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The Cutting Edge of Benefit-Cost Control

Robert B. Catell, chairman and CEO of KeySpan Corporation, the largestdistributor of natural gas in the Northeast, closed out 2002 with anannouncement that no CEO wants to make: Rising expenses from employee benefitswill shave 20 to 30 cents off earnings of $2.86 per share that had been expectedfor 2003. Something has to be done.

With 12,000 mostly long-tenured employees spread over several states andorganized into different unions, the Brooklyn-based company is short oncost-cutting options. The CEO’s aim traditionally has been to keep costincreases in line with the general rate of inflation. “In the past, this was areasonable goal,” says Elaine Weinstein, senior vice president of humanresources. “However, given the escalating cost of health care, this is now avery aggressive target.” In 2002, KeySpan’s benefit costs rose 13 percent.For 2003, “our stretch goal is to keep the increase at 7 to 10 percent. If Iachieve 7 percent, I’ll be a hero.”


Weinstein faces the same deadly combination of rising pension contributionsand runaway health-benefit costs that now preoccupies human resources executivesat other top companies. Employers absorbed health-benefit cost increasesaveraging 15 to 20 percent in 2002 and budgeted for increases averaging 15percent this year. Many must also ante up huge pension contributions forced bypoor investment returns. “Equities have tanked, so our cash contribution is updramatically,” she says. “Our assumption is that equity markets will remainflat for 2003, and all HR planning is based on that assumption.” Watson WyattWorldwide reports that 30 percent of companies were forced to make cashcontributions to their pension plans in 2002; 65 percent will have to do so thisyear.


With little or no revenue growth to cover these additional expenses, risingbenefit costs are ripping a hole in the bottom line. Human resources executivesare on notice from top management to contain or cut costs–now. Depending on thedegree of economic pressure, the composition of the workforce, and conditions inthe local labor market, executives are pursuing different objectives andstrategies. Some are cutting benefits and slicing salary budgets to offsetrising costs. Others are turning to aggressive vendor management to achieve costreductions without cuts or greater employee cost-sharing. In all cases,successful cost control hinges on well-defined objectives, careful workforceanalysis, and a holistic approach to the problem.


Long-term, incremental change
    Given KeySpan’s workforce composition, Weinstein’s goal of simply holdingcosts constant is daunting. Hemmed in by heavy contractual obligations andextremely low employee turnover, she focuses on long-term, incremental changesin both retirement and health-care benefits, and begins laying the groundworkbefore cost increases hit crisis proportions. “HR is extremely tough thesedays,” she says, “and controlling costs is difficult, but my job is easierbecause my CEO and my company are very employee-sensitive, and I have tremendousaccess to and dialogue with top management.”


Weinstein has the information and leverage she needs to make major changesbecause she sits on the company’s executive committee. “When I came into thecompany seven years ago and saw that there was no cash-balance plan, forexample, I said to the committee, ‘Let me show you some best practices andwhat we can do for new hires.’ I drove the pension issue.” She launched acash-balance plan for managers in 2000 and for some unions in 2001 and 2002.


Of all the issues related to benefit cost increases at major companies,pension funding is now the most expensive and the most intractable. KeySpan’snew cash-balance plan will cut the company’s annual pension costs by 30percent for each new hire, but moving existing employees into the new plan is aslow process. “Two-thirds of our employees are unionized, so we attempt tonegotiate the cash-balance plan as various contracts come up, but ourdefined-benefit plan is still very dominant,” Weinstein says. Cash-balanceplans help control costs because final retirement benefits are notpredetermined, as is the case in traditional defined-benefit plans. Benefits arebased solely on the amount that accumulates in each employee’s account fromannual employer contributions, which are usually a percentage of salary, plusearned interest.


“We negotiate very aggressively with our health-benefitcarriers, and because of the pressures they face, we have been able to extractsome concessions.”

With a viable solution in place in the area of pensions, she is focusing onhealth-benefit costs. “We negotiate very aggressively with our health-benefitcarriers, and because of the pressures they face, we have been able to extractsome concessions,” she says. The company is also inching up employeecontributions for both union and nonunion workers. Management employees nowcontribute 23 percent of their premiums, up from 20 percent in 2002. KeySpanalso adopted a three-tier design for its prescription program and eliminatedmultiple vendors to reduce administrative costs. A new mandatory mail-orderprogram for recurring prescriptions has saved the company $1 million.


KeySpan’s limited ability to find sufficient immediate savings in benefitcosts has forced it to take a holistic, total-compensation approach to costcontrol. In February 2003, KeySpan froze all merit increases for 12 months formanagerial employees and for 24 months for executives. “This has beentraumatic for our company,” Weinstein says. “The decision came from the top,and the impact starts at the top.”


For some cost issues, top management approaches Weinstein with questions, andshe does the research and provides the information that the executive committeeneeds. “Then we discuss it and vote on it,” she says. In other cases, sheinitiates proposals for change. “There’s a lot of verbal noise about HRbeing a business partner, but you must bring to the table a knowledge of thebusiness or you can’t possibly play a partnership role. If you can’t dothat, then all the talk is just garbage. I understand the business, which is whyI can take an aggressive approach to defining the problems and proposingsolutions.”


Deep cuts without layoffs
    Human resources also took an aggressive approach at CUNA Mutual Group, whichprovides financial services to credit unions and their members. Vice presidentof compensation Teri Edman spent the better part of three months handling 80percent of the analysis, design, and approval process to cut $23.2 million fromthe company’s compensation and benefit costs for 2003. Like Weinstein, Edmanoperates in relatively tight spaces. Half of the company’s 5,000 employees areat corporate headquarters in Madison, Wisconsin, two thirds of them unionized.The company wanted cost improvements without significant staff reductions.


“Both our revenues and expenses have been dramatically affected by theeconomy, and the majority of our controllable expenses are staff-driven,”Edman says. Human resources developed proposals for the changes; top managementdiscussed them over a two-month period and gave final approval. Edman took atotal-compensation approach. A substantial $15 million in savings will come fromthe elimination of the 2003 salary-increase budget, with no merit or across-theboard increases for any employee group. The company also eliminated the annualholiday gift– $300 per employee–for both 2002 and 2003.


An additional $8.2 million in savings will come from health-care andvacation-benefit changes based on careful market analysis. “We targetedbenefit plans in which we were over market and obtained feedback from ouremployees about what types of changes were most acceptable to them,” Edmansays. To minimize the impact on recruitment and retention, “we modeled thecost savings of various alternatives and compared the proposed changes tomarket-competitive data and to our own experience in recruiting.”


Although many employers have eliminated HMO plans, which now register thehighest cost increases of all plan types, CUNA Mutual kept its HMO but addedco-pays for office visits. It also joined the significant employer shift to athree-tier prescription plan, increased drug co-pays, and obtained new networksfor its medical indemnity and dental plans. Edman anticipates saving $3 millionfrom the combined health-benefit changes.


The company will save $5.2 million from a new vacation-buyback program. “Wehad a very generous carryover provision that allowed employees to accumulate upto two years’worth of vacation earnings,” Edman says. “This unusedvacation had grown to an expense liability of $24 million. We needed to decreasethis expense, but because of our workload, we could not afford to have employeestaking larger than normal amounts of vacation.” Under the new program,employees can elect to give up earning new vacation for 2003, and in exchangecan sell for cash an equal number of days from their carryover. They also committo using an equal number of days from their carryover for time off this year.


CUNA Mutual carefully communicated the reasons for the changes to employees.”We illustrated the negative trend in our revenues and expenses over the pastfew years and our projections for 2003 and beyond,” Edman says. “Weexplained the environmental economic factors that are beyond our control, anddemonstrated our need to take action now to protect our future.” The companyhas not experienced higher turnover or a drop in benefit enrollments because ofthe cost-reduction measures, but Edman continues to monitor employee reaction.”We stay in touch with our employees through various feedback methods,including electronic communications, departmental meetings, staff forums withthe CEO, and culture surveys.”


KeySpan provides comprehensive information to its employees about its benefitchanges. “Our communication strategy is a cascading model,” Weinstein says.”After the executive committee approves the changes, we first present them tothe officers, who then present the information and explanations to theiremployee groups.” For the presentations, KeySpan uses a program called “StraightTalk,” which scripts the communications delivered by officers. The scripts forbenefit changes are “a way to assist employees in managing their expectationsabout employee contribution increases and to explain why changes are necessary,”she says. An employee-benefits newsletter, the company’s intranet, andopen-enrollment packages also explain benefit changes in detail. “By the timeemployees receive the open-enrollment packages, they have already heard themessage three or four times.”


Working in relatively restricted environments and with specific mandates tocontrol costs without jeopardizing employee relations, Weinstein and Edman havefound substantial long-term savings. KeySpan and CUNA Mutual are among a growingnumber of employers that are adjusting total compensation to address the crisisin benefit costs. Benefit cost increases have outpaced wage and salary costincreases for the past three years and will continue to do so for theforeseeable future. Almost one-fourth of employers have decreased or areconsidering decreasing 2003 salary-increase budgets to offset rising health-careand pension costs, according to a survey by Mercer Human Resource Consulting.The holistic approach to cost-cutting at KeySpan and CUNA Mutual erases the linecommonly drawn between salary and benefits budgets and allows executives fullrange of movement to tackle rising costs.


Most companies have already picked all the low-hanging fruit among benefitcost-cutting options without achieving sufficient results. Many continue toapproach cost-cutting on an ad hoc basis, without careful analysis of which cutswill yield the greatest long-term savings with the lowest impact on businessobjectives. Executives at companies with focused strategies can push their costsinto more acceptable territory, secure support from top management, and minimizethe impact on employees.


Workforce, March 2003, p. 36-42 — Subscribe Now!


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Dear Workforce How We Adjust To Open-Landscape Office Plans

Dear Adapting…sort of:

Open landscape refers to a planning method whereby workplaces occupying asignificant portion of a floor are arranged in clusters and bordered bypartitions/panels. A common personal impact for managers is perceived loss ofstatus. This may be addressed by reframing one’s value system around otheroutcomes such as salary, vacation time, value to the organization, or respect ofpeers and associates.

A manager may be most effective when higher levels of privacy control arepresent, thereby minimizing distractions and interruptions. This may be done assimply as placing some form of a “do not disturb” sign or positioning theworkstation’s entrance so people can see whether it’s OK to enter, or ifthey should come back later. On the other hand, some managers flourish in ahighly interactive environment. These people may frequently invite associates tocome in for a visit.

Understanding one’s preferences permits a manager to make intelligentchoices about personal workspace. As far as the “privacy room” dilemma, itmay be a positive culture shift. If you can encourage associates to work throughconflicts in a responsible manner out in the open, everyone can learn from it.Then, you can leave the private meetings for truly personal issues.

A highly interactive manager may walk around and experience what’s going onby observing interactions and relationships. In this way, issues may beidentified and addressed before anyone experiences difficulties, enhancing amanager’s openness, creativity, and effectiveness. This also offers associatesopportunities to touch base with a manager less formally.

A manager may also be better able to discern the kinds of preferences thatwould suggest general policy implementation. For example, a policy eliminatingthe use of speakerphones in the open plan might be helpful to most, whileheadsets would still allow comfort and a normal speaking voice for those makingsales calls. In the process, customers on the phone would not feel a reductionin their privacy due to the common speakerphone echo.

At both levels, managers must ask themselves what they can do differently tofacilitate this transition, rather than asking how to make others change.Controlling yourself is easier than controlling someone else, so there anopportunity to tap into one’s own wisdom and respond by doing the right thingsfor the right reasons to get the right results. Associates will pick up on whatthey see working well and in time the culture will integrate those helpfulbehaviors.

SOURCE: David P Secan, Principal of Secan Associates, Buckingham,Pennsylvania, Aug. 2, 2002.

LEARN MORE: Read Redesign for a Better WorkEnvironment.

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 Do We Show Employees Overall Wage Per Hour

Dear Challenged:



The Bureau of Labor Statistics reports on “Employer Costs for EmployeeCompensation” across all industries and sectors.

There may be a way to use the BLS averages to prepare rough estimates oftotal compensation. But an excellent way to demonstrate the total value ofcompensation is to provide employees with personalized benefit statements thatshow this information in a clear and specific way to each employee.

A benefits statement is a popular and cost-effective tool. The statement textcan include tables, charts, and summary pages, and can range from a single pageto a booklet. Statements can be delivered electronically, using any of thefollowing methods: online via the Internet or a local intranet, e-mailattachments in Adobe Portable Document Format (PDF) or other format, or CD-ROMin Adobe Portable Document Format (PDF). Paper statements can be mailed to thework site or directly to each employee’s home.

Benefit statements can:

  • Illustrate the overall cost, coverage, and value of benefits reducingcomplaints and turnover
  • Convey personalized messages, information, or a corporate image
  • Increase knowledge of current or future benefit issues such as taxes,alternative benefit options, or plan changes
  • Be used as a retirement planning tool
  • Track benefit costs
  • Encourage feedback from employees.

Generally, effective communication that leads to a greater appreciation,comprehension, and education of benefits can help in the recruitment andretention of key employees.

SOURCE: Lydia Moore, vice president and practice leader, PersonalizedCommunications and Pension Systems, The SegalCompany, New York, New York, July26, 2002.

LEARN MORE: Read Demand Performance forBenefits.

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 Can We Improve The Feedback Managers Give To Employees

Dear Eyeing:



At the core, employees want to know how they are doing, what they need to do to be successful, and that their contributions are recognized and valued. Theunderlying challenge to improving ongoing feedback and recognition is gettingmanagers to communicate these things to employees in a way that will motivatethem and improve their performance. More information alone will not improveperformance, but linking the feedback to business goals and employees’personal motivations will have much greater impact.

If you sort through all the fads and programs of the month, the single mostvaluable action you could take is to help your managers become better coaches.Without exception, the managers who are viewed and recognized as effectivecoaches get more from their teams than managers who can’t or won’t put onthe coaching hat. The following five-part strategy provides a context and a gameplan for managers to make coaching easier:

1. Forge a partnership with employees and get them to want to work with youbecause you as the manager are in sync with their individual goals andaspirations. This will increase motivation and build trust.

2. Inspire commitment by connecting your employees to the organizational andjob goals and priorities that matter.

3. Grow skills and new competencies in your people so they know how to dowhat is required for success on the job and in the organization.

4. Promote persistenceby building the stamina and discipline in your peopleto make sure learning lasts on the job.

5. Shape the environment in a manner that builds organizational support toreward learning and remove barriers.

It’s not enough to just have managers meet more frequently with employeesor orchestrate more recognition events. Managers need to purposefully stayconnected to employees and build effective coaching relationships that addressemployees’ needs, as well as those of the organization.

SOURCE: Jeff Stoner, director of multi-rater solutions for PersonnelDecisions International, Minneapolis, Minnesota, July 22, 2002. This model istaken from Leader As Coach: Strategies for Coaching and Developing Others (PDI,1996).

LEARN MORE: Read: Frequent Employee Feedback is Worth the Cost and Time.

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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The First Three Things That HR Should Measure

There are at least three basic items that every organization should startmeasuring:

  1. Head count
  2. Turnover
  3. Cost per employee

    Keep in mind that “measuring” and “tracking” are two differentthings, and that measuring isn’t very useful until you start tracking and making comparisons. Single-point measurement, in and of itself, is of limitedusefulness. However, the regular measurement of key pieces of information overtime and the correlation between various measurements–including correlationwith non-HR data–can be extremely valuable.


Head count
    The first thing to track is head count. Track your head count not only by thetotal organization once a year, but also cost center by cost center, departmentby department, and job type by job type. Do it every month. Make a line graph toshow changes over time. Add another line to the chart, such as revenue orproduction volume. How closely does one line lead or lag the other? Trackinghead count in combination with non-HR data demonstrates relationships between HRfunctions/activities and the rest of the organization’s operations. When youcan see trends and relationships, you can begin to plan and project.


    Something as basic as head count can have meaning even to shareholders if youlook at it according to the focus of the organization. At the World Bank’sInternational Finance Corporation (IFC), where Joe Fucello is the HR programofficer, it is important that the approximately 2,000 employees berepresentative of the countries where the World Bank makes its investments.Fucello monitors head count by nationality.


Turnover
    Tracking turnover can be extremely valuable, especially if you can go beyondthe basics of turnover for the organization as a whole. Turnover that ismeasured department by department or branch by branch, and measured every month,begins to reveal patterns. Turnover that is measured according to race, gender,or age group begins to reveal even more interesting patterns that might suggestpoor management techniques, or a supervisor who is not skilled in avoidingdiscrimination.


    Measuring turnover according to the hiring source–your various recruiters orrecruiting agencies–can help to determine whether you’re getting your money’sworth from each source. Fucello is concerned about retaining his organization’svery best performers, so he tracks turnover by job type and by length ofservice. He’s starting to see patterns after about a year of doingmeasurements, and now he is beginning to explore the reasons behind thepatterns.


    Jeff Cottle, senior vice president of human resources and organizationalstrategy at SCT, a global information technology company focused on educationalinstitutions, also tracks turnover by employee type. He’s interested incontrollable voluntary turnover (to help focus the efforts of his employeerelations staff) and the reasons behind involuntary turnover. He measures “newhire” turnover (employees who left before 18 months) and “tenured”turnover. He closely monitors turnover among the professional services groupbecause those employees are billable consultants who produce revenue for SCT.


    All this measurement takes a lot of time, but it’s well worth the effort, inCottle’s mind: “Our perspective on the use of metrics . . . is based on ourbelief that human-capital metrics have a direct correlation to financialmetrics.”


Cost per employee
    Cost per employee helps you examine the value of every aspect of humanresources management: compensation programs, incentive and bonus plans, employeebenefits, training, staffing levels, and more. Again, correlation is the key.The salary or training costs per employee for Department ABC may be the highestin the company, but if the revenue from Department ABC is also the highest,perhaps those costs are justified. On the other hand, if revenue from DepartmentABC is not the highest in the company, you need to ask questions.


    If the training cost per employee for Course #1 is consistently high, thatmay also be acceptable if productivity consistently improves among the employeeswho take the course. If productivity does not improve, perhaps you’re spendingtoo much to deliver Course #1.


Workforce Online, February 2003 — Register Now!

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Now Playing on a Desktop Near You

It’s friendlier than e-mail. It’s a virtual bargain. And it’s catching on asan effective way of communicating in-house with employees from Boston toBeijing. The technology, called IP/TV, allows employers to use company intranetsto send live video to employees.

    “IP/TV combines the advantages of television and a computernetwork,” saysGerry Kaufhold, principal analyst for Converging Markets and Technologies atIn-Stat MDR, a Scottsdale, Arizona, market research and consulting firm. “Theability to connect to thousands of desktops simultaneously can change the waycommunication takes place. Employees are more receptive to video than to anothertext e-mail landing in their in-box.”


    Not long ago, only the largest corporations could foot the bill for broadcastfacilities, satellites, and television networks. But the evolution of theInternet and video technology has made it possible for a broad range oforganizations to offer real-time speeches, training sessions, seminars,e-learning, and other services to employees.


    Here’s how it works. Rather than rolling a television set into an office,employees switch on a media player, such as RealOne Player, Apple’s QuickTime,or Microsoft’s Windows Media Player, to view content at their desktop or laptop.Some firms also embed icons and links in e-mail to simplify the process. If anemployee isn’t able to view a program at the scheduled time, he can usually tunein later by clicking on a link in a video archive. It’s a formula that’s helpingorganizations–such as Ford Motor, Wal-Mart, and Procter & Gamble–addenergy to internal communications.


    In the last two years, Chicago-based market research firm ACNielsen has usedthe technology for interactive Q&A sessions between executives andemployees, and to offer meetings and other events to more than 2,000 employeeslocated in 20 offices in the United States. The company provides two to threehours of IP/TV programming each month. Human resources has turned to it toconduct briefings and benefits meetings and to launch charity campaigns. Whileviewing a video at a PC, employees can type in questions anonymously and receiveimmediate responses. “The technology creates a sense of immediacy andspontaneity that can’t be captured on pre-recorded video. It’s a boon forcommunications,” says John Moses, senior vice president of human resources.


    At Fidelity Investments, live video is now available on 17,000 corporatedesktops. Every month, the Boston-based financial services firm offers as manyas 60 live events and 120 rebroadcasts over its intranet. These includeexecutive-management addresses, training sessions, and departmental meetings.Because the system works over a PC, presenters can interact with the audience inreal time and Fidelity can acquire demographic data about viewers.


Bobby Lie, Fidelity’s senior vice president of telecommunications, describesIP/TV as an “inexpensive way to reach a large and dispersed audience.” Heestimates that the company spends about $400 per broadcast hour to use IP/TV,compared to tens of thousands of dollars–and in some cases even more–to flypeople to meetings.


    In-Stat MDR’s Kaufhold says that small companies can put basic IP/TV tools inplace for a few thousand dollars–in some cases using existingvideoconferencing gear and technology that extends the data to an intranet.Professional technology can cost from $20,000 to six and seven figures. “It’stough to get people to read all the e-mail and FAQs,” he says. “In most cases,video is far more user-friendly.”


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

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Driving Savings with Consumer-Driven Health Care

When Humana Inc. CEO Mike McCallister saw the 19.2 percent increase in thecompany’s health-care benefits costs for its 5,000 headquarters employees for2002, he knew that changes had to be made. Managed care was no longercontrolling health-care costs.

McCallister instructed Bonnie Hathcock, chief human resources officer, tofind a solution. Hathcock launched a collaborative internal effort that includedthe company’s product-development, communications, and actuarial staffs. Theteam turned to the consumer-driven model, the newest approach to providinghealth-care benefits. Hathcock presented the new plan design to McCallister, whoasked for minor modifications and then gave his approval.


Humana, the Louisville, Kentucky-based health-care giant, introduced twoconsumer-driven plans and modified its existing health-care benefits in 2002with three objectives in mind: reducing costs, modifying employee utilizationbehavior, and maintaining employee satisfaction. Results from the first yearindicate that the company has achieved all three goals. Cost increases droppedfrom double digits to 4.9 percent, and the company saved $2.1 million on medicalclaims for the initial test group of 5,000 employees. “We found that 60 percentof these savings came from behavior modification,” says Debbie Triplett,director of benefits.


Managed care, as a cost-control strategy, has been dead and cold for threeyears. Some corporate executives are still kicking the body, desperately lookingfor signs of life in what was once thought to be a lasting solution to thesoaring cost of health-care benefits. But like McCallister and Hathcock,executives with a better grip on reality are moving on to the most promisingsolution on the horizon: consumer-driven health care. Such plans include avariety of models designed to compel employees to take a more aggressive role intheir health-care purchasing decisions and, ultimately, to modify theirutilization behavior.


Consumer-driven plans commonly combine an employer-funded, tax-free personalaccount or allowance with a high-deductible medical plan. Account balances carryover from year to year. Because employees hit the high deductible when theiraccount is exhausted, these plans create a compelling incentive for employees tobecome better informed and make careful decisions about their medical spending.Employers can use the plans to drive changes in utilization that produceimmediate savings and create a more competitive environment among health-careproviders.


“The long-term objective is to change the market, so that buying health careis more like buying a car.”

“The long-term objective is to change the market, so that buying health careis more like buying a car,” says Mark R. White, senior health-care consultantfor Watson Wyatt Worldwide. “Employers need to make information available to thehealth-care consumers–their employees–to stimulate competition amongproviders, which will improve quality and lower costs. Information is the key tomarket dynamics. In health care, this is a huge, long-term change.”


Whether consumer-driven plans can create this change is an open question. Butthe proliferation of vendors pushing these plans and companies willing to testthem is breathtaking. And the Herculean task of making them work clearly lieswith human resources executives. Meanwhile, some companies are achieving goodresults from them.


Humana heals itself
    If any company has the knowledge and experience to force a radical reversalin cost escalation, it’s Humana, an industry leader in cost-control methods. Assavings from managed-care plans disappeared in 2000, Humana faced double-digithealth-benefit cost increases for its own 14,000 employees. “As an employer, wewere experiencing the same cost increases as other companies,” Hathcock says.


Humana’s new consumer-driven plan offers two options. The first provides a$500 allowance, with a $1,000 deductible for expenses beyond the first $500,followed by 80 percent insurance coverage and a $2,000 maximum out-of-pocketlimit. The second option provides the same $500 allowance, with a $2,000deductible, followed by 100 percent coverage. Employees may select one of thetwo consumer-driven options, or continue to use modified versions of Humana’straditional HMO or PPO offerings, but with much higher employee premiumsattached to the traditional plans.


When Humana rolled out the two consumer-driven options for its Louisvilleemployees, only 6 percent selected the new plan. “We weren’t disappointedbecause the new options represented a completely different benefit model,”Triplett says. “We learned that we needed to provide better tools for employeesto calculate their savings.” The human resources team modified the tools,revised the communication package, and then rolled out the new plan to Humanaemployees across the country. Enrollment jumped to 18 percent, triple theoriginal rate in Louisville.


“We never intended to drive employees out of the rich plans,” Triplett says. “Someemployees need rich plans and pay more for them. The idea was to offer employeesreal choice.” Humana helps employees choose the right plan with a package ofonline education and information tools, including an interactive program thatasks enrollees questions about their health-care and budget needs, and thenranks the plan offerings according to the responses.


Humana’s HMO participants have high utilization rates and continue to do so,but across the three PPOs and the two new consumer-driven options, the companysaw changes in behavior that helped reduce overall costs. For example, moreemployees opt for outpatient care and fewer see specialists. “We’ve learned thatyou can change behavior,” Triplett says. Employee surveys conducted after thefirst year indicate high levels of satisfaction with the health-care options.


Companies go beyond dabbling
    White believes that enrollments in consumer-driven plans will more thandouble in 2003, as enrollments in existing plans rise and as more companiesadopt the plans. “Most employers with these plans are dabbling in them andseeing 5 to 10 percent of their employees select them,” he says. “But many ofthese employers are leaving the door open for these plans to become totalreplacements. If the consumer-driven concept plays out successfully, it couldbecome a common plan design.”


Xerox Corporation, based in Stamford, Connecticut, is not dabbling. Thecompany launched a consumer-driven plan in 2002 as an option for all of its40,900 U.S. employees. The plan uses company-funded health-care accounts with ahigh-deductible PPO. “The idea for consumer-driven health care had beendiscussed for several years,” says Larry Becker, director of benefits. “Itoriginated within the human resources department. We had many discussions withsenior management as both the cost and complexity of health care increased.”Discussions were held among human resources, tax, and legal experts to craft aplan.


Xerox will continue to provide traditional plans while it monitors theperformance of its new consumer-driven option. “Much needs to be learned aboutthese plans before, and if, they are to become the primary health insuranceoption,” Becker says. “As experience with the consumer-driven plan develops, wewill look at election patterns, the cost of the plan, and the use of thehealth-care account.”


At CompuCom Systems, Inc., an IT services provider based in Dallas, 27percent of the 3,800 employees have selected the company’s new consumer-drivenhealth plan. “The HR department looked for a way to slow down double-digithealth-benefit cost increases through new plans that address the issue,” saysCyndie Ewert, human resources director. “In presenting this to executivemanagement, we addressed issues of great concern, such as operating expenses,head count, and associates’ concerns about receiving more information andchoices when making health-care decisions.”


CompuCom contributes $1,000 to accounts for employee-only coverage, $1,400for employees with one dependent, and $2,000 for employees with more than onedependent. Out-of-pocket maximums protect employees from the financialconsequences of catastrophic events. The company continues to offer PPO and POSplans. “We have eliminated most HMO plans, as they were the most costly andprojected the biggest increases,” Ewert says.


CompuCom is actively monitoring the effectiveness of the consumer-drivenplan. “HR will keep a close eye on employee behavior changes,” Ewert says. “Asassociates become more aware of the costs of health care, do they modify theirbehavior, such as purchasing generic medications instead of regular brands? Dothey wait to see a doctor, as opposed to visiting an emergency room when it isnot truly necessary? Also, we will measure our associates’ level of satisfactionand the plan’s ability to meet their needs.”


Long-term prognosis
    Whether these consumer-driven plans are successful, White says, hinges onthree key elements: introducing additional financial tension to encourageemployees to think about treatments and costs; providing education to changebehaviors; and issuing timely information that helps employees understand costsand treatments. “This final element is the most important of the three, but alsothe hardest to do,” he says. “HR must emphasize the information component tomake the plans work.”


Human resources executives must also “work through the laundry list typicallyused in any bid process,” White says. This includes looking at the cost of thespecific program under consideration, addressing access issues, andinvestigating the experience of vendors with respect to quality and informationissues. “Because these plans are in the early stages of development, the HRexecutive needs to ask vendors how they see their information flows and Websites evolving in the coming years,” he says. “Vendors should have substantialplans in place for improving the information flows and investing in thoseimprovements.”


Initial savings may come from plan design, but long-term savings come fromimproved information flows, which drive changes in behavior. “The changes ininformation flows and behaviors tend to be cumulative, so the real payoff fromthese plans may be down the road,” White says. Employers with a relativelystable workforce may be in the best position to make the investment in planchanges and to reap the rewards.


“Changing behaviors and the way the market works is a very exciting idea, butit is not clear that the personal account type of consumer-driven plan is theright one,” White says. “We won’t know until the experience of the initialadopters is clear. These plans may not be the panacea; the more generalprinciples may have a longer shelf life.” This year, employers that are testingthese plans will be able to determine whether their employees are beginning tobehave like true consumers. If more employees are comparing treatments,providers, and prices, employers will know they’re headed in the rightdirection.


Workforce, February 2003, pp. 36-40 — Subscribe Now!

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Unite or Die

It’s tough to be upbeat, personable, and focused when your recently bankruptcompany is losing up to $22 million a day and fighting for survival. But GlennF. Tilton, chairman, president, and chief executive of UAL Corporation, theparent company of United Airlines, did an admirable job of it. It was earlyDecember, and Tilton–barely two months into his tenure–worked his way througha roomful of airline mechanics at San Francisco International Airport, shakinghands all around. Without retreating behind a podium, he fielded questions on adifficult subject: what United could do to survive and to re-emerge as a viableairline-industry player. As reported by the San Jose Mercury News, Tilton said, “Theissue is not how many jobs we lose, but how we are going to compete in a marketthat’s changed dramatically.”

It was one of many such meetings with employees that Tilton would conduct infive cities over a three-day period. By several accounts, he received ravereviews from his workforce. One union officer described him as a “straightshooter,” while a pilot noted that “every time he opens his mouth, he seems tosay the right thing.”


“Theissue is not how many jobs we lose, but how we are going to compete in a marketthat’s changed dramatically.”
–Glenn F. Tilton

The United CEO also earned plaudits from human resources experts, who said itwas exactly the right tactic for a leader trying to turn around a sinking,strife-filled organization–one that must cut $2.4 billion a year from its laborcosts to stay in business. “Tilton’s interaction with front-line employees is akey success factor for United right now,” says Jody Hoffer Gittell, an assistantprofessor at Brandeis University’s Heller School for Social Policy andManagement and an expert on using human resources to boost performance atairlines. She says the face-to-face reassurance from Tilton was an importantfirst step toward building “a reputation of credibility and caring.” She seesthat as an essential for rallying the Elk Grove, Illinois-based airline’sworkers–about 78,000 full and part-timers in late January–to persevere throughwage cuts and other austerity measures.


Tilton must do more than cut expenses, say academics and businessconsultants. In the short run, United’s management must gain the workforce’sconfidence and cooperation simply to keep the airline running. But over thelonger term, Tilton will have to overhaul an ailing corporate culture longplagued by tension between management and unions, divisions among the workersthemselves, miscommunication, and resistance to change. He must replace it witha new model that emphasizes flexibility, cooperation, teamwork, and commitment.For inspiration, industry experts point to the successful human resourcesstrategies of some of United’s competitors: Southwest, whose vaunted efficiencystems in large part from management’s ability to get along with and motivate itsunionized workers; low-cost upstart JetBlue, with its streamlined bureaucracyand effective two-way internal communication; and bankruptcy survivorContinental, which reinvented its dysfunctional culture in the mid-1990s byreplacing ineffective managers and giving workers a voice in shaping itscomeback strategy.


Whether Tilton will be able to accomplish such a transformation at Unitedremains unclear. Previous chief executives have also tried to alter theairline’s culture, only to fail. Even if Tilton does succeed in remaking United,there’s the question of whether changes are coming too late to make a differencein the company’s fate, given its financial ill health and a stagnant economy. Asone United mechanic told the San Francisco Chronicle: “Everybody’s crossingtheir fingers and hoping this guy is the guy to do it, because he’s all we’vegot right now.”


Disgruntled employees contributed to United’s plight
    Publicly, Tilton has so far offered few specifics about the reorganization,other than his intention to launch a new discount airline to compete withJetBlue and other airline companies–an idea that sounds a lot like the UnitedShuttle, an experiment that the company tried for seven years but ultimatelyabandoned in 2001. In an interview with BusinessWeek, Tilton seemed intent onmaking measured adjustments and improvements to the failing airline’s sprawling,complex operation, rather than tearing it apart and building anew. While Unitedmust transform itself, he cautioned, the company “can’t go back to a blank sheetof paper.”


But if there’s one area in which United needs revolutionary change, it’shuman resources. The company’s labor costs, according to a J. P. Morgananalysis, are the highest in the industry. Then there are work rules–pilots,for example, fly only about 60 hours a month, compared to 80 for Southwest–thatexperts say are efficiency-busters. Costs at competitor Southwest are far lower,in part because management has been able to convince unions to accept lower payand minimal rules. The reason: the upbeat, cooperation-oriented culture createdby Southwest legend Herb Kelleher. “Workers at Southwest are delighted to bethere, work hard for less pay, and feel like part of the team,” says Universityof Chicago business school professor James Schrager. “United has more of thetraditional union/management model, where there is a constant fight over goalsand outcomes.” Indeed, from 1997 to 2002, the human resources division at Unitedwas headed not by a career human resources executive but by William P. Hobgood,an attorney and former U.S. Department of Labor official whose expertise was inlabor negotiations.


Gittell, author of The Southwest Airlines Way: Using the Power ofRelationships to Achieve High Performance (McGraw-Hill, 2002), says one key tothat airline’s success has been promoting “relational coordination”–that is,strong, trusting partnerships between managers and workers that allow allconcerned to execute the mind-boggling intricacies of making an airline runsmoothly. Instead of imitating Southwest’s human resources ideas, Gittell says,United has either ignored them or tried them only halfheartedly. At United, “employeesare hired for functional skills rather than relational skills,” she says. “Performanceis measured in a functionally specific, divisive way, rather than allowingcross-functional responsibility for performance.”


United has made some attempts to innovate–in particular, its experiments inthe mid-1990s with an employee stock-ownership plan and the introduction of theUnited Shuttle, a low-cost, no-frills, high-efficiency clone of Southwest. Whileboth ideas generated bursts of employee enthusiasm, Gittell says, the effect wasshort-lived. One reason was poor conception. The ESOP, for example, gaveemployees 55 percent of United’s shares in exchange for pay and benefitreductions from 1994 to 2000. But workers soon discovered that tax laws tookaway much of the financial benefit of the stock grants, and since flightattendants didn’t participate in the plan, the distribution created groups withdivergent interests. Beyond that, stock ownership didn’t translate intoinfluence in day-to-day operations–though it did create plenty of nervous,angry worker-shareholders as United shares gradually lost close to 90 percent oftheir value between 1998 and 2003. And while the United Shuttle’s innovationsenabled planes to get in and out of the gate more quickly and cheaply, bothmanagement and unions resisted some of the ideas and gradually watered themdown, until the project finally was discontinued in late 2001 as part ofcost-cutting.


Poor communication between management and employees also has hurt United,according to Wayne Cascio, a University of Colorado-Denver management professor.He cites the airline’s costly imbroglio in the spring of 2000, when pilots wereangered by what they saw as foot-dragging in contract negotiations. Then theyfelt blindsided when they discovered that then-CEO James Goodwin secretly hadbeen pursuing a merger with U.S. Airways, which would have caused many to losetheir seniority. The result was a work slowdown that resulted in thecancellation of tens of thousands of flights. Ultimately, the pilots were givena placating raise that incited other workers to demand more money, and thatdrove up costs.


Continental’s response to crisis
    Can United be resurrected? Industry leaders point to other companies thathave made comebacks from similarly dire straits. Continental, which wentbelly-up in 1983 and again in the early 1990s, is the most notable example. In a1998 Harvard Business Review article, former Continental president and chiefoperating officer Greg Brenneman reported that pilots routinely turned downair-conditioning on flights–despite passengers’ discomfort–because of amisguided policy that gave them incentive pay for reducing fuel consumption.Supervisors tended to concentrate more on winning promotions by sabotagingin-house rivals than on improving the airline’s performance. Management’simplicit communication policy was “don’t tell anybody anything unless absolutelyrequired,” Brenneman wrote. Employees were expected to adhere to the “Thou ShaltNot” book, a nine-inch volume of arcane rules, even if it meant displeasingcustomers. Morale was so low that when he visited a facility in Houston,Brenneman was shocked to discover that employees had torn the airline’s logo offtheir uniforms in embarrassment.


As a result, when Brenneman and his boss, chief executive Gordon Bethune,devised a rebuilding plan for Continental, they realized they had to fix morethan just the airline’s finances and market share. They also strove to jettisonContinental’s negative environment and replace it with a new culture. They fired50 of Continental’s 61 corporate officers in the first few months and weeded outincompetent managers at all levels–and aggressively recruited the topmanagement understudies from their competitors to replace them. To showemployees that their judgment was trusted, they made a show of burning the “ThouShall Not” book in a company parking lot. They instituted a “tell everybodyeverything” communication policy and installed hundreds of bulletin boards atContinental facilities. To give employees a voice in company plans, Brennemanand Bethune directed each corporate officer to visit a city where Continentalhad operations at least once per quarter to brief workers on the airline’s plansand to seek feedback. The company continued to pay incentives, but tied them toContinental’s financial performance.


The airline rebounded strongly. Although the September 11 attacks plunged theentire industry into a brutal slump, Continental has not been hurt as badly asUnited. In the most recent quarter, as United was forced to declare bankruptcy,Continental was reporting revenue growth that beat Wall Street expectations.


Overhauling a failing corporate culture
    It might seem as if United should simply copy Continental’s or Southwest’shuman resources blueprint. But emulating the tactics without real philosophicalchange won’t work. In recent years, United also has tried to improve itsinternal communication, setting up a toll-free hotline and an online chat thatemployees can use to offer suggestions or air problems and criticisms. But thosetechnological tools haven’t solved management’s and workers’ fundamentaldifficulties in communicating, and the resulting frustrations.


“Basically, United has a culture where the players have a win-loseorientation,” Cascio says. “But everyone is pitted against each other, ratherthan seeing that they all win if they beat the competition.”


Instead, what United desperately needs to do, experts say, is replace thatfailed culture with one emphasizing cooperation, trust, and teamwork–the samecore values that helped strengthen Continental and Southwest. The first step isfor Tilton to regain employees’ trust. But in addition to making appearances andpressing the flesh, it’s crucial for him to not make any initial flubs thatwould destroy his credibility with workers. United’s human resources division,in turn, has its own crucial role to play. Tilton must compensate for hisnewness and lack of firsthand knowledge of the airline industry. “They have toserve as his archivists, to make sure he’s fully aware of company history whenhe makes a move,” says Peter Cappelli, director of the Center for HumanResources at the University of Pennsylvania’s Wharton School. “It would bedisastrous for him to be caught proposing something that didn’t work 10 yearsago. The workers will pick up on that, and write him off.”


Tilton has to show workers that he really has a strategy for saving thecompany, beyond just subjecting them to more wage cuts. One way to accomplishthat is to enlist the workforce in creating the nuts and bolts of that strategy.Last September, before United declared bankruptcy, Tilton announced that he wasputting together a task force of company officials and outside experts to lookat ways to improve productivity at United, and that the group would reviewemployee suggestions. University of Colorado-Denver professor Cascio, who’sstudied successful downsizing efforts, thinks Tilton needs to go much further.


“United has tended to look at its workforce as a cost rather than as a sourceof innovation,” he says. “Tilton has to change that.” If Cascio were in charge,he’d bring representatives from United’s employee constituencies together andform a group to brainstorm about improving efficiency without harming customerservice. “Look, let’s face it–the customers are the only ones who are going tosave this airline. Management needs to get ideas from the people who are closestto the customers. All the wage and expense cuts in the world aren’t going tohelp if the customers flee because service deteriorates.”


As a start-up in the late 1990s, JetBlue used a similar approach to avoid the”culture of blame” that inevitable snafus at a new airline could create,according to a Harvard Business School case study written by Gittell andStanford business professor Charles A. O’Reilly III. JetBlue created “TigerTeams” to come up with solutions for persistent problems–and made a practice ofappointing as members the worst complainers among the employees. That encouragedthem to focus on solutions rather than criticism. The Southwest model includesinvolving workers in planning, gaining greater flexibility and efficiency bygetting rid of cumbersome work rules, and making job descriptions more elastic.


Tilton already has expressed an interest in starting a new low-cost service.Gittell recommends that he take a long look at the innovations that were part ofthe mothballed United Shuttle project. By experimenting with procedures, Shuttlecrews found that they could empty a plane of passengers and luggage, performnecessary maintenance and safety inspections, and reload the plane for takeoffin half the time it usually took. Flight attendants were allowed to try thingssuch as using trays to deliver drinks instead of pushing cumbersome carts downthe aisle–a trick that speeded up service and allowed them to give customersmore personal attention.


Whether Tilton will be able to effect such sweeping changes–and to save theairline–is anyone’s guess. Continental did emerge from bankruptcy. Once-bignames such as Eastern Airlines, Pan Am, and TWA did not. Nevertheless, when herecently met with United employees in Denver, Tilton seemed determined to moveupward and onward. As reported in the Rocky Mountain News, the unwavering CEOdeclared, “We cannot afford to indulge ourselves in looking back. We don’t havethe time.”

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Memo to AOL Time Warner Why Mergers Fail

When American Online and Time Warner Inc. first fell in love three years ago,they apparently didn’t receive effective spiritual counseling. A trusted advisorshould have emphasized this reality: Corporate marriages can be colossaltrouble. The drive to acquire companies may be endemic in corporate America, butalmost all mergers fail to produce intended business results, experts say.

A key reason is that companies don’t spend enough time evaluating the impactthat mergers have on employees, says Ron Elsdon, director of retention servicesat DBM, a human resources consultancy in New York. “Mergers have an unusuallyhigh failure rate, and it’s always because of people issues.”


With Steve Case’s departure from AOL Time Warner last month, executives inmany industries are rethinking how conglomerates wed. In most merger scenarios,the employees of the purchased company are given little information about theturn of events until well after the deal is settled. Rumors fly about what’sgoing on, and employees are left in limbo, bitter about the changes and worriedabout their jobs and their colleagues. If this goes on for too long, they canbecome less productive as a psychological protest, says Bill Belgard, presidentof The Belgard Group, a strategic transformation consultancy in Beaverton,Oregon.


The chance for success is further hampered if the corporate cultures of thecompanies are very different. When a company is acquired, the decision istypically based on product or market synergies, but cultural differences arerarely examined or even acknowledged. It’s a mistake to assume that you will beable to easily overcome philosophical or cultural differences, Belgard says. Forexample, employees at a small family-owned business might be used to having easyaccess to the boss, flexible work schedules, or a relaxed dress code. Whilethese issues may seem insignificant, taking away those unwritten privileges canresult in resentment and shrinking productivity.


“To be successful in a merger, you have to show respect for the acquiredcompany’s culture and ways,” he says. “Your goal should be to achievesomething together that neither company could do alone.” Unfortunately, oncethe deal is done, buyers often lose sight of that goal. They try to fold the newcompany into the existing one, squashing the acquiree’s creativity, leadership,and vision in the process.


That’s not to say mergers can’t be successful, says Bruce Mann, seniormanaging director in charge of merger and acquisition activity at WR Hambrechtand Co., a financial services firm in San Francisco. Even if cultures conflict,success is attainable if the human challenges are addressed early on. To achievethis, human resources specialists should be involved in the negotiation process,making sure that employees’ needs and culture issues are addressed and anintegration plan is developed, he says. As part of the due-diligence process,executives from the acquired company should be sharing employee evaluations,benefits expectations, organizational charts, compensation plans, and anythingelse that will help them make quick decisions about employment and helpassimilate the new staff as easily as possible. If human resources involvementcomes after the deal is signed, “it’s already too late,” Mann says.


Workforce, February 2003, p. 60 — Subscribe Now!

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Gray Areas in Controlling Employee Lifestyles

Employees’ lifestyle choices can create endless gray areas for employers.Smoking, fashion, and even issues of dating and off-the-job behavior have theireffects on the workplace–but how much say can human resources have? Can you setguidelines for lifestyle, and if you do, how far should you go? MicheleCoyle, apartner in the Los Angeles office of the law firm Hogan & Hartson LLP,offers insight.

Can a company simply forbid smoking in the workplace?
In many states, smoking is not allowed in enclosed spaces at all. But yes, ifyou are in a state where there are no fixed rules on smoking, you may allowsmoking only in designated areas. While there may be some employees whodisagree, the management’s prerogative for maintaining an orderly workplace andaddressing safety and health concerns always trumps a concern from employeesthat their privacy has been restricted and their individual freedoms have beenimpinged upon.
 
Can a company simply refuse to hire smokers?
No. The restrictions on discrimination in hiring are flexible, but there aresome pretty fixed boundaries. To single out a group and treat them differentlythan another group–not for job skill or business-based criteria but rather fora lifestyle choice–that’s something most courts and EEO agencies would findimpermissible.
 
When it comes to employees’ clothing, how much can a company dictate?
It depends on the situation. In California, for instance, you can’t have yourdress codes prohibit female employees from wearing pants. However, an employeris certainly entitled to address the subject, and tie it to the workplace andthe business needs of the company. It’s definitely a good idea to address dressand grooming standards in company policies. That way, the company’s procedureswill be clearly stated in writing, which is always a good idea when you’readdressing personal preferences. You can instruct employees to dress inaccordance with their position and to always be “neatly attired.” That’s thelanguage that’s often used. There are ways you can go about addressing specificsin your workplace if you need to. If you’re in a very formal work environmentwhere all customers and clients are more formally dressed, then using a rule ofthumb that would, for instance, require employees to be appropriately dressed inmeetings with clients and customers and allow for casual dress where there’s nocontact with clients and customers is a reasonable line to draw.
 
How should hairstyles and grooming issues be addressed?
There’s been quite a bit of litigation on discrimination in grooming. Youneed to be appropriate with respect to your grooming standards, and they must bebusiness based. There has been, for example, litigation over requiring men tohave short hair, where there was no business basis for that requirement. There’sbeen litigation over prohibiting beards where there were no safety or healthreasons for such a prohibition. There’s even been litigation over requiring mento wear ties. Again, a basic rule of thumb: There needs to be a business basisfor any procedures in the dress and grooming area, and as long as there’s areasonable basis for the procedure, it will be found to be legal and notdiscriminatory.
 
Can you base these guidelines on your clients? For instance: Our clientsexpect men to have short hair, or women to wear skirts.
That would be a gray area. To be reasonable, most policies must focus onpresenting a neat and professional appearance. Long hair can be just as neat asshort. So it really just comes down to circumstances. There may be safetyreasons, particularly in a manufacturing situation, where long hair, if it’s notrestrained, may pose a safety hazard. Obviously that’s a legitimate restrictionin that circumstance.
 
What happens when dress codes impinge on an employee’s religion or ethnicity?
That’s been a big concern since 9/11. There must be a valid business reasonfor the dress code to restrict employee from dressing in accordance withreligious beliefs. There has been quite a bit of recent litigation on thatsubject. It’s fair to say that if an employee’s religious beliefs requirewearing a hair covering or a particular style of clothing, employers arerequired to reasonably accommodate when it doesn’t impose an undue burden. Inmost circumstances the employers have been able to do so. But, as in theprevious example, it would be completely out of bounds for an employer to usecustomers’ preference for employees who do not cover their hair as a basis forimposing a dress code that would eliminate anyone from employment whosereligious beliefs require them to do so.
 
Can an employer forbid coworkers to date or marry?
This is the issue that really gets the most attention and causes the mostuproar in the workplace, and there’s been a lot of litigation. Employers canreasonably refuse to allow married couples to work in the same department ordivision or facility if that conflicts with their duties or company policies orposes an extra hazard to them because they’re a married couple. The ordinarycourse taken by most employers is to limit supervision to non-family members.Other companies prohibit any such hiring.
 
So a company can simply say it will not hire married couples?
Yes, a company can state in writing that it restricts or denies employment ofemployees’ spouses or relatives. Most companies do so on the basis that it’sreasonable because they’re preventing favoritism or employee conflicts. There’sbeen quite a bit of litigation in the past on the unequal enforcement of thesepolicies, where the rules were interpreted to mean a wife cannot be hired butdidn’t apply to [hiring husbands]. That is going to be successfully challengedand has been. In California, the Fair Employment and Housing Commission providesthat if co-employees marry after having been hired, an employer shall makereasonable efforts to assign job duties to minimize problems of supervision,safety, security, or morale. That’s a pretty good measure of what a validbusiness-based policy would consider. It’s appropriate that when a company has ano-spouse rule, the employer allow the affected spouses to decide who leaves andwho stays. That’s an evenhanded way to do it.
 
Can an employer forbid coworkers to date?
Often with respect to dating, there are some employers that restrictrelationships between coworkers when there is a supervisor involved. That’s alegitimate distinction to draw. There’s been a long history of litigationinvolving sexual-harassment claims where relationships between coworkers havebeen terminated and one of those involved was a supervisor. Very often,companies decide they don’t want to run the risk of potential claims wherethere’s been a romantic relationship that’s now terminated. Therefore, theyconsider it appropriate to put into place policies that prohibit such personalrelationships between coworkers in which one is a supervisor. From a managementstandpoint, the easier way to approach this is to require the supervisor tonotify management of the relationship so management can then decide what, ifany, action it wishes to take regarding evaluations and other supervisoryactivities.
 
What about guidelines that address employees’ behavior off-premises–shouldan employer stay away from that area?
Ordinarily you’re getting into a gray area whenever an employer tries to dealwith off-premises conduct. The focus would be very specifically on whether theconduct at issue harms the company’s reputation and whether the employee isunable to perform his or her job. Perhaps the outside conduct has an effect onsubordinates in, say, the context of an outside incident involving racial slursor assault. If you have circumstances where that results in that employee’ssubordinates having concerns about working for him or her, those areas wouldlikely be the focus in any inquiry into whether the company’s consideration ofsuch conduct is appropriate. There have been challenges made by employees to anytermination that’s the result of their off-work behavior. Courts have gone bothways on that, depending on the facts. The issues involved in such disputes arevery fundamental ones. The employee will be making a claim for a right toprivacy, which is a constitutional claim. It’s an area where employers need totread very carefully, and there must be a demonstrated business impact for thepolicy and the behavior that’s at issue.
 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, February 2003, pp. 64-65 — Subscribe Now!