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Amtrak: Optimas Winner for General Excellence

Amtrak is the 2014 Optimas General Excellence winner for its initiatives designed to keep the train operator chugging along for years to come.

From left: Charlie Woodcock, vice president of labor relations; Dawn Marcelle, director of employee relations; Barry Melnkovic, executive vice president and chief human capital officer; David Roberts, senior vice president of total rewards and wellness; Don Ainsworth, director of Lean Enterprise Solutions. In the front, Amtrak Police Officer Ryan Tullar and his partner, Ivan.

Photos by Jason Dixon.

Before Barry Melnkovic took the chief human capital officer position at Amtrak three years ago, the national rail operator’s future seemed headed for certain disaster.

When Melnkovic arrived in August 2011, Amtrak’s human resources department was not making progress on the recommendations set by Congress to develop incentive pay and total rewards offering for the organization’s nonagreement employees. Without performance-based incentives, Amtrak was also at a significant disadvantage when it came to recruiting new employees and making sure executives wanted to stick around, which may have contributed to the disconnect between the organization’s goals and employee performance.

Adding to Amtrak’s problems was a looming loss of institutional knowledge. In 2011, 60 percent of employees in leadership positions were 50 years old and older. And perhaps the most imposing challenge facing the organization was its responsibility for retiree health care costs, which had grown to $1.1 billion from $200 million between 2001 and 2011. According to Amtrak, its future retiree medical liability costs were “unpredictable and volatile.”

“I didn’t look at these problems as challenges, but rather opportunities. When I looked at these opportunities I saw the chance to have a lot of fun,” Melnkovic said. “The most important thing we needed to do was make HR a function that helped drive business instead of letting it remain a reactionary entity.”

Before any challenges could be tackled, however, Melnkovic needed to change the reactionary quality that defined Amtrak’s HR department. At the time he joined the organization, Amtrak’s human capital management was stuck in a traditional transactional mode that left it unable to effectively correct the problems it faced.

Optimas logo 2014Under the guidance of President and CEO Joe Boardman, Melnkovic and his team helped the organization’s HRdepartment get the track laid down on Amtrak’s business strategy and created the company’s first-ever human capital strategic plan. Although it is a publicly funded entity, Amtrak’s executives made the decision to start operating and managing the organization as a for-profit company.

The human capital plan is intended to make every HR process nonbureaucratic by partnering withAmtrak’s business function, creating a high-performance culture, transferring institutional knowledge to younger workers and creating a culture that allows workers to serve Amtrak’s customers better.

“We developed our human capital strategy to align with Amtrak’s business strategy. It’s intended to let our employees completely focus on our customers,” Melnkovic said.

After about 18 months of planning, Amtrak completed its redesign of pay and benefits. Instead of a process that focused on individually defined outcomes and tenure,decisions about employee pay and benefits were linked to Amtrak’s financial and organizational outcomes, as well as the company’s long-term sustainability. This was the first time Amtrak had a performance-based pay model for its nonunion employees.

Amtrak also incorporated cost control, preventive care and wellness initiatives to help manage medical plans for nonunion employees. In 2013, the organization closed its retiree medical plan to new hires and increased retirement contribution rates for medical coverage. Both moves are expected to result in a profit and loss reduction of $301.5 million over the next five years, and cash flow savings of $15.1 million over the same period.

Amtrak 1 November 2014To create the high-performance culture outlined in the organization’s human capital strategy plan, new employees were hired based on Amtrak’s long-term business and workforce diversity goals, including a preference for veterans and attention to succession planning needs. One way Amtrak revamped its hiring process was through the introduction of behavioral-based interviewing techniques that connect the candidate selection process to the organization’s core competencies. Amtrak hired 3,000 new employees in 2014. With plans to hire another 2,000 workers in 2015, selecting the right people is a critical business need for Amtrak. This strategy not only creates a higher-performing culture, but also helps build a stable workforce for the future.

A year into the turnaround process, Amtrak’s top brass decided it would have to cut budgets across all departments. Melnkovic approached the executives with a counteroffer to increase his current budget by $7 million. When he finished his pitch for an increased budget, Melnkovic said it felt like he waited for a lifetime before one executive spoke in favor of the increase, claiming human capital practices are where the “rubber hits the road” for the organization. Soon enough the entire executive team was on board with the budget increase. Melnkovic points to this moment as an example of how the entire organization is committed to having a cutting-edge human capital strategy.

The results of the HR department’s new strategy have led to a significant reduction in operational costs for Amtrak. For example, instead of a $1.1 billion retiree medical liability, the mass transportation provider expects $1.3 billion in savings over the next 20 years because of steps taken to control retiree medical benefits. Amtrak also expects an additional $23 million in savings over the next five years from other benefit plan changes. The decrease in costs has led to a reduced need for federal operating support.

Another positive outcome of the transformation was the establishment of Amtrak’s first succession plan for CEOs and the company. Additionally, the new hiring cycle lasts 64 days compared with the 107 days it took prior to the 2011 shift.

Amtrak’s executives along with Melnkovic and his team brought efficiency to the hiring process and developed a plan for the future of the business that’s designed to put Amtrak on the right track for years to come.

“This isn’t about one person,” said Melnkovic, speaking on the process to revamp Amtrak’s HR processes. “The HR department at Amtrak is all about teamwork. None of this would have worked without Joe Boardman’s guidance and the collaboration of everyone in the human capital function.”

For its workforce initiative, which demonstrates excellence in several winning categories, including Benefits, Business Impact, Managing Change, Recruiting, Training and Vision, Amtrak is the 2014 Optimas Award General Excellence winner.