All posts by Kristen Frasch

Paying CEOs to Fail

Scott MacDonald thinks the contract language and hiring processes for chief executive officers need to change. As he sees it, some CEOs are great leaders who deserve their seemingly extravagant salaries, but others are highly paid despite their poor performance. And even when they’re fired, they don’t lose out because they’re given a golden parachute — millions of dollars for failing, he says.

In some back-and-forth with me recently about this, MacDonald — former CEO at the Australian company Investa, who wrote a book about his experience there, Saving Investa: How An Ex-Factory Worker Helped Save One of Australia’s Iconic Companies (here’s his website’s information about the book and here’s the Amazon link) — said this to me:

“Every year, we read stories of corporate boards of directors firing a senior executive for unsatisfactory performance and then paying the executive millions of dollars upon his or her departure.

“Several years ago, for example, the Walt Disney Co. hired Michael Ovitz [as president] and then terminated him 14 months later. Ovitz reportedly received a severance package of $140 million. Recently, Wells Fargo admitted that thousands of their employees opened new accounts in customers’ names without consent to generate bigger fees and commissions. The scandal has damaged the bank and led to many investigations and potential fines. The person in charge of the retail division where the scandal occurred announced her retirement and reportedly received about $125 million upon her departure.”

MacDonald says the real problem stems from the narrow definition of “cause” in current CEO’s employment contracts; specifically, the clause that says the executive may be fired “for cause,” in which case nothing more is owed to him or her.

But the definition of cause is still limited to being found guilty of felony acts, committing fraud or stealing from the company. It almost never includes poor performance.

MacDonald’s had a successful career as a CEO turning around struggling companies, often by addressing performance issues. Through his years of experience, he says,

” … the benefits gained from changing personnel have always outweighed the short-term financial cost … . Once, I fired a talented chief financial officer because he was not a team player, typically promoting himself while disparaging other team members. The cost of his termination was significant because being a bad team member was not defined in his “for cause” contract definition, but the entire company performed much better after his departure.”

So how did “cause” become so narrowly defined and almost unenforceable? It’s unclear, MacDonald says, but he has a theory, based on the past 40 years of business as usual, and it even includes human resources. Here’s how he lays it out:

“Generally, a board retains an employment consultant to help negotiate the contract or provide an opinion that the contract is fair and competitive in the industry. The same consultant will often seek to see human resource-related consulting services to CEOs in the future. If a consultant recommends approval of a CEO’s favorable employment contract, the consultant is more likely to be favorably considered when that CEO approves hiring an HR consultant.

“After one board agrees to a narrow definition of ’cause,’ it quickly becomes cited by other executives and their attorneys as the standard. … When an executive is terminated for poor performance but not ‘for cause’ … he or she is typically entitled to all the compensation and benefits that he or she would have received if he or she had not been terminated. This usually includes salary not yet paid, bonuses not yet earned, stock options not yet vested and various other entitlements. If a terminated executive has three years left on a contract, the company often has to pay three years of full compensation as if the executive had been a stellar executive.”

So what can we do to turn this around? Simple. According to MacDonald, just broaden the definition of “cause.” Successive years underperforming [against] a pier group of companies should be cause for termination. And if a dispute occurs over the performance measures, submit it to an arbitration panel for resolution.

Other items we might consider cause for dismissal could include successive poor results on confidential employee surveys, failure to meet budget targets in successive years, failure to follow written directives from the board … his list goes on.

Companies that provide audit services to another company are generally not permitted to provide other consulting services to avoid influencing the impartiality of the audit. Similarly, says MacDonald, “companies that provide employment-contract services could be forbidden from providing other consulting services to the company involved.”

Finally, he says, when an employee is terminated without cause, he or she should not be paid full bonuses for all the remaining years of their contract. “Clearly,” he says, “the bonuses would not be earned.”

Sad State of Parental Leave

Tuned into a pretty interesting, if not depressing, Facebook Live session on Wednesday. Seems the at-least-slow progress in paid parental leave we’ve been writing about here on HRE Daily and on our HREOnline website isn’t as promising as some think.

At least that’s according to the Society for Human Resource Management, which released during the session its National Study of Employers — a self-described “comprehensive look at employer practices, policies, programs and benefits that address the personal and family needs of employees.” (Here’s the press release for those of you who don’t have the time for an entire study right now.)

Ellen Galinsky, president and co-founder of the Families and Work Institute, talked during the session about the study’s key findings — namely that, despite reports from well-known companies (such as Netflix, Amazon, Microsoft, Johnson & Johnson and Ernst & Young — see our own posts linked above) announcing their expansions of paid-parental-leave benefits, the average amount of caregiving and parental leave provided by U.S. employers has not changed significantly since 2012.

Specifically, over the past 11 years, the number of organizations offering at least some replacement pay for women on maternity leave has increased from 46 percent to 58 percent. But the study also found that, among employers offering any replacement pay, the percentage offering full pay has continued to decline, from 17 percent in 2005 to 10 percent in 2016.

In fact, of all employers with 50 or more employees, only 6 percent offer full pay. In addition, daily flexibility, the kind needed for emergencies, has gone down actually, from 87 percent in 2012 to 81 percent in 2016, a statistic Galinsky called “critical.” She added:

“The fact that that kind of flexibility has gone down is a critical [and alarming] finding.”

According to Galinsky, HR has a major role in turning this around. As she put it during the session:

“Flexibility is now the norm. HR should be thinking this way. It used to be, ‘Should or shouldn’t we provide flexibility?’ Now it’s a given that we should.”

Unfortunately, she said, HR needs to do a better job of telling workers what is offered at their organizations. The study found only 23 percent of companies making a real effort to communicate the programs they have.

Here are some other key findings:

  • Small employers (50 to 99 employees) were more likely than large employers (1,000 or more employees) to offer all or most employees 1) traditional flextime, the ability to periodically change start and stop times (36 percent versus 17 percent), 2) control over when to take breaks (63 percent versus 47 percent) and 3) time off during the workday to attend to important family or personal needs without loss of pay (51 percent versus 33 percent).

  • Growth of workplace flexibility has been stable over the past four years. Out of 18 forms of flexibility studied, there were only four changes:

  1. An increase in employers that offer telework, allowing employees to work at least some of their paid hours at home on a regular basis (40 percent in 2016 versus 33 percent in 2012).
  2. An increase in employers that allow employees to return to work gradually after childbirth or adoption (81 percent in 2016 versus 73 percent in 2012).
  3. An increase in organizations that allow employees to receive special consideration after a career break for personal/family responsibilities (28 percent in 2016 versus 21 percent in 2012).
  4. A decrease in organizations that allow employees to take time off during the workday to attend to important family or personal needs without loss of pay (81 percent in 2016 versus 87 percent in 2012).

In Galinsky’s words:

“Whether high-profile companies offering paid [parental] leave are out of step with the majority of employers or leading the way remains to be seen. Given our findings that 78 percent of employers reported difficulty in recruiting employees for highly skilled jobs and 38 percent reported difficulty in recruiting for entry-level, hourly jobs, these high-profile companies could be leading the way in the strategic use of leave benefits.”

And, apparently, that’s not happening. Not yet anyway.

Student Debt Still a Plague

Here’s some more fuel on the financial-stress fire, particularly as it affects employees straddling student debt: A new survey by American Student Assistance finds more than half of all young workers worry about repaying student loans either all the time or often.

Here are some key — translated alarming — findings of the Young Workers and Student Debt survey, which polled 502 young workers (ages 22 to 33) as well as 451 human resource managers at companies with at least 100 employees:

  • 40 percent report that worrying about their student loans has impacted their health,
  • 55 percent would like to go to grad school but couldn’t take on any additional student loans,
  • 61 percent have considered getting a second job to help pay off their student loans,
  • 63 percent of young workers report that they don’t have anyone to turn to for help with regard to paying off their student loans,
  • 75 percent of HR professionals report that their company does not offer any guidance or assistance regarding student loans, and
  • 54 percent of young workers report that, right now, paying off student loans comes first, and they will put off saving for retirement until later.

Seriously folks, how did this burden on this nation’s young workers get this bad? And why aren’t we doing a better job of triage here?

Kevin Fudge, director of consumer advocacy and ombudsman at Boston-based ASA, says the stress these workers experience over student debt “clearly impacts their health and productivity in the workplace.”

In this editorial I wrote in November of last year, I cite a study by EdAssist in which 72 percent of all people with student debt say it impacts their daily lives, forcing them to give up on dream jobs and further education. That study also finds nearly half (49 percent) of these people saying they’re so stressed, they’d prefer help with school debt over budgeting, credit-card debt and even retirement.

Indeed, the ASA survey shows more than 90 percent of young workers would take advantage of a sign-on bonus or a company match targeted at paying back these mountainous burdens. So why do a whopping 75 percent of HR professionals say their companies offer no help or guidance?

Granted, some companies are treading into this muck and mire to try and clean some of it up. We blogged on this site about PricewaterhouseCooper’s commitment to pay up to $1,200 a year toward employees’ student loans for up to six years. And we blogged about Natixis Global Asset Management’s pledge to contribute up to $10,000 to every full-time employee who has been at the company for at least five years and has outstanding Federal Stafford or Perkins Loans. But that was 2015. And we’re still not hearing about any massive debt-help-bandwagon jumping.

Let’s hope a bipartisan bill introduced Feb. 1 in the U.S. House of Representatives called the Employer Participation in Student Loan Assistance Act does better this time around than when it was introduced in October 2015 as H.R. 3861. The proposed law would shield employers’ student-loan-repayment benefits from federal taxes, thereby opening the door to many more than just a few willing to help their employees pay down their school debt. Why didn’t this garner more support two years ago? This needs to pass.

Meanwhile, this November feature by Larry Stevens, which I mention in my editorial, cites a new approach some employers are taking for all their financially stressed employees: paying them pre-paycheck for the income they’ve already worked for — in other words, the hours they’ve already accrued. As Ijaz Anwar, the co-founder and chief operating officer of one of the suppliers behind this approach, San Jose, Calif.-based PayActiv, told me:

“Why can’t you just give people [living paycheck to paycheck] what they have earned, what is rightfully their, when they so desperately need it [and when it can mean] dignity for these struggling people who can’t even qualify for a credit card?”

But, sadly, there again, there’s no flood of employers taking this approach. Not sure why, when the benefits include better health and productivity for employees, and there don’t appear to be any negatives.

More Bad News on 401(k) Front

Seems the 401(k) red flags just keep waving. This latest report from Ben Steverman on the Bloomberg.com site — based on U.S. Census Bureau research — shows a whopping two-thirds of Americans aren’t putting money into any defined-contribution plans.

That’s right. Based on this research, which relies on tax data instead of surveys (as in the past), only about a third of workers are saving in a 401(k) or similar tax-deferred retirement plan.

What’s more, it now appears — using this new research methodology — that only about 14 percent of employers offer retirement plans at all! How can that be? As the report explains:

“Census researchers Michael Gideon and Joshua Mitchell analyzed W-2 tax records from 2012 to identify 6.2 million unique employers and 155 million individual workers, who held 219 million distinct jobs. This data produced estimates starkly different from previous surveys.

“For example, previous estimates suggested more than 40 percent of private-sector employers sponsored a retirement plan. Tax records uncovered a much bigger pool of small businesses, showing that, overall, just 14 percent of all employers offer a 401(k) or other defined-contribution plan to their workers.”

Bigger companies, the researchers say, are the most likely to offer 401(k) plans, and since they employ more people than small firms, they skew the overall number of U.S. workers who have the option. Gideon and Mitchell estimate that 79 percent of Americans work at organizations that sponsor a 401(k)-style plan. In the words of the report:

“The good news is that’s more than 20 points higher than previous estimates. The bad news is that just 41 percent of workers at those employers are making contributions to such a plan — more than 20 points lower than previous estimates.”

But should we all be trying to shepherd employees into 401(k)s? Earlier posts by me on this site suggest that’s a very good question. This one from January finds the creators and supporters of the retirement-savings vehicle now lamenting their creation. None of them imagined the vehicle would replace pensions, leaving workers struggling to ever contribute enough to their 401(k)s to retire comfortably.

As Herbert Whitehouse, a former human resource executive for Johnson & Johnson and one of the earliest proponents of the 401(k) for employees, tells the WSJ in that post, he and others were hoping and assuming back in 1981 — when the 401(k) was in its infancy — that the savings approach would be a kind of supplement to company pensions.

They did not imagine the idea would actually replace pensions as employers looked to cut costs and survive during subsequent downturns. As Whitehouse puts it in the WSJ story:

“We weren’t social visionaries.”

Then there’s this post a little later in January presenting the opinion of benefits expert Larry Sher, who thinks there’s even more corrupt and wrong with the savings vehicle than its merely replacing pensions. He blames the people who’ve had skin in the 401(k) game all along, who’ve been reluctant to give up their own benefits of the system — a system that forces employees to shoulder more responsibility and stress.

The chief concern of policymakers, employees and even some of the employers that have embraced the 401(k) concept, Sher says, “can be summed up as the total shifting of risks to employees — the risks that they won’t save enough, the risk that they will use the savings for non-retirement purposes, the risk of unfavorable investment results — culminating in inadequate retirement savings and the prospect of outliving such savings.”

Meanwhile, some states and cities have introduced local individual retirement accounts designed to encourage workers to save by requiring employers to either offer a retirement plan or automatically enroll their workers in the state- or city-sponsored IRAs.

The U.S. House of Representatives, however, voted to rescind those rules on Feb. 15, citing the IRA plans’ unfair competition to the financial industry. If the GOP-controlled Senate and President Donald Trump sign off on the move, all such auto-IRA plans would be placed in jeopardy, leaving people in the lurch once again. As Steverman writes:

“Whatever the outcome, any effort to get workers to save for retirement faces a daunting challenge: Can Americans spare the money? Student debt and auto loans are at record levels, according to Federal Reserve data released Feb. 16, and overall consumer debt is rising at the fastest pace in three years.

“Retirement is an important goal, but many Americans seem to have more pressing financial concerns.”

Firing Someone over Politics

With conflict between President Trump supporters and detractors still at a fiery pitch, and with his protested inauguration still in the rearview mirror, this recent post on the Littler site might prove helpful.

In it, a boss in Sacramento, Calif., is asking the San Francisco-based employment law firm whether an employee can be fired, or at least disciplined, after the boss “saw one of my employees on the local news the other night participating in a political rally over the weekend.”

“Can I at least institute a policy prohibiting this kind of behavior going forward?” the boss asks.

Well, it all depends, Littler’s Zoe Argento writes, “on the employee’s location, the legality of his conduct, the employee’s contract, the nature of your business and the characteristics of the individual.” But best advice: Probably not a good idea and tread very carefully.

There are some state laws that prohibit employers from taking adverse action against employees because of their off-duty lawful political activities. So know your state’s laws on this. According to Argento:

“In California, employers may not coerce employees, discriminate or retaliate against them, or take any adverse action because they have engaged in political activity. Similar prohibitions exist in other states, including Colorado, Louisiana, New York, South Carolina, and Utah. Connecticut actually extends First Amendment protection of free speech to the employees of private employers. Some of these laws provide exceptions for public or religious employers or for off-duty employee conduct that creates a material conflict with respect to the employer’s business interests. Under such laws, and absent some exception, the proposed termination or demotion of this employee because of his lawful, off-the-clock political activity would be illegal.”

Also, Argento points out, at least three states — California, Louisiana and Colorado — prohibit employers from adopting any policy, rule or regulation that forbids or prevents employees from engaging or participating in politics or from running for office.

On the federal level, she says, firing or disciplining workers who engage in rallies, protests, marches or any other polticial activity could run afoul of the National Labor Relations Act, which provides that “employees shall have the right … to engage in … concerted activities for the purpose of … mutual aid or protection.” She continues:

“The U.S. Supreme Court has interpreted this provision to mean that employees may organize as a group to “improve their lot” outside the employer-employee relationship. Employees’ participation in political advocacy would therefore be protected if it relates to labor or working conditions. Such advocacy can include contacting legislators, testifying before agencies or joining protests and demonstrations. If the means used are not illegal, an employer would generally be barred from retaliating against employees who participate in these political activities outside the workplace.

“Depending on the nature of the activities your employee engaged in and his role in your organization, it may violate the NLRA to penalize him. If the employee participated in a rally concerning sick leave, minimum wage, or immigration reform, for example, that conduct would likely be protected.”

Argento signs off with some sound practical advice, that a decision to terminate or discipline an employee “should be based on an objective assessment of both the individual’s job performance and your business needs.” She writes:

“If the employee is otherwise a solid performer, and if his behavior does not interfere with the operation of your business, an adverse employment decision may be difficult to explain, undermine morale in your workforce, and, on balance, have more negative than positive results.”

Rule of thumb, she signs off, “proceed with caution” before penalizing employees for lawful, off-duty poitical activities, whether they’re frustrating to you or not.

Travel Ban Would Impact Many

Though President Trump’s travel ban has been frozen indefinitely, a decision made Thursday by the United States Court of Appeals for the Ninth Circuit, it’s still worth noting how many organizations would be affected should Trump proceed successfully in appealing the decision to the United States Supreme Court. He has vowed to do just this, according to the New York Times report linked above. (More recently, on Friday, he said he is now considering rewriting the immigration executive order in question.)

Whatever we end up with,  a survey of 261 companies by the Seattle-based Institute for Corporate Productivity (i4cp) — conducted just a few days after Trump signed the order restricting entry to the U.S. by travelers from seven majority Muslim countries — reveals more than a third (36 percent) of organizations would be impacted by the travel ban. Another 21 percent were still scrambling to make that determination at the time of the poll.

Within a week of the signing of the executive order, nearly 100 companies — including many of the largest global-tech organizations such as Intel, Microsoft, Apple, Netflix and Uber — responded by joining in the filing of a brief in support of a lawsuit against the travel ban filed by the state of Washington. It was that lawsuit that was at the heart of the Ninth Circuit Court of Appeals decision Thursday.

In its release about the survey, i4cp describes the responses as very mixed:

“While some respondents lauded the executive order for protecting the safety of employees, others drew attention to its potentially negative impact on the recruiting and motivation of a diverse, inclusive global workforce, a clear illustration of the polarization of views and reactions.”

Some respondents reported they are simply unsure of the impact of the travel restrictions because of a “lack of transparency in their global contract workforces, which are managed by vendors,” the release states.

Human resources, however, was the predominant responsible party (at 41 percent) for managing internally anyone affected by the ban, followed by legal, 7 percent; CEO, 6 percent; other senior executive, 5 percent; and security, 1 percent. (Other responses included don’t know, 10 percent, and other, 30 percent.) As i4cp states:

“Often, [HR’s lead] is in conjunction with legal teams responding to the needs of individual employees.”

In a few cases, companies reported having multifunctional “SWAT” teams in place responding to the situation. And nearly a third said they are providing legal assistance to affected employees and their families.

Of course, these were the actions in place when the ban was in place. No doubt things have returned to normal since the freeze and its being upheld in appeals court. But should Trump succeed at the Supreme Court level, these challenges would be back on employers’ plates immediately. Would be wise to stay poised to help these employees — and clearly, there are a lot of them — once again if need be.

Fix STEM Gap by Making Science Fun

Anything that encourages and inspires the mastery of science in this country raises my interest. I come from a long line of scientists who — aside from being brilliant heroes of mine — always found ways, and time, to give back to schools and students to encourage a love of science.

My late dad, an oceanographer, told me more than once that the key to the math and science problem in America (i.e., not enough college graduates entering the workforce with science, technology, engineering, and math mastery and career plans) is that too few schools are making STEM fun. How can you be inspired by something that     isn’t at least a little bit fun?

Which is why this release about the 11th Annual Arizona Regional Science Bowl held Saturday before last caught my eye and had me reading on, not just about Arizona’s competition, but the national one as well, the one that all regional meets feed. There’s even a National Ocean Sciences Bowl. Not sure my dad knew about that one. He would have loved it.

Organized and sponsored by the U.S. Department of Energy since its inception back in 1991, the National Science Bowl follows a quiz-show format, with a buzzer system in place for contestants to signal their answers. Students compete in teams starting in their regional middle- and high-school competitions with the goal of getting an all-expense-paid trip to the national bowl if they win. This year’s national event takes place in Washington from April 27 through May 1. (Here’s a video from last year’s national competition in case you’re as curious as I was.)

My sense of it after reading up on both the regional and national events is this bowl idea sounds far more exciting, engaging and competitive than most other organized attempts to instill the love of science in tomorrow’s workforce. It also sounds fun.

I guess you could say it feels like the difference between a health-risk and body-mass assessment and a wellness program that gets participants truly engaged and enthused.

At a time when employers, particularly those in tech-reliant industries, are bemoaning the dearth of STEM-educated job candidates (consider what we’ve written here on HRE Daily and on HREOnline.com, for instance), it makes a whole lot of sense for businesses to support these regional bowls, and our national one.

Not only are you helping your high-tech talent-pipeline, you’d also be doing something very nice for your reputation as a community/U.S./future-workforce supporter.

Make Those Vacation Plans Today

Just a heads up that, if you’d like to join forces with the Entertainment Benefits Group and Project: Time Off in encouraging employees to take all their vacation time, today (Tuesday) is the day to get them poring over their calendars.

Both groups have joined together in a Jan. 31 “call to action” for more American workers to get a “jumpstart on planning their vacation,” according to this release from the EBG. In the words of Brett Reizen, president and CEO of EBG:

“[Our] mission is to bring fun and happiness to people’s lives by providing employees nationwide direct access to special offers on top travel and entertainment products across the country. Living in a work-driven culture where vacation and time off is essential, we embraced the chance to … foster work/life balance, boost employee happiness and increase productivity in the workplace.”

(EBG, a U.S. corporate travel and entertainment benefits program, will support the initiative by providing employers and their employees access to exclusive offers on premier travel and entertainment experiences through its corporate programs division — TicketsatWork, Plum Benefits and Working Advantage.)

PTO’s release on the big day tomorrow is full of some stats from a recent survey it conducted that you might find interesting — if not alarming — such as:

“Americans leave 658 million days unused each year. The single-most important step workers can take is to plan their time off in advance. Yet less than half — 49 percent — of households set aside time to plan the use of their vacation time each year.”

Also, according to the PTO research, 51 percent of those who plan their vacation took all of their time off, where just 39 percent of non-planners did, and 69 percent of planners took a week or more of vacation time, where just 46 percent of non-planners did.

We’ve posted our own vacation red flags and statistics for employers here on HRE Daily, including the huge number of “under-vacationed” employees and some of the reasons for it, such as the fact that others in the workplace — managers and co-workers — tend to shame vacation-takers.

If reading up on the merits of enforcing or, at least, encouraging the taking of all allotted vacation time, consider these additional stats from PTO’s research:

  • The time spent planning correlated with greater happiness in nine categories, including:

    • 85 percent of planners report they are happier with their relationships with their significant other, compared to 72 percent of non-planners.
    • 69 percent of planners, compared to 60 percent of non-planners, report being happy with their relationships with their children.
    • 81 percent of planners say they are happy with their financial situation, compared to 71 percent of non-planners.
    • 90 percent of planners are happy with their professional success, compared to 82 percent of non-planners.

Now, whether taking vacations led to this increased happiness and success or happy, successful people are the ones more likely to take all of their vacation time is unclear.

What is clear, to me anyway, is employers have nothing to lose and a lot to gain, including in employee productivity and engagement, by making sure employees are getting out of the office as much as they’re entitled to.

Pay Equity for Lower Ranks Only

We’ve been focusing, along with the rest of the media, on gender pay equity and wage gaps for some time now. (Witness searches on  this HRE Daily site and our magazine website, HREOnline.com, alone.)

But this latest study from the Academy of Management that’s going into the February issue of the Academy of Management Journal shows something we’ve never reported on: the fact that women managers foster pay equity between the genders, but only for low-ranking employees.

The study, based on actual manager-subordinate reporting relationships in 120 branches of a large U.S. bank, takes into account two different approaches to combatting pay inequity. One consists of pay formalization, which seeks to minimize personal biases by mandating the use of detailed written rules to determine compensation. The other, less formalized approach, looks to the increasing number of female managers in the workforce, and the power they wield to set pay.

According to an email I received on the study:

“… both formalized and less formalized approaches to pay equity come into play in each locale, with employee annual bonuses being awarded on a highly formalized basis but branch managers, almost half of them women, having considerable leeway in determining employees’ base salaries. Thus, [researchers had] a rare opportunity to compare the efficacy of formalized and less formalized approaches in achieving pay equity between men and women workers — specifically, how this is affected by manager gender.

“Unsurprisingly, the paper finds little or no gender gap in the formalized segment of pay — that is, in the amount of annual bonuses, standards for which are spelled out in detail by the company. In contrast, there was significant gender inequality in the less formalized component of pay, base salaries, which constituted the lion’s share of compensation, with greater imbalance occurring on average under male managers than under women.”

Yet, in the words of the study,

“Concluding that female managers redress inequality is incomplete because once organizational level is taken into account, it becomes evident that female managers only reduce inequality for employees at the lowest-level organizational position of teller.”

So … as the study paints it, controlling for a host of relevant factors, female tellers in branches headed by women had base salaries that were about the same as those of male tellers; yet, female tellers in branches headed by men had base salaries about 7.5 percent less than male tellers.

In sharp contrast, women’s wages for all other positions ranged from 4 percent to 13 percent less than those of men holding the same job, regardless of whether the branch was headed by a man or a woman.

What accounts for the fact that women branch managers eliminated the gender pay gap for female tellers but not for higher-status female employees? Does this confirm the “queen bee” effect, which contends that women who have been successful in male-dominated contexts try to keep other women from getting ahead? Mabel Abraham of the Columbia University Business School, the study’s researcher and author, answered this for me:

“Any suggestion that this is a queen-bee phenomenon would be purely speculative. It just as likely is a matter of women showing an extra measurer of concern for lower-income workers. The value of the research lies elsewhere — in highlighting a nuanced approach for organizations in striving for gender pay equity.”

What are employers and their HR leaders supposed to do with this new information? In Abraham’s opinion:

“In order to develop appropriate strategies for reducing gender pay inequality, organizations must concurrently consider the potential role of both female managers and the level of the employee they oversee.”

More 401(k) Bashing, and a Fix

I posted here earlier this month about a provocative Wall Street Journal piece in which the creators and early adopters of the 401(k) retirement-savings vehicle lament the revolution they started.

Their point: They had no intention of watching the concept turn into the sole — and highly inadequate — savings receptacle for employees.

Now, on the heels of that, comes this piece on the October Three site by benefits expert Larry Sher taking that discussion even further, to a whole lot more wrong with the defined-contribution approach and the people who support it — i.e., the people with skin in its game. As Sher writes:

“For instance, the government tried, unsuccessfully so far, to nudge DC plan sponsors to give participants some sense of how much life annuity their account balances might be able to provide. The push-back was immediate and severe from stakeholders in the DC system.

“Some objected on technical grounds —  the annuity estimate could vary widely depending on a number of assumptions including life expectancies, market interest rates and inflation. Others viewed this initiative cynically, believing that it was just a first step toward mandating annuity availability in DC plans, thus leading to the prospect of huge sums of assets shifting from mutual funds and other asset managers to insurers.”

The chief concern of policymakers, employees and even some of the employers that have embraced the 401(k) concept, Sher says, “can be summed up as the total shifting of risks to employees — the risks that they won’t save enough, the risk that they will use the savings for non-retirement purposes, the risk of unfavorable investment results — culminating in inadequate retirement savings and the prospect of outliving such savings.”

To mitigate the problem of employees dipping into their funds for non-retirement purposes, he suggests employers impose greater restrictions on such withdrawals. Of course, he also writes,

“The best way to close this loop would be to provide a core company contribution for everyone — not just for those who are willing or able to save.”

Here’s one of my favorites of Sher’s points:

“And perhaps one of the most disturbing aspects of a DC-only retirement system is the fruitless attempt to make employees into competent investors. Even if investment education works to an extent, the idea of employees spending time, probably mostly work time, to figure out how to best navigate the investment markets is an exercise in futility.

“When someone is sick they go to a doctor, not to medical school. Investment professionals have gone to investment school — a crash course in investments does little, or no more, than give employees a false sense that they know what they are doing. It’s like self-diagnosing a medical issue based on information on WebMD.

“The response from the DC world is default investments, such as target date funds. That helps but it still leaves employees vulnerable to temptations to time the market and apply their [inadequate]knowledge to making investment choices. Inevitably, the result is wide disparity in outcomes among plan participants — those with better outcomes being the better, or more likely luckier, investors.”

Sher’s solution to this DC mess is to establish a combination of a type of cash balance plan with a “market-return,”  so interest is credited based on real-market investment returns rather than high-quality bond yields. He calls this the MRCB. Here’s how it would work, according to him:

“The MRCB will provide much better cost control than a typical CB design — because account balances will tend to move in tandem with the plan’s assets, and regardless of changes in market interest rates. The employer can tune the degree of investment risk it is willing to share with employees by providing more downside protections, possibly in exchange for retaining a portion of the upside investment returns.

“By providing some of the employer benefits through an MRCB, the employer is accomplishing all of the goals that the government and some employers are trying to achieve by changing DC plans to be something they are not meant to be. Employer pay credits would automatically be provided to all participants — no dependency on employee contributions. There would be no diversion of the benefits during employment — no loans or withdrawals. Annuities would be provided directly by the plan — thus avoiding the extra cost of retail-insured annuities.

“Yes, that means the employer retaining some long-term longevity risk — but even that is controllable by how the factors are set and managed over time to convert accounts to annuities. The MRCB typically would allow employees to elect lump-sum distributions upon termination or retirement [equal to account balances, with spousal consent], although the ability to elect lump sums can be restricted by plan design to the extent the employer considers that to be desirable.”

And where would such an approach leave the 401(k)-DC plan? In Sher’s words:

“Just where it should be –as a short-term and supplemental long-term savings vehicle … “

not the only show in town.