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Workforce Management June 2005

The turnover myth
By Fay Hansen
Minimizing churn has long been an article of faith for many workforce executives, but others actively manage turnover for maximum financial return. They drive it up when it is too low, push it down when it is too high, and understand its true costs and benefits.

The gospel according to Blanchard
By Todd Henneman
Ken Blanchard’s One Minute Manager launched a $44 million leadership-training empire, with family and faith firmly in charge. Far from being defensive about nepotism, the company embraces it as a competitive advantage.

Adventures in outsourcing
By Michelle V. Rafter
BP’s trailblazing 1999 pact with Exult has had its successes, but it also serves as an object lesson in how not to carry out an HR outsourcing deal—and illustrates how much the landscape has changed.

State of the Sector: HRMS
By Douglas P. Shuit
Partnerships, hybrid programs and the increasing acceptance of outsourcing are transforming human resource management systems.

Between the Lines
Pension Peril
It’s clear from the United Airlines action that no private pension is really safe.
   Reactions From Readers
Bullies’ toxic effect
“It was interesting to see people who had once worked together so well begin to treat each other badly, including myself at times.”

In This Corner
Core values, devalued
Imagine a workforce that’s wholly committed to a set of values that constrains their behavior, but leaves executives free to do as they please.

Legal Briefings
ERISA provisions protect HR director. Fired pregnant employee awarded damages.

A drag on United’s future
Even if its employees don’t strike, morale and compensation problems confront the airline. Also: Hope for other legacy carriers. A bill would allow airlines to spread funding of their pension plans over 25 years instead of the current four. When Wellpoint met Lumenos. Jumping ship for HROs. Sodexho’s settlement. FMLA reform might be coming. Avaya uses Suze Orman to get employees fired up about their 401(k)s.
Battle of the unionization bills.
  
 

Training
Walking the beat in Afghanistan
Working under threat of death and with scant resources, DynCorp International trainers take pride in helping rebuild the nation’s law enforcement agencies.		  

Recruiting
Who’s hot? Accountants
Experienced people with a high level of expertise “are being barraged by calls from agencies on a daily basis,” an HR director says
  

Legal Issues
Piercing questions
A member of the Church of Body Modification insists that her spiritual beliefs trump Costco’s dress code, triggering a lengthy legal battle.
  

Retirement  Benefits
It looks like a 401(k), but it acts like a pension
BM strives for the security of defined-benefit programs as it shifts focus to 401(k)s. Managed accounts, automated features and annuities are aimed at ensuring that employees have enough to last after retirement.
  

Contingent staffing
Companies embrace the “try before you buy” approach
Contingent staffing firms are becoming recruitment outsourcers for a number of companies, which also are demanding fee-free conversions for temps they hire.
  

 
May  2005

April  2005
March  2004
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The Lowdown on HSAs

Health savings accounts are fast becoming a popular employee benefit. While not for every employer or employee, more companies are giving serious consideration to offering them as an option in their comprehensive medical packages, and that means more employees are going to be asking about them.



    The Bush administration is a big advocate of health savings accounts. (President Bush recently announced that he has one himself.)


    The rules for establishing health savings accounts are complex, and the devil is in the details


Who can have them
    Health savings accounts are federal tax-advantaged, portable U.S. trust accounts that are created in connection with high-deductible health plans for the payment of an employee’s current and future medical expenses. Employers looking for ways to reduce costs for group health coverage are considering offering such a combination as an extra or alternate type of coverage.


    The accounts can be funded by contributions from the employer, the employee or both. Eligible employees may establish an account with or without employer involvement, and amounts invested are owned by the employee, and therefore not subject to “use it or lose it” rules. Employer contributions are not considered wages for tax purposes, nor are they taxable to an employee.


    Most people who set up a health savings account already have health insurance. Generally, any individual who is covered by a high-deductible plan is eligible to participate. The individual cannot, however, be covered by any other health plan that’s not a high-deductible health plan (such as a spouse’s plan). This does not include permitted coverage, such as other plans that provide health coverage for accident, disability, dental, vision or long-term care, or permitted insurance for workers’ comp, automobile or disease insurance.


    An individual cannot be covered by a prescription drug plan that is not a high-deductible health plan.


How to spot a high-deductible plan
    A high-deductible plan is defined as any health plan with an annual deductible of at least $1,000 for an individual or $2,000 for a family. Participants can’t obtain payment or reimbursement until the deductible is satisfied.


    Preventive care services may be covered on a no-deductible or low-deductible basis. Preventive care services include periodic health examinations, such as annual physicals; routine prenatal and well-child care; child and adult immunizations; tobacco cessation programs; and obesity and weight-loss programs. They also include a multitude of screening services for diseases and other physical and mental health conditions, as well as the treatment of related conditions during such screenings.


    Depending on their use, some prescription drugs also might be considered preventive. Drugs to treat weight loss and tobacco cessation and to lower cholesterol are considered permissible, while drugs to treat existing illnesses are not. The rules are trickier when it comes to drugs that both prevent and treat illnesses. ACE inhibitors, for example, are considered preventive when used to treat an individual with a history of heart attacks who has fully recovered, but they are considered treatment when used as medicine for those with congestive heart failure.


    As of 2005, a high-deductible health plan can’t have an out-of-pocket expense limit that exceeds $5,100 for individuals or $10,200 for families. It can have lower out-of-pocket expense caps, but participants can’t be required to pay for expenses in excess of out-of-pocket caps.


    The out-of-pocket expense cap is calculated by adding together co-pays, deductibles and other amounts, but not premiums. This does not include amounts in excess of the “usual, customary and reasonable” out-of-pocket limits for non-network services, or reasonable lifetime limits.


Know your limits
    The maximum yearly contribution that can be made to a health savings account is whichever is lower: either 100 percent of the annual deductible under the high-deductible health plan or a fixed, indexed amount. For 2005, this amount is $2,650 for individuals and $5,250 for families.


    The health savings account contribution limit must be computed on a monthly basis, and account contributions by employees can be made on a pretax basis through a cafeteria plan. Employees can change their contribution rate throughout the year; in other words, cafeteria plan rules that restrict changes to certain family status events such as a marriage don’t apply. Contributions to a health savings account can start, stop, increase or decrease as necessary.


    Something else to take into account: catch-up contributions. Individuals who reach age 55 by the end of the tax year can make catch-up contributions over and above the limits. The catch-up limit for 2005 is $600. This will increase by $100 annually until it reaches $1,000 in 2009.


    No contributions are permissible for individuals entitled to Medicare benefits.


    Employers can make contributions to employees’ health savings accounts, but are not required to do so. As part of the nondiscrimination rules, employers must make comparable contributions for all employees in the same coverage category, such as hourly employees only.


Don’t spend it all in one place
    Health savings accounts can be used to pay for qualified medical expenses as defined by the law for the participant and the participant’s spouse and dependents. If participants are being reimbursed through their health savings accounts, they cannot also be paid by their insurance company. In other words, no double dipping for the same expense.


    Individuals 65 or older can also be reimbursed for their premiums for Medicare Part A, Medicare Part B and Medicare HMO.


    As a general rule, medical expenses can only be reimbursed through health savings accounts if the expense was incurred after the account was established.


Federal income tax advantages
    Employer contributions to a health savings account are not taxable to an employee, and employer contributions are not wages for employment tax purposes.


    When an employee contributes to a health savings account but not through an employer-sponsored cafeteria plan, contributions are deductible to the individual in determining gross income. They are also deductible whether or not the individual itemizes other deductions, sometimes known as “above the line.”


    Earnings on amounts held in a health savings account are not taxable, and distributions made for qualified medical expenses are excludible from gross income. Medicare-eligible individuals are also permitted to receive distributions for qualified medical expenses tax-free even though they are no longer able to contribute to a health savings account.


    Distributions that are not for qualified medical expenses are subject to current income taxation and a 10 percent penalty tax. There is no 10 percent penalty if this distribution is made after death or disability or after the individual becomes entitled to Medicare. Distributions because of mistakes of fact–if repaid by April 15 of the next year–will avoid income and penalty taxes.


The ERISA safe harbor
    Health savings account are exempt from the requirements (mainly reporting and disclosure requirements) of the Employee Retirement Income Security Act of 1974, as amended, if they meet a “safe harbor” established by the Department of Labor. The safe harbor provides that an employer cannot:


  • Require an employee to set up a health savings account

  • Limit rollovers


  • Impose conditions on use of funds


  • Make or influence investment decisions


  • Say the account is an employee welfare plan


  • Receive money in connection with a health savings account


    Health savings accounts and high-deductible health plans will not fit the bill for every company or employee, but they do have their benefits and will most likely become more common as options in most health plans. The wise move is to stay well-informed.


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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Pension Peril

Want to demoralize and marginalize a large and once-vibrant workforce? Here’s the recipe:



  • Take a major player in a mature industry;


  • Saddle it with a high-cost structure built up over many years of matching what the other guys did;


  • Mix in several generations of bad managers making shortsighted decisions;


  • Deregulate;


  • Engage in a never-ending price war with lower-cost competitors;


  • Systematically penalize your best customers with red tape, high prices and dumb rules;


  • Demand that employees take pay cuts in exchange for profit-sharing and better pension benefits;


  • Bake for 15 years, then file for Chapter 11 bankruptcy protection and get a court to let you dump the pension obligations on the federal government.


    Sound familiar? It should, because it happened at United Airlines, where last month the company got court approval to unload $6.6 billion of pension obligations for 120,000 current employees and retirees on the Pension Benefit Guaranty Corp. (translation: the federal government) and, ultimately, American taxpayers.


    The United story got me thinking about my wife’s friend who is a United Airlines ticket agent in Honolulu. Back in the mid-1990s, when I lived in Hawaii, I remember commiserating with her about the latest round of salary reductions United employees were then taking to save the airline. “I don’t like it,” I recall her saying, “but the tradeoff is that I am getting profit-sharing and a better pension. I may be losing money now, but I’ll get it back when I retire.”


    Her plan sounded good, but not anymore. Now that the airline has pushed its pension obligation off on the PBGC, current and future United retirees will get no more than $45,600 a year in retirement. One former United pilot told The Christian Science Monitor that his six-figure pension will probably drop by about 75 percent.


    If you didn’t know it before, the United pension dump should make it clear: The future of the private pension is bleak. In 1980, nearly 40 percent of American workers in the private sector participated in a retirement plan. Today, that number is down to 20 percent, and more than 75 percent of those plans are seriously underfunded. Secretary of Labor Elaine Chao estimates underfunding at some $450 billion–a huge chunk that could eventually get dumped on the PBGC.


    There may be a silver lining in all of this, however. Over the same 25-year period, the share of workers participating in personal retirement accounts, such as 401(k)s, has risen from 7 percent to 28 percent. And in one of those sign-of-the-times moments, at the same instant that United was dumping its pension plan, Hawaiian Airlines was signing a new deal with its pilots union that converts its traditional pension to a defined-contribution plan for pilots under age 50.


    Two things jump out at me from all this:


  • Like it or not, workers need to take personal responsibility for their own retirement and not count on their employer to do it.


  • Companies need to do a lot better job helping workers adjust to life in a 401(k) world. Whether that means automatic enrollment, more education or a stronger focus on diversification, management needs to do more to help workers focus on building assets for retirement.


    It’s clear from the United action that no private pension is really safe. No matter how big or secure a company may seem, companies get bought, merged, changed and sometimes just go away. As one columnist said in The Wall Street Journal, “Whether or not you have a pension plan at work, consider United a wake-up call. Assume you alone are responsible for your retirement.”

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IBM Strives for the Security of Defined-Benefit Programs as It Shifts Focus to 401(k)s

Just months after it settled a closely watched class-action lawsuit over its cash-balance plan, IBM has brushed itself off and is moving on. Some may have thought the company would hunker down after agreeing to a $320 million partial settlement with employees who claimed that its cash-balance plan discriminated against older workers. But instead, IBM has been busy adding a suite of options to its 401(k) plan–now the only retirement savings vehicle available to new employees–to offer employees the same type of paternalistic help found in defined-benefit plans.



    “In some respects, we are redeveloping the defined-benefit plan and making it better,” says Jim Rich, chief investment strategist at IBM Retirement Funds.


    As more companies move away from defined-benefit plans to 401(k)s, many are finding themselves in a new dilemma. While they are happy to have rid themselves of the costs and liability issues associated with defined-benefit plans, they want their new 401(k) plans to offer the same kind of security. From adding automatic enrollment to features that help employees secure income after they retire, many employers today are struggling with how to guarantee that their employees have enough to retire without being responsible for putting up the money themselves.


    Already this year IBM has added automatic enrollment, automatic rebalancing, disability insurance and an annuity income option that allows retirees to receive guaranteed payments over the course of their lives. The company has increased the match to new employees–it’s now 6 percent rather than 3 percent. IBM is also considering offering two more features: automatic step-ups, which would increase employees’ contributions periodically, and a managed account feature, in which the company would contract a financial adviser to manage the assets of an employee for an additional fee.


    An increasing number of 401(k) plan providers have added managed account options to their plans in the past several months because they recognize that employees often need help with investing their retirement savings. IBM, however, is thinking about doing it a bit differently. The firm is discussing offering managed accounts as the default option in its plan, which would mean that employees’ contributions would automatically be swept into a managed account unless they opt out.


    IBM and other employers that have moved from defined-benefit to defined-contribution programs are turning to automatic features to help employees have enough assets to retire. Features like managed accounts offer the hand-holding that employers liked about traditional defined-benefit plans without the liability and cost issues associated with them, consultants say.


    IBM has an 89 percent participation rate in its 401(k) program, but the company has loftier goals than having a high 401(k) participation. Since its employees tend to retire at age 60, IBM wants to make sure that they can keep doing so, Rich says.


    “When I go to the doctor and something is bothering me, I don’t expect him to hand me a manual,” he says, adding that he does not think it is fair to assume that employees are investment-savvy, even if they do participate heavily in the 401(k) program. “This is a very complicated thing.”


    IBM does offer a financial asset allocation tool online as part of a partnership with Financial Engines, but these services only tell investors what kind of funds they should choose. They do not recommend specific funds. “If employees ask which U.S. stock fund they should invest in, we can’t tell them,” Rich says.



Fee concerns
    Employers largely have been hesitant to offer managed accounts as the default. They recognize the value of offering financial advice to plan participants, but sweeping them into a program in which they would have to pay an added fee–which usually ranges from 15 to 30 basis points on top of the fund expenses–could lead to backlash from employees and raises liability concerns.


    “We are exploring this option with outside counsel,” says Brock Johnson, vice president at Morningstar Associates, which teams up with fund companies to offer a managed account program to 401(k) plan sponsors. Johnson says that all of Morningstar’s fund-provider partners are examining the issues of offering managed accounts as a default, but none of their clients are doing it yet.


“IBM is in a great position to do this because their fees are so conservative. It’s all going to be in the communication.”
–Silvia Frank, manager of defined-contribution plan at Trinity Health


    “I certainly think it’s going to be something that will be used,” he says. While 21 percent of 401(k) plans offered managed accounts in 2003, up from 12 percent the previous year, it is “very rare” for an employer to offer this as a default, according to David Wray, president of the Profit Sharing/401(k) Council of America, a national, nonprofit association of 1,200 companies.


    IBM, however, may have found a solution to the fee issue, Rich says. IBM is considering offering tiered pricing for managed accounts. Under the concept, employees would be automatically enrolled into a managed account program using a couple of IBM’s four “life strategy funds,” which are funds that invest in collective trusts. The funds have expense ratios ranging from 11 to 16 basis points, and the added fee to the employee would be just 10 basis points. As with its current automatic enrollment program, employees would be able to opt out.


    Once employees gain more assets and get more comfortable with the program, they could opt for a more complete managed account, which would offer financial advice and management based on all of their assets, for around 30 basis points, Rich says. Before making a decision on offering managed accounts, IBM wants to make sure the cost is worth the advice. “Fees are one thing, but we also need to look at how good the advice is, and that requires a lot of due diligence,” Rich says.


    IBM is in a good position for a test run because its own funds have such low fees, says Silvia Frank, manager of the defined-contribution plan at Trinity Health, a health care provider based in Novi, Michigan. The average fee for retail lifestyle funds can range from 25 basis points for index funds to 85 basis points for actively managed funds, according to Hewitt Associates.


    “IBM is in a great position to do this because their fees are so conservative,” Frank says, noting that these low fees are “not typical.” She says that the challenge IBM may face if it goes through with offering tiered pricing is getting employees to understand it. “It’s all going to be in the communication,” she says.



Making the money last
    While offering managed accounts may help employees accumulate enough assets for retirement, IBM’s new annuity feature is designed to help plan participants have enough income after they retire. “The big risk we all face when we retire is, what if we live too long?” Rich says.


    Under IBM’s new program, which was designed by Hueler Cos. of Eden Prairie, Minnesota, employees can go to a Web site, input their age and marital status and within a day receive a list of price quotes for fixed annuities. Rich says that having insurers bid for the business of an employee solves one of the main problems with offering annuities: the costs. Also, since these annuities are institutionally priced, they end up costing “tens of thousands of dollars” less over the duration of the contract, he says. The costs of an annuity are taken out of the employee’s payments and thus vary on a case-by-case basis. Hueler takes a 1 percent fee.


    Along with the quotes, employees can view the credit ratings of the insurers and contacts for more information. Employees can opt for step-ups of 2 percent to 5 percent to make sure their income payments stay ahead of inflation. The feature also allows employees to pay extra to establish guarantees in the case of death.


    For example, if the employee opts for a “five-year certain,” it would mean that the family would receive income for the next five years after the employee’s death. IBM is offering guarantees for five-, 10- , 15- and 20-year periods. After choosing the annuity they want, employees then roll over their retirement assets into an IRA account, which is invested in an annuity so that IBM has no fiduciary liability over those assets, according to Rich. “It becomes the decision of the employee,” he says, noting that IBM offers credit ratings to assist with that decision.


    The fiduciary liabilities involved with offering annuities are a major reason that 401(k) plan providers have backed away from these options, Wray says. IBM, by offering the annuity option outside of its plan, solves this issue and takes out the cost concern, he notes.


    While employers are discussing how to make sure their employees have enough to retire, ensuring that they have enough to last the rest of their lives is just an emerging concern, notes Martha Tejera, consultant and principal at Mercer Human Resource Consulting. “I think IBM is out in the front, and I would like to see other companies doing this as a distribution option,” Tejera says.


Workforce Management, June 2005, pp. 79-80 —Subscribe Now!

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States Hit Public Employees With Smoking Surcharge

As private– and public-sector employers increasingly target smoking as a key contributor to rising health care costs, some states are telling their workers to kick the habit or pay the price.



    Beginning July 1, Georgia will impose a surcharge of $40 per month–or $480 a year–on the insurance premiums of state workers, public school teachers and other school personnel if they or covered family members use tobacco.


    “As a self-funded plan, we collectively bear the burden of everyone’s health status,” says a spokeswoman for the Georgia Department of Community Health in Atlanta.


    Last fall, the state’s health plan, with the help of outside consultant Deloitte Development, projected a $446.1 million shortfall for the insurance fund in the 2006 fiscal year because of mounting health care costs. Georgia’s plan covers nearly 646,000 members and dependents.


    Among the proposals presented to lawmakers to address the deficit was the employee tobacco-use surcharge, which won approval with expectations of generating about $16 million a year.


Smoker screening
    Under Georgia’s program, state workers during open enrollment will be asked, “Have you or any of your dependents used tobacco products in the previous 12 months?” Tobacco products include cigarettes, cigars and pipes as well as “smokeless” products, such as chewing tobacco.


    Individuals who report tobacco use will incur a flat surcharge of $40 a month during the upcoming plan year, regardless of frequency of use in the prior year. Separate surcharges will not be applied for each covered member, even if multiple dependents are tobacco users.


   The policy relies on the honor system, and there are no mechanisms in place for tobacco testing. Employees found to be concealing tobacco use risk losing medical coverage for one year.


    Georgia employees, who were notified of the new fees through open-enrollment materials sent in April, have had a mixed response, according to the community health department spokeswoman.


    The spokeswoman says the surcharge aims to “encourage healthy behavior and lifestyles” as well as to reduce the funding shortfall.


    The state does not currently provide tobacco-related wellness programs, such as smoking cessation benefits or counseling. “At this point we do not,” she says, but “it’s being discussed.”


    Alabama also plans to impose a tobacco-use charge. Starting Oct. 1, a supplemental fee of $20 per month–or $240 a year–will be applied to state workers’ health insurance if they or a spouse use tobacco, said a spokeswoman for the Alabama State Employees’ Insurance Board in Montgomery. Child dependents are exempt.


    The increases will apply to all of the self-insured plan’s 100,000 active employees, retirees and dependents and waived when the individual signs a tobacco-free certification form. The insurance board is relying on a self-reporting system, with no plans for tobacco testing, but has been “amazed” by the number of workers who have admitted to tobacco use, the spokeswoman says.


    Unlike Georgia, Alabama is offering a smoking cessation program. “That is part of what we had to develop with the premium changes and the penalties,” the spokeswoman says. “You have to give people a chance.”


Sticks and carrots
    While consultants say employers are legitimately concerned about the size of their tobacco-using worker population, as smokers’ overall medical costs generally are higher on average than nonsmokers’, most also agree that a “stick” approach to the problem is fair and effective only when “carrots,” such as smoking cessation counseling and products, are also available.


    In a December survey of 270 benefits and human resources managers conducted by the Society for Human Resource Management, 5 percent said they charge smokers higher premiums. In addition, 32 percent of surveyed companies said they offer smoking cessation programs.


    “It’s unusual for an employer to establish a penalty and not provide assistance for avoiding the penalty,” notes Bruce Kelley, a senior consultant for Watson Wyatt Worldwide in Minneapolis.



    Last year alone, smokers cost the United States $157.7 billion in health-related economic costs, according to the U.S. Surgeon General’s Office.


    “Health plans are picking up most of that cost, and I think that’s why the employer thinks it’s OK to intervene,” Kelley says.



    Medical plan contribution differentials for smokers and nonsmokers are becoming increasingly common, consultants say, and are already embraced by companies such as Minneapolis-based General Mills Inc. and Milwaukee-based Northwestern Mutual.


    In addition, the health care plans of states such as Kentucky, South Dakota and West Virginia have or plan to introduce different health insurance rate structures for smokers and nonsmokers.


    “Employers are getting more creative with plan design, with ways to reward healthy behaviors, and to create shared responsibility for poor health decisions,” says Camille Haltom, national practice leader for managed health consulting at Lincolnshire, Illinois-based Hewitt Associates.


    “I think the programs that are voluntary may work the best,” says Tom Lerche, senior VP with Aon Consulting in Chicago. “Financial incentives or disincentives by themselves, we’re not optimistic that they’ll necessarily change behavior.”


    Kelley says he favors positive incentives, such as a discount for completing a smoking cessation program. “Just penalizing smokers financially is probably not going to convince many people to quit,” he says. “I think that what they need is support and programs that help them to change behavior.”


Employers butt in
    From breathalyzers and urine tests to monthly cash penalties, employers are using an array of tactics on tobacco users to curb group health insurance costs.


Public sector:


  • Georgia state employees, public school teachers will pay an extra $40 per month for coverage starting July 1, if they or their dependents admit to using tobacco products in the previous year.


  • A $20 monthly surcharge will be applied to Alabama state workers starting October 1 if covered employees or spouses report themselves as tobacco users.


  • South Dakota since 1997 has had different health premium structures for smoking and nonsmoking state employees; smokers currently pay $30 extra per month.


  • Montgomery County in Pennsylvania is attempting to change its application process to prevent the hiring of smokers. If approved, the new law will take effect January 1.


  • State employees and retirees in West Virginia are required to sign a “Tobacco Affidavit” certifying that they are tobacco-free in order to obtain discounts on health and life insurance premiums.


Private sector:


  • Warrenville, Illinois-based trucking firm Navistar International in July is raising health care premium contributions by $50 a month for employees who smoke.


  • Starting January 1, workers at Milwaukee-based Northwestern Mutual Life Insurance will be subject to a $25 fee on monthly health care premiums if the employee or his/her dependents are smokers.


  • Weyco Inc, an Okemos, Michigan-based health benefits administrator, earlier this year stopped employing smokers, vowing to fire workers who continue smoking in violation of the policy.


  • Omaha, Nebraska-based Union Pacific last fall stopped hiring smokers in several states, including Texas and Arkansas.


  • Alaska Airlines for almost a decade has required applicants to pass a urine test for tobacco in order to be considered for employment.


From the May 23, 2005, issue of Business Insurance. Written by Rupal Parekh

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5 Questions for Deborah Soon

Deborah Soon
Vice president of executive leadership initiatives at Catalyst


Last month Catalyst, which works with businesses to develop opportunities for women, teamed up with the Hispanic Association on Corporate Responsibility and the Executive Leadership Council to launch the Alliance for Board Diversity. The goal of the organization is to help companies identify minority and female candidates for their boards. Only 16.7 percent of board seats at Fortune 100 companies are held by women, and only 14.9 percent of board seats are held by minorities. Soon talked to Workforce Management staff writer Jessica Marquez.



Workforce Management: Why are women and minorities so underrepresented on boards?



Deborah Soon: I think the issue has been with the process used to find candidates. It was a matter of who do you know in your personal network and who are you comfortable with. The people that the board members were comfortable with were those that had shared experiences, and those tended to be white men. But if you want to combat groupthinking, you have to go outside the group.



WM: Have you seen this issue in your own career?



Soon: When I was CEO of Larscom (a telecommunications company Verilink bought in 2004) I faced this as I was putting the board together. It’s difficult finding people because they aren’t always visible. You can’t necessarily find them in Securities and Exchange Commission filings because they only list the top five executives at the companies. These are men and women that are in multimillion-dollar business units and have a lot to offer, but are not always visible.



WM: What should companies do to find these candidates?



Soon: If they decide to work with a search firm, they have to be very clear about what skills and experience they want. The Alliance for Board Diversity is acting as a resource for search firms and for companies at no charge to help find candidates. CEOs also can nominate their own people, which helps overcome the anxiety that boards often have about taking people with no board experience. The issue with that, however, is that CEOs often don’t want to stretch their best people too far. Human resources executives can help by making this part of the succession planning process. They could help identify which executives are ready for the board.



WM: Do you think companies are putting in the effort to diversify their boards?



Soon: We certainly see it. Look at professional search firms. They used to do a very small piece of board searches; now it has boomed leaps and bounds. We are getting more requests than before.



WM: Are you seeing progress?



Soon: There are 10 companies on the Fortune 100 that have minorities in 50 percent or more of their board seats. That’s good news.


Workforce Management, June 2005, p. 18 — Subscribe Now!

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Orman Is Head of the Class in Avaya Program

How many people does it take to get 400 employees to attend a 401(k) educational session? According to Avaya, the answer is one. And that person is Suze Orman.



    On a tour that started April 1, the personal finance celebrity visited seven of Avaya’s offices as part of the company’s first 401(k) day. She was met with huge crowds–the turnout was so big at its Basking Ridge, New Jersey headquarters that the company had to move the event from the auditorium to the cafeteria. “We had to hire lighting and production people to make it work,” says Bruce Lasko, senior manager of global compensation and benefits.


    What was particularly effective about Orman was that unlike the typical 401(k) meetings the company had held, the focus was not just on 401(k) savings and diversification. Instead, Orman tied those ideas into credit card debt and other financial issues that people deal with every day.


    “One of the problems about retirement planning is that it can be boring and complex,” Lasko says. Orman, who has television specials, books and a waitress-to-wealth biography to her credit, was anything but that. Avaya employees who weren’t on the tour stops could view the speech through a webcast.


    Avaya also worked with John Wiley & Sons to publish a customized book, 401(k) for Dummies, which it distributed to employees. Lasko declined to say how much Avaya spent on the initiative.


    The Orman tour was Avaya’s attempt to solve the problem that many 401(k) plan sponsors face: how to get employees to focus on their retirement. For a year, the company had offered free online advice to help employees figure out how they should invest their 401(k)s. Despite providing training on the program, only 15 percent of employees had used it.


    Many companies have responded to employees’ seeming lack of interest in their 401(k)s by adding automatic enrollment. The problem with that, Lasko says, is that it does not prompt employees to think about and understand the issues involved with saving for retirement. “We want employees to take the first step,” he says.


    When it comes to how to choose investments, however, Lasko recognizes that employees need more hand-holding. The company provides automatic step-ups and rebalancing features, and Lasko is considering offering a managed-account program, which would enable employees to have their investments managed for them for a fee.


    Ted Benna, who designed the first 401(k) plan 25 years ago, says that Avaya’s approach highlights an issue that many companies miss. Too often, he says, employers just offer automatic enrollment without education. But sweeping employees into a plan at a 3 percent contribution rate does not mean they will have enough to retire, he says. “Also, it’s been proven that if employees are distracted by financial problems, it messes them up big time in terms of performance,” he says. That’s where Orman’s message about overall financial health comes into play.


    Whether Avaya’s approach will be successful in the long term remains to be seen. In April alone, however, the company saw 311 employees sign up for the 401(k) plan and 1,169 employees increased the percentage of their deferrals.


    Nevertheless, Alicia Munnell, director of the Center for Retirement Research at Boston College, thinks that not offering automatic enrollment is a mistake, no matter what kind of education an employer provides.


    “I think we should make 401(k) investing as easy as possible,” she says. “If this works for them, that’s great. But I don’t think it’s the most effective thing for everyone.”


Workforce Management, June 2005, p. 26 — Subscribe Now!

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Tracking the Cost-benefit of Using Contingent Employees

Cell phone company T-Mobile has undertaken an ambitious program to measure the effectiveness of several hundred new contingent workers as it struggles with the issue of determining the ROI of a flexible workforce.



    Since January, T-Mobile has been measuring the efficiency of the 600 to 700 technical temps it brought in to manage the wireless network in California and Nevada it acquired from Cingular. Using a variety of standard metrics including time-to-repair and help calls, the company will compare the contingent workers to comparable full-time workers.


    “It’s a question of a return on the investment,” says Jim Sullivan, area director of engineering and operations for Northern California for T-Mobile. Data for the first three months of the year was discarded because so many of the hires were new to the area that drive time to repair field equipment skewed some of the metrics.


    That preliminary data showed the use of contingents was more expensive, Sullivan says, “primarily because they were still learning their way around the area and there were some cultural or communication issues. Q2 is when we’ll really be focusing on this.”


    Companies regularly want to know how cost-effective it is to hire temporary workers compared to adding full-timers. Bringing in contingent staff may be the only alterative when a company gets an unexpected order or is faced with a sudden big project, as T-Mobile did last fall when it acquired a new wireless network. Then it becomes a matter of procurement–hiring staffing contractors to bring in the workers as fast as possible. But sooner or later, someone asks the inevitable question: “What’s the ROI?”


    “That’s a question clients want to answer,” says Michael Cruz, managing director of Taleo Contingent. “But not too many are really equipped to know.” Taleo sells software to procure, manage and track a contingent workforce. Its customers are Fortune 500 companies that employ thousands of temporary staff, yet even they find it a challenge to know what the return on their investment is for their contingent workers.


    For T-Mobile, the staffing procurement became an opportunity to see what the company could learn about workforce ROI.


    How useful will the results be? Sullivan called it a “good snapshot” and “another tool,” but at the end of the day, T-Mobile turned to staffing contractors because it couldn’t have filled the jobs fast enough itself. “We had to get people in here.”


Measuring contingent ROI
    How would staffing companies measure the return on investment of using contingent employees? Here are some possible metrics:


  • Cost of having a position left open, such as paying overtime to other employees.


  • Hiring expense that would have been associated with hiring a permanent employee.


  • Economic impact of a layoff of permanent staff to a company’s reputation and brand. (With contingent staff, the contract is simply terminated.)


  • Savings in case of termination (including severance, COBRA and accrued vacation that doesn’t have to be paid to a contingent).


  • Avoidance of some legal and human resources issues.


  • Lost-opportunity costs (in case of product nondelivery or not being able to accept an order).


  • The savings that comes with using contingent employees because fewer middle managers are often required.


  • The value for a company of getting to “try out” an employee without taking the risk of a permanent hire right off the bat.


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Acquisition of Lumenos Could Bolster Sector

The purchase of consumer-driven health care pioneer Lumenos by health care giant WellPoint means the last big independent name in the consumer-driven field is off the market. The $185 million deal follows the purchase of another trailblazing company, Definity Health, by UnitedHealth Group in November.

It remains to be seen whether folding Lumenos into WellPoint will blunt the smaller company’s reputation for innovation and market leadership in advancing health insurance products and cost-cutting strategies. But both companies say the strategic marriage will make the partners stronger.


Lumenos will continue to operate from its headquarters in Alexandria, Virginia, and keep its executive staff intact.


“Overall, we are really thrilled with this,” says Doug Kronenberg, Lumenos’ chief strategy officer. “We will be able to continue to do the things we have been doing.”


Kronenberg says he sees advantages for both companies. “It brings together a combination of consumer-driven expertise and brand awareness in the marketplace on Lumenos’ part, coupled with the distribution and resources of WellPoint,” Kronenberg says. “That will move the whole consumer-driven movement forward at a pretty significant pace.”


Once Definity was picked up by UnitedHealth there was widespread speculation that Lumenos would be bought by another major player in the field. Aetna, Cigna and Humana are all marketing consumer-driven health plans. WellPoint, created last year through a merger between Anthem and WellPoint Health Networks, was developing its own consumer-driven plans for its Blue Cross and Blue Shield products. Picking up Lumenos brings it up to speed in a hurry.


“It finally gets the Blues plans seriously into the consumer-driven market,” says Alexander Domaszewicz, a consultant with Mercer Human Resource Consulting. “Lumenos has a passion for changing the health care system, and its customers appreciate its rapid pace of innovation.”


Domaszewicz says Lumenos’ consumer-driven plan is much more user-friendly than the one developed by WellPoint. He wonders whether that spirit will remain or get lost behind the corporate walls of WellPoint.


“Indications are that WellPoint is not going to let that happen,” Domaszewicz says. “But what about three years from now?”


Definity and Lumenos are credited with leading the consumer-driven movement by showing the larger health insurers that a Web-based system that offers high deductibles and freedom of choice to consumers can work. Lumenos developed health reimbursement and health savings accounts to go along with information and services that give plan members incentives and freedom in choosing health products.


“Without Lumenos and Definity, health savings accounts never would have happened,” Domaszewicz says. “They drove HSAs to widespread acceptance.”


Lumenos, founded in 1999, serves 214,000 consumers, a pittance compared to WellPoint’s 28.5 million plan members. Its $45 million in revenue represents less than 1 percent of WellPoint’s annual revenue and is not expected to have an impact on WellPoint’s earnings.


Like other health insurers, WellPoint is experiencing a growing demand for consumer-driven products.


“This acquisition allows us to quickly build upon and enhance our consumer-driven health programs with an overall strengthened portfolio of products,” WellPoint spokesman Jim Kappel says.


—Douglas P. Shuit

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A Survey of the U.S. Government’s Workforce

Full-time permanent employees of 29 major U.S. agencies and 44 small, independent agencies participated in a large survey of the U.S. government’s workforce.



The results provide a glimpse into how government employees feel about recruiting, development, retention, leadership, performance management, job satisfaction and benefits.