Dear Workforce How Much Time Should We Spend Figuring Out Our Retention Rate
Calculating retention is easy. If you have 100 employees start work this month, and 10 of them leave before the end of that month, your retention rate is 90 percent. The retention-rate formula is:
|
who remain in your employ on the last day of the month (100 – 10 = 90) |
|
|
|
|
| No. of employees terminating during the month (10 + 40 = 50) |
|
|
| No. of employees who started the month (100) |
Although the turnover rate does reveal more than the retention rate by itself, neither tells the whole story. Using the turnover formula, it appears that you are in serious trouble. At this rate, you’ll be all by yourself in a very short period of time. Adding in additional elements will provide you a better sense of what is really going on.
Examine voluntary versus involuntary turnover
If you want to reduce turnover, you really need to know how many people are leaving voluntarily. Of the 50 exiting employees in the example above, 39 left as a result of permanent layoffs and one was fired for insubordination. The remainder (10) left for jobs offering more money. The formula for voluntary turnover is:
| No. of employees leaving voluntarily (50 – 39 – 1 = 10) |
|
|
| No. of employees who started the month (100) |
Analyze special characteristics
You can focus on specific characteristics to get even more value out of turnover statistics. Many organizations look at longevity, shift, employee succession planning status, protected class and other factors to find out what kind of employees they are losing. Companies also frequently monitor turnover by supervisor, a typical source of voluntary turnover, and departmental turnover.
Assume that of the 10 people who left voluntarily, five left in the first week of employment and two were considered high potentials for succession planning purposes.
You could easily determine the percentage of voluntary turnover attributable to employees who came and quickly left (within the first 30 days, for example) by using the formula below. In this example, five employees left within 30 days of hire, so the turnover rate would be 50 percent (5 short-term employees / 10 voluntary terminations).
| No. of employees leaving with the selected attribute |
|
|
| No. of employees leaving voluntarily (10) |
Alternatively, if you want to determine the percentage of turnover attributable to those considered high potentials from the above example, you would plug “2” into the numerator (the number of identified high potentials who left) and divide by 10 voluntary terminations, resulting in a 20 percent turnover rate of high potentials. You could use this same formula for many attributes and could easily modify it for involuntary termination analysis as well.
A finishing touch
While most will find these simple formulas good enough to give them the directional information they need, some want more precision. Many of the more sophisticated formulas compute turnover based upon “average headcount.” To determine the average, add the number of employees at the beginning of the period to the number at the end of the period and divide by two. Some formulas go into even further detail.
It makes sense to focus your time, effort and resources on fixing what you can fix. Good turnover analysis will help you figure out where to begin to look for avoidable causes.
SOURCE: Richard D. Galbreath, SPHR, Performance Growth Partners Inc., Bloomington, Illinois, March 26, 2008.
LEARN MORE: You could also use your retention rate to measure hiring costs. Also of interest is Workforce.com’s archive on retention.
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.
GM, Chrysler Offer New Rounds of Buyouts to UAW
General Motors joined Chrysler on Monday, February 2, in offering a new round of hourly worker buyouts and retirement incentives to cope with the industry downturn and meet federal labor-saving requirements for the automakers’ rescue package.
Chrysler and GM notified United Auto Workers locals of the plan Monday, said two union sources who asked not to be identified. Automotive News, which Monday first reported the Chrysler buyout plan, obtained a copy of the Chrysler notice.
GM spokesman Tony Sapienza declined to comment on the matter.
Chrysler confirmed the buyouts Monday afternoon. In a statement, the company said workers have until February 25 to elect to leave.
“Given the difficult economic and market conditions in the U.S., Chrysler LLC determined in December 2008 that it would offer another phase of special programs,” the statement said.
Chrysler and GM want to move veteran workers off their rolls to eventually bring on hires who will earn half the $28-an-hour wage of current veteran workers and half their benefits. Chrysler employs about 38,000 workers represented by the UAW, while GM employs 71,000.
Chrysler also must bring its labor costs in line with Japanese transplant automakers by February 17. That’s when the automaker is required to justify a federal rescue loan of $4 billion. General Motors has the same timeline to justify a federal loan commitment of $13.4 billion.
UAW spokeswoman Christine Moroski declined to comment.
Chrysler’s incentives are more generous than those offered by GM. Retirement-eligible Chrysler workers who leave will receive a $50,000 incentive plus a voucher of $25,000 for a new Chrysler vehicle, according to the notice. Last year the incentive was $70,000.
GM hourly workers who retire are eligible for $20,000 in cash and a $25,000 car voucher, according to a UAW source. About 18,000 GM hourly workers took larger buyout incentives in 2008 to leave the company.
Chrysler workers who take a buyout and leave with no retiree health care benefits get $75,000 and a $25,000 car voucher, the union source said. The incentive was $100,000 last year. GM buyouts offer $20,000 and a $25,000 car voucher.
Another group now is eligible for full retirement benefits at both automakers: workers 55 or older with 10 years of service, according to the sources.
Filed by Robert Sherefkin and David Barkholz of Automotive News, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.
Workforce Management’s online news feed is now available via Twitter.
JPMorgan Chase CEO Exec Comp Shouldn’t Be All About Performance
Executive compensation shouldn’t be based purely on performance, warned Jamie Dimon, chairman and CEO of JPMorgan Chase, in his opening keynote speech at “The Future of New York City,” a half-day conference held by Crain’s New York Business, a sister publication of Workforce Management.
In his speech Tuesday, February 3, at the Grand Hyatt Hotel in New York, Dimon warned regulators and the government against taking a too-simple approach to solving the issues that caused the financial crisis.
“It’s very important that companies acknowledge the legitimate concerns around issues like executive compensation,” said Dimon, whose company received federal bailout funds. “But don’t paint all executives with the same brush.”
Performance measures have an important place in executive compensation, Dimon said, noting that JPMorgan executives are required to keep 75 percent of their equity shares.
But in order to get people to do difficult jobs, compensation can’t be based solely on performance, he said.
To demonstrate his point, Dimon described a scenario in which he has an easy job and a tough job. “Let’s call the tough job Vietnam,” he said.
“While we would want the best person for that job, we also know that there will be casualties,” he said. “You want to support that person and sometimes it’s not performance-based.”
Some aspect of the compensation for difficult jobs has to show those who hold them that the organization trusts and supports them, Dimon said, adding that he hopes President Barack Obama approaches this issue carefully.
“Performance is not the end-all, be-all,” he said. And making proper and balanced judgments on issues like executive compensation is going to be crucial in turning the economy around, Dimon said.
“We need to keep companies healthy … in order to keep our country growing,” he said.
Workforce Management’s online news feed is now available via Twitter.
Survey 44 Percent of DC Plans Expect to Replace Options in ’09
A Callan survey released Monday, February 2, showed that 44 percent of private and public defined-contribution plans expect to replace an investment option for performance-related reasons in 2009, up from 39 percent that did so last year.
Plan officials also said fund and manager performance and due diligence are their primary focuses for 2009, according to Callan Associates’ “2009 Defined Contribution Trends Survey: Impact of Recent Market Volatility on DC Plans.”
Target-date funds were used as the default investment option in 59 percent of plans surveyed, up from 36.4 percent in 2007 and 32.5 percent in 2006.
Also, 76 percent of those surveyed said they’d be increasing the frequency of investment committee meetings in light of market volatility.
“There is a real focus by plan sponsors on making sure their ‘I’s are dotted and ‘T’s are crossed in their plans,” said Lori Lucas, defined-contribution leader at Callan Associates. “Given the events towards the end of last year, sponsors are looking to see if plans need to make changes in their due diligence procedures and in their investment funds. Conversely, with all the energy being spent on nuts-and-bolts due diligence, there is going to be a lot less emphasis on plan features in 2009.”
The online survey was conducted in late November and early December, and results incorporate responses from 107 companies; 80 percent of respondents offered 401(k) plans, while other respondents provided profit-sharing, 457 and 403(b) plans. The majority of plans had more than $100 million in assets and nearly one-third had assets of $1 billion or more.
(For more, read “Emanuel’s Memo May Put DOL Advice Rule at Risk.”)
Filed by John D’Antona Jr. of Pensions & Investments, a sister publication of Workforce Management. To comment, e-mail editors@workforce com.
Workforce Management’s online news feed is now available via Twitter.
Chrysler Offers New Round of Buyouts to UAW
Chrysler has launched a new companywide round of hourly worker buyouts and retirement incentives to cope with the industry downturn and meet federal labor-saving requirements for the automaker’s rescue package.
Chrysler notified United Auto Workers locals of the plan Monday, February 2, said a union source who asked not to be identified. Automotive News obtained a copy of the notice.
Chrysler wants to move veteran workers off its rolls to eventually bring on hires who will earn half the $28-an-hour wage of current veteran workers and half their benefits. The carmaker employs about 38,000 workers represented by the UAW.
Chrysler also must bring its labor costs in line with Japanese transplant automakers by February 17. That’s when the company is required to justify a federal rescue loan of $4 billion. General Motors has the same timeline to justify a federal loan commitment of $13.4 billion.
Chrysler spokeswoman Shawn Morgan declined to comment.
The buyout incentives are similar to those offered last year but with a couple of new wrinkles, the union source said.
Retirement-eligible workers who leave will receive a $50,000 incentive plus a voucher of $25,000 for a new Chrysler vehicle, according to the notice. Last year the incentive was $70,000.
Workers who take a buyout and leave with no retiree health care benefits get $75,000 and a $25,000 car voucher, the union source said. The incentive was $100,000 last year.
Another group now is eligible for full retirement benefits: workers 55 or older with 10 years of service, according to the notice.
Filed by Robert Sherefkin and David Barkholz of Automotive News, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.
Workforce Management’s online news feed is now available via Twitter.
Planning for Benefits During a Divestiture
When a company spins off part of its business, making sure employees at the new entity keep their health insurance isn’t the first thing executives think about—or the second, third, fourth or maybe even 10th.
But the time does come during a divestiture when executives focus on workforce matters, including deciding things like how the new company will handle employee benefits.
Easy as it is to put off, getting started on the process sooner rather than later can make for a smoother transition for the new company as well as the one doing the divesting, according to HR executives, benefits consultants and other industry watchers.
Setting up HR for a spinoff has become a pressing issue at companies that have announced divestitures since meltdowns on Wall Street and in the retail, auto and real estate industries sent the economy into a tailspin. Experts expect to see even more divestitures in the next few months. “With the capital and credit markets what they are, a deal that started a year ago is a very different deal than today, but we’re still seeing companies spun off, ” says Craig Maloney, leader of Hewitt Associates’ HRO midmarket benefits division.
When it comes to spinoffs, there’s no right way to handle benefits—only the right way for the individual company, experts say. In a worst-case scenario, the divestiture happens quickly and a parent company immediately severs all ties with its former subsidiary, leaving it up to the HR leaders at the new business to make do on their own.
That’s the exception rather than the rule, according to HR executives and benefits consultants. In many cases, a company will keep employees of the spun-off enterprise in their existing benefits program while the fledgling business’s new HR staff hunts for a provider, a transition period that can last up to 12 months.
Outsourcing benefits to specialists such as Hewitt Associates or Fidelity Investments’ Fidelity Human Resources Services is already common at Fortune 1,000 companies, and more midtier businesses are adopting the practice. There’s plenty of reason to think newly spun-off companies of either size will follow in their footsteps, especially if they’re trying to grow quickly, experts say. Spinoffs, like other companies with limited time or HR resources, would rather focus on their core business and let outsourcers deal with back-office issues such as benefits, says Phil Fersht, a research director at AMR Research, the Boston outsourcing researcher. In cases where a spinoff is doing business globally and a small HR department has to manage a workforce scattered around the world, “outsourcing is the only way to do it,” Fersht says.
A divestiture can have a silver lining for the company shedding assets: an opportunity to re-examine an existing benefits program to renegotiate coverage for a newly downsized workforce or, in some cases, look for a different provider, according to the experts.
In the catbird seat
When media conglomerate E.W. Scripps announced plans to spin off HGTV and its other cable TV and Internet properties into a separate company, HR was involved from the start. A big part of the reason was the Cincinnati-based company’s decision to pick Lisa Knutson, the company’s then-HR operations vice president, to manage both the separation and help design HR operations for the newly formed Scripps Networks Interactive.
E.W. Scripps was already looking into outsourcing some HR functions, including benefits, before the spinoff announcement. Because the company had a self-imposed deadline of nine months to complete the deal, executives decided to continue negotiating, with the understanding that E.W. Scripps would manage a benefits outsourcer relationship for both entities through December 2008. That way, Scripps Networks Interactive’s new HR staff could concentrate on designing benefits for fiscal 2009 “and not worry about getting up to speed on administering benefits for half of a year,” says Knutson, who has since become E.W. Scripps’ senior vice president of HR.
The spinoff had yet to take place when E.W. Scripps selected ADP as its benefits outsourcer, leading the media company to include language in the contract to ensure any divested business units remained covered for up to 36 months after a separation.
Although it made sense for the two companies to work together during a transition period, the demographics of the existing and new companies were very different, with E.W. Scripps’ 7,000 employees generally older and closer to retirement age than Scripps Networks Interactive’s 2,000 mainly Gen X’ers and Gen Y’ers. As a result, the companies are now revamping benefits separately to better meet their individual needs. For its part, E.W. Scripps has introduced a wellness program and started offering employees a health savings account. “It gives them an option of a portable health care account when they leave the company, and it’s a lower-cost model,” Knutson says. “We really encourage it, but SNI didn’t have that burning need.”
Changing benefits to better fit employees’ needs is a good way to make sure they stick around after a divestiture—whether a company is large or small.
When iCIMS, a Hazlet, New Jersey, recruiting software developer, originally spun off from IT staffing business Comrise Technology some years ago, it was a startup with only a handful of workers. At the time, changing benefits wasn’t high on the company’s list of priorities. Once the company’s workforce reached critical mass, though, it made sense to revamp benefits so employees got what they wanted, says John Teehan, HR director at iCIMS. To figure out what that was, Teehan conducted anonymous online surveys and held employee focus groups. Based on the feedback he collected, iCIMS started a vision care plan and switched group life insurance providers to one that offered a higher lifetime benefits cap—$275,000 instead of $50,000. The company also switched 401(k) plans to a provider that offered its 131 employees more investment funds and financial advisor services.
Throughout the process, iCIMS has relied on the same two benefits brokers that its former parent company used. This made sense since the two private companies continue to share the same majority owner, Teehan says.
Growing companies should check in periodically with their benefits provider or broker “because as you grow you might be able to get better deals for yourself,” Teehan says. “When you’ve been with a provider for a period of time, they have experience with you and a sense for what the potential expenses incurred by your employee population are” and may be willing to adjust rates accordingly.
Large companies tend to have highly customized benefits programs, but for reasons of size, time and money, it’s not always practical for a newly spun-off business to offer the same level of customization, says Hewitt Associates’ Maloney. Instead, spinoffs should focus on offering benefits that meet industry best practices, he says.
In planning benefits for a spinoff, HR should be open-minded about options and processes and urge employees who are going to be part of the new company to do likewise, says Maloney. “They may be long-tenured employees of the old company and accustomed to having things a certain way,” he says, “but just because it’s new doesn’t mean it’s bad.”
Workforce Management Online, February 2009 — Register Now!
Many States Running Low on Unemployment Benefits
Just as laid-off Americans are applying for unemployment benefits in droves, the state coffers for cutting those checks are running low.
A December study by the National Association of State Workforce Agencies found that some 30 states could be at risk of having their unemployment trust funds run dry over the next several months. Already some states have taken out loans, according to NASWA, whose members manage state unemployment and other workforce programs.
The financial squeeze amounts to a flaw in the jobless benefits system, which critics also fault for stingy benefits and outdated eligibility rules. There’s widespread agreement that unemployment insurance funding is broken. But how to fix it is subject to debate, with some arguing for higher taxes and others calling for Washington to give states more of the revenue it collects under the Federal Unemployment Tax Act.
The effective federal unemployment tax rate generally has been 0.8 percent of the first $7,000 paid in wages to each employee annually—for a maximum federal tax of $56 per employee per year.
Those taxes go to a federal unemployment trust fund, which pays for state administrative expenses, helps cover the cost of extended unemployment benefits and provides loans to states that run out of money to pay benefits.
Because states are legally obligated to pay unemployment benefits, an empty state account means state officials have to turn to Washington or outside sources for funds. But private-sector loans entail interest payments. And loans from the federal government also can result in interest charges.
A number of observers suggest the funding problem stems from too-low taxes at the state level. Unemployment insurance tax rules and rates vary widely by state. Some states have lowered their employer tax rate—even to zero—during good times, says Randy Eberts, president of the W.E. Upjohn Institute for Employment Research. “Therefore, they have not built up their reserves in times like these when high joblessness puts a huge strain on the system,” Eberts says.
But Larry Temple, executive director of the Texas Workforce Commission, rejects higher taxes as the answer to state funding troubles. Temple, whose agency oversees unemployment insurance in Texas, says the funding dilemma stems from the federal government hording Federal Unemployment Tax Act funds rather than distributing more of those dollars to states. Texas, he says, gets about 32 cents on the dollar returned to it for workforce programs including unemployment insurance.
The National Association of State Workforce Agencies has called for every state to receive at least 50 percent of the federal unemployment taxes paid by its employers. And in October, the group proposed that $6 billion be distributed from the federal unemployment trust fund to state unemployment insurance programs.
As of December 31, the federal unemployment trust fund had more than $31 billion.
“They sit on a huge balance up there,” Temple says.
Health Care Insurers Tailor Service During Downturn
At a time when major health insurers are facing declining enrollment in employer-sponsored plans, several are rolling out the red carpet with new tailored coverage packages in an attempt to hold on to valuable commercial membership.
Both Aetna and Cigna have locked major corporations into multiyear contracts with products aimed at ultimately lowering employers’ health care costs.
These contracts are shaking up the health insurance industry as competition becomes increasingly fierce for big payers—when the nation’s unemployment rate is at a 16-year high of 7.2 percent and the number of people receiving jobless benefits has reached an all-time record, according to the Department of Labor. The two largest U.S. health insurers—UnitedHealth Group and WellPoint—both reported enrollment losses in the fourth quarter of 2008, and other major insurers are expected to follow suit when they release earnings over the next two weeks.
For employers, the new contracts offer guaranteed cost savings over several years, says Jeff Dobro, a physician and principal at Towers Perrin, a benefits consulting group. “Health plans get all or most of the work, and if they can be the sole-source vendor, they will guarantee to employers savings off their health care costs,” Dobro says. “It’s the ultimate performance guarantee.”
Starting January 1, Aetna became the primary insurance carrier for Bank of America, covering about 350,000 employees and family members in a three-year contract. Aetna is managing delivery of medical, dental, vision, leaves of absence, disability and life insurance programs for the Charlotte, North Carolina-based bank. Aetna must meet claims payments and medical cost targets or pay penalties to the bank. Aetna and Bank of America declined to release details of the contract, including how it affects provider reimbursement.
As part of the contract, Aetna has launched “concierge care” for Bank of America workers. Whether they have a health or administrative issue, they need only call one toll-free number and an Aetna attendant can access their medical or billing files to answer questions.
Aetna sees this as an opportunity to make a connection with a member for other services. So, for instance, if workers call asking about their co-payments for a certain drug, under concierge care, those workers might be reminded that they are due for an annual physical.
Workers in poor health or at high risk for certain serious medical conditions are assigned health advocates, who contact the workers directly to discuss their condition and treatment options.
“It’s not the patient calling Aetna, it’s the other way around,” said Aetna CEO Ronald Williams in describing the program at the JPMorgan 27th Annual Healthcare Conference in San Francisco in mid-January. Aetna also steers Bank of America workers to certain providers and centers of excellence in their region, Williams said.
Health care providers are taking a wait-and-see attitude on the agreements, with the American Hospital Association and others declining comment because of lack of information on the plans.
Cigna has lined up three major employers in three-year health plan contracts that include concierge care, which it calls an “integrated personal health team.” About 10 other employers are looking at the option for 2010, according to Cigna.
In January, each of the participating households received a “welcome call” from Cigna to let them know about the new services provided. Next, using claims data, Cigna will begin targeted outreach to members who have been diagnosed with or are at risk for 10 health conditions, including asthma, congestive heart failure, depression and diabetes.
Like the Bank of America workers, Cigna offers personal health coaches to workers and their families with one of these 10 conditions.
The coach is a single point of contact for the employee, and coaches are either licensed nurses or social workers. About 200,000 people are eligible for these programs, and Cigna has 92 coaches on staff. Cigna declined to name the employers.
In just the first three weeks of implementation, Cigna has seen “complex medical cases that we historically would not have seen holistically,” says Jodi Aronson Prohofsky, senior vice president of health solutions operations at Cigna. “Now that you can see the whole person, you see how to wrap services so they benefit the right person at the right time.”
Cigna is targeting a 2.8 percent reduction in medical costs for the employers, and employees don’t pay more for these services, Prohofsky said. Cigna is also offering the program to its own employees.
These deals can be risky for both sides, Dobro said. Bank of America is putting most of its insurance products in the hands of Aetna. Meanwhile, Bank of America is facing some serious financial and regulatory problems related to its acquisition of Merrill Lynch & Co. last fall. In December 2008, Bank of America said it would cut between 30,000 and 35,000 jobs over the next three years.
Officials did not have information yet on how Merrill Lynch employees would be integrated into the Aetna benefits plan, said Kelly Sapp, a Bank of America spokeswoman.
Job cuts not only mean fewer plan enrollees, but also could mean higher medical claims costs for insurers. Cigna president and COO David Cordani last month told investors that layoffs could increase the company’s medical claims costs because workers who get laid off tend to be younger and healthier.
Cordani said that in a down economy, insurers need to do more to provide better service to members. “Service is 50 percent of the reason why business goes out the window,” he said. “We have to make sure our service is strong.”
Workforce Management Online, February 2009 — Register Now!
Manpower, Adecco Slapped With Huge Fines in France
The French Competition Council issued fines against Adecco SA, Manpower Inc. and Randstad Holding NV totaling $121 million for anti-competitive practices between March 2003 and November 2004.
Manpower said it would appeal the council’s ruling, while Adecco and Randstad are studying options.
Milwaukee-based Manpower senior vice president and legal officer Kenneth Hunt said the fine was unwarranted.
“We are very concerned by the decision of the Competition Council, as we take seriously our commitment to the highest standards of ethical business practice as well as ensuring
that we are in full compliance with the laws of the communities we serve,” he said.
“The council’s holding that our French operation was broadly engaged in a concerted practice to avoid competition on price is not supported by the facts of the case, and the fine imposed by the council is excessive as a measure of the damage to the economy that the fine is supposed to reflect.”
Manpower’s fine was $53.8 million and was based on a calculation on gross profit from French operations.
Switzerland-based Adecco’s fine was $43.8 million.
“The company will carefully analyze the decision before taking a final position in terms of a potential appeal,” the company said.
The French Competition Authority’s investigation also involved Vedior NV, which was acquired by Randstad. Its portion of the fine was $23.3 million.
“Having received the findings just now, we will continue to study them carefully,” a Randstad spokesman said.
Workforce Management’s online news feed is now available via Twitter.