Covering All the Bases

December 15, 2005
Companies today deal with all kinds of workforce demands--everything from designing compensation and rewards programs to analyzing tricky labor law dilemmas to crafting successful approaches to recruiting. Companies also must cope with other unique challenges--rising health care costs, the changing nature of workforce management in a global marketplace and the sophisticated nature of human resources technology. Here is a review of the most influential trends in workforce management in the coming year.

Medical and retirement benefits
   As health care costs continue to rise far beyond the rate of inflation, consumer-directed health plans are taking off as a way to alleviate costs. "Health care costs continue to rise because health care markets don’t work," says Joe Martingale, national health care strategy leader in Watson Wyatt Worldwide’s New York office.

    "The reason is that people haven’t been spending their own money with health care … and the doctors, hospitals and pharmaceutical companies know they’re not spending their own money," he says. "This is an attempt to solve the underlying problem by asking people to take more responsibility."

    Most consumer-directed health plans include a personal employee spending account, along with a high-deductible policy and full coverage for preventive care. "It does save money," says Helen Darling, executive director of the National Business Group on Health. "People will spend less when it’s more of their own money."

    Some observers, however, worry that employees may be putting off needed medical care until they save enough in their personal accounts. While it’s too early to tell if consumer-driven plans will become the dominant way of offering health care, the trend is off to a strong start. This year 8 percent of employers offered health savings accounts, a key element of consumer-driven plans, and another 18 percent plan to offer them in 2006, according to a survey by Watson Wyatt and the National Business Group on Health. Additionally, 47 percent are considering the accounts.

    As with health care, the trend in retirement benefits is to transfer the responsibility and risk from the employer to the employees. Traditional pension plans continue to be replaced with 401(k) plans, and employers are putting more of the onus on employees for saving for retirement.

    "Employers are really moving away from a paternal view of retirement needs," says Kevin Wagner, practice director for Watson Wyatt Worldwide in Detroit. "It used to be that employers designed pension plans around what employees needed to live in retirement. " Now, he says, "it’s ‘We give you 5 to 6 percent of your pay and make sure you invest it intelligently.’ " This requires a great deal of education on the part of employees, as they learn to make sound investment decisions. It also puts demands on employers, who carry some responsibility to provide that education.

    Meanwhile, several retirement-related regulations are up in the air as 2005 comes to a close. Congress is considering legislation that would enable employers to give employees more advice on how to save for retirement without being held liable for market reversals. Another measure would allow companies to automatically enroll employees in their 401(k) plans with automatic increases in their contributions on an annual basis without fear of being sued. Employees would be allowed to opt out of the auto enrollment and increase provisions.

    Also under consideration is a new type of hybrid pension plan that would limit an organization’s financial risk while offering employees the same kind of retirement security that a defined-benefit pension once offered.

    Sweeping pension funding reform also is on the table, as Congress tries to address the $23.3 billion deficit at the Pension Benefit Guaranty Corp. Another trend in retirement benefits, Wagner says, is that plan sponsors are redesigning 401(k) plans to make them more attractive to older workers. Some companies allow employees 50 and older to take advantage of a "catch-up" provision that lets them contribute additional amounts to their 401(k) plans, to a maximum of $4,000 this year and $5,000 in 2006.

Legal issues
    In the wake of numerous ethics scandals, the corporate compliance spotlight is still on the finance divisions of many corporations. But more and more, it’s also shining brightly on human resources. The portion of HR budgets directed toward legal compliance is growing, and almost 70 percent of all complaints on ethics hot lines are HR-related, says attorney Garry Mathiason, a San Francisco-based partner with Littler Mendelson, a national labor law and employment law firm.

    "Chief compliance officers and boards of directors are finally realizing that a big chunk of the compliance arena is in HR, so HR is swept into this," he says.

    For human resource professionals, this means having to coordinate compliance efforts with a person who oversees compliance issues across the company--in most organizations, the chief risk officer or chief compliance officer. This will demand greater knowledge of what it means to be compliant, and the "language of compliance is complex," Mathiason says.

    "The difference is the visibility of the issue at the CEO/board of directors level," Mathiason says. "It used to be that HR was in its own silo. Now, it’s not good enough to internally report compliance. … You’re reporting to a chief compliance officer, who may not know anything about HR."

    Employers also are dealing with a steady increase in class-action litigation, driven by the willingness of state and federal courts to certify such cases for class-action status and the fact that employers are increasingly settling these cases. Most cases are over wage and hour and meal and rest period issues. But Mathiason believes this trend may be reversed as more employers use arbitration agreements to resolve disputes. These agreements are usually enforceable by the courts and increasingly contain language waiving participation in class-action employment cases.

    Another litigation hot spot can be found in the number of women who say they’ve been discriminated against on the job because they’re pregnant. Such claims are rising even as the birth rate declines. Pregnancy discrimination complaints filed with the federal Equal Employment Opportunity Commission jumped 39 percent from 1992 to 2003, according to an analysis by the Washington-based National Partnership for Women & Families. During that same time, the nation’s birth rate dropped 9 percent.

    As there’s more pressure in the workplace for productivity, some employers ignore or skirt the laws that protect the rights of pregnant women at work, Mathiason says. Also, working women are more aware of their rights and more willing to stand up and complain. There’s also a rise in the number of age discrimination cases being filed. A U.S. Supreme Court decision this year made it easier for employees to bring class-action lawsuits for age discrimination. The court found that age discrimination can be proved based on disparate treatment, which means that even though there isn’t direct age discrimination, if a company policy has the effect of causing age discrimination, it is unlawful.

Rewards and recognition
    More and more, employers today are tying rewards and recognition to a company’s core values. At companies like General Electric or Microsoft, for example, where innovation is a key value, reward programs are making heroes out of employees who come up with new ideas and patents, says Adrian Gostick, director of communication at the Salt Lake City-based O.C. Tanner Co., a provider of corporate recognition programs.

    "You’re seeing more companies not just recognize great behavior, but behavior based on values," Gostick says.

    Sixty percent of organizations have a written strategy for employee recognition programs, and 95 percent of those strategies are aligned directly with the organization’s goals, according to a 2005 survey by the National Association of Employee Recognition and World at Work. In 2002, T. Rowe Price launched an online thank-you note program based on its then four core values of customer service, teamwork, leadership and innovation. In just six months, 2,000 employees sent 20,000 thank-you notes to one another based on those values.

    "It’s a very simple formula," says Gostick, who is the author of several books on employee recognition, including The 24-Carrot Manager. "Employees start to see what’s really important to the company and how they fit into the big picture."

    Retention-based recognition programs also are becoming more popular as the economy improves and employers are more concerned about employees leaving for a better job offer. In addition to rewarding the top 10 percent of employees, employers are trying to reach more employees with informal but personal rewards, such as movie tickets or a book from a favorite author.

    "It creates loyalty," says Christi Gibson, executive director of the National Association for Employee Recognition. "If you don’t reward your employees, someone else is going to be knocking at their door."

    With the economic picture looking brighter and companies in a hurry to ramp up global expansion, employee transfers are on the rise and more expatriates are working short-term assignments. The number of people who are being transferred by their companies increased about 15 percent in 2004, says Cris Collie, executive vice president of the Worldwide Employee Relocation Council. Much of the growth is intra-regional--more companies are interested in building a market in China, for example, and are moving their employees there from places like Singapore and Thailand. More and more, transferees are working short-term assignments--a year or less versus the traditional assignment of three years or more--because of the escalating costs of long-term assignments and the urgency for companies to globalize.

    "If they’re not global already, one way to do that quickly is through a short-term assignment," Collie says. More than 80 percent of employers expect short-term assignments in the Asia-Pacific region to increase this year, according to the relocation council. Steep increases in short-term assignments also are projected in Europe, Africa and the Middle East.

    As another way of cutting costs, employers are localizing expatriates, which involves phasing out housing and schooling allowances, paying employees in the local currency, switching the employee to local health benefits and eliminating payment of income taxes in both countries. More than 60 percent of employers project an increase in localized assignments in the Asia-Pacific region this year.

    With the sheer volume of transfers increasing, employers now are demanding a greater range of relocation services and starting to fully outsource relocation. Relocation firms are often being asked to support expats for their entire assignments. And in turn, the relocation industry is expanding, with relocation services now ranging from real estate appraisals to security companies.

HR software and technology
    Now that PeopleSoft is settling into its Oracle ownership, the news in human resources technology is talent management. The top priority for human resource professionals is getting the right people in the door, making sure they’re productive and retaining them--and their technology must reflect that, says Steve Larson, a senior consultant for Watson Wyatt Worldwide in Miami.

    "People are realizing there truly is a war for talent," Larson says. "There’s more of a requirement to find the best talent and retain top talent." A survey by the International Association for Human Resource Information Management and consulting firm Knowledge Infusion found that companies understand the possibilities of using technology to cultivate, grow and keep talent, but only a small percentage have the infrastructure to make it work. Functions such as recruiting, hiring, measuring performance, and compensation and recognition programs all must be integrated, Larson says. Most companies have had separate tools for these functions, some from separate vendors.

    "These tools are all operating in silos," Larson says. "Now companies are seeing they need to connect the dots. They need to integrate systems and functions better."

    As the human resources software market changes and companies invest more time and money in talent management, they will continue to outsource more of their back-office operations. Yankee Group predicts that global expenditures for human resources outsourcing will increase by 27 percent this year to more than $4.6 billion. In 2006, Larson says, employers need to do a better job of identifying those tasks that can be outsourced and making sure they’re getting a return on investment. Rather than outsourcing one process, such as benefits, employers should look to better integrate outsourcing for all related areas, such as benefits and payroll. This will free up resources and allow organizations to focus on talent management, Larson says.

Recruitment and staffing
    More than ever, the Internet and software technology are becoming indispensable recruiting tools for employers. Because of the focus on finding the most talented employees, employers are willing to change their recruiting technology. Applicant tracking systems of the past will be replaced next year by systems that integrate recruiting with other HR functions such as payroll, attendance and performance appraisals, says Mark Mehler, co-founder of CareerXroads, a recruiting technology consulting firm in Kendall Park, New Jersey.

    "They want one-stop shopping," he says. "Customers are becoming more knowledgeable, more technical."

    The Internet will continue to be a big spend by employers for recruitment as their reliance on newspaper advertising drops The Internet and employee referrals accounted for more than 61 percent of external hires in 2004 among companies surveyed by CareerXroads, and that figure has jumped in each of the past three years. Aggregated job boards, which collect jobs from multiple Web sites and corporations and put them on one site, also will continue to grow. "The job seeker wants one place to go," Mehler says.

    Another trend that’s expected to pick up is outsourced candidate identification--that is, finding candidate names. The work will be routed to such countries as India and Argentina, where labor is cheap and the education level is high, Mehler says. Employers are partnering with companies overseas or using contractors to do sourcing. "As employers get squeezed for money and squeezed for talent, they’ll look for other alternatives" for finding qualified job candidates, Mehler says.

    The job market is at a fairly even point right now, but it’s getting tighter, says Richard Castellini, vice president of consumer marketing at Employers will need to pay better attention to retention in the coming months, he says. While three-quarters of hiring managers don’t expect turnover to increase from current levels, almost half of workers expect to be looking for a new job in the next three years, according to a recent survey by and Robert Half International Inc.

    "That’s definitely an increase companies need to be aware of," he says. "It’s always better to keep the ones you’ve got than having to hire someone new."

Training and development
    Employers today are approaching training and development with more of an eye on how it relates to business results. Companies are defining very specific goals for training and then showing how that training produced a return on investment.

    "The biggest trend is an emphasis on performance," says Pat Galagan, the American Society for Training and Development’s vice president of content. "It’s much more business-focused. Companies are linking everything they do to the growth of the business." Whether it’s learning new job skills, sexual harassment awareness training or job safety instruction, employers are being much more specific about the goals they’re setting and then are crafting custom solutions, rather than offering standardized, one-size-fits-all programs.

    Then companies are using very specific metrics to show that the training achieved results--improving job performance in a lagging area or instructing new employees, for example. At the same time, there’s a strong trend to centralize training. Instead of offering programs from separate divisions throughout the company, training is being directed from the corporate level, Galagan says. Part of this movement is driven by an interest in spending on training, but it’s also coming from the rise in e-learning and the large investments that organizations are making to buy and install companywide e-learning systems. The increase in use of e-learning has helped spending on training and development remain relatively flat, while employers have increased the number of hours of instruction.

    The Internet has allowed companies to deliver training to more people, more quickly and at a lower cost, Galagan says. That average expenditure per worker on training and development has actually decreased by a few dollars, from $818 in 2003 to a projected $812 in 2004, according to ASTD’s most recent State of the Industry Report, released in December 2004. At the same time, learning hours received per employee rose from 25.6 in 2003 to a projected 29.9 in 2004. From the planning to execution, there’s clearly a trend toward efficiency, Galagan says. While spending on training has remained flat, the cost per learning hour provided has dropped, from $596 per hour in 2003 to $579 per hour in 2004.

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