I had three different lunch meetings last week with three friends of mine.One is a headhunter, one is a management consultant, and the other is aninvestment banker. No, this is not one of those jokes about a priest, aminister, and a rabbi or a doctor, lawyer, and accountant.
The headhunter had just started his own boutique firm because his former firmwent bankrupt. The management consultant’s firm had been cut in half over thepast year to avoid bankruptcy. The banker had just been laid off from hisM&A job when his employer jettisoned his entire unit. Indeed, the dot-comdays are over.
In each conversation, we talked about what was next. The headhunter, a man inhis early 50s, bitter about his current station, scoffed at my remark that thetalent game was not going away, especially given the aging of our workforce. “Kid,”he said, “the War for Talent is over. It is now a Struggle for Security. Thisis a good lesson for you and your generation. It should teach you somethingabout loyalty.”
My friend the consultant used to do studies about the cost of turnover forfirms when their talent left for start-ups during the Internet gold rush a fewyears ago. He noted that we now have “a waiting game.” He added, “Whilefirms are holding on to their employees with much greater effectiveness, youhave masses of young talent just waiting to jump. They see their friends gettinglaid off and they don’t like it.”
He also described how “employers are behaving with a lack of dignitycomparable to that exhibited by the 20-somethings when they demanded truckloadsof options and massive compensation in the mid-1990s.” Now in his late 20s, heis already planning his next move after the market recovers.
The conversation with the banker was perhaps the most sobering. “Forget it,”he said. He saved enough of his huge bonuses over the past three years to allowhim to “just wait it out.” He noted that it made no sense to jump back intoa job market that would pay him half of what he used to get paid to do work henever liked in the first place. “We were all mercenaries; there is an impliedcontract in banking, and when the market comes back, I will jump back in. Untilthen, I am going to play guitar and hang out. But I would love to see the bankburn in the interim.” He looked the happiest he had been in five years.
So where does this leave us? Indeed, my headhunter friend was right that thepast three years have been a very difficult experience for a generation that haspretty much known nothing but economic prosperity. At the same time, while itmay no longer be in vogue to pronounce that “the Internet has changedeverything,” I do know that my friends the consultant and the banker areplaying under a new employment dynamic, born in the 1990s. The trust and esteemthat employers are afforded today is equivalent to the amount of loyalty theyengendered during the last market boom.
When the market turns, my friend the consultant will be on to something new,either in industry or a new venture. My friend the banker will have no illusionsthat his next banking stint will be measured in months, not years. Employersshould show the wisdom of their years and forgive the arrogance andrighteousness exhibited by younger employees during the Internet boom and planfor the long term. When the market turns, finding a way to achieve détente inthe next War for Talent may serve them well.
Two different sections follow. First, there are checklists for the convener.Then, there are checklists for the facilitator.
Checklists for the Convener
1. Overall Retreat Logistics
–After selecting the facilitator, consult with him or her on the appropriatelength for the retreat.
–Determine when the facilitator is available for your retreat.
–Check available dates with senior managers whose participation in theretreat is critical to its success.
–Select a retreat facility and determine dates when it is available for yourgroup. (Your facilitator may have suggestions for appropriate facilities.)
–Announce the retreat and give participants two or three options for dates.They should tell you which dates, if any, do not work.
–Contract with the retreat facility for the dates you choose.
–Make arrangements for transportation, meals, lodging, and audiovisualsupport required.
–Announce the dates of the retreat and provide participants with theinformation they need, including lodging arrangements; directions to the site;recreational options, if any; the dress code; and how family members can getmessages to them during the retreat.
–Ask invitees to confirm their participation, indicate any food preferencesor limitations, and supply emergency contact information.
2. Assessing Facilitators
When you check facilitators’ references, try to find out as much as you canabout their ability to do the following:
–Listen accurately to what others are saying without injecting their ownbiases.
–Be neutral (and be perceived to be neutral) about the outcome of thediscussions.
–Suspend judgment of retreat participants.
–Understand multiple perspectives, help bring them to the surface, andresist colluding with the group in avoiding thorny issues.
–Encourage participants whose viewpoints may not be popular to speak out,and urge others to listen.
–Help retreat participants recognize and deal with any behavior that mightbe hampering the group’s work.
–Deal skillfully with the members of the group who might not want to accepttheir guidance.
–Empathize with others.
–Analyze and summarize key issues.
–Remain comfortable with ambiguous situations and those they do not control.
–Recognize and manage differences that may stem from the diversity(cultural, racial, gender, age, sexual orientation, and so forth) of theparticipants.
–Hear feedback from the participants without becoming defensive.
–Adjust their approach, acknowledge missteps, and ask for help when theyneeds it.
3. Finding the Right Retreat Site
Look for a retreat site with:
–Soundproof rooms, so you won’t have to compete with a speaker with amicrophone on the other side of a thin wall.
–Hard-surfaced, easy-to-move tables that don’t have to be covered bytablecloths.
–Comfortable chairs–either padded, rolling executive style or comfy sofasand upholstered chairs.
–Enough room in the main meeting space to allow participants to circle thechairs and work away from the tables when needed.
–Space to use for breakout groups: either a main room with moveable chairs,large enough for groups to move away from each other, or smaller rooms adjacentto the main space or very close by.
–Ample supplies of flip chart easels and pads, masking tape, and markers.
–Space where people can congregate informally to talk or grounds where theycan walk.
–Snacks and drinks available all day, rather than just at scheduled breaks.
Checklists for the Facilitator
1. Structuring the Interview Questions
The success of the retreat will depend in large measure on your ability toask questions that get to the heart of the issues. Here are some questions weoften ask, which we recommend you modify to suit the needs of the organizationyou are working for.
–What do you think is most important to accomplish at this reatreat?
–What might impede the group’s ability to achieve that outcome?
–[If this group has held retreats before:] What did you find most helpful atthe last retreat? Did you find anything troubling or frustrating about the lastretreat and the actions that resulted from it?
–What words would you use to describe your experience at [yourorganization]?
–What do you think is going well at [your organization]? What do you likemost about it?
–How would you describe relationships among the staff? Between staff andmanagement? [Or between the staff and the board?]
–In every organization there is some conflict, disagreement, or differenceof opinion. How is conflict or disagreement handled at [your organization]?
–If you had the power to change anything at [your organization], what wouldyou change?
–Of the changes you said you’d like to see, are there any that you thinkwould not be possible? Why not?
–How do you feel about taking part in this retreat?
–Do you have any concerns about what might take place?
–Is there anything else you think I should know, anything I haven’tthought of asking, or anything you’d like to add to something you’ve alreadysaid?
2. Matching the Retreat Design with the Convener’s Expectations
Is your design:
–Suitable for the participants, taking into consideration their level ofexperience and expertise and their comfort level with certain types ofactivities?
–Focused sharply on delivering the expected outcomes?
–Likely to engage the participants so they are strongly committed to thedecisions they make?
–Attentive to using participants’ time wisely?
–Adaptable enough to allow for changes if something unexpected happens, butstill able to move the group toward the desired outcomes?
–Flexible enough for participants to have time to discuss how decisionsreached at the retreat will be implemented and integrated into the organization’swork?
3. Setting the Conditions for Design Success
Have you:
–Come to clear agreement with the convenor about mutual expectations?
–Interviewed participants and other relevant stakeholders in advance?
–Provided enough variety in the retreat activities?
–Included in your design opportunities for people to think before theyspeak?
–Allowed for spontaneous changes to the retreat plan?
–Built in unstructured time?
–Devised activities that will force participants to make hard choices?
–Left adequate time for action planning?
–Provided an appropriate close?
4. Inspecting the Meeting Room
–Room Arrangement. Are the chairs and tables set up exactly as you planned?If not, move them now.
–Your Materials. Is there a table for your notes and supplies? Has thefacility provided the supplies you requested, such as pads of writing paper ormasking tape?
–Wall Space. Where will you post flip chart pages as they are filled? Isaccess to the walls blocked by tables, chairs, or lamps? Will you have to postthem on windows? Where will you put charts as the walls fill up?
–Equipment Supplied by the Facility. Do you have the right number of easelsand pads of flip chart paper? Are the pads full, or do some only have a fewsheets left? Is all the AV equipment you ordered in the room and set upproperly? Does it work? Do you have extra bulbs for your projector?
–Markers. If you haven’t brought boxes of new markers, have you testedevery marker supplied by the facility and discarded those that are dried out?
–Facilities. Do you know where the bathrooms are? Where the snacks will beset up? Where lunch and dinner will be served?
–Participant Place Setups. Are the supplies–markers, writing pads, andpens or pencils–and handouts that participants need in place? Do you haveextras in case they’re required?
5. The Facilitator’s Toolkit
No matter how dependable the retreat facility seems, we always bring thesethings with us:
–Several sets of fresh markers, in black, blue, green, and red.
–Two sizes of Post-it® Notes, in multiple colors, one of each for everyparticipant, plus about 20 percent extra.
–Name tags for the participants.
–Several rolls of masking tape.
–Colored labeling dots (for “voting” on choices).
–Pocketknife or box cutter for opening boxes of supplies, if you ship themahead. (Note: You’ll have to check these items if you are flying to theretreat site.)
–Bell, chime, whistle, or whatever you like to use to indicate the beginningand ending of timed exercises.
–A timer (so you won’t have to keep looking at your watch during timedexercises).
For decades, even the most experienced HR professionals have been forced tospend much of their time doing tedious data-entry tasks and fielding supportcalls. Because of the mountains of paperwork that flow into HR departments everyday, there is little opportunity to focus on critical human-managementinitiatives. A recent Forrester Research study found that, on average, HRmanagers spend nearly 80 percent of every day administering employee benefitsand answering routine questions.
It’s a poor use of the HR team’s expertise, but because of paper-basedinformation-management processes, there’s been no way to avoid thesetasks–until now. Many medium-sized and large companies are upgrading their HRmanagement systems, adding self-service capabilities that will forever changethe roles of the HR team. Self-service puts the responsibility for manyinformation-management tasks, such as filing change-of-address forms andcompleting benefits enrollment, in the hands of employees, dramatically reducingthe amount of time that HR staffers spend on administrative tasks. It frees themto focus their energy on achieving more strategic goals for the company, such asreducing turnover and developing skills inventories. It can also enablecompanies to deliver the same HR services using fewer people.
“If a company wants to take better advantage of the skills of HR professionalsor reduce the size of the HR department, self-service is an increasingly populardecision.”
If a company wants to take better advantage of the skills of HR professionalsor reduce the size of the HR department, self-service is an increasingly populardecision, says DJ Chhabra, vice president of global HRMS development at OracleCorporation, an enterprise software company in Redwood Shores, California. “Iteliminates non-value-added tasks, shifting the HR team’s efforts to thebusiness side of HR.”
But the payoff of self-service is more than just happier HR people or even asmaller HR staff. It can also affect the bottom line in several areas, says DonChun, director of Global HRMS product strategy for PeopleSoft, Inc., anenterprise application software company in Pleasanton, California. “Costreduction drives the investment in self-service for most companies, and they areable to anticipate a quick return on investment in the software.”
He estimates that most PeopleSoft clients see a return on investment in twoyears or less, as a result of improved accuracy in data collection, reduction intime to complete tasks, fewer calls to the HR department, and faster turnaround.For example, one of PeopleSoft’s clients documented spending roughly $10 toprocess a change-of-address form before moving to self-service. “Withself-service, that cost dropped to 25 cents,” Chun says.
It’s an issue of efficiency. The $10 cost came primarily from the time ittook an HR staff person to copy an employee’s handwritten form into all of thedisparate databases. Using the self-service system, the employee enters the dataonce online and it’s automatically updated in all of the necessary databases.This level of savings is similar for every information-processing task formerlymanaged by the HR staff, Chun says.
Paper and mailing costs can be dramatically reduced as well, Chhabra adds.Pay stubs no longer have to be printed and mailed out–which can be a hugemonthly effort and cost–and all HR-related documents can be completed and sentonline, eliminating the need to print and distribute them.
Younger employees who have been raised with the Internetexpect the freedom and rapid turnaround of self-service. They want access tocompany information and control of their own data.
Self-service HR tools also improve productivity and help attract and retainqualified employees, says Tom Tillman, director of product management andmarketing for Best Software, Inc., a business management software company in St.Petersburg, Florida. Younger employees who have been raised with the Internetexpect the freedom and rapid turnaround of self-service. They want access tocompany information and control of their own data.
“Self-service is an inevitability for most mid- to large-sized companies,”Chun says. That means in order to stay competitive, HR professionals mustevaluate and update their skill sets. As data-entry tasks are eliminated, so toois the need for lower-level administrative employees, he says. “To movesuccessfully into the future, HR professionals need to transform themselves intostrategic business advisers.”
The clock is officially ticking. If your company has at least 50 employees,and you offer health benefits to them, you’re required to comply with HIPAA,the Health Insurance Portability and Accountability Act of 1996. On April 14,2003, HIPAA’s privacy rules regarding Protected Health Information go into effect–and if your companyisn’t well on its way to compliance, HR should jump-start the effort. John A.Knapp, a senior member of the health law group at Cozen O’Connor inPhiladelphia, offers advice.
What should HR professionals know about HIPAA?
It came out of the failed health-care reform effort of the Clintonadministration. In the early 1990s there was a lot of concern about people whowere restrained in moving from one employer to another because they were afraidof losing their health insurance due to pre-existing conditions. So although theoverall health-reform efforts failed, one of the things that came out of thoseefforts was this bill, which was aimed at allowing the portability of healthinsurance by preventing insurers from imposing requirements about pre-existingconditions when you move from one employer to another. At the time, employerswere concerned that this was going to lead to an increase in health insurancecosts. So there was an effort made to reduce costs in the health-care system asa way of offsetting the increased costs caused by these portabilityrequirements.
How was this done?
People quickly identified the amount of administrative expense throughout thehealth-care system caused by inefficient communications. For example, there aremore than 400 different formats in use throughout the country by whichhealth-care providers and insurers exchange information related to servicesprovided and payments made. So HIPAA contained within it a set of provisionsunder its administrative simplification section. The goal was to simplify theprocess by which health-care providers and health-care payors communicate witheach other. This will have a very dramatic effect. It’s going to standardizein one electronic format all of the information that gets exchanged. Now,Congress recognized that this was going to result in enhanced flow ofindividually identifiable health information in electronic format. There wasconcern that this would increase the risk of private health information beingimproperly disclosed. So part of the administrative simplification rules dealwith protective measures that health-care providers and payors have to take inorder to protect the privacy and security of this individually identifiablehealth information.
What do employers need to do regarding the privacy and security of healthinformation?
Since the plan has to deal with protected health information, HIPAA insiststhere be a firewall established. That can be established physically through useof things like security measures, computer passwords, firewalls, etc. Or it canbe implemented through policies, procedures, and training for people who handleprotected health information, to ensure that the HIPAA requirements areunderstood and followed. Organizations that have any form of self-insurance arerequired to appoint a privacy officer; oftentimes the privacy officer for theplan is going to be the head of HR or whoever oversees the plan.
What should the overall goal be?
The idea is to create a firewall between the plan and the employer, soprotected health information that the plan has access to is not communicated tothe employer for employment-related purposes. For example, someone who operatesthe plan might become aware that an employee is receiving health-care servicesfor cancer or a mental-health problem. That information cannot be communicatedto the employer because it might have an impact on a promotion decision orcompensation decision. So employers must establish the necessary barriers orfirewalls between the plan and the employer. The degree of these firewalls andpolicies and procedures varies based on whether the plan is self-insured. If anemployer offers health benefits to its employees but does so exclusively throughinsured products (you sign up through Blue Shield or Aetna) then there are stillHIPAA requirements, but they’re substantially less. But if the employer isself-insured in full or in part, even though they might use Blue Shield as athird-party administrator, then there are much broader requirements. If youoffer cafeteria plans that have health-benefit components, that’s a form ofself-insurance.
What else do the privacy rules require?
Employers are required to amend their ERISA plan to ensure that the employeracknowledges and respects this firewall that has to be created between the planand the employer. So there are going to be changes required to the ERISA plandocuments. Those plan documents, the amendment, may have to be filed with theIRS.
What about the security component of HIPAA?
The security rules are not yet out in final form [as of press time, they wereexpected in December]. They won’t become effective for two years after they’rereleased. So companies don’t have to worry about security, but they have tostart thinking about how to protect any electronically stored or transmittedinformation from improper use or disclosure. This may be as simple as physicallylimiting who has access to that information by the use of passwords, orestablishing that only certain computers allow access to this information. Or itcan be more sophisticated, with electronic firewalls and things of this nature.
Don’t employers also have to comply with HIPAA transaction standards?
If an employer’s health plan communicates with an insurer or third-partyadministrator electronically, then that communication must be done in accordancewith HIPAA’s standard electronic formats. So you’ve got to get your ISpeople involved and communicate with your insurers and find out how you need tonow interface with them. Those standards don’t go into effect until October2003, but you’re required to begin testing to make sure you’re on track forthat deadline by April 2003.
Any final thoughts on the privacy rules?
Small group health plans–those plans with less than $5 million per year ineither total health-care premiums or benefits paid out—have an additional yearto comply with the privacy rule, so they have until April 2004. As for the restof employers, most group health plans require some form of assistance fromlawyers, consultants, or others, to ensure they’re compliant by April 14,2003. If employers have not yet begun these compliance efforts, they shouldbegin them as quickly as possible, because there are penalties that, althoughthey’re likely to be moderate, could in some cases be as high as 10 years inprison and $250,000 in fines.
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.
Employees once viewed hefty stock-option grants as a fast lane on the road toriches. Companies embraced the distinct advantages of using options to attractand keep top talent. In today’s economy, however, with the market price ofmany stocks dipping well below the exercise price, millions of options aresolidly underwater and unprofitable–at least in the short term.
Human resource professionals face major challenges in coping with the falloutfrom this weakened compensation and retention strategy. But there are remedialsteps that can be taken both to address the current dilemma and to implementmore effective solutions for the future.
Attempts to recognize and resolve the option quandary actually began nearly adecade ago. In 1993 and 1994, the Financial Accounting Standards Board launcheda quest to require an expense for stock options. The response from corporateAmerica was swift and primarily negative. Clinging to a comfortable status quo,companies claimed that unfettered access to free options would align executiveand employee interests with those of shareholders and would propel America’sthen fledgling tech economy to new heights.
Remember the saying, be careful what you wish for? Bowing to intense publicpressure, the FASB backed off. It allowed businesses to continue granting stockoptions as freely as they wished–without any real checks and balances on thesystem. Unrestrained, the practice spread and accelerated like wildfire, andoption grants expanded in size by more than 400 percent in seven years. Seeingonly the upside in the proposition, companies also began to widen the practice,including more lower-level employees in option plans. These enormous andwidespread grants definitely helped to drive growth in the tech sector as wellas the “old” economy. On the other hand, some argue that lavish optiongrants were also partially responsible for unrealistically inflating andultimately puncturing the market bubble.
The result is that our nation’s incentive system is seriously broken, witha huge percentage of the options that were intended to attract, retain, andmotivate employees now underwater and ineffective.
Where does this leave HR executives? In many cases, they’re holding the bagand scrambling for solutions. It’s a problem replicated across the corporatelandscape, as a growing number of companies find themselves strapped withunderwater options and high overhangs, or options as a percentage of sharesoutstanding. In effect, HR has lost the almighty magnetic field they’d reliedon to attract, retain, and motivate their best people. When stock options losetheir lucrative luster amid a downturn in the market, valued managers andexecutives can quickly start to feel unappreciated and uncompensated–and mayconsider un-employing themselves with the company.
Given the substantial size of option grant packages within most companies,executives may stand to lose 50 percent or more of their total pay package whenthe stock price drops significantly. Human resource executives can temporarilyreassure themselves that their competitors for talent are in the same boat. Butif the boat is sinking, does it really help to know you’re not alone in it?
If stock options have been included as part of your pay package, and yourstock price has plunged 30 to 50 percent or more, it is imperative that youconsider all of the alternatives available to you:
Do nothing at all.
Grant additional options.
Grant restricted shares (may be tied to performance), or replaceunderwater options with restricted shares on a value-for-value basis.
Cancel and reissue underwater options, with a six-month window.
Reprice underwater options.
Creating solid plans for the future Underwater options are a big problem in part because so many have beengranted to so many people. The reason they were granted makes the problem worse.For many employees and executives, options were a primary reason they accepted ajob at the company in the first place. And for a great many companies, optionswere the competitive edge needed to attract people, and the “glue” used tokeep them. So, when a company’s options go underwater, the “deal” or “contract”made with its employees and executives begins to crumble. What is worse, thedeal was flawed in the first place, based on an implicit promise that couldn’tbe kept of relatively quick and easy wealth.
Though well intentioned, large option grants didn’t succeed in makingexecutives think and act like shareholders. It made them think and act likeoption holders, with a higher risk and shorter-term perspective thanshareholders. On their own, options don’t provide balanced incentives, andthey’re not a valid reason to go to work for a company in the first place. Formutual benefit, employment should be based on a variety of stable andsubstantive factors such as corporate culture, suitable career path, belief inthe product or service, and alignment with the company’s vision andphilosophy. Joining a company on the basis of the number of options granted(with hopes of getting rich quick and retiring early) creates an ill-conceivedcontract for all concerned.
Digging ourselves out of today’s swamp is only half the battle. Goingforward, it’s important to decrease our lopsided reliance on options anddevelop better plans that combine a variety of cogent and creative strategies.We need to consider flexible, tailored compensation vehicles that are clearlyaligned with the company’s organizational objectives and desired risk profile.
This shift in strategy does not have to dilute executive pay. However,executive pay must become more balanced and directly aligned with the goals andstrategy of the company–part of what we call a Balanced Incentive Portfolio.Packages may include a combination of options and long-term cash and stockincentives tied to core financial and non-financial goals. The options that aregranted should be more performance-based, with the exercise price increasing ata given percentage rate or fluctuating with the market. Such provisions wouldrequire the company to earn a minimum rate of return for shareholders beforeproviding a return to executives and employees.
While there isn’t a magic incantation to make the current problem ofunderwater stock options disappear, management can cope through measured actionssuch as a value-for-value cancel/re-issue, or replacing underwater options withrestricted stock (in far fewer numbers). Looking ahead, companies must takeprudent steps to avoid this problem in the future by developing and implementingmore balanced incentives based on business fundamentals and measurable,controllable performance.
The chart attached can help you see the pros and cons of various strategies for dealing with underwater options. Once you have opened this PDF file, you may need to enlarge it by “zooming in.”
The future of human resources has perhaps no greater champion than KathleenS. Barclay, vice president of global human resources for General Motors. Whenasked if the function is becoming obsolete, Barclay is adamant. “I don’tagree with that,” she says. “I suppose it depends on the company that you’redealing with, but my view is that there has never been a more important time inany company to have a very strong, active HR organization. HR can have so muchimpact on the way the company works, how the culture feels, and the type oftalent you have both now and in the future.”
In companies where HR has taken the reins and moved the function in a newdirection, the financial results have been impressive. Research from WatsonWyatt’s WorkUSA 2002 study indicates that companies with effective HRpractices deliver shareholder returns that are three times higher than those ofcompanies without such practices.
Despite the evidence and the firm belief in HR’s potential among executivessuch as Barclay, the profession’s rosy future is far from certain. In fact,the number of available HR jobs has dwindled significantly in recent years, andopportunities are not likely to increase anytime soon, says Frank Allen,president of Frank E. Allen and Associates in Florham Park, New Jersey. Allen,who has been in the HR recruitment field for more than 17 years, has placedthousands of HR professionals in jobs ranging from benefits manager to seniorvice president. And right now, he’s drowning in résumés. “I’ve got adatabase listing 18,000 HR professionals and out of that, somewhere around 7,000active résumés,” he says. “I’m also getting 200 to 300 résumés a week.”The likelihood that Allen will be able to place all these people is pretty slim.
Is it an HR realityto become indispensable and more vital than ever? Or do the job losses signify adifferent trend? Could HR be on its way toward obsolescence?
With the unemployment rate hovering around 6 percent, the same thing can besaid of many jobs, including information technology, telecommunications, andmarketing. But when the economy turns around, people in those positions arelikely to find work again. That’s not necessarily true for HR professionals,because the profession is enduring a wave of changes that by all accounts arelikely to significantly reduce the number of people needed. David Ulrich,co-author of The HR Scorecard: Linking People, Strategy, and Performance(Harvard Business School Press, 2001), believes that the head count in HR willeventually plummet 25 percent–or more.But wait. People like Barclay believe that HR is primed to leadknowledge-intensive companies into the future. Is she right? Is it an HR realityto become indispensable and more vital than ever? Or do the job losses signify adifferent trend? Could HR be on its way toward obsolescence?
First, the bad news If you are a pessimist who thinks that HR’s cup is slowly draining, you’llfind a lot of support for your position. The primary evidence comes in the formof outsourcing. Today, there are vendors available and champing at the bit tohelp with every single product and service offered by HR, including staffing,payroll, benefits administration, training, employee relations, andcompensation. According to research by Gartner, Inc., 80 percent of companiesnow outsource at least one HR activity, and the number is swiftly growing.
Consequently, what started in the 1980s as simple payroll outsourcing hasexploded into a $32 billion a year business involving all facets of HR. In thelast two years alone, the value of the business-process outsourcing industry hasgrown 20 percent, and analysts from Gartner estimate that it will become a $55billion worldwide industry by 2005. In just four years, one outsourceprovider–Exult–has grown from a start-up with a handful of people to anestablished company with 1,500 employees and more than $400 million in annualrevenues. Other big players include Accenture HR Services, ADP, Fidelity,Hewitt, and Convergys.
“Right now, it is primarily large companies that outsource their HRactivities,” says Rebecca Scholl, senior analyst with Gartner. “But we’redefinitely seeing an uptick in the number of medium-sized companies that arelooking for providers to take on more HR processes.”
Outsourcing has become popular because companies are finding that externalvendors–through technology and economies of scale–can provide more efficientand cost-effective HR services than in-house departments. In 1999, BP (formerlyBritish Petroleum) contracted with Exult to take over all of its transactionalactivities in the United States and United Kingdom, including all payroll,recruiting, expatriation, records management, vendor management, and relocationservices for its 63,000 employees. The only function that remains in-house is BP’slearning and development program in the United States.
Over the last two years, the company has reaped many benefits from thearrangement. Payroll processing is more timely and accurate. Employees get theirbenefits questions answered sooner. HR processes have been standardized acrossthe company. And for the first time, BP has measurable data on which HRactivities are effective.
Because BP is no longer handling routine transactional work in-house, a lotof its HR employees were deemed unnecessary. As a result, its core HR staff hasbeen slashed 65 percent–from 100 to 35 people.
This kind of staff reduction is fairly typical in outsource arrangements,says Jim Madden, chairman and president of Exult. “What usually happens whencompanies outsource with us is that one-half to two-thirds of the jobs in the HRdepartment go away because the jobs are declared redundant.”
External vendors have been so successful doing routine HR work that the listof companies handing over their HR activities continues to grow. In the last fewmonths, Sony, Prudential, AT&T, and American Express have all inked dealswith outsource providers. Chances are good that in the next few months, a lot ofHR people in those companies will be looking for work.
But what about strategy? One of the primary arguments for downloading HR activities onto an externalvendor is that getting rid of routine transactional tasks allows HRprofessionals to focus on the kind of transformational work that helps thebottom line. But despite all the talk about becoming strategic partners,research indicates that the majority of HR people still don’t have what ittakes to fulfill leadership roles.
Ed Lawler, director of the Center for Effective Organizations at theUniversity of Southern California in Los Angeles, has been gathering data on theeffectiveness of HR since 1995. In the last seven years, he’s seen very littlechange in how HR professionals are spending their time. “It seems that insteadof responding to this period of business turbulence by playing a centralstrategic business partner role,” Lawler says, “HR has responded bymaintaining the status quo.”
His findings are supported by a recent survey of HR professionals conductedby the Society for Human Resource Management. When respondents were asked toidentify two or three HR/workplace trends they believe will affect the HRprofession, only 7 percent identified “HR as a strategic business partner”as a key trend. Much higher on the list were such things as managing diversityand administering health care. Clearly, HR professionals will never be able totransform the function–and hold on to their jobs–if they cannot embrace thisnew role.
Part of the problem is that many HR people simply don’t understand what itmeans to be strategic. In a separate SHRM study entitled “The Future of the HRProfession,” eight leading consulting firms shared their thoughts on thecurrent and future state of HR. One of the themes that emerged is that few HRprofessionals possess both the business acumen and functional expertisenecessary to move their companies and the HR profession forward.
Frank Allen, who’s frequently given the task of finding high-level HRpeople for companies, estimates that of the 18,000 people in his database, “I’dsay less than 1 percent of them are A players.” And who are those A players?They are the people who not only have a solid understanding of HR, but also areconversant in finance, sales, marketing, and manufacturing, and know how HR canhelp companies meet their goals.
The dearth of business talent within HR is causing more and more companies tolook outside the profession when seeking to fill top HR slots.
The dearth of business talent within HR is causing more and more companies tolook outside the profession when seeking to fill top HR slots. Today, 75 percentof top HR executives have come up through the traditional ranks of HR. Fouryears ago, that number was 79 percent. What this means is that today, fully onequarter of the top HR jobs are going to people with backgrounds in marketing,manufacturing, finance, and other operational areas–and the number is growing.What hope does the profession have for its future if it is increasingly beingmanaged by people from the outside?
To be fair, HR isn’t solely to blame. Senior leaders have to recognize therole HR can play and give its HR team the time and resources necessary to makelasting changes. Unfortunately, not all CEOs understand that strategic workforceplanning and management is an ongoing effort. Allen knows of some companies thathave hired strategic high-level HR people only to let them go once they thinkthey’ve achieved their objectives. “Either that, or a new chair will come inwith a different idea of HR,” he says. “Instead of viewing HR as an asset,they’ll view it as an administrative function and fire the person who wastrying to make strategic changes.”
Fortunately, corporate leaders who do understand the role HR can play alsorealize that it takes time and a lot of serious effort to make changes.
Four years ago, when Barclay was promoted to vice president of global humanresources at GM, it was the first time in the company’s history that an HRperson reported directly to the CEO. Barclay launched a company-wide HRtransformation effort that involved standardizing processes, creating HR centersof excellence, and outsourcing routine activities. In a company with 362,000global workers in 58 countries, a change of this magnitude obviously takes time.Barclay has already been at it for three years and says it will take three moreyears to fully complete the process–but that the CEO is committed to thechange.
A key part of GM’s global HR transformation involves developing HR peopleso that they understand and can take on the role of internal consultants. “Wehave a global HR curriculum that helps our people understand what we areattempting to accomplish in HR, what the transformation means to them, and wherewe’re going as an HR community,” Barclay says. “We have 15 to 20 coursesout there now, and they are mandatory for all HR professionals.” Among otherthings, these courses help HR professionals acquire business acumen,change-management skills, and the ability to forge relationships across theorganization. As a result, in the not-too-distant future when a business unit ishaving trouble achieving its goals, GM’s HR people will be able to work withthat unit to diagnose its problem. It might be because the talent makeup is notadequate, the incentives are wrong, or goals have not been properlycommunicated. By training its HR people to understand–and address–suchbusiness issues, Barclay is slowly transforming the way the function operates.
In addition to training the HR people, her team has to train line managers tounderstand that HR is now there to help with strategy, not transactional work.”We have a global HR Web site that houses materials our HR people can use withtheir operating leaders to help those leaders understand how HR is changing, whyit needs to, and why the value equation is better for the company,” she says.
As in many other companies, a key part of the HR transformation at GMinvolves transferring responsibility for HR activities to line unit managerswith the help of technology. For example, GM recently instituted a compensationplan for 40,000 employees that was implemented by managers entirely over the Webwithout any intervention from HR. “This experience helped managers understandhow HR is working differently now,” Barclay says.
However, this kind of change isn’t always easy for organizations to accept,Lawler notes. “Line managers typically like the close, hand-holding type ofrelationship they’ve always gotten from their friendly HR person,” he says.”The idea that transactional work might take place in an outsource company ordisappear entirely because of employee self-service technology is unattractiveand anxiety-producing for many managers.”
But blaming anxious line managers or noncommittal CEOs for presentingobstacles to HR’s transformation does not a strategic, fully employed HRperson make. The fact remains that the HR profession itself has a long way to goin developing the skills, competencies, and focus necessary to become internalbusiness consultants. Until that happens, the slow decline of HR jobs andstature is likely to continue.
Finally, some good news If you’re an optimist who sees an unlimited future for HR, there’s plentyof reason to celebrate.
Let’s revisit the idea of outsourcing. Yes, it is reducing the number of HRjobs available in companies that choose to outsource. But those jobs tend to belower-level administrative and technical positions. The good news is thatoutsourcing is finally giving higher-level HR professionals the time they needto tackle strategic workforce challenges. Even better, the demand for suchstrategists is higher than ever, for several reasons.
To begin with, demographic changes are making it harder and harder forcompanies to find and keep qualified employees. It will be up to HR to determinewhat kind of talent is needed to meet company goals and then devise recruitmentand retention programs based on that need. Second, technology is making itpossible for companies to become more and more decentralized, with employeesdistributed across wider geographic regions. HR people will be the ones whodetermine how to keep widely dispersed employees connected to corporate goals.
Third, although outsource vendors have proven their ability to handle routinetransactional work, internal HR consultants will still be needed to determinewhat combination of pay, benefits, and learning opportunities is necessary tokeep employees engaged. Finally, even if outsourcing does remove all thetransactional work, someone with a solid understanding of HR and business willbe needed to manage the multimillion-dollar vendor contracts. HR will always beresponsible for ensuring the speed and accuracy of employee transactions,regardless of who is doing the work.
“Essentially, what’s happened is that the field of HR has begun to splitinto two parts,” Ulrich says. One half consists of administrative andtransactional work, which is becoming more automated and routine and isincreasingly being turned over to employee self-service or outsource providers.The second half consists of transformational work, in which HR developsorganizational goals, determines what capabilities are needed to meet thosegoals, and then creates HR practices that make those capabilities come to life.
Put all of this together and you realize that the field is in the midst of anenormous transformation and its final form is not yet clear. However, thefunction is likely to be smaller and very different from what it is now. Andthere will be no shortage of challenging work. HR professionals can have animpact on their companies. And obviously, the need is there.
Is HR up to the task? In companies like General Motors, the answer is adefinite yes. But as research shows, there’s still a huge chasm between desireand reality when it comes to the future of HR.
Is HR becoming indispensable–or obsolete? Only the people currently workingin the profession know the answer to that. If they are able to forge a linkbetween HR initiatives and corporate goals, their indispensability is all butassured. If not, a lot more HR résumés may be circulating in the near future.
Taking paid time away from work for baby bonding or to care for a sick parentmight delight your pediatrician or preacher, but the very concept makes membersof the business community crabby and colicky. How about calling it what it is,they grumble: job killer.
Legislators in California have given the nation its first paid family leavelaw, a controversial antidote to the mushrooming problem that workers face injuggling family and workplace responsibilities. If the idea spreads, topmanagement and HR executives will be dealing with issues such as: Replacing moreworkers on temporary leave; higher administrative costs; privacy issues; threatsof lawsuits, and increased future costs as the benefit is increased.
Under California’s new law, 13 million workers will be eligible to receivehalf pay for six weeks for a variety of personal reasons, from tending to anewborn infant to moving a parent into a nursing home. Payments will come from apayroll tax, but employers are up in arms because they face significant newlegal and administrative costs and must pay and train replacement workers. Asfor HR professionals in other states, the problem may not be yours–yet. Thecoalition of labor unions, family advocates, and others that worked hard inCalifornia for the family bill has efforts under way in nearly 30 other states.
You might call the new family-friendly leave plan–known as Family TemporaryDisability Insurance–FMLA on steroids.
You might call the new family-friendly leave plan–known as Family TemporaryDisability Insurance–FMLA on steroids. Once implemented in 2004, the FTDIlegislation promises to come on with a vengeance, critics say. Moreover, with abig win in California, the national coalition that supports paid leave forworkers who take time away from their jobs to care for ill parents or familymembers might gain traction in other states.
Supporters of the measure–labor unions, advocates for children and seniors,church groups, and numerous other organizations–provided the political muscleneeded to get the legislation through a divided legislature. They argue thatpaid family leave is necessary to keep pace with a changing workforce. Thereality of the American family today is that both moms and dads commonly work,there are large numbers of single parents, and working-age adults are helping tocare for ever-increasing numbers of older parents.
In signing the bill in September, Governor Gray Davis declared, “Californiansshould never have to make the choice between being good workers and being goodparents. This bill will make it easier for Californians to help their loved onesthrough a health crisis without going broke in the process.”
The bill was enacted over the opposition of the California Chamber ofCommerce, the California Manufacturers and Technology
Association, and other business groups that portrayed the family leavelegislation as a “job killer” because it will create an even moreinhospitable business climate, which is often blamed for the flight ofmanufacturing jobs out of the state. California business leaders predict thefamily leave program will become a full-employment act for lawyers and a majorheadache for HR professionals. They contend that it will multiply the legalproblems they are already experiencing under the federal FMLA. They also fearthat it will place a tremendous burden on employers with fewer than 50employees, which have been exempted from FMLA but now are included in theCalifornia program.
Workers have already shown that they are willing to take time off without payunder FMLA, and it is feared that the added incentive of replacing 55 percent oftheir pay will open the floodgates. “This bill will cause a significantproblem for employers,” says
Gino DiCaro, spokesman for the California Manufacturers and TechnologyAssociation. “Absenteeism already is one of the larger costs a manufacturercan incur. It’s a certainty that a large portion of the workforce will takeadvantage of it, especially when they are paying for it.”
The law builds on FMLA in a number of significant ways. FMLA provides for 12weeks of unpaid leave, and it’s up to the worker to cobble together enoughdisability insurance, when applicable, vacation, sick time, and savings to getby. California’s FTDI will make up more than half of a worker’s wages forsix weeks. The payments will be free of taxes. FMLA limits coverage tobusinesses with 50 or more employees; FTDI includes businesses of all sizes.Eligibility for FMLA requires a year on the job and 1,250 hours in the previous12 months; eligibility for FTDI begins immediately upon employment, after aseven-day waiting period.
Workers are expected to take advantage of the new program in far greaternumbers. Although 35 million Americans have taken leavesunder FMLA, one federal study estimated that 20 percent of those eligible forleave did not take it because they couldn’t afford losing a paycheck.
Many of those who have taken FMLA leave were forced to turn to publicassistance to make ends meet. Because such large numbers of FMLA leave-takersturn to public assistance, California could save as much as $25 million inreduced welfare payments, supporters say. “All too often, people who takeunpaid leave end up suffering unbelievable economic hardships. That can includegoing on public assistance, taking out second and third mortgages, andbankruptcy,” says Jodi Grant, director of work and family programs for theNational Partnership for Women and Families.
Still, the program will cost $78 million in the first year, rising to $117million in the second. The money will come from the disability fund financed bya new payroll tax. About 13 million workers– roughly one-third of the state’spopulation–who are now paying disability insurance, will see an increase intheir DI payments. But countless millions more, represented by their children,parents, and family members, will be beneficiaries of the new law.
The program will be administered by the state Employment DevelopmentDepartment, which is in the process of drafting regulations in anticipation ofthe program’s 2004 start-up.
This is how FTDI works. Beginning January 1, 2004, all employees paying intothe state disability insurance fund will pay an average of $27 a year inadditional payroll deductions into the Family Temporary Disability Fund. Workersmay begin withdrawing money from the fund six months later, beginning July 1,2004. Payments will range from $50 to $728 a week, indexed to increases in theaverage annual wage. Contributions into the fund will be paid 100 percent byemployees, which supporters say minimizes the cost to employers.
Eligibility will essentially overlap FMLA. But in a key departure, once theprogram gets going, workers will be eligible for leave immediately, exempt fromthe 12-month qualifying period required under the federal program. Just likeFMLA, the California program provides time off for new parents and also allowsworkers to take time off to care for a sick or injured family member or domesticpartner.
Perhaps the most troublesome aspect of the new law to business leaders is theloss of the FMLA exemption for businesses with fewer than 50 employees. Thesesmaller firms, which have no experience dealing with the FMLA, will facesignificant new costs in complying with the California law, critics say. Theyare expected to find it more costly to replace and train workers to fill thejobs of absent workers, and additional legal and paperwork problems may havethem running for the aspirin.
Attorney Michael Lotito, a partner in the law firm Jackson Lewis in SanFrancisco, already has held one seminar for HR executives on California’s law.Three hundred anxious benefits professionals signed up. “Just thinking aboutit is a nightmare,” Lotito says. “This is so unbelievably complex thatsupporters who say it isn’t going to cost employers anything are crazy.”
He predicts that many firms will outsource administration of the program tospecialty firms. “There is going to be a real issue in setting up a humanresource structure,” he says. “The people who are going to benefit the mostare temporary agencies, because temps are going to have to be hired to fillvacancies.”
One of the knotty problems to be worked out involves job protection. UnderFMLA, workers taking unpaid leave are promised that they can return to the jobthey left or one equal to it. The California program contains the same jobprotections for firms of 50 or more, but offers no job protection for workers atsmaller firms. Plaintiffs’ lawyers may challenge that, arguing that there isan implied promise that an employee granted leave will have a job when he or shegets back. Consider the touchy issue of the employer that holds a job open forone employee but not another. Would filling a job left vacant by a person takingfamily leave violate the law against unlawful retaliation, since a legal rightis being exercised?
And HR executives say privacy issues may create another legal land mine. Willworkers have to fill out a detailed form listing family members and domesticpartners in the event that they will have to provide care for them?
The law setting uppaid family leave makes it a criminal offense to file a false claim, but to whatlengths will a company or the state go to check out potential fraudulent claims?
A provision of California’s law says workers cannot take family leave tocare for a sick family member if another member of the family is available atthe same time. Already some wonder how thoroughly an employer or state workercan investigate the availability of other family members. The law setting uppaid family leave makes it a criminal offense to file a false claim, but to whatlengths will a company or the state go to check out potential fraudulent claims?Under the current unemployment insurance program, employers can contest claims.What happens under the new system if an employer learns something about apossible fraudulent claim? Can it be contested?
“There is no question this is a full-employment act for labor employmentlawyers,” Lotito says. “This will give plaintiffs’ lawyers anotheropportunity to create additional causes of action. The cost to employers isvery, very significant.”
So far, many HR professionals have adopted a wait-and-see approach. Alreadyfaced with problems stemming from the implementing regulations issued on FMLA bythe U.S. Department of Labor, HR professionals shudder to think about additionalproblems created by California’s version of family leave. Eleven differentregulations implementing FMLA have been challenged in 58 suits filed in federalcourts, according to a study presented to Congress in April by the Kansas Citylaw firm Spencer Fane Britt & Browne.
Kenneth A. Buback, vice president of human resources for Sutter Health, whichoperates a chain of hospitals in Northern California, testified before Congresson behalf of the Society for Human Resource Management about “paperworkinflation” resulting from FMLA implementing regulations put out by theDepartment of Labor. He complained that the Department of Labor’sinterpretations of FMLA were vague and contradictory, and created a burden onhis Sacramento-based hospital chain that was driving up costs. He said anincreasing number of lawsuits challenging FMLA regulations are expected.
Buback praises the intent of California’s FTDI. “I think it’s a goodpiece of legislation in that it is family friendly,” he says. “Overall, weneed to be more responsive to work/family issues and bring them more intobalance.”
But he wants to withhold judgment until he has seen how the state implementsthe California program. “It’s so new, and because it won’t take effectuntil 2004, we are still waiting to see how this will play out,” Buback says.He is troubled by FMLA’s track record. “It would be great to fix what wehave.”
Allan Zaremberg, president of the California Chamber of Commerce, led theunsuccessful fight to defeat the bill, which was authored by state senatorSheila Kuehl.
Opponents were able to get some amendments. Originally, the bill was to haveprovided 12 weeks of paid leave. Kuehl agreed to reduce that number to six.Employees and employers originally were going to make equal contributions to thefund. Employees now will make 100 percent of the contributions. Those amendmentssoftened the blow, but the legislation “is still horrible for small business,”Zaremberg says.
Paperwork is another concern. So are lawsuits. “Small business just can’tafford litigation,” Zaremberg continues.
In any case, there are mountains of work ahead. HR executives will have toreview policies on leave. Supervisors will have to be educated. Employees willhave to be notified of their new rights. Regulations formulated by the stateEmployment Development Department will have to be tracked.
Other countries even more generous As new and burdensome as it may seem, paid family leave is a core benefit forworkers in most of the rest of the world. The United States is one of only threeindustrialized nations that do not provide paid family leave. Employees in manyother countries work under family policies that are even more liberal than thosebeing implemented in California.
In Norway, parents are entitled to 42 weeks of leave at 100 percent pay or 52weeks at 80 percent pay. Norway places such great emphasis on involving fathersin the care of their children that penalties are imposed if they don’t takeleave. The California law mirrors a program in Canada. Australia, which is alsowrestling with paid leave, found in a study of its trading partners that NewZealand is implementing a program funded by social security–12 weeks of paidleave for both women and men. China, Korea, Malaysia,
Indonesia, Hong Kong, and Saudi Arabia require employers to pay for maternityleave. In Thailand, the employer pays full wages for 45 days, and then socialsecurity kicks in to pay 50 percent.
In the United States, a question on many minds is whether paid family leavewill spread to other states. Supporters of paid leave have introduced proposalsin 28 states. So far, California is the only one to have passed a paid-leaveprogram. And even then, voting broke along party lines, with majority-partyDemocrats providing all the aye votes. In the state senate, the bill passed witha bare 21-vote majority, usually a sign that some party members begged to stayoff the roll call.
Even so, passage of the law was a big win for labor, which led the fight inCalifornia and is mounting campaigns in other states. The victory came at a timewhen employers have been scaling back health insurance, pensions, and otherbenefits. Some see the action by the California legislature as evidence thatworkers may increasingly be looking to government, rather than employers, toshore up benefits.
“This bucks the trend. The citizens of California took it into their ownhands because they saw they were not getting this out of their own companies,”says Karen Nussbaum, assistant to AFL-CIO president John Sweeney and longtimeadvocate for paid family leave. She believes that passage of paid family leavewill have “enormous consequences” for the rest of the nation.
“It is the first big victory on paid leave since the family leave waspassed by Congress in 1993,” Nussbaum says. “People trying to balance workand family life are just stressed to their limits. We see it as a fundamentalcore issue.”
That California proved to be fertile ground for advocates of paid familyleave should not be surprising. The state legislature over the years has beenout front in passing tough air-pollution standards, legislating overtime basedon an 8-hour workday rather than a 40-hour week, and creating worker-friendlyergonomics standards to deal with repetitive-stress injuries.
But other states have often been reluctant to follow California’s lead. Thestate of Washington considered a paid-leave program, but backed away. MarilynWatkins, economic security and tax policies director of Seattle-based EconomicOpportunity Institute, predicts the issue will catch on and ultimately spreadbeyond California. “Our polling found good support across political lines,gender lines, regional lines. There is very strong public support for paidleave,” Watkins says.
As in California, business lobbied heavily against it, and there was adivided legislature. The bill died.
Deanna Gelak, executive director of the National FMLA Technical CorrectionsCoalition in Springfield, Virginia, says she’s concerned that California issending the wrong message to employers. The California law raises “a host ofprivacy concerns, not to mention the monstrous bureaucracy that will be requiredto track this leave.”
Reports that paid leave “is spreading like wildfire are greatly overrated,”she adds. “The California approach is extremely controversial and unique.”
It’s the mother of all HR assignments: Take a workforce of 170,000, nowworking in 22 established federal government agencies, and fit them under thesame roof. That’s exactly the task that Tom Ridge, designated HomelandSecurity secretary, faces as he oversees the largest governmental reorganizationin more than 50 years.
Perhaps fittingly, workplace issues took center stage in the weeks leading upto final passage in November of the Homeland Security Act, which established thenew cabinet-level department. President Bush had hoped to have the legislationenacted in time for the one-year anniversary of the September 11 attacks. Thatdidn’t happen. A stalemate over workplace issues took center stage inwrangling between Republicans and Democrats, and the squabbling sometimesovershadowed the bill’s urgent mission: to establish an agency to coordinateprotection of the nation’s borders and prevent future terrorist attacks.
Bush at one point threatened to veto the entire package unless it contained anew personnel framework with enough flexibility to promote and fire employees asneeded. Then he swept aside union opposition and got the bill he wanted whenRepublicans took control of both the House and Senate in the November elections.
As Senator Zell Miller (D-GA) puts it, Bush needs “the ability to shiftresources, including personnel, at the blink of an eye.” Miller complains thatunder the old system, it “takes five months to hire a new employee and morethan a year to fire a bad one.”
The new agency will be responsible for border security, emergency preparedness, biological warfare, intelligence analysis,and protection of the President himself. Expertise to carry out the missionalready exists, but counter-terrorism programs are fragmented throughout thegovernment. Bush administration officials now face the daunting task of pullingthe scattered pieces together and making it all work. It could take years to getthe department fully integrated, experts say.HR professionals should pay closeattention to some of the new personnel rules. Under the new setup, the Bushadministration will be able to waive Civil Service collective-bargaining rightsif direct negotiations with unions fail to yield agreement and the federalmediation service is unable to resolve the dispute. The Homeland Security Actalso creates a new senior-level position of chief human capital officer.
“Many private sector companies have the same position–a senior-levelofficer in charge of training and upgrading the skills of the workforce,” saysCynthia Pantazis, director of policy and public leadership for the AmericanSociety for Training and Development, which called for creation of the newoffice during congressional hearings. “What this does is ratchet up theimportance of human capital,” Pantazis says.
Some of the changes have been debated for decades. Constance Horner, a guestscholar at the Brookings Institution and former director of the U.S. Office ofPersonnel Management, says she and others in the Reagan administration tried butfailed to win congressional support for more flexibility in work rules. “Ittook an act of terrorism to induce change,” she says.
Perhaps you have general policies in place that address some of thehigh-profile areas of privacy–employee monitoring, searches, random drugtesting, even protection of medical information (can you say HIPAA?). But mostlikely you are or will be dealing with some sort of employee self-service,through which employees are able to make changes to their own personalinformation or make benefit elections.
In many cases, this information is stored on your HRMS, but could betransmitted at some point to outside parties such as insurance carriers,employee self-service providers, or external auditors. How can you ensure theprivacy of this information?
Here are a few steps you can take:
1) Evaluate your outside contacts. These can include any of the following:
Health insurance carriers and administrators (includes flexible spendingaccounts, COBRA, workers’ compensation, long-term disability, etc.)
Outside employee self-service providers
External compensation consultants or survey firms
Payroll providers
Corporate auditors or other governmental agencies
Once you’ve identified the potential places where employee information maybe available outside the organization, begin dialogue with these vendors on howthey protect the privacy of the data. Develop specific, written agreements onhow this information will be protected and the terms under which the informationwill be used. This not only helps protect your information but also determinesthe integrity of your vendor.
2) Evaluate your inside contacts. Some examples would be:
Human resources staff, especially field-office staff that may be in manylocations
Finance and accounting analysts
Information technology analysts, especially those with access to the HRMS
Internal security personnel
Payroll staff
Once you’ve identified these individuals, again review whether they need tohave access to potentially private employee information and, if so, remind themof their duty to protect the confidentiality of the data. This could includetraining seminars or a policy that explicitly indicates the need for maintainingthe privacy of employee information and the consequences of not complying.
3) Develop a corporate employee information protection policy. This is notunlike the policies that you’ve been seeing from every bank, credit cardissuer, or other service company that states how your personal information willor will not be used and, primarily, shared with other organizations.
However, in the employee information area, the focus is on protecting theprivacy of the information and stating how it will be protected; you won’t besharing the information for “marketing” purposes. Evaluate the places whereyou collect employee information and have a statement at each of those “collectionpoints” that simply states that this information will be kept confidential andwill be used only for employment, benefits, or law-related issues.
As with all such things, have your new policies and procedures reviewed bylegal counsel before putting them out to your employees. And keep in mind thatan employee information privacy policy is not required, but rather is anemployee-relations booster that puts a good face on your HR efforts. It’s goodfor business and can help employees feel better about the company.
The language and wording in this policy is only an example of some of theitems that can be included. Additional items may be added or removed accordingto your own corporate situation and workforce. Please review any policydeveloped from this sample with legal counsel before distribution.
The XYZ Corporation, in the course of its business practice and, in somecases, as required by law, collects, uses, and maintains personal andconfidential information about each employee. This information is used for manypurposes, including:
Compliance with federal, state, or local laws
Determination of eligibility for employment
Determination of eligibility for employee benefits
Communication with employees regarding the company
Other company-sponsored programs (not employment-related) that rely onfactors such as age, gender, geographic location, etc. (e.g.,retirement-planning seminars)
We respect the privacy of our employees and the confidentiality of personalinformation. At no time will confidential information be knowingly shared ordisseminated to unauthorized parties. To attain this standard, XYZ Corporationhas committed significant resources to ensuring the safety and confidentialityof our employees’ personal information. This is done through:
[LIST WAYS IN WHICH YOU PROTECT INFORMATION–MAY INCLUDE SPECIFIC SECURITYMEASURES ON YOUR HRMS, EMPLOYEE TRAINING REGARDING CONFIDENTIALITY, ON-SITESECURITY PERSONNEL AROUND EMPLOYEE INFORMATION, ETC.]
[If you have some sort of employee self-service (e.g., Web site, interactivevoice-response system, or intranet), include the following:
We also have electronic technologies that enable us to efficiently manage ouremployees’ information. Examples of these include [list examples here]. Wehave protected our systems from unwanted access through the following securitymeasures:
[LIST EXAMPLES OF DATA-ENTRY SECURITY SUCH AS ENCRYPTION, FIREWALLS,ID/PASSWORD COMBINATIONS, ETC.]
WHEN WE SHARE INFORMATION
As part of our commitment to your privacy, certain policies have beenestablished to protect your information when it is shared inside and outside thecompany. Employees of XYZ Corporation that are authorized to have access toemployee information have received specific instruction in issues of informationconfidentiality, and their actions are covered under Policy X in the XYZCorporation Employee Handbook.
It is also necessary for information to be shared with outside organizationssuch as health-plan providers, governmental agencies, and other third-partyvendors. In cases where confidential information might be shared, specificwritten agreements regarding confidentiality are enacted and monitored with anyoutside organization.
In all other cases in which information might be shared with individuals ororganizations that may not have specific policies or agreements in place, XYZCorporation will obtain permission from any affected employee prior to releasingthe information, unless the law prescribes otherwise.
This is intended to provide useful information on the topic covered, butshould not be construed as legal advice or a legal opinion.
