Engaged Workforce

Agile and social models are changing performance management, rewards, coaching, goal-setting and development. How you engage with your workforce will directly correlate with how to maximize the productivity of employees whilst giving the best possible opportunities for development.

Fidelity to handle HR for BASF

Fidelity Investments said Thursday that has won an outsourcing contract with BASF Corp. to handle that company’s human resources operations.

The five-year contract would have Fidelity conduct BASF’s payroll operations, health and welfare benefit programs and retirement plans for BASF’s nearly 20,000 U.S. employees and retirees. Financial terms of the contract were not disclosed.

Boston-based Fidelity touted the agreement reinforcing increased interest by major corporations to outsource their human resources operations to a single provider. The transition of BASF’s programs to Fidelity’s is expected to be complete by fall 2005, with most services being activate in early 2006.

BASF Corp., with headquarters in New Jersey, is the American affiliate of BASF AG, Ludwigshafen, Germany. It had sales of approximately $9 billion in 2003.


Hewitt Associates Signs Rockwell Automation to a 15-Year HR Services Contract

LINCOLNSHIRE, Ill.–(BUSINESS WIRE)–Jan. 13, 2005–Hewitt Associates (NYSE:HEW), a global human resources services firm, announced today it has signed a 15-year contract with Rockwell Automation (NYSE:ROK) to provide HR business process outsourcing (BPO) services. Rockwell Automation provides industrial automation power, control and information solutions to global 500 corporations.


Under the agreement, Hewitt will provide workforce administration, payroll, health and welfare and defined benefit services to Rockwell Automation’s 15,000 U

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All-Access Recognition

Sophisticated recognition programs are no longer just for the big boys.

by John Mills

New Web-based programs now make it simple for any organization to offer the best in rewards, regardless of size.

 

Recognizing and rewarding employees is an important way to reduce employee disengagement and turnover. Indeed, employee recognition and reward programs have become an increasingly strategic element for many major corporations.

 

Whether you have 50 employees or 50,000, the rationale behind a meaningful recognition program is clear. Study after study has shown that satisfied employees tend to be more productive and less likely to leave their jobs for other opportunities. Which begs the question, What keeps employees satisfied with their jobs? Equitable wages and a complete benefits package are certainly important factors. But employees also have consistently ranked receiving recognition for their work as one of the top reasons for staying in their present job.

 

From a company perspective, establishing a good recognition program can go a long way to improving employee morale and performance, which most often leads to improved productivity and improved profits.

 

Small- to medium-sized enterprises (SMEs) and large organizations alike understand that establishing and maintaining a good recognition and reward strategy takes a lot of planning and implementation. The proper infrastructure to support ongoing recognition programs can be complex and expensive.

 

But while most large organizations have already established formal recognition programs, SMEs have tended to shy away from the practice. It is simply too costly in terms of infrastructure and manpower to set up and maintain a program with a dedicated staff. Moreover, SMEs simply arent large enough to be cost-effectively served by the leading outsourced recognition providers. With the introduction of Web-based solutions, everything has changed.

 

The latest trend in the recognition industry is the move towards easy-to-use, self-managed Web-based recognition and reward programs that are enabling large and small organizations alike to optimize their recognition investment simply by connecting their existing infrastructure (such as employee databases) to an online recognition solution provider. By outsourcing to an online recognition solution provider, it is now surprisingly inexpensive to develop and run a highly effective recognition and reward strategy. Thanks to the advances in Web programming and technology, its also conceivable for an SME to have their recognition program, including a customized Web page, up and running within an hour.

 

When a state-of-the-art Web interface enables you to develop a customized recognition program and Web page (complete with your corporate branding) within a matter of minutes, it is easy to see how online solutions are taking all the grunt work out of the process while providing a host of other benefits.

 

A clear benefit of the outsourced recognition solution is that one individual within an organization, rather than a dedicated team, can administer the process. But the benefits dont stop there. An integrated Web-based solution can be linked to existing employee data in your organizations database, or in the databases of your payroll provider. By linking the employees hiring date to the recognition program, organizations can ensure that employees are automatically acknowledged for their service. And if your organization also allows managers to reward deserving employees for achievements on a regular basis, a points-based system can be established that will allow employees to accumulate points to purchase the gift items they really want, rather than something their managers have chosen for them.

 

Another key benefit of an outsourced solution is access to a much wider range of employee rewards. Items ranging from e-cards to golf clubs can be grouped into categories, which enables an organization to control material expenditures while still providing managers and employees latitude in selecting an appropriate reward. And since an external provider runs the program, you avoid the hassle of maintaining an inventory of reward items. Often, items can be shipped within hours of placing the order, making the ordering process painless for both the employee and the administrator.

 

With any outsourced project, the litmus test in measuring success is how much value it brings to the organization. Outsourced recognition clearly delivers value in terms of maximizing a recognition strategy at minimum cost. In the end, however, the greatest benefit to your organization will be a happy, productive, and loyal workforce that is willing to go the extra mile to support your business.  

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Workplace 2005

Sick celebrities and healthcare cost control.

by Jay Whitehead

In Americas workplaces, here is one thing you will see a lot of in 2005: An endless parade of celebrities building awareness for their previously hidden diseases. Employers beware. This years hottest topic will be healthcare cost control. HRO can help.

 

I was on the phone the other day with Suzanne Somers. You know Suzanne. Ask 100 Americans about her and their top 10 answers would be: The blonde in the car from the movie American Grafitti, Chrissy from Threes Company, The author of Eat Great, Lose Weight, The Thighmaster and Buttmaster infomercial woman, The star of that TV movie Keeping Secrets, The TV host of Candid Camera, Oh, I just bought her stuff on Home Shopping Network, Shes got that family anti-addiction institute, She wrote that hormone book The Sexy Years, and, at the end of the list, Sure, shes a cancer survivor.

 

April 2005 will mark the fifth anniversary of Suzanne Somerss breast-cancer diagnosis. I interviewed her for my new book, which focuses on the new celebrity openness about previously taboo diseases. Somers has been outspoken about how, after surgery and radiation, she avoided chemotherapy by going non-traditional with a homeopathic drug named Iscador. Today, she is cancer-free and speaking to anyone who will listen about the power of awareness in fighting this dreaded disease. She is also urging employers to be understanding about their employees need for a variety of tools to stay healthy, including insurance plans that allow alternative remedies and employer flexibility to deal with the need to heal.

 

How about Mike Milken? Our keynote speaker at last years NY HR Week/HRO World Conference, Milken has single-handedly revolutionized cancer research. After his prostate cancer diagnosis in 1993, Milken threw the weight of both his considerable intellect and wealth at the problem, with dramatic results. Today, while prostate cancer continues to represent 32 percent of all male cancers, more than $485 million annually is committed to prostate cancer research, and cure rates are as high as 85 percent in even previously incurable forms of the disease.

 

And what about singer-songwriter Naomi Judd, a hepatitis C survivor who gave up her career to fight the disease. Today, as she told me in September 2004, she is disease-free and the celebrity spokesperson for the National Liver Foundation.

 

And former Democratic vice-presidential candidate Geraldine Ferraro, who met me a couple of months ago in her high-rise office overlooking Ground Zero in lower Manhattan. Ferraros battles with multiple myelomaa disease also afflicting New York Yankees pitching coach Mel Stottlemyreresulted in Ferraro spearheading a law signed by President Bush in 2003 that allocates $250 million in federal funding to find a cure and promote education about the blood cancer.

 

And Grammy-winner Shawn Colvin, whose recurring bouts with depression caused her to miss several sold-out shows. Colvin met me twice to stump for employer-awareness of the impact of depression on employee performance.

 

There are more: former Los Angeles Lakers basketball star Magic Johnson, whose battle against AIDS has helped convert him from pariah to profit-minded paragon of the virtue of openness. And former President Bill Clinton, whose emergency heart artery bypass surgery late last year caused more than 400,000 Americans to schedule appointments with their doctors.

 

And how could we forget diabetes sufferer Dick Clark, whose diabetes-caused stroke forced him to hand over his annual Rockin New Years Eve show to Regis Philbin. I met Clark late last year in one of the last interviews before his stroke. He made an emotional plea for employer and employee awareness of the signs of diabetes and wanted everyone to know the heart part, as he called it, or the threat of strokes and heart disease from diabetes. His December stroke, unfortunately, helped bring the message home even harder.

 

To date, I have talked with more than 50 celebrities about their previously secret afflictionscancers, neurological diseases, eating and digestive disorders, mental illness, AIDS, heart disease, and diabetes. All of them are coming out of the closet for two reasons. First, openness is good for finding a cure for their disease. And second, because the cost of employee health care is todays most worried- about employer topic. (Note: 64 percent of all Americans get their health care through employers.)

 

At this years HRO World Conference, April 12-13 in New York City, expect health benefits cost control to be a high-profile celebrity-studded topic. And in 2005, expect HRO providers to start putting more effort into controlling both the $1,400 per employee spent annually on administration, as well as the $6,000 to $9,000 per employee spent on health care.  

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Employees Tax-Deferrable Income

When plans compete for it, can employees win?

by Larry Heller

When it comes to tax-deferrable income, employees can win if their employer helps them understand the true value of each type of savings or coverage offered to them, depending on their financial situation and where they are in their career.

 

Distinguishing Factors

 

The chart below compares seven common plans. That comparison, plus company matching, use it or lose it provisions, investment performance, flexibility of distribution options, and differences in tax law can make one type of salary deferral more appealing than another. However, it is not only possible but also appropriate that the appeal of one plan over others will evolve over time for any given employee.

 

Choosing a Pre-tax Savings Hierarchy

 

At most ages and circumstances, paying for medical expenses generally comes first. These can be direct payments premiums for medical coverageor indirecta flexible spending account (FSA) or health savings account (HSA). Next will usually be some form of savings, often in a plan offering a company matchlong-term for retirement or nearer-term for education or home purchases. The challenge for many companies is communicating the right information to help their employees choose how deeply to invest in the plan(s) that make sense for them at the time. Ideally, employers should present this information in a way that facilitates easy and regular re-evaluation by employees of their contribution and premium options.

 

The Life-cycle View

 

Employees savings goals change as lives and careers progress. For instance, employees unburdened by homeownership, childcare, or high medical costs might be inclined to save the maximum matchable percentage of their pay in their companys plan. Employees accompanied by children and a mortgage or other debt often find saving for education, home purchase, retirement, and family medical coverage or elder care to be higher priorities. Of course, as employees reach their 50s and 60s, their own age-related increases in medical costs further affect their spending behavior.

 

Can More Options Affect Nondiscrimination Testing?

 

The concern about the magnitude of lower-paid employees 401(k) contributions (relative to those of highly paid) remains relevant. Is the plan already suffering from poor nondiscrimination testing results? Or is current publicity about HSAs steering lower-paid employees away from 401(k) contributions and creating new nondiscrimination tension? Conversely, if the lowest-paid employees are living paycheck to paycheck, are they justified in paying pre-tax premiums for current medical coverage but for little else?

 

As long as employers are able to recognize and respond to these personalized communication challenges with understandable and accessible financial and tax information and guidance, competition among these plans for employees tax-deferrable dollars is a good thing. Then, and only then, will employees be able to properly allocaterather than dilutetheir disposable pre-tax income among employer-sponsored plans

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Training Outsourcing

The hottest new trend in HRO Training and Learning

by Jay Whitehead

View full Training Outsourcing article (PDF)

FINDING TRAINING OUTSOURCINGS IDENTITY

Outsource training? Are you insane?
Actually, no. Training outsourcing is a burgeoning market. Its watershed moment came in 1986 when General Physics inked its landmark training outsourcing relationship with General Motors. Regardless of its mega-deals, training outsourcing has taken the long road to its own identity. With the increase in training business process outsourcing (BPO) deals since 1998, training now has a distinctive place in BPO alongside other human resources (HR), finance and accounting (F&A), and information technology (IT) business process functions. Moreover, corporate trainings focus now extends beyond employee learning to customer education. This increase in trainings scope has resulted in a steep boost in demand for outsourced training services of several flavors.

The Numbers Behind the Story
The data on trainings value is starting to pour in. And here is the bottom line. The growth in training outsourcing is all based on two facts: Training boosts organizational productivity, and outside training providers increase an organizations ability to train more people faster and more cost-effectively than in-house staff.

According to a 2004 report by Accenture, high-performance organizations, representing approximately 10 percent of the organizations surveyed, exceeded their peers in productivity (as measured by sales per employee) by 27 percent more than their competitors, revenue growth by 40 percent, and net income growth by 50 percent.

The American Society for Training and Development (ASTD) reported that training spending in U.S. corporations was $826 per employee in 2002, an increase from $734 the year prior.

The Exceleration Group estimates that corporate training expenditures of all types, in-house and outsourced, was nearly $120 billion in 2004. Of this, 42 percent was targeted for employee learning, 52 percent for customer training, and 6 percent for training supply chain interests. The ASTD, in 2003, estimated that 28 percent of all training expenditures go to outside vendors. That indicates that the training outsourcing market exceeds $30 billion.

Consolidation Equation
Like many BPO segments, the training market has seen the start of a significant wave of consolidations. In March 2004, the biggest of the mergers happened when Cincinnati-based Convergys picked up San Franciscobased DigitalThink for $2.40 per share, or $120 million, a 30 percent premium to DigitalThinks share price.

At the time, Thomas J. Starr, senior principal of learning services for Convergys Employee Care, said DigitalThinks capabilities would create synergies for the company by beefing up its capabilities in learning while improving its competitive position in HR outsourcing.

The Convergys acquisition also set the stage for back-to-back Thomson Learning deals in August 2004. In the first of the two deals, Thomson Learning added Capstar, a unit of Educational Testing Service. Capstar develops competency assessment, learning and measurement, and testing solutions for private and public sector markets. The second deal, two weeks later in August 2004, featured Thomson acquiring KnowledgeNet, an e-learning provider, which Thomson merged with its own NETg unit. The two buys, while positioning Thomson Learning as a market share leader, contrasted with Convergys stated goal for its training outsourcing acquisition: to position Convergys to better compete for large-scale HRO contracts. The differing M&A philosophies of Thomson and Convergys reflect the training outsourcing markets conflicts about its own identity. Is training outsourcing a market of its own, or does it comprise a subset of the HRO market?

Follow the Money:
Customers Come First

On Wall Street, the trend is your friend. In training outsourcing, the overwhelming trend is toward investing in customer training. In 2004, TrainingOutsourcing.com writer Paul Harris documented software provider Intuits eureka moment, which caused it to invest heavily in customer training.

Sales of the companys QuickBooks software were suddenly spurting, Harris wrote, and a new analysis revealed why: Professional accountants were referring the product to their corporate customers after taking an e-learning course that made them certified users.

We discovered that accountants who received their ProAdvisor Certification were referring QuickBooks to their small business customers at four times the rate of those who simply use the software, says Rich Walker, Intuits director of accountant and advisor relations. It is a causal relationship.

Launched two years ago, Intuits new customer training initiative is outtasked to Convergys Corporation, the business process outsourcing firm that recently acquired e-learning content provider DigitalThink. Convergys Learning Solutions helped create the courseware and now manages the training via its scalable Web-based platform, the L5 Learning Delivery System. It supplements Intuits classroom training program begun seven years ago with Dallas, Texas-based Real World Training. Intuit, as Harris showed, illustrates the fastest-growing trend in learningthe outsourcing of customer training initiatives.

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T&D Outsourcing as a Strategy

How to make the fastest-growing area of HRO work for your company.

by Matt DeLuca

Training and development outsourcing is one of the HRO areas with the greatest potential. But first, those evaluating their T&D programs must educate themselves on how to make them an A-plus strategy.

 

Of all the human capital/HR activities that lend themselves to outsourcing, the area with the greatest potential is training and development (T&D). Pre-Internet and before IT demonstrated its potential, the HR professionals T&D initiatives were restricted by location, cost, and availability. They were also restricted by the organizations ultimate resourcethe caliber of the training professional (if, that is, the organization believed strongly enough in T&Ds importance that it budgeted for one).

 

The potential of T&D as an effective function was limited even further by complications that have existed since its inception. First, candidates frequently targeted for the T&D profession were career-changing teachers from the primary and secondary education ranks. The challenge with this is that not only do children learn differently from adults, but also training is a different skill set than educating.

 

Second, employees were often made trainers, not due to their ability or potential, but rather because of their temperament, personality, or the needs of the organization. Finally to complicate matters further, training professionals too frequently prefer the excitement of classroom presentations to the aspects of T&D design. This results in many training presentations being given by professionals who are only subject matter experts in how adults learn and not experts in T&D program design (and even subject-matter experts are not always guaranteed).

 

The whole question of T&D becomes quite strategic when approached in this context. There is a lot at stake for the organization in light of the competencies it is trying to develop for its employees. But dont let a fear of tackling a highly strategic issue prevent you from doing it. Because doing nothing different from the status quo, or even nothing at all, is also a strategic decisionwith its own set of dire consequences.

 

When the T&D function is considered in its entirety, think of the full range of activities, including administration, evaluation, Website design, and maintenance. In fact, as with all outsourcing considerations, early on in the process, you should consider breaking down each function into core competencies and commoditized (and labor-intensive) activities. The core elements are those that your organization does well and that provide a competitive advantage. Commoditized activities are those that sap energy and resources but are tangential and nonconsequential when done correctly.

 

Commitment to any T&D effort should be part of an overall organizational development strategy that should really be undertaken internally. To entrust others with this process is to deny key players inside the structure the chance to determine what would really be effective. In fact, as with all strategic planning, the process is as important as the result. Others may be called in to provide advice, but the decision should rest with those responsible for providing leadership for the organization.

 

Before we discuss where to begin, you need to consider your personal attitude toward T&D. See if you agree with this statement: You have many more resources accessible to you if you agree that you want the best available training for your organization, regardless of where you find it. This is a big step for those organizations that have traditionally prided themselves on homegrown training and believed it was the best available.

 

Consider a gap-analysis approach. Ask your executive team and C-level players what they feel the organization needs from training to maximize organizational effectiveness. Get granular and obtain all the details that you can, and avoid generalizations.

 

Then ask each of the key staff members you approach what they would like to see and expect from in-house training efforts. Even ask what they think of the new employee-orientation program as well as any other training programs currently provided internally. Your goal is two-fold. First, to determine the priority level these key executives assign to the training function. Second, to assess their level of sophistication for what they feel training should and should not be expected to do.

 

Before you begin the next phase of T&D assessment, one more step to take (assuming you have received positive indications from your activities above) is to continue your research by enlisting the support of anyone organizationally who could provide you with additional input. This includes reaching out to contacts locally and elsewhere who will share with you information about what they and their organizations are doing and what resources they are using.  

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When a Gold Star Isn’t Enough

Case Study: NBC Universal finds innovative ways to say Good Job!

by HROT Staff

An annual survey of NBC Universal  (NBCU) employees showed that  while employees felt that they made a  difference, their contributions were  not always recognized and spotlighted  by their higher-ups. In response to the employee  feedback, NBCU decided to create an improved employee  recognition program. To help them in this project, they  partnered with recognition provider IncentOne.

 

CREATION OF A BRAND 

 

Prior to launching a new employee recognition program,  the existing reward program was evaluated. NBCUs  spot special award program was cash-based and awards  were presented without fanfare. Although the program  was well defined with good back-end controllership features,  the front-end nominating process consisted of a  paper nomination form that had to be routed throughout  the company for appropriate approvals.  NBCU decided to come up with a new program and  a new brandOvation. The brand was chosen because  this word describes the new culture of recognition NBCU  desired to create and nurture. The goals of Ovation were  to make the employee recognition process: 

 

More memorableby encouraging merchandise and gift  certificates, rather than just cash 

 

More prevalentby encouraging smaller-sized awards,  given more frequently and to more employees 

 

More visibleby the creation of a branded program and  by encouraging public presentation of awards 

 

More personal and spontaneousby using Web-based  technology to enable a wide variety of choices  (merchandise, gift certificates, cash) to suit different  employees and different occasions calling for recognition. 

 

The Ovation program was designed to enhance  NBCUs position as an employer of choice and improve  overall employee satisfaction by developing a culture of  recognition. A cross-functional team of NBCU managers,  using GEs Six Sigma process, established the  program guidelines based on voice of the customer  input from operations managers. Recognition budgets  were established at division levels and managed by HR  managers in conjunction with operations managers.  Ovation had managements full approval. The HR  managers, charged with being the champions of the  Ovation program, participated in various in-person and online  training sessions in the weeks leading up to the  launch. Several days prior to launch, the program was  communicated to employees via e-mail announcements  and feature articles on NBCUs intranet.  Key to the success of Ovation is the broad choice of  rewards that would appeal to a diverse audience. The program  offers the award recipients choices with the Gift  Certificate Award, which was specifically branded for  NBCU. This award enables employees to select rewards  from an extensive portfolio that includes gift certificates,  merchandise, travel packages, personal services, airline  miles, and phone cards.  NBCU uses a comprehensive award management system  that automates and integrates all program rewards,  administration, and procedures. Eligible managers issue  awards through an automated nomination and approval  process that facilitates as many as four levels of authorization  (for the very largest award levels).  Once a nomination is approved, a personalized congratulatory  letter; the Gift Certificate Award; as well as  a framed Ovation Certificate of Appreciation, suitable for  display to assure that the employees accomplishments are  properly and publicly recognized, is sent to the nominating  manager for presentation to the employee. 

 

PROGRAM RESULTS 

 

As part of the Six Sigma process that was used to develop  the program, a variety of measures were set up to  track progress. Key measures include the number of  awards given each month, the average size of awards, the  percentage of awards delivered as cash, and the average  time it takes to go from nomination to final approval in  their systems. Overall results include the following: 

 

A culture of recognition strategy was well received  and has been embraced at NBCU. 

 

More employees are being recognized, more frequently,  at no additional cost to the company. Return on  investment has increased. 

 

The entire rewards process is Web-based which results  in quick turnaround with no manual residue. 

 

Memorable merchandise awards, rather than nonmemorable  cash awards, are encouraged. 

 

Says Eileen Whelley, EVP of Human Resources at  NBC Universal, I am thrilled with the enthusiasm with  which managers and employees have embraced the  Ovation program. Clearly, recognition of the accomplishments  and outstanding work of our employees  was something we needed to improve. This program has  made an impact in this regard and is continuing at a  fervent pace.     

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What Goes Around Comes Around

The changing scope of defined benefit outsourcing.

by Curtis S. Morgan

Once upon a time, the defined benefit (DB) pension plan system in the United States included a large number of plans fully cared for within the insurance marketplace. Insurance companies managed the investment of assets, provided draft or model plans, annuitized benefits upon retirement, and even took on mortality and investment risks post-retirement. Reporting and filing requirements, required communications to employees and retirees, and actuarial valuations were all included in the scope of the services.

However, several factors drove significant portions of the market away from these fully bundled approaches:

ERISA and subsequent regulations made design and operation of the plans more complicated and firmly ensconced the pension consultant as a plan sponsors trusted advisor.

The impact of asset growth and trust investment performance on plan and corporate bottom lines led many sponsors to pull away from insurance companies conservative investments, general funds, and investment and mortality charges. Companies also came to expect their own trusts to perform better than insurance company investment pools.

Declining purchase of defined contribution (DC) plans, growing scale of DB plans, and proliferation of lump-sum options in these plans eliminated the perceived need for insurance companies to assume the mortality risk (and to provide annuity products for DC plans).

The number of plans in the small and mid-sized market decreased dramatically, eliminating much of the insurance industrys market.

In the 15 to 20 years after the introduction of ERISA, most DB plan sponsors built their own infrastructures to support their growing plans. Internal staff typically used rudimentary programs to perform pension calculations for employees leaving or considering retirement. External actuaries provided plan design, compliance guidance, funding results, and certified annual government filings. Separate trustees and investment managers supported the growing trusts and ongoing benefits disbursements. This period was, perhaps, the high point of non-integrated administrative servicing. However, the DB plan was about to begin a migration back out of the halls of the plan sponsor and into integrated outsourced solutions.

Participant service technologycall centers, voice response, Web applications, and robust calculation engines and databaseschanged the pension system from one used to support former employees to an integral element in recruiting, retention, and retirement planning. Plan participants growing expectations of instant access to information, online transactions, and better support led to outsourcing.

Next came the financial reporting nightmares. In the late 1980s, DB plan sponsors became subject to separate financial accounting requirements. During the 1990s, plan assets generally performed well and plan sponsors enjoyed latitude with respect to financial assumptions. This allowed many plans to produce pension income for their sponsors and to continue to improve their funding levels. As long as these trends continued and participant service improved, the benefits department was often the hero. However, the heros welcome came to a dramatic end when the bad investment markets of 2001 to 2002 combined with low interest rates to produce higher reported liabilities on DB plan sponsors books.

Moving into 2005, we see a reversal of the disintermediation trend in the DB marketplace. Plan sponsors at all market levels are looking for providers to assume much of the plans management and devise strategies to minimize associated risks. But there are key differences between now and the days when insurance companies provided fully bundled services. For instance:

The number and type of providers have grown beyond the insurance companies. Other large financial players can offer the investment options and low investment costs that large employers may want along with continual monitoring of the investment mix versus investment policy.

Actuarial services, financial reporting support, audit support, government filings, and other plan management services are being reintegrated as added regulation and focus on financial reporting decreases plan sponsors discretion regarding assumptions and funding levels.

Outsourced administration has removed the plan sponsor from most interactions with plan participants. Communication requirements are integrated into the providers overall administrative solutions. Fully automated electronic solutions continue to replace costly paper and labor-intensive processes.

For many of the remaining (and declining number of) DB plan sponsors, outsourcing many of these interactions to as few providers as necessary is increasingly compelling. In the future, more plan sponsors will retain only the true basicsplan design decisions, plan funding responsibility, and vendor management.

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Renewing Benefits Outsourcing Contracts

Tips for Getting the Most Out of Your Next Contract Renegotiation

by Robert Crow

With many first-generation total benefits and HR outsourcing contracts up for renewal in the next 12 months, employers may be losing money if they arent taking advantage of the changes taking place in the market. Based on our experiences at Watson Wyatt, we have found that one way to improve efficiencies is to drive more employee benefits transactions to the Web. Another tool that employers now have in their favor (that they may not have had several years ago) is several years of data that allow them to renegotiate contract terms based on actual employee usage patterns and customer service trends.

Research shows that many of the companies who first signed HRO contracts five to seven years ago are likely to renew their deals. However, doing so without significant renegotiation could be a serious financial mistake. Many early-stage HRO adopters experienced higher than expected outsourcing costs because of certain elements in their original contracts. Locking in long terms, for example, prevented employers from negotiating lower rates after just a few years. Not including reasonable transition fees in the event the employers population size changed dramatically, also proved to be to employers detriment.

Nowadays, employers have more leverage and information than when they negotiated their first contracts, and they should capitalize on this opportunity to reduce costs and improve customer service. Companies are in a much stronger position due to the consolidation occurring among multiple outsourcing service providers and recent research on usage trends, companies have more leverage in renegotiating contracts.

This makes it a great time for organizations to negotiate their next outsourcing contracts. But lowering costs and improving service quality isnt automatic. Companies must be proactive in their contract renewals to get the most competitive deal.

NEGOTIATING KNOW HOW: FOUR FACTORS TO SUCCESS

SO HOW DO YOU GET THE MOST OUT OF YOUR NEXT CONTRACT NEGOTIATION? BEFORE YOU RE-SIGN ON THE DOTTED LINE, TRY THESE TIPS.

1) Focus on service needs.

With advances in technology and growing employee comfort with Web-based transactions, many of the service provisions necessary five years ago may no longer be needed. Because more workers use the Web to conduct benefits-related transactions, this means fewer employees are calling outsourcers customer service call centers than in the past, lowering the vendors staffing requirements and costs. Companies should capture these types of shifts and potential savings during contract renewal negotiations.

2) Use acquired data.

Original outsourcing contracts were negotiated without much information on usage levels and other factors. Now, after years of data collection, companies have real numbers at their fingertips to help them negotiate contracts that closely align with their needs. By looking at measures such as call volume, content, and call resolution rates over a period of time (12-24 months), companies can better predict future service center usage for leveraging in the negotiations.

3) Solicit stakeholder input.

Input from employees, benefits staff, and other key stakeholders can help companies get a better perspective of actual service quality and cost savings and translate this knowledge into action. If, for example, employees report frustration with long wait times during service-center calls, the new contract should modify existing performance guarantees to address the changing requirements.

4) Consider shorter contract lengths.

By negotiating shorter contracts or contracts that allow for midterm renegotiation, companies can obtain the flexibility they need to update their contract terms to reflect the changing environment. Locking into a long-term contract may not provide the best deal because of reductions in various service charges. Its important for companies to have the option to adjust their outsourcing strategies to use new technologies, incorporate new groups of workers added through mergers or acquisitions, and capture any benefits and savings associated with further consolidation within the outsourcing industry.We have seen a continued reduction in various service charges over the last six years. Because we expect this trend to continue, locking into a long-term contract may not provide the best deal.

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