Why Do Employees Quit Jobs?

Friday, December 31, 2010

Why do employees quit jobs and move to a new employer? For better pay, shorter hours, richer benefits, advancement opportunities, adventure, shorter commutes, better working conditions, bigger offices, more responsibilities, less responsibilities, spouse was transferred, spend more time with the kids, go back to school, … and the list goes on without end. On the other hand, is it that simple?

In the 2005, “The 7 Hidden Reasons Employees Leave” by Leigh Branham the author explored seven reasons why otherwise great employees choose to leave their current employer for greener pastures. To those of us who have “been there done that” it is no surprise that Branham focused on these seven factors. What is amazing in that managers are continuing to make the same mistakes repeatedly?
 

1: The Job or Workplace Was Not as Expected

2: The Mismatch Between Job and Person

3: Too Little Coaching and Feedback

4: Too Few Growth and Advancement Opportunities

5: Feeling Devalued And Unrecognized

6: Stress From Overwork and Work-Life Imbalance

7: Loss of Trust and Confidence in Senior Leaders

When that newly hired employee realizes that the job that was described to them during the interview is not the job they will be performing, it does not take long for the employee to recognize that they have been misled. And what is their reaction, they begin to think about other opportunities they passed up and become easy prey for the next call from a recruiter. At this point, the organization has already lost at least the battle, if not the war for talent. In a former role, we used videos of the work to ensure there was no confusion over the work and its environment. As a result, turnover in the first 90 days was reduced by 50%.

It is common for managers to put the wrong person in the wrong job. Why? The project is behind schedule. There is no one else available to do the job. The manager is desperate. The manager wants to appear they are “doing something, anything”. Much of the time these efforts to slot a warm body into a job results in failure for both the employee and manager. Consider more use of behavioral interviewing techniques and a broader scope of interviewers to ensure that the right person is in the right job.

Feedback and coaching are key to maintaining employee performance and they are absolutely critical to improving performance. An area in which virtually even manager can themselves improve on is the delivery of feedback and coaching and the critical element is the timing of that feedback and coaching. Often the managers respond with too little and too late to be effective. Consider training for managers in the techniques of timing and delivery of feedback and coaching as a means of reinforcing the organization’s desired managerial behavior.

Sorry, but every organization cannot provide an unlimited and boundless universe of growth opportunities for every employee. Even if their workforce is comprised on the top ten percent of the talent pool, organizations in this competitive environment need to focus on the top five percent, leaving the others to move on to their next assignment. The organization must indentify and retain their “stars”, that does not eliminate the need for others, it simply means that with limited resources, the organization must put those resources towards the top performers.

Employees want to feel that their employers value and recognize their efforts but more so they want to feel valued by their immediate manager. First line managers can go a long way in recognizing their employees in small but effective ways. Essential to the manager-employee relationship is knowing what gets that employee excited, sometimes it is a small and simple action such pointing out a task they performed well or publicly “thanking” them for helping out in a tight situation. In a recent role, I had a small stash of $10 gift cards, when someone did something special for me I wrote a thank note and included a gift card.

In today’s fiercely competitive workplace with its reduced staffs and higher expectations who is not stressed out trying to deal with and balance work, family, kids, and continuing education? More important that even is the manager’s role in having the best team available to deal with the unexpected shift in project deadlines and changes in directions. Try to build in some time during the workday when, as a manager, you check in on how an employee in doing. A five minutes conversation, aside from the formal weekly status update, can go a long way in your understanding the pre4ssures facing that employee.

Does it seem that senior leaders are completely disconnected with the real world and what it takes to bring a project to fruit? There was a time when an organization’s leadership could point to a direction and most employees would salute and execute. That attitude went out with wing tips and pinstripe suites. Most employees today are independent enough to move on at the first hint of managers who lack any leadership abilities and cannot be trusted. While you as a manager may not be able to overcome the short falls of your CEO, remember that your direct reports see you as the face of the organization.

FMLA Return to Work Fitness Reports

Monday, December 27, 2010

It is common for many employers to require a Return to Work Fitness Report prior to an employee returning to work after a FMLA leave of absence. What constitutes a “significant” amount of time, even for FMLA, is often dependent upon the industry and/or job. The reasoning behind requiring such reports is simple. The employer needs to certify that the employee is physically, emotionally, and psychologically capable of performing work and that the employee is not impaired by either legal or illegal substances. The FLMA Return to Work Fitness Report is generally performed by the employee’s personal health care provider; however, the employer may require the use of their own physical.

The basis for an employer’s ability to require a FMLA Return to Work Fitness Report is found in 29 U.S.C. section 2614(a) (4) and 29 C.F.R. section 825.310(a):

29 U.S.C. section 2614(a)(4)

“As a condition of restoration under paragraph (1) for an employee who has taken leave under section 2612 (a)(1)(D) of this title, the employer may have a uniformly applied practice or policy that requires each such employee to receive certification from the health care provider of the employee that the employee is able to resume work, except that nothing in this paragraph shall supersede a valid State or local law or a collective bargaining agreement that governs the return to work of such employees.”

29 C.F.R. section 825.310(a)

“Employers may have a uniformly applied policy of requiring similarly situated employees who take leave for their own serious health condition to submit certification of their ability to return to work. Such certification need only be a simple statement of the employee's ability to work. The employer's health care provider may contact the employee's health care provider, with the employee's permission, to clarify the return-to-work certification but may not request additional information and may not delay the employee's return to work. Id. The employee bears the cost of providing the return to work certification. Where state or local law or the terms of a collective bargaining agreement govern an employee's return to work, those provisions shall apply. Employers are required to provide employees with advance notice of the requirement to provide a return-to-work certification. Where an employee has been given appropriate notice of the requirement to provide a return-to-work certification, the employee's return from leave may be delayed until the certification is provided. Return-to-work certifications may not be required for employees taking intermittent leave. Employers may not require a second opinion on return-to-work certifications.”

What is clear from both 29 U.S.C. section 2614(a)(4) and 29 C.F.R. section 825.310(a) is that any FMLA Return to Work Fitness Report must meet the following conditions:

1. A uniformly applied practice or policy:
If the employer requires it for one, it must require it for all employees who are “Similarly situated employees”. This could be all for equipment operators but not for office administrative staff. 
2. Certification from the health care provider:
The “health care provider” must be a duly licensed health care provider and must be the personal health care provider of the employee.
3. Shall [not] supersede a valid State or local law or a collective bargaining agreement:
A state or local law or a valid collective bargaining agreement would prevail over either 2614(a)(4) or 29 C.F.R. section 825.310(a)
4. Similarly situated employees:
Similarly situated employees and an uniformly applied practice or policy. This could be all equipment operators for leaves greater than some predetermined period of time, e.g., two weeks.
5. Certification need only be a simple statement:
A FMLA Return to Work Fitness Report is valid as long as it clearly states the employee is able to perform the work to which they are assigned. Copies of medical records, laboratory tests, X-Rays, and other medical information are not required.
6. Employer’s health care provider may contact the employee's health care provider:
Provided the contact is for clarification of some ambiguous comment or reference by the personal health care provider of the employee.
7. Employers are required to provide employees with advance notice:
If the employer has a practice or policy of requiring a FMLA Return to Work Fitness Report, the employer must notify the employee in advance. This could include the use of an employee handbook or a valid collective bargaining agreement as means of “advanced” notification.
8. Employee’s return from leave may be delayed until the certification is provided:
If the employee fails to provide a valid FMLA Return to Work Fitness Report, the employer’s only action is to delay the return to work until such report is provided.
9. Certifications may not be required for employees taking intermittent leave:
Employees who take intermittent leave are not required to provide a FMLA Return to Work Fitness Report. 
10. May not require a second opinion on return-to-work certifications:
Provided the employee’s “health care provider” is a duly licensed health care provider and the personal health care provider of the employee, no second opinionon may be required.

As with all situations dealing with federal, state or local laws, rules, and regulations; professional certified experts should be retained before making or changing an organizations policies and practices.

Employee Performance Feedback

Friday December 24, 2010

One of the most fundamental functions of management is to evaluate the performance of employees. For many managers, employee performance evaluation is also a lonesome task to be avoided at all costs. Even when apprising an outstanding employee, managers often are reluctant to evaluate an employee’s performance. Sometimes it is as simple as the manager lacks the skills to execute an effective performance review session; sometimes there is never enough money to recognize even the top performer. So reviews are postponed or handled poorly, the result is that the organization’s best performers are left frustrated, angry, disillusioned, and demotivated. In addition, those top performers are looking at the organization’s competitor.

Employee performance avoidance often starts on day one of the new job. Rather than clearly outline the expectations, many mangers show the new employee to their workstation and dump them off, leaving the new hire to their own means. Job assignments may be delivered and retrieved on a routine basis with little or no feedback or comments from the manager. If feedback is provided, it may only be negative comments. Even with well-written job descriptions, new employees need a degree of coaching to ensure that even minor errors do not become barriers.

The University of Indiana’s “University HR Services” function provides training and development is the area of employee feedback for its managers and leaders. In that training U of I identifies eight key points to address during feedback sessions:

• Give specific examples of desirable and undesirable behaviors.
  Without specific examples of real life situations, the employee will
  only be confused by the vagueness of the feedback.

• Focused feedback on behavior, not the person.
  This will help the employee to “hear” the message and will
   “de-fuse” what could be a conformational conversation.

• Frame feedback in turns of helping the employee be
   successful. 
   Let the employee know that you are trying to help them
   achieve their goal of being a successful employee
   within the organization.

• Direct feedback towards behavior the employee
  can control.
  An employee cannot do much about things over which
  they have no control.

• Feedback should be timely.
   When an event takes place, it is important to provide
   feedback within a reasonable amount of time.

• Limit feedback to the amount the employee can process.
  Most employees are able to handle feedback on one
  or two issues at a time.

• Use active communication skills and confirm the
  employee is engaged in the conversation.
  Use active communication skills such as re-stating the
  feedback, asking the employee to re-state what has
  just been discussed.

• Follow up
   In a day or two, follow-up with the employee in a
   supportive manner.

Human Capital Acquisition: The Role of Knowledge, Skill, and Abilities

Monday December 20, 2010

It is an all too common occurrence. An organization’s recruitment efforts are rewarded with a placement that is 80% of what was hoped for when filling that critical position. Maybe they used a placement firm and the firm had great things to say about the selected applicant, the references checked out, and everyone who interviewed them were accordingly impressed. However, after a few weeks or months on the job, something was clearly missing in the new hire’s toolkit. Finally after a couple of missed deadlines, dropped assignments, and bungled projects it was evident that the new employee lacked even the basic knowledge, skill, and abilities to perform at the required level. Now the organization must release a new employee after a few months and start the entire process all over with the hopes of doing a better job of selecting the right candidate.

When there is a mismatch between the candidate and the job it often boils down to a misalignment between the knowledge, skill, and abilities required to perform the work and those possessed by the candidate. Maybe the job description has not been updated since there was a significant change in the technologies and tools required by the role. Sometimes it is as simple as the fact that there is no description of the job other that what exists in the manager’s head. Or my favorite is the canned job descriptions found on CD’s purchased from the local office supply store or downloaded from some website for $19.99. These pre-written descriptions might work for a low-level clerical or administrative role, but does the organization what to risk a major project based on a generic description of a software or network engineer.

Since most organizations will spend several thousand dollars in direct cost, lost productivity, and opportunity costs to replace an employee, it is increasingly essential that the selection work the first time and every time. While a candidate’s knowledge, skill, and abilities (KSA’s) are only a proportion of what is needed to be successful in a role, nevertheless it is a very large component of the formula for success. Therefore, it is vital that the KSA’s required by the position be mapped to the candidate during the selection process.

Below is a sample of mapping a candidate’s KSA’s for statistical analysis in which it is identified if the KSA’s are present, when, where, and at what level those KSA’s were used. This mapped should be validated via the interview process, credentialing, reference checking, and testing, if required.

Remember, there is noting wrong with asking a candidate to demonstrate their KSA’s with work samples. However, care should be taken not to breech any copyrights or other legal limitations on the use or dissemination of protected materials.

When I advised a candidate that they would tested on the following for their word processing and spreadsheet knowledge, they failed to show up on the following day. 

Human Capital Skill Set Mapping

Friday December 17, 2010

Faced with a forced situation where a product or service must be conceived, engineered, developed, manufactured, and brought to market in a very narrow period it is easy to pull a team together comprised of an organization’s most dependable, talented and loyal employees. Yes, but do they have the knowledge, skills, and abilities to get this assignment right. How does an organization go about linking the skills required by the assignment to individual team members? In the case of existing employees, an organization can rely on the past performance of those employees, for the most part. Employees have a strange habit of modifying their skills over time. An employee who lacked Interpersonal Skills a few assignments back may now have developed those skills. An employee whose Critical Thinking was pivotal on their last assignment may be experiencing an emotional setback due to a life altering event. The employee who was the Problem Solving engine on last year’s major project does not seem to be able to comprehend the fundamentals on the new assignment.

Mapping requires using the same basic three skills of interpersonal communications, problem solving, and critical thinking to get at what skills are needed and in what proportions, and by which team members. Mixing two strong individuals with interpersonal communications skills may result in a lack of coordinated communications among the team members and between cohort teams. The organizational leader must map the skills required to the individual team member or members. This is not to say that there has to be some rigid non-flexible reporting relationship, but there does need to be defined roles. A team with three leaders will go in three different directions and get no where fast.

The team leader: this individual must have the basic knowledge of the product or service, the development process, and the roll out and marketing required. The team leader will rely on team members for the technical and detailed level of product or service development. However, the team leader will have to have strong interpersonal communication skills to ensure that every other team member understands their role. The role of team leader requires communications both upstream to organizational leadership, clients, outside resources, and downstream to team members. At the same, they must take a role as an active listener to ensure that feedback from organizational leadership and team members is heard, evaluated, and when required, challenged and possibly implemented. The team leader must provide coaching in a manner that motivates and directs the energies of team members in the focused direction of the project. The leader’s interpersonal communication skills must allow them to define roles and support members and when appropriate, challenge, redirect, and coach members at other times.

Human Capital Talent Skill Set

Wednesday December 15, 2010

Every organization requires a specific skill set for its talent base. That skill set can run the range from relatively low to extremely high tech, scientific demanding advanced education and training. As with much in modern times, skills wax and wane with the ebb and flow of business skills demands. There is little current demand for “gandy dancers” as heavy machines have replaced much of the work required on railroad tracks today. Even with technology-based industries, the skills which were in demand 5, 10 or 15 years ago may be obsolete. On the other hand, skills, which were valuable a century ago, continue to be in demand, e.g., interpersonal communications, critical thinking, and problem solving.

While many suggest that a specific understanding of a software application, machine, equipment or device is a skill, I would offer that this is learned knowledge and not a skill. Clearly, certain employees have an aptitude for specific kinds of work; a well-educated and motivated employee has the potential ability to learn to use numerous software applications, machines, equipment or devices.

According to the Merriam-Webster online dictionary, skill is defined as:

• the ability to use one's knowledge effectively and readily in
  execution or performance

• dexterity or coordination especially in the execution of
  learned physical tasks

• a learned power of doing something competently

• a developed aptitude or ability

While an employer may desire an employee who has “skill” with SAP, wireless networks or maintenance of Caterpillar D11T large track-type tractors, employers may be missing identifying the skill set needed by that employee to make effective use of SAP, wireless networks or repair a Caterpillar D11T large track-type tractor. It is not a simple task to isolate the skills needed to use any of today’s technology tools in order to execute or perform at the level needed in today’s competitive market place.

Consider the following skill set:

1. Interpersonal Communications: it is more than speaking, it is also comprehension, active listing, questioning, probing, clarifying, and getting to the real issue at hand. Regardless of whether the employee is a truck driver or an organic chemist, if they get the directions wrong nothing will overcome the wrong result.

2. Problem Solving: this means taking the available data, formulating a response appropriate to the situation and devising a solution, which has a high probability of success. I once learned of a graduate level “creating engineering” class at a prestigious university. The task was to extract ping-pong balls from the bottom of a section of vertical pipe. Students were allowed to use any tool or materials in the classroom. Every student in the class failed. None of the students realized that by filling the pipe with water, the ping-pong balls would float to the top.

3. Critical Thinking: this skills goes hand in hand with Problem Solving, employees cannot be an effective Problem Solver without the ability to execute Critical Thinking. Refer back to the ping-pong ball example. The solution was not “high-tech”, it did not require advanced knowledge of any specific subject, it however, did require the students apply their learned knowledge in a somewhat “creative” and unique manner. Maybe even in an unconventional manner.

If you consider just these three skills: Interpersonal Communications, Problem Solving, and Critical thinking everything else flows from them. Couple these with specific knowledge, the right team members, incentives, and you have a high likelihood of achieving the desired results. Whether the task requires project management, allocation of human, monetary or physical resources, resolution of customer service issues or product communications, these three skills play a role in reaching the objective.

Jobless Recovery: Human Capital Utilization

Monday December 13 2010

For some time now, indications are that the current economic recovery, which is slowly taking place, will be a “jobless” recovery. By that it is meant that jobs lost in the downturn will not reappear or will reappear in significantly less numbers than prior to the recession. If this is the case, the recession of 2009 will be the third such jobless recovery since 1990. The first and second jobless recoveries occurred in 1991 and 2001 respectively. Prior to 1991 recession-recovery cycles resulted in as many jobs being created as were lost and in some case, excess jobs were produced.  According to The Economist online, the current recovery is following the same path that the prior jobless recoveries of 1991 and 2001 took: a permanent loss of jobs.

To be perfectly clear, it is not the role of private business to create jobs. Jobs are created in the business sector only when a valid business need requires to be fulfilled. Government does have the ability to construct an environment, which stimulates job growth, through public policy, taxation, incentives, and even direct creation of public works. The reason that private business should be concerned with a jobless recovery is twofold: 1. those jobless workers are part of most businesses consumer market, including housing and auto,  2. those jobless workers are part of most businesses future labor workforce.

Following the “dot com” bust, the numbers of students entering IT programs at colleges and universities fell significantly, taking seven years before an uptick was experienced  An article in the Communications of the Association for Information Systems titled “Determinants of Graduating Mis Student Starting Salary in Boom and Bust Job Markets” reported that following the “dot com” bust, starting salaries for IT openings fell by 15% and positions fell by 18%.  As a result, many organizations struggled and continue to struggle with recruiting and retaining IS talent for several years.

Cisco Systems Inc. learned an expensive lesson from the “dot com” bust. If you want to survive, you need the right talent in place before the upturn occurs. According to a Wall Street Journal article on March 10, 2010 by Ben Worthen, Cisco was able to retain almost 70% of its top executive staff who were veterans of the “dot com” bust. Along with other strategic moves and A and M actions, Cisco has been able to emerge from the current recession stronger than it entered it.  Having the right veteran leadership in place before the recovery stared, allowed Cisco to apply the lessons it learned.

In summary, much of the talent that organizations will need to survive and grow over the next 3-5 years is either unemployed or underemployed. While businesses do not have luxury of hiring unneeded workers, it is import to remember that just as organizations develop products and services to ensure they are fully marketable when the need arises, organizations must also develop the talent to design, engineer, craft, market, and service those products and services. An underemployed software or network engineer, developer, or systems analyst may never fully develop their talents and skills making it difficult or impossible for an organization to release a new product or service and thus compete in the marketplace. Taking a lesson from Cisco, it is essential that organizations have the talent they need, when and where they need if they are going to sustain and expand their competitive position in their marketplace.

Work-Life Balance: Examples

Friday, December 10, 2010

A June 2004 Issue Brief released by the Center on an Aging Society at George Town University titled “Workers Affected by Chronic Conditions”, list a number of employer-based programs that could be adapted for work-life balance.

    • Flextime

    • Part Time

    • Compressed Work Weeks

    • Telecommuting

    • Job Sharing

    • Paid and Unpaid Leaves
    • Sabbaticals

While the George Town University article was directed at employees caring for elderly relatives as well as relatives with chronic medical conditions, these programs are also suitable for employees with new and young children as well as single and married employees desiring more flexibility in the work place.

Flextime: This is normally comprised of a core set of hours during which the employee must be on site or in the office. Employees may start prior to the earliest core hour and may work past the last core hour. As an example, typical Core hours might be 9AM to 3PM, Flex hours could be 6AM to 8AM and 4PM to 6PM. Employees could report to work as early as 6AM and leave as early as 3PM. During certain peak load periods, employees might be required to come earlier or stay later based on the needs of the organization.

Part Time: Employees would work less than a standard organization workweek. This could be 2 to 6 hours per day or less than say 30 hours per week. The employee might be required to work a full time schedule temporally to fill in for vacations, sick leaves or other absences as needed. The hours worked each day might be highly variable to meet the fluctuating demands of the business. There could even be periods of time when the employee would not work at all.

Compressed Work Weeks: examples of this are 3 12-hour days or 4 10-hour days while these arrangements have traditionally been used in medical care settings with nursing and direct care givers, they are finding their way into businesses. As with other schedules, there may be times when the employee is needed beyond their normal schedule.

Telecommuting: This may require the organization installing high-speed telecommunications lines, desktop, and docking stations, printing devices, and special telephone lines. Employees may be required to report to a central or satellite office periodically for meetings, trainings, and coaching. Employees may be required to meet certain productivity goals or complete work assignments within certain periods.  Depending on the work involved, the employee may have a high degree of flexibility as long as the work is completed per specification.

Job Sharing: This is really related to Part Time employment. The job may be shared between two or more employees, although it could be administrative difficult to have more than 3-4 employees sharing the same job. One employee might work Mon-Wed-Fri while the other works Tues-Thrus. Alternately, one employee might work mornings while the other works afternoons. There might be times when both employees are needed at the same time for a special project or during peak loads.

Paid and Unpaid Leaves: These might be used in conjunction with FMLA or not. This could also be related to some type of non-work related educational assignment or training. Alternately, this could be associated with voluntarily activities related to a natural disaster. Management of the timing of such leaves would be critical to maintaining normal organizational production.  Benefits might continue during these period s with the employee 100% of the cost of any employer provided benefits such as health care.

Sabbaticals: Sabbaticals are typically associated with educational facilities and organizations. However, there is no reason that an organization could not grant sabbaticals for an employee to complete some educational worked that would benefit the organization. An organization in the engineering, chemical processing or other technical filed could derive value from an employee completing a graduate or port-graduate degree.  Benefits might continue during these period s with the employee 100% of the cost of any employer provided benefits such as health care.

The key to such programs is the ability of the organization to be flexible in allowing them. Additionally, these programs have to fulfill and meet the business needs of the organization.

Work-Life Balance: Finding the Balance

Wednesday, December 08, 2010

Let’s be honest, for most of us, work is not easy and finding some kind of a balance between our job, our life, and our family is difficult to say the least. Our jobs often seem to take increasing amounts of our limited waking hours. As organizations have struggled to remain competitive during the most recent downturn, many workers have found themselves taking on additional duties. If the job was not demanding enough, our commutes have gotten longer, traffic is heavier, and from every direction, our attention is being demanded. A former boss used to turn to me and say, “Deal with it Teal”!

It is easy to ignore the conflicts between work, life, and family until your top engineer quits to run a chicken farm in Texas, or your top trader buys a sailboat and moves to the Bahamas or you realize that employees are under performing by 20% because they are so stressed out. Moreover, it not as simple as telling them to “deal with it”. These are resources that you have spent thousands of dollars to recruit, select, and train. They are working with your top clients on projects that will make more break your organization and you may fail if they are not performing at their best.

Balancing an employee’s work and their personal life is not just an issue for working dads and mom. Single employees as well as married employees who have no children value their free time equally as would any working parent.  While virtually every business needs to increase productivity and decease production costs, pushing employees to a breaking point will achieve neither. Consider the tech-no era concept of telecommuting, once it may have been considered a perquisite, today it is more likely to be an essential to attract and retain your workforce.  Telecommuting and technology is not only for the 20 something dad or mom who wants to work from home or run webinars while the kids are off to school. Baby Boomers outspend their younger cohorts on technology to the turn of $1 trillion dollars annually. And they account for over 30% of the population and they are not planning to retire anytime soon.  While these Boomers may no longer have school age children to care for, they are looking for flexibility in employment so they can travel, pursue new careers, and phase into retirement. In addition, they bring with them 30 plus years of developing the technology that is driving today’s businesses. Boomers will reengineer retirement into whatever meets their needs.

Creating a work-life environment that fits the needs of the organization and the employees is not easy. Nor is it impossible. In many cases it is the ability of the organization to be flexible which the most important ingredient. With the current technology, organizations have the ability to allow work to be performed from home, on the road or in a central or satellite location. Concepts such as “hoteling” allow remote workers to cycle through the “home office” without the need for large and expensive office complexes, while providing a balance to work-life.

Total Compensation: Direct Pay and Benefits Trade-Off

Monday, December 06, 2010

Organizations have limited budgets and linked ability to trade-off direct cash compensation and benefits without severely impairing their competitive position for human capital. It is correct to assume that employees will weigh the mix of cash compensation and benefits based on their immediate and long-term needs when making employment choices. One such choice involves the cost of health care.

As health care costs have continued to increase, many organizations do not have the ability to increase both their contributions towards health care and direct cash compensation in the form of salary increases. Consequently, organizational salary budgets have remained in the 2% to 5% range for the last decade. According to WorldatWork, which has published an annual salary budget survey for several decades, the actual median merit budget salary increases from 2000 to 2010 have ranged from 2.0% to 4.8% with little variation between job classifications.

Thus for a dollar of salary in 1999, the average U.S. worker saw an increase in base salaries of approximately 160% through 2010. On the other hand, according to the National Conference of State Legislatures during that same period, annual employee health care contributions rose from an average of $1,619 to $3,997 or 159%. According to the same report, annual employer contributions have risen from $4,819 to $9,773 or 130%. While employee health care contribution costs have risen significantly faster than the employer’s, the median increase over the 10 year period differed by 1% and both groups have seen a doubling of expenses in the last decade.

While other economic factors were at play during the decade of 2000-2010, the average U.S. worker has seen erosion in real income as health care costs have eaten into earnings. During 2007 testimony to the House Committee on Financial Services, by Federal Reserve Chairman Ben Bernanke, discussions centered on economic growth for the period from 2000 to 2007, which saw significant growth in U.S. productivity, that growth did not translate into real wages for most workers.

Although there is no definitive proof linking the decline in annual salary increases and the continued increase in health care costs, it is reason to surmise that seeing the rise in health care; organizations have consciously or unconsciously opted to redirect monies from direct cash to benefits.

Smoking Cessation, Surcharges, Bans and Health Care Costs

Friday, December 03, 2010

The evidence of the harm caused by smoking and tobacco use has been well known and documented for several decades. Smoking, according to the U.S. Surgeon General, accounts for 443,000 deaths and cost $198 billion dollars in health care costs annually.  Yet millions of Americans continue to smoke, the CDC estimates that 43 million Americans are active smokers.  Furthermore, the U.S. Surgeon General reports that each day 1,000 teenagers start smoking.  While tobacco use is known for its relationship to cancer, it is just as correlated to co-morbidities such as:
                              

    • Heart disease

    • Cerebrovascular disease

    • Chronic bronchitis

    • Emphysema

    • Stomach ulcers
                                   

To address health care issues associated with smoking and tobacco use, many employers have taken steps to support cessation and employers are beginning to implement smoker surcharges and bans. Smoker cessation programs are designed to assist smokers in quitting. Surcharges are additional charges paid by smokers to obtain medical, Rx, dental, and/or life insurance coverage. Smoker bans are outright bans against smoking even during the employee’s non-working time. The logic is simple, if you smoke and/or use tobacco products; your likelihood is significant that you will require more health care than a non-smoker will, thus you should contribute more towards the cost of that health care.

Oddly, employees and even the American Civil Liberties Union object to smokers being charged more than non-smokers based on “lifestyle discrimination”. The concept of Lifestyle Discrimination is associated with numerous private, off-duty time activities engaged in by employees and includes tobacco usage.  While this author will not attempt to address the legal issues surrounding employment rights and Lifestyle Discrimination, he will attempt to highlight issues behind an employer’s basis for smoker surcharges and bans.

Smoking and tobacco use is widely accepted to be the precipitator of several health care issues. Employers who provide employee health care absorb some portion of the costs associated with those health care expenses. Aside from the direct health care monetary cost, tobacco users, in general, have higher rates of absenteeism. As such, organizations with high rates of smoking and tobacco use are at a competitive disadvantage compared to organizations with lower rates of smoking and tobacco use due to higher health care costs and relative increases in rates of absenteeism.

Smoker cessation programs, smoker surcharges, and smoker bans are attempts by employers to control the cost of production in the same manner that employers attempt to control the cost of any products or services, which lead to production. Employers have a genuine desire to promote and maintain the health and well-being of its workforce and family as a means of being a corporate citizen in the same manner that organizations support cancer research and prevention of birth defects.

The Role of FSA, HSA, and HRA’s and HDHP

Wednesday, December 01, 2010

Since in a HDHP the employee-consumer will be responsible for a minimum of $1,200 to $2,400 in out-of-pocket expenses, Flexible Spending Arrangements, Health Savings Accounts, and Health Reimbursement Arrangements provide several means by which HDHP expenses may be pre-funded. Each of these three methods has its own advantages and disadvantages, which is one reason HDHP’s require significant employee-consumer education around their permitted uses. FSA’s (IRS Code section 125) have been around for a number of years and is most likely familiar to many. Both HSA and HRA’s have come on the scene more recently as HDHP have become more popular. All three are highly regulated by the Internal Revenue Service.

The education of employee-consumers cannot be understated especially when it comes to the use of funding accounts such as Flexible Spending Arrangements, Health Savings Accounts, and Health Reimbursement Arrangements. Whether funded by the employer, jointly by both employer and employer, or solely funded by the employee, knowledge of the working of these account is vital to employee-consumer. All three of these accounts are helpful in assisting the employee-consumer understands the full cost of health, from which most employee-consumer have been shielded for decades.

In the same manner that Defined Contribution (DC) retirement plans have helped millions of workers understand that either they are solely or to a significant degree, responsible for their retirement, FSA, HSA, and HRA play the same role. You may well consider that in the early days of DC plans employee had little knowledge of saving and planning for retirement, investing, mutual funds, financial terminology, and matching amounts. Since the 1980,’s most Americans have had or currently have some type of DC plan and consider it the norm. In 10 to 20 years, most American will have had a FSA, HSA, and HRA associated with a HDHP and consider that a norm as well.

Therefore, we have come full circle. We have looked at HDHP, savings accounts and consumer education and tied it all together. Or maybe not? Organizations have move through several paradigm shift in health care products from first dollar indemnify, to HMO’s, to PPOs and POS, and finally to HDHP’s. Will HDHP be the end of the product development line for health care no? Somewhere, someone is conceiving the next product. What will it look like? Maybe it will look some combination of the products that are already out there. Maybe it will be a hybrid of a PPO/HDHP/HMO.