IBM Alters 401(k) Policy to Match Employee Contributions Annually Rather Than Each Pay Period

Friday, December 28, 2012

On December 7, 2012 IBM announced that it will no longer match its employee’s 401(k) contributions each pay period, rather it will only match contributions of employees who remain employed through the end of the each Plan Year. This clearly represents an effort on IBM’s part to save money since two things will take place: 1. Employees who terminate prior to year end will forfeit contributions they would have received had they remained through December 15th and 2. IBM will have use of these funds to invest until they are required to match contributions for those who do remain through year end. The point to remember is that the only reason that IBM has a 401(k) plan, or any benefit plan for that matter, is to attract, retain, and motivate its workers.

To what degree with this move impact the “attractiveness” of IBM to potential employees? Top talent always has a choice of where they work and for whom. For those employees who merely want to work for IBM because it is IBM, a 401(k) has little incentive power for them. In an organization as large as IBM, the loss of a few applicants may be of little consequence, unless of course those applicants hold the keys to some new technology which now goes to Dell.

Most benefit plans are designed to “retain” employees by meeting some level of needs (health care) and by building affinity between the employer and the worker. Workers enrolled in multiple employer sponsored benefit plans are more likely to remain with that employer. Long term IBM employees have much to lose by jumping ship after 10, 15 or 20 years; however that attraction may not hold for younger IBM employees with less than 5 years. Once again, top talent has legs and it can walk.

What about the “motivational” factor in this action by IBM? Employee’s like to grouse, if not about their 401(k) match, it will be something else, like the food in the lunchroom, parking or their manager. That is true, but when complaints turn into unproductive and lost production time or workers are distracted from the task at hand, the bottom line will suffer. Who or what is going to be motivating those IBM employees to put out extra effort when it is needed?

One aspect is that some employees will work thru the end of the year, get their contributions, and exit immediately after the first of the year. So IBM may see a spike in turnover near the beginning of each year. This activity is best likened to a Fixed-interval of reinforcement schedule found in operant conditioning. The unintended consequence for IBM may be the same level of turnover but within the first few months of the year. In addition, employees, who hang on until year end just to get the match, may not be the productive employees IBM will want to have.

Organizational Leadership: A Crisis in Still Life

Friday, December 21, 2012

My fantasy is to teach a course on organizational leadership theory, starting with a display of the hundreds of scholarly and popular books that have been written on the subject, each purporting to be the ultimate authority on the subject. Nevertheless, organizational leadership is essential to both the success – and its lack – the failure of every organization: public, private, for profit, and not-for profit.

The 2012 Kelly Global Workforce Index (KGWI), conducted by Kelly Services, Inc. recently looked at a number of workplace issues including organizational leadership styles in a survey of some 168,000 workers in the Americas, EMEA, and APAC regions. The survey was conducted by the RDA Group at the request of Kelly Services.

The third installment of  the survey titled, “The Leadership Disconnect”, attempted to determine how satisfied global workers are with their organizational leadership. Not so surprisingly, most workers are not satisfied with the leadership style of their own leaders.

Several of the key global findings include:
● Workers not listening to the messages from leadership.

● Workers questioning core principles of their organization.

● Less than half are satisfied with their organizations’ leadership style.

● Significant gap in leadership style practiced vs. what is desired by workers.

● Less than half indicate they are NOT inspired by current leaders to do their best.

● A little more than 60% believe in what their organizations are trying to accomplish.

The study suggests a number of ways for both organizations and workers to address this management gap.

For employers:

1. How are you evaluating your leadership development efforts?  Are you considering how best to lead a multigenerational/cultural workforce?

2. Are you grooming leaders who are solely focused on growing the business from the bottom line?  It may be time to also teach them how to grow the business from the front line.

3. How are you revising your leadership development efforts to deal with the increase in the virtual workforce?

4. Are your leaders just too busy to lead?

5. Has the move to more matrix organizations contributed to the disconnect between workers and leaders

6. How can you encourage more group collaboration and more decision making authority?

For workers:

1. How do you cope when your manager doesn’t speak your language?

2. What are the ways of earning more responsibility on the job?

3. How can you improve your leadership skills?

4. How can you fuel your own individual inspiration?

What can be gleaned from The 2012 Kelly Global Workforce Index?

● Each generational cohort requires different managerial and communications skills.

● Acquiring the right talent is still the best way to improve the bottom line.

● Leading the digital worker is not the same as leading the physical worker.

● Leaders must lead, not do.

● Managers, there is no room for “us vs. them” thinking.

● Managers must incorporate workers into the leadership process.

● Workers must learn the language of their leaders.

● Worker must seek ways to grow their own responsibilities.

● Workers need to lead from the bottom.

● Workers must own their own inspiration.

Millennial Employees in the Workplace

Friday, December 14, 2012

In 2011 PricewaterhouseCoopers (PwC) reported on its survey of 4,364 university graduates in 75 countries releasing a study on Millennial employees at work in its analysis titled “Millennials at work: Reshaping the workplace 2011”. PwC perceives that Millennials are expected to be an influential cohort of employees. It is believed that Millennials who process the correct talents and skills will be in extraordinary demand for those talent and skill sets. Millennials are expected to command both significant remuneration and direct how, where, and when they will work. Lastly, PwC envisions Millennials may very well be a challenge to manage for many of their employers.

According to Pew Research, Millennial employees are those born between 1977 and 1992 and are now entering the workplace. So what is significant about this generation? For one thing, they have grown up in a digital domain online real-time world encompassing an explosion of PC’s, Internet, WiFi, Cell and Smart Phones, laptops, tablets, and a propensity for 24-7 connectivity.

Pew Research notes, the Millennial generation is:

     • The most ethnically/racially diverse group in the nation's history.

     • The most politically progressive group in modern history.

     • The first cohort to regard digital behaviors as commonplace.

     • The least religiously observant cohort.

     • They are inclined toward trust in institutions.

Why are Millennial employees important to employers? They are the second largest segment of the population after Baby Boomers, 30% vs. 34% respectively. Generation X comes in a distant third at 19%. So as Boomers reach age 65 at a rate of 10,000 per day, many vacated jobs will be filled with Millennial cohorts. And since we know that many Boomers are planning to work beyond their normal retirement age, this could be a source of conflict in the workplace employers will have to address.

Michael A. Olguin, writing for Inc 5000 on April 13, 2012, identified five motivational characteristics of the Millennial worker:

“1. Reinforce the positives

Millennials need constant affirmation and positive reinforcement in order to feel like they are doing a good job.

2. Recognize that each person is different ...

Like any group, not all millennials are the same. Therefore, it's important to not implement a "one size fits all" approach to managing them.

3. Be flexible

Millennials by nature don't really like rules. They grew up in an environment where parents asked their opinions, allowed them to make decisions, and rarely pushed something on them that they didn't like.

4. Allow as much ownership as possible

The best way to handle a Millennial's feelings of entitlement is to provide them with a lot of responsibility.

5. Don't be vague

Millennials are not good at interpreting what you meant and rarely succeed when put into a situation to "wing it" themselves. Though they want responsibility and authority, they are uncomfortable without having some sort of framework for the task at hand. “

Managing Multigenerational Workforces

Friday, December 07, 2012

Writing for the Tampa Bay Times on November 21, 2011, Marie Stempinski noted several attributes identified with Baby Boomers, Generation X, and Generation X (Millennial) which have a direct impact upon workforce dynamics. In her Times article, Stempinski focuses on the uniqueness of each generation as well as their interplay.

• Baby Boomers (1946 - 1964), many are remaining in the
   workforce due to financial reasons, because want to work,
   and they actually like what they are doing. Many may
   continue to work into their 70’s and possible beyond.
   Boomers are frequently the most loyal and knowledgeable
   employees in an organization’s labor force.

• Generation X, (1965 - 1976), they are often middle managers,
   hard workers, unique, want to learn new technology. Sometimes
   they can be distrustful and skeptical about the future. They are
   seeking a work-life balance.

• Generation Y (Millennials) (1977 - 1992), they challenge the
   status quo, they are team orientated, they want their input
   and their technology abilities to be recognized and compensated.
   They often distrust large organizations. They expect to make
   numerous job changes in their life in an effort to find a work-life
   balance.

The challenge for organizations is to integrate these three generations into a functioning, yet diverse labor force, making the optimum use of each groups’ skill sets.

In a 2007 publication by AARP, “Leading a Multigenerational Workforce”, prepared by Susan A. Murphy, PhD, of Claire Raines Associates, the author explores the impact of the developing multigenerational workforce. Murphy notes in the opening pages of the study that it is possible for 20 year olds to be working next to 70 year olds. Throughout her analysis, the differences, commonalities, assets, liabilities, myths, and realities of four generations are explored. The study identifies six guiding principles for managing a multigenerational workforce successfully:

1. Open a dialog around generational issues with the workforce.

2. Ask workers about their requirements and preferences.

3. Propose options, alternatives, and offer suggestions.

4. As a manager, style should be tailored to individual workers.

5. Build on the interplay of the strengths of each generation.

6. Practice a diverse set of viewpoints.

Why the concern ourselves with managing a multigenerational workforce? The simple answer is the ongoing demand for talent. Most organizations have a huge investment in its labor force. That investment is comprised of knowledge, skills, and abilities. Regardless of which generational segment is discussed, the demand and competition for top talent is not going to let up. While the workplace has seen astronomical advancements in technology, someone has to conceive, design, build, deploy, and maintain that technology. The current workforce has increasingly moved from an analog world into a digital domain and along the way acquired the talent to make today’s work environment the most productive in history. Attracting, retaining, and motivating an organization’s multigenerational talent may well make the difference between the success or failure of an establishment.

Why Are Many Workers Missing Out on Their Employer’s Defined Contribution Matching Monies?

Friday, November 30, 2012

PLANSPONSOR's annual 2012 Defined Contribution Survey, “Looking to the Stars” reports that upwards of 27% of eligible employees do not participate in their employer’s defined contribution plan and a third do not receive the full employer matching monies available to them.  As part of an organization’s total reward system, defined contribution plans such as 401(k), 403(b), and 457 constitute a significant financial and organizational commitment by an employer to its workforce.  For over a quarter of eligible employees to fail to take full advantage of such benefits certainly has a personal financial impact on the employee’s future retirement plans.  However, let’s not lose sight of why employers have implemented such plans, competition to attract, retain, and motivate the talent which drives their enterprise.

I have stood up in front of large and small groups of employees in an effort to communicate the value of defined contribution plans.  I have emphasized the dual concepts of employee self-control and direction.  I have used phases like, “It’s Free Money”, referring to the employer’s match.  I have used examples of starting out with small contribution percentages and upping that contribution rate over time.  I have displayed the charts and graphs which tells the story of how money grows over time.  I have explained how Social Security was never meant to be a stand-alone retirement system.  I have discussed the roles of public and employer sponsored plans, and private savings.  Yet contribution and participation rates generally remain low.

Low contribution and participation rates are concerns for employers, governments, regulatory agencies, and employee advocacy groups.  Governments and regulatory agencies have responded with automatic enrollment safe harbors, employers have responded by taking up those features, and advocacy groups have lobbied for more communications and disclosures.  The Profit Sharing/401(k) Council of America  is now reporting that as many as 54% of employers have adopted automatic enrollment.

Brigitte C. Madrian, Aetna Professor of Public Policy at the Harvard John F. Kennedy School of Government, argued in a July 2012 paper that a defined contribution plan’s matching threshold was a greater contributor to participation and contribution percentages than a higher matching rate.  Madrian also maintains that non-financial features such as “automatic enrollment, simplification, planning aids, reminders, and commitment features” produce higher rates of participation and contribution than financial incentives, and at lower costs.

At least when comes to defined contribution plan participation and contribution, Economic Man turns out to be his own worst enemy in his efforts to save for retirement.  So, if increased financial rewards will not persuade a quarter of eligible employees to take full advantage of their defined contribution plan, how do we proceed?  Targeted communications focused on segments of the workforce and product branding.  As we would segment and target any consumer market in an effort to promote a “brand” product, consider the same approach for workers.  As with most things today, one size does not fit all.  The same is true for marketing and branding employee benefits, including defined contribution savings plans.  Thus, the old adage holds true: communicate, Communicate, COMMUNICATE!

Why Are An Increasing Number of Employers Moving to Market-Based Salary Structures?

Friday, November 23, 2012

An October 2012 joint report by WorldatWork and Deloitte Consulting LLP identified that market based pay systems now make up to 64% of all salary structure practices worldwide. Compared to other systems such as traditional and broadband, the prevalence of market-based salary structures is now 3 and 5 times greater than traditional and broadband systems respectively.

I cut my compensation teeth on writing job descriptions, conducting salary surveys, evaluating jobs, and building merit matrixes and pay structures. As a cornerstone for an organization’s total-rewards strategy and philosophy, employee compensation is an essential component in attracting, retaining, and motivating a talented, effective, and efficient workforce. So, why are more employers moving from traditional job pricing methods to market based salary structures?

• Organizations must react with a sense of haste in response to changes in

  competitor practices and market segment pressures if they wish to avoid

  market share erosion.
• Employers need a system which is scalable, tunable, adaptable, responsive,

  and aligns the organization to local, regional, national, and global talent demands.

• Companies want a system which directly relates job knowledge, skills,

  abilities, and performance to their current and immediate needs.

• Entrepreneurial enterprises want to reward value added results to the 
  organization, and not just check off another step increase within a pay range.
• Market based salary structures are creditable with employees as opposed

  to a point-factor and other systems which may often be perceived as rigid and

  out-of-date.

• Organizations want a process which relates ever changing “project” based

  jobs to the market place.

• Employers want a practice which provides for external and internal equity that
  moves towards gender neutrality.
• Market based salary structures addresses the four P's of marketing:

     o Price the job according its external market value to the organization,

     o Promotion of the employer brand in attracting, retaining, and motivating talent,

     o Place the job relative to its internal organizational value,

     And

     o Product, define the “job” as a commodity in the delivery of goods and services.

It should not go without saying, market based salary structures do require human and informational technology resources. Certainly in these times of minimum HR staffs, many organizations rely on an alphabet of small to large consulting firms to perform job pricing tasks. Most enterprise and cloud based HR payroll and information systems are capable of supporting both employee and job level market based pay data.

The selection of job evaluation and pricing practice methods is a function of the organization’s overall business nature, needs, strategy, and philosophy. Small local employers may already be practicing market based pay; they just do not call it that. Large international organizations may have little choice but to move to market based pay practices, if they have not already done so. It clearly says something, with over 60% of employers worldwide having moved to market based salary structures.

Employees Remain Worried About Employer Sponsored Benefits

Friday, November 16, 2012

Results from Gallup’s 2012 annual Work and Education poll indicate that employees remain worried about the continued availability of their employer sponsored benefits.  The annual poll, based on a random telephone sample of 1,012 employed adults in all 50 states and the District of Columbia was conducted between August 9th and 12th and posed several questions on how worried respondents were concerning their compensation, benefits, and continued employment. When the surveyor asked if they were worried their benefits would be reduced, 40% said, “yes”. What is revealing about this statistic is that in the same poll taken in 1997, the “yes” response rate was 34%, a difference of only 6 percentage points. Considering the reported total sample margin of error is ±4 percentage points at the 95% confidence level, employees’ level of “worry” today is not that much higher than it was in 1997.

              Source: Gallup’s 2012 annual Work and Education poll

Employer sponsored benefits are expensive, the U.S. Bureau of Labor Statistics estimates that total private employer provided benefits represents over 29% of an employee’s total compensation. The largest component of this at 8% is “Legally Required” benefits which include: Social Security, Medicare, unemployment insurance, and workers’ compensation. The second largest component, as if we did not know, is “Health Benefits” at 7%. It is fairly easy to understand how employees have concerns over benefit reductions since benefits represent such a large proportion of the employer’s costs.

While the last several years have focused center stage on a national debate on health care, many employers have struggled with funding their retirement and savings plans, both defined benefit (DB) and defined contribution (DC) plans. During the recession, as investment returns declined and remained low, employers and employees alike saw the performance of their DB and DC plans suffer. Since employers are mandated to maintain a certain funding level for their DB plans they had little choice but to deposit additional monies into those plans. However, many employees, faced with a declining 401(k) balance and reduced hours, furloughing of employer match or outright job loss, lacked the ability to invest more to offset low returns.

Over the last three decades, defined benefit (DB) plans have been largely replaced by defined contribution (DC) plans and hybrid plans, placing the majority of retirement responsibility on the employee. Witnessing the continued erosion of DB plans must be a contributing factor to employees’ angst related to the potential loss of benefits. The trend from DB pension plans is also mirrored in the movement of employers to “consumer driven”, i.e., high deductible health care plans. In both cases, shifting from DB to DC pension and health care plans places an increased burden of risks on the individual employee. While this may seem unfair, it is the employee who has the most to win, and yes lose in a defined contribution scenario. Key to the employee winning is the power of financial management knowledge, gained either on their own or with the help of the employer.