Sue Ostrowski

New revenue recognition rules will have the biggest impact on companies that sell tangible products that include software, but they will also have an impact on every company that sells multiple elements at once.

The hotly debated rules (formally known as ASU 2009-13 and ASU 2009-14 or EITF 08-1 and 09-3) should allow companies to recognize revenue sooner but may also create a lot of additional work for them, says Nick Steiner, a partner at Burr Pilger Mayer.

“Even if you’re not a company that includes software in your products, the rules will be changing,” he says. “This is going to impact any company that is selling multiple elements, or bundling, at once.”

Smart Business spoke with Steiner about how the new rules will affect businesses and how to begin preparing for them now.

How will the new rules change the way companies recognize revenue?

The new rules may result in significant changes to a company’s revenue model. These rules introduce a ‘selling price’ hierarchy for multiple-element arrangements and remove the requirement to use objective and reliable evidence of fair value when separately accounting for deliverables. As a result, they should allow companies to recognize revenue such that it more closely matches the economics of the transaction.

The rules have become informally known as the Apple rules, as Apple was one of the key drivers in the changes. Because of the software embedded in an iPhone, Apple was recognizing revenue under software revenue recognition rules. Under these rules, Apple previously had to defer revenue when an iPhone was sold and recognize the revenue over an estimated two-year economic useful life. This was a result of Apple providing upgrades to the software on its iPhone to customers for free. Because it did not charge customers for this element, it could not establish evidence of fair value for it. Apple felt that the resulting accounting deferral and recognition over two years did not reflect the economics of the transaction and supplementally disclosed the number of iPhones it sold each quarter to satisfy its investors. Under the new rules, Apple will be able to recognize a significant majority of iPhone revenue upon sale rather than deferring all of it.

The new rules go into effect for fiscal years starting in July 2010 or after, but Apple has been an early adopter. Apple recently announced its financial results for its first quarter after adoption and reported record earnings as a result of the accounting change.

What types of companies will the new rules impact?

While the impact of the new rules will be biggest on companies that sell hardware and software together, these rules are going to affect any company that bundles products and/or services.

How will the new rules affect how companies operate?

One of the impacts of the new rules is that companies will no longer be allowed to use the residual method for allocating revenue in an arrangement. Under the old rules, you allocated the fair value to everything that you hadn’t delivered, such as training or customer support, and whatever was left over, you recognized now. Under the new rules, you will have to allocate all of the consideration based on its relative value. This will require companies to study what the average selling price has been for all of their products and then allocate revenue relative to that. Previously a company needed to establish stand-alone evidence of fair value (either through its own sales or through objective third-party evidence) in order to ‘carve out’ an undelivered element from a transaction. Companies will now be required to use their best estimate of a component’s stand-alone sales price to allocate revenue if evidence of fair value does not exist. This will result in significant judgment in determining the estimated sales price as well as in determining whether a component requires stand-alone accounting. In situations where a company has thousands of products, studying its history of the selling price for each of those products over time will be a significant challenge.

Can a company do this analysis on its own?

Many companies will likely need additional help implementing the new rules because they’ll need help analyzing the historical selling price of each of their products. Initially, companies were excited about the prospect of recognizing more revenue sooner, but as they start to dig in, they are starting to understand the amount of work that can be involved in the rollout, and many of them are hiring consultants to help them through the process.

The fewer products you sell, the easier this is going to be, but it’s not going to be an insignificant effort for anybody. The bulk of the work will be upfront as you assess the historical selling prices for some products and develop estimates of selling prices for others. But even after adoption, companies will need to continue to perform regular assessments of their selling prices.

Another issue facing companies is that most existing accounting software wasn’t written contemplating these new rules. While accounting software vendors are working on updates, companies may have to use stopgap measures until the accounting software catches up with the new rules. This could require tracking transactions outside of accounting software during the initial implementation.

There is significant work involved in assessing historical selling prices and you should get started sooner rather than later.

Nick Steiner is a partner at Burr Pilger Mayer. Reach him at (408) 961-6375 or nsteiner@bpmcpa.com.

Tuesday, 23 February 2010 19:00

Sharing secrets

Most employers don’t set out to steal trade secrets. They’re simply looking to hire the best person — someone who has experience in the business, who knows the customers the company wants, and who understands the products and the industry.

But the inevitable disclosure doctrine may put your company at risk if the person you hire is someone who possesses trade secrets from a competitor, says John Susany, chair of the litigation and employment group at Stark & Knoll Co., L.P.A.

“The court has found that if you leave one job and you possess confidential information, or trade secrets, and you go to another employer who’s in the same business and you are working in the same or a substantially similar position, it is inevitable that you will disclose trade secrets you acquired in your old job,” says Susany.

“That has permitted employers to sue former employees and their new employers, even when no restrictive covenants or non-compete agreement exists with the former employee.”

Smart Business spoke with Susany about what qualifies as trade secrets, how to make sure they don’t get out and how to protect your company when hiring an employee from a competitor.

What qualifies as a trade secret?

A trade secret is information that derives independent economic value from not being independently known. That can include technical information or a secret formula such as the recipe for Coke. It could also cover processes and, in some instances, customer lists and financial information, and pricing can also be categorized as trade secrets.

The most important factor about trade secrets, as the name implies, is that they must be secret. They must be known only to people in your company or your control group and known to no one else, because if they’re known publicly, they’re not a secret.

How can a company protect its trade secrets, and how can doing so protect it in the event of a lawsuit?

One of the first things asked in any court hearing over trade secrets is, ‘What efforts did you take to maintain their secrecy?’ You need to take steps such as stamping documents: ‘Confidential.’ Financial information, customer information, sales history and any information that gives your company a competitive advantage should be maintained in a computer that’s password protected. In addition, the number of people who have access to that information should be limited to those for whom it is absolutely necessary. Your employee handbook should also identify your trade secrets and explicitly state that the employees have a duty to protect them and not disclose them.

If you do these things, it’s hard for anyone who leaves your company to say he or she didn’t know something was a trade secret.

There are also agreements you can put in place. The least restrictive is a confidentiality agreement, which says that former employees can work wherever they want, they can call on whomever they want, but they can’t use the former employer’s trade secrets to benefit themselves or their new employer.

Second is a non-solicitation agreement, which says that former employees can work wherever they want, but they can’t call on the customers of their former employer. The third is a non-compete agreement, which says your former employees can’t work in your industry, or in a specific geographic area in the industry, or for a specific competitor.

It puts you in a stronger position to protect your trade secrets if you’ve identified them, you’ve informed people of their confidential nature, you’ve restricted them and you use agreements to protect that confidentiality.

What can you do when an employee with access to your trade secrets leaves to work for a competitor?

Typically, if an employee left a company for a competitor and had a restrictive agreement in place with the former employer, that forms the basis of a lawsuit against both the employee and often the new employer. Those agreements are enforceable even if you fire someone or lay off the employee. So you don’t need to worry about negating the agreement by letting an employee go.

However, in recent years, there has been a new doctrine of law -— the inevitable disclosure doctrine — that allows employers to go after a former employee, even if he or she didn’t sign any type of agreement.

That can cause a problem for employers who are hiring someone from the same business. So you have to be very careful. You could be well intentioned; you could have no desire to steal or misappropriate anyone’s trade secrets; but just by hiring an employee from a competitor, you could be exposing yourself to this type of potential liability.

How can employers protect themselves when hiring from a competitor?

When hiring from your own industry, ask the potential employee if he or she is subject to any restrictive agreements or covenants. If he or she is, you really need to assess whether you can fit that person into your organization and put that person in a position that doesn’t violate the express language of the contract.

If someone doesn’t have something in writing, you still have to understand what that person’s job was with the former employer, whether he or she was exposed to trade secrets, and whether by placing him or her in the same or a similar position at your organization, it would be inevitable that he or she would disclose those trade secrets. You really have to assess where you’re considering placing that person in your organization. But, beware even if a company does everything right, it can still get hit with a lawsuit under the inevitable disclosure doctrine. If that happens, the care you took in hiring works as a strong defense.

John Susany is chair of the litigation and employment group at Stark & Knoll Co., L.P.A. Reach him at JSusany@stark-knoll.com or (330) 572-1324.

Tuesday, 26 January 2010 19:00

Human capital

Human capital is vital to the success of any organization, and hiring the right people can raise the game of everyone in your organization. Finding the right people can be tricky, but it’s worth the effort, says Brendan Casey, senior manager — recruiting, at Burr Pilger Mayer.

“The big difference between good companies and great companies is the people,” says Casey. “If other people are trying to recruit from your company, that shows that your company is pretty darn good. If people look at your company and say, ‘Wow, anyone who comes out of that firm is a star,’ that’s the company you want to be.”

Smart Business spoke with Casey about how to identify ‘A’ players for your team and how a qualified recruiter can help in that quest.

How do you identify the right people for your team?

When you go through the interview process, you need to be very thorough in finding out what makes that person tick and what really excites them. A lot of companies put so much emphasis on the standard questions that they ask everybody, but the key is getting inside someone’s head.

It’s like a marriage. You don’t just marry someone because they have the skill set you’re looking for at the moment. You have to be able to communicate clearly and grow together.

The first thing in an interview is to try to get the interviewee to take the barriers down and get them out of that ‘interviewee mode.’ Put all pretenses aside and have a deep conversation to figure out who you are and what you’re about and who they are and what they’re about. If you’re open and honest with a prospective candidate, it’s more than likely that they’ll return that.

And if you end up not hiring someone because they were honest, or because you were honest, that’s a good thing. Then a year from now, you’re not having a bad divorce, or someone leaving on bad terms, putting you in a position to have to rehire. Just do it right the first time.

How can hiring ‘A’ players improve the performance of others at your company?

‘A’ players understand and share the goals of the company. They motivate their peers, managers and subordinates with their positive attitude. They lead by example and inspire those around them to be more successful. They are the people who make it rewarding and fun to be at work.

How can a down economy impact your hiring decisions?

In a down economy, you need to be careful about hiring. Sometimes the best person for the job is not someone who is unemployed, it’s someone who has a job somewhere else. That makes it more difficult because some good people are cautious about leaving their current position. They don’t want to leave a company that has treated them well to go somewhere to be the low man on the totem pole, because if the economy turns even further, they may be the first to be let go.

There are definitely opportunities in this market to ‘upgrade’ your talent pool. There are some very good people out of work right now. A lot of really good people lost their jobs through no fault of their own, and you can take advantage of that. But hiring in this market doesn’t mean you’re necessarily going to get the best talent.

You have to hire someone because it’s an intelligent decision for that person and for you.

How can a recruiter help you find the best employees?

You need to find a recruiter who wants to help you find the right person for the job, regardless of where they come from — someone who is not going to be intimidated because you’re also looking on your own, because, if you’re smart, you should be looking on your own.

There are recruiters who will try to just throw a body at you, but the really good ones want to understand your business and what type of person is successful there. If recruiters are spending most of their time talking, that’s not the type of business you want to build a long-term relationship with. They should truly try to understand your business and what you do. Ask yourself if they are viewing you as someone they want to have a long-term relationship with, or someone they want to fill a quick job with, make some money and move on.

How can companies ensure their best employees stay?

Good employees are concerned about more than just salary. They want to work with good people in an environment where they are challenged, where what they say and do is respected. There is more to keeping people than just paying top salary. Why is it important to work at your company? Share that with employees and remind them of why it’s a good place to be.

Brendan Casey is senior manager – recruiting at Burr Pilger Mayer. Reach him at bcasey@bpmcpa.com or (650) 855-6892.

Tuesday, 26 January 2010 19:00

The right buy

Growth through acquisition is an extremely appealing and exciting opportunity for most business owners and managers. Identifying a promising acquisition target that offers new potential and return on investment is tantalizing.

“Unfortunately, too often I see this excitement overshadow some of the valuable information that needs to be obtained and evaluated when making decisions on potential acquisitions, particularly when it comes to inexperienced buyers,” says Paul Woznicki, CPA, associate director in transaction advisory services at SS&G Financial Services, Inc.

“While there is some validity in describing due diligence as ‘the pain before the gain,’ the fact is, sometimes not enough pain results in not enough gain.”

Smart Business spoke with Woznicki about what information a potential buyer needs to consider when deciding whether an acquisition is right for his or her company.

When considering an acquisition, what is the first thing a potential buyer needs to do?

A potential buyer needs to clearly define and understand the key value items that are central to the acquisition. In essence, what is it about the target entity that you value? A buyer needs to know where the value lies in what he or she is considering purchasing. Is it market share, key personnel, technology, a cash flow, a product line? Prior to investing time and money into the due diligence process, the buyer must compare the perceived value of these items to the preliminary sale price offered. Once those items are clearly defined and the sale price is in line with the buyer’s value judgments, the buyer’s due diligence process can then be tailored to most effectively validate those key value items.

When performing due diligence, what does a potential buyer need to evaluate?

Due diligence is a process of verification, analytics, discussions and investigative inquiry. Some of the key information typically reviewed includes:

  • Historical financial information. This gives the buyer a comprehensive view into how the company has performed in recent years. This often includes verifying certain key aspects of historical information to establish a workable basis for projecting the future financial performance of the company.
  • Projected financial information. The assumptions used to project financial information are analyzed for reasonableness and obtainability.
  • Contracts, agreements and other documents. Depending on the structure of the transaction, various documents (including employment contracts, debt and lease agreements, commitments, corporate documents, patents, tax returns) need to be reviewed to determine whether any possess obstacles to a successful completion of the transaction.
  • Industry markets, trends and information. Future opportunities with any company depend largely on the owners’ understanding of their markets, competitors, industry issues, trends and other global factors. Analyze the corporate environment and personalities of key employees, determine the likelihood of successful synergies and identify operational opportunities.

What should a potential buyer know about historical financial information?

The historical financial information is important because it’s the basis from which a series of decisions are made. It’s the historical story of the company. However, when performing due diligence, you must maintain a skeptic’s eye and acknowledge that every person who is selling an asset is going to wash it before a potential buyer looks at it. I think it is safe to say that in most cases historical information leading up to a sale transaction depicts performance that is above what is normal for the company. I like to refer to this as ‘window-dressing.’

How can a potential buyer uncover these things?

By analyzing trends and having discussions with the right personnel. It is not to say the seller is doing anything illegal or unethical. For example, a company may have a highly experienced and effective middle manager who is making $100,000 a year. Suppose that individual leaves the company the year before the sale and the owner elects not to replace him, instead spreading his workload. Going forward, the company has $100,000 more profit given the same level of activity, but the company isn’t humming along like it was because that effort is missing.

Often, a business owner will start to position a company for sale two to three years in advance. Uncovering these items is an important part of the due diligence process. Time and again, I see a rush to complete due diligence. Teams will load up with bodies, rush in and divide and conquer. I feel it is generally better to go in with a smaller crew and stay longer. A few additional days will allow you access to more employees, to build trust with the people you are interacting with and, ultimately, to obtain better information.

What else should a potential buyer look at before making an acquisition?

Consider integration issues prior to consummating a deal. Repeatedly I see an acquiring group fail to properly integrate its acquisition. The acquirer has a successful business model and work culture, but they fail to bring the new company into the fold correctly. Or they are slow to do so, and the acquired company losses steam or never really gets on board. Look before you leap at what it will take to integrate the companies. Consider the cost of the effort to bring the two cultures together.

Finally, be conservative with your projections and cash flow modeling and give proper and balanced consideration to the hurdles discovered during due diligence that are significant enough to derail the transaction. The excitement of the deal must take a back seat to sound business and financial decisions.

Paul Woznicki, CPA, is associate director in transaction advisory services at SS&G Financial Services, Inc. Reach him at (800) 869-1835 or PWoznicki@SSandG.com.

Saturday, 26 December 2009 19:00

Transitioning a business

You may not be ready to sell your business today or accept a significant investment, but it’s a good idea to prepare as if you were, says Brad Holsworth, partner and assurance practice group leader at Burr Pilger Mayer.

“If you have a business, you never know when someone might approach you about wanting to acquire you or make a significant investment, or in a worst-case scenario you might be required to undertake one of these activities if your business situation changes,” Holsworth says. “If you’re not ready and you don’t have the necessary information available, you may lose out on that opportunity since the window for certain transactions can be small.”

Smart Business spoke with Holsworth about having a business that’s ready for the market.

When should you start preparing for the sale of your business or other ownership change?

You need to be thinking a good five years ahead about how you’re going to transition out of your business. You should always have in the back of your mind how that’s going to happen.

To do it properly, you need to plan ahead, because if you wait until the last minute, the business often doesn’t get monetized the way it should. That doesn’t mean you need to take a lot of action in the short run, but you do have to plan ahead and have a goal.

How do you start to create a plan to transition out of your business?

The first thing you need to do is get a general idea of what your business might be worth. Businesses are valued in a lot of different ways, and it’s very difficult for owners to understand how an outsider evaluates a business. Owners place a high premium on the sweat equity they’ve put into the business, but that often isn’t worth as much to a buyer.

Getting an unbiased view of the value means using outside advisers, such as a valuation specialist, a business broker, a CPA and/or an attorney, to help you understand the business’s value and whether potential buyers or investors will be more interested in the volume of your revenue, profits, cash flow, customer list or other elements. Valuation experts are going to look at your business very similarly to the way a buyer would. If you can provide the key financial information, who the key employees are and who the customers are, many times they can give you a ballpark figure very quickly.

It is also important to understand the tax consequences related to the transaction, because it’s not what you sell the business for, it’s what you’re able to keep. And if the deal isn’t structured correctly, there can be some fairly significant tax consequence in the way of higher income taxes owed.

Another factor to the buyer is determining how important the owner and the key employees are. Typically, if a business has been run by a dominant individual or a key management team, the owner and/or key employees must usually stay on for a couple of years under an employment agreement to help transition.

Once you understand the value of your business, what other information do you need to gather?

Typically, there are a number of things a potential buyer wants to see and often they cannot be completed or done instantly, thus this needs to be considered many years before the information might be needed. The buyer will want financial information on the company, everything from the internal reports to CPA prepared or audited statements and tax returns.

Many businesses also have a monthly financial reporting package, which includes the key business metrics including terms on key customers, suppliers and competitors, product line information and key employee data.

How long does it take to gather the information a potential buyer is looking for?

As you might imagine, it is typically much easier to assemble this information on an annual basis versus trying to go back in time and recreate it from old financial records, which might not even be on location anymore. For instance, if you have to undertake a financial audit for prior years this typically could take many months to complete and can be much more expensive than doing it annually. While often certain financial records are prepared annually, they should be stored in a safe and logical manner so that they can be quickly and easily accessed.

Having all this information prepared can save you time and money and, while you may not be planning to transition out of the business any time soon, you never know when it’s going to happen. The better prepared you are now, the greater chance you have for success. The bottom line is to have a goal for what you want to do and know what is required to accomplish it, and this will normally necessitate some action and reassessment every year.

Brad Holsworth is a partner and assurance practice group leader at Burr Pilger Mayer. Reach him at (925) 296-1004 or bholsworth@bpmllp.com.

Saturday, 26 December 2009 19:00

Staying in the game

If you don’t do an annual review of your IT use to find ways to cut costs, you’re going to go out of business.

“It’s just a matter of time,” says John Grismore, vice president of InsightBusiness Services, the commercial services arm of Insight Communications. “If you don’t take the time to look at these things, you’re not going to have the margins you need to drive your business into the future.”

You might be looking at two or three of the components, adds Grismore, but you need to look at all six at least once a year to keep pace.

Smart Business spoke with Grismore about the six things every business owner should evaluate to help cut IT costs and create efficiencies.

What is the first thing to consider when looking for ways to cut IT costs?

Electricity. IT is a big user of electricity. Businesses need to power off their servers, deploy power-saving software and turn off the lights. Doing these things can cut your electric bill by 10 to 20 percent, and those are real dollars that fall to the bottom line.

How else can you cut costs?

You need to have a mobile device policy, evaluate each position and not give every position access to all technology. More than 50 percent of all minutes in business plans are never used, so you need to review your plan for long-distance usage at the employee level. Companies are being oversold, and they need to review their contracts.

Renegotiate your plan every year, because the price of minutes continues to fall. Too many companies get locked into a contract. People get caught up in running the business and they think they don’t have time to look at these things. But business is down right now, making it an ideal time to review your plans with your vendor and cut waste — and costs — where you can.

In addition, consider the features you’ve been sold and look at whether employees are really using those, because most features sold on business plans are never used.

How can using in-house talent save you money on IT?

Reconsider using a consultant versus using someone in-house. And that cuts both ways. Too often, companies are working with consultants and just keep giving them projects, or they may have people doing things in-house that would be better served by a consultant. Survey your staff on their expertise. Often, companies have the expertise in-house and are unaware of it; they have people who could do the job for much less than a consultant, because billable hours really stack up.

With a consultant, a lot of billable hours are just getting a feel for the scope of the work, the culture, what is needed to do the job, whereas you have people on staff who already have that knowledge. Get your scope of work, establish what you’re trying to accomplish, and then ask your in-house team to respond to your request for proposal.

Should companies re-evaluate their Internet service and policies to save money?

Absolutely. All the time. It’s important to have your IT fit your business model throughout the organization. That can mean making sure each department has the right hardware and software, but also that Internet access, for insistence, is the right speed and bandwidth for the people who are using it. Why should a company be paying for more bandwidth than it needs? Technology for technology’s sake doesn’t make any money. It has to clearly save you money or improve your processes, and if you can’t quantify it there, then it just doesn’t belong.

How can buying the right hardware decrease your long-term costs?

You need to consider that the price of the hardware is only one piece of the equation. One option might, over the life of the machine, cost you more in power than the savings you thought you were getting with a lower price.

Also consider maintenance costs and understand that the maintenance agreement might cost more because the cost of the box is a loss leader. A lower initial price doesn’t necessarily mean a lower cost over the life of the equipment. Make sure you consider all costs when making those hardware-buying decisions.

How can re-evaluating your bandwidth get you the most for your money?

The cost of transport and Internet access is a declining proposition. Every year, you should expect to get more speed for less money. When negotiating a contract, make sure there are provisions for the future and that you can scale up or down with more or less bandwidth as your business changes. Make sure there is clear cancellation language that you can live with, because if they’re not willing to lower the price and provide better service, you need to search for a new service provider.

Also, when purchasing bandwidth, make sure there’s a clear escalation process so if there’s any problem with the bandwidth, you’ve got the names and phone numbers of everyone from the person who sold it to you to the CEO so you can make sure your business doesn’t suffer because of an outage.

John Grismore is the vice president of InsightBusiness Services, the commercial services arm of Insight Communications. Reach him at (502) 410-7208 or grismore.j@insightcom.com.

Saturday, 26 December 2009 19:00

A healthy 2010

Because most adults spend a large number of their waking hours at work, employers can play an important role in helping them stay healthy.

By introducing wellness programs and rewarding employees for maintaining a healthy lifestyle, employers can help employees lose weight, lower stress levels and improve physical fitness. And for employers, that can mean increased productivity, decreased presenteeism and lower health care costs, according to Marty Hauser, president of SummaCare, Inc.

“Intuitively, we all know that we need to make changes and lead a healthier lifestyle — no one wants to be overweight, unhealthy, sick or absent from work,” says Hauser. “But we also know that it is hard to make changes on our own, so having the support of your employer and co-workers is an important aid in helping to lead a healthier lifestyle.”

Smart Business spoke with Hauser about how employers can create a healthier workplace and what they need to know to comply with the law.

How far can employers go to inform employees about wellness?

Employers can provide information and resources to employees but should start slowly. Many employees may be uncomfortable with or skeptical about their employer showing an interest in their lifestyle, so general education on exercise or nutrition can be a good starting point to ease into the conversation.

The important thing is to get information to employees and get them to buy-in to the concept of wellness. One way to create that buy-in is to get select employees involved in the planning process for the program so they get excited about it and share that excitement with their co-workers. Employers have the best chance of changing behaviors when employees feel invested in the plan and are motivated to make changes in their lifestyle.

Employers also have the right to ask employees to fill out health risk assessments and undergo health screenings, as long as the results aren’t tied to a demand to meet certain criteria and are not used to deny benefits or determine individual premiums or employment status.

What federal regulations does an employer need to be aware of when instituting a wellness program?

Under the Health Insurance Portability and Accountability Act, employers are prohibited from charging employees in the same situations different premiums based on health factors, unless the company has a bona fide wellness program.

Under a bona fide wellness program, HIPAA allows for two types of rewards for employees. Rewards that are not conditioned on the achievement of a particular standard must be made available to all participants in the program. These rewards include incentives for diagnostic testing that reward for the employees’ participation in the program (not the results of the tests), reimbursement for smoking cessation (regardless if the program results in the employee quitting) and reimbursement for fitness center membership.

Rewards that are conditioned on meeting certain goals must meet additional requirements. The reward must not exceed 20 percent of the employees’ cost of coverage; the program must be designed to prevent disease or promote a healthy lifestyle; it must give employees a chance at least once a year to qualify for the reward; the reward must be made available to similarly situated individuals; and the program must provide an alternative standard for those not reasonably able to meet the standards.

Under HIPAA, an employer cannot deny an employee coverage based on claims experience, genetic information, health status, physical or mental condition, use of health care services or disability.

Also, under the Americans with Disabilities Act, employers can’t ask about any disabilities that an employee may suffer from or require exams relating to disabilities. However, they must make accommodations for disabled employees participating in the company’s wellness program. For example, if an employer offers an incentive to employees for walking five miles a week, they must make a comparable offer to an employee who cannot walk.

What kinds of incentives can a company offer at little or no cost?

A walking club is a simple way to encourage employees to begin exercising. Employers can also create a points system based on healthy behaviors. For example, an employee could earn points for each day that they don’t smoke, for the number of servings of fruits and vegetables eaten each day, for maintaining a healthy weight or for participating in a physical activity. Employees can then trade points earned for small prizes, such as T-shirts, pens or water bottles, or an employer can offer perks such as an extra vacation day. Recognition in the company newsletter or small monetary bonuses can also be effective incentives.

How can employers help create a more healthy workplace for employees?

Employers can do simple things, such as making healthy choices available in the company’s cafeterias and vending machines. While they may still offer french fries so that employees have a choice, they can also add more vegetable choices to the menu. To encourage employees to eat healthier, the employer could charge less for the healthy choice and more for the less healthy choice.

Creating a smoke-free workplace is another option, making it inconvenient for employees to smoke during the workday.

And finally, promoting competitions such as a weight loss contest or tracking who is the most active over a period of time can create a sense of camaraderie among employees. The employer benefits not only by having more healthy employees but also by creating a team spirit among its workers.

MARTY HAUSER is the president of SummaCare, Inc., a provider-owned health plan located in Akron, Ohio. SummaCare offers a full line of health plans and ancillary products. Through its extensive network of more than 7,000 providers and more than 50 hospitals, SummaCare offers coverage to more than 115,000 members throughout northern Ohio. Reach him at hauserm@summacare.com.

Wednesday, 25 November 2009 19:00

The time to terminate

As an employer, you have the right to terminate employees at will or for cause, but you first need to take the proper steps to ensure that doing so doesn’t result in a lawsuit.

Whether you’re terminating because of poor performance, eliminating a position or laying off because business is slow, there are things you first need to think about to protect yourself, says Diane Crandall, director of compliance consulting services with ManagEase Inc.

“When exercising your at-will rights as an employer, make your decisions based on employees’ knowledge, skills, ability and attitude,” says Crandall. “And when terminating for cause, have a performance improvement plan in place that includes, in writing, what’s wrong, what needs to occur, a timeline and the results of not meeting the goals.”

Smart Business spoke with Crandall about how to keep your organization protected when terminating employees.

What steps does an employer need to take before terminating someone for substandard performance?

First, it is essential that you communicate with employees. You have to identify to the employee what he or she is or is not doing that is affecting optimal job performance. Without that communication, the employee may think that he or she is doing a fine job, while the employer is thinking, ‘Why isn’t that person getting these sales invoices processed?’

Communicate what the shortfalls are and that those areas need to be significantly improved on in order to retain the position. Give the employee a step-by-step, detailed list — a performance improvement plan — that sets forth exactly what that person needs to do. You also need to provide a timeline of when you expect to see results.

Finally, you need to make it clear what the result will be if the objectives are not met. Then have both the employer and employee sign it and give a copy to the employee so he or she knows exactly what is expected.

How important is explicit communication with the employee?

That communication is vital. It should never be a surprise to someone who is terminated because of performance. Employees should always know what is going on, what is expected of them and whether they are meeting expectations. Not doing so can result in a lawsuit if the terminated employee thought he or she was doing well and no one ever said otherwise. And having a performance improvement plan can make a difference in claims for unemployment insurance when the Employee Development Department calls to ask if you ever gave the terminated employee an opportunity to improve.

When is the best time to address problem behaviors?

It’s best to address them right away. If you don’t ever address it, and then three years later you do, the employee is going to wonder why it matters now when it never mattered before.

Addressing problems immediately can be positive for morale, as well. As an employee, it’s difficult to work in an environment when you’re there on time, doing your job, producing, and someone else who is always late and is only producing at 50 percent is treated the same as everyone else. If you eliminate those nonperformers, it can be a real boost to other employees.

When is the best time to terminate for cause?

The first is after the employee’s introductory period. After that time, evaluate their skills, contributions and attitude, and if it’s not a fit, it’s a good time to terminate. Or if you can see even in the first few weeks that things aren’t working out, terminate quickly and don’t let it drag on.

Another good time to terminate is at the end of a period when the employee has been given goals and those goals have not been met. And finally, if there have been repeated policy violations, or a major policy violation such as theft, that’s a good time to terminate.

How do you determine whom to lay off if you need to cut staff?

While you have a right to at-will employment, there are some stipulations. You can’t terminate because of race, age, gender or national origin. When you look at whom to terminate, step back and make sure that you’re not terminating them because they’re in a protected class. The key to doing the right thing is to make sure that you are making employment decisions based on knowledge, skills, ability and attitude. If you do that, you are usually going to be fine.

One common mistake that employers make when slating people for layoffs is doing it by seniority. Instead of simply keeping the most senior people, make your decisions based on knowledge, skills, ability and attitude. There may be some newer employees who are excited and engaged and are looking forward to growing with the company. Evaluate what each person brings to the company and make your decisions based on that.

Should an employer get outside help when making decisions about termination?

Yes. There’s a lot to consider, and there is a lot of thought that goes into doing it correctly. If you’re not familiar with best practices, you would be wise to consult an HR specialist, or even an attorney, especially if an issue has been brewing and you haven’t addressed it up until now. A lot of times, by talking to someone, issues will come up that you just haven’t thought of. An expert can share best practices with you and help you explore your options.

Diane Crandall, SPHR, is director of compliance consulting services at ManagEase Inc. Reach her at dcrandall@managease.com or (714) 378-0880.

Monday, 26 October 2009 20:00

Employer-friendly

In an employee-friendly state such as California, employers may feel that they don’t have many rights. And while there are some things you can’t do to control your workplace policies and environment, there are actually a great many that you can, says Diane Crandall, director of compliance consulting services at ManagEase Inc.

But before you take action, it’s important to be aware of the requirements of the law.

“It’s very hard to be an employer in California because there are so many rules that you need to follow,” she says. “I don’t think most employers willfully do the wrong thing, but mistakes are common due to lack of knowledge.”

Smart Business spoke with Crandall about the things you can — and can’t — do as a California employer to stay on the right side of the law.

What rights do many employers think they have but may not automatically be entitled to?

Many employers would like to have employees work 10-hour days, four days a week, but they can’t just automatically have employees work that schedule to avoid paying overtime. In order for an employer to implement a 4/10 workweek, the schedule has to be voted in by two-thirds of the employees.

The employer has to file certain paperwork with the California Division of Labor Statistics and Research. Without doing that, the company can still have an employee work 10 hours a day, but it would have to pay overtime for those extra two hours each day.

Another area that confuses employers is exempt versus nonexempt status. Some employers think that they can classify employees as exempt or nonexempt as they choose, but the Industrial Wage Orders set criteria that employees must meet before they can be classified as exempt from overtime. The employer doesn’t just get to pick and choose.

What other mistakes do employers make?

Companies will often want to hire employees as independent contractors, but they can’t just deem someone an independent contractor. That person has to meet certain requirements. For example, an independent contractor is generally someone who sets his or her own hours, uses his or her own tools and works for multiple clients or customers.

If employers aren’t sure they want to hire someone full time, they can instead hire the person as a temporary employee to see if the employee is the right fit.

What rights do employers have that they may not realize they have?

Employers have the right to change employees’ job descriptions, their hours of work, their benefits (including whether to have holiday pay and paid vacation time) and their wages. For example, if the economy experiences a downturn, employers can require that all employees take a 5 percent wage cut. They don’t have to have the employees’ permission to do that, but they should give employees notice and not just say, ‘When you come to work tomorrow, you’re going to have a 5 percent decrease in your paycheck.’

Employers also have the right to run their business in the hours they choose and in the way they see fit. They can close a particular division of their company and outsource the work. They could also eliminate their entire sales force and decide to sell only over the Internet.

Employers can also monitor what their employees do at work. With today’s technology, they can track what someone does on the employer’s computer system and access anything they want to at any time on an employee’s computer. The best practice would be to advise employees of the employer’s rights upon hire or change in position.

What other rights do employers have?

Employers have the right to require a professional dress code. They can require that people wear suits and ties, and if they have casual Fridays, they can say employees may wear jeans but dictate that they have to be free of holes and they can’t be wrinkled or have stains.

Dress codes can also come into play with safety. If someone is working on a machine with moving parts, employers can require them to keep long hair tied back so it doesn’t get caught in the machine or to wear clothing with fitted sleeves so that they don’t get tangled in something.

Employers also have the right to have surveillance cameras in the workplace. It’s a best practice to disclose that fact to employees, and it’s best to get them to sign off acknowledging that they understand their actions, behaviors and conversations may be taped or recorded.

Additionally, they can demand a drug and alcohol-free workplace. They can demand accurate time records for nonexempt employees. And they can require ethical behavior, even when someone is not on the clock.

How do you communicate these policies to employees?

Initially, employers should communicate them through new-hire documents when someone first comes on board. When they provide all the documents that California requires them to give to a new employee, they can also include things that communicate their own policies. Another good way to distribute information is through an employee handbook, which should include a summary of company policies. Employers can also communicate policies through company meetings and memos.

However it’s done, employers should always require a signature from employees acknowledging they received the information or written document and will follow the policy. And if employers communicate policies at a company meeting, they should have a sign-in sheet so employees acknowledge their attendance.

Diane Crandall, SPHR, is director of compliance consulting services at ManagEase Inc. Reach her at dcrandall@managease.com or (714) 378-0880.

Monday, 26 October 2009 20:00

Maximizing trade shows

Most companies that attend trade shows put all their time and money into the show itself. But by expanding your efforts into pre- and post-show activities, you can extend your brand and reach considerably more people than just those who attend the show, says Jonathan Fisher, CEO of BrandExtract LLC.

“Companies carve out a budget for the show but don’t set any money aside for the up- and downstream process, which is where the most value comes from,” he says. “Most companies put money into the event, sit back and hope something happens. But the vast majority of the opportunity surrounding the activity happens before and after the event, not necessarily during. If every show or event is not paying for itself three or four times over, you’re doing something wrong.”

Smart Business spoke with Fisher about how to maximize your show and event dollars and how to reach the 80 percent of your audience that isn’t attending.

What mistakes do companies make regarding trade shows?

Very few companies invest in pre- or post-show strategies. Typically, they just invest in the show, but this loses 80 percent of the opportunity surrounding the event since only 20 percent of your audience is likely attending. Too many companies simply send out an invitation before the show, and that’s all they do. They generally don’t create any other path to dialogue with their company around that event. They don’t look at social media. They don’t think about creating a LinkedIn group, for example, that’s specific to that event where people can post questions and comments about it and the company can attract conversations with those who might not be able to attend. They don’t consider tactics that would attract leads, other than typical PR and ad placement. They don’t think about remote monitoring of their event presentations or setting up a video blog so that people who can’t attend can still participate.

Many of these technologies are relatively inexpensive to implement compared to the thousands and thousands of dollars you’re sinking into the event, but companies rarely maximize their enormous investment with that comparatively tiny investment in pre- and post-show activities that will make that event exponentially more meaningful and more valuable.

The market’s tighter now, and if you’re looking to capitalize on your current investments, you need to step back, rethink where and how you’re spending your money and resources, and make those investments deliver greater returns.

What can you do after the event to maximize the leads you’ve gathered?

Exhibitors at trade shows think that because they spent time with someone who stopped by their booth, or gave them their sales materials, that the job is done and that person is now a lead or sold. But that’s just where the real work starts.

You want to make the process as effective and efficient as possible, but companies are rarely prepared to go through the downstream sales process after the event. If you already have a microsite set up around your event, you can post all your presentations, white papers and product releases from the show. You can offer electronic downloads for catalogs and send out an e-mail blast to people in your database driving them to that microsite. You can then track the people who open that e-mail, and instantly, you cut the 1,000 prospects gathered at the show down to the 120 people who were serious enough to go look at the materials that you’re offering them. These are the 120 people that you want your salespeople to focus on.

It’s highly effective and easy to execute, but you’d be surprised how many marketing departments think they’re doing their job when they’ve gathered 1,000 names and passed them on to sales. But by culling those leads, your limited sales force can make best use of their time with the higher quality leads and not just the names that were collected in a free booth drawing.

How else can you continue to engage potential clients after a show?

If you’ve created online communities before the show, you can keep that going after the show. You can say, ‘I sat in on this breakout session and heard this person talk about this subject, and here’s what I’m thinking about that.’ Tools like Twitter or Blogger are effective dialog strategies if you have the time to support them. Anybody who was following you before, if you’re still providing relevant intelligence beyond the show, will continue to follow you, extending your reach and adding to the network those who weren’t able to attend.

At a show, you’re reaching 20 percent of your universe, but what are you doing for the 80 percent who couldn’t attend? Is there a way that they can attend the show electronically, dialog with people from the show virtually, and get white papers after the show? If you are feeding them information and inviting them into those conversations, they’re getting 75 percent of the benefit through you at zero cost to them — which will give you an advantage over competitors who probably are still using the same old, tired approach to trade shows and events.

Jonathan Fisher is CEO of BrandExtract, an integrated branding and communications firm that guides growing companies by providing strategic branding solutions, market positioning communications, advertising, social, print and interactive services. Reach him at (713) 942-7959 or (214) 770-7378 or jonathan@brandextract.com.