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Government Workers Can’t Find Jobs

Until this year, Christina Backlund, a 15-year veteran of California’s Technology, Trade and Commerce Agency in Sacramento, believed that her job was secure. Frankly, she’d never considered working anywhere else. But now she’s expecting a pink slip any day, and is understandably anxious about how to carve out another career. “A lot of us were in denial at first, hoping this wouldn’t happen,” she says. “But the state is cutting across all agencies, and you have to start making some kind of plan.”


Throughout the country, thousands of state and city government workers are finding their careers similarly beached. From California to New York City, governors and mayors are vowing to narrow gaping budget gaps by slashing jobs. In a press release, New York Mayor Michael Bloomberg sums it up in a word: “Painful.” About 35 states and hundreds of local governments are grappling with budget crises, due mostly to sagging tax revenues resulting from a national economy that continues to move at an anemic pace. The National Conference of State Legislatures estimates that states are facing a cumulative $68.5 billion budget shortfall for fiscal 2004. NCSL president Angela Monson called the magnitude of the gap “startling,” adding that sweeping job cuts were inevitable.


The fallout is that former government workers are confronting unique stereotypes and challenges in the job market. Recruiters say that much of corporate America, which is once again able to be choosy when hiring, would rather hire people with private-sector experience. Private-industry workers, the thinking goes, are used to worrying about pumping up revenue streams and making a profit. That comes with longer hours and, by extension, heftier workloads. Those working in government, on the other hand, are accustomed to guaranteed budgets and working hours and regular raises.


“A lot of people just think state workers have an easy time of it,” says Sue Roberson, who is now in the private sector after working for several years as a secretary for the state of Iowa. “I don’t think that’s the case for most, but there is some of that. We had one department where we could have cut 50 people and still done the same amount of work. We had women that did their hair and nails on state time, so people probably have some reason to think that with a government job, all you have to do is show up.”


Recruiters say they hear the same concerns. “Whether it’s true or not, that’s the perception of people who work in government, especially those who have worked there for a long time,” says Karen Bloomfield, spokeswoman for Cleveland-based Management Recruiters International. “That’s a perennial problem for those people as they look for jobs.”


She says that though many will eventually find jobs, their new careers are likely to pay less and offer fewer opportunities for advancement. Not surprisingly, this chips away at employee confidence, even among those who don’t get pink slips, Bloomfield says.


In Maine, for instance, state lawmakers were able to close a $1.2 billion budget gap with fewer than 200 layoffs. That’s less than 2 percent of the state workforce. Still, says Carl Leinonen, executive director of the Maine State Employees Association, “if you’re one of those let go, it’s pretty awful. And among those they leave behind, there’s a lingering sense of insecurity.” Leinonen and others close to the situation say that the uncertainty can become all-consuming, affecting workers’ ability to focus on their jobs and to be productive.


Leinonen says that for workforce managers at government agencies, the layoffs pose two significant challenges: first, restoring confidence in the survivors, and second, building on that confidence when it’s time to hire again, as many job-hunters shy away from employers known for making cuts.


A survey released in April by the NCSL in Denver reports that nearly a dozen states already have announced layoffs this year and a dozen more may follow suit beginning in July. California, which had a record $35 billion budget deficit at one point this spring, planned to eliminate 10,000 positions via attrition and layoffs. Connecticut has already given notice to nearly 3,000 people. Florida Gov. Jeb Bush wants to eliminate at least that many jobs through cuts and privatization of state services. That shrinking workforce, recruiters say, is redefining workers’ opinions about government careers.


In the boom years of the 1990s, cities and states increased their staffs by 20 percent, to about 19 million workers nationwide. That continued a rarely interrupted growth trend that began 70 years ago. College-educated professionals were attracted by the stability of government jobs that, in addition to good pay, often came with regular raises, ample opportunity for advancement and reasonable hours. But as governors and city councils more commonly view job cuts as the fastest way to compensate for declining revenues, the environment is changing fast.


Former government workers are facing a vexing issue. The job market already is saturated with laid-off white-collar techies, mid-level managers and other professionals. According to the Bureau of Labor Statistics, the unemployment rate for highly educated professionals increased from 2.8 to 3.1 percent in the past year. The public-sector picture will only inflate that figure.


Glenda Gorsch, an 11-year veteran of Iowa’s state government, has learned that the hard way. She figured that her job as a liquor-license inspector would carry her to retirement. The work was stable, and she found it rewarding. “You help protect the public,” she says. She earned about $42,000 a year. It wasn’t big money, but if she had worked until age 65, she could have built a decent retirement fund.


In May 2002, however, Gorsch was one of 200 state workers laid off as part of an effort to stem costs. After more than a year of job hunting, she’s still unemployed. “I’m not having any luck. There’s just not much out there.”


A survey by the Washington, D.C.-based National League of Cities found that three-fourths of mayors say they are less able to meet their financial needs this year than last–the bleakest survey result in a decade. The leading drain in major cities, aside from weaker-than-expected tax revenues, is the soaring cost of law enforcement, the result of heightened homeland-security needs.


In New York, the hardest-hit of all, about 1,000 of the city’s 38,000 police officers have been pulled off their regular beats and placed on antiterrorism duty since September 11, 2001, forcing the city to pay other officers costly overtime on a regular basis to cover shifts. That has intensified the need to accelerate cuts elsewhere in city government. In what the local media labeled a “doomsday budget,” Bloomberg announced in April that the city may have to let go as many as 4,500 of its workers to help offset a $3.8 billion revenue shortfall. Last-minute brokering for state assistance will trim that number, but the city still projects hundreds of cuts.


Meanwhile, Boston and San Francisco are each cutting more than 1,000 jobs. Federal aid may help, says John DeStefano Jr., president of the National League of Cities. But before the tide turns, state and city governments may have shed more than 100,000 people from their payrolls.


Workforce, July 2003, pp. 88-89 — Subscribe Now!

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Don’t Mess With Carly

It’s a warm spring morning in May and Carly Fiorina, CEO of Hewlett-Packard Company, is in her element. It has been exactly one year since the company’s controversial merger with Compaq Computer, and the high-tech rock star is on stage celebrating with the announcement of major new products. Inside the San Jose Convention Center, dozens of journalists capture her words in notebook computers as Fiorina, speaking without a single note, details the highlights of the new software and services. She’s direct. She’s articulate. And she makes her points without revealing a trace of humor or personality. She’s a well-rehearsed businesswoman with a buttoned-down message to customers that echoes HP’s new marketing theme: “Demand more.”


It’s a daring slogan for a company that promises to meet the demands of the most demanding IT customers. But the words could also describe Fiorina’s own management style. Opinions vary on the stylish 48-year-old leader with the multimillion-dollar paycheck, who has been described as everything from brilliant and visionary to arrogant and self-serving, but on one point people agree. Carly Fiorina–who rises at 4:30 a.m. and routinely puts in 16-hour workdays–is a furiously driven executive who expects the very best from herself and her 141,000 employees.


“She’s not in our offices every day beating on us, but she expects us to be on top of what we’re doing,” says Shane Robison, executive vice president and chief strategy and technology officer. “She believes our culture should be based on performance, self-motivation and high achievement.”


Those high standards have had an extraordinary impact on HP’s workplace. When she arrived in 1999, employees were used to working for a company in which layoffs were exceedingly rare. Today, pink slips are common. By the end of October, 17,900 people will have lost their jobs. One disgruntled veteran, who has been at the company for 20 years, declares, “Employees are now viewed as assets or tools, no different than machines or buildings.”


When Fiorina arrived, HP was a flat, decentralized company, and individual departments were given a great deal of autonomy. Decisions were made by consensus, or not at all. Today, HP is a tightly coordinated corporate machine where the most important decisions come from the top. “Before, we never talked about members of the executive council (a team of senior vice presidents who report directly to Fiorina),” says Renee St. Denis, general manager of product recycling solutions. “Now we not only know who they are and what they do, we know they have ‘super votes’ that can override others.”


Under Fiorina’s tutelage, HP also conducted the largest technology merger ever: the $19 billion deal with Compaq Computer. It initially was criticized, in part because HP’s khaki-wearing, laid-back culture was so vastly different from Compaq’s caffeine-fueled Type A workforce. Today, the merger is hailed as one of the finest ever. Even Tom Ridge, director of Homeland Security, has sought Fiorina’s advice on how to merge 22 disparate government agencies into one forward-thinking organization.


Wall Street likes what it sees, too. “From a financial point of view, it looks as though the increased centralization and focus on performance are working to integrate HP with Compaq,” says Joe Beaulier, a Morningstar, Inc. stock analyst.


A predatory animal
    As her example demonstrates, organizational change really does start at the top. HP today is a different and more predatory animal than it was four years ago, and the culture mirrors Fiorina’s own style. HP is driven, decisive, customer-focused and successful. In the first quarter of this year, four out of five of the company’s business segments were profitable, despite the fact that the technology sector remains depressed. Second-quarter earnings handily beat Wall Street estimates. And in April, the company signed its largest contract to date: a $3 billion deal with Procter & Gamble. As James J. Cramer recently wrote in TheStreet.com, “It wasn’t supposed to be this good. Hewlett-Packard should have screwed up.”


Carly Fiorina was hired by HP’s board of directors to turn around a company that was desperately in need of change. HP had become sluggish. It had failed to capitalize on the personal computer and Internet revolutions, and missed nine quarters in a row during the biggest technology upturn ever. Hopes were high for Fiorina, who, unlike her predecessors, was not an engineer or HP insider. She was a willful, market-focused executive skilled in major organizational change. Just three years earlier, she had orchestrated the spin-off of the 120,000-employee Lucent Technologies from AT&T. But just because HP needed to change, that didn’t mean employees were ready for it. From the get-go, Fiorina’s slick market-savvy focus was at odds with the company’s relaxed engineering culture.


“In the old days, when HP execs would visit, they would rent a car from Hertz,” says a management employee from the Fort Collins, Colorado, plant. “But Carly traveled in a stretch limo; she wanted to be treated like a movie star.”


“Previous CEOs talked about the company as a we,” says Barton Coddington, a former employee who now works for the company as an independent contractor. “Carly may have used the word I too much.”


But if Fiorina had difficulty in her new role before the merger announcement, it was nothing compared to what came afterward. She announced the proposed merger with Compaq in September 2001. She liked the company because it was strong in areas that HP wasn’t, including data storage and direct sales. Compaq was also known for its speed and customer focus–characteristics that were glaringly absent from HP. “HP was more analytical and methodical,” says a former Palo Alto employee, “which means they moved a lot more slowly.”


The reaction to the merger was immediate and negative. Overnight, HP’s stock price tumbled 19 percent. Shareholders and heirs of the company’s founders resisted the plan. So did employees. An external poll revealed that they objected to the deal by a 2-to-1 margin. To make matters worse, just days after the announcement, the terrorist attacks of 9/11 occurred, pushing the already depressed technology sector into a heart-stopping free fall.


Despite the enormous challenges, Fiorina held firm. She was the HP outsider who saw what needed to be done, the courageous executive unafraid of naysayers. As she told members of the Wharton Club of Northern California in March, “If you start making decisions on the basis of conventional wisdom or chatter in the hall, generally speaking, you will make the wrong decision.”


Up for the task
    To understand this complex, risk-taking woman, one must go to Austin, Texas, where she was born in 1954. Cara Carleton Sneed–the nickname Carly came along in high school–didn’t follow the course you might expect of someone at the helm of a multibillion-dollar international enterprise. Her mother was an abstract artist and her father was an itinerant law professor who taught at Stanford and other universities. As a child who lived in London, Ghana, Palo Alto and other places, Fiorina grew accustomed to being the new kid on the block.


She graduated with a degree in medieval history from Stanford. She then attended law school for one semester at UCLA, dropping out–she once told Investor’s Business Daily–after learning that law “was all about discovering precedent someone else has set.” As a young adult, Fiorina was briefly married, taught English in Europe and worked as a receptionist for a commercial brokerage firm. It was there, while writing deals for brokers, that she became captivated by business. After obtaining an MBA in marketing from the University of Maryland, she landed a job as a sales rep for AT&T, and quickly rose through the ranks. In 1994 alone, she received three large promotions.


In 1995, she accepted one of her most challenging assignments to date: to execute the spin-off of Lucent Technologies. “Fiorina brought all her attributes to the task,” says Peter Burrows, author of Backfire: Carly Fiorina’s High-Stakes Battle for the Soul of Hewlett-Packard (John Wiley & Sons, 2003). These included “her capacity for hard work, her gut instincts and her ability to build and motivate a team.”


Anyone who has worked with Fiorina will say she’s “scary smart” and relentlessly driven. The only outside interest she has time for is family, which consists of her husband, Frank Fiorina, who retired early from his job as a vice president at AT&T to support his wife’s career, his two daughters from a previous marriage and his granddaughter, whom she calls daily to say good night.


Fiorina no doubt demands so much of others because she expects so much from herself. She’s a white-knuckle flier who travels more than a quarter million miles a year without complaint.


It has now been a year since the merger was finalized, and Fiorina’s impact on the HP culture has been profound. Pre-Carly, HP was a company that concentrated on innovation and product development. Post-Carly, the market reigns supreme. Today, all employees are–or should be–intently focused on customer needs. “Carly is all about the customer, the customer, the customer,” says Chandrakant Patel, a principal scientist who’s been with HP for 15 years. “In today’s market we can no longer do pure research. We have to get out and learn what the customer needs so we know what to make next.” Patel, who’s talkative and enthusiastic, likes the change but admits that many scientists don’t. “They’d rather work with technology than people,” he says.


Customers, of course, love the new mind-set. “In the past, HP had difficulty staying focused on customer needs,” says David Thompson, CIO of PeopleSoft, who has worked with HP for nine years. “Carly has been able to turn that around. I’ve been in meetings with her where she’s listened to my needs, and then turned to her staff members and made it clear to them what her expectations were in terms of meeting those needs. As a customer, I like knowing the leadership of the company is in control.”


The focus on customers is a 180-degree shift from the way decisions used to be made, says Susan Bowick, executive vice president of human resources and workforce development. And employees are being held accountable for making the shift. On Fiorina’s watch, the profit-sharing plan has been eliminated in favor of a performance bonus that is based on financial and customer metrics. “The idea is to hold employees accountable for displaying behavior that results in increased customer loyalty and fewer at-risk customers,” she says.


But in addition to serving customers more effectively, employees are being asked to perform at a higher level for the company overall. An HP middle manager from Fort Collins, who like Fiorina once worked at Bell Systems, says that “Carly instituted the concept of automatically firing the bottom 5 percent of performers.” That’s the way it was at Bell. “But HP never did that. If someone was a poor performer, they were given a year to turn around.”


Bowick agrees that the company’s philosophy is different, and for good reason. “HP has always had a performance distribution system, but if you looked at where folks were placed, we were not dealing with unacceptable performance. We had literally nobody ranked as ‘improvement needed,’ ” she says. “Prior to the recession, quite a few companies, including GE, Cisco and Intel, used performance distribution as an ongoing way of refreshing the workforce,” Bowick says. “But we’d never put teeth into that practice. When we started ranking, we made it clear to employees that the hurdle had been raised, and that we would terminate people who did not have competitive skills. Carly wanted to make sure people would be rewarded and promoted based on results, not other factors such as longevity or who they knew.”


More than 16,000 jobs have been cut since 2001–the majority of them related to the merger–and those job losses have escalated the workload of remaining employees. “The idea of work/life balance is a joke,” says a manager in one of HP’s product groups, who routinely puts in 60-hour workweeks.


“Everyone is working harder now,” Bowick concedes. “A lot of jobs just aren’t doable in a 40-hour week, and people have to be willing to make that choice for themselves. For some of us in key jobs, work/life balance is not a goal to have.”


Perhaps the biggest change since Fiorina’s arrival is the loss of the company’s decentralized consensus-based culture. Long-term employees don’t like the transformation. “It’s now a top-down, do-as-I-say company,” says a 25-year veteran of the technical staff.


But for others, the change is welcome. “HP had a very consensus-driven style,” Barton Coddington says. “This may have worked when the company was small, but as it grew, it was taking too long to get things done. It was difficult to get any large-scale programs off the ground because all the power was concentrated at lower levels.”


Renee St. Denis adds that in the old days, nothing got done when there was no consensus. “Today, the reality of the corporate caste system has set in, and that’s a good thing. You need hierarchy–a final decision-maker–to get things accomplished.”


“Before, people were reluctant to make decisions until they had all the facts. Carly has changed that.
She’s made it okay for people to take risks and go with just 80 percent
of the data.”

Decisions at HP are also made more quickly now, St. Denis says. “Before, people were reluctant to make decisions until they had all the facts. Carly has changed that. She’s made it okay for people to take risks and go with just 80 percent of the data. For example, I work in product recycling, and our work is leading edge. Instead of making us churn out a business case for everything we do, Carly says just go ahead because recycling inherently makes sense.”


Keep The best, Dump the rest
    The sweeping changes that have taken place at HP were accelerated by the merger with Compaq. That was part of Fiorina’s plan, says Webb McKinney, executive vice president, merger integration and organizational effectiveness. Compaq was stronger than HP in many areas, he says, including speed, customer focus and agility.


“Her approach was to keep the best and do away with the rest,” McKinney says. Instead of wasting time trying to blend the cultures and create something new, she challenged the integration team, which was composed of representatives from both companies, to determine which company had better products, processes and people in a given area and run with them. Compaq, for instance, had a better sales force, so many of the top sales jobs in the newly merged company went to former Compaq employees.


The strategies are working. Last December, the company achieved $2.5 billion in merger-related cost-savings 18 months ahead of schedule. In January, HP’s personal computing business reclaimed the No. 1 market share in the global PC industry. And in May, HP took the top worldwide position in total server revenue away from IBM. “This is an integration story I believe will go down in history as one of the finest,” says Larraine Segil, president of The Lared Group, a Los Angeles-based strategic alliance consulting firm, who has researched the merger.


Of course, not everyone is happy with the merger or with HP’s new culture. “It’s a culture of fear right now,” says a former director-level employee who provides consulting services to the company. “Nobody believes their job is secure, and it’s become habitual to wonder when your number is going to come up.”


Bowick acknowledges that morale is suffering in some parts of the company. Mid-level managers who were used to running their own empires now have to coordinate their activities. And the back-office employees who weren’t accustomed to interacting with customers now have to exercise those skills. “If we hadn’t gotten a CEO like Carly, I would have left because we were gradually winding our way into an also-ran,” the 26-year HP veteran says. “We were not relevant, we were not competitive, and employees had given up hope. It was a great company, but it was dwindling.”


On May 1, Standard & Poor’s raised HP’s credit rating to “stable,” citing its strong financial profile, and in June, financial analyst James Cramer urged readers to buy HP stock because of its “gigantic cash flow and a chance for a big boost in the dividend.” With such high-profile endorsements, Carly Fiorina’s Hewlett-Packard dwindles no more.


HP’S WAY
Pre-Carly Today
There were no mass layoffs To date, 16,000 people have been downsized
Employees were nurtured Employees must meet bottom-line performance goals
There was great respect for competency; little respect for rank Rank and competency matter
Decisions were made by consensus Decisions are often made at the top–quickly
Managers and departments had a great deal of autonomy Departments have to coordinate their efforts
The organizational structure was flat The structure is more hierarchical; the executive council has greater authority
The focus was on products and engineering The focus is on sales and customers
Research and analysis were important Research and analysis are still important; but so is speed
Risk-taking was frowned upon Risk-taking is encouraged

Workforce, July 2003, p. 15 — Subscribe Now!

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Phased Retirement

When Ron Coulthard turned 60 three years ago, he wanted a change. He had been an English professor for 31 years at Appalachian State University, part of the University of North Carolina system. While he didn’t want to continue working full-time, he wasn’t quite ready to retire. If he’d been in that quandary just a year before, he wouldn’t have had many options, but in late 1998, the university began a phased-retirement pilot program that allows faculty members over the age of 50 to work half-time at half-salary for up to three years while collecting partial pension benefits.


    “It was a pretty good deal,” says Coulthard, who joined the program and spent the next three years working full-time during the fall term and taking the other eight months off to enjoy his 11-acre mountain property and write an occasional poem. “If they hadn’t offered the program, I probably would have stayed a lot longer, for financial reasons alone.”


    The half-time salary, combined with his pension and a drop to a lower tax bracket, actually increased John Higby’s monthly income by several hundred dollars when he joined the same program that year. “It was perfect,” says the retired English professor, who opted to work part-time during both terms, which enabled him to teach every day while remaining exempt from committees and university politics. “It was an almost perfect life. I regret that I couldn’t do it for a few more years.”


    The program was a huge success. Today, almost one-third of retiring faculty members at the 16 UNC campuses take advantage of phased retirement, and the concept is slowly catching on in many other public and private organizations.


IRS presents obstacles
    Low unemployment and rapidly aging baby boomers sparked the push to create programs that allow older workers to ease out of their jobs by reducing the number of hours they work in the years leading up to or just after they reach retirement age. It’s an attractive option for individuals because they can continue to earn an income under more flexible terms. And companies benefit from having ongoing access to their most experienced personnel, often at a reduced cost because they work part-time, says Valerie Paginelli, senior retirement consultant at Watson Wyatt, a human resources and risk management consulting firm headquartered in Washington, D.C.


    Unfortunately, IRS laws that were designed decades ago to discourage retirees from working make it almost impossible for employees to maintain their previous income level through a combination of social security, pension and paycheck. For example, an earnings test for social security, which was only recently repealed, stated that retirees between 65 and 69 would lose $1 of social security benefits for every $3 they earned above the earnings limit. Even though the Freedom to Work Act of 2000 eliminated the test, pension rules still prohibit companies from giving partial payments to employees who want to reduce their hours before they reach retirement age, says Kyle Brown, retirement counsel for Watson Wyatt. “There are a lot of obstacles to phased retirement, but that’s the 600-pound gorilla.” (The professors using phased retirement at UNC are in a different situation—they actually have reached retirement age.)


    Further, many pension plans state that companies cannot continue to employ individuals and distribute their full pension payments after they reach retirement age, which means that if seniors want their complete benefits, they have to find a job elsewhere.


    These laws, combined with the now struggling economy, have made formal phased-retirement programs a rarity in many industries, even though the threat of a skilled-labor shortage increases every year, Paginelli says. At the moment, high unemployment has made this issue a low priority. But she predicts that within five years the rapidly aging workforce and lack of skilled replacements will force organizations to refocus their recruiting efforts on the retention of existing key talent. “When companies forecast the number of people they will have to hire in five years due to retirement and planned growth, it can be staggering. There won’t be a large enough volume of workers to replace them.”


    By 2010, 80 million baby boomers will begin to reach the age of 65. Today, one in three workers is over age 45, and by 2006 the median age of America’s workforce will rise to 40.6, up from 30 in the early 1960s. Industries such as nursing and manufacturing are already facing a tremendous loss of expertise as a result of downsizing and a rapidly aging workforce, and other industries will soon follow. However, most companies won’t respond until they experience the shock of a mass retirement, Paginelli says. “Pain determines how much energy they invest in reshaping their retirement plans.”


Universities lead trend
    Older organizations are the first to feel the impact of this knowledge loss, which is one reason why public universities were quick to embrace this trend. In 2000, 83 percent of academic institutions reported that 25 percent or more of their faculty were over the age of 50, according to a William M. Mercer study. Of all the industries covered in the study, universities had the oldest employee populations. “If everyone who was eligible retired at once, it would have devastating consequences,” says Betsy Brown, associate vice president of academic affairs at UNC, where more than half of the staff is over 55. Phased retirement, which was implemented in 1998, helps Brown spread the loss of veteran staff over several years without disrupting the academic environment.


    It’s a natural fit for a university because teaching positions can easily be converted to part-time by reducing the class load while still giving students access to experienced professors, she says. It’s a relatively cheap and attractive benefit to offer at a time when premiums are increasing and no one is getting raises. “There are no automatic costs to phased retirement, and even those who don’t take advantage of it appreciate having the option,” she says. And the program benefits the university financially because it frees half of the salaries of the highest-paid faculty to hire new full-time professors, giving the university additional staff for the same personnel costs.


    “The program gets rid of old folks like me to make room for the young firebrands who are hot to publish and get much lower salaries,” Coulthard says. When he went to part-time, his remaining salary was enough to hire another full-time faculty member. “After 31 years, even in the English department, you build up a big salary from cost-of-living increases alone. Financially, it was beneficial for me and for the university.” It also helps the university get out of long-term relationships with less-treasured employees, adds Robert Clark, professor of business management and economics at UNC. Tenured faculty are extremely valuable to the system, but they also have tremendous power over their retirement options. “There is no mandatory retirement age, and if they are tenured it is difficult to encourage them to leave,” Clark says. But in order to apply for phased retirement, faculty members must give up tenure and become term employees, setting a course for their departure from the system. “It has dramatically evened out the retirement cycle.”


    Private companies have been slower to embrace phased retirement because the financial and long-range ramifications are less apparent, Paginelli says. Unless a company has a large number of highly skilled employees who are eligible for retirement, such programs have little obvious impact on the bottom line. “There is savings from a reduction in recruiting and training costs and in retaining the value of experienced employees,” she says, “but those benefits are harder to quantify.”


    Companies that do adopt programs are typically in industries in which knowledge transfer among highly skilled laborers is a challenge. Ultratech, Inc., a maker of photolithography systems in San Jose, California, is one of the few companies in Silicon Valley that offers phased retirement, says Heidi Ordwein, director of human resources. She attributes their initial interest in the program to the company’s 25-year history. “Unlike most high-tech companies with youthful workforces, we have employees who have been with us for more than 20 years,” she says. “We look at our employees differently than younger companies.”


    Ultratech implemented phased retirement two years ago to stem a growing loss of retiring employees with critical expertise and knowledge. Employees as young as 50 have the option of reducing their schedule or work periodically on a contract basis. Employees love the program, Ordwein says. And it’s a “kick in the pants” for managers who work on what she calls a “truck system approach” to knowledge management: an employee has to “get hit by a truck” before someone else is trained for that job. “Phased retirement forces managers to create a transition plan for retirees and to think about mentoring in a replacement,” she says. It also helps retirees remain active in the company and to feel appreciated. “Staying connected is so important. We want our people to know we still value them.”


Homemade retirement plans
    Despite the overwhelming employee support of phased retirement at companies like Ultratech, very few organizations offer it as an option. But that’s not stopping retirees from working, Paginelli says. Studies show that many older workers are crafting their own phased-retirement plans, usually by taking full retirement benefits from one employer and going to work for another. With pension rules as they are, it’s often in retirees’ best interest to work for someone else so that they can maximize their income potential, she says, noting that some companies even take advantage of this situation by targeting retired seniors through their recruiting campaigns. At Republic Parking System in Chattanooga, Tennessee, for example, seniors make up more than 20 percent of the company’s 2,000 employees, says Bob Mitchell, senior vice president of human resources at the parking and transportation management company. He prefers hiring seniors because they are more reliable than younger employees, who he says are more likely to call in sick and have a weaker work ethic. “Senior citizens as a group are more dependable. They work because they want to.” He has also noticed that they are friendlier and tend to build relationships with regular customers, even though the only contact they have is when customers exit the parking ramp. “They learn about customers’ kids and families, and even exchange birthday cards,” he says. “They are a great resource, and they represent us well.”


    Legislators have begun evaluating the efficacy of pension rules, but there’s been little drive to push new laws through. Modification is inevitable, but it could be years before significant changes are made, says Anna Rappaport, a consultant for Mercer Human Resource Consulting in Chicago. That means that companies like Republic will continue to have access to a growing pool of highly skilled retirees looking for work.


    A 1999 AARP survey found that 8 in 10 baby boomers plan to work at least part-time during their retirement. Even though only 16 percent of companies have formal phased-retirement plans, a recent Congressional Research Service paper noted that 20 to 40 percent of workers in their 60s are already working part-time.


    “These people want to continue working, even if they have to create their own opportunities,” Paginelli says. “If you don’t have a phased-retirement plan, they may be taking their talents to the competition.”

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No-Layoff Policy

Peggy Laplante, a 45-year-old machine operator, is that rare employee, a happy and productive worker who can count on staying in her current job until she retires. And as long as she doesn’t abuse the system and get fired, she won’t face unemployment because her company, Hypertherm, Inc., has a no-layoff policy–unusual in any company, particularly in manufacturing.


For CEO and founder Dick Couch, this policy isn’t intended to be philanthropic. It’s just good business, he says. After all, if his associates (employees) aren’t worrying about losing their jobs in an economic downturn, they can concentrate on the company’s mission: to provide its customers with the very best plasma-cutting equipment and standards of service. While Couch says he wouldn’t go so far as to drive his company to bankruptcy in order to maintain this policy, there have never been any layoffs in Hypertherm’s 35-year history, the business is successful and the future is bright. He passionately believes that creating a good business climate–which includes offering good benefits–has a direct impact on business results.


In a sluggish economy characterized by shrinking staffs, maintaining workforce levels is, of course, more the exception than the rule. According to outplacement firm Challenger, Gray & Christmas, the highest number of planned job cuts since November 2002 occurred in April–146,399–up 71 percent from the previous month, when the figure stood at 85,396. A Business Roundtable survey of senior executives representing the biggest employers in the United States reports that 45 percent expect to let more workers go in the foreseeable future.


So how do companies like Hypertherm avoid handing out pink slips? How do they remain competitive and financially successful with a no-layoff policy? For Dick Couch and other CEOs who have implemented similar initiatives, the answer lies in a management philosophy that includes treating employees as an important investment, taking a cautious, well-thought-out approach to hiring new people and developing a flexible, highly responsive workforce by training people to handle a variety of jobs within the organization.


For Peggy Laplante and others like her who know how it feels both to be laid off and to be a survivor of a major workforce reduction, Hypertherm’s promise of job security is the most important company benefit of all. In exchange for that peace of mind, she and her 510 associates at the Hanover, New Hampshire, plant gladly contribute to improving business processes and reducing the firm’s manufacturing costs. Unlike many companies, Hypertherm implements most employee ideas, which reinforces motivation.


Last year, ideas from Hypertherm’s Continuous Improvement Activity program saved the company more than $2 million. As Couch explains, they tend to be small initiatives that a work group can implement quickly, by themselves, without any capital investment–such as reducing the amount of time it takes to complete a process or shipping products more efficiently. “Our team used to machine a part where the scraps from that process were simply thrown away,” says Brenda Blair, human resources director. “One of our associates realized that this ‘waste’ was the perfect size for making another part which we bought from outside. That simple idea eliminated the need to buy-in materials, which saved us at least $50,000 every year.”


She and Couch caution those who might be considering a no-layoff initiative to take stock and plan before they do. Such a policy can’t just be bolted on to an old way of doing things or operated in a vacuum, they say. It must be an outgrowth of what the company stands for, a genuine expression of an organization’s regard for its people.


Xilinx, an award-winning Silicon Valley semiconductor company frequently found on the Fortune Best Companies to Work For lists, doesn’t have an official no-layoff policy. But it has never discharged an employee for “no fault” in its 17-year history and says workforce reductions are always “a last resort.”


“Studies have proven that
companies that emphasize job security have a higher return to shareholders over time.”

“Studies have proven that companies that emphasize job security have a higher return to shareholders over time,” says CEO Willem P. “Wim” Roelandts, who joined Xilinx after 30 years with Hewlett-Packard. “When the economic downturn took place, we explained the dilemma and financial bind we were in as a company and solicited employee feedback as to where we could cut costs.”


Through the collective efforts of management and employees–including canceling unnecessary business trips, flying economy class and introducing temporary, tiered pay cuts that had the greatest impact on executives rather than employees–Xilinx saved more than $10 million a quarter in payroll costs alone. “As CEO I was amazed by the personal sacrifices each employee was willing to make in order to avoid a layoff,” Roelandts says.


Xilinx was able to introduce five new products in an 18-month period and increase its market share by 17.8 percent. Last year it ranked fourth worldwide in terms of revenue generated in the semiconductor market. While not as inclined to disclose its revenue position to the outside world, Hypertherm has experienced double-digit growth in the past 10 years and says it continues to increase sales despite economic challenges.


Both Roelandts and Couch believe that having a CEO who understands and lives by very specific core values is vital, as is taking a considered approach to hiring. “Every head-count addition receives a lot of justification and evaluation here,” Blair says. “While it’s not a hard-and-fast rule, we try to aim for a 3:1 ROI ratio of business benefit against the cost of bringing in a new associate.”


Couch also stresses the importance of interviewing for cultural fit. “Ours is a very open, egalitarian environment,” he says. “If a person has come from a buttoned-down company where everybody has their own office and private secretary guarding the door, they’re probably not going to do well here. We think a lot about hiring people who have the same basic philosophy.”


That philosophy includes working where you are needed, when you are needed. There’s no atmosphere of “This isn’t my job” because that doesn’t fit the culture at Hypertherm. By populating the company with flexible, highly responsive can-do types, it’s able to keep the wheels of industry moving, even when business is slow.


“Hypertherm has three business teams that meet the specific needs of our different customers,” says Wayne Elliott, a 20-year veteran of the company. “Typically, we don’t find all three units suffering simultaneously. When I can’t gainfully employ a number of my associates, one of the other two teams usually needs additional help. Our associates recognize that the development of the company relies on their continuous growth and development, so they welcome the opportunity to learn new skills, to be cross-trained and move within the business as necessary. HR facilitates this by maintaining a list of all associates and their qualifications. When someone doesn’t have the required skills, they are assigned a technical trainer who works with them one-on-one until they’re qualified and get documented.”


A similar approach is taken at Lincoln Electric, a celebrated welding firm in Cleveland. Founded in 1895, this company has offered “guaranteed employment” to those with three or more years’ service since the 1950s. According to John Stropki, president of North American operations, Lincoln commits to ensuring that every employee has a job–just not a specific job. Like Hypertherm, Lincoln cross-trains employees so they can move to different areas as needed.


Couch says he must continually reiterate to managers and associates alike that having a no-layoff policy doesn’t mean putting up with poor performance.

No policy is without its drawbacks, however. Couch says he must continually reiterate to managers and associates alike that having a no-layoff policy doesn’t mean putting up with poor performance. “This isn’t a license to do whatever you want,” he says. “While we lean over backwards because we pride ourselves on a friendly, family atmosphere, and we became an ESOP [Employee Stock Ownership Plan] company in 2001 as another way of demonstrating associate ownership, this is a business, not a hobby. We have standards of performance that people have to live up to or else they can’t stay here.”


Couch says he’s surprised that so few companies embrace a no-layoff policy. “I was at a conference on entrepreneurship at Dartmouth recently and sat on a panel discussing the financing of start-up companies,” he says. “The guy next to me was a young, very bright venture capitalist who believed that the purpose of business is to maximize shareholder equity. I say that the purpose of business is to satisfy the customer and to focus on the development and well-being of your associates, from which good things will happen–including the ‘accidental’ benefit to shareholders. It seems some corporate folks are never going to understand the value of no layoffs because their fundamental philosophy about what we’re in business for is very different.”


Peggy Laplante knows which approach she prefers. “When I see the economy sliding and hear of companies laying people off, I can remain focused on my work rather than worry about what’s going on outside,” she says. “At Hypertherm everyone ensures that you feel special and involved. And it makes me want to do a better job, knowing that the company cares about me.”


Workforce, July 2003, pp. 96-99 — Subscribe Now!

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Dead Man’s Curve

It might be the toughest corporate survivor of all. It has outlasted boom and bust, employee enmity, workforce managers’ opposition, media criticism, crippling lawsuits, Enron’s implosion and the de-deification of its biggest and most vocal champion, former General Electric CEO Jack Welch. For all that–partly by keeping its head down and going by a number of colorful aliases–it has remained very much at large. It is known as forced ranking and is variously called Topgrading, the Vitality Curve, Forced Distribution, Differentiation and Rank and Yank. And by some estimates, the controversial employee-rating system has taken root in as many as one in five Fortune 500 companies. It reached its peak of popularity just before Welch’s retirement in 2001, but the sour economy has kept its balloon from bursting.

    It’s a workforce-management tool based on the premise that in order to develop and thrive, a corporation must identify its best and worst performers, then nurture the former and rehabilitate and/or discard the latter. It’s an elixir that in these slow-growth times has proved irresistible to scores of desperate corporate chieftains–but indigestible to a good many employees. It’s a rough-and-tumble evaluation technique practiced at least to some extent by such corporate heavyweights as GE (which didn’t respond to our requests for an interview on the subject), 3M (“We’re going to take a pass on this subject.”), Texas Instruments (“No comment.”), EDS (“The person you need to talk to is traveling and won’t be available.”), Microsoft (“We don’t use forced ranking.”) and Hewlett-Packard (“HP’s performance rating is not designed to drive out a certain percentage of the company. HP has been evaluating and measuring performance and results for a long time. It’s motivational, and the employee, the team and the company all benefit.”).


    Forced ranking is a subject that makes many top managers cringe. “I believe that the reason for the great reluctance about talking about forced ranking,” says Dick Grote, founder and head of Grote Consulting Corporation in Addison, Texas, “is that in our culture we have a bone-deep belief in egalitarianism. That all people are essentially the same. And one of the great advantages of forced ranking is that it requires reluctant managers to actually identify the most and the least talented members of the work group.”


    That’s a necessity because “all God’s children are not the same,” Grote adds. “And that is treated as management’s dirty little secret.” Grote is one of the country’s foremost advocates of the rating system and has helped implement it at half a dozen or so large companies, which he is contractually forbidden to name. “The benefits of forced rating, intelligently and ethically conducted, are numerous,” he wrote recently in an article published by the Conference Board. “More than any other process, the system creates and sustains a high-performance, high-talent culture.”


    Byron Woollen, head of New York City-based Worklab Consulting, is one of many business consultants whose philosophy is diametrically opposed to Grote’s. Woollen has advised a number of corporations on how to avoid or extricate their organizations from the evaluation process. He says he can only speculate about why companies using forced ranking or its variants keep their heads down. “It’s really a hot-button issue these days.” Especially since attorneys specializing in employment law tend to aim for disgruntled forced-ranked employees like heat-seeking missiles.


The Ground Rules
    For those experienced with forced ranking, no explanation of its attention-getting ground rules is needed. For the rest of us, the grading system is based on the premise that rigorous evaluation and routing of employees by their immediate supervisors on agreed-upon abilities, skills and attitudes are not only possible, it’s vital. Thus, everybody from the top down can be–and sometimes is–ranked and placed on a bell-shaped company-wide curve, or in one of four quartered-square “quartiles,” or “buckets.” Other companies use a 1-to-5 ranking scale, 5 being best. Employees who finish, say, in the first 15 percent of the curve or the top-left quartile or are rated as a 5 are marked as A players–corporate stars and future leaders–and showered with raises, stock options and training. Performers in, say, the middle 70 percent of the curve or top-left and bottom-right square are B’s, given lesser raises and encouraged to become A’s. Those in the bottom right-hand square or the bottom 10 percent–or rated as 1–are given no raises or bonuses and either (a) offered remedial tutoring and mentoring in the hope of turning them into B’s; (b) offered remedial tutoring and mentoring and asked whether they might not be happier at another company; or (c) fired. Thus, Rank and Yank.


    The execution of a forced-ranking system demands intense yearly performance reviews, during which managers must place each of their underlings in their proper place. No exceptions are made. In theory at least, each round of ranking and/or yanking will ratchet up the total quality of the workforce one notch. In practice, that depends on whom you talk to.


The Pros and Cons
    Generally speaking, the proponents and opponents of forced ranking agree on only one thing: that they are right and everybody else is wrong. However, their theoretical disagreements–which are played out inside real companies among real people and real lives–break down into five major categories.


• Statistical Validity. The very heart of forced ranking is the belief that if, say, 100 people selected randomly from the Bronx phone book are measured for height, weight or their time in the 100-yard dash, the results will invariably display themselves on a bell-shaped curve. Similarly shaped will be measurements of a company’s, division’s or department’s personnel on matters of “core competencies.”


    Of course, the members of a typical work group are not selected randomly and seldom number 100. Not an insurmountable problem, says Helen Handfield-Jones, a former McKinsey & Co. consultant and co-author of The War for Talent, a 1999 book that was instrumental in popularizing what she and her co-writers call “differentiation.” “It doesn’t have to be an exact bell curve,” she says. “I agree entirely that this is not precise science.” But it is better than any alternative, she says. “Next time you have a promotion, are you going to make a random selection?” Handfield-Jones believes that 23 or 25 is the minimum number of employees that can be ranked. Dick Grote believes that it’s desirable to have at least 37.


    Nonsense, says Worklab’s Byron Woollen. “You have managers taking a bastardized notion of that [mathematical] principle and then just kind of monkeying with an idea that doesn’t really apply.” And this mathematical mirage, says a former employee for Metropolitan Life who never quite made it into the top bucket (and who, like all other employees interviewed, we opted to keep anonymous for obvious reasons), produced results that might seem surreal if they weren’t so frustrating.


    “There were 300 account specialists, all with the same caseload, on one floor doing the same thing, and 25 managers,” he says. “Now, my manager knew my work ethic, but what about the other 24? They didn’t have a clue.” He strongly suspects that when the managers went into a conference room to rank him and his associates, they had nowhere near the information needed to do it fairly. And, he adds, the “top 10 percent” of each 25-person group is exactly 2.5. “I believe in the science of the bell curve,” he says. “It would be great if it could be used properly. Also, ideally communism is a good idea. But in reality it doesn’t really work.”


    Says another observer from the trenches: “I worked in HR for HP several years ago and never met a manager who didn’t loathe the forced-ranking system. The point they consistently made was that all their employees could be performing at acceptable or even above-average levels, yet they had to place a certain number in the bottom two performance levels.”


    • Objectivity. Perhaps the most admirable aim of forced ranking is to liberate lagging organizations from lethargy and paternalism by forcing managers, most of whom have the all-too-human tendency to be lenient in evaluating their subordinates, to face hard facts. To do that, they have to rate their underlings honestly. And to do that, they need as objective a set of criteria as possible. Finding them is a major problem in instituting any performance-review system. Forced ranking, though, raises the stakes.


    Jack Welch of General Electric, for instance, instituted “the four E’s of GE leadership.” They were: “very high Energy levels, the ability to Energize others around common goals, the Edge to make tough yes-and-no decisions, and finally the ability to consistently Execute and deliver on their promises.”


“I never saw a CEO’s brother-in-law who was a C. Funny, isn’t it?”

    Each of these E’s and standards like them, say his critics, are “E-Z” on-ramps to varying degrees of interpretation, subjectivity and favoritism. “I was in the business world for more than 25 years,” says a former executive who recently became a private-school headmaster. “And I never saw a CEO’s brother-in-law who was a C. Funny, isn’t it?”


    Also, forced-ranking systems usually leave out “softer” qualities that some consider essential to any organization–like teamwork, honesty, dedication and cheerfulness. Well, sure, says Helen Handfield-Jones, but what’s the alternative? “Yes, these are human beings. Again, this is not science. There are no steel calipers you can use to make measurements. But you still have to put people in jobs. And people make judgments all the time anyway. So the best thing to do is be as objective as you can and never leave the decision to one person. Different people see different things. Bring multiple senior people into the decision. Give everybody high-quality objectives to aim for. And have them written down to be as objective as possible.”


    • Morale. For most people–especially those with outmoded concepts of loyalty and job security–the prospect of Darwinian struggle at their workplace is not a happy one. (Jack Welch noted: “This is hard stuff. No leader enjoys making the tough decisions. We constantly faced severe resistance from even the best people in the organization. I’ve struggled with this problem myself and have often been guilty of not being rigorous enough.”)


    “It’s like cardiac arrest for an organization,” says Woollen, who adds that at one old-line paternalistic company he assisted, the mere (true) rumor of an impending switch to rank and yank sowed fear, loathing and preparations for a class-action lawsuit. On the other hand, he concedes, at companies where forced ranking is well established, the effects may be different.


    “When you have people entering GE, you have people who are self-selecting out in some ways,” he says. “They say, ‘I want to go to GE because it’s cutthroat. And I’m badass enough so I can do that.’ And once in, there’s that culture of ‘We’re all badasses, and we’re all gonna take over the world, and this is the way we work.’ You sort of sign on for that.”


    • Politicization. Armed with ample evidence, critics say that during the evaluation process, managers will often ignore the facts. To protect and advance their own people, they haggle, horse-trade, call in markers and even use threats, emotional appeals and executive-suite connections. The most extreme and well-documented example is Enron. The company’s “Performance Review Committee” became a snake pit and catalyst of naked power plays and greed. Forced-ranking advocates don’t have much to say these days about Enron. But they do contend that a well-run review process can squeeze out most or all of these aberrations.


    • Cannibalization. Almost everybody agrees that the typical corporation has a certain number of under- and non-performers, and that a year or two of good, fair forced ranking can weed them out. After that, though–especially if a company is cutting its workforce–something else happens. Former A’s will become B’s and former B’s will become C’s. Upwardly mobile B’s will displace A’s; recovering C’s will merely replace shaky B’s. Not the healthiest of situations, admits Dick Grote. “I think that after about three iterations, forced ranking loses its effectiveness,” he says. “I think the best thing for companies to do is to wait three or four years, bring in some people from outside the company and start over again.”


    • Diversification. An alleged bias against women, minorities and older workers–indeed, any class of workers that upper management allegedly wants to weed out–is the most contentious argument against forced ranking. In 2000, the Ford Motor Company instituted a forced-ranking system that attracted two class-action lawsuits alleging discrimination on the basis of age, gender and race. In 2002, the suits were settled for $10.5 million and Ford dropped forced ranking. At the energy company Conoco, two forced-fired geophysicists who were replaced by citizens of the U.K. under special visas alleged that they were discriminated against because they were Americans. A confidential settlement was reached in 2001.


    Last year Goodyear was sued for age discrimination by several parties. It too dropped forced ranking. Microsoft, where employees are rated from 1 to 5, was sued by several African-American men and women for race and gender discrimination. Most of the suits were dismissed by a federal judge in Seattle, but the company reached a confidential settlement with one plaintiff.


    These lawsuits are almost inevitable, says Byron Woollen, especially if vague, ill-considered criteria such as “fits in with others” are used in performance reviews. Most forced-ranking advocates contend that lawsuit traps can be avoided by conscientious managers and consultants. Dick Grote has a slightly different take. “The reason that people sue is not because they have been discriminated against. They sue because they don’t feel like they have been treated fairly.


    “For example, if you have a person who is a member of a protected class, a black female, [with a] Spanish name and who is handicapped, it takes a lot of courage to walk up to her and say, ‘Susan, your performance isn’t very good.’ It takes a lot of courage to do that, so managers are quite likely to avoid having those tough conversations. Forced ranking is forcing them to do so.”


Workforce, July 2003, pp. 44-49 — Subscribe Now!

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Consumer-Driven Health Plans Drive Significant Skepticism

Employers and employees aren’t sure that the plans are the solution to rising health care costs, studies show, but many think they are worth a try.


    Consumers have long been able to do simple math and make smart choices when it comes to buying clothes, cars or appliances. Why not use the same smarts with health care? That simple-sounding idea is driving what is called the third wave in health insurance–consumer-driven health plans. If it sounds too good to be true, it just may be.


    With the plans, consumers are expected to shop for health care with the same attention to price and quality they show in buying, say, a car. Employers hope that having better-informed employees will lead to big savings by eliminating unnecessary trips to emergency rooms, excessive visits to doctors’ offices and dollars wasted on expensive brand-name drugs as opposed to generics.


    But studies show there is a substantial amount of skepticism about these plans on the part of both management and employees. Analysts question whether the plans offer real savings, or merely represent a cost shift from employers to employees. There are fears that if employees are given too many incentives to reduce health-care costs, they may forgo needed checkups to save money or begin self-diagnosis. Another problem is that although these plans depend on intelligent choices, the information available, while more plentiful than ever, is still limited.


    First, here is what’s out there. Large insurance companies are making available to members online information services offered by companies such as Subimo or Select Quality Care that pull together what limited amount of statistical research is available. Health consumers now are a couple of clicks away from getting a rundown of local hospitals that, say, have the most experience performing heart surgeries or mastectomies or meet industry standards for staffing of intensive-care units. They can find out where their physicians went to medical school and, for a nominal fee, whether there are any medical-board disciplinary actions against them. There are drug formularies that allow for price shopping. Patients with specific health concerns such as diabetes can get a checklist of what they need during regular checkups.


    For all that, accessing and interpreting the information can be tricky. The information is online, so a degree of computer literacy is required. All information comes with a warning that it is not a substitute for medical advice but is there, basically, to let consumers ask good questions, not play doctor. Drug prices are available, showing the differences between generic and brand-name drugs, but it’s far more difficult to determine if one is better than the other. Much of the information is incomplete. For example, in Subimo’s online information about hospital satisfaction rates, one hospital in Southern California showed an “average” rating, whereas others “did not participate” in the satisfaction survey, with no ready explanation for either notation.


    Faced with these and other problems, employees have been reluctant to accept the new plans in a big way. A recent study by CIGNA Corp. shows that consumers put in far more time planning a vacation or making a big purchase than they do researching a health concern before seeing a doctor.


    Employers have “significant reservations,” Deloitte & Touche researchers say in another new study. Employers question whether consumer-driven health plans will have a serious impact on rising health-care costs, and express concern about the difficulty that employees may have in understanding the plans and whether the less healthy are the clear “losers.”


    The point about who stands to lose the most stems from a belief that savings accounts and up-front money may be far more attractive to younger workers–who are less likely to need health care–than to older workers, who may be more vulnerable and worry about high backloaded copayments. The fear is that as younger workers move to the new plans, older workers will be paying a lot more for their traditional plans.


    Even so, while only 11 percent of the employers polled were using an alternative model for health-care delivery at the beginning of the year, Deloitte & Touche reports that 43 percent say they are planning to offer a plan or may offer one in the near future. Another 32 percent said they would consider a new delivery model if long-term savings and employee acceptability can be demonstrated.


    Consider the experience of Definity Health, one of the big players in the new consumer-driven health field. The company grew from three clients in 2001, its first full year of operation, to 25, and then to 65 today. The Definity plan is similar to others. It offers a broad menu of choices, with financial incentives that allow workers to carry money saved from year to year.


    Consumer-driven plans usually start with $1,000 to $2,000 of company money put into a special account, which employees can spend however they choose. For example, if they need a physical, they can shop around for the best price. Or they can fill drug prescriptions with the least-expensive generic drugs. Often, if the money is not spent, it can be carried from one year to the next. Once the employer’s money has been spent, the employee is then hit with relatively high copayments. Other features include round-the-clock “health coaches,” such as nurses who lend their expertise to sick workers, and a Web site where members can compare doctors, hospitals and drugs, and even price shop on the comparative cost of office visits.


    So far, Definity is experiencing an enrollment rate of about 13 percent of eligible workers, but spokesman Chris Delaney says acceptance is slowly building. “We tend to see a 50 percent growth in enrollment the second year we are with a company,’’ Delaney says.


    Consumer groups are among the most vocal critics of consumer-driven plans. “We hate them,” says Earl Lui, a senior attorney with Consumers Union, publisher of Consumer Reports. One danger, he says, is upsetting the risk pool by creating plans that are far more attractive to younger workers. “It might work well for younger people, but anyone over 45 will be paying a lot more,” Lui says. “Health insurance works best when the risks are spread broadly, rather than each individual bearing their own risk.”


    A survey by Towers Perrin shows that employers face a “hard sell” convincing employees that the problem of fixing the cost of rising health care is theirs to share. “Employees don’t think cost is part of their responsibility,” says Rich Ostuw, a Towers Perrin consultant. “Employees also think they are already operating as effective consumers.”


    Another Towers Perrin consultant, Ron Mason, says getting at the problem will require more than rolling out an attractive plan with a savings account. He says that an answer must be found for employees who face serious chronic diseases, like diabetes, heart disease, cancer or other health conditions that eat up the lion’s share of health dollars.


    “We spend most of our money on a very few people,” he says. “If I am a chronically ill person, the motivation to reach me cannot be a financial one.” Mason believes it’s important to get employees hooked up to good information, using resources like Subimo or Select Quality Care. “There is a lot of information out there. It’s very important that we help people find it.”


Workforce, July 2003, pp. 86-87 — Subscribe Now!

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Optimas Award Innovation Healthy, Wealthy and Wise

Any company would be deliriously happy with an in-house health-care program that saves nearly $1 million a year and offers lower insurance premiums, fewer workdays lost to illness and doctor’s appointments, and high-quality employee care for less money. But SRA International, Inc., a Fairfax, Virginia-based provider of information technology services to government and corporate clients, values its Nurse Advocacy Program for another reason. The company’s innovative system for monitoring and managing medical problems has helped employees who otherwise might have become too ill to work at all. Instead, it has enabled them to have successful, productive careers.


    There was the SRA employee with Parkinson’s disease who suffered from chronic, incapacitating dizziness–until the company’s nurse advocates analyzed his case and discovered that he was taking an overdose of medication. Another employee’s diagnosis of kidney failure might have forced him to retire on disability. Instead, SRA nurses devised a flextime schedule that allowed him to reduce his workload on days when he was fatigued from dialysis treatments. Another employee’s job performance was hindered by bouts of severe back pain, which vanished after an SRA nurse convinced her to try a regimen of stretching and exercises, and then monitored her to make sure she followed the prescription.


    “We started the program with the intention of saving money on health care,” says Ted Legasey, SRA’s chief operating officer. “We figured that if 20 percent of your cases result in 80 percent of the insurance cost, the trick is to manage the heck out of those cases. And it worked. For the last four years, for example, we’ve had single-digit increases in our insurance premiums, compared to 20 percent for the rest of our industry. But we also discovered that there were plenty of other pluses that we hadn’t anticipated. We could really make a big difference in employees’ lives. That’s really paid off in terms of loyalty and job satisfaction.” For the past four years in a row, Fortune magazine has rated SRA one of the best 100 companies to work for in America, an assessment based in part on confidential surveys of the workforce.


    Many large companies, from automotive giant Nissan to aerospace and electronics manufacturer Honeywell International, have some kind of on-site medical program for workers–often through contractors such as Whole Health Services in Cleveland, which operates clinics for 40 U.S. companies. But according to health-care experts, it’s unusual for a company of SRA’s modest size–2,100 employees, located mostly at the Virginia headquarters and 10 other sites in the Washington, D.C., area–to offer such a program.


    SRA goes far beyond the conventional occupational-medicine focus in treating work-related injuries and illnesses. “The traditional approach is sort of like the school nurse, taking care of anyone who gets sick,” says Kay Curling, SRA’s director of work/life solutions, who runs the Nurse Advocacy Program. “We do that, too, but afterward, we keep working with people to help them stay well.”


    SRA, which operates a clinic at its headquarters and sends its three-nurse staff to visit other sites, strives to proactively manage the cases of employees who seek care. In addition to checking the blood pressure of employees with hypertension and monitoring asthma sufferers’ lung function, SRA’s nurses will suggest diet, exercise and other lifestyle changes, and then monitor the patients to make sure they’re following directions and benefiting from the recommendations.


    “Health costs are increasing because health care isn’t getting to the root of the problem,” Curling says. “You can’t just treat symptoms. You’ve got to coach people and help them to change underlying behavior that contributes to the problem. Their regular doctors don’t have time to do that, but we can.”


    SRA’s nurses also help employees cope with one of the most stressful health-related problems–the difficulty of caring for a sick family member, whether it’s a child with cancer or an elderly parent who is frail. “If mom and dad are in another state, and they’re having a lot of problems, you may spend a lot of your workday calling around and trying to find help for them,” Curling says. “Here, you can bring in their medication list and have our nurses look at it, to be sure they’re getting what they need.”


    SRA also does its own aggregate analysis of employee health cases–with the identifying data stripped out, for privacy protection–in an effort to spot patterns of health concerns in its workforce that the company can remedy. “Our data showed a correlation between the birth of new babies and emergency-room visits,” Curling says. “As a result, we saw that our people could benefit from a new-baby coaching program. We teach them some basic skills, so that if it’s 4 a.m. and the kid is crying, they have other options besides rushing off to the ER.”


Because SRA puts so much effort into managing employees’ health, it also is able to keep a tight rein on costs. The company often has been able to reduce the financial reserve required by the insurance underwriters by showing them that cost projections for disability benefits are unnecessarily high.


    SRA’s health-care ingenuity often does get employees back at their desks with startling speed. For example, when one employee suffered a serious fracture of her wrist, Curling recalls, the workers’ compensation insurer proposed keeping the woman at home for 10 weeks to heal. “One of our nurses, Karen Amato, started working with the employee to analyze the problem,” Curling says. The answer was voice-activated computer software, which would allow her to work and let the wrist heal, without taxing her other arm. “Instead of 10 weeks, the person was back at work in nine days, and she was a lot happier.”


Workforce, July 2003, pp. 41-42 — Subscribe Now!

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How We Do Things Here

The current spate of business scandals–Arthur Andersen, Enron, WorldCom, HealthSouth and others–brings up an interesting question: How can companies enforce certain business protocols so effectively that they become an integral part of the operations and yet fail to rein in blatant legal and ethical lapses that might be the stepping stones to corporate ruin? It’s unlikely that you would have ever seen an Arthur Andersen employee wearing a golf shirt from another Big Five firm at a client social event. Employees knew that such behavior was inappropriate and that they would surely face some sort of punitive action for it. Yet violations of ethical and legal codes–which led to the firm’s downfall–were seemingly routinely ignored. Regardless of their policies and grand mission statements, these companies seemed unable to communicate the message about ethical business practices and how to handle potential problems in a manner that positively influenced the behavior of their employees.


    In the aftermath of these very public collapses, organizations are scrambling to demonstrate their own compliance. They are making sure they have developed or updated codes of conduct and have taken steps to prove that everyone has been exposed to the code. The regulators’ response has been to call for more laws and penalties to prevent corporate misdeeds. In fact, most high-profile scandals are not caused because codes aren’t in place or because individuals faced with ethical dilemmas have no clear standards to follow. After all, Enron had a well-publicized code of conduct. Nor do these issues arise in a vacuum of legal regulations. The prosecutions and lawsuits already under way indicate that improper conduct occurred not in the absence of protections but in spite of them.


    In most cases, corporate catastrophes start with questionable, illegal or unethical acts such as “cooking the books,” falsifying records or defrauding investors. Next, individuals attempt to conceal these “bad acts” in a variety of ways. When people do eventually try to raise concerns, they are either ignored or retaliated against, and the cover-up escalates. Gradually, this kind of behavior becomes the standard of business practice in the eyes of the company’s employees–it’s “how we do things here.” When the company culture ignores, promotes or even rewards improper conduct, training everyone on the intricacies of numerous compliance laws won’t be enough to prevent a business disaster. Stock prices don’t plummet, a brand name isn’t seriously harmed and the government doesn’t launch massive investigations because individuals failed to recognize the applicability of an obscure regulation or misjudged an ethical gray area. Instead, companies should look at how people behave at work. They may find that they have to change “how we do things here.”


    Scores of state and federal laws regulate financial transactions, employment practices, environmental safety, antitrust, and a number of other compliance areas. In addition to prohibiting certain kinds of conduct and business methods, they forbid retaliation against individuals who try to complain of unlawful practices internally. In the current climate, all of these laws are seen as vital to maintaining an ethical, legally compliant workplace. Therefore, providing education is a necessary part of the process.


    However, if the idea is to affect the way people behave at work, inundating everyone with the details of these laws and regulations is not the answer. It’s nearly impossible to communicate every form of improper business conduct–no one could remember such a list. Even if they could, new forms of misconduct always seem to be around the corner. The U.S. Department of Labor’s Web site currently lists nine different provisions prohibiting retaliation against individuals for complaining of potentially illegal practices, and there are other statutes that prohibit retaliation for raising other kinds of concerns. Many states also have regulations.


    Beyond the complexity, regulatory statutes are also often ambiguous. A recent example of this is the Sarbanes-Oxley law, which contains provisions whose meaning is unclear even to those who supported the legislation. Additionally, workplace regulations are often, by their very nature, extremely complex, rife with exceptions and counterintuitive. For these reasons, it’s simply unrealistic to think that individual managers can be taught to recognize the nuances of not one but many applicable laws to avoid legal and business pitfalls.


    On the other hand, we know that instruction on legal issues is important. It communicates the significance of legal conduct, is required under some laws and can sometimes help reduce damages and penalties. So how can organizations most effectively use their training time and dollars to educate their workforce about these issues?


    Recently I worked with an international corporation to help them communicate standards of behavior to managers throughout the world. We realized that attempting to address all of the laws governing individual countries would not only be difficult but also would diminish the effectiveness of the message. Instead, we developed a program based on shared policies, skill building and a business rationale that all participants can understand and apply, regardless of where they are located. Similarly, when training nuclear-industry professionals, we don’t focus on the intricacies of the Nuclear Regulatory Commission’s statutes and regulations. We focus on behaviors that managers should follow, and give them skills to effectively handle employee concerns.


    We can’t expect businesspeople to become legal experts, but the good news is that they don’t have to. Rather than focusing on complex and often confusing legal regulations, organizations should communicate clear responsibilities and behaviors that reflect their values, codes and policies. Tying behaviors to responsibilities can help organizations instill messages about ethical practices in the same way they do other important business initiatives. The training should have a legal foundation, but by applying a clear set of behavioral guidelines to all workplace situations, managers will be able to minimize risk without having to know every detail of the laws. When managers understand the business consequences of improper conduct and have the skills to recognize and respond to such behavior, they can begin to change “how we do things here.”


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, July 2003, p. 14 — Subscribe Now!

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Dear Workforce How Do I Train Supervisors To Write Evaluations?

Dear Needing Write Answers:



Most appraisal software will allow various levels of narrative comment.However, the main advantage of these systems is the ability to provide aquicker, easier way for managers to do appraisals. Hence the canned phrases.

Depending on the size of your management staff, I would suggest bringing in abusiness-writing expert, either from a consulting firm or from an area collegeor university to conduct a one-day seminar on how to write concise and accuratecomments on performance appraisals.

You may also want to have a reputable HR attorney in your area provide anoverview of the legalities of performance appraisals, such as safe phrases touse that get the point across while holding legal muster.

Another approach, which depends on the kind of work the employee does, is torequire more frequent, but shorter, evaluations throughout the year. These canbe done on a quarterly basis, or could be tied to the end of a project ordeliverable. People often respond to shorter assignments more often rather thanone big project occasionally.

Although it sounds like you want to stay away from canned phrases, a good book to use as a resource is”Effective Phrases for PerformanceAppraisals: A Guide to Successful Evaluation,” by James E. Neal. This book can at give least a starting resource for managers to develop their narrative evaluations.

SOURCE: Bill Dickmeyer, CEBS, Madison Human ResourcesConsulting, LLC,Madison, Wisconsin

LEARN MORE: Read Six Steps to Successful PerformanceAppraisals.

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 opinion. Also remember that state laws may differ from the federal law.

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Dear Workforce How to Generate Interest In A Low-Wage Position

Dear Desperate:



Am I missing something? You’re looking for an Internet shopper and notusing the Internet. Come on. Here’s what to do.

Write a creative ad and put it on Monster.com or another site, like a localjob board. Newspaper ads are pretty useless if you’re trying to attract a GenY person. A creative ad must have an outrageous title and compelling copy.

Hereare some ideas for the outrageous title.

  • Yeah, Baby, Yeah — This Job is Shagadelic.
  • The Secret’s Out — We’re Looking for a Secret Shopper (list incustomer service)
  • This Secret Shopper Job is Wicked (for Boston)

The key is to make the title fun, long, and tie it into a theme that appealsto the target audience. The theme could be a movie, song, or even local slang.It needs to be long and different in order to be noticed on the job boards. Mostad titles are too traditional, and don’t get the response of a great title.

Next, make sure that the copy focuses on what the person will do, learn, andbecome. Don’t emphasize the skills. Instead describe what the person will dowith the skills.

Here is an example of copy:

Use your analytical andreport writing skills to prepare in-depth price comparisons of our competitors’product line. You’ll become our ace detective and product expert in weeks. Ifyou’ve got a marketing bent all the better. You’ll need to figure out howweb positioning, product placement and pricing all affect the customerexperience. Before you know it you’ll be helping our marketing and designgroup to create award winning advertising programs that sizzle.

Add some fun stuff about the company and culture to round out the ad. Here’s an example:

We’re a hot local retailer that wants to grow its Internet business. Wehave a great reputation in our local market because we deliver price, value, andextra special performance. We’re moving our Internet business to the samelevel, so here’s a chance to help create something new, big and bold. We’lltrade off skills and experience with heart and desire. We long ago recognizedthis is how to build an all-star team. Send your resume to us. We’d like togive you a tryout.

If you want to attract the best, no matter what the job, it’s important todesign your advertising programs around their needs.

SOURCE: Lou Adler, president and CEO, POWER Hiring Inc., Tustin, California,Oct. 16, 2002.

LEARN MORE: Read Internet Recruiting: Better, Cheaper,Faster.

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 opinion. Also remember that state laws may differ from the federal law.

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