Four HR Secrets that Spell Company Success

Everything I know about human resources, leadership, and business, I learned at McDonald’s. A 34-year veteran of McDonald’s, I started working for the company behind the grill at age 16, just like one out of eight Americans still does. Like so many McDonald’s executives, I rose up through the ranks, first moving up to store manager and then director of operations.

Later, I worked mid-management jobs in training and operations until finally being named regional vice president of the New York region, one of the largest and most successful regional profit centers in the country ($600 million in annual sales). My story is not as unusual as it sounds. Three out of four senior and mid-level managers at McDonald’s started out as crew.

When it comes to HR management, McDonald’s is doing something very right. The company boasts one of the most robust cultures for promoting from within of any organization globally. It trains and develops more individuals than the U.S. Army. And, it has produced more millionaires—especially black and Hispanic millionaires—than any other organization. A full 40 percent of its owners/operators are women and minorities. Year after year McDonald’s, is voted one of the best places to work. No wonder McDonald’s has one of the highest retention rates of any company at the mid-management levels and above.

HR professionals can learn a great deal from the McDonald’s model. Let’s look at four HR secrets that drive breakout success at McDonald’s and can be applied at any company, including yours.

Secret #1: Honesty and integrity
At McDonald’s, most executives will have a hard time naming incidences of lying, cheating, or stealing. That’s because an expectation of honesty is instilled in every single employee. Starting as crew, first-time workers are taught the “no free hamburger” rule. That means, if your best friend comes in to the restaurant and wants a handout, you can give him a couple bucks from your own pocket to buy a meal, but never, ever is stealing from the company tolerated.

The zero tolerance for dishonesty, starting from day one, has stunning ramifications from an HR perspective. When employees know—and see firsthand—that coworkers, managers, suppliers, and even senior-level executives are being held to the same standard, it takes away the “us versus them” mentality that is so prevalent in many organizations.

As an HR professional, how well do your leaders model integrity? For example, McDonald’s founder Ray Kroc was famous for his verbal agreements with suppliers, many of which are still honored. Bun supplier East Balt Bakery, which struck a handshake deal with Ray Kroc back in 1955, still operates without a written contract, like so many of McDonald’s longtime vendors. Imagine the effect this culture of honesty, starting at the top, has on a young employee’s sense of duty, loyalty, and honor. These may sound like highfalutin words, but a company that makes a conscious effort to promote such values will be paid back a hundredfold in employee performance and loyalty.

Secret #2: Standards
From day one, McDonald’s credo was “never be satisfied.” Can high standards be a guiding principle that HR encourages and develops? Absolutely.

At McDonald’s, those of us with ketchup in our blood were never satisfied. We were always looking to beat yesterday’s sales, cut energy expenses, increase our customer counts, and lower costs to the stores.
There are countless ways to get your employees to care as much as you do. It starts with consistent, uncompromising training. When employees are taught there is one way to do things—the right way—and they see this reinforced time and again, it becomes part of the culture.

In any organization, whether you are producing McNuggets or information services, your clients and customers rely on your products and services being of consistent quality. They also respond to—and come to expect—positive improvements over time. As an HR professional, how do you get your people to perpetually meet and exceed expectations?

You do it not only by training, but also by modeling and reinforcing. For example, every McDonald’s manager or executive, anywhere in the world, is expected to pitch in when entering a McDonald’s store. In interviewing current and past McDonald’s executives and managers, I heard numerous anecdotes about corporate-level staff who picked up litter at a store, bussed tables, or jumped behind the counter during a rush. McDonald’s built its reputation on consistency. That means a Big Mac will be as delicious in Beijing as it is in Boise. But it also means clean restrooms and shiny counters. Standards, from the smallest detail to the most complex business transactions, are always a reflection of your people and their attitude. High standards also keep high performers striving.

I picked up many ideas and thoughts on leading staff from observing the practices of leaders around me, and I applied those lessons when I managed the restaurant floor in the early years. The system seemed designed with specific expectations coupled with common sense. And I learned them soon enough. If employees didn’t put their all into a task, whether it was working the grill or mopping the floor, I’d send them home—even if we were short-staffed. I’d sooner mop the floor myself than have workers undermine the efforts of our team. And as tough as that was to do, it sent a message that was so important: that if you were going to be part of the team, you had to be engaged and perform your assigned task up to our standards, as I was demonstrating.

This kind of commitment to doing your best, fixing what’s wrong, and teaming up for the good of the company isn’t something every company has. But it is a quality HR can help promote and develop in its people at every level of the organization.

Secret #3: Communications
When we think of communications, we think of the marketing department, not HR. But a consistency of messaging isn’t just about advertising or your company’s website mission and purpose statement. It’s about the feeling and philosophy your people carry around with them about the organization. It’s about the story they tell—to each other and to the outside world—about your organization.

How do you gently guide your people’s style and content of communication? At McDonald’s, where regionalization, or a decentralized corporate structure, is the model, consistent, high-quality communications are key. All managers graduate from Hamburger University. That means everyone in the organization is speaking essentially the same language. This has encouraged a culture where managers earn the right to be left alone. Simply put, this means that as an individual gains more experience and tenure in the specific area, greater authority can be relinquished by headquarters. They can lead others just as well as you can because they come from the same stock.

From an HR point of view, such reliance on many strong, consistent voices leading at every level of the organization creates trust and a sense of community.

To look at communication through a more literal lens, McDonald’s built its headquarters without doors on the offices. Anyone in the organization has access to any executive. Everyone uses first names. And employees can call the CEO directly even today—and expect to hear back from him within 24 hours.

McDonald’s was also the first in the industry to launch an ombudsman program—way back in 1974—where owners/operators as well as corporate employees could air complaints to an unbiased party without repercussions. All of these elements contribute to an organization where the free flow of ideas and interactions is encouraged, supported, and reinforced.

Any two McDonald’s employees could tell you about the values and culture of their company—and their stories would feature similar themes. Pretty remarkable for one of the world’s largest organizations. It offers a shining example for HR professionals who wish to spread an understanding of core values into every nook and cranny of the talent pool.

Secret #4: Recognition
As Ray Kroc knew, there is no better way to inspire your people than with recognition. The McDonald’s culture is built on the foundation of rewarding hard workers. To outsiders, this probably doesn’t sound like anything extraordinary. Reward those who work hard—what’s so groundbreaking about that? But at McDonald’s, recognition was everywhere, at all levels, all the time. The culture is steeped in recognition, and as a consultant today I’ve yet to find a company that embraces recognition to that extreme.

In my research, I discovered that on a national level McDonald’s has tracked 23 different specific awards given to individuals—employees, suppliers, and licensees—and the years in which they were received. But these records tell only part of the story, as they do not take into account the zone and regional awards as well as worldwide recognition programs to those who, in the words of Ray Kroc, were filled with zeal for McDonald’s.

The awards, regardless of the amount given out, were distinct from others given in most organizations I have worked with in two ways. First, these awards amounted to so much more than a plaque or a trip. Instead, they were given in sincere, heartfelt appreciation. As one former regional vice president said to me, “The difference between McDonald’s and other organizations is that we are really genuine about what we are trying to do.” Second, the celebratory aspect of the award—from the most humble pin or handshake to the highest possible honor bestowed on an employee—meant that there would always be an audience, be it family members or peers, to help in the commemoration.

As an HR professional, how do you reward and recognize your employees? You can do it at no cost. You can train your managers to give positive feedback early and often. You can do it with a handwritten note, or a message left on an answering machine, telling the spouse of the high performer how much you appreciate their support and contributions as well. Every HR department understands the power of recognition. The question is, does your organization use recognition like a carrot, or is a deep, profound appreciation of your deserving talent part of your HR program’s DNA?

A recent Gallup Poll revealed that 65 percent of Americans haven’t received recognition in the past year. A Department of Labor study found the number–one reason people leave organizations is “not feeling appreciated.” If you want people to stay, you need to make them feel as though they are an integral and needed part of your organization. Perhaps this all sounds cliché, but in my experience, no one does it better than McDonald’s—and they have the measures of employee satisfaction to prove it.

The 4 HR principles work
These four principles—honesty and integrity, standards, communication, recognition—have helped to create a worldwide organization of committed, hardworking, fulfilled employees. At McDonald’s, these principles have survived over its 53-year lifespan. Those who work within the McDonald’s system, for the most part, enjoy what they do, feel good about the product and services they perform, challenge each other to continue to improve, and find both reward and satisfaction in accomplishing these activities. That’s universal.

And these qualities can be applied to any size organization, group, or company. What’s more, they restore an element largely missing in business today: admiration for their company. When people like what they do and where they work, their potential is limitless.

Recognizing (and Dealing with) a Scary Boss?

Answer these questions honestly about someone you work with (you may know intuitively who to pick): (1) Does this person provide little direction? (2) Does he offer little or no recognition for success or hard work? (3) Is she indecisive and seemingly changes direction at a moments notice? (4) Does this person micromanage and nitpick an employee’s work? (5) Does this person belittle and put staff down? (6) Does he ignore some employees and favor others? (7) Does she handle constructive feedback? (8) Does the person really listen to what an employee says? (9) Can this person handle difficult situations? (10) Does he or she have a temper?

If you answered yes to most of these questions, the chances are that the person you are thinking about is a “bad boss.” When I visit companies, I am surprised by how many employees want to tell me their bad-boss stories. There are articles and books on how to positively lead and interact with people, yet those who need them the most apparently are not reading them. And when management does catch on and sends them to a class to improve their interpersonal skills, they find that these people are tough to change.

Why does this breed still exist?
In large part, it’s because our bottom lines allow it. Companies often don't have the means or time of rating managers outside of productivity. If a supervisor is churning out the numbers, the questions are kept to a minimum.

The result is that the culture of a company tolerates the behaviors of these managers. I ask the employees if anyone has spoken to the manager about a bad supervisor’s behavior. The typical answers I receive are, “The people above him/her are just the same,” “This is how it is around here,” “The company offers a great product and the benefits are competitive, but it is ruled by an iron fist,” or “I am scared to leave this job because I don’t have other skills, so I tolerate it.”

Employees are less likely to speak up about their rotten bosses because they don’t want to sound like whiners or risk losing their jobs. This behavior can be even more pervasive when a company goes through a downsizing, pay freeze or other financial crisis. The emphasis is on a “tough” turnaround, and higher ups tend to turn a blind eye to crude management if the numbers are good.

Are "bad bosses" an HR concern?
Of course they are, and for several reasons. At the very least, there’s the morale issue. Bad managers tend to infect their departments with bad attitudes. It’s like a disease: They spread anger, frustration and depression, which show up in lackluster work, absenteeism and turnover. The gist is that employees don’t feel appreciated.

Obviously, turnover, absenteeism, increase in workers’ comp claims and uninspired work can cost a company money. But there are other dangers of continuing bad management behaviors. Intense bullying over a period of time can cause emotional damage to employees. Toxic behaviors create a hostile work environment and can easily escalate to real violence, harassment and intimidation – all of which can land a company in court. In California, the courts are more pro-employee. A jury is not sympathetic toward a company that allowed its employees to be terrorized in order to keep a tidy financial return.

HR has to do a little detective work to find these bad seeds. Sometimes they “act” fine in front of us because we are in HR. We must check the warnings signs and investigate. For instance, turnover in a certain manager’s department can be a red flag. Are employees transferring or quitting an identifiable area? If so, that’s cause to ask further questions.

Taking steps
Being communicative and observant is vital. Don’t wait until half the staff has resigned from a particular department. As soon as it starts raining, bring out the protective gear. Hold discussions individually for those who need privacy to speak their minds, and in groups to appeal to employees who like peer support. Listen for key words or notions; don’t expect employees to explicitly say they hate their boss. Do ask follow-up questions. For instance, one common flag is for an employee to say their job is fine, but that they’re under a lot of strain or pressure. Ask why.

So once you have received the concrete feedback about a manager, you need to address it right away. First, there is the confrontation: Sit down with this person, and tell him or her about the problem. Be as specific as you can. Don’t sugarcoat the problem and put it in vague terms, like saying the manager has “interpersonal issues." You must be specific. If the manager is perceived as a bully, say that. If she tends to yell and belittle her employees, tell her that. Then explain that it must be stopped and why. Don’t come down too hard; however, do be firm, and tell the manager that future performance will be noted.

Also set a time period for improvement. It has to be done in a positive fashion, because they are still in a leadership role and you don’t want them to take it out on their department. You want them to see that you are willing to work with them and give them an opportunity to improve. They may need to take training classes or be mentored by a good manager. There are programs to help with various types of problems. Some of them simply do not have the skills to lead people and need help.

If, after the follow-up period, the behavior hasn't changed, HR must decide what to do. If the person has skills useful to the company and is a good worker, you may consider transferring him out of a managerial position, but keeping him at the company. Some people just don’t work well with others, but work well independently. It is a hard decision for the company to make, especially if this individual has been in a leadership role for a long time. But sometimes the person is relieved that they no longer have to manage.

If the first choice doesn’t work for your situation, the second choice would be to terminate the manager. Remember that you need to identify what behaviors are affecting the performance of the department and how everyone is underperforming. You must have realistic numbers and discharge the person the way you would for any other performance problem. Keep a record of the incidents, document that you’ve given the employee time for change, and make the termination.

Sometimes we can help those who want to be helped, and sometimes we can’t. In that case they must be exited from the company. The culture of the company is no longer an excuse.

Keeping Track of Your UI Account

There are many ways an employer’s Unemployment Insurance (UI) account can be affected. The usual way is that former employees file claims and are then found eligible to receive benefits. As the dollar amount of benefits charged to the account increases, so can the tax rate assigned to your account.

FUTA taxes
But there are other ways your tax account can be adversely affected. One way affects the percentage paid by all employers in Federal Unemployment Tax Act (FUTA) taxes. Normally, that rate is 0.8% on the first $7,000.00 paid to each employee per year (0.2% for the surtax and 0.6% for the regular tax).

If the state borrows money from the Federal Government to support its Unemployment Insurance program and the loan is outstanding at the end of the second year, employers would lose the tax credit usually received for the federal unemployment tax paid. This could effectively increase employers’ tax rates and raise the tax per employee by over 30 percent. Increases in the tax rate, with a corresponding decrease in the tax credit, can occur in each year the loan remains unpaid.

Training benefits program
There are programs in place that can directly impact an individual employer’s UI reserve accounts. As an employer, you may have noticed an increase in claims related to Training Benefits or Training Extension Benefits. Under the California Training Benefits Program, an individual can receive UI benefits while attending an approved training program. It is intended for individuals who cannot find work they can do, or because demand for the skills they possess are reduced or eliminated. Claimants can be automatically approved under Section 1269 of the UI Code. If automatic qualification is not applicable, the claimant may still be eligible for benefits if he/she personally secures training and meets nine other criteria.

To collect the UI benefits, the former employee must qualify for, and stay in, an approved training program, in addition to meeting the other requirements of the program. However, they are not subject to the normal requirements of being able, available and actively seeking employment in order to draw benefits. Benefits paid to the claimant will be charged to the respective employer’s reserve account.

An individual drawing UI benefits funder the training program can apply for extended benefits. The application must be filed no later than the 16th week of receiving benefits. If eligible, the person could receive a maximum of 52 times the weekly benefit amount. If you receive a claim notice DE 1545TE, the individual has filed for an extension of training benefits. The figures represent potential charges for the initial claim and for the training extension.

Work sharing
If you want to keep your employees working, but you cannot afford to have everyone on a 40-hour work week, you can chose the Work Sharing Program. However, your UI reserve account is subject to charges. Approval to participate in the program is granted by the Employment Development Department. Work Sharing claims are filed by mail and used to establish a UI claim. Benefits are paid on a weekly basis in proportion to the percentage of reduced hours and wages.

For example, an employee works five days a week and is paid $400.00 per week. If the workweek is reduced to four days, the wages would be $320.00 per week. This is a 20 percent reduction in wages. When calculating the amount of benefits the employee is eligible to receive, the state considers 20 percent of the benefits he or she would receive if the person was totally unemployed.

Following our example, if the full weekly benefit amount is $182.00, the employee would qualify for $36.00 in Work Share benefits. The end result is that the employee would only suffer lost wages of $44.00 for the week ($320.00 + $36.00 = $356.00; $400.00 -$356.00 = $44.00). The employer’s UI reserve account will be charged in the same way as for regular UI benefits.

Some advantages of the Work Sharing Program are to prevent layoffs and to keep trained employees on staff, sparing employers the expense of recruiting, hiring and training new employees when business improves. On the other hand, the benefits paid these employees will be charged to the reserve account. You will need to run the numbers to determine the financial impact on your UI account and future tax rates.

Right to Vote

The approaching Presidential Election on November 4, 2008, is drawing a lot of sentiment and passionate discussions. Most employees have an opinion and are exuberant enough to share them. But what do you do when passion reaches a crescendo and disrupts the workplace?

Like sex, politics is a subject that is best left within the privacy of the home, not the workplace. It may not be feasible to totally eliminate politics from the workplace, but as employers, you should discourage any type of communication that would be disruptive and inhibits productivity. Of course, always encourage mutual respect and conformity to appropriate professional decorum when conveying the organization’s intent. This may entail communicating and/or updating your policies, which should be flexible and broadly cover topics like:

• ethics and respect; or
  
  
• Internet communications; or
  
  
• public display of personal sentiments, such as a campaign poster, t-shirt or cubicle décor.
  

It may be a citizen’s right to free speech, but it is not an employee’s right to disrupt a workplace in order to express it. When an employer receives a complaint about political opinions, violence, harassment, and/or discrimination, an investigation should commence promptly, objectively and thoroughly. As with all investigations, the employer’s perspective should remain focused on violations to company policy, as well as federal and state laws. This may also be an opportune time to update and train supervisors on employee rights and employer obligations.

Time off to vote
It is federal law to protect a citizen’s right to vote; however, states can authorize whether employers are mandated to permit employees to take time off from work to vote with or without pay. California Election Code 14000 enables employees to take sufficient time as necessary to vote. Furthermore, employers are required to pay up to two hours of time off for voting. What’s more, employers may require the time off to be at the beginning or end of their shift as long it will still allow the employee time to vote. The vast majority of employees most likely will not require time off to vote given that the California polls are open from 7:00 am to 8:00 pm on Election Day.

An employee must give you at least two working days’ notice of the need for time off if, on the third working day prior to Election Day, the employee knows that he or she will need time off to vote.

Moreover, employers are required to notify employees of their right to take time off to vote by posting a notice. At least 10 days before any statewide election, every employer must conspicuously post a notice where employees work, or where it can be seen as employees come or go to the place of work. Most employers simply leave the notice posted all year round. Some “all-in-one” posters include the proper notice among the multitude of other required postings. The Secretary of State offers the official posting at www.sos.ca.gov, or contact Employers Group Librarian at 800-748-8484 for a copy of the notice.

Courtesy and respect for diversity of opinions is important, as employees should conduct themselves professionally regardless of political affiliation. Accordingly, employers should encourage employees to vote, offer flexibility and adhere to notice requirements.

For employers operating in a multi-state environment, contact our Librarian at 800-748-8484 for a state-by-state chart of requirements you must meet regarding voting leave.

For further information contact a Helpline Consultant to discuss at 800-748-8484.

Intermittent FMLA & CFRA Leaves
and How to Curb Abuse

Both the Family Medical Leave Act (FMLA) and the California Family Rights Act (CFRA) allow eligible employees to take time off on an intermittent basis or on reduced-leave schedules. Under FMLA, intermittent or reduced-leave schedules are mandated only for a serious medical condition. For other qualifying reasons, the FMLA does not allow intermittent or reduced leave schedules without an agreement between the employer and the employee.

In contrast, the CFRA allows intermittent leaves or reduced-leave schedules for all qualifying reasons: (1) the serious illness of the employee or the employee’s spouse/domestic partner, child, or parent, and (2) leaves taken because of birth, adoption, or placement of a foster child. However, for leaves listed in number (2), the CFRA places parameters on time increments used; such leaves generally must be taken in two-week increments, but on two occasions, the employer must allow leave to be taken in less than two-week increments.

The above explanation may be especially useful for employers with employees in other states; be sure to check if those states have their own family and medical leave requirements. For California employers, the bottom line is that FMLA leave on an intermittent or reduced-schedule basis may be taken for any qualifying reason and, for certain types of leaves, the employer may generally require that the leave be taken in two-week increments.
Intermittent leave for serious illness

Perhaps the most challenging leave for employers to manage is intermittent leave for a serious illness. Before discussing strategies concerning these leaves, let’s be clear about some leave definitions. A reduced-leave schedule is one that reduces an employee’s usual number of working hours per workday or workweek. It is usually a temporary change for the employee from full time to part time.

In contrast, intermittent leave is taken in separate blocks of time rather than one continuous period of time. In both types of leaves, the increment of time used to measure how much leave is taken is one hour or less, depending on the shortest period of time that the employer’s payroll system uses to account for absences or leaves.

The Employers Group Consulting Helpline receives many calls concerning family and medical leaves, such as eligibility rules, certification requirements, notice requirements, etc. While these requirements can be mastered and systems put in place to administer these leaves, it is intermittent leaves taken for a serious illness that pose problems and uncertainty for employers. These leaves usually are taken piecemeal, with no advance notice to the employer. While the purpose of these leaves is honorable, too often they are abused.

The following strategies should help reduce intermittent leaves taken for invalid reasons. They should also help employers honor valid intermittent leaves while having a less intrusive effect on operations.

Certification
Provide the doctor with a job description or a list of essential functions. This allows the physician to have more complete information as to the employee’s ability to perform essential functions. If the leave is for the employee himself/herself, the employer has the right to obtain a second opinion where clarification is needed that the initial health care provider does not provide. The employer cannot use a doctor that it usually uses. The employer may not ask for a second opinion concerning the serious illness of a family member.

Certification form
Make sure all required information is given, including schedule of dates and times of treatment (if possible), and the minimum amount of time the leave will be needed. Place the burden on the employee to obtain any missing information and inform them if complete information is not provided, absences will be treated as non-FMLA/CFRA-related. There is a form for the federal FMLA, but information requested on the form regarding diagnosis and prognosis cannot be solicited about California employees. When requesting certification, recertification or any other information from the health care provider, always work through the employee. The employer needs the permission of the employee to communicate directly to the health care provider.

Recertification
Employers may require recertification after the expiration of the original estimated duration of the leave. Under FMLA, for absence due to pregnancy, chronic or long-term conditions, recertification may generally be required every 30 days in connection with the employee’s leave, unless circumstances described by the original certification change significantly or the employer receives information that casts doubt on the continuing validity of the claim.

New certification
Request a new certification for each 12-month period.

Medical appointments scheduling
Insist that the employee cooperate with you in scheduling medical appointments outside of their work schedule. Be sure that you do the same for non-FMLA/CFRA medical appointments that approach the same number of appointments.

Possible transfers
The employer is allowed to temporarily transfer the employee to a position that is less disruptive to operations. Pay and benefits must remain equivalent to the previous job.

Patterns of abuse
Look for patterns of abuse, such as the employee predominantly being out on Fridays and Mondays. If a pattern exists, request a recertification. When requesting recertification, you may note to the doctor the pattern of absences on Mondays and Fridays and ask if this pattern is required by the serious illness – yes or no, no details requested. Sometimes, telling the employee that such information may be provided to the doctor will reduce any abuse.

Termination
Terminate the employee if the employer has convincing evidence that the leave was obtained fraudulently. This will send a message to other employees thinking of fraudulently obtaining FMLA/CFRA. However, always do a careful analysis to see if the evidence will stand up in court.

Question each absence
When the employee calls in regarding an absence, asks the reason for the absence. The employer cannot ask for specific medical information, but if the reason given is not stated as FMLA/CFRA-related, then the absence need not be excused under those protections. The employer can discipline for non-protected absences.

Deductions from pay
Hourly deductions from an exempt’s salary are allowed under federal law when the employee is on FMLA. California also allows hourly deductions from an exempt’s salary when the employee is on CFRA or FMLA. Another option under both federal and state law concerns employees on a reduced-leave schedule. For these employees, the employer could negotiate/establish a new fixed salary that would not fluctuate according to leave taken.

Forcing vacation/sick leave
Generally, under both FMLA and CFRA, either employer or employee can force the use of vacation, paid time off (pto), or sick leave during these leaves when the leave is unpaid. Due to a 7th Federal Circuit Court decision, where the employee receives disability pay, the leave is not seen as “unpaid” and the employer cannot force the use of vacation, pto, or sick leave.

Two additional notes: (1) California does have an exception for pregnancy disability leave (pdl). In these situations, the employer may never force the use of vacation or pto (it is always the woman’s choice); (2) the employer does not have to allow the employee to use sick leave in a situation when the employer would not normally allow the use of such paid time.

Health insurance
Both FMLA and CFRA mandate that the employee on leave be allowed to continue their health insurance at the same active employee rate they paid before the leave. If the health insurance is not continued, or if it is cancelled because of non-payment, no COBRA is offered until the end of the leave. Furthermore, CFRA does not mandate the continuation of health insurance if, within the last 12 months, the employee was covered for 12 weeks under FMLA. For leaves qualifying only as permanent disability (PD), there is no health insurance continuation mandate. These individuals may be immediately offered COBRA.

Last employee premium share
Many companies have a health plan contract that requires that if the employee is covered for any part of month, they are covered for the entire month. Depending on when the employee goes on leave, or terminates employment, this can result in the failure of the employee to pay their full month’s premium share. Solution: when the employee signs up for health insurance, have them authorize a deduction of the full month’s employee premium share from the last paycheck. Remember, all employee authorized deductions have to be stated in the exact dollar amount. This is the answer to a very common question received by the Employers Group Consulting Helpline.

One last tip
Tired of making a “hundred” calls to employees who don’t show up for work on the designated return date? In your leave notices, state clearly (in bold) that if the leave is extended by the health care provider, then the employee must contact HR before the original return date and ask if the extension has been received. State that failure to do so may jeopardize the extension requested. Also, go over this verbally with the employee during the leave administration process. This can save you a lot of “chasing around.”

HR CAN be a Strategic Business Partner

We know that HR is integral to a company’s success, but demonstrating that to leadership is often a challenge. Whether large, small or in between, most companies have an HR function, but is it considered vital to the company’s bottom line, or is it more frequently just taken for granted?

Sure, we’ve all heard the platitudes: “Employees are our greatest asset,” or “We are nothing without our employees,” and the best one of all, “Our strength is our employees.” To make these words really mean something to a senior leadership team, HR needs a seat at the executive table.

So what are the keys to getting buy-in from the senior leadership team? How do you get the organization to trust that you can manage their most critical asset – their people? How do you convince the senior team that you are more than a high-level administrator? What makes you different than all the other HR professionals?

Become a business partner
One of the major obstacles every HR professional must overcome is the CEO’s and the executive team’s preconceived perceptions about Human Resources’ role within the organization. Is the department a necessary evil, or a business partner? They are used to the HR role being the administrator of the hiring process and a necessary evil in the termination process. HR is usually stuck in this process, with the managing of the employees being done exclusively by senior management teams. I don’t know about you, but I did not get into Human Resources to be a necessary evil. I wanted to help an organization achieve its business goals by effectively managing people.

The typical knock on HR is they really do not understand the business. Knowing how the company makes money, and how each department fits into the organization, is essential. Understanding the values of the organization and how the organization wants to achieve results is critical.

There are many outside factors that affect the business. You need to know what your competitors and industry are doing for talent management. You need to be able to understand what the critical skills are that the organization cannot live without. Where is the turnover taking place that we can not afford, and what is important to the candidates you are trying to attract?

If you cannot relate to the company’s business needs, you are never going to do anything more than process paper. I know it sounds weird that you need all this non-human resource information. These tasks might seem like they belong to marketing and finance, not to HR.

Creative management of your HR budget
In today’s competitive market, understanding the resources available to HR is critical. No company has unlimited resources. The challenge is spending your HR money on the programs that will accomplish the goals. Where do you spend? Branding, Compensation, Executive Search, Training and Development, Benefits, and Coaching, etc.? To make the right decision, you need detailed information about the company financials, as well as your competitors’ financials, benefits, compensation policy, training and development. You need to know how your organization spent its HR dollars in the past.

Align your HR plan with business goals
HR strategies should be aligned with the organization’s business strategy. It is not about coming up with new programs, it’s about how do I keep the top 20% of the talent. The biggest mistake HR professionals make is focusing on programs that are not aligned with the CEO’s organizational goals. Every HR professional wants to create a work environment that has all the best practices, and gets featured in trade magazines. But at the same time, we should not forget the company’s core business goals.

To be taken seriously, a CEO wants to know that your vision is aligned with his/her strategy for the organization. You have to demonstrate that you understand how competitive your organization is in its industry. You need to be able to communicate where the company is, where your competitors are, and a plan to improve the company’s position. Deliver a strategic HR plan that is aligned with the business and is going to achieve results, such as reduced turnover and improved employee engagement.

Become measurable
Develop a set metrics for the executive team to measure the effectiveness of the human resources’ function. Every other department is measured, why not human resources? The metrics are going to be different based on the company and its goals. From year to year the metrics will change based on the business plan and changes in the marketplace.

Never forget the CEO is charged with building the strategy of the organization. He is leading the organization now and for the future. In HR, we sometimes forget the CEO is the client. We are there to serve them! Meaning we have to listen, pay attention and execute his or her plan like a consultant would. Our role is to make the CEO’s vision for the organization work.

Being aligned with the CEO is only the first step. You must also prove your value to the other senior executives within the organization. Each department leader will have very different challenges depending on their responsibilities. The last thing the HR professional can afford is for the senior team to go to the CEO and complain that HR is preventing them from reaching their goals. One too many “no votes of confidence” will force the CEO to make a change. Take note: the critical skills to being a strategic business partner are not human resource knowledge, but business and relationship skills.

Prepare for an OFCCP Audit
The first release of scheduling letters has begun

Should you wait for a federal audit to review your affirmative action and compensation policies? Absolutely not! You should never get caught unprepared.

The Office of Federal Contracts Compliance Program (OFCCP) has already sent scheduling letters to 2,500 contractors/subcontractors, notifying them of a desk audit. The letters are still trickling their way to their recipients. This is the first of two campaigns. The second wave of scheduling letters will be sent to 5,000 contractors/subcontractors, beginning March, 2009.

The OFCCP has stepped up its audit activities to make sure government contractors meet (or fail to meet) their affirmative action and nondiscrimination obligations. I must admit that during my 15 years of experience with OFCCP audits, I have never encountered such an intense scrutiny during audits as I have recently. For contractors, it can be a hassle, an intimidating and overwhelming experience, depleting their resources to accommodate the compliance review. More importantly, it can be lengthy to resolve disputes.

Regulations require that federal contractors develop written affirmative action plans and maintain demographic data on women and minorities in the areas of representation, pay and selection (hiring, promotion, transfer, and termination). The prudent contractor understands and has prepared for the OFCCP’s compliance review process. But not every contractor gets wise soon enough.

Historically, the OFCCP selected a number of contractors to receive a compliance review, usually selecting between 2,000 and 4,000 establishments annually. Upon the implementation of a new selection system, called the Federal Contractor Selection System (FCSS), OFCCP has been targeting contractors with an indication of potential workplace discrimination.

According to the new selection system, the determination of whether a contractor is likely to have a systemic discrimination is based on a systematic analysis of data from 10 years of OFCCP compliance reviews, reported EEO-1 workforce profiles, workforce profile of establishments in the same industry classification and the local labor market using 2000 Census data.

Many companies, however, are not even aware that they are covered under the affirmative action and record-keeping requirements of the Executive Order 11246, §503 of the Rehabilitation Act of 1973, and the Vietnam Era Veterans Adjustment Assistance Act of 1974, as amended. That is, until the day they receive a notice from the OFCCP scheduling an audit.

The most common form of evaluation reviews is the periodic compliance review. It begins with a notice of an upcoming desk audit. The contractor then has 30 days to produce its AAP reports, collective bargaining agreements (if applicable), work force analysis, job group analysis, and incumbency vs. availability analysis. In addition, it must produce minority and gender demographics on applicants, hires, promotions, transfers, and terminations, along with pay data.

Typically, the OFCCP examines the contractor’s data during the desk audit phase and then makes a follow-up request for more information based on its review. For example, if underutilization for minorities is found in any job group, the compliance officer is likely to inspect the files for each filled vacancy and review applications and applicant logs. Discrepancies between applications and applicant logs raise suspicion.

After the desk audit comes the onsite review. During the visit, the compliance officer will check technical compliance, along with the I-9 files. Then, the compliance officer will interview managers and employees. Some select the interviewees themselves; others allow the contractor to choose a mix (men, women, minorities, non-minorities, exempt, and nonexempt). The interviews are designed to probe knowledge of the AAPs and personal experiences with policies and practices (e.g., maternity leave), and to identify problems of disparate treatment. Managers should always be accompanied by human resources professional. A contractor is not permitted, however, to have anyone attend the employees’ interviews.

A prudent government contractor should not wait until the OFCCP schedules a compliance review before taking steps to ensure anti-discrimination compliance. Advance planning, effective implementation of human resources policies, appropriate recordkeeping, and ongoing training are the keys to compliance – and to a successful OFCCP review!

Ninth Circuit OKs Cash Balance Pension Plans

For the first time, the Ninth Circuit faced the issue of whether employer pension plans using a cash balance formula violate the Employee Retirement Income Security Act (ERISA) and California’s Fair Employment and Housing Act (FEHA). The court aligned with other federal circuits when it determined that the plans do not violate ERISA’s anti-age discrimination provision. The court also found that in this matter, the federal law, ERISA, preempted California’s FEHA – see Hurlic v. Southern California Gas Co. (2008).

Southern California Gas Company’s (SCGC) pension plan (the Plan) is subject to ERISA. It provides employees with a defined retirement benefit, the amount of which is determined by an accrual formula.

Before July 1, 1998, participants at retirement age were entitled to a monthly (single life annuity) payment. An annuity is an investment where one receives fixed payments for a lifetime or for a specific number of years. The amount of the annuity payment was based on a participant’s years of service with SCGC, and his/her average pay in the final years of employment with SCGC.

After July 1, 1998, SCGC amended the Plan for non-union employees. Monthly payments from that point on were calculated using a “cash balance formula.” Cash balance pension plans are defined benefit pension plans in which each participant has a hypothetical account that is credited with a dollar amount. The account earns interest based on an employer contribution, usually calculated as a percentage of pay.

The starting amount of each participant’s retirement account was determined by a statistical (actuarial) calculation based on what was accrued to that point. After July 1, 1998, each participant’s retirement account received monthly retirement credits. Each year a participant’s plan account credits would increase by 7.5 percent of the employee’s earnings for the year, plus interest. Under the cash balance formula, a participant still receives a monthly annuity payment upon reaching a normal retirement age. A participant may also elect to receive a lump-sum payment.

The new plan also had a five-year “grandfather” provision that allowed participants to continue accruing benefits under the pre-conversion formula until June 30, 2003, at which time the participants’ accrued benefits under the pre-conversion formula were frozen. During this five-year period, participants’ accounts were also credited under the cash balance formula. A participant who began to receive benefit distributions during this period was entitled to receive the greater of: (1) the actuarial equivalent of the Retirement Account under the terms of the Cash Balance Plan; or (2) an annuity accrued under the Pre-Conversion Formula through the individual’s termination date.

If a participant did not begin receiving a payout of benefits on or before June 30, 2003, the amount of his or her accrued benefit is determined by a “wear-away provision.” The wear-away provision provides that a participant’s accrued benefit is an age 65 single-life annuity equal to the greater of: (1) the actuarial equivalent of his or her retirement account under the cash balance formula; or (2) the actuarial equivalent of his or her frozen accrued benefit under the pre-conversion formula.

Under the wear-away provision, David Hurlic’s estimated annuity payments based on his frozen pre-conversion formula benefits will be greater than his estimated annuity payments based on the cash balance formula until 2015. Susanna Selesky’s estimated annuity payments based on her frozen pre-conversion formula benefits will be greater until 2009. Therefore, they will not accrue any additional benefits during these periods.

Hurlic, Selesky and others filed suit claiming, among other things, that the employer failed to give proper notice to participants prior to implementing the new plan. When the plan was started, ERISA had a notice requirement that stated: “A plan ... may not be amended so as to provide for a significant reduction in the rate of future benefit accrual, unless, after adoption of the plan amendment and not less than 15 days before the effective date of the plan amendment, the plan administrator provides a written notice, setting forth the plan amendment and its effective date, to ... each participant in the plan[.]”

The company countered that the employees did not suffer a loss due to the technical oversight. The court disagreed, however, and noted: “Although they would not have been entitled to injunctive relief if SCGC had provided notice, Plaintiffs also alleged that they could have altered their retirement strategies if SCGC had provided the required notice. SCGC insists that this allegation is insufficient as a matter of law because plaintiffs were not entitled to receive notice of ‘the fact or potential impact’ of the wear-away provision, and because the participants received a summary plan description in 2000, three years before Plaintiffs’ pre-conversion benefits were frozen and the wear-away provision took effect. Both of these arguments disregard the statutory and regulatory notice requirements, however, and as a result, neither of them undermines Plaintiffs’ claim.”

The court went on to hold that a cash balance plan did not violate ERISA’s anti-age discrimination provision, and that ERISA preempted California’s Fair Employment and Housing Act (FEHA) where adoption and implementation of “wear-away” provision of plan amendments disproportionately affected employees age 40 and older.

2009 Budget Survey
Wage and salary adjustments are in order

As many of our members will begin their labor and expense budgeting process for 2009 over the next few months, and as labor costs are a major expense item for most organizations, cost projections are of great interest. We are therefore outlining the results of our latest survey on wage and salary adjustments, along with suggestions on how companies can continue to obtain positive recruiting and retention efforts in light of tighter budgets.

Even though the economy in California has shed thousands of jobs, driving unemployment to almost 7%, most organizations still want to be in the best possible position to retain their highly valued employees, as well as to effectively recruit for new talent. Therefore, it is important to be aware of the major variable relating to labor economics.

On this point, current market indicators show companies have cut back the labor expenses by (1) cutting back the amount of wage and salary increases granted to employees in 2008, and (2) by scaling back their forecasted increases anticipated for 2009.

Salaries adjusted downward
Our latest survey of California companies shows that employers retreated on their 2008 forecast, driving down wage and salary adjustments from 4.0% to 3.5%. For salary administration issues, it is worth noting that wage and salary budget numbers reflect what an average, fully competent employee might expect to receive as an annual pay adjustment. In practice, some employees will receive smaller adjustments and some will receive more.

Merit increases
For next year, tight wage and salary increases are projected to be the lowest in the last 10 years. Depending on industry and location, merit budgets for 2009 will range from 3.0% to 3.8%. Other major na-tional consulting organizations are reporting conservative salary budgets, ranging from a low of 3.5% to a high of 4.0%.

In interpreting these figures, companies may be wise to consider other factors in deciding which figures may be the most practical for them. Organizations that have not kept up with their labor costs over the years might wish to budget for higher adjustments for 2009. Organizations that are ahead of the labor expense curve might be able to budget smaller adjustments.

Salary range adjustments
Regarding salary range adjustments, our latest survey shows that companies will be adjusting them between 2.5% to 3.0%. Historically, salary range increases at a lesser amount than salary budgets because of the effect of employee turnover. In most cases, when employees leave an organization, their replacements are hired at a lesser pay amount and moved up to higher pay rates once they acquire greater skills for the positions. Therefore, salary ranges move up more slowly than salary budget amounts.

Other information useful in your salary budget planning includes the average of employee turnover in the marketplace. According to the Budget Survey, annual employee turnover is averaging around 15% with voluntary separations leading the way at 10% and involuntary separations coming in at 4.8%. If the labor market continues to experience 6% to 7% unemployment levels, employee turnover figures are likely to drop to between 9% to 11% with voluntary terminations experiencing the sharpest decline, from 10% to 7%.

Organizations may want to decide how much of an increased budget is warranted for 2009 based on how their wages and salaries relate to the existing labor market. Companies may want to use a sampling of their jobs, and determine if their overall position to the current market warrants a higher or lower salary adjustment budget.

Benefits packages
Finally, organizations may want to examine the cost of their benefits package – including, medical, leaves, payroll taxes, pension benefits, and other employee perks. According to the U.S. Chamber of Commerce, the cost of all employee benefits – as a percentage of payrolls – is running at about 41%.

For additional information on the reports cited in this article, call us at 213.765.3920. We currently have the following reports to help your budgeting process: HR Budgets & Human Capital Benchmark Survey – 2009; Regional Wage (Nonexempt) Survey, 2008; Supervisory and Management Compensation Survey, 2008; and the 2008 HR Benefits and Policies Survey.

Tribal Leadership: What’s Your Dominant Culture?

Every company is a tribe or network of tribes – groups of 20 to 150 people in which everyone knows everyone else, or at least knows of them. It’s a fact: birds flock, fish school, and people “tribe.” Tribes are more powerful than teams, companies, or superstar CEOs, yet their key leverage points haven’t been mapped – until now.

Great leaders know they can’t instantly change the culture with gimmicks or trendy initiatives. They focus on developing their culture one “tribe” at a time. The heart of leadership development is helping leaders to upgrade the effectiveness of their tribes, taking them from adequate to outstanding.

Tribal leaders focus on building the tribe – or upgrade the tribal culture. If they succeed, the tribe recognizes them as the leader, giving them discretionary effort, cult-like loyalty, and a record of success. Divisions and companies run by tribal leaders set the standard of performance, from productivity and profitability to retention. They are talent magnets, with people so eager to work with them that they will take a pay cut.

Now you can better own your role as a tribal leader, and develop other leaders.

Five Stages of Tribal Culture
Tribes come in five flavors, marked by differences in talk and behavior. Tribal leadership starts with recognizing which stage you have, and doesn’t stop until you reach Stage 5.

• Stage 1 runs the show in criminal clusters, like gangs and prisons, where the theme is “life stinks,” and people act out in despairingly hostile ways. This stage shows up in 2 percent of corporate tribes. Leaders need to be on guard, as this is the zone of criminal behavior and workplace violence. The best way to intervene is to get members out of the group and into another.
  
  
• Stage 2, the dominant culture in 25 percent of workplace tribes, says, “my life stinks,” and the mood is a cluster of apathetic victims. People in this stage are passively antagonistic and quietly sarcastic. Tribal leaders intervene in Stage 2 by finding those individuals who want things to be different, and mentoring them – one at a time. If, over time, some start to talk the Stage 3 language, invite them to mentor another member of the tribe.
  
  
• Stage 3, the dominant culture, is half of the U.S. workplace tribes; the theme is “I’m great” or “I’m great, and you’re not.” In this culture, knowledge is power, and people hoard it, from client contacts to gossip. People in this stage have to win, and winning is personal. They’ll out-work, think, and maneuver their competitors. The mood is a collection of “lone warriors,” wanting help and support and being disappointed that others don’t have their ambition or skill.
  
  Tribal leaders intervene here by identifying people’s individual values and then seeing which cut across the tribe. Point out the values that unite people, and then construct initiatives that bring these values to life.
  
  
• Stage 4 represents 22 percent of tribal cultures, where the theme is “we’re great, and another group isn’t.” Stage 4 is the zone of tribal leadership where the leader upgrades the tribe as the tribe embraces the leader. The leader transforms tribes of individuals into Stage 4 groups, and the tribal leaders in these groups focus people on their aspirations, and define measurable ways to make a worldwide impact. As the tribal attention shifts from “we’re better” to “we can make a global impact,” their culture shifts to Stage 5.
  
  
• Stage 5 is the culture of 2 percent of the workforce tribes, where the theme is “life is great” and focuses on realizing potential by making history. Teams at Stage 5 produce miraculous innovations. The team that made the first Macintosh was Stage 5, and we’ve seen this mood at Amgen. This stage is pure leadership, vision and inspiration.

Identify which of these five cultures dominates your tribe, and start elevating your tribe to the next stage. Notice the social groups or tribes that exist. These are your tribes. Listen to the way they talk. Is it “life stinks” (stage 1), “my life stinks” (stage 2), “I’m great” (stage 3), “we’re great” (stage 4) or “life is great” (stage 5)? Move your tribes to the next stage, until you reach Stage 5. When you move from adequate to outstanding, you’ll produce tribes that change the world.

What is a Strategic Human Resources Plan?

“People-planning,” being both a difficult science and an art, is often foregone in the interest of addressing immediate business concerns, such as changing economic conditions, increased competitive factors or purchasing new equipment to address production issues.

Given that quality is a primary focus in today’s marketplace, and that quality work begins with people, we propose a method for constructing a strategic human resource plan that will empower your managers and employees to increase their commitment, productivity, job satisfaction, and in turn, the long-term profitability of the company.

What we are outlining here is a three-fold approach to corporate-wide human resources strategic planning. Undoubtedly, each company will have varying needs, depending upon their size, market conditions, and previous attention to these issues.

The point is that each of these steps can be broken down into manageable projects, depending upon your organization’s specific needs at the time.

Part 1 – The check-up
The first step is to conduct a check-up of your people and corporate culture, to determine your organization’s specific needs. This will enable you to understand how your people work, how they will respond to changes, and pinpoint any areas of concern.
The methods for conducting a thorough and in-depth check-up are varied and many. Which one is most appropriate for your particular position will depend upon your particular needs. For instance, we recently conducted an Attitude Survey for one of our clients to discover why there was a lack of commitment among the employees to increase productivity.

The management of this particular company felt that the employees were putting in their time, but not willing to go that extra mile – to work a little bit harder, to increase efficiencies, to brainstorm ideas.

Management told us they had tried everything to convey the message that the employees needed to be more involved, but nothing seemed to work. Given the situation, we started with an Attitude Survey of the employees, to get an objective, in-depth understanding of why there was this perceived lack of commitment.

Other check-up situations might call for: a job analysis, looking into recruitment criteria, analyzing the reasons for high turnover, interviewing counsel, candidate profile development, partnership selection, validation studies, needs analysis, a team audit or a management audit.

Part 2 – The diagnosis
The second step is to diagnose the data that is collected to gain the critical understanding of your employees’ motivations, attitudes and skills; to recognize any inconsistencies between the job tasks, expectations and fulfillment; and to determine how people can work most effectively in the company.

In the company for which we conducted the Attitude Survey, the diagnostic phase disclosed that the employees felt management was strong and forceful in its messages and direction. The downside of this was that the employees were getting the message that management wanted everyone to march in lock-step, to do things in a certain way, and that there was not a particular openness on management’s part to new ideas.

There was, in fact, a desire on the part of employees to contribute in more meaningful ways, but not an outlet for that desire.

In the diagnostic phase, people need to be assessed as they relate to the goals of the company and the demands and constraints of the marketplace.

Other diagnostic procedures might call for: training strategies, a team audit, diagnosing performance issues or an organizational audit.

Part 3 – The prescription
The third step is to prescribe a workable solution to the diagnosed situation. Here, we are seeking a course of action which will tap into the vision and goals of the organization and the enthusiasm and commitment of the employees.

In our example of the employees who were not receiving management’s call for more involvement, the prescription was to put in place more frequent and formal meetings between the employees and management in which business concerns were put on the table and everyone’s input encouraged. Ideas generated were recognized, through praise and periodic bonuses.

In this case, employees who wanted to were also encouraged to work overtime, rather than to bring on new people. And a performance management system was put in place, which allowed work to be tracked, work flow to be monitored and productivity enhanced.

The results, in a very short period of time, were more job satisfaction and loyalty, since the employees felt involved and committed.

In other instances, prescriptions might be putting in place selection testing or customized assessment tools, targeted training, executive counseling, protégé/mentoring programs, training reinforcement and support, conflict intervention, off-site retreats, group problem solving, communications facilitation, individual and group strategies, compensation and incentive programs, strategy implementation, easing the transition after a merger, acquisition or downsizing, organizational development, succession planning or instituting a strategic human resources communications plan.

Ultimately, a strategic human resources plan helps management to select, develop and manage people for optimum performance. It means strengthening the team, so that people who complement each others’ strengths, unified by a common vision, and supported by open communications, can increase productivity.

In this way, goals are set and attained, productivity is managed, problems solved, complex efforts coordinated and positive energy and enthusiasm is created.

What strategic human resources planning takes is a thorough, in-depth view of your organization’s strengths and a complete understanding of any areas of concern. Then an approach can be developed that plays to the strengths that already exist and addresses existing limitations.

This process is very involved, requiring care, information, insights, and time. But it is clearly one of the key areas that can be a significant competitive advantage – and can foster the commitment of employees and a reputation of quality in the marketplace.