Hot Topics in Total Rewards

By Audrey L. Stanley ... Apr 17, 2018

A building manager who attended management meetings and supervised and directed others could still be entitled to overtime pay under the Fair Labor Standards Act (FLSA), the 2nd U.S. Circuit Court of Appeals held.

Total Management Solutions (TMS) employed the plaintiff as a building manager at St. John's University in New York and paid him an annual salary of $80,000. His duties included ensuring the cleanliness of buildings, supervising six to 15 cleaners, directing cleaners in their work, reallocating workers when short-staffed, setting up rooms for meetings or events, and attending a daily management meeting led by his supervisor. His boss distributed work orders to the plaintiff, who then selected cleaners to carry out the orders.

The plaintiff also handled off-campus work and event setups, and had a separate agreement in which he was paid for overseeing athletic facilities during basketball games. Although a collective bargaining agreement prohibited him from performing cleaning duties, the plaintiff testified that he performed nonsupervisory cleaning duties 90 percent of the time.

In 2015, the plaintiff sued TMS, claiming it violated the FLSA by failing to pay him overtime. The district court dismissed his FLSA claim, concluding the plaintiff qualified for the executive exemption and was not entitled to overtime.

The district court reasoned that the plaintiff's primary duty was managerial, and he had authority to recommend the hiring, firing or change in status of other employees. The district court disregarded the plaintiff's testimony that the majority of his work involved nonsupervisory duties, finding it untrue.

The appeals court disagreed. Because the plaintiff had testified that 90 percent of his work was nonsupervisory physical cleaning, TMS could not conclusively establish that his primary duties involved management activities. According to the appellate court, the district court erroneously disregarded the plaintiff's testimony, as the district court cannot assess the credibility of evidence on summary judgment but must determine only whether a factual dispute exists.

Similarly, because the plaintiff testified that he never recommended disciplinary action; did not have authority to hire or fire employees; and did not make recommendations to hire, promote and fire employees, there was a dispute as to whether he indeed had such authority. Additionally, TMS identified only one instance when the plaintiff recommended disciplinary action, and the plaintiff himself did not administer discipline on that occasion. Accordingly, there was a factual dispute as to whether he met the test for the executive exemption from the overtime provisions of the FLSA, and therefore dismissal was inappropriate.

The appellate court's decision to vacate the dismissal does not establish that the plaintiff proved his claim but only that he presented enough evidence to dispute that he was employed in an executive capacity exempt from the FLSA's overtime wage provisions.

Paganas v. Total Maintenance Solution LLC, 2d Cir., No. 17-0040 (March 12, 2018).

Professional Pointer: This case serves as a reminder that employers should engage in a periodic analysis of exempt employees' actual job duties. The fact that an employee is called a manager and has authority to supervise according to a job description does not mean that the employee is exempt from overtime requirements.

Audrey L. Stanley is an attorney with Marr, Jones, & Wang LLP, the Worklaw® Network member firm in Honolulu.

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Source: Society for Human Resource Management (SHRM)

https://www.shrm.org/resourcesandtools/legal-and-compliance/employment-law/pages/court-report-supervisor-may-not-be-exempt.aspx

reat remote work requests from workers who are recuperating the same as you would any other employee.

By Angela Simpson Apr 24, 2018

No. In fact, you should treat such an individual in the same manner you would any other employee making a request to work remotely. So, if you allow telecommuting in certain circumstances, consider whether it makes sense as an option for an employee returning to work after an illness or surgery. 

Start by reviewing any medical documentation to confirm that the employee has been released to return to work and determine if he or she has any physical limitations that would impact a work-from-home arrangement. Consider whether to require a doctor to certify that the employee is able to work in accordance with your normal fitness-for-duty policies.

Think, too, about how your decision will affect time off under the Family and Medical Leave Act (FMLA). Any time that employees spend doing their jobs cannot be counted against their entitlement. So, if a worker is on FMLA leave for surgery, allowing remote work can extend the amount of FMLA time available to him or her beyond 12 workweeks. For example, if a person normally works 40 hours a week and now performs 10 hours of work while on leave, only 30 hours can be counted toward the employee’s FMLA entitlement. 

Check your short-term disability plan to determine if partial benefits are available under that insurance. Finally, take into account the Fair Labor Standards Act (FLSA) and any other pay implications of permitting an employee to work a partial day while recuperating.

The pay process for nonexempt workers is simple. You are required to compensate such employees only for hours worked. That said, be sure to record all nonexempt time worked and provide appropriate payment to comply with the FLSA. 

Exempt employees, on the other hand, must be paid a minimum guaranteed salary that is not based on quantity or quality of work. Moreover, pay deductions for absences must meet the requirements of the salary basis regulation; otherwise, the employee’s exempt status could be in jeopardy. Visit the Department of Labor’s website for further guidance.

In short, there’s no one-size-fits-all answer here. In some cases, it will make sense to allow telework, while in others it won’t be conducive to the employee’s recovery or the employer’s needs. Evaluate the specifics of each situation to figure out the best approach.

Angela Simpson is an HR knowledge advisor for the Society for Human Resource Management. 

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Source: Society for Human Resource Management (SHRM)

https://www.shrm.org/hr-today/news/hr-magazine/0518/pages/are-we-required-to-let-an-employee-on-short-term-disability-work-from-home.aspx

More employers planning to offer student loan repayment assistance and financial planning services

By Stephen Miller, CEBS Apr 13, 2018

Employers no longer consider voluntary benefits as simply add-ons but rather as "a way to address a host of employee needs, offer choice and allow employees to personalize their rewards," said Lydia Jilek, director of voluntary benefits at consultancy Willis Towers Watson.

Voluntary benefits are supplemental to core health insurance and retirement savings plans and are typically employee-paid through salary-deferred contributions. They can be a cost-efficient way to provide additional coverage to employees, who can purchase these plans through their employer at a lower, group rate.

Newly released findings from Willis Towers Watson's 2018 Emerging Trends: Voluntary Benefits and Services Survey of large employers show that:

• Only a handful of respondents (5 percent) say voluntary benefits will have little importance to the value they offer employees through their total rewards strategy. Five years ago, 41 percent of employers said voluntary benefits would have little importance.
  

• More than two-thirds of employers (69 percent) believe voluntary benefits will be a very or more-important component of their total rewards strategy in three to five years.
  

The survey was conducted in November 2017, with responses from 336 large U.S. employers representing more than 4.3 million employees. Eighty percent of the respondents have more than 1,000 employees.

"While employers continue to embrace traditional voluntary benefits, such as life and disability coverage, they are offering benefits more often to help employees and their families with their financial issues," said Mary Tavarozzi, managing director of health and benefits at Willis Towers Watson.

"The good news is that improvements in enrollment technology are making it easier for employers to expand their voluntary benefit offerings—and the expanded choices are resonating," said Sherri Bockhorst, managing director of benefits delivery and administration at Willis Towers Watson.

Options on the Rise

"Attractive benefits can make the difference between whether a prospective employee accepts a job offer or not," said Ray August, CEO of Benefitfocus, a benefits management software company. The firm's 2018 report The State of Employee Benefits, published earlier this year, analyzed data from 540 large employers with more than 1,000 employees, representing 1.3 million benefit plan enrollees.

"For 2018, 42 percent of employers offered at least one of three voluntary income protection benefits to their employees—voluntary accident, critical illness and/or hospital indemnity plans—and 18 percent offered all three," said Justin Verona, Benefitfocus lead researcher and co-author of the report. Those numbers are up from their 2016 levels.

"Employees continue to appreciate these options," added Logan Butler, Benefitfocus lead writer and report co-author. "When given the choice, 25 percent elected at least one of the three voluntary income protection products for 2018, with over 20 percent enrolling in multiple plans." 

"Through a wide array of voluntary benefit options, employers can offer a more comprehensive benefits package to cover practically every aspect of their employees' lives," Butler noted, "but each life is different, and employees need help understanding the variables that impact their coverage needs and identifying the combination of benefits that's right for them."

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Source: Society for Human Resource Management (SHRM)

https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/voluntary-benefits-now-essential-not-fringe.aspx

New findings reveal reasons behind inequalities in male and female pay

By Stephen Miller, CEBS Apr 10, 2018

Women in the U.S. earn 17.6 percent less than men on average, but that gap virtually disappears when analyzing men and women who work at the same level at the same company and perform the same function, according to new research findings from pay consultancy Korn Ferry.

"The much-publicized pay gap between men and women in the U.S. is real, but it is predominantly caused by fewer women than men in higher-paying roles and higher-paying industries," said Korn Ferry senior client partner Maryam Morse, whose firm analyzed information from more than 1.3 million employees at 777 companies in the U.S.

Similarly, a new report from PayScale, a compensation data and software firm, found that:

*In 2018, women overall earn 77.9 cents for every dollar earned by men across the U.S. labor market (defined as the uncontrolled pay gap), up from 76 cents on the dollar in 2016.

*When factors such as experience, industry and job level were taken into account, women earn 97.8 cents for every dollar earned by their male peers for doing the same work (the controlled pay gap), virtually unchanged from two years earlier.

The findings in PayScale's The State of the Gender Pay Gap 2018 report are based on the firm's survey of over 2 million U.S. employees polled through February 2018.

There is heightened awareness of pay equity issues because of Equal Pay Day, started by the National Committee on Pay Equity in 1996 to highlight the gap between men's and women's wages. This day, on April 10 this year, symbolizes how far into the year women must work to earn what men earned in the previous year.

A 'Career-Break' Penalty

Men still move into more-senior positions at significantly higher rates, underscoring the opportunity gap problem, PayScale found.

One reason is that women are five times more likely than men to take extended leaves from working for child rearing, and that time away is more likely to last more than a year, the research showed. 

When employees leave the workforce for one year or more, PayScale found, their pay on returning to work is 7 percent less than that of an employee who is already employed when seeking the same job. Since women leave the workforce more often than men, and their time away tends to last longer, they are disproportionately affected by lower pay due to career interruptions.

The report also shows that as employees progress through their careers, men are far more likely to find themselves in executive positions with bigger paychecks than their female counterparts. A breakdown:

• Men and women enter the job market at similar junior levels.
  

• By midcareer, men are 70 percent more likely than women to be in executive positions.
  

• By late career, men are 142 percent more likely to be in vice president or C-suite roles, which are typically the most highly compensated positions at a company.
  

"The current business climate has created a new focus and even spurred new laws aimed at achieving equal pay, but it's not enough," said Lydia Frank, vice president at PayScale. "Employers need to go a step further and determine if women have the same opportunities for advancement as men at the organization."

Closing the Gap

This pay gap issue can be remedied if organizations address pay parity across the organization "and continue to strive to increase the percentage of women in the best-paying parts of the labor market, including the most-senior roles and functions such as engineering and technical fields," Morse said.

Pay parity "can be addressed if there is an ongoing effort to enable and encourage talented women to take on and thrive in challenging roles," added Jane Edison Stevenson, Korn Ferry's global leader for CEO succession. "Women have the skills and competencies needed to ascend to the highest levels within organizations, and it should be a business imperative for companies to help them get there."

The disparity among men and women on executive teams and boards "has a huge impact on the overall pay gap, looking at the labor market as a whole," Frank said. "We'll never close the pay gap if we don't get serious about solving the opportunity gap."

To do so means thinking about "policies and work culture changes to help balance the burden between the genders of caring for children and other family members, and alleviate the career and pay impact for women," Frank advised.

Employers should think about providing paid parental leave regardless of gender, onsite child care and flexible work arrangements, she recommended.

A Transparency Gap

Small and mid-size businesses (SMBs) have a gender pay gap that exceeds the national average—female SMB employees make 66 cents for every dollar paid to men—and a lack of transparency around compensation practices is a key reason why, according to new researchby benefits management software firm Zenefits.

The firm's SMB Fair Pay Report is based on a March 2018 survey of 1,002 full-time employees and 401 business owners and HR decision makers. Respondents worked at companies with less than 500 employees. Among the findings:

• 78 percent of men and 67 percent of women discuss their salary expectations at the beginning of a job interview, yet when an offer is made, 55 percent of men compared with only 36 percent of women indicated they negotiated their actual offer.
  

• The gap widens when it comes to asking for a raise; 62 percent of men compared with 41 percent of women felt comfortable asking. Furthermore, 17 percent of men compared with 8 percent for women will counter raises they are offered (i.e., ask for more money).
  

• Only 13 percent of small businesses are transparent with their employees about pay policies and rates. Because this minimizes the need for people to negotiate, employees at transparent companies are 22 percent more likely to feel equitably paid.
  

"Self-advocacy and negotiation are two major factors in perpetuating the gender pay gap," said Beth Steinberg, chief people officer at Zenefits. "Teaching people to negotiate better is a flawed solution to the issue. True compensation fairness will come when employers become more transparent in their pay policies."

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Source: Society for Human Resource Management (SHRM)

https://www.shrm.org/ResourcesAndTools/hr-topics/compensation/Pages/gender-pay-gap-closure-requires-career-parity.aspx

By Ius Laboris

Apr 4, 2018

In today's global economy, understanding which wage and hour laws apply to various operations and the specific requirements in each applicable jurisdiction can be onerous. Not only do these requirements vary by country, but they can vary even at the local level. The differences between Canada, Mexico and the United States when it comes to regulating hours worked are just one example of the potential legal minefields that an employer must navigate to ensure compliance.

Hours Worked Generally

In the United States, wage and hour law is governed by the federal Fair Labor Standards Act (FLSA). The FLSA requires nonexempt workers to receive a minimum hourly pay (currently $7.25) and overtime pay for any hours worked over 40 in a given workweek. Many states have opted to implement a higher minimum hourly wage for workers, particularly since the federal minimum wage has not increased since 2009.

Conversely, in Canada daily and/or weekly hours of work regulations governing when overtime should be paid and what constitutes the applicable minimum wage are enacted at the provincial and/or territorial level and can therefore differ. Consequently, there is no single standard workday or workweek throughout Canada. 

Mexico's primary source of labor law is the Mexican Federal Labor Law (FLL). Unlike Canada and the United States, in Mexico there are no labor laws at the local or state levels. In addition, the Mexican legal system follows a civil-law tradition relying more on the language of the constitution, codes or statutes, rather than case-law interpretation, which is often a guiding principle in the United States and certain provinces in Canada. In Mexico, the national minimum wage is currently 88.36 pesos (approximately U.S. $4.87), and any hours worked after 48 hours a week are considered overtime. 

Overtime and Maximum Hours of Work

Although Mexico's overtime eligibility threshold of 48 hours a week is greater than that of the United States and the provinces and territories of Canada, Mexico's Constitution provides other additional rights to workers. Specifically, the law imposes a maximum work shift of eight hours for day shifts and seven hours for night shifts, and the maximum amount of overtime hours an employee can be required to work in Mexico is nine hours. The FLL also requires double pay for the first nine hours of overtime, and if there is a case when an employee voluntarily works in excess of the nine weekly overtime hours, such hours are to be paid at triple the normal hourly rate.

These protections are broader than those generally provided in Canada and the United States, neither of which have countrywide regulations governing maximum hours of work, except in limited circumstances (for example, with respect to minors in the U.S.). However, in Canada, some jurisdictions do have laws prescribing the maximum number of hours that an employee may work in a day or week. In the United States, certain states do have laws that require daily overtime once a certain number of hours in a day have been worked. In both Canada and the United States, the applicable overtime rate is typically 1 1/2 times the employee's regular rate of pay.

Both Canada and Mexico have common practices or mechanisms to work around some of the more stringent requirements regarding overtime. For example, in Mexico, it is common to have an agreement to distribute the work hours in a week such that, even though an employee may work in excess of the eight hours permitted in a day, that employee is allowed an additional day off. Such agreements have received approval from the Mexican labor authorities as long as the scheduled workweek is limited to a required 48 hours in a week. In Canada, certain jurisdictions allow employers to enter into an "averaging agreement," with employee—or union—consent and, in some cases, government authorization. These agreements permit the employer to average hours of work over a defined period to determine overtime entitlements. Employers in some Canadian jurisdictions may also obtain "excess hours" permits or agreements to exceed maximum hours-of-work regulations.

Conversely, in the United States, agreements to deviate from the requirements of the FLSA are impermissible, and instead employers must determine whether the law permits alternative methods of compensation or contains other exceptions.

Days of Rest and Breaks

Most Canadian jurisdictions require employers to give employees a minimum of one day (or an average of one day) of rest per week. Some Canadian jurisdictions also prescribe a minimum period of daily rest or rest between shifts. Canadian employees are also entitled to meal breaks during their shifts of generally 30 minutes for every five (or within every five) consecutive hours of work.

In Mexico, employees must be given one paid day off for every six days of work. In addition, employees should receive at least a 30-minute period for rest or meals per work shift.

By contrast, in the United States, the FLSA does not require employers to give employees rest breaks, meal breaks or any days of rest. Rather, the federal Department of Labor has determined that if an employer provides an employee with short rest breaks (between five and 20 minutes), such time must be considered hours worked and is compensable. Instead, state law governs meal breaks, rest breaks and days-of-rest requirements, and each state has different requirements.

So while the general concepts of minimum wage, overtime and breaks are common throughout Canada, Mexico and the United States, the nuances and details greatly differ. Therefore, employers must take care to ensure that they are compliant with the specific hours-of-work rules that apply wherever they operate.

Ius Laboris is the world's largest global HR and employment law firm alliance. The article was led by Dave Kim with Ford Harrison in Berkeley Heights, N.Y., and Sal Simao with Ford Harrisonin Berkeley Heights, N.J., New York City and Washington, D.C. Other contributing members included Hilary Grice with Mathews, Dinsdale & Clark LLP in Toronto and Álvaro González-Schiaffino with  Basham, Ringe y Correa in Nuevo León, Mexico.

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Source: Society for Human Resource Management (SHRM)

https://www.shrm.org/ResourcesAndTools/legal-and-compliance/employment-law/Pages/global-wage-and-hour-North-America.aspx

Failure to comply with claim-review requirements can put employers at risk

By Stephen Miller, CEBS Mar 27, 2018

The U.S. Department of Labor's (DOL's) new procedures for processing disability claims take effect on April 1. Any employer-sponsored plan that deals with disability claims should be amended as needed. If plan documents have not yet been updated, employers should still prepare to handle claims under the new procedures, benefits attorneys advise.

What's New

The final rule, published in the Federal Register in December 2016, originally was to apply to all claims submitted as of Jan. 1, 2018, but last  November, the DOL delayed the final rule's implementation date by 90 days.

The rule is intended to give U.S. workers new procedural protections when dealing with plan fiduciaries and insurance providers that deny their claims for disability benefits. In brief, the rule:

• Requires that the reason for a denied claim be provided as soon as possible and sufficiently in advance of the date that the plan's decision on appeal is due, to give the claimant a reasonable opportunity to respond.
  

• Ensures that disability claimants receive a clear explanation for why their claim was denied as well as information on their rights to appeal a denial and to review and respond during the course of an appeal to any new or additional evidence the plan relied on in connection with the claim.
  

• Requires that a claims adjudicator cannot be hired, promoted, terminated or compensated based on the likelihood of denying claims.
  

The new procedures apply to any claims for disability benefits made under an employee benefit plan covered by the Employee Retirement Income Security Act (ERISA).

Not Just 'Disability' Plans

"The regulations could impact retirement plans, medical coverage and other types of benefits," said Steven Mindy, a partner in Alston & Bird's compensation, benefits and ERISA litigation practice in Washington, D.C.

While the procedures pertain to short-term and long-term disability plans, "it's not the title of the plan that matters, it's the nature of the benefits and whether the claim is based on a finding that the person is disabled," Mindy explained. "A retirement plan might have a provision where a committee decides whether or not an employee is disabled for purposes of receiving a disability retirement. In this case, the new disability claims procedures would need to be implemented for the retirement plan."

"A profit sharing plan might condition receipt of a share of a contribution on a participant remaining employed until year end, or working up to 1,000 hours in a year, and those terms often make exceptions if the person failed to meet the standard as a result of becoming disabled," said benefits attorney Carl Lammers, managing associate at law firm Frost, Brown Todd in Louisville, Ky. Among other examples he offered:

• A life insurance program might waive further payment of premiums for any period while the participant is disabled.
  

• Nonqualified deferred compensation or supplemental retirement plans—sometimes referred to as "top hat" plans—may have different benefits, payment terms or entitlements based on disability.
  

If disability decisions made as of April 1, 2018, do not comply with the new disability claims procedures and the claim is later litigated, participants can sue under ERISA and the regulations, Mindy noted. "If you don't follow the new rules, the participant can get to court more quickly and can avoid the internal claims-review process, which puts the plan in an unfavorable position."

"A court will give no deference to an administrative determination, nor limit review to the facts and documents that were assembled as the administrative record," Lammers noted.

"Even if the employer is not able to get their documents amended to include the new provisions, they should start following the new claims procedures with respect to processing claims received" and work to amend plan documentation as soon as possible, Mindy advised.

Fully Insured vs Self-Funded Plans

If employers have fully insured plans, they should monitor their insurance providers to ensure that the new procedures are being followed, Mindy said. "For the most part, insurers have started implementing these procedures" and they have reason to do so, since the courts can hold them liable as plan fiduciaries for a fully insured plan, he noted.

For self-funded plans, typically managed by a third-party administrator (TPA), "there's obviously more for plan sponsors to look at" because the employer bears greater liability for noncompliance.

If a TPA determines a disability claim is valid, "either the plan document, insurance contract or service agreement—as applicable—needs to require that that third party comply with the new DOL rules," Lammers said.

Employee Notifications

Plan sponsors should issue a summary of material modifications (SMM) for the summary plan description. The SMM should outline the disability claims procedure changes and be distributed to participants within 120 days after the end of the plan year in which the change is made, as ERISA and the DOL require.

"Fast action is needed for a plan that is primarily focused on providing disability income, but most employers will find they rely on an insurance carrier or third-party administrator to make the needed operational and document changes on these plans," Lammers said. "The less obvious application of these rules to other types of benefits programs—like retirement plans—will place a higher burden on employers for analysis and action before the first disability claim is received after April 1."

"Practically speaking, the changes to the documents will be fairly small, but the changes need to be communicated," Mindy noted.

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Source: Society for Human Resource Management (SHRM) 

https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/new-disability-claims-procedures-take-effect.aspx

By Stephen Miller, CEBS Mar 23, 2018

A measure that will prohibit employers from requiring that wait staff share their tips with back-of-the-restaurant workers, such as cooks and dishwashers, was approved by Congress and signed into law by President Donald Trump on March 23. 

The provision is a small part of a mammoth omnibus spending bill to fund the federal government. The Department of Labor (DOL) last December had proposed allowing employers the option of requiring workers who receive tips to share that money with non-tipped colleagues. The proposed rule would have undone an Obama-era prohibition on the practice.

The DOL's proposed tip-sharing rule would not have applied to employers that take a tip credit—meaning that they pay tipped workers a rate below the federal minimum wage and workers make up the difference in tips.

Highlights from media coverage of this latest development in the tip-sharing controversy below. 

Restaurant Owners Barred from Taking Servers' Tips

Worker advocates praised the provision to prohibit employers from sharing server tips with others in a restaurant—including, they feared, the employers themselves. Restaurant owners had argued that former President Barack Obama's Labor Department had overreached when it issued the final regulation banning tip-sharing more than a year after the U.S. Court of Appeals for the 9th Circuit ruled specifically that employers could split server tips with traditionally non-tipped employees if the businesses did not claim a tip credit.

Worker advocates and labor lawyers, however, argued that the rule would give owners control of tips, which they could distribute as they see fit.
(Washington Post) 

Labor Advocates See Further Gains

Now that the tip-sharing proposal has been stopped, the next fight for labor organizations is raising wages for tipped workers, said Saru Jayaraman, co-founder and president of Restaurant Opportunities Centers (ROC) United.

"The next step is that we need one fair wage—the elimination of the lower wage for tipped workers so that this incredibly large workforce, the majority of whom are women, is not entirely dependent on customer tips to feed their families," she said. "When this omnibus bill passes, it will represent an enormous step toward that final victory."
(MarketWatch)

Restaurant Owners Sought Flexibility

Restaurateurs and other food service providers can require front-of-the-house staff such as servers, bartenders and bussers to pool their tips. Business owners had welcomed the DOL's proposed changes clarifying that back-of-the-house staff could be included in the tip pool. In their view, the restaurant experience is created by the combined efforts of the front and back of the house, and tip-sharing allows cooks and other crew to be rewarded for good service.

Implementing and managing a legally compliant tip pool, however, would not have been simple, and would have required distinguishing tips from service charges, among other considerations.

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Source: Society for Human Resource Management (SHRM) 

https://www.shrm.org/resourcesandtools/hr-topics/compensation/pages/tip-sharing-blocked-in-spending-bill.aspx

HR needs to become more strategic and analytical to earn a seat at the table

By Tony Lee and Dana Wilkie Mar 19, 2018

HR has heard it all before: The nation's CEOs don't think HR leaders are strategic thinkers, and that's why they don't deserve a seat at the table with other top company executives. What's new is that HR's ability to anticipate business needs is getting worse, they say, not better.

CEOs report that their top HR professionals aren't able to use analytics to forecast the company's employment needs, they can't effectively identify new talent pipelines and sources of talent, and they don't link employee planning to business planning. In fact, only 11 percent say their HR team is good at these skills, down from 20 percent three years ago, according to an extensive collaborative research project from Development Dimensions International (DDI), The Conference Board and EY.

"While HR leadership should be in an enviable position, in reality it's losing the race," the study's authors wrote. "Their organizations are changing faster than they are, putting them even farther behind."

The Global Leadership Forecast 2018 is DDI's eighth such report since 1999, and it found that HR professionals who are succeeding with analytics are 6.3 times more likely to have new advancement opportunities than those who aren't, and 3.6 times more likely to have a strong reputation with senior business leaders. (See Tips for Using Analytics)

"Executives in the C-suite are highly aware of the broad business advantages of making data-driven decisions, and they expect HR to apply the same digital advantage to their talent decisions," said Evan Sinar, chief scientist at DDI, which surveyed more than 25,000 business leaders and 2,500 HR professionals.

"If HR wants to be seen as a strategic business partner in the C-suite, they need to go beyond just carrying out the business needs of today. They need to prove that they are basing their strategy and decisions on solid data, and they need to demonstrate—often using visualization and storytelling techniques—how those decisions are linked to better business results and financial performance," Sinar said.

To be sure, not all HR professionals buy these results.

"It can be very frustrating for HR when their company's top executives don't listen to their concerns, which I know from firsthand experience," said an Atlanta HR director who requested anonymity. "The executives assume our concerns are related to administrative tasks, when in reality they go directly to company strategy on long-term issues like creating talent pipelines, immigration, employee drug use and payroll practices."

Other HR pros cite a vicious circle. Because they're perceived as reactive and not strategic, they say they aren't given the resources they need to change that perception. And with smaller staffs, they have no choice but to focus on compliance, compensation, recruiting and other pressing daily concerns.

"If your company's HR managers are working in the trenches and dealing only with day-to-day employment issues, you're probably understaffed," said Cristin Heyns-Bousliman, vice president of HR and general counsel at Blake's Lotaburger, a regional restaurant chain based in Albuquerque, N.M. "We have 1,700 employees across 75 locations, and I have a team working on the daily issues, which allows me to participate strategically with senior leaders. But many HR departments aren't resourced that effectively, especially at smaller companies, and those CEOs often leave HR out of strategic planning conversations."

Anticipators Are Critical

The research divided HR professionals into three categories:

Partners work toward mutual goals with line managers, share information with the business about talent-issue gaps, and provide HR solutions.

Reactors set and ensure compliance with policies, respond to business needs, and install basic initiatives to manage talent.

Anticipators use analytics to forecast talent needs, provide insights and solutions to ensure a high-quality supply of talent, and link talent-planning to business-planning.

Top executives say that 48 percent of their HR leaders act as business partners, 41 percent are reactors, and only 11 percent are anticipators, which they say is the role they need HR to own within their organizations. Conversely, among HR professionals asked the same question in the study, 62 percent say they are partners, 21 percent are reactors, and 17 percent are anticipators.

"It's interesting that the anticipator role was rated low by both leaders and HR," said Richard Wellins, Ph.D., a senior associate at DDI and the study's author. He says that HR's self-perception tends to be low historically, but that it has improved in recent years more than it has among top company leaders. His question is whether that improved self-perception is warranted.

"HR can get defensive and say they don't get a seat at the table, but I would ask them two things: When and how do you get involved in the strategic planning process, and how do you compare to other functional areas in regards to leading digitally and leveraging predictive analytics, which are both critical and future-focused?"

Wellins said that if HR isn't included in strategic planning until after the business planning is complete, then top management is saying they don't think HR has that capability.

"While I think some senior HR executives are creating real insights around talent requirements versus future business strategies, many do not," he said. "There's a difference between being an HR partner and [being] an anticipator, which has much greater value to the CEO. As an anticipator, HR goes to the C-suite and explains the strategic benefits behind their decisions."

On the other hand, Wellins said that if you are embracing data analytics, hiring data scientists and otherwise taking a lead in anticipating the company's future needs, yet still aren't getting recognition from the top, then you need to do a better job of tooting HR's horn.

"Tell stories to the C-suite about how those higher-level analytics your department has embraced have changed your business planning," he suggested.

Becoming More Strategic

So what does it mean to manage employees strategically using data, digitalization or analytics?

Imagine Alexa–style digital assistants serving as virtual coaches to answer benefits, retirement and paid-time-off queries. Or chatbot-enabled resolution for common employee questions. Perhaps cloud-based services for employees and managers that HR once delivered in person. And leveraging data analytics to project future talent needs.

Executives, Sinar said, don't want to risk putting the wrong person in a position simply because they seem right for the position. Instead, executives are looking to HR to provide data that will help them predict a person's likelihood of succeeding in a position.

Another approach is to start testing new technologies and ideas within HR, and then share those results to demonstrate you're willing to take business risks.

"Become an effective adopter by watching the trends and being open to test-drive new technologies, including AI and machine learning, which show some real promise for HR data processing and analysis," said Sharlyn Lauby, SHRM-SCP, president of the ITM Group Inc. in Fort Lauderdale, Fla., and author of The Recruiter's Handbook (SHRM, 2018). "I don't think it's about trying to convince the CEO to view HR differently. In my experience, HR needs to deliver, and when they do, then the C-suite will view them differently."

Of course, not all CEOs are as flexible and enlightened as HR might like them to be.

"CEOs need to ask themselves, 'Am I being transparent with HR?' If a CEO doesn't believe that HR is thinking strategically but doesn't provide an opportunity for that within the company, then HR can't change the perception," said Heyns-Bousliman, adding that HR is a direct link to the company's most valuable assets—its employees.

"CEOs who pay attention to that give HR at seat at their table," she said. "If they don't, the financial side of the company likely will dominate the discussion and planning, and the company can end up harming its people. However, top executives often leave HR out of these conversations, and their perception becomes reality and a self-fulfilling prophecy."

Next Steps Toward Improvement

The report offers a range of suggestions to HR professionals to help them enhance their abilities as anticipators:

• Take a step back and gauge: Which of the three roles best reflects HR within your organization? Don't forget to seek input from line managers.
• Ensure that HR is well-represented in your company's strategic planning process.
• Step up to greater accountability by providing business leaders with the support and tools they need to bolster engagement and employees' sense of purpose and growth.
• Ensure that you're building stronger predictive capabilities on your team.
• Consider rotating respected line leaders within and out of the HR function.
• Deploy smart HR technologies to enable leadership effectiveness while freeing up HR professionals' time to concentrate on the more-value-added tasks their businesses require.
• Move toward the anticipator role by improving HR capability in eight evidence-based practices:

1. Link talent planning to strategic planning.
2. Invest more development dollars per leader.
3. Use an array of data and predictive analytics.
4. Take a multilevel pipeline approach.
5. Offer programs to high-potential employees.
6. Use robust assessment data to make hiring and promotion decisions.
7. Provide global mobility.
8. Create external mentorship programs.

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Source: Society for Human Resource Management (SHRM)

https://www.shrm.org/ResourcesAndTools/hr-topics/employee-relations/Pages/HR-is-losing-the-confidence-of-the-C-suite-.aspx

HR leaders can leverage people analytics to play a key role in aligning talent with value creation, says the global consumer-goods group’s chief human resources officer.

With 161,000 employees in more than 150 countries, Unilever operates globally and at scale. The consumer-goods group’s brands range from Lipton tea and Magnum ice cream to Surf laundry detergent and Dove skin care. Under the leadership of Paul Polman, chief executive since 2009, the Anglo-Dutch group has sought to drive growth though innovation and by actively reshaping its portfolio while reducing operational complexityand focusing on sustainability as a key theme.

Leena Nair, chief human resources officer (CHRO), joined Unilever in 1992 as a management trainee. Prior to taking on her current role, she was the group’s global head of diversity and inclusion. She says, “If you look at a competitive advantage that a company truly has, it is really only the ideas, the ingenuity, the passion of its people. Because everything else can be matched.”

In January 2018, Nair sat down with McKinsey Publishing’s Rik Kirkland to share her views on how HR leaders can play a key role in driving value creation by leveraging data analytics, focusing on the most important value-creating roles, and developing a close partnership with finance teams. The interview took place on the sidelines of the annual meeting of the World Economic Forum in Davos, Switzerland.

Click here to see the video: Talent management as a business discipline

Interview transcript

McKinsey: How do you view the relationship between the HR function and the finance function?

Leena Nair: I believe that the CFO and the CHRO have to be very close. Their agendas have to be intertwined. Graeme [Pitkethly, Unilever CFO] and I have ensured that a key finance person from his leadership team sits on my HR-leadership team and that key person from my HR-leadership team sits on his finance-leadership team. We also make sure that we have regular catch-ups, both with each other and with the CEO, to ensure that we’re looking at business strategy in totality.

We’re discussing how we want to deploy investment into certain countries, markets, and categories but at the same time seeing if there’s organizational readiness. Because if you invest but the people are not ready—if there’s not enough talent and capability there—we will never see the investments being turned into reality. So, making the strategic investments in financial capital and human capital at the same time is really important.

McKinsey: Can you give some examples of how this works in practice?

Leena Nair: When we have defined our key strategic levers for the year, we ask ourselves, “Which are the five or ten or 15 roles where the biggest impact of value creation in the business could be seen?” Then we use analytics to see whether we’re putting the right people into those roles.

For example, we look at what we call “stubborn cells”—parts of the company where we haven’t seen the traction and performance we would like to see. And we look at the talent that we’re putting into those roles, the teams we’re getting ready to take on these challenges. How equipped are they? What’s their level of readiness? What’s their level of capability? What’s their level of experience? What’s their level of passion and perseverance?

So, we look at these human dimensions through the data analysis we have and also look at the business challenges. Then we’re able to say that, for example, “This team created value equivalent to €100 million.” We’re able to link the appointments and placements of talent to the actual value creation that’s happening in the business.

McKinsey: Are you focusing mainly on key leadership roles in the organizational structure?

Leena Nair: Increasingly I find that we need to be far less hierarchy-conscious in the way we think about value creation. Often the value is being created in roles that are probably two or three clicks below the CEO.

In Unilever, we are creating multifunctional, empowered teams, which are actually the front-facing teams looking after a particular category in a particular country. In many cases, you find that the person in the country handling the P&L [profit and loss] might not be very senior in terms of hierarchy but is in the most important role to create value as part of one of our key strategic thrusts.

McKinsey: What role does analytics play in these conversations and decisions related to value creation?

Leena Nair: Most of the measures that you see HR teams looking at are very internal measures. What bench strength do we have? How many people do we have on a talent slate? These are very internal measures that don’t tell you what difference it’s making to the business. At Unilever, we are using people analytics to change this.

We are, for example, the number one employer of choice in 44 of the 52 markets we recruit in. This is great. It’s also a number I like because it’s externally measured, based on Nielsen Universal. But with the power of data and analytics, I’m able to connect the dots and show that in markets where we are more attractive, we are attracting the right kind of people, our costs of recruitment have fallen, our conversion rates have gone up, our recruitment yield is better. So, suddenly, I’m able to show the business that we’re saving €15 million because of the sheer strength of our employer brand in some of our key markets.

These are the kind of conversations that HR leaders must hold themselves and their teams accountable for.

McKinsey: The Unilever Sustainable Living Plan has been one of Paul Polman’s signature initiatives. What does the data tell you about the business impact?

Leena Nair: I passionately believe that the future is about meaningful work and purposeful work. Because the pace of change is so fast, people do tend to be overwhelmed and threatened. One of the things that can give them anchor is a sense of meaning and purpose in their role. It is a key part of our talent strategy to help people discover their own purpose and therefore deploy them into the roles where they can live their purpose.

And I see the results in our employee surveys. Ninety-two percent of people say that they’re proud to work for Unilever, they want to work for Unilever. Employee-engagement scores are higher than any of our peer and benchmark companies. I see that in the retention numbers—our talent attrition is far lower than the market in almost every market we operate in.

So, I see the impact of what a meaningful purpose does to employee engagement, motivation, attrition. And I passionately believe that companies with purpose last, brands with purpose grow, and people with purpose thrive in uncertain times.

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Source: McKinsey & Company

https://www.mckinsey.com/business-functions/organization/our-insights/talent-management-as-a-business-discipline-a-conversation-with-unilever-chro-leena-nair

A big insurer’s acquisition of a big PBM could alter drug prices for better or worse

By Stephen Miller, CEBS Mar 13, 2018

Following the announcement of three big mergers in the health care industry, will drug prices go up or down?

1. One of the nation's largest health insurers, Cigna, will acquire Express Scripts, one of the nation's largest pharmacy benefit managers (PBMs) at a price tag of $52 billion. 
   
   
2. Aetna, another of the biggest insurers, is being acquired by PBM giant CVS for $42 billion.
   
   
3. And Amazon is getting into health care (one of the few business lines it hadn't yet touched) by partnering with Berkshire Hathaway and JPMorgan Chase & Co.

These acquisitions and partnerships could lessen competition and drive up prescription drug prices, some warned—or could lead to greater efficiencies that lower drug costs for employers and consumers, as the corporate titans contend. It might even do both, in different ways, industry observers said.

Consolidation's Promises and Perils

"Insurers are increasingly turning to vertical integration in an attempt to manage and control costs," said David Fortosis, Chicago-based senior vice president of health strategy for consultancy Aon. "In addition to the Cigna/Express Scripts announcement, we're seeing this trend with the CVS/Aetna agreement, with United Healthcare/Optum buying physicians and surgery centers, and with Anthem working to create its own PBM."

"This type of vertical integration makes business sense because of the opportunity to manage the total cost of care across medical and pharmacy" services, said Tracy Watts, the U.S. leader for health care reform at Mercer, an HR consultancy, and a senior partner in the firm's Washington, D.C., office.

The proof of concept will be in the bottom line for the consumer and employer-sponsored plans, she noted. "Historically, large employers have carved pharmacy benefits out of the medical plan and gone directly to a PBM for more-favorable pricing and a greater share of rebates than the [health insurance] carriers were usually willing to share. The big question is whether the alliances between the medical plans and PBMs bring greater cost-efficiencies, or whether they limit competition, choice and employers' leverage in the market."

"A large percentage of employers prefer to carve out their prescription drug plan as opposed to integrating it with their medical insurer," believing that doing so gives them greater sway when contracting with providers, Fortosis concurred. "There are employers that tend to be wary of insurers accumulating more leverage—in the past, that formula hasn't always worked to the advantage of consumers and employers."

That said, "if Cigna and Express Scripts can deliver simplification, cost-efficiencies and more coordinated care, then those would certainly be positives," Fortosis noted.

Watts gave an example of how integrations could be good for consumers. "When pharmacy is carved out of the medical plan, there is little insurance company oversight for medications prescribed and administered by physicians versus the PBM," she explained. With regard to high-cost specialty medications, for instance, "we often find opportunities to provide these drugs at a lower cost and at a site of care that might be better for the patient," such as a physician's office or a pharmacy clinic, rather than a hospital outpatient facility. "A more-integrated approach could benefit patients and have a favorable impact on cost. But it will be up to employers to ensure there is accountability and transparency."

Less Bargaining Power

"The Cigna deal may result in reduced competition, higher prescription pricing and less price transparency," warned Kim Buckey, vice president of client services at Birmingham, Ala.-based DirectPath, an employee engagement and health care compliance firm. For instance, "if my medical coverage is through United Healthcare and my prescription drug coverage is still through Express Scripts, then Express Scripts may not be willing to pass along its lowest drug prices to United Healthcare customers."

Noting other health care consolidations already completed or underway, Buckey said, "I think this means fewer options for employers. With each insurer now paired with a pharmacy benefit manager, it will be a challenge to unbundle medical and prescriptions to get the best deal."

Others see limited effects on employer plans in the near term. "This deal is not going to have an immediate impact on employers or health benefit professionals in terms of the cost of health services," predicted David Henka, president and CEO of Sacramento, Calif.-based RxTE Health, a PBM that was spun off from the Safeway grocery store chain. Ultimately, however, "they will have fewer vendor choices in the future in terms of obtaining services and will have less flexibility in those services as they are consolidated into packages. It will be much more regimented in the future, with fewer choices for customers."

Henka said that by using cost-controlling strategies such as reference-based pricing, employers could lower their drug spending with or without PBM involvement.

Federal Approval Needed

A merger or acquisition announcement is not the same as a done deal, however. "The CVS/Aetna and Cigna/Express Scripts acquisitions are going to raise questions within the relevant government agencies," Buckey noted. "Given that Express Scripts was the last large independent PBM, the government may not look favorably on either deal."

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Source: Society for Human Resource Management (SHRM)

https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/how-health-industry-mergers-affect-employer-drug-plans.aspx