HR Trends eBook


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Many notable trends emerged throughout 2013 which will
affect employers’ initiatives related to legal compliance, health care/benefits, compensation, talent management, and hiring in 2014.

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HR Trends eBook

  1. 1. HR 201 201 Trends Outlook
  2. 2. About ERC 4 Introduction 5 Legal 17 Healthcare & Benefits 30 Compensation 35 Talent Management 48 Hiring 55 Conclusion 56 Sources Table of Contents 3
  3. 3. • 440-684-9700 We’re ERC, and we make workplaces better! ERC is Ohio's leading HR organization. ERC membership provides employers access to an incredible amount of information, expertise and cost savings that supports the attraction, retention and development of great employees. ERC members have access to the following services to help support their HR function: Survey Data HR Help Desk Online Tools Networking Cost Savings Additional Services at ERC In addition to our five core membership services, ERC offers HR and workplace-related services including training, consulting, coaching and assessments. ERC hosts the NorthCoast 99 program, which annually honors Northeast Ohio’s top workplaces. ERC Health is a health insurance program that rewards employers for their employees’ participation in health and wellness activities. For more information about ERC, please visit our site at: Copyright © 2013 ERC (Employers Resource Council) 3
  4. 4. Introduction M any notable trends emerged throughout 2013 which will affect employers’ initiatives related to legal compliance, health care/ benefits, compensation, talent management, and hiring in 2014. In summary, there were a few significant federal employment law developments and Supreme Court rulings in 2013, as well as continued heightened enforcement among the federal agencies. Health care reform, however, was the biggest compliance issue affecting employers this past year, and will continue to be heading into 2014, as new rules are finalized and employers prepare for key regulations that take effect in 2015. In the area of compensation, there were continued modest pay increases. More employers appear to be compensating strategically, with a compensation philosophy and focus on pay for performance. Organizations are also becoming somewhat more transparent and communicative about their compensation practices. In the realm of benefits, wellness programs continued to be enhanced and employers seem to be offering voluntary benefits to a greater degree. More attention on work/ life programs, including flexible scheduling and stress management, also was prevalent among employers in 2013. But, above all, health care benefits was the primary concern for most employers. Many of same talent management and hiring challenges persisted in 2013. Employers face opportunities to improve employee engagement, performance management, rewards and recognition, the candidate and new-hire experience; and the ways in which they attract, retain, manage, and develop talent. Faced with a shortage of skilled talent, employers are increasingly using social media and strategic online recruiting methods to find workers. In addition, leadership and employee development continue to be areas of concern and priority for employers, and are being affected by certain demographic needs and interests, including women and younger workers. Employers will be operating with quite a bit of uncertainty in the health care and compliance arenas in 2014. It appears that the main challenges employers will face are related to health care, the changing benefits landscape, difficulties in finding skilled talent, and struggles with engaging and retaining current talent with modest pay increases and lagging talent management practices. The following e-book summarizes the most important HR trends that surfaced throughout 2013 and several trends you should expect and plan for heading into 2014 – supported by both national and local research. It also includes detailed commentary from local subject-matter experts in Northeast Ohio on trends they’ve observed this year and how those will affect HR in 2014. These combined research and subject matter insights serve to provide you with a summary of key trends to be aware of during 2014. PLEASE NOTE: By providing you with research information that may be contained in this message, the Employers Resource Council (ERC) is not providing a qualified legal opinion concerning any particular human resource issue. As such, research information that ERC provides to its members should not be relied upon or considered a substitute for legal advice. The information that we provide is for general employer use and not necessarily for individual application. We also recommend that you consult your legal counsel regarding workplace matters when and if appropriate. Copyright © 2013 ERC (Employers Resource Council) 4
  5. 5. Legal I n 2013, a few notable changes to federal employment law regulations were made. These included changes to the Family Medical Leave Act (FMLA), a revised I-9 form, and new HIPPA rules. Also, during 2013, a few important decisions made by the Supreme Court affected employers, most significantly the federal Defense of Marriage Act being struck down, and the clarification of the definition of a supervisor under Title VII of the Civil Rights Act. The Supreme Court will consider other employment law-related decisions that affect employers in 2014. Finally, the outcomes of numerous court cases in 2013 offer new guidance and warn employers of potential liabilities. Case law will continue to be an important source of direction on employment law matters, particularly for the Family Medical Leave Act (FMLA), the Americans with Disabilities Act (ADA), and the Fair Labor Standards Act (FLSA). More cases involving social media and/or social media postings as evidence emerged in 2013 as well, and this will likely continue in 2014. Additionally, while the National Labor Relations Board's (NLRB) activity was less pronounced in 2013, the Equal Employment Opportunity Commission (EEOC) continued to remain very busy with a variety of discrimination issues. Heading into 2014, employers should expect that EEOC activity will continue to be high, and that the NLRB will likely be more active as well. In addition, there are a few reforms being considered by the government, pertaining to immigration, workplace flexibility, and social media privacy. Copyright © 2013 ERC (Employers Resource Council) 5
  6. 6. Legal Little NLRB activity in 2013, but that could change next year. There was very little NLRB activity in 2013 with the U.S. Court of Appeals for the District of Columbia Circuit ruling that President Barack Obama acted unconstitutionally when he made three recess appointments to the NLRB. The ruling has been appealed to the U.S. Supreme Court. While the ruling invalidates NLRB decisions made from January 4th until now, employers should continue to use the NLRB's guidance until its decisions are ruled binding or not.[111] In the meantime, there was some activity with regard to the NLRB that affected employers. The United States Court of Appeals struck down a rule by the NLRB which required organizations to post a notice to inform employees about their rights under the National Labor Relations Act (NLRA), asserting that all three enforcement provisions in the rule were unlawful. Additionally, the Senate voted to confirm five nominees to the NLRB, three Democratic nominees and two Republicans. Upcoming Supreme Court decisions will affect employers in 2014. The Supreme Court started hearing arguments for several important cases in October featuring issues affecting the Employee Retirement Income Security Act (ERISA), FLSA, the President's power to make recess appointments to the NLRB, and whistleblower protections under the SarbanesOxley Act (SOX). The outcomes of these cases could meaningfully affect employers heading into 2014. Specifically, the Supreme Court will review whether a statute of limitations can run upon a clear repudiation of rights; what "changing clothes" means with respect to FLSA and compensable time; if the President can make recess appointments; and whether employees of privately held contractors or subcontractors of public companies can bring retaliation claims under SOX.[62] With a fully-constituted Board heading into 2014, organizations should expect the NLRB to be more active and revisit issues that were put on hold in 2013. Copyright © 2013 ERC (Employers Resource Council) 6
  7. 7. Legal Immigration reform that would affect employers continues to be considered. There has been quite a bit of activity in the U.S. legislature regarding changes to immigration laws this year. Though nothing has passed yet, several different pieces of possible legislation emerged during 2013 that could affect the cap for H-1B workers, visa programs, E-Verify, and green cards. Proposed legislation this year specifically included requiring the use of E-Verify, increasing the number of H-1B visas with further flexibility to raise the cap based on demand for highly skilled jobs, increasing the percentage of employment-based green cards that are granted, and providing exemptions to certain immigrants based on education or ability in the STEM fields. Although there have been so many different bills proposed in Congress this year regarding immigration, some of which are very significant, it is unclear what direction reform will take at this time. Nonetheless, employers can expect that immigration reform will surface again during 2014 as President Obama has said that he will press immigration reform immediately after the current fiscal issues are addressed in Congress. DOMA ruled unconstitutional; affects employers’ benefits practices. In June, the Supreme Court struck down the federal Defense of Marriage Act (DOMA) in United States v. Windsor. The Court ruled that section 3 in DOMA was unconstitutional as it deprives individuals of equal liberty protected in the Fifth Amendment. Depending on the state and if it recognizes same-sex marriages, the Court’s decision affects employee benefits and protections. In any state that recognizes same-sex marriages, employers will be required to treat same-sex couples the same as opposite sex couples in regards to offering COBRA continuation coverage, allowing spouses to use FMLA (if eligible and qualified), being subject to flexible spending and health savings account rules, attaining eligibility for immigration benefits,[129] and recognizing samesex spouses to determine surviving spouse annuities or death benefits.[67] The IRS and the U.S. Treasury Department also ruled that married same-sex couples will be treated as married for federal tax purposes, regardless of whether the couple lives in a jurisdiction that recognizes same-sex marriage. [66] The overturning of DOMA brought to light samesex issues in the workplace, and could be the beginning of more related legislation to protect same-sex rights. Copyright © 2013 ERC (Employers Resource Council) 7
  8. 8. Legal Definition of a supervisor & causation standards for retaliation claims were clarified by the Supreme Court. FMLA protections were expanded. This past year, the Department of Labor (DOL) issued a final rule which implemented two important expansions of protections under FMLA. Employers are now required to use new forms to administer FMLA. One of the expansions provided families of eligible veterans with the same FMLA leave that is available to families of military service members. It also allowed more military families to take leave for activities that arise when a service member is deployed. The other expansion modified existing rules so that airline personnel and flight crews are better able to use FMLA’s protections. [59] In 2013, the DOL also clarified factors an employer must consider when an employee requests leave to care for an adult child. The guidance addressed two issues 1) the age of onset of a disability for a son or daughter affecting the parent's ability to take FMLA leave and 2) the impact of the Americans with Disabilities Act Amendment Act (ADAAA) on the FMLA definition of son or daughter. The DOL specified that the age of the onset of the disability is irrelevant to the determination of whether an individual is considered a "son or daughter" under FMLA. This means that employees whose children became disabled after the age of 18 are eligible to take FMLA-protected leave to care for them. [58] Copyright © 2013 ERC (Employers Resource Council) This year, the Supreme Court clarified two important issues for employers: definition of a supervisor and causation standards for retaliation claims. The Supreme Court clarified the definition of a supervisor under Title VII of the Civil Rights Act in Vance v. Ball State University as someone who can take a “tangible employment action” and make a “significant change in employment status, such as hiring, firing, failing to promote, reassignment with significantly different responsibilities, or a decision causing a significant change in benefits.”[127] The Court found the EEOC's definition of a supervisor to be too broad, and the revised definition narrows the scope of an employer’s liability under Title VII.[89] Also, in University of Texas Southwestern Medical Center v. Nassar, the Supreme Court held that proof of retaliation as the primary reason that the employer acted as it did is required for Title VII retaliation claims. A plaintiff must be able to prove that retaliation was not just a “motivating factor” for an adverse action taken against them, and that retaliation directly caused an employer to take the adverse employment action.[23] 8
  9. 9. Legal HIPAA rule went into effect. The Department of Health and Human Services (HHS) issued a new final omnibus rule this year, which increased protections related to privacy and security for health information established under the Health Insurance Portability and Accountability Act of 1996 (HIPAA). The primary areas addressed in the rule include privacy/ security, breach notification, enforcement, and genetic information. Covered entities and business associates were required to make changes to privacy notices and policies, security policies authorization forms, training materials, and business associate agreements. They were also required to add a new privacy-agreement requirement between business associates and any subcontractors.[81] I-9 Form was revised. A revised I-9 Form was released in March of this year by the U.S. Citizenship and Immigration Services (USCIS). The form, which is required to verify the identity and employment authorization of individuals hired for employment in the U.S., was improved with new fields, reformatting, and clearer instructions. Employers needed to start using the new form as of May 7, 2013 for all newhires and reverifications. Compliance with the new I-9 form requirements is essential. There has been a significant increase in the number of I-9 audits in recent years because there has been a rise in the number of I-9 forms with errors and complaints issued to the U.S. Immigration and Customs Enforcement. There are fines attached to these errors, and in addition, fines for any “knowing violations” can be particularly hefty.[137] Copyright © 2013 ERC (Employers Resource Council) 9
  10. 10. Legal More states pass workplace social media privacy laws. The number of states that have passed laws related to workplace social media use and monitoring continued to increase this year. Generallyspeaking, such laws have made it unlawful for an employer to request or require that a prospective employee provide their social media password as a condition of attaining employment. According to the National Conference of State Legislatures, ten states have enacted social media privacy legislation in 2013. They include Arkansas, Colorado, Illinois, Nevada, New Jersey, New Mexico, Oregon, Utah, Vermont, and Washington. Six states passed legislation in 2012, California, Delaware, Illinois, Maryland, Michigan, and New Jersey. A total of 36 states have introduced legislation or have it pending. Ohio has not passed any legislation yet.[110] Nationally, although bills have been introduced in Congress which provide similar protections, there has been no significant movement towards passing social media privacy legislation, which may be prompting the increasing number of states to pass laws. Payroll cards experienced legal scrutiny. This year, the use of payroll cards experienced legal scrutiny, based on an investigation launched by New York’s Attorney General. New York’s Attorney General began investigating companies that pay hourly employees using Copyright © 2013 ERC (Employers Resource Council) prepaid payroll cards, with the concern that fees associated with pay card withdrawals may be insufficiently disclosed, or excessive, or that the cards may decrease employees’ take-home pay, which could, in some cases, result in pay below the minimum wage. In addition, payroll cards may not comply with state laws governing printed payroll statements and written consent for using the cards; federal law which prohibits mandatory use of prepaid payroll cards as a condition of employment; and collective bargaining agreements.[139] Some employers use prepaid payroll cards as an alternative form of electronic wage payment as they carry many benefits. In a recent local survey by ERC, 14% reported using payroll cards. They are similar to debit cards, and generally offered to employees who do not have access to, or who do not want to use, direct deposit. Payroll cards typically give employees free access to their funds or access to them at a significantly lower cost than those charged by check cashers, and also benefit employers with lower costs and fees. Electronic wage payment reduces employers’ costs relative to creating, processing, and reconciling paper checks. Employers should be cautious with using prepaid payroll card systems and make sure that these systems are in compliance with state and federal laws. [125] 10
  11. 11. Legal Ohio Shared-Work program signed into law. This year, Governor John Kasich signed into law House Bill 37 which sets the stage for Ohio’s Shared-Work Ohio program. The program is essentially a layoff aversion tool that employers will be able to use to avoid laying off workers so that they can retain their workforce, let employees keep their jobs and benefits, and avoid the high costs of hiring and training new workers. The Shared-Work Ohio program allows Ohio companies to reduce workers’ hours instead of implementing layoffs, and further enables workers to retain their benefits and qualify for unemployment for any reduced hours they incur. [135] Another added benefit of the program is that employers who opt to use the shared-work program can avoid increases to their unemployment insurance premium rates, whereas employers who choose a traditional layoff instead of the shared work program, will incur higher unemployment taxes. Employers will need to apply or opt into the program, pay 5% of the unemployment costs, and be responsible for maintaining full health insurance and retirement benefits for affected workers. [25] DOL eliminates minimum wage and overtime exemption for home care aides. The Department of Labor's Wage and Hour Division issued a final rule this past fall which eliminates the FLSA’s minimum wage and overtime exemption for home care workers. This rule goes into effect on January 1, 2015. Under the rule, most direct care workers (certified nursing assistants, home health aides, personal care aides, caregivers, and companions) will be classified as non-exempt and entitled to receive at least the federal minimum wage and overtime pay protections. In addition, as of January 1, 2015, third party employers and agencies may no longer claim an overtime pay exemption for live-in domestic workers. Employers will also be required to keep time and pay records for nonexempt direct care workers they employ. [56] Copyright © 2013 ERC (Employers Resource Council) 11
  12. 12. Legal Cases point to new FLSA lawsuit trends. The Federal Judicial Center reported in 2013 that lawsuits under FLSA have hit a new record. In the past year, 7,764 cases have been filed in federal court, which is a 10% increase from 2012, and nearly a 400% increase from 10 years ago. [117] The majority of the lawsuits deal with misclassification of exempt employees, which has led to millions of dollars paid out from lawsuits to employees who were misclassified as “exempt” by their employers, when they were technically “non-exempt” and needed to be provided with overtime for work performed above 40 hours per week. Among the commonly misclassified workers include brokers, analysts, computer technicians, and sales professionals. [117] company's FLSA violations. This particular case is a reminder to employers that the personal risks of FLSA non-compliance can be significant, and that CEOs or other individuals with operational responsibilities, who directly affect the nature and conditions of employment, could be liable. [31] These cases, in addition to the rise in FLSA lawsuits, suggest that proper FLSA compliance continues to be extremely important, and that non-compliance could be very costly. Also, a few recent lawsuits point to individual liability under FLSA, as well as possible criminal convictions that could result from failing to comply with the law's requirements. For example, in October of 2013, the Department of Labor (DOL) reported that three managers at High Performance Ropes of America were guilty of felony counts in an FLSA case, which included making false statements, withholding information, and aiding illegal entry into the U.S. While felony or criminal convictions for managers under FLSA are atypical, the case serves as a warning for organizations of the propensity for more severe legal outcomes. [57] In another court case, Irizarry v. Catsimatidis, a court found that the company’s owner and CEO constituted an “employer” under FLSA and was therefore liable, even though there was no conclusive evidence that he directly managed the employees who claimed the lawsuit against the company, nor was directly responsible for the Copyright © 2013 ERC (Employers Resource Council) 12
  13. 13. Legal Congress considers comp-time and workplace flexibility legislation. OFCCP issued final rules to improve job prospects for veterans and the disabled. In 2013, two bills were introduced and considered by Congress which would offer employees the option to take comp time in lieu of overtime pay. The government continues to make headway in trying to enhance job opportunities for veterans and the disabled. This year, the Office of Federal Contract Compliance Programs (OFCCP) issued final rules to improve job opportunities with federal contractors for veterans and people with disabilities. The rules mainly establish specific actions contractors need to take in the areas of recruitment, training, recordkeeping, and policy dissemination. Earlier this year, the Working Families Flexibility Act of 2013 was introduced, which passed the House of Representatives in May. A different bill, the Family Friendly and Workplace Flexibility Act, which included largely the same content, was proposed this past October. Both bills were proposed by Republicans, which may show support for workplace flexibility legislation. The bill would give employees the choice to elect for paid time off (comp time) in lieu of overtime payments for hours worked. Employees would receive 1.5 hours of comp time for every hour of overtime worked. It is intended to help provide employees with flexible work arrangements and better enable them to balance their work and family demands. Essentially, the proposed legislation would create a flexible credit-hour program in which employees could work overtime hours in order to accrue paid time which may be taken later. [92] Copyright © 2013 ERC (Employers Resource Council) Specifically, the final rules establish a 7 percent goal for qualified individuals with disabilities for government contractors and subcontractors. Contractors will be required to apply the goal to each job group, with the exception of contractors with 100 or fewer employees, where the goal may be applied to the entire workforce rather than each of the job groups. The rules also implement the Vietnam Era Veterans' Readjustment Assistance Act to improve job opportunities for protected veterans. They require federal contractors to establish hiring benchmarks for protected veterans, and strengthen recordkeeping requirements so that contractors can assess the effectiveness of their recruitment efforts.[138] 13
  14. 14. Legal Discrimination based on pregnancy, religion, and obesity emerged as key legal topics. According to the Equal Employment Opportunity Commission (EEOC), pregnancy discrimination claims have been steadily rising over the past 15 years. This year, the EEOC also claimed that one of its six national priorities is to address issues involving pregnancy-related limitations. Employers need to be mindful of their obligations relative to pregnant women’s rights in the Pregnancy Discrimination Act (PDA), FMLA, and FLSA. Some states are also considering bills which would require employers to make reasonable accommodations for employees with pregnancyrelated needs. Additionally, this year, religious discrimination emerged as more of an issue in the workplace. Not only were there a number of charges filed by the EEOC involving religion in the workplace, but fringe religions were posing challenges in terms of employer accommodations.[82] Also, a national study uncovered that many workers are witnessing incidences of religious bias and discrimination at work, and uncovered a common failure by organizations to accommodate employees’ religious needs. Many workers also reported that their companies have taken no actions to stop religious bias in the workplace.[142] were also a few new cases involving obesity discrimination in the workplace, specifically related to not being able to perform the essential functions of the job. [71] The EEOC Commissioner commented on the topic recently, saying that while morbid obesity has often not been limiting enough to qualify as a disability, courts are beginning to revaluate this viewpoint. [30] Finally, obesity discrimination materialized as a key issue. While obesity is not considered a disability under the ADA, the EEOC has said that morbid obesity can potentially rise to the level of disability, and the American Medical Association has officially designated obesity as a disease and disability, which may increase the likelihood that obesity becomes a form of discrimination. There Copyright © 2013 ERC (Employers Resource Council) 14
  15. 15. Legal OSHA targets safety with hazardous chemicals. This year, the Occupational Safety and Health Administration (OSHA) implemented more efforts to help employers keep employees safe when they work with hazardous chemicals. ✓ Revised Hazard Communication Standard. Includes the use of new labeling elements and a standardized format for Safety Data Sheets. Also includes specific requirements to train workers on new labels and SDSs on the chemicals in their workplace by December 1, 2013. [113] ✓ Toolkit. Provides employers and workers with information, methods, tools, and guidance to make decisions regarding finding safer substitutes and eliminating hazardous chemicals. [114] ✓ Annotated PEL Tables. Revises “Annotated Permissible Exposure Limits” which establish mandatory limits on the amount of a substance in the air to protect workers against the health effects of certain hazardous chemicals. [114] 2013 Case Law Update The following court cases in 2013 yielded several important insights for employers with regard to administering employment laws, namely FMLA, ADA, and workers' compensation. This list is not exhaustive of court outcomes related to these laws, but includes some of the most pertinent cases. ✓ In Lineberry v. Detroit Medical Center, a federal district court ruled that an employer is entitled to fire an employee if they have an "honest belief" that he or she is abusing FMLA leave. The Facebook postings used to substantiate her dishonesty were upheld. Copyright © 2013 ERC (Employers Resource Council) ✓ In White v. Dana Light Axle Manufacturing, the Sixth U.S. Circuit Court of Appeals confirmed that organizations do not need to loosen their rules for calling in absences to request FMLA leave when they have notice and procedural requirements. ✓ In EEOC v. Houston Funding II Limited, a court found that an employer who terminates a woman for lactating or wanting to lactate at work violates Title VII of the Civil Rights Act and the Pregnancy Discrimination Act. ✓ In Rodriguez vs. Valley Vista Services, an employee was deemed to be wrongfully terminated by a court for her suffering from panic attacks because her supervisor failed to provide her with sufficient leave time and other accommodations, further underscoring the importance of treating mental disabilities the same as others. ✓ In Knutson v. Schwan Food Company, an employer's documentation regarding essential functions of the job can influence courts in cases involving ADA. Even job duties that are not performed regularly can be considered essential job functions if employees are required to perform them from time to time. ✓ In Lu v. Longs Drug Stores, transferring an employee to a different supervisor was found to not be a required accommodation under ADA. ✓ In Feist v. Louisiana, a court ruled that an accommodation request does not need to be tied to an essential function, such as a closer parking spot, as was requested in the case. Employers must also consider whether an accommodation request is reasonable under the circumstances and cannot consider a request unreasonable only based on the fact that it does not relate to an employee's essential job functions. ✓ The Supreme Court of Ohio held that in order for a mental injury to be compensable under the Ohio workers’ compensation system, it must arise “from an injury or occupational disease sustained by that claimant or where the claimant’s psychiatric conditions have arisen from sexual conduct in which the claimant was forced by threat of physical harm to engage or participate.” 15
  16. 16. Legal “ We have seen the following trends in our practice emerge over the last year and we expect them to continue into 2014. Some of these trends are social media password protection laws, background checks and ban-the-box legislation, and the expansion of anti-discrimination laws. With the emergence of social media, issues are constantly coming up in the employment context. Most recently, over thirteen states have enacted laws that prohibit employers from asking employees to provide their social media passwords, including: Arkansas, California, Colorado, Illinois, Maryland, Michigan, Nevada, New Jersey, New Mexico, Oregon, Utah, Vermont and Washington. While Ohio is not among the states that have passed legislation, legislation has been proposed in Ohio that would seek to expand protections to applicants and employees with respect to social media passwords. The legislation in Ohio is not expected to pass, but other states will likely continue in this trend. The Equal Employment Opportunity Commission has continued to advance its agenda against blanket background checks, and we have seen more litigation about this issue. The EEOC issued guidance in 2012 regarding criminal background checks. In addition, many states have also enacted “ban-the-box” legislation which prohibits employers from asking questions regarding criminal history on job applications. Four states have passed laws prohibiting such application questions, and over 40 local municipalities have also enacted “ban-the-box” legislation. While Ohio doesn’t have a “ban-the-box” provision, Ohio has joined several other states in providing protections to employers from tort liability for negligent hiring and retention claims when hiring individuals that have pleaded guilty to or been convicted of certain criminal convictions. Lastly, we expect to see a push to expand anti-discrimination statutes. The Senate recently passed a bill that would prohibit discrimination against gay, bisexual and transgender Americans. While it isn’t likely to pass the Republican-led House, it is likely a “preview of coming attractions.” Many states and municipalities already ban discrimination based upon these protected categories and a federal prohibition will likely come at some point in the future." - Stefanie L. Baker, Associate at Fisher & Phillips LLP ERC Preferred Partner Copyright © 2013 ERC (Employers Resource Council) 16
  17. 17. Healthcare & Benefits I n 2013, most of the benefits trends that emerged were related to health care and the Affordable Care Act’s (ACA) impact on employers. Although several key provisions of the ACA have been delayed for employers, there were several developments that affected organizations, including the individual mandate, establishment of health insurance exchanges, and new rules on outcome-based wellness incentives. Beyond the health care landscape, wellness program offerings as well as voluntary benefits continued to expand in 2013. Employee stress, work/life balance, and flexibility were also key benefits-related issues this year; and more employers appear to be putting in place resources and practices, such as employee assistance, stress management, and flexible work programs. The major health care reform requirements have been delayed until January 2015, and there is a continued focus on the changing health care landscape. In addition, multiple studies this year pointed to a lack of knowledge in the workforce regarding health insurance and specifically, health care reform. For this coming year’s open-enrollment, employers should prepare to communicate with their workforce about health care reform, including the potential impact of the law on their business, as well as about the exchanges and health care options available. Copyright © 2013 ERC (Employers Resource Council) 17
  18. 18. Healthcare & Benefits Affordable Care Act employer mandate delayed until 2015. The employer "pay or play" mandate of the ACA, which requires that employers with 50 or more employees offer health insurance to full time employees working 30 or more hours per week or pay a penalty, will go into effect January 1, 2015. The delay was intended to allow the government to simplify reporting requirements and provide organizations with more time to comply with the mandate, adapt their health benefits, and test new reporting systems. Despite the delay, however, employers have been encouraged by the government to maintain or expand health care coverage during 2014, in preparation for the effective date. To date, most employers recognize the value of providing health care coverage and plan to “play” under the mandate versus pay a penalty. Individual health insurance mandate goes into effect Jan 2014. The individual health insurance mandate, required under the ACA, goes into effect January 1, 2014. All individuals will be required to attain health insurance coverage either through their employer or via the exchanges set up by the government. The coverage they obtain must meet the requirements for minimum essential coverage, otherwise individuals will need to change their coverage or pay a penalty on their federal income tax return. Individuals can purchase coverage through a variety of means, including the federal and Copyright © 2013 ERC (Employers Resource Council) state health insurance exchanges which were established as of October 2013. The IRS published final regulations for the individual mandate as well as minimum essential coverage. The regulations state which types of health care coverage meet the minimum essential coverage requirements and which individuals are exempt from the "shared responsibility payment."[152] Employers not only needed to provide notice to employees of their health care options in the exchanges in October, but also must inform employees about continued health care coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA). Updated notices that employers must provide include revisions to inform individuals of options available through the health care exchanges. In addition, the Small Business Health Options Program (SHOP) are intended to provide an easy and inexpensive way for small business owners to provide health insurance by purchasing coverage online. Though, it’s not expected that businesses will use the SHOP exchanges, and instead use their existing brokers, particularly if they already offer health insurance. It's important to note that online enrollment for this program has been delayed, but that employers may still enroll via paper.[40] 18
  19. 19. Healthcare & Benefits Guidance on HRAs and Health FSAs issued for 2014. ACA information reporting requirements will be released in 2014. During 2014, employers should expect that ACA information requirements will be clarified, and hopefully reduced. This past fall, the Treasury Department and IRS issued proposed rules to streamline the information-reporting requirements with which employers must comply under the ACA. The IRS and DOL have released guidance, which is effective for plan years beginning in 2014, on applying annual limits and preventative care to defined contribution health care plans. These include health reimbursement arrangements (HRAs), health flexible spending arrangements, and employer payment plans (arrangements that reimburse employees’ premiums for individual health insurance coverage) under the ACA. The guidance indicates that unless an HRA qualifies as an “excepted benefit” and if it reimburses employees’ premiums for individual health insurance on a nontaxable basis, the federal agencies will consider it to violate the ACA’s annual limit and preventative care rules. The guidance also establishes two rules on what it means for an HRA to be “integrated” with other coverage as part of a group health plan.[55] The rules are intended to help reduce and streamline requirements for employers relative to information reporting for minimum essential coverage and for applicable large employers on health insurance coverage offered under employer-sponsored plans. The new reporting requirements will help determine whether individuals are complying with the ACA’s individual responsibility requirement and if they are eligible for premium tax credits because they lack minimum essential coverage. They will also help determine if large employers are complying with the employer-responsibility provisions of the ACA. The final rules are expected to be released in 2014 so that organizations have adequate time to prepare for compliance with the new requirements by 2015. [105] Copyright © 2013 ERC (Employers Resource Council) 19
  20. 20. Healthcare & Benefits Most employers are not planning to eliminate health plans, but changes to plan design are likely. According to several surveys published this year, the widespread majority of employers are planning to offer health care benefits to employees in the future, despite the alternative avenues now available for employees to obtain health insurance under the ACA.[149] Many employers, and employees alike, lack confidence in the exchange system and its short and long term sustainability.[65] [147] Nonetheless, a great deal of research supports employers’ plans to make changes to health plans. Areas in which employers seem to be either currently or planning to make changes include spousal coverage, surcharges for dependents, retiree coverage, eligibility standards, and cost-sharing.[16] In addition, employers’ interest in using private corporate exchanges to deliver health care, which are sponsored by a private company, is growing. Private exchanges are separate from state and federal exchanges and offer benefits to employers such as reduced and more controlled costs as well as simplified administration.[98] Copyright © 2013 ERC (Employers Resource Council) 20
  21. 21. Healthcare & Benefits “ With the unprecedented change, and continually evolving rules of the Affordable Care Act (ACA), employers have started to embrace the idea of proactive planning for the financial and administrative implications. As challenges continue to mount, employers must remain agile, transparent, and intune with the needs of their employees as each milestone on the timeline is reached (or delayed). One more recent development that will impact employers in 2014 is the one-year delay of the employer penalty and reporting provisions, known as the employer mandate, which requires employers to offer minimum value, affordable health insurance coverage to avoid penalties. The employer mandate delay provides one additional year to evaluate all options and consider communication strategies to assist employees with exchange enrollment. Importantly, the individual health insurance mandate, requiring all Americans to purchase health insurance, or pay penalties, as of March 31, 2014, was not delayed. As of the Oct. 1 open enrollment for individuals in the new health insurance exchanges (aka marketplaces), further confusion has ensued due to technology glitches and miscommunications. In response, the government extended the open enrollment period by six weeks, now giving citizens until March 31, 2014 to enroll. In response to the changes brought on by the ACA, organizations are putting more emphasis on wellness programs as complete risk management strategies. Companies are increasingly adding wellness programs to their benefit offerings, in efforts to curb costs and mitigate risks. Additionally, organizations are taking a proactive approach to new communications strategies surrounding the ACA as part of compliance and overall awareness. On the insurance front, the added complexities of purchasing insurance are leading to new and multiple product offerings, defined contributions, self-funding for smaller companies, and even early renewal strategies – a rare occurrence in the past. The health care industry is also to starting to experience a trend with health care companies offering a benefit package that includes smaller based provider networks. These smaller networks often offer better pricing but do limit the choice the member has with physicians." - Frank Spinelli, Practice Leader of Middle Market Group Benefits at the Oswald Companies; ERC Preferred Partner Copyright © 2013 ERC (Employers Resource Council) 21
  22. 22. Healthcare & Benefits Health care costs remain Consumer-driven health stable. care and HSAs rise in popularity. Health care costs remained stable in 2013 and are projected to remain stable for 2014.[19] Various national surveys report differing percentages of health care cost increases, ranging from 4.8% to 7.5%, mostly in the single digits.[11] [99] Several of the projections were lower than last year or the same. Locally, average premium increases were slightly higher than reported national increases, and hovered around 10%, similar to last year. Employers need to keep in mind, however, that these are organizations’ projections, not those of health insurers. In addition, many of health care reform's provisions have not been implemented yet. As health care reform's provisions unfold, studies are predicting that health insurance rates will be significantly affected in the long-term, and as early as 2014, especially depending on the state.[140] Small employers are expected to be hit hardest, so cost-management will continue to be a business priority. National and local research continues to show that the prevalence of consumer-driven health care and specifically health savings accounts (HSAs), is rising, which has been the trend over the past few years. More employees are being covered by these plans and an increasing number of organizations are offering them to control health insurance costs. In addition, research confirms that a substantial percentage of employers (close to one-third) are considering offering a consumer-driven health plan in the next three to five years, as well as a link between participation in a consumer-driven health plan and making informed health decisions/positive health behavior changes.[12] In fact, research by Willis shows that the main concerns and priorities for employers when implementing health care reform are avoiding cost increases, reducing costs, and ensuring compliance. So far, however, few employers are planning to adjust or reduce other benefits to offset the cost of health care reform compliance. [155] Copyright © 2013 ERC (Employers Resource Council) 22
  23. 23. Healthcare & Benefits Wellness programs continue to evolve. During 2013, wellness programs and initiatives in the workplace continued to evolve. In addition, more employers are offering wellness programs, particularly mid-sized and larger employers. An increasing number of employers are offering health and lifestyle coaching and onsite fitness classes, and the most common wellness options offered in the workplace are wellness resources and information, wellness programs, onsite flu vaccines, wellness publications, a 24hour nurse line, and health screening programs, according to SHRM.[132] In addition, the majority of employers offer lifestyle management activities and programs focused on nutrition/ weight, smoking, and fitness, as well as on-site vaccinations, according to RAND Corporation.[120] Locally, in Northeast Ohio, the most common wellness activities offered appear to be health education, annual flu shots, health screenings, health risk assessments, and smoking cessation. Other fairly, but less commonly offered options, were healthy food options, wellness coaching, disease management, an annual health fair, and weight management programs. Copyright © 2013 ERC (Employers Resource Council) 23
  24. 24. Healthcare & Benefits “ According to the RAND Health Workplace Wellness Programs Study, approximately half of U.S employers offer wellness promotion initiatives. Programs often include wellness screening activities to identify the major health risks within an organization and implementation of interventions to reduce the risks and promote healthy lifestyles. Studies also show that participation in a wellness program over five years is associated with lower health care costs and decreasing health care use. Our experience at UH found an improvement among program participants in physical activity (steps measured and time spent doing activity) over past three years. In order to engage employees in wellness programs, employers are increasingly offering participation incentives. Popular incentives include insurance premium reductions and quarterly cash reimbursements. Many companies have traversed from participation based incentives to a goal based structure including, number of steps walked as measured by a pedometer, total time of physical activity and participation in other programs including weight reduction seminars, stress management and resilience workshops, and health education webinars. Companies are also increasingly tying goals to biophysical parameters. Participation in wellness programs is also greater when the senior leadership within the corporation make wellness an organizational and personal priority. Structured wellness programs continue to grow in popularity as employers realize that employees become more motivated to adopt a healthy lifestyle, reducing absenteeism and promoting a holistically healthy and happy employee." - Dr. Roy Buchinsky MD, Director of Wellness at University Hospitals ERC Preferred Partner Copyright © 2013 ERC (Employers Resource Council) 24
  25. 25. Healthcare & Benefits New rules for outcomebased wellness incentives take effect Jan. 1. The ACA creates new incentives for employers to build wellness programs in their workplace and encourage healthier habits. This past year, rules were issued for employerbased wellness incentives, which apply to plan years beginning on or after January 1, 2014. The rules increase caps on employee incentives for outcome-based wellness programs, and do not apply to participation-based wellness programs. Use of wellness incentives is rising. Research shows that more employers are offering wellness incentives,[132] and generally frame them as rewards versus penalties. Studies are continuing to support the use of wellness incentives, as they tend to correlate to participation levels in wellness programs.[14] [32] Several studies have found that many employers offer wellness incentives, typically in financial form such as health premium discounts, to encourage participation in wellness initiatives. Incentives are most commonly given for completion of health risk assessments, lifestyle management programs, and to a lesser degree, clinical/biometric screenings.[120] Incentives also are increasingly being awarded to employees who achieve certain outcomes or results through health and wellness programs. Copyright © 2013 ERC (Employers Resource Council) The maximum financial incentive for outcomebased wellness programs, which have metrics or specific goals, will increase from 20 to 30 percent of the total cost of coverage (employee + employer). For wellness programs with a tobacco reduction element, the maximum incentive could be up to 50 percent of the cost of coverage. In other words, up to 50% of the total cost of coverage can be tied to outcome-based incentives, with 30% being specifically assigned to biometric standards. An additional 20% could be for tobacco-free standards. The rules also indicate that employers will need to provide “reasonable alternatives” to standards-based wellness programs for employees with medical conditions who may not be able to comply with the wellness program’s requirements. Additionally, the program must be designed to promote health or prevent disease, and everyone must be given a second (alternative) way to earn an outcomes-based incentive regardless of a previously acquired medical condition.[60] 25
  26. 26. Healthcare & Benefits "Use or lose it" rule changes for flexible spending accounts. In 2013, the Treasury Department and IRS modified the “use-or-lose” rule that applies to health flexible spending arrangements (FSAs). The modification allows plan participants to carry over up to $500 of their unused balances at the end of the plan year, providing more flexibility to employees that participate in these accounts. Employers also have the option of providing employees with a grace period. The grace period allows employees to use their unused balances at the end of the year to pay for qualified expenses up to two and a half months following year-end. A health FSA cannot have both a carryover and grace period, however. It must have one or the other, or neither.[151] Rise in e-cigarette usage is leading employers to review policies. Increased usage of e-cigarettes is leading employers to review their policies with regard to smoking in the workplace and to have concerns regarding how to handle these devices. Experts suggest that employers should include e-cigarettes among tobacco-use products, as the Food and Drug Administration (FDA) does not consider them to be tobacco cessation devices, and they aren't regulated. The National Business Group on Health further advises employers to revise their tobacco-free policies to include e-cigarettes, and either limit or potentially even ban e-cigarettes, if it is legal in their state/ jurisdiction.[109] In ERC's latest Wellness Practices Copyright © 2013 ERC (Employers Resource Council) Survey, 42% of 102 survey respondents in Northeast Ohio indicated that they do not allow use of electronic cigarettes and 28% only allow them in a designated smoking area (outside). According to the National Business Group on Health, because e-cigarettes are not FDA-approved smoking cessation devices, employees who use them can be considered smokers and may not be eligible for lower health insurance premiums if provided to non-tobacco users. Employers can treat e-cigarette users the same as smokers and offer exemptions from surcharges and/or premium discounts on their health insurance if they participate in a smoking cessation program.[109] Smoking, even with e-cigarettes, can affect health insurance rates, the wellness of your employees, and ultimately your organization's bottom line, so as an employer you can take steps such as limiting and banning e-cigarettes and treating users of these devices the same as smokers to prevent these business repercussions.[91] 26
  27. 27. Healthcare & Benefits Voluntary benefits are becoming more common. Employers seem to be shifting to voluntary benefits and products that fill gaps in their current health insurance and benefit offerings, and cover expenses for certain extenuating circumstances. A few studies this year found that voluntary benefits are not only desired benefits of employees, but are also becoming more commonly offered by employers. Voluntary benefits are expected to become more important over the next five years based on their convenience, affordability, and employees' ability to customize their benefits package to their lifestyle.[148] The most common voluntary benefits offered include life, vision, disability, dental, and accident insurance. A number of employers also offer critical illness and identity theft insurance, as well as financial counseling, according to research by Towers Watson.[148] Other research by Mercer confirms that accident and hospital indemnity insurance, theft insurance, and legal assistance are offered by several employers, though not as commonly offered as other benefits.[97] Much less commonly offered voluntary benefits were free/ subsidized parking and pet insurance.[41] Flexible work schedules remain common. Flexible work schedules are common nationally and in Northeast Ohio. The most common flexible work practices, offered by the majority of employers, are flex-time, telecommuting, part-time options, and allowing for changes to start and end times. Compressed workweeks, telecommuting/work from home, shift flexibility Copyright © 2013 ERC (Employers Resource Council) changes, and other flexible work practices are also somewhat common, though less popular.[161] However, this past year, flexible work schedules encountered more scrutiny, with decisions made by a few major public corporations to overhaul their flexible work programs. Unlike what the media attention might suggest, these decisions do not appear to have had any widespread impact on flexible work practices. Most surveys have shown very minor changes to flexible schedule offerings. Research continues to show that flexible work yields many benefits for employers in terms of lower turnover, higher employee engagement and satisfaction, better employee well-being, improved productivity/performance, and heightened work/life balance.[161] Flexible work schedules are becoming particularly important because the workforce is demanding more work/life balance. One study by Hay Group this past year found that more than one in four employees at organizations which were not perceived to support work/life balance, plan to leave their employers in the next two years.[80] 27
  28. 28. Healthcare & Benefits “ As an employee assistance program (EAP), we most often discuss the need for a flexible work schedule with employees who are facing dependent care responsibilities. While flexible work trends are often articulated from the employer’s perspective, we often find ourselves advocating these practices from the employee’s perspective. An EAP often plays the role of educator, coach or advisor to the numerous employees calling us each day who request help with balancing their work responsibilities with their personal responsibilities. For most, they are looking for help with addressing the demands placed upon them when they take on the dual role of working parent, working caregiver, temporary guardian or devoted spouse and employee. For many, the EAP can provide them with referrals to programs and services that can provide the care their loved one needs while they are at work, as well as teach them how to deal with the emotional toll these issues take on the employee. Here at ease@work, the number of these types of requests have remained stable over the last two years, approximately 11% of our calls. But sometimes the resources are not enough. When employees decide that the best solution is to take time off or to adjust their work schedule to accommodate the needs of their loved ones, employees can turn to their EAP for guidance on how to talk with their employer. We have seen a slight increase in the number of employees who have reported feeling more confident in knowing how to best work in cooperation with their employer to find creative ways to take ownership for these personal responsibilities, while honoring their work commitments because of the support and conversations they’ve received from their EAP. If the employee has been made aware of their company’s Flexible Work Practices, feels that they have a manager who is understanding of their situation, and believes the company’s flexible work practices to be fair, they are more likely to strive to address their personal issues while being responsible and respectful to the duties of their job. This creates a win-win for both the employee and employer." - Janet M. Schiavoni, Director at ease@work ERC Preferred Partner Copyright © 2013 ERC (Employers Resource Council) 28
  29. 29. Healthcare & Benefits Employee stress gains more attention in the workplace. While stress is certainly not a new workplace issue, it seemed to gain more attention in 2013 as studies revealed that work is a significant source of stress for many. Multiple studies found that the majority of workers are stressed and that work factors are the primary sources of stress, including low salaries, lack of advancement opportunities, heavy workloads; and not feeling valued, recognized, or heard. [18] Other common reasons for stress were work changes, working in a job that is not one's career choice, work schedule, work relationships, fears of being fired or laid off, and lack of influence or control over how work is completed. Also, younger employees seem to be more affected by stress than older workers. [80] Although stress management programs and employee assistance resources related to helping employees cope with stress are expanding in the workplace, they are still underutilized by most organizations, despite the benefits they offer. [13] At a minimum, employee assistance programs (EAPs) can be an ideal benefit and resource to help employees address lifestyle and workplace stressors. Studies report improved work performance and productivity among employees who use EAPs to address stressors. These programs, in addition to formal stress management or reduction initiatives, can help employees identify the causes and potential solutions to stress and promote their well-being. “ It is not surprising that overall stress is on the rise. Stress levels at work shot up when the economic downturn hit and things do not seem to be getting any less stressful in the workplace. The fact that the calls for home stress have surpassed the calls for work stress during this past year tells me that the stressful conditions at work are taking a toll on people's personal lives to the point where it is now affecting their home lives. This shift is a bit ironic, considering the fact that EAPs are traditionally considered valuable for the organization in that they address personal issues at home to reduce the impact on work performance." - Pat Gaul, Manager of Account Services at ease@work ERC Preferred Partner [157] Copyright © 2013 ERC (Employers Resource Council) 29
  30. 30. Compensation 2 013 experienced similar compensation trends when compared to 2012, with a few new developments. These included stagnant pay increases, a continued decline in pay freezes, consistent bonus levels, and an emphasis on differentiating pay based on performance. Executive compensation, intern pay, and the gender pay gap were also pay issues that experienced greater controversy and scrutiny this year. Heading into 2014, organizations can expect continued modest pay increases, a conservative approach to pay for performance, and more transparency in how pay practices are communicated. New compensation trends, however, also emerged during 2013. More employers seem to be using a compensation philosophy to guide their pay practices, and transparency of pay practices is improving. Copyright © 2013 ERC (Employers Resource Council) 30
  31. 31. Compensation More employers have a compensation philosophy. Research this year confirms that more employers are instituting formal, written compensation philosophies as compared to a few years ago. Currently, the majority of organizations have a formal compensation philosophy, based on WorldatWork's research.[159] Compensation philosophies are becoming more common in explaining an organization's pay strategy and position in comparison to the market; the types and mix of rewards offered; how job performance relates to pay; and how the organization determines compensation for its jobs. WorldatWork's research points to the need for employers to communicate their compensation philosophy more clearly with employees to help improve their understanding of compensation programs and practices.[159] Pay practice transparency is becoming more common. Pay practice transparency is seeming to gain ground in the workplace. Though certainly not widespread yet, a growing number of employers are becoming more open and transparent about their pay practices, evidenced by more sharing of policies and practices, strategy, market data, salary ranges, and other compensation information, though not including individual salaries.[136] There seems to be an openness developing in organizations with regard to eliminating the secrecy of workplace pay practices and creating a more transparent environment surrounding compensation topics. There are undoubtedly research-supported benefits of sharing more information regarding compensation, including enhanced employee perceptions of pay fairness and a better understanding and appreciation for the compensation provided. Copyright © 2013 ERC (Employers Resource Council) 31
  32. 32. Compensation CEO pay ratio practices experience increased public attention. Earlier this year, Bloomberg News reported that the gap between CEO and employee pay is growing, and that CEO compensation is over 200 times higher than the pay of average employees. This reflects an increase of 20% since 2009. The ratio is based on the government's industryspecific averages for pay and benefits and the SEC-required summary compensation table that companies publish in their shareholder proxy statements.[75] In addition, this past fall, The Securities and Exchange Commission (SEC) has proposed a rule, under the Dodd-Frank Act, which would require companies to disclose a pay ratio of their chief executive officer's compensation to the median total compensation of all of its employees (for the last fiscal year). Under the rule, the SEC would not prescribe a specific method for organizations to use when calculating a pay ratio and companies would have the flexibility to determine the median annual total compensation among their employees and make reasonable estimates when calculating elements of employees' total compensation. Companies would be required to disclose the method they used to identify the median and total compensation as well as any amounts that are estimated.[128] But according to Towers Watson, companies are concerned about the cost and effort involved in complying with the SEC's proposed CEO pay ratio disclosure. In a survey it conducted, over half of respondents were concerned about complying with the new disclosure requirement, specifically gathering pay data, determining Copyright © 2013 ERC (Employers Resource Council) a data-sampling approach, and identifying the median employee. Thirty-one percent said their biggest concern was where their CEO-to-worker pay ratio stood compared with their peers.[149] New trends in executive compensation take shape. With increased scrutiny of executive compensation, companies are being required to disclose more details about their senior leaders' compensation, and as a result, are strengthening executive compensation practices, how executives' compensation plans are structured, and the link to performance. Pricewaterhouse Coopers' research found that clear and unambiguous, short-term focused compensation tends to be preferred by executives. It also found that executives consider pay practices that are consistent with those of the organization's competitors to be the most fair. Additionally, it showed that executives prefer less risky pay for performance rewards based on clear and internally controllable measurements, such as profit, versus external factors.[118] In addition, Pearl Meyer & Partners reports that a solid executive compensation strategy should be linked to the business' needs and achievement of organizational objectives. It also should be focused on pay for performance and customized to reflect business risks at different stages in the organization's lifecycle.[116] 32
  33. 33. Compensation Unpaid intern practices face legal scrutiny. Gender pay gap shows no signs of narrowing. Over the past few years, unpaid internship practices have experienced more legal scrutiny in terms of wage and hour lawsuits. But in 2013 alone, unpaid internship lawsuits certainly saw an unusual uptick from years past. This past year, unpaid interns filed lawsuits against several large corporations, most notably including Condé Nast Publications, Warner Music Group, Atlantic Recording, Fox Entertainment Group, NBC Universal, Viacom, Sony, and Universal Music Group.[90] Women are earning approximately 77 cents on the dollar when compared to men in the workplace, and the gap doesn't appear to be getting any narrower.[24] One of the most significant cases involving unpaid interns in 2013 was Fox Searchlight's. The U.S. District Court for the Southern District of New York determined that some of Fox Searchlight Inc.'s unpaid internships were illegal, and that interns who worked on the organization's production film sets were entitled to compensation under FLSA, even though they received academic credit for their internship. The ruling did not suggest that all unpaid internships are unlawful, but clearly presented a warning to employers that unpaid internships could carry costly consequences if they do not meet criteria set forth by the DOL.[103] For now, it's unclear how these lawsuits will affect internships in 2014, though some experts suggest that they may result in reduced job opportunities in some industries that have historically used unpaid interns such as media and publishing. [90] It should be noted, however, that research by the National Association of Colleges and Employers, as well as local research by ERC and the Northeast Ohio Council on Higher Education, show that paid internships are far more common than unpaid internships.[108] Most employers understand the competitive benefits of providing compensation to interns in order to attract quality intern candidates. Copyright © 2013 ERC (Employers Resource Council) The Bureau of Labor Statistics (BLS) published a report this year which showed that full-time employed women earn 80.9% of what their fulltime employed male counterparts earn (82.2%). The BLS reported that the gap widened slightly since 2005 and is not improving. In addition, efforts to close the gap appear to be fairly stagnant.[33] In another study by the National Partnership for Women and Families on U.S. Census Bureau data, the median yearly pay for women who are employed full time is $11,084 less than men's.[82] With women's issues in the workplace making more headway in 2013, the gender pay gap will undoubtedly continue to be part of the conversation. These recent statistics are a reminder to employers that when setting compensation, they are prohibited from discriminating based on sex under the Equal Pay Act. Employers must pay employees the same for "equal work on jobs requiring equal skill, effort, and responsibility, and which are performed under similar working conditions."[63] 33
  34. 34. Compensation Differentiating pay increases by performance continues to be prevalent. Employers project 2.9%-3.0% pay increases for 2013/2014. Salary budget planning surveys for 2013/2014 consistently report average actual pay increases of about 2.9% for 2013 and project pay increases of 2.9%-3.0% for 2014 for most levels of employees, in line with increases of last year. Numerous surveys suggest that employers are differentiating pay increases by performance level. Higher performing employees tend to receive higher pay increases above the average increase, while lower performing employees tend receive lower pay increases below the average increase. Average increases for top and average performers rose in 2013 when compared to 2012. Increases for top performers average around 4.4% while increases for average performers average around 2.6%. Employers generally cite average increases of less than 1% for bottom performers.[15] [102] [160] Locally, ERC finds that employers are providing pay increases of 2.9% for 2013 and projecting the same percentage increase for 2014. Results of national surveys fluctuate between 2.8% and 3.1%, with the majority indicating 2.9% increases on average for 2013 and 3.0% increases for 2014.[15] [29] [47] [78] [102] [144] [160] The reasons for these stagnant pay increases can typically be attributed to low base salary movement, less hiring and job expansion, uncertainty regarding the ACA, and continued economic uncertainty. The percentage of employers not providing pay increases or freezing pay continues to decline across nearly all compensation planning surveys. Organizations freezing pay are clearly in the minority, as ERC's research, validated in other national survey reports, shows that most employers surveyed are projecting pay increases in 2014 when compared to the past several years. Copyright © 2013 ERC (Employers Resource Council) 34
  35. 35. Talent Management I n 2013, many employers continued to be faced with stagnant engagement, challenges with retaining employees and rising turnover, and struggles with talent management. N a m e l y, o r g a n i z a t i o n s ’ performance management, rewards and recognition, and leadership development practices are missing the mark in some respects, despite research showing that they significantly influence engagement, retention, motivation, and productivity. and new trends in how employers deliver training are gradually being implemented. Coaching and mentoring are also becoming more common developmental tools. In addition, shifting workplace demographics are sparking debate in the workplace, and causing employers to rethink and retool their talent management practices. Other areas of talent management have evolved in the past year, and will likely continue into next year. Closing skill gaps continues to be a priority for employers Copyright © 2013 ERC (Employers Resource Council) 35
  36. 36. Talent Management Research showcases trends in engagement and need for organizations to focus on career opportunities that drive higher engagement. Research conducted this year reported several trends in employee engagement. Not only did employee engagement remain fairly stagnant in 2013, with no major increases or decreases in engagement levels, but studies continued to find relationships between employee engagement and financial performance.[68] Gallup found that engagement varies according to several demographic variables. Specifically, it found that age and length of service affect engagement. The generations at the beginning and end of their careers are more engaged than the generations in the middle of their careers. Engagement also tends to be higher for employees with fewer than six months of service and lowest for employees with fewer than 10 years of service.[68] In addition, job type, level, and education also appear to influence engagement. Managers and executives are the most engaged. Professional workers tend to be more engaged than manufacturing, production, transportation, and sales workers. Employees with a college degree are less likely to report having a positive, engaging workplace experience when compared to employees with less education.[68] [69] Another survey by Leadership IQ this year found, not surprisingly, that high performers were the most engaged in the majority of organizations. Copyright © 2013 ERC (Employers Resource Council) Rarely were middle performers the most engaged, and they tended to be largely ignored by their managers. In some organizations, however, low performers were more motivated, engaged, and enjoyed working at their organizations more than middle and high performers. [154] In terms of what is driving engagement, Aon Hewitt found that career opportunities was the top driver that influenced engagement, and that enabling performance through tools and resources was the second highest engagement driver.[17] Despite career development's importance in driving engagement, programs are lagging in the workplace. Towers Watson's Talent Management and Rewards Survey found that few companies have career paths and only one in four respondents say that their managers are effective in providing career management support. Additionally, fewer than half of organizations say their employees understand how they can influence their careers and that employees are able to advance their careers at their organization given the structure and tools that are currently in place.[150] 36
  37. 37. Talent Management Studies report trends in performance management practices. Several new studies report trends in performance management practices among employers, showcase performance management best practices, and reveal what employees want most from the performance management process. Early in 2013, SHRM set a performance management standard which provides organizations with a uniform way of analyzing and discussing their employee’s job performance – the first standard established for performance management. It is a useful set of best practices for employers, which details several elements of the performance management process including manager and employee roles, goal setting, performance review process and measurement, performance improvement plans, and connections to other performance management processes.[131] A great deal of research this year uncovered commonalities in factors that drive the success of performance management processes. Mercer found that organizations generally have commonalities in their performance management programs including setting employee goals, using competencies, conducting self assessments, incorporating overall performance ratings, linking performance and pay, and using a 5-point rating scale. It also showed that the top driver of successful performance management was people management skills, specifically setting employee goals, providing feedback, evaluating performance, and linking performance to talent management decisions.[100] Another study conducted by researchers at Duke University, Harvard Business School and Yale University this year supported the use of goal-setting in the performance management process and found that when employees help create their own goals, they are more likely to perform at higher levels.[96] Copyright © 2013 ERC (Employers Resource Council) Deloitte's research suggests similar trends in that immediate feedback, recognition/strength-based feedback, peer and multi-source feedback, manager capability to coach effectively, easy and quick access to performance data, and performance management technology are crucial elements of performance management that drive system effectiveness.[53] Likewise, in a study conducted by the SHRM, 90% of organizations believe that feedback from an employee’s direct supervisor plus feedback from their peers is the most accurate evaluation of performance, despite the fact that most do not include peer feedback as part of the evaluation process. In addition, around half of employers say their performance management process is not effective and needs to be overhauled. [134] Other studies this year report on employees’ perceptions of their organizations’ current performance management practices. They show that employees are generally skeptical of performance reviews, viewing them as unfair and perceiving them to not be true indicators or performance, reflecting only a single point of view, making them feel undervalued, and not accounting for past work. [73] [87] Employees believe that development and growth should be the top goal for performance management, and that more recognition, peer feedback or feedback from others, and immediate feedback are desirable facets of performance management.[73] Similarly, another survey showed that the widespread majority of employees prefer face-to-face meetings about their performance, and younger employees favor more performance meetings when compared to older employees.[38] On a final note, studies also confirm that the majority of organizations are applying performance management to executives, including CEOs. This sends a message that performance expectations, standards, and accountability are applicable to all levels of the organization.[86] 37
  38. 38. Talent Management Quality of management linked to productivity, retention, and engagement. More and more research continues to show that manager quality is very important, and that there are certain behaviors and attributes that make employees more satisfied with their manager. Two studies specifically showed that quality of management matters in terms of productivity, retention, and engagement. lives and who had more positive feelings about interaction with one’s supervisor, were more engaged.[48] Finally, another survey by the Workforce Institute at Kronos this past year on the attributes of the best managers found that employees favor managers who are high achievers, honest, goal-oriented, and compassionate; invest in their professional development; and praise them directly. [156] All of this research points to the importance of ensuring that managers have the right skills and behaviors. In a study by DDI, respondents indicated that their best bosses recognized them appropriately, supported them without taking over, involved them in decisions, took time to explain the reasons behind their decisions, and helped maintain their self-esteem. Their best bosses were also considered more likely to help them be productive, give them sufficient performance feedback, effectively handle workplace conflict, empathize when sharing concerns or frustrations, and help them solve problems. Boss quality was tied to whether or not employees felt motivated to give their best to their manager and their intention to stay at their organization. The majority of respondents said they would be 2060% more productive under their best boss. [49] Similarly, in a study by Dale Carnegie Training, satisfaction with one’s supervisor played a role in engagement. Around half of employees who were satisfied with their manager were engaged and said they learned a lot from their supervisor. Forty percent of employees who feel empowered by their supervisor are engaged. Of the 28% of employees who felt a negative emotion with their supervisor, fewer than half of these employees were engaged. Also, employees who perceived that their managers cared about their personal Copyright © 2013 ERC (Employers Resource Council) 38
  39. 39. Talent Management “Big Data” starting to become more common in HR departments. The use of “big data” continues to be a key focus in workplaces and is affecting not only the skill sets needed in the workforce, but also HR departments and how they operate. In addition, "big data" is becoming more important for employers in achieving goals and making talent decisions. executives perceived analytics to be vital to their organization, and as a result, analytical skills were viewed as crucial and in demand.[7] Another study by the American Management Association found that HR was perceived to have the least analytical ability than other functions in the age of “big data,” and will need to spend more time developing and honing these skills to improve their function’s effectiveness.[8] Organizations are increasingly using data and analytics to drive better talent acquisition, performance, engagement, compensation, learning management, and workforce planning and retention, to name just a few of its many uses. Specifically, organizations are using workforce analytics including employee and leadership research (e.g. employee focus groups, employee surveys, exit interviews, employee reward preferences, line manager feedback, and senior leadership feedback); external benchmarking (e.g. competitive market data on pay and benefits, external benchmark data on talent management practices, data on marketplace prevalence of reward and talent management programs, and trends in total reward design); and organizational analytics (e.g. business performance analytics, workforce demographic data, and workforce performance data).[158] HR is struggling to manage and use this information, however. A study by SHL this year found that that HR is overwhelmed by the amount of workforce data, dissatisfied with how their organization manages data, and perceive their organizations to be ineffective in using talent analytics.[130] Additionally, a study by the American Management Association and Institute for Corporate Productivity found that most Copyright © 2013 ERC (Employers Resource Council) 39
  40. 40. Talent Management considered a valuable developmental tool that produces long term results.[145] Additionally, coaching can also be extremely effective at the line-manager level. In another study by the Institute for Corporate Productivity this year, use of one-on-one coaching among frontline managers was found to have a high correlation with market performance.[56] Bersin by Deloitte also reports that organizations with senior leaders who coach effectively can improve their business results by 21%, on average.[26] Coaching is being increasingly used to develop employees. A number of surveys this year explored coaching practices at all levels in the workplace including coaching for executives, line managers, and others – even the CEO. Coaching is increasingly being used to develop leaders for succession, increase knowledge transfer, improve performance, drive employee engagement, reduce attrition, and enhance teamwork. In fact, coaching from superiors, peers, and external coaches was ranked the second most commonly used approach in developing high potentials on a leadership career track.[54] But studies have also found that coaching has room for improvement. As managers are being encouraged to coach their employees, internal coaching skills were identified as needing improvement in a number of studies. In addition, line leaders who are ineffective at coaching were seen as a major challenge in the success of high potential development programs.[54] As a result, organizations may benefit from enhancing line leaders’ coaching skills such as in creating shared goals, asking questions, guiding employees, giving/receiving feedback, and supporting employees. One study by the International Coach Federation in partnership with PricewaterhouseCoopers found that coaching is used by many organizations to achieve optimal performance and effectiveness, particularly for senior level executives, and is Copyright © 2013 ERC (Employers Resource Council) 40
  41. 41. Talent Management Employee retention is a major challenge for employers. Retention is considered a chief concern by many employers. Thirty-eight percent of 2,100 randomly selected chief financial officers reported that retaining valuable staff members was their biggest staffing concern over the next 12 months, according to a survey by Robert Half. [123] Another survey by Cornerstone echoes this trend, reporting that U.S. employers are looking at more potential turnover in the next year.[43] Also, a survey by the American Management Association revealed that turnover is a growing workplace issue.[4] In addition to these studies, Hay Group, in partnership with the Centre for Economics and Business Research, found that employee turnover is set to rise in 2014 worldwide, with more workers expected to “take flight” as economies see more growth and employment opportunities increase. Average employee turnover rates over the next five years are forecasted to rise from 20.6% to 23.4%.[79] Bersin by Deloitte also confirmed the trend of growing retention concerns this past year, and attributed it to work environments not keeping pace, young employees wanting more career growth than is currently offered to them, management not understanding how to motivate workers, and the influx of social media tools which make it easier to look for a job.[27] Yet a number of studies pointed to effective ways to retain talent. A Randstad study found that bonuses, promotions, a comfortable and stimulating work environment, having the ability to share their ideas and opinions, and investments in training and professional development were effective retention tools.[121] Meanwhile, Hay Copyright © 2013 ERC (Employers Resource Council) Group found that confidence in leadership, opportunity for career development, autonomy, a supportive work environment, and appropriate compensation are key factors affecting employee retention. Employees who are planning to stay with their organization for more than two years score their employers over 20% more favorably on these five factors than employees who are aiming to leave in the same period.[79] In another study, Hay Group also found that lack of organizational support for work/life balance was tied to turnover. [80] Additionally, Cornerstone uncovered that having a good manager with whom they enjoy working, feeling appreciated by their supervisor; and having the opportunity to learn, develop, and advance were key factors that motivated employees to stay at their organizations.[43] While retention appears to be a growing concern for employers in the coming year, there are also a number of useful strategies that research has found which can help organizations retain their employees. 41
  42. 42. Talent Management Delivery of rewards and recognition could improve. Work, salary, and job security remain the most important work values. A few surveys conducted on rewards and recognition show that while the majority of employers have a recognition program in place and believe that rewards and recognition is valuable, rewards and recognition practices are critical for employee engagement and could improve in many organizations. The work itself, compensation, and job security are consistently among the most important job attributes to the workforce. A SHRM and Globoforce study found that managers and directors are most likely to recognize others, and executives and top managers were the least likely to recognize other employees, yet only 49% of employers believe that managers effectively recognize and reward performance and only 26% say that employees are satisfied with the level of recognition they receive for doing a good job.[134] The study also noted that most respondents believe that feeling appreciated by one’s supervisor has the most impact on engagement. Likewise, research by Towers Watson and O.C. Tanner also shows that how recognition is delivered and presented to employees affects their engagement, and that employees are significantly more engaged when recognition makes them feel appreciated, feels sincere and personal, connects accomplishments to company values, and details specific accomplishments.[112] In addition, a survey by WorldatWork this past year reports that recognition programs are perceived to have a positive effect on engagement, motivation, and satisfaction – particularly when there is stronger management support for recognition. Recognition for length of service, above and beyond performance, peer to peer, and motivation of specific behaviors were the most common types of recognition.[162] Copyright © 2013 ERC (Employers Resource Council) In a survey, use of skills and abilities, enjoyment of work, and respect and appreciation were tied for the top three most important values. Salary was rated second in importance, and job security followed, rated third in importance. Other values that were considered highly important to job seekers were their supervisor/manager, training opportunities, performance feedback, leadership, vacation/paid time off, career advancement, involvement in decisions, and corporate culture. Bonuses and work-from-home options were considered the least important to job seekers.[106] Additionally, in a study published in the Employee Benefit Plan Review, salary and meaningful work were the most important attributes to workers.[70] The results of Monster’s survey and the survey results published in the Employee Benefit Plan Review mirror those of ERC’s annual survey of over 4,000 top performers in the region, conducted as part of the NorthCoast 99 program, at least in terms of attributes considered most important. In this year’s survey, challenging and meaningful work was ranked as the most important job attribute among top performers surveyed, and compensation and job security followed as the second and third most important job attributes – consistent with the findings of Monster’s survey. Work/life balance, benefits, career development, leadership, advancement, and autonomy (in order of importance rankings received) were also considered important – some of which varied in importance when compared with Monster’s survey. 42
  43. 43. Talent Management Certain training trends will influence employers in 2014. Several training trends emerged during 2013 that will affect employers’ delivery of learning and development heading into 2014. They include the following. ✓ Informal learning, such as discussing best practices, reading articles and blog posts, informally talking to mentors, and exchanging messages with coworkers, is evolving and more organizations are leveraging it to improve performance. The majority of organizations plan to increase their use of informal learning in the next three years.[21] ✓ Despite an increase in spending, lack of time for training and development has become a major impediment to organizations being able to train and develop their staff. Organizations will need to find ways to train and develop staff in smaller increments of time seeing as workers are stretched for time to develop skills.[3] ✓ Organizations will face challenges in developing technical, creative, and analytical individuals (otherwise known as “knowledge workers”), who have critical skill sets, but who tend to not be as strong in softer interpersonal skills and people management.[28] ✓ Although still not very common, mobile learning will continue to grow. More organizations are offering learning via mobile devices, which is an increase from last year. E-learning content is increasingly being repurposed for mobile delivery, just-in-time learning, and on-the-job support.[22] ✓ Mentoring and reverse mentoring are emerging as important learning tools. Increased use of mentoring as a developmental tool is helping organizations pass along older workers’ knowledge to younger employees. More companies are also using reverse mentoring in which younger generations are asked to mentor managers and leaders on social media, technology, and other relevant topics.[64] ✓ Spending on training and development is projected to increase. The majority of organizations project a learning spending increase in 2014 in the areas of e-learning, leadership and management development, learning technology, and performance consulting.[61] Copyright © 2013 ERC (Employers Resource Council) 43
  44. 44. Talent Management Leadership development: a growing concern and priority for many employers. Employers are becoming concerned about the lack of future leaders in their organizations and putting into place practices to develop leaders. Across several surveys conducted this year on leadership development, most organizations view future leadership of their organization as a high priority.[123] This includes succession planning, emerging leaders, and leadership development of young people.[37] This trend is further supported with the increase in spending projected for leadership development. According to a global survey conducted by The Conference Board and Right Management this past fall, spending on leadership development programs is expected to increase over the next 12 months for 37% of respondents. More resources are planned to be allocated to a full spectrum of leadership learning initiatives including coaching/mentoring, action learning initiatives such as business challenges and simulations, and focused skill development.[144] Likewise, in a survey by Chief Learning Officer magazine, around half of organizations surveyed predict a spending increase in leadership and management development next year, as well as other areas of training and development.[61] In addition to more emphasis and investment in leadership development, research by the American Society of Training & Development (ASTD) shows that leadership learning is changing and now includes more experiences, dialogue, movement, humor, reflection, and challenge. In addition, ongoing coaching following training, regular refreshers, shorter sessions, online Copyright © 2013 ERC (Employers Resource Council) learning (webinar and mobile formats), and "justin-time" training and exercises are being used more often to develop leaders.[20] Another study by Aberdeen shows that organizations with aboveaverage leadership readiness tend to not only use formal leadership development programs, but also stretch assignments, on-the-job or formal coaching, and coaching or mentoring from internal sources.[1] Aberdeen's research also pointed to trends in how organizations are identifying leaders. Specifically, organizations say that critical thinking and cognitive ability assessments, customer or client feedback, multi-rater/360 assessments, hiring manager and supervisor feedback, and other skill/behavioral or scenario-based assessments are most commonly used to identify leaders.[1] Leaders also continue to be evaluated based on certain competencies. Studies suggest that key competencies of leaders are creating a culture of engagement, business acumen, embracing diversity, being politically savvy, adaptability/ versatility, effective communication, learning ability, multicultural awareness, self-motivation/ discipline, and collaboration.[37] How organizations define leaders is also changing. A survey by the American Management Association revealed that more organizations consider employees to be leaders based on their influence and performance, rather than their specific job level.[5] This year’s research shows that leadership development continues to be an extremely important initiative in workplaces, and is evolving in terms of how organizations are identifying leaders and developing them for future roles. 44
  45. 45. Talent Management “ Requests for leadership development continue to rise from a few years ago. Most of the training we deliver is geared towards improving the skills of those who lead others. Also, coaching and mentoring, along with multi-rater/360 degree assessments, stretch assignments and book study groups (among other informal learning methods) are being used more to augment leadership development, rather than just providing training alone." - Chris Kutsko, Director, Learning & Development at ERC Women’s issues in the workplace become popular. Women’s issues in the workplace pertaining to compensation, work/life, and leadership gaps were popular topics in 2013, and will likely continue to be heading into 2014. ✓ Women tend to receive fewer critical assignments and projects which give them more attention from the C-suite and that lead to advancement. ✓ Women are leaving their careers to care for their families because of workplace problems or because they either couldn’t find part-time options or found their part-time schedule problematic and ended up working more hours than intended. ✓ While a number of women advance to middle management, the percentage of women who make it to the C-Suite is dramatically low in comparison. In addition, leadership development for women was a key issue for HR and in the media. Not only did more research confirm the leadership gaps in many businesses for women (such as assertiveness, personal branding, time and priority management, and business leadership skill), but it also brought to light the different leadership development needs that women have than men, and the leadership competencies that tend to be stronger in women.[94] Some research conducted even found that women make better leaders in the workplace.[9] Women are a critical demographic in most businesses and certainly even more so in some industries. As a result, organizations need to continue to make sure that they are providing fair opportunities for them in the workplace and supporting their unique needs. There was notable conversation and research conducted which is putting more pressure on the workplace to provide adequate support for women’s needs relative to work/life balance, family, and career development. The Harvard Business Review, in particular, published a “research round-up” of women’s issues in the workplace and reported the following:[77] Copyright © 2013 ERC (Employers Resource Council) 45