Friday, April 26, 2013

Cash Balance Pension vs. 401(k) Retirement Plans

Friday, April 26, 2013
 
According to a recent report by Sage Advisory Services, a leading Texas-based investment management firm, Cash Balance Pension Plans have the potential to overtake 401(k) Retirement Plans in the foreseeable future.  While many organizations have terminated or frozen their traditional defined benefit pension plans, others have explored cash balance plans.  The US Department of Labor, Employee Benefits Security Administration describes a cash balance plan this way.
 
In a typical cash balance plan, a participant's account is credited each year with a "pay credit" (such as 5 percent of compensation from his or her employer) and an "interest credit" (either a fixed rate or a variable rate that is linked to an index such as the one-year treasury bill rate). Increases and decreases in the value of the plan's investments do not directly affect the benefit amounts promised to participants. Thus, the investment risks are borne solely by the employer.
 
So in many ways, a cash balance pension plan, although still a defined benefit style plan, appears to employees as having many of the same attributes as a 401(k) plan.  Employees in a cash balance pension plan do not have actual segregated, delimited, and individual accounts, instead their accounts are “notional”.  Nevertheless, the employee perceives value changes, gains, and losses in their “account” with contributions deposited, interest earned, and investment gains and losses posted.
 
If cash balance plans as so similar to 401(k), why even bother with a 401(k)?  Cash balance plans are still a defined benefit pension and suggest to the reporting, minimum funding, and actuarial rules as traditional defined benefit pension plans.  Cash balance plans generally do not permit employee contributions, thus the responsibility for funding falls squarely on the employer.  Nevertheless, cash balance plans are a tool in an organization’s effort to attract and retain top talent along with cash compensation, non-cash rewards, health and welfare benefits, and paid time off.
 
Such an arrangement as a cash balance plan is often highly attractive to younger, investment savvy, and more mobile employees.  These employees are also often the very employees that an employer wants to source and recruit.  Compared to more traditional defined benefit pension plans which can have complex benefit formulas, cash balance plans can be simple and straight forward.  Many offer portability of accrued account balances in the event an employee separates from their employer before retirement age.  A traditional plan, on the other hand, might require a separated employee to wait until age 55, 62 or 65 before their benefit could be distributed.

Friday, April 19, 2013

Value Added Job Design

Friday, April 19, 2013
 
Job Design, as the term implies, is the organizational process of assembling individual work components into a coordinated and cohesive set of tasks we call a “job”.  Why “coordinated and cohesive”?  It would be fairly unsafe and implacable to have an aircraft pilot fly the plane and function as an in-flight attendant.  In addition, a set of job tasks which are not “cohesive” would lead to a fragmented and inefficient approach to the organization’s efforts to deliver its product or services.  Therefore, care must be taken when creating a job to organize the tasks in a way which adds value to both the organization and the individual.  Once again, in an effort to attract and retain an organization’s top talent, it is important to know why and how the work product is delivered to the end customer, internally or externally.
 
Many jobs are designed with a progression from less to more difficult tasks, which are performed at successive higher organizational levels.  This segmentation of work allows for the most appropriate level of knowledge, skill, and ability to be applied to a given function.  From an organizational development standpoint, individuals are afforded an opportunity to grow their skill level in step-like fashion over time and thus optimizing the possibility of success.  Bench depth and strength are built under more or less controlled conditions ensuring that the desired talent is developed to the benefit of the whole organization.  Therefore, it is critical to allow for the design of jobs in a manner which allows managers to add or subtract tasks in a way that brings out the optimal performance in a given employee, i.e., the employee's "comparative advantage".
 
An organization which wants to build the scope and depth of a potential top performer can use value added job design to add specific tasks focused on one or more growth areas.  As the employee gains greater skill levels in the desired area, more demanding tasks can be added to continue the skill growth.  As an example, consider an entry level electrical engineer with a utility company.  Initially the scope o such a job is limited with heavy supervision.  However, providing the entry level engineer with progressively more challenging tasks within a coached environment will speed up development.  Combine this sped-up development with selective financial and non-financial rewards and the organization is likely to retain this top performer. 
 
Of course to make all of this happen:
 
The organization must communicate what opportunities are available,
The employee has to be identified as a top performer,
They have to be teamed with an appropriate coach,
Reward and recognition has to be obtainable,
The organization has to deliver with the challenging tasks.
 
One thing we forget is that even a top performer may, on occasion, fail.  Thomas Edison is quoted as saying, “I have not failed. I've just found 10,000 ways that won't work.”  The function of value added job design is to create an environment where the organization’s key talent can experiment without the threat of serious physical, organizational, or financial harm.

Friday, April 12, 2013

Career Paths vs. Career Frameworks and Talent Management

Friday, April 12, 2013

In my prior roles dealing with employee compensation and salary administration, I frequently developed structures for entire families of jobs. Most individuals are aware of such families, an example is accounting where an entry level position might be an accounting clerk progressing to the CFO. If job levels are associated with salary grades and ranges, each successive job level moves up one or two grade levels. This movement corresponds to an increase in job responsibility, scope, knowledge, skills, and abilities. Depending on the organization, there may be similar job families which parallel each other, examples might be roles in accounting, budgeting or financial management. Potentially, an employee might be able to move vertically within a family or laterally across family structures. These “ladders” or “lattices” of progression from one role to the next, ultimately allowing an employee to attain some desired goal, is generally recognized as a “career path”. However, career paths are more like a road map and often lack the details of how an employee accomplices a move from one position to another; this is the function of a “career framework”.

As the term implies, a career framework is both the structure for advancement as well as the means required for an employee to achieve that advancement. A career path is merely one component of a career framework. Career frameworks are well suited to high performers who generally take ownership for their own growth and shy away from some prescribed formula to advancement. Given our example of an accounting family, a career framework might indicate that knowledge of the International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) would be required for posting to the organization’s European offices in Brussels, Belgium. The framework might also indicate fluency in at least one foreign language, including French, German or Spanish. For posting to the organization’s European accounting and financial management offices may also require certification as the European equivalent of a CPA. Lastly, the framework spells out that a desirable candidate must have operational proficiency in the organizations, manufacturing, supply, and logistics functions in both domestic and international subsidiaries.

Career frameworks provide the focus for organizational units to develop a high performer’s talents and direct those talents to key business initiatives when and where they are required. They are applicable to all private and public enterprises regardless of their business cycle, capitalization, customer base, accounting charter or level of maturation. Essential to successful career framework implementation is management buy-in, clear concise employee communications, organizational alignment, adaptability, and flexibility. Career frameworks can focus on narrow set of roles or span the entire scope of the organization. They are not in and of themselves a guarantee for organizational success or achievement. Career frameworks are one tool in the organization’s kit to attract, retain, and motivate top performers and must be integrated along with candidate sourcing and onboarding, training and development, and total rewards.

Friday, April 5, 2013

Impending Employee Turnover – The Ostrich Phenomenon

Friday, April 05, 2013

According to a March 21, 2013 press release by the American Management Association (AMA), AMA’s Enterprise division conducted a survey of approximately 1,000 organizations between December 18 and January 6 in an effort to understand employers’ views on employee turnover potential. In short, most employers seem unconcerned with the potential for the possibility of impending employee turnover. 69% of the respondents did not perceive the likelihood of increased turnover as the economy improved as “something unusual”. When asked to rank the urgency of increased turnover, 61% reported the matter was either “Not so urgent” (39%) or “Not at all urgent” (22%).

Sandi Edwards, Senior Vice President of AMA Enterprise was quoted as saying, “Intent to leave is a key indicator of engagement and commitment to the organization. If management wants the best out of its people, they need to be aware of their stress and contribution levels. Management needs to work with them individually to understand what will meet their career goals along with what has to be done to drive the organization forward.” Edwards went on to comment that it is less about turnover in general and more about specifically turnover of the organization’s “high value employees”.

Retention of “high value employees” requires a focus on their individual talents as well as areas of growth potential and clear communications of an individual career plan coupled with reward and recognition. According to Accenture, a global management consulting, technology services, and outsourcing company, high performers are often associated with seven high-performance learning traits:
     ● Autonomous performance

     ● Active soliciting of input and feedback

     ● Future orientation

     ● Self-directed development

     ● Agile alignment

     ● Linking learning and practical experience

     ● Active collaboration

While many organizational leaders appear to be unconcerned with the possibility of increased turnover, employee turnover should be viewed as a risk. Is it not the role of business leaders to manage risk? Risk must be managed, least the organization will its find top talent, market share, customers, and product ideals bearing the logo of their competitors.

Performers, especially high performers expect a broad range of rewards and recognition. Yes, financial and non-financial make up a significant portion of the high performer’s reward package. However, tantamount to reward is recognition. Give them leadership of a high visibility project, a high risk high reward assignment or a task no one else wanted or could not accomplish. It is said that General H. Norman Schwarzkopf, a.k.a. Stormin' Norman, a.k.a. The Bear, moved up through the ranks to general by taking on jobs no one was willing or able to do. True high performers relish a challenge.