Friday, May 27, 2011

The State of Private Pensions

Friday, May 27, 2011

In March 2011, the US government’s General Accountability Office (GAO) released a report on the status of US private pension plans. Under the title, “Private Pensions: Some Key Features Lead to an Uneven Distribution of Benefits”, the GAO reviewed the state of both private Defined Contribution (DC) and Defined Benefit (DB) plans. Not surprisingly, the report stated that over 90% of the new plans formed were DC plans, creation of DB plans were primarily associated with professional level organizations, and the impact of the current financial crisis on retirement savings is largely unknown. The report was initiated at the request of US House Representatives Sander M. Levin, Richard E. Neal, and Charles B. Rangel, all members of the House Ways and Means committee.

In the opening paragraph of the report’s cover letter back to the three Representatives, the GAO reports that private pension plans account for a tax revenue loss of $105 billion for FY 2011 and an estimated loss of $602 billion for FY’s 2012 through 2014. The cover letter goes on to report that tax favored private pension plans have peaked at approximately 50% of eligible employers. This peak has occurred in the face of numerous legislative attempts to make it more attractive for employers of low income workers to implement tax favored plans and for low income workers to save. Furthermore, the cover letter raised the concern that much of the benefits of some tax favored plans are being garnered by highly compensated employees (HCE) and not lower income workers.

The stated purpose of the GAO’s review, other than at the request of the three representatives, was to:

Identify the trend in private pension plan in recent years.
• Identify the “characteristics” of DC plan participants “at or above the” statutory limits.
• The potential impact on “low income” workers of savings’ incentives.
• The long term impact on the recent economic crisis on savers.

In general, human resources management is one of the most legislated activities with regulations occurring from the municipality to the Federal level. Specifically, regulations associated with private pensions have seen decades of legislative enactment activity; the most notable was the passage of the Employee Retirement Income Security Act of 1974 (ERISA). The stated and unstated goal of all of this action was to encourage employers to establish and maintain private tax favored DC and DB plans for the benefit of the employer’s workforce. The desired outcome is that retired workers would have access to the required financial resources during retirement.

I am always concerned when our leaders seek to improve our lives. Granted, as a nation, Americans are not the best savers, rather we are consumers. We are also facing long term and tough decisions concerning our national debt and the continued funding of entitlement programs such as Social Security, Medicare, and Medicaid. Congressionally requested studies with titles such as “Private Pensions: Some Key Features Lead to an Uneven Distribution of Benefits” make me uneasy. The same legislative acts and regulations which permitted the deployment of DC plans have allowed some employers to freeze, cut-back, and terminate cohort DB plans.  It will be interesting to see what, if any, actions are taken in the coming months with regards to new proposed private pension legislation.

Friday, May 20, 2011

Employee Recognition Program: Trends, Prevalence, and Effectiveness

Friday, May 20, 2011

In January 2011 WorldatWork, a not-for-profit organization providing education, conferences and research focused on global human resources issues, conducted a survey of some 5,600 members on issues dealing with employee recognition programs. Following responses from 677 members in the US, Canada, and other countries, the results were published in May 2011.

Employee recognition programs address a broad range of activities from length of service to programs to stimulating certain behaviors to strengthening employee attendance. While such programs may include cash as one of many forms of reward, employee recognition programs are not to be confused with incentive and bonus plans. WorldatWork reports that over 80% of employers surveyed reported at least one employee recognition program in the period from 2009 to 2011, with the prevalence in 2011 at 86%. Programs fall into several general classifications, such as:

• Service
• Performance
• Peer‐to‐peer
• Retirement
• Sales performance
• Programs to motivate specific behaviors
• Employee of the year, month, etc.
• Suggestions/ideas
• Major family event
• Safety performance
• Attendance

While the survey did not query organizational employees directly, respondents were asked to gauge the effectiveness of recognition programs in four areas:

• Satisfaction
• Motivation
• Engagement
• Retention

The effectiveness of recognition programs in impacting employee satisfaction(64%), motivation(66%), and engagement(71%) were all rated above 50% as having either an extremely positive or positive effect, only retention(42%) fell below 50%. Respondents report the median recognition program budget at 1% of payroll.

Taken on face value, relative effectiveness measures in the low 60% to the low 70% appears to be modest at best. Certainly, 42% for retention questions whether there is value in continuing such programs without a major redesign of the program and its communication plans. Also somewhat interesting is that over a period of 9 years, the prevalence of recognition programs has remained at or above the 80% level .in spite of changes in the economy.

Bob Nelson, author of “1001 Ways to Reward Employees”, “Keeping Up in a Down Economy”, and other works, is the founder of Nelson Motivation, Inc., and co-funder of the National Association for Employee Recognition. In “1001 Ways” he cites examples of the various ways in which organizations and individuals recognize others. Examples include “Thank You’s” written on business cards, candy bars, newsletters pinpointing achievements, publication of the accomplishments of employees’ children.

How effective can simple forms of recognition be when compared to tangible rewards such as cash or a large ticket prize? To start with, it would be difficult to separate the effects of recognition and motivation as drivers in modifying behavior. Maslow argued that we as humans strive for a sense of recognition and achievement from those around us including our families, friends, employers, and co-workers.  If this is the case, even the simple act of thanking someone for a job well done carries a degree of value. To add greater value, that acknowledgement should occur within a public setting such as a staff or departmental meeting.

Friday, May 13, 2011

Health Care Wellness Programs: Silver Bullet or Bane?

Friday, May 13, 2011

In the face of ever higher and higher health care costs, organizations have exhausted a battery of efforts to control and manage their annual “spend” on employee health care. Having been on both sides of the fence, I have implemented new forms of health care, e.g., “managed care” for my employers and designed new products for clients, e.g., “utilization review”, “prior authorization”, “Rx carve-outs”, … etc. As employers and as carriers we have raised employee out-of-pocket expenses, designed networks to focus only on the top performing providers, and directed efforts at disease management. We have built entirely new forms of health care products to allow employees to become better “consumers” of health care services. We have passed historic and monumental legislation directed at controlling costs, which everyone agrees, is unsustainable. Moreover, much of our efforts have resulted in no discernable impact on either the trend in long-term health care cost of or the improvement in the collective health of employees and their families.

It is not that we do not know the causes of many of the public health issues plaguing employers and employees and their families. Lack of exercise, over-eating, an aging population, smoking, alcohol consumption, excessive weight, environmental and industrial exposures, life-style behaviors, … etc. The underlying causes of these issues have been well documented by the Centers for Disease Control and Prevention, National Institutes of Health, U.S. Department of Health & Human Services, numerous state and county departments of health, various medical journals, and private foundations. Hardly a day goes by when the public media is not spotlighting yet another report on the lack of wellness in most Americans lives. Surveys confirm that, in general, Americans know that certain behaviors are “unhealthily” and yet many are unwilling to change, even in the face of higher costs.

On the surface, it is clearly puzzling. Behavioral economics should drive a change in employee behaviors in the face of higher co-payments, co-insurances, deductibles, and overall out-of-pocket expenses. However, there is little evidence that greater cost sharing and higher out-of-pocket expenses are motivating employees to change their behaviors, which has lead to the chronic health issues many face today. Consider the following anomaly, gamblers are willing to continue to bet even though the odds are against them and favor the house. Employees will continue to over-eat, under exercise, smoke, and engage in unhealthily life-styles knowing that such behavior is a losing proposition for them and their families.

Can and will employee wellness programs change the behavior of individuals to improve the health of themselves and their family members? Not without both incentives and dis-incentives. Is not this contrary to what we know about behavioral conditioning and the role of positive vs. negative reinforcement? Both separately and jointly, positive vs. negative reinforcement have the ability to strengthen and direct behavioral change in a desired direction. Thus, a wellness program which includes both, stands a better chance of changing and sustaining the desired behavior, i.e., lose weight, exercise more, reduce bio metric measures, … etc. Furthermore, since we know that unreinforced behavior will eventually extinguish itself, the availability of incentives and dis-incentives must continue indefinitely.

Friday, May 6, 2011

Managing and Rewarding the “Meets” Employee

Friday, May 06, 2011

Somewhere out there are millions of employees who come to work every day, do the job they are asked to do, rarely complain, work well with others, and make a solid contribution to their organization’s success. We label these employees, “Meets”. After all, our expectations for most employees are to do just that, perform at a level, which “meets” our expectations. Yet many organizations focus on the top 5% - 10% of the performers with rewards, promotions, titles, offices, and special treatment. Is it possible that we are rewarding the wrong employees? Is it possible that the vast armada of those employees who are the “Meets” are performing a significant level of work?

We, as managers set the expectations of what level of performance is Unsatisfactory, Meets or Outstanding. Within a degree if reason, we can set the bar high or higher. Therefore, to some extent, if an employee fails to perform up to our expectations, we may be the stumbling block. While it may be true that we have the “ability” to set standards of performance, most managers attempt to engage the employees in the process as to whether the desired outcome is possible or not.

Once employees understand our expectations and the level of expectations, those employees who choose to reach those levels must be rewarded. It is certainly a truism that unreinforced behaviors will soon extinguish. The quickest way to undo a rewards system is to fail to recognize all of those employees who performed as expected.

Performance is about more than “just get’in the job done”. How an assignment is accomplished is as important as the final outcome and an equal part of performance. Since most work today involves working well with others, performance that comes at the expense of others, even with a stellar outcome, may still be Unsatisfactory.

Most large corporate organizations provide little room to “individualize” rewards for each of thousands of employees. While this may be true, as a manager, we can certainly point out those behaviors, which lead to an employee meeting or even exceeding expectations. There are often opportunities, e.g., in staff or project meetings, in which we can recognize employees both publicly and privately with “thank you”.

Many very talented employees often lack self-confidence and self-esteem. Most of us remember the early days of our careers when called upon to give that first big presentation in front of dozens or even hundreds of employees. Our managers knew that for us to grow we would have to rise up to the challenge and overcome our fears so they nurtured our self-confidence and self-esteem in small ways.

To be effective, rewards do not always have to be tangible. The self-realization that a project was well done or that peers recognize your skills as an employee brings its own value to recognition. It is essential as managers that we are able to distill what drives an employee’s desire to succeed. Those drivers are as varied as are the employees themselves. Moreover, while recognizing the individual employee is important, most work today is done with collaboration among several individuals. Sometimes these are formal project teams and sometimes it is individuals coming together to form a virtual team. In any case, it is essential to continued success that the team members be recognized for collective efforts.

Human behavior can range from simplex to complex with gradations along a broad ranging scale, even within the same individual. Once behavior, i.e., performance is established and rewarded over an extended period of time, it is not easily altered. In the end you get what you pay for, whether that is the performance you wanted or not!