The Outlook for Employee Retention and Loyalty

Friday, August 26, 2011

The opening sentence of MetLife’s 2010 9th Annual Study of Employee Benefits Trends begins with “This year’s findings reveal a workforce that has grown more dissatisfied and disloyal, to the point where a startling one in three employees hopes to be working elsewhere in the next 12 months.” The Executive Summary continues with the revelation that,”… employers continue to believe employees are loyal, and they [employers] do not appear to be tuned in to this potential flight risk.” The Executive Summary concludes with, “… cracks in this foundation [employee retention and loyalty] may force employers to pay a price in reduced retention and productivity when the job market improves.” To make its point, MetLife directs the survey’s reader to studies from the 2008, 2009, and 2010 Employee Benefits Trends. In each of those three years, employee loyalty has fallen from a high of 59% to a low of 47%, while employer perception of employee loyalty has remained unchanged at 57%.

The survey’s conclusions go on to report that employers appear to be more focused on cost control with:

     • Controlling health and welfare benefits costs -33%

     • Retaining employees - 22%

     • Increasing employee productivity - 19%

     • Attracting employees - 5

One human resources executive of a 1,000 to 3,000 employee business was quoted in the study as commenting, “Because of the market, I don’t think we’re as concerned with employee job satisfaction. Because you can get the same employee without all the bells and whistles.”

Forty three to 44% of employers surveyed in 2008, 2009, and 2010 reported that they perceived their employees were either “… satisfaction is high among our employees” or “Our employees are satisfied with the benefits …”.

The survey was conducted between Oct and Dec, 2010 consisting of 1,508 interviews with employer benefits decision-makers. The employee segment of the study was comprised 1,412 interviews with full-time employees age 21 and over.

While there may be some truth that some employees have lowered their expectations relative to compensation and benefits, however, I will suggest, as the MetLife survey did, that this is a temporary change. And, what our human resources executive seems to have missed is that skilled workers continue to be in short supply, even now. IndustryWeek, in its October 2010 edition, reported that “Studies show that during the next five years 40% of the skilled labor force will retire.” The Business Courier noted on August 12, 2011, that “Manufacturers find tech-savvy workers in short supply”. Even at the height of the rescission, Paul Krawzak and Melissa Bristow writing for the Kiplinger Letters on December 21, 2009 reported,

“… over 60% of businesses say it’s difficult to find qualified workers. Despite the loss of about 8 million jobs since the recession began, manufacturers as a whole have continued to seek machinists and machine operators, welders, laser die cutters and other highly skilled laborers. And engineers -- chemical, nuclear, environmental and others with special training -- remain in short supply, as do scientists. Demand for nurses and nursing teachers, physician assistants, physical therapists, pharmacists and other health care workers outstrips supply. Ditto, skilled information technology workers, from systems analysts to programmers.”

So you may want to reconsider how loyal your employees are in the face of MetLife’s survey. You and other employers have invested a significant amount of time in recruiting training those employees. Before you cut back on their compensation or benefits consider that your competitor’s gain, could be your loss.

Publicly Managed Health Care In Action

Friday, August 19, 2011

According to CNNMoney the Great Recession officially started in December 2007. And, depending on who you talk to, the recession is not over for many Americans.

One thing is clear, the state of local government, whether city, county or state, and their financial condition are poor; as a matter of fact; many public employee health, welfare, and retirement funds are in dire shape. For example, the state of Georgia and its public employee healthcare plan are facing an $800 million shortfall in 2012 and 2013. The state’s elected officials appropriated funds from the plan to pay for other state expenses. Under the Employee Retirement Income Security Act of 1974 (ERISA) private employers would face potential and significant fines, jail time and possible disqualification of the plan’s tax favored status for such actions.

And Georgia is not alone:

Lisa Colangelo a Staff Writer for the New York Daily News reported on Tuesday, June 21, 2011 that the city of New York was considered using “health care funds to lower job cuts”.  In a June 21, 2011 report by Rick Haglund of the Center for Michigan reports that due to a lack of proper funding over the years, “the state’s unfunded retiree health-care liability stands at $14.7 billion, a figure 77 percent larger than this year’s state general fund budget of $8.3 billion.”

The Pew Center on the States, a division of The Pew Charitable Trusts, reported in February 2010, that the 50 state governments collectively had an underfunded retiree health care and other benefits by some $555 billion as of fiscal year 2008. Approximately 22 of the 50 states have not funded retiree health care at all and one state, Nebraska, does not even estimate their liabilities.

Statement of Financial Accounting Standards No. 106 requires most private businesses to estimate, track, and publish their retiree health care liabilities. FASB No. 106 became applicable for most private companies in 1992. It forced many organizations to calculate (some for the first time) what these liabilities were and to publish them so that investors and others could evaluate the financial impact on the company’s health. Failure to do so can result in a “qualified” annual accounting statement being issued by the company’s auditor’s leading to potential downgrades in the organization’s credit rating.

However, FASB 106 did not apply to governmental organizations, but GASB No. 45, issued by the Governmental Accounting Standards Board (GASB) does apply. Similar to FASB 106, GASB 45 was implemented over a couple of years starting in 2006 and completing in 2008.

What this demonstrates is a failure by many local governments to fully understand the business cycle and its potential risks and impacts on the ability of local governments to provide for and fund employee benefit plans. During times of positive tax revenue inflows, governments made promises without considering the potential risks associated with times of negative revenue inflows. Consequently, governments were caught short when unemployment rose, property and other tax revenues fell, and there were no surplus funds available to cover their liabilities.

Furthermore, it demonstrates the willingness of many public officials to ignore the most fundamental principles of financial management and disregard the potential risks of their actions without any regard to the future consequences of those actions.

Employee Coaching: Does it Work?

Friday, August 12, 2011

Employee coaching takes on only many faces and many roles: training and development, performance improvement, and advancement and additional responsibility. All of us are recipients and purveyors of coaching, often without realizing that it is even occurring. Although many organizations have formal coaching and development programs directed at a select group of high performers, coaching takes place every day with virtually every employee. Coaching should not be confused with a structured training program or a “command and control” management style, the later being best described as check your brains at the door.

Consider something as simple as an exchange between an employee and their manager about the style of an upcoming presentation and its audience. Within in that exchange are both explicit and implicit coaching cues and signals. While signals dealing with the topic, time, date, place, audience members, length, format, and roles may be very unambiguous; cues such as the tone of the manager’s speech and body language can and does send very subtle clues from which the employee will implicitly recognize as directions. Both parties may be completely unaware of these faint cues; nevertheless, they are communicating desired and undesired behaviors. The analogy is similar to a baseball bat vs. a flyswatter, both may get the job done, but the bat is going to leave a lot more collateral damage than the flyswatter.

As with nearly all behaviors, coaching skills must be acquired; and make no mistake, coaching skill. Which means that leaders i.e., typically managers, must be developed into coaches. Notice that I did not say managers must be taught. A person can be taught to ride a bike, but world class cyclist is developed. Coaching skills are best acquired inside a broad based management development program designed to address the more global needs of both the individual and the organization.

Coaches can be formal leaders within the organization or they can be informal leaders in a peer-to-peer relationships or even subordinate to superior. All of us have encountered the long tenured department employee who “informally” runs their department, takes the new employee under their wing, shows the new guy or gal the ropes, and is the one person who knows why, when, and by whom a decision was made. Sometimes these departmental coaches are subtle in their approach to coaching, sometimes they are not. In any case, developing coaching skills should not be left to chance; rather the organization should clearly the role of a coach, regardless of how formal or informal the role is.

The following excerpts are taken from “Coach's / Manager's Role”, outlining the desirability of a Little League manager and coach:

     • Must be a leader
     • A position of trust and responsibility.
     • Formative period of an employee’s development.
     • Have understanding, patience and the capacity to
       work with employees.
     • Able to inspire respect.
     • Shapes the physical, mental and emotional
       development of employees.
     • Something more than just a teacher.
     • Interest in the game, a desire to excel.
     • Coaches are sources of inspiration.

Does this sound like a coach? Of course it does. Being a coach is not always simple, easy or even rewarding. At times the team may lose and no one likes to lose. But a good coach will rally their team and prepare for the next game.

Does employee coaching? Of course it does.

What is the Road Ahead for Employer Sponsored Health Care?

Friday, August 05, 2011

February 2011, as part of its ongoing research efforts, McKinsey & Company, a global management consulting firm, sponsored a survey of 1,329 US employers in the private section on the impact of health care reform under the Patient Protection and Affordable Care Act (PPACA) of 2010. The conclusion drawn from the survey by McKinsey was that upwards of 30% of employers surveyed would “definitely” or “probably” drop [employee health care] coverage after 2014. McKinsey has come under some rather strong criticisms for their findings in light of other contradictory findings from comparable sources.

While none of us can predict the long term impact of health care reform, history does point to a couple of models. In the 1980’s few observers would have been able to predict that participation in defined contribution plans in the forms of 401(k), 403(b), and 457(b) would have risen to the levels they are today.

Stephanie Costo, an economist in the Bureau of Labor Statistics, authored a report in the Monthly Labor Review for February 2006, in which he demonstrated that participation in defined benefit plans fell from 32% to 19% between 1992 and 2005. At the same time, participation in defined contribution plans rose from 35% to 42%. There are many reasons why defined contribution plans have replaced defined benefit plans as the dominate form of retirement benefits in this country. Defined contribution plans are less expensive, easier to administrator, more portable, and participants generally like them better. Could the legislative and regulatory leaders in 1978 foreseen that their efforts would lead to a significant decline in DB plans over the coming three decades, no!

On December 29, 1973, then President Richard Nixon signed into law the Health Maintenance Organization Act of 1973. The Act, among other things, mandated that employers offer an HMO option to employees if there was a federally approved HMO available in their area. In signing the law, Nixon remarked, “This legislation will enable the Federal Government to help demonstrate the feasibility of the HMO concept over the next concept over the next 5 years.” Following the signing, there were two decades of Federal financial and legislative support whose goals were to make HMO’s the dominate health care delivery system in the nation. Keep in mind, in the 1970’s and early 1980’s there were no PPO’s or POS’s, and the primary reimbursement methodology was traditional fee for service. And for a time HMO’s enjoyed a major role in the US health care system, although artificially induced by the aforementioned Federal financial and legislative support. However, by the 1990’s, HMO fell out of favor with both employers and employees due, in part, to their highly restrictive networks and practices as a referral gatekeeper. Some observers credit the restrictive practices of HMO’s as the driver that lead to PPO’s and POS’s. Who could have foretold that the full faith and weight of the US government would have been insufficient to establish and maintain a health care delivery system?

In the end, both with defined contribution plans vs. defined benefit plans and HMO’s vs. PPO’s; the market delivered what the consumer wanted, although we can argue who the consumer was. The same will be true with health care following the passage of PPACA. Even a Federally mandated health delivery system, whether public, private or some hybrid of the two; must be supported by the marketplace, else consumers will vote with their pocket books and their feet.

Is Tax Free Health Care a Thing of the Past?

Friday, July 29, 2011

Representative Sandy Levin, a senior Democrat member sitting on the House Ways and Means Committee recently raised the possibility that tax deductions for health care premiums could be eliminated for high income wage earners as a means to help close the Federal budget deficit.

For the last 30 or so years, most workers have enjoyed health care deductions from employer paid wages on a tax free basis under IRC Section 125. In the mid 1980’s, as new benefits professional I implemented many Section 125 plans for my employers under a so called “cafeteria” arrangement. Today you would be hard pressed to find a large employer who did not offer health care benefits that were not tax free. Included in the 1978 tax reform legislation, the intent was to encourage employers to offer health care benefits tax free, and they did by the thousands. As is the case today, employers received and receive a deduction for their portion of health care costs and as well as other employee benefits (up to certain limits) against earnings as a normal part of “doing business”.

The benefit for employers and employees alike are significant tax savings as it applies to local*, state*, Federal, FICA and; Medicare taxes. The employer gets to forgo the employment related taxes on both the employee’s and the employer’s portion of health care premiums. The employee gets to forgo the employment related taxes on just their own portion of health care premiums. And with current health care premiums running into the hundreds and even thousands of dollars per month, the taxes saved to both parties is significant.  In addition, the value of health care benefits received by the employee and any family members is exempt from being taxed as income.  Even a modest health care procedure could have a value of tens of thousands of dollars if included as taxable income.  The downside to this is the loss of tax revenue to the local*, state*, and Federal governments. It thus becomes clear why Congress might want to look at eliminating this tax provision for at least the high income wage earners.

There are some who perceive that by taxing health care benefits, a semblance of control could be extended over the nation’s rapidly rising health care costs. Does this mean that the value of health care received within a given year would be imputed in the same manner that we currently impute the value of employer provided life insurance in excess of $50,000 annually? Or would we merely eliminate the tax exclusion of the premiums and return to the pre-1978 days? What would be the outcome of taxing the value of employer provided health care? Some employers would choose to drop coverage, some employees would choose to forgo enrolling in coverage; thus a public health care option would be created in de facto as coverage is mandated under PPACA.

*Not all local and state governments exempt premiums from local and state taxation.

Employee Engagement in an Era of High Unemployment

Friday, July 22, 2011

What is the impact of high unemployment on employee engagement? You may be surprised by the findings. Anecdotally, you might expect employee engagement to decline as lay-offs are followed by plant closings, followed by frozen 401(k)’s, and declining stock values. However, according to a Center for Creative Leadership report released in July 2010 and sponsored by Booz Allen Hamilton, employee engagement actually rose during the recent recession. According to the report’s authors, Jennifer J. Deal, Sarah Stawiski, and William A. Gentry, employee engagement reached its high point just as the economic conditions reached its low point.

How is it possible that faced with the worst economic conditions since the 1930’s Great Depression, employees are even more involved in their employers business than ever? Is it possible that those hard times brought employees and employers together? Is it possible that the worst of times brought out the best in all of us? Was it pure survival instinct? Was it some self serving interest on the part of employees, i.e., what’s in it for me crowd?

The authors agree that essential to raising and maintaining high levels of employee engagement is the role of the organization’s leadership. The authors go on to note that managers must be developed in a way to support and encourage engagement at all levels. It seems almost self-evident that managers would play a key role in employee engagement. But who are our managers? From where do managers come? Often times they are our best accountants, marketers, engineers, software developers, and technicians. Organizations promote their best talent to leadership roles, their best technical talent that is. Well, you certainly would not want to promote the poor performers, would you? Of course not!

However, mangers have to be developed and good managers have to be developed to be good managers. So where are most managers developed? In “B” schools, of course not. Reviewing the course catalogs for a few of the nations tops “B” schools I see course work in accounting, business law, economics, finance, information technology, and marketing. Wait, there is hope, here is a couple of classes in organizational behavior, human recourses, and management theories. So all hope is not lost after all.

Unfortunately, if that new manager lacks a positive role model, a mentor, a coach or continuing development to underscore the need to build and support engagement, employee engagement will not be high on their priority list. A leader in my own organization recently explained the reason why many company initiatives fall to the wayside, they get lost in the “whirlwind” of everyday phone calls, e-mails and crises. Unless employee engagement, just like quality control or customer service, is not keep in front of both managers and employees it too will become lost in the whirlwind.

Balancing Home and Work Life for Joe

Friday, July 15, 2011

In May 2011, Peter Linkow, Jan Civian, and Kathleen M. Lingle, released an international study of men and work life under the auspices of WorldatWork’s Alliance for Work-Life Progress. Funding for the study was provided by GlaxoSmithKline, Workplace Options, Bright Horizons Family Solutions, Ceridian, Dell, IBM, and WorldatWork. The crux of the study was an attempt to comprehend the obstacles which prevent many men and many organizations from taking advantage of the numerous and varied tools available to balance an employee’s work and life challenges. The study was conducted in November and December 2010 by surveying some 2,312 employees employed in large (500+, ees) organizations in: Brazil, China, India, Germany, the UK and the US. The sample included men and women and was balanced across age.

The authors reported four central findings:

1. Men and women identify equally with their work and family lives.

2. Men and women are both concerned about financial issues and the lack of time.

3. Men and women jointly perceived that they have been “punished” for utilizing work/life benefits.

4. Many business leaders continue to take an “antiquated” view of work/life benefits.

Let’s forgo the warm and fuzzy issues of parental bonding and caring for ill and aging parents; and look at balancing work and life issues from the purely economic standpoint of creating value. In order for organizations to create value for their employees, shareholders, and for society, they require resources. A large portion of those resources for most organizations come in the form of humans. Most organizations demand the best and the brightest of those resources and once organizations have obtained those best and brightest resources; organizations generally desire to retain and motivate them. Failing to attract, retain, and motivate those resources can lead to a significant downward trend in the value organizations create.

Even in today’s rattled economies, the best and the brightest continue to have options. And we are not always talking about Ph.D’s in genetic re-engineering. Skilled machine tool operators and skilled construction trades are in short supply, and these shortages are not unique to the US. So with the competition matching each other’s compensation and benefits; work-life issues could become a competitive advantage or disadvantage. While not every employee is capable of telecommuting or conducive to flex-time arrangements; the best and the brightest will gravitate to those organizations which afford them options.

So what’s the solution? There is no one single answer for every organization. What works for a machine shop may not work for a software developer. What works for a competitor down the street may not work for your organization. What works for one system engineer may not for all system engineers. It is going to take a balancing act between the needs of the organization to create value and the desires of the employee have to balance their personal life with work.