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The China Puzzle

When U.S. consumer electronics giant Motorola set up operations in China in the late 1980s, Chinese job candidates asked a question that startled human resources executives. Would the company provide them with a place to live? “At that time, there were a limited number of commercial apartments in China, and it was hard to get a bank loan to buy one,” says Cindy Xing, Motorola China human resources director. Realizing that housing would be a powerful lure for quality applicants, the human resources team convinced top management to erect apartment buildings and offer loans so that employees could buy their own units.



    Motorola offered other benefits as well that would have been highly unusual in the United States–free multi-course lunches at the corporate cafeteria and free transportation to work in a company-owned bus that picked up employees at their homes each morning. The firm also instituted a training program for new hires, who were presumed to be unfamiliar with Western-style time management, to teach the meaning of terms such as “defer tasks,” “set priorities” and “delegate responsibility.”


    A decade and a half ago, Motorola and other major companies were dazzled by the allure of an immense Chinese market with 1.3 billion potential consumers, and they made many such adjustments. The firm’s experience in China tells much about the complexities of employee issues on a global scale. And it highlights this overarching theme: That understanding how to manage people from China is, and will continue to be, a critical component of competitive global strategy.


    In recent decades, there have been several fundamental concerns for Western companies in China. One is learning how to manage a socialist workplace culture in which employees depend on their state-run employers for housing, food, transportation and other necessities. American managers also have been baffled by guanxi, the venerable Chinese practice of developing and nurturing intricate networks of personal relationships, sometimes giving them priority over bottom-line performance.


    The Chinese, in turn, have struggled to grasp Western-style business practices. Instead of an emphasis on process and integration across the business, for example, they are more accustomed to compartmentalization and diligent adherence to taking orders from above. Shortages of Chinese with Western-style business degrees and English-language skills have meant that many operations had to be run by expatriate managers, who were at a disadvantage in understanding the environment. “China was confusing to a lot of companies,” says David Ahlstrom, an associate professor of management at the Chinese University of Hong Kong. “They couldn’t just import human resources systems from overseas. They knew things had to be different, but they weren’t sure how.”


    In China, as in other countries, subtle nuances often make the difference between workplace success and failure. Motorola, which opened an office in Beijing in 1987 and a $120 million manufacturing plant in Tianjin in 1992, learned, for example, that the English word four is pronounced the same way as the Chinese word for death, a bad omen. The company quickly modified its cell phones so that they wouldn’t flash a row of fours.


    Today, about 10,000 foreign-owned enterprises in China, including big American names ranging from Amway to Warner Bros., are players in an economy that’s growing at an explosive 7 percent rate. And thanks to China’s admission to the World Trade Organization in 2001, which reduced tariffs against Chinese products, business prospects are likely to grow even more promising. With this stunning growth, global companies are facing an array of new human resources issues such as retaining Chinese managers with business-school degrees and multinational experience, and the complicated process of transitioning from expatriate to “local” management. Consultants and academic experts say that taking multinationals’ human resources programs to the next level may demand even more skill and ingenuity than it has in the past.


Reshaping Chinese business culture
    When multinationals first opened their doors in China, some of the cultural problems they faced were mind-boggling, says Ahlstrom, who has studied human resources practices in China extensively. Chinese employees had been brought up in a tightly controlled, rigidly hierarchical socialist society, and they tended to be uncomfortable thinking independently because they were used to following orders precisely. He cites an example of a secretary who didn’t refill the paper in the fax machine for two or three days because nobody had told her to do it. And because of cultural differences, employees might drive their expatriate supervisors to distraction by answering questions with an exactness that left out important information. “An example would be, if you asked if there was a bus that left from the train station, someone might tell you no, but not tell you that there was a bus stop two blocks away,” Ahlstrom says. Such rigid adherence to orders was a virtue in the stagnant culture of state-run enterprises, in which workers were more likely to be punished for failures than rewarded for showing initiative, he notes.


    While the Chinese educational system produces virtuoso technical experts–37 percent of Chinese university students earn engineering degrees, compared to 6 percent in the United States–there has been little emphasis on managerial skills. Even for those with management training and experience, the concept of utilizing middle managers to coordinate and improve the production process is new in China.


    “Traditionally, orders have gone down from the top and progress reports have gone up,” says Kenneth Lieberthal, a professor of corporate strategy and international business and the Director for China at the Davidson Institute at the University of Michigan. “The process was very compartmentalized, like one of those Chinese medicine cabinets where there are a hundred drawers, each with a character carved on it representing a different herb. They were great at pigeonholing things, but there wasn’t any optimization across systems. You’d find a production line where one part had very advanced machinery that milled a product down to a fine tolerance. Further down the line, where a different part of the organization was buying and using different equipment, the machines would be gouging holes in it. Managers weren’t trained to look for bottlenecks.”


    At the same time, the Chinese–who actually invented performance management in the 16th century with a system for evaluating imperial officials–bring some powerful ideas and talents to the multinationals. Ming-Jer Chen, founder of the Wharton School’s Global Chinese Business Initiative, notes in his 2001 book Inside Chinese Business that the traditional emphasis on cultivating trust-based personal relationships (guanxi at work) with partners, vendors and customers makes it easier to adjust to market shifts and opportunities. And Chinese orientation toward polychronic, or “many-timed,” thinking helps Chinese managers to juggle many tasks simultaneously, rather than prioritizing some but neglecting others, as an American might.




“The process was very compartmentalized, like one of those Chinese medicine cabinets where there are a hundred drawers, each with a character carved on it representing a different herb. They were great at pigeonholing things, but there wasn’t any optimization across systems.”


    In recent years, many workforce-management issues have changed, in part because of the growth of Chinese business schools, which are partially subsidized by multinationals. Motorola, for example, established its own Motorola University program in Beijing in the early 1990s to provide its Chinese employees with business school training. One component of that curriculum, the year-and-a-half-long China Accelerated Management Program, includes classroom work, a rotation through various jobs at the company, mentoring by expatriate coaches and an opportunity to shadow a middle manager on the job. In addition to training its own employees, however, Motorola has helped improve the larger pool of potential management candidates by underwriting another program, in which more than 200 instructors teach 130 different business courses at various Chinese universities. Multinationals also are required to pay a fee–usually around $1,500 to $2,000 per student––to compensate universities for the cost of training the graduates they hire.


    Finally, global corporations also can tap the increasing number of Chinese–400,000 over the past two decades–who study at universities in the United States and other countries. At the University of California-Irvine, for example, about 10 percent of the students earning graduate business degrees are from the Chinese mainland, according to associate dean and professor John Graham. After a decade of such effort to improve business education, Chinese management candidates today tend to be much more personally ambitious and savvy about business practices and workplace culture, say human resources consultants and academics. (One recent study shows that 94 percent of Chinese university students are trying to master a foreign language, usually English.)


    Nevertheless, multinational managers encounter difficulties operating in a socialist country, such as pressure to hire employees who’ve been downsized from failing state-run enterprises, says Frank Gallo, managing consultant for the Chinese office of Watson Wyatt Worldwide. “It usually works like this,” he says. “If you want to open a plant in such and such a province, we’ll give you a license, but you must agree to hire x number of people who were recently downsized, or you must provide x amount of money to help fund a retraining program or a new highway project that can be used to employ these people.”


    Providing benefits to workers can also be maddeningly complicated. “In addition to the salary, you end up paying the equivalent of 50 to 100 percent of base pay in other costs,” says Vincent Gauthier, general manager of the Hong Kong office of Hewitt Associates. “You’ve got government-required housing, unemployment and pension benefits, and the contribution rates vary from city to city. The result is that if I’m a big company with 15 locations in China, I’ve probably got 15 different compensation rates for employees.” Additionally, Gauthier says, companies typically must offer supplementary benefits on top of the requirements to compete for top talent.


Recruiting and retention remain major issues
    Even with their efforts to promote business-education programs, multinationals’ operations are growing so rapidly that in a recent Hewitt Associates study, 57 percent of the 1,000 companies surveyed in Asia said they’re worried about retaining qualified management talent. Motorola copes with the tight market in part by utilizing the Chinese practice of guanxi, says former Motorola human resources manager Greg Wang, associate director of the Workforce Development Campus, a program at James Madison University in Virginia. When a department has a job opening, he says, it’s customary to first turn to the employees and ask them to help with the search by contacting their own personal networks of college classmates and former coworkers at other jobs. “Only after you exhaust all those possibilities would you go to a headhunter,” Wang says. (Guanxi is perhaps more universal than is widely known. Several recent reports on recruiting in the United States show that employee-referral programs are by far the most effective way of hiring outside recruits.)


    Hewitt Associates’ Gauthier says that corporations in China have annual turnover rates of 11.5 percent, two to three times the global average. In some sought-after specialties, such as marketing and finance, turnover may approach 25 percent. “The companies are at the point where they’ve got people who’ve been in their system for 10 years and have education and a track record, and everybody wants those guys,” Ahlstrom says. It’s not just the big multinationals going after each other’s talent. In recent years, an increasing number of midsize U.S. firms that supply the corporate giants with electronic parts and other wares have set up shop in China. Consultants say that these companies often try to make up for their late start by bidding up the price for talent. Additionally, even state-run enterprises, under pressure to compete for their very survival, are trying to lure away multinationals’ local middle-management talent. Motorola, in partnership with the Chinese government, is helping to mitigate the problem by operating a training program to improve efficiency and quality-management skills at state-run companies.




Guanxi is perhaps more universal than is widely known. Several recent reports on recruiting in the United States show that employee-referral programs are by far the most effective way of hiring outside recruits.


    One problem is that the retention tactic favored in the West–using stock options and grants to reward employees for staying with the company–doesn’t work as well in China, Ahlstrom says. “In China, the IPO market and the financial markets are very tightly controlled by the government, and you might run into legal problems if you give Chinese employees shares from outside markets. So you have a lot less flexibility.” Health insurance and other benefits are more powerful selling points for recruiters in China, Ahlstrom says. “China is trying to set up the equivalent of Social Security, but it’s not there yet. And the health care provided by the government is inexpensive but inferior in quality.”


    Motorola China, which doesn’t disclose its retention rate, opts for a different approach. It emphasizes career-development opportunities rather than riches. Cindy Xing touts the company’s Individual Development Program, in which human resources managers meet with employees to discuss their professional goals and help identify things the company can do to provide them with opportunities for advancement, from coaching and mentoring to special job assignments.


The challenge of localizing
    Today, multinationals are moving aggressively to “localize” their operations, hiring Chinese talent to fill positions once held by expatriates. The demand for expatriate managers has declined, in fact, to the extent that salaries for expatriate factory managers have dropped as much as 25 percent in the past few years, according to a recent article in the South China Morning Post. “Local talent is cheaper, they know the Chinese language and they have superior cultural skills, such as utilizing guanxi networks and dealing with local political officials,” says Geoffrey Lieberthal, the son of Kenneth Lieberthal and a consultant with Bain & Co. in San Francisco who analyzes Chinese business. Motorola, whose Chinese operation has 12,000 employees and accounts for 15 percent of the company’s total revenues, has been especially successful with its localization efforts. In 1994, 11 percent of the company’s middle managers were Chinese nationals. Today, the number is 84 percent.


    Motorola’s conversion wasn’t necessarily smooth, Xing says. Initially, expatriate managers were unwilling to pass along knowledge to the Chinese staff because they wanted to hang on to their jobs. After several years of this, Motorola began stipulating in expatriate managers’ contracts that they had to train a local successor within two to three years. To give the expatriates an additional incentive, the company began offering them better jobs and/or richer retirement benefits in the United States if they helped localize Chinese operations. “As a result, the foreign experts were very glad to train the local staff,” Xing says.


    Ahlstrom says multinationals also can boost retention by capitalizing on another aspect of Chinese culture–employees’ strong loyalty to their families, which he says is typically far stronger than their link to any employer or organization. Hiring the wife of a valuable employee, for example, might be viewed as unseemly nepotism in the United States, but in China it can be a way of cementing the tie between that employee and the company.


    But not all of the effects of localization are good, some observers warn. “The downside is that [local Chinese] may not have the same grasp of the multinational’s strategy and how to be effective within the company,” Geoffrey Lieberthal says. Wang makes a related observation. He recalls that by the end of his tenure at Motorola, written communication was in English but at least 80 percent of the conversations among employees were in Chinese. “If there were no expatriates in a meeting, the oral communication might be 100 percent Chinese, except for maybe a few key terms in English,” Wang says.


    While such a shift may foster communication and guanxi within the subsidiary, it also can create havoc for executives from the U.S. headquarters who need to know what’s going on at the company in China. And in the absence of an expatriate manager to keep the peace, Wang and others say, friction may develop between Chinese with “local” education and those with U.S. or European business degrees, who tend to have more status and higher pay. Xing says that Motorola doesn’t have this problem because the skill and knowledge gap between foreign and locally educated workers is diminishing, which in turn is causing the wage differential to shrink.


    As conducting business in China becomes more widespread and knowledge of the culture more acute, the comfort level for corporations is increasing. One sign is a new willingness to reconsider the perquisites that multinationals once thought they had to lavish upon employees. When Wang started at Motorola, he recalls, the firm provided free elaborate multi-course meals at the company cafeteria. By the time he left the country in the late 1990s, the organization had begun charging for the meals, but it issued employees debit cards that covered part of the price. Similarly, he says, Motorola found that instead of providing buses, it was more cost-effective to simply reimburse employees for cab fare. The examples are an indication that Motorola is developing a defter feel for what it takes to keep Chinese employees happy. “When I was there [in the late 1990s], I hired a guy from a Chinese university, and I tripled the pay he was getting,” Wang says. “Now, that made him very happy.”


Workforce Management, December 2003, p. 28-33 — Subscribe Now!

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Whats Important to Working Retirees

Benefits and Employer Characteristics Important to Working Retirees
    When asked to rate the extent to which a variety of job attributes are important to them in their work, approximately half of working retirees indicate that the following attributes are “very important:”

  • working in an environment where employee opinions are valued

  • being able to take time off to care for relatives

  • working for a company that lets its older employees remain employed for as long as they wish to work

    Other attributes considered “very important” or “somewhat important” by at least two in three respondents include having new experiences, being able to learn new skills, and being able to set your own hours.

Importance of Selected Benefits and Employer Attributes in Retirement Work
Base = Working Retirees (364)
Sorted by “very/somewhat important”)		 Very important
%		 Somewhat important
%		 Very/Somewhat important
%
Working in an environment where employee opinions are valued 53 29 82
Having new experiences 31 43 74
Being able to learn new skills 33 39 72
Being able to take time off to care for grandchildren, parents, or
other relatives		 46 26 72
Working for a company that lets its older employees remain
employed for as long as they wish to work		 45 25 69
Being able to set your own hours 40 26 66
Working for a company that offers employment opportunities to
retirees		 32 25 57
Being able to work a reduced schedule for a period of time before
you retire completely		 30 26 56
Working for a company that offers a good pension plan 30 19 49
Working for a company that offers health benefits to retirees 34 12 46
Working for a company that offers good health benefits 31 13 44
Being able to work from home 19 16 35
Working for yourself or starting your own business 22 10 31

    The degree of importance attached to the above attributes varies among the following groups of working retirees:


  • Women are more likely than men to desire the ability to set their own hours.

  • Working retirees aged 55 to 59 are more likely than their older counterparts to attach importance to good employer-provided health benefits.

  • Compared to those with a post-graduate degree, those with less education are more likely to value health benefits for retirees, the ability to take time off to care for relatives and the ability to set their own hours.

  • Compared to married individuals, those who are divorced, separated or widowed are more likely to desire employer-provided health benefits.

  • Self-employed individuals are more likely than working retirees who are working for someone else to value the ability to set their own hours, work from home and work for themselves. In contrast, those who are not self-employed are more likely to value good health benefits and pension plans, as well as employers who value employee opinions and who let older employees remain employed for as long as they wish to work.

From Staying Ahead of the Curve 2003: The AARP Working in Retirement Study.

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Chiropractic Care Blamed For Higher Workers’ Comp Costs

W hile many injured workers may swear by chiropractors, most employers are more likely to swear at them when they see one listed as a treating physician on a workers compensation claim.



    Unchecked chiropractic care can, and often does, drive up the cost of medical care, many employers assert.


    But there are times when chiropractic care can actually save employers money in temporary disability costs by returning injured employees to work faster, some workers comp experts say.


    The key, they say, is to monitor treatment to ensure that claimants are receiving appropriate care.


    In workers comp cases in which chiropractors are the exclusive provider, total costs per claim are 16 percent to 25 percent higher than in cases in which care is directed by physicians, according to a 2002 study by the Boston-based Workers Compensation Research Institute. Medical costs are 17 percent to 21 percent higher in chiropractor-treated cases when considering the costs of complete medical treatment, including physical medicine, radiology, supplies and drugs, the study also found.


    “It’s the kiss of death whenever I see a chiropractor on a claim,” said Nancy Axtell, director of safety and risk management at PRIDE Industries in Roseville, Calif. PRIDE specializes in placing disabled workers in jobs. “They’ll treat the patient for the rest of their lives.”


    In fact, Ms. Axtell says she has several claims in which chiropractors have been treating claimants for a year or more after an injury.


    “I believe there are some reputable chiropractors out there,” she said. “But once they get in the comp system, it’s like giving them an open checkbook.”


    Ms. Axtell said the situation is particularly acute in California, which recently enacted legislation to limit the number of chiropractic visits workers compensation claim-ants may have.


    “In California, employees can sign up to use chiropractors as a comp doctor,” she said. Under state law, an employee can predesignate whom he or she would like to have as a treating physician when the individual is injured.


    And even in cases where the employee did not predesignate a physician, “the employer has only 30 days of control,” she said, after which the injured worker is free to “doctor shop” until finding one he or she likes.


    “There are some people who can get better faster with manipulation,” observed Dr. Charles Kelley, who heads up the workers compensation program at Outrigger Enterprises Inc. “On the other hand, there are some chiropractors who use long-term manipulation as a therapy, and that just adds to the cost,” said Dr. Kelley, who is director of sales-special markets at Outrigger in Honolulu.


    “If you have a patient who has an underlying need for attention and medical care and perhaps they have some underlying personality disorder, they can get into the hands of a provider who’s being paid to treat them, and it could go on forever,” he said.


    But not all chiropractors are bad actors, asserted Tara Schilling, senior vp at Keenan & Associates in Torrance, Calif., a broker that provides third-party administration services for workers compensation.


    “Everybody is jaded on chiropractors, and all you’ll hear is horror stories; and there are a lot of them,” she said, “but there are chiropractors that help people.”


    Ms. Schilling cited two “success stories” to support her assertion.


    In one, an injured worker who was getting no relief after five weeks of physical therapy was referred to a chiropractor. The chiropractor treated the claimant for two weeks, and the claimant returned to work. The temporary disability savings amounted to $1,508, and avoiding litigation saved the employer an estimated $5,000.


    “He was threatening to go to a lawyer,” she explained.


    In another instance, a claimant seeing an orthopedic specialist whose prescribed treatment included wearing a back brace, medication and physical therapy was referred to a chiropractor.


    “He had two adjustments and was back to work the following week,” said Ms. Schilling, adding that the temporary disability savings to the employer amounted to approximately $3,500.


    “There are clearly subsets of chiropractors out there who are overutilizing, and this overutilization of care, does, in fact, drive up the cost of workers compensation claims,” said Dr. David Deitz, national medical director at Liberty Mutual Insurance Co. in Boston. “I think what’s a mistake is to automatically assume that all chiropractors are practicing the same way. There are chiropractors in the United States who practice appropriately and who do good physical med-icine treatments and take good care of claimants.”


    While moves by states such as California and Florida to limit chiropractic visits may offer a partial solution to the problem, they are not the cure, according to Dr. Deitz.


    “It’s a quick fix to a complex problem. It’s certainly worked in Florida, where costs have been reasonably well managed with their regulatory solution,” he said.


    In Florida, where chiropractic visits were limited by law to 18 visits over eight weeks, medical costs per claim average 20 percent less when chiropractors are directing care than when physicians are in charge, according to the WCRI study.


    But the Florida Chiropractic Assn. has since successfully lobbied to raise the limit to 24 visits over 12 weeks.


    Perhaps a more effective way to ensure claimants are receiving appropriate chiropractic care is to monitor the treatment, intervening where necessary, and measure outcomes, according to Dr. Deitz.


    “When we find that we have people whose treatment plans are off track and are involved with multiple visits and things like that, we try to move those cases not only to case management but, if necessary, to medical peer review, as quickly as we can,” he said.


    Ms. Schilling concurred.


    “As a third-party administrator, what we do is put a nurse case manager on the case,” she said. “They facilitate the injured worker’s getting to a permanent and stationary status. And that’s critical, because medical treatment–whether it’s chiro or orthoped–runs rampant.”


    Using prescreened network chiropractors can also ensure quality treatment, said Fred Scardellette, vp of product development and marketing in disability management at Intracorp in Philadelphia.


    “Use of a network can result in unit cost reductions of 10percent to 25 percent,” he said. “For best results, a network must include providers of the most-utilized treatments.”


Source: Business Insurance magazine.

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Transitional Duty Pays Off For Everyone

Dannon Yogurt knows that the best-laid plans for workplace safety can’t prevent every injury. The Fort Worth, Texas, food-products giant emphasizes safety precautions as the greatest preventive measure. But Dannon also has a transitional-duty program, which aims at getting injured employees back on the job as soon as possible for their own physical and mental well-being, and for the fiscal health of the company.



    Working with medical doctors, Dannon officials modify an injured employee’s existing job whenever possible. Sometimes, however, an injury is so severe that even modified duty is impossible. On those occasions, the Volunteer Center of North Texas tries to match Dannon employees with local nonprofits in need of additional short-term staff.


    Lending out employees as local volunteers, with the approval of their doctors, has had a big impact on Dannon’s bottom line. The company has reduced lost workdays by about 30 percent. Medical costs dropped between 32 and 35 percent. Recovery time has been slashed 27 percent. “The program reinforces the habit of going to work each day, which is a very strong trait. The quicker employees get back to doing work, the quicker their healing,” says Joe Baldwin, Dannon’s workplace safety manager. JPS Health Network, a Fort Worth hospital, has been a chief beneficiary. One Dannon employee puts in a 40-hour workweek at the hospital’s gift shop, and another night-shift employee mans the information desk for five hours each evening. “Volunteers are getting harder and harder to find. That’s why Dannon’s program appealed to us,” says Traci Day, the hospital’s director of volunteer services.


    Dannon pays a portion of the employees’ wages while they work for nonprofits. Baldwin says the payoff comes in the form of reduced insurance premiums. Plus, getting workers healthy quicker helps reduce the length of time that replacement workers are on the payroll.


Improving the odds
    It’s not hard to figure out why companies like Dannon want creative strategies to rein in the runaway costs of medically related absences. The likelihood that a person will return to work decreases with each passing day, from 90 percent at four weeks to a mere 2 percent after 52 weeks, according to a joint study by Intracorp, the Washington Business Group on Health and the Journal of Workers Compensation. The same study found that employers could save $3 to $10 for every $1 invested in a return-to-work program. Employers benefit by potentially reducing premiums for workers’ compensation.


    A recent survey of more than 720 employers by Mercer Human Resource Consulting and Marsh Inc. found that workers’ compensation costs jumped 20 percent in 2001. Employees likewise gain by going back on the payroll, earning more than they would from workers’ comp. They also accrue benefits and don’t go back to their regular jobs out of shape and prone to re-injury, experts say.


    “Companies are more inclined to have transitional-duty arrangements with nonprofits today, particularly when an injured employee can’t be placed in a modified job at the company,” says Anne Ritter, senior vice president with Aon Workforce Strategies in Shelton, Connecticut.


Unexpected thanks
    Spherion Corp., a staffing company with 4,000 employees and $987 million in revenue, unveiled a transitional-duty initiative in 2000. About 700 workers have qualified for it, and most have been given medically approved modified jobs by their employers. About 70 people–10 percent of those in the program–have been placed at community charities or other nonprofit organizations for transitional duty.


    “Transitional employees go back to work at full duty usually about 30 days sooner, so that reduces the wages and the medical expenses we have to pay,” says Susan Shemanski, Spherion’s director of claims. “They’re back into the productive workforce, and we’re able to bill clients for them again.”


    It’s not every day that an employee expresses gratitude for going back to work. So when Shemanski received such a telephone call six months ago, she was understandably delighted. On the other end of the line was a man who had suffered a leg injury at a manufacturing facility, causing him to miss several weeks of work. Fortunately, he had qualified for transitional duty. As soon as doctors gave the go-ahead, Spherion loaned the man out as a volunteer to a local charity, and the company continued to pay a portion his salary–more that he would receive on workers’ compensation. He was given restricted duties and spent part of each day helping out with various tasks, such as repairing small equipment. In addition to receiving the emotional lift of resuming work, the employee rebuilt muscle strength and started earning a regular paycheck again. “He called to thank us for placing him in the program, since he had been worried that he wouldn’t get back to work after his injury,” Shemanski says.


    Indeed, physical recovery isn’t the only issue for injured employees while they’re missing work. They also must deal with loneliness, doubt and worries about their future. “The longer that people are away from their jobs, the more difficult it becomes for them to return to the workforce in any form,” says Jeffery Jordt, a Chicago-based senior vice president with The Segal Company, a consulting and actuarial firm. “On-the-job rehabilitation plays a critical role in recovery. It targets in a person’s mind that there is an expected date for [full] recovery.”


A transition that leads to change
    Comcast Corp., a Philadelphia-based cable services company with about 50,000 U.S. employees, offers transitional-duty assignments, although it doesn’t have an arrangement with nonprofit organizations. Instead, Comcast has a wide range of jobs that can be restructured to get employees back to work as soon as is practical. When one of its technicians fell off a ladder last year, sustaining several bone fractures, Comcast designed a modified job with restricted duties that were specified by doctors. The job was in sales, a completely new field for the employee, but it was work.


“The longer that people are away from their jobs, the more difficult it becomes for them to return to the workforce in any form. On-the-job rehabilitation plays a critical role in recovery. It targets in a person’s mind that there is an expected date for [full] recovery.”


    Serendipity then took over. Knowing the ins and outs of cable systems helped the erstwhile technician readily adapt to selling. By the time he was cleared to return to full-time duty, the employee had decided he preferred sales to climbing ladders. He turned in his tool belt and never looked back. “He wound up staying in the sales position and got a higher-paying job as a result,” says Andrea Smetana, a Comcast claims manager.


More than a nice gesture
    Still, companies don’t implement transitional or modified-duty plans merely to be nice to employees. Research suggests that return-to-work strategies help curtail the rising costs of unscheduled absences, which cut into productivity and eat away at profits. Direct costs of unscheduled absences, including those for workers’ compensation, disability and family and medical leave, average 4 percent of payroll, according to another study by Mercer Human Resource Consulting. Indirect costs–overtime, lost productivity, and hiring and training replacement workers–could be two to three times higher.


    What’s more, employers don’t have a lot of control over workers’ compensation costs, which get paid out over many years. Those costs mount over time and put a drag on a company’s balance sheet. Ritter of Aon knows of one 35,000-employee company that’s facing about $120 million in workers’ comp payments during the next 10 years. And that isn’t unusual, she says. Transitional duty is “not only about trying to get people back to work, but also about controlling costs,” she says.


    Also, insurance companies put pressure on companies to cut disability claims, either through safety initiatives or by getting workers to resume limited duties more quickly. “Insurers know full well that the longer someone is off work, the more expensive a claim becomes. And it goes up exponentially,” says James Kremer, vice president of workers’ compensation with Workers Transition Network, a third-party administrator in Deerfield, Illinois.


    Premiums sometimes have little bearing, though. Comcast, for instance, carries “very high deductibles” and has never gone above them, according to Smetana. The goal is to keep medical payouts as low as possible. “We’re playing with our own money, so we want to be very careful how we spend it,” she says.


The downside risks
    There is danger in putting too much emphasis on controlling costs. Companies should never make employees feel as if money comes ahead of their well-being, says Bill Catlette, an independent human resources consultant and founder of The Westar Group in Memphis. “That just leaves people with a bad taste in their mouths [and reminds them of] managed care,” he says.


    A March 2003 study by the Hartford Financial Services Group found that 73 percent of companies offer temporary alternative assignments for injured workers. Despite that, the study found, only 33 percent have adopted formal return-to-work plans. A principal reason could be the way that many companies are organized. Jordt says transitional and modified-duty jobs must have the buy-in of supervisors to really work. Since their performance and their pay frequently are linked with productivity ratios, supervisors may be reluctant to “babysit” a restricted-duty worker. Jordt gives the example of a 10-employee shipping department. If one of the workers is injured and placed on 50 percent restricted duty, the supervisor somehow has to replace the lost productivity, through either overtime or replacement workers. “So he’s increased his cost with marginal or no gain in production. That’s not a real incentive,” Jordt says.


Breaking down walls
    Kremer agrees. In many companies, human resources and risk-management departments don’t interact when it comes to addressing the issue of employee injuries. Human resources tends to focus on staffing, recruitment and training, while risk management oversees the insurance issues. What’s needed, Kremer says, is for the two disciplines to work as a team. “They need to break down that wall if they’re going to understand the impact that absences have on their organization. That’s the only way they’ll be able to talk the language that senior management will understand.” He also points out that devising a plan should not include make-work. “It’s not about counting paper clips,” he says. Instead, companies need to look at existing work demands and find creative ways for someone who is disabled to help, without aggravating their injury.


    Ritter says that the best place to begin is with a comprehensive transitional-duty policy, including specific physical requirements for each job. It makes it easier to modify jobs if the need arises. Education is important, too. Tell your employees how the program will work, especially what the company is pledging to do. Ritter also says that workers must understand that “if they are offered a transitional-duty job, they need to accept it or risk losing workers’ comp benefits.” Transitional programs link money with employee morale, Catlette says.


    As an executive with Federal Express Corp. in the 1980s, he developed and implemented the company’s modified-duty plan. It produced a savings of about $1 million in its first year. FedEx employees also gained a deeper appreciation for their company. The same holds true today. “If you do this with the goal of treating people right,” Catlette says, “you will return more money to the company. Period.”


Workforce Management, December 2003, pp. 75-77 — Subscribe Now!

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The Car Wreck You Can Stop

Riddle me this: a large corporation has had eight employees from one department quit in the past 18 months under the same manager. Six of those eight employees were female, and their department is about 60 percent male. None of the women complained about the manager. None of the women cited discrimination as a reason for quitting. No problem, right?



    Not necessarily. For several years, I was an employment attorney working for law firms hired to defend the interests of corporations and businesses against lawsuits and complaints brought by employees. I am also an African-American woman, and even when a case doesn’t involve race or gender, I find that I can frequently detect from the facts just the point at which an EEOC complaint or lawsuit was inevitable. Events and statements that may be seen as merely ignorance or insensitivity by a manager of one race, for example, may be viewed as full-fledged illegal discrimination by an employee of another. For example, a white manager jokingly says to two black interns, “You boys better remember that meeting scheduled right after lunch.” As far as the manager is concerned, the reference to the boys’ youth is a form of endearment. To the youths, the comment might be racially fraught and have historical implications.


    Companies could prevent costly legal problems if they also paid close attention to the fact that one group can view something very differently than another. And when difficult questions are raised early on about situations that require scrutiny, there might be fewer embarrassing inquiries down the road. Some employers and lawyers might think that asking questions of employees about potential problems before a complaint is made is asking for trouble. I don’t think so. Businesses that don’t see patterns of employee dissatisfaction, let alone outright discrimination, may find that their blind spots can be extremely expensive later on.


    Last year, a jury awarded a $30 million punitive damages award, later reduced on appeal to $8.25 million and still being appealed, to a group of female employees at California’s Ralphs grocery chain. They sued for allowing a supervisor to harass female employees over a period of about 15 years. The manager just kept getting transferred from location to location, which did not sit well with the jury. Although the employees in that case actually complained, rather than having supervisors come to them, the point is that the burden is on the employer to look like it knows what takes place under its corporate roof and to effectively take action.


Because discrimination complaints and lawsuits are on the rise, employers should make an effort to note problems before employees articulate them.


    For the most part, clients come to the firms where I’ve worked only after an employee or group of employees has filed a complaint of discrimination with a state agency and/or the federal EEOC, or when the case has emerged as a full-blown lawsuit. There is nothing wrong with waiting until the point of an official complaint, when action has to be taken. And many companies may not have the resources to add another level of watchfulness to already overburdened human resources professionals.


    But monitoring potential employment problems that might blossom into discrimination claims is not like waiting to see if people will get in a car wreck. In a car accident, two total strangers can collide in a split second without having been in each other’s universe just 10 minutes before. In the average case involving employment relationships, complaints and lawsuits are the result of repeated interactions, each affected by the one before it.


    Because discrimination complaints and lawsuits are on the rise, employers should make an effort to note problems before employees articulate them. According to a report by the Equal Employment Opportunity Commission, complaints in 2002 reached their highest level since 1995, with race and gender discrimination making up almost two-thirds of the cases.


    When I read complaints, I try to detect the watershed moments of the case. When did it appear that the employer was deliberately ignoring what must have been obvious to him or anyone else looking? For example, if a disabled employee has asked his supervisor to move meetings to rooms where his wheelchair can enter comfortably and the supervisor is careless about honoring that request on more than one occasion and without explanation, that usually sets the stage for the employee to take action. The supervisor may look at the issue as nothing more than harmless oversight, but for the disabled employee, it could signal a trend and be viewed as a genuine problem. Regardless of the scenario, a frustrated employee can usually find solace in the open arms of a plaintiff’s attorney. Just because an employee files a case, of course, that doesn’t mean she has a good legal case or that the facts presented are valid or even that the person’s motivation is ethical.


    An employment relationship is like any other relationship. When it ends, it’s usually not because of a single incident. It’s a buildup of slights and problems, a snowball that grew large enough to flatten a house. In a personal relationship, only two people are in charge of its success or failure. In the workplace, the employer is the guardian of the relationship between the employee and everyone the employee has contact with on the job.


    In the case of the six women from one department who quit, the situation might have been quite different if a manager had asked the fourth or fifth departing woman about her reasons. Maybe the manager of the department should have been questioned directly. Maybe someone in human resources or upper management should have been more active in the exit interviews. Maybe a particularly astute and sensitive person should have talked with the remaining women and men in the department to gauge the cultural climate.


    It’s never too late to obtain such vital information. If a pattern of employment decisions or changes exists, it may not necessarily be a sign of discrimination. Maybe six women left the department by coincidence. Maybe they were offered better jobs, or a spouse was relocated or one learned she was pregnant. But if you haven’t done anticipatory due diligence and haven’t paid attention to problems before they fester, you might be legally vulnerable against a female employee who feels discriminated against. She might use the previous departures to “prove” the lack of mobility for women, or the lack of sensitivity by management.


    As an employer, you would want to be able to say that you observed the same things that the complaining employee saw, checked into the situation and determined that there was no problem, or you corrected it. Doing this provides a factual defense, and goes beyond that. It’s just the smart and right thing to do.


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

Workforce Management, December 2003, pp. 18-20 — Subscribe Now!

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Prescription Management Seen Lacking As Costs Keep Rising

Rising prescription drug spending is forcing employers and workers comp insurers to find ways to keep costs in check.


While some strategies are showing signs of success, many others that are successful for group health plans simply can’t be used because of the special nature of workers compensation programs.


    Drug costs in workers comp programs have been rising by around 15% year after year and now make up nearly 10% of the total workers comp health care bill, experts say. As recently as 1997, drug spending represented only 7% of medical costs, according to a study released in August by the National Council on Compensation Insurance in Boca Raton, Fla.


    “The fastest-growing component of the medical expense is prescription drugs,” said Joseph Paduda, principal at Health Strategy Associates, a workers comp managed care consulting firm based in Madison, Conn.


    The rising cost of drugs in the past few years has forced employers and insurers to devote attention to an issue that previously received little notice, said Ash Kilada, director of risk management and benefits at Sbarro Inc. in Commack, N.Y.


    “Insurance companies are just starting to address it in the past few years,” he said.


    What’s particularly troublesome for workers comp insurers is that many of the tools available to control drug spending in group health plans are not available to them. People in workers comp programs don’t pay anything for their drugs, so it’s not possible to create a co-payment structure that encourages the use of lower-cost drugs, experts say.


    In addition, state workers comp laws often prevent the insurer from directing a patient’s care, including determining which pharmacy fills a prescription.


    As a result, many workers comp insurers often shy away from aggressively talking to physicians about the best or most cost-effective drug therapies to employ, said Dr. David Deitz, vp, national medical director at Liberty Mutual Insurance Co. in Boston.


    “We don’t want to be seen as unduly influencing prescribing patterns for doctors,” he said.


    Rather than directing doctors, they prefer to educate them about various drugs and their relative costs, Dr. Deitz said. “We can only suggest,” he said.


    Another proven cost-control strategy that has limited use in workers comp programs is switching prescriptions to lower-cost generic drugs.


    The majority of drug costs in workers comp are focused on a relatively small group of drugs, primarily used for pain relief, and generic use is already quite high, said Andy Mayer, senior director, workers compensation division at Express Scripts Inc. in St. Louis, Mo.


    “When there is a generic equivalent, the use of generics has been high,” added George Furlong, director of medical payment products at Choice Medical Management Services L.L.C., a workers comp managed care company in Tampa, Fla.


    In fact, the NCCI study shows that, in workers comp, generic drugs are used 80% of the time when they are available. Also, half of drug costs are from drugs with no generic alternative, the study shows.


    “It’s obvious there are limited opportunities” to get much more out of generic use, said Barry Llewellyn, senior divisional executive, regulatory services for the NCCI and co-author of the study in Hoboken, N.J.


    But there are strategies that can work, experts say.


    One proven idea is providing an injured worker with a discount drug card run by a prescription benefit manager. Using the cards, workers can access a network of pharmacies offering discounts of up to 30%.


    The key to the success of any discount card is getting it into the hands of the injured worker. This is often difficult to do before the person receives a prescription, Mr. Kilada said.


    “If someone can come up with a solution, it would be great,” he said.


    For those people who receive multiple prescriptions and, in particular, those with long-term drug needs, a discount card or a mail-order drug service produces significant savings, Mr. Paduda said.


    Another way to control costs is to reject claims for drugs that are considered inappropriate. For example, Express Scripts has a formulary for its workers comp customers, and any submitted drug that is not on the formulary needs special approval by the insurer’s claims adjuster, Mr. Mayer explained. Often, though, the adjusters approve the drugs.


    “We do see drugs slip through that should not be on workers comp,” he said.


    Many adjusters approve the claims because they don’t understand that the drugs are not appropriate or they fear lawsuits by injured workers over the rejection.


    “The risk of litigation outweighs the cost of a drug,” he said.


    But Dr. Deitz of Liberty Mutual disputes this assertion. While he acknowledges that laws limit Liberty Mutual’s claims managers’ ability to control costs, they shy away from intruding into treatment out of fear of upsetting the doctors and hurting their relationships with them, he said.


    “That is actually a bigger problem than fear of litigation,” he said.


    In addition to grappling with rising costs, employers and workers comp insurers are struggling to cope with the growing use of the painkiller OxyContin. The drug, which was originally intended for people suffering from severe, long-term pain, has become one of the most used drugs by workers comp claimants. The concern with the drug stems from its addictive nature and how some users are abusing it.


    “This is a national concern with workers comp,” said Roger Fries, president and chief executive officer at Kentucky Employers Mutual Insurance Co. in Lexington, Ky.


    Insurers are trying to identify those people that are abusing the drug by either receiving refills too quickly or obtaining multiple prescriptions from a variety of doctors, said Phillip Walls, vp of pharmacy services at PMSI, a workers comp PBM in Tampa, Fla.


    Another concern with OxyContin is its overuse, said Dr. Deitz of Liberty Mutual. Because it’s so powerful, it should be given only when other drugs fail to control an individual’s pain, he said.


    “It appears to be prescribed too early in the process,” Dr. Deitz said.


    While he would like to see overall use of OxyContin drop, workers comp insurers cannot simply reject claims for it, he said. Instead, each case has to be reviewed for signs of abuse, he said.


    Abuse is not limited to OxyContin, though. People are also abusing pain medications containing the drug hydrocodone, such as Vicodin, Mr. Walls said.


    “Hydrocodone is just as much, if not more, of a concern as OxyContin,” he said.


    To combat the abuse of OxyContin, the National Assn. of Independent Insurers has recently launched a state-level effort to pass strict guidelines for the use of the drug, said Nancy Schroeder, assistant vp of workers compensation at the NAII in Des Plaines, Ill.


    The proposed guidelines would detail when the drug could be used and the type of monitoring of its use that would be needed.


    “It’s very new. It’s an issue the industry has just become aware of,” Ms. Schroeder said.


Source: Business Insurance magazine.

Workforce Management Online,December 2003 — Register Now!

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Don’t Let Your Pension Plan Discourage Older Workers

A key strategy for retaining older workers is phased retirement. Rather than simply retire, many employees prefer to cut back on their work hours, which often means they continue working on a part-time basis long past traditional retirement age. Many companies don’t realize, however, that their pension plans unnecessarily discourage phased retirement, says Valerie Paganelli, senior retirement consultant for Watson Wyatt Worldwide.



    Most companies have defined-contribution benefit plans, also known as 401(k)s. Many of these plans are not set up to permit employees to take out loans against their retirement holdings, withdraw money in installments rather than in one lump sum or make hardship withdrawals before age 59. However, all of these things are permitted by the Internal Revenue Service and can be quite appealing to phased retirees.


    Many companies have chosen to forgo the administrative details of more flexible plans because they didn’t think they were important, Paganelli says. However, many retirees would prefer to have access to their money in a more measured fashion. Indeed, in some cases, older employees who wish to continue working yet draw their pension are forced to retire and go to work for another company, even though their original employer would benefit from their staying.


    Carl Gustafson, corporate vice president of human resources for Baptist Health South Florida, believes this happened at his firm before the retirement plan was changed to allow more flexibility. “Before, we had people who would have to officially retire, wait to collect their pension, and come back to work,” he says. “And I have no doubt that during that time we lost some of them to Wal-Mart and other companies.”


    Sometimes pension changes are rather simple. When St. Mary’s Medical Center launched a program to coax retired nurses back into the workforce, some were concerned that returning to work part-time would lower their retirement benefits. The amount of their check was based on their last five years of salaries. St. Mary’s fixed this by changing the formula to their five highest annual salaries.


    Other companies are retaining their key employees by safeguarding their benefits while they “try out” retirement. Baptist Health’s Bridgement of Service policy states that anyone who quits and comes back within five years picks up where they left off in terms of years of service, perks and time off. Ten to 20 people take advantage of that every year.


    In certain cases, Volkswagen permits a “rehearsal” retirement. In this instance, an older worker who is thinking about retirement can take an unpaid sabbatical, keeping benefits, for one to three months. If the employee wishes to return, the position is kept open. “The employee gets a taste of what retirement is like,” says Steve Stephens, Volkswagen’s human resources leader. “In some cases, they’ll decide to keep working for another few years. Either way, they’ll know if they made the right decision.”


Workforce Management, December 2003, p. 52 — Subscribe Now!

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Employers Give Workers Debit Cards to Access Benefit Dollars

Diana Andersen wanted to eliminate the shoebox effect. Employees at Zions Bancorporation would collect their receipts for visits to the doctor’s office or for their children’s day care in shoeboxes to submit for reimbursement from their flexible spending accounts. Andersen, the company’s vice president and director of corporate benefits, worried that the inefficient and cumbersome process for reimbursement dissuaded employees from using flexible spending accounts.



    Three years ago, Zions began offering employees debit cards so they could pay for medical or child-care expenses directly from their flexible spending accounts. The first year, enrollment went up 75 percent, Andersen says. Currently, 40 percent of Zions Bank’s 8,500 employees are enrolled in flexible spending accounts, way ahead of the average 15 percent participation among companies nationwide. About 1,200 employees use FSAs for child-care expenses, and 3,000 use them to pay for trips to the doctor or pharmaceutical meds.


    Zions Bank uses debit cards from a company called MBI, based in Waltham, Massachusetts. MBI offered the first Flex Convenience debit card in partnership with MasterCard in 1998. These are limited-access cards that work only with pre-approved merchants, so, for example, an employee would not be able to use an FSA debit card at a restaurant. Two other companies, Evolution Benefits Inc. and SmartFlex LLC, also offer debit cards for benefits programs.


    Companies are giving employees debit cards to access funds for flexible spending accounts, health reimbursement arrangements, transportation reimbursement plans and educational assistance programs. Currently, 350,000 employees use MBI’s cards–mostly for flexible spending accounts–but that number is expected to increase to more than a million by the first quarter of 2004.


Why the trend
    Several forces are converging to create this projected increase in debit card usage. First, the IRS issued a ruling in May that officially sanctioned using debit cards for FSAs. Second, the IRS issued a ruling in September that allows employees to use funds from flexible spending accounts for over-the-counter medications. Third, the use of health reimbursement arrangements is increasing as conventional health plans become more expensive to fund.


    Western Digital, a company that sells digital-storage products, is allowing its employees to use debit cards to purchase over-the-counter medications, in line with the IRS’s September ruling. “Given the fact that increasing numbers of prescription medications are going over-the-counter, employees using these medications are paying significantly higher out-of-pocket costs, frequently four or five times the amount that they paid as a prescription co-payment when these medications were covered under their health insurance plans,” says Sandie Sekely, corporate benefits manager for Western Digital.


    Of the 2,000 workers that Western Digital employs, about 22 percent participate in FSAs. The company saw an increase in FSA participation this year when it introduced the convenience of paying for health-care expenses with FSA debit cards, says Sekely. While employees will be able to use those cards to purchase over-the-counter medications, they will still have to turn in receipts for those medications later. The IRS rules dictate that there must be detailed receipts so employers and third-party administrators know that the employee was buying cough medicine and not shampoo.


    MBI has come up with a way around this rule. Employees can purchase medications online, through a pharmacy called Familymeds, and don’t have to submit receipts because MBI can verify those transactions.


Health and transportation
    Debit cards are also convenient for companies that have moved or are thinking of moving to a health reimbursement arrangement plan. Fletcher Thompson, an architectural, engineering and interior design firm in the Northeast, decided to switch to an HRA last February. Although HRAs can be structured in a number of ways, Fletcher Thompson chose an insurance plan with higher premiums to stabilize its costs. Co-pays for office visits increased from $15 to $30.


    “We didn’t want to pass those increases directly to employees,” says Susan Pellerin, Fletcher Thompson’s director of human resources, “so we gave them a specific amount of money to pay co-pays.” For instance, the company gave Pellerin, a single employee, $600 on a debit card. At that rate, she could visit the doctor 20 times a year and still not pay a dime out-of-pocket. Similarly, “if employees don’t use it, the company doesn’t have to fund it,” she says.


    The debit cards work at hospitals, pharmacies and doctor’s offices. “Ninety percent of the time, MBI’s debit cards work well,” says Pellerin, adding that there are some minor glitches, times when something might not get validated that should. Usually, these problems can be easily resolved by just sending in the receipt manually, she says.


    Companies are finding that debit cards can help with transportation reimbursement plans. National-Louis University, based in Chicago, offers a transit program to employees, and so far about 49 of the 116 employees enrolled in its FSAs use debit cards to pay for bus or train fares.


    Dow Jones also uses debit cards for its employee transit program. “We now have well-known household names using this product: the NFL, PGA Tour and WorldCom,” says Victoria Nipple, the COO of MBI. “We have gone past the early-adopter stage,” she says. “Companies are saying, if it’s good enough for Dow Jones, we should take a look at this.”

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New Rules for Flexible Spending Accounts Are Likely to Increase Usage

J oel Seguine’s psychotherapy bills add up fast. A few years ago, he discovered that by signing up for a flexible spending account with his employer, the University of Michigan, he could use pretax dollars to pay for his $90 sessions. While he’s not quite sure how much he saves by depositing $3,600 in his flexible spending account each year, he does know that he winds up with a little extra cash in his pocket. “It sure is nice to get that money back and reduce taxes at the same time,” says Seguine, a manager of administrative news at the university.



    Thanks to a September IRS ruling, Seguine’s flexible spending account just got a little better. Now he can use the funds to cover over-the-counter medications. “Anything that allows you to have reimbursement for your medical needs is a boon, and that makes this particular benefit that much more attractive,” he says. He hopes that he’ll be able to use pretax dollars to buy breathing strips, which help reduce snoring, since it’s a regular purchase for him.


    Seguine is among the approximately 15 percent of University of Michigan employees who enroll in flexible spending accounts each year. Of nearly 30,000 employees at the university, only 3,506 opted to use FSAs to pay for doctor’s visits and prescription medications in 2003. And only 1,102 employees are currently enrolled in FSAs to pay for preschools, day care, summer day camps or elder care.


    Marty Eichstadt thinks that more employees could benefit from using flexible spending accounts. As the university’s benefits director, she began a campaign this year to interest employees in using pretax dollars for health-care and dependent-care expenses. “Our real concern is enabling our employees to use their resources in the best way possible,” Eichstadt says. In September, her campaign got a boost from the IRS. The agency issued this ruling to address the fact that many former prescription drugs such as Claritin, an allergy medication, and Prilosec, a heartburn medication, are now available over the counter, so they’re not covered by prescription-drug plans. By using pretax dollars, employees can save up to one-third of the price of these medications, depending on their tax bracket.


    On September 12, Eichstadt’s office sent an e-mail message to faculty and staff at the University of Michigan about the new ruling: “The new IRS ruling allows reimbursement for over-the-counter medications, tax-free (federal) when the OTC product is used for medical purposes.” Examples of medications that qualify under this definition include allergy and heartburn medications, smoking-cessation products, pain relievers, cold medicines, cough syrups, topical steroids and contraceptive products. Eichstadt’s message noted that certain items would not be covered under the new IRS guidelines, including over-the-counter products that are not medicines or drugs and merely benefit the general health of an FSA participant. These items include cosmetic products like face cream, toiletries such as shampoo, and dietary and herbal supplements.


    It’s too early to tell if Eichstadt’s campaign and the new IRS ruling have substantially increased enrollment in FSAs because the final numbers won’t be in for a few weeks. But looking at the preliminary numbers, she says that an increase is likely.


Low participation in FSAs overall
    The FSA enrollment level at the University of Michigan is typical for an employer. On average, employers that offer FSAs sign up only 15 percent of their eligible employees. “It’s a tragedy it’s so low; it can save you an enormous amount of money,” says Tom Billet, senior consultant at Watson Wyatt. “Many people are afraid of the use-it-or-lose-it rule, but with a reasonable amount of forethought, that wouldn’t happen.” The new rule is a money-saver for both employers and employees. Since funds placed into an FSA are all pretax dollars, contributions lower an employee’s taxable income. This also lowers the income tax dollars both employers and employees pay to the IRS.


    For large companies such as CenturyTel, the savings can be dramatic. Last year, the 6,000-employee company, which is located in 22 states, paid over $100 million in federal income taxes. Currently, only 10 percent of the company’s employees are enrolled in FSAs. But if the company could increase the level of participation, the organization might be able to reduce its federal income taxes significantly. While CenturyTel wouldn’t give any estimates on its tax savings, companies often save about 10 cents on each dollar invested in a flexible spending account. Of the savings, about 7 cents comes from FICA tax and 3 cents from workers’ compensation. So, assuming that each employee invests $1,000–the average amount that employees contribute to FSAs–CenturyTel would save about $60,000 in taxes per year. However, if CenturyTel could convince 20 percent of its employees to enroll in FSAs, the company would save $120,000 in taxes. “We obviously see it as a benefit for the employee and the company,” says Marina Pearson, vice president of compensation and benefits.


    Eichstadt says that the University of Michigan uses any tax savings to offset the administrative fees it pays to SHPS, the third-party administrator that handles the flexible spending accounts for its employees. “It’s a wash,” she says.


    Smaller companies might not see as dramatic a savings, but still can benefit by encouraging employees to sign up for FSAs. New Edge Networks, for instance, has 286 employees, with 15 percent enrolled in FSAs. The company won’t say exactly how much money its employees contribute to FSAs, but assuming that each employee invests the average amount–$1,000–the company would have roughly $43,000 invested in FSAs each year. “For every dollar invested in FSAs, we see a 7.5 percent tax savings,” says Scott Noren, benefits administrator at New Edge. That works out roughly to a tax savings of $3,225 per year.


    For employees, the tax savings will vary according to the individual. “If you live in New York, it could be worth a 45 percent savings,” Watson Wyatt’s Billet says, factoring into his calculations a 30 percent federal tax, a 7 percent state tax and a 7 percent Social Security tax. New Edge Networks is in the process of moving from an August-July benefits year to a calendar year and so is currently in a shortened benefits season, from August to December. The company was able to offer its employees currently enrolled in FSAs the over-the-counter medication benefit. Scott Noren says that he dug through his old receipts for over-the-counter medications that he’d bought since August 1 and it saved him about 30 percent.


Dual-purpose meds
    The IRS has clearly outlined rules for eligible child-care and health-care expenses for FSAs, but the rules regarding over-the-counter medications are much broader. “While the guidelines provided by the IRS are generally helpful, they’re not as definitive as a list would be,” Billet says. And it’s up to each company or third-party administrator to determine which medications will be covered.


    “There’s confusion caused by the IRS’s lack of clarity with regard to eligible and ineligible expenses and documenting those expenses,” says George K. Reese III, president of FlexAmerica, a third-party administrator. The issue becomes fuzzy around items that serve a dual purpose. For instance, vitamins would not be covered unless they were prescribed for a pregnant woman. Sunscreen could go either way. Some third-party administrators refuse to cover it unless employees get a doctor’s note saying that it’s necessary because of a history of skin cancer. Others argue that sunscreen’s only purpose is to protect against skin cancer, so they automatically cover it.


    “It’s ridiculous what the IRS wants someone to go through to get a reimbursement documented for Advil,” Reese says. For instance, while certain quantities of Advil might be covered automatically, larger amounts, such as a 350-count bottle, might require a note from a physician. “A 350-count bottle of Advil is $14,” Reese says. “As an administrator, how much am I going to spend to see if that’s legitimate?”


Increased use of FSAs
    The new IRS rule is not mandatory. It’s up to each company to decide whether it wants to offer the option to its employees. However, third-party administrators say that most of their clients are interested in using FSAs for over-the-counter medications. Employers anticipate that this will encourage employees to use FSAs. “We expect an increase of 15 to 20 percent,” says Colleen Nelson, a senior benefits consultant at Conexis, a third-party administrator. Currently, employee enrollment among its clients hovers around 14 to 18 percent. “We expect that to increase substantially,” she says.


    Already, this ruling has increased the claims volume that Conexis typically sees. In just the first few weeks that it offered use of FSAs for over-the-counter meds, the company saw claims volume increase by 33 percent. “One out of every three claims is including over-the-counter drugs, and we haven’t actively marketed this yet,” Nelson says. Conexis hasn’t started to charge for an increase in claims, but it’s possible that some third-party administrators will raise rates to cover the administrative costs of processing claims. “We don’t anticipate raising prices at this time,” Nelson says.


    Other third-party administrators have already decided to raise rates. Wausau Benefits in Wisconsin is going to charge an extra 8 percent for companies that plan to include over-the-counter medications. “We think it will be virtually everybody,” says Jay Coldwell, the company’s product director. So far, he says, about 10 percent of its claim volume is for over-the-counter medications, and “it’s growing all the time.” Companies such as CenturyTel that pay their third-party administrators by the claim could be in for a big surprise if volume does increase 10 to 30 percent. It’s too early to guess how many employees will sign up to use FSAs to save money on over-the-counter medications. Once open enrollment is complete, many companies will have a better idea of how many employees will take advantage of the option. “Nobody is really sure how this is going to play out in January,” Coldwell says. “We are going to track the usage so we can do the research.”


Workforce Management, December 2003, pp. 66–68 — Subscribe Now!

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Stress Reduction and Employee Health The Role of Yoga, Relaxation and Meditation

According to the Ford Headache Clinic in Birmingham, Alabama, headache related absenteeism by employees, on average, results in 155 million lost workdays a year. Due to the increasingly high pressure work environment in our society, headaches and other stress related ailments are on the rise and are exacting a heavy toll on employees and employers.



    To counter the effects of stress due to both personal and work related factors, wellness programs that focus on employees’ physical and mental health have become widespread in many organizations. Such programs, when properly implemented and taken advantage of by the employees, can lead to improvements in their health and morale. In view of the organizational concern about escalating health care costs and the cost of employee absenteeism due to poor health, wellness programs are clearly appropriate in today’s organization.


    Organizations can improve the quality of their wellness programs by incorporating exercise components that emphasize yoga postures, deep relaxation and meditation techniques. Such methods have been specifically acknowledged by researchers to be helpful in reducing blood pressure, lowering stress, quitting smoking, helping insomnia and enhancing the general well being of employees who take them up.


The nature of yoga postures
    The practice of Yoga may be the oldest form of exercise and relaxation known to man in reducing stress. A number of stone seals excavated from the Indus valley, dated around 3000 B.C., show human figures in various yoga postures. Yoga exercises and movements are very different from other forms of exercise. They are not meant to develop muscles or exhaust one’s strength. Instead Yoga postures focus on gentle stretches to stimulate and increase the circulation in vital organs of the body.


    The different yoga postures further focus on a variety of spinal movements to stretch, tone and nourish the root spinal nerves which spread out to every part of the human body. The practice of yoga postures and deep yogic breathing has been shown to stabilize the response of the nervous system to different forms of physical and mental stress.


The nature of yogic relaxation
    A comprehensive wellness program should include both yoga postures and yoga relaxation. Whereas the postures focus on improving the health of the nervous system and the body, the relaxation and meditation processes are partly mental in nature. Practiced jointly, the yoga postures and relaxation form a unified system of stress reduction and management for both physical and mental health. The yogic relaxation should promptly follow at the end of the yoga posture routine.


    Yogic relaxation from 10 to 20 minutes can be very rejuvenating and energizing. It is much better than any power-nap in the afternoon and can be done during the lunch break. It consists of lying down on the floor and consciously relaxing every part of the body mentally. Guided imagery and the use of creative visualization by an experienced yoga teacher allows the trainees to enter a state where the tension is gradually eliminated from the major muscle groups and the body feels as if it has become light and is floating. Within 10 minutes the whole body is in a state of deep relaxation but not in deep sleep. This conscious deep body relaxation leads to a very calm and restful state for the participant.


The nature of yogic meditation
    The term “meditation” has many different connotations to people. However, learning meditation and relaxation techniques does not require a re-orientation of one’s basic religious or philosophical values, diet, or making any major life style changes. Because of this, such methods are widely accessible to employees and managers. Training in meditation techniques can particularly help individuals discover their own potential for innovation and creativity in the workplace. M.L. Ray, a Professor of creativity, innovation, and Marketing at Stanford university suggested in 1992 that businesses must move towards a new paradigm in dealing with their employees which recognizes that “…The power of individual psyche is far more vast than we could have previously imagined.”


    There are physiological and psychological explanations of how meditation works. According to meditation experts as well as empirical research evidence, meditation techniques, when practiced properly, can lead to an optimally functioning nervous system and release of hidden mental energies which are latent in all individuals. Development of these energies facilitates functioning at a more alert, conscious, and a higher creative level. Such attributes are certainly desirable in both employees and managers. Many Japanese, and some Europeans and American companies make extensive use of meditation techniques in their management development programs.


    One example of a meditation technique involves the use of Mantra. This is a well known technique for calming a restless mind and focusing it along a particular thought pattern. A Mantra is a word or combination of words that the trainee is asked to repeat mentally for a specified period of time (24 minutes); either once or twice a day. Some Mantras do not appear to have any obvious meaning while others have a very specific and a clear meaning and involve repeating a pleasant sounding word which is also a confidence boosting self-affirmation.


    Repetition of the Mantra, keeping the meaning in mind, for a prolonged period in a stable sitting posture will lead to relaxation of the body. The body posture should be erect with the back, neck and the head in as straight a line as possible. One may sit cross legged on the floor or on a chair. The mantra should be repeated and remembered with feeling. Eventually the mind will start to enter a calm state of pleasant self-awareness.


Recognizing the effectiveness of yoga and relaxation training
    Senior managers in charge of employee development need to be made aware of the enormous research literature documenting the role yoga, relaxation, and meditation training can play in enhancing the workplace performance of both employees and managers. For example, D.R. Frew in 1974 reported in the Academy of Management Journal that practitioners of meditation experienced greater job satisfaction, improved job performance, and better interpersonal relationships. A replication of the study discussed by Frew in his 1977 book Management of Stress reached similar conclusions.


    A Swedish study by C. Jonsson in 1975 found that employees who were regular meditators, when compared to employees who had not yet learned the technique, reported being significantly more alert and active, self confident, less irritable, more cooperative with others, and enjoying a greater level of accomplishment. In research published by T. Haratani and T. Henmi in 1990 in the Japanese Journal of Industrial Health and the Japanese Journal of Public Health, some of the benefits of meditation were again identified. This research showed that meditation leads to significant decreases in psychological distress, health complaints, insomnia, and smoking.


    A study by Alexander et al. in 1993, published in Anxiety, Stress, and Coping, found that meditation practice on a regular basis lead to improvements in employee job satisfaction, productivity, and better work relationships. Several other studies in the 1990s have found that the meditation training can be useful in the workplace in terms of employee and managerial productivity and organizational effectiveness.


Yoga and relaxation training programs
    If an organization has never had a stress reduction program emphasizing yoga exercises and relaxation, then the human resource staff needs to carefully prepare the groundwork so that employees will take advantage of such an offering. A pilot program is advised before a total corporate commitment is made.


Implement The Program
    1. Survey the employees and find out the interest level for various kinds of classes including Yoga, Deep Breathing, Relaxation, Meditation, Tai-Chi, etc.


    2. Interview several teachers from the different Yoga and Meditation centers in your geographic region. The Yellow pages or the Internet are good places to start.


    3. Discuss costs of programs and compare. Organizations which charge the most money may not always be the best providers of Yoga, Meditation and Relaxation programs. Experienced individual Yoga teachers may have more reasonable prices as they have little or no overhead costs.


    4. Schedules classes several months in advance so employees can plan. Advertise the benefits of relaxation and stress management through Yoga and Meditation.


    5. Lunch hours are ideal for Yoga and Relaxation classes and typically lead to high rate of employee participation. Once the classes have started, they should be offered on a regular basis to build and sustain the interest of the employees.


Select the trainer or consultant for the program
    Getting the right person to implement the program is critical and may be the decisive factor in the success or failure of the yoga, relaxation and meditation training program. It is critical to determine if the trainer has legitimate background and experience in the field? Unfortunately organizations that offer yoga teacher certificates after a weekend retreat or a one to two week yoga program have mushroomed. These certificates may be meaningless and typically indicate nothing about a person’s understanding or experience in the field.


    The following information about a potential trainer needs to be obtained:


1. Where was the person trained, by whom, and for how long?


2. How long has the person himself practiced?


3. How much experience in actual teaching does the individual have?


4. Check the background of all the teachers. Ask them about their training and teaching experience. Check references. Ask about the insurance that the teacher carries.


5. As part of the interview process, ask several teachers to come and give sample Yoga and Relaxation classes for the employees. Observe carefully the different teaching styles and methodologies.


6. Ask employees for their reaction to the various classes and the teachers.


7. Does the person teach one technique or method or does the person have the ability to teach a variety of methods to individual pertaining to yoga and meditation?


    This final point is especially important as there are trainers who focus exclusively on one technique of meditation as they consider it superior to all others. While this may be acceptable to many employees, it may not be to others. One shoe may not fit all. Therefore, it is advised that an experienced teacher of a variety of methods of yoga, relaxation, and meditation be sought for initiating such a program. Once a Yoga center or a group of yoga teachers has been selected to implement the program, stick with them to provide continuity for the employees.


Educate the Employees
    The following points need to be publicized to employees at the pilot site before the program is instituted to ensure maximum participation:


1. Training in yoga and relaxation does not involve changes in diet or one’s fundamental values.


2. Widely used autogenic methods, including biofeedback, have developed from yoga and relaxation techniques.


3. There is evidence that systematic practice of yoga and relaxation helps in such conditions as insomnia, tension headaches and backaches, leads to stress reduction and lowering of blood pressure.


4. Almost everyone, regardless of their current physical condition or limitation, can participate in some capacity in yoga and relaxation classes and benefit by them.


5. The person hired by the organization to teach yoga and relaxation is competent and an expert in the area.


Evaluate the Program
    Before evaluating the efficacy of a pilot yoga and relaxation training program, it must have been given enough time to have an effect. Offering such a class to employees for six months should be sufficient to generate evidence regarding its benefits. The following data needs to be considered:


1. Did enough people participate to warrant continuation?


2. What are the reactions of the employees who have attended the classes?


3. What tangible effect is such a program having in terms of health claims, absenteeism, interpersonal work relations, and employee motivation?


    If it appears that there has been low attendance of the program, but the employees who are participating in the yoga and relaxation program are very positive about it then the following issues need to be addressed.


1. Have the yoga and relaxation classes been offered at a convenient time for employees such as a lunch break or after work hours?


2. Are all the employees aware of the physical and mental health benefits of the relaxation training and has the training been adequately publicized?


3. Is there support from department managers for employees to participate in the program?


    Only after properly addressing the above issues can an informed judgment be made with regards to continuing, expanding or terminating the on-site yoga and relaxation program. Because the potential health benefits for employees are enormous, such decisions need to be made carefully.


Summary
    Given the potential benefits of yoga, relaxation and meditation relating to stress reduction, human resource executives need to carefully scrutinize wellness programs in their organizations to determine if such training is offered to employees. If such training is not being offered, the company may be losing a valuable opportunity to encourage employees to take a serious interest in their long term health and quality of work life.


    Organizations have a definite interest in helping employees cope with stress, and remain healthy and energetic in the workplace. Stress reduction and successful stress management can reduce absenteeism, make the work environment more pleasant, and minimize other work related problems due to burnout. There is much evidence that one excellent way to help employees manage stress is to incorporate yoga, relaxation and meditation training in the company wellness program in some form. If the employees are made aware of the physical and mental health benefits associated with the practice of yoga and meditation, they are more likely to take advantage of such a program. This in the long run can lead to a healthier work environment and more productive employees. You are the company you keep.