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  • 27 May 2017 6:52 AM | Bill Brewer (Administrator)

    Plan sponsors could be liable for advice that is not in participants' best interest

    By Stephen Miller, CEBS
    May 25, 2017

    In the wake of Labor Secretary Alexander Acosta's announcement this week that the Department of Labor won't further delay the Obama administration's controversial fiduciary rule, retirement plan sponsors should ensure that any investment advice they help plan participants receive isn't conflicted due to advisor fees.

    Last month, the DOL put a 60-day hold on implementing the rule, delaying the date by which retirement advisors must act as fiduciaries from April 10 to June 9, 2017. The DOL also delayed parts of the regulation related to the best interest contract (BIC) exemption, which allows so-called conflicted compensation to be paid under certain conditions, until Jan. 1, 2018. Commissions and revenue-sharing payments are examples of conflicted compensation.

    In a May 23 Wall Street Journal op-ed (posted online the evening of May 22), Acosta wrote that the fiduciary rule will take effect as presently scheduled but that the DOL will seek public input on subsequently revising it.

    Many financial service providers had called for a further delay of the rule, saying its requirements are overly burdensome on advisors, increase the likelihood of participant lawsuits, and will require participants or plan sponsors to pay higher flat fees for advice.

    Acosta, however, wrote, "We have carefully considered the record in this case, and the requirements of the Administrative Procedure Act, and have found no principled legal basis to change the June 9 date while we seek public input. Respect for the rule of law leads us to the conclusion that this date cannot be postponed."

    He added, "Trust in Americans' ability to decide what is best for them and their families leads us to the conclusion that we should seek public comment on how to revise this rule."

    At the same time, the DOL issued two new pieces of guidance:

    • The Temporary Enforcement Policy on Fiduciary Duty Rule states that during the phased implementation period ending on Jan. 1, 2018, the DOL won't pursue claims against fiduciaries "who are working diligently and in good faith to comply with the fiduciary duty rule and exemptions, or treat those fiduciaries as being in violation of the fiduciary duty rule and exemptions."

    • Conflict of Interest FAQs (Transition Period) is a new set of frequently asked questions (FAQs) and answers to help financial services firms implement the rule.

    "While the June 9 applicability date is firm, it is not beyond the realm of possibility that the date on which the transition period ends, Jan. 1, 2018, could be delayed," said Marcia Wagner, managing director of Boston-based Wagner Law Group. "The FAQs indicated that the DOL is still conducting the review of the fiduciary rule mandated by the White House and that the DOL intends to issue a new Request for Information regarding possible changes to the fiduciary rule."

    HR's Role—and Risks

    Plan sponsors that arrange for participants to receive advice that is conflicted or otherwise not in their best interest could face class-action lawsuits, benefits attorneys said. "Most retirement plan sponsors have a hazy understanding about what a fiduciary is and if their advisor is acting as one," warned Robert Lawton, president of Lawton Retirement Plan Consultants in Milwaukee. "The HR person will have to look at the fees and the new contracts" from their financial services vendors and ensure that they meet the new standard, Wagner advised.

    The fiduciary standard requires that an advice provider act in the best interest of plan participants, receive only reasonable compensation and refrain from making misleading statements, said Erin Sweeney, a benefits attorney with Miller & Chevalier in Washington, D.C. "Notably, the DOL advised that the agency would not enforce the impartial conduct standards until after Jan. 1, 2018, provided the advice providers are 'working diligently and in good faith to comply,' " she noted.

    The DOL also clarified that until Jan. 1, "as long as advice providers adhere to the impartial conduct standards in making recommendations, that the advice providers would not violate existing exemptions even if new compensation systems are not yet implemented," Sweeney said.

    However, "As DOL acknowledged, its enforcement policy does not bar participant lawsuits during the transition period," explained Julia Zuckerman, J.D., a director at Conduent HR Services, and Marjorie Martin, a principal at Conduent's Knowledge Resource Center. "This means that, as of June 9, 2017, participants can bring class-action lawsuits against fiduciaries under the final rule for breaches that occur on or after that date."

    In crafting the rule, "the DOL aimed to broaden the scope of fiduciary investment advice and thereby make it easier for it, and participants, to establish fiduciary liability," they added. "Although the DOL's focus on compliance assistance during this transition period is helpful, plan sponsors may still face litigation risk via participant lawsuits."

    "With the fiduciary rule's applicability date now locked in, sponsors should understand the effect of the rule on everyday interactions with plan participants," said Dominic DeMatties, a partner at Alston & Bird in Washington, D.C. "In addition, sponsors should keep an eye on, and may wish to be involved in, the continuing regulatory review and process associated with the rule at the Department of Labor for additional changes, in particular as the next enforcement deadline, Jan, 1, 2018, approaches."

    Contrasting Views on the Fiduciary Rule

    "Access to retirement products and services will decrease, retirement services will become more expensive [and] investment choices and options will be limited" if the fiduciary rule takes effect, the U.S. Chamber of Commerce contended. The chamber referenced a 2017 survey by the National Association of Insurance and Financial Advisors that found "nearly 90 percent of financial professionals believe consumers will pay more for professional advice services" with the rule in place.

    But "the rule would expand the fiduciary duty standard to cover brokers advising people seeking advice about retirement investments, which currently allows them to steer clients toward the products that make themselves more money at the expense of their clients' needs," argued ThinkProgress, which advocates for liberal public policies. The group cited Obama administration claims that "Americans lose an estimated $17 billion a year to this conflicted advice every year." 

    Source: Society for Human Resource Management (SHRM)

  • 23 May 2017 8:07 AM | Bill Brewer (Administrator)

    A small percentage of employers might drop health care coverage altogether

    By Allen Smith, J.D.
    May 23, 2017

    Approximately 1 in 5 employers (20 percent) anticipate modifying eligibility requirements for health care coverage if the Affordable Care Act (ACA) is repealed, according to the results of a health care and employment law survey released by Littler.

    The survey recorded responses from 1,220 in-house counsel, HR professionals and C-suite executives from a range of industries who answered questions about health care reform and state and local law changes that affect employers.

    The ACA broadened the base of employees covered by health care, mandating that those who work 30 hours or more a week be offered coverage, noted Steven Friedman, an attorney with Littler in New York City. If the ACA is repealed, "I would be very surprised if employers didn't cut back on eligibility to where they were before the ACA," he said. Before the ACA, "many employers set the bar far higher than 30 hours a week to be considered full-timers," he noted; 40 hours was much more common.

    The survey also found that if the ACA is repealed:

    • 28 percent of respondents would not be affected, as they did not offer coverage to additional employees as a result of the law.
    • 18 percent would allow more employees to work over 30 hours per week given that it would not trigger a requirement to offer health insurance.
    • 17 percent would increase premiums or cost-sharing.
    • 4 percent would drop health insurance coverage for some full-time employees.

    "Even though employers would save money if they cut back on coverage, there is the question of how such a change would impact employee morale and employee relations," Friedman said.

    In the version of the American Health Care Act that passed the House of Representatives May 4, "the number of people who may be eligible for some subsidy may be greater than those entitled to a subsidy under the ACA," he added. "Overall, employees may receive less money but over a wider swath of the population," he explained, noting that there could be tax credits that phase out at incomes between $75,000 and $115,000. This "could make employers think about whether they should continue to provide a subsidy to employees when the government provides it," he said. However, he added, "Employers still feel heavily invested in providing health care to employees."

    State Pre-Emption Laws on the Rise

    Businesses have been challenged by the multitude of local laws imposing higher minimum wages, banning questions on job applications inquiring about criminal history and mandating paid sick leave, among other requirements.

    "With the Trump administration working to overturn labor and employment rules and to reduce regulations at the federal level, employers can expect a continued increase in new regulations impacting the workplace at the state and local levels," said Michael Lotito, an attorney with Littler in San Francisco and co-chair of the Workplace Policy Institute.

    "If there is any hope for more consistency, it may emanate from the recent surge of pre-emption bills under consideration in various states," according to the survey report. "At least half of the states have already passed measures precluding localities from imposing various types of additional requirements on private-sector employers; at least a dozen new pre-emption measures are currently pending."

    These pre-emption laws typically are being enacted in states with Republican Houses and Senates as well as governors but that also have progressive cities, Lotito said. He expects to continue to see this type of pre-emption.

    The survey report noted that due to changes in state and local laws impacting employers:

    • 85 percent of employers updated their policies, handbooks and HR procedures.
    • 54 percent provided additional training to supervisors and employees.
    • 50 percent conducted internal audits.
    • 10 percent reduced working hours for staff.
    • 7 percent made no change.
    • 4 percent considered moving the business from its current location.

    While some states are pre-empting local laws, other states are adding employment law requirements. The survey found that the following percentages of employers had laws at the state or local level that impacted their businesses:

    • 59 percent had paid-leave mandates.
    • 48 percent had "ban-the-box" and other laws restricting employer use of criminal and credit history.
    • 47 percent had minimum-wage increases.
    • 36 percent had legalization of marijuana provisions.
    • 24 percent had gender pay equity measures.
    • 18 percent had employee scheduling laws, requiring advance notice of schedule changes.

    Trump Priorities

    Survey respondents said they expected the following developments under the Trump administration:

    • Health care reform would be a priority during the administration's first year (89 percent).
    • Immigration reform would be emphasized (85 percent).
    • Reducing the outsourcing of jobs from America would be prioritized (51 percent).
    • Income equality measures, such as raising the minimum wage and overtime pay, could be opposed (35 percent).
    • National Labor Relations Board (NLRB) decisions would be challenged (33 percent).
    • Regulations and enforcement around the use of independent contractors would be eased (23 percent).

    Survey respondents said they hoped for the following:

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    Source: Society for Human Resource Management (SHRM) 

  • 22 May 2017 10:03 AM | Bill Brewer (Administrator)

    Inc. 5000 honorees tell us how they would tackle a common business challenge.

    CREDIT: Tommy Parker

    "Think of things you can cover that cost a little bit of money but not as much as raises. We cover the cost of dry cleaning and health club memberships for our team members. We try to create a sense of community around the things we may not love to do but have to."

    Kevin O'Neill Founder and managing partner, Acertitude (human resources)
    No. 1,889 2016 Inc. 5000 Rank
    198% 3-year growth
    $6.8M 2015 revenue


    "For my top-performing team, I'd find a reward that's applicable to them--I'd ask if they want to go on a ski trip, or to a concert or basketball game, or some other type of outing, and send them to that. With the engineering department, if a product they worked on got
    patented, I would include their name on the patent."

    Sam Sinai CEO, Deco Lighting(manufacturing)
    No. 1,667 2016 Inc. 5000 Rank
    224% 3-year growth
    $33.2M 2015 revenue


    "We could ask our team members to pick a cause they're interested in and put together a fundraiser. We've done a fundraiser for a domestic violence shelter and one for a family homeless shelter in town. Those things mean a lot to people here."

    Ingrid Emerick CEO, Girl Friday Productions (media)
    No. 803 2016 Inc. 5000 Rank
    495% 3-year growth
    $2.9M 2015 revenue


    "I call people out in front of their peers. In team meetings, sales meetings, safety meetings, whenever we get together as a group, I highlight those top performers. I think that's always a good way to motivate and elevate."

    Kristi Alford CEO, E2 Optics (telecommunications)
    No. 452 2016 Inc. 5000 Rank
    847% 3-year growth
    $50.4M 2015 revenue


    "You can find some really great professional training opportunities that don't cost as much as a raise and yet can have a really big impact: in-person classes, online classes, or internal opportunities that we set up. We'd give them the time to do that."

    Mike Belasco CEO, Inflow (advertising and marketing)
    No. 2,796 2016 Inc. 5000 Rank
    125% 3-year growth
    $2.8M 2015 revenue

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  • 08 May 2017 11:18 AM | Bill Brewer (Administrator)

    Decision contradicts other rulings; Supreme Court may have to resolve split among courts

    By Allen Smith, J.D.
    May 1, 2017

    A9th U.S. Circuit Court of Appeals decision contradicts other appeals court rulings by holding that salary history alone may be used in setting pay--an appellate split that the Supreme Court may have to resolve. 

    The plaintiff in this case is Aileen Rizo, a math consultant for Fresno County, Calif., schools. Over lunch with male colleagues Rizo, learned that she was paid less than all of them, though they had the same job. She sued, claiming a violation of the federal Equal Pay Act.

    A district court determined that the county's reason for her lower pay—prior salary—was "so inherently fraught with the risk … that it will perpetuate a discriminatory wage disparity between men and women that cannot stand, even if motivated by a legitimate nondiscriminatory business purpose."

    But the 9th U.S. Circuit Court of Appeals reversed on April 27 (Rizo v. Yovino, No. 16-15372), concluding that, under the Equal Pay Act, prior salary can be a factor other than sex if it supports a business policy and the employer uses the factor reasonably in light of its stated purposes and practices.

    The decision on the applicability of the federal Equal Pay Act does not affect state laws, such as one in Massachusetts that takes effect in 2018, that prohibit employers from asking about salary history in job interviews.

    Fresno County Claims Business Reasons for Policy

    Fresno County claimed four business reasons for relying exclusively on prior salary:

    • The policy is objective.
    • The policy encourages candidates to leave their current jobs for positions with the county because the county always pays new employees 5 percent more than their old salary.
    • The policy prevents favoritism and ensures consistency.
    • The policy is a judicious use of taxpayer dollars.

    The appeals court sent the case back to the district court to examine whether Fresno County's reliance on prior salary in setting pay effectuated some business policy and used prior salary reasonably. The 9th Circuit rejected the district court's determination that salary history cannot be the only factor for setting pay. But the 10th and 11th Circuits have reached the opposite conclusion (in Angove v. Williams-Sonoma Inc., 70 F. App'x 500, 508 (10th Cir. 2003), and Irby v. Bittick, 44 F.3d 949, 954 (11th Cir. 1995), respectively).

    (9th U.S. Circuit Court of Appeals Opinions)

    Plaintiff's Lawyer Notes the Split in Authority

    Rizo's attorney hasn't decided his next move but did note that the case may go to the U.S. Supreme Court since there now is a split at the appellate court level. "The logic of the decision is hard to accept. You're OK'ing a system that perpetuates the inequity in compensation for women."

    (The Associated Press)

    State Laws May Have Broader Protections

    Already some state laws provide broader coverage than the Equal Pay Act. Massachusetts, for example, has a prohibition on inquiring about salary histories. As of 2018, employers in the Bay State may not ask about salary history before offering a job to an applicant. In addition, employers won't be able to contact an applicant's former company to confirm the wage amount until after an offer is made. Even then, employers will only be able to verify past wage amounts if they have written permission from the applicant.

    California's Fair Pay Act

    California has the Fair Pay Act, which requires employers to explain differences between male and female employees' pay. It tasks employers with proving that any disparities in pay between men and women doing "substantially similar" work are based on a limited number of acceptable factors, including seniority, education and "quantity or quality of production" of goods. Rizo's claim arose before the enactment of the Fair Pay Act; she therefore did not sue under it.

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    Source: The Society for Human Resource Management (SHRM)

  • 08 May 2017 11:15 AM | Bill Brewer (Administrator)

    Despite House amendments, core provisions affecting employers left intact

    By Stephen Miller, CEBS
    May 4, 2017

    On Thursday, the U.S. House of Representatives passed the GOP's revised American Health Care Act (AHCA) by a vote of 217 to 213, sending the measure to the Senate, where it faces a drastic makeover.

    No Democrats voted "yes" in the House, while 20 Republicans voted against the bill.

    House vote.jpg 

    If the Senate approves the legislation—with amendments or an entirely rewritten bill—then representatives of both chambers will attempt to cobble the two versions together in a conference committee and that iteration will (depending on the extent of the changes) face up-and-down votes in the House and Senate.

    While Republicans have a 45-seat majority in the House, the 100-member Senate has just 52 Republicans. The GOP can only afford to lose two Republican votes and still keep the legislation alive, with Vice President Mike Pence serving as tie-breaker.

    "The fate of bill in the Senate is uncertain since it includes a few provisions unrelated to tax provisions, a requirement under the budget reconciliation process" through which legislation can be passed by majority vote, not subject to filibuster, said Chatrane Birbal, senior advisor for government relations at the Society for Human Resource Management. "In addition, the Congressional Budget Office score estimating the potential costs and number of people who would lose insurance was not released until after House passage of the bill, which could impact the Senate's consideration of the measure."

    Employer-Sponsored Plans

    "In many respects, the AHCA is less 'repeal and replace' and more 'retool and repurpose,' but there are some significant changes that could affect employers if this bill becomes law" and the provisions stay intact, noted Chris Rylands and Sarah Bhagwandin, benefit attorneys at law firm Bryan Cave's Atlanta and Denver offices, respectively.

    What does the AHCA, as it currently stands, portend for employer-sponsored group health plans?

    To date, most of the debate around the Republicans' bill has focused on its repeal of the Affordable Care Act's (ACA's) reforms to the individual insurance market and, for those purchasing nongroup policies, its replacement of subsidies for lower-income people with age-based refundable tax credits.

    Among the key issues for HR professionals who manage employer-sponsored group plans are the following:

    • Employer mandate and tracking/reporting requirements. Under the ACA, employers with 50 or more full-time employees or equivalents are required to provide health insurance or pay a penalty. The AHCA reduces the penalty to zero for failure to provide minimum essential coverage. Without those penalties, follow-up regulatory changes could reduce reporting and notification requirements, benefit attorneys said.

    • Individual mandate penalty. Under current law, most individuals are required to purchase health insurance or pay a penalty. The bill reduces the penalty to zero for failure to maintain minimum essential coverage.

    • "Cadillac tax" and other levies on employer plans. The ACA imposed a 40 percent excise tax on the value of employer-sponsored health plans exceeding $10,200 for individuals and $27,500 for family coverage, indexed for inflation. The AHCA would delay the excise tax, now set to take effect in 2020, until 2026 and end all other ACA taxes on employers.

    • Health savings accounts (HSAs) contributions. The bill would nearly double annual HSA contribution limits above current contribution limits, making the cap equal to the out-of-pocket maximums that apply to high-deductible health plans (for 2018, $6,650 for self-only coverage and $13,300 for faimily coverage). 

      The AHCA also would allow spouses age 55 or older to make catch-up contributions to the same HSA (currently, only the account holder can make an annual catch-up contribution; a spouse must open a separate HSA to make this contribution). And any excess funds left from the coverage tax credit after purchasing qualifying health insurance would be payable to an HSA.

    • HSA restrictions. The ACA increased the tax on HSA distributions for nonmedical expenses to 20 percent; the AHCA would lower the rate back to 10 percent and allow individuals to use HSA funds for over-the-counter medical items. Additionally, expenses incurred up to 60 days before the account is established could be reimbursed from the account.

    • Flexible spending accounts (FSAs). The ACA limited the amount an employee may contribute to a health FSA to $2,500 indexed for inflation, with the 2017 limit set at $2,600. This AHCA would repeal these annual limits and allow FSAs to reimburse over-the-counter medications.

    • Medicare Part D subsidies. The ACA allowed Medicare Part D subsidies to be excluded from a company’s income, but denied the deduction, for tax purposes, for any expenses that were subsidized. The AHCA reinstates the prior law that allowed both the exclusion of the subsidy from income and the deduction for the costs funded by the subsidy.

    • COBRA subsidies. Unlike the ACA's subsidies to purchase only individual market insurance, the AHCA's refundable tax credits could pay for unsubsidized COBRA coverage. 

    • Additional Medicare Tax. The ACA added an additional 0.9 percent tax on wages above certain thresholds. The AHCA eliminates this tax.

    • Small Business Health Care Tax Credit. The AHCA eliminates the credit for qualifying small businesses to purchase ACA coverage through the Small Business Health Options Program (SHOP). Under the ACA, the credit could be claimed for two consecutive years.

    Existing ACA insurance standards, such as those providing coverage for adult children up to age 26, guaranteed renewability and no discrimination based on gender, would remain the law.

    "SHRM did not take a formal position on the American Health Care Act as we remain concerned about its potential implications on employer-sponsored coverage, and the health care coverage these plans provide to over 177 million Americans," said Birbal. 

    "SHRM does support the reduction of the employer mandate penalty but looks forward to working with Congress to repeal the mandated employer coverage and reporting requirements, which are an administrative and financial burden to employers," she added. "SHRM applauds the inclusion of a six-year delay of the ACA excise tax on health care plans but will continue to advocate to fully repeal the tax. Furthermore, SHRM fully supports the repeal of the restrictions on the use and limitations on contributions to health savings accounts and flexible spending accounts."

    Looking ahead to Senate action, "SHRM will continue to urge Congress to avoid any future changes to the tax treatment of employer-sponsored health coverage and will advocate for the preservation of the Employee Retirement Income Security Act that allows for common benefit plans across state lines."

    [SHRM members-only toolkit: Complying with and Leveraging the Affordable Care Act]

    Essential Health Benefits and Lifetime Limits

    The House revised the original AHCA through an amendment that gives states the flexibility to apply for waivers from certain requirements imposed on individual market plans and group plans offered by small employers.

    One waiver that individual states could request would allow them to opt out of mandating that insurers cover 10 essential health benefits in health care plans. "For small group plans, this would mean a change in what they have to cover, if the state in which the insurance is issued obtains a waiver," said Rylands and Bhagwandin.

    Also, as Birbal explained in a recent analysis, "since the ACA's prohibitions of lifetime and annual limits and cap on out-of-pocket expenditures also only apply to essential health benefits, states granted a waiver would be able to define these protections as well."

    Also, while the waiver would specifically apply to individual market and small-group market plans, the amended AHCA "could affect large group and self-funded employer plans that are prohibited from imposing annual and lifetime dollar limits on 10 essential health benefits," said Garrett Fenton, an employee benefits lawyer at Miller & Chevalier in Washington, D.C.

    "In theory, for example, a large group or self-funded employer plan might be able to use a 'waiver' state's definition of essential health benefits—which could be significantly more limited than the current federal definition—and exclude items like maternity, mental health or substance abuse coverage for purposes of the annual and lifetime limit rules. Employers effectively could be permitted to begin imposing dollar caps on certain benefits that currently would be prohibited under the ACA."

    "In light of the patterns of state benefit regulation that existed prior to the ACA, it appears plausible that many states will set essential health benefit standards that are considerably laxer than those that are in place under the ACA," wrote Matthew Fiedler, a fellow in the Brookings Institution's Center for Health Policy. "Large employers may have the option to pick which state's essential health benefits requirements they wish to abide by for the purposes of these provisions; this would likely have the effect of virtually eliminating the catastrophic protections with respect to large employers since employers could choose to pick whichever state set the laxest standards."

    But as the amended bill relates to states' flexibility to waive lifetime limits, "the provision wouldn't have much of an impact on employer-sponsored health plans," said Birbal. "Many large employers didn't impose annual or lifetime limits before the ACA was implemented. Furthermore, HR professionals work diligently to design and implement quality benefits to meet employee needs. Health care will continue to be an integral part of the benefits package employers offer to recruit and retain talent."

    Essential health benefits and lifetime limits are issues that the Senate is likely to revisit.

    Outlook Uncertain

    "There is no timeline for the Senate effort," said Edward Fensholt, senior vice president and director of compliance services at Lockton, a benefits brokerage and consultancy based in Kansas City, Mo., and Scott Behrens, an ERISA compliance attorney at the firm. 

    "Even if the Senate is able to agree on a bill, it's unclear whether the Freedom Caucus, the staunch House conservatives who initially derailed the AHCA in that chamber, would support the Senate version," they noted. "So, while group plan sponsors might keep one eye on Washington, it's important to keep the other focused on ACA compliance, as it remains the law of the land."

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    Source: The Society for Human Resource Management (SHRM)

  • 01 May 2017 1:38 PM | Bill Brewer (Administrator)

    Bill O'Reilly

    Companies must decide how much it's worth to put a controversy behind them

    By Stephen Miller, CEBS
    Apr 24, 2017

    When businesses pay severance packages to well-known company leaders or star talent accused of wrongdoing—or of just doing a bad job—are they getting their money's worth?

    Last week, the Fox News Channel announced that Bill O'Reilly, the anchor of its highest-rated prime-time show, "The O'Reilly Factor," would be parting ways following news reports that he and Fox had, over the past decade and a half, settled five sexual harassment allegations for about $13 million.

    O'Reilly has denied the accusers' claims.

    After the announcement, several media outlets, citing inside sources, reported that Fox would pay O'Reilly a severance package worth up to $25 million—about one year's pay under his recently renewed contract.

    Critics were outraged at Fox News over a deal giving O'Reilly almost twice as much as the women who said they were victimized by him received. That, in turn, was bad news for the network's corporate parent, 21st Century Fox, which shares common ownership with News Corp.

    Making matters worse, last year Fox News cut ties with its founding CEO Roger Ailes, reportedly paying him severance of $40 million amid allegations of sexual harassment and settlements with several female employees, including former anchorwoman Gretchen Carlson. Adding to the bad publicity, CNN reported that Ailes' "lifestyle isn't suffering. He recently bought a $36 million oceanfront home in Palm Beach, Fla."

    Generous severance packages are sometimes referred to as golden parachutes, although sticklers say that this phrase properly applies to payments triggered when an executive is terminated following a takeover or merger. Whatever the terminology, paying those accused of wrongdoing more money than their purported victims receive—and many times what lower-level employees will earn over their entire careers—is what public relations pros call "bad optics."

    The reason why scandal-plagued companies are willing to pay millions in severance to allegedly bad actors is because they believe it's the best way to put a crisis behind them and move on, explained Alan Johnson, managing director at Johnson Associates, an executive pay consultancy in New York City.

    The Best of a Bad Situation

    It's common for employment contracts with highly paid talent to have clauses allowing for dismissal without severance if the employee engages in unethical or criminal behavior, Johnson said.

    "But none of the allegations against O'Reilly have been proved in a court, and the settlements all stipulated that O'Reilly didn't admit to any wrongdoing. So Fox News had to consider that O'Reilly probably would have sued the company if it didn't pay him a substantial severance package, and that the suit, as it was litigated, would have continued to keep the scandal in the public eye"—and perhaps highlighted a perceived inattention toward sexual harassment at the company.

    Employers in this situation "have to balance their legal rights not to pay severance with the negative effects of a prolonged negotiation or trial," Johnson said.

    A key role for corporate risk managers and HR chiefs "is to make sure that the board of directors and the CEO are fully aware about the risks of losing litigation or from bad publicity, and that they are fully informed about what their choices are. The board shouldn't be asking, after the fact, 'Why did we give him $25 million, what's that all about?' "

    Fixing Fox’s Corporate Culture

    HR executives' responsibilities include preventing toxic corporate cultures that enable sexual harassment—or working to remedy bad cultures that are already in place. Following O'Reilly's dismissal, the Washington Post reported that:

    Fox has brought on a new human resources director, and all employees have now undergone “sensitivity training,” company officials said. And the New York-based news operation has assigned a human resources employee to work out of its large Washington bureau.

    Such moves could address workplace and financial concerns: Companies that spend large sums settling sexual-harassment complaints can draw the ire of shareholders.

    "After seeing what Fox went through, companies are now likely a bit more sensitive to the possible PR damage that a harassment claim can do," noted Tom Spiggle, principal at The Spiggle Law Firm in Washington, D.C.

    News-Making CEO Severance

    While O'Reilly's departure, like Ailes' before him, stemmed from allegations of unethical and possibly illegal conduct, headline-generating severance packages more typically involve CEOs let go because their companies have hit a rough patch, Johnson noted. For instance:

    In situations where terminations are not "for cause," such as unethical or illegal conduct but because "it's just time for a change," the issues faced by boards of directors—advised by pay consultants and, frequently, HR chiefs—involve how much severance the executive has a contractual right to, and whether that amount might be excessive, Johnson explained.

    "Sometimes the payouts are just too big, representing two or three years of pay," plus sweeteners such as full vesting in long-term incentive programs, deferred compensation and executive pension plans, he noted.

    "If you're in human resources, you should make sure that severance obligations don't become excessive. Look to filings of other public companies and make sure that your agreements or policies are competitive. If they're more generous than competitive, then everybody should know that and the reasons why."

    As with the termination of any employee, he added, the question is whether the severance is fair and reasonable. "Sometimes these agreements get put in place and people just don't pay enough attention to them," Johnson said. "Then you end up paying more than you should."

    When CEOs don't have contracts, "you're negotiating from a clean sheet of paper but, as with Bill O'Reilly, you don't want to have extended litigation and you don't want the ousted CEO to badmouth you, publicly or privately. You just want him or her to go away. You also want to set a precedent for other executives so they know that, even without contacts, if the arrangement ends they'll be treated fairly."

    Be Prepared

    To avoid bad situations becoming worse, Johnson recommended these preparations:

    • Do your analysis. "Look at what other CEOs and senior talent in similar situations received when they were terminated. Then you'll have data to back your offer, the CEO's lawyers will have their data to support the target they want, and usually you'll end up somewhere in the middle."

    • Have consistent, reasonable policies in place. To avoid getting mired in negotiations, have reasonable severance policies with stated dollar figures in place to start with, "then you can just say, 'Hey, that's the deal, that's all you're getting,' Johnson noted. "If you don't have that ahead of time, usually it ends up costing the company more because the terminated CEO may be in no hurry to settle, while the company wants to get this over and done with and get the new person off and running."

    • Review your policies from time to time. Make sure the dollar amounts are still reasonable and reflect the real word, "so when these unfortunate things happen, everybody is treated fairly and there's a minimum of hard feelings," advised Johnson, who compared it to putting in place "a prenuptial agreement in case of termination."

    "The key is don't make severance too generous," he added. "If it's not generous enough, the CEO or senior executive will always come back and try to negotiate some more." But if it's too generous, "you won't hear anything, but you'll have wasted a lot of money."

    Excessive severance also creates skepticism among customers, shareholders and the public about whether the termination was handled appropriately. "Even more important is how the deal is viewed by your employees," Johnson said. "You don't want their response to be, 'We're having a hard time here at X, Y and Z Corp., but did you hear what Mr. Big got on the way out?'"

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    Source: The Society for Human Resource Management (SHRM)

  • 21 Apr 2017 1:35 PM | Bill Brewer (Administrator)

    The market for executive pay is more efficient today than it was decades ago, a pay consultant insists.

    RJ Bannister - Leader, North America executive compensation consulting, Willis Towers Watson

    April 21, 2017 | | US

    Executive pay is just about right — for today, which assumes an efficient market. To suggest otherwise would imply that there is a market irregularity, such as a bubble or inefficiency, which causes an imbalance in executive pay.

    RJ Bannister

    RJ Bannister

    I submit that the market for executive pay is more efficient today than it was 20, 50, or even 100 years ago, driven by three primary forces; more information, more scrutiny/attention, and more employment liquidity.

    Let’s first discuss the issues of efficient markets and the influence of information. Markets are deemed to be efficient. Market clearing rates (MCRs) change with new information over time.

    Executive pay is no different. Perceptions of the value or worth of an MCR will always exist, whether it’s the value of a teacher, a piece of art, an NBA superstar, or an executive’s pay. Any observer can have a perception about the value or worth of a MCR. However, most observers have limited or no influence on the MCR. Usually only decision makers have this authority.

    New information over time creates an supply-and-demand imbalance in the decision makers and moves the market to a new MCR. Local counties and tax authorities (along with unions) determine teachers’ compensation, investors/collectors the price of a piece of art, and an NBA owner the compensation of a basketball star. For public companies, the decision makers who have the ultimate authority on executive pay are the company’s board of directors by way of the compensation committee.

    Of course, many external forces and constituents can influence executive pay, including the supply and demand of executives themselves, shareholders, shareholder advocates, legislation, regulations, pundits, and, yes, consultants. These influencers provide new information over time, which helps adjust the MCR accordingly and revise perceptions, both positively and negatively.

    Executives today are much more informed about pay levels than ever before. Public disclosure, search firms, and advocates (lawyers, tax advisors, private bankers, etc.) arm executives with more information on compensation MCRs and, thus, enable a better negotiating stance in an arms-length transaction.

    The government has also played a critical role, by elevating the amount of scrutiny and effort involved in looking at executive pay. Take a look at companies’ proxy statements from just 25 years ago and compare them to today’s. The striking contrast points to the breadth and depth of the information U.S. public companies are now required to provide.

    All of this information has raised the average investor’s consciousness of executive compensation, how much executives get paid, and how they receive that compensation.

    Today, managing the Compensation Discussion and Analysis section of a public company’s proxy statement has become an essential part of the compensation committee’s purview. While the U.S. governance wave seems to have crested, management of a company’s annual compensation cycle has become a full-time job that can have a significant impact on the company’s success and reputation.

    Finally, executives have more mobility today than ever before. Executives are likely to work for multiple firms over their careers, versus becoming a “lifer.” The continued decline of defined benefit retirement programs over the past 40 years and the reallocation of that money into total direct compensation have had a tremendous influence on the level of executive compensation and the increase in executive mobility. Executive search firms provide an active catalyst to inform executives of external opportunities and the potential compensation level.

    It’s often difficult for observers to grasp the full import of a revolution when they are living it. All employees, not just executives, will likely benefit from increasing digitization and technology. These factors will also drive more information, more scrutiny/attention, and more liquidity to lower-level workers as well.

    This will drive a platform for average workers (freedom of mobility, freelancing, the “gig” economy, personal branding, on-line job postings, etc.) to arm themselves with more information and hence a stronger bargaining position in the future.

    RJ Bannister leads Willis Towers Watson’s executive compensation consulting practice in North America.

    ***** ***** ***** ***** ***** 


  • 20 Apr 2017 9:58 AM | Bill Brewer (Administrator)

    By Lisa Nagele-Piazza, SHRM-SCP, J.D.
    Apr 20, 2017

    Remedying pay disparities between men and women has become a priority for businesses and lawmakers alike. How can HR professionals find out if unlawful pay discrepancies exist in their workplace?

    Data analytics can use an organization's employment information to identify wage disparities and, from there, companies can look at their hiring practices and other policies to resolve unwanted pay gaps, according to Zev Eigen, J.D., Ph.D., the global director of data analytics for law firm Littler Mendelson. He noted that some employers may not know that women in their workforce are earning less than their male counterparts until they conduct this type of analysis.

    Much of the information employers need for a pay audit is already housed in their human resource information system (HRIS) or other electronic systems, said Lara de Leon, an attorney with Ogletree Deakins in Orange County, Calif., and San Antonio.

    She said that the first step in the analysis is for employers to make sure they have all the data they need and that the information is up to date and accurate. Some key data fields are:

    • Basic employment status and historical employment information.
    • Demographic information on gender, race and other categories.
    • Job title, job level, overtime exemption status, full-time or part-time status, and base pay. 
    • Geographic work location and business unit information. 
    • Quantity or quality of work, other performance measures, or a seniority system.

    De Leon said it's also helpful to have pay ranges and any other compensation data on hand when it comes time to analyze the results.

    Complex Analysis

    A statistical analysis can help employers find out if pay differences are random or caused by some other factor, Eigen said. He noted, however, that not all intentional pay discrepancies are discriminatory. There are justifiable reasons for paying one worker more than another in the same job grouping—such as seniority, education level or years of experience.

    Data can help employers figure out the root cause of a pay discrepancy, he said, noting that such an evaluation may be easier for smaller employers that have fewer factors and job groupings to consider.

    Large employers may want to perform a multiple regression analysis, which is a statistical method that can account for a variety of factors that influence pay. Employers can build a model that looks at workers' geographic location, performance ratings, time at the job, seniority with the company, education and certification data, and other factors that may be relevant for the particular workplace or job grouping.

    Although education can be a factor that justifies a pay discrepancy, Eigen cautioned that it isn't always relevant to the job. For example, he said, having a Ph.D. in molecular gastronomy might make sense for a scientist in a food research lab, but it might not matter for a fast-food chain manager.

    It's also important for employers to identify objective measures of skills, effort and accountability for each job, he noted. "If sales people need to be good communicators, how is that measured objectively?"

    Some employees may earn a higher salary because they have more direct reports or interact with more team members and business partners. These factors should also be identified.

    "It takes a little bit of work on the front end to make sure you're measuring the right groupings and comparing apples to apples," Eigen said.

    After the appropriate variables are identified and taken into consideration, the analysis will point to whether a difference in pay may be justified.

    That's why employers need to be sure the data in their systems are accurate and updated. "As with anything, if your data is not sound, your results won't be accurate," de Leon said. "An audit with a significant amount of data inconsistencies could yield erroneous results—either fail to uncover an issue, or indicate that there is an issue where one really does not exist."

    Outside Help

    Eigen urged employers to avoid assigning the analysis to someone within the company, unless that employee has experience with this type of statistical evaluation and knowledge of the relevant pay equity laws that apply to the employer's workforce.

    "You could pull a tooth out yourself, but there are obvious advantages to going to a dentist," he said.

    Multiple regression analyses are complex, and many employers do not have someone in-house who can perform them, de Leon said. "You will want to work with legal counsel and, most likely, an external consultant or statistician to help complete the work."

    De Leon and Eigen both noted that conducting the analysis under attorney-client privilege can potentially protect the information from discovery during a lawsuit.

    HR's Role

    HR professionals should understand that a multiple regression analysis is different than other analyses performed for pay reporting or auditing obligations—such as for the new EEO-1 reporting requirements, de Leon said.

    Since different analyses can yield different results, employers should perform a separate audit specifically to address potential pay discrimination. However, businesses shouldn't conduct an audit unless they are prepared to correct any unjustifiable disparities that are discovered.

    Some fixes might be costly, but others could be as simple as reclassifying a star employee. "If Joe is earning more than other employees in his workgroup, it's possible that Joe isn't correctly assigned to that group," Eigen said. "Maybe he is doing a lot of other tasks that he took over as people left the company and a change to his job title and reporting structure is appropriate."

    It's better to fix those discrepancies before a claim is filed, he added. If the change is made after litigation commences, it might look like the employer is just trying to escape liability.

    It's also a good practice for employers to implement policies that address pay discrimination and establish guidelines that set forth their compensation philosophy, de Leon said. For example, employer guidelines should say whether compensation decisions are based on tenure, the quantity or quality of work, or other factors. 

    "Employers should also look at how they set starting pay and implement guidelines for that," she noted. Some states have recently passed laws restricting inquiries into a job applicant's salary history—and more states are expected to follow suit.

    ***** ***** ***** ***** *****

    Source: Society for Human Resource Management (SHRM)

  • 14 Apr 2017 8:24 AM | Bill Brewer (Administrator)

    Be prepared for unexpected shocks that can affect benefit programs

    By Joanne Sammer
    Apr 14, 2017

    HR benefits managers face a world of change and adjustment. Economic pressures, industry challenges and new compliance burdens can severely disrupt employee benefit programs, requiring new offerings or rendering existing benefits too expensive for an organization's bottom line.

    "The key to managing employee benefit plans during a period of uncertainty is to plan ahead," said Rosemary Hughes, a principal with EPIC Insurance Brokers and Consultants in Stamford, Conn. If developments could result in a loss of jobs—perhaps a merger is in the works—or if an economic downturn would depress the organization's revenues, it could be time to negotiate with vendors to allow your company to end the contract early.

    Uncertainty may also result from legislative or regulatory changes—as when the Affordable Care Act (ACA) expanded employee health coverage or with state and municipal lawmakers trying to mandate paid leave. New laws on pay equity also may affect benefit plans tied to salary levels, such as stock options and retirement plans.

    Employers will need to "think through the potential impact on their programs while still complying with current law," Hughes said. Organizations should create contingency plans to upgrade HR or benefits management software and should postpone altering any affected employee benefit plans until there is more certainty about what will happen.

    In most cases, "employees will be concerned, so it may be helpful to let them know the company is keeping an eye on the situation and will keep them posted as to the next steps," she advised.

    Building a Framework for Uncertainty

    Employers can develop a framework for responding to uncertainty, keeping these considerations in mind:

    Know where you are going. For the most part, employers cannot control what's happening outside the organization. What they can control is how they deal with it. That is why is important for employers to have an overarching philosophy about employee benefits. With a set of guiding principles in place, organizations can make decisions based on those guidelines.

    "Without this, things become more complicated and company leaders may not be on the same page" when it comes time to make decisions, said Jackie Breslin, director of human capital services with TriNet, a HR consulting firm, in San Francisco.

    "As federal regulations are weakened and rolled back, state laws may compensate to protect the workforce," Breslin said. That could bring greater uncertainty for organizations with operations in multiple states as they try to comply with a wide range of different laws and regulations.

    Having a strong benefits philosophy can help guide multistate employers in this situation. Such a philosophy, for example, could call for consistent treatment for the full workforce no matter where employees reside. That, in turn, could lead the organization to adhere to the requirements of the most generous state in each circumstance.

    Know where the organization stands. An internal audit of benefit plans can show exactly what the organization is offering, to whom and at what cost. "When it comes time to make a decision, having this information allows employers to react faster to new developments because they already know where they are," Breslin said.

    Know when to act. Most employers will want to avoid concrete action until a given change is certain. "There needs to be a balance," Hughes said. "Most employers cannot afford to spend resources planning for everything that could occur, so they need to consider the probability of something happening." If that probability is high, HR and benefit executives can spend some time and energy sketching out a "Plan B" for how to react.

    For instance, if a company is in danger of losing its largest and most important customer, Plan B could include a checklist of steps the company could take to mitigate the financial damage, including potential actions involving benefit plans.

    Get the executive team involved. Uncertain situations are times when having close working relationships in place between HR executives and other departments can pay big dividends. The CEO, general counsel, finance and operations executives will all have important input to provide when planning for uncertainty. The CEO can lead overall policy discussions, the CFO can clarify financial implications, operations executives can help front-line managers and employees understand the changes, and the general counsel can disclose the legal requirements and ramifications.

    Communicate with employees. Communicating with employees about potential changes is crucial. Even if a a situation is uncertain, such as with possible repeal of the ACA, employees may still have related questions and concerns. "They will want to know, 'what does this mean for me?'" Hughes said. "Employers need to have a communication strategy to deal with this and ways to make sure front-line managers have the information necessary to help employees."

    Joanne Sammer is a New Jersey-based business and financial writer.

    ***** ***** ***** ***** ***** 

    Source: The Society for Human Resource Management (SHRM)

  • 14 Apr 2017 8:20 AM | Bill Brewer (Administrator)

    Employers are offering larger incentives to participate in health-promoting programs

    A growing percentage of companies are expanding their employee well-being programs beyond health and wellness to include employee financial security and community volunteering opportunities, new research shows.

    Eighty-four percent of surveyed employers now offer their workers financial security programs, such as access to debt management tools or student loan counseling, up from 76 percent last year, according to the 8th annual survey on corporate health and well-being from Fidelity Investments, a benefits provider, and the nonprofit National Business Group on Health, an employers' association.

    The survey, fielded during November and December 2016, includes responses from 141 large and midsize organizations throughout the U.S. Respondents were asked about their benefit programs for 2017.

    "The concept behind holistic well-being is to enable employees to meet their goals rather than tell them what they need to do," said Brian Marcotte, president and CEO of the National Business Group on Health. "Financial well-being is an important well-being pillar, as it's hard to engage employees on addressing health needs if they are struggling with putting food on the table or managing debt."

    Wellness Program Incentives

    Ninety-five percent of surveyed employers are offering physical wellness programs this year, and 87 percent are providing emotional health benefits, such as mental health counseling through an employee assistance program.

    Employee incentives continue to be a critical part of health-promoting programs. The survey found that:

    • 74 percent of respondents include employee incentives within their wellness initiatives.
    • The average employee incentive amount was $742 this year, up from $651 in 2016 and $521 in 2013.
    • Employers are increasing incentives for spouses and domestic partners to participate in wellness offerings, with the average annual spouse/domestic partner incentive at $694, up 47 percent over the 2016 average of $471.

    "As these programs evolve, employers are embracing a broader definition of well-being to increase participation and engagement among their workforce," said Adam Stavisky, senior vice president at Fidelity Benefits Consulting. "Today's programs take more of a 'health meets wealth' approach and reflect a blend of financial, physical and social/emotional programs to provide maximum support for members."

    Among the most popular financial security programs are:

    • Seminars and "lunch-and-learn" programs (offered by 82 percent of employers).
    • Access to tools to support key financial decisions such as those regarding mortgages, wills and income protection (74 percent).
    • Tools and resources to support emergency savings, debt management and budgeting (71 percent).
    • Student loan counseling or repayment assistance (25 percent).
    • The most popular physical well-being programs continue to be:
    • Smoking cessation (91 percent).
    • Physical activities/challenges (86 percent).
    • Weight management (79 percent).

    Ergonomic Desks and Healthier Food Options

    Fifty-five percent of companies surveyed offer a "sit-or-stand" ergonomic desk or treadmill workstation option, up from 43 percent last year.

    Employers are recognizing the impact of fitness wearables on employee health—30 percent will offer subsidies or discounts on these devices in 2017.

    Companies are also focusing on healthy onsite food options for their workforce—48 percent have policies regarding healthy food options in their cafeteria, vending machines and catering services, and 28 percent of organizations offer discounts or price differentials on healthy food options in the cafeteria.

    Giving and Volunteering Opportunities

    The percentage of employers that provide opportunities for employees to volunteer for community projects increased from 67 percent to 79 percent this year, while the percentage of employers offering a matching program to support employees' charitable giving increased from 65 percent to 71 percent.

    Employers are adding cause-based collection drives, with the percentage of companies offering these programs increasing to 88 percent from 77 percent last year.

    "Over the years, employers across the country have bolstered benefits that contribute to employee well-being. … One of these benefits particularly touches the heart and soul of employees: volunteering," Henry G. ("Hank") Jackson, president and CEO of the Society for Human Resource Management, recently wrote.

    "This benefit is important to many workers, particularly Millennials, who view participating in community service as part of being a whole person," he noted.

    By Stephen Miller, CEBS
    Apr 14, 2017

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    Source: The Society for Human Resource Management (SHRM)

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