Talent Management and Retention: Reward Strategy for 2012

Friday, December 30, 2011

Where should organizations place their emphasis in 2012 on talent management, retention, and rewards? In 2012, there are certainly a number of complex and complicated variables including: an encouraging but slow U. S. recovery, a looming presidential election, weak U. S. employer and consumer confidence, continued congressional deadlock over spending and revenue, and the potential floundering economy and political turmoil in Europe.

Even for employers who are reluctant to hire, when they do hire every effort should be directed at hiring the top talent available. This may result in an extended search and selection process. However, the results will be an individual who is a top performer, integrates well into the organization, and a member with the right skills, for the right role, for right now. Regardless of whether internal or external recruiting staff is used, employers no longer have the luxury of a bad hire with its associated high costs and lost opportunities.

In order to retain that top performer, they have to be rewarded, and rewarded well. An organization’s top performer will not be satisfied with a 2% increase. Cash and non-cash rewards have to be tailored to each performer on a personalized level. The organization must know what motivates each performer and design a mixture of rewards and incentives to keep them on track. Employers can be assured of one thing; in 2012 there is someone out there looking to hire that top performer away from their current organization.

Today, it would be hard to find a large organization that does not have multigenerational and diversity challenges in managing their workforce. Top performers can be found in every generational segment, the challenge is managing all of them to get the best results from all team members. As many boomers extend employment beyond their normal retirement age and as new college graduates enter the workforce; the synergy of all groups can prove to be beneficial or detrimental, depending on how they are managed.

One thing the recent economic recession has taught organizations, is that some parts of their businesses may have suffered, while other business lines have prospered. Top performers in those business or market segments which are experiencing a downturn or stagnation, will require special attention. While the organization may have made a strategic decision to exit a market space, top performers are still expected to manage that process to its maximum value.

Rewards and incentives have little value unless they are meaningful to the intended performer. This means that what is valued and has meaning for a top performer in Boston may not have the same value or meaning to someone in Mexico City. The same holds true for members of various generations. Thus managing top talent requires a reward system that speaks to the individual’s generational, cultural, and situational attributes. This system of rewards has to be dynamic. As an employee moves from one assignment to another, what motivated them in a prior role may not necessarily motivate them in their current position. What incented a top performer in the early days of their career may have no value in today's position.

Patient Protection and Affordable Care Act’s Impact on Job Lock

Friday, December 23, 2011

On December 15, 2011, Government Accountability Office released a seven month study on the Patient Protection and Affordable Care Act (PPACA) and its potential impact on Job Lock. Job Lock is a phenomenon where employees decide not to separate from their employers due some employer provided benefit such as health care coverage. The study was initiated by two questions from three leading members of the Senate; Harry Reid, Majority Leader, Max Baucus, Chairman, Committee on Finance, and Tom Harkin Chairman Committee on Health, Education, Labor and Pensions.

The two questions were:

“1. What has research shown about whether and the extent to which workers stay in jobs they might otherwise leave out of fear of losing health care coverage and the impact of those decisions on the labor market?

2. What are expert views on the ability of PPACA to mitigate job lock?”

In a classical example of a double-edged sword, the Job Lock impact of PPACA has the potential to both encourage and restrict employee mobility among employers. While the 32 page study stopped short of any definitive conclusions of PPACA and Job Lock, the study did concede that certain provisions of the Act pose greater positive or negative influence on worker attraction and retention.

The primary reasons which employers offer health care coverage to their workers is to attract, retain, and motivate their workforce. Health care, along with other benefits, plus wages combine to make up a worker’s total compensation package. Employers utilize this total compensation (reward) package approach as one of several ways they hope to differentiate themselves from their labor market competitors. Anything that disturbs that differentiation could have potential impact on an employer’s ability to acquire and retain a stable, talented, and skilled workforce. On the other hand, anything that levels the playing field among otherwise equal competitors could allow employers to focus on their products and services as well as allowing talented and skilled worker to flow unimpededly among employers.

It is generally agreed that worker mobility among employers as well as in and out of the workforce has positive and negative value to both employees and employers. Thus anything that has the potential to remove health care coverage induced Job Lock as a barrier could be seen as beneficial to the overall economy. However, the law of unintended consequences is very fickle, while designers and developers of public policy believe they understand how complex systems such as a national workforce behaves, it is impossible to predict the long term impact of such systems over 10 or 20 years.

It would be hard to imagine that anyone in the early 1970’s could have foreseen the current significant decline in the defined benefit pension plan as the major retirement funding method for most American workers. Nor is it conceivable that the designers of tax reform intentionally constructed a system as complex as tax legislation in manner to achieve such a decline. The designers of the Patient Protection and Affordable Care Act indicate their reasoning behind this landmark effort to curb both private and public health care cost. Certainly, most would agree that health care costs are too large a component of employers’ cost of doing business as well as the national expenditure. What is not certain is the long term impact of such a groundbreaking measure as national health care reform on an economic system as complex and as inelastic as health care.

Expectations: Employers vs. Employees, Is There a Middle Ground?

Friday, December 16, 2011

Towers Watson’s May, 2011 report, “The 2011/2012 Talent Management and Rewards Study, North America” clearly showed that both employers and employees are out of touch with each other’s expectations. This is most clearly illustrated around those reasons each group perceived why employees would consider joining an organization. US employers perceived that employees were attracted to their organizations due to reasons such as, Base pay, Organization's mission, Organization's reputation, Career development, and Challenging work. On the other hand, employees reported that Job security, Base pay, Health care, Length of commute, and Time Off were their top concerns. As might be expected, “Base pay” was the only issue on which they both agreed. Employers and employees are equally out of touch with the reasons why employees would chose to leave an organization. US and Canadian employees indicated Work-related stress as the top reason they would exit their current employer, yet employers thought that Base pay was the reason.

The issue of a misalignment between employers and employees expectations comes into focus when employers are attempting to attach and retain highly skilled and top performing workers. Even in the kind of economy that has existed for the last several years, top performers and highly skilled workers have other employment options. Since most progressive organizations build their reward systems around features which they believe are designed to attach and retain employees, this misalignment means that many employers have designed systems that have little value to employees. It is great that an organization has a noble mission, stellar reputation, strong development opportunities, and offers challenging work. However, what employees want is more substantive values such as employment security, good pay, health care, reduced commute time, and time off. Many of these employee desires appear to be rather utopian on the surface. With the two parties apparently so far apart, is there any way the two can reach their individual goals?

Job security: In this highly competitive and dynamic global economy employers do not have the ability to promise long term employment. However, employers do have the ability to manage they workforce to provide for mobility, allowing for the transfer of talent within the organization. And employees can ensure that they maintain the knowledge, skills, and abilities that their employers will demand now and in the future and if and when they need to seek other employment.

Base pay: Employers need to invest the technology resources in tracking market wages so that base pay is competitive, and not tied to antidotal perceptions. Employees need to recognize that Base pay is only one part of the total compensation equation and they, through adding economic value can have some control over their own wages.

Health care: Employers can do much to acquire and provide affordable health care. However, employees are ultimately responsible for reaching and maintaining a healthy lifestyle. Lack of exercise, smoking, obesity, excessive alcohol consumption, and improper diet are all significant contributors to many of today’s chronic illnesses. Ironically, employee participation in many employer provided preventative health and wellness programs is low.

Length of commute: Today’s technology allows many workers to work remotely form home or off-site. Yet many employers have not taken full advantage of such opportunities. Flexible starting and stopping hours, working remotely, and “hoteling” offer reduced expenses for both employers and employees.

Time off: Employers have the ability to reduce the importance of this issue with increased flexibility around when and where employees work. In addition, rather than providing separate “buckets” for sick time, vacation, and holidays; employers could consider a single allocation of time under a “paid time off” arrangement. Employees would be required to manage their time appropriately; however, they would have the flexibility to deal with work-life issues.

Employers must become better at understanding the expectations of employees and employees must become better at understanding that they have a role and a responsibility in this partnership.

Employers vs. Employees: A Disconnect for Retaining Talent

Friday, December 09, 2011

What workplace issues are important to employees and do employers and their employees agree on them? The simple answer is No! Workplace issues which are important to employees and what employers perceive as important do not align. This failure to align has and continues to create an inability of employers to both attract and retain workers with the desired skills. Even in the face of high unemployment, many employers continue to struggle with their failure to attract and retain talent. Towers Watson a global professional services company reports that as much as 60% of North American organizations are continuing to report “having trouble attracting critical-skill employees”. Furthermore, employees and employers disagree on what pay and workplace issues are important to employees.

In its May, 2011 report, “The 2011/2012 Talent Management and Rewards Study, North America” Towers Watson surveyed 316 employers in the US and Canada on a variety of workplace issues including the top 5 concerns which are important to employees. In virtually every case, employers and employees disagreed on what was important to the employee. US employers perceived that employees were attracted to their organization due to, Base pay, Organization's mission, Organization's reputation, Career development, and Challenging work. However, employees reported that Job security, Base pay, Health care, Length of commute, and Time Off were their top five reasons to join an organization. The only issue that employers and employees could jointly agree on is “Base pay”.

Employers are equally disconnected with the reasons which would cause employees to leave. Across the board, US and Canadian employees reported Work-related stress as the top reason they would leave while employers perceived that Base pay as the top issue. Clearly, employers are out of touch within those issues which are important to employees, affecting both attraction and retention.

What are the driving forces behind the differences between employers’ and employees’ perceptions of Base pay vs. Work-related stress as competing top factors in US employee’s decision to leave an organization? One thing is clear; employers are expecting more from employees. Not only have employers expected more hours but more knowledge, skills, abilities, and competencies. As organizations have restructured to remain completive, employers have sought out ways to leverage those employees left in order to meet customer demands. Additionally, organizations have begun and are continuing to change how employees are rewarded at all levels. Employers are recognizing the fact that many of them have not aligned their reward practices with their organizational needs. This includes short and long term incentives as well as career pathing, coaching, mentoring, development, leadership, and succession planning programs.

Even as the recent economic conditions reached their deepest point, many employers were struggling with attracting the critical-skilled employees their organization required. By 2010, organizations were reporting a doubling of concern over critical-skilled employees and their inability to attract and retain them in spite of an average of 5 applicants per job opening. Furthermore, despite a decline in the quit rate, many employers were reporting concerns over being able to fill critical-skills positions.

Public Health Care Could Be Saddled with Sick Employees

Friday, December 02, 2011

It goes without saying that employers are struggling with the high cost of health care for their employees and covered dependents.  Every open enrollment season brings a new round of cost shifting, plan changes, and strategies designed to control utilization and lower expenses, for both employers and employees.  Yet, year after year, the total cost of health care plans continues to climb at rates of several multiples of the current Consumer Price Index, eating deeper into most organizations’ and their employees’ earnings.

With the passage of the Patient Protection and Affordable Care Act (PPACA), some have speculated that employers would exit the health care market entirely or attempt to unload their sickest employees and dependents onto public health care plans.  If the later were to take place, over time these public plans would experience a death spiral of escalating costs that would make them all but unaffordable, even by the deep pockets of a federal government.

Amy Monahan and Daniel Schwarcz weave a Gordian Knot of the pros and cons as well as various scenarios of how employers might undertake the spin-off of their highest risk employees by shifting them to government sponsored exchange-based health care plans. Writing in the March 2011 Virginia Law Review, Monahan and Schwarcz construct a roadmap of how employers might accomplish such an achievement they claim is permissible under the PPACA and possible strategies which could avert or dampen such efforts. The authors’ premise, other than subverting the spirit of the law, is that such actions would benefit employers, especially larger employers, by lowering their overall health care costs.

Fundamental to health care utilization is the Pareto Principle or more commonly known as the 80-20 Rule, which simply states that 80% of a health care plan’s expenses are incurred by 20% of the participants.  While not totally restricted to health care plans, the Pareto Principle holds true that the overwhelming majority of costs are incurred by the sickest, i.e., the highest risk members within the plan.  Thus, if those high-risk, high-cost employees and their dependents were to be removed from the employer’s plan onto a government sponsored exchange-based health care plan, an employer could see a significant reduction in their ongoing health care cost.  The counter-point would be increased health care expenses and consequentially higher premiums for all exchange-based members, as well as the potential that exchange-based health care plans would not be self-sustaining.  There are numerous regulatory and systemic barriers to prevent employers from merely “dumping” high-risk employees onto exchange-based health care plans; only time will tell if large numbers of employers actually take such actions.

One possible model might shed some light on the prospective future of employer sponsored health care plans is the fate of the traditional defined benefit pension plan. With the large scale introduction of defined contribution plans beginning in the 1980’s, many employers eliminated, scaled back or redefined their defined benefit pension plans.  While this migration away from defined benefit to defined contribution plans has occurred over two decades and weathered several court tests, it has left the defined contribution plan as the major source of retirement income for most Americans.  Since employers are highly sensive to competitive pressures, including compensation and benefit practices, many employers simply followed their peers away from defined benefit to defined contribution plans.   Such could be the future of employer sponsored health care plans.

Wage Stagnation and Structural Unemployment

Friday, November 25, 2011

Wage Stagnation, a.k.a. “median wage stagnation”, can be defined as the lack of long-term real wage growth and can be best illustrated by U.S. worker wages from the 1970’s until present. Structural Unemployment occurs when there is a mismatch between the skills employers require and the skills of prospective workers. 

The current period of elevated employment is indicative of structural unemployment with thousands of job openings going unfilled, while many of U.S. workers lack the skills to fill them.  How are wage stagnation and structural unemployment interrelated with organizational productivity?  Many workers acquire their initial job skills during early formative years in secondary, trade or  higher education. Others may develop skills as the part of some informal or formal on-the-job training program through employers or trade unions.

Prior to World War II, skills developed early in life were generally suitable for the entire life time of many workers. However, as the post war world developed into the technology and information age, workers often are required to be re-trained or acquire new skills. Today, workers often change jobs and careers and reinvent themselves as whole industries undergo radical change and once solid jobs disappear.

The prime objective of a publicly or privately-held organization is to return economic value to its stakeholders, whether those are individuals, partners or shareholders in a common corporation. To do so, the organization must produce those goods or services demanded by its consumers, at both a price and quality that consumers require. To meet this objective, the organization must acquire, motivate, and retain individuals with the characteristics and skills to produce those goods and services.

Jobs that once could be had with a basic high school education, now often require additional technical training in numerical controlled machining tools, robotics, intermediate math, problem solving, and logical thinking processes.  While traditional four-year degrees in higher education have been the gateway for many workers to advance, numerous industries still continue to offer well paying jobs with two-year degrees and through trade and apprenticeship programs throughout the nation.

Organizations continue to find that in-house sposonered training is required to better engage new employees while building long-term relationships and developing future team leaders.  In order to become and remain productive and competitive, many organizations have resorted to partnership with local educational institutions to provide job related trade and skills training for current and future employees. Regard less of how it occurs, businesses with specific skill requirements have found that they must take action to ensure a significant inflow or skilled workers.

While issues with Wage Stagnation and Structural Unemployment cannot be addressed by any one organization, without real wage growth and a means to effectively deliver skilled workers to a business sector when needed, enterprises will continue with competiveness.

Walmart, Is Doctor Sam In?

Friday, November 18, 2011

Can the world’s largest retailer roll back prices on primary health care? Last week, the world got a look at the possible aspirations of Walmart’s latest venture, managing chronic diseases such as diabetes, asthma, high blood pressure, heart disease, and other illnesses. Walmart has been accused of destroying thousands of family owned and operated hardware, sporting goods, and clothing stores with its overwhelming marketplace presence. However, in the face of Walmart’s potential expansion into the primary health marketplace, it has eliminated health care benefits for its own employees who work less than 24 hours per week. Will patients vote with their wallets and abandon their primary care physicians in favor of Dr. Sam?

Many, if not most Walmarts have onsite pharmacies; others include optometrists; so why not include a primary care office? And some Walmart locations do offer walk-in clinics. It is hard to explain how a guy from Bentonville, Arkansas out did the Sears, Penney’s, and other retail mainstays to become an American institution, but he did. The basis for Walmart’s success has been its ability to put what the customer wants, at the price the customer is willing to pay, when the customer wants it on its store’s shelves. So how would this model that work in health care? Not many of us want a colonoscopy at any price.

For starters, it is unlikely that Walmart would perform even minimally invasive medical procedures within its stores. However, routine physical check-ups, diagnostic and basic laboratory screenings, health care and wellness coaching and counseling, as well as medication adherence and monitoring could be accomplished in a way to ensure patient privacy and protection. And while it is true that laws regulating health care do vary from locality to locality, so do most other regulation relatives to operating any business.

Would Walmart be able to appropriately staff a primary health care facility? It would not have to; it would merely sub-lease a space within a store to any existing or new medical practice that would then staff it with the required medical skills needed. Initially the facility might restrict the types of patients seen to routine physicals, health and wellness, and coaching and counseling. However, over time, patients requiring more extensive treatment could be seen as both Walmart, their medical providers, and the public became more comfortable with the services rendered. While Walmart would never (never say never) perform highly invasive procedures, it could certainly redirect a significant amount of traffic from the small medical practices as well as underserved communities throughout its market area. Walmart currently operates over 130 walk-in clinics in some 29 states. A good start on being the nation’s largest primary health care provider? And who operates these clinics, local and regional medical providers.

Walmart could become the dedicated primary medical provider for small and medium employers by contracting directly with the employer. Consider this adaption of the model, Walmart provides basic and routine well care, pharmacy, dental, and vision services on a capitated basis; while catastrophic and major medical care and hospitalization coverage is provided by a fully or self-insured health care plan. Capitated rates could be relatively low $10-$15 PMPM and catastrophic and major medical based on community rating. Sounds like an HMO, look out Kaiser, here comes Dr. Sam!

Health Care Cost and Consumer Accountability

Friday, November 11, 2011

For decades, the true cost of health care has been hidden by the inability of the consumer, a.k.a. the employee and their dependents, to see the total cost of services provided. Documents such as the Explanation of Benefits (EOB) are great resources, however they are delivered long after the care itself is provided. Medical providers are often ill prepared and ill equipped to provide complete costs upfront since they themselves do not know the expenses associated with many services not directly provided by their facility. Many consumers do not realize that they do have a degree control over when, where, and how many non-emergency services are provided. Consumer Directed Health Plans were thought to provide the incentive for health care consumers to “shop” for medical services, in the same way that they would shop for a car. The problem is that there is no “Kelly Blue Book” for health care procedures which is easily accessible to most employees and their families. The result is that consumers are often unknowledable about the total cost of a medical procedure, and thus lack the information to shop around for the lowest cost or for that matter, the highest quality provider.

While some form of high deductible and consumer directed health plans have been marketed by carriers since the later 1990’s, only in the last decade have Consumer Directed Health Plans begun to be offered through employers in significant numbers. An April 27, 2011 report in Plansponsor stated that Consumer-Directed Health Plan participation increased 22% between 2009 and 2010, to an enrollment of 28 million, according to analysis by Mercer’s National Survey of Employer Sponsored Health Plans commissioned by the American Association of Preferred Provider Organizations. While sounding impressive, CDHP’s have a long ways to go to match the estimated 69% take-up rate for PPO plans reported in the same survey. The survey went on to report that 51% of employers with 20,000 + employees offered employees a CDHP.

The increasing popularity of Consumer Directed Health Plans is a simple economic function, i.e., lower premium costs to both the employer and employee. Typical private insurance premium costs for CDHP’s can range from $40 to $230 per month less for individual and family coverage respectively than standard PPO’s.. Employer sponsored plan premiums for both fully and self-insured plans can be significantly lower with the combination of group pricing, employer contributions, HRA/HSA incentives, and pre-tax employee contributions.

But the question remains, has Consumer Directed Health Plans contributed to lowers overall costs, a better informed, educated, and knowledgeable health care consumer? In a recent 2011 survey commissioned by ACS , A Xerox Company and carried out by Buck Consultants, 56% of HSA participants reported that their qualified plan offers a reasonably priced health care option compared to other alternatives. The survey also concluded that "… employees are benefiting from more educated, responsible health and wellness decisions … ".

Survey participants with HSA’s report:

     54% - Saving more money to cover medical costs

     18% - Engaging in healthier lifestyle choices

     18% - Researching preventive care programs

     28% - Shopping for lower priced prescription drugs

     31% - Better health care planning throughout the year

Results such as the ACS - Buck survey are certainly encouraging and appear to point to an emerging trend in the consumption behavior of some health care consumers. However, we are still taking about less than one third of health care plan participants being enrolled in a Consumer Directed Health Plan. And while 28 million individuals is no small number, it does represent a minority and of greater concern, individuals who may be healthier participants and are thus less likely to need health care. Leavening a concentrated pool of less healthily individuals in the remainder of the population.

Tough Times for Employee Recruiting

Friday, October 28, 2011

Times are tough – everywhere; individuals, governments, and organizations are all dealing with significantly less earnings, revenue, and income. Virtually every facet of our economy is affected; lowered consumer consumption, reduced governmental services, and even reduction or outright elimination of employee recruitment efforts.  Nevertheless, public and private employers are facing a significant brain drain as baby boomers have begun to retire. Even in the face of reduced pensions, 401(k) balances, and prolonged periods of unemployment; many workers are continuing to retire. Many organizations requiring highly skilled technical, professional, and scientific skills are facing a “war for talent”.

In addition, while it is true that some baby boomers are postponing retirement, organizations continue to struggle to fill critical roles in their technical areas of research and development, product development and production, and systems infrastructure.  The Pew Research Center estimates that beginning on January 1, 2011, 10,000 baby boomers are expected to retire every day for the next 19 years. That is a total 3.6 million employees potentially exiting the labor force ever year. Great news for the 9.1% of Americans currently out of work (provided if they have the required skills), even if only half that number actually retire.

So it begs the question that in the light of the loss highly skills technical, professional, and scientific talent, why would organizations reduce or eliminate recruiting efforts? Could it be a false sense of security or a sense of over confidence? Are organizational leaders overly optimistic about their ability to attract and retain the required workers? Have they been lulled into the delusion that high levels of unemployment translates into a ready and available labor force of highly trained and skilled workers? Corporate recruiters, like most of us are attempting to maximize their return on investment. In these lean times, it makes good sense to focus recruiting efforts on those schools which are most likely to produce the best candidates.  Increasingly, organizations are looking at the top state schools and not so much at the Ivy League.

Nor should we become tunnel-visioned into thinking that the talent war is restricted to engineers and computer scientists at Apple, Cisco, and Microsoft. Retail organizations the likes of Domino’s Pizza, Dunkin, Popeyes, KFC, Subway, Panera’s, and Chipotle Mexican Grill are struggling to find the talent to expand and manage their domestic and overseas operations. Securing that talent often means looking outside the organization and even outside the retail industry.

As pressing as the talent war is on existing and established companies, consider the impact on new and growth organizations. Large well established companies at least offer some degree of assurance that they may be around in two weeks. While past performance may be no guarantee of future performance, existing and established employers have a track record, good or bad, which can be analyzed. Start-up and organizations in the early stages of development offer very little more than unknown risk. Attempting to recruit highly skilled talent for such a company that has no track record, is not yet profitable, few secured customers, and an untied untested product is a challenging task.

The Invisible Workforce

Friday, October 21, 2011

No matter what you call them: independent contractors, freelancers, temporary, provisional or interim workers; the current economic conditions has bred an invisible workforce, many of whom are working for cash and off employers official payrolls. The IRS reported in 2005 that Americas under reported their incomes by some $1.3 trillion.  So significant an issue is this; that IRS actually has a chapter in its Audit Techniques Guide to assist examiners in reviewing for potentially non-reported and under reported incomes. While this may seem like a non-issue for employers, the IRS and states are just as concerned with employers who have misclassified workers as independent contractors and are thus under reporting Federal and state payroll taxes. Failure by an employer to properly classify workers as statutory employees and remit payroll taxes can lead to significant fines, back wages, legal fees, and potential civil or criminal sanctions.

Last month, the DOL, IRS and seven states signed a memorandum to share information on businesses who failed to remit payroll taxes. Non compliant businesses run the risk of getting hit by the DOL, IRS, and states for their violations. Focus is not just directed at misclassification, agencies are also looking at failure to comply with FMLA, Title VII, FLSA, and ERISA. Denial of participation in health, welfare, and retirement plans can carry penalties equal to or greater than failure to pay minimum wages and overtime.

Many employers have long appreciated the advantages of "alternative" work arrangements with independent contractors, contingent workers, consultants, "freelancers", and temporary staff because these arrangements often produce cost savings and increased flexibility. The temptation to classify a worker as an independent contractor can be great, considering that, employers do not pay unemployment insurance taxes, workers' compensation premiums, or the employer's portion of Social Security and Medicare taxes for independent contractors. In addition, such workers generally are not eligible for fringe benefits such as health insurance and retirement benefits. Independent contractors are generally not protected by most employment laws such as Title VII, the FLSA, and ERISA. Therefore, such workers often forego overtime wages, pensions, and protections from unlawful discrimination.

Stepped up enforcement has been under way for a couple of years. Beginning in 2009, Labor, Treasury, and IRS began an effort to audit some 6,000 organization to assess the possible tax violations. The current administration allocated some $25 million towards the efforts with the DOL reporting that it collected $172 million from April 2009 to March 2010 covering some 219,000 workers. If you do the math, you will see an almost 7 to 1 return on their investment.

New York, California, Connecticut, Iowa, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Hampshire, New Jersey, Oregon, Rhode Island, Utah, Vermont, and Wisconsin have all formed misclassification "task forces" to ferret out organizations, which attempt to evade state and federal payroll taxes. New York alone reported identified $157 million in unreported wages in its 2009 annual report. Massachusetts discovered $6.5 million in unpaid taxes from April 2009 thru March 2010. Moreover, this does not include the fines, penalties, legal fees, lost production, and administrative costs associated with these efforts in just two states. You can be assured, that in addition to these 16 states, there are 34 others states and the District of Columbia that are doing something similar or are preparing to act with a watchful eye.

Why Do Employees Leave Their Employers?

Friday, October 14, 2011

The traditional means of evaluating retention is to look for the reasons which cause employees to voluntarily quit their jobs. However, last week we examined why employees stay with their employers and explored the concept of “job embeddeddness”, the “web” of attachments which bonds the employee to their current organization.

When Wendy Harman and her co-authors analyzed employee turnover in their 2007 work, “The Psychology of Voluntary Employee Turnover”, they focused on a second concept, that of Lee and Mitchell's “unfolding” model. Unfolding is a trigger event within an employee’s life which causes that employee to question their current employer-employee relationship. It could be job related such as a change in job duties, a new manager or it could be unrelated, such as a spouse’s relocation. It may result from a negative event in the form of a less than desirable performance review or a positive event such as an unexpected external job offer. In any case, unfolding sets in motion a change in the sea-state of the employee’s mental model as it relates to their present employment situation, which eventually leads to a job change.

The “unfolding model” puts forth the processes in which the employee must now evaluate their current employer-employee relationship. What are the consequences of staying? What are the consequences of leaving? What are the trades offs, higher salary, longer commute? As with any relationship, there could be both positive as well as negative outcomes to whichever course of action is taken. While unfolding presents an image of a rational and logical employee methodologically weighting the pros and con’s of staying or going, behavioral economics paints another picture entirely.

Behavioral economics tells us that not only employees, but individuals in general; do not always function as the rational beings we might perceive them to be. In fact, individuals may at times act in completely irrational manners to their own self detriment and in the case of employees, to that of their employers. As humans, we have a tendency to be “overconfidence, optimism, and extrapolation” about our current and future circumstances.

Combine the unfolding model with behavioral economics and we have the potential for some employees to see greener pastures on the other side of the fence. Thus employees will uproot themselves and families to move across the country with the overconfidence, optimism, and extrapolation that all things will be better with their new employer. Unfortunately, this often occurs without forethought and planning and on settling into their new job many employees discover they may have traded one set of issues for new ones.

Organizations may not be able to prevent every unfolding event from occurring, however, employers can identify and track their high performers and provide an optimum work environment. Designing positions which both challenge as well as develop potential future organizational leaders, rotational assignments which broaden the individual’s knowledge and scope within the company, mentoring relationships which help employees avoid certain relationship pitfalls; are all time tested methods of strengthening the organizational bond, i. e., . job embeddeddness.

Why Do Employees Stay With Their Employers?

Friday, October 07, 2011

A great deal of money, time, and energy is spent on determining why employees leave their employers. But the simple and obvious reason is, because they can! Even in difficult economic times, top organizational talent, can and often does leave for perceived greener pastures. Would it not make more sense to determine why employees stay and focus that same money, time, and energy to determine whatever makes employees stay? One focus of why employees stay with their current employers can be found in the concept of “job embeddeddness”.

Job embeddeddness, a concept founded in the disciplines of applied and industrial psychology and encompasses those aspects of employment which keep an employee affiliated with their current organization. Yes, it certainly includes tangible aspects such as compensation and benefits but also includes co-worker relations, supervisor-employee relationships, the work itself, the public image of the organization, the community in which they live, and even the daily commuting requirements. Job embeddeddness, may be defined as “a web of forces that cause one to feel he or she would not leave a job”. The concept has similarities to the marketing notion of consumer “brand loyalty”. Thus job embeddeddness is a predictor of the likely hood that an employee will stay vs. leave an employer.

Wendy Harman, the lead author of a 2007 study on voluntary turnover stated, "As we head into an era of the largest brain drain the world has ever experienced, that of the baby boomers leaving the workforce, it is going to become increasingly important for organizations to be able to keep their best workers. Turnover is extremely expensive for organizations and becomes even more so the more an organization increases the amount of training time and money it invests in its employees. Knowing how to retain these employees creates a less costly, more stable work and community environment."

The work environment, whether an office, factory floor or classroom, is a social environment in which most of us spend one third to one half of our day. Even in today’s business world of multiple jobs and career changes throughout our lifetime, workers may invest several years with any single employer. Relationships developed at work often go on to continue well after employees separate from their current employers. Recognizing that these social relationships exist within the workplace is one means of building and reinforcing job embeddeddness.

While during a period of high unemployment, employers may ignore voluntary turnover or even consider it to be good for the organization, business cycles changes. Furthermore, if it is the organization’s top talent that is leaving, organizations will want to reconsider their lack of concern. Lastly, an organization’s community image may affect its ability operate within the external environment when it comes time to build or expand a mill or plant. Thus, employers who are known for their disregard of employee relationships may still find it difficult to attract a disable workforce even in these times of high unemployment.

As employers, we cannot necessarily design jobs around the unique social environment of each and every employee. Nevertheless, we can provide jobs with a high degree of flexibility as a means to encourage job embeddeddness and increase retention of our top talent. Furthermore, we can educate our organizational leaders in those features of job embeddeddness which strengthen the employee’s bonding to and affinitive for our organization.

Are Employee Attachment Levels Up?

Friday, September 30, 2011

Employee attachment levels, in other words, employee engagement, are they increasing in these economic times? Increased levels of employee engagement are seen as indicators of higher levels of employee retention, product and service production, increased customer service, and lowered production costs. Randstad, the global staffing organization, recently reported that “employee attachment levels” have risen during the first two quarters of 2011. The Randstad Employee Attachment Index reported a 5 percentage point rise in employee attachment between March and June of 2011. The survey of both employees and employers attempts to measure “… employees’ sentiments, potential actions and attitudes … indicators to reduce potential employee volatility.” By attempting to measure the differences in the perceptions of employees and employers, the survey attempts to identify the “gap” between those two groups.

So what did the survey tell us, is the glass half full or half empty?

Half Full:

• A 5 percentage point increase from the initial study in March and the follow-up in June 2011.

• Employee volatility: how likely employees were to seek alternative employment declined about 4 percentage points.

• 66% of all employees are likely to stay with their current employers over the next 6 months.

• 50% of highly engaged employees are likely to stay with their current employers.

Half Empty:

• Retention by engagement: a measure of the correlation between an employee’s engagement and the likelihood they will leave. 29% of the highest engaged employees report they “are somewhat to very likely to seek” a new job within the following six months.

• Employer – employee disconnect: a series of metrics of the “gab” between the perceptions of employers and employees. Significant disconnect appears in the areas of employee recognition and “Enjoying going to work every day”.

• Reasons for seeking alternative employment:

    • 38% -- Inadequate pay 

    • 24% -- High stress level

    • 23% -- Lack of opportunity for advancement

• Commitment in question: when questioned about their perception that employers are “committed”, employees responding to the survey graded their employers between 2.2 and 2.6 on a 5 point scale.

• Employers vs. employees on motivation: a 14 percentage point gap was reported between Employers (88%) and employees (64%) on employee motivation levels. Similar gaps were found in “training” and job “commitment”.

• Employee retention: over 50% of employers reporting struggling with retention and over 70% have difficulty in recruiting the “right” employees.

• Employer confidence dips: employer’s confidence around their own organization’s ability to succeed fell from the mid 80’s to about the mid 70’s.

• Optimism about the future: employers vs. employees, as with motivation, the survey found highly significant gaps between employers and employees and their perception of the future of their organizations. The greatest gap between employers (83%) and employees (57%) is whether the organization is hiring the “right” management employees.

Many of the gaps reported by Randstad’s Employee Attachment Index are well documented by the large human resources consulting and management firms. The gaps noted in the survey between employer and employee perceptions are, to some extent, to be expected, and also well documented. While in and of itself, the survey may provide little in the way of new insight into the employer-employee relationship, nevertheless, it does reinforce that employee engagement is one of several key factors vital to the current and future success of every organization.

Job Design and Motivation

Friday, September 23, 2011

If motivation is to be found within the job and if motivation is linked to some hierarchy of needs, how can we design those concepts into a “job” and still serve the needs of all four constituencies: the organization, stakeholders, customers, and finally employees themselves?

The first that we must do is to understand the knowledge, skills, and abilities required of someone who is going to perform the role within the organization. When all is said and done, the duties of the position must be accomplished if we are to meet the needs of all of our constituencies. Next we must understand what motivates the incumbent employee.

Herzberg identified 5 “true motivators”, achievement, recognition, work itself, responsibility, and advancement, notice salary is missing. When asked about the role of money and motivation, Herzberg stated, “Viewed within the context of the sequences of events, salary as a factor belongs more in the group that defines the job situation and is primarily a dissatisfier."

Maslow found that as individuals achieved each successive level within his hierarchy of needs, that level ceased to be a motivator. Maslow divided the hierarchy into 5 levels ranging from the most basic needs (e.g., food) to the highest (e.g., Wisdom): 1. Physiological, 2. Safety, 3. Social, 4. Esteem, and 5. Self-Actualization. For Maslow, Financial reserves (i.e., money) would be found at the “Safety” level, along with “Living in a safe area”, “Medical insurance”, “Job security”

First, when and where must the work be done? Must it be done in a factory office? There may be little flexibility if the work is done in a factory; however, many of today’s offices offer opportunities for work to be done remotely and within a certain degree of starting and stopping time. This flexibility is often seen in the form of “core” work hours in which all employees must be in the office and variable starting and stopping times built around that core. Flexibility is often available in the days of the week the work is performed. Variable schedules such as 3-12’s, 4-10’s and other arrangement may allow for the work to be complete while allowing the employee a high degree of flexible scheduling.

Next, how is the work to be done? Is each step of the job process mapped out to some finite detail with no room for individual interjected their own method or process? In manufacturing, there is often little room for variation from the approved process methods. In fact, deviation from those methods could result in sub optimum product or even safety issues. True, but allowing workers to re-design work processes may lead to improved product and higher production, not to mention employee engagement. Many organizations maintain “process improvement” committees which include floor workers who help re-design long standing and ineffective manufacturing methods.

Lastly, how are employees recognized and rewarded? It has been a routine practice in the military to allow pilots to have their name and the name of their co-pilot printed on the aircraft. The military found that by printing the names of the crew chief on an aircraft improved the maintenance levels on those same aircraft. Some organizations allow the names of their truck drivers to be printed on their trucks. Drivers also compete in “truck rodeos” to demonstrate their skill at finessing 80,000 pounds of truck around a parking lot and loading dock. Utility companies often sponsor “lineman rodeos” for similar purposes. Try to think of it in terms or safety training, skill building, esteem building, recognition, and employee engagement.

2012 Salary Increases Up Slightly

Friday, September 16, 2011

In an August 22, 2011 press release, Towers Watson, a global professional services company which supports organizational performance improvement through human resources, risk and financial management, reported that U.S. companies expect annual salary increase to average 2.8% in 2012.  The survey, “Towers Watson Data Services Salary Budget Survey”, conducted midyear 2011 surveyed some 773 U.S. organizations across a wide section of industries and job classifications.  When the same survey was conducted in 2010, the 1,046 U.S. employers surveyed reported an average projected annual salary increase of 2.7% for 2011, representing a 40 basis point increase from the 2.3% raise workers were expected to receive in 2010.

Employee compensation, even in the best of times, is a challenging endeavor. Over the last several years many organization have significantly altered their reward systems. The commonly held belief is that employees are compensated for two fundamental reasons:

1. Base compensation: pay for the production of the basic products, services, and goods they produce. The daily grid of meeting the needs of the organization and its customers. Simple enough to say the least.

Base compensation can be thought of as that remuneration paid to the incumbent employee for the performance of their routine day-to-day tasks associated with the employee’s position. It excludes premium pay such as: overtime and shift pay, or incentive pay such as commissions, bonus payments, special knowledge/skill pay, standby-by/on-call/waiting pay, etc.

2. Incentive compensation is intended to motivate workers to increase the productivity of the organization’s operations. Not so simple.

Incentive compensation, on the other hand, attempts to change or alter baseline behavior from its current level to a higher or at least a different level. This higher or different level could be higher sales, higher profitable sales, lower rates of product defects, fewer worker accidents, higher customer services performance scores, etc.

The problem is that money is generally not a very good motivator in and of itself. It is highly effective at getting an employee’s initial attention, however after some time the luster of money fades once the worker is satiated. Frederick Herzberg, the pioneer of 'job enrichment', perceived that motivation came from within the job role in the form of “job satisfiers”. Abraham Maslow, who has been tagged the “Father of Modern Management Psychology”, saw motivation in terms of a “hierarchy of needs”.

While compensation surveys certainly help us to understand the trends and the ever changing landscape of employee rewards, they fail to address the underlying factors we need to motivate employees beyond just showing up for work. And while it may seem impossible to develop personalized reward systems designed to motivate thousands or tens of thousands workers, it is apparent that without a “motivated” worker there is little prospect of organizations achieving long-term economic gain.

If Herzberg, is in fact correct, that motivation is to be found within the job, those job satisfiers must be designed into the job. And if Maslow is correct that none of us are truly fulfilled until we are Self-Actualized, how are we to build those features into the job? How do organizations design jobs which meet the needs of all four constituencies: the organization, stakeholders, customers, and finally employees themselves?

Wellness Based Premiums, a Question of Fairness?

Friday, September 09, 2011

Historically, employees within the same covered health care group paid the same premiums as their cohorts for the same plan and same options. The risk of health care was shared equally among all cohorts regardless of their health, life style or the likelihood of them requiring medical care. Early forms for risk sharing, i.e., insurance, dates from the early Chinese, Babylonian, Phoenician, Greek, and Roman civilizations to cover trade and other unforeseen events. More modern concepts of “group” risk sharing dates from the Craft Guilds formed in the Middle Ages which often provided for the “mutual aid” of their members. Among the benefits of being a craft guild member were; care during periods of sickness, burials, and the care of orphaned children. Later, the concept of mutual aid morphed into friendly and benevolent societies, as well as fraternal organizations. These “societies” were often focused on common financial, social, religious or political affiliations; rather than a common skill, craft or profession.

The Group Concept is a rather straight forward proposition, each member within the group shares in the collective risk of the group by paying a small proportion of the expected loss. However, for the Group Concept to work, it requires groups with hundreds, if not thousands of members, i.e., in the case of health and welfare benefits, a large organization. Since the risk is spread over many individuals, the cost for each individual in the form of premiums is relatively small compared to the risk. Consider the risk illness associated with the common cold, the likelihood of having a cold is maybe 1-2 times per year and the risk of loss is less than $100 per occurrence. However, now consider a major medical procedure such as a Coronary Artery Bypass Graft Surgery. Costs can easy range from $75,000 to over $150,000; most individuals are unable to afford the risk of such a financial loss.

So, is it fair to have one group premium rates for members with healthy life styles vs. other rates for those who are smokers, obese, drink excessively, use illegal drugs, participant in hazardous hobbies or fail to exercise? As organizations and governments struggle with efforts to provide and maintain affordable health care, the concept of rewarding healthy life styles while punishing unhealthy life styles is emerging as a means to modify personal behavior. That reward, outlined in the 2010 Patient Protection and Affordable Care Act (P.L. 111-148) permits employers to offer employees premium discounts of up to 30% of the cost of coverage for participating in a wellness program and/or meeting certain health-related standards. The punishment is in the form of paying the full group premium rates for those members who are unwilling or unable to obtain and/or maintain healthy life styles.

Sounds extremely unfair! However, for those members who are physically unable to participate in a wellness program and/or meet certain health-related standards, there are alternatives available which would allow them to earn the same rewards. Thus, only one group is left, those members who are unwilling to take any action on their part to even modestly improve their own well being. They have elected by their inaction to continue to smoke, eat and drink excessively, use illegal drugs, participant in hazardous hobbies and/or maintain a sedentary life style.

As such, have they not accepted, by their unwillingness to take steps to improve their health, the fact that their lifestyles will incur a greater degree of health care now and possibly in the future?

Health Care Literacy, Who’s Responsible?

Friday, September 02, 2011

As organizations have continued to struggle with health care inflation, many employers have now turned to some form of high deductible health care plan (HDHP), also referred to as “consumer driven health care plan” or more simply “CDHP”. The premise is that if the employee is personally at risk for the first $1,000 to $5,000 of their health care expenses, they will exercise prudent judgment in the consumption of health care services. This prudence extends to a maintaining a healthy lifestyle including preventive health care, smoke cessation, exercise, weight and dietary management. While there are many individuals who are knowledgeable about health care related issues, others lack such information or even access to the basic health and wellness facts. Who should bear the responsibility of raising the health care literacy level of employees and their family members?

The National Action Plan to Improve Health Literacy, published by the U.S. Department of Health and Human Services in 2010, identifies many parties in interest, including health care professionals, public officials, insurance carriers, as well as employers. However, the role of employees, the consumers of health care, is restricted to being more of a passive recipient of health literacy information. While the plan encourages “… employees to take advantage of continuing education …” to raise their level of health literacy, it fails to provide clear incentives to motivate employees to become better consumers of health care. Without some form of financial incentives, employees are unlikely to be motivated to take action either in the consumption of health care or their personal lifestyles.

For many employees, the higher deductibles of consumer driven health care plans are offset by the lower monthly premiums and other features designed to steer employees to CDHP’s. Furthermore, some employers provide seed and matching contributions for employees who enroll in CDHP’s and a companion Healthcare Savings Accounts.

Generally, high deductible consumer driven health care plans have annual deductibles of a minimum of $1,200 for Employee Only coverage, while Employee and Family deductibles will be $2,400. Currently, the maximum annual out-of-pocket expenses are $5,950 and $11,900 for Employee Only and Employee and Family coverage respectively. In addition, the annual contributions for Healthcare Savings Accounts are at $3,050 for an individual and $6,150 for a Family.

With an individual at risk for several thousands of dollars in health care expenses, it becomes imperative that individuals have access to both the cost and quality measures of health care procedures and their outcomes. Unfortunately, the availability of such measures is still highly restrictive thus preventing most from being able to comparison shop within their community. This lack of cost and quality transparency means that many, if not most medical consumers have little or no understanding of what a specific medical procedure costs or the outcome history of their medical provider. Certainly, there are a number of internet sites which allow patients to rate doctors, hospitals, dentists, and other healthcare professionals. Most of these sites available to the general public are not vetted and provide no independent measure of the quality of the outcomes, such as the number of procedures done and the success or failure rate.

The Leapfrog Group runs “a voluntary program aimed at mobilizing employer purchasing power to alert America’s health industry that big leaps in health care safety, quality and customer value will be recognized and rewarded.” Unfortunately, the major shortfall of such organizations is that they are voluntary.

So who bears the responsibility of employee health care literacy?   Why, the employee of course.