Rewards That Work™
The Newsletter for Clients and Friends of the Wilson Group, Inc.
Summer 1999, Vol. 1, #3
Retaining Employees During Consolidation
At CIGNA HealthCare
Adapted from Rewards That Drive High Performance: Success Stories From Leading Organizations, by Thomas B. Wilson, published by AMACOM, 1999. CIGNA HealthCare is a Wilson Group client.
The irony of a consolidation and downsizing is that human resource managers often must pay as much attention to retaining employees as they do to letting employees go.
Such was the case with CIGNA HealthCare when, after acquiring Healthsource in 1997, it faced the challenge of closing two Healthsource operations centers, eliminating 100 jobs. Unless the consolidation was seamless, CIGNA feared that it would lose some of its customers. And for the consolidation to be seamless, CIGNA would need the expertise of its existing staff.
How could CIGNA keep its staff when most could see that their positions would be gone once the consolidation was complete? CIGNA realized that it would need an aggressive retention strategy, and that the company's severance package should be reconsidered. CIGNA's standard severance included one week of pay and benefits for each year of employment (with a four-week minimum).
CIGNA managers recognized that once their employees began looking for new jobs, their focus and performance would begin to decline. They also recognized that their best performers would be the first to find new jobs. They wanted to encourage people not to begin looking for new jobs until the consolidation was nearing completion, so customers would experience no disruption in service levels or quality. They also wanted employees to feel that the organization was concerned about their personal circumstances.
A New Approach
CIGNA managers wanted to avoid rumors and uncertainty, and to give employees an opportunity to plan their lives, so their first step was to announce a target date of Dec. 31, 1997 for closing the operations. They assured employees that their jobs and responsibilities would continue until that date, unless there were serious performance problems, but also made it clear that neither the retention program nor the consolidation would be rescinded.
Next, they announced that a generous eight weeks of severance pay would be added to the standard severance for all employees who stayed with the company until December 31, 1997 or their release date, whichever occurred first. The extra time was based on CIGNA managers' estimate that it would take the typical employee an average of two to three months to find similar employment within the marketplace.
Finally, as a contingency in case the closing target date needed to be extended beyond Dec. 31, the company announced that it would provide an additional bonus of two to four weeks of pay to individuals who remained to complete the transition.
What Was Learned
People were not surprised by the consolidation announcement. They were surprised, though, that they were told about the severance program three months before the target date.
As a result of the program, turnover was minimal. Customers continued to receive a high level of service and the operations groups made a flawless transition to the new systems. The company continued to increase renewals and retain credibility with healthcare providers. Most employees found new positions before their severance pay ran out, so they benefited from extra income.
Communication was key to the program's success. It was essential to communicate the program early to prevent rumors and uncertainty from forcing people into the job market while the company still needed their full work efforts. Employees needed to see that they would be better off remaining with the company through the target date, rather than finding employment elsewhere. This could be achieved only by understanding the employees' perspective and addressing their primary concerns early. Some companies delay communications, which often has a disastrous effect.
CIGNA also recognized that a conservative retention program can end up costing the organization more money. The return on investment should be based on the total costs and impact on the business, not just the simple costs of the program. CIGNA's analysis compared the retention program costs with revenues from customer retention, as well as costs of lost productivity and increased error rates.
Providing a "sweetener" to the standard program was also a benefit. People saw that if they kept their jobs they could personally benefit. Finally, the retention program was a one-time program with a clear end point. CIGNA did not need to change company policies, but it did need to be flexible. Each program needs to be custom designed. Each situation has unique issues, and the program needs to be structured, communicated and managed to address them effectively.
CIGNA learned the important value of customization, and of aligning employee interests with business interests. The program was a success from the viewpoint of the customer, the employee and CIGNA HealthCare.
Compensation Factoids
- A survey of 1,800 employers by William M. Mercer, Inc. found that 51% tie compensation to the individual performance of non-management and non-sales employees. For example, employees such as claims processors at CIGNA Corp.'s healthcare unit are receiving monthly bonuses that are up to 50% over base salary. This results in productivity improvements, such as increasing the number of calls handled.
- Buck Consultants' annual survey found that three-quarters of 406 Fortune 1000 companies surveyed are using or implementing at least one alternative pay strategy.
- According to a new Hewitt global study, integration of organizational cultures is the top challenge following acquisitions and mergers. Even though it is difficult to accomplish, most merged companies (Canada, 77%; Asian-Pacific, 79%; Europe, 70%; U.S., 62%) attempt to create a new culture.
- Employee loyalty grew stronger over the past year, according to the annual America@Work study by Aon Consulting. After declining in 1998, the Workforce Commitment Index (WCI) posted a 2.6% gain during the past year. Dr. David Stum, senior vice president of Aon and director of the study, says research shows that, "Companies that help their employees juggle the demands of work and family will be the big winners in the competition for good employees."
- Employee stock ownership plans improve the financial performance of companies, as well as employee morale, according to Hewitt Associates. Of the 382 publicly traded companies that have adopted such plans, the average company improved the annual return on its stock by 6.9% and the return on assets by 2.7% after establishing the plan.
- Management Recruiters International, Inc. surveyed 3,800 hiring executives and found that 59% said their companies are sign-on bonuses to attract mid-management and professional candidates. 94% expect this practice to continue or increase over the next six months.
- The National Association of Colleges and Employers says that new graduates are receiving significantly higher starting salaries since September 1998. Business administration grads, for example, are receiving starting salaries that are 8.6% over last year's starting salaries. On average, the Class of '99 will gain 4% to 6% above last year's salaries for most majors.
- Small business has become the major driver of the U.S. economy. The latest corporate outlook survey by Duke University and the Financial Executives Institute (FEI) projects average earnings growth of 17.4% for small companies ($100 million or less in sales) this year, versus 14% for larger companies surveyed by FEI and Duke. The small company executives interviewed said their companies will pay 4.6% more on average for salaries this year and 7.8% more for employee healthcare benefits. In contrast, larger companies are forecasting 4% increases in salary and 5.8% increases in healthcare premiums.
Up Close
Carole B. Greer, CCP, Senior Consultant
Role models: Gloria Steinem; her sister, Pamela Greer
Other life: Studied drama and speech at the Royal Conservatory in Toronto, and has 20 years of theater experience. Often cast in fairy tales, she has flown as Michael in Peter Pan, and has been cast as everyone from Cinderella to the witch in Rapunsel.
Most memorable vacation: Seeing the art and architecture of Florence, Italy.
Pet peeves: People who don't listen.
The ideal client: "A blank slate and eager people who want to try new things, so that we can create something together."
In her first job after graduating from college, Carole Greer played a key role in the ultimate HR survey - managing the statewide collection of results for a national election.
A native of Canada, she grew up in Toronto and Montreal, earning a degree in applied social science from Ryerson Polytechnic Institute in 1979. Moving to New York City after graduation, a friend told her about an opening at News Election Service, which gathers election data and reports it to major media outlets.
Her position included recruiting and training people for every voting district in New Jersey. She found that she enjoyed recruitment, so she joined Goodrich & Sherwood Company, an executive recruitment firm, where she was the human resources and office manager. From there, she moved on to other consulting firms, including Fromkin, Van Horn and Handley, which was purchased by The Hay Group, Inc.
"I love understanding business and how it works," she said. "I enjoy seeing what people do to make it work better. I approach business from the HR point of view, instead of from the finance or marketing point of view. HR is people oriented. It allows a mix of creativity and problem solving, and I really love to solve problems."
After two years with Hay, she found something better than recruitment - compensation. She moved back to Toronto, where she served as Manager, Reward Information Center, managing the publication of numerous annual compensation surveys and generating customized market data and strategies for more than 300 clients.
"Most people don't realize that compensation is a creative area," she said. "It requires problem solving and critical analysis, which is a strength of mine. I like the fact that it has probably the most impact on how organizations work through people. Compensation is the 'hard news' of HR. I don't like anything that's too abstract."
In 1990, she relocated to Boston with her husband. Wanting to round out her consulting experience with corporate work, she became a compensation consultant for BankBoston, where she spent three years developing base pay plans, surveys and incentive plans.
"After my second child, I decided to become an independent consultant," she said, "not only because I wanted to spend time with my children, but because I decided that the corporate environment was not for me."
She began her own consulting business, with Blue Cross/Blue Shield of Massachusetts as one of her first clients. At the same time, Blue Cross/Blue Shield hired a consulting firm to work with her on the project - the newly formed Wilson Group. Carole and Wilson Group President Tom Wilson found that they had both worked at Hay at the same time, and even left during the same week, but never knew each other there.
"We started working on the project together and hit it off," she said. "Within a month after he started his business, I came here." She has now been part of Wilson Group for five years.
Applications
Base Compensation Programs: Building a Solid Foundation
A well-designed system for delivering competitive base pay to your employees is a key element of any effective reward system portfolio.
Historically, base pay has been regarded as a maintenance expense, or as an unavoidable cost of doing business. However, many companies now realize that a focused, streamlined base pay plan can greatly enhance both the organization's operational effectiveness and its attractiveness quotient. In addition, sound base pay practices provide a foundation on which other reward programs can be integrated, including variable pay, recognition and performance management.
Conflicting Realities
Organizations share two conflicting realities: 1. Competitive pressure to manage expenses severely limits base compensation budgets, yet wages and salaries remain one of the largest operating line items - one that must be managed effectively. 2. The growing economy and tight labor market have made attracting and retaining the best talent more difficult - and more expensive - than ever. To deal with these conflicting realities, base pay plans must:
- Use limited salary dollars creatively,
- Respond to industry and geographic market trends and salary movement,
- Reflect both organizational values and employee needs,
- Involve line managers and hold them accountable,
- Keep the entire process easy to understand and administer, and
- Encourage development and expanding capabilities.
The Right Approach
The best approach to base pay for any organization is to begin by defining its competitive market position, identifying internal pay trends and issues, and closely examining the base pay delivery system to determine if it supports the company's direction.
In addition, tools must be developed that describe, categorize and quantify the value of all jobs in relation to each other and to competitive markets. Focus on identifying and describing what you and your customers want and need from your employees, and constructing systems in which they are rewarded for achieving it.
More specificially, the following factors will ensure the success of your base-compensation program:
- Pay for what your organization truly values - the skills, behaviors and results that support your growth and success.
- Integrate base pay with other elements of your reward system and the whole will be much greater than the sum of its parts.
- Train managers and communicate with employees so they share an understanding of the base pay program and its value.
- Keep the system dynamic by making periodic adjustments. Base pay should remain in tune with the external market, and, most important, with changes in your business strategy.
A plan based on these success factors will not only ensure that your base pay is competitive, but that your business is as well.
HReview
Delivering Results: A New Mandate for Human Resource Professionals
Editor: Dave Ulrich
Published: Harvard Business Review Press, Boston, MA 1998
If you find Harvard Business Review to be thought provoking and informative, but you don't have an opportunity to read every issue, then Delivering Results: A New Mandate for Human Resource Professionals may be ideal for you.
The title's "mandate" to HR professionals - and to their organizations - is that HR professionals must take a leadership role, reinventing themselves as strategic players capable of generating organizational capability. And what HR professional would find fault with that idea?
While all of the articles in Delivering Results originally appeared in HBR, they form a cohesive whole through the capable editing of Dave Ulrich, who divided the book into four sections that emphasize HR's strategic role: "Delivering Core Capabilities," "Creating Strategic Clarity," "Making Change Happen," and "Creating Intellectual Capital." Ulrich's introduction ties it all together by addressing the need for HR professionals to reinvent themselves as strategists.
Ulrich's job was made easier by contributions from some of the industry's best, including luminaries such as Chris Argyris, Gary Hamel, Michael Porter, C.K. Prahalad, James Bryan Quinn, Robert Waterman, as well as James Collins and Jerry Porras, who wrote, Built to Last.
If you haven't been reading HBR diligently for the past five years, Delivering Results is a must read. Even if you are a diligent HBR reader, you may find value in having these articles collected, as the whole exceeds the sum of its parts.
Delivering Results balances theory with practical information to create an "HR Survival Guide." Delivering Results does just that.
Web Remodeling
Wilson Group, Inc. has redesigned its web site. The redesigned site includes back issues of Rewards That Work, informative articles and more. It is located at http://www.wilsongroup.com. Any feedback about the site is appreciated. Send your ideas and suggestions to newsletter@wilsongroup.com. The web site will be updated on a regular basis, so visit often.
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Quotes:
"American business, in fact the whole economy, is facing its biggest change and challenges since the industrial revolution two hundred years ago."
Malcolm Forbes
"The simple truth is that there are no tried and true organizational motives-or management practices-to fit in an age where volatility is the norm."
Tom Peters, author of In Search of Excellence
"Problems can't be solved by thinking within the same framework in which the problems were created."
Albert Einstein
"When you do common things in an uncommon way, you command the attention of the world."
George Washington Carver
"Any company that's going to make it in the '90s and beyond has got to find a way to engage the mind of every single employee. If you are not thinking all the time about making every person more valuable, you don't have a chance."
Jack Welch, CEO General Electric
"I'd rather have an A-level execution of a B-level strategy than a B-level execution of an A-level strategy."
Michael Porter, Harvard Business School
"Success comes from implementing strategy, not just from having one. This implementation capability derives, in large measure, from the organization's people, how they are treated, their skills and competencies, and their efforts on behalf of the organization."
Richard Kovacevisch, CEO Norwest
"I could leave our strategic plan on a plane and it wouldn't make any difference. No one could execute it. Our success has nothing to do with planning. It has to do with execution."
Richard Kovacevisch, CEO Norwest
"At the end of the day, we bet on people, not strategies."
Lawrence Bossidy, CEO Allied Signal
