, that sounds great: Salary information is infinitely more useable now that it’s on the Web, as opposed to being trapped in the pages of a report. Users can specify their parameters—employee education and training, company size, industry or location—to arrive at very specialized salary profiles.

   If a client wants to know the salary range for software engineers in Seattle with five to nine years of experience who program in C++ for e-commerce companies, that can be delivered with ease, says Fred Whittlesey, chief compensation officer for Payscale. The online compensation-information company is based in Seattle and began business in 2002. The company won’t disclose the size of its database. It serves small and midsize employers, as well as individuals looking for jobs—or a raise.

   “We are trying to say that businesspeople can’t live with wide variation and stale data,” he says. “… We think by providing more immediate data and more refined data, you make better business decisions.”

   The ability to reshuffle information has created its own set of problems, however. Companies used to be content with compensation information on broad benchmark jobs, says Bill Coleman, senior vice president of compensation for Salary.com, which also serves both employers and individuals. Its database includes information on 1.3 million current job holders and 5,000 companies. Satisfaction with more general benchmark salary data went out the window once employers got access to actual databases and were able to set up their own search parameters, he says.

   “The easier it is to get data, the more you want,” he says. “The demand is increasing because the flow is easier. Bosses and CFOs and CEOs and managers are expecting to find more data.” That puts additional pressure on comp professionals to keep fine-tuning results. Sometimes, they get just as caught up in the data chase, he says. “It’s like crack for comp people.”

   It can be just as addictive for employees and job seekers. They can go to the Web to see what a job is “worth.” They’re not shy about confronting their current or would-be employers with that information.

   “Employees are aware of the compensation tools they can use,” Whittlesey says. “They prepare themselves for meetings, or hiring, or performance reviews. That’s challenging HR to change and become more open.”

   Some Web-based salary information that employees present to make their case for a raise can be too broad to be useful, says Steve Brink, global leader for human capital products solutions at Mercer Human Resource Consulting. Mercer has been in the compensation survey business for 40 years and has 15,000 company entries in its global database. In the U.S. alone, the surveys cover more than 15 million employees.

   Employers need to be sure they are armed not just with a job title and the salary for it, but with the right set of comparisons to counter an employee’s argument, he says. Job content, not just title, also is critical

   Brink also disputes the notion that too much compensation information is overloading employers, at least among Mercer clients. Most organizations that have a solid compensation department know what they want beforehand, he says.

   “They have an idea of peer group they want, and where they want to be matched to positions. How do you want to pay? Is it the 75th percentile of this industry, this peer group? They can do that analysis. They can slice and dice to get to right answer.”

   Technology notwithstanding, market data is only one way of gauging what a job is worth, the experts say.

   “Companies used to rely heavily on internal equity and salary structure,” Coleman says. “But in this addiction model, the more you think you can get, the more you want. HR and comp are more driven by external market data than internal structures.”

   Brink thinks that picture is changing. Before 1970, compensation was set largely by the measure of a job’s worth inside the organization, he says. As the year 2000 approached, a rapidly expanding economy and a highly competitive job market meant there was “a push to get much more market-focused.”

   Now, he says, companies are again weighing their own salary imperatives with what the market indicates a job might be worth. “It’s going back to the center,” Brink says.

Workforce Management, April 24, 2006, p. 35 — Subscribe Now!

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On the Clock But Off on Their Own Pet-project Programs Set to Gain Wider Acceptance

G enentech and 3M have done it for years. Google is doing it now. And other companies may find themselves doing it soon.

    The “it” is giving workers a large chunk of time to pursue projects of their own choosing. This may sound like a recipe for wasted employee hours. But there’s a strong case that independent-project policies pay off or are likely to—and not just in terms of new products like the Post-it Notes that came from a 3M researcher’s personal quest. At Google, 3M and Genentech, the programs also figure into recruiting.


    Pet-project policies will take off in the near future, predicts Joyce Gioia, consultant and author of Impending Crisis: Too Many Jobs, Too Few People. She argues that freeing workers to undertake creative ventures makes them more devoted to their jobs and employers at a time when loyalty is becoming precious.


    “This is a great time for such policies,” Gioia says, “because the employment market is heating up.”


    Loyalty in a tight labor market isn’t the only reason companies may want to launch independent-project programs. Research by University of Michigan professor Theresa Welbourne indicates that company performance increases when more time is spent on “noncore job roles”—for example, when leaders focus on roles such as innovator or team member.


    Lots of companies talk a good game about unleashing workers’ talents, but few actually make it safe to devote time and energy to a novel project, Welbourne says.


    “They expect people to spend time on innovation, but they don’t give them time to do it,” she says. “People listen to the message on innovation, but they realize they are going to be penalized if they do it.”


    At a handful of companies, though, employees are effectively guaranteed they can pursue projects they’re itching to explore. Google puts it in writing right on its Web site about life as an engineer at the Internet giant: “Google engineers all have ‘20 percent time’ in which they’re free to pursue projects they’re passionate about.”


    The policy emerged a few years ago and has its roots in the company’s desire to foster innovation, says Stacy Sullivan, Google’s head of human resources. And it applies to all employees. Sullivan herself worked on an initiative a few years back, though she declines to specify what it was. “It is ingrained in our culture,” she says. “It’s really important to the founders and everyone at Google.”


    Sullivan says 20 percent time at Google can take a back seat to looming deadlines on efforts that are crucial to the company. But an employee may make up weeks without any pet-project time by spending several days straight on their personal initiative, she says.


    Biotechnology company Genentech labels its independent-project policy “discretionary time” and limits it to the research division. That group of more than 700 scientists is crucial to a company that depends on new drug therapies for it to thrive. There’s no set formula for how much time researchers can spend on a personal project, says Holly Butler, manager of staffing for Genentech’s research group. “It really ranges from zero to 100 percent,” Butler says. “But everyone seems to find time to pursue their own interests.”



“(Companies) expect people to
spend time on innovation, but hey don’t give them time to do it. People listen to the message on innovation, but they realize they are going to be penalized if they do it.”
–Theresa Welbourne,
University of Michigan
    3M, which makes everything from duct tape to computer touch screens, has perhaps the longest-running policy of preserving time for independent projects. Known as the “15 percent rule,” the practice dates to the 1920s. That’s when an employee disobeyed an order to abandon a project to ease automobile painting and ended up creating Scotch masking tape. The policy is principally for 3M’s research staff, which makes up a little less than a tenth of the 69,000-person company. 3M not only encouraged researchers to devote 15 percent of their time on projects of their own design, but awards “Genesis” grants of tens of thousands of dollars to support the efforts.

    In December, 3M brought on a new CEO, George Buckley. But don’t expect Buckley, who holds a doctorate in engineering, to halt independent research projects, says company spokeswoman Jackie Berry. “That will still be part of the company’s R&D future,” she says.


Guaranteed freedom
    Technology-focused companies have historically given researchers some latitude. What makes 3M, Genentech and Google stand out is the way they’ve codified a degree of employee freedom.


    A wide range of firms beyond tech companies would be wise to explore independent-project programs, says Google’s Sullivan. And to her mind, the practice makes sense for workers ranging from retail clerks to midlevel managers to top executives. “It could be anyone,” she says. “Just give them an opportunity to make a difference to your organization.”


    Consultant Gioia agrees that some version of personal projects can be effective for many kinds of companies and for the entire gamut of employees. But she says frontline workers may need some help to make the independent time meaningful. This might include holding brainstorming sessions with employees, helping them plan their project and then checking in with them on how they are progressing.


    A key to managing pet-project programs is seizing the best ideas and communicating them quickly throughout the organization, says Dr. John Sullivan, professor of management at San Francisco State University. This is a particular challenge at large firms, he says. “That’s what’s killing the HPs of the world,” he says. “Innovation occurs, but it’s not spread.”


    Analysts also suggest keeping close tabs on projects. “Make sure that the goals of the individual are aligned with your goals,” Gioia says. Accountability is also critical, she says, or the programs could deteriorate into a big waste of time. “You can’t just give people carte blanche to laze around,” she says.


    At Genentech and Google, employees generally are expected to get approval for their independent projects from managers. 3M researchers might not seek a green light for all their pet initiatives, but those pursuing Genesis grants have to apply formally.


    For many corporate programs, a study on their return on investment is required. Genentech, Google and 3M, however, do not have figures about the overall costs and benefits of their independent-project policies. Google’s Sullivan suggests the program’s importance is self-evident. “We’re more interested in people having that opportunity” than in measuring its efficacy, Sullivan says.


    On the other hand, the companies can point to concrete products that have emerged from employees’ self-directed efforts. At Google, independent projects led to the Gmail electronic mail service, the Google News service and social networking site Orkut.


    Genentech, meanwhile, cites its anti-cancer drug Avastin. Company researcher Napoleone Ferrara was hired to work on a hormone thought to be related to the reproductive system, but in his spare time he found a gene critical to the spread of cancer. Based on that finding, Avastin works to starve tumors of the blood supply they need to grow. U.S. sales of Avastin more than doubled last year to $1.1 billion. Genentech’s U.S. product sales last year were $5.2 billion.


    3M’s Post-it Notes may be the most famous example of a successful product resulting from an employee chasing a dream. 3M researcher Art Fry was annoyed by the way paper bookmarks in his church choir hymnal kept falling out, and had an epiphany. He realized that a substance developed by another 3M researcher could be used to make reliable bookmarks. After Fry and others overcame internal skeptics, the company launched the product in 1980 and it quickly became a mainstay in offices.


“A big selling point”
    Apart from generating new products, allowing for independent projects also can serve as a talent magnet. Google’s Sullivan says the 20 percent policy is as important to attracting and retaining employees as it is to sparking fresh ideas.


    “We hear people asking about it in interviews,” she says. “It’s a big selling point. It makes people feel the company values the employees.”


    Google declined to provide statistics about its recruiting, but the company has developed a reputation as the company to work for in technology these days. A key ingredient to that success is the 20 percent time policy, John Sullivan says. “Google has changed work itself with 20 percent time,” he has written.


    Genentech’s Butler says that smaller biotechnology companies have been paring back the amount of discretionary time they give researchers as a way to trim costs. Genentech isn’t backing away from its commitment, she says, which helps make the company stand out to job candidates. “That is a huge piece of why they want to work at Genentech,” she says. “It is Disneyland for scientists.”


    Companies would do well to recognize that employees already do personal tasks on company time, sanctioned or not. A survey last year by Salary.com found that the average worker admits to frittering away about two hours per day, not counting lunch.


    “It’s probably very productive to channel some of that energy into experiments for new products that will benefit the company and the individual,” says Robert Fulmer, visiting business professor at Pepperdine University.


    Paradoxically, letting go of employees through independent projects can mean getting more from them, Fulmer argues. “It’s a way to get people to go beyond what’s expected of them.”



Workforce Management, April 24, 2006, pp. 40-41 — Subscribe Now!

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GM Might Face Tough Sell With Union Buyouts

General Motors has offered a deal to shed itself of much of its union-represented workforce, but it’s only the first of many steps the company must make to become competitive, observers say.


Last month, GM worked out a deal with Delphi and the United Auto Workers that allows the automaker’s113,000 UAW-represented hourly workers and 13,000 of Delphi’s 23,000 UAW workers to receive $35,000 to $140,000, depending on their seniority, if they retire early. But it remains to be seen how many workers will take the company up on the offer.


“I hope GM is better at selling buyouts than they are at selling cars,” says Gary Chaison, a professor of industrial relations at Clark University in Worcester, Massachusetts.


The buyout’s success will depend on how risk-averse the workers are, Chaison says. “The fact is, they don’t know what they will get if they reject it,” he says.


Assuming that many workers accept the offer, GM still runs the risk that its best workers, who are more mobile, will be the only ones to leave, says Gregory Homer, a partner in the Washington, D.C., office of law firm Drinker Biddle & Reath.


“There is a huge risk of brain drain,” he says. “Then GM ends up with a workforce that is less productive than it was before.”


The bigger question is what will GM do with the workforce that remains after the buyouts are over.


The company has a big challenge ahead in “repairing the relationships with the workforce,” Chaison says. The employees feel that they have been making lots of sacrifices, and those who stay may suffer from “survivor’s guilt,” he says.


“The workers now feel like there is no plan other than cutting costs,” he says. “The company has to communicate a plan to these workers so they feel encouraged.”


GM might actually get a morale boost in its workforce. Under the agreement with the UAW, the company will bring back 5,000 Delphi workers by September 2008.


“These people never wanted to leave GM in the first place,” says Arthur Wheaton, a workplace and industry education specialist at Cornell University. “So they may have a better attitude and be excited about turning the company around.”


On a broader level, GM needs to completely rethink how it wants its workforce to act, says Mark Neuberger, head of the employment law group of Buchanan Ingersoll in Miami. This means identifying the skill sets that are vital to compete and developing training and incentives to encourage those skills, he says.


GM has to become less bureaucratic, says Robert Chiaravalli, a labor lawyer and a principal at Strategic Labor and Human Resource in West Bloomfield, Michigan.


“They need to get lean quickly to make up for the potential skills gap created by workers leaving,” he says. This doesn’t just mean becoming smaller, Chiaravalli says. “They need to figure out how to inspire creativity and innovation to introduce better cars.”


—Jessica Marquez

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Boeing AwardsTaking Off in New Directions

Rewards and recognition isn’t rocket science at aerospace giant Boeing–but until recently, it was almost that difficult. A Fortune 20 company, Boeing em­ploys nearly 154,000 people in 48 U.S. states and 67 countries. Thousands of those employees are unionized. Job types range from factory work in building civilian and military aircraft to aircraft mechanics, test pilots, engineers and designers of all stripes, executives, support personnel, Ph.D. researchers and, of course, rocket scientists.

   As if such a large, diverse workforce didn’t make rewards and recog­nition difficult enough, Boeing employees have endured brutal assaults on morale since the company merged with McDonnell Douglas in 1997. The two corporate cultures came together like crashing cymbals, and the result was nonstop discord.

   A succession of damaging ethics scandals began in 1999, reaching a low point in March 2005 when Boeing’s board forced the resignation of CEO Harry Stonecipher because of his affair with a female employee. In September, Boeing endured a 23-day strike by 19,000 union employees. Despite all this, the company’s recent financial performance has been excellent, with 2005 net income of $2.57 billion, up from $1.87 billion in 2004.

   Continued financial success is an explicit reason for the company’s hard look last year at the rewards and recognition program put in place in 2000. Another reason was the need to eliminate the cultural divide and its discordant consequences. Boeing found that its program was complex, confusing, difficult to use, expensive–and it wasn’t motivating and engaging employees.

   In response, the company clarified its rewards and recognition philosophy, identified specific objectives for a new program and forged a relationship with a new partner to fulfill those objectives. Launched January 3, the revised Pride@Boeing program–which is Web-based and includes formal appreciation, instant appreciation, service awards and cash awards–is too new for much formal feedback. But by March, it was already supporting thousands of daily interactions with employees and managers.

   Boeing’s original rewards and recognition program used two separate contractors–one for long-term service and another for performance. The two components weren’t integrated, resulting in lots of problems. Lack of integration made the awards process labor-intensive and expensive, involving a network of 750 “focals”–people who served as touch points in getting award transactions completed. By no means were all 750 focals required to arrange any single award trans­action, but the sheer number of people tapped to help indicates how complicated the rewards process was.

   It could take up to 28 days from the time an employee was no­minated for an award to when he or she received it. “Recognition must be timely; it must be immediate,” says Jacqueline Coulter, who directs Boeing’s rewards and re­cognition program as part of her job as manager of the Puget Sound Hu­man Resources Service Center in Washington state.

   Waiting nearly a month for an award is bad enough, but in the old program, getting an award might not mean much notice for an employee–which is the point, after all. “With the old program, if an employee received recognition from someone other than his or her manager, that manager wouldn’t know about it and couldn’t recognize the employee,” Coulter says.

   Distance made things just that much harder for Boeing employees based outside the U.S. “(The process) was kind of hit-and-miss before, especially for the international population,” Coulter says.

   Tax and regulatory issues increased the complexity. “A big issue was how to address taxes nationally, by state, county, city and so forth,” Coulter says. Certain awards that hadn’t previously been taxed in the U.S. lost their tax-free status in 2005. Regulatory restrictions prohibit Boeing executives from receiving cash awards. Many Boeing union employees were also contractually prohibited from receiving cash awards, but when some unions negotiated new contracts in 2005, that changed. Privacy laws in the countries where Boeing operates vary widely.

   With all that, it’s easy to see why the entire recognition process, which wasn’t automated, needed radical change, beginning with a clearer philosophy.

Program goals
   Good financial performance and customer satisfaction are the primary philosophical drivers for rewards and recognition at Boeing. “An engaged, involved workforce is a satisfied workforce,” Coulter says. “A satisfied workforce is a high-performance workforce, and a high-performance workforce produces customer satisfaction. In turn, that leads to good financial performance for Boeing.”

   Another philosophical driver is the company’s desire to encourage ongoing top-notch performance, good corporate citizenship and leadership, and any behavior that produces extraordinary customer satisfaction. “We need a culture of recognizing people for what they’re doing, not just for what they have done,” Coulter says. “We’re trying to effectively and meaningfully recognize and reward the behaviors the company desires.”

   Linking recognition to current rather than past events focuses everyone on ongoing performance and overall company strategies and goals. “It shows that what people are recognized for is linked to the company’s business requirements,” Coulter says.

   In implementing its new Pride@Boeing program, however, the company had additional philosophical goals: egalitarianism, cultural sensitivity and genuine relevance to employees.

   It’s not easy to treat everyone equally when the workforce is huge and diverse. Yet that was vital for the new program. “The benefit of consistency is that everyone is treated the same,” Coulter says. “We don’t have to justify any differences.”

   Egalitarianism also means making the program both available and equally user-friendly to every Boeing employee, whatever country they work in. The old program definitely didn’t do that.

   Cultural sensitivity is crucial. “When we give someone a $100 cash award in the U.S., it’s nice, but in New Delhi, that’s a month’s salary,” Coulter says. “So what constitutes an appropriate award in the U.S. may not be appropriate elsewhere.”

   In China, it’s taboo to give sets of four of anything, such as goblets. The English word four is pronounced the same way as the Chinese word for death, a bad omen.

   “You must have a program that accounts for these cultural differences,” Coulter says.

   If rewards aren’t relevant to employees, they don’t buy in and don’t behave the way the company desires. So an important part of the new program was training for managers about the significance of recognition to employees. “It’s very difficult to teach,” Coulter says.

   “Rewards must match the person,” she says. “This is why it’s so important for the leadership to understand their employees and what’s meaningful to an individual. It all comes back to really getting to know that employee.”

Renewed Pride@Boeing
   To meet its goals, Boeing established a partnership with Rideau Recognition Solutions, a 94-year-old company with world headquarters in Montreal and U.S. headquarters in New York City.

   Technology that promised to automate and vastly simplify the entire recognition process was a major reason Rideau was selected, says John Mills, the company’s executive vice president of business development. “If you can open a browser, you can use our system,” he says.

   Boeing’s new program has four elements: formal appreciation, instant appreciation, service awards and cash awards. “Formal appreciation is based on activity and behavior,” says David Gladson, director of business development at Rideau and account executive for Boeing. Both managers and employees can nominate employees and teams for exceptional performance. Awards are delivered as points redeemable online for various types of merchandise, and Boeing covers all relevant taxes.

   Instant appreciation, currently available only in the U.S., involves small items like mugs, bags and pens that managers have on hand and can give to employees at any time to reward some specific behavior, event or accomplishment.

   Service awards recognize length of employment in five-year increments. They come as kits, with certificates and a choice of merchandise preselected for various service levels.

   Cash awards, from $250 to $5,000, go to employees for extraordinary performance. These awards are manager-to-employee only, and there’s no tax assist on them.

   Every step of the new Pride@Boeing program, from nomination to award to redemption, is online and automated via Rideau technology. Also online are all the necessary program data: employee facts such as location and associated manager; cultural information; legal and other restrictions; domestic and foreign privacy laws; foreign tax laws; and U.S. tax data that includes federal, state city, county and municipal regulations. The only part of the process that isn’t online is the physical distribution of awards, but that’s linked directly to Rideau’s warehouses in Plattsburgh, New York, and Montreal, so it’s still automatic.

  Benefits of the new technology-based solution are numerous. Through automation, a program that was complex, inconsistent and not always culturally suitable is now simple, egalitarian and fitting. The 750-person focal network is gone, replaced by automation. Cycle time from nomination to award is a single day. Managers are instantly notified if one of their employees is recognized. “The process is now a self-service e-commerce environment,” Coulter says. “Before, it was labor-intensive. Now, it’s easy.”

   All aspects of the nomination and awards process are consistent and integrated, regardless of a Boeing employee’s location. When an employee or team is nominated for an award, the online data automatically comes into play, steering awards selections to those that are appropriate. “The company doesn’t have to use additional resources to administer different programs, ” Coulter says. “Now, the program is standardized and is delivered consistently across the company.”

   Boeing sought to streamline and simplify its program, make it more consistent and easier to use for all employees, and reduce administrative costs. It accomplished those goals. However, the company’s primary objective was to engage, involve and motivate its employees to satisfy customers and achieve corporate success. Though it’s too early yet for formal metrics, there’s every indication that the new Pride@Boeing has also achieved that goal.

   Says Coulter: “The program treats employees the way we want employees to treat customers.” In rocket science, that’s called a successful liftoff.

Workforce Management, April 24, 2006, p. 29 — Subscribe Now!

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New Mass. Law A Double-Edge Sword

The landmark Massachusetts law requiring companies with more than 10 employees to offer health insurance could be a boon—or bust—for staffing agencies and other companies hired to act as employers of record.


For small companies in Massachusetts that don’t offer health insurance or have part-time, uninsured workers, it may be easier to turn employees into contract workers than deal with the administrative burden imposed by the state’s new law, staffing professionals say. The law requires that employers make health insurance available to employees, either under their own plan or through a pool created by the state.


“Clearly, if you are a 10-person company and you want to hire the eleventh, you might want to get that person from a temp agency,” says Michael Connors, CFO of Professional Staffing Group in Boston, which will issue 5,000 W2s this year on behalf of clients.


Staffing firms or professional employer organizations are considered the employer of record by the state because they issue an employee’s W2 tax form on behalf of their client. Under the new law, they will be responsible for making health insurance accessible to those employees who work at least 30 days for the company.


Employers must also subsidize some portion of the premium, according to the legislation that was signed into law by Republican Gov. Mitt Romney on April 12. Businesses that don’t make a “fair and reasonable” premium contribution—the meaning of which will be determined by state regulators—will likely have to pay a $295 fee per employee annually. This fee was vetoed by Romney but will probably be overridden by the Democratic-controlled Legislature.


For a company that does not offer its employees health coverage or does not want to deal with administrative hurdles of compliance, using a PEO makes sense. Eight out of 10 PEOs nationally offer some type of health care plan, according to the Edie Clark, a spokeswoman for the National Association of Professional Em­ployer Organizations, whose 350 members re­present 100,000 small to midsize businesses nationally.


But many PEOs do not contribute to the premium. This will change if they want to continue to do business in Massachusetts.


Genesis Consolidated Services, based in Burlington, Massachusetts, offers 20 different health care options but does not subsidize the plans’ premiums. Monette Galello, vice president for human resources and risk management at Genesis, says she believes the Massachusetts law will boost companies like Genesis, at least in the short run. But, she adds, any increase in the cost of complying with the new law will be passed on to the client.


Companies and state legislators alike hope that universal coverage and higher Medicaid reimbursement rates for doctors and hospitals will bring the cost of insurance down for everyone. But until the law takes effect in January, that hope remains a hypothesis.


“The biggest question mark,” says Jon Hurst, president of the Retailers Association of Massachusetts, “is whether there will be bottom-line savings for employers.”


That concern, especially for staffing and employer organizations that have a national reach, will grow if variations of the Massachusetts law take form in statehouses across the country.


“This is a negative for us because we’re in 50 states, and if 50 states come up with 50 different rules, this will make life difficult for us,” says Doug Goin, CFO of Orlando, Florida-based Zero­Chaos, a provider of skilled, short-term workers for the tech industry. “It will become a real employer’s nightmare.”


—Jeremy Smerd

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Pension Conferees Get Back To Work with Clock Ticking

As House and Senate negotiators got back to work in late April, the clock was ticking on pension reform—and the longer it takes to reach an agreement on a final bill, the more time business will want to adjust to the changes it ushers in.


An agreement may be reached by the end of May on a final bill that likely will require businesses to fund 100 percent of their pension promises. One of the major sticking points is the use credit ratings to determine whether a company must increase payments to its pension plan. A proposal to give airlines longer than other businesses to shore up their pensions also is generating controversy.


Pension reform is driven in part by a nearly $23 billion deficit at the Pension Benefit Guarantee Corporation and an aggregate $450 billion in underfunded pension liabilities. The funded status of pension plans improved slightly in 2005, according to a new study by Milliman Consultants and Actuaries.


Although the April 15 deadline for the first pension payments of the year has passed, a leading business advocacy group, the Pension Coalition, says it is not as concerned about the calendar as it is about the substance of the final bill.


“The overwhelming sense of people in the coalition is that Congress needs to do as good a job as possible and get this right rather than get it done on a certain date,” says Martin Reiser, manager of government policy for Xerox and spokesman for the coalition.


But the group, comprising about 200 companies and trade associations, also warns that Congress must give businesses time to adjust.


“The longer they go, the more critical it is that they put off the implementation date for a year,” Reiser says.


There may not be enough time for the Treasury Department to write the regulations necessary to implement pension legislation by Jan. 1, according to Reiser. Proposals call for funding requirements to increase from 92 percent to 100 percent incrementally beginning in 2007.


“Part of the problem is what does 92 percent mean?” Reiser says. “Treasury would have to spell that out.”


Beyond the uncertainty of pension reform, businesses with defined benefit programs also face the prospect later in the year of new rules from the Financial Standards Accounting Board that would require them to put the funding status of their pension plans on their balance sheets. Currently, that number is contained in footnotes of financial reports.


A study by Watson Wyatt shows that the accounting change would cut shareholder equity of the Fortune 1,000 by 10 percent, hitting transportation, communication and utility companies particularly hard. Milliman calculates that shareholder equity would have decreased by $222 billion for 100 large firms with defined benefit pension plans in 2005 if the rule had been in effect.


But so far, there’s no sign that businesses will drop defined benefit plans en masse.


“It’s too early to tell whether we’re going to reach a tipping point where there’s a rush to the doors,” says Alan Glickstein, a senior consultant at Watson Wyatt.


—Mark Schoeff Jr.

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College Internship Programs Graduate to a Higher Level

Many college students used to spend lazy summer afternoons at the beach or working at amusement parks. Now, it is more likely that undergraduate college students will spend the summer working in an experiential education program, receiving performance reviews along the way and a job offer when they finish.

   College internships make up the largest segment of these types of programs, and they have become increasingly popular as a strategic method for recruiting students prior to their graduation. Managers favor internships for building pipelines of talent and like the opportunity to “audition” the students for a period of time prior to extending offers, according to Steve Pollock, president of Wet Feet, a recruitment solutions provider and research company based in San Francisco.

   “More companies are de-emphasizing full-time hiring and emphasizing the internship program and the subsequent conversion rates of students to full-time hires at the end of the summer,” Pollock says.

   The desired conversion rate from internships to full-time hires is 50 percent, according to the National Association of Colleges and Employers, a Bethlehem, Pennsylvania-based information resource organization on the employment of the college-educated. In 2004, NACE members reported a 45 percent conversion rate and a 35 percent rate in 2005.

   Wet Feet recently surveyed students who had completed internships to gather their opinions as to what constituted the best program. While the priority goal of employers is gaining new hires, students said that their No. 1 internship objective was gaining experience and knowledge, and that receiving a job offer was a lesser priority.

   The survey reported that less than half of all undergraduate students had accepted their end-of-summer offers as of November. The data also showed that programs that are designed around student objectives had a better than average conversion rate.

“Real” Work Wanted
   The students defined their optimal learning experience as one that provided actual tasks or work that was suitable for exempt personnel. They wanted to be exposed to the real work environment and wanted to know how their work related to the overall success of the business. Pollock says that best-practice companies have a program management team that helps to shape the projects and uses a pre-approval process for the selection of valid assignments.

   Kaiser Permanente, based in Oakland, California, runs multiple internship programs. Each program is targeted toward a different group of students based upon their academic major and the company’s demographic hiring goals. The diversity program targets high-potential students early in their college careers with the assistance of Inroads, a St. Louis-based training and development firm for minority youth.

   Kaiser hires the students for consecutive summers during a two- to six-year period, according to Carolyn Dallas, manager of youth programs for the Southern California region.

   “Our interns receive exposure to real work and to work outside of their internship area via rotational programs, ‘lunch and learn’ sessions and job shadowing,” Dallas says.

   She says that the firm’s project approval process requires the supervisor to complete a profile each year describing the function and the project prior to the student commencing the work. The managers are also required to sequentially increase the complexity of the project each summer that the student returns for an internship.

   Dallas says that they extend the real work experience by conducting performance reviews with each intern twice during the summer and requiring graduating interns to present a summary of their projects to a panel of company executives.

   “The quality of the educational experience has been a major factor in our results,” Dallas says. “We have had a 72 percent conversion rate in Southern California and an 80 percent conversion rate in Northern California from this program.”

   Deutsche Bank has an internal staff of 18 to support domestic internship programs for both undergraduate and MBA students. Last year the bank hired 350 U.S. interns, which was 30 percent more than the prior year, according to Kristina Peters, director and head of regional recruiting for the Americas, who is based in the firm’s U.S. headquarters in New York. Her team is measured by the number of offers that are extended at the end of every summer.

   In order to bring more of a “real work” experience to students interning in areas that require licensing, Peters says that the curriculum includes simulated trading competitions in which the students are scored on their results as if they were working with real money and accounts.

Social Responsibility
   IBM, headquartered in Armonk, New York, hires 1,500 to 1,800 students each year into business-unit-focused internship programs. The “Extreme Blue” program, which is composed of teams of computer science and computer engineering majors, undertakes actual research and development projects each year under the guidance of an IBM team lead.

   “Those projects have actually produced new products and solutions, and several have produced patents,” said Marilyn Mayo, IBM’s program manager for university relations and recruiting. She adds that the goal is to “wow” interns and that her team’s target is to achieve 70 percent of the firm’s college graduate hiring requirements through internships and co-op programs.

   IBM’s program also includes a curriculum covering social responsibility and employs a webcast format with guest speakers who discuss community support and volunteerism. Deutsche Bank’s curriculum includes involving the company’s interns in a community service project such as building homes for Habitat for Humanity.

Crucial Relationships
   Students participating in the Wet Feet survey said that their impressions of people within the company were a critical factor in terms of their decision to accept offers following an internship. They listed both their relationships with their managers and exposure to senior management in the company as important elements of great internship programs.

   “The best programs all provide mentors to the interns who coach them independently of their manager and opportunities to interface with senior management,” Steve Pollock says.

   IBM provides management training for those supervisors with interns. Some companies involve a blend of networking functions and social events to give the interns exposure to people within the organization on different levels.

   Mayo says that there is an expression at IBM that reflects the increased competition to acquire the best interns and convert them to full time hires: “Recruit them once, but hire them twice.”