State of the Union and Health Care Reform

Thursday, January 28, 2010

As expected, in his State of the Union speech to a joint session of Congress and the American people on Wednesday night, President Obama called for renewed bi-partisan efforts to implement health care reform in the immediate future. Stating that nothingless than national economic recovery and vitality was at stake if, as a nation, we failed to achieve the long-term control over health care costs. Singling out middle-class families he stated, “we still need health insurance reform. Yes, we do.” Directing his attention at Congress he asked Congress, “Don't walk away from reform.”

While the President has repeatedly failed to lay out a specific road map to reform, he did restate his desire for certain key features, including:

• Allow individuals to keep their own doctors and plans,
• Reduce costs and premiums for families and businesses,
• Eliminate pre-existing condition exclusions,
• Protect individuals from financial hardship,
• Protect individuals from the worst practices of the insurance industry,
• Give businesses and individuals a chance to choose affordable health care plans,
• Create a competitive health insurance market, and
• Require insurance plans to cover preventive care.
  

Nowhere in his speech did he mention “Universal coverage”, however, it seems that covering all individuals has to be included in health care reform to achieve the desired reduction in costs. Nor did he mention a “public health care option”, nevertheless, is that is what is meant by “affordable health care plans” and "competitive health insurance market".

Even with the rah-rah from Wednesday night’s speech, it is still up to the House and Senate to reconcile their two separate bills and achieve a single bill that will pass in both houses and be signed by the President. While the President continues to voice his strong support for a broad and swiping reform of the US health care system, it is to be seen whether Congress can deliver.

Most Americans appear to want some kind of reform, however, many of the recent polls have indicated that the nation is almost equally divided and skeptical on how much reform is needed. The public seems to be saying that reform is OK for my neighbor, just not with my family and health care plan. Businesses, large and small, continue to struggle with the cost of health care and their ability to provide it for their employees, yet the thought of mandated employer provided health care is dreadful to many.

As a witness to the 2006 Massachusetts health care reform, many organizations found it cheaper to pay the penalties rather than provide the required coverage. At $295 per year per employee, Massachusetts’ penalty for an employer not providing or contributing to the employee’s health care will not go very far towards purchasing a policy for an individual much less a family. Will national health care drive employers to abandon health care for employees? Will the increased cost of benefit administration and mandates force employers to rethink employer-sponsored health care plans and view individual coverage as a viable alternative? Will employer-sponsored health care plans go the way of traditional defined benefit pension plans?

At this point, all eyes are focused on the House and Senate and their efforts, or lack there of, to deliver a unified reform bill the President is willing to sign into law. One possibility remains, Congress may scale back its efforts and produce a number of piece-meal attempts directed at specific reforms on individual targets rather than one overall reform measure.

Is Health Care Reform Falling Apart?

Wednesday, January 27, 2010

First the long time Democratic Senate seat of the late Edward "Ted" Kennedy in Massachusetts falls to Republican Scott Brown, denying the Senate Democrats their filibuster-busting majority. Now state Republican House and Senate members in Virginia are advancing three separate legislative bills challenging the ability of the US Congress to mandate insurance for Virginia residents. In a show of support for their Republican cohorts, several Democratic state Virginia legislative members voted to support the advancement of the Republican sponsored bills.

Are we seeing a return to “States’ Rights”, that is, rights not delegated to the federal government by the Constitution become the prerogative of the states. The 10th US Constitutional amendment states: ‘The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.’ Will other states follow Virginia’s lead in passing state legislation overriding the individual mandate imposed by the US House and Senate versions of health care reform? Will health care reform be forced to be tested in the US Supreme Court, as have other Federal mandates?

Are Americans becomingly more uncertain about the value of health care reform? A Robert Wood Johnson Foundation (http://www.rwjf.org/) poll conducted between 11/28/2009 and 12/20/2099, reported a number who are following the health care deliberations are unclear whether health care reform will be positive or negative for them personally. 49.5% in the December poll reported health care reform was ”very important” in addressing the nation’s current economic downturn. However, a significant number of respondents reported they perceived health care reform would have a negative import on them or the country:

• 33% believe health care access would be worse,
• 30.5% believe personal finances would suffer,
• 35% said the nation’s health care access would be worse, and
• 42% believe the national economy would be harmed.

How can national health care be instituted with 30% to 40% of Americans perceiving it will have a negative impact on them personally?

Salary Range Update Management Presentation

Monday, January 25, 2010

It is now time to pull together all the review and analysis work in preparation for presentation to the organization’s management team and obtain the necessary approvals to implement the new structure or make adjustments requested by the reviewing management team. While each organization will have its own degree of formality, process, procedures, and methods for making such a presentation, every organization will have some approval process. The presentation will often be in some form of a PowerPoint like format to a group of senior organizational leaders (CEO, CFO, COO, … etc.) at the group or corporate level. This presentation may involve the senior HR leader and the lead organizational person responsible for compensation and may or may not include outside consultants.

It is highly recommended that throughout the entire process the financial function be kept informed of the details of all work and gain their buy-in at all steps to ensure that when the final recommendations are made the financial function will fully support it. Should at some point during the review and analysis process, the financial function is unable to support HR’s recommendations, HR and the financial function will need to reach an agreement prior to any presentation to senior management.

The presentation will typically include documentation on the general economic state of the organization’s business environment and operations and that of its industry, the organization’s total rewards and compensation strategy, background on when and how competitor data was collected and analyzed, recommendations on what actions to take for the coming year, and what the fiscal impact will be on the organization. All presentation materials should be proof read for typographical, grammar, and factual oversights and errors. If printed versions of the presentation are to be provided to the reviewing group, it should be delivered several days in advance of the presentation. All printed versions of the presentation should be in full color on high quality paper and properly bound. If the organization lacks internal facilities to print in color and bind the presentation, it should be professional produced.

Prior to the actual presentation, those who will be presenting should complete several dry runs to iron out any issues with the flow of the materials and the presentation. It may also be helpful to have others not directly involved in preparing the presentation to observe the presenters and provide feedback and comments to the presenters. During this process, unanticipated questions may arise, thus allowing the presenters to prepare responses ahead of time.

The typical presentation is broken down into a number of sections including:

Background: may include information on the general economic state of the organization’s business operations and that of its industry, the organization’s total rewards and compensation strategy, background on when and how competitor data was collected and analyzed.

Executive Summary: an overall high-level summary of the process including recommendation. The intent is for the reader to garner all of the important facts without having to reading the entire presentation.

Analysis: this section will contain significant details so the reader to reproduce the analysis and re-confirm the finding and reach the same recommendations as put forward within the presentation.

Recommendations: although a high-level recommendation was made in the Execute Summary, this section includes much more details of the recommendation.

References: depending on the organization, documentation of references may or may not be required. If required, references should be cited using the American Psychological Association’s standard style for reference citations.

The presentation may contain any number of charts, graphs, and tables to better facilitate the understanding of the materials and findings being presented. All charts, graphs, and tables should be clearly labeled, titled, annotated to assist the reader in related a specific figure to a specific fact, finding or recommendation.

Salary Range Update Cost Estimation

Friday, January 22, 2010

The analyst has competed the process of constructing the initial salary structure with new range Minimums, Mid-points, and Maximums for the new plan year. Many organizations will “renew” their salary structures on an annual basis, a few may even renew on a bi-annually cycle. Depending on the approval processes for a given organization, an analysis of the estimated cost impact of implementing a new salary structure must be conducted prior to management approval.

As discussed earlier, individual employees who are below the range Minimum (green circle) may need to be brought to the Minimum dollar value of their respective range. How this is accomplished is dependent upon the organization’s pay practices policies, which is controlled by the overall compensation strategy. Regardless, the impacted employee should be made aware of how the adjustment will be made to avoid any negative employee relation issues. If the adjustment to the new range Minimum is in a single step, the cost of doing so is recorded when the new ranges become effective. If the adjustment to the new range Minimum is executed in a series of steps over time, the cost of doing so may have to be recorded at various times. The organization’s accounting and finance function should provide guidance on this topic.

For those employees who are above the range Maximum (red circle) adjustments may be needed to lower them to a point within the new range. Once again, organization’s pay practices policies should direct what actions are taken and when. As with a green circled employee, the over Maximum employee should be told of adjustment to minimize any negative employee relations. If the adjustment to the new range Maximum is in a single step, the cost-savings of doing so is recorded when the new ranges are effective. If the adjustment to the new range Maximum is in a series of steps over time, the cost-savings of doing so may have to be recorded at various times. As with a cost increase, the organization’s accounting and finance function should provide direction on how this action is to be reported.

Depending on the sophistication of the organization’s HR and/or Payroll systems, a report can be written to identify those employees below the Minimum and above the Maximum. That same report can calculate the amount that each impacted employee has to be increased or decreased to meet the pay practices policies of the organization. In addition to estimating the cost increase or decrease associated with a new salary structure, the analyst must review how annual merit/performance adjustments will be effected. If the organization uses a “merit matrix” that takes into consideration both the employee’s position in range and their performance level, an additional cost associated with merit/performance may occur. This additional cost occurs since the employee is now at a lower Comp-Ratio under the new salary structure. That lower Comp-Ratio may allow for a larger merit/performance increase under the new range than would have been allowed under the prior structure. Example: Merit increase guidelines for an organization recommends a 3% increase for an employee with a Comp-Ratio of 90 with a “Meets” level of performance. The same organization recommends a 4% increase for an employee with a Comp-Ratio of 85 for a “Meets” level of performance. The organization placed a new salary structure in place with range Mid-points 5% higher than the prior structure. Assuming no other adjustments have been made, the employee’s Comp-Ratio decreases from 90 to 85 resulting in an additional 1% merit/performance increase.

Since the cost estimates for merit/performance increases with the new structure must make certain assumptions concerning the numbers of employees, their Comp-Ratios, and their performance levels, the use of a range of scenarios may be helpful. The analyst would calculate the mostly likely cost estimation and then create an estimate 1% to 5% lower and higher. The actual deviation would be determined based on forward-looking estimates of such factors as projected turnover, promotions, demotions, and planned new additional hires into the organization’s workforce.

Salary Range Minimums and Maximums Calculations

Thursday, January 21, 2010

Once the analyst has calculated the salary range Mid-point for each of the 10 grades in the sample, the analyst will generally move on to computing the range Minimums and Maximums. The width of an organization’s salary range, i.e., Minimums to Maximums is part of the employers overall compensation strategy. Typical range widths are 30%, 40% or 50% from Minimums to Maximums. However, under certain situations ranges could be 100% wide for “broad-bands” or 20%-25% wide, depending on the needs of the organization. Needless to say, these decisions should be made in advance as part of developing and gaining management approval of the overall compensation strategy.

Obviously, salary range Minimums and Maximums tell the organization the lowest and highest salary that should be paid to a given employee for a given range. However, there may be exceptions where employees are below the Minimums (green circle) or above the Maximums (red circle). Employees hired at the Minimum of the salary range may not have had a performance review opportunity to increase their pay by the time a new Minimum is put in place. At times, an employer may hire employees below the Minimum of a range. This may a developmental effort for those do not have 100% of the job skills, however, are perceived to able to develop those attributes very quickly. At the other end, for whatever reason, is the red-circled employee who was demoted, took a step down or transferred into a role at a lower grade level. Some organizations might allow an employee to step into a lower level job to facilitate the employee’s desire to pursue a new career path.

Addressing green or red circled employees should be driven by the employers overall compensation strategy and its policies and may be affected by any labor agreements. One approach for green-circled jobs is to bring them to the Minimum of the new range. Some employers may choose to do this adjustment in a single step or multiple steps over 30-60-90 days. However, if merely brought to the Minimum, the employee may be green-circled again next year, depending on how fast ranges are moving. The cost associated with adjusting green-circled employees will be one component of the overall cost to implement new ranges. Red-circled employees may be left at their current salary level or reduced in pay over some period of time. The actions taken to decease the incumbent’s pay are often a function of why the employee is in the lower salary range. The reduction in the cost associated with adjusting red-circled incumbent may offset, to some degree, the cost of increasing the pay for green-circled employees.

The calculation of the salary range Minimums and Maximums is a straightforward process of increasing the projected salary range Mid-point by some percentage or amount and correspondingly deceasing the Mid-point by an identical value. By definition, the Mid-point divides the salary into two equal halves. The width of a range is generally the same for all grades, however, based on the organization’s needs, the width can vary as the grades increase.

The table below gives the percentage subtracted from and added to the salary range Mid-point to achieve the desired overall range width. Therefore, if the employers overall compensation strategy calls for a range width of 35%, then 15% (-15% and +15% ¹ 30%) should be subtracted from and added to the salary range Mid-point. It may seem counterintuitive, but range width is measured from Max to Min whereas the Max and Min themselves are calculated from the Mid-point. Example, if the range Mid-point is $45,000, the Minimum is $45,000 * (1-.15) = $38,250 and Maximum is $45,000 * (1+.15) = $51,750 or 35% as measured from Minimum to Maximum.

The following table gives the salary range Minimums, Mid-points, and Maximums for each of the 10 grades used in the earlier example with a range width of 50% calculated by subtracting 20% from and adding 20% to each of the 10 salary range Mid-points. Please note, the Width in $$$ is 50% of the range Minimums and the Minimums are 20% below the Midpoints and the Maximums are 20% above the Mid-points.

Health Care Without a Democratic Majority

Wednesday, January 20, 2010

With Scott Brown’s(R) 52% to 47% (not exactly a landslide) defeat of Martha Coakley(D) in the Massachusetts special election yesterday, health care reform may be on a different path or possibly even stalled. Brown’s election will deny the Democrats the 60-seat majority they need to pass an uncontested health care bill. Martha Coakley, who was expected to win, is the current Attorney General of Massachusetts and previously was the Middlesex County District Attorney for six years. The special election was held to fill the seat of the late Democratic Senator Ted Kennedy.

Brown, a current Massachusetts state senator, reportedly will oppose the current health care legislation in the Senate making it difficult for health care in its current form to move forward, not that there has been much movement lately. While Brown opposes the current health care bill, he does support the notion that everyone should be insured, however, it should be handled on a state-by-state basis. He was a supporter of statewide health care reform that was passed in 2006 for the state of Massachusetts.

Could Brown’s election be part of the leading edge of a swing in the country’s outlook for the upcoming midterm elections? As a conservative, Brown is more likely to favor fiscal restraint, less taxation and regulation, and other government oversight of businesses. Regardless of the midterm election outcome, health care reform, if passed will, most likely, look different than does today.

The problem faced by carriers, providers, employers, employees, and those of us who have to design and administer health care plans is the sheer unknown of how to plan for 2011 and beyond. If left to states to devise their own state-by-state reforms, many employers could be faced with new mandates and an inconsistency of laws among the various states. The situation may further be complicated due to the staggered passage of reforms by some states in 2010, 2011, 2012 or later. This staggered implementation could force some multi-state carriers, providers, and employers to make changes over several plan renewal cycles.

Ordinary Least Squares Regression of Salary Survey Data

Tuesday, January 19, 2010

Ordinary Least Squares Regression(OLS) is commonly used to analyze the relationship between market wage rates and the grades or job evaluation points associated with surveyed positions. The object is to calculate the new range mid-points from the survey market wage rates. Market rates are represented by the weighted/non-weighted Median or Mean market rates. If available a weighted data value is more preferable than un-weighed data. The Median is preferable over the Mean since the Median, which is also the 50th percentile, is less susceptible to extreme data values that would skew the Mean, thus making the Median a better representation of the “mid-points” of the market rates.

In most common salary structure design and analysis the analyst is working with two variables, the market rates and the grades/points of the surveyed positions. The Ordinary Least Squares Regression formula (y = mx + b) converts the values of those variables into a set of fitted set of points representing the market rate mid-points. Once these points are known, it is a simple process to calculate Maximums and Minimums, by example:

In the above example using pay grades, the organization has a 10-grade structure for some portion of its workforce. The organization has obtained market rates from a salary survey or other process and used Ordinary Least Squares Regression to project the new salary range mid-points. Applying Ordinary Least Squares Regression (most spreadsheet have preprogrammed functions for this) the following values are calculated for the slope(m), $831 and the intercept point(b), $24,969.

Substituting the values for slope and intercept into the OLS formula for Grade # 1, we have:

(y = mx + b)
y = $831*1+$24,969 ..... Since this is for Grade 1, x=1.
y = $25,800 ................. For Grade 1, we have a Projected Mid-Point of $25,800

We repeat the process for Grade # 2:

(y = mx + b)
y = $831*2+$24,969 ..... Since this is for Grade 2, x=2.
y = $26,630 ................. For Grade 2, we have a Projected Mid-Point of $26,630

We repeat the process for Grade # 3:

(y = mx + b)
y = $831*3+$24,969 ..... Since this is for Grade 3, x=3.
y = $27,461 ................. For Grade 3, we have a Projected Mid-Point of $27,461

We repeat the process for Grade #’s 4, 5, 6, …, 10, substituting the next grade into the formula and calculating the projected mid-point. The power of OLS is that it “smooths out” variations in the market data to produce a “best fit” line along a set of points. The range mid-points corresponds to the projected mid-point.

Analysis of Salary Survey Data

Friday, January 15, 2010

During every step in the analysis process, the analyst should observe the highest possible quality control procedures. This means that back-up copies of all data sets be maintained to facilitate recovery. Create checkpoints during the analysis process to ensure it is proceeding in the correct and desired direction. Document what actions were taken and at what point in the analysis process.

At this point the salary survey data has been collected, reviewed, arranged, aged, and warehoused and is ready for an initial analysis. Again there are numerous commercial software tools available from software providers and consulting companies to assist in this initial data preparation process. It is also possible to use spreadsheet and database tools available in the suites of various office software products to accomplish the same task, including free open source downloadable tools from the Internet.

Depending on the number and type of salary structures maintained by the organization, the analysis process begins by disaggregating the data into smaller sub-groups. These sub-groups may represent positions by line of business, geographical locations, FLSA classifications, union, non-union, plant, office, exertive, managerial, non exertive or other business unit designations.

Once the data has been sub-divided into the desired smaller groups, the analyst should review the data at the position level to determine and possibly remove any outliers. Outliers are salary survey data points that are too low or too high to be considered acceptable for inclusion in the final analysis. One method to assist in identifying outliers is to eliminate any results less than or greater than the 25th and 75th percentiles of the data set. While this is certainly a somewhat arbitrary approach, it does leave the middle 50% of results in the data set. There are more sophisticated methods available to the analyst who feels comfortable with using them including Ordinary Least Squares Regression, and Moving/Running Averages, to name but two. Most spreadsheets have built-in functions or tools to make the necessary calculations.

The analyst now has the data sub-divided into the desired data sets and cleared of any outliers. Depending on what summary statistics were reported by the survey provider or the included in a customized survey the analyst may or may not have the choice of several “averages” to use. Typically survey summary statistics may include weighted and un-weighted values for: Mean, Median, and Mode; as well as other summary statistics, such as percentiles and quartiles. Weighted summary statistics, generally, allows the analyst to have a higher degree of confidence in the reliability of the data reported.

If the salary results include salary grade designation or job evaluation points, one common and simple approach is to sort the data points for each sub-group into ascending order (Low to High) and graph the data points against the grades or evaluation points of incumbents to visually observe how they cluster or if they do cluster. By observing the graph of this relationship, the analyst will be able to conclude if the data is linear or curvilinear. Assuming the data relationship is linear, it usually is, the next step in the process is to “regress” survey Median or Mean against either the positions internal job evaluation points or their grades using Ordinary Least Squares Regression.

Ordinary Least Squares Regression is a common tool used to map the relationship between, in this case, two data variables. One data variable is the internal job grades/evaluation points and the other is the survey Median or Mean, weighted/non-weighted, as available. One output of regression analysis is a simple formula (y = mx + b) that tells the analyst the “market value” of each pay grade or job evaluation point. Most spreadsheet tools will have built in functions to calculate the various terms in the above formula.

Collection and Ageing of Salary Survey Data

Wednesday, January 13, 2010

Once the analyst has achieved the maximum correlation between matching the organization’s positions to those used in the survey(s), data must be collected and “warehoused” in such a manner as to promote effective decision-making. There are numerous commercial tools and websites (PayScale, Salary.Com, et al) as well as consulting firms (Towers Watson, AON, et al) available to assist practitioners in sourcing, storage, and analysis of data. Depending on the organizations “technical acumen”, different organizations will need or expect different levels of technical analysis of data. Having once worked with both pipeline engineers and bankers, each had a different understanding and acceptance of “data” analysis. The goal of the analyst should be to understand, use, and be able to explain analytical methodologies in language appropriate for their respective audience.

Depending on when compensation data was collected, the data may need to be “aged” to account for changes in the wage market since its original collection. If the analyst has access to some “inflation index” such as the Consumer Price or the Producer Price Indices, one or the other could form the basis for ageing the data. Keep in mind that the Producer Price Index (PPI) measures price change from the point of the seller whereas the Consumer Price Index (CPI).measures price change as viewed by the purchaser.

CPI’s are published monthly and are available at the level for national, regional, and most major cities. The CPI is sub-divided into two broad population classes, CPI for All Urban Consumers (CPI-U) (this covers about 87% of population) and CPI for Urban Wage Earners and Clerical Workers (CPI-W) (which covers 32% of the population). The CPI is broken down into several components, including: food, energy, new and used cars/trucks, apparel, shelter, transportation, and medical care. Neither of the CPI’s includes data on living in rural non-metropolitan areas, which can present a problem for salary structures in remotely located operations. The CPI-U is the most commonly used index to “age” survey data.

Aging compensation data allows the surveyed data to be “brought forward” to the current point in time. Since employers do not all adjust workers’ salaries at some uniform time, survey data represents a sampling of compensation practices over time and is thus a lagging indicator of market wage rates. Some online survey providers automatically age data based on location Zip Codes. The analyst should always verify the ageing process should they be called upon to explain it.

Assuming that survey data available has not been automatically aged by the provider, the analyst will need to determine the rate of change from the time the data was effective to the point at which the data will be used in the decision-making process. If data is being aggregated from multiple sources all with different time frames, the analyst will need to use different ageing factors for each data sources. If the survey was published May 2008, based on compensation effective January 1, 2008 and the analyst plans to use the data for his practice effective Jan 1, 2010, then 24 calendar months will have elapsed since the data was in effect on January 1, 2008.

The analyst must now calculate the change in the CPI-U for January 1, 2008 to January 1, 2009.

December 2009 CPI-U .......... 216.33 ........ Not seasonally adjusted
January 2008 CPI-U .............. 211.08 ........ Not seasonally adjusted.
CPI Change:( ageing factor) . 2.487% ....... Percentage points.

Based on this, the analyst must age the survey reported compensation by a factor of 2.487 percent in order to align it with the expected update on Jan 1, 2009. Making a change this small could have both negative and positive employee relations aspects. On the one hand, the organization is taking action to maintain wages at a “competitive” level. On the other had, a two and half percent change will have only a nominal effect on most employees and may be perceived as an insult to some. Much will depend on how the organization chooses to go about communicating the message rather than the message itself.

Survey Job Matching for Compensation Updates

Tuesday, January 12, 2010

One issue with using either publicly or privately available surveys is the matching of the organization‘s positions with those described in the survey. It is highly unlikely that the organization‘s position descriptions and those in the survey will match much more that 70%-to 80%. The exception to this situation is when the organization contracts with a vendor to conduct a customized survey just for the client organization. The role of the analyst is to determine if the match is close enough on the major functions of the position to make the data from the survey valid. This usually involves the input from others within the organization who are more intimately familiar with the position’s duties than the analyst.

Some on-line salary survey tools allow the analyst to merge two or more positions and achieve a degree of “hybridization” of those positions. The resulting hybrid position has one or more tasks associated with several parent positions and generally can be weighted heavier towards one parent or another. Since the hybrid position may contain tasks from two or more parent positions, each selected individual task may make up a minority of the organization’s position responsibilities. As an example, consider the short haul truck driver that also operates a forklift to load and unload trucks when not driving, and functions as the local depot manager. The analyst will need to determine to what degree each of those tasked are weighted as a percentage of the whole in order to price the job.

There are a number of methodologies with which the analyst can determine the weighting of tasks hybridized from the parent positions.

Time on Task: In this method the time spent performing on each task is determined, either by measurement or estimation. The weighting of the task is the ratio of the task time to the total time of all tasks assigned to the position. Incidental duties may be disregarded.

Revenue Earned: With this method, the organization has to have the ability to determine the revenue (could also use sales, expenses, … etc.) generated by each task. The weighting of the individual task is the ratio of the revenue from a given task to the total revenue of all tasks generated by to the position.

Job Evaluation: If the organization uses a point-factor based job evaluation process, the point value for each task can be individually evaluated and that becomes the basis for the weighting. Plus this adds credibility to the process since the organization’s job evaluation committee is involved in the process.

Production Metrics: In some organizations it may be possible to use “production metrics” as a proxy for time, revenue or job evaluation points. An example is a fixed wing aircraft pilot that flies a single engine piston aircraft a portion of the time and a multi engine turbo prop the remainder of the time. It is possible to use miles flown as a proxy for the relative value and the position tasks weighting.

Estimation: It is possible that an analyst will not be able to apply any of the above methodologies and be forced to rank the tasks in order of importance and then assign them a “best estimate” of their relative value and tasks weighting. If this can be done in concert with an internal management review team, there may be a degree of validity and credibility to the process.

The key is to achieve the maximum correlation between matching the organization’s positions to those used in the survey (even if it less than 100%) in order to obtain the most valid measurement of the current market wage rates.

The Role of Base Compensation

Sunday, January 10, 2010

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, commission and bonus payments, special knowledge/skill pay, standby-by/on-call/waiting pay, ... etc. What comprises base compensation is a function of statutory and regulatory requirements, company policies, and collective bargaining agreements, if applicable to the employer. Base compensation is generally the single largest employer expenditure for human capital. It is the major component of the employee’s overall toward rewards used to attract, motivate, and retain individuals with the requisite knowledge, skill, and ability to function at an acceptable performance level.

Since base compensation is of significant importance to the employer both for its fiscal and employee attraction, motivation, and retention attributes, employers must invest considerable resources in its proper determination. On some level, the determination of base compensation involves the research, collection, review, and analysis of the pay practices of the employer’s competitors. Typically, when identifying competitors, employers will focus on those which best match their own human capital pool, workforce size, financial metrics, lines of business, and geographical locations. Depending on the employer’s labor relations environment, collective bargaining agreements may play a predominate role in this determination process. Failure to take these factors into consideration could lead to critical decisions being made using invalid and unreliable data.

The traditional method for collecting competitor compensation data for use in updating an employer’s compensation practices is by means of either publicly or privately available surveys. Publicly available surveys include, but not limited to, those published by state and Federal departments of labor and economic development agencies. Private surveys are most often sponsored by employer/industry association groups, consulting and auditing firms as well as those underwritten by individual employers. To be effective, surveys should include reporting time frame, statistical breakdowns by industry sector, organizational size, revenue metrics, line of business, geographical area, collective bargaining status, and position title.

Statistical measurements by survey position title should include the number of responding organizations, number of incumbents, range minimum, mid-point, maximums, quartile or percentile points, weighted and unweighed means, medians, and modes. Organizational measurements by industry sector, business line and/or location/geographical area should include, the total number of employees, annual gross/net sales, other revenue or production metrics as appropriate, and collective bargaining status.

Weighted statistical measurements take into consideration the number of incumbents associated with a particular survey position title within each responding employer. A surveyed position with 1 incumbent in company X should not be given the same degree of importance as a position with 25 incumbents at company Z when determining the prevailing market wage rate. To calculate the weighted values, individual incumbent rates of pay must be aggregated prior to reporting. However, some organizations may lack the tools to calculate and report weighted survey data points, thus creating possible data validity questions. Employers are often skeptical of providing such detailed data unless they can be assured of the highest level of privacy. To ensure privacy of the employer and incumbents, employers are identified only by a coded designation. Furthermore, due to the confidentiality of individual wage rates, when survey data is published, only summary statistics are reported at the employer level.

Current Health and Wellness Plan Trends

Wednesday, January 06, 2010

If an organization invests in employee health and wellness, they may expect fewer claims or at least lower claims, and the organization may expect a reduction in their overall health care cost. Healthier employees are more productive, use fewer sick days, and manage work related stress better than unhealthy employees1. However, if the employee is doing all of the right things to get and stay healthy, yet their enrolled spouse and/or dependents are not, organizations can expect to see little return on their investment2. The investment in employee health and wellness must also extend to the employee’s family for the program to be effective3.

The role of spouses cannot be ignored; if spouses cannot influence or change employees’ health behavior, how can employers? Spouses and dependents are integral to the overall control of health care costs2. Organizations such as the University of Alaska recognize the role of spouses by offering spouses a $100 incentive to complete a Health Risk Assessment3. Blue Cross Blue Shield of North Dakota’s Health Club Credit program allocates members and spouses $20 monthly for health club participation, if they exercise at least 12 days a month4. Marvin Windows encourages participation in its wellness program by reducing employee health care premiums up to $50 per month for family participation in the program5. To further encourage participation in fitness activities, Marvin reimburses 50% of the cost for Health/Fitness Club memberships and weight-loss programs for employees and spouses6.

Do organizations with health and wellness programs achieve acceptable levels of Return on Investment (ROI)? In a 2009 Healthcare Finance News survey of 372 US employers covering 1.8 million employees, 2/3’s of the respondents who offer employee health and wellness programs report a positive ROI7. In its 2006-2007 latest wellness survey, the Business Roundtable reported ROI ratios ranging from the low 2’s to the high 7’s for member organizations comprising 10 million plus employees with annual revenues of $4.5 trillion8.

As the economy begins to improve, many organizations are beginning to develop strategies for retaining their current human capital in the face of increased competition. Employee health and wellness programs are cited as one tool in the organization’s toolbox to achieve the goal of retention9. The reach of health and wellness programs extends into the external community as well. Johnson & Johnson feels so strongly about employee health and wellness that after establishing its own employee plan, it purchased two businesses to market similar programs to other employers10.

While ROI ratios from the low 2’s to the high 7’s may seem impressive, those ratios are only achieved with significant investment in program design and communications. The University of Alaska’s wellness program includes web based communications as well as print and video materials sent to the employee’s home3. A strong communications plan is essential to the success of any employee program, much more so for health and wellness programs. With the workforce becoming increasingly more diverse and more multi lingual, communication planners must think multi dimensionally11. John Deere provides employees with communications materials sent to homes, provided during at-work meetings, and a fully branded “one spot” website with information on company benefits and available wellness resources. The website even includes employee health and wellness “success stories”12.

If employees are not enrolled in the programs, do not participate, or make no effort to change their unhealthy behavior, there will be little or no ROI. One aspect of program design indicates that financial incentives may be key in reaching the desired employee engagement levels. Michael F. Carter, Vice President of Hay Group, reports that “incentives provide a ‘win-win’ for employees and employers” Carter reports that cash is a common incentive, however, he also suggests that gift certificates, time off, and reduced medical premiums work well.13. As evidenced by the experience of the University of Alaska, Blue Cross Blue Shield of North Dakota, and Marvin Windows some employers perceive that financial incentives encourage participation in wellness programs.

1. Bad Economy, Good Health, BusinessWeek, Corporate Executive Board July 24, 2009,
http://www.businessweek.com/managing/content/jul2009/ca20090724_788405.htm

2. The Obvious Secrets to Reducing Your Healthcare Costs, White paper, Corporate Synergies Inc.,2007, http://www.corpsyn.com/pdf1/CSG_WhitePaperSECURED.pdf

3. University of Alaska, Benefits Department, Health and Wellness Plans, Joint Health Car Committee, December 7, 2009, http://www.alaska.edu/benefits/joint-health-care-committ/a12-07-2009/

4. BlueCross BlueShield of North Dakota, The Blue Innovations Report, 2009, http://www.blueadvocacy.org/plans/view/bluecross_blueshield_of_north_dakota

5. Marvin Windows and Doors Joins Campaign, Company press release, Feb. 7, 2007, http://www.marvin.com/?page=press_release&pressid=187


6. Marvin Wellness Programs, MN Chamber of Commerce, June 19, 2007, Elaine Buddington
Director, Compensation and Benefits, Marvin Windows and Doors, http://www.mnchamber.com/news/Archived/MarvinWindows.pdf


7. Employers see well-designed worksite health and wellness, July 28, 2009, Healthcare Finance News

8. Doing Well through Wellness: 2006–07 Survey of Wellness Programs at Business Roundtable Member Companies, Business Roundtable

9. Wisdom at Work: Retaining Experienced RNs and Their Knowledge – Case Studies of Top Performing Organizations, Prepared for: The Robert Wood Johnson Foundation, Submitted by: The Lewin Group, March 25, 2009

10. 2008 Annual Report and 2009 Proxy, Johnson & Johnson, http://www.jnj.com/connect/about-jnj/publications/

11. Communications efforts adapted for diverse workforce, Business Insurance, Crain Communications, Inc., Jeff Casale, 09-14-2009, http://www.businessinsurance.com/article/20090913/ISSUE03/309139996

12. Deere & Company, Inc., 2010 John Deere Healthy Directions, http://www.deere.com/healthydirections/index.html

13. Financial Incentives for Wellness, Hay Group Holdings, Inc, Presented at the 2006 WorldatWork Total Rewards Conference & Exhibition in Anaheim, California, http://www.haygroup.com/pl/press/Details.aspx?ID=9874

Small Group Claims

Monday, January 04, 2010

I was at a weekly meeting of colleagues this afternoon and as we were discussing various issues that affect the members of the group one member mentioned that he had a good-news bad-news story to relate. It seems that just prior to the holidays he had been offered an opportunity with a small family owned firm. He had met with the family owners and the management team and everyone was very excited to have someone with his particular talents joining the firm. As it turns out, this small firm, about 10 employees, had a high deductible health care plan. At some point during the various interviews and meetings with the owners and the management team he casually mentioned that he has a special needs child. As it turns out one of the owners also had a special needs child. When the family owner-members related this fact to him he interpreted this as very position sign about his prospects with the firm.

Within about 24 hours after his last interview, he did in fact receive an offer from the firm. As he was discussing with his wife whether or not he should accept the offer, he got a call from the person responsible for extending the initial offer and was informed that the offer was being rescinded. When he questioned why the offer was being rescinded he reported that he was given very non-specific reasons. His impression (although no one said so) was that with such a small group and with one special needs child already covered, someone assumed that the firm’s health care costs would increase significantly if another special needs child was added to the group.

Which every position you take relative to health care reform, organizations should not have to make hiring decisions based on whether or not the prospective employee is insurable or that they have family members with special needs. Small group rates are highly sensitive to even one large claim. A special needs child could have a high potential for large claims even over a very short duration. It is well within the realm of possibility that the group’s premiums could have increased with the addition of a second special needs covered member. This individual would have brought significant talents to this small organization and would have helped them grow and prosper in their market segment. While my colleague may have forgone a job opportunity, the firm may have forgone the talent that may have taken them to the next rung in their business plan.

Performance evaluation and management

Sunday, January 03, 2010

Performance evaluation and management can be expensive, time consuming, unreliable, invalid, and often uncomfortable both the manager and the employee. Some question why evaluate.

So why take the time and energy to evaluate?

1. That which is not evaluated, i.e., measured cannot be improved.
   Without evaluation, any process, procedure or employee will soon fall into entropy. Even so called self-managed teams have an objective against which their success or failure is measured.
   
2. Enlighten evaluation takes place within a 360 degree environment.
   Evaluation must both measure the performance of the employee as well as their manager. Success or failure is not a unitary function of the employee; rather it is achieved through the interaction of the two principal parties.
   
3. A 360 degree evaluation environment includes co-team members.
   Rarely in today’s work place is the employee a solitary figure struggling to perform. Whether upstream or downstream form the employee, co-team members can effectively influence the outcome of a task. Some accounting must be made for co-team members if we are to achieve a valid evaluation.
   
4. The difficult is done immediately, the impossible takes a little longer.
   Evaluation must have a benchmark against which to measure success or failure. Without some form of a yardstick there is no way to relatively measure either success or failure or progress towards either.
   
5. Evaluation is a management task.
   Failure to evaluate the performance of any process, procedure or employee is equivalent to abdication of one of the mangers primary roles, control. You can be assured that “someone” is evaluating that manager and his ability to deliver the desired results.
   
6. Not all employees are created equal.
   Without periodic and systematic evaluation how is the manager to know which employees need mentoring or coaching. Managers often rely on the highly unreliability of recent events to shape their opinion, all the more reason for periodic and systematic evaluations.
   
7. Evaluation is not just about the here and now.
   Effective evaluation gives both the manger and the employee an opportunity to see potential future skill development paths. As a means of employee motivation, nothing works better than being able to demonstrate the next rung on the ladder and how the employee will achieve it..
   
8. Talent management, putting on the finishing touches.
   Evaluation is an opportunity for the manager to reinforce the goals and objectives of the organization and to share with the employee the vision and direction of the future organization.
   
9. Talent retention, some stay others go.
   Organizations spend significant amounts of time, energy, capital, and other resources acquiring highly trained talent. No fewer resources have to be employed to determine if that talent is worthy of the organization’s initial and continuing expenditures. Without evaluation, the wrong employees may be staying and the wrong employees may be leaving.
   
10. Capital is capital, human or otherwise.
    Every other form of capital is measured within the organization, often down to several decimal points. Specific technologies are developed to identify and determine every opportunity to minimize, optimize or maximize virtually all organizational business processes. So, why not the same for human capital?

Employee Data Access, Security, and Controls

Friday, January 01, 2010

Happy New Year!

Recently, I was asked to comment on and make recommendations for employee data access, security, and controls with respect to HIPAA and non-HIPAA protected data.

1. Know and understand the current security environment and controls in place within your organization! Are your HIPAA Business Associate (BA) agreements up-to-date for relationships with health care providers, vendors, clients, brokers, consultants, TPA’s, and others? Has your internal and/or external legal resources reviewed your BA’s within the last 6 months to a year? What is the official and unofficial security philosophy of your organization? Are those philosophies framed within state law, union agreements, client contracts, vendor agreements, and/or organizational policies? Who within your organization oversees employee data security. HR, IT, internal audit, risk management or a Security Czar? Is there a history of past security breaches? Does your management team perceive that employee data security is important? Is your organization covered by insurance to offset potential losses associated with a data security breach?

2. A complete data security analysis should be done, including physical access security, during the initial system’s implementation to ensure that the right level of access is granted to the right data user for only the data necessary to perform their current position duties. If, for whatever reason a data security analysis was not done during the initial system’s implementation, it should be done as soon as possible by either internal or external resources. Most systems have the ability to define a security classification (data access/security profile) and associates that classification with a position. Example: a Benefits Mgr needs access to base pay (to determine life insurance amounts) and to dependent data to validate enrollment coverage (Single, Single + 1, Family).

3. If the employee’s role changes, e. g., Benefits Mgr is now the Employee Relations Mgr, the ER Mgr will not need access to the employee’s medical plan option. However, he now needs access to any corrective action history. Once again, as soon as the position changes in the system, most systems allow for the automatic linkage of the position, via position number/ID/title to the appropriate data access/security profile.

4. At issue is how tightly is the focus of the data access/security profile relative to the position. Again, the focus is on the duties of the individual and not the individual per se. During system’s implementation/upgrade/maintenance the focus has to be defined on a functional level relative to the security philosophy of the organization. Broad focus might allow everyone in a small “HR” function to have access to all data, because their position duties require it. On the other hand, in a large organization only those performing the specific function would have access to the relevant data, because their position duties may be narrow in scope.

5. On some periodic cycle, someone (IT/HR/Security Czar) must review each position’s functional duties to determine if they have the appropriate data access/security profile (security audit) that allows them to perform their duties in an effective and efficient manner. This audit could be included in the periodic review of a position’s duties for job evaluation. A Benefits Mgr who cannot access an employee’s payroll deductions for health care may not be able to balance and reconcile monthly carrier bills in a timely manner, thus leading to over/under payments. This does not mean the direct access to the entire Payroll system. It means access to just the data needed to balance and reconcile monthly carrier bills against the employees’ Payroll deduction amounts.

6. A breach in employee protected health information (PHI) security is more than just an embarrassment to the impacted parties. Depending on the data that is breached, the scope, and duration of the breach, there could be an issue with The Health Insurance Portability and Accountability Act of 1996 (HIPAA) privacy rules (http://www.hhs.gov/ocr/privacy/). Violation of HIPAA could carry with it certain monetary and criminal penalties as well as notification requirements (not an inexpensive process) of the breach to those potentially affected by the breach. In addition, a breach in non-PHI data may not be covered under HIPPA, nevertheless, it could be covered under state law, union agreements, client contracts, vendor agreements, and/or organizational policies. Finally, while the possibility of “corporate espionage” may seem overstated, however, it does occur and appropriate data access/security profiles and audits helps to prevent it. (http://abcnews.go.com/Business/story?id=2161750&page=1 )

7. This means increased oversight of who uses the data, for what purposes, how data is stored/retrieved/transmitted, data backup and recovery procedures, and the necessary data safeguards, including security audits. It means that employees have to be educated in their role in protecting and securing data from possible abuse/misuse. Employee education often takes the form of initial training at hire and follow-up training on an annual basis. Initial and annual follow-up should provide for some means of objective testing and recording of results as well as retraining/retesting for any employees who “fail”. Protected data that is allowed to be copied to a CD, or downloaded to a laptop that then walks out the front door or an un-encoded and open electronic non-encrypted transmission are significant security issues.

8. Clear, appropriate, and well communicated corporate policies concerning data access and security is essential to a well managed organization. This also includes dealing with corrective action in the event that data access and security is breached. These policies must deal with both organizational processes and HR issues. Whether intentional or un-intentional, a breach of employee, patient, member, client, and/or vendor data could have far reaching public opinion, economic, and legal ramifications, including the very survival of the organization.