Legislators were undoubtedly well-intentioned when they set out to reform the nation’s health care system, but the lawmaking process often creates collateral damage, and this time the silent casualties may include your company’s absence and disability programs. The bill mandates specific provisions that weaken an employer’s ability to manage employee health, and ultimately their attendance and productivity. Because HR professionals are focused on revising the company’s current health plan and mitigating the upcoming cost increases, there is little time and focus remaining to manage absence and productivity.
“Employers can take some simple steps now to protect productivity while their attention is diverted between now and when the law takes full effect in 2014,” says Skip Simonds, practice leader for Absence and Disability Management for the Western Region at Towers Watson.
Smart Business spoke with Simonds about the impact of health care reform on employer absence and disability programs and the action steps that will help keep employee productivity intact.
How does health care reform weaken existing absence and disability programs?
The primary goal of health care reform was to provide benefits to a broader segment of the U.S. population and control costs, but it’s created additional administrative burdens for employers, and limits their ability to manage employee health by allowing employees to opt out of the company plan or purchase coverage in state-run pools. Employers have been able to drive substantial gains in productivity, because they’ve designed plans that influence and reward specific employee behaviors. And data shows that taking a holistic approach and creating complementary health, wellness, absence, workers’ compensation and disability programs is the best way to control costs while limiting abuses and absenteeism. If you remove a few pieces of the puzzle, you diminish the efficacy of the entire program. To make matters worse, the changes come on the heels of recession-induced staff reductions, so HR has limited resources to deal with the problem.
How should employers adapt current programs to drive productivity?
Switch to a paid time off (PTO) plan instead of allotting specific time for sick leave or vacation. PTO plans shift the burden and cost of managing incidental absences onto employees and boost productivity by reducing the use of unplanned sick days for questionable reasons. Studies show that employees are more likely to work through marginal illnesses and avoid taking ‘mental health’ days so they can save their time off for vacations. If you don’t switch to PTO, consider boosting the effectiveness of your current program by offering a bodacious prize for perfect attendance. One company increased perfect attendance from 10 percent to 50 percent of the employee population by entering the names of perfect attendees into an annual drawing for a new car. The car cost $40,000, but the incentive reduced lost time expenses by $450,000.
What other changes should employers consider?
Create an economic incentive for employees to return to work by reducing the short-term disability benefits from 100 percent to 60 percent or 66 percent of income. Simultaneously if supervisors are resistant to providing transitional work, charge the costs of that light duty to their cost center regardless of who provides it. The best way to reduce absenteeism and disability costs is by making sure that everyone has some skin in the game.
How can employers focus on this problem with limited HR staff?
Outsource the management of FMLA to an insurance company or third-party provider. Engaging a knowledgeable partner is like getting a free staff member, and an outsider has the freedom to quiz medical providers and find alternate treatments that reduce the need for missed time. Outsourcing also allows HR to focus on more important issues, and our experience shows that it increases compliance with a very cumbersome law that allows employees to take time off intermittently. This is especially true in California with its myriad of mandated leaves. A recent three-year study showed that intermittent benefits accounted for 19 percent of all FMLA taken, and employers with integrated FMLA/disability administration had lower costs than employers without integration that included 22 percent fewer lost work days and 36 percent fewer repeat users.
How can employers use data to boost the effectiveness of absence and disability programs?
Outsourced providers generally offer robust data collection, which illustrates the close link between employees’ utilization of sick time, short-term disability and workers’ compensation. Review the data on a quarterly basis to spot trends and hold vendors accountable to provide recommendations that will improve your program and results. Only 11 percent of employees that file medical claims also file lost time claims, but those employees drive 53 percent of medical and disability benefit dollars; so a decrease in disability costs can yield an even larger decrease in health care costs. But what’s most troubling is that 96 percent of CFOs say they understand the connection between employee health, lost time and productivity, but 78 percent don’t receive any meaningful data to help them analyze or manage the situation. Suffice to say that employers stand to reap tangible savings by simply collecting data and reviewing it on a regular basis.
Skip Simonds is the practice leader for Absence and Disability Management for the Western Region at Towers Watson. Reach him at (818) 623-4576 or email@example.com.
Although increased innovation and cultural adaptation may top the agendas of business executives in 2011, few leaders possess the transformational skills to invigorate new ideas or the discipline to implement them.
Traditionally, leaders have relied on charisma to incite change. In fact, James MacGregor Burns had politicians in mind when he developed the transformational leadership theory in the late 1970s. But charm isn’t enough to achieve success in today’s business environment. Modern business leaders need a blend of transformational and transactional talents to create a vision, sell their ideas to stakeholders, engender trust and execute the plan, while keeping everyone engaged in the process.
“Transformational leaders must combine the audacity of imagination with systematic discipline to drive quality throughout the execution process,” says Dr. Mohammad H. Qayoumi, president of California State University, East Bay. “Many leaders have great vision, but unfortunately they don’t have the systematic discipline to transform a great idea on paper into a working model or the mental fortitude to execute the working model.”
Smart Business spoke with Qayoumi about the advantages of transformational leadership in today’s business environment.
How would you define transformational leadership?
Transformational leadership describes the ability to incite change in people and organizations, rather than simply managing the status quo. The theory is executed by an ethical, energetic leader who stirs others’ imaginations and invites them into the process. One of the key differentiators that separates a transformational leader from a transactional leader is support for risk-taking. Transformational leaders understand that promoting new ideas is bound to produce a few failures. Rather than being deterred by an occasional set-back, bold leaders view them as learning opportunities and subscribe to the notion that failure is nobler than not trying at all. Furthermore, they understand that risk tolerance engenders a culture that will support the transformation process.
Why is transformational leadership appropriate for today’s business environment?
The recent economic calamity accelerated the pace of change, and in taking a look back, we can see that linear thinking and rigid processes stifled creativity and contributed to our problems. Transformational leaders inspire innovation and intellectual stimulation by taking a fresh look at old problems and breaking down both the real and perceived constraints to creative thinking. They also anticipate issues and initiate change proactively, instead of sitting on the sidelines while others test the waters. Passive leaders, who merely react to unforeseen business events, will soon find their competitors dominating the market. In essence, transformational leadership creates a new mental model which is better suited to today’s rapidly changing environment.
Do transformational leaders need unique qualities or skills?
Above all, transformational leaders need equilibrium and a systematic approach to the change process, because they must continue managing the business in its current state while creating a pathway to the future. They must align and navigate two systems concurrently, while keeping their finger on the pulse of the organization and modulating the change process. If the pace of change is too rapid, you can lose people before the mission is complete, yet if you move too slowly, resistance can mount. It’s really about honoring the past and respecting history, while simultaneously being a force for change. Unfortunately, our current educational system typically doesn’t teach these types of intangible skills and qualities. But we can learn from mentors and by observing leaders who possess this type of intellectual dexterity, if we’re willing to be humble and venture outside of our own companies and industries to find the trailblazers. Certainly when we think of famous transformational leaders we recall Jack Welch, Walt Disney and Martin Luther King Jr., just to name a few.
How can leaders get others on board with their vision?
You’ll encounter less drag and resistance during the change process if you solicit the imagination of others as you develop your plan and offer them the opportunity to visualize themselves in the future organization. Oftentimes, leaders push harder and harder when they encounter resistance. But you don’t need to exert force to move forward if you include others in the planning process and create mindshare for your ideas. Most plans begin as a diamond in the rough, but through collaboration and evidence-based decision making, leaders begin to clarify and polish their message, craft a shared vision and build support for their strategy.
Why is collaboration critical to the transformation process?
Collaboration is a key element of the transformation process because it fosters innovation, dismantles silos, reduces bureaucratic roadblocks and mobilizes the idea of doing more work with fewer people and resources. Initiating a collaborative culture also provides the added benefit of developing and empowering people, which is another tenet of the transformational leadership theory. The idea is that charismatic leaders inspire their followers to act beyond the framework of the existing organization and take it to new heights. As long as you have an incandescent passion for your ideas and approach implementation with systematic discipline, there’s no reason why you can’t be a highly effective transformational leader.
Dr. Mohammad H. Qayoumi is the president of California State University, East Bay. Reach him at (510) 885-3877 or firstname.lastname@example.org.
Although the worst of the economic storm has finally passed, gloomy conditions are expected to linger throughout 2011. But the dim forecast hasn’t stopped opportunistic small business owners from cashing in on favorable lending conditions and using the funds to acquire struggling competitors, purchase discounted real estate or expand their global reach. In fact, conservative lenders with healthy loan portfolios have been enticing qualified borrowers with low interest rates and aggressively pursuing deals.
According to the Los Angeles office of the SBA, lenders made 1,725 loans to small businesses in Los Angeles, Ventura and Santa Barbara counties during the nine-month period that ended June 30, 2010, which was about 50 percent more than in the same period a year earlier. The dollar volume of those loans nearly doubled compared with the year-earlier period to $850.8 million.
“Lenders have a healthy appetite for quality loans,” says Sung Soo Han, executive vice president and chief loan officer for Wilshire State Bank. “Given the current lending climate, small business owners should be assertive, shop the market and take advantage of these historically low interest rates and government incentives before they expire.”
Smart Business spoke with Han about the 2011 lending climate and how small business owners can seize the opportunity to drive growth.
How will the 2011 lending climate differ from 2010?
We’re expecting the 2010 economic conditions to persist throughout 2011 and that will require lenders to minimize risk by scrutinizing loan applications and assessing a company’s profitability and business strategies. But that means qualified borrowers are hard to find, so they wield a great deal of power in the current environment. If you own a profitable small business, you’ll receive aggressive loan pricing that includes fixed rates of 4 percent to 5 percent guaranteed for five to 10 years. In addition, the Small Business Jobs and Credit Act of 2010, which was signed into law in late September, could be extended into 2011. The bill incentivizes lenders by raising the government guarantee from 75 percent to 90 percent of the loan, and encourages borrowers by raising lending ceilings from $2 million to $5 million and waiving the origination fees.
Which loan programs are best suited for growth?
Small business owners have many programs to choose from, but these loans are popular for expansion or growth.
- SBA loans. Owners who want to purchase an office building or plant or acquire another business usually opt for an SBA loan because they offer prime rates and borrowers can make a down payment of 10 percent to 15 percent and pay off the balance over a 10-year period. Each lender has different underwriting criteria and capacity, so be sure to call a number of institutions.
- C & I loans. Commercial and industrial loans provide lines of credit from $3 million to $10 million and are frequently used by manufacturers and wholesalers to extend their global reach, open new vertical markets or expand product lines. If you have a relationship with a bank, deposits on account and a track record of timely debt repayment, they should offer you very aggressive pricing. If not, use your power to shop the market.
- Construction loans. Construction of warehouses, office buildings and shopping centers is starting to pick up and debt service starts when the project is completed, which will likely be 2012 when the economy is expected to improve. Loan officers are eager to grant construction loans because they’re allowed to consider future economic conditions during the underwriting process.
Are some loans easier to secure in a tight credit market?
The current climate makes it difficult for owners to secure funding if their business is unprofitable or experiencing cash flow problems, but any loan that is low risk, guaranteed by the government or secured by assets will be easier to obtain. For example, trade finance loans, which are used to finance transactions between importers and exporters are almost risk-free, yet demand for this product has waned, so borrowers have the upper hand and can drive a great deal. The SBA’s Export Working Capital Program (EWCP), which provides short-term working capital to exporters, is favored by lenders because the government guarantees 90 percent of balances from $300,000 to $5 million. When owners want to capitalize on an emerging opportunity, they often select an asset-based loan (ABL) which is secured by real property, accounts receivable, equipment or finished inventory. ABLs offer a speedy underwriting process that doesn’t focus on the applicant’s creditworthiness.
What else should owners know about the current lending process?
Lenders have been bombarded by calls from small business owners, but given the lackluster economy, they can only entertain requests from qualified borrowers. Grab their attention by describing your company’s 2010 financial results and providing a copy of your tax return. Next, provide a copy of your business resume and be prepared to conduct a line-item review of your company’s financial statements. Bolster your case by describing any non-recurring expenses that can be added back to boost cash flow or by offering data that illustrates industry cycles or projected growth. As long as you can repay the loan go for it. 2011 offers the perfect lending climate to expand your small business.
Sung Soo Han is the executive vice president and chief loan officer for Wilshire State Bank. Reach him at (213) 427-6595 or email@example.com.
When organic growth stalls, bold companies seek mergers and acquisitions to bolster revenue, acquire new capabilities or enter new markets. But even the most promising deal can fall short of expectations, because the path to successful integration is strewn with land mines.
Worse yet, an analysis of the Towers Watson Quarterly Deal Performance Monitor reveals that risks escalate as companies venture across borders to expand their global reach. The percentage of cross-border deals rose during the first quarter of 2010, yet acquiring companies barely outperformed the market, proving that global transactions impose unique obstacles. Despite boasting higher success rates, domestic deals certainly aren’t problem-free. Defections by key leaders, declining employee engagement and misaligned cultures are bona fide hazards that often go undetected during due diligence and later threaten the transition.
“Financial due diligence focuses on the obvious risks,” says Christine Infante, consultant with the Rewards, Talent & Communications Practice at Towers Watson. “Integrating people and cultures poses a substantial transactional risk, yet culture fit and integration are often overlooked during the pre-deal assessment and planning phases.”
Smart Business spoke with Infante about the strategies and tactics that lead to a successful integration.
Why is the post-acquisition period so perilous?
Executives often focus on the economic synergies created by the acquisition and underestimate the need for employee and cultural cohesion that ultimately determine the deal’s success. They also subscribe to the theory that assimilation takes about 100 days, when achieving complete alignment of business processes, technology and compensation plans may take a year or more. If change management and communications programs cease before the assimilation is complete, top performers can be left vulnerable to overtures from competitors. Our surveys show that even dedicated employees who want to do a good job can get lost navigating the subtleties of a new culture or ambiguous administrative procedures.
What can be done to avoid these issues?
Our research shows that leadership is critical during turbulent times and leaders must be involved in every phase of the transition. Take steps to retain the right managers after an acquisition so they can assure operational consistency and shepherd employees through the change process. Keep your finger on the pulse of the organization by measuring leader engagement at the beginning of the process, throughout the first year, and into the next year. Finally, create a framework for success by giving them the training and the tools they need to execute their mission.
How can leaders assist with human capital planning?
Leaders are responsible for authoring and executing the post-acquisition talent management plan. They must find ways to create efficiencies, eliminate redundancies and estimate the number of employees and the necessary skills to execute the revised business plan. A sound human capital plan outlines the best strategies for closing talent gaps, retaining top performers and optimizing staff synergies while designing a structure that creates new career paths for employees and merges two disparate teams into one.
How can leaders foster cultural alignment?
Assess the cultures of both organizations during the due diligence process, then design a single culture that retains the best elements and supports the new business strategy. Allow managers to attend change management workshops where they learn how to model the appropriate behaviors and paint a picture of the desired culture for employees as well as intervention techniques that will keep the cultural transformation on track.
What’s the best way to handle change management and communications?
Managing change is both a rational and emotional process and employees turn to leaders for guidance, motivation and focus. After the quiet period ends, people will be starved for information and it is management’s job to build trust and goodwill by providing just the right amount of information at the right time. Since change management and communications are intertwined, provide managers with training and a toolkit so they can monitor major milestones and disseminate reliable, consistent information as events unfold. The kit should contain talking points, data and side-by-side comparisons of current and proposed benefit and compensation plans and policies so managers can confidently explain the changes to employees. Understand each company’s ‘sacred cows’ for one it may be paid time off and for the other profit sharing. Plan carefully to make the transition of benefits go smoothly.
How can HR support successful integration?
HR can play an active role by involving employees in discussions around the alignment of compensation and benefit plans and by maintaining consistent delivery of critical services like payroll and benefits during the transition period. Assess each company’s HR technology as part of the due diligence process, select the right system for the job and assure a seamless transition by authoring a realistic timeline for the conversion. Allowing workers to provide input into the design of these plans gives them a sense of control over their financial destiny; their feedback is invaluable because the new plans will directly impact attraction and retention of talent. An inclusive process also serves as an outward sign of management’s commitment to cultural change, and it keeps employees engaged by offering them a say in and preview of the emerging organization.
Christine Infante is a consultant with the Rewards, Talent & Communications Practice at Towers Watson. Reach her at (858) 523-5514 or firstname.lastname@example.org.
Small business owners got the break they’ve been hoping for when President Obama signed the Small Business Jobs and Credit Act of 2010 on Sept. 27. The legislation also affects thousands of SBA loans currently in the pipeline and offers business owners an affordable opportunity to expand or hire new employees by increasing the borrowing limits and waiving guaranty fees.
But owners may be left out in the cold unless they act quickly and prudently. The program is scheduled to run until Dec. 31, 2010, or until the funding is exhausted, and navigating the application process can be challenging. Loan officers are compelled to closely scrutinize applications and applicants because of the fragile economy and the lending standards set forth by the SBA and participating banks.
“The funds can only be used for certain purposes and banks are required to review documentation and assess the business owner’s character and creditworthiness,” says Anna Chung, senior vice president of the SBA Lending Group at Wilshire State Bank. “But the legislation still provides a great opportunity for business owners who do their homework, meet the qualifications and skillfully navigate the lending process.”
Smart Business spoke with Chung about this ripe opportunity for business owners and her tips for navigating the SBA loan process.
Why is this legislation beneficial for small business owners?
In the midst of a very tight credit market, the legislation provides $30 billion dollars more in funding and another $12 billion dollars in tax breaks to help small businesses expand and start hiring. Perhaps the best news is that the bill incentivizes both parties to consummate a deal. First, the program eliminates the loan guaranty fees that were previously paid by borrowers. That’s a substantial savings since fees average around 3 percent of the loan. Second, the SBA reduces the risk for banks by guaranteeing up to 90 percent of the exposure. Third, those businesses having a tangible net worth of $15 million and two-year average net income after federal income tax of $5 million are now eligible for the SBA program. The previous size standards were based on the number of employees or annual sales. Last, the new law permanently increases the limits on 7(a) and 504 loans from $2 million to $5 million, and the limits for manufacturers in the 504 program have been increased to $5.5 million.
Must the funds be used for specific purposes?
The funds must be used for business purposes such as advertising, hiring or purchasing capital equipment or real estate. In some cases, owners can use the funds to refinance high-interest loans or satisfy an upcoming balloon payment. It gets tricky when owners want to use the funds to meet operating expenses or start-up costs, because the business must be healthy enough to satisfy the underwriting standards and banks want to see a positive trend.
What should business owners know about the application process?
There are more than 2,500 banks nationwide that participate in the SBA program and the loan must fit the institution’s risk profile and credit appetite. You may be turned down by one bank and approved by another, so persevere until you succeed.
- Character counts. Start with a banker you know because the loan officer will consider tangible and intangible criteria when evaluating an application; he or she will be familiar with your business and will know your history when it comes to fiscal responsibility and debt management.
- Visit SBA.gov. All participating banks should accept the application forms found here, which request the same kind of information as the forms used by the banks themselves; you can download the forms and study the requirements. Some local SBA offices offer free classes in business plan or resume writing.
- Gather documentation. You’ll need to submit business tax returns from the last three years, YTD and current interim financial statements and a personal financial statement.
- Funding purpose. Bring a written statement describing how you’ll use the funds. Bankers need proof to satisfy the SBA requirements and down the road owners will need to verify that the funds were used properly.
- Business resume. A written business plan is great, but bankers really want to see a resume and a short business overview in order to evaluate the owner’s qualifications within the context of the current business strategy.
Are there other tips that will help owners navigate the process?
First, tell the banker how much money you need to execute your plan rather than asking how much you can borrow. Do your homework before the meeting by running financial projections and be prepared to sell your ideas, your qualifications and the ROI. You can always modify your plan if necessary. Second, run a copy of your credit report and bring it to the meeting. Every inquiry drives your score down, and your credit history will be closely evaluated by the loan officer. Third, know the facts. Small business loans aren’t just for women-owned or minority-owned firms and they’re not available to nonprofit organizations. Finally, act now because the window of opportunity is open for small business owners, but as we’ve seen before, it can close in a hurry.
Anna Chung is the senior vice president of the SBA Lending Group at Wilshire State Bank. Reach her at email@example.com or (213) 637-9742.
When it’s easy to secure insurance coverage or hard to fathom a catastrophic loss, executives may have little interest in reassessing their company’s risk profile or exploring financing options. But complacent risk practices can leave companies at the mercy of changing market conditions and burgeoning exposures at a time when preserving every dime of capital is critical to business survival.
“Buying insurance may seem like a necessary evil, but funding an unanticipated loss is worse,” says Anne Petrides, senior consultant and actuary for Risk Advisory and Brokerage Services at Towers Watson. “Unless organizations have gone down the path of assessing how much risk they want to assume and developing a financing strategy, they could face an unwelcome surprise.”
“Many firms would be unable to exist in their same form following the extreme financial volatility imposed by a catastrophic event,” says Craig Nelson, senior consultant for Risk Advisory and Brokerage Services at Towers Watson. “The time to look at worst-case scenarios and explore mitigation strategies is before you enter the marketplace.”
Smart Business spoke with Petrides and Nelson about the need for disciplined risk fundamentals as part of a plan to preserve capital.
Why conduct an annual risk review?
Petrides: Risk tolerance is the cornerstone for all risk decisions and everyone from board members to shareholders must be comfortable with the company’s profile and appetite for risk. Executives should review each risk category on a periodic basis to decide how much exposure they wish to retain, from all categories of risk for a single event and in the aggregate. Realistically, companies will face trade-offs when they enter the marketplace but they need to anticipate their choices, calculate the impact and not let the marketplace dictate their risk tolerance.
Nelson: Although we don’t know if British Petroleum has enough (or any) insurance to cover claims in the Gulf of Mexico, the event is a reminder that all scenarios and stakeholders must be considered while constructing a profile and the possibility of a catastrophic event warrants executive attention. While most large companies might survive a catastrophic event like this, most would suffer severe damage to shareholder/stakeholder value. So, in many respects, it’s not so much survival versus nonsurvival, but what you are going to look like after the event and how long it will take to recover. By their very nature, a major earthquake, hurricane, or even a large, unanticipated liability claim can occur without warning.
What data should be included in the review?
Nelson: Companies should use sophisticated data modeling techniques and software to predict future claims by analyzing prior losses. The review may expose savings opportunities through the strategic acquisition of additional risk or reduction in the frequency or severity of claims through loss control or safety measures. In the world of property insurance, historical analysis has given way to predictive modeling that includes a real-time view of major events such as brush fires or windstorms and forecasts the probability of such events within a relative range of certainty. The model shows how these events have historically played out, which helps companies develop contingency and mitigation plans to avoid business interruption and sustained revenue losses.
Petrides: Sophisticated organizations have been collecting data for long periods of time and, based on the credibility of that information, can parameterize models using analyses of this data. Whatever metrics you use, it’s important to model the cost of capital and the equity costs associated with changing retention levels before you decide on a risk financing strategy. Insurance should be viewed as contingent capital rather than an expense. Additionally, the domino-like financial ramifications associated with a major event, like lower credit ratings, increased debt obligations and client defections should be considered in the modeling exercise. Overlay different variables to estimate the financial impact of each scenario before finalizing a risk statement and financing strategy.
How can companies optimize insurance purchases through data?
Nelson: Whether the insurance market is soft or hard, leverage your negotiating power by determining your risk tolerance up front, surveying the marketplace and dictating your retention levels before you enter the market. If you find a deal, it may make sense to purchase additional coverage and reduce your risk, but conversely, a company should never take on more risk than it can withstand.
Petrides: Companies can use predictive models or more sophisticated models to help negotiate higher coverage limits and pricing concessions when they enter the market. The data and analyses may establish your company as a premium risk, which will open the door to additional markets or justify higher retention levels.
Which alternate financing strategies are worth considering?
Petrides: Flexing your model or using a blended approach can be advantageous when dealing with a volatile market. There’s nothing wrong with purchasing additional insurance today, if it offers greater financial security, and returning to higher retentions when the market hardens.
Nelson: The tax benefits associated with captives, such as accelerated deductions for losses, have made them very attractive. But we’re also seeing some industries utilize captives to get into the risk management business and turn it into a profit-making venture. Offering buyers extended warranties is one example, another is offering renters of self-storage units property insurance. Not only does it allow the risk taker to make a profit, it may curtail claims, in the event customers search for a deep pocket to cover uninsured losses. The options and models are almost limitless, but a successful risk strategy always begins with a well-defined risk statement.
Craig Nelson is a senior consultant for Risk Advisory and Brokerage Services at Towers Watson. Reach him at (303) 628-4026 or firstname.lastname@example.org. Anne Petrides, FCAS, MAAA, is a senior consultant and actuary for Risk Advisory and Brokerage Services at Towers Watson. Reach her at (415) 836-1109 or email@example.com.
Just when companies need their most talented employees to capitalize on the recovering economy, new evidence suggests that many of these top people may not be up for the task. Since 2008, overall employee engagement dropped by 9 percent. But engagement levels for top-performing employees fell by 23 percent according to the 2009/2010 Strategic Rewards Report from Towers Watson.
“The survey numbers were surprising and significant,” says Bill Greene, senior consultant for the Talent, Rewards and Communications practice at Towers Watson. “When engagement declines, employees are less likely to recommend their companies to others. They’re less likely to devote extra energy to their jobs. Employees especially top performers become more likely to look for opportunities at other organizations. That means now is the time to take steps to re-engage top talent before the job market rebounds.”
Smart Business spoke with Greene about the best ways to re-engage top performers in the aftermath of the recession.
What factors contributed to the decline in employee engagement?
The past couple of years have been trying for all employees. Even people who avoided layoffs still experienced significant disruptions pay and benefit cuts, forced sabbaticals and diminished job opportunities. Well-publicized business failures, ethical scandals and regulatory challenges also had an impact. Employees are increasingly focused on the image of their employers and their success in managing risk both financial and reputational.
The cumulative effect is that the recession has further frayed the social, emotional and economic fabric that connects employees to a company. Many folks describe this fabric as the employee value proposition, or EVP. It’s the ‘deal’ an employer and employee strike when they work together. Top-performing employees are often most sensitive to shifts in the EVP. They have high expectations for themselves and for their employer. If the EVP isn’t what it used to be, top performers often feel it first, care about it most and are most likely to try to do something about it.
Do most companies have an EVP?
A recent study we conducted uncovered some really interesting results about EVPs. In this study, only 28 percent of employers responding indicated that their company had a formal employee value proposition in place. However, 74 percent of employees felt their company had an EVP. That’s a striking difference. It suggests many employees impute their own EVP which may or may not align with what the company wants it to be. In addition, 41 percent of high-performing employees felt that changes companies made during tough times had a negative impact on the EVP. Smart companies recognize these factors and are working to shape and manage their ‘deal’ rather than having it designed by default.
How are high-performing companies responding to the engagement challenge?
Companies are taking a variety of steps, but four of them stand out:
Defining (or redefining) critical competencies. Whether the challenge is retaining top performers or hiring for future growth, companies are looking again at which competencies and skills will drive business success. Then they’re retooling the roles, skill requirements, rewards, hiring, training and career development practices to support them.
Identifying pivotal employees and showing that they matter. Top and critical performers (for example, those who drive revenue or are instrumental in product development) want to know they have a future with the company. Job promotions send this message, but they’re not always possible in this economy. So top companies get creative with special assignments, attachment to high-visibility projects, skill-building opportunities, and formal or informal recognition.
Re-evaluating (and optimizing) ‘the deal.’ A number of companies are considering whether the employee value proposition they have still matches their business and talent. So they’re looking at redesigning their EVPs. Using marketing research techniques with employees, along with financial modeling, they’re able to develop reward program alternatives that maximize employee value (especially with pivotal employees) based on the total amount they want to invest for rewards (which may be lower than, higher than or the same as what they are investing now).
Communicating. When it comes to communications, high-performing companies distinguish themselves with courage, innovation and discipline. They have the courage to explain to employees the rationale behind difficult business decisions and actively address the impact. They’re innovative in creating brands and messages and using media (including social media) to show employees how their work affects the business especially as business conditions change (for worse or for better). They’re disciplined about having a plan, documenting it and measuring results.
Where do managers fit into the equation?
Most employees look to their managers to interpret vision and goals, clarify rules and make meaningful connections between the individual and the enterprise. Unfortunately, managers don’t appear to get a ringing endorsement from employees. In our 2010 Global Workforce Study, managers scored higher than senior leaders on a range of behaviors, including overall effectiveness. But employees felt managers still fell short, especially on the ‘human’ dimension of their role (for example, related to performance management). For many organizations in this economy, frequent manager transitions and shifting business priorities have hindered the focus on manager development. But building basic manager skills related to communication, performance management, and managing change warrant renewed attention and investment because of the strong, positive impact on employee engagement.
Bill Greene is a senior consultant for the Talent, Rewards and Communications practice at Towers Watson. Reach him at (415) 836-1286 or Bill.Greene@towerswatson.com.
Much has been written about the recession-induced struggles of employees, as they grapple with escalating workloads and diminishing promises from employers. But employees aren’t the only ones struggling to meet a host of increasing responsibilities and rising expectations in a new economy.
The recession raised the bar for business leaders, who must fend off attacks from tenacious competitors in a battle for market share and survival, while satisfying the burgeoning demands of shareholders and employees. Today’s leaders must foster innovation, take calculated risks, thrive in a 24-7 business climate and accomplish these goals with fewer resources as the stakes rise.
“If you look at the quick ascent of companies like Google and YouTube, it’s obvious that bigger companies have to be nimble just to keep up,” says Paul De Young, Ph.D., senior consultant for talent management and Western U.S. sales leader for Towers Watson. “This revolutionary economic environment requires new leadership skills and competencies. Executives must reinvent themselves if they want to stay on top.”
Smart Business spoke with De Young about the challenges facing today’s business leaders and the need for professional transformation.
How has the recession impacted workers’ expectations of business leaders?
Towers Watson surveyed 22,000 workers to get an in-depth look at their post-recession attitudes. In addition to altering their relationships and basic social contracts with their employers, the Great Recession dramatically changed the way employees view their leaders. They crave connections with emotionally intelligent leaders who are trustworthy and accessible and who demonstrate respect for the well-being of others. Fifty-six percent said they expect leaders to encourage their professional development, while 42 percent expect leaders to successfully manage the company’s financial performance. Unfortunately, the survey results were disturbingly low, with only 50 percent of employees stating that today’s leaders meet those expectations. The study exposes the gaps in leader performance and suggests that many could benefit from a professional makeover.
How can leaders meet these expectations?
Leaders need to step back and take stock of the skills that made them successful while consciously developing new competencies that will lead to future success. Inventory your strengths and development needs by observing the attributes of younger, emerging leaders and reviewing an atlas of the behaviors that demonstrate proficiency with critical leadership competencies. Not all leaders need to undergo radical change; some may fulfill employee expectations by tailoring their behaviors to fit the current business environment. Once you develop a list of the skills you wish to master, executive coaches and increased awareness can help you expand your repertoire of competencies. Remember, many leaders are in the midst of a professional transformation as they attempt to conquer growing responsibilities with fewer resources. The evolutionary process takes time, so don’t be afraid to discuss your journey with managers and employees, because it will increase transparency and encourage others to follow suit.
Are these expectations realistic?
In many ways, employees expect leaders to act like celebrities as well as business gurus. Think Bill Gates, Steve Jobs or Eric Schmidt. These leaders have reset the bar because they take the time to Tweet, blog and woo customers by delegating many of their day-to-day responsibilities. These fast-moving companies are also famous for cutting-edge technology and vaulting past the competition, because their leaders think outside the box and are willing to take risks.
Is it possible to thrive in a 24-7 business environment?
Forget about achieving work-life balance, because it is based on a world without the Internet. Leaders need to fully integrate their personal and professional lives in order to operate in today’s 24-7 business environment. Leadership essentials include blended skill sets such as multi-tasking and handling shifting priorities along with the capacity to nurture virtual relationships. One minute, an executive might be having dinner with his or her family, and the next she’s e-mailing, blogging or posting information on the company intranet to bolster employee engagement. The 24-7 phenomenon isn’t temporary, so leaders need to embrace the change and adapt their lifestyles. The best group of people to observe with this skill is working moms. They have mastered this better than anyone else.
What does it take to outhustle the competition?
Executive leaders must develop their direct reports and trust them to make decisions in order to thwart the advances of svelte competitors. Some leaders were still adjusting to the reduction in middle management and leaner organizational structures instituted during the prior recession when the Great Recession hit. Although the compressed configuration was supposed to eliminate bureaucracy and hasten the decision-making process, in reality managers have been wearing many hats, so many lacked the confidence and expertise to meet new customer mandates under extreme adversity. Now that the crisis is waning, executive leaders must loosen the controls so their direct reports can spread their wings. Assume the role of questioner and enabler, rather than restrictor. Courses in innovation and critical thinking can help engender innovation, but at the end of the day executives must be willing to take calculated risks and loosen the reigns if they want to develop their direct reports into future leaders.
Paul De Young, Ph.D., is a senior consultant for talent management and the sales leader for the Western U.S. for Towers Watson. Reach him at firstname.lastname@example.org or (562) 234-1669.
Employers took a giant leap of faith when they began investing in employee wellness programs to curtail the rising cost of health care. Little data existed to forecast the effectiveness of the new programs and employers could only speculate whether employees would be motivated to make lifestyle changes or follow proactive health regimens to manage chronic conditions.
Now new research by two Harvard professors affirms the hope-laden wellness hypothesis, revealing that companies saved an average of $3.27 in medical costs for every dollar invested in wellness programs while health-related absenteeism costs fell by about $2.73. The news couldn’t come at a better time for beleaguered employers who have theoretically exhausted their ability to shift rising health care costs onto employees, yet face another year of 7 percent increases, as the annual tab for employee medical benefits tops $10,000, according to Towers Perrin’s annual Health Care Cost Survey. Encouraged by early success, employers are turning up the heat on wellness through strategic medical plan designs.
“Employers can no longer cost shift or reduce plan benefits across the board and remain competitive,” says Vincent Antonelli, senior consultant for the health and group benefits practice at Towers Watson. “Savvy employers are offering substantial monetary incentives and value-based benefit designs to engage employees and their families in company-sponsored wellness programs.”
Smart Business spoke with Antonelli about the latest trends in medical plan designs and how employers are mitigating the rising cost of health care through innovative incentive programs.
What have we learned about employee wellness?
We’ve debunked the theory that if you simply build a great wellness program, employees will come. We’ve learned that employees need to be financially motivated to make wellness a priority so employers are offering substantial inducements to employees who actively participate in wellness programs and achieve specific health outcomes. At the same time, competitive health care benefits are now the second greatest attractor of new talent right after salaries, according to our latest survey. Additional data suggests that nearly 50 percent of employees are actively looking for new jobs or would entertain a new offer, making it difficult for employers to enact greater cost shifting without suffering potentially catastrophic consequences.
How are employers redesigning health plans and incentives to encourage wellness?
Many leading employers have migrated from offering encouragement or incidental rewards to employees who enroll in programs to refusing to subsidize employees who are unwilling to actively participate in health improvement programs or follow the specific recommendations from third-party wellness providers. Here are some examples.
- Reduced premiums and plan options. Employees who stop smoking, lose weight or lower their cholesterol may receive a credit toward their premiums or access to a more comprehensive health plan. Those who don’t must pay a greater share of their premiums or higher deductibles.
- Health savings account credits. Employers offering a high-deductible health plan contribute as much as $1,000 annually into the HSAs of healthy employees or those achieving specific outcomes. This is a high-impact option because premium reductions are apportioned over paychecks throughout the year, which dilutes the impact. Additionally, this incentive can be cost-neutral if employers offset the one-time payment through higher deductibles and co-pays essentially allowing employees to buy back the increased cost-sharing through incentive payments.
Are employers instituting other penalties or incentives?
Self-insured employers are instituting more draconian plan changes to encourage employees to become wiser consumers of health care services. Controlling the unit cost of medical services and paying more for procedures from quality providers are proven strategies for reducing total costs. Examples include reference-based pricing, where employers set a price ceiling for medical procedures or tests after surveying the market. While prices for an MRI may vary widely, for example, there’s often little variance in the quality of these diagnostic tests.
Some employers are refusing to pay for elective but recommended surgeries until employees undergo a series of evaluations that may include a second opinion. Back surgeries often fall into this category and employees often elect alternative therapies once they understand the risks and the success rates for these procedures.
Last, some employers are opting to pay a higher portion of the cost for a procedure when employees select providers and facilities with higher success rates. Although procedure costs may be similar, the outcomes are not. New access to quality data is helping employers educate employees to make wise choices while strategic plan designs provide the financial motivation.
How are employers engaging entire families in wellness?
Given the ROI on wellness programs, employers are reaching out to entire families in order to improve total population health. Some companies are offering premium credits for spouses or dependents when they participate in wellness programs and achieve specific outcomes like reductions in weight or blood pressure. The most influential health consumer in the family may not be the employee but a spouse or significant other, so don’t overlook their ability to encourage wellness, especially when there’s money on the line.
Vincent Antonelli is a senior consultant for the health and group benefits practice at Towers Watson. Reach him at (415) 836-1240 or email@example.com.
As we start a new year and begin to move into better economic times, it’s an important time for companies to re-engage employees in the employee value proposition (EVP). For some organizations, the EVP may have changed. Towers Watson’s recent Communication ROI Study clearly shows a distinct difference in financial performance when employees understand a company’s business goals, the steps that must be taken to reach those goals and rewards, and benefits they receive.
The Communication ROI Study also shows that companies who actively communicate the EVP, leadership changes or changes to benefits are more likely to see their employees engaged, focused and productive, even in uncertain times.
“The question becomes how to communicate effectively to a multicultural, multigenerational audience,” says Rosalind Watson, a communication consultant for Towers Watson. “And for many companies, it’s often a question of how to communicate more effectively with less resources.”
Smart Business spoke with Watson about the value of innovative communication and how executives can measure the return on investment of effective communication.
How does effective communication impact financial returns?
Companies that are highly effective communicators have the courage to discuss changes to their EVP and the discipline to communicate continuously with employees so that they understand the changes and can link them to the attainment of the company’s business goals. Companies that communicate effectively have posted a 47 percent higher total return to shareholders over the last five years than their less-effective counterparts.
In comparing the returns of 328 companies over five years, a $100 investment made in 2004 in a company with a highly effective communications program is now worth $130, whereas that same investment in a company with a less-effective communications program is valued at $83.
What’s the best way to communicate change?
Each company should tailor its media selection toward the specific message, the employee population and the culture. Top communicating companies often explain major changes through face-to-face meetings with trained managers, where employees can ask questions in an informal setting. Town-hall meetings give the CEO the opportunity to deliver a personal message, reinforcing the reasons behind the change. Personal involvement is crucial, because it allows the CEO to step down from the balcony and shorten the distance between himself and the employees at a critical time.
Electronic communication is starting to replace traditional paper communication, and highly effective communicators have embraced social media, often pre-testing their media selection and their message with an internal advisory group to see if the communication will be well-received.
What are some examples of innovative media?
Because media preferences vary by country or employee group, many employers use a variety of sources to deliver the same message.
- Wikis: A wiki page on the corporate intranet site provides a one-stop resource for information and is useful for explaining defined terms and knowledge management.
- Blogs and chats: Ghost bloggers can assist executives with daily posts and HR leaders can host online chat sessions about compensation and benefit changes.
- Town halls: Small group sessions allow executives to communicate directly with employees in an intimate setting and answer employees’ questions. Remote employees can attend via webcast and participate by e-mailing their questions during the session. The meeting can be recorded and uploaded onto the company’s intranet, so employees can view the session at their leisure.
- Webcasts: These can be used to deliver information about benefit changes, via a PowerPoint presentation delivered over the Web. Executives can host the meeting or provide the voiceover for the presentation.
- Interactive PDFs: Create an interactive PDF to help employees understand the changes, including links to videos, Web sites and important documents.
What is the investment rationale in social media?
Although many employers cite a lack of funding as a reason for not embracing social media, electronic communication is often more cost-effective than distributing printed materials and the duties can be handled by a few trained staff members. Communication is often viewed as a soft cost that is expendable during a downturn, but driving engagement and higher productivity levels is vital when there are fewer people to do the work. Helping employees to understand the rationale behind difficult decisions and provide feedback enables everyone to move forward together.
What’s the best way to measure the ROI from communication?
Employers can measure clicks and views to see which media sources are generating the greatest employee interest; surveys and focus groups can determine whether employees are embracing the message. Top-performing companies develop a documented communications strategy and assess its effectiveness by benchmarking key measurements, sometimes against other companies.
Although the ultimate litmus test of a company’s ability to engage its employees is its financial performance, many companies track return on sales or top-line growth during a specific campaign to measure ROI. Communication functions need to be held accountable for results just like other departments, because in business, what gets measured gets done, acknowledged and rewarded, and communicating effectively now helps companies to steer their way through to better times.