Benefits Buzz

Can "Bonus Banks" Balance the Long-Term View with Short-Term Incentive Plans?

Hang around any business long enough, and eventually you'll run into circumstances where managers sacrifice the long-term view for short-term gain, usually the result of pressure felt from their boss, the board and/or shareholders in the company.  Here are two great examples:

--Subscriber-based businesses like Cell Phones - you're pinched on subscriber counts in a competitive environment, so you make the short-term decision to move your disconnect threshold, for customers who don't pay you timely, from 30 to 60 days.  In the short term, your subscriber numbers look great, but over time you train your customers that they don't have to pay you timely, and your bad debt goes through the roof.

--Any business where revenue is mined or expense avoided to improve the next quarterly report - We've all been around this one in our careers.  Is it good for the business long term to avoid R&D costs now?  Probably not, but we're doing it anyway...

So, there are levers to pull and decisions to make.  However, the bonuses that are traditionally paid out in a quarterly or annual fashion to managers in many companies are under more scrutiny than ever, based on what's occurred lately economically.  Enter the concept of the Bonus Bank, which defers managers receiving all of an annual bonus until time proves their management to be prudent.

More on Bonus Banks from BusinessWeek:

"Some companies, aware of the direction the regulatory winds are blowing in Washington and other capitals, are making preemptive moves to overhaul the schemes they use to reward top brass. One concept that's gaining traction is that of the "bonus bank." UBS (UBS) launched a bonus bank late last year after the Swiss government tossed the institution a $60 billion lifeline. Investors are pushing for E*Trade Financial (ETFC), Charles Schwab (SCHW), and JPMorgan Chase (JPM) to adopt similar plans.

Here's how the bonus bank works at UBS: One-third of a top manager's annual bonus will be paid out and the rest will be deposited into an account. The money can be drawn down over three years, provided the bank meets or exceeds predetermined operating targets and other benchmarks. If not, the manager stands to lose some or all of the funds in the account. The beauty of the idea, in the eyes of compensation specialists, is that it discourages employees from goosing results one year at the expense of the next. "For a bank, this is an opportunity to move to a system that's far more defensible," says University of Chicago's Booth School of Business Professor Raghuram G. Rajan.

While straightforward in principle, the bonus bank can be difficult to make work in practice. Briggs & Stratton (BGG) in Milwaukee, which has more than $2 billion in annual sales of engines for equipment such as lawn mowers, set up a bonus bank in the early 1990s. It worked pretty well, too, until 2005, when a spell of dry weather drove down demand for the company's products. So even as Briggs & Stratton outperformed rivals, it wasn't hitting return-on-capital targets, a key metric under its plan. By 2008, bonus accounts had moved into negative territory, meaning executives would have to relinquish a portion of their future payouts. The bonus plan had become a "disincentive" for managers to stick around, says CEO John S. Shiely. So the board decided to cap bonus bank losses, and put a temporary, supplemental bonus plan in place. Says William F. Achtmeyer, a member of Briggs & Stratton's compensation committee and CEO of strategy consultant Parthenon Group: "It's a model that is theoretically outstanding, but from an implementation perspective has its limits, too."

I'm a fan.  Of course, there is a lot to figure out in addition to what's mentioned above, such as the treatment of employees who exit the company before past years' bonuses have "vested".

Have You Tried to Relocate A Candidate Lately?

Cross one category of candidates off your prospect list - homeowners you have to relocate...

Relocating employees has always had a "haves" and "have-nots" type of feel.  Back in the 90's, most Fortune 500 companies had the "gold-plated" standard of employee relocation - covered physical moves, lump sums to handle all types of misc. costs and the ultimate in closing remote candidates - the home purchase program.   Throw that package at a candidate, and you were closing business regardless of their financial situation..

Flash forward to 2009.  Since the market crash of 2000, Fortune 500 companies have been steadily eliminating relocation packages including a home purchase program.  Eager to slash the expense associated with such programs, big companies first moved to reserve home purchase programs for director-level and above candidates only.  Over time, many Fortune 500s have restricted the availability of these programs even further, and many have eliminated the programs altogether.

That means most of us don't have a home-purchase program in our arsenal as we try and recruit candidates requiring relocation.    So we limp by with these components at our disposal - usually a physical move (perhaps capped at a certain $$ amount to limit the exposure) and a lump sum to handle misc. costs and to provide assistance, to the extent we can, with realtor's fees and the potential costs of having two residences at the same time (which frequently occurs until the candidate gets their house sold on their own).

That package worked OK when the housing market was hot.  Of course, now it's not, which means you won't be relocating many candidates for a while.    Here's data on the drop in home values from a couple of years ago via the New York Times:

"Prices fell 6.1 percent from October 2006 in 20 large metropolitan areas, according to Standard & Poor’s/Case-Shiller indexes, compared with a 4.9 percent decline in September. On a monthly basis, prices fell 1.4 percent in October, the fastest they have declined in at least the last seven years.

All but three of the 20 regions experienced a fall in real estate values, and even the three areas — Seattle, Portland, Ore., and Charlotte, N.C. — where prices were up from a year ago, had a decline from a month earlier.

Prices have fallen the most in Miami (down 12.4 percent from a year ago), Tampa (11.8 percent) and Detroit (11.2 percent). Prices are also falling in the nation’s two largest metropolitan areas — Los Angeles (8.8 percent) and New York (4.1 percent)."

That data means two things.  Homes are taking much longer to sell, and many candidates will find themselves scrambling to cover drops in overall home values.  Many will consider the potential loss unacceptable as they consider selling.

Which means they won't be accepting your limited relocation assistance offer.

Time to add "are you a homeowner" to your initial phone screen when talking to remote candidates, if you haven't already. 

Benefit Jobs From Hell - The LOA Administrator

By now, readers of the Capitalist know that I am a HR Generalist, meaning I do it all - recruit, employee relations, benefits, performance management, etc.   I'm also a firm believer that Generalist roles span the globe of HR titles - Generalists can be found at the Rep/individual contributor, manager, director and VP levels.

One of the things that is cool about being a HR Generalist is the variety - if you're sick of doing one thing, you just need to wait about 20 minutes, because you'll get a call shifting your priorities to another area as a routine course of business.

Some people call it chaos, I call it variety...

So, for me, a HR job from hell is one that includes no variety, and resides in an area of the HR practice where little joy is found.  Here's my first HR Job from Hell - the corporate Leave of Absence Administrator.

First up, let me say that me tagging the LOA Administrator as a job from hell has nothing to do with the people in the job, but instead has everything to do with what these folks have to put up with on a daily basis.  As luck would have it, a fellow HR pro is currently in the job market:

"I had a phone screen yesterday that went ok. It was for the Leave of Absence Specialist. Get this: the organization has 15,000 employees. Guess how many NEW leave of absence cases were processed last year? 4,400. That is almost a 1/3 of their workforce, yo! Geez. Anyhow the in person interviews aren't until a few weeks from now due to vacations. So, we'll see".

UGH.  That pretty much sums up why I would consider the LOA Administer role as a HR role from Dante's 9th circle.  Here's what you have to deal with in that role:

-Primary focus is interacting with folks going through very rough times.  For the right person, this would be a plus, as they could use their empathy to make a difference.  But a steady diet of this over years surely leads to burnout.

-Being the tough gal/guy regarding compliance.  Folks are going through rough times, and you're the one that has to hassle them about the FMLA certification forms even though that's the last thing on their mind.

-Deciding when to play hardball on fraud.  You have 4,000 applications for LOA, you're going to have some folks gaming the system.  You have to decide when to play hardball and go after it.  You see the 5-10% that game the system - how can you not become jaded after a year or two of that?

Let me be clear - if you are in the LOA Administrator role in your company - thank you.   You are taking multiple hits daily for the HR function as a whole, and you're likely doing it very well.  If you get burned out, I hope your company has a rotational program in place, because you have skills that are a valuable resource.

Wondering What Your Budget's Benefit Load Should Be For 2009? Here's the Tip Sheet....

If you're an HR executive at any level with budgeting responsibilities, you've dealt with the pleasure of the Benefit Squeeze. 

What's the Benefit Squeeze?  It's the magical number that's attributed to the budget model for all your benefit and payroll tax costs.  In the golden days, the number was pretty fat and you never saw a lot of pressure on the number.  Unfortunately, with healthcare costs up 200% in the last decade, the number takes on a lot more importance.

So, the game goes like this - if you're fully insured, you have a good idea of what your entire benefit load is.  However, if you're self insured, there's some variability in the model that you want to protect yourself against.  Unfortunately, no one else in the organization cares about your needs.  They just need the number you give them to be two things - skinny and predictable. 

The U.S. Bureau of Labor Statistics recently gave some quality stats across the public and private sectors that can help.  The average cost to employers for employee pay and benefits was $28.48 per employee hour worked in June, the U.S. Bureau of Labor Statistics said today.

"The cost of wages and salaries averaged $19.85 an hour, or nearly 70 percent of employers’ total compensation costs.  As usual, there was a pay and benefits gap between average compensation costs in the public and private sectors.

Total compensation costs to employers in the private sector averaged $26.78 per work hour, compared with $38.30 an hour for state and local government workers. The report did not include federal employee compensation costs.  The cost of wages and salaries averaged $18.92 per employee hour in the private sector, versus $25.19 for state and local employees. The cost of employee benefits averaged $7.86 an hour in the private sector, compared to $13.11 an hour on the public side.

Overall, the 30 percent of total payroll costs that went to employee benefits broke down this way:

•$2.39 per employee hour worked for health, life and disability insurance.

•$2.25 an hour for legally required benefits, including Social Security, Medicare, unemployment insurance, and workers’ compensation.

•$1.99 an hour for discretionary paid leave benefits, including vacations, holidays, sick leave, and personal leave.

•$1.25 an hour for employee retirement and savings plans.

•76 cents an hour for supplemental pay, such as shift differentials, premium pay for overtime and weekend or holiday work."

Helpful stats to be sure.  At first, the total cost for health insurance seems light, until you do the multiple and see that the numbers mean a budget of around $5,000 per employee - not a bad figure.

So, take a look and use this in your budgeting sessions to justify your benefit spend number.  Just don't be alarmed when you take a 10% haircut to your budget as an across the board treatment to get to the earnings target.  It's all part of the budgeting process...

Dropping Labor Day for Muslim Holiday? The Case for Floating Holidays....

A Tyson plant in Tennessee has decided to offer the Muslim holiday Eid al-Fitr -- which marks the end of Ramadan -- as a paid holiday instead of Labor Day.  Almost 700 of the plant's 1,200 employees are Muslim.  Somehow, I think this is going to be an emotional one...

More details from MSNBC:

"Workers at the Tyson Foods poultry processing plant in Shelbyville will no longer have a paid day off on Labor Day but will instead be granted the Muslim holiday Eid al-Fitr. According to a news release from the Retail, Wholesale and Department Store Union, a new five-year contract at the plant included the change to accommodate Muslim workers at the plant.

Tyson's director of media relations Gary Mickelson said the contract includes eight paid holidays -- the same number as the old contract.

Eid al-Fitr -- which falls on Oct. 1 this year -- marks the end of Ramadan, the Muslim holy month of fasting.  Union leaders said implementing the holiday was important for the nearly 700 Muslims, many of them Somalis, who work at the plant that employs a total of 1,200 people.

Nineteen-year plant veteran William Pentecost doesn't agree with the decision. "I don't think it's right. I really don't think it's right," he said.

Tyson company spokeswoman Libby Lawson said by phone that, "This isn't a religious accommodation, this is a contractual agreement. The majority asked for it."   The change didn't bother some workers.

"I think it's fine. I don't have any problem with it. There's a whole bunch of them here, so they've got to do something for them," said worker John Smith.   Nineteen-year plant veteran William Pentecost doesn't agree with the decision.  "It shouldn't happen. I mean, I think, we're in America, you're in America, I think that they should go with our holidays," Pentecost said."

Lots of stuff imbedded in this one.  America, religion, etc.  For most work locations, the standard operating procedure of Amercian and Christian holidays satisfies the majority.  When that's challenged or no longer makes sense in a mutil-cultural environment, doesn't it make sense to move a large portion of the fixed holidays into floating holidays to offer employees the flexibillity to identify the days most important to them to be away from work?

Just thinking out loud.  The other issue embedded in this one is workforce planning, in that the plant needs to know when they are going to shut down for full days to plan production. 

Is it ever easy?  The answer is most certainly no, but we'll see the standard idea of Christian holidays challenged more and more in the future, as the Amercian workforce continues to diversify.