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New York Comptroller Raises Job-Loss Estimate

A day after launching a Web site for his 2009 mayoral campaign, city comptroller William Thompson unveiled a dismal economic forecast for the city he hopes to run.


Thompson raised his estimate of job losses through 2010 by 5,000 to 170,000 jobs and predicted the city’s unemployment rate will reach 7.4 percent, the highest level since April 2004.


He said Wall Street cash bonuses, which totaled $33.2 billion last year, will decline by at least 50 percent to the lowest level since 2002. The hemorrhaging of jobs and bonuses will contribute to an estimated 4.3 percent drop in New York City tax revenues in fiscal year 2009, he said.


“While the city’s labor and real estate markets outperformed the nation for most of 2008, the toll taken by the financial industry makes this one of the grimmest economic periods for the city in many years,” Thompson said.


Indeed, the city is starting to catch up with the rest of the country, the report says. Job growth in the city continued well after the housing and financial crises had caused significant losses across the nation, but recently, this growth has slowed to a trickle and many sectors are laying off workers.


“During the past several months a negative trend has become unmistakable,” the report said.


Total private sector jobs were up almost a full percent for the first 10 months of 2008. Private payroll jobs in January 2008 were more than 50,000 above the previous year, but that number has been steadily declining. By October, the year-over-year increase had fallen to just 5,300 above 2007 levels. Employment had declined in several professional and business services sectors, and in the arts, entertainment and recreation, but the biggest drop was in financial activities, where year-over-year employment fell more than 13,000.


Another report released Thursday, December 11, by the Fiscal Policy Institute, painted a similarly bleak picture. That report predicted unemployment could reach 8.5 percent in the city by the end of next year, with the rate for blacks hitting 14 percent and Hispanics reaching 10 percent. Overall, the number of unemployed in the city will rise by 120,000 in the next year, the report said.


The city’s unemployment rate, currently at 5.7 percent, is one percent lower than that of the nation’s, but that will soon change, said James Parrott, an economist with the Fiscal Policy Institute.


“We’re going to catch up to the national downturn very quickly over the next few months,” he said. “People should be prepared for things to get worse quickly.”


The Fiscal Policy report showed that less than a third of the city’s jobless receive unemployment benefits, well below the national average. That leaves many without a safety net, Parrott said.


Thompson hopes that the public works package proposed by President-elect Barack Obama will soften the blow to the city. He singled out Penn Station as a project that could employ thousands of New Yorkers and beef up the city’s decaying infrastructure.


But even with a federal stimulus, the city faces deep cuts. Just Wednesday, Mayor Michael Bloomberg ordered all agencies to slash spending by 7 percent in the next fiscal year to save the city $1.4 billion. That was on top of a 2.5 percent cut this fiscal year and a 5 percent cut next year that had been previously announced.


The dire budget news hasn’t dissuaded Thompson from his plans to run for mayor. Wednesday, he unveiled his Web site, http://thompson2009.com, underscoring his commitment to run despite Bloomberg’s presence in the race.


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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Roth 401(k)s Expected to Join the Mainstream

Employers are adopting Roth 401(k) savings plans faster than employees are embracing them, but many observers expect the plans to join the mainstream of employer-sponsored retirement packages in the coming years.


The relatively new type of savings plan permits employees to make after-tax contributions and, if certain conditions are met, receive retirement distributions that are tax-free.


According to a September survey of 1,000 employers by the Chicago-based Profit Sharing/401k Council of America, about 30 percent of 401(k) plans offered a Roth 401(k) feature in 2007, up from 18.4 percent the previous year. However, only 12.6 percent of employees used that option in 2007, up from 11.6 percent the previous year.


Still, observers say Roth 401(k) plans, which were authorized under a provision of a 2001 law that took effect in 2006 and were made permanent under a 2006 pension law, will become more popular.


“They’re not commonly available nor commonly used, but availability and use is growing,” says David Wray, president of the Profit Sharing/401k Council of America.


A Roth 401(k) offers some of the advantages of Roth individual retirement accounts and traditional 401(k) savings plans. Roth 401(k)s allow workers to contribute after-tax dollars and receive distributions tax-free as long as the worker is at least 59½ years old and five years have elapsed since the first contribution was made.


Traditional 401(k) plans are funded with pretax dollars, but those contributions and accumulated investment earnings are taxed when withdrawn.


Roth IRA accounts also use after-tax dollars but limit workers to $5,000 in annual contributions.


Under federal rules, employees can decide how much to allocate to their Roth 401(k) account and how much to contribute to their traditional 401(k), but the combined contributions currently cannot exceed $15,500. The accounts were expected to appeal to workers who anticipate being in a higher tax bracket when they retire and higher-paid employees who want to save more for their retirement.


Slightly more than half of workers already using Roth 401(k) accounts also invest in a traditional 401(k) or another account, according to a 2006 survey by Fidelity Investments.


Many observers say the 2006 Pension Protection Act that made Roth 401(k) plans permanent assured employers and was a key impetus for the recent increase in the number of organizations offering such plans.


Most industry estimates are similar to the findings in the survey by the Profit Sharing/401k Council of America.


Pam Hess, director of retirement research at Hewitt Associates in Lincolnshire, Illinois, says the consultant’s latest survey showed that 19 percent of employers had Roth 401(k) plans in 2007, and that 11 percent of employers without the plan said they were very likely to add one this year and another 23 percent said they were somewhat likely to add one.


Eventually, Hess says, half of employers are expected to have the Roth option as part of their 401(k) plans.


The first employers to add the Roth option to their 401(k) plans generally were professional firms—medical practices, law firms, consultants and other businesses in which employees had financial advisors or were sufficiently knowledgeable about finances to ask for the new Roth option, Wray says. Most were smaller firms, he says.


“The 401(k) plan in a small company is the retirement plan for the CEO. Whereas, as you get to larger and larger companies, the retirement plans are more customized for senior management,” Wray says.


Since then, firms in different industries, such as manufacturing, have followed suit, observers say.


“I’m seeing retail organizations—companies that were not at all interested a couple years ago—are now putting [Roth 401(k) plans] in,” says Bill McClain, a Seattle-based consultant with Mercer.


Still, as the number of employers adding the option has increased, the portion of workers using the plan remains low. Hewitt’s Hess says 4 to 17 percent of workers use the Roth 401(k) option when offered; McClain says he thinks that figure is about 5 percent.


Observers say most of those using the option are young workers—because they earn less, are taxed less, and expect their pay and tax rate to rise in the future—and new hires, 25 percent of whom use the Roth option when available, according to the Hewitt survey.


Hess says the percentage of users will increase as more employees become aware of the option.


“We’ve come a long way,” she says. “When Roth first came out, there was a lot of fear that employees wouldn’t know what to do with it.”


Hess and others say worker confusion remains a concern for employers considering offering the Roth option as part of their 401(k) program. She says businesses should explain the new option frequently and in detail to avoid wasting the effort and time of implementing a new plan that few workers use.


“It’s not like clicking a button. There’s a lot of work. It often costs money to do it from the employer’s perspective,” Hess says. “The small number of firms that added [the Roth option] that didn’t communicate heavily—those are the companies that have the lowest utilization.”


“You want to make sure you make a splash, employees know it’s available and, from the employer’s perspective, that you get credit for doing it,” Hess says.


She and McClain say the more recent global financial crisis could slow the adoption of Roth 401(k)s, although one could argue the reverse.


“You have an aging demographic, the ongoing wars in Iraq and Afghanistan, and then throw in the financial bailout,” says McClain. “There are some people out there who think increased tax rates are inevitable, despite what we heard from both presidential candidates. That would, of course, favor investing in a Roth.”

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Companies Seeking Pension Relief Get Congressional OK

Companies seeking relief from increased pension obligations have cleared two hurdles with unanimous passage of a bill in the Senate in the early evening of Thursday, December 11, and in the House the night before.


Now the legislation must overcome White House resistance to be signed into law. When the bill came up in the Senate during the lame-duck session in November, the Bush administration said it would undermine protections ushered in by a major pension reform bill in 2006.


The relief bill eases the rules contained in the Pension Protection Act of 2006. The first overhaul of pension law since 1974, it significantly tightened defined-benefit funding rules and required companies to meet 100 percent of their obligations within seven years.


The measure, which went into effect this year, was a response to a series of huge airline and steel company pension defaults that sent the government pension insurer’s deficit soaring.


Under the bill Congress approved Thursday, pension plans would be allowed to smooth unexpected asset losses over 24 months. Treasury Department regulations to implement the pension law essentially would have applied mark-to-market rules.


The smoothing, however, cannot allow a pension plan to vary by more than 10 percent of its fair market value. Corporate representatives say many companies need a wider “corridor.”


The measure would allow plan sponsors more time to achieve 100 percent funding and to use their funded status as of January 1, 2008, to determine whether their plans are at risk and have to be frozen.


The bill also waives for 2009 the requirement that people take a minimum amount out of their 401(k) funds each year when they reach age 70½.


“We’ve made pension plan requirements responsive to the needs of America’s seniors and employers, and I believe this bill is a solid effort to move the economy toward recovery,” said Sen. Max Baucus, D-Montana and chairman of the Senate Finance Committee, in a statement.


Business groups representing hundreds of corporations have been pressing Congress for weeks for a break on pension obligations. They assert that money companies sink into the plans could otherwise be used for investment and job creation to help pull the economy out of the recession.


Advocates are urging President Bush to sign the bill. Jason Hammersla, director of communications at the American Benefits Council, says the White House has been silent on the bill this week.


“The fact that they haven’t released a statement of administration policy is a good sign,” Hammersla said. “We are hopeful.”


A recent study by consulting firm Mercer shows that November was the second consecutive month of record pension fund losses for large companies. As of the end of last month, a $60 billion surplus at the beginning of the year for S&P 1,500 companies had collapsed into a $280 billion deficit.


The Bush administration, which was a champion of the 2006 pension reform law, opposes modifying its provisions. The Pension Benefit Guaranty Corp., the government pension insurer, estimated that reduced pension contributions would add $3 billion to the agency’s approximately $14 billion deficit.


The White House also asserts that higher pension contributions aren’t required until September 2010. In a response to the administration, the benefits council said that companies would have to significantly increase funding this April to avoid benefit restrictions.


Without relief, “there will very likely be massive plan freezes, widespread job loss, and, in some cases, company bankruptcies, as well as a deepening of the recession,” the council wrote in a letter to Capitol Hill leaders.


If Bush doesn’t sign the bill now, “there will be employers that make [funding] decisions based on current law,” said Jan Jacobson, senior counsel for retirement policy at the benefits council. “Some of those decisions may involve plan freezes and layoffs in order to have the money necessary for their funding obligations.”


A House leader on pension reform emphasized that the bill would not undermine the 2006 law.


It gives “employers more time to fund the pension promises to their workers,” Rep. Earl Pomeroy, D-North Dakota, said in a statement. “It does not change the obligations employers have in pension plans, but instead provides appropriate relief in light of the unprecedented volatility in the markets.”


But a couple business groups say that the relief bill doesn’t go far enough and that many companies will need more help next year. Mark Ugoretz, president of the ERISA Industry Committee, asserts that the measure fails to give a break for plans that have to sharply increase their pension payments because they’re less than 80 percent funded.


“Ultimately, the bill does not provide adequate relief, falling short of addressing or even reflecting the dramatic downturn in the markets,” Ugoretz said in a statement.


—Mark Schoeff Jr.


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Supreme Court Revisits Issue of Timing of Discrimination Suits

The Supreme Court may be poised to revisit an issue similar to one that caused a controversial ruling in 2007—whether a worker can sue for a discriminatory act that occurred decades before.


The previous case involved Lilly Ledbetter, a tire factory supervisor from Alabama who sued her employer, Goodyear, for more than 20 years’ worth of paying her less than men who held an equivalent job.


The court decided 5-4 that her suit fell outside the statute of limitations, which requires a worker to take action within 180 days of the original discriminatory act.


In a case the court heard Wednesday, December 10, former AT&T employees are suing the company for not crediting them with maternity leave that they took in the late 1960s through the mid-1970s, before the passage of an anti-pregnancy discrimination law.


Noreen Hulteen, who retired after being laid off in 1994, says her pension benefits have been reduced because 210 days of her pregnancy leave were defined by AT&T as personal leave that did not count toward seniority. AT&T only gave her credit for 30 days.


In 1978, Congress amended the Title VII anti-discrimination law by passing the Pregnancy Discrimination Act, which requires that women exiting the workforce for pregnancy continue to receive benefits just like their colleagues who take other kinds of disability leave. After that law passed, AT&T amended its leave policies to comply.


A district court ruled in favor of Hulteen, essentially endorsing her position that AT&T retroactively violated Title VII. AT&T appealed to the 9th Circuit Court of Appeals, where a three-judge panel reversed the district court’s decision.


But after Hulteen and her colleagues asked for a rehearing before the entire 9th Circuit, the court upheld the district court. It did so in part by holding that AT&T’s original policy was not lawful. AT&T then took the dispute to the Supreme Court.


In his presentation before the court on December 10, AT&T’s attorney argued that the company should not be held liable for the pregnancy leave it had in place during the Nixon administration.


“What we did at the time, in our judgment, was perfectly legal,” said Carter Phillips.


He also asserted that AT&T shouldn’t have to defend itself against stale claims based on business decisions that were made a generation ago.


But Justice Ruth Bader Ginsburg said that the former AT&T workers didn’t take action because they didn’t feel the impact of their lost work time.


“They wouldn’t be hurt until they sought retirement or sought some other benefit that increased seniority would give them,” she said.


The women knew immediately that they would only get 30 days credit for their pregnancy leave, Phillips countered.


“I think the average person told that they have less seniority today than they had yesterday … would say, ‘I am entitled to go to court today,’ ” Phillips said.


Phillips argued that pension payments today don’t constitute continuing pregnancy discrimination, citing the court’s decision in the Ledbetter case that each of her paychecks was not a pay violation.


“This is more like the present effects of past allegedly discriminatory acts and, therefore, not actionable at this time,” Phillips said.


Hulteen’s lawyer, Kevin Russell, argued that AT&T is liable today for the results of its pre-1979 pregnancy policies because they have resulted in mothers receiving less in pension payments than others who worked the same amount of time.


“It facially discriminates on the basis of pregnancy and then does so whether the pregnancy discrimination was unlawful at the time or not,” Russell said. “And under [Title VII] … to discriminate on the basis of pregnancy is carried forward today in every possible application.”


Several justices wrestled with the argument that a policy that was once lawful could have an illegal effect today.


“I guess I’ve never heard of a case where it’s OK to … discriminate intentionally, but it’s illegal if that has a disparate impact,” said Chief Justice John Roberts Jr.


Justice Anthony Kennedy expressed concern about how much changing its pension system would cost AT&T.


Russell contended that the price might be millions of dollars but that was an insignificant amount in the scope of AT&T’s pension plan, which recently had a $17 billion surplus.


“That’s a small amount of money … millions of dollars?” Kennedy asked.


The case is AT&T Corp. v. Hulteen, Docket No. 07-543.


—Mark Schoeff Jr.


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Survey Workers Thriftier With Health Care Dollars

More U.S. workers are taking steps to lower their medical costs and are unwilling to pay higher health care premiums, according to a Watson Wyatt Worldwide survey released Wednesday, December 10.


Citing the recent economic crisis and rising health care costs, Washington-based Watson Wyatt said 19 percent of employees surveyed were willing to pay more money out of their paycheck in order to keep health costs down. Last year, 38 percent of employees were willing to pay higher premiums.


The survey of nearly 2,500 employees of large U.S. companies conducted in May and June also found that nearly half of the respondents had chosen a lower-cost drug option in the past year. In addition, more employees delayed visiting a doctor until they had serious symptoms, and an increasing number of workers talked with their doctors about seeking more affordable treatments.


However, the survey also found that some workers are taking actions that could lead to higher medical costs, including skipping doctor’s appointments altogether and doses of medicine and avoiding filling prescriptions.


As workers continue to look for ways to save money, “employers stand to gain from reinforcing messages on preventive care, wellness resources and the importance of following prescribed drug regimens,” said Cathy Tripp, national leader of consumerism at Watson Wyatt, in a statement.


The full report, the 2008 Employee Perspectives on Health Care can be found at www.watsonwyatt.com/employeeperspectives.


Filed by Colleen McCarthy of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.


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Pension Lobbying Group Warns Congress of Consequences

Most employers will have to “sharply reduce their work forces, freeze plans, and curtail other benefits such as 401(k) contributions, as well as other business spending” if federal lawmakers fail to approve legislation to ease pension funding requirements this year, according to a letter sent Monday, December 8, by the ERISA Industry Committee to all members of Congress.


“Without immediate congressional action, prudent plan sponsors will have to assume that they will be making dramatically increased pension contributions next year and will retrench to pay for or offset those contributions accordingly,” said the letter, signed by ERISA Industry Committee president Mark Ugoretz.


The ERISA Industry Committee, which represents major employer and other pension industry lobbying groups, is concerned that the severe downturn in the economy this year has led to the underfunding of many pension plans. The group wants lawmakers to approve legislation that would give the plans temporary relief from provisions in the Pension Protection Act of 2006 that will phase in full funding requirements during the next several years.


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


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BP Renews HR Business Process Outsourcing Contract With Hewitt

Two years after Hewitt Associates announced that legacy client BP was not going to renew its HR business process outsourcing contract, the London-based energy company has reversed its decision and re-signed.


Hewitt inherited the $600 million BP contract when it purchased Exult in 2004. At the time it was the biggest HR BPO contract of its kind, covering payroll, relocation severance and benefits administration for BP’s 100,000 employees globally.


But in 2006, Hewitt’s HR BPO business was struggling as the provider was having troubles implementing all of the deals that it and Exult had signed.


In a December 2006 earnings call, Hewitt CEO Russ Fradin announced that BP wouldn’t be renewing the contract. The companies signed a two-year renewal while BP looked for a new provider, but that search was unsuccessful, according to a source familiar with the discussions. Now, BP has returned to Hewitt.


Under the terms of the agreement, Hewitt will deliver “a range of HR services” to BP employees around the world, BP spokesman David Nichols said. Officials at BP and Hewitt would not disclose which processes and geographies are included in the contract or discuss the length of the deal. However, the source familiar with the discussions said the new contract will be scaled down from the original agreement.


“It’s going to be core HR processes,” the source said. “All of the expat admin and recruitment has been brought back in-house.”


For Hewitt, winning back BP is a huge vote of confidence, particularly given the difficulties the firm has had on the HR BPO side in the past couple years, observers say.


“This is a significant boost for Hewitt’s HR BPO business and it signifies better times for them,” said Phil Fersht, an analyst at AMR Research. BP’s decision also is evidence that the cost to switch HR BPO providers for a large deal like this is too much for the company to absorb, he said.


Mike Wright, HRO sales and product development leader at Hewitt, declined to comment on the specifics of the BP deal, but he said that Hewitt is actively looking to close HR BPO deals.


“We are working very hard to find more clients and close more deals,” he said. “That is part of our plan for ’09.”


—Jessica Marquez


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Back-Off on Bonuses at Banks Will Shake Up Ranks of Top-Paid CFOs

CFOs on Wall Street have been walking away from the bonuses that typically made them some of the highest-paid finance officers in the country.


The trend continued Monday, December 8, when Merrill Lynch indicated that finance chief Nelson Chai has elected to forgo his annual bonus payment.


Chai’s action follows a similar move last month by Goldman Sachs’ top management, including CFO David Viniar, who was ranked as Financial Week’s top-paid CFO last year with a $58.5 million package.


Merrill Lynch said in a statement Monday that Chai, along with CEO John Thain and three other top executives at the company, had requested that Merrill’s board not award them any bonuses for 2008, a year in which the company’s stock price declined by roughly 30 percent. The brokerage was officially acquired by Bank of America on Friday after Merrill and BofA shareholders approved the transaction.


The bonus back-offs at Merrill come after a report in The Wall Street Journal suggested Thain had requested a bonus of as much as a $10 million. The article said Thain thought he deserved a bonus because he helped avert what could have been a much larger crisis at the company.


Either way, total compensation for Merrill Lynch executives this year will be a far cry from what they made last year. Indeed, the brokerage’s top officers earned more than $90 million in combined bonuses, stock and options awards in 2007. Chai, who joined Merrill in December 2007, earned a $1.25 million bonus for 2007, according to the company’s proxy filing.


Meanwhile, executives at Morgan Stanley will receive substantially lower bonuses for 2008, with CEO John Mack and co-presidents Walid Chammah and James Gorman asking the board Monday to forgo their bonuses entirely for the year.


The 14 members of Morgan Stanley’s operating committee—which includes CFO Colm Kelleher, one of Financial Week’s highest-paid CFOs for 2007—will receive total compensation packages that are worth 75 percent less, on average, than their pay last year.


Kelleher was paid $11.7 million in total compensation for 2007, which means he would be in line to take home roughly $2.9 million in total pay for 2008.


Now that Goldman, Merrill and Morgan Stanley executives have chosen to forfeit their bonuses for a dismal 2008, all eyes will turn to Citigroup.


Last week it was reported that executives at the bank—including CFO Gary Crittenden—would give up their bonuses. As of yet, however, there has been no formal announcement of the move.


If Citi were to follow its rivals, Crittenden would see his pay dramatically reduced. Nearly three-quarters of his nearly $20 million in compensation last year came from his bonus. Crittenden came in at No. 5 on Financial Week’s list of top-paid finance officers in 2007.


The highest-paid non-bank CFO on the list was Occidental Petroleum’s Stephen Chazen. Of his nearly $30 million in total compensation, Chazen received a bonus of just $633,600.


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

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Pool of Talent Grows as Recruiters Find Time to Be Choosy

It’s the worst of times for some industries—think investment banks, automakers, retailers and newspapers—when not a week goes by without one company or another laying off hundreds or even thousands of employees.


    But bad times for some companies mean good times for others with the financial means to fill vacancies with well-qualified candidates or pick up top talent that may not have been available even a few months ago, according to recruiters, executive headhunters and corporate executives who are experiencing the phenomena firsthand.


    The exodus of high-level professionals, managers and salespeople from industries hard hit by the economic downturn is proving to be a boon for companies in industries or geographic areas that haven’t been affected—at least not at the same level, the industry watchers say.


    Consultant Brad Smart, who helps Fortune 500 executives “topgrade” their workforces through an elaborate screening process to find the best talent, says in the early days of November he was inundated with résumés from people who in September wouldn’t have considered switching jobs. The Wall Street meltdown changed that, says Smart, with Smart & Associates Inc. in Wadsworth, Illinois.


    Not only are there more candidates to choose from, but the larger talent pool also increases the likelihood that companies will find someone with the exact skills and experience level they’re seeking. On top of that, companies won’t have to offer the hefty signing bonuses and other extras they would have needed a year or two ago, Smart says.


    “Base pay will stay the same, but because it’s likely that a bonus in 2008 isn’t going to be nearly what it was in 2007, you’re getting that talent a whole lot cheaper,” he says.


    When the market comes back, so will bonuses, Smart says.


    “So don’t think of it as saving bucks. Think of it as getting better talent,” he says.


    High energy prices during the past year meant oil and gas companies had funds for new projects and were snapping up engineers and project managers to work on them, making it difficult for companies needing the same types of workers to fill their own openings, says Jim Cahill, marketing manager at Emerson Process Management.


    The $4 billion Austin, Texas, industrial automation manufacturer with 37,000 employees found that as energy prices drop, oil and gas companies aren’t hiring as much, so it takes less time to fill open positions, Cahill says. Next year, though, there could be fewer openings, he adds.


    “Like most manufacturers, we see a lot of economic uncertainty in the months ahead, which may have an impact on hiring.”


    Because Emerson makes automated controls for a variety of industries, from energy to pharmaceuticals to biotechnology, the company has ridden out a number of economic slumps over the years, giving it a strong financial track record, including decades of increasing dividends. That’s not lost on job applicants or employees.


    “When times are more uncertain, it becomes a strength,” Cahill says. Employees “may be less inclined to jump to a dot-com or startup.”


    Despite an average overall U.S. unemployment rate of 6.5 percent this fall, demand for well-educated professionals is still high, say Brad Baiocchi, CEO at Global Recruiting Network, a Downers Grove, Illinois, executive placement firm with 180 franchise locations. As of October, the unemployment rate for workers with a college degree or higher was 3 percent, according to the Bureau of Labor Statistics.


    “So 97 percent of people with B.A.’s are employed. That’s a tight marketplace. There’s still demand,” Baiocchi says.


    For industries such as investment banking and real estate, though, 2008 was a “car accident,” a traumatic career displacement event that could change their work life forever, Baiocchi says. The lucky ones—people with the most education and experience—will find similar jobs in a different industry. People without as much experience or a degree are the most likely to have a hard time finding comparable work at comparable pay and may have to settle for less, Baiocchi says.


    However, companies that think they can pick up talent at a discount when times are bad can hurt themselves in the long run, cautions Debbie Zurow, professional services director at Boly Welch Recruiting, a 26-person Portland, Oregon, firm that places executives in accounting, IT, legal and HR positions in some of the biggest companies in the state. When companies hire skilled talent at less than fair-market rates, “They risk low morale and attrition—all much more costly to an organization than the few dollars saved,” Zurow says.


    Ultimately, it’s a corporate culture issue, Zurow says. Companies that would eagerly hire someone for $20,000 under what they’d normally make as a quick fix regardless of the effect on morale or their corporate culture “aren’t typically the ones getting the ethics awards,” she says.


    According to Zurow, demand for professionals in accounting and finance is still strong, especially in the Pacific Northwest. The real benefit of today’s job market isn’t picking up talent on the cheap; it’s being able to shop for the right fit.


    “Employers can make sure [candidates] have the credentials or the Rolodex they can bring into the company. They can take their time to find someone they couldn’t find” before, she says.


    Even if a company isn’t in the best shape financially, it doesn’t make sense to shut down hiring altogether, Smart says.


    “Even if there’s a hiring freeze, if there are key jobs that a company has been unsuccessful getting talent for, they should go ahead” with a search, Smart says. “That’s where the CEO and head of HR come into play—to make those decisions.”


    Continuing to find enough good talent is going to be corporate America’s biggest challenge in the next 20 years, Baiocchi says. Of those firms not constantly interviewing, attracting and retaining the best people—even during a recession—”You’ll always be No. 2,” he says.

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Companies Rethinking Company Stock in 401(k)s

Given the dramatic dive in the U.S. equity markets this year—and the ever-present risk of being slapped with a stock-drop lawsuit during a downturn—companies are looking for ways to protect both themselves and their workers from too much exposure to company stock in 401(k) plans, according to sources throughout the retirement industry.


One potentially straightforward solution to the problem: Close off company stock funds to plan participants until a corporation’s financial health improves or becomes a bit more certain.


“In very volatile industries, where there are real concerns about an employer’s financial well-being and viability, allowing your workers to invest their retirement savings in company stock may not prove to be a prudent investment option,” said Robyn Credico, head of the defined-contribution practice at Watson Wyatt Worldwide. “With participants already suffering significant losses, this could make employers even more vulnerable to litigation.”


American International Group, Bear Stearns, Fannie Mae, Fifth Third Bancorp, Hartford Financial Services, Lehman Brothers and Wachovia, to name a few, have already been the targets of stock-drop lawsuits or investigations.


Yet some of these companies had made efforts earlier to wean workers off company stock. Lehman, for one, reduced the maximum amount of company stock that workers could hold in its employees’ common stock fund, to 20 percent from 50 percent, and stopped steering its contributions into the fund.


Such changes, however, might not go far enough. Credico and other consultants report a movement by large corporations in recent months to bar workers from investing in company stock.


The most notable example: General Motors, which late last month revealed in a memo to workers a “trading blackout” on GM’s common stock in two defined-contribution plans for executives and directors. The freeze will remain in place “for the foreseeable future,” a GM spokeswoman said.


One interesting wrinkle here: The decision to suspend purchases of company stock was not ultimately made by GM executives. Rather, officials at State Street Bank & Trust, which serves as the independent fiduciary to GM’s stock plans, determined that “due to GM’s recent earnings announcement and related information about GM’s business, it is not appropriate at this time to allow additional investments by participants [into the GM plans].”


Ever since the tech bubble popped earlier this decade, large companies increasingly have hired independent outside fiduciaries that serve as the outsourced decision makers for any moves involving company stock as it relates to employee holdings, said Marina Edwards, a senior consultant at Towers Perrin. “Their role is to be an objective watchdog for participants, and exercise control over company stock when necessary.”


The presence of these outside players, combined with the recent rapid declines in many public companies’ share prices—the companies in the Dow Jones Wilshire 5000 are down a collective 45 percent for the year—could spark a big drop in the number of employers offering company stock in their retirement plans. And this is no small group: Roughly 77 percent of large corporations have a company-stock option in their plans, according to consulting firm Hewitt Associates.


Observed Credico: “Many executives have, in the past, been reluctant to get rid of their company-stock option because it may not send a great message to the markets. An independent fiduciary, in theory, should eliminate any such inherent conflicts in managing company stock.”


Corporations that have allowed their workers to invest in company stock during this period will likely wind up vulnerable to lawsuits from participants, said Pam Hess, Hewitt’s director of retirement research. “Company stock still accounts for a significant portion of people’s retirement savings—and participants will want to do what they can to recoup some of those losses.”


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

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