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Diversity The Obama Effect

In many ways, Subha Barry believes her job will be easier now that the United States has its first African-American president. She was having lunch at a diversity conference in Hong Kong when the organizers broadcast President-elect Barack Obama’s November 4 victory speech in Chicago.


“I remember thinking that the job of any supporter of diversity is going to be much easier because we now have this visual symbol in the most powerful role in the world,” says Barry, managing director of global diversity and inclusion at Merrill Lynch.


But Barry also realizes that with Obama’s presidency comes a new set of challenges—the most game-changing of which will be how his position raises the bar in defining diversity. No longer will it be sufficient for companies to simply consider race, sex and religion in silos, Barry says. Experts believe there will be more focus on multicultural as well as socioeconomic diversity within the workplace.


“In this country, we have these constructs that view race in a one-dimensional perspective. But in other countries the consideration of race is more complex, so he is viewed as multicultural,” says Ana Duarte McCarthy, chief diversity officer at Citigroup. “The fact that Obama is multicultural will put more focus on what it means to be multicultural.”


Obama’s father was born in Kenya, and his mother was an American from the Midwest.


At the same time, Obama has spoken about the need for more socioeconomic diversity in higher education, and experts expect that to spill into the workplace.


“There has started to be chatter online about a move toward class-based affirmative action,” says Tarun Mehta, an attorney in the San Francisco office of Bryan Cave. This could mean that employers will have to take into account socioeconomic differences as part of their diversity initiatives.


But before companies can even think about working on these more sophisticated diversity initiatives, they will have to address a slew of new challenges that are expected under Obama’s administration. These include increased criticism of affirmative action policies by opponents as well as greater enforcement of affirmative action policies by the government.


All of this comes as companies face the biggest economic crisis in years. A Conference Board survey of CEOs released in October found that having a diverse workforce fell in importance by four rankings since last summer, while reducing health care costs jumped seven rankings.


“It’s probably going to be more difficult for HR to get the CEO’s attention on these kinds of issues right now,” says Toni Riccardi, senior vice president of HR and chief diversity officer at the Conference Board. “It’s not that diversity is less important to employers; it’s just that other things are more important.”


Election’s impact
 Within days of the election, HR executives already were hearing arguments from critics of affirmative action saying that Obama’s victory was a sign that there isn’t a need for diversity policies, says Lewis Benavides, vice president for HR at Texas Woman’s University and a member of the Society for Human Resource Management’s special-expertise panel on workplace diversity. A similar concern was raised by several SHRM diversity panel members at a meeting November 10 in Alexandria, Virginia, Benavides says.


“There is an acknowledgement that when the highest officer of the land is an African-American, there will be people who will say, ‘Why do we need these programs anymore?’ ” he says.


It’s an issue particularly for companies with voluntary diversity programs, experts say. Companies may also see an increase in reverse-discrimination lawsuits from white males, Mehta says.


“Given the economic conditions, it might not be hard for opponents of affirmative action to find possible plaintiffs for these cases,” he says.


At the same time, companies with affirmative action policies in place can expect that the Equal Employment Opportunity Commission and the Office of Federal Contract Compliance Programs will have more resources under Obama and be more aggressive about enforcing affirmative action policies.


The majority of Fortune 1,000 companies have contracts with the government, and thus have affirmative action policies, experts say.


Under the George W. Bush administration, agencies like the OFCCP saw their budgets cut, so they weren’t as effective as they could have been, says Renee Dunman, president of the Affirmative Action Association, a group of diversity and affirmative action officers from private and public organizations. In fiscal 2008, President George W. Bush requested a budget of $84.2 million for the OFCCP, down from $85.2 million in 2006 and significantly down from the $92.3 million requested in 2001. “I think Obama is going to look at that budget and say, ‘No wonder you can’t do the compliance piece,’ ” she says.


Experts also predict that under the Obama administration, the OFCCP will have more support from the Office of the Solicitor General, which tries OFCCP cases.


“I believe that the solicitor’s office will be supporting more of the OFCCP’s demands,” says Valerie Hoffman, a partner in the law firm Seyfarth Shaw. “It means that employers will need to spend additional energy ensuring that they can defend a failure-to-hire case and that their applicant tracking systems are accurate,” she says.


Also, experts believe the EEOC and the OFCCP will be more rigid—not only looking at the composition of an organization’s workforce to ensure that it is complying with affirmative action policies, but also closely analyzing how organizations are paying minorities compared with non-minorities in the same roles.


Specifically, some experts believe that the OFCCP will return to using the Equal Opportunity Survey, a reporting tool that allowed the agency to collect information on companies’ compensation data and affirmative action programs. The program was dropped in 2006, but Mark Bendick, partner at Bendick and Egan Economic Consultants, a Washington-based diversity consultant that helped evaluate the tool in 2006, believes the Obama administration will bring back the survey.


“It would mean that the federal government is going to be in a better position to know when there are glass-ceiling problems and wage discrimination going on within companies,” Bendick says.


For HR and diversity executives confronting push back about spending money on diversity issues, this increased enforcement may help explain the business case behind these measures, Bendick says.


“HR staffs within companies that have affirmative action will now have more ammunition with which to go to the CEO and make their case, because enforcement is going to be more stringent,” he says.


Redefining diversity
Opponents of affirmative action cite a television interview with Obama last spring as a sign that he agrees with their stance. In that interview, commentator George Stephanopoulos asked whether Obama thought his daughters should get affirmative action protections. Obama responded, “I think that my daughters should probably be treated by any admissions officer as folks who are pretty advantaged.”


Obama added: “I think that we should take into account white kids who have been disadvantaged and have grown up in poverty and shown themselves to have what it takes to succeed.”


While diversity experts don’t believe that this is a sign that Obama will do away with affirmative action edicts, they do agree that it may mean that the administration will encourage more emphasis on recruiting candidates from various socioeconomic backgrounds.


Focusing on socioeconomic status is “very cutting edge” and just now is starting to be part of the diversity discussions at some employers, Bendick says. “Companies that are really trying to establish diversity initiatives around the business case are finding that they have to be more sophisticated about how they define diversity,” he says.


Bendick offers the example of a retail client that has traditionally hired African-Americans to work in its stores in inner-city neighborhoods.


“The assumption was that African-American customers would relate to African-American salespeople,” he says. But the client hired middle-class African-American college graduates and soon discovered these salespeople had no cultural connection with the customers.


“The salespeople were as much strangers to this low-income minority neighborhood as their white colleagues,” he says. So Bendick is working with the client to hire salespeople from a similar background to that of its customers, which might have nothing to do with race, he says.


For many companies, hiring a workforce from different socioeconomic backgrounds will mean going beyond the list of universities and colleges where they usually recruit, says Peter Bye, president of MDB Group, a Livingston, New Jersey-based diversity consultant.


Often to attract minority candidates, companies will go to historically black colleges, which are excellent sources of talent, he says. “But now let’s also consider the City University of New York, which has more African-American students than all of the historically black universities, and they have as many Latino students, but they are more diverse from a socioeconomic standpoint,” Bye says.


Merrill Lynch has been trying to focus on socioeconomic diversity through its recruiting, Barry says.


For the past five years, Merrill has been the lead sponsor of a summer program for inner-city high school students through Rice University in Houston. Through Rice’s Summer Business Institute, each year 40 to 50 high school students from 10 of Houston’s inner-city schools are invited to take two weeks of business courses. Merrill invites the students into its offices and has created a mentorship program. “A handful of exceptional students get internships at Merrill,” Barry says.


Merrill has hired four students as interns from the program. Now that Merrill has been acquired by Bank of America, Barry and her team are looking to establish this model abroad with similar arrangements with Hong Kong universities as well educational institutions in London, Barry says.


“My goal is to do this in major centers where we have large operations,” she says. “We believe there is a huge opportunity to create a pipeline for future talent while also having a positive social impact.”


Socioeconomic diversity is on the radar at Citigroup as well, although no formal plans have been established, says Duarte McCarthy, the company’s chief diversity officer.


Right now the focus at Citigroup is on multiculturalism, and diversity executives believe that having a biracial president will raise awareness around this topic.


“It’s helpful that Obama seems to be comfortable discussing some of the race issues very explicitly and matter-of-factly,” Bendick says, noting that when a reporter asked Obama what kind of dog the family was going to get, he responded that he wanted “a mutt like me.”


“I thought that comment was very helpful in expressing a tone that says, ‘It’s all right to talk about race,’ ” Bendick says.


Citigroup has been trying to focus on multicultural issues for some time. Duarte McCarthy is trying to get the company’s employee affinity groups, which are organized by race or ethnicity, to interact more. Not only would this help each group pool its resources, but it also addresses the fact that there are many employees who could be members of several affinity groups.


“We are really trying to get more of these groups to do more together, more unity-type programming,” Duarte McCarthy says.


Merrill Lynch is also trying to get its affinity groups to hold more events together to promote multiculturalism, Barry says. “I’m really thinking about approaching things with this multicultural lens as opposed to having silos based on race and gender,” she says.


Barry wants to establish cross-network groups that could organize events for the various affinity groups within the company. She also is looking into ways that the company could measure employee attendance at these events. “I have seen this at other firms,” she says.


Ideally, Barry wants to establish a requirement of how many events an employee has to attend per year and that would become part of the employee’s performance evaluation. “People may initially attend events because they have to check a box, but they stay and learn and it benefits everyone,” she says.


The economy
 While diversity executives are energized by Obama’s election, they say that in this economic climate, getting diversity initiatives to be front and center in top executives’ minds can be challenging.


But these are the times that it’s more important than ever for companies to prove their dedication to diversity issues, executives say.


Citigroup is making it a point to continue with diversity events that it sees as core to its business, Duarte McCarthy says. In fact, on November 17—the same day that the company announced it would be laying off 52,000 employees—the firm held its annual Women’s Leadership Development Program, which invites 31 female employees to its Armonk, New York, development center for three days of seminars.


“Some people were surprised that we continued with the program,” Duarte McCarthy says. “But we feel it’s important to send a strong message that we are going to continue to focus on developing talent. And that might mean in 2009, there will be more potluck dinners and brown bag lunches,” she says.


At Merrill, the activities might shift, but not the intent behind them, Barry says.


“We now focus on retention as much as we are focused on recruiting,” she says. “So the focus may change, but the ability to be nimble and adapt makes us smarter.”

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Training Adapts to the Downturn

The newspaper’s financial section reads more like the obituaries some mornings, but the sales associates at HelmsBriscoe must forge on. Every day the roughly 1,000 associates at the meeting-site selection company must convince corporate and association leaders that they still need to book today for a meeting that might be a year or more away.


It’s a tough sell as executives curtail such events either because of immediate cost concerns or longer-term perception worries, says Nell Nicholas, a HelmsBriscoe regional director who serves the New England area. To update their sales pitch, the associates in the New England office—called associates because they work exclusively on commission—reached out last fall for some training assistance.


Those sessions have helped the associates reframe their approach, Nicholas says. Now they highlight the ways that HelmsBriscoe can assist with economy-related headaches, such as abrupt meeting cancellations or unused blocks of rooms. (The Scottsdale, Arizona-based company books $2 million a day globally in hotel space and other sleep-related revenue.) They also play up their ability to ease the workload of overtaxed human resources staffers and event planners, says Nicholas. “There’s a lot more multitasking going on in this economic environment,” she says. “Outsourcing is a great way to go. Companies are receptive.”


During economic downturns, training dollars might appear to be a tempting line item to cut or re-evaluate, as companies shed workers. Some companies will likely adjust their thinking in the current recession, tracking return on investment more closely and restricting limited dollars to the most talented of employees, according to training leaders interviewed. In the years after the dot-com bust, a sizable percentage of training moved to technology-based options that didn’t involve travel expenses, according to data from the American Society for Training & Development.


   The retrenchment in this recession appears to be substantial, according to a new report by research firm Bersin & Associates. In 2008, average training expenditures per employee fell 11 percent, from $1,202 per learner in 2007 to $1,075 per learner last year. The U.S. corporate training market shrank from $58.5 billion in 2007 to $56.2 billion in 2008, the greatest decline in more than 10 years, according to the report, which was released in January.


   But radical or indiscriminate cuts can be risky, because economic tumult exposes yawning business challenges and emerging competitive opportunities alike, says Pat Galagan, executive editor for the American Society for Training & Development. “Often in tough times, companies will change direction,” she says. “They will change their business model or decide to put more emphasis on a particular function, such as sales. Those things require more training rather than less.”


Maximizing dollars
Galagan says she is watching for trends in technology-based learning. From 2001 to 2003, the average percentage of hours that companies devoted to e-learning and other technology-based options increased from 11.5 percent to 26.2 percent, according to data compiled in ASTD’s annual “State of the Industry” report. “We could see another big jump,” she says.


Based on early feedback, Laird Post of management consulting firm Booz & Co. predicts that corporate leaders will be more selective in how they cut staff development. “In past downturns it’s been very typical to stop all training for an indefinite period of time because it’s simpler and easier to do it that way,” he says.


This time around, it appears that corporate leaders are more inclined to use “a scalpel,” picking and choosing based on long-term strategic goals, says Post, leader of the human capital management practice at Booz. “Your workforce is your only true competitive advantage,” he says.


Training programs that are most vulnerable to being jettisoned are those that hadn’t taken steps to show their value before the economy stalled, say Post and other training leaders. It’s also more important than ever to assess relative cost-effectiveness of various programs, says Nadine Keller, founder of Precision Sales Coaching and Training, who worked with the HelmsBriscoe associates. Rather than running yet another training session on the art of the sale, she says, perhaps those employees would benefit more from a crash course in time management—efficiencies that could better boost sales over the long haul.


If their training budgets are tight, human resources leaders also should consider which employees are worth developing, Keller says. On the sales side, for example, companies have already figured out in recent months which employees were simply “order takers” rather than innovative sales professionals. “I think good markets mask poor skills,” she says. “In this environment, I think you need to get rid of the underperformers and you’ve got to invest from the top down.”


Leveraging talent
As Southwest Airlines negotiated economic and security uncertainties following the September 11 terrorist attacks, the company didn’t ratchet back on training, says Elizabeth Bryant, senior director of talent development. But the airline’s leaders knew their employees needed to develop maximum adaptability amid a rapidly evolving airline industry, she says.


Employees were not only adopting new security roles, but technologies such as online ticket reservations meant they interacted less frequently with the flying public. As a result, a single encounter could make or break a customer relationship. Meanwhile, volatile fuel prices and weather changes aggravated other daily stresses. “The kind of challenges we are facing, and have faced over the last several years, necessitate our leaders to be more flexible and agile in response to the changing marketplace,” Bryant says. “Change is absolutely a theme for us—the only constant is change.”


To assist frontline supervisors with adaptive thinking, Southwest officials have incorporated a game-based system into the airline’s extensive training program. Working together in teams, Southwest employees use the Paradigm Learning game, called Zodiak, to create and build a mythical company. Then facilitators work with the teams on applying what they’ve learned to similar challenges and surprise scenarios at Southwest, Bryant says.


“If we can expose them to as many experiences as we can today, that’s going to prepare them for tomorrow,” she says. “For example, what if fuel prices go up to $170 [a barrel] tomorrow? What does that mean for us?”


Leaders at Paychex, a payroll and benefits outsourcing company, also pride themselves on not dialing back their training focus, despite the short-term economic forecast. The company, which employs about 13,000 people, averaged 92 hours of training per employee in fiscal year 2008.


Economic downturns can create their own opportunities, says Will Kuchta, vice president of organizational development. In the current scenario, for example, laid-off employees are launching their own small businesses, Kuchta points out. That provides a fertile emerging market, given Paychex’s focus on small businesses; its average client employs fewer than 20 people.


And, he adds: “Considering that we believe that our training and the knowledge of our employees improves our product, the more that other companies cut back, they actually weaken their product against ours.”


Similarly, Nicholas believes that her associates’ recent training will help them better reposition themselves. Associations that book annual meetings have been particularly receptive to the new sales pitch, as they are vulnerable to being stuck with a block of rooms and other headaches if the economy reduces how many members can travel to a particular event, she says.


Meanwhile, any clients who have temporarily cut back aren’t going anywhere, Nicholas says. “They will come back to me when the meeting is back on,” she says. “I haven’t lost the client. When the economy comes back, we will be much better for it.”

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New in the C-Suite, 2009







People moving into key executive positions


Ki Ryung “Charlie” Kim has been named CEO of Aon Consulting Korea, based in Seoul. He recently served as representative director in Korea at Hay Group. Kim previously was worldwide partner at Mercer and representative director at Mercer Korea.


Robert Croner has been named senior vice president of human resources at The Children’s Hospital of Philadelphia. He recently served as the hospital’s interim vice president of HR. Croner previously was executive vice president of human HR at Radian Group and vice president of HR at Independence Blue Cross.
Rebecca Callahan has been named president of SourceRight Solutions. She recently served as senior vice president of recruitment process outsourcing at Spherion. Callahan previously was Spherion’s senior vice president of sales and vice president of the assessment group, and vice president of sales at Blue Pumpkin Software and PageNet.
Robert A. Schriesheim has been named CFO of Hewitt Associates. He recently served as the executive vice president and CFO at Lawson Software. Schriesheim previously held executive positions at ARCH Development Partners, Global TeleSystems, SBC Equity Partners, Ameritech, AC Nielsen and Brooke Group.
Allen J. Delattre has been named technology global market managing director at Korn/Ferry International. He recently served as global managing director in the communications and high-technology group at Accenture, where he worked for more than 20 years.
Heather Mayfield has been named vice president of service and quality at Corestaff Services. She recently served as vice president of branch operations at Snelling Staffing Services. Mayfield previously held training and operations positions at ProActivate, CareerBuilder.com/Headhunter.net and ProStaff.
Theresa Harkins has been named director of organizational learning and analytics at Diamond H Recognition. She recently served as managing director of HR strategy, technology and analytics at Tesoro Cos. Harkins previously was manager of rewards and recognition at Delta Air Lines.
Susan Johnson has been named vice president of client services at Publicis Selling Solutions. She recently served as the company’s senior director of business development. Before joining Publicis, Johnson worked at HighPoint Solutions and Wyeth Pharmaceuticals.
Great-West Retirement Services recently made these appointments:
Scott Sitzes has been named regional sales director for the Dallas/Fort Worth, northern Texas and northern Louisiana markets. He recently served as the regional vice president for the North Texas market at ING. Sitzes previously was a retirement plan consultant at Franklin Templeton Investments.
Doug Rosendahl has been named regional sales director for San Diego, Riverside and Imperial counties. He previously worked for The Principal Financial Group in a variety of sales and marketing positions.
Aon Investment Consulting recently made these appointments:
Clint Cary has been named senior vice president in the Chicago office. He recently served as vice president and investment strategist at Northern Trust Global Investments. Cary previously was founder of Capital Strategies Group.
Craig Pearlman has been named vice president in the Chicago office. He recently served as the Midwest investment business leader/director of sale at Mercer. Pearlman previously held leadership positions at Northern Trust Global Investments and Ibbotson Associates.
Bank of America Merrill Lynch recently made these appointments:
Kevin Crain has been named head of institutional client relationships. He recently served as head of plan participant solutions.
David Roberts has been named head of equity plan services.

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Longer Notice Now Needed for Layoffs in New York

Just as job losses are mounting, thousands of private employers in New York must now give workers an even earlier heads up on mass layoffs, plant closings and relocations.


The New York State Worker Adjustment and Retraining Notification Act went into effect Sunday, February 1, and is more expansive than the 20-year-old federal law that had previously set notification standards. Indeed, the New York law is considered the strictest in the country by some employment lawyers, who note that it applies to more employers, requires additional advanced notice and is more easily invoked than the federal WARN statute.


Employment lawyers and business advocates say the new rules come at the wrong time for businesses and make it harder for them to cope with the recession.


“In this economic climate, there are going to be a lot of companies that have to make changes for business reasons,” said attorney Marc Mandelman, co-chair of the managing change/reductions in force group at law firm Proskauer Rose. “These new deadlines will be extremely difficult to meet.”


The federal law requires employers with 100 or more full-time employees to provide written notification of mass layoffs and closings, but the New York law applies to businesses with 50 or more full-time workers.


The new law also requires a 90-day notice to employees and government officials, compared with 60 days in the federal rules.


And notification is now required when at least 25 employees lose their positions, if they make up one-third of the workforce, or when a company lays off at least 250 full-time employees. The federal WARN law is triggered when 50 workers who represent one-third of the workforce are let go, or if 500 workers are laid off.


The Business Council of New York State says some 13,000 small businesses that weren’t affected by the federal statute will now be covered by the state law. Many of them can’t afford to hire labor attorneys to assist with the process, the council argued.


“It makes it more difficult to do business in New York state,” said a representative for the group.


But a representative for the New York State AFL-CIO, which represents 2.2 million workers, said the law provides employees a much-needed cushion to help deal with the harsh effects of unemployment.


“Every day counts when you’re losing your job,” the representative said. “You have to pay the bills, pay the rent and provide for your family. Any extra time helps you deal with the horror of losing your job.”


The law empowers the State Department of Labor to hit violators with penalties of $500 a day and hold them liable for back pay and employee benefits. Under the federal law, redress is more limited.


Employers are exempt from the requirements if they can show unforeseen hardship or attempts to actively seek capital or business that would have prevented the layoff, plant closing or relocation.


But Gerald Hathaway, an employment attorney at law firm Littler Mendelson, says the exemptions don’t go far enough. New Jersey’s WARN law, for example, applies only to businesses that have been around for three years or more. He says startups and even Broadway shows now have to factor giving 90 days’ notice into their business plans.


“Any entrepreneur starting a business has to ask himself six months in, ‘Am I going to make it?’ ” Hathaway said. “If I don’t, now I’m on the hook for giving three months’ notice. It calls to question survivability.”


Filed by Daniel Massey of Crain’s New York Business, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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650,000 More Jobs Reported Cut in January

Employers eliminated 650,000 jobs last month, bringing the total number of job cuts in the U.S. since September to 2.3 million, according to a new report released Wednesday, February 4, by TrimTabs Investment Research.


The latest round of cutbacks, coupled with the 683,000 jobs that were shed in December, makes the last two months the worst period for job losses that the Sausalito, California-based research firm has on record. TrimTabs has employment data going back to the early 1970s.


The firm’s outlook for future employment figures doesn’t get much better either. It estimated that the economy could lose 1 million to 2 million more jobs in the next few months.


At the same time, TrimTabs said its data showed the national personal savings rate remained negative and did not break into positive territory in December, as the Washington-based Bureau of Economic Analysis recently reported.


(For more, read “The Country’s Outdated Unemployment Insurance System Gets a Makeover—Maybe.”)

Filed by Mark Bruno of Investment News, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.


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DOL Seeks Delay in Investment Advice Rule

The Department of Labor has proposed delaying by 60 days the effective date of new rules allowing mutual fund companies to provide direct investment advice to defined-contribution plan participants, according to a notice on the Federal Register’s Web site. The DOL will make its decision based on the comments it gets from the public.


The Labor Department also wants to provide 30 days—during the 60-day delay period—for public comment on whether the agency should “allow the [investment advice] rules to take effect, issue a further extension, withdraw the rules or propose amendments,” the DOL notice said.


The Labor Department is proposing the extension because of a January 20 request from White House Chief of Staff Rahm Emanuel, who wanted to delay Bush administration regulations published in the Federal Register but yet to go into effect pending review by the Obama administration.


The Bush administration’s investment advice rules, as published in the Federal Register on January 21, the day after President Barack Obama took office, were scheduled to go into effect March 23. The proposed delay would move the effective date until at least May 22, the DOL said in its notice.


The DOL also asked the public to comment on the proposed delay within 14 days of the publication of the latest notice in the Federal Register, scheduled to occur Wednesday, February 4, according to the Federal Register Web site.


Filed by Doug Halonen of Pensions & Investments, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.


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Lawmakers to Consider Executive Pay Curbs for U.S. Companies

Congress will consider legislation to extend some of the curbs on executive pay that now apply only to those banks receiving federal assistance, said Rep. Barney Frank, D-Massachusetts and chairman of the House Financial Services Committee.


“There’s deeply rooted anger on the part of the average American,” Frank said at a Washington news conference Tuesday, February 3.


He said the compensation restrictions would apply to all financial institutions and might be extended to include all U.S. companies.


The provision will be part of a broader package that would likely give the Federal Reserve the authority to monitor systemic risk in the economy and to shut down financial institutions that face too much exposure, Frank said.


Also included in this proposal will be registration requirements for hedge funds aimed at making their finances more transparent and limits on conflicts of interest at credit-rating agencies such as Standard & Poor’s, he said.


The bill, which the committee is working on in consultation with the Obama administration, also will require financial institutions that bundle mortgages into securities to share in potential losses. This would give firms an incentive not to make bad loans, Frank said. Institutions that securitize loans improperly will incur tougher penalties.


“There have been too few constraints on major financial institutions incurring far more liability than they could handle,” Frank said.


The committee hopes to have a general outline of the legislation by early April, he said. It will be the panel’s first priority in its effort to restructure financial regulation in the wake of the worst economic crisis since the Great Depression.


Frank has summoned the CEOs of Citigroup, JPMorgan Chase and the seven other U.S. financial firms that received $125 billion from the Troubled Assets Relief Program (TARP) to testify at a February 11 committee hearing.


Frank seems to be in synch with the Obama administration in his plans for executive compensation.


Treasury Secretary Timothy Geithner said last month that he might try to extend to all U.S. companies a restriction that prohibits bailout banks from taking a tax deduction of more than $500,000 in pay for each executive.


The TARP legislation enacted in October seeks to give companies receiving aid under the $700 billion bailout a number of incentives to curb what it calls excessive executive pay.


Geithner said he would consider “extending at least some of the TARP provisions and features of the $500,000 cap to U.S. companies generally.”


Under the legislation, banks receiving bailout money must limit golden parachute payments to senior executives to no more than three times the executives’ base pay. The companies also must subject any bonuses or incentives to clawbacks if the payouts are based on a bank’s misleading financial statements.


In addition, bailout recipients can’t offer top managers incentives that “encourage unnecessary excessive risks that threaten the value of the financial institution.”


These limits apply to the CEO, CFO and the next three most highly compensated executives in a bank receiving rescue funds.


Frank said provisions on golden parachute payments and bonus clawbacks would probably be in the legislation, though he declined to provide more detail because “we’re early in the process.”


A congressional oversight panel headed by Harvard law professor Elizabeth Warren also recommended last week that the Treasury consider revoking executive bonuses at failed institutions getting federal aid.


Currently, these institutions must subject bonuses to clawbacks only if the payouts are based on banks’ misleading financial statements.


Rep. Spencer Bachus of Alabama, the top Republican on the committee, said last month that he had reservations about giving the Fed new powers, such as the authority to monitor systemic risk.


Frank said that after lawmakers address issues on systemic risk, they will consider how to bolster investor protection via changes at the Securities and Exchange Commission. The committee also will review proposals to assist struggling homeowners and expand the housing supply, and to strengthen international financial institutions such as the World Bank, he said.


—Neil Roland


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Merrill Pays $1 Million to Settle SEC Charges It Misled Pension Funds

Merrill Lynch has agreed to pay $1 million to settle regulatory charges that a Florida office misled municipal employee pension funds by referring them to a short list of questionable investment advisors that included one who had a personal relationship with a Merrill manager.


The head of the firm’s 10-employee office in Ponte Vedra South, Michael Callaway, failed to disclose his use of the vacation homes of some principals of a money management firm on the list, the Securities and Exchange Commission alleged.


This firm, which was not identified, was the subject of a number of client complaints about poor performance, the SEC order contended. Many of the advisory firms on the Merrill list weren’t properly vetted by the firm.


The Merrill headquarters office for consulting services was aware that the advisor list provided by the Florida office wasn’t properly vetted and that clients were being misled, the order released Friday alleged.


There was “a vacuum in supervision of the Ponte Vedra South office,” the SEC order said.


The Florida office had about 100 clients, including pension funds for policemen, firefighters and municipal employees, during the 2002-2005 period in question.


Merrill, which was acquired by Bank of America last month, also failed to disclose conflicts of interest when recommending that clients have their advisors execute trades through the firm rather than pay fixed fees, the order alleged.


The firm made more profit from these directed brokerage commissions than it would have received if clients paid only a fee and had their trades executed elsewhere, the SEC contended.


Merrill neither admitted nor denied the charges.


A spokesman, Mark Herr, said the Florida advisors have left the firm and that the firm “voluntarily adopted changes that strengthened our oversight of the consulting services program and compensated, where appropriate, affected clients.”


Callaway, 56, is contesting the charges. His lawyer, Julian Friedman of New York, did not immediately respond to a request for comment Monday, February 2.


Callaway was a senior vice president for Merrill and was employed by the firm from 1976 to 2008, the order said. He is a resident of Ponte Vedra, Florida.


Also charged was former Merrill advisor Jeffrey Swanson, who agreed to a censure without admitting to or denying allegations.


Filed by Neil Roland of Financial Week, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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Dear Workforce How Do We Teach New Supervisors to Judge Employee Performance

Dear Underperformance:

This issue is more often about the system rather than the actual supervisors. If the organization has done its part to create a workable, efficient performance management system and culture of accountability, then it’s easier for the supervisors to do their jobs.

Here are six things you can do to create a system that sets up supervisors for success in the performance review process.

1. Secure ownership by senior leaders.

Senior leaders need to consistently promote performance management as critical to achieving business results. Identify role models at the top who visibly use the system. Actively involve senior leaders in communications about performance management. This gives supervisors “permission” to provide candid feedback.

2. Tie individual goals to business strategy.

Try goal-setting from the top of the organization on down. If your supervisors’ goals are linked to strategy, it will be easier to link all employees’ goals. The clearer the link, the easier it is to discuss results (or lack thereof).

3. Hold individuals accountable for living the organization’s values.

Strategy helps prioritize what work must get done. Organizational values guide how the work should be accomplished. When values are built into the review process, supervisors can more easily address destructive “results at all costs” behavior.

4. Encourage employees to take responsibility for their own career management.

An effective system should create a partnership between employees and supervisors focused on mutual success. Sure, employees need guidance and coaching from their supervisors. But to stay motivated and committed, employees need the chance to tap into their personal motivators and have a say in how their unique capabilities can be leveraged.

5. Hold supervisors accountable for providing regular feedback.

Consider tracking and compensating them for conducting regular coaching discussions. Hold them accountable both for results and for developing their teams. Don’t train them in conducting performance appraisals. Provide the skills and tools they need for the discussions you want them to have throughout the year.

6. Stop changing those forms or screens.

The critical ingredients of an effective performance management system are the business and cultural drivers, and the conversations that take place between the people who need to execute the organization’s strategy. In the end, performance management needs to be less about forms or online systems, and more about continuous dialogue and partnership around issues that matter most to employees and the organization.

When supervisors focus on performance and mutual goals year round, the performance review is a much easier conversation.

SOURCE: Mary Ann Masarech, BlessingWhite Inc., Skillman, New Jersey, March 19, 2008.

LEARN MORE: Please read “Copping Out on Performance Management,” about “bail out” ratings that allow managers to avoid confrontation.

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.

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Dear Workforce How Do I Overcome Resistance to New Diversity Initiatives

Dear Angling:

You should expect challenges from those who don’t see themselves as part of “diversity.” This will happen if you cast diversity primarily in terms of race, gender, ethnicity and sexual orientation. Instead, to prove that you’re serious about workforce diversity, and not political correctness, include equal emphasis on a realistic variety of diversity dimensions, such as age, marital and parental status, education, personality type, communication style, the four previously mentioned dimensions, and others. Emphasize—and mean it—that everyone is part of the diverse workforce.

There will be resistance if the amount of time devoted to training, education and other diversity interventions is seen as taking away from what some will refer to as “real work,” especially if allowances aren’t made for time away from the job. Telling someone he has to take a day to attend diversity training, but that there won’t be any slack on that project deadline, is a good way to breed resentment toward the entire effort.

The best defense against resistance to an examination of diversity is education, but not limited to the classroom variety. Leaders throughout the company, not just in HR, must help everyone in the workforce grasp this concept: If Company A has developed systems, procedures, policies and a culture that allows men and women from a variety of backgrounds to contribute productively, and Company B’s systems, etc., seem to work only for certain types of people, Company A’s going to perform better.

Changing an organization to adapt to a more diverse workforce requires changing culture, systems, behaviors and more. This takes time. And it takes realistic expectations.

Nothing converts skeptics like success. Demonstrating strong performance while building an organization that manages a diverse workforce helps convince the doubters and cynics that managing diversity, which we could simply call “managing reality,” is a smart business strategy.

SOURCE: Richard Hadden and Bill Catlette, co-authors, Contented Cows MOOve Faster, March 19, 2008.

LEARN MORE: Learn how Denny’s used diversity efforts to overcome an image of corporate racism. Also: a counterpoint suggesting that diversity programs don’t measure up to the hullabaloo that surrounds them.

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.