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Nine Critical Trends in Benefits

Employers will pay an average of $8,046 per worker for health insurance in 2006, an increase of 9.9 percent from 2005 and nearly double the amount paid six years ago, according to a new survey by Hewitt Associates.


    Containing the rising expense will continue to be the top concern for human resource professionals in the next three to five years. That’s the prediction from the Society for Human Resource Management, which asked its panel of experts on benefits and compensation to identify the most significant trends in their area. After health care costs, in order of importance, they are:


    An aging workforce: Older employers may elect to work to keep their medical coverage. Companies may offer phased retirement to keep them on the job.


    Diminished Social Security support: A growing senior population will be eligible for benefits; fewer younger workers will be available to pay for them. At the same time, the shift from company-sponsored pension plans to 401(k)s could mean retirees will have inadequate savings. Employees may demand more training in investment planning.


    Medicare prescription drug benefits: Employers may reduce medical coverage for older retirees.


    Legal challenges: Employees have increasingly sued benefit plan fiduciaries the past two years. “If the class-action lawsuits and governmental investigations against plan fiduciaries are successful in obtaining recoveries for plan participants, this will continue to be a top issue for HR professionals,” the panel said.


    Work/life balance: Flexibility in schedules and workplaces will determine employers of choice.


    Tying compensation to business measures: Translating pay and benefits into business terms could raise human resources’ strategic profile.


    Avoiding identity theft: Protecting private information like Social Security numbers will be critical for human resources. Some companies have added identity theft assistance as a benefit for employees.


    New voluntary benefits: “Companies may need to more actively take their employees’ preferences into account,” the panel says.


Workforce Management, November 7, 2005, p. 54 — Subscribe Now!

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Punting to the PBGC

While some companies try new ways to stay competitive through bonuses and revisited benefits packages, it appears that Delphi Corp.’s chairman, Robert S. Miller, is employing a formula that has worked for him before. Critics say he helps troubled industrial companies shed billions in liabilities by forcing the federal Pension Benefit Guaranty Corp. to take over insolvent pension plans.


    With their retirement liabilities pushed off on the government, the companies are suddenly attractive acquisition targets. It’s a strategy that makes Wall Street happy but costs taxpayers billions–and sometimes leaves workers feeling betrayed.


    One of Miller’s former companies, Bethlehem Steel, is cited as a prime example. In fairness, Bethlehem was a disaster waiting to happen long before Miller took over as chairman and CEO in September 2001. He quickly ushered the struggling company into bankruptcy.


    In the era before federal pension regulation, the steel-making giant neglected to put aside enough assets for its pension fund, instead investing in modernizing its plants. In those days, companies had a lot of latitude about putting money into their pension and health plans, says John Hinshaw, a labor historian at Lebanon Valley College in Annville, Pennsylvania.


    “Bethlehem was probably only the most extreme example,” Hinshaw says. “If the company eventually failed, the retirees went down with the ship.”


    When the steel industry encountered hard times in the mid-1970s and 1980s, Bethlehem was hit with a double whammy. As the company was forced to cut its workforce from 90,000 in 1980 to 13,000 in 2002, it found itself with seven retirees for each active employee, and was $2 billion short of what it would need to pay the pension benefits owed them, Miller testified to Congress in 2002.


    In addition, the company had $3 billion a year in health care costs, most of it going to retirees and their dependents. In 2003, Bethlehem terminated retirees’ health benefits, which Miller said at the time was necessary because the bankrupt company could no longer afford them.


    Hinshaw recalls that the move stirred a lot of anger among the company’s former workers. “The way they saw it, they’d given up pay increases in order to get those benefits. They figured the benefits were permanent, not just until they no longer were cost-efficient.”


    In his congressional testimony, Miller made no secret of his expectation that the federal Pension Benefit Guaranty Corp. eventually would have to bail out Bethlehem’s retirement plan. And in December 2002, while Bethlehem was in negotiations to be acquired by the International Steel Group in Cleveland, the PBGC terminated Bethlehem’s pension plan and assumed responsibility for retirees’ benefits.


    The $3.7 billion cost to PBGC was the biggest in the agency’s history up to that time (it has since been eclipsed by the $6.6 billion hit from United Airlines’ failed pension plan). PBGC spokesman Jeffrey Speicher says the agency needed to move quickly because Bethlehem’s sale would have triggered additional early retirement benefits to employees who lost their jobs.


    “Those benefits weren’t funded or insured, and the PBGC would have ended up taking an even bigger loss,” Speicher says.


    Ultimately, Bethlehem went out of existence when ISG bought its assets for $1.5 billion in 2003.


    “I don’t think that Miller really altered Bethlehem’s trajectory,” Hinshaw says. “When you’ve got a company that had decades of inertia, you can’t expect that one man is going to come in at the last second and save it.” Or shut it down without at least some turmoil.


Workforce Management, November 7, 2005, p. 28 — Subscribe Now!

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Early Government Outsourcing Woes Not Dissuading Public Agencies

Florida officials knew it would be a huge undertaking to outsource personnel services for 219,000 state workers and retirees. But they had no idea just how difficult it would be.


    Announced in 2002, the PeopleFirst initiative was part of Gov. Jeb Bush’s drive to privatize aspects of state government. The idea: Take a hodgepodge of HR practices and systems inside 32 state agencies, streamline them, then move everything to an outsourcing firm to centralize and run on state-of-the-art technology.


    The transformation was expected to save tens of millions of dollars, including $80 million in capital costs the state would avoid because it wouldn’t have to upgrade antiquated HR computer systems. The state hired Convergys, a Cincinnati-based customer services, billing and HR outsourcer, to do the job. The project morphed into a nine-year, $350 million contract—the first of its kind for a public agency and one of the biggest HR business process outsourcing deals of its day.


    But trouble started almost immediately. State officials underestimated how long it would take to pick best practices for the various processes that were to be ported to Convergys, which delayed startup dates. Once in place, Convergys’ systems were buggy, resulting in longer call-waiting times, forgotten payroll deductions and employees erroneously being dropped from their health insurance plans. To add to the problem, every setback was debated by state legislators and chronicled by local media.


    Adding to delays, the state’s Department of Management Services, which administered the contract, changed top managers five times in three years, says Chris Emerick, operations vice president for Convergys’ HR division.


    The entire PeopleFirst system has now been operating for more than a year, and performance indicators like call times and hiring cycles have improved substantially, according to Emerick and state officials. They claim to be satisfied with the project’s progress, though some of Gov. Bush’s Democratic opponents are still dissatisfied, according to local news reports.


    The problems Florida encountered aren’t so different from the tribulations faced by other HR outsourcing pioneers, who sailed uncharted waters with vendors who were just as green as they were, according to industry analysts familiar with the state’s situation.


    Florida’s trials apparently haven’t scared away other government agencies from signing similar agreements. In fact, when Texas officials decided to outsource personnel services for 46,000 Health and Human Services Commission employees last year, they tapped Convergys for the work.


    Like their corporate counterparts, government agencies view outsourcing as a way to provide services more efficiently and economically, says Mark Stelzner, an executive vice president with EquaTerra Public Sector, which advises government agencies on outsourcing deals. Outsourcing also allows public agencies to add features like self-service Web portals for managers and employees without having to assume the financial risk of buying new technology, says Stelzner, who previously worked for Convergys on the Florida contract.


    Though state governments were some of the first to embrace HR outsourcing, local and federal entities are following suit, both in the U.S. and elsewhere. Public agencies that already outsource HR or have plans in the works include NASA, the Federal Office of Personnel Management, the Transportation Security Administration, the Detroit public school system and the Victoria state government in Australia.


    But some public entities have balked at giving government work to corporate partners. That was the case in Ohio, where officials studied the issue but opted not to pursue it after the Ohio Civil Service Employees Association protested, claiming a pro-outsourcing report written by an outside consultant was based on flawed data. The state was already in the middle of a major ERP upgrade, which will address some of the issues HR outsourcing would have, says Peter Wray, the union’s communications director. “It would have been a big step backwards,” he says.


    In May, the city of Copenhagen, Denmark, pulled the plug two years into a seven-year HR BPO contract with Accenture, claiming the company failed to administer payrolls for 55,000 city workers, according to a June news report in CFO Europe. Accenture blames the city’s former contractor for giving it bad data at the beginning of the contract, and the city for setting an unrealistic implementation deadline, according to the report.


    But for every public agency not interested in outsourcing, another one is. Emerick says Convergys is pursuing other public-sector deals, but he won’t elaborate. However, he predicts that two or three states will issue RFPs for outsourcing contracts in 2006.


    Interest “slowed down a bit around election time last year—some states put the brakes on,” he says. “Now we’re starting to see activity crank up again.”


Workforce Management, November 7, 2005, pp. 36-39 — Subscribe Now!

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Consolidation Continues; Smaller Clients Being Courted

As more companies embrace HR business process outsourcing, vendors are in a game of survival of the fittest, buying competitors, teaming up in joint ventures or dropping out of the business entirely.


    To distinguish themselves from challengers, vendors also are expanding internationally, offering one-stop outsourcing and reaching out to small and midmarket companies.


    The urge to merge has held steady for the past two years. The single biggest deal in the HR BPO vendor market remains Hewitt Associates’ $690 million acquisition of startup Exult, which became final in October 2004 and pushed Hewitt into the position of market leader.


    IT outsourcer Electronic Data Systems solidified its foothold in the HR market in January by forming ExcellerateHRO, a $600 million joint venture with HR consulting firm Towers Perrin. Two months later, Affiliated Computer Services, another IT outsourcer, strengthened its budding HR business by paying $445 million for Mellon Financial Corp.’s HR BPO unit, which that company had put on the block after failing to attract the clients it had expected. ADP, the established payroll outsourcer, acquired competitor ProBusiness in 2004 to kick off its own HR BPO offering.


    By most estimates, Hewitt remains the leader of the pack. Since acquiring Exult, Hewitt has signed deals with Pepsico, Marriott International, Wachovia Corp. and 11 other HR BPO customers, bringing its outsourcing client list to 30. In all, Hewitt’s HR outsourcing contracts cover a total of 800,000 employees. Hewitt is looking to further extend its international business, recently signing a joint venture in Japan to offer HR BPO services there.


    Convergys, however, is gaining ground. In November, it signed what might be the largest HR outsourcing deal to date: a 13-year contract with DuPont worth $1.1 billion. Convergys is providing customer care, human resources and billing services for DuPont’s 60,000 employees and 102,000 retirees worldwide. The two deals propelled Convergys from seventh place to second in terms of total contract value, according to Everest Group. Total contract value for deals since the end of the first quarter was $2.8 billion, with the DuPont deal alone worth $1.1 billion, notes Michel Janssen, managing research director at Everest Research Institute.


    Shortly after the deal was announced, rumors began circulating that IBM was in talks to take over Convergys. Neither company would comment, but Phil Fersht, global research vice president at NelsonHall, says that the DuPont deal could have prompted IBM to take a closer look at Convergys, given the size of the contract.


    Whether or not it acquires Convergys, IBM and another competitor, Accenture, are taking advantage of their global reach and product depth by offering to operate clients’ HR processes along with finance and accounting, IT, supply-chain management and billing in what’s known as multitower outsourcing. In July, IBM signed a 10-year, $1.6 billion deal to provide multitower outsourcing to NiSource, the gas and energy conglomerate. But not everyone is sold on the concept. Suppliers claim they can be more cohesive and economical if they run everything, but that removes a client’s ability to farm out individual processes to suppliers with best-of-breed applications, Janssen says. “To be frank, I’m not sure I buy it,” he says.


    Technology platforms are becoming a factor in vendor selection. Fidelity Human Resources Services Co., a division of Fidelity Investments, scored major coups in the past two years when it successfully signed second-generation HR BPO deals with Bank of America and BASF, two former Hewitt clients. But industry analysts wonder whether clients with legacy HR IT systems built around standard PeopleSoft or SAP operating systems will be interested in shifting to Fidelity, which built its own software architecture.


    As more small and midmarket companies broaden their HR outsourcing from payroll or benefits administration, vendors that traditionally served the small-business market are moving with them. In two years, ADP has signed 35 clients with an average of 11,000 employees. ADP tested the waters by offering HR outsourcing to larger accounts, but as of early October the company was targeting smaller clients with 50 to 1,000 employees. ADP could be a disruptive force, says Everest’s Janssen, who recently briefed 500 ADP salespeople on the market. “They’re coming out with price points and service levels for a market that’s been underserved. They have the potential to Wal-Mart this industry,” he says.


    While it’s too early to predict which suppliers ultimately will end up on top, it’s safe to say consolidation isn’t over. Says IDC HR outsourcing analyst Lisa Rowan: “We’re going to see more.”


Workforce Management, November 7, 2005, pp. 40-43 — Subscribe Now!

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Better Interviews With Job Candidates in China

As companies expand their presence in China, recruiters increasingly are called upon to first assess job candidates there, despite the barriers of time zones, language and culture. Those barriers can put both interviewer and candidate at a disadvantage.


    There are ways to conduct more effective telephone interviews with candidates in China, says Jack Daniels, founder and president of EastBridge Partners. EastBridge, which has offices in Boston, Hong Kong and Suzhou, analyzes global markets and sales opportunities for companies. It then manages the development process, including recruiting and hiring of management teams. Daniels was previously director of Asian operations for Rogers Corp., which manufactures advanced materials used in the computer, hand-held electronics, office automation and telecommunication industries. Here are Daniels’ guidelines:


  1. It is customary to call the candidates in their home or on their mobile phones. In advance of setting up the interview, Daniels suggests exchanging e-mail notes to confirm the date and time. Military or 24-hour time conventions are standard. For example, if you plan on placing the call at 6 p.m. from Denver, specify “18H00 Mountain Standard Time.”


  2. In the final confirming e-mail, list the names and titles of those who will participate in the interview.


  3. In advance of the call, assign a “captain” or interview leader to moderate the conversation. Three Western colleagues talking at once will confuse the candidate. It’s also useful to write a list of questions for the candidate and determine in advance which member of the team will ask each question. The moderator should announce himself or herself, explain his role and then ask the other members to introduce themselves one at a time. Target the length of the interview to approximately 30 minutes.


  4. Before launching into your list of interview questions it’s advisable to make some small talk with the candidate. Comments about the weather, a recent business trip or your child’s soccer game are all good icebreakers.


  5. Make an effort to speak slowly and clearly, minimizing the use of contractions and slang. Avoid asking questions in the negative form. Asking, “Don’t you like basketball?” will leave the candidate mystified. Instead, try “Do you like basketball?”


  6. Most Chinese professionals have had formal English education since sixth grade and have a good command of reading, writing and the spoken word. Speaking ability in a second language, however, falls off markedly when using the telephone. This is especially the case when speaking to strangers. As noted above, slowly warming up the interviewee with informal chitchat is a good idea.


  7. Unlike most Americans and Europeans, Chinese people are rather humble and will minimize their educational and professional accomplishments. You may feel that that you’re struggling to drag information out of them. If you are unsatisfied with their responses, try restating the question in a slightly different way. It is also acceptable to ask the candidate to elaborate on a key job, task or experience.


  8. Questions about job transitions are difficult in Chinese culture and are often met with incomplete or odd-sounding responses. Bear in mind that the true reasons for leaving a job in China are rarely discussed frankly. A good approach to learn more about work history is to ask detailed questions about job elements that the candidate found enjoyable or unrewarding.


  9. Chinese job candidates will do quite a bit of research on your company’s background in advance of the interview. Be prepared for some very detailed questions about technologies, competitors, company financial status, internal organization, customer base and, most important, growth goals for your operation in China. If the questions seem intrusive, please remember that they have fewer tools at their disposal to assess the culture and reputation of your company.


  10. It is best to sidestep discussion of the compensation and benefit package during this conversation. The subject is better addressed in a follow-up face-to-face interview.


  11. Finally, toward the end of the interview, Daniels recommends that you summarize the key points that were covered and recount the candidates’ answers to important questions. Ask if they feel the need to clarify any of their responses or add some important missed point. At the conclusion of the interview, thank the candidates for their time and indicate when and how you will let them know the next step.


    “Chinese candidates are generally well-prepared and will make a strong effort to be open, communicate clearly and pick up on your culture and background,” Daniels says. “If in return you are open, use careful and metered delivery and listen well, the interview will be productive.”

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Convergys’ Ground-breaking Government Pact A Progress Report

Florida’s contract to outsource HR services for more than 200,000 state employees was the first of its kind for a government agency and one of the largest HR outsourcing deals ever. In 2002, the state’s Department of Management Services tapped Convergys, a Cincinnati-based customer care, billing and HR outsourcing company, for the nine-year, $350 million contract. As with other pioneering HR outsourcing pacts, this one started out rocky and got worse before it got better, according to state and company officials and industry analysts. Three years into their collaboration, though, the partners profess to be happy with the results to date. A Management Services Department spokesman says the deal allowed the state to avoid $80 million in technology upgrades and should result in additional cost savings, though he wouldn’t specify how much. Chris Emerick is operations vice president for Convergys’ Employee Care division, which runs the Florida contract and the company’s other HR outsourcing deals. Here’s what he has to say about that deal and outsourcing in the public sector:


    Workforce Management: What was Florida’s HR service like before?


    Chris Emerick: They were limping along on a 25-year-old platform. There were no Web-based tools for employees or managers. Thirty-three agencies were doing work their own way. They asked us to deploy state-of-the-art technology, streamline HR processes, create consistency and ensure compliance with all federal and state regulations.


    WM: A lot’s been written about problems and delays you encountered. What happened?


    Emerick: Each agency had its own processes. You can’t just go in and say, “This is how we’re going to do performance management and here’s what we’ll offer for professional development.” You have to go through a process with those stakeholders to reach agreement. They hadn’t done that at all. When you’re operating on a tight time frame and need to build new technology and have to go through identifying best practices, that’s a very labor-intensive activity. Also, there was quite a bit of turnover at the agency we contracted with. In three years we’ve had three different department secretaries and two interim secretaries. That’s five leaders with five teams. Each comes in and likes to revisit decisions and look for opportunities to do things a little differently or improve on them.


    WM: What’s the status of the work today?


    Emerick: Core functions have been up and running for at least a year, and staffing and recruiting have been up for more than two years. There are some small pieces the state has opted to defer.


    WM: Can you give some examples of how have services improved?


    Emerick: With paper résumés, it would take 100 days to fill a vacant position. With automated technology, we can provide a hiring manager with a qualified candidate pool within three days of a job posting. Our cycle time is now 45 to 50 days. In August we hired 1,200 state employees, our largest month to date. In the employee benefits application, employees and retirees can model benefits options for themselves and their families at home online. Instead of rendering time sheets manually, they can do it online, on paper or call our service center. We track why employees contact us to get to the root causes so we can make continuous improvements. In other self-service features, managers can track attrition rates and which agencies are having problems. We can identify attributes we used for hiring that are and aren’t working, and which employees are having challenges and change their training accordingly.


    WM: What happened to state workers displaced by the outsourcing deal?


    Emerick: Upwards of 800 jobs were going to be lost. The state did an outstanding job of preparing those impacted workers. We held a series of job fairs. We hired some. State agencies worked closely with each other to support employees moving (to other agencies). They took care of almost 100 percent of their people. Only a handful lost their jobs.


    WM: Are you doing any of the work offshore?


    Emerick: No. That was one of the contract requirements. We committed to doing the work in the state of Florida, out of our office in Jacksonville and a facility in Tallahassee.


    WM: After Florida, Convergys won an HR outsourcing contract for the state of Texas’ Health and Human Services Commission. How do the deals compare?


    Emerick: It was a night-and-day situation. Texas had completed its transformation and reached an agreement on consistent processes across all those domains. We came in and built out the technology platform.


    WM: What have you learned from public-sector deals that you’ve applied to bids for other government or corporate jobs?


    Emerick: PeopleFirst was one of Gov. Jeb Bush’s key initiatives, but just because it was didn’t mean it was endorsed by all other elected officials. It took a lot of heavy lifting to convince folks there was a benefit to state employees and taxpayers, that this would ultimately be better for them. We did a lot more customization than the state set out to do, but it was necessary to get the system up and running. Also, Florida has a broad public records law. You’re doing everything out in the sunshine. You have to be cognizant of that.


    WM: Are you bidding on other government contracts?


    Emerick: We’re in various stages with some other pursuits. Things did slow down a bit around election time last year–some states put the brakes on. You need a sponsor high up in state government for these (initiatives) to be successful, typically in the governor’s office. Sometimes when there’s turnover these initiatives get stalled. We’re starting to see activity crank up again. I’d expect in 2006 we’d see two or three states go out with RFPs for initiatives similar to what Florida and Texas have done.

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The Cost and Benefit of “Poaching”

Direct recruiting from competitors, customers and vendors can produce a high-performance workforce. It can also break the bank. In recent discussions, however, a series of questions about the ethics of “poaching”–the misnomer often used in the recruiting industry–have overshadowed the more fundamental issues of costs and benefits.


    The ethics questions can be disposed of in the same terms that apply to most business practices, according to Charlie Jones, vice president of process and operations at Yoh, a technical and professional staffing firm that recruits heavily from competitors and companies in related industries. “If recruiting involves misrepresentation or deceit, it’s unethical,” he says. “It’s just that simple.”


    Yoh constantly recruits to maintain its own internal staff of 350 employees plus 5,500 contract employees on assignments with clients. The interesting fact about Yoh is not that it engages in direct recruiting without ruse phone calls or covert practices, but that it recruits passive midcareer candidates from competitor firms without moving beyond market wages.


    Direct recruiting is expensive. Yoh has minimized the pain by developing a package of noncash or intangible premiums focused on career development that pull in new employees without setting off bidding wars.


    Those bidding wars are by far the largest expense involved in direct recruiting, and when they force internal equity adjustments, the costs can be huge. In addition, direct recruiting almost always involves an investment of time that goes well beyond the more simple techniques of advertising jobs and sifting through résumés.


    But these higher costs may be offset by the benefits of bringing in talent with industry-specific skills and experience. And with product cycles growing shorter and the need for speed now dominating whole industries, direct recruiting may be the only viable approach for a growing number of employers.


Driving Up Labor Costs
    The largest potential pitfall in direct recruiting is that a company may drive up its overall labor costs by employing it. Companies commonly pay a premium of 10 percent to 20 percent to a candidate to come over from the competition, depending on the level of the position and the length of time that the employee has worked for the firm, according to Jamie Hale, national practice leader for workforce planning at Watson Wyatt Worldwide.


    “In addition to offers of higher base pay, you have to look at the total package, which includes signing bonuses and incentive compensation,” she cautions. “It varies widely by position and the specific situation of the candidate–for example, whether they had to leave stock options or a bonus on the table.”


    When the new employee with the higher base salary joins the existing workforce, internal equity issues may surface. Even when the salary is equal to salaries for existing employees, equity issues appear because the experienced employees expect a higher rate based on their tenure at the firm. “If these internal equity issues arise, then there is the substantial cost of making equity adjustments,” Hale says. “Equity issues can also cause morale and productivity problems, which are softer costs and hard to measure, but an important factor.”


    Direct recruiting is most common in industries such as health care, where labor markets are tight and jobs are roughly comparable across organizations, and IT, where specific skills are in high demand. These industries provide a stark example of the potentially damaging cost consequences of intensive direct recruiting from competitors.


    A study Watson Wyatt conducted for a health care client found that the difference between the 50th and 75th percentile in base pay is now very narrow, largely because of direct recruiting. “The difference was wider, but the health care organizations began to steal from each other and raised the bar to a level of pay that is so high that it cannot be raised much further,” Hale says.


    The difference between the 50th and 75th percentiles for some health care jobs is now only 7 percent to 9 percent, according to the Watson Wyatt study. In other industries, the difference is commonly 12 percent to 15 percent.


    “Essentially, a group of employees who were at the 50th percentile were recruited away to competitors, with their salaries pushed up to the 75th percentile in the process,” Hale reports, “but this has happened so much that the 75th percentile is now like the 50th percentile again, but at a higher level.” The resulting industry-wide wage inflation eventually damages all of the organizations and wipes out any initial gains made through direct recruiting.


    “Health care companies cannot pay huge premiums because they create major internal equity problems for jobs that track very closely from one organization to the next,” Hale says. “If a health care company brings in a new hire at a higher salary, it will have to make equity adjustments and that can run into millions of dollars.”


    Hale cites the example of Houston’s Texas Medical Center, which includes 42 health care organizations with 65,000 employees, all concentrated in one area. “A nurse can change jobs without changing where she parks,” Hale says. “Turnover rates are 20 percent to 25 percent, and huge costs appear when you enter into a vicious cycle and are constantly recruiting. To attract employees, you add $1 an hour, and it gets expensive.”


    The net gains from direct recruiting diminish if new employees are recruited back to their former employer or leave to collect another signing bonus and base increase at another competitor. Some signing bonuses stipulate that the bonus must be repaid if the employee leaves before a specified date, Hale says that this measure is often difficult to enforce.


    Although some companies assign direct recruiting tasks to in-house staff, Hale says that most companies prefer to use a search firm for recruiting from direct competitors and particularly for recruiting from customers or vendors. Using a search firm adds 20 percent to 30 percent to the cost of the hire. Higher recruiting costs, combined with signing bonuses and base pay premiums, push the cost of direct recruiting well past the cost of recruiting active candidates.


Noncash Premiums
    To avoid the upward spiral in costs that comes with direct recruiting from competitors, some companies have developed a package of noncash or intangible premiums focused on career development. Yoh has crafted an approach that relies on “partnering” with candidates to promote their long-term career development instead of routinely offering premium pay rates. “We don’t buy talent,” Jones says.


    For its own staff and for the contract employees it places with clients, Yoh needs skilled workers with industry-specific backgrounds. “Our clients expect expertise that can hit the ground running,” Jones says. Although it considers active candidates who fit its profile, 65 percent to 70 percent of Yoh’s hires are passive candidates.


    “We look for individuals with good jobs who will consider changing careers for the right opportunity that can advance them to the next level,” Jones reports. “They are willing to leave their current employer for the right reasons.”


    The incentive Yoh offers to pull these passive candidates into its orbit is the potential for career advancement and exposure to quality opportunities at top companies such as Dell, Intel and GlaxoSmithKline that are doing state-of-the-art technical work. “Our contract consultants collect a premium for that exposure as they move forward,” Jones says.


    “We do a lot of succession planning, forward positioning and career development for all of our employees,” he notes. The discussions include their goals for compensation, advancement, growth opportunities and exposure to particular projects.


    One of the huge advantages of recruiting candidates who are committed to career development is that they stay on the job. Among the contract consultants Yoh places for projects that typically run six months to a year, 98 percent complete the assignment. “This is because we have done the due diligence to ensure that this is the right individual in the right placement,” Jones reports.


    Yoh takes a long-term view of staffing. “If we find a solid consultant who is employed on a project that will end in a year, we do all of our due diligence and quality checks on that consultant to build our database of professionals,” Jones says. “Instead of beginning with the job requirements and searching for a consultant who meets them, we find the best consultants and look for the right opportunities for them. This provides a choice of qualified consultants in a timely manner.”


    This long-term, candidate-centric approach not only holds down costs but also reduces bad hires and boomerang employees who are quickly recruited back by their former employer. The career development approach produces employees with a long-term perspective and closer ties to the organization, Jones says.


    Watson Wyatt research has found that the optimal approach to staffing creates a balance of internal promotions and external hires. “The key point is to anticipate when you will need workers so that you can begin to build the pipeline and promote people from within,” Hale says. “If you don’t take a proactive stance, you become desperate and have to raise pay to get the people you need. If you plan properly, you won’t need to poach.”


    Occasionally, a company may need a specific employee from a competitor to step up its own work, but real workforce planning minimizes the need for direct recruiting and the costs involved, Hale says. The best results at the lowest cost come from the right balance of direct recruiting of passive candidates, hiring active candidates when conditions permit, and internal development and advancement.

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Workforce Management Nov. 7, 2005

Retooling pay
 By Jessica Marquez
As Delphi goes into bankruptcy, some old-guard employers use performance-based pay plans to attract and retain skilled workers.

 
Sector Report: Outsourcing
 By Michelle V. Rafter
Companies of all stripes, from global conglomerates to small players, are farming out their personnel processes, fueling bullish forecasts for HR outsourcers.

The Last Word
Wal-Mart’s not to blame
Controversial memo highlights valid concerns about benefit costs.
   In the Mail
Rating HR
Readers comment on HR performance, the myth of flexible workplaces and more.

Wal-Mart’s leaky benefits memo
The HR memo over-shadows announcement of an affordable health plan. PBGC premiums are likely to rise. Merger frenzy in e-learning. Top background checking providers. Inflation’s big bite.  And more
  
 

Employment law
Poaching protection
A rise in the pilfering of rival talent has prompted employers to take a closer look at noncompete contracts.		  

Online recruiting
 The big boards’ evolution
The “Big Three” job boards have recently announced changes that hint at new directions in their businesses, and in the recruiting field overall.
  

Benefits
 Lots of choices, lackluster signups
A MetLife study finds that while employees say they want more benefit choices, some don’t elect to use them.
  

 

October 24,  2005

October 10,  2005

September  2005
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Dear Workforce How Could We Create an Online Human Resources Survey That Generates Useful Feedback

Dear Listening:



Core business leaders–those who generate revenue for the company–are great sources of feedback. Getting their ideas is a great first step for human resources to improve and demonstrate its value. Some suggestions:

1) Keep the survey simple and make it easy to obtain the information you seek. Using a brief–and I mean brief–online survey can be very helpful.

2) Don’t rely on survey data alone. Schedule some appointments with business leaders and groups of key employees from those units. Use the meetings to validate survey data and probe deeper into core business needs and the performance of human resources.

3) Ask questions relating to business results, rather than human resources activities. For instance:

  • What are the top three business issues human resources has helped you solve the past quarter/year?
  • What impact did these solutions have on your unit’s profitability, quality, cycle time or ability to respond to customers?
  • How else could human resources help you deliver business results?
  • What things did human resources do well for you? What do you need more/less of?
  • How is your success measured and how did human resources have an impact?

5) If you ask questions relating to processes, connect them to business results. Sample questions may include:

  • What impact did the hiring process have on your productivity and costs?
  • How well did the company’s training help your department solve the business challenges you have? Can you quantify the return on investment of the training?

4) Don’t justify the past or try to make offers in the meeting. Graciously accept the feedback and use it to shape future strategic offers to business units.

5) Let the business unit leaders know what you learn—and act on what you learn. Collecting data but failing to act on it makes the process a waste of time, and makes it doubly difficult to obtain useful feedback in the future.

This is a challenging exercise the first time around. But if you act on what you learn, you will become a force for business success and will be highly valued by operating units.

SOURCE: Kevin Herring, president, Ascent Management Consulting, Tucson, Arizona, Sept. 17, 2004.

LEARN MORE:Studies in Market-Valued Human Resources. Also:An HR Audit.

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

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Behind the Wal-Mart Memo

Only in America can a company be vilified for having the temerity to suggest that it would be a good thing if it hired healthy workers.


    But that’s what happens if the company in question is Wal-Mart, and when the point about healthier employees is just one suggestion in a larger discussion about how the company can cut rising employee benefit costs.


    It’s easy to beat up on Wal-Mart because it is big and successful, and has gotten that way in large part because of its hard-nosed business practices. As philosopher and basketball legend Wilt Chamberlain once observed, “Nobody roots for Goliath.”


    Yes, sometimes it is hard to root for a giant like Wal-Mart, the biggest retailer on the planet, with $285 billion in annual revenue. One thing about having big revenue, however, is that operating costs are equally big. For example, Wal-Mart recently said that its operating costs in the second quarter rose 0.3 percent. That doesn’t sound like much until you realize that for Wal-Mart, a 0.3 percent increase translates into $230 million in additional operating costs.


    Hiring healthier workers is just one suggestion being offered by Susan Chambers, Wal-Mart’s executive vice president for risk management and benefits administration, in her well- publicized memo to the company’s board of directors on how to hold down the growing cost of employee benefits.


    If you haven’t read the entire memo, you should. The document (in two slightly different versions) is available online at WalMartWatch.com and on The New York Times’ Web site, as well as on Wal-Mart’s own site. It is a fascinating look into how even a company as large and successful as Wal-Mart struggles to control benefit costs.


    This is starting to sound like a broken record. Companies everywhere, from Delphi to Delta Airlines, are filing for bankruptcy, discarding pensions and paring benefits in a desperate attempt to try to keep costs down and remain more competitive.


    Some might pooh-pooh this notion as it applies to Wal-Mart, but if you manage a workforce and are concerned about the cost of benefits, it is sobering to read Chambers’ memo. At one point she says:


    “From 2002 to 2005, (Wal-Mart’s) benefit costs grew significantly faster than sales, rising from 1.5 percent of sales to 1.9 percent. Benefits spending grew from $2.8 billion to $4.2 billion during this period, at a rate of 15 percent per year. … A few benefits made up the bulk of this increase: health care ($1.5 billion) grew by 19 percent, paid time off ($1.4 billion) grew by 14 percent, and profit-sharing and the 401(k) program ($740 million) grew by 13 percent.”


    And she adds: “Growth in benefits costs is unacceptable (15 percent per year). … Unabated, benefit costs could consume an incremental 12 percent of our profits in 2011,”equal to $39 billion to $35 billion in market capitalization.


    Wal-Mart’s efforts capture the struggle that all of Corporate America is having in trying to control fast-growing health and benefit costs. And the most frightening statistic in Chambers’ memo is this: Only 48 percent of all Wal-Mart employees are covered by the company health plan. That compares with 68 percent of employees who are covered by a health plan at similar national employers. If Wal-Mart even approached that percentage of health care coverage for its workforce, the huge costs highlighted in the Wal-Mart memo would be astronomical.


    “These are indications of the gaps in the health care system that are exposed by Wal-Mart,” Len Nichols, a health economist at the New America Foundation, told The New York Times. “You can’t blame Wal-Mart.”


    Nichols may be right. Wal-Mart is simply an indicator of a larger problem. Our health care system is at a crossroads, and it is hard to see how Corporate America can continue to foot so much of the bill.


Workforce Management, November 7, 2005, p. 58 — Subscribe Now!