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The EU Is Growing, but Western Europe’s Fears of Mass Migration Are Overblown

The European Union’s expansion to include eight Eastern European countries on May 1 might once have generated great joy in these former Communist lands. Instead, Western European restrictions on where their Eastern counterparts can work have led to disappointment and bitterness.



    The ability to move freely from country to country was “the key tangible result of integration. It’s a huge psychological thing for Eastern Europeans,” who were isolated for so long, says Miroslav Beblavy, Slovakia’s state secretary for labor, social affairs and family. But with the employment restrictions, there’s “a feeling that nothing has changed. We’re still second-rate Europeans.”


    In the 15 countries that now make up the EU, there’s no limit on who can move where, so an Italian hair stylist can set up shop in Ireland, or a Greek nurse can work in Germany. That was also the plan when the EU decided to expand, adding the former Communist countries of Poland, the Czech Republic, Slovakia, Slovenia, Hungary, Latvia, Lithuania and Estonia, as well as Cyprus and Malta.


    But EU members Germany and Austria balked. With borders abutting Eastern Europe, they feared they would be overwhelmed by immigrants leaving behind far lower wages and, in some cases, higher unemployment rates.


    In response, the EU established a two-year transition period, allowing existing EU members to make their own arrangements with Eastern European countries. Residents of the two non-Eastern European countries–Cyprus and Malta–are free to move about as they please. But residents of the other eight incoming EU member countries can’t, unless they want to move to the United Kingdom and Ireland, which are the only EU countries that haven’t imposed immigration restrictions. The issue will be revisited in 2006, but some countries may opt to keep the restrictions in place until 2011.


“Everybody Was English”
    Even had there not been restrictions, some Western European experts say that EU countries were unlikely to be swamped with immigrants. Dr. Martin Werding, head of the department of social policy and labor markets for IFO, the Institute for Economic Research, in Munich, Germany, says his institute had predicted that 250,000 to 300,000 immigrants would come to Germany right after enlargement. Although that’s a drop in the bucket in a country of 82 million, it was enough to get German officials scurrying to the EU, urging the establishment of a transition period.


    Eastern Europeans have moved west since the Berlin Wall fell in 1989, and these newcomers “were better educated than earlier cohorts of immigrants,” such as Turks and Italians, Werding says. The Easterners tended to initially hold low-skill jobs, but quickly moved up to better-paying ones. He predicts that Eastern Europeans will continue to come to Germany, provided they can get a work permit by proving that no one else in the local labor market can do the job.


    Clive Newton, managing director of leadership development solutions for Korn/Ferry International in London, says London’s population has changed dramatically over the past decade. Before, “nearly everybody was English.” Today, few waiters, store clerks or au pairs are.


    The United Kingdom has been a big draw because its unemployment rate is lower than that of much of Europe. For November, it stood at 4.9 percent, compared to 8 percent for the EU as a whole. In Eastern Europe, the average was 14.2 percent. In addition, in the UK, “migration laws are by no means clear and by no means enforced,” Newton says.


    Hotels, retailers and agricultural businesses recruit in the East. “It’s quite wrong to think that this [recruiting] is going to start when the borders come down. The truth is this has been going on for a long time,” he says.


    Highly skilled workers such as IT professionals and health-care workers also have migrated to Western Europe, and that may continue apace if the EU doesn’t do enough to help Eastern European countries grow, says Jean-Christophe Dumont, a migration expert with the Organization for Economic Co-operation and Development (OECD) in Paris. According to OECD figures, in 2002 per capita gross domestic product in the UK was $26,400; in Germany, it was $24,100. This compares to $6,800 in the Czech Republic and $4,900 in Poland.


    Despite the salary differences, countries such as Slovakia never expected a huge outflow of employees, Beblavy says. Unlike Americans, who don’t think twice about moving across the country, many Slovaks are unwilling to pack their bags, even if the unemployment rate in the capital, Bratislava, is one-eighth what it is in their hometowns.


    But if income doesn’t rise and joblessness doesn’t fall, more employees might look elsewhere for work, says Philippe Egger, senior economist with the International Labour Organization in Geneva. “It’s not that the people want to move. They have skills, certain aspirations in life–we all want to strive to achieve a certain level of living.”

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Turnover Is the New Enemy at One of America’s Oldest Restaurant Chains

It’s 2:30 on a rainy Saturday afternoon in Pittsburgh, and Steak n Shake is packed. The hostess welcomes us and glances around to see if there’s a vacant table for three in the non-smoking section. After she spots one in the back, we weave through tables of middle-class Pittsburghers, young and old, eating steak burgers and drinking large glasses of hand-dipped milkshakes topped with whipped cream and cherries. To our right, a young couple makes a shopping list and riffles through coupons while eating lunch. After about 10 minutes, our server finally appears and apologizes for the wait, saying she didn’t see us because we were sitting at a table in the back.



    If CEO Peter Dunn could see how crowded this restaurant is–well after the lunch rush and on such a dreary day–he’d be thrilled. When Dunn took over as president of Steak n Shake 18 months ago, he began reshaping the company. The goal was to turn around the company and, ultimately, fuel an expansion. Earnings had slipped in 2001 and management turnover stood at 50 percent. By the first quarter of 2003, crew turnover topped 200 percent.



Payoff of reducing turnover
    Last year, as Dunn implemented his plan to better support employees, the crew turnover rate began to fall. In turn, guest satisfaction improved, as measured by Mystery Shops. During the first quarter of 2003, crew turnover reached 213 percent, and guest satisfaction measured 81.2 percent. By the third quarter, crew turnover had dropped to 192 percent, while guest satisfaction increased to 86 percent.


    If Steak n Shake can reduce crew turnover, it stands to reason that guest satisfaction will continue to improve, as will profits. The company’s turnover rate is markedly higher than that of other restaurants in the fast-casual segment. The People Report 2003 Survey of Unit Level Employment Practices showed that the average turnover rate in the fast-casual segment is 129 percent. During the last quarter of 2003, Steak n Shake’s crew turnover rate went down to 188 percent, but it’s still 59 percentage points higher than the industry average. The company has told investors that it can save $2 million to $4 million per year if it can only convince more frontline workers to stick around.


    So far, the company has made nominal attempts to make the workplace more appealing to employees, such as offering a self-funded dental and vision program to associates and increasing training for frontline employees. Still, the company has yet to address one of the major issues in the restaurant business: understaffing.


Satisfied Employees + Happier Guests = Bigger Profits
    Dunn’s plan to revamp Steak n Shake centers on an idea he calls the Virtuous Cycle–better known as the service-profit chain. The service-profit chain “establishes relationships between profitability, customer loyalty, and employee satisfaction, loyalty and productivity,” according to a 1994 Harvard Business Review article. This concept is based on the idea that loyal customers are the result of customer satisfaction, which comes from the value that loyal, contented employees provide. The writers of that article estimated that the lifetime revenue from a loyal pizza eater could amount to $8,000. A Steak n Shake customer could spend as much as $25,000 over a lifetime at the restaurant, according to Vic Yeandel, vice president of marketing and investor relations.


    The idea of creating a customer-focused environment is actually a return to the company’s roots. When Steak n Shake founder Gus Belt started the restaurant in 1934 in Normal, Illinois, he paid particular attention to customer service. He’d wait until rush hour and roll in a barrel of steaks–including round steak, sirloin steak and T-bones–and then grind them into burgers right in front of guests sitting at the counter. Belt also put the milkshake machines in the front window, so passersby would want to stop for a frosty shake. The friendly service kept customers returning, and before long, Belt started to expand.


    Today, the burgers at Steak n Shake are still ground from various types of steak and the food is still served on china in a diner-like atmosphere. Steak n Shake occupies a niche: a full-service environment with food that people are accustomed to eating in fast-food restaurants. “If the service is bad, all you’ve got is an expensive burger,” says Yeandel.


Involving managers in decisions
    Steak n Shake says that holding down management turnover can provide a savings of $1 million to $2 million per year. The company couldn’t say how much turnover has to be lowered to achieve that savings. Nearly a year after Steak n Shake began to pay attention to employee satisfaction and invested in training and development, the company is making progress in retaining managers. Management turnover now stands at about 30 percent. “Steak n Shake’s focus on labor, staffing and training has helped its bottom line and will continue to do so,” says Amy Greene Vinson, vice president of equity research at Avondale Partners LLC.


    Holding down turnover and grooming manager/management talent also enables the company to open more new units, says Vinson. This, she says, is the key to the growth of Steak n Shake and probably one of its biggest challenges for the foreseeable future.



    Steak n Shake’s Yeandel says management turnover is decreasing because the company has started to include managers in making decisions on how to increase revenue and efficiency. For the first time ever, Steak n Shake has given its store managers books with all sorts of statistics about the individual restaurant, such as which products produce the most revenue and profit. The information also includes turnover rates, customer-satisfaction data and drive-thru efficiency. The company has asked each store manager to come up with a plan for his or her store and to share it with frontline employees. Instead of having store goals set for them, managers now help to make those goals and feel more invested in them, says Yeandel.



“Benefits do matter”
    The challenge for 2004–one the company openly acknowledges–is to reduce frontline turnover. To that end, the Indianapolis-based company began a self-funded dental and vision plan for associates this year, which can help workers reduce dental and vision expenses by 50 percent. Quick-serve restaurants that offer dental insurance to employees have a lower turnover rate (about 176 percent) than those that don’t (195 percent), according to Dr. Joseph “Mick” Michael La Lopa, who has studied how turnover rates are affected in Indiana restaurants when benefits are provided to part-timers.


    “Benefits do matter,” says Teresa Siriani, president of People Report, a consulting firm that specializes in workforce-management metrics, trends and best practices for the food-service industry. The company’s 2003 survey of hourly turnover found that restaurants that offer dental, health care and 401(k)s have on average a turnover of 104 percent, compared with 128 percent for those companies that don’t offer such benefits. Siriani also recommends that companies survey frontline workers, which Steak n Shake is beginning to do. The company won’t release details about that survey. Theannual report, however, describes steps that frontline workers can take to provide anonymous, candid feedback to store management.


    Steak n Shake already offers its frontline employees medical and life insurance; supplemental and dependent life insurance; short-term disability insurance; vacation pay; meal allowances; a 401(k)/profit-sharing plan; and a referral bonus program. Life insurance is the cheapest benefit and produces the greatest reduction in turnover, says La Lopa, an associate professor at Purdue University. Restaurants that offer life insurance have a turnover rate of about 156 percent, versus 196 percent for those that don’t offer it. “People who go to work and have kids want to know that there will be some money for their kids or spouse to deal with the loss financially,” he says.


“Part of a whole”
    A comprehensive orientation for new hourly workers can also help reduce turnover significantly. Siriani says companies that spend an average of one to two hours on employee orientation have 120 percent turnover; companies that spend two to four hours on orientation lower turnover to 105 percent; and those that spend four or more hours on orientation enjoy an even lower turnover of 86 percent.


    Steak n Shake might also be able to increase its return to shareholders if it can improve something called the employee “line of sight,” or the ability of employees to make connections between their job and the company’s business goals. “To what extent does somebody understand that the work they’re doing is part of a bigger whole?” asks Scott Cohen, national practice leader of talent management at Watson Wyatt.


    “Organizations that have a much greater line of sight actually show four times the total return to investors,” Cohen says. Steak n Shake can assess its employee line of sight by determining if employees understand the company’s business goals and the steps necessary to actually achieve those goals. The way to assess this is throughsurveys, following up with focus groups if necessary. About a decade ago, Sears Roebuck went so far as to develop a board game that helped teach employees about its business, says Cohen. A more modern way of generating this kind of communication is through intranet chat rooms where employees can ask questions about the business and give senior leaders a snapshot of working conditions in restaurants.


The elephant in the room
    Studies show that stores with satisfied employees outperform those with unsatisfied employees, and turn larger profits. AtTaco Bell, the stores in the top 20 percent for employeeretention were 55 percent more profitable than those in the bottom 20 percent, wrote James Heskett, Earl Sasser and Leonard Schlesinger in a 1997 book titled The Service Profit Chain: How Leading Companies Link Profit and Growth to Loyalty, Satisfaction and Value.


    But what is it that workers really want from employers? “It’s simple–it’s really to deliver on the promise,” says Purdue’s La Lopa. “Companies like Steak n Shake promise incoming managers that they’ll grow with the company, their salary will increase, they’ll have days off, they’ll have the support and resources they need–that’s the promise,” he says. “The minute they sign on the dotted line, they become victimized by churn and burn–the opposite of what they’re promised.”


    In fact, the staffing numbers at Steak n Shake show that although the number of restaurants is increasing, staffing isn’t increasing at the same rate. SEC filings reveal that in 2002, the company operated 404 restaurants, with a total of 20,000 employees–an average of 49.5 employees per unit. In 2003, the number of restaurants jumped to 413, but the total number of employees stayed steady at 20,000, giving an average of 48.4 workers per unit, the lowest number of workers per unit since 1997.


    “By not hiring enough workers, companies shoot themselves in the foot three ways,” says David Lee, president of HumanNature@Work. First, overworked, stressed-out employees give lousy service. Second, employees see understaffing as senior management not caring about them. Third, employees want to feel proud of their employer, and when management doesn’t staff adequately yet touts the importance of great customer service, employees lose respect for their employer.


    La Lopa agrees that when the staff is overworked, the burnout rate becomes high. “All employees at every shift have to work twice as hard to provide high-quality service,” he says. “This happens every single day in restaurants throughout the U.S.–it’s a tragedy.” As it happens, our server at the Pittsburgh restaurant is extremely friendly and even takes a minute to talk to my daughter about her toy pony. Still, she seems overloaded with guests.


    The company won’t say whether it plans to increase hiring of associates. Steak n Shake’s annual report says the company continues to improve its labor-scheduling system to better deploy its employees when the restaurants are crowded.


    In the end, La Lopa says, all these retention efforts could actually lower food costs. “Restaurants give away so many meals every day because they’re understaffed–it’s service recovery. A trained staff isn’t making mistakes, ‘comping’ meals or redoing orders.” The companies that understand this principle–such as Applebee’s, Outback Steakhouse and The Cheesecake Factory–and keep promises to employees enjoy a higher profit, he says.


Vital signs improving
    The company’s overall financial picture appears to be improving, partly because of a slightly more stable workforce. In 2003, Steak n Shake opened 13 new restaurants, bringing its total stores to 413. This year, the company expects to open 15 to 18 new restaurants. For every 10 successful new stores that Steak n Shake builds, the company adds $2 million to $3 million in profit.


    Although the company has had to close some underperforming restaurants, same-store sales–a particular barometer of health in the fast-food industry–are on the way up. The company hit a low in the first quarter of 2003, with same-store sales dropping to -4 percent. By the fourth quarter of last year, however, same-store sales had increased by 12 percent. That crowded Pittsburgh restaurant reflects a nationwide trend.

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A Who’s Who of Gurus

Name Title Speaking Fee Schtick Books Web
Clayton Christensen Professor, Harvard Business School $40,000+ “Disruptive technologies” will force innovation The Innovator’s Solution (2003) ▪ Innovation and the General Manager (1999) ▪ The Innovator’s Dilemma (1997) www.claytonchristensen.com
Jim Collins Independent researcher $45,000+ Ideology, not technology, defines long-term success Good to Great (2001) ▪ “Building Your Company’s Vision,” (1996) ▪ Built to Last: Successful Habits of Visionary Companies (1994) ▪ Beyond Entrepreneurship: Turning Your Business Into an Enduring Great Company (1992) Collaborator/Coauthor: Jerry Porras www.jimcollins.com
Stephen Covey Author, Co-chairman, FranklinCovey Co. $65,000 Successful lives lead to business success First Things First (1994) ▪ Principle Centered Leadership (1991) ▪ The 7 Habits of Highly Effective People (1989) www.franklincovey.com
Gary Hamel Founder and chairman, Strategos $50,000+ Companies must identify their “core competencies” and strive to attain “stretch goals” Leading the Revolution (2000) ▪ Competing for the Future (with C.K. Prahalad, 1994) www.strategos.com
Michael Hammer President, Hammer and Co. $2,500 + per student Companies must embrace change by reengineering themselves around their core processes The Agenda: What Every Business Must Do to Dominate the Decade (2001) ▪ Beyond Reengineering (1997) ▪  Reengineering the Corporation (1993) www.hammerandco.com
Rosabeth Moss Kanter Professor, Harvard Business School N/A Innovate and grow through knowledge and empowerment Leadership and the Psychology of Turnarounds (2003) ▪ E-Volve!: Succeeding in the Digital Culture of Tomorrow (2001) ▪  Innovation: Breakthrough Thinking at 3M, DuPont, GE, Pfizer, and Rubbermaid (1997) ▪  World Class: Thriving Locally in the Global Economy (1995) ▪ The Change Masters (1983) ▪ Men and Women of the Corporation (1977) N/A
Don Peppers and Martha Rogers Founders, Peppers and Rogers Group N/A Companies need to know today what customers will want tomorrow The One to One Manager (1999) ▪ The One to One Fieldbook (1999) ▪ The One to One Future (1993) www.1to1.com
Tom Peters Founder, Tom Peters Group $65,000 Overthrow the traditional corporate hierarchy Re-Imagine! (2003) ▪  Liberation Management (1992) ▪ Thriving on Chaos (1987) ▪ In Search of Excellence (1982) www.tompeters.com
Michael Porter Professor, Harvard Business School $70,000 Successful strategy boils down to three essentials: cost leadership, differentiation, and focus The Competitive Advantage of Nations (1990) ▪ Competitive Advantage (1985) ▪ Competitive Strategy (1980) www.isc.hbs.edu
Don Tapscott President, Digital4Sight $35,000+ The Internet will dominate industry in the future and business transparency is inevitable The Naked Corporation (2003) ▪ Digital Capital (with David Ticoll and Alex Lowy, 2000) ▪ Creating Value in the Network Economy (1999) ▪ The Digital Economy (1996) www.tapscott.com
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Internship Programs What Candidates Find Appealing

Goldman Sachs, McKinsey and Microsoft are some of the most sought-after employers by interns. Below are some quotes from interns at these and other companies, commenting on why they found their experiences so appealing.



Deutsche Bank
    “Deutsche Bank evidently places great emphasis on recruiting the top individuals for its internship program. Their extensive interviewing process takes place over a series of interviews and allows both the company and candidate to make sure they are a good fit for each other.”


    “They recruit many interns from many different backgrounds and universities. I also learned that they offer financial and communications training classes, and that they give their interns the chance to interact and meet with some of the company’s top executives.”


    “Focus on providing projects that give interns the opportunity to get broad exposure to the industry and add value during the internship. Also, heavy focus on educating the interns during the program through both work experience and industry specific classroom education.”


    “Generalist program with two rotations. Other banks either don’t rotate (you are hired for a specific function) or you rotate every week. I find it hard to imagine that a first year MBA student knows enough to determine that FX vs. high yield is a better option for their careers.”


    “A very organized internship, including weekly social events to get to know other interns, weekly classes on subjects relevant to the job, official mentors who actually make an effort to stay in touch with your progress, streamlined recruiting process (with same-day decisions), clear expectation settings, and great people to work with.”


General Mills
    “Real, high impact assignments; exposure to senior leadership; planned social and networking activities for interns.”


    “Good name. Solid projects. Learn a lot. Structured. Intern events.”


    “Lots of things – access to sr mgmt, plentiful feedback, off sites, real life on the job experience, good salary, subsidized housing, good yield rate on offers.”


    “First of all, General Mills is known for its great working culture and employees. Interns are assigned projects that not only cater to the company’s interests, but also to the intern’s interest. Furthermore, General Mills offers opportunities in locations all over the U.S.”


    “Structure, meaningful projects, and full-time offer rates.”


Goldman Sachs
    “The fact that Goldman is the most prestigious bank on Wall Street makes the internship so appealing.”


    “The Prestige. The reputation. The people. Teamwork. Meritocracy.”


    “According to the recruiter I talked to it was rotational for the summer so you get exposed to a number of different groups.”


    “Very prestigious; interns learn a lot and are given high amounts of responsibility; pays well; great location (New York City).”


    “Goldman Sachs sets the standard for the summer analyst and associates programs. An internship here opens a lot of doors within the firm and elsewhere.”


Mckinsey
    “Top-notch management consulting experience, board-level exposure, opportunity for full-time employment.”


    “Brand name – MBA’s want to minimize risk so they seek brand recognition as a sign of approval.”


    “Very well structured and set-up in advance so when interns arrive they immediately have the summer expectations clearly laid out and the resources needed to achieve their goals.”


    “Not so much their program as the company’s general reputation as a top consulting firm.”


    “Having McKinsey on your resume even for three short months attracts the attention of most MBA recruiters.”


Microsoft
    “Very competitive salaries, excellent benefits, huge exposure, great opportunity.”


    “They treat their interns very well (in terms of housing accommodations and expenses). Their program is solidly structured, well developed, and well organized.”


    “Interns are supposedly given real responsibility for product features and their housing in Redmond is paid for.”


    “Excellent pay, Very good work environment, Value Addition due to the internship to your resume and interesting projects.”


    “Competitive program, hands-on experience on-site, working in an entry-level position as an undergraduate, high pay.”


Procter and Gamble
    “The company goes above and beyond in providing interns with meaningful internship experiences. The projects model typical, entry-level work assignments. Further, the interns receive a wealth of mentoring and support. The interns are also provided a number of opportunities to learn about the various functional areas of the company from a number of high-ranking Procter & Gamble professionals. The interns are also exposed to a number of social events to interact with Procter & Gamble employees.”


    “The assigned project is well planned with clear objectives, methods of achieving the objectives. A diverse group of interns, from different school, ethic group, major. A large number of interns, all living in the same dorm/place. Good mentor/mentee program. Good housing/relocation arrangement. Good pay and reimbursement.”


    “They give all of their interns substantive work that is comparable to what they would be doing as full-time hires. The pay and benefits are phenomenal. People at the company are good at what they do and are willing to help guide the interns (good support system set up). They really help the interns get to know the city by providing them with a lot of events outside of work (dinner at restaurants, tickets to amusement parks, happy hours, theatre shows, etc.).”


    “The company’s overall reputation and breadth of consumer products allows for learning about the different sectors within such a huge company. Good also for resume building as the company is a competitor to many others in the same industries.


    “They are a large company that takes the time to give interns responsibility that all engineering employees have. This is the most ideal situation; you have a real taste of what work is truly like.”


Sun Microsystems
    “Sun internships not only provide the opportunity to get some practical experience, they also have various programs through which interns can learn more about the sun products, and labs.etc.”


    “You get hands on working with latest technologies, provides great working environment and definitely you get chance to work with the industry leaders here.”


    “A company that puts time and effort into its internship program shows a strong interest in future employees, especially since many companies hire candidates from their pool of interns.”


    “The company itself is so large and deals with so many aspects of computer engineering that no matter what area you internship is in, you can gain knowledge in any field that you want to. Also, there is the possibility of moving into another internship (in another area) once yours is over, if you decide you don’t like what you’re currently doing.”


    “Sun has a structured program specifically with the interns in mind. There are intern activities throughout the internship, many extras that come with the job like the gym access, concierge service, on-site food area, and executive speakers series.”


Unilever
    “It’s organized, challenging, allows you to interact with all levels of management, and puts your educational knowledge to work!”


    “High offer yield; Meaningful, relevant summer projects; Diversity, dynamics, exposure, compensation, ability to advance.”


    “Well-organized, real projects with responsibility, opportunity to learn about all aspects of the company, access to top management, good recruiting process, offers to interns.”


    “Structured program that enable students to work on value-added projects. – Exposure to senior management – interaction with entire intern class.”


SOURCE: Data extracted from WetFeet’sInternship Programs Report 2004.

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With Stock Options, Employees Don’t Know What They’re Getting

Employees don’t realize what they’re getting when they receive stock options, according to a Watson Wyatt study.

Employees at U.S. companies think their options are worth 30 to 50 percent less than they really are, according to the survey of 650 high-income employees who received options.

Employees place a higher value on restricted stock, thinking that restricted stock’s worth only 18 percent less than it really is.

FASB has issued a proposal that would require companies to expense options on their income statements. Interested parties can discuss the proposal in the Benefits Forum.

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A Prescription for Medical Leave

Sam is stressed out. He spends increasingly more time chatting on the phone and lingering over lunch. Several times a week he shows up late for work. Not surprisingly, his work suffers and he begins missing important deadlines. His supervisor finally schedules a meeting with him to address his poor performance. The following day, Sam reports that he wants a leave of absence because he just can’t take the job stress anymore. He promptly submits a complete medical certification veri­fying that he has a serious health condition and requires leave on an intermittent basis for the next six months.



    His employer believes that Sam’s request is unfounded and entirely manipulative. But the company’s options for seeking additional medical information about Sam are limited.


    Instead of providing employers with the tools they need to curtail the abusive use of leaves, the Family and Medical Leave Act and analogous state laws unduly restrict the medical inquiries that employers may make. Employers must contend with complicated and ambiguous rules limiting when and how they may communicate with doctors, require second opinions and question fitness-for-duty certifications.


    In the case of Sam, it seems entirely in order to require him to submit a second medical certification–from a different doctor. But the FMLA doesn’t see it that way. After an employee submits a completed and signed medical certification, the employer cannot require additional information. If the employee consents, however, the company may contact the health-care provider to “clarify and authenticate” the medical certification. Even then, the employee’s supervisor cannot make the contact; only a health-care provider representing the employer may do so. Given the effort involved, an employer doesn’t stand to gain much. Even if the employee gives the company permission, his health-care provider is not likely to contradict the information that she provided already in support of the employee’s leave request.


    This allows for the option of seeking a second opinion, which an employer may require–at its own expense–when it questions the validity of an employee’s medical certification. But employers face a quandary: how to determine what constitutes a sufficient reason to question the validity of a medical certification. Conflicting medical information suffices, but a leave request that is suspicious merely because of timing is not so clear. Companies must fly blind on this one. Neither the courts nor the U.S. Department of Labor offers helpful guidance.


    Consider this scenario. An employee suffers bouts of stress and anxiety every Friday afternoon and Monday morning. Fed up, his supervisor demands a note from the employee’s doctor substantiating each absence. The demand may not be acceptable to the DOL. The agency maintains that the notes requested are “recertifications” under the regulations, which an employer may seek only in these three instances: when an employee requests an extension of a leave; when the circumstances described in the original certification have changed significantly; or when the employer has information casting doubt on the continuing validity of the original certification. These exceptions help, but don’t necessarily apply to the scenario above and many others. What is unclear is what kind of information is sufficient to cast doubt on the employee’s original certification.


    Another problem for the employer is obtaining medical information at the end of an employee’s leave. A company may request a fitness-for-duty certification, but all that the FMLA requires is a simple statement that the employee is able to return to work. If the employer is doubtful that this is true, a health-care provider who works for the employer may contact the employee’s health-care provider, but only if the employee consents. Even then, the employer may only ask questions to clarify the employee’s fitness to return to work related to the condition for which the FMLA leave was taken.


    The regulations provide that an employer may not seek additional information, such as a second fitness-for-duty certification. But an employer may consider requiring a fitness-for-duty examination under the Americans with Disabilities Act if the employee has a legally protected disability and the medical examination is job-related and consistent with business necessity. And when the employee takes intermittent FMLA leave, an employer doesn’t even have the option to ask for a fitness-for-duty certification (for uninterrupted work) at the end of the intermittent leave.


    As a result, employers with inadequate medical information must contend with issues that aren’t clear-cut legally. Consider these examples:


    An employee submits a medical certification for a one-month leave of absence due to a back condition. The employer knows that the employee recently started remodeling his house and suspects that he simply wants the time off to finish this project. The employer may have a legally sufficient reason to question the validity of the employee’s medical certification. Simply having know­ledge that the employee has started remodeling his house, however, without further information to support the employer’s suspicion, may not be enough to require a second opinion.


    A receptionist has been taking leave for depression for the past six weeks, and has just exhausted all of her paid vacation and sick time. She tells her employer that she has to return to work because she can’t afford to take unpaid time off, but she feels low and cries often. The next day, she submits a medical certification stating that she is able to return to work. Assuming that the employee does not consent to have the employer contact her doctor, the FMLA provides that the employer must reinstate the employee. The employer may have the option under the ADA, however, to require the employee to undergo a medical examination to verify that she is able to return to work.


    Employers should tread carefully in making medical inquiries, but not assume that all inquiries are forbidden. Find the thin line between overreaching and abandoning the fight altogether.


    Most important, don’t make the mistake of assuming the worst–that employers have no rights whatsoever regarding leave requests. Some employers give up trying to monitor their employees’ need for and use of medical leaves and in so doing encourage abuse of the system. It’s far better to adopt a consistent and well-considered practice of gathering information to the extent that the law permits. No doubt such a practice requires in-house training and occasional consultation with knowledgeable legal counsel. But when information obtained is sufficient to confront a suspicious leave request, the impact on the workplace culture is positive. Employees who know that their employer will not permit an unsubstantiated leave will be less inclined to misuse their leave rights. Although stressed-out Sam may not be dissuaded, the chances are excellent that other employees like him will be.


Workforce Management, April 2004, pp. 16-18 — Subscribe Now!

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Jac Fitz-enz, Metrics Maverick

In 1978, Jac Fitz-enz published an article in Personnel Journal (the predecessor to Workforce Management) titled “The Measurement Imperative.” In it, he proposed a radical, anti-establishment idea: that human resources activities and their impact on the bottom line could be measured. The reaction? Apathy. Disagreement. Disbelief.



    During a recent speech in Phoenix, the tireless 71-year-old corporate agitator zeroed in on what he has learned from all the fuss. “The secret to success, I’ve found, is to outlive the bastards who oppose you.”


    A quarter of a century ago, conventional wisdom held that human resources couldn’t and shouldn’t be measured, Fitz-enz says. “They told me HR was about truth and goodness and making life better for people.” What they told him, in effect, was to go away, and let the under-the-radar practice of human resources remain as it was. Fitz-enz did not fade away. Instead, he became a renegade pioneer who consistently championed the economic value of human resources despite the fact that initially, no one seemed to care. Over the last 25 years, he has nudged, prodded, poked, argued and written more words about the business effects of human resources than just about anyone else on the planet. Along the way, he has amassed an impressive résumé.


    Fitz-enz was the first to argue that human resources decisions affect real dollars and, consequently, have a real impact on the bottom line. He was the first to develop a set of useful and systematic measurements for practitioners to utilize in their companies. He established the Saratoga Institute, the first organization to gather and distribute solid benchmark data about compensation, staffing, hiring and retention. Today, the institute is world renowned for its work in providing executives with comprehensive human resources measurement and analysis tools. Fitz-enz is also the author of seven books and more than 160 articles and book chapters about measurement.


“I kept asking myself:
‘when are people going to get this?’”


    His steadfast crusade has inspired the work of countless other human resources visionaries, including John Sullivan, head of the Human Resource Program at San Francisco State University. “Jac has been a pioneer,” he says. “I’ve been developing HR metrics for 20 years, and I learned the basics from Jac.”


    Thanks largely to Fitz-enz, a majority of companies are now at least talking about the importance of measurement. “Jac started this conversation,” says John Boudreau, research director for the Center for Effective Organizations at the Marshall School of Business, University of Southern California. “He established very clearly the reality that you could measure a soft thing called HR. We couldn’t have gotten here without him.”


    Today, the unknown author who so annoyed readers back in 1978 is the undisputed father of human capital metrics, and his fans are legion. In February, Fitz-enz delivered a keynote talk to 200 at the Human Capital Metrics Summit in Phoenix. After his speech, several members of the audience stood in line like groupies waiting for Dr. Jac, as he likes to be called, to personally autograph his books.


    Although there’s little doubt that Fitz-enz will go down in history as a business visionary, his career began rather inauspiciously. Born and raised in Aurora, Illinois, he graduated from the University of Notre Dame with a bachelor’s degree in political science. He then spent three years working as a naval intelligence officer in Hawaii. Upon discharge, he moved to California and worked in a variety of line jobs, including sales positions for several companies.


    In 1969, after returning to college and acquiring a master’s degree in organizational communication from San Francisco State, Fitz-enz accepted his first human resources position, a job in the training department of Wells Fargo Bank. At the time, he says, the personnel department was populated by bankers who had failed at banking. Because the company didn’t know what else to do with these employees, they were shoved into the department that was regarded as a repository for second-class employees. “Personnel was housed in an annex to the main corporate office,” he says. “We were put there, I was told, so that we couldn’t hurt anybody. I’d come out of sales positions where I was considered hot stuff. To be thrown into the annex with failed people…that was tough to take.”


   Feeling angry, unappreciated and defensive, Fitz-enz began to gather data about the bank’s personnel department so he could demonstrate to line managers that the function did indeed have value. This was the first tentative step on a path that would eventually become a lifelong journey to prove the value of human resources. Fitz-enz started his research in the bank’s staffing department. He reviewed the time to fill job requisitions, the cost to hire new employees and the number of requisitions filled by given staff members. “It was all very basic: cost, time and quantity,” he says. “We were simply trying to justify ourselves.”


    The bank’s reaction to his reports was, in a word, underwhelming. Line managers, who believed it was impossible to measure a soft, feel-good function like human resources, reacted to his data with disbelief and derision. “It was a long fight,” he says, but after a few years the bank’s “brighter people,” as he calls them, began to see the wisdom of his work. In 1974, Fitz-enz left Wells Fargo and took a position with Imperial Bank in Southern California, where he’d moved to complete a doctorate in organizational communication at the University of Southern California. The bank had been founded by two former construction professionals who innately understood the importance of quantifying business activities. “They weren’t afraid to innovate,” Fitz-enz says. It was here that the young rebel began to shift from a defensive posture concerned with justifying the existence of human resources to an offensive position designed to prove the value of human resources.


“The HR manager before me had destroyed the department’s credibility, and it was my job to rebuild it.”


    Upon receiving his doctorate, Fitz-enz moved back to the San Francisco Bay Area and accepted a position with a computer company in the Silicon Valley. Only he didn’t call the department human resources. “The HR manager before me had destroyed the department’s credibility, and it was my job to rebuild it,” Fitz-enz says. “I changed the name to industrial relations to take away the stigma.” The move reflected his characteristic reluctance to accept the status quo. This is, after all, a man who dropped the k from his first name because he’d never liked writing the letter, and added a hyphen to his last name because he got tired of people mispronouncing it.


    While at the computer company, Fitz-enz grew more confident than ever that he could address bottom-line business problems through human resources activities. He started by implementing a supervisory training program. Survey results from before the training and six months afterward revealed significant improvements in product quality. “The improvements were so significant, I started looking around and wondering, ‘What else can I do?’” He then attacked hiring concerns and retention issues, and was soon being invited to the Monday morning executive meeting held by the CFO. Like other department heads, Fitz-enz, the company’s first human resources professional to attend these meetings, always had data to share about his department’s progress.


    Despite his reputation as a numbers guy, Fitz-enz insists that he didn’t start out intending to focus on metrics. “My goal was to find a way that HR activities could help improve decision-making in companies,” he says. “I was never that into numbers. I actually flunked math twice in high school.” And yet he intuitively knew that the only way he and others in the field could make a difference in their companies was by understanding metrics and being able to talk quantitatively with other executives. Since no other human resources executive was talking this way, Fitz-enz decided to start the conversation with his 1978 article in Personnel Journal.


    Looking back, it’s perhaps no surprise that the article was met with such contempt. In the 1970s, America was still very much a manufacturing-based economy, and most companies were involved in producing a product. Because of this, organizations were especially concerned about tangible assets such as plants, equipment and inventory. The idea that human resources and the department that manages them could affect the bottom line had not gotten much attention. “Jac was talking about the value of people years before anyone could hear the message,” says Nick Burkholder, president of Staffing.org in Willow Grove, Pennsylvania.


“My goal was to find a way that HR activities could help improve decision-making in companies. I was never that into numbers. I actually flunked math twice in high school.”


    Fitz-enz didn’t care. What he was concerned about was improving the ability of managers to make decisions. To make better decisions, they needed data, and Fitz-enz wanted to bring it to them. In 1980, the former math failure left the corporate world to start his own consulting company, the Saratoga Institute. He hung out a shingle and the response was, once again, underwhelming. Although he was spending all his time speaking and writing about metrics, his message did not find a ready audience, and for the first six years of the institute’s existence, Fitz-enz lived off credit cards. “Fortunately,” he says, “the interest was then tax-deductible.” In those early days, he admits, he was often frustrated by the inability of people in human resources to understand his message. “I got tired of talking to people who were unwilling to open their minds to new ideas,” he says. “I think I pushed too hard in the beginning. I got caustic. I kept asking myself, ‘When are people going to get this?’” Faced with a lack of money and a lot of resistance, he found other things to keep him going. “Stubbornness, for one thing,” he says. “But I was also in my 50s by that point. I had to make the company work because if I didn’t, I would probably never be hired for another human resources job.”


    Fitz-enz is a man who is highly articulate when speaking about subjects such as metrics. Measurement is his mantra. But when asked about his personal life, he is not forthcoming. In short, he raised four children, has five grandchildren, has been married and then divorced, and remarried two years ago.


    Although it was rough going in the early years, eventually the business landscape began to change and opposition to his message receded. The quality movement, the shift to a service economy, and the introduction of technology that made data gathering and analysis easier all helped executives accept the fact that human resources practices could be measured, should be measured and do have a demonstrable effect on the bottom line. Fitz-enz gleefully cites surveys revealing that 92 percent of CFOs now believe that human capital affects customer service, 82 percent believe it affects profitability and 72 percent believe it affects innovation. The idea that employees can have such a measurable business impact was unheard of when Fitz-enz began.


“Jac was the first person to get
people focused on metrics. Without him, we would clearly not be as far along today.”


    In the last 10 years, the practice of measuring workforce activities has become widely accepted, and some companies rely so heavily on metrics that they might not even be around if it weren’t for Fitz-enz’s early work. Outsource providers like Exult, for example, rely on data to prove to their customers that outsourced human resources services have value. “Jac was the first person to get people focused on metrics,” says Bruce Ferguson, Exult’s vice president of talent acquisition. “Without him, we would clearly not be as far along today.”


    Betty Silver, director of SAS’s corporate university in Cary, North Carolina, agrees. Her company develops business-intelligence software. She says Fitz-enz’s work has been instrumental in helping SAS determine what human resources analytics are necessary for companies to make good business decisions. “Jac partnered with us on the development of our human capital software,” she says. “This is a man who understands that HR is not a cost center but a revenue-generating facility.”


    In 1998, at perhaps the height of his popularity, Fitz-enz sold the Saratoga Institute to Spherion, but stayed on in a management capacity. In 2003, the company was sold to PricewaterhouseCoopers, and Fitz-enz officially retired from the institute. “It’s a testament to Jac’s work that Saratoga has been acquired by an accounting firm,” says Yves Lermusiaux, president of iLogos Research, a division of RecruitSoft based in San Francisco. “This shows you that people are now taking HR measurement seriously and looking at the financial consequences.”


    Fitz-enz’ reason for selling are simple. “I had to get my equity out,” he says. “I was 65 years old.” Freed from the day-to-day management of a consulting firm, he is still speaking, writing and consulting. But he is also looking forward to his retirement in about three years. His goal then? To golf. “I’m a seven handicap now. My goal is to reduce that to a four by the time I retire.”


    Three years from now, when Fitz-enz has little more to worry about than which club to select for a 95-yard shot from the rough, he’ll be secure in the knowledge that he has made a difference in the business world. Nick Burkholder likens him to John Harrison, the self-taught English clockmaker who in the 1700s invented the device that measures longitude, which made seafaring navigation much safer. “The implications of Jac’s work are just as great,” Burkholder says. “In fact, I would have left human resources if it weren’t for Jac’s work. He was a rock. He made me see what I could do with the function.”


Workforce Management, April 2004, pp. 49-52 — Subscribe Now!

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The Best Reward Practices of Successful Companies

A Towers Perrin’s survey released in December called “Rewards & Performance Management Challenges: Linking People and Results” outlined reward system tips from high performing companies the firm defined as those with 3 year total shareholder return and/or earnings growth that exceeds the median of their global industry groups. A total of 1,294 firms in North America, Europe, Asia and Latin America participated in the study.



1. Segment the workforce according to key company functions and high performers:

  1. customize reward plans to target business drivers.

  2. focus on individual performance and those worker ideas or action that impact the bottom line.

  3. strike a balance between absolute contributions and relative performance.

2. Look at the management of performance and rewards holistically.

  1. the reward models should be part of an overall company system.

  2. understand the cost and value of every program.

  3. strike a balance between fixed and variable rewards.

3. Training and communication about the reward program across the company are critical.

  1. employees should understand every aspect of the reward system, everything from its design to implementation.

  2. managers should be given extensive information on how to manage the reward system.

Workforce Management, April 2004, p. 46 — Subscribe Now!

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Ideas Aren’t Always Free

We all know that workers on the front lines are often the ones with the best ideas to help boost productivity and sales. But setting up a reward system for every bit of worker wisdom based on what each idea is worth might spell trouble.



    Alan G. Robinson, co-author of Ideas Are Free, due out this month, teaches at the Isenberg School of Management at the University of Massachusetts. He says his research has found that cash and nonmonetary one-time prizes are not clear indicators of employee motivation and can, in the long run, have negative effects on a company. In fact, he believes that such reward programs can lead to greed and fraud, and could end up costing more than they are worth.


He offers three examples:

  • A worker in one of Europe’s largest wireless-communication companies stumbled across an error in the organization’s billing software that was costing some $26 million per year in lost revenues. While he pointed out a simple way to fix it, the company’s CEO worked behind the scenes to block the idea. Why? The sizable reward to which the worker was entitled through the company’s suggestion system would have drawn embarrassing attention to the oversight.

  • Two workers at a top U.S. airline came up with an idea that brought in $3 million in additional profits each year. When they were given a paltry $1,000 instead of the 10 percent reward to which they were entitled, they took the airline to court. The case reached the California Supreme Court–twice, no less–and directly involved the airline’s CEO. The company ultimately abolished its suggestion program because of disputes over rewards.

  • At a midsize electronics company, a special committee selected the best employee suggestion on a quarterly basis. The worker with the winning idea was rewarded with 10 percent of the total cost-savings from the suggestion. It was later discovered that the committee’s chairperson, a top manager, had actually been gaming the system behind the scenes and, in turn, getting half of the amount awarded to each winner. By the time he was caught, he had ‘stolen’ nearly a quarter of a million dollars.

Workforce Management, April 2004, p. 44 — Subscribe Now!

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Gifts That Gall

Scott Testa, chief operating officer of Mindbridge Software, was proud of the employee incentive program he put together 18 months ago to light a fire under his sales force and inspire them to reach new sales heights. The prize: a long weekend at any destination the high-yielding salespeople wanted, with a cap of $3,000 for airfare and lodging.



    “How could this go wrong?” Testa recalls thinking to himself when he announced the reward program to the 15-member sales staff at the Norristown, Pennsylvania, software firm. “We’re a fast-growing company, and we’re always looking for good incentives to keep our people motivated.”


    Unfortunately, the reward plan that couldn’t lose did just the opposite of motivating his employees. It actually ended up demoralizing them. Testa realized he had set the bar for winning the trip too high. Even though the average salesperson brought in $200,000 a month, Testa formulated a reward criterion that was more than double the average take. Salespeople would have to bring in more than $500,000 a month for a whole year to qualify for the lavish trip.


    Testa admits that he came up with the sales figure “by the seat of my pants,” without any input from staff or his managers. “It just became obvious that the goal was not going to be met. I’d hear snide comments under people’s breath in the halls and in meetings, and finally a sales manager confided in me that the sales numbers were way too high,” he says. The program was dismantled within the first quarter of its introduction and eventually became an ongoing joke among the sales staff.


    Employee reward programs have long been touted as a great way to motivate staff, but companies are increasingly finding that they walk a tightrope in creating the right incentive plan. And given a still sluggish economy, it’s more critical than ever that the billions doled out each year for such programs be spent wisely as companies escalate their efforts to reward performance while keeping a lid on salary increases, says Ravin Jesuthasan, co-leader of the rewards and performance-management practice for Towers Perrin.


    “So many reward systems are ill thought out,” says Hellen Davis, president and CEO of Indaba Inc., a management consulting and training firm in Malvern, Pennsylvania. Such failures are not just a nuisance but also could make workers angry and lead to a loss in productivity and sales. She offers the example of a Fortune 500 insurance firm in California that rewarded some of its top salespeople with tickets to a Christmas pageant at a local cathedral. The only problem was that about a third of the firm’s sales force was Jewish.


    “The employees were upset and couldn’t believe they would give them a gift like that,” Davis says. “What was supposed to be a reward became a disaster for the company.” The workers ended up boycotting the firm for six months by bringing in only the minimum amount of sales on the insurance and investment products they sold. They wanted a formal apology from the CEO, but the executive was hoping the matter would just blow over.” Although the CEO finally relented, she says, it cost the firm nearly $750,000 in sales over that period and ultimately reached a loss of $1.5 million because many of the top producers left the firm as a result.


“How could this go wrong? We’re a fast-growing company, and we’re always looking for good incentives to keep our people motivated.”

    For a smaller company with under 100 employees, Davis estimates that the cost of a reward program gone bad could be as much as $200,000, including the cost of retraining workers and a loss in productivity, not to mention the intangible impact on employee morale. (And that’s above and beyond the cost of a typical recognition program, about 2 percent of total payroll for most companies, according to World At Work, a nonprofit human resources and benefits association in Scottsdale, Arizona.)


    Jesuthasan has seen a move away from lavish rewards in recent years. More firms, he says, are eliminating programs such as car giveaways and $1,000 bonuses for the employee of the month, and offering lunch with the CEO instead. Mindbridge Software’s Testa says one of the firm’s most successful motivators is the company-wide half-day outings that occur whenever a milestone revenue target is achieved. “Morale is really good after those events,” he says. “It allows people that wouldn’t associate in the office to talk and get to know each other.”


    There are several factors that pose problems for companies trying to craft award programs. The tight labor market has many workers just biding their time for better economic days and the chance at a new job. Also, a more diverse U.S. workforce presents challenges for company leaders who have to focus on revamping long-standing reward traditions and non-monetary prizes to accommodate different ethnicities and religions. Christmas hams, for example, might not go over well with Muslim and Jewish workers, says Bob Nelson, president of Nelson Motivation Inc., in San Diego.


    And in a time of layoffs and outsourcing, recognition and reward programs in general might not be the best remedies for motivating the rank and file. Management experts say that such programs could look like empty attempts to appease workers and end up backfiring. “We know that people have become disengaged,” says Curt Coffman, global practice leader at the Gallup Organization. “They are psychologically resigning but still staying on the job. I call them road warriors. They’re retired but still on active duty.” A poll he conducted in the fourth quarter of last year found that 55 percent of workers were “not engaged,” basically not committed to their jobs and doing the minimum amount of work. Another 17 percent were “actively disengaged.” Not only were they unhappy with their jobs, but they also were acting out that unhappiness every day. Only 28 percent were deemed “engaged,” and much of the innovation and drive for efficiency was coming from this group, he says.


    How do you get the disengaged to join the ranks of the engaged? Not outsourcing everyone’s job seems to be helping Milliken & Co., a textile firm with 13,000 employees headquartered in Spartanburg, South Carolina. While the economy and outsourcing abroad have hurt the textile industry in recent years, Craig Long, vice president of quality for the firm, says his company is committed to producing domestically sold goods in the United States.


    Management experts often point to Milliken as a prime example of employee motivation even though the company doesn’t focus on monetary rewards.


    In 2003, the firm received an average of 115 ideas per employee, and of those 90 percent were implemented. The workers were not given mugs or trips as an incentive to come up with ways to increase productivity or sales. The reward was that their ideas would be implemented. And one of the keys, Long adds, is that managers promise to let workers know within 72 hours whether their ideas will be used.


    Dean Schroeder, the Herbert and Agnes Scholes Schultz professor at the College of Business Administration at Valparaiso University, has researched Milliken’s idea system. Though Milliken officials don’t disclose company ideas that it has implemented, Schroeder, who is also co-author of Ideas Are Free, says that one example is an idea that came from a dock worker. The employee, who was almost run down by a truck driver backing up a ramp to unload materials, suggested escape ladders be put in loading areas.


“We find that the recognition rewards like salesperson of the year, manager of the year, while they feel good at the time, are not effective. They become a whose-turn-is-it-next program with little clarity. What goes into this award? What is excellence?”

    But even the best employee motivators make mistakes. Milliken offers employees at its 57 plants, mainly in the Southeast, the chance to win a parking space every month if they meet certain productivity or sales goals. On one occasion a lab technician at the company’s headquarters refused to park in the space right outside the main entrance. “We went and talked to the lady,” Long recalls, “and she said, ‘You picked the space where you wanted to park. I work on the other side of the complex and would have to walk a quarter mile to get to my office.’ “


    “It was one of those lessons learned,” Long adds.


    And forget about reward mainstays, Coffman advises. “We find that the recognition rewards like salesperson of the year, manager of the year, while they feel good at the time, are not effective. They become a whose-turn-is-it-next program with little clarity. What goes into this award? What is excellence?” Most incentive plans today, he says, do not clearly answer these questions. Another big problem, Coffman says, is that awards tend to be impersonal and happen far from the actual employee action, sometimes a year after the fact. Basically, he says, the recognition should come about every seven days, whether it’s an “attaboy” or “I noticed how you handled that customer.”


    The best reward occurs in real time between two people, Coffman says. That means companies have to take a hands-on approach when crafting reward plans. It’s not necessary to pay out upwards of half a million dollars a year to an outside employee-recognition firm to figure out what works best internally, he says. It might be easier and less expensive than you think. Coffman admits he’s even learned from his own mistakes. One of his top performers at Gallup was very focused and was often on the phone with his office door closed. Coffman would write notes of appreciation and slide them under his door. But on one occasion, the employee came flying out of his office saying, “Don’t you have the courage to open the door and do it to my face?”


Don’t underestimate the personal touch
    A top producer at an insurance company who was repeatedly named salesperson of the year and received an endless array of trophies and plaques finally stopped coming to the reward ceremony. One wise manager took note of his absence, Coffman says, and asked, “What’s important to this individual?” The manager realized that the man’s wife and three daughters were the focus of his life and the next year gave the salesman a portrait of his family. The worker was overjoyed at the gesture.


    But even the best-thought-out reward plans can fail, for no apparent reason. In 2002, Cheryl Creuzot, managing partner of a Nationwide/Provident agency in Houston, found her branch in the midst of a “horrible” economic downturn. She decided to offer a one-year lease on a BMW to encourage her employees to increase production. “Houston was hit hard, and it was like a virus sort of spread through our office. There was nothing you could do to get our people out of it,” she says. She spent about $1,500 promoting the reward program, giving every worker a metal model of a BMW to display on his or her desk. And she got feedback from her employees on how high to set the annual sales targets, which varied according to experience.


    “Nobody won,” says Creuzot, still surprised at how things transpired. “I don’t know what happened. It could have been that the contest dragged on too long and people lost momentum. Maybe it was because we didn’t have a bell cow that year, a leader in production to pull the rest of them ahead.”


    One big motivator for her staff has been a corporation-wide recognition program that Nationwide/Provident has conducted for many years that combines rewards with education and career development. Every year, the insurer’s staff is eligible for a chance to attend a leadership conference, which is held at a resort, if they hit certain annual sales levels. The prize is tiered, offering higher performers more days and more amenities at the resort. But employees are expected to attend motivational, technical and developmental meetings each day starting at 8 a.m. and socials in the evening where they can network with other Nationwide/Provident sales staff. This past February the event took place at a resort in Cancún.


“Nobody won. I don’t know what happened. It could have been that the contest dragged on too long and people lost momentum.”

    “I think the conference drives my employees,” Creuzot says.


    There might be something to rewarding workers with career-enhancing opportunities, beyond the sun and fun. In a recent Towers Perrin survey called “Rewards & Performance Management Challenges: Linking People and Results,” 60 percent of the highest-performing companies reported that they reward their best workers with training and development opportunities. There’s nothing wrong with rewarding individuals for performance, but beware of creating “stars,” cautions Wendy Greenfield, president and founder of WM Greenfield Associates, a consulting and training firm with a focus on workplace ethics. This works directly against a company’s effort to foster a team mentality, she notes.


    “It’s not going to be the superstar that gets you through the tough times,” says Leslie Fishbein, president of Kacey Fine Furniture, a six-store furniture chain in Denver. Her company focuses on rewarding not just an individual but a group and doesn’t engage in handing out lavish trips or cars. This past February, the company implemented a program in which every department and every category of the company is supposed to come up with ideas to generate sales. The winning team gets a chance to execute the idea within a 90-day period and increase the value of the company. Since the company offers profit sharing, Fishbein says, there is a potential for a monetary reward down the line.


    There are still those firms that find success in more traditional, seemingly outdated reward systems. Mark Metz, chief executive officer of Atlanta-based Optimus Solutions, is more than happy with his Porsche Incentive Program, which gives any salesperson with over $1.1 million in profit margins annually a one-year lease on a Porsche 911. On average, 10 to 15 percent of his 70-member sales team win a lease each year. He estimates that the program costs him about $100,000 each year for a return on investment of $400,000 to $500,000. “It’s been excellent from a sales perspective,” he says, and has helped with retention and recruiting.


    However, he admits that there has been some dissension among other workers at Optimus, a technology solutions provider, which employs 300 workers. The program is open only to sales staff. “We have had some people say that they wanted the opportunity to drive a Porsche,” he says. “But we explained to them that if the salespeople are real successful, the rising tide lifts all boats.”


Workforce Management, April 2004, pp. 43-46 — Subscribe Now!