Talent Management in Manufacturing Industries

Friday May 25, 2012

American manufacturing has been making a quit but steady comeback since the 1980’s. While the US manufacturing base is certainly not at the levels of the 1950’s - 1960’s, it is currently enjoying a stronger recovery than the general economy. The US Federal Reserve Bank reported in April 2012, US manufacturing output expanded by over 4.8% as compared to April 2011. This expansion is partly fueled by increased productivity through the use of technology. Technology based on STEM knowledge, i.e., science, technology, engineering and math. STEM employment has the added value of paying higher than average wages and providing higher than average benefits.

One example of STEM knowledge is in the area of “additive manufacturing”, in this process, three-dimensional parts are built up from successive layers of mental powders using a machine that literal “prints out” the part. Morris Technologies in Cincinnati, Ohio, was an earlier US adopter of this technology and a world leader in additive manufacturing. A recent poll of CareerBuilder found 11 job openings at Morris with tiles and pay ranges like: 

• CAD Designer NX Unigraphics, $40k - $70k/year
• Lead Engineer (Design), $70k - $90k/year
• Lead Machinist, Pay: $25.00 - $32.00/hour
• CNC Machinists, $18.00 - $28.00/hour

So what are two issues with talent management in manufacturing, specifically as to recruitment? One,It is ithe perception of manufacturing as it was decades ago, rather than the high tech, high skilled environment that many manufacturers are today. Two, many point to the US education system as not producing high school graduates with a strong foundation in math and science. Consider the CAD Designer at Morris Technologies, this job typically requires a minimum of 2 years education and training often found at a community or technical college, several years of experience, and certification in CAD Software, yet has an above average salary.  

Jeff Schwartz, a principal with Deloitte Consulting LLP's Human Capital practice and writing for Business Finance on November 9, 2011 argues that manufacturers have taken innovative and fresh approaches to sourcing talent. He points out that branding, knowledge management, and phased retirement can all be applied to help address talent shortages when coupled with efforts that are more traditional.

Other approaches that some organizations have taken include cooperative education and training programs with local high schools, vocational, community, and even four-year colleges tied to the employer’s specific manufacturing needs. While these programs may address a manufacturer’s short-term needs, they may not address the softer skills associated with employability skills such as interpersonal communications, problem solving, and critical thinking.

What is needed for the long term is a pipeline of workers with strong technical, employability, and interpersonal skills who have the proper foundation in science, math, as well as communication skills. Traditionally, employers have relied on the US education system to produce employment ready workers. Regrettably, manufacturing may not be able to continue to rely on that system in the future. To compound manufacturers’ dilemma, most of the skills manufactures require are also in high demand by most other employers.

High Deductible Health Care Plans

Friday, May, 18 2012

High Deductible Health Care Plans (HDHPs) are coming of age. These are health care plans which meet the current IRS limits of an annual deductible of $1,200 or more for single and $2,400 for family coverage. In addition, the annual out-of pocket expenses, excluding premiums, cannot exceed $6,050 for single and $12,100 for family coverage. Such plans are often pared with either a Health Savings Account (HSA) or a Health Reimbursement Account (HRA). High Deductible Health Care Plans are now offered by over 40% of employers with 1,000 employees or more, according to a 2011 Kaiser Family Foundation survey. The survey reported that between 2010 and 2011, the uptake by employers with 1,000 employees or more grew by approximately 9% from 32% to 41%. A 2010 survey by the RAND Corporation estimated than 54% of large employers offered one or more high deductible health plans.

HDHPs produce savings to both employers and employees by requiring employees to pay for a significant proportion of the initial out-of-pocket expenses in the form of co-pays, co-insurance, and deductibles. As noted above, deductibles for IRS qualified plans start at $1,200 and with a cap of $6,050 for single coverage. Compare this to a typical PPO plan that might have a deductible of $500 to $1,000 and it is clear how the employer saves.

Employees have potential savings in the form of reduced monthly premiums. According to the 2011 Kaiser Family survey, employee premiums for single coverage for an IRS qualified HDHP with an HRA/HSA were $589 per year and $3,076 for family coverage. The employee premiums for single coverage for a PPO was estimated at $1,002 and $4,072 respectfully. In addition, many firms make contributions to an employee’s HRA or HSA accounts. Kaiser reports that, on average, employers contribute over $600 for single and over $1,000 to family HRA or HSA accounts.

A typical single employee in a HDHP could save an average of $413 or 41% over a PPO plan; for a family that translates into $996 or 24% annually. On top of that, add in the average annual employer HRA or HSA contributions of $611 and $1,069 for single and family coverage.

So it begs the question. Why are only 17% of employees enrolled in a HDHP? One answer is “risk”. Employees generally lack a tool which helps them understand their financial exposure to the risk of large out-of-pocket health care expenses. Consider a single young healthy employee with an office visit or two a year, maybe a couple prescriptions for a cold, the flu, allergies, or contraceptives. Now consider a family with a couple of kids, the employee and spouse on a 2-3 maintenance drugs, a child’s unforeseen broken arm, surgery or a battery of diagnostic tests.

The good news is that large proportions of most plan members never have a claim or never meet their annual deductible limits. The bad news is that this very group could stand to benefit financially the most from a HDHP.

Will The Patient Protection and Affordable Care Act Cause Employers to Drop Employee Health Care Plans?

Friday, May, 11 2012

Employee health care is expensive to locate, implement, and maintain. The May 2012 edition of the Health Care Costs A Primer, published by The Henry J. Kaiser Family Foundation reported the total average employer and employee 2011 cost for family health care was over $15,000. The employer’s average portion of that cost is typically over $11,000 or about 70%. Under the Patient Protection and Affordable Care Act, the penalty for an employer not offering health care is $2,000 per employee per year. On the face it seems like a straight forward question and answer. An employer can pay $11,000 for health care or $2,000 in taxes and save $9,000.

Why wouldn’t an employer drop employee health care and just pay the additional tax? Employer sponsored health is a hassle. Employers under about 1,000 employees usually buy fully insured health care from a carrier such as Aetna, Blue Cross Blue Shield, CIGNA, Humana or UnitedHealthcare. Employees have to enroll, payroll deductions have to be taken, deductions have to be reconciled, and deductions have to be paid to the carrier. There are significant federal rules which govern per-tax health care deductions by which employers and employees must abide. Carriers generally only guarantee premiums for one policy year. At the end of the policy year, carriers review paid claims and premiums almost always go up. If the rates go up enough, the employer may “shop the market” for cheaper rates. Whereupon, the payroll; enrollment-deduction cycle starts all over.

Employers often must maintain staff with training in human resources, compensation, benefits, taxation, and/or payroll processing. There are reports which must be filed with the Internal Revenue Services. There is an alphabet soup of notices, SPDs, SMMs, SARs, and with health care reform SBCs. Fines and penalties for failure to provide notices, are often assessed on a per event per day basis. While the employer may outsource some or all of their filings and notice distributions, employers are still legally, financially, and in some cases personally liable for their failure to meet compliance requirements.

Faced with additional administrative burdens, it is conceivable that small businesses would elect to drop health care for their employees and pay the $2,000 tax. It is easy to see how an employer with 50 employees could decide to allow its employees to purchase private health through a state exchange, which will be operational in 2014, rather than spend over a half million dollars (50 X $11,000) to maintain health care. By paying the $2,000, the employer saves $450,000 that could be used to expand business, upgrade equipment, or even hire more employees.

Other than some altruistic reason, why might a small employer maintain health care coverage for their employees? Competition, even small businesses are sensitive to what their competitors are doing. Rather than chance losing their employees to a competitor who does offer health care, a small business may continue to offer health care. It will take several years after 2014 before a trend can be seen as to whether small businesses drop coverage and send their employees to a state exchange or retain employer sponsored health care.

Pay-For-Performance: The Debate Continues

Friday, May, 04 2012

It seems odd that after several decades we are still having discussions around paying employees for performance and not for just showing up for work every day. In these times when virtually no organization can afford even a hint of waste, paying for work that adds value appears to be a given axiom. Yet Brooke Green, a principal at the Hay Group, and speaking during a webinar sponsored by HRHero/BLR outlined what is and what is not Pay-For-Performance. Green is quoted in the account of the webinar as referring to pay for performance as “the hot new approach to compensation”. In fact pay for performance has been in use for a very long time.

Writing in the journal Human Resource Planning in 1996, authors Christopher M. Lowery, M.M. Petty, and James W. Thompson, point out that the issues surrounding pay-for-performance in 1996 where the same then as they were 25 years earlier in 1970. The article "Assessing the Merit of Merit Pay: Employee Reactions to Performance-Based Pay" points out that most employees would prefer to be paid based on their actual job performance as opposed to some arbitrary measure. At issue was not the concept of paying for performance, rather it was how the concept was implemented. At one point in my career I worked on designing and installing an employee performance system based on Behavioral Anchored Rating Scales (BARS) for a large public employer. Great strides were taken to ensure that its statistical reliability and validity were sound. Unfortunately, once implemented, supervisors attempted to rate the majority of their employees as outstanding and in doing so employees became “meets”.

Steve Bruce, writing for the webinar’s host, HRHero/BLR, positioned the question: “Is pay-for-performance the right compensation philosophy for your company?” Oddly enough, the answer for some employers is “No”. You may ask how that could be possible. If the answer is “No”, that means that a company should feel good about rewarding employees for adding no value to their organization. The answer is that some organizations are not willing to make the tough calls that some employees should receive no increase while others should receive the maximum increase. Many supervisors, well meaning supervisors at that, cannot make those tough calls. This inability to be tough seems at odds when the same organization is able to fire an underperforming vendor, close a sub-par factory or discontinue an out-of-date product.

What is required for an organization to move towards paying employees for their individual performance and not simply “punch‘in”? It takes a culture in which performance can be and is recognized. It requires measureable goal setting, you cannot manage, i.e., reward what you cannot measure. It takes creditable communications; employees have to believe their performance will be rewarded. After years of a lack of creditability, many employees can become jaded towards the next perceived management fade.