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Potential Left on the Shelf

Advanced scheduling software is promising, but just a small percentage of companies tap its full potential.

    So says Lisa Disselkamp, a consultant who helps firms implement scheduling applications.


    Disselkamp, president of Athena Enterprises, says companies sometimes purchase demand-driven scheduling software but fail to achieve optimal shift assignments because of poor project supervision and resistance from managers who must relinquish self-styled scheduling methods dominated by personal relationships.


    “There’s a lot of ‘shelfware,’” Disselkamp says. “They will buy the product, but they’ll leave a lot of it on the shelf unused.”


    Advanced scheduling software refers to applications that create employee schedules while taking into account data about an organization’s demand, such as sales volume, store foot traffic or hospital patient counts. The products also can consider employee preferences for shift times or tasks. But there are concerns that the resulting schedules may be so variable that they hurt workers and, in turn, companies.


    No more than 5 to 8 percent of businesses have advanced scheduling software in place, estimates Walter Ross, chief executive of time-and-attendance software company Legiant. But Ross expects the market for demand-driven scheduling products to grow. Advocates point to evidence that the tools can cut labor costs, boost sales and increase productivity.


    “It’s very clear that there’s a very clear return on investment,” he says.


    But some companies that have invested in the software are missing out on their full return, suggests Disselkamp, author of the book Working the Clock: How to Win the Race for Productivity and Profits With Workforce Management Technology.


    Too often, she says, information technology departments in charge of implementing advanced scheduling tools are more concerned about staying on budget and meeting a deadline than realizing the goals of the project.


    “I just wish business leaders were more involved in the way these systems are implemented,” she says.


    Business leaders often are involved in advanced scheduling projects, argues John Anderson, director of retail marketing for software vendor Kronos. “The typical case we see is that while IT plays the key role in delivery, executive sponsorship comes from store operations, where there is a high degree of focus on the software delivering business value and ROI,”Anderson says.


“The typical case we see is that while IT plays the key role in delivery, executive sponsorship comes from store operations, where there is a high degree of focus on the software delivering business value and ROI.”
 —John Anderson, director of retail marketing, Kronos

    Morné Swart, vice president of product management at CyberShift, says his firm can reduce the role of IT by offering scheduling software over the Internet as a service, accessible by Web browser. The “software as a service” approach differs from the traditional method of running an application on a company’s internal computers, and is seen as easing installation and maintenance burdens.


    Apart from technology, though, putting in an advanced scheduling system runs up against shift-assigning methods that are held dear, Disselkamp says. Managers may make scheduling decisions based more on who they like and which workers are fussy than on the best interests of the firm. “Scheduling, it’s a personal art form,” she says. “It’s relationship-based.”


    But moving to a more scientific scheduling approach is worth it, Disselkamp says. “With these automated systems, you get intelligence,” she says. “You base it on business decisions.”


Workforce Management, October 6, 2008, p. 38 — Subscribe Now!

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Supreme Court Parses Protections for Internal Company Probes

Employees who participate in a company probe of discrimination may receive the same protections against retaliation as the person who formally filed the charge, if the Supreme Court rules in favor of a Tennessee woman at the heart of a case argued on Wednesday, October 8.


Vicky Crawford, who headed the payroll department of the school district of Nashville and Davidson County, testified in a July 2002 internal sexual harassment investigation of Gene Hughes, the district’s employee relations director.


Crawford was not pursuing her own case against Hughes, but she did tell an HR official conducting the review that Hughes had engaged in sexually derogatory behavior, including an incident in which he tried to force her head into his crotch.


Hughes was reprimanded but not dismissed. Crawford was later fired after the district said it found problems with payroll operations.


A district court dismissed Crawford’s case, holding that federal discrimination laws didn’t apply to her for being a witness in the harassment probe. The 6th Circuit Court of Appeals in Cincinnati affirmed the decision.


During the Supreme Court oral argument, the justices generally seemed sympathetic toward extending the Title VII anti-discrimination prohibitions against retaliation to cover employees interviewed by companies responding to internal complaints.


But they did explore how far the court should go in defining whether an employee has “opposed” discrimination. Too permissive a standard “just leaves the employer open to a lot of jury determinations the he shouldn’t be subjected to,” said Justice Antonin Scalia.


Under Title VII, a worker is protected if he or she objects to a discriminatory employment practice (the opposition clause) or pursues a charge (the participation clause).


Chief Justice John Roberts Jr. noted that a worker could oppose discrimination without contributing to an investigation and vice versa.


“This is a statute written deliberately with overlapping provisions to ensure that nothing is missed,” said Eric Schnapper, Crawford’s lawyer.


Crawford’s position was endorsed by the Department of Justice.


In previous rulings, the Supreme Court has encouraged employers to establish an affirmative defense against discrimination charges by setting up complaint response procedures.


Lisa Blatt, assistant to the solicitor general, said that the federal discrimination law is undermined if employers are given incentives to investigate and then are allowed to retaliate against people they question.


“Witnesses are going to be afraid to fully cooperate if they’re not given protection,” Blatt said.


But Francis Young, assistant attorney for the Metropolitan Government of Nashville and Davidson County, asserted that an employee must formally charge an employer in order to fall under the aegis of Title VII.


Otherwise, anyone who talks to company officials in an investigation can later claim retaliation if he or she is fired for an unrelated reason.


“The essence of the opposition clause is somehow putting the employer on notice,” Young said. “The best way to oppose sexual discrimination is to go and make a complaint about it.”


Crawford never reported Hughes’ behavior to her superiors before she testified in the internal probe, according to Young.


But she blamed her involvement in the investigation when she was subsequently fired for what Young called severe problems with payroll processing.


If Crawford wins, Young said that companies would circumscribe their responses to discrimination allegations.


“Employers would stop conducting these investigations if everyone they interview is a potential retaliation case,” Young said.


Justice David Souter wasn’t convinced by that argument, saying that internal procedures provide the best defense for a company.


“Any employer who doesn’t go through [an investigation] is crazy,” Souter said.


Schnapper emphasized the importance of giving people such as Crawford confidence that they can speak up about colleagues’ discriminatory behavior without losing their jobs.


“If sexual harassment is going to be stopped, it’s mostly going to happen in these internal processes,” he said.


—Mark Schoeff Jr.


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48 Percent of U.S. Workers Target Age 67 for Retirement

Only 48 percent of American workers plan to retire at age 67, with others planning to work longer, according to a survey released by Sun Life Financial.


The data also showed that only 46 percent of those surveyed are “very confident” they will have enough money to take care of basic living expenses at 67, and 28 percent are “very confident” they will be able to take care of medical expenses.


Younger generations have little confidence that government benefit programs such as Social Security and Medicare will be available when they retire, as 63 percent of workers 30 to 39 years old don’t believe Social Security will be available. The same age group also noted the need for employer-sponsored health care benefits as a reason to work past 67.


The survey was conducted August 9-19 and covered 1,515 people who were working either part time or full time.


Filed by John D’Antona Jr. of Pensions & Investments, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.


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The Problem With Limited Medical Plans

They’re growing.


No longer the fringe temporary benefit coverage they once were, limited coverage medical plans have gained enough ground to become a proven tool in the HR arsenal to reduce medical costs. There are now some 30 carriers peddling these offerings, and big-name retailers and restaurants are buying.


But despite past growth in this market, the future may be more complicated for limited medical plans and the employers that use them.


The concept of limited medical plans is simple. The best plans usually (but not always) allow the employee to go anywhere for care and have low co-payments.


There are generally no pre-existing condition limits and no physicals. Like any group plan, limited medical plans must comply with HIPAA and COBRA to be offered as group coverage. The products are fully insured and have monthly premiums in the $100 range.


With employers spending on average $7,000 in health care costs per employee annually, the prospect of offering coverage for under $2,000 is something that has made limited medical plans a growth product for health insurance companies.


As of two years ago, there were more than 1 million holders of these plans, and experts estimate the market to grow as much as 20 percent annually in coming years.


There is a catch, though. These plans have total annual coverage limits as low as $1,000 but more typically in the $5,000 to $15,000 range.


There’s a shell game in how plans define their maximums, but in general, an employee with a stomachache or a broken leg will probably be covered by these plans. If an employee has a heart attack or a bone marrow transplant, he will quickly hit the policy limits, and will owe doctors and hospitals one heck of a lot of money.


As Phil Wheeler, president of the advocacy group Citizens for Economic Opportunity, told the Hartford Courant newspaper in 2006, “These plans are designed not to be there when you need them. It’s like having an empty fire extinguisher on the wall.”


The history of limited medical plans reflects the market niche they were created to fill. They were designed for part-time employees, and to provide coverage to new full-time employees before they become eligible for coverage under the employer’s traditional medical plan.


If an employee had coverage with a prior employer, the cost of COBRA during this interim period could be a deterrent to changing jobs. A limited plan with a $5,000 cap is generally sufficient short-term coverage, and cheap with its $100 premium.


Offering this as permanent coverage to part-time employees has merit for those employers that previously offered nothing to such workers. It doesn’t adversely affect the employer’s compensation cost structure, and it extends coverage beyond the full-time employee group. It all seems quite noble.


But fast-forward to the present. Managing health care costs is redefined as controlling your increases. Let’s face it: The only way to save money is to spend less money. That means someone out there has to receive less money. Who’s it going to be? Limited medical plans play several roles in bringing costs down, but as their impact increases, so do the consequences.


Some employers, especially those with high turnover, are increasing the waiting period before new hires are eligible for health care coverage to 12 months and are offering them limited medical plans during that period. Some are scrapping their traditional plans altogether and replacing them with these limited offerings for full-time employees.


That’s where I see a long-term problem.


This is like rolling out an “un-welcome mat” to job seekers with disabilities or those with sick family members—a group for whom benefits are particularly important. Do limited medical plans sound like an Americans With Disabilities Act violation?


They’re not, says the Department of Labor, at least not yet. In a candid chat with a DOL official in October, I was told that the agency is looking at these limited benefit offerings, but it can scrutinize them using only existing laws and standards.


If agency sees equal coverage for maternity, fully disclosed plan limits and HIPAA and COBRA compliance, the plan is OK. Some states, like Massachusetts, have determined that limited coverage medical plans do not meet their minimum coverage standards and have refused to license carriers to sell these plans, but at the federal level the coast is clear.


After all, there is no fundamental difference in a $1,000 or a $1 million maximum coverage limit. These are simply limits chosen by employers, as is their right under ERISA.


So what’s my problem with these plans? As more employers reduce their coverage to limited benefits, employers who do not follow suit are going to look like the Statue of Liberty to job seekers with health concerns: “Give me your tired, your poor, your huddled masses yearning to breathe free, the wretched refuse of your teeming shore … ” and we employers will pay their medical bills. The underwriting term here is “anti-selection,” and the cost goes far beyond simply paying for medical coverage.


Healthy young workers are much less concerned with benefits and more with wages. This vital segment of an employer’s population will move toward companies that offer slightly higher wages because their compensation structure is linked to these low-cost limited plans. Older workers, who use more health care, as well as those with chronic conditions, will migrate to companies offering better benefits.


This could potentially affect millions of employees. As carriers hard-sell their limited products, this shift will become a measurable statistic affecting the cost of disability, life insurance, dental, vision, absenteeism and other costs.


As if that’s not enough, you can’t honestly believe that workers earning $10 an hour are actually going to pay a $50,000 or $250,000 medical bill. As more bills go unpaid, prices will rise for those who do pay.


A counter-argument is that by covering people who previously weren’t covered, employers help to reduce the number of people who are uninsured. Obviously if you are providing limited medical insurance to someone previously uninsured, you’re helping. But if employers looking to cut costs choose only to offer limited medical plans to employees, where does that leave people with chronic health issues?


Sick people covered by traditional plans will be less likely to leave those jobs through normal attrition. This would be a double whammy few employers could afford.


The upshot of these plans is that employers who recognize the flaws of limited medical plans may nonetheless have little choice but to embrace the plans or be left to insure chronically sick employees who have no other way to receive health insurance. If this trend were to continue, companies with more comprehensive coverage would have to scale back to limited plans to avoid becoming the employer of choice for the chronically ill.

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To Benchmark or Not to Benchmark

Target-date funds have become the darling of the 401(k) industry because they are so easy for plan participants to understand and use.


But many plans sponsors are learning that what may appear simple and clear-cut for plan participants is actually incredibly complex for fiduciaries to oversee.


Proponents of these funds, which automatically move from an aggressive to conservative asset allocation as the investor ages, say they fight the problem of investing inertia. Employers can automatically enroll participants into these funds and they never have to do anything. Fifty percent of plan sponsors that automatically enroll employees into their 401(k) plans default them into target-date funds, according to Watson Wyatt Worldwide.


And target-date funds are incredibly easy to understand, proponents say. For example, a target-date 2040 fund is designed for employees who plan to retire that year.


But employers and their consultants are wrestling with how to gauge the performance of these funds. Given the recent market volatility, the pressure to monitor performance is more intense than ever. A number of companies, such as Dow Jones, Morningstar and Standard & Poor’s, have launched or are developing target-date indexes employers can use to compare the performance of the target-date funds in their plans.


“Plan sponsors and consultants really need to have a neutral, objective and transparent benchmark that enables them to hold their providers to,” says David Krein, senior director of institutional markets for Dow Jones Indexes, which has two target-date fund indexes.


But not everyone is convinced that it makes sense for employers to use benchmarks with target-date funds because there are so many variables.


“Managers would argue that the benchmarks might not be representative of their strategy. For example, let’s say the benchmark doesn’t include Treasury inflation-protected securities, but the target-date fund does,” says Lori Lucas, defined-contribution practice leader at Callan Associates, a San Francisco-based consultant.


Since these funds change asset allocation constantly, it’s difficult to know whether a fund has outperformed its benchmark during a given time due to its asset allocation or managerial skills, experts say.


“Benchmarking target-date funds is a huge challenge for plan sponsors, but it’s critical that they figure out how to do it right,” Lucas says. “We believe that the majority of defined-contribution plan assets will end up in target-date funds.”


Standard benchmarking approach
Traditionally, plan sponsors use third-party benchmarks to gauge the performance of the mutual funds in their 401(k) plans. For example, a company could compare the performance of a large-cap growth fund with the Standard & Poor’s 500 Index.


But since target-date funds invest in a slew of asset classes and have a moving asset allocation, it hasn’t been clear how companies should benchmark their performance. As a result, many companies were just measuring the performance of the underlying funds that make up their target-date funds against their appropriate benchmarks.


But now, with so many target-date fund indexes in development, plan sponsors are wondering how to choose which one is best for them, experts say.


“A year ago the topic on everybody’s conference agenda was, ‘How do you benchmark these funds when there are no benchmarks?’ ” says Joe Nagenast, co-founder of Target Date Analytics, a year-old company that offers four series of target-date benchmarks. “Now the story is that there are several suitable benchmarks out there, and plan sponsors need to decide which to use.”


Dow Jones came out with the first target-date indexes in 2005. These indexes, however, only take into account stocks, bonds and cash, reflecting the trends in target-date fund holdings at the time.


But in February, the New York-based company launched the Dow Jones Real Return Target Date Indexes, which take into account other asset classes included in target-date funds, such as real estate, commodities and inflation-linked bonds, Krein says.


Having benchmarks is a critical piece in getting target-date fund managers to understand what performance they should be hitting, he says.


“It doesn’t mean the managers have to follow the index,” Krein says. “But it’s a way of saying, ‘This is the standard you are being held to.’ “


He argues that benchmarks are the best way to gauge performance of target-date funds because they are transparent and objective.


Plan sponsors opting to use benchmarking will soon have more options. Standard & Poor’s and Morningstar both plan to launch target-date fund indexes in the next few months, according to officials at the companies.


And they may not be alone, observers say.


“There are a lot of indexes in development,” says Callan Associates’ Lucas.


To determine the appropriate benchmark, plan sponsors need to understand how the indexes take into account issues such as asset allocation, managerial skills and the needs of the participants, experts say.


It can be extremely difficult, but if nothing else, plan sponsors need to make sure they get beyond the marketing talk, Nagenast says.


“Companies need to make sure they understand the fundamentals behind the index,” he says.


Beyond benchmarking
Despite the growing number of available target-date fund indexes, many 401(k) consultants feel that fiduciaries need a more holistic approach to evaluating the performance of their target-date funds.


Just picking an index to benchmark the performance of the funds in a company’s plan doesn’t take into account the goals of the plan and the needs of participants, says Don Stone, president of Plan Sponsor Advisors, a Chicago-based 401(k) consultant.


“Plan sponsors need to look at what they are trying to do with these funds,” he says.


A company with an older employee population may want a different kind of target-date fund series that accepts less risk than another company.


Also, target-date funds are changing rapidly in terms of their holdings, Stone says. Five years ago it was virtually unheard of for these funds to invest in anything other than stocks and bonds. Today, many include real estate, Treasury Inflation-Protected Securities and alternative investments.


“These funds are changing as we speak, but the benchmarks are static,” he says.


Still, Stone opts to gauge the performance of target-date funds by looking at their peer groups. Through this approach, Stone studies all target-date funds in a series, such as all of the 2020 funds, and determines the median performance.


“At least then we get a median allocation and performance to work from,” he says.


But Krein argues that peer groups don’t have the same kind of transparency that third-party indexes have.


“Indexes avoid the trap where an advisor assembles a peer group and it becomes an insular process where the plan sponsor only knows the peer group returns,” he says. “They don’t know what makes up the peer group, what the risk exposure is and what the asset classes are. It’s just an opaque mechanism for benchmarking the manager.”


Nagenast argues that peer groups don’t prove much since so many target-date funds have inherent issues, such as being too aggressive or not properly suiting their investors’ needs.


“If you are just comparing against everyone else, you might look fine but you are ignoring the potential for improvement,” he says.


As more providers offer indexes, they can play a part in plan sponsors’ reviews of their target-date funds. But given the complexity of these products, most consultants suggest taking a more holistic approach to reviewing performance.


This requires digging into the “glide path,” or how the asset allocation of the funds shifts, as well as understanding the needs of the participants.


“At least by looking at the peer group, a plan sponsor can put a stake in the ground and say, ‘Here is what the performance should look like,’ ” Lucas says.


As target-date funds continue to evolve, plan sponsors will have to continually ask themselves if their performance review process is right, she says.


“This is really challenging, and as these funds continue to develop, we think it’s only going to become more challenging,” Lucas says.

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Surviving the Downturn Laid-Back Layoffs

D uring the summer, Michael Bugielski got the call from the office that no one wants: His territory as a sales representative with a European medical equipment company was being dissolved—along with his position.

    Bugielski dove deep—going to Canada and spending a few days scuba diving through the wreckage of ships that had sunk more than 100 years ago. Back home, he signed up for a nine-week acting class and is finishing his certification to become a rescue diver. Focusing on unexplored interests is part of an effort to keep his mind off darker thoughts and worries.


    “I don’t want to lose my sanity. I want to keep my mind and body as active as possible,” he says. “If I go after those things I have passion about, eventually something will come together. I have a better outlook as opposed to the throw-my-résumé-everywhere approach.”


    With jobs hard to come by right now, some laid-off workers find it makes little sense to get frantic about the employment search.


    Of course, some of the people in their lives may not agree. Bugielski hears the sigh in his mother’s voice because he’s not going downtown every day to apply for jobs in person.


    “The older crowd, like my parents, look at me and feel the way to do it is to wear my suit every day, drive downtown, pay $7,000 in parking and walk from place to place saying, ‘Here’s my résumé,’ ” says Bugielski, 40.


    He says his wife and sisters understand how dejected one can feel after sending out batches of résumés and not receiving any responses. And though he’s taking steps to find his next job, knowing that his savings and his wife’s income as a physical therapist won’t tide the couple over forever, he doesn’t feel guilty about letting his mind wander to other interests, too.


    Pursuing a new hobby or interest during a layoff can be wonderfully distracting—just as long as it doesn’t derail a job search entirely, says Barry Zweibel, an executive/life coach who is president of Northbrook, Illinois-based GottaGettaCoach.


    It’s essential to take care of yourself during transitional periods, he says, because it’s easy to become negative and start feeling like a victim.


    “You need to depersonalize [the layoff] and have it be about something that happened out there, rather than something that happened to your inner core,” he says.


    Emotionally, people push through many cycles after a job loss.


    “Initially, there’s good energy after you get over that first hump,” Zweibel says. “As time goes on, it does get frustrating, it wears away at you. As a wave hits bottom, it comes back up again, then it’s time to renew the efforts, reconnect to the enthusiasm. Sometimes it takes quite a few waves until a job is landed.”


    However, he says, at some point the “I’m just taking a little time off” approach begins to look a lot like denial. “If your spouse starts to get cranky with you, if you notice you’re starting to get cranky or bored by what’s going on … that would probably be an indicator,” he says.


    When Steve DePeder, 48, of Downers Grove, Illinois, was laid off from his account manager position with a small software company in 1999, he threw himself into renovation projects at his family’s 1886 farmhouse. For six months, as he knocked down walls and sanded molding, his mind was stuck on one thought: “I can’t believe I’m unemployed.”


    He had been a decent saver, and the family—he’s a father of two—tightened its belt.


    His wife kept assuring him he would know when he found the right thing. But he was a client of Zweibel’s and recalls the coach pointing out that he was pouring all his effort into the house instead of his job search.


    “I said, ‘It’s my therapy, and I’m not going to sweat it,’ ” DePeder says.


    After about a year, he landed a similar job with a midsize software company. But four years later, on his way to catch a flight for a business trip, he got word that his job was being eliminated.


    This time, he realized quickly what he wanted to do: Rather than send hundreds of résumés to e-mail addresses and get no replies, he changed careers. After a few more months working on his own house, he decided to join his brother-in-law in starting a business rehabbing and renting homes, something he knew he had wanted to do from his previous period of unemployment.


    In the office, the technology improvements he worked on so hard seemed intangible: “You couldn’t touch it, feel it or see it,” he says. “But I could remove a door and put a new door up and see a difference. I could rip a wall out and build a new wall and see a difference. It was that hands-on ‘look what I did today.’ “


    Kathleen Ameche, 49, had been climbing the corporate ladder since college before being laid off almost five years ago as chief information officer of Chicago-based Tribune Co. when her position was eliminated in the merger with Times Mirror Co.


    She says she was in shock. “It was the first time since I was 16 that I wasn’t working,” she says.


    As she tried to figure out the next step, her husband reminded her that she had always talked about writing a book. She decided the forced break from corporate life might be her only chance to do it and had the cushion of a severance package, savings and her husband’s income as a real estate developer and attorney.


    She took 18 months to write a guide for women business travelers, a subject she’d developed plenty of opinions about during years on the road as a consultant. Typing away on her laptop at the DePaul University library, she did feel guilty at times, wondering if she should be working harder to get back on her career path.


    But the first edition of “The Woman Road Warrior” was published in 2005 and sold well among business travelers. More important, she felt that she had used her break from being a “right-brain technologist” well.


    “This is something I had talked about for 25 years and I did it,” says Ameche, who is now an executive for RightPoint Consulting, a Chicago-based technology firm.


    Chris Kerstein, 27, rode out the short period after his layoff on a sailboat.


    Kerstein’s job at Scudder Investments in Chicago, along with those of his co-workers, was eliminated in 2006 during a restructuring after the firm was bought out. Around the same time, a friend bought a Tartan 10 sailboat and was looking for someone to sail across Lake Michigan with.


    “You get laid off, and it’s kind of demoralizing, even if it’s 120 people and it has nothing to do with you,” he says. “You do feel rejected, and to get out there and look for jobs immediately—you kind of feel like you want to take a break.”


    He and his friend took a two-week trip across the lake and spent summer days racing or sailing while living on his severance package. Eventually, he began searching for jobs and had a new one within five months.


    Now a project manager at Chicago-based Northern Trust Co., Kerstein says sailing kept his head straight during his break from work.


    “You’re pretty much just playing around on this expensive toy,” he says, “but because you’re pulling lines and moving, you feel like you accomplished something for the day.”

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Bush Signs Mental Health Parity Bill

Following final congressional approval, President Bush on Friday, October 3, signed mental health care benefits parity legislation into law.


The parity provisions, included in a broader financial services bailout bill, passed the House earlier Friday on a 263-171 vote. The legislation, which the Senate approved earlier in the week, will require health care plans to provide the same coverage for mental disorders as they do for other medical illnesses—a requirement that most group health plans now do not meet.


For example, plans no longer will be allowed to limit the number of annual outpatient visits for treatment of mental disorders while not imposing a comparable limit on the number of outpatient visits for other medical problems.


While the plan changes would be extensive, the cost impact is expected to be modest. The Congressional Budget Office last year estimated that enactment of a similar bill would boost health insurance premiums by an average of about 0.2 percent a year.


The measure will take effect January 1, 2010, for most calendar-year plans.



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


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Lawmakers Vent About Exec Pay at Lehman Hearing

It’s hard to determine how much light a congressional hearing on Monday, October 6, shed on the causes of huge losses in the U.S. financial markets, but a lot of heat was generated about the amount of money that Richard Fuld Jr. earned even though the investment firm he heads, Lehman Brothers, filed for bankruptcy on September 15.


Lehman lost $3.9 billion in its fiscal third quarter as the value of mortgage-related assets fell sharply. The investment bank’s collapse precipitated Wall Street tremors that resulted in Congress approving and President Bush signing a $700 billion bailout bill on Friday, October 3.


Fuld, sitting alone at the witness table during a hearing of the House Oversight and Government Reform Committee, endured two hours of withering criticism from the panel during a hearing that lasted nearly five hours.


Panel Republicans criticized Democrats for focusing only on a Wall Street firm and accused them of refusing to examine missteps by Fannie Mae and Freddie Mac. The two government-sponsored mortgage enterprises, which recently had to be rescued, are often seen as politically favored by Democrats.


Committee Chairman Henry Waxman, D-California, produced a chart that showed that Fuld took home $484.8 million in salary, cash bonuses and stock options from 2000 to 2007.


“That’s difficult to comprehend for a lot of people,” Waxman said. “Is this fair?”


Fuld, who expressed remorse about Lehman’s demise, didn’t respond directly, but he disputed the income calculation later in the hearing, indicating that $350 million was a more accurate number.


He defended himself by saying that he did not receive a severance or a golden parachute and never worked on a contract.


Fuld also said he took the biggest loss of any Lehman stockholder when the company went bankrupt.


“I never sold my shares because I believe in this company,” he said.


Citing documents obtained by the committee staff, a couple members said that Fuld drew down Lehman’s reserves by more than $10 billion this year in part to pay year-end bonuses despite warnings about the company’s liquidity.


Fuld defended the move. He said that most of the $10 billion was allocated to employee compensation. Lehman professionals owned about 30 percent of the firm, which motivated them to “think, act and behave like shareholders,” Fuld said.


“From where you sit, it looks like we spent an extra $10 billion,” he said to Rep. Elijah Cummings, D-Maryland. “That is not, sir, what we did.”


Waxman and his Democratic colleagues repeatedly expressed their ire over Wall Street CEOs receiving huge paydays while taxpayers are now on the hook for hundreds of billions to save financial institutions.


“We can’t have a system where Wall Street executives privatize all the gains and socialize all the losses,” Waxman said.


CEO pay incentives have led to Wall Street’s near collapse, according to Nell Minow, editor of the Corporate Library, a governance think tank.


Wall Street leaders have been compensated based on the volume rather than the quality of the business they generate, she said. That has led to the creation of opaque, highly leveraged securities tied to home mortgages that are sliced and resold many times.


“CEO compensation is not just a symptom [of the problem]. It is a cause,” Minow said. “It throws fuel on the fire.”


She was especially critical of the Lehman board, which the Corporate Library graded as a “D” in June 2004 for poor oversight. It is not an isolated case, Minow noted.


“It’s replicated over and over and over again,” she said.


The House committee will delve further into Wall Street travails this fall over the course of five hearings.


—Mark Schoeff Jr.


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Recruiter 50,000 More Layoffs on Wall Street Before the Year’s End

Financial services companies have now slashed almost 200,000 jobs since the credit crunch began last year, and the pace of cutbacks is expected to accelerate considerably over the next several months.


Since August 2007, financial institutions have acknowledged eliminating at least 197,300 jobs, according to Chicago outplacement firm Challenger, Gray & Christmas. That’s roughly the same number of cuts announced in the prior three years combined.


Oddly, despite the meltdown on Wall Street in September, there were only 8,200 jobs lost in the financial services sector last month. That’s likely to pick up substantially, however, noted John Challenger, the firm’s CEO. He said workers employed at companies such as Lehman Brothers and Merrill Lynch were expected to be let go over the remainder of 2008.


“It will get a lot worse before it gets any better,” Challenger said. “Much of the turmoil that swept the investment banking and brokerage industry last month has not translated directly into job cuts yet.”


Indeed, UBS officials said Friday, October 3, that they would eliminate 2,000 jobs in the company’s investment banking division. With Lehman filing for bankruptcy, Merrill being acquired by Bank of America, Washington Mutual being taken over by JPMorgan Chase, and AIG getting an $85 billion lifeline from the federal government, there will be at least 50,000 more jobs lost in the financial services industry before the end of the year, Challenger speculated.


He added that the job losses are hardly limited to the financial services sector anymore and pointed to the employment figures the Labor Department released Friday: Employers cut their headcounts by 159,000 workers in September, the largest single one-month decline in more than five years. That’s a much more significant reduction than the decline of 100,000 jobs many had forecast for the month, and brings the total job losses for the year to 760,000.


Manufacturers cut roughly 51,000 jobs last month, while retailers eliminated 40,000 positions.


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


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Canadian Health Plan Under Investigation

Expedited medical treatment insurance sold by the British Columbia Automobile Association to its 800,000 members is under scrutiny for possibly violating the Medicare Protection Act.


The medical access insurance, also called “wait list insurance,” is being supplied to the association by Acure Health Corp., a Calgary, Alberta, company that the Medical Services Commission determined in July to be providing services inconsistent with the act. The commission manages the medical services plan that pays for health care in British Columbia on behalf of the government.


The insurance being offered to the association’s members allows them to seek expedited medical treatment in private clinics in British Columbia or the U.S. if they are put on a treatment waiting list that exceeds 45 days.


The Medical Services Commission said the Acure policies that allegedly violated provincial statutes ignored a provision prohibiting private insurance policies that pay for services that are covered by the medical services plan and are performed by doctors enrolled in the plan, according to a spokeswoman from the Ministry of Health Services in Victoria, British Columbia.


The commission is seeking more specific details regarding Acure’s plan for the association to determine its legitimacy, the spokeswoman said.
Acure provides insurance to several employers in British Columbia.


Jim Viccars, president of Acure, said the company’s plans comply with state and federal statutes. He said that although the commission sent the company a letter in July informing it of compliance issues, the commission has yet to ask Acure for copies of its policies or to ask any specific questions about its policies.


“We wouldn’t have spent time and money developing this insurance unless we believed we were fully in compliance,” Viccars said.


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


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