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About the Human Capital Index Study

The Watson Wyatt Human Capital Index is an ongoing study that quantifies thelink between specific human-capital practices and shareholder value. Conductedevery two years, beginning in 1999, it has a four-pronged objective: 1) toprovide HR with financial-performance metrics; 2) to test the belief that itpays to manage people right; 3) to help managers assess their human-capitalinvestments; and 4) to determine whether some HR practices offer a “biggerbang for the buck” than others.

    Seven hundred and fifty large publicly traded companies in the United States,Canada, and Europe took part in the 2001 study. Human resources executives atthe companies were asked a wide range of questions about how the organizationscarried out their HR practices, including pay, people development,communication, and staffing. Their responses were matched to objective financialmeasures, including market value, three- and five-year total return toshareholders, and Tobin’s Q, an economist’s ratio that measures anorganization’s ability to create value beyond its physical assets.


    The 2001 survey linked 49 specific human resources practices to a cumulative47 percent increase in market value.


    To view the results of the HCI study, go to www.watsonwyatt.com/hci.


Workforce, November 2002, pp. 43 — Subscribe Now!

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It’s the Law, But Not Everyone Follows It

The Uniformed Services Employment and Reemployment Rights Act, enacted in1994 and significantly updated in 1996 and 1998, provides protection and rightsof reinstatement for National Guard and Reserve members. USERRA bars any adverseemployment actions by an employer if the action is motivated even in part by theemployee’s military service. Employees must be excused from work for militarytraining or deployment, and must then be re-employed in the same position theywould have had if their employment had not been interrupted. Reservists areentitled to all rights and benefits that they would have attained if they hadbeen continuously employed.

    A 1999 Defense Department study found that a shocking 31 percent of employersare not aware of any laws protecting reservists. In an extensive 2002 U.S.General


    Accounting Office study, most of the reservists contacted reported that theiremployers comply with USERRA provisions, but many had complaints. Some said thattheir supervisors were hostile toward their reserve duty and had activelyencouraged them to leave the reserves. Others alleged employer misconduct that,if confirmed, would be a clear violation of the law, including being deniedmedical benefits upon their return and being forced to use vacation time formilitary duty. In one unit, more than 30 percent of the members surveyed saidthey had problems with their employers when they returned from an extendeddeployment to Bosnia.


    Reserve officials, reservists, and employers all commented to the GAO thateven in companies with good policies, reservists may face front-line supervisorswho do not always comply. One reservist reported that despite working for amajor corporation that has received numerous awards for its policy onreservists, he was placed on probation after returning from a nine-month Bosnia mobilization. HR’sjob does not end with rolling out a USERRA compliance policy; enforcement up anddown the line is necessary.


Workforce, January 2003, p. 35 — Subscribe Now!

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How Successful Companies Manage Health-Care Benefits

Watson Wyatt, a global HR consultancy, recently took a look at companies thathave lower-than-average health-cost increases and are meeting or exceedingcompany financial expectations. The research discovered that companies that arelikely to see lower-than-average health-cost increases are those that run theirhealth-care programs like a business. More specifically, successful companies:

  • More directly manage their health-care supply chain.
  • Emphasize employee productivity and overall health as key goals of their health-care program.
  • Have longer health-care strategy planning cycles.
  • Include employee self-service features in their health-care program.
  • Empower employees to take responsibility for health benefits.
  • Provide employees with self-care information and decision support.
  • Use data in health-care decision-making.
  • Make use of the Internet to administer benefits and distribute health-care information.
  • Are less likely to consider reducing or eliminating coverage.

    Perhaps most important, the Watson Wyatt research also discovered thatcompanies with lower-than-average health-cost increases don’t make incrementalchanges that do things to employees. Instead, they make changes with employeeinput.


Workforce, September 2002, p. 34 — Subscribe Now!

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Seven Costly Myths About Managing Contract Workers

Businesses across the country are continuing to cut costs by replacingemployees with independent contractors. Some savings are certain–employers don’tpay employment taxes to the IRS or employee benefits to their workers. However,many hidden costs can reduce these savings or even erase them entirely.

    This article focuses on seven legal myths, myths that can lead businesses tobelieve they are saving money by blinding them to the costly legal risks ofhiring workers as independent contractors instead of employees. These mythsresult from being uninformed about the legal differences between employees andindependent contractors. Shattering these myths is the best way to learn howthese distinctions affect your business’s legal compliance and why companiesshould include these risks in any cost-cutting calculations.


    Myth #1: Employers should use the IRS’s 20 Common-Law Factors Test todetermine worker status as employee or independent contractor.


    Reality: The IRS no longer applies its long-standing, much-publicized, andfrequently used 20 Common-Law Factors Test to determine a worker’s status asemployee or independent contractor. The IRS has replaced this test with a newapproach that focuses on three categories to determine if a worker is anemployee or independent contractor: Behavioral Control, Financial Control, andType of Relationship. Companies relying on the 20 Common-Law Factors Test todayrisk costly fines and penalties for worker misclassification by IRS auditors.


    The IRS is specifically targeting companies that have laid off employees tosave costs and then hired independent contractors to perform the same work.Their incentive is the same as that of businesses being audited–the hugeamounts of money not being paid in employment taxes. In short, employers’savings become Uncle Sam’s losses, and Uncle Sam wants his money back! Theanswer lies in recognizing this risk and making sure that you are classifyingyour workforce properly, complying with the agency’s new tests.


    Myth #2: Employers can avoid costly worker misclassification risks bycomplying with the IRS worker-status test.


    Reality: The overwhelming focus on the IRS’s worker-status test by businessand legal advisers has led many employers to believe they can avoid legal risksof worker misclassification entirely by pleasing Uncle Sam. However, the IRS’sworker-status test applies only when businesses need to determine worker statusfor employment-tax purposes. Precious little information is provided about themany other federal (and state) laws governing the workforce, yet each has itsown test to determine worker status, and all differ from the new IRS approach.Four examples are:


    Employee benefits: A 12-factor test determines whether a worker is anemployee or independent contractor under ERISA, the federal law governingemployee benefits.


    Immigration: The Immigration Reform and Control Act (IRCA) applies aseven-factor test to determine worker status.


    Employment discrimination: The Equal Employment Opportunity Commission (EEOC)applies a test based on the “right to control the means and manner of aworker’s performance” in federal employment discrimination cases.


    Wage and hour laws: The Fair Labor Standards Act (FLSA) applies an “economicrealities” test, including six factors to determine whether the worker iseconomically dependent on the business to which the services are provided.


    While it is important to learn the worker-status rules under the various lawsand regulations governing the workplace, just knowing that all worker-statustests are not the same is an important first step in reducing legal risks.


    Myth #3: You can avoid costly worker-misclassification liability by complyingwith federal statutes and regulations governing the workforce.


    Reality: Even if your company complies with lengthy lists of laws andregulations governing the workforce, you still risk liability by misclassifyingas independent contractors any workers who are considered to be “common-lawemployees” by our courts and the IRS.


    Many high-profile worker-misclassification lawsuits, whose staggering coststo employers made national headlines, were based on courts’ findings thatplaintiffs were common-law employees.


    The IRS defines a common-law employee as “any individual who, under commonlaw, would have the status of an employee . . . a person who performs servicesfor an employer who has the right to control and direct the results of the workand the way in which it is done. For example, the employer provides theemployee’s tools, materials, and workplace, and can fire the employee.” Unlikeindependent contractors, “common-law employees are not self-employed andcannot set up retirement plans for income from their work.”


    Courts and the IRS will find that workers are employees if they meet thecommon-law-employee criteria, whether they are hired as independent contractors,freelancers, or temporary or other “contingent” workers.


    Myth #4: An employment contract expressly stating that a worker is anindependent contractor means that the worker is an independent contractor.


    Reality: In a series of recent cases, several appeals courts across thecountry have ignored or rejected employment contracts that expressly designatedworkers as independent contractors. These and other courts have consideredwritten contracts less important than the actual working relationships, controlof worker performance, and other factors when worker status is at issue.


    In the landmark case Vizcaino v. Microsoft, the Ninth U.S.Circuit Court of Appeals held that Microsoft’s “permatemp” workers werecommon-law employees despite the fact that they had signed written agreementsacknowledging that they were independent contractors.


    Myth #5: Hiring CEOs, CFOs, and officers as independent contractors ratherthan employees is an acceptable, routine, legal business practice.


    Reality: While hiring corporate chief executives as independent contractorsmay be a common, routine, and legal business practice, it carries its own legalrisks for creditors, employees, and shareholders. The currentcorporate-accountability crisis is exposing these risks every day. Consider theEnron case. When Enron hired Stephen Cooper as its new CEO, his contractdesignated him an independent contractor, not a full-time employee. SECinvestigators knew that the independent-contractor status would limit the newCEO’s fiduciary responsibility to the company and its creditors. This wouldhave freed Cooper from fiduciary responsibility to the company and itscreditors. They characterized the designation as “inappropriate” and (joinedby the Florida State Board of Administration, an Enron creditor and shareholder)scolded the company for its independent-contractor designation. The SEC forcedEnron to change Cooper’s contract status to “full-time employee” topromote corporate responsibility.


    Myth #6: All contractors are the same when it comes to legal compliance.


    Reality: All contractors are not the same. The IRS considersindependent contractors to be self-employed. Each is a business owner with theright to choose from various forms of business entity, including a corporation.An independent contractor’s business entity can affect the potential liabilityof any company that hires or manages that person when legal disputes arise.Recognizing that all contractors are not the same can help reduce the cost offuture potential legal disputes in contractor-workforce management.


    Myth #7: Workers’ compensation policies protect employers from liabilityfor work-related injuries suffered by employees, but not independentcontractors.


    Reality: This is true, and therefore the risks of potentially costly legalconsequences also must be considered. Because independent contractors aren’tcovered by an employer’s workers’ compensation plan, hiring independentcontractors (or converting employees to independent-contractor status) can openthe door to personal-injury lawsuits when contractors suffer work-relatedinjuries.


    Because they are not employees, independent contractors who are injured onthe job can bring a personal-injury lawsuit alleging negligence, defectivemachinery or equipment, or other grounds for liability, just like any businesscustomer or client. Employers must recognize the real costs of losing theprotective shield that workers’ compensation provides against such lawsuits.


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

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Best Practices for Using Temporary Employees

The economy is starting to come back–maybe. You’ve started to plan forfuture projects–maybe. You’re thinking about bringing on new staff at somepoint–maybe. But in the meantime, the work still has to get done. And, likemany other companies around the country, you may be thinking about taking on “contingent”workers to help get it done.

It’s a good idea. However, you’ve got to make sure you don’t blur theline between these temporary workers and your regular staff. Here are some ideasfor staying on the safe side of that line:


1. Do not train your contingent workers. Ask their staffing agency (which,unless the worker is an independent contractor, should be their employer ofrecord) to handle training.


2. Do not negotiate the pay rate of your contingent workers. The agencyshould set pay, as well as handle all communication regarding raises for theworker.


3. Do not coach or counsel a contingent worker on his/her job performance.Instead, call the person’s agency and request that they do so, and tell themwhy it is necessary.


4. Do not negotiate a contingent worker’s vacations or personal time off. Direct the worker to his or her agency, which should then call you regardingcoverage prior to approval.


5. Do not routinely include contingent workers in your company’s employeefunctions. Where their attendance is necessary, ask the agency to pay areasonable fee to cover things like food. For “recognition” events, theagency should be present and offer any award, bonus, or recognition directly toits workers.


6. Do not allow contingent workers to utilize facilities intended foremployees, such as company gyms/spas/company stores, without specialcompany-wide rules regarding issues such as eligibility and dues. Check withyour legal department for advice. Disregard for this rule has caused strain between regularemployees and management.


7. Do not let managers issue company business cards, nameplates, or employeebadges to contingent workers without HR and legal approval. The items shouldclearly differentiate the status of the worker as contingent.


8. Do not let managers discuss harassment or discrimination issues withcontingent workers. As soon as managers become aware of such an issue, theyshould contact you and the agency representative for resolution.


9. Do not discuss job opportunities and the contingent worker’s suitabilityfor them directly. Instead, refer the worker to publicly available job postings.Should a “temp-to-hire” opportunity exist for the worker, contact the person’sagency with details and ask the agency to approach the worker.


10. Do not terminate a contingent worker directly. Contact the agency to doso.


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 Online, October 2002 — Register Now!

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Ready for Action

Employers should prepare now for what may be the largestreserve deployment in U.S. history. Nearly 900,000 National Guard and U.S. ArmedForces Reserve members are subject to mobilization; a majority are full-timeemployees with civilian jobs. Experts estimate that as many as one out of everythree will be called to active duty if the U.S. goes to war against Iraq.

    With the September 11, 2001, terrorist attacks and the warin Afghanistan, the number of reservists on active duty peaked at 95,000 inMarch 2002, before dropping to the current level of about 58,000. Reservists nowaccount for almost half the national defense strength. Members report for aminimum of one weekend each month plus two weeks each year and for active-dutyassignments commonly lasting from 90 days to one year or longer. Although theDefense Department’s stated goal is to provide at least 30 days’ notice toreservists in a call-up, those deployed in the event of an attack against Iraqare unlikely to receive more than a few days or hours of notice.


    Employers with reservists in the Air National Guard, theAir Force Reserve, and the Coast Guard are most likely to see their employeescalled to active duty. According to the U.S. General Accounting Office, nearlyone-fourth of the Air National Guard reservists were on active duty when thecurrent call-up peaked in March 2002, along with 10 percent of the Air ForceReserve and 15 percent of the Coast Guard. Other reserve units are operatingwith less than 10 percent of their members on active duty.


    “Military action with respect to Iraq will put anadditional strain on the civilian workforce,” says LTC Jess Soto Jr., deputydirector of ombudsman services at the National Committee for Employer Support ofthe Guard and Reserve, in Arlington, Virginia. “Currently, the Guard andReserve are being used for missions that were traditionally filled by theactive-duty force. The unintended consequences of the increased use of theGuard and Reserve have yet to be discussed at the national decision-makinglevel.”


Workforce, January 2003, p. 34 — Subscribe Now!

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The Art and Craft of Training for Training

Providing managers or supervisors with training so they can deliver criticalmaterials internally involves more than subject-matter instruction.Non-trainers often don’t have public speaking experience, nor are theyaccustomed to organizing training sessions.


The challenge can be particularly true for small companies. CorcoranManagement Company, a property-management firm with 250 employees and offices inseven states, for example, wanted to develop a training program to provide moreconsistency across the company in implementing procedures.


While Corcoran didn’t want, and couldn’t afford, to use externaltrainers, the Braintree, Massachusetts, company also knew that the people itselected to conduct training from among its employees didn’t have the skillsto deliver the courseeffectively. “We knew we had to teach the basic skills of delivery andpresentation,” says firm president Peter Blampieg. “We also discovered thatwe had to help people handle all sorts of logistical and scheduling issues,things that we wouldn’t be capable of sorting our way through on our own.”


Corcoran turned to Christine Gatti, an independent training consultant inleadership and management development. In addition to helping the firm create aseries of leadership workshops, she initiated a train-the-trainer program forinternal managers. She walked them through the process of delivering a businesspresentation, had each person practice in front of a video camera, and thenestablished a training-certification program.


Corcoran began with a group of 18 trainers and is now ready to launch asecond group. The company will continue to use Gatti to prepare new trainersrather than have internal employees pass along their newly acquired skills. “Wehaven’t developed that capability and still need an outside professional to doit,” Blampieg says.


Gatti is collecting data to verify that the program is working and that thetrainers’ behavior and skills are actually improving. Following up, especiallywhen non-professional trainers are involved, is critical. The Federal AviationAdministration, for example, uses post-course surveys in all of its trainingsessions to ensure that its facilitators continue to maintain a high level ofeffectiveness.


At Corcoran Management, the program has gained the support of senior staffmembers, and the firm has spent far less than it would have if an outsidetraining company had done it all, Blampieg says. “We are at the point nowwhere we are trying to measure the results and making sure we are seeing theperformance in the field that we are teaching in the classroom.”


 Workforce, September 2002, p. 46 — Subscribe Now!

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Enhancing HR Performance Through Recruitment Outsourcing

As a leading hospitality services company in North America, this food and facilities management expert employs 130,000 people to prepare meals, manage buildings, clean offices, maintain grounds, and provide a myriad of other facilities-management services for its clients. The company is big, diversified and growing very quickly.


Business Challenge
    With thousands upon thousands of people at the heart of every service this company provides, it faced a number of recruiting challenges. Even if associate turnover was tightly controlled, the sheer number of employees needed clearly demanded an ongoing and efficient system of talent replacement. Moreover, the company’s mandate to become a world-class service provider meant it had to find a way to fill both new and vacant positions promptly, effectively and with the best possible candidates.


    Exacerbating the situation were both the vastness and the very nature of its decentralized operation. While some of its far-flung locations employed as many as 400 people at a time, others only called for 10 employees; it was difficult if not impossible for its human resources department to take a centralized, consistent approach to employment processing.


Partnering with Spherion®
    But that was exactly what this company was determined to do. So, focusing first on its non-food operations, it brought in Spherion and asked it to reengineer the recruitment function so that it would be more efficient and more cost-effective. In addition to reducing cycle time–something it believed would not only cut expenses but increase the potential for revenue generation–the company hoped Spherion would establish a larger pool of management candidates on a regional basis, while balancing internal and external recruitment efforts.


    Working closely with key managers in the firm, Spherion’s top-level multi-disciplinary team worked to reengineer the employment process to yield greater efficiencies, minimize the cost per hire and reduce cycle time. At the same time, the team identified and brought up-to-speed a seasoned recruitment team–within Spherion–that could quickly assimilate client culture while producing qualified candidates.


Measurable Results
    Spherion, from the beginning, had specified measurable objectives through which its client could judge the program’s effectiveness. These included such standard metrics as cycle time (which Spherion brought in 50% faster than the client requirement), internal/external hire ratio (Spherion’s external/internal placement ratio was 1:1) and cost per hire (which was reduced by up to 140%). And, confronting the geographic problem head on, Spherion employed a targeted recruitment strategy focused on attracting talent within specific geographic regions and developing a region-specific candidate database; this reduced average annual relocation spend from $3.5 million to $212,000.


    What made the real difference was a focus-by both the client and Spherion-on the project’s outcome. “From Spherion’s point of view,” says Diane Shelgren, senior vice president of product management for Spherion, “this focus set everything in motion. If we aren’t delivering a significant outcome, we haven’t done our job,” she says. As for the client, “While we might not have anticipated outsourcing our recruitment process,” said its senior vice president of HR, “we knew what we needed to achieve and were willing-and able-to do whatever was necessary to achieve those objectives.”


(c) 2003 Spherion Pacific Enterprises LLC. All rights reserved. Spherion and the Spherion logo are registered service marks of Spherion Pacific Enterprises LLC.


Workforce, July 2003, p. 76 — Subscribe Now!

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An Open Door Policy

The Company has an Open Door Policy for all Associates, which provides aninternal procedure to present work-related concerns, ideas or suggestions. TheOpen Door Policy is designed to encourage Associates to communicate theirconcerns, ideas, or suggestions to their supervisors and also to provide themwith the option of carrying their concern to the next higher level ofmanagement, to Human Resources, or to senior management without retaliation orfear of retaliation.

    The Open Door Policy is intended to provide effective communications withinthe Company, but is not intended as a contractual right to any due process orgrievance procedure.


GUIDELINES:


Normal Procedure


  • Associates are encouraged to discuss their concerns, ideas or suggestionswith their supervisor. The supervisor knows more about the Associate and the jobthan anyone else and is in the best position to handle the situation quickly andsatisfactorily. Often, frank and open communication about a situation is theeasiest way to address it.
  • First–The Associate should discuss the matter with his/her supervisor(unless, due to the nature of the matter, the Associate cannot discuss it withhis/her supervisor, then the Associate should discuss it with the next levelmanager). The supervisor should act to resolve and answer the concern. If anAssociate feels a concern, idea, or suggestion has not received the attention itdeserves, then…
  • Second–The Associate should attempt to resolve the matter with thenext level of management within the local facility because they are best able towork out a satisfactory solution for all concerned. However, if an Associatefeels that a satisfactory answer still has not been received, continue to thenext levels of management, or…
  • Third–The Associate may address the matter with any other manager heor she chooses.

    The Human Resources Manager is available to assist the Associate at anytime and with any level of management in pursuing the resolution of a matterunder the Open Door policy. Upon request, the Human Resources Manager may alsoassist the manager/supervisor in understanding reasons for the matter raisedthrough the Open Door procedure and provide guidance and information onpolicies, benefits, etc.


Direct Referral to Corporate Management


  • There may be times when an Associate may wish to submit a statement inwriting for consideration by a specific level of management. The writtenstatement should be as specific as possible and identify the Associate.
  • The Company will provide the Associate with a confidential answer inwriting, usually within ten working days from the receipt of the statement, whenpossible and appropriate.

Management Responsibility


  • All members of management have a basic responsibility to see that OpenDoor matters are considered carefully and seriously and that an answer ispromptly given.
  • Management also has the responsibility to ensure that no Associate ispenalized for exercising his or her privilege to utilize the Open Door policy.

   While the above procedure is preferred, it should be understood that anyAssociate, at any time, and for whatever reason, has the right to bring up anissue of concern directly to the Chairman and/or other Corporate Officers.


SOURCE: Reprinted with permission from “Exhibit Books of Personal Policies–Set II; Volume 3: Benefits and Employee Programs,” Watson Wyatt DataServices. For more information, visit www.wwdssurveys.com or call (201)843-1177.


Workforce Online, September 2002 — Register Now!

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Stock Option Terminology

Stock Option: The right to purchase a share of stock for a specified price,for a specified period of time. Most options granted to employees give theemployee the right to buy the stock at the market price on the day the option isgranted. Most options also give that right to employees for a period–or “term”–often years.


Exercise Price: An option is a right to purchase a share of stock for aspecified price. That price is called the exercise price


Underwater Option: This is an option whose exercise price is higher than thecurrent market price of the stock. Options rarely start out underwater. Theystart out “at the money,” meaning that the exercise price is equal to themarket price. If the stock price drops below the exercise price after it isgranted, then the option is “underwater” and as such is not worth much.


In the Money Options: An option is “in the money” when the market priceis higher than the exercise price. This is good because you can exercise theoption, and buy the stock for less than you could sell it for in the stockmarket.


Restricted Shares: These are shares of stock that are granted to an employee.While they are officially owned by the employee (who gets dividends and can votethe shares), they have “restrictions” on them. The restrictions make it sothe share of stock may not be sold or transferred (given) to anyone else.Usually, the restricted shares vest over time. When the restricted shares vest,the restrictions lapse and the shares can then be sold if the employee wishes.If the employee leaves the company before the shares vest and the restrictionslapse, he of she loses all rights to the shares.


Future Grant: An award of options or restricted shares to be made in thefuture.


Option Dilution: When earnings per share is calculated, net income is dividedby the total number of outstanding shares of stock. When stock options aregranted, and especially when those options are “in the money,” the number ofshares used in calculating earnings per share is increased to reflect thepotential number of new shares that would be issued if all options wereexercised. This reduces or “dilutes” the earnings-per-share number.


Black-Scholes Option Pricing Model: This is a statistical formula developedin the early 1970s by Fischer Black and Myron-Scholes to estimate the marketvalue of a publicly traded stock option. This model and variations of the modelare used every day to determine trading prices.


Fair Market Value: The value of the stock or option if it were traded on theopen market.


Scheduled Option Grant: A company’s regular annual option grant to alleligible employees.


Value for Value Basis: This is where old, underwater options are traded in byemployees in exchange for new “at the money” options based on the relativevalue of the old versus new options.


Overhang: This is a percentage–the percentage of the company’s stock thatis devoted to options. The calculation is the number of options that have beengranted and are outstanding, plus the number of restricted shares granted andoutstanding, plus the number of shares reserved.


Workforce, January 2003, p. 52 — Subscribe Now!