Need a low-cost initiative that makes management, employees, and customers happy? Recycling should fill the bill. Here are some tips and considerations for developing your company’s recycling policy from Top 10 Best Practices in HR Management for 2012.
HR Daily Advisor
On Monday, January 23, 2012 the WCA released an estimate to the New York State Legislature of the cost of the Medical Treatment Guidelines. The state Workers’ Compensation Board implemented the Guidelines on December 1, 2010, and has applied them both retroactively and prospectively.
The original intent of the Legislature in authorizing the Board to create a list of "pre-approved" medical treatment and surgery was to expedite medical treatment to injured workers, reducing red tape and litigation. It was expected that both injured workers and insurers would benefit not only from the reduction in litigation costs but also from speedier return to work.
In practice, the Medical Treatment Guidelines have vastly expanded red tape and litigation, slowed and limited medical treatment for injured workers, and dramatically increased costs for insurers.
The WCA analysis shows that – measured conservatively and using the Board’s own data – the cost of the litigation process associated with the Medical Treatment Guidelines is twice the cost of the medical treatment the Guidelines cut off.
Instead of reducing costs and speeding medical care to injured workers, the Medical Treatment Guidelines have expanded costs and slowed treatment. In view of the evidence, the WCA has called on the Board to withdraw the Guidelines and all associated process and to reconsider how to best achieve the Legislature’s intent. In the interim, the WCA has called on the Legislature to prohibit the Board from retroactive application of the Guidelines as a matter of justice and due process.
The WCA analysis can be found here.
The one constant theme that Human Resource professionals emphasize when it come to international assignments (expatriate employees) is that the experience costs a great deal of money. Most of you reading this will simply nod your head at such a cautionary warning, yet not fully understand the why of it. Perhaps the topic doesn’t concern you, for now, but as managers who may become involved in such adventures down the road, you need to know the cause if you ever hope to manage this expensive proposition.
While companies continue to try new strategies for employing talent overseas (shorter assignments, use of third country nationals, extended business trips, shared responsibilities, etc.) two central premises remain; 1) companies will continue sending employees on overseas assignments, and 2) the cost of those assignments continues to be a big pill to swallow.
Fueling Persistent Cost
If you accept the premise that an employee sent overseas should be kept “whole” (expense-wise) with their home country situation (maintaining their income and expense exposure as if they had never left the U.S.), then certain incurred liabilities naturally fall to the company.
This premise is an important point and a foundation for future planning. The assumption is that the employee should not economically suffer, but neither should they receive a windfall. To the employee, the experience should be cost-neutral. However, the same cannot be said for the organization. They often have to shoulder a sizeable burden.
First of all, the U.S. is one of the few countries in the world where – no matter where you work – you continue to incur a tax liability on your earnings while also being liable for earned income taxes in the host country as well. Uncle Sam demands his share, and will follow you around the globe.
The difference is, though, that any additional tax liability would ultimately be paid by the company.
And the second dark cloud over expats? When establishing the terms and conditions that will govern an international assignment, remember that whatever the company provides the employee beyond what they would have received had they remained in the US is considered taxable income to the employee.
For example, such taxable items would include, but not be limited to:
- Home leave transportation: A personal expense (vs. a business trip) that includes air fare, taxis, meals enroute, etc. Terms and conditions usually allow for one trip per calendar year – though that can be negotiable.
- Cost of living allowances: That monthly allowance you receive to make up the difference in living costs … it’s taxable.
- Housing allowances: If you continue to maintain a U.S. residence (usually advised) the company will provide accommodations, but the cost of that residence is taxable to you.
- Utility payments: From electric to water to phone to garbage collection and more, if the company pays for it then it’s a taxable item.
- Supplementary benefits (host country): Additional local coverage (i.e., National Health Service) to ensure immediacy of care wherever you might find yourself overseas.
And don’t forget the family. Those expenses paid out to provide dependents with programs or services are also deemed as taxable income of the employee. For example:
- Language lessons: English may be the international language of business, but not so much in the supermarket.
- Orientation: Teaching the expat and family members about the local culture, how to get along, how to fit in and what to expect, while always useful, is especially important when the local language is not English.
- American-style schooling: Usually a point of insistence for expats with school age children, the concern here is to ensure that the children are educated in a fashion that would be recognized (credit received) by school authorities back home.
You Don’t Know What You Don’t Know
To compound the internal challenges, too many managers know too little about the true costs of expat assignments. This ignorance leads to misconceptions, misleading comments to employees and, in some cases, a too casual consideration of costs.
- “They speak English, so just get on the plane.” It’s a common refrain, as if we all have the same legal system, health care, work attitudes, etc., and any minor differences could be solved by a short conversation.
- “The money’s been budgeted.” A classic excuse, as if that in any way justifies an expense.
- “Let’s go around company policy to save money.” Short term thinking (and shortcuts) that more often results in a failed assignment. And how expensive is that going to be?
Having spent five years overseas on an expatriate assignment, here are a few “takeaways” from that experience.
- My first W-2: The amount was a shock, insofar as the tax preparers lumped together as taxable income everything that the company had provided for me. That was my first realization of exactly how expensive an expat assignment was to the company. This is where the 2x and 3x annual salary cost guesstimates were born.
- Local confusion: My UK Controller was unable to determine the expat costs for his business unit. Lines of communication between the host country and the corporate-sponsored tax preparers broke down often. That’s when the finger pointing starts.
- Lost information: After extensive investigation, it seemed that data regarding assignment costs and local liabilities were buried among several budget line items. Highlighted cost metrics were absent, and no one was watching the store.
- Taxation: There are many confusing aspects of foreign service credits and reciprocity tax treaties. Not my area of expertise, but even several years after returning from overseas my tax advisor was still dealing with foreign tax credits. The back and forth of determining corporate tax liabilities, or avoiding them, is a science unto itself.
So yes, international assignments for your employees can be a very expensive proposition. But those expenses can be monitored; they can be controlled.
Remember this formula for getting into financial trouble: if you take unknown assignment costs and add the lack of stated assignment ROIs, plus throw in a bit of insensitivity for the realities that expats (and their families) face, that recipe will blow up in your face every time.
That you can take to the bank – for withdrawal, not deposit.
“Why doesn’t my Company consider inflation when determining my pay increase?”
Have you heard this question before? What this employee is actually asking is: “Shouldn’t my annual pay increase percentage at least match increases in the cost of living? And, as management is always talking about the company’s pay-for-performance philosophy, shouldn’t my increase be higher than that, given that I’m a good worker?”
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Have you ever been in a situation where an employee complains to you that their pay increase is no better than the inflation rate? Or worse, that it’s lower? As a further aggravation, they might ask you how the company can say there’s a pay for performance policy when all they do is grant increases that no more than match the inflation rate? Isn’t that like treading water, just staying in place without moving forward? Is that fair? Where is the reward for good performance? Shouldn’t everybody receive at least the inflation rate?
The truth of the matter is that it’s common practice for companies to only give a side look at inflation (cost of living) when determining their annual pay increase budget. They do make note of it as a reference point and to compare against a final decision, but what they’re actually focused on are two prime considerations: 1) competitive market survey data that tells them what everyone else is paying for like jobs in their area; and 2) the expense (annual grant and fixed costs) to maintain competitiveness.
Competition and affordability
Companies routinely promise to pay competitively, and as such will analyze what they consider the marketplace to learn what other companies are paying for jobs (base salaries) and standards for increases. Their so-called “promise” does not include the granting of inflation-proof increases, or even to reflect the cost of living in their analysis. Their intent is to pay employees a competitive wage – including increases – and competitive means what others are doing, not necessarily what’s happening in the world of inflation.
If budget is an issue for any given year, it’s likely that maintaining competitiveness will have to suffer. Consider the past two years of layoffs, wage freezes and reduced increases as recession gripped the country.
Is that fair? Well, let’s imagine that your name is the one on the company door. How would you plan to spend your money? Likely you would seek to pay the least that you can, while still attracting, motivating and retaining qualified talent for your business. That doesn’t mean you would lower pay levels, but as the owner you would want to allocate your substantial payroll expense as effectively and efficiently as possible to staff your business with qualified and engaged employees. It wouldn’t make good business sense to spend more than you need to for any overhead, be it facilities, raw materials or employee compensation.
Consider the market for talent as similar to making a purchase at a retail store. How frequently would you pay more than the advertised price if your extra money purchased nothing more than the same item? Chances are you wouldn’t often take that approach.
The view from the other side of the desk
Now let’s consider the employee perspective. What factors weigh heavily on their minds when considering the potential for pay increases?
Most employees expect management considerations to reflect the inflation rate (cost of living), the average increase for their industry/geography (typically as pointed out by newspaper “factoids”), and – if the company had a good year – a share of the financial success. You can be sure that the figure employees have in mind is the highest number calculated from the three possibilities just mentioned. And, lest you forget, that figure is for the average performer; better employees should receive more.
Now this view is not necessarily wrong, from their perspective, and one certainly can’t blame employees for a viewpoint that puts their interests first. However, companies typically maintain a “this is a business first” strategy that seeks to minimize controllable expenses without losing sight of their competitive pay target. The goal of paying competitive wages, a concept hard to argue against, is not likely to be overturned by changes to the cost of living, newspaper snippets or a feel good moment following company success.
Another factor to consider is that employees are comfortable with changing their reasoning from year to year, while companies are stuck on the same track. So when inflation goes up or down, or the company has had a good or not so good year, or the media is touting higher or lower industry averages, employee expectations may likely swing from one argument to another, rationalizing a consistently more aggressive pay increase strategy.
Now a little tongue-in-cheek: turnabout is not considered fair play. Employees would not want the size of their increases to fall with their chosen economic indicator. It should only rise. They would object to smaller increases if the company hit a rough patch, or if inflation nosed downward. You shouldn’t be surprised that they want their cake and want to eat it too.
However management strategies tend to be consistent over time, continually focusing on the marketplace and its affordability to maintain their posture of providing competitive pay and pay opportunities.
So how do you avoid a clash of employee expectations with management strategy? If companies would communicate pay philosophy or strategies they would be able to allay the employee guesses and assumptions that always accompany the grapevine and rumor mill. Employees would know in advance what to expect. They might not like what they hear, but the employer/employee relationship would be improved by some straight talk about how the company determines pay increases.
Chuck Csizmar is the Founder & Principal of CMC Compensation Group,an independent global compensation consulting firm whose expertise lies in helping companies manage the effective and efficient utilization of financial rewards for their employees. He also maintains a popular blog on compensation at his website www.cmccompensationgroup.com.
Beginning with the end in mind, it is important for those developing business cases for the organization’s various ongoing operations and proposed initiative alternatives to do so in such a way that leaders can compare the cost and benefits of the proposed activities. Only when leaders can make a one-to-one comparison can they clearly understand the overall value contribution a given initiative and, subsequently, the portfolio of initiatives have for the organization. Therefore, business case developers should use a common, pre-established set of cost and benefits identification standards.
That’s only a small sample of this article…
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“There are costs and risks to a program of action but they are far less than the long range risks and costs of comfortable inaction.”
John F. Kennedy (1917 – 1963)
35th President of the United States
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All too often, executives and planners focus on the cost of implementing a project and omit recognition of the other associated costs accompanying the resulting outputs once the project is completed. Even if those costs are accounted for, other hidden costs, such as the reduction of future operational flexibility and options, can be overlooked. Overlooking these costs can significantly impact an initiative’s return on investment; inappropriately inflating the investment’s value to a point where an otherwise unacceptable pursuit appears to be worthwhile. Therefore, when selecting from among the myriad of business operations and initiative opportunities it is important to fully examine the total cost of ownership.
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Additional Information
Many project costs often go unrecognized. StrategyDriven’s Project Management Warning Flag – Unfunded Activities provides additional insights to the warning signs indicating not all project costs are being appropriately included in overall cost estimates.
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