The state of
For every dollar that employers offer to employees in the form of down payments and closing costs, the employer gets 50 cents, according to the Chicago Tribune. “That’s a bottom-line investment, one that people understand,” says Kelly King Dibble, executive director of the Illinois Housing Development Authority. “It’s a way for companies to retain employees.”
Mark Lusson, vice president of human resources at
A smorgasbord of programs corporations have implemented to help low-wage employees “more than pay for themselves,” according to a new report from
The programs range from training programs offered to former welfare recipients by CVS; flexible scheduling at Kodak, Wachovia and Kraft; emergency loans at FleetBoston and Levi Strauss; child-care reimbursements at Bank of America; English courses at Marriott, and more.
Each company had to overcome significant obstacles in implementing its program. At FleetBoston, there were issues related to employee privacy. Home Depot had to roll out its program in the middle of a recession. Kodak had to convince managers that there was a need for flexible work arrangements.
Many of the programs were put in place at little cost, and have yielded benefits in terms of lower turnover, increased productivity, reduced absenteeism and more skilled employees. Wachovia Corporation reports that it’s easier to fill entry-level positions since they began offering flexible work options. Bank of America says that employees who used their child-care program are twice as likely to stick around as those that don’t use the program.
H
ere are what John Sullivan (in his new book) lists as some of the actions workforce management professionals can take that are “a little bold.”
Integrate your managers through metrics — Managers often work independently and fail to share best practices among each other. By offering each individual manager on the management team an incentive, based on the overall performance of the management team, you can encourage managers to cooperate. By tying managerial performance together with a common bond, you can encourage top managers to help improve the performance of the below-average managers.
By asking employees to rate the quality of their own management and then rewarding managers with high scores, you can also encourage managers to play closer attention to their people management practices.
Bad management-identification program — One of the primary reasons that employees quit their jobs is the bad management practices of their direct supervisor. Develop a program that can identify “bad managers,” and then develop strategies for fixing these managers, transferring them back to more technical jobs, or releasing them.
Measure and reward managers for good people management — Managers who practice good people management have the most productive employees. Unfortunately, most firms have no measurement system for assessing individual managers on how they manage their people. Human resources should send a clear message to individual managers that managing people is important by developing a system for rewarding managers for great people management.
Off-cycle actions — Going “against the grain” might seem unwise on the surface, but in some cases, it can lead to being the first or the only competitor in the field. For example, if the economy is down and no one is recruiting on college campuses, you might find that if you actively recruit, you might get some “superstar hires” that you would have had little or no chance of getting when everyone else was going full speed in college recruiting. Yes, this means creating open positions when the company is not doing well, but it might also mean that you will be able to “explode” out of the box better than your competitors can when the economy improves.
There are other off-cycle actions; for example, intensifying retention programs even though your turnover rate is currently very low. Most employees expect special treatment when they know there is a high demand for their talent. This off-cycle approach is so effective because, when you pay attention and recognize employees when it’s not needed, employees tend to appreciate it more. In addition, when the job market improves, they might just remember how well you treated them when you did not have to.
HUMAN RESOURCES ADMINISTRATION
Reward results in human resources — Human resources managers must be recognized and rewarded for their results in maintaining a competitive advantage over the organization’s competitors. Human resources lags woefully behind in the use of incentives for its people and programs, however. Combining metrics with significant bonuses for performance can have a dramatic impact on human resources productivity.
In particular, rewards should be offered to all if human resources meets its overall goals. Incentives are also effective for recruiters, generalists (if their business unit achieved its goals), and those in leadership development. It does not take much; as little as a five percent bonus will improve performance by significantly more than five percent. A note of caution, though; bonuses must be tied to numerical results, not subjective terms like “merit” or leadership.
Reward cooperation — Human resources is known for having functional silos; this runs counter to the goal of developing a competitive advantage. In order to ensure that human resources functions work together, human resources needs to develop a common metric and reward that crosses all critical human resources functions. This way, human resources professionals are given incentives to work together.
Prioritize programs — It’s not important to be great in every area, just in critical ones. That means that human resources must identify which programs and processes are critical to the firm’s success and focus on maintaining a competitive advantage in those areas.
Shifting resources — In addition to prioritizing programs, human resources leadership must ensure that human resources budget and time allocations continually shift from low priority human resources programs to high priority ones.
Employment brand — One of the areas that is critical if you are to build a competitive advantage is the organization’s “brand” as a good place to work. Because most human resources departments spend little time and effort on building a brand, this is an area where it is relatively easy to provide a competitive advantage.
Managers are your “delivery system” — It’s important to remember that supervisors or line managers “deliver” a great deal of a firm’s people management services like policy interpretations, performance assessment, and motivation. Although human resources does deliver some information directly to employees, most of that is filtered or redefined by line managers. As a result, it is important for human resources to realize that the primary delivery system for people-management services is the manager.
Human resources must accordingly design its programs based on the strengths and the weaknesses of the delivery system the manager. It is not enough to develop a human resources program; it must be pre tested utilizing managers in order to see if what you intended actually will filter through to the employees.
Human resources advisory group — Like most other functions, human resources tends to be isolated from outside criticism. To counter that insularity, human resources should put together an advisory group to provide critical input and ideas, and to act as “beta testers.” The group should include line managers, individuals who hate bureaucracy, individuals from finance, and some other diverse thinkers. Ask this group to be critical of everything you propose and offer suggestions in order to make your programs easier to implement and more strategic.
Competitive intelligence — A significant side benefit of doing a competitive analysis between firms is that you frequently gain competitive intelligence information about the operation of their people-management programs. This information can be used to improve existing programs so that you can leapfrog over your competitors. Cooperate with the competitive intelligence staff within your own business units and piggyback on their processes and sources.
Experimentation — Constantly try new things in every area of human resources on the assumption that you can’t beat them if you don’t act differently. Rapidly drop the ones that don’t work. Run pilot and test programs to see if great “ideas” really become great “programs.”
On demand — Human resources has a bad habit of offering “flavor of the month” programs to managers. Flooding managers with programs that they don’t want can be a tactical error that can result in a lot of wasted resources on “unwanted” programs. A wiser approach is to first identify manager needs and provide information to managers about programs and services that you could provide. But only offer new human resources programs after managers request or “demand” them. Proof that managers really want a human resources program is typically if they are willing to fund it.
Develop a “most wanted” list — A “most wanted” list is an element of a recruiting strategy that espouses asking your key managers which individuals working at competitors that are “to die for.” By identifying the specific individuals you want to hire, by name, at the beginning of the hiring process, you take a good deal of the “chance” out of the recruiting process.
Pre-identifying targets allows you to focus a significant portion of your recruiting time and resources on convincing a relatively small number of “highly desirable” individuals to come to work with your firm. And the net result is that you can, first, really “wow” your managers and, second, you can increase the effectiveness of your firm dramatically by bringing in these “high-impact” individuals.
Hire to hurt — Identify key individuals at your competitors who, if they were hired away, would significantly hurt your competitor. Look at competitors as you would a sports team with no backups in crucial positions. Be sure and exclude people who are easily replaceable in the marketplace or who have a strong “second” who can step in easily. Ask your current employees who formerly worked for your competitors to help you identify these key individuals.
Benchmark to recruit — Call the top firms (or piggyback on others at your firm who are actively benchmarking) to benchmark their best practices. Use that benchmarking process to identify and build relationships with potential recruiting targets.
First day of hire, ask, “who else is good?” — When you hire someone from a competing firm, it is essential that you use that opportunity to gather the names of employees from their former firm who you might want to recruit. Ask the new hire who else at the firm is really good or will soon be good, as well as who is undesirable. Ask new hires (and reward them) if they will help you in recruiting top talent from their former employers.
Pre-need hiring — Hire people in key positions before there is an urgent need. If you wait until someone leaves a key job, that means that there inevitably will be a delay before the new hire is up to speed. This can dramatically slow your time to market. Hire people before they are needed so they can ramp up their skills and be ready when you need them. Calculate the learning curve and the time-to-fill periods, and use that to determine when to “pre-need” hire.
On-site professional seminars — People who continually learn and improve are the type of talent you want to recruit. These are the same kind of people who regularly attend seminars. By holding professional seminars on your site, you can physically draw them to your premises while simultaneously improving your organization’s “brand.”
When they arrive you can excite them with your facility, get them to meet your people, and show them your cool projects and tools all under the guise of helping them learn to perform their current job better. Bring in outside experts as speakers in order to draw them in. Invite potential hires to speak along with your own top employees. Demonstrate to attendees that your firm and its employees are on the leading edge of knowledge.
Invited open house — An “invite a friend to work” program has a simple premise. Any organization needs to get candidates “in the door” in order to have a real chance of closing the sale. Car dealers and realtors have used this strategy for decades. A “bring a friend to work program” gets potential candidates to come to your facility and talk to your team. It targets employed but “passive” job seekers who wouldn’t apply for a job but might come to an event to see what it’s like where “my friend” works.
“Bring a friend to work” is a high-touch variation of the traditional employee referral program. It differs from traditional “open house” programs (that are open to the public) in that individual employees invite people they know on a professional basis and who have the competencies the organization needs. If the “friend” is hired, the employee gets the standard referral bonus.
RETENTION AND EMPLOYEE RELATIONS
Who is at risk of leaving? — Instead of guessing who is going to leave the organization, it is better to take a proactive approach in identifying who is at risk of leaving. Possible strategies include searching the Web for your own employees’ resumes; placing a blind ad to see if your own employees apply; or asking other workers to identify who is “looking.” Also consider hiring an executive search professional to tell you who is a prime candidate for other firms, who is looking, and who is safe. By getting real data and outside opinions, you increase the odds of identifying the correct individuals who truly are at risk.
Challenge plans or learning plans — One of the top reasons employees leave a job is that they are not challenged in their current job. By giving each employee an individual challenge plan, employees can continue to grow and learn. A challenge plan would include new projects, tasks and presentations in front of management. Managers and employees both could choose from a list of “tried and true” challenges if they are unsure of what might challenge them.
Pre-exit interviews — Instead of waiting until someone quits, it pays to be proactive and ask key employees why they stay By identifying what keeps them in the job and at your organization, you can reinforce the positives and eliminate what frustrates them the most. Interviews should be held every six months for employees who are at risk.
Re-recruit — Superstar employees often leave because they are courted and praised by outside recruiters. Managers must remember to do the same periodically in order to reduce turnover. Why wait until recruiters call and “sweet talk” your top talent? Every six months treat your employees as potential recruits and “re-do the deal” to re-energize and excite them.
Blocking tools — In this aggressive world, managers must anticipate large scale raiding by competitors. Managers must develop “blocking tools” in order to protect the organization’s talent resources. These tools include anticipating competitors’ actions through competitive intelligence, developing a blocking team, re-recruiting top talent, offering “stay-on” bonuses, and doing a competitive analysis of the raider. Other blocking strategies might include tools to make it difficult for competitors to identify your top talent, to know your pay ranges, and to find your weaknesses.
Attention plans — Many employees desire recognition and attention. One-way to systematically ensure that key employees get exposure is to develop an individual “attention plan” for each of them. Ask the employee what kinds of exposure he or she wants, and plot out a plan to insure it happens. Attention areas might include committee assignments, presentations, write ups, chances to be a team leader, meetings with the CEO, and meetings with members of the board of directors.
Post exit interviews — Many people fail to give the real reason for leaving a job because they fear potential retaliation by their manager in the form of a bad reference. If, however, you postpone the interview until three to six months after the termination, the chances of getting a candid reason for leaving increase dramatically. Use an independent market research firm to identify why employees have left, what the salary differential is at their present job, and even if they’re interested in returning.
Change the players — Even when sports teams win championships, the next year they frequently change more than 10 percent of their team. Teams change their players in order to stay fresh or to adapt to the changing competition or environment. Unfortunately, such high turnover rates are quite unusual in business. If you are trying to be strategic, a low turnover rate could be a big mistake, especially if you have poor hiring practices, weak training, or ineffective incentive and motivation programs. My advice to managers is that “if you continually lose the game, change the players.”
Drop the “deadwood” — Improve people productivity by dropping the deadwood. Instead of giving everyone a second and third chance, run the metrics to see if investing in poor performers has a higher return than getting rid of the poor performers as soon as it becomes obvious they aren’t performing. Instead of crying “we might get sued,” quantify the real risks of lawsuits. Develop “no-fault divorce” approaches to termination in order to encourage managers to drop bottom performers quickly.
Bench strength (back-fill) plan — In a time of high turnover, it’s increasingly essential to have a strategy for identifying and developing individuals who can take over if an employee leaves. A “bench strength” plan differs from traditional succession planning in that it only covers replacing key jobs within a single department. It is not a company-wide succession plan. Individual managers are held responsible (and are rewarded) for developing at least one individual to fill every key job.
Redeployment — Quite often businesses reduce their productivity not because they have the wrong people but because they have good people in the wrong job. This is especially true in businesses that are undergoing continuous rapid change. Initially placing an “innovator” in a business unit, for example, might have been a wise move when the business was in its early growth stages. Once the business has transitioned into a commodity business, however, it makes more sense to move the “innovator” out and into another business where “innovative ideas” can be put to better use this can have more of an impact as well.
Rather than waiting for the employee alone to figure out where his or her own best internal job placement should be, a better approach is for human resources and managers together to proactively identify and move talent from areas of relatively low return to jobs with a higher return. This process is known as proactive intra placement or redeployment.
Targeted succession plans — Targeted succession plans are narrowly focused strategies for ensuring that individuals are available to fill vacant key positions. They also tell key employees in advance that they have a future at the organization. Targeted areas often include major software implementation efforts and product development teams. Most succession plans fail because they are too broad and cover too long a period of time. Targeted plans allow the focus and forecasting to be more narrowly applied with the goal of increasing the accuracy of the planning.
Corporate headcount “fat” assessment plan — Rather than learning at the last minute that the organization needs to do a layoff, establish a set of assessment tools that will let you know in advance where headcount may be excessive. Monitor ratios, such as output per employee, employees to managers, overall department headcount to productivity, and overall labor costs per unit of output, to identify possible “fat” areas.
What should I pay? — Salary surveys can be out of date by the time they are published. If they are, you run the risk of “under offering” top candidates. In order to improve the accuracy of your offers, it is critical to capture the “other” offers that each of your new hires and applicants have in order to confirm what the competitive offers really were. You should also ask your current recruiters and outside executive search professionals what the real market rate is.
Pay for performance — Increase productivity by changing the way you pay people. Shift from the “money distribution department” to a function that provides incentives to productivity and the behaviors that increase it. Place a significant emphasis on, and allocate resources to, non monetary rewards and recognition. Identify and educate managers on which kinds of pay, recognition, and incentives have the most impact on productivity per dollar spent.
Measure and reward increasing productivity. Increase the percentage of every worker’s pay that is “at risk” based on his or her output, because there is evidence for most jobs that, as you increase the percentage of an employee’s pay that is at risk, performance increases.
“More of/less of” motivation list — A simple way of identifying what employees want more of in their jobs (and what they want less of) is to ask each employee what job and environmental factors they wish to have increased and decreased. Done quarterly, this process gives managers a chance to understand what employees want. Surveying employees and new hires about what motivates them helps managers better understand how to keep them excited. Topics should include what frustrates you? What challenges you? What are your learning goals?
You do not have the right to remain silent — This is a tool that explains the shared responsibility that an employee has in his or her own management and motivation. You must educate each employee (begin on the first day) that employees have a shared responsibility to help their managers and the organization understand what motivates and frustrates them. Employees are also asked about their aspirations and the key aspects of their “dream” job. Two way communication needs to be established at the very start so employees understand they have an important role in educating their manager about what excites and challenges them.
Develop an employee “balance” sheet — In addition to assessing the economic impact of programs, some managers find it helpful also to provide employees with an assessment of their individual economic impact. One way to do that is to give each of your key employees an employee balance sheet at the end of each year. This sheet compares the economic value of the employee’s output with the cost of salary, benefits and training. This format encourages workers to be more aware of their economic impact to the company.
Employee learning plan — One of the main reasons that people either accept or quit a job is their rate of learning. Top professionals demand the opportunity to learn continuously. By asking each top performer about their learning goals and how they learn best, managers can develop individualized learning plans to ensure that the employee learns at a speed necessary to excite and stimulate them.
Parallel benchmarking — Benchmark the best practices in related or parallel industries that traditionally implement advanced programs faster than your industry does. Learn from the advanced programs and processes of other disciplines, industries or geographic regions. For example, I once developed an incredibly fast “speed of hire” process for a Fortune 100 company based solely on information gathered from “fast lube” and fast food chains. I studied the existing processes throughout human resources, but they were all slow, so there was really little to learn.
Part of any strategic approach is being aware of the best practices that exist outside your discipline. In particular, disciplines of finance, marketing, PR, and decision sciences are frequently ahead of human resources in metrics and program development.
Where top performers learn — In a fast changing world it is essential that everyone is continually learning. Unfortunately, in a fast paced world there’s often little time for traditional learning. One way to speed up the learning process is to provide employees with “presorted sources.”
By asking top performers directly which resources they use to learn quickly (e.g., what sources have top performers utilized and found effective), human resources can relatively easily identify which sources are effective and which sources have little value. Then provide this “best practice” learning list to managers and employees so that they can begin learning the same way that the company’s top performers do.
Virtual learning networks — A learning network is a group of individuals that exchanges information and ideas in real time. By sharing reading and learning, members can learn faster and from each other. Normally, a learning network consists of four to 10 individuals with a passion for learning. Information can be exchanged through e-mail, fax, telephone, in person, or by a combination of approaches. Information that might be exchanged includes best practices, problems, articles and more.
There are three basic types of learning networks: e-mail, fax and telephone. In the first two types, a problem, article or proposal is sent to the group for comment. Ideas and criticisms are given and the results are summarized and sent to all (or to all who participated). Telephone groups use conference calls and hold roundtable discussions.
COMMON “STRATEGIC ERRORS” OF HUMAN RESOURCES DEPARTMENTS
Now that you’ve seen a list of provocative and innovative strategic human resources ideas, it’s time to consider the opposite. After conducting an audit of human resources department operations, it is common to find the following errors or omissions:
Reprinted with permission from “Rethinking Strategic HR,” by Dr. John Sullivan, © 2004, CCH Incorporated. All Rights Reserved.
C
ompanies have used a variety of strategies to better manage mounting health-care costs. At Fall River, the small family-owned company ultimately increased co-payments after a strong communication effort. Highsmith, a mail-order distribution company, saw premiums increase 53 percent, and gave employees financial incentives if they participated in a health screening. The baby boomers at Nexen became more active consumers. Union Pacific contained its health-care costs using a combination of health-screening and anti-smoking programs.
Summary: Fall River Group, a privately held midsize company that makes brass castings, shifted to self-insurance several years ago. It continued to face mounting health-care costs at a time when remaining competitive was essential. In order to retain talent in a low-profile industry, the company set up a consultative process with a core group of employees called the Shop Committee. By timely and accurate communication of the financial constraints, it was able to persuade employees to increase their co-pay for deductibles and prescriptions.
The Challenge: How does a company confronted with rising health-care costs and an inability to absorb the additional expense retain its employees while increasing their health-care premiums? The Fall River Group, a privately held, family-run manufacturer of brass castings with 205 employees, chose employee communication and input to address these issues.
Increases in health-insurance costs had already prompted management at the Fall River Group to switch to self-insurance, to save money, several years ago. However, rates had begun to rise again and now stood at $5,600 per employee, a 14 percent increase over the previous year. To attract and retain the talent it needs to remain competitive, Fall River has historically maintained generous benefits for its workers. Despite this history, management knew it would have to share more of the insurance costs with its employees, like so many other companies in the area. According to CFO Kevin Lamp, the company’s practice of open and two-way communication made the changes easier for employees to understand and accept.
The Solution: For the last 20 years, Fall River has maintained employee communication and input through the Shop Committee — a group representing manufacturing employees that addresses everything from workplace safety to personnel matters. Each of the seven different manufacturing departments elects one representative to the Shop Committee for one- or two-year terms. It was through this committee that management began the process of health-care-benefit education. Changes to benefit plans were conveyed to the Shop Committee, who in turn shared the information with their various departments. The Committee always has the option of requesting additional information prior to dissemination or, if the facts are clear, supporting a change as presented by management.
The facts presented to recommend shifting some of the cost of health-care benefits to employees clearly supported management’s proposal. According to Lamp, once the cost-trend data had been clearly presented, it was obvious to most that something had to be done. Ultimately, Fall River decided to increase the co-pay for non-generic prescriptions to $25 from $15 and to increase the payroll deduction by 30 percent for single coverage and by 24 percent for single-parent and family coverage.
Key Success Factors
Advance Planning. Management usually begins the benefits-review process four to six months prior to its June renewal deadline. While the company is self-insured, its broker and third-party administrator provide the timely service needed to begin this advance preparation. Without this coordination, it would be difficult to exchange information between the Shop Committee and management within the time constraints of a renewal process.
Shared Financial and Company Information. Employees at Fall River are well informed about the financial performance of their company and understand the fundamental economics of their company’s profitability. This financial insight provides perspective.
Motivation to Maintain the Quality of Benefits. Fall River has a need to attract and retain top talent to work in the foundry. Since this environment is not necessarily viewed as the most glamorous place to work by prospective employees, Fall River has a history of offering high-quality benefits to its employees. Management was reluctant to erode this quality.
Good Vendor Relationships. Before becoming self-insured, Fall River had difficulty obtaining meaningful and timely data on past claims, historical utilization and the costs of health-care services consumed by its employees. Obtaining such quality information is critical to educating the Shop Committee and its employees on what drives increases in health-insurance premiums. Fall River’s broker has been critical to defining and obtaining this information from the third-party administrator.
While well-planned information sharing and employee communication take time, Lamp and other executives at Fall River would have it no other way. As Lamp puts it, “You can’t just throw employees a booklet and say, ‘Here’s the deal.’ You’re hurting the whole program by not educating them.”
SOURCE: Reprinted by permission from Research Report: What Works Now: Employer Strategies and Tactics for Controlling Health Care Costs. Copyright IOMA.
The Challenge: In 1990, Highsmith’s health-insurance premiums increased 53 percent as a result of the previous year’s claims, which included two premature births and a case of spinal meningitis. In a company where the average employee tenure was 12 years, management knew that it had to be creative in finding a solution to this problem. Highsmith, founded in 1956 by Hugh Highsmith, is the leading mail-order distributor serving schools and libraries. Highsmith employs 215 workers and is based in Fort Atkinson, Wisconsin. Being in the paper-thin-margin world of the distribution business meant that shopping for a lower-cost provider was essential. However, executives suspected that something more fundamental was required.
The Solution: Bill Herman, vice president of human resources, concluded that since high premiums come from high claims, and since sick and unhealthy workers cause high claims, the solution was to reduce the number of sick and unhealthy workers. An employee committee was formed with the goal of designing a health-promotion program focused on risk-based incentives. To illustrate their commitment to the committee, employees had to sign a written agreement obligating them to two years of service.
The initial plan offered financial incentives to workers who reduced specific risk factors, such as weight, high blood pressure, cholesterol, etc., according to certain milestones. The strictly volunteer program permitted employees to have 80 percent of their premiums covered if they showed progress on risk factors, compared to the company-wide plan, which covered 60 percent of health-insurance premiums. Prior to a change in HIPAA regulations, the risk-rating system was based on tracking actual health-test and screening data from individual employees. In response to the regulations, the program was adapted by basing incentives on participation in various health and wellness activities such as requiring all employees to participate in an annual 90-minute health screening; mammograms for women between the ages of 40 and 50; complete physical exams for both sexes over 50 and a prostate screening for the men; and pre- and post-natal care for pregnant women. The financial incentive could result in a $1,000 savings for an individual worker whose benefits were covered 80 percent versus the standard 60 percent.
The impact on Highsmith’s bottom line was astounding. In 2002, its premium increased 2.9 percent, compared with 12.4 percent for companies with 200 to 999 workers. In 2003, its premium increased 3.1 percent, compared with another 12.4 percent gain among employers in its class size, saving Highsmith roughly $90,000 in additional premiums.
Key Success Factors
Adaptability. When HIPAA regulations changed, the program was adapted rather than abandoned. Additionally, the changes occurred incrementally, over a period of time, as Herman and the committee learned by doing. For example, to provide exercise options despite the absence of an on-site facility, they offered regular exercise programs in a cleared-out lunchroom.
Cultural Shift. Herman also noted that the changes were part of designing a unique employee-centric culture that integrated wellness with a more comprehensive approach to employee development. It was also critical that this strategy was strongly supported by CEO Duncan Highsmith (son of the company’s founder).
Motivation to Maintain Its “Rich” Plan. In 2002, total cost per employee came to $5,840. Rather than cut the plan, Highsmith worked to offset the cost of what it wanted — for example, Wisconsin’s workers’ compensation insurance cost increases or decreases based on experience. As a result of its performance, Highsmith saves 15 percent on its workers’ compensation insurance. Additionally, the company has been eligible for an average of 16 percent rebates, based on experience, for the past 10 years. In 2003, the savings were $18,500.
Low-Cost Options. It has taken over 10 years for Highsmith to develop the program currently in effect. In the early years several tactics were used to foster and encourage change. Herman suggests changing meeting refreshments to fresh fruit and juice from donuts and cookies; offering water wherever coffee is available; and establishing what they call the “Twinkie Tax” by increasing the cost of traditional high-fat snacks and using the profits to reduce the price of alternative healthy snacks. Last, Herman suggests using speakers’ bureaus that can provide experts on nutrition and exercise.
Highsmith’s innovative culture and business practices have been profiled by Inc. magazine, NBC Nightly News and the Wellness Councils of America, among others.
SOURCE: Reprinted by permission from Research Report: What Works Now: Employer Strategies and Tactics for Controlling Health Care Costs. Copyright IOMA.
The Challenge: Dan Conroy, having been in human resources for 16 years, five of those as director, had been coping with double-digit health-care increases during a large part of his tenure. He had already tried changing the plan design by adjusting the co-pay and increasing premiums and deductibles to maintain the current level of coverage for the very close-knit staff. However, as the increases continued, an alternative solution had to be adopted.
With its headquarters in Vadnais Heights, Minnesota, and its manufacturing facility in Webster, Wisconsin, Nexen Group is a leading manufacturer of brakes, clutches, torque limiters, overload-protection devices and control systems for a variety of industrial applications in the packaging, machine tool, material handling, automotive and textile industries. Nexen’s 150 employees are mostly baby boomers who have long tenures and who are computer savvy. Consistent with the demographics of a manufacturing plant, 66 percent of Nexen’s staff has attended technical college, while approximately 17 percent have completed high school and college, respectively.
The Solution: In a company where a 16-year employee is considered a “new kid on the block,” management wanted a plan that continued to provide “rich” but affordable coverage. When Nexen’s broker presented consumer-driven health care as an option, Conroy saw a solution in making employees medical consumers and giving them a share of the risks and rewards of having medical coverage. In general, when people pay more, they tend to become more interested and involved. The plan was implemented in three phases.
| Step 1: | Conroy began the information process one month prior to enrollment. At a regularly scheduled plant meeting they showed a “nuts and bolts” video, provided by Definity Health, on how the program would work. |
| Step 2: | At Nexen’s annual Benefits Fair, Definity Health was on hand to explain the enrollment process and the specifics of the program. |
| Step 3: | At the re-enrollment meeting, Definity Health representatives were on hand for one-on-one discussions with the staff. |
Sample Coverage
| Option 1 | Option 1 | ||||
| Personal Care Account | Deductible | Premium | In-Network | Out-of-Network | |
| Single | $1,000 | $ 500 | $ 98.44 | 90/10 | 70/30 |
| Employee +1 | $1,500 | $ 750 | $154.79 | 90/10 | 70/30 |
| Family | $2,000 | $1,000 | $236.34 | 90/10 | 70/30 |
The program started on June 1, 2002. There were no savings in the first year, which meant that management buy-in had to be long term. In year two, however, Nexen realized a 7 percent reduction in medical costs. Vision, dental, etc. are separate, stand-alone programs. Going forward, Conroy expects a slight reduction in the savings due to changes in the health of Nexen’s employees.
Lessons Learned
Initially, employees received quarterly statements that indicated either a surplus in their personal-care accounts or a balance due. If employees overspent, this bill could be significant. To lessen the impact, Nexen recently changed to monthly reports. Additionally, after six months they would have directed employees to the depth of consumer information, from Definity Health, available on the Web, rather than in the second year. While it was important to effectively communicate the design changes to the staff, once they became comfortable, the consumer information on the Web would have been useful sooner rather than later.
Key Success Factors
Human Resources Experience and Management Support. The human resources director had the benefit of experience, having tried other approaches to controlling health-care costs, when he presented consumer-driven health care to senior management. Long-term buy-in from senior management was essential since there were no cost savings in the first year.
Early and Varied Communication. Despite the fact that communication in a small company occurs almost daily, Nexen started the information phase of the consumer-driven health-care rollout one month prior to enrollment. To convey the message they used video, a benefits fair, paper and face-to-face communication. Conroy noted that he was pleasantly surprised at how quickly staff grasped the concepts.
Choosing the Right Vendor/Partner. Definity Health, which started offering consumer-driven health plans in October 2000, provided Nexen with information as well as personal support. Additionally, Conroy noted, Definity’s consumer Web information was very informative.
According to Conroy, changing to consumer-driven health care had a significant impact on employees’ becoming more savvy medical consumers who chose generic versus brand-name Rx and who researched pill-splitting to lower prescription costs; questioned doctors on the necessity of lab tests; visited emergency rooms less often; and became more conscious of the number of physical-therapy visits they actually needed. Most employees did not perceive themselves as users of health care and took many of the “standard” services for granted prior to becoming active health-plan consumers.
SOURCE: Reprinted by permission from Research Report: What Works Now: Employer Strategies and Tactics for Controlling Health Care Costs. Copyright IOMA.
The Challenge: In 1987, Union Pacific management realized that without further investment in the health and well-being of their employee population, health-care costs might exceed the projected annual increases. Union Pacific’s employees are 95 percent male, 90 percent union, with smokers representing 40 percent of staff in 1990. Furthermore, they are on call 24/7, they are spread across 23 states, and their average age is expected to increase to 48.4 within the next 10 years.
Additionally, research indicated that if staff levels grew by the expected 500 per year, seven major health-risk factors would worsen among their employees without intervention. The good news is that because of their specific demographics and the long-term dedication to their health-promotion program, they are often able to obtain grants to fund the various pilot programs and studies that support their cutting-edge decisions regarding employee wellness (source: Wellness Councils of America).
The Solution: In 1987, Union Pacific established exercise as the cornerstone of its health-promotion program and built an 8,000-square-foot fitness center at its Nebraska headquarters. To accommodate the track-maintenance workers and other mobile staff, boxcars were converted into rolling railway gyms.
In 1990, a lifestyle claims analysis revealed that 29 percent of health claims were lifestyle related. Union Pacific engaged in a pilot risk-identification/intervention program from 1992 to 1994 that identified and targeted four risk factors of cardiovascular disease for reduction: blood pressure, weight, cholesterol and smoking. The programs included employee assessment, analysis of assessment results, targeted intervention and follow-up. To improve the rate of success of the smoking-cessation program, for example, Union Pacific incorporated a change in its culture via healthier corporate policies. For example, in addition to promoting the standard cessation methods, including nicotine patches and gum, Union Pacific initially restricted where employees could smoke in the building.
The next policy step was to prohibit smoking in company buildings, company cars and locomotive cabs. Additional tightening of the policy is expected over the next 18-month period. As a next step, Union Pacific participated in a pilot program entitled “Butt Out and Breathe.” This study looked at whether adding a pharmaceutical component to the other programs increases the quit rate. The results from this pilot prompted Union Pacific to change its program to ensure that pharmacological assistance was available for employees. The smoking program’s results thus far are impressive, with a reduction to 26 percent of staff in 2003 from 40 percent in 1990.
After a 2003 study focusing on weight, Union Pacific extended the pharmaceutical component, similar to the “Butt Out” campaign, to this risk factor. In conjunction with pedometers, telephonic support and behavioral modification, this study will look at whether adding pharmacological assistance to the existing efforts will increase the program’s success.
Key Success Factors
Senior Management Support. Senior management, including the CEO, had the patience to see a program through from pilot phase to follow-up. Management is provided with regular reports on the prevalence rates of all the risk factors to gauge success/failure of a program.
Consistent and Committed Program Management. The current program manager has been with the company since the program’s inception in 1987.
Employee Cooperation. Building trust and confidence in the union leadership so that health information would be freely provided was critical. The success of the grant-sponsored studies depends on getting employees to participate. Union Pacific employs a contractor that collects the data and prepares the studies, putting a layer of anonymity between the employees’ health records and Union Pacific management.
Open Communication. Union Pacific’s Health Track managers work with union leadership as new programs are developed, to get their buy-in and support. By keeping them informed, reinforcing the blind-study concept and connecting the success of the programs to financial incentives, a strong partnership has been developed.
Quantifiable Results. Three lifestyle claims analyses, conducted over an 11-year period, showed a decrease in lifestyle claims to 18.8 percent in 2001 from a high of 29 percent in 1990, when the first study was completed. The savings associated with Health Track programs, compared to what would have been spent absent the wellness programs, amounted to approximately $50 million in 2001.
Future Plans
Next on the horizon is a study that will look at productivity losses associated with behavioral health. Management has also extended the wellness concept to the families of employees. In 2003, Union Pacific agreed to be part of the “Healthy Kids” project, a community-outreach study that will examine what impact the work environment has on childhood obesity. Union Pacific will be one of the test sites for this program in Omaha. Finally, Union Pacific is expanding its current fitness center to include 19,000 square feet of space in its new office location, replacing the original 8,000-square-foot space built when the program started in 1987.
SOURCE: Reprinted by permission from Research Report: What Works Now: Employer Strategies and Tactics for Controlling Health Care Costs. Copyright IOMA.
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Newell has its roots in Illinois. Rubbermaid has its in Ohio. The combined company, coping with sales and management problems, is making its way to Sandy Springs, Georgia.
Rubbermaid was an institution for years in Ohio, first making dustpans in 1933. To company executives, however, moving to Atlanta represents change and innovation for a company lacking both, according to the Atlanta Journal-Constitution.
Originally, the company was going to move to Alpharetta, Georgia, where it would build a big training facility. Tim Jahnke, vice president of human resources, says that when the company started doing some training in Georgia, it changed its mind. “Early last year, we conducted a couple of training sessions at the Marriott…and the training went so well, it made us think, why do we need to build an auditorium when we’ve got good facilities already available?” he said, referring to local hotels’ meeting spaces and the Cobb Galleria, a local convention center.
“When this space became available, from a cost standpoint and timing standpoint, it made a lot of sense,” Jahnke told the Journal-Constitution, referring to the new Sandy Springs home vacated by Coke. Moving to an existing space in Sandy Springs rather than building in Alpharetta meant that Newell Rubbermaid could speed up the relocation by 15 months.
This template allows human resources managers and employees to view alternative health care plans at a glance. The variables include the office-visit copay, individual out-of-pocket maximums and variable drug benefits. After open enrollment, the column showing the previous year can be taken out.
| This Year | Next Year | |||
| HMO | 2004 | 2005 | ||
| Office Visit Copay | $15 | $20 | ||
| Routine Preventive Care | 100% after $15 Copay | 100% after $20 Copay | ||
| Annual Deductible | None | None | ||
| Annual Out-of-Pocket Maximum | None | None | ||
| Preexisting Condition Limitation | None | None | ||
| Lifetime Maximum | $1,000,000 | $1,000,000 | ||
| Prescription Drugs | Participating Pharmacy | Participating Pharmacy | ||
| Retail Generic (30-day supply) | $7 | $10 | ||
| Retail Brand Name (30-day supply) | $15 | $25 | ||
| Nonpreferred Brand Name | $35 | Not Covered | ||
| Generic Mail Order (90-day supply) | $10 | $20 | ||
| Brand Name Mail Order (90 days) | $20 | $50 | ||
| Nonpreferred Brand Mail Order | $40 | Not Covered | ||
| PPO | 2004 | 2005 | ||
| In Network | Out of Network | In Network | Out of Network | |
| Individual Annual Deductible | $250 | $500 | $250 | $1,000 |
| Family Annual Deductible | $500 | $1,000 | $500 | $2,000 |
| Annual Out-of-Pocket Maximum | ||||
| Individual | $1,500 | $3,000 | $1,500 | $3,500 |
| Family | $3,000 | $6,000 | $3,000 | $7,000 |
| Office Visit Copay | $15 | N/A | $25 | N/A |
| Coinsurance (plan pays) | 89% | 60% | 80% | 60% |
| Routine Preventive Care (children to age 13) | 100% after $15 | 60% | 100% after $20 Copay | 60% |
| Routine Preventive Care (adults age 14 and up) |
100% after $15 Copay | None | 100% after $20 Copay | None |
| Preexisting Condition Limitation | Yes | Yes | Yes | Yes |
| Lifetime Maximum | Combined in and out of network: $1,000,000 | |||
| Prescription Drugs | ||||
| Retail Generic (30-day supply) | $10 | Not Covered | $10 | Not Covered |
| Retail Brand (30-day Supply) | $20 | Not Covered | $25 | Not Covered |
| Retail Nonpreferred | N/A | N/A | $50 | Not Covered |
| Generic Mail (90-day supply) | $15 | Not Covered | $20 | Not Covered |
| Preferred Brand Mail (90 days) | $25 | Not Covered | $50 | Not Covered |
| Nonpreferred Brand Mail | N/A | N/A | $100 | Not Covered |
SOURCE: Excerpted from “The HR Answer Book: An Indispensable Guide for Managers and Human Resources Professionals,” by Shawn Smith and Rebecca Mazin. Copyright 2004; published by AMACOM Books, a division of the American Management Association.
There has been talk before about whether some workforce management functions should work more closely with marketing departments–or even merge. Now, Northwestern University’s Forum for People Performance Management and Measurement says there’s an “an alarming gap in communication” between marketing and human resources that could have a negative impact on organizational performance.
Frontline employees “may not communicate, or even know, key messages developed by marketing executives and communicated externally via advertising, public relations and direct marketing.” Sixty-five percent of the marketing and human resources professionals surveyed disagree or strongly disagree that “marketing and human resources personnel spend time discussing customer needs and share information with each other.”
You think a congressional debate can be contentious? Try finding a recruiting application.
“It is not unusual for human resources, the IT department and corporate executives to have entirely different ideas about which system is best and what approach to take,” says Ed Newman, president and founder of The Newman Group, a Phoenixville, Pennsylvania, consulting firm.
While human resources may view functionality, speed and performance as key factors, the IT department is more likely to regard compatibility, ease of integration and its ability to support the application as the most significant issues. Executives, on the other hand, often prefer to leverage a company’s existing enterprise technology investments. Not surprisingly, cost and compatibility often win out–with the organization opting for the more basic functionality that comes with an enterprise resource planning module orhuman resources management systems. A niche or “best of breed” solution is viewed as a luxury.
The end result? An organization can compromise its ability to achieve recruiting success. “It is possible to wind up with different factions that do not understand the functional and strategic issues,” explains Tedd Long, managing consultant and director of HR technology at Findley Davies, a Toledo, Ohio, consulting firm. Ultimately, “a company can spend a lot of money and time putting an application in place that isn’t right for its needs.”
Too often, he says, workforce-management executives begin a selection process on their own–without consulting other departments or divisions. By the time others find out what is being proposed, there’s resentment over not being involved in the selection process, and an adversarial relationship develops. Even worse, key factors in the decision-making process–technical, practical and strategic–wind up receiving too little attention. Although functionality and strategic issues are important, a company should not base a decision solely on these factors, Long says.
The payoff
Although the IT selection process has always been a hotbed of conflicting ideas, opinions and approaches, the factors leading to disagreement have increased in recent years. Prior to the 1990s, organizations had fewer choices to ponder. Typically, they bought a mainframe and built custom applications to run on it. Although various departments, such as human resources, provided input, it wasn’t possible to heavily customize applications to fit specific needs and scenarios, Newman points out.
The situation began to change in the 1990s, when client-server applications emerged. Later, the Web opened up even greater opportunities to create highly flexible and highly customized systems. As finding and retaining talent became increasingly important, many companies began to look at recruiting systems to turbocharge their capabilities. Not only could these systems process applications electronically and store them in a vast database, but they also could analyze all the résumés and pinpoint the top candidates quickly.
Today, many companies find themselves with recruiting software that came with an SAP, PeopleSoft or Oracle implementation. Although an organization can achieve considerable cost-savings using the software, it often comes at a price: a 6- to 18-month lag in features and performance compared to top-tier, best-of-breed applications. “Many human resources professionals feel that they’re at a disadvantage without leading-edge functionality,” Long explains.
For many companies, figuring out the ROI of these technologies is a complex equation. A top-of-the-line, best-of-breed product might cost $50,000 for each site license–$1 million for 20 users, for example. Although a PeopleSoft, SAP or Oracle applicant-tracking system often comes with the core ERP product, it might not provide the level of functionality a company requires.
It’s important to calculate not just the cost but also the value of a faster or more robust system–what it’s worth to have recruiters spend less time on administrative tasks and more on recruiting. Freeing up time to do more recruiting–and having a system with faster and better search capabilities–can ultimately lead to better hires. The value ofbetter hires is also tough to quantify, but is often associated with higher productivity and lower turnover.
Companies typically expect to achieve an ROI on a system within 18 to 24 months (though many aim optimistically but unsuccessfully for 6 to 12 months).
A “love triangle”
AtSouthern Company, an Atlanta utility and electrical distributor with more than 26,100 employees and $11.2 billion in 2003 sales, putting an effective applicant-tracking system in place was a top priority. Just over four years ago, the company began examining software packages in order to provide relief for recruiters, who found themselves increasingly burdened by the high volume of résumés streaming in. Southern Company receives upwards of 150,000 applications each year for 1,800 to 2,500 open positions. “Finding the right candidates from such a large stack of applications is an enormous challenge,” says recruiting manager Eric Muller.
The HRMS staff began investigating software applications and examining how the firm could consolidate and unify existing systems. After extensive analysis and discussion, executives opted to use an existing PeopleSoft applicant-tracking module to manage the process. Muller describes the decision as a “love triangle”–with IT, HRMS and an executive team all stating different preferences and desires. “Ultimately, the decision was a compromise for everyone because there were three different agendas involved.”
According to Muller, the experts in human resources technology would have liked to use a best-of-breed approach; this would have given them the functionality they wanted. Their first preference would have been a combination of Hire.com and PeopleScout, which is used to track phone interviewing and scheduling. Hire.com was being used as the Web-based front end, but human resources wanted to use the product to manage the whole recruiting process. From the beginning, IT wanted to maximize the existing investment in PeopleSoft and minimize implementation and integration issues.
Put it through a test
Building a solid business case is key, Long says. When workforce-management executives spend their time building a strong case for a particular system and the ROI it can provide, they’re much more likely to receive the system they desire. “Sit down and compile a list of functional requirements up-front. At that point, it is possible to make a more logical and compelling argument to IT and an executive team,” he says. “Simply creating a matrix of functional requirements and comparing best-of-breed and enterprise vendors allows everyone to view information in a useful way. It is a much stronger and more persuasive argument than simply saying, ‘It’s less expensive’ or ‘It’s better.’ “
Johnson Controls, a Milwaukee manufacturer of automotive systems with sales of $22.6 billion in 2003, has taken the process a step further. As part of its evaluation process, it conducted usability sessions with suppliers as well as a group of recruiters and managers. “The usability analysis proved invaluable in our selection process and served as a necessary step in change management,” says Carol Willenbrock, executive director of human resources. She says that it allowed human resources and IT to get closer to the potential products and identify the strengths and weaknesses of each.
In the United States, Johnson Controls uses PeopleSoft 8.3 for human resources, payroll and benefits administration. However, it opted to go with a Recruitsoft package to manage applicant tracking and hiring. From the beginning, human resources and IT worked together to analyze and evaluate vendors and packages. In fact, IT conducted its own technical study of various programs–looking at such factors as user interface; process efficiencies; ease of use for recruiters; ease of use for job-seekers; system reliability, performance and security; configurability versus customization; and the vendor’s financial standing and reputation for customer support. In all, the company examined 70 factors.
The end result was a process that allowed all key players to provide input, and enabled the company to make a decision that seemed to work best for everyone. Johnson Controls hopes that the recruiting system, scheduled to go live in the early fall, will help the company achieve significant cost gains and operational efficiencies.
Team effort
Newman believes that as recruiting evolves into highly focused talent acquisition and human-capital management, workforce-management executives will have to work closely with other departments, including IT and finance, to choose systems that keep the company competitive on the labor front. “HR will not have carte blanche decision-making ability,” he says. “The CIO and CFO play an increasingly key role.”
Although some compromise is unavoidable, Newman believes that workforce management can sway the decision-making process and help executives focus on key strategic issues. “By putting a formal selection process in place and conducting a detailed analysis,” he says, “it is possible for a company to make a selection based on its underlying business requirements.”
