Reports from New York

vol.1 U.S. HRM in 2009- “The Best of Times, The Worst of Times”
An Update (Junuary, 2009)
One of the most famous sentences in English literature is the first sentence of Charles Dickens’s masterpiece, “A Tale of Two Cities”. The novel is set in 18th century England and France, yet the sentence could easily apply to U.S. HRM in 2009 - “It was the best of times, it was the worst of times.”

Why is 2009 ‘the worst of times’? The U.S. finds itself in the midst of a major recession, possibly the worst economic downturn since the Great Depression of the 1930’s. Recession leads to a long list of HRM challenges, beginning with reductions in force, lower merit budgets and cuts in other areas such as employee education. Companies are beginning to use furloughs or mandatory unpaid absences more frequently as well to save money. All of these challenges could lead to dramatically lower employee morale and turnover if not managed properly.

Due to the severity of this recession, companies are also studying other ways to decrease costs in HRM beyond normal cost cuts. These include reducing or eliminating company matches in 401k plans, increasing employee cost sharing in health insurance plans, or freezing or eliminating defined benefit pension plans. As these measures affect not only employees but their families and financial security, HRM will be hard-pressed to design and execute these actions and explaining their necessity to employees. This will not be an easy task.

Restructuring and cost cutting typically lead to lower employee morale and turnover. However, since jobs in the marketplace are not readily available and unemployment is climbing, dissatisfied employees may not have the option of leaving a company. People will stay, but become increasing unmotivated, negative and less productive. This is particularly harmful when these employees are managing others, spreading discontent to many others in the organization.

To add to these challenges posed by the weak economy, President Obama has promised to support new labor legislation which will lead to further uncertainty in HRM. There are a number of new bills and changes that were a part of Mr. Obama’s platform that will pose significant challenges to HRM, but I’ve summarized the 5 I feel will have the most impact:

1) The Employee Free Choice Act

This bill, strongly supported by labor unions, would be the biggest change in the National Labor Relations Act since the Act was created in the 1940’s. It would eliminate secret ballots during union organization elections and impose mandatory arbitration when a union wins an election.

This provision makes it far easier for unions to persuade or coerce employees into signing authorization cards in favor of union representation. Employees will not be able to rely on the protection of the secret ballot to hide their union-free choice. Unions could use coercive measures including picketing an employee’s home or spouse’s place of work to force them into supporting a union.

Once a union wins an election, management must negotiate immediately towards finalizing a new labor agreement with a union within 120 days. This is a very short time for negotiating a new contract and it’s made more challenging when the union’s proposal is made knowing that if a contract is not signed, mandatory arbitration will be imposed. Since arbitrators are known for ‘splitting the difference’ or picking a final solution that represents a compromise between management and union proposals, unions are not motivated to be realistic in their proposals.

Large and medium size companies will be attractive targets once this legislation is approved. You could report to work on a Monday and be organized by a hostile union! Since the percentage of private companies organized by labor is less than 10% (source: The Wharton School, University of Pennsylvania, Nov/2008), many companies do not have the expertise to deal with labor relations and will be forced to hire new staff or hire outside labor experts.

2) Ledbetter Fair Pay Act

This bill originates from a case last year involving pay discrimination. A woman in Goodyear Tire Company alleged that female salaries were lower than male salaries dating back to the 1970’s. She brought a lawsuit asking for back pay and adjustments to her future pay and pension equal to male salaries, with interest and penalties.

Goodyear argued that there was a time limit, or statute of limitations, to her claim so it refused to make the adjustments. The Supreme Court agreed with Goodyear and said it was too late for Ledbetter to make a claim.

This new bill states would give far more freedom to women to bring such suits by relaxing the definition of the time limit for bringing these suits. This would invite new lawsuits involving claims of unequal pay dating back decades and impacting current and future compensation as well as pension benefits far into the future. The potential damages are significant but the costs of management and HR time needed to defend against these suits would also be very damaging to a company’s operations and reputation. Current compensation and benefit programs would need to be reviewed for potential adverse impact to women.

3) Healthy Families Act

The bill would require companies to provide 7 additional sick days for full-time and pro-rated for part-time employees IN ADDITION to current sick leave and paid time-off (PTO). This would apply to the illness of the employee OR a family member. An employee may be allowed up to 3 days to report an illness! This presents obvious challenges in scheduling and employee abuse.

4) Expansion of the Family and Medical Leave Act

New provisions were implemented in January, 2009. These include reducing the minimum number of employees from 50 to 25 to be covered by this Act, and adding part-time employee eligibility. Employees would be allowed to use this Act to attend school functions for their children or take time off for the illness of grandparents and domestic partners. This places more administrative and scheduling burden on HR professionals and line managers.

5) New Mandated Benefits under ERISA and 401k

Possible ERISA changes include changing health insurance plans to provide mental health coverage similar to physical health coverage (most companies have very limited mental health coverage). This could add substantial costs to health insurance plans trying to cope with medical inflation.

Companies might also be required to treat all disabilities in the same way. This could lead to substantial costs in providing these modified benefits to employees and their families. For example, prescription drug coverage typically requires employees to pay a small co-pay for each prescription. A person with high blood pressure (hypertension) or diabetes might pay $15 for each prescription. Changes to ERISA would require companies to charge the same co-pay for much more expensive drugs. For example, a person with multiple sclerosis (MS) might need a drug that costs $10,000/month. This person would be given the same co-pay as a person requiring a much less expensive drug. This could drive up health insurance expenses considerably.

As for 401k plans, stricter standards on fiduciary fees and responsibilities are expected. Many companies are adopting ‘automatic enrollment’ and/or Automatic employee contribution increases in their 401k plans to encourage more employees to join and save more money for retirement.

As employees divert more of their money into 401k’s, the government will be more concerned that companies are providing enough investment information for employees to make educated financial decisions. Employee complaints or lawsuits relating to poor investment results could be costly and damaging unless companies can prove they’ve provided sufficient notice and education on the risks involved.

Considering all these challenges, what makes 2009 for HRM ‘the best of times’?
Never has HRM been more important to company operations. The challenges posed by the recession and likely changes to labor law will force senior management to find, reward and retain the best HR talent.

HRM professionals must be ready for this opportunity. They must prepare by understanding the proposed legislation and performing a risk assessment of their organizations. For example, an HR professional could review compensation levels for males vs. females for positions with similar titles and determine if there are any discrepancies. They could also perform employee surveys, particularly in areas that are susceptible to union organizing efforts, to determine how satisfied employees are with current management and working conditions.

Another idea is to review all policies, practices and processes in order to simplify them through automation. It would also be valuable to eliminate unnecessary jobs and reports to allow for more time to be used for strategic purposes. General Electric (GE) created a program called “Work Out” in the 1980’s to help it adapt to the massive reductions in staff it implemented. Sometimes it’s best not to create a “to do” list but rather a “stop doing” list.

The key success variable for HRM is adaptability. If an HR professional is prepared and adaptable, the organization will be able to minimize unnecessary legal cases or negative and costly results. To borrow from a 20th century scientist ? Charles Darwin: “It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change”.

To adapt, HR professionals must know the risks they face, be able to assess their current risk exposure, and make the changes necessary to prepare for radical changes. Those who adapt successfully will not only survive but thrive as the economy recovers.

「Reports from New York」はニューヨークでHRMに関する活動をしているPhilip S. Kozlowskiからのレポートです。
Copyright since 2006  3DLearningAssociates All Rights Reserved.