Court Concludes That Pharmaceutical Sales Reps Are FLSA Exempt

Friday, September 28, 2012

The U.S. Supreme Court recently found that pharmaceutical sales representatives are in fact "outside salesmen" for the purposes of the Federal Fair Labor Standards Act (FLSA) and are therefore, exempt from its overtime provisions. While this decision certainly brings relief to SmithKline Beecham and other pharmaceutical manufacturers, it is also important to note that the decision struck a blow to the Department of Labor (DOL). The DOL had argued that “[a]n employee does not make a ‘sale’ . . . unless he actually transfers title to the property at issue.” In the case of pharmaceutical sales, “property title” transfer does not occur between the pharmaceutical sales representative and the physician or for that matter between pharmaceutical sales representative and the end consumer. Had the Court “deferred” to the DOL interpretation, the FLSA status of pharmaceutical sales representatives might have come out different. Referring to pharmaceutical sales representatives, whose average salary was $70,000, the Court remarked, “hardly the kind of employees that the FLSA was intended to protect.”  See Christopher v. SmithKline Beecham Corp. (No. 11-204, U.S. June 18, 2012).

While such decisions by the Supreme Court may seem removed and distant from your specific business, assuming that you are not pharmaceutical manufacturer or a pharmaceutical sales representative. Nevertheless, if your business involves “outside” sales the decision does bring a degree of clarity to what a “sale” is and is not. Had the Court agreed with the sales representatives who brought the action and deferred to DOL’s argument of title transfer, many organizations would be looking at significant labor cost increases. Although the Court sided with the employer, that action does not lessen the broad scope and depth of Federal Fair Labor Standards Act on the workplace. Misclassification of workers as exempt when in fact they are non-exempt is still an ongoing and troublesome aspect of human resource management.

In general, employees are either exempt from FLSA standards or they are “non-exempt”. The three most common exemptions to FLSA overtime and minimum wage standards are summarized below:

Executive Exemption:

• Employee must be compensated on salary basis at a rate not less than $455/week

• Employee’s duty must be managing the enterprise, department or subdivision

• Employee must direct the work of oyhers

• Employee must have the authority to hire or fire other employees

Administrative Exemptions:

• Employee must be compensated on salary basis at a rate not less than $455/week
• Employee’s primary duty must be the performance of office work

• Employee’s primary duty includes the exercise of discretion and judgment

Professional Exemption:

• Employee must be compensated on salary basis at a rate not less than $455/week

• Employee’s primary duty must require advanced knowledge

When misclassified workers are identify, better if by the organization, rather the DOL, it would be prudent to take actions to correct the situation as soon as possible. The financial risk is significant; base wages, penalties, fines, legal cost, lost productivity, distraction, and decline in worker morale are equally significant.

Is the Cubical Going The Way of the Typewriter?

Friday, September 21, 2012

A number of years ago, a large insurance company I worked for experimented with a revolutionary work environment. Remote terminals were installed in claim’s processors homes. Each morning, a box of claims was dropped off at each processor’s home and picked up the following morning after being processed during the intervening 24 hours. Over a period of several months, this pilot effort was analyzed to determine how productive home processors were compared to their corporate office counterparts. At the conclusion of the pilot it was determined that claim’s processors working from home were significantly more productive than their cubical-bound co-workers. More claims were processed, with fewer errors, in less time. Absenteeism was almost nonexistent, employee engagement was up, and turnover was down. Yet claims processing supervisors felt the pilot was a failure. Why? Supervisors were at a loss as to how to manage someone they could not physical see. Entrenched in the traditional modus operandi of managing; supervisors perceived that they had lost control.

Telework, telecommuting, working-from-home, working-remotely or whatever you want to call it has been made feasible by the increasing and powerful remote and mobile technologies of the Internet, cellular and wireless communications, and telecommunications. Organizations such as the Telework Coalition and the Telework Exchange work to foster the value of telecommuting and its impact on the “…economy, environment, [and] energy usage,…” 2011 studies by WorldatWork’s Telework Advisory Group has tracked a steady upward trend in telework since 2001 until a significant decline occurred in 2008 when the economy began to turn south. WorldatWork’s studies point to telework as one more tool to attract, motivate, and retain valuable talent and balance work-life issues.

The Telework Research Network is a consulting and research organization to private and public employers in the US, Canada, and the UK and argues the business case for telework and workplace flexibility. Their position is that telework makes business sense on the basis of:

• Cost savings and increased productivity.

• Reduction of under-employment and talent shortages.

• Recruitment and retention of the top talent.

• Work-life balance and quality of life issues.

• Phased retirement for Baby Boomers.

• Greater self control for Gen Y’ers.

• Workplace accommodation for disabled workers.

• Address special needs of rural residents and military families.

• Reduction of traffic congestion and the gap in transportation supply and demand.

• Reduction in transportation infrastructure costs.

• Improvement in environmental issues.

• Risk reduction associated with natural and man-made disasters or pandemics.

The Telework Enhancement Act of 2010 mandates Federal agencies to develop and maintain telework policies to ensure that the government can continue to operate and allow employees to work from home or remote sites. While the law applies to governmental agencies only, private employers may find it helpful to appropriate applicable policies developed by agencies such as U. S. Department of Justice or The National Council on Federal Labor-Management Relations.

As a means to attract, motivate, and retain valuable talent, and balance work-life issues, telework fits well into the parallel concepts of flex-work and “hoteling”. In an effort to separate themselves from their competitors in the never ending search for top talent, organizations must apply any tool which provides them with an advantage. Even being able to offer an opportunity of one, two or three days of telework has the potential to significantly improve the completeness of an employer in the talent wars.

Job Offers and Counter Offers –What To Do?

Friday, September 14, 2012

Most of us have dealt with employment offers and counter offers either as the applicant or as the hiring manager. As an applicant we know what we bring to the table and believe those skills are in high demand by others and will prove valuable to our prospective employer. As the employer, we believe we know the market’s going rate for the skills we need and have priced the offer in terms of internal and external equity and in keeping with our total compensation and organizational philosophies. However, your top candidate has come back with a counter offer and is asking for more money, a bigger bonus, additional time off, a richer relocation package, … etc. What are your options?

The oblivious first option is to let your initial offer stand pat. You have done your homework. You know the market value of the job, its skills, and how it all fits into your current organization. You have evaluated the candidate’s education, past job history, skills, feedback from peer interviewers, and you believe that you can see their potential. Of course you run the risk of losing your top candidate and having to look at your second choice or begin the recruiting process anew.

The next option is to make an offer somewhere between your initial offer and the candidate’s counter offer. If this sounds a little like bargaining or negotiating, it is just that. Many mangers feel very uncomfortable in these situations. You may now need to reevaluate your internal and external analysis. Of immediate concern should be internal equity. While there may be some wiggle room here, too great a differential could lead to cascading issues with peers or compression with supervisors. Any decision should be well thought through with the best interest of the organization in mind.

Lastly, you could accept the candidate’s counter offer. After all, this is your top choice and you need to fill a position that has been vacant for 3 or more months. The lack of staff has been affecting the performance of your department, or maybe the entire organization. It has been a long and drawn out search to find the handful of candidates who meet your requirements. Even in today’s job market, candidates with these skills will be placed quickly. In these tight economic and competitive times, managers are under significant pressure to produce results, in the office, in the field, on the shop or sales floor.

Assuming that you have priced the offer fairly and correctly, counter offers say something about the candidate. Do they really want to be part of your team or are they looking for just another stepping stone. Most of us want to advance in our chosen fields to the next level. However, there is an unspoken quid pro quo with most professionals in which most organizations realize that well qualified individuals will move up and on after some reasonable amount of time. In return, the organization gets the benefit of the employee’s skills and talent and the individual gets the benefit of acquiring or expanding new skills. As you evaluate your candidate’s counter offer, is your team and is your organization receiving as much as they are giving?

Worker Skills Gap Part Deux

Friday, September 07, 2012

Adam Belz, writing for the Minneapolis Star Tribune, recently reported on the high demand for skilled workers and the problems employers, especially manufacturers, were having in filling vacant positions. Belz points out the plight of welders by illustrating how Code Welding & Manufacturing of Blaine, Mn. has moved from one-dimensional to multi dimensional workers. Prior to the recession, Code’s welders would have had limited and basic skills and worked on scope narrow projects. With the recession, Code found that welders had to weld but also had to set-up, operate, and even repair shop equipment, set-up projects, read blueprints, and inspect each other’s work. Code achieved this by sending those welders who were willing and able to advanced training so they could work on various projects using a wide variety of skills, tools, and equipment. In return Code rewarded them. Those workers who were unwilling to take on new challenges were left behind. The moral of the story is simple; today’s worker needs a wide and deep toolbox of skills. This goes for welders as well as office workers. 

Many in our society are beginning to question the value of education and its high cost. At the same time we are saying that we must make education affordable for more individuals and that, as a nation, we must have better educated workers. However, one thing is clear; there are good paying jobs which are available to those with one to two years of craft and technical training and skills. Some of them, like welders, electricians, plumbers, and advanced machine operators are not found in a clean, air conditioned office working 9 to 5. Blue collar workers are often seen as an under-achiever who lacked motivation to excel and simply clocks in and out and has checked their brains at the factory gate.

The U.S. Bureau of Labor Statistics reports the pay rates of many jobs which require more than high school but less than four years of college, below is a sample.

Do not be mislead, many of these occupations require licensing and certification by state or local regulatory agencies. The Bureau of Labor Statistics estimates demand for occupations in the areas of installation, maintenance, and repair (many of which are included above) to grow by 14% between 2010 and 2020. However, I would be the first person to argue that individuals who want to go to college should go to college. But from my own personal experience, I can tell you that a couple of years spent as a welder and a millwright left me more mature and better prepared and gave me a strong appreciation and motivation for a college education.

Lead or Lag Your Competitor’s Compensation Plans?

Friday, August, 31 2012

It is a fundamental question for every compensation practitioner, should the organization lead or lag competitors’ compensation plans? And if it is decided to lead or lag, by how much should the organization lead or lag the market? It may seem like a simple question and the simple answer is that an organization should merely match competitors rather than either alternative of leading or lagging. Unfortunately, it is not so simple. There is much riding on any one of the choices and all alternatives can have a dramatic influence on an organization’s viability as a business.

Businesses must decide what they are willing to pay for the goods and services required for them to operate and produce the goods or services they market to their customers, which includes labor. Few businesses are in a financial position to pay whatever is demanded of them without some serious thought being given to what effect those expenditures will have on their ability to remain a viable entity.

Organizations which require highly trained staff with hard to find skills and with a need to retain that talent for very long periods may find that they have to pay a wage that leads the market by 6 to 9 months and lag the market for the balance of the year in order to attract and retain the skilled workers needed. Another organization which requires no specific or special skills and willing to accept higher than average rates of turnover might be able to manage its talent even though its wages lag the market for the entire year. It would not be unusual for an organization to lead the market for their key jobs while lagging the market for those jobs where the demand is less critical.

While cash compensation is only one part of most organizations’ total compensation structure (even for those organizations who do not realize it), it is highly visible to workers and competitors. Although organizations generally do not publish their wage rates, most competitors have an idea of what rates each are paying and with whom they compete for labor and other resources.

Even after an organization has developed its compensation structure in terms of lead-lag and the market place, the marketplace has an uncanny habit of changing over time. Skills which were in high demand a few years ago are now out of favor and they have been replaced with skills which did not even exist 3-5 years ago. Thus, it becomes necessary to periodically revisit the lead-lag discussion. For many organizations this means an annual or a biannual review of job pricing, pay structure, market place movement, changes in labor competitors, and the overall mix of direct cash and benefits which makes up the organization’s total compensation structure.

Since the wage and labor markets are highly dynamic, wide swings in wage rates can occur from one year to another. Organizational change such as acquisitions, divestitures, new business lines, and products can create and/or eliminate the demand for labor skills very quickly. These changes dictate that an organization make necessary updates to its compensation structures in order to meet any new demands on the organization’s workforce resources.

Will Employers Continue to Offer Health Care Benefits After 2014?

Friday, August, 24 2012

Beginning in 2014, employers will either “Pay or Play” in the area of employer sponsored health care benefits for employees. Under the 2010 Patient Protection and Affordable Care Act (PPACA), employers with 50 or more employees must provide health care benefits or pay a penalty. The penalty for not providing health care, i.e., the “free rider” penalty is $2,000 per full time employee after the first 30 employees. However, if the employer elects to offer health care benefits and just one of their employees acquire federally subsidized health care benefits; the employer is still subject to a potential penalty of $2,000. Based on a Towers Watson 2011 survey, total employer and employee health care cost for employee only coverage of $8,425 is expected to increase to over $10,000 by 2014. So the question posed is, will employers Pay or Play?

That is the question that Christopher Justice of Truven Health Analytics, formerly Thomson Reuters, attempted to answer in a July 2012 white paper titled ”Modeling The Impact Of “Pay Or Play” Strategies On Employer Health Costs”.

With data from 33 large employers totaling some 933,000 employees Truven modeled four scenarios for the 2014-2020 time frames:

1. Eliminate Group Health, Make Employees “Whole”

2. Eliminate Group Health, Cost-Neutral Impact for Employers

3. Eliminate Group Health, Provide Subsidy to Achieve 20 Percent Savings

4. Eliminate Group Health, No Employee Subsidy to Purchase Exchange Healthcare

To summarize Truven’s findings:

1. No immediate or long-term cost advantage for employers to eliminate group health benefits.

2. Employers will spend more to “make employees whole” shifting to an Exchange rather than to maintain existing group health plans.

3. Employers, who choose to eliminate group health, will have a significant impact on total employee compensation.

In closing, Truven concluded”

“Not only is eliminating group health coverage not cost efficient, it may potentially have a large impact on an employer’s competitive market position for retaining and recruiting talent.”

While Truven’s research looked at large employers, averaging 30,000 employees, small and mid-size employers may be at greater risk of talent management issues than their larger brethren. With fewer resources to make up for the lack of health care in a post-2014 world, small and mid-sized organizations often cannot afford to lose their top designer, engineer, sales staff, technician or money maker. That means spending much more on cash compensation to overcome the attraction of a larger competitor’s health care plan, paid time off, 401(k), and numerous advancement opportunities.

Ultimately, it is a business management decision to eliminate or keep employee health care or any other employee benefit program. Although it may appear to be a clear-cut decision, that decision could have a long reaching impact on the continuing viability of an organization.

2013 Salary Increases Expected to be in Line with Prior Years

Friday, August, 17 2012

According to the latest Hay Group research into projected 2013 salary increases, median increases of 3% will be consistent with the prior two years experience. This is in line with an AonHewitt study projecting 2013 increases also at 3%. Paradoxically, the AonHewitt survey found that employers are planning to spend upwards of 12% for “variable” pay for Salaried Exempt and 6% for Salaried Non-Exempt, 2 to 4 times what is spent on base pay increases. Employers have increasingly redirected monies from base pay adjustments to focus those dollars on their high performers and top producers. Additionally, variable pay allows employers to target specific projects or assignments and better direct the performance of individuals without increasing the underlying base pay structure.

Although not a new concept, variable pay is being used by organizations to attract, retain, and motivate top talent in an era of 2%-3% salary increase budgets. A simple example is the project manager who completes the project on-time, under budget, and to specification. The project manager is paid a flat fixed (lump-sum) dollar amount in recognition of the achievement. Under a traditional pay system, the project manager might have gotten a percentage increase at their next scheduled review in 6-9 months or a year which built on top of their existing base salary. Over time, these repeated percentage increases over the employee’s career compound until the organization is paying 50%, 75% or even 100% above market price for a project manager.

The value of variable pay, aka “pay for performance”, is the fact that it does not inflate calculations in salary based benefits such as life insurance, paid time off, STD/LTD replacement pay, pension and savings plans. Since traditional pay add-ons to base salary compound over time, so would those add-ons compound anything tied to base pay. In fact, the employer would be paying multiple times for the same performance. While our project manager did a great job on the last project, that same employee is now performing poorly on the current project. Thus the organization could find itself paying for top performance based on prior efforts but receiving only lack luster results on the current assignment if compensation were based on a traditional pay system. Properly designed, a variable pay approach clearly defines what performance level has to be achieved and what the reward is if it does.

Variable pay is one many forms of incentive pay and may be found alongside other pay practices within the same organizational unit. At one time, the former Florida Steel Corporation, now Gerdau S.A. had a variable pay plan which rewarded ALL workers for returning the mill to production status as soon as possible during its annual maintenance shutdowns. This included office workers who would do whatever was required to support the maintenance work and getting the mill back into production. As part of the plan, management clearly communicated to all employees the need to have the mill on shutdown for the minimum amount of time.

Variable pay can work in any organizational setting and with any occupational role; from the shop room to the boardroom, variable pay has the ability to focus and drive employees to the organization’s desired outcomes. The key, as with any compensation system, is its design, transparency, and administration.