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“Managing Business During Turbulent Times” November 29, 2001
Leaders Ed Curran—Moderator Leslie Dixon (Robert W. Baird Company) Diane Krieman (Hewitt Associates, Lincolnshire) Ryan Harvey (Hewitt Associates, Lincolnshire) Heiko Dorenwendt (Hewitt Associates, Lincolnshire) Scott Law (Hewitt Associates, Lincolnshire) Amy Cohen (Hewitt Associates, Lincolnshire) Bob Conlon (Hewitt Associates, Lincolnshire) Ed Curran Today’s Hewitt teleconference is “Managing Business During Turbulent Times.” Some companies are reacting to the volatile business environment with innovative ways to engage and focus their employees including cost-saving alternatives, effective work place strategies, and compensation planning. Today, you will not only hear about meeting the challenges of today’s environment, but more importantly, how to stay focused on your most important asset, your people. Additionally, you’re going to hear the results of the latest Hewitt research. We will hear from each of our speakers over the next 40 minutes, and then, we will open the lines for your questions. Keep in mind that a lot of people take part in every Hewitt teleconference including the press, at times, and we welcome their participation and their coverage. Now we have a number of people to make up our panel today. Our special guest today is from the Robert W. Baird Company. Leslie Dixon is managing director of Baird and has been the director of HR for five years and with Baird for a total of 14-1/2 years and with HR the entire time. Leslie also has responsibilities for Baird University and Baird’s special events, travel departments, active participation, securities industry association for HR, and worked in HR training capacities for three other firms before joining Baird and we welcome Leslie in. Also from Hewitt, we have Diane Krieman; a consultant in Hewitt Associates Midwest People Value Management practice located in Lincolnshire. She partners with clients to help them develop solutions to attract and motivate and retain employees. Prior to joining Hewitt a year ago, Diane spent about ten years with AT&T. Diane’s clients have included United Airlines, Solo Cup Company, and Abbott Pharmaceuticals. Ryan Harvey has been with Hewitt for six years. He’s a corporate restructuring and change consultant in Hewitt’s Global Services Practice located in Lincolnshire. He has responsibility for
Copyright © 2001 Hewitt Associates LLC
Managing Business eTranscript.DOC97/01 12/2001
and she will take part in our question and answer segment later. He specializes in the design and implementation of business-driven human resources strategy competency. He has been with Hewitt for four years. Heiko Dorenwendt is with us. Robert Baird and Company—who we’ll hear from today—Sears. United Parcel Service. In that capacity. motivate. General Electric. more than ever.. compensation. Heiko consults in areas like alignment of pay and performance management systems. Bob has been with Hewitt for 11 years. and Nationwide Insurance. Amy is an employment law consultant in Hewitt’s Lincolnshire offices. and Walgreen Companies. employee engagement and talent management. broad based employee incentive plans. Recent clients Scott has worked with include Wachovia Corporation. And finally. Bob. Clients she has worked with include GE Capital. start ups. Now’s the time that discipline matters more than ever. His focus is providing solutions for organizations to attract. He is a design consultant in Hewitt’s People Value Management practice. Scott Law has been with Hewitt for three years.DOC97/01 12/2001 . We’ll also talk about some Copyright © 2001 Hewitt Associates LLC 2 Managing Business eTranscript. is that best employers will ensure that years of investment and careful positioning of their employment contract are not squandered. Amy also consults with the firm’s organization effectiveness. Amy Cohen is here. and linking human resources and business strategy. “Managing Business in Turbulent Times. Some of his clients include Discover Financial Services. Bank of America. merger and acquisition. Daimler Chrysler. we hope you will take away from this call how to actually get from the short-term to the longer-term. base performance management processes. and total health management groups. Today. he works primarily on executive compensation and incentive design projects for a variety of financial services industry clients. and retain their employees. And what we’re also going to find is that their painstakingly crafted internal brand is not sacrificed through the short-term manifestation of the recession that we find ourselves in today. Heiko is a consultant with Hewitt’s People Value Management practice. as well as Verizon. Bob Conlon is with us. we talked about focusing on the strategic aspect of maintaining and capitalizing and developing an internal brand. And we will talk today about several issues surrounding the fundamentals including issues on compensation. She works with the HR Delivery practice focusing on workforce relations and compliance. Two weeks ago. minimizing any kind of consequences and costs to the long-term investments that you have made.human resources issues associated with initial public offerings. What we recognize today. mergers and acquisitions. spin-offs. She has been with Hewitt for five years. Associated Bank Corp. workforce planning. you are going to get us started with an overview of today’s topic. Anheuser Busch. and other corporate restructuring. Bob’s recent clients include American Institute of CRA’s. Eli Lily. and some strategies surrounding the survivor issues after reductions in force.” Bob Conlon Thank you everyone for being part of our teleconference today. Recent clients Ryan has worked with include Alcoa. Bob is a manager and consultant in Hewitt’s Midwest People Value Management practice. and United Airlines. and Sony Electronics.
creative alternatives.S. frozen salaries. that means you are Copyright © 2001 Hewitt Associates LLC 3 Managing Business eTranscript. your company might choose to pay the 2002 salary increases as a lump-sum payment instead of as an increase to base salaries. in these times. what are the implications? Are there salary increase guarantees in some countries that you have to adhere to and that should be considered. that can range somewhere from 20 to 80 percent as a percentage of total expenses. to allow companies to unearth savings in their organizations. Compensation expenses are truly one of the largest expenses for some companies. initiative or a global initiative? That is the second key issue here. to speak to some of the compensation-related issues. companies. Now. and the results from this survey showed very clearly many more companies have now decided to make some changes to their base pay programs. Bob. And naturally. Conversely. Shortly after September 11. that you can consider for your organization instead of just reducing salary increase budgets or foregoing salary increases for 2002. you might decide to reduce your merit budgets and reallocate those extra funds to offer a special one-time bonus for your key talent and high performers. if your first priority is to slow down the growth of your compensation expenses and realize some long-term cost savings. Third. have reduced or eliminated the 2002 salary increase budgets. deferred merit increases. Now two months have gone by since September and we decided to poll our clients again in another follow-up survey. many companies. we conducted a follow-up survey to Hewitt Associates 2001 salary increase survey. what are the needs of your key employees? Are you at risk of losing some of your key talent to competition if you make these changes? How will your key employees be rewarded in the future? These are certainly some dimensions that are very critical if you are considering changes to make to your base salary programs. Heiko Dorenwendt Thanks. What I’d like to do right now is to turn this over to Heiko Dorenwendt and Scott Law. only. what would you communicate to employees? How would you communicate to employees? And how will employees react to such a change in the salary increase budgets? And the last thing. and some have even cut salaries in the last few months. If this is a global initiative. Is this the only alternative? We want to show you some alternatives.specific issues surrounding cost-saving alternatives and some activities that we have underway. About two-thirds of the companies that participated in the surveys have either reduced their merit budgets. if your company is more concerned about short-term cash flow. what is your current pay position relative to market? Are you above market? Are you at market? Or. waiting for the last quarter. The next thing. before they make any rash decisions. Who would be affected by this? Does it apply to all employees or only some groups? Would it only apply to some lines of business or is it differentiated by performance or does it only apply to a certain level of employees like management or executives? Would this be only a U. and the results from that survey show that 35 percent of the 660 participating companies. Or. For example. are considering their compensation expenses as an avenue for cost savings. what does it mean? What things should you consider if you’re in that position and considering some changes to your salary increase budgets? Six key issues that deserve some consideration in this content. which is probably one of the most important in this context. even the largest expense line item today. the fourth quarter results. are you below market and what would be the impact of any changes to your 2002 salary increase budgets? Fourth. Plus. what exactly are projected cost savings that you could realize and is it worth the effort of changing salary increase budgets globally or the U.S.DOC97/01 12/2001 . many more companies indicated that they are holding off a little bit.
when there are sudden changes in the business environment. I am Scott Law. run rates that are approaching three percent. Perhaps rewarding folks as opposed to cash-based rewards. In our view. And we suggest the following. or there will be lower bonuses in the coming year.not administering salary increases every 12 months. In other words. which is really a dramatic impact. So. just to make it a competitive or a comparable level of inequity grant to their employee forces. leverage existing nonmonetary recognition programs such as cash incentives and stock options and with that. you could grant extra stock options in lieu of merit increases. we think there should be less flexibility shown there and probably reward those folks based on actual results. I mean. Next. what I am talking about are Fortune 100 companies would usually look at annual run rates somewhere between one and two percent. The first thing I would like to focus on is how changes in the economic climate might impact a company’s approach to their annual incentive programs. you want to share the pain across the organization. I want to cover some topics that focus on equity-based compensation. I think that practice was manageable as long as stock prices continued to rise. companies often question how much flexibility should they exercise in determining their annual bonus awards. Another key issue that companies have to deal within trying circumstances centers on managing the employees’ reaction to anticipated cuts in annual bonus payouts. Thank you. the popularity of stock options has grown tremendously. The next thing is that if you go ahead and decide to cut bonuses. In our experience. Specifically. We have all known that over the last decade stock prices have risen dramatically and in connection with that. companies or individuals that are performing at or near their targeted performance levels. we are seeing extending options globally and further down into their organizations to broader and broader employee segments. Copyright © 2001 Hewitt Associates LLC 4 Managing Business eTranscript. we think there is probably some merit to showing some flexibility in how you reward those individuals and/or business units. And finally. many companies are feeling sort of handcuffed by these dilution impact considerations. The first thing is that you want to continue to reward your top performers proportionately higher or better than those that are performing at lower levels for obvious reasons. you may want to consider deferring payouts in the crisis year. companies really can best handle the situation or that decision by evaluating the performance of the company and their individuals prior to that unusual event. But now.DOC97/01 12/2001 . you don’t want to exempt one group from a bonus cut and in particular. By now. I would like to turn it over to Scott. the impact of this is as companies are approaching 2002. We really think that is key for sustaining employee engagement and retention of some of your top performers. We think that companies can manage that reaction best by adhering to a few key principles. but deferring it another 6 or 12 months. Some sensible actions that companies can take to keep their top management and top performers is one. we talked about some of the criteria that we might use to make discretionary adjustments to the bonus plan performance targets in view of our worsening climate. companies or individuals that are performing well below the targeted performance levels prior to that event. In contrast. you don’t want to exempt the senior leadership from a bonus cut. maybe looking at rewarding them using stock options. we talked about establishing special bonus pools where you would reward maybe the top 15 percent of performers. since stock prices really over the last 18 months have started to decline. In other words. Also. For companies that are in a cash crunch. Heiko. we are looking at for those companies. we are starting to see some impact on companies’ ability to manage dilution.
One. And finally. Here it might be important to convince employees that they are actually getting a better deal because they are able to take advantage of a lower stock price. you could cancel the existing under water options and reissue new options six months later. The first is that it creates an accounting expense. Since we don’t really view stock option repricing as an adventitious strategy. Now. I am going to turn the conversation back to Bob Conlon who is going to discuss some workforce planning issues and strategies. you may find your position not really solved. and we think this merits some discussion. Here. And third. Employees are increasingly pressuring their companies to restructure their existing option holdings. but not necessarily the same economic value. you might want to grant restricted shares. Another result of stock prices trading at or near their lowest levels is that many employees have stock option holdings that are under water. Second. you might want to take a look at the annual grant that you are making to employees. the stock may also quickly rebound. Second. the under water stock options a week or a month from now may no longer be under water. and combined with the events of September 11 . what economists are calling an official th recession. but the company would move up the timing of the annual stock option grant to again capture the advantage of a lower stock price.DOC97/01 12/2001 . you need to look at some sensible alternatives and those would include making a special off cycle grant of options. is that I think it is important to hold the line on dilution. We don’t want to get into a vicious cycle that can emerge if you were to essentially continue to grant the same value of options. we think there are a lot of practical considerations and reasons against repricing options. the word layoffs comes to mind as a workforce planning action that many companies have either contemplated or have undertaken. which have less diluted impact than options. And what we are referring to the process of accessing current talent supply in relation to the future talent demand. And finally. or an alternative would be to grant the same number of options. you could exchange under water options for an equivalent value of restricted stock. Third. certainly layoffs may be necessary in some instances and we have seen countless numbers of them in the press. So. employees would keep their existing under water options. Third. given the slowing economy. Again. Now. employees would keep their under water options. Number two. It is important to do it six months later so that you avoid an accounting charge. but what we want to address here today are some different approaches we see organizations Copyright © 2001 Hewitt Associates LLC 5 Managing Business eTranscript. Now. you could accelerate the timing of the option grant. The first point is. Finally. but they would get new options at a lower exercise price. you are dollar cost averaging your grant. That way. but spread that out over the course of the year. and developing strategies and actions to address the gaps between the two. perhaps on a quarterly or semi-annual basis. is that it is very controversial with shareholders. and we think that this merits some discussion. we think it is important. Bob Conlon First. In other words. But I think it is important to consider that if you were to grant restricted shares to put some longerterm vesting on that and perhaps use cliff vesting as opposed to an incremental sort of vesting schedule to provide some more of a tension hook. I just want to do some level setting around the issue of workforce planning and what we mean by workforce planning. the stock may not have bottomed out so if you reprice the existing options that are under water and the stock price declines. you are increasing the frequency of the grant.
But. before we go into some of those specific alternatives for temporary workforce reductions. contacts. let’s talk briefly about permanent workforce reduction strategies. why do we think that workforce planning is important as a topic issue today? There are actually four reasons. and we will be talking about those alternatives in just a moment. Some examples include tuition reimbursement. And then last or I guess this is the fifth point. that their employees and their executives are. voluntary separation programs. their priorities. changing workforce requirements or skills may require extensive retraining or recruiting of new talent. certainly when you think about all these different reasons why workforce planning is important and what the consequences are if you don’t do a good job at workforce planning. it’s certainly important to take a planful approach to addressing these issues. but may actually need to increase their staffs or find employees with different skills. in fact. Baird on how they handled such a situation at their company. So. For instance. Robert W. Finally. offer of part-time employment. First. And if employees don’t want to relocate. Second. Another important point that we want to talk about is the fact that layoffs due to a weakened economy are not the only workforce planning challenge that companies will face. the economy has weakened and it has caused many companies to consider temporary or permanent workforce reductions. In some cases. Many companies. Now. those might be necessary.DOC97/01 12/2001 . and involuntary separation programs. unfortunately. we encourage organizations to look at the various alternatives. So. as we mentioned earlier. may not need to lay off employees. that is certainly a situation that some companies are facing today. and small business administration and loan funds. And we won’t go into a lot of detail about them because certainly most organizations now how to navigate these particular waters. a little bit hesitant to remain located downtown. there are some companies that are located in downtown areas that have approached us and certainly have been talking about in the press. some companies may be forced to implement or develop succession plans. For example. unfortunately to replace lost executive and management talent as a result of any of the number of items that we just talked about.taking. So. we also encourage clients to consider other alternatives or temporary workforce reduction strategies. and what is important for their futures. Copyright © 2001 Hewitt Associates LLC 6 Managing Business eTranscript. Some companies. many security firms will be required to improve the caliber and skills of their talent pool. as well as possible alternatives to involuntary layoffs despite the fact that in some cases. increased voluntary turnover may occur as recent events cause employees to reevaluate their life plans. some of them include early retirement programs. in fact. that perhaps there would be some talent gaps and some skill shortages in those areas. some companies are finding now that employees are looking to take time off to do philanthropic work or other kinds of volunteer work. there may be some relocation issues there. While cost savings are the desired outcome of layoffs. And we will talk about some of the different approaches being used in just a few minutes and we will also hear from our client. Third. Now. take a very reactive approach to this with knee-jerk reactions and these can come home to roost in some very negative ways. we have seen companies provide enhanced early retirement or severance packages. So.
and productive in that aftermath. Finally. And they also may lose long employees in terms of losing best performers who have opportunities for employment at other organizations. Now. There certainly are some concerns about physical security. So.As many companies certainly find out in the implementation of some of these early retirement and voluntary separation programs. Physical security not just in the aftermath of terrorism. people who leave will take with them significant organizational knowledge that must be transitioned to remaining employees. Many companies believe that the work is done once the layoff activities are completed. but rather physical security in the aftermath of layoffs. how do you train those individuals so that they have the right kind of skills and competencies to achieve those goals. honest. but in our opinion. There is certainly the issue of survivor guilt for those people who remain wondering what has become of their former coworkers. in fact. A third issue is survivor guilt. that they are at the right size. how they have managed the transition for those employees who have been let go. Part of the reason for that is because they haven’t done a very good job at thinking about workflow. when a company does do a workforce reduction and it is anticipated that. and are well positioned for moving forward. Another critical issue is around the redistribution of work. the amount of uncertainty. And that certainly is an important point. these things can be addressed through group or individual sessions. I will be happy to address those during the later part of the call when we take questions and answers. there are six or seven issues that are critical to be addressed to ensure continued productivity. even voluntary or other kinds of involuntary workforce reductions. This is an issue that many Copyright © 2001 Hewitt Associates LLC 7 Managing Business eTranscript. This will help enable employees to look forward and not back at the past. certainly we need to address the issue of continuing concerns about job security. And one of the things that often times is overlooked when implementing workforce reduction strategies is dealing with the issues that arise after those kinds of layoffs occur. These are. engaged. So. Related to that is that if you do have employees who are now expected to take on additional responsibilities and different areas of responsibility. Particularly with early retirement windows. Certainly.DOC97/01 12/2001 . it is critical that senior management and the CEO of these organizations come forward and indicate that. they are comfortable now. and the amount of dislocation that can occur in any kind of workforce reduction strategy. one of the downsides is the fact that it is very difficult to control in many cases who accepts these programs. the redistribution of the existing work because the amount of work actually does not go down. in order for employees who remain at organizations in the aftermath of some cuts to remain focused. what security issues have been implemented. Many organizations find themselves in the aftermath of layoffs actually hiring back temporary workers and then wind up with the same number of head count. It is just a question of how you redistribute that in a planful and fair way. in fact. if there are specific questions about these approaches or enhancements in terms of how to implement those kinds of those programs. we need to reemphasize the importance of open. companies may lose too few or too many employees or too many employees with specific critical skills. it should be addressed in company-wide communications and it should be addressed through managers to their direct reports and there are any number of different ways to accommodate those. Therefore. So. it is important for companies to communicate how layoffs or reductions in force commenced. we have resized ourselves to an appropriate level. and continuous communication to minimize and reduce the amount of speculation. one. certainly that is just the tip of the iceberg and that is when the work really begins. So. I would like to shift gears slightly now and talk about some strategies for helping remaining employees in the aftermath of layoffs or for that matter.
don’t pay enough attention to because of some of the negative psychology around it that if you communicate about these negative things. I will turn it over to Leslie Dixon. We have developed a total compensation philosophy and brand. before we talk about various alternatives to those layoffs or temporary workforce reduction strategies. We have operations in 16 states and five countries. We have totally revamped our performance and development process using a design team of our own managers trying to develop a best practice for our firm. headquartered in Milwaukee. Robert W. and private equity and public finance th specialists. Baird and hear about some of their history. Recently. if you will. We have more than 2. Some of the initiatives that we have used to grow the organization in the last ten years. I have spent the last ten years with Baird in a very proactive way. Now finally. I wanted to back up just for a moment to talk about the previous ten years and quickly highlight them. we will hear from our client. is $346 million. Baird. I want to thank Bob and Hewitt for the opportunity to share Baird’s challenges and successes with all of you. the more comfortable the remaining employees ultimately do become. some of the challenges that they have faced as the market has changed. And we are majority owned by Northwestern Mutual with Baird Associates owning a significant minority interest. We require any one of our associates who supervise people in any way to participate in a leadership round table nine months of the year. The more you communicate about this. We serve corporations. include things like implementing paid time off plans. On the training side.clients. in the United States. We have been in business since 1919. Specifically. and municipalities. And our equity capital. investment banking. We initiated a time work life committee that is still intact made up of our own associates across the organization to look at those types of issues for the firm. many companies. institutional investors. and private equity firm. they were acknowledged as being the number one firm in Milwaukee to work for.DOC97/01 12/2001 . It is quite evident that the reverse is actually true. As Bob mentioned. Good morning everyone. I am the Human Resources Director of Baird and I have had the privilege of working with this firm for 14 ½ years. our Copyright © 2001 Hewitt Associates LLC 8 Managing Business eTranscript. Growing the organization and the people within it. I have worked with them personally over the last six years. asset management. we have 80 offices. We have reported for several years now in layman’s terms a very succinct three-page summary called the “Progress Report” of our business results each quarter for every associate so that they really feel tied in to the business and how we are doing. and we have eight offices in Europe. equity research specialist. We are an international wealth management. We made a business decision to bring every new hire to Milwaukee. We act as financial advisor. that we have used and changed our internal communication to reflect this type of brand. we have done things like mandate leadership training. Just a little bit of background about Robert W. And I think to put this year in perspective. Bob. asset manager. investment banker. Bob asked me to take a few minutes with all of you to share the challenges and the tough journey that Baird has had this year. Our initiatives have centered around our vision to be the best place to work and thus we have developed programs and policies to balance these needs of our associates with the needs of our business. the managing director of human resources at Robert W. that it is just going to reinforce the fact that people are gone. And with that. Baird.600 associates throughout the United States and Europe. We serve individuals such as you and I. it is a financial services company. Leslie Dixon Thank you. developing and marketing flexible work arrangements within our firm. which I am sure are similar to all of you. as of September 30 .
DOC97/01 12/2001 . that we were not going to do it without impacting people. and that was a fairly controversial decision for us to make. group by group. which included human resource representation. Our president declared that we needed to find $30 million in costs so that we could bring our margins to a healthier percentage. the Hewitt database norm was 58 percent. we were very elated and proud of our score. rather than simply take a percentage from each group and get it over with quickly. And we have capped off this ten-year period by administering Hewitt’s engagement survey with our entire workforce and scored an overall composite score of 72 percent. This actually in an odd way helped us through some of our difficult layoff time with people. There were several communications. we were also named in Milwaukee’s magazine as the top place to work in Milwaukee for employers of 500+ employees. We did look at early retirement options for our firm and that didn’t work out for us as well because a lot of our revenue-generating people were in that category. Our revenues during this entire period were in the largest decline that we had ever experienced as a firm. Every single hire including all temporaries had to go through HR for approval. We looked at out placement. and chief administrative officer representation.headquarters here. It was an incredible journey. very positive. Towards the end of 2000. for culture orientation when they are a new employee and they spend time with our president and chairman at that time. We use Baird TV medium through our intranet to communicate with our employees. And I think as Bob mentioned. In perspective. but we decided to err on the philosophy of trying to overcommunicate versus not. which we had not done before and decided to do it very carefully over a period of time. We then had to make a very conscious decision as to how to reduce our people. And for those of us at Baird. And so. I think we had become fat and happy in 1999 and 2000 and we realized we needed to do things differently starting in 2001. job sharing options. Our margins had begun shrinking and we decided to take some very proactive steps. we realized about $27 million in annualized savings and felt fairly good about the process we had gone through. needless to say. They were down 24% from the first half of 2000. Very fast paced. in January 2001. especially on our individual side of the business. By the end of June. we went on to report to our associates that. Unfortunately. And granted that was difficult. So. We had open and very honest communication throughout the process. the markets started their decline and we knew we needed to tighten our belt. albeit painful. And our president gave people updates on our progress. it became painfully clear for us to reach our goal of $30 million in savings. we realized through doing reductions and also quantifying our nonpeople cost savings efforts. I could go on and on what we have put in place from 1990 to 2000. we consciously decided not to harm any of our revenue-generating areas. we declared a hiring freeze wanting to very much balance long-term impact here. And looking in the rearview mirror. in our 80-year history we had never ended a year with fewer associates than what we had started out the year at. And these are just some of the examples. We studied severance trends in the industry and outside the industry. Our challenges and really the reason for being on this call began in late 2000 when the bull market that we all had been riding for so many years came to an end. And we prided ourselves in that compared to some of our Wall Street competitors who shrink and grow fairly regularly. we went on to look at some cost-savings alternatives such as obviously attrition. So. “The challenging markets continue to test the 9 Copyright © 2001 Hewitt Associates LLC Managing Business eTranscript. We formed a cost-savings committee. We very carefully planned how we wanted to treat our employees because we knew it would be just as important to those who left as it would for those that stayed. We looked and we reduced some associates work hours and pay as a result. So. We weren’t going to not hire there where we could make upgrades where it made sense. In August. accounting. And we went through a process of scouring every department and looking for places where we could squeeze costs.
“Gee. for sharing your experiences. And while our organization did not lose one associate. culture. in summary. I could go on and on. We met with every department again and we asked them to report back on the savings that they said they were going to achieve. and hope that you will take away from the call today. in fact.S. but carefully consider some other alternatives. and even your market image. as Bob mentioned. we certainly knew many business associates who lost lives and loved ones. For example. we did feel at that point th that we were positioned to weather the bear market. And these alternatives will provide varying levels of cost savings for you.000 level and higher. your organization in terms of employee morale. is that given the turbulent times that we are in and the down turn in the economy. We have frozen salary increases for January at a $50. asking employees to take time off over the Copyright © 2001 Hewitt Associates LLC 10 Managing Business eTranscript. Then September 11 happened. And we are. And this time. productivity.DOC97/01 12/2001 . but will also most likely impact in a more positive way. So. So. your focus on people is now more crucial than ever. we were down roughly ten percent of our workforce between U. The good news is we believe that many companies are. Leslie. We are carefully looking at our pay and benefits for 2002. But there had been enough pain in the organization at that point that we felt it was important to operate that way. We are trying to reprioritize to redistribute the work that has been left behind by people who are no longer here.” And that is a very tough journey to travel. taking this message to heart and are seeking some creative alternatives to layoffs. some of the more prevalent ones include mandatory time off. negative impact obviously on our industry as well as Baird. the Dow Jones Industrial average posted its biggest point drop ever and its biggest percentage decline since the great depression. what we are suggesting and recommending is that organizations carefully consider other alternatives to a layoff.” And though we never said that we were done in terms of reducing costs through people. really focusing our efforts and strategy on the “survivors. And as Bob mentioned. we have gone from a journey of being the best place to work with some entitlement built in to still being a great organization with hopefully people now more saying. and we are carefully working through the management issues right now of how to communicate that with people.” We have put together a communication campaign through our Baird TV and through various initiatives that we are doing. which is a different strategy than we had used earlier in the year. we need to downsize and lay off people so that we can please our investors.” Well. In the first week of trading following September 11th. By mid November. some other short-term reduction in workforce strategies before maybe just jumping off into a layoff or downsizing situation. We realize that the layoff might ultimately be necessary.will and resiliency of the organization and we are passing the test in true Baird fashion. And the resulting market turmoil and slow down had a significant. our cost-savings group went back into action. there are many organizations that often times quickly react by thinking. and Europe and we now again feel that we are positioned for 2002 for the market to return. We had a very impromptu special Thanksgiving event where we bought donuts and bagels for everyone. I think we heard that example from Leslie. thinking that we needed to reposition ourselves again. We have reduced our bonus pool. I think a common theme that you all have heard throughout the call. Our recent Hewitt survey indicates that some of these common alternatives include. but we are going to give out bonuses. We have done an overabundance of communication on the job security concerns through some of our management roundtables. I think I will turn it back over to Diane Krieman who will talk more about some of the cost-savings alternatives. We also asked them all to tell us where we could gain additional savings. With that. I really value having a job here. I think. we did another reduction in November of this year and we did it over a three-day period and we did it very swiftly. The president shook hands and we gave thanks for those that were here and it turned out to be an amazingly well received effort on our part. Diane Krieman Thank you very much. “In order to cut savings.
One company that we know of recently allowed employees to take time off to work with philanthropic organizations. A sabbatical provides employees with the opportunity to expand their skills or explore new areas of interest. but each employee is responsible for coverage or the project only during their scheduled workdays. Some issues for consideration whether to implement a job sharing arrangement. is how will the work get done? Can we ensure that all of the work can be done given fewer hours worked? Or. is first of all. if any. Let me describe in a little bit more detail some of these programs that I have just mentioned and some of the issues that you will want to consider before implementing them. Employees on part-time schedules may work fewer than five days each week or they may work five days a week but fewer than eight hours a day. while at the same time.holidays or even maybe a shorter workweek. The first program that I would like to discuss is a part-time work program. if any. but what we are seeing some companies implement is a job sharing program. will the employees that are working part time need to be accessible on nonwork days? How will you handle that situation or those situations? And what are the expenses. Obviously. while salary and benefits are generally going to be prorated. you are removing them from the payroll. or both? And also. Are they dependable and reliable? Are they flexible? Can they count on each other? Do they get along? How will this arrangement improve productivity? Will coverage improve? You will need to consider what are the opportunities for cross training or developing new skills for these employees? An important issue for consideration would be how will the performance be measured of these employees in a job sharing arrangement? Will they be evaluated individually or as a team. Some of the issues for consideration would be…I think one of the most important things is will this help us keep some talented employees? Is this an option that will help us keep some of those skills? Another issue for consideration if you do decide to offer a part-time schedule to employees. can parts of the job be redistributed to other employees? Also. associated with employees moving to a part-time schedule? The next alternative would be job sharing that I mentioned. Some other more prevalent examples include part-time work and unpaid sabbatical or leave of absence for your employees. Some issues for consideration if you are going to implement this type of a program is to determine whether all or partial benefits are going to be provided. you have two people sharing the responsibilities of one full-time job. One company that we know of has implemented a Friday off policy. What is the timeframe in the company’s ability to bring them back? What are your rules and guidelines going to be for returning to work? Are Copyright © 2001 Hewitt Associates LLC 11 Managing Business eTranscript. is this a feasible alternative given the nature of the work? You will also want to take a look at employee performance for those that you may be considering partaking in this arrangement. A job sharing approach can be structured in one of two ways. not quite as prevalent.DOC97/01 12/2001 . additional costs are involved? Another popular idea that we are seeing companies implement right now are unpaid sabbaticals or leave of absences. another consideration would be what. Also. The functions or projects of one position are divided and each employee takes responsibility for specific parts of the job or you could have both employees continuing responsibility for all functions of the work. when and how will this arrangement end? And of course. In this arrangement. what this means is that your employees will work less than a full-time schedule while their salary will be prorated and benefits are prorated or maybe not even not available depending on the number of hours worked.
and who is going to be coordinating all of this? Now. You are going to need a written policy and guidelines. they are encouraged to stay in contact with the company and their coworkers. A lot of clients are being challenged to find some quantifiable cost savings.you going to be offering them the job at the same status or grade in which they left? Or are you just offering them a job? Determine who will be responsible for placing and coordinating the employees return as well. I just want to quickly go through some of those strategies. of course. Just letting attrition take care of your overly abundant workforce situation. in our conversations with clients to kind of brainstorm some of these ideas and come up with some creative solutions. cost-saving strategies that we are hearing about our clients implementing include a hiring freeze. which is similar to a sabbatical. But they would like to avoid that. Another creative alternative to a layoff might be a flex-leave situation. Diane. Then. with all of these alternatives that I have just described. And they are really being challenged to look at every area of HR to find those costs. you are really going to have to consider the following issues. You will have to carefully consider what the impact will be on other departments internally as well as what is the impact on your clients externally? You will have to consider what information you are going to need to share with managers regarding operating in a flexible work environment. what are the rules and guidelines for returning back to your normal job. I think we have all heard a lot of that since th September 11 . we have actually ended up developing a pretty extensive list of strategies. They need to carefully understand how all of this works. strategies. Copyright © 2001 Hewitt Associates LLC 12 Managing Business eTranscript. And you will also want to determine how these arrangements are going to be communicated with employees. You want it to be consistent. Another option to consider is loaning out employees with decreased business to organizations with temporarily increased business for some period of time. Ryan Harvey Thanks. You will have to decide whether you will want to make these programs or initiatives voluntary or involuntary. Now. And Leslie actually touched on it at Baird. an approval process. they offered a flex-leave arrangement for 6 to 12 months to employees with 20 percent pay and benefits. I want to quickly go through an emerging trend that we have been seeing with our clients. In addition to the initiatives that I have just reviewed with you. You will have to determine whether all or partial benefits would be provided.DOC97/01 12/2001 . This is very critical. where you can quickly identify some cost savings. One management consulting firm that we know of. whenever your employees are on these types of arrangements. Some other common things include reduction or elimination of business travel. Mandating an across-the-board expense reduction program for your organization is something to consider so that everybody feels that they have a stake in the game in helping the organization thrive through this economic downturn. I am going to turn it over to Ryan Harvey who will briefly describe some more short-term savings opportunities that you may be able to take advantage of. some areas they can quickly show management that they are able to pull costs out of a jar. They need to scour everything from their programs and policies to potentially even a reduction in force. Again. You will have to determine the timeframe. earlier this year. Postponing noncritical projects and expenses is a popular thing. These would have to be carefully arranged situations. some other comments. So. You don’t want there to be some haphazard approach to this in your organization.
I am going to turn it over to Bob for your questions. And they ask. “With budget dollars tightening and few options to reward existing employees. The results will be posted on our Hewitt Web site. there is the area of HR delivery which clients don’t always think of right off the bat of looking at how they deliver HR. If you have been a high merger and acquisition-type of company with a lot of different divisions and you have maintained separate programs. what are some nonmonetary solutions that can be implemented swiftly and cheaply in order to continue to motivate the remaining workforce?” Copyright © 2001 Hewitt Associates LLC 13 Managing Business eTranscript. We were able to uncover roughly $60 million worth of cash savings that they were able to realize within that quarter. In the area of pensions and defined benefits. And then finally. And then. those are just a sampling of some of the things we have looked at with clients. Certainly. we hope that what we have presented today is an actionable list of short-term suggestions that recognize the fact that they still have an impact on the long term. Again. that fiscal quarter.DOC97/01 12/2001 . maybe using a different discount assumption or changing some other assumptions that we use on assets and how we account for assets to try to develop some profit and liability savings. And we encourage you to respond to that survey. we certainly need to successfully navigate the short term. But we have been able to discuss with clients issues like potentially even selling their HRIS systems to a third party and leasing those assets back to save money in the short term. there potentially are some enormous savings out there in some areas that maybe haven’t been looked at in years within the organization. We have mentioned several times that the survey is still out there and if anyone would like to continue. Ed Curran Let’s go to one of the email questions that we received from DTE Energy. Now. We have looked at those issues. This particular client heavily used executive insurance arrangements and so they wanted to take a look at those to see if there was potential for cost savings. and we were only actually looking at their insurance arrangements. And that said. there is a possibility of pulling those defined benefit programs together and trying to avoid some of the requirements for under-funded plans. Seeing if there is any over funding and potentially using some of that funding for possibly the salaries of individuals who work directly on those pension plans. thanks for your participation and I will now turn it over to Ed for questions.We recently worked with a large client. Bob Conlon I think employers must be mindful of the fact that they really do have the chance to determine if the company that emerges from the current recession is better able or not as able to compete for critical talent in the future. Just to quickly run down a bullet list of a sampling of some of the other areas that clients are taking a look at and that we are looking at with them. So. So. Looking at some of their noncore processes and trying to develop some other delivery strategies. Looking at assumptions in the underlying plans to see if there are some accounting issues that we can deal with. we would encourage you to do so. there is obviously the area of health care which many companies are continually battling cost issues in health care. we are looking at funding issues. in order to get to the long term. a Fortune 100 client. to submit the results. So. you want to ensure that implementation of any of these programs are linked back to the longer-term business strategy.
but I think we just continued to really strengthen it as we grew the organization. I think I would just remind everyone that employees are going to be conscious of the fact that money is being spent on new programs. and then. through to development programs. I don’t think it is quite fair to say that it took that long to get there. For instance. you may have career development processes that aren’t being fully utilized. who is this? Norm Blackwell Hi. go down the path of leveraging off the things you currently do have.DOC97/01 12/2001 . so just be careful with that. my name is Norm Blackwell. communicate. If you are in the process of or looking at the process of designing new things. What is the total package of benefits. The first category is challenge yourself not to feel the need that you need to develop new programs or processes.Ryan Harvey Certainly. it sounds like they have a pretty extensive and long-term employee relation strategy in place. My question is. Ed Curran We have someone on the line from Molex Corporation. Diane Krieman I would just like to add. You may have some opportunities to recommunicate some of the value that you currently providing. one of the cheapest things that any organization can do is communicate. We would certainly encourage employees and managers to look back on the competency models that they might have and also the performance systems that are in place. Copyright © 2001 Hewitt Associates LLC 14 Managing Business eTranscript. communicate. Hi. in other words. I think proactively we really attacked at building that and strengthening that in that ten-year period. leverage off the things that you are currently have in place. Baird company. continue to communicate about your employee value proposition. So. to reward structures that you offer your employees? Because many times employees take that for granted and don’t realize the true value of everything that an organization has to offer them. By explaining the programs that they put in place at Baird. did it take a full ten years to get your strategy in place and to effect your culture? Leslie Dixon I think we had a fairly strong culture that was there even prior to 1990. But clearly. So certainly. I think that there are two major categories to look at in answering this question. Ed Curran What is your question? Norm Blackwell This is for the woman from Robert W.
The second point mentioned was physical security of the layoffs… Bob Conlon I think what is happening there actually is two-fold. www. I think in today’s environment and in your particular case.DOC97/01 12/2001 .Norm Blackwell Great. There were about five points. Ed Curran Thank you very much for your phone call. And as always if you have questions. What are we doing to ensure that employees are safe coming to work. Copyright © 2001 Hewitt Associates LLC 15 Managing Business eTranscript. I think that we have all heard about in the press or seen on the television instances where disgruntled employees may take some action that is obviously unintended. the second facet is really around the issue if you have had some involuntary separations and involuntary layoffs. Thank you. However. We have run through our hour here very quickly.com. Caller My question has to do with strategies for helping remaining employees. you can direct them to this email address.peoplesolutions@hewitt. to ensure that we have taken all the necessary precautions to allow employees to focus on their work and not be concerned about their physical well being. there is the issue of pure physical security. We want to thank you. And we would certainly encourage organizations to utilize their violence in the workplace policies to manage the message very carefully to be as humane as possible whenever undertaking any kind of involuntary workforce reduction policy. everybody out there for participating. Ed Curran Let’s go over here now to Vancouver International Airport Authority.