HR Trends eBook

About ERC

4

Introduction

5

Legal

17

Healthcare & Benefits

30

Compensation

35

Talent Management

48

Hiring

55

Conclusion

56

Sources

Table of Contents

3

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Copyright © 2013 ERC (Employers Resource Council)

3

Introduction

M

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

In summary, there were a few significant federal
employment law developments and Supreme
Court rulings in 2013, as well as continued
heightened enforcement among the federal
agencies. Health care reform, however, was the
biggest compliance issue affecting employers
this past year, and will continue to be heading
into 2014, as new rules are finalized and
employers prepare for key regulations that take
effect in 2015.
In the area of compensation, there were
continued modest pay increases. More
employers appear to be compensating
strategically, with a compensation philosophy
and focus on pay for performance. Organizations
are also becoming somewhat more transparent
and communicative about their compensation
practices. In the realm of benefits, wellness
programs continued to be enhanced and
employers seem to be offering voluntary benefits
to a greater degree. More attention on work/
life programs, including flexible scheduling and
stress management, also was prevalent among
employers in 2013.

But, above all, health care benefits was the
primary concern for most employers.
Many of same talent management and hiring
challenges persisted in 2013. Employers
face opportunities to improve employee
engagement, performance management,
rewards and recognition, the candidate and
new-hire experience; and the ways in which
they attract, retain, manage, and develop
talent. Faced with a shortage of skilled talent,
employers are increasingly using social media
and strategic online recruiting methods to
find workers. In addition, leadership and
employee development continue to be areas
of concern and priority for employers, and are
being affected by certain demographic needs
and interests, including women and younger
workers.
Employers will be operating with quite a bit of
uncertainty in the health care and compliance
arenas in 2014. It appears that the main
challenges employers will face are related to
health care, the changing benefits landscape,
difficulties in finding skilled talent, and struggles
with engaging and retaining current talent
with modest pay increases and lagging talent
management practices.
The following e-book summarizes the most
important HR trends that surfaced throughout
2013 and several trends you should expect
and plan for heading into 2014 – supported by
both national and local research. It also includes
detailed commentary from local subject-matter
experts in Northeast Ohio on trends they’ve
observed this year and how those will affect HR
in 2014. These combined research and subject
matter insights serve to provide you with a
summary of key trends to be aware of during
2014.

PLEASE NOTE: By providing you with research information that may be contained in this message, the Employers Resource Council (ERC) is not providing a qualified
legal opinion concerning any particular human resource issue. As such, research information that ERC provides to its members should not be relied upon or considered
a substitute for legal advice. The information that we provide is for general employer use and not necessarily for individual application. We also recommend that you
consult your legal counsel regarding workplace matters when and if appropriate.


4

Legal

I

n 2013, a few notable changes to
federal employment law regulations
were made. These included changes
to the Family Medical Leave Act
(FMLA), a revised I-9 form, and new
HIPPA rules. Also, during 2013, a
few important decisions made by the
Supreme Court affected employers,
most significantly the federal Defense
of Marriage Act being struck down,
and the clarification of the definition of
a supervisor under Title VII of the Civil
Rights Act. The Supreme Court will
consider other employment law-related
decisions that affect employers in 2014.

Finally, the outcomes of numerous court
cases in 2013 offer new guidance and warn
employers of potential liabilities. Case law
will continue to be an important source
of direction on employment law matters,
particularly for the Family Medical Leave
Act (FMLA), the Americans with Disabilities
Act (ADA), and the Fair Labor Standards Act
(FLSA). More cases involving social media
and/or social media postings as evidence
emerged in 2013 as well, and this will likely
continue in 2014.

Additionally, while the National Labor
Relations Board's (NLRB) activity was
less pronounced in 2013, the Equal
Employment Opportunity Commission
(EEOC) continued to remain very busy
with a variety of discrimination issues.
Heading into 2014, employers should
expect that EEOC activity will continue
to be high, and that the NLRB will likely
be more active as well. In addition, there
are a few reforms being considered
by the government, pertaining to
immigration, workplace flexibility, and
social media privacy.


5

Legal
Little NLRB activity in
2013, but that could
change next year.
There was very little NLRB activity in 2013 with the
U.S. Court of Appeals for the District of Columbia
Circuit ruling that President Barack Obama acted
unconstitutionally when he made three recess
appointments to the NLRB.
The ruling has been appealed to the U.S.
Supreme Court. While the ruling invalidates
NLRB decisions made from January 4th until now,
employers should continue to use the NLRB's
guidance until its decisions are ruled binding or
not.[111]
In the meantime, there was some activity with
regard to the NLRB that affected employers. The
United States Court of Appeals struck down a rule
by the NLRB which required organizations to post
a notice to inform employees about their rights
under the National Labor Relations Act (NLRA),
asserting that all three enforcement provisions in
the rule were unlawful. Additionally, the Senate
voted to confirm five nominees to the NLRB, three
Democratic nominees and two Republicans.

Upcoming Supreme
Court decisions will
affect employers in
2014.
The Supreme Court started hearing arguments
for several important cases in October featuring
issues affecting the Employee Retirement Income
Security Act (ERISA), FLSA, the President's power
to make recess appointments to the NLRB, and
whistleblower protections under the SarbanesOxley Act (SOX). The outcomes of these cases
could meaningfully affect employers heading
into 2014.
Specifically, the Supreme Court will review
whether a statute of limitations can run upon
a clear repudiation of rights; what "changing
clothes" means with respect to FLSA and
compensable time; if the President can make
recess appointments; and whether employees
of privately held contractors or subcontractors
of public companies can bring retaliation claims
under SOX.[62]

With a fully-constituted Board heading into 2014,
organizations should expect the NLRB to be more
active and revisit issues that were put on hold in
2013.


6

Legal
Immigration reform
that would affect
employers continues to
be considered.
There has been quite a bit of activity in the U.S.
legislature regarding changes to immigration
laws this year. Though nothing has passed yet,
several different pieces of possible legislation
emerged during 2013 that could affect the cap
for H-1B workers, visa programs, E-Verify, and
green cards.
Proposed legislation this year specifically
included requiring the use of E-Verify, increasing
the number of H-1B visas with further flexibility
to raise the cap based on demand for highly
skilled jobs, increasing the percentage of
employment-based green cards that are granted,
and providing exemptions to certain immigrants
based on education or ability in the STEM fields.
Although there have been so many different
bills proposed in Congress this year regarding
immigration, some of which are very significant,
it is unclear what direction reform will take at this
time.
Nonetheless, employers can expect that
immigration reform will surface again during
2014 as President Obama has said that he will
press immigration reform immediately after the
current fiscal issues are addressed in Congress.

DOMA ruled
unconstitutional;
affects employers’
benefits practices.
In June, the Supreme Court struck down the
federal Defense of Marriage Act (DOMA) in
United States v. Windsor. The Court ruled that
section 3 in DOMA was unconstitutional as it
deprives individuals of equal liberty protected in
the Fifth Amendment.
Depending on the state and if it recognizes
same-sex marriages, the Court’s decision affects
employee benefits and protections. In any state
that recognizes same-sex marriages, employers
will be required to treat same-sex couples the
same as opposite sex couples in regards to
offering COBRA continuation coverage, allowing
spouses to use FMLA (if eligible and qualified),
being subject to flexible spending and health
savings account rules, attaining eligibility for
immigration benefits,[129] and recognizing samesex spouses to determine surviving spouse
annuities or death benefits.[67]
The IRS and the U.S. Treasury Department also
ruled that married same-sex couples will be
treated as married for federal tax purposes,
regardless of whether the couple lives in a
jurisdiction that recognizes same-sex marriage.
[66]

The overturning of DOMA brought to light samesex issues in the workplace, and could be the
beginning of more related legislation to protect
same-sex rights.

7

Legal
Definition of a
supervisor & causation
standards for retaliation
claims were clarified by
the Supreme Court.

FMLA protections were
expanded.
This past year, the Department of Labor (DOL)
issued a final rule which implemented two
important expansions of protections under
FMLA. Employers are now required to use new
forms to administer FMLA. One of the expansions
provided families of eligible veterans with the
same FMLA leave that is available to families of
military service members. It also allowed more
military families to take leave for activities that
arise when a service member is deployed. The
other expansion modified existing rules so that
airline personnel and flight crews are better able
to use FMLA’s protections. [59]
In 2013, the DOL also clarified factors an employer
must consider when an employee requests leave
to care for an adult child. The guidance addressed
two issues 1) the age of onset of a disability for a son
or daughter affecting the parent's ability to take
FMLA leave and 2) the impact of the Americans
with Disabilities Act Amendment Act (ADAAA) on
the FMLA definition of son or daughter. The DOL
specified that the age of the onset of the disability
is irrelevant to the determination of whether an
individual is considered a "son or daughter"
under FMLA. This means that employees whose
children became disabled after the age of 18 are
eligible to take FMLA-protected leave to care for
them. [58]

This year, the Supreme Court clarified two
important issues for employers: definition of a
supervisor and causation standards for retaliation
claims.
The Supreme Court clarified the definition of a
supervisor under Title VII of the Civil Rights Act in
Vance v. Ball State University as someone who can
take a “tangible employment action” and make a
“significant change in employment status, such
as hiring, firing, failing to promote, reassignment
with significantly different responsibilities,
or a decision causing a significant change in
benefits.”[127] The Court found the EEOC's
definition of a supervisor to be too broad, and
the revised definition narrows the scope of an
employer’s liability under Title VII.[89]
Also, in University of Texas Southwestern Medical
Center v. Nassar, the Supreme Court held that
proof of retaliation as the primary reason that
the employer acted as it did is required for Title
VII retaliation claims. A plaintiff must be able to
prove that retaliation was not just a “motivating
factor” for an adverse action taken against them,
and that retaliation directly caused an employer
to take the adverse employment action.[23]

8

Legal
HIPAA rule went into
effect.
The Department of Health and Human Services
(HHS) issued a new final omnibus rule this year,
which increased protections related to privacy
and security for health information established
under the Health Insurance Portability and
Accountability Act of 1996 (HIPAA). The primary
areas addressed in the rule include privacy/
security, breach notification, enforcement, and
genetic information.
Covered entities and business associates were
required to make changes to privacy notices
and policies, security policies authorization
forms, training materials, and business associate
agreements. They were also required to add a
new privacy-agreement requirement between
business associates and any subcontractors.[81]

I-9 Form was revised.
A revised I-9 Form was released in March of this
year by the U.S. Citizenship and Immigration
Services (USCIS). The form, which is required to
verify the identity and employment authorization
of individuals hired for employment in the U.S.,
was improved with new fields, reformatting, and
clearer instructions. Employers needed to start
using the new form as of May 7, 2013 for all newhires and reverifications.
Compliance with the new I-9 form requirements
is essential. There has been a significant increase
in the number of I-9 audits in recent years
because there has been a rise in the number of
I-9 forms with errors and complaints issued to
the U.S. Immigration and Customs Enforcement.
There are fines attached to these errors, and in
addition, fines for any “knowing violations” can
be particularly hefty.[137]

9

Legal
More states pass
workplace social media
privacy laws.
The number of states that have passed laws related
to workplace social media use and monitoring
continued to increase this year. Generallyspeaking, such laws have made it unlawful for an
employer to request or require that a prospective
employee provide their social media password as
a condition of attaining employment.
According to the National Conference of State
Legislatures, ten states have enacted social
media privacy legislation in 2013. They include
Arkansas, Colorado, Illinois, Nevada, New
Jersey, New Mexico, Oregon, Utah, Vermont,
and Washington. Six states passed legislation in
2012, California, Delaware, Illinois, Maryland,
Michigan, and New Jersey. A total of 36 states
have introduced legislation or have it pending.
Ohio has not passed any legislation yet.[110]
Nationally, although bills have been introduced
in Congress which provide similar protections,
there has been no significant movement towards
passing social media privacy legislation, which
may be prompting the increasing number of
states to pass laws.

Payroll cards
experienced legal
scrutiny.
This year, the use of payroll cards experienced
legal scrutiny, based on an investigation
launched by New York’s Attorney General. New
York’s Attorney General began investigating
companies that pay hourly employees using


prepaid payroll cards, with the concern that
fees associated with pay card withdrawals may
be insufficiently disclosed, or excessive, or that
the cards may decrease employees’ take-home
pay, which could, in some cases, result in pay
below the minimum wage. In addition, payroll
cards may not comply with state laws governing
printed payroll statements and written consent
for using the cards; federal law which prohibits
mandatory use of prepaid payroll cards as
a condition of employment; and collective
bargaining agreements.[139]
Some employers use prepaid payroll cards as an
alternative form of electronic wage payment as
they carry many benefits. In a recent local survey
by ERC, 14% reported using payroll cards. They
are similar to debit cards, and generally offered
to employees who do not have access to, or who
do not want to use, direct deposit. Payroll cards
typically give employees free access to their
funds or access to them at a significantly lower
cost than those charged by check cashers, and
also benefit employers with lower costs and fees.
Electronic wage payment reduces employers’
costs relative to creating, processing, and
reconciling paper checks. Employers should
be cautious with using prepaid payroll card
systems and make sure that these systems are in
compliance with state and federal laws. [125]

10

Legal
Ohio Shared-Work
program signed into
law.
This year, Governor John Kasich signed into law
House Bill 37 which sets the stage for Ohio’s
Shared-Work Ohio program. The program is
essentially a layoff aversion tool that employers
will be able to use to avoid laying off workers so
that they can retain their workforce, let employees
keep their jobs and benefits, and avoid the high
costs of hiring and training new workers.
The Shared-Work Ohio program allows Ohio
companies to reduce workers’ hours instead
of implementing layoffs, and further enables
workers to retain their benefits and qualify
for unemployment for any reduced hours
they incur. [135] Another added benefit of the
program is that employers who opt to use the
shared-work program can avoid increases to
their unemployment insurance premium rates,
whereas employers who choose a traditional
layoff instead of the shared work program, will
incur higher unemployment taxes. Employers will
need to apply or opt into the program, pay 5% of
the unemployment costs, and be responsible for
maintaining full health insurance and retirement
benefits for affected workers. [25]

DOL eliminates
minimum wage and
overtime exemption for
home care aides.
The Department of Labor's Wage and Hour
Division issued a final rule this past fall which
eliminates the FLSA’s minimum wage and
overtime exemption for home care workers. This
rule goes into effect on January 1, 2015.
Under the rule, most direct care workers (certified
nursing assistants, home health aides, personal
care aides, caregivers, and companions) will be
classified as non-exempt and entitled to receive
at least the federal minimum wage and overtime
pay protections. In addition, as of January 1,
2015, third party employers and agencies may
no longer claim an overtime pay exemption for
live-in domestic workers. Employers will also be
required to keep time and pay records for nonexempt direct care workers they employ. [56]


11

Legal
Cases point to new FLSA
lawsuit trends.
The Federal Judicial Center reported in 2013 that
lawsuits under FLSA have hit a new record. In the
past year, 7,764 cases have been filed in federal
court, which is a 10% increase from 2012, and
nearly a 400% increase from 10 years ago. [117]
The majority of the lawsuits deal with
misclassification of exempt employees, which has
led to millions of dollars paid out from lawsuits to
employees who were misclassified as “exempt”
by their employers, when they were technically
“non-exempt” and needed to be provided with
overtime for work performed above 40 hours
per week. Among the commonly misclassified
workers include brokers, analysts, computer
technicians, and sales professionals. [117]

company's FLSA violations. This particular case is
a reminder to employers that the personal risks
of FLSA non-compliance can be significant, and
that CEOs or other individuals with operational
responsibilities, who directly affect the nature
and conditions of employment, could be liable.
[31]

These cases, in addition to the rise in FLSA
lawsuits, suggest that proper FLSA compliance
continues to be extremely important, and that
non-compliance could be very costly.

Also, a few recent lawsuits point to individual
liability under FLSA, as well as possible criminal
convictions that could result from failing to
comply with the law's requirements. For
example, in October of 2013, the Department
of Labor (DOL) reported that three managers
at High Performance Ropes of America were
guilty of felony counts in an FLSA case, which
included making false statements, withholding
information, and aiding illegal entry into the U.S.
While felony or criminal convictions for managers
under FLSA are atypical, the case serves as a
warning for organizations of the propensity for
more severe legal outcomes. [57]
In another court case, Irizarry v. Catsimatidis, a
court found that the company’s owner and CEO
constituted an “employer” under FLSA and
was therefore liable, even though there was no
conclusive evidence that he directly managed
the employees who claimed the lawsuit against
the company, nor was directly responsible for the


12

Legal
Congress considers
comp-time and
workplace flexibility
legislation.

OFCCP issued final
rules to improve job
prospects for veterans
and the disabled.

In 2013, two bills were introduced and considered
by Congress which would offer employees the
option to take comp time in lieu of overtime pay.

The government continues to make headway in
trying to enhance job opportunities for veterans
and the disabled. This year, the Office of Federal
Contract Compliance Programs (OFCCP) issued
final rules to improve job opportunities with
federal contractors for veterans and people with
disabilities. The rules mainly establish specific
actions contractors need to take in the areas of
recruitment, training, recordkeeping, and policy
dissemination.

Earlier this year, the Working Families Flexibility
Act of 2013 was introduced, which passed the
House of Representatives in May. A different bill,
the Family Friendly and Workplace Flexibility
Act, which included largely the same content,
was proposed this past October. Both bills were
proposed by Republicans, which may show
support for workplace flexibility legislation.
The bill would give employees the choice to elect
for paid time off (comp time) in lieu of overtime
payments for hours worked. Employees would
receive 1.5 hours of comp time for every hour of
overtime worked. It is intended to help provide
employees with flexible work arrangements
and better enable them to balance their work
and family demands. Essentially, the proposed
legislation would create a flexible credit-hour
program in which employees could work
overtime hours in order to accrue paid time which
may be taken later. [92]


Specifically, the final rules establish a 7 percent
goal for qualified individuals with disabilities for
government contractors and subcontractors.
Contractors will be required to apply the goal to
each job group, with the exception of contractors
with 100 or fewer employees, where the goal
may be applied to the entire workforce rather
than each of the job groups.
The rules also implement the Vietnam Era
Veterans' Readjustment Assistance Act to
improve job opportunities for protected veterans.
They require federal contractors to establish
hiring benchmarks for protected veterans, and
strengthen recordkeeping requirements so that
contractors can assess the effectiveness of their
recruitment efforts.[138]

13

Legal
Discrimination based
on pregnancy, religion,
and obesity emerged as
key legal topics.
According to the Equal Employment Opportunity
Commission (EEOC), pregnancy discrimination
claims have been steadily rising over the past
15 years. This year, the EEOC also claimed that
one of its six national priorities is to address
issues involving pregnancy-related limitations.
Employers need to be mindful of their obligations
relative to pregnant women’s rights in the
Pregnancy Discrimination Act (PDA), FMLA, and
FLSA. Some states are also considering bills which
would require employers to make reasonable
accommodations for employees with pregnancyrelated needs.
Additionally, this year, religious discrimination
emerged as more of an issue in the workplace.
Not only were there a number of charges filed
by the EEOC involving religion in the workplace,
but fringe religions were posing challenges in
terms of employer accommodations.[82] Also,
a national study uncovered that many workers
are witnessing incidences of religious bias and
discrimination at work, and uncovered a common
failure by organizations to accommodate
employees’ religious needs. Many workers also
reported that their companies have taken no
actions to stop religious bias in the workplace.[142]

were also a few new cases involving obesity
discrimination in the workplace, specifically
related to not being able to perform the essential
functions of the job. [71] The EEOC Commissioner
commented on the topic recently, saying that
while morbid obesity has often not been limiting
enough to qualify as a disability, courts are
beginning to revaluate this viewpoint. [30]

Finally, obesity discrimination materialized as
a key issue. While obesity is not considered a
disability under the ADA, the EEOC has said that
morbid obesity can potentially rise to the level of
disability, and the American Medical Association
has officially designated obesity as a disease and
disability, which may increase the likelihood that
obesity becomes a form of discrimination. There

14

Legal
OSHA targets safety
with hazardous
chemicals.
This year, the Occupational Safety and Health
Administration (OSHA) implemented more efforts
to help employers keep employees safe when they
work with hazardous chemicals.
✓ Revised Hazard Communication Standard.
Includes the use of new labeling elements and a
standardized format for Safety Data Sheets. Also
includes specific requirements to train workers
on new labels and SDSs on the chemicals in their
workplace by December 1, 2013. [113]
✓ Toolkit. Provides employers and workers with
information, methods, tools, and guidance to
make decisions regarding finding safer substitutes
and eliminating hazardous chemicals. [114]
✓ Annotated PEL Tables. Revises “Annotated
Permissible Exposure Limits” which establish
mandatory limits on the amount of a substance in
the air to protect workers against the health effects
of certain hazardous chemicals. [114]

2013 Case Law Update
The following court cases in 2013 yielded several
important insights for employers with regard to
administering employment laws, namely FMLA,
ADA, and workers' compensation. This list is not
exhaustive of court outcomes related to these laws,
but includes some of the most pertinent cases.
✓ In Lineberry v. Detroit Medical Center, a federal
district court ruled that an employer is entitled to
fire an employee if they have an "honest belief"
that he or she is abusing FMLA leave. The Facebook
postings used to substantiate her dishonesty were
upheld.


✓ In White v. Dana Light Axle Manufacturing, the
Sixth U.S. Circuit Court of Appeals confirmed that
organizations do not need to loosen their rules for
calling in absences to request FMLA leave when
they have notice and procedural requirements.
✓ In EEOC v. Houston Funding II Limited, a court
found that an employer who terminates a woman
for lactating or wanting to lactate at work violates
Title VII of the Civil Rights Act and the Pregnancy
Discrimination Act.
✓ In Rodriguez vs. Valley Vista Services, an employee
was deemed to be wrongfully terminated by a
court for her suffering from panic attacks because
her supervisor failed to provide her with sufficient
leave time and other accommodations, further
underscoring the importance of treating mental
disabilities the same as others.
✓ In Knutson v. Schwan Food Company, an
employer's documentation regarding essential
functions of the job can influence courts in cases
involving ADA. Even job duties that are not
performed regularly can be considered essential
job functions if employees are required to perform
them from time to time.
✓ In Lu v. Longs Drug Stores, transferring an
employee to a different supervisor was found to
not be a required accommodation under ADA.
✓ In Feist v. Louisiana, a court ruled that an
accommodation request does not need to be tied
to an essential function, such as a closer parking
spot, as was requested in the case. Employers must
also consider whether an accommodation request
is reasonable under the circumstances and cannot
consider a request unreasonable only based on
the fact that it does not relate to an employee's
essential job functions.
✓ The Supreme Court of Ohio held that in order for
a mental injury to be compensable under the Ohio
workers’ compensation system, it must arise “from
an injury or occupational disease sustained by
that claimant or where the claimant’s psychiatric
conditions have arisen from sexual conduct in
which the claimant was forced by threat of physical
harm to engage or participate.”

15

Legal

“

We have seen the following trends in our practice emerge over the last year and we expect
them to continue into 2014. Some of these trends are social media password protection laws,
background checks and ban-the-box legislation, and the expansion of anti-discrimination laws.
With the emergence of social media, issues are constantly coming up in the employment context.
Most recently, over thirteen states have enacted laws that prohibit employers from asking
employees to provide their social media passwords, including: Arkansas, California, Colorado,
Illinois, Maryland, Michigan, Nevada, New Jersey, New Mexico, Oregon, Utah, Vermont and
Washington. While Ohio is not among the states that have passed legislation, legislation has
been proposed in Ohio that would seek to expand protections to applicants and employees
with respect to social media passwords. The legislation in Ohio is not expected to pass, but
other states will likely continue in this trend.
The Equal Employment Opportunity Commission has continued to advance its agenda against
blanket background checks, and we have seen more litigation about this issue. The EEOC issued
guidance in 2012 regarding criminal background checks. In addition, many states have also
enacted “ban-the-box” legislation which prohibits employers from asking questions regarding
criminal history on job applications. Four states have passed laws prohibiting such application
questions, and over 40 local municipalities have also enacted “ban-the-box” legislation. While
Ohio doesn’t have a “ban-the-box” provision, Ohio has joined several other states in providing
protections to employers from tort liability for negligent hiring and retention claims when hiring
individuals that have pleaded guilty to or been convicted of certain criminal convictions.
Lastly, we expect to see a push to expand anti-discrimination statutes. The Senate recently passed
a bill that would prohibit discrimination against gay, bisexual and transgender Americans. While
it isn’t likely to pass the Republican-led House, it is likely a “preview of coming attractions.” Many
states and municipalities already ban discrimination based upon these protected categories and
a federal prohibition will likely come at some point in the future."

- Stefanie L. Baker, Associate at Fisher & Phillips LLP
ERC Preferred Partner


16


I

n 2013, most of the benefits trends
that emerged were related to
health care and the Affordable Care
Act’s (ACA) impact on employers.
Although several key provisions of the
ACA have been delayed for employers,
there were several developments that
affected organizations, including the
individual mandate, establishment of
health insurance exchanges, and new
rules on outcome-based wellness
incentives.

Beyond the health care landscape,
wellness program offerings as well
as voluntary benefits continued to
expand in 2013. Employee stress,
work/life balance, and flexibility were
also key benefits-related issues this
year; and more employers appear
to be putting in place resources and
practices, such as employee assistance,
stress management, and flexible work
programs.

The major health care reform
requirements have been delayed
until January 2015, and there is a
continued focus on the changing
health care landscape. In addition,
multiple studies this year pointed to
a lack of knowledge in the workforce
regarding health insurance and
specifically, health care reform. For
this coming year’s open-enrollment,
employers should prepare to
communicate with their workforce
about health care reform, including
the potential impact of the law on
their business, as well as about the
exchanges and health care options
available.


17

Affordable Care Act
employer mandate
delayed until 2015.
The employer "pay or play" mandate of the ACA,
which requires that employers with 50 or more
employees offer health insurance to full time
employees working 30 or more hours per week
or pay a penalty, will go into effect January 1,
2015.
The delay was intended to allow the government
to simplify reporting requirements and provide
organizations with more time to comply with
the mandate, adapt their health benefits, and
test new reporting systems. Despite the delay,
however, employers have been encouraged by
the government to maintain or expand health
care coverage during 2014, in preparation for the
effective date.
To date, most employers recognize the value
of providing health care coverage and plan to
“play” under the mandate versus pay a penalty.

Individual health
insurance mandate goes
into effect Jan 2014.
The individual health insurance mandate,
required under the ACA, goes into effect January
1, 2014. All individuals will be required to attain
health insurance coverage either through their
employer or via the exchanges set up by the
government. The coverage they obtain must
meet the requirements for minimum essential
coverage, otherwise individuals will need to
change their coverage or pay a penalty on their
federal income tax return.
Individuals can purchase coverage through
a variety of means, including the federal and

state health insurance exchanges which were
established as of October 2013.
The IRS published final regulations for the
individual mandate as well as minimum essential
coverage. The regulations state which types of
health care coverage meet the minimum essential
coverage requirements and which individuals
are exempt from the "shared responsibility
payment."[152]
Employers not only needed to provide notice
to employees of their health care options in the
exchanges in October, but also must inform
employees about continued health care coverage
under the Consolidated Omnibus Budget
Reconciliation Act (COBRA). Updated notices
that employers must provide include revisions to
inform individuals of options available through
the health care exchanges.
In addition, the Small Business Health Options
Program (SHOP) are intended to provide an easy
and inexpensive way for small business owners
to provide health insurance by purchasing coverage
online. Though, it’s not expected that businesses
will use the SHOP exchanges, and instead use
their existing brokers, particularly if they already
offer health insurance. It's important to note that
online enrollment for this program has been
delayed, but that employers may still enroll via
paper.[40]

18

Guidance on HRAs and
Health FSAs issued for
2014.

ACA information
reporting requirements
will be released in 2014.
During 2014, employers should expect that
ACA information requirements will be clarified,
and hopefully reduced. This past fall, the
Treasury Department and IRS issued proposed
rules to streamline the information-reporting
requirements with which employers must comply
under the ACA.

The IRS and DOL have released guidance, which
is effective for plan years beginning in 2014, on
applying annual limits and preventative care to
defined contribution health care plans. These
include health reimbursement arrangements
(HRAs), health flexible spending arrangements,
and employer payment plans (arrangements that
reimburse employees’ premiums for individual
health insurance coverage) under the ACA.
The guidance indicates that unless an HRA
qualifies as an “excepted benefit” and if it
reimburses employees’ premiums for individual
health insurance on a nontaxable basis, the
federal agencies will consider it to violate the
ACA’s annual limit and preventative care rules.
The guidance also establishes two rules on what
it means for an HRA to be “integrated” with other
coverage as part of a group health plan.[55]

The rules are intended to help reduce and
streamline requirements for employers relative
to information reporting for minimum essential
coverage and for applicable large employers
on health insurance coverage offered under
employer-sponsored plans. The new reporting
requirements will help determine whether
individuals are complying with the ACA’s
individual responsibility requirement and if they
are eligible for premium tax credits because they
lack minimum essential coverage. They will also
help determine if large employers are complying
with the employer-responsibility provisions of
the ACA.
The final rules are expected to be released
in 2014 so that organizations have adequate
time to prepare for compliance with the new
requirements by 2015. [105]

19

Most employers
are not planning
to eliminate
health plans, but
changes to plan
design are likely.
According to several surveys
published this year, the widespread
majority of employers are planning
to offer health care benefits to
employees in the future, despite the
alternative avenues now available for
employees to obtain health insurance
under the ACA.[149] Many employers,
and employees alike, lack confidence
in the exchange system and its short
and long term sustainability.[65] [147]
Nonetheless, a great deal of research
supports employers’ plans to make
changes to health plans. Areas
in which employers seem to be
either currently or planning to make
changes include spousal coverage,
surcharges for dependents, retiree
coverage, eligibility standards, and
cost-sharing.[16]
In addition, employers’ interest in
using private corporate exchanges
to deliver health care, which are
sponsored by a private company,
is growing. Private exchanges are
separate from state and federal
exchanges and offer benefits to
employers such as reduced and more
controlled costs as well as simplified
administration.[98]


20


“

With the unprecedented change, and continually evolving
rules of the Affordable Care Act (ACA), employers have started
to embrace the idea of proactive planning for the financial
and administrative implications. As challenges continue to
mount, employers must remain agile, transparent, and intune with the needs of their employees as each milestone on
the timeline is reached (or delayed).
One more recent development that will impact employers in 2014 is the one-year delay of the
employer penalty and reporting provisions, known as the employer mandate, which requires
employers to offer minimum value, affordable health insurance coverage to avoid penalties.
The employer mandate delay provides one additional year to evaluate all options and consider
communication strategies to assist employees with exchange enrollment.
Importantly, the individual health insurance mandate, requiring all Americans to purchase health
insurance, or pay penalties, as of March 31, 2014, was not delayed. As of the Oct. 1 open
enrollment for individuals in the new health insurance exchanges (aka marketplaces), further
confusion has ensued due to technology glitches and miscommunications. In response, the
government extended the open enrollment period by six weeks, now giving citizens until March
31, 2014 to enroll.
In response to the changes brought on by the ACA, organizations are putting more emphasis
on wellness programs as complete risk management strategies. Companies are increasingly
adding wellness programs to their benefit offerings, in efforts to curb costs and mitigate risks.
Additionally, organizations are taking a proactive approach to new communications strategies
surrounding the ACA as part of compliance and overall awareness.
On the insurance front, the added complexities of purchasing insurance are leading to new and
multiple product offerings, defined contributions, self-funding for smaller companies, and even
early renewal strategies – a rare occurrence in the past. The health care industry is also to starting
to experience a trend with health care companies offering a benefit package that includes
smaller based provider networks. These smaller networks often offer better pricing but do limit
the choice the member has with physicians."

- Frank Spinelli, Practice Leader of Middle Market Group Benefits at
the Oswald Companies; ERC Preferred Partner


21

Health care costs remain Consumer-driven health
stable.
care and HSAs rise in
popularity.
Health care costs remained stable in 2013 and are
projected to remain stable for 2014.[19] Various
national surveys report differing percentages of
health care cost increases, ranging from 4.8% to
7.5%, mostly in the single digits.[11] [99] Several of
the projections were lower than last year or the
same. Locally, average premium increases were
slightly higher than reported national increases,
and hovered around 10%, similar to last year.
Employers need to keep in mind, however, that
these are organizations’ projections, not those of
health insurers. In addition, many of health care
reform's provisions have not been implemented
yet. As health care reform's provisions unfold,
studies are predicting that health insurance rates
will be significantly affected in the long-term, and
as early as 2014, especially depending on the
state.[140] Small employers are expected to be hit
hardest, so cost-management will continue to be
a business priority.

National and local research continues to show
that the prevalence of consumer-driven health
care and specifically health savings accounts
(HSAs), is rising, which has been the trend
over the past few years. More employees are
being covered by these plans and an increasing
number of organizations are offering them to
control health insurance costs. In addition,
research confirms that a substantial percentage
of employers (close to one-third) are considering
offering a consumer-driven health plan in the
next three to five years, as well as a link between
participation in a consumer-driven health plan
and making informed health decisions/positive
health behavior changes.[12]

In fact, research by Willis shows that the main
concerns and priorities for employers when
implementing health care reform are avoiding
cost increases, reducing costs, and ensuring
compliance. So far, however, few employers are
planning to adjust or reduce other benefits to
offset the cost of health care reform compliance.
[155]


22

Wellness programs
continue to evolve.
During 2013, wellness programs and
initiatives in the workplace continued to
evolve. In addition, more employers are
offering wellness programs, particularly
mid-sized and larger employers.
An increasing number of employers are
offering health and lifestyle coaching
and onsite fitness classes, and the most
common wellness options offered in the
workplace are wellness resources and
information, wellness programs, onsite
flu vaccines, wellness publications, a 24hour nurse line, and health screening
programs, according to SHRM.[132] In
addition, the majority of employers
offer lifestyle management activities
and programs focused on nutrition/
weight, smoking, and fitness, as well as
on-site vaccinations, according to RAND
Corporation.[120]
Locally, in Northeast Ohio, the most
common wellness activities offered
appear to be health education, annual
flu shots, health screenings, health risk
assessments, and smoking cessation.
Other fairly, but less commonly offered
options, were healthy food options,
wellness coaching, disease management,
an annual health fair, and weight
management programs.


23


“

According to the RAND Health Workplace Wellness Programs
Study, approximately half of U.S employers offer wellness promotion
initiatives. Programs often include wellness screening activities to identify the major health risks
within an organization and implementation of interventions to reduce the risks and promote
healthy lifestyles.
Studies also show that participation in a wellness program over five years is associated with lower
health care costs and decreasing health care use. Our experience at UH found an improvement
among program participants in physical activity (steps measured and time spent doing activity)
over past three years.
In order to engage employees in wellness programs, employers are increasingly offering
participation incentives. Popular incentives include insurance premium reductions and quarterly
cash reimbursements. Many companies have traversed from participation based incentives to a
goal based structure including, number of steps walked as measured by a pedometer, total time
of physical activity and participation in other programs including weight reduction seminars,
stress management and resilience workshops, and health education webinars. Companies are
also increasingly tying goals to biophysical parameters. Participation in wellness programs is also
greater when the senior leadership within the corporation make wellness an organizational and
personal priority.
Structured wellness programs continue to grow in popularity as employers realize that employees
become more motivated to adopt a healthy lifestyle, reducing absenteeism and promoting a
holistically healthy and happy employee."

- Dr. Roy Buchinsky MD, Director of Wellness at University Hospitals


24

New rules for outcomebased wellness
incentives take effect
Jan. 1.
The ACA creates new incentives for employers to
build wellness programs in their workplace and
encourage healthier habits.
This past year, rules were issued for employerbased wellness incentives, which apply to plan
years beginning on or after January 1, 2014. The
rules increase caps on employee incentives for
outcome-based wellness programs, and do not
apply to participation-based wellness programs.

Use of wellness
incentives is rising.
Research shows that more employers are
offering wellness incentives,[132] and generally
frame them as rewards versus penalties.
Studies are continuing to support the use of
wellness incentives, as they tend to correlate to
participation levels in wellness programs.[14] [32]
Several studies have found that many employers
offer wellness incentives, typically in financial
form such as health premium discounts, to
encourage participation in wellness initiatives.
Incentives are most commonly given for
completion of health risk assessments, lifestyle
management programs, and to a lesser degree,
clinical/biometric screenings.[120]
Incentives also are increasingly being awarded
to employees who achieve certain outcomes or
results through health and wellness programs.


The maximum financial incentive for outcomebased wellness programs, which have metrics
or specific goals, will increase from 20 to 30
percent of the total cost of coverage (employee
+ employer). For wellness programs with a
tobacco reduction element, the maximum
incentive could be up to 50 percent of the cost of
coverage. In other words, up to 50% of the total
cost of coverage can be tied to outcome-based
incentives, with 30% being specifically assigned
to biometric standards. An additional 20% could
be for tobacco-free standards.
The rules also indicate that employers will
need to provide “reasonable alternatives”
to standards-based wellness programs for
employees with medical conditions who may not
be able to comply with the wellness program’s
requirements. Additionally, the program must
be designed to promote health or prevent
disease, and everyone must be given a second
(alternative) way to earn an outcomes-based
incentive regardless of a previously acquired
medical condition.[60]

25

"Use or lose it" rule
changes for flexible
spending accounts.
In 2013, the Treasury Department and IRS
modified the “use-or-lose” rule that applies to
health flexible spending arrangements (FSAs).
The modification allows plan participants to carry
over up to $500 of their unused balances at the
end of the plan year, providing more flexibility to
employees that participate in these accounts.
Employers also have the option of providing
employees with a grace period. The grace period
allows employees to use their unused balances at
the end of the year to pay for qualified expenses
up to two and a half months following year-end.
A health FSA cannot have both a carryover and
grace period, however. It must have one or the
other, or neither.[151]

Rise in e-cigarette usage
is leading employers to
review policies.
Increased usage of e-cigarettes is leading
employers to review their policies with regard to
smoking in the workplace and to have concerns
regarding how to handle these devices.
Experts suggest that employers should include
e-cigarettes among tobacco-use products, as the
Food and Drug Administration (FDA) does not
consider them to be tobacco cessation devices,
and they aren't regulated. The National Business
Group on Health further advises employers
to revise their tobacco-free policies to include
e-cigarettes, and either limit or potentially
even ban e-cigarettes, if it is legal in their state/
jurisdiction.[109] In ERC's latest Wellness Practices


Survey, 42% of 102 survey respondents in
Northeast Ohio indicated that they do not allow
use of electronic cigarettes and 28% only allow
them in a designated smoking area (outside).
According to the National Business Group
on Health, because e-cigarettes are not
FDA-approved smoking cessation devices,
employees who use them can be considered
smokers and may not be eligible for lower health
insurance premiums if provided to non-tobacco
users. Employers can treat e-cigarette users the
same as smokers and offer exemptions from
surcharges and/or premium discounts on their
health insurance if they participate in a smoking
cessation program.[109]
Smoking, even with e-cigarettes, can affect health
insurance rates, the wellness of your employees,
and ultimately your organization's bottom line,
so as an employer you can take steps such as
limiting and banning e-cigarettes and treating
users of these devices the same as smokers to
prevent these business repercussions.[91]

26

Voluntary benefits
are becoming more
common.
Employers seem to be shifting to voluntary
benefits and products that fill gaps in their current
health insurance and benefit offerings, and cover
expenses for certain extenuating circumstances.
A few studies this year found that voluntary benefits
are not only desired benefits of employees, but
are also becoming more commonly offered by
employers. Voluntary benefits are expected to
become more important over the next five years
based on their convenience, affordability, and
employees' ability to customize their benefits
package to their lifestyle.[148]
The most common voluntary benefits offered
include life, vision, disability, dental, and accident
insurance. A number of employers also offer
critical illness and identity theft insurance, as well
as financial counseling, according to research
by Towers Watson.[148] Other research by Mercer
confirms that accident and hospital indemnity
insurance, theft insurance, and legal assistance
are offered by several employers, though not as
commonly offered as other benefits.[97] Much less
commonly offered voluntary benefits were free/
subsidized parking and pet insurance.[41]

Flexible work schedules
remain common.
Flexible work schedules are common nationally
and in Northeast Ohio. The most common
flexible work practices, offered by the majority
of employers, are flex-time, telecommuting,
part-time options, and allowing for changes to
start and end times. Compressed workweeks,
telecommuting/work from home, shift flexibility

changes, and other flexible work practices are
also somewhat common, though less popular.[161]
However, this past year, flexible work schedules
encountered more scrutiny, with decisions made
by a few major public corporations to overhaul
their flexible work programs. Unlike what the
media attention might suggest, these decisions
do not appear to have had any widespread
impact on flexible work practices. Most surveys
have shown very minor changes to flexible
schedule offerings.
Research continues to show that flexible work
yields many benefits for employers in terms of
lower turnover, higher employee engagement
and satisfaction, better employee well-being,
improved productivity/performance, and
heightened work/life balance.[161]
Flexible work schedules are becoming
particularly important because the workforce is
demanding more work/life balance. One study
by Hay Group this past year found that more
than one in four employees at organizations
which were not perceived to support work/life
balance, plan to leave their employers in the next
two years.[80]

27


“

As an employee assistance program (EAP), we most often
discuss the need for a flexible work schedule with employees
who are facing dependent care responsibilities. While
flexible work trends are often articulated from the employer’s
perspective, we often find ourselves advocating these
practices from the employee’s perspective.
An EAP often plays the role of educator, coach or advisor to the numerous employees calling
us each day who request help with balancing their work responsibilities with their personal
responsibilities. For most, they are looking for help with addressing the demands placed upon
them when they take on the dual role of working parent, working caregiver, temporary guardian
or devoted spouse and employee.
For many, the EAP can provide them with referrals to programs and services that can provide the
care their loved one needs while they are at work, as well as teach them how to deal with the
emotional toll these issues take on the employee.
Here at ease@work, the number of these types of requests have remained stable over the last
two years, approximately 11% of our calls. But sometimes the resources are not enough. When
employees decide that the best solution is to take time off or to adjust their work schedule to
accommodate the needs of their loved ones, employees can turn to their EAP for guidance on
how to talk with their employer.
We have seen a slight increase in the number of employees who have reported feeling more
confident in knowing how to best work in cooperation with their employer to find creative ways
to take ownership for these personal responsibilities, while honoring their work commitments
because of the support and conversations they’ve received from their EAP.
If the employee has been made aware of their company’s Flexible Work Practices, feels that they
have a manager who is understanding of their situation, and believes the company’s flexible
work practices to be fair, they are more likely to strive to address their personal issues while
being responsible and respectful to the duties of their job. This creates a win-win for both the
employee and employer."

- Janet M. Schiavoni, Director at ease@work


28

Employee stress gains
more attention in the
workplace.
While stress is certainly not a new workplace
issue, it seemed to gain more attention in 2013 as
studies revealed that work is a significant source
of stress for many.
Multiple studies found that the majority of workers
are stressed and that work factors are the primary
sources of stress, including low salaries, lack of
advancement opportunities, heavy workloads;
and not feeling valued, recognized, or heard.
[18]
Other common reasons for stress were work
changes, working in a job that is not one's career
choice, work schedule, work relationships, fears
of being fired or laid off, and lack of influence
or control over how work is completed. Also,
younger employees seem to be more affected by
stress than older workers. [80]
Although stress management programs and
employee assistance resources related to helping
employees cope with stress are expanding in the
workplace, they are still underutilized by most
organizations, despite the benefits they offer. [13]
At a minimum, employee assistance programs
(EAPs) can be an ideal benefit and resource
to help employees address lifestyle and
workplace stressors. Studies report improved
work performance and productivity among
employees who use EAPs to address stressors.
These programs, in addition to formal stress
management or reduction initiatives, can help
employees identify the causes and potential
solutions to stress and promote their well-being.

“

It is not surprising that overall stress is
on the rise. Stress levels at work shot up
when the economic downturn hit and
things do not seem to be getting any less
stressful in the workplace.
The fact that the calls for home stress have
surpassed the calls for work stress during
this past year tells me that the stressful
conditions at work are taking a toll on
people's personal lives to the point
where it is now affecting their home lives.
This shift is a bit ironic, considering the
fact that EAPs are traditionally considered
valuable for the organization in that they
address personal issues at home to reduce
the impact on work performance."

- Pat Gaul, Manager of
Account Services at ease@work

[157]


29

Compensation

2

013 experienced similar
compensation trends
when compared to
2012, with a few new
developments.
These included stagnant pay
increases, a continued decline
in pay freezes, consistent bonus
levels, and an emphasis on
differentiating pay based on
performance.

Executive compensation, intern pay,
and the gender pay gap were also
pay issues that experienced greater
controversy and scrutiny this year.
Heading into 2014, organizations
can expect continued modest pay
increases, a conservative approach
to pay for performance, and more
transparency in how pay practices are
communicated.

New compensation trends,
however, also emerged during
2013. More employers seem to be
using a compensation philosophy
to guide their pay practices, and
transparency of pay practices is
improving.


30

Compensation
More employers
have a compensation
philosophy.
Research this year confirms that more employers
are instituting formal, written compensation
philosophies as compared to a few years ago.
Currently, the majority of organizations have
a formal compensation philosophy, based on
WorldatWork's research.[159]
Compensation philosophies are becoming
more common in explaining an organization's
pay strategy and position in comparison to the
market; the types and mix of rewards offered;
how job performance relates to pay; and how
the organization determines compensation
for its jobs. WorldatWork's research points to
the need for employers to communicate their
compensation philosophy more clearly with
employees to help improve their understanding
of compensation programs and practices.[159]

Pay practice
transparency is
becoming more
common.
Pay practice transparency is seeming to gain
ground in the workplace. Though certainly not
widespread yet, a growing number of employers
are becoming more open and transparent about
their pay practices, evidenced by more sharing
of policies and practices, strategy, market
data, salary ranges, and other compensation
information, though not including individual
salaries.[136]
There seems to be an openness developing in
organizations with regard to eliminating the
secrecy of workplace pay practices and creating
a more transparent environment surrounding
compensation topics. There are undoubtedly
research-supported benefits of sharing more
information regarding compensation, including
enhanced employee perceptions of pay fairness
and a better understanding and appreciation for
the compensation provided.


31

Compensation
CEO pay ratio practices
experience increased
public attention.
Earlier this year, Bloomberg News reported that
the gap between CEO and employee pay is
growing, and that CEO compensation is over 200
times higher than the pay of average employees.
This reflects an increase of 20% since 2009. The
ratio is based on the government's industryspecific averages for pay and benefits and the
SEC-required summary compensation table that
companies publish in their shareholder proxy
statements.[75]
In addition, this past fall, The Securities and
Exchange Commission (SEC) has proposed a
rule, under the Dodd-Frank Act, which would
require companies to disclose a pay ratio of
their chief executive officer's compensation
to the median total compensation of all of its
employees (for the last fiscal year).
Under the rule, the SEC would not prescribe
a specific method for organizations to use
when calculating a pay ratio and companies
would have the flexibility to determine the
median annual total compensation among their
employees and make reasonable estimates
when calculating elements of employees' total
compensation. Companies would be required
to disclose the method they used to identify the
median and total compensation as well as any
amounts that are estimated.[128]
But according to Towers Watson, companies are
concerned about the cost and effort involved
in complying with the SEC's proposed CEO
pay ratio disclosure. In a survey it conducted,
over half of respondents were concerned about
complying with the new disclosure requirement,
specifically gathering pay data, determining


a data-sampling approach, and identifying the
median employee. Thirty-one percent said their
biggest concern was where their CEO-to-worker
pay ratio stood compared with their peers.[149]

New trends in executive
compensation take
shape.
With increased scrutiny of executive
compensation, companies are being required to
disclose more details about their senior leaders'
compensation, and as a result, are strengthening
executive compensation practices, how
executives' compensation plans are structured,
and the link to performance.
Pricewaterhouse Coopers' research found
that clear and unambiguous, short-term
focused compensation tends to be preferred by
executives. It also found that executives consider
pay practices that are consistent with those of the
organization's competitors to be the most fair.
Additionally, it showed that executives prefer less
risky pay for performance rewards based on clear
and internally controllable measurements, such
as profit, versus external factors.[118]
In addition, Pearl Meyer & Partners reports that a
solid executive compensation strategy should be
linked to the business' needs and achievement
of organizational objectives. It also should be
focused on pay for performance and customized
to reflect business risks at different stages in the
organization's lifecycle.[116]

32

Compensation
Unpaid intern practices
face legal scrutiny.

Gender pay gap shows
no signs of narrowing.

Over the past few years, unpaid internship
practices have experienced more legal scrutiny
in terms of wage and hour lawsuits. But in 2013
alone, unpaid internship lawsuits certainly saw
an unusual uptick from years past. This past year,
unpaid interns filed lawsuits against several large
corporations, most notably including Condé
Nast Publications, Warner Music Group, Atlantic
Recording, Fox Entertainment Group, NBC
Universal, Viacom, Sony, and Universal Music
Group.[90]

Women are earning approximately 77 cents
on the dollar when compared to men in the
workplace, and the gap doesn't appear to be
getting any narrower.[24]

One of the most significant cases involving
unpaid interns in 2013 was Fox Searchlight's.
The U.S. District Court for the Southern District
of New York determined that some of Fox
Searchlight Inc.'s unpaid internships were
illegal, and that interns who worked on the
organization's production film sets were entitled
to compensation under FLSA, even though they
received academic credit for their internship. The
ruling did not suggest that all unpaid internships
are unlawful, but clearly presented a warning to
employers that unpaid internships could carry
costly consequences if they do not meet criteria
set forth by the DOL.[103]
For now, it's unclear how these lawsuits will affect
internships in 2014, though some experts suggest
that they may result in reduced job opportunities
in some industries that have historically used
unpaid interns such as media and publishing.
[90]
It should be noted, however, that research
by the National Association of Colleges and
Employers, as well as local research by ERC and
the Northeast Ohio Council on Higher Education,
show that paid internships are far more common
than unpaid internships.[108] Most employers
understand the competitive benefits of providing
compensation to interns in order to attract quality
intern candidates.

The Bureau of Labor Statistics (BLS) published
a report this year which showed that full-time
employed women earn 80.9% of what their fulltime employed male counterparts earn (82.2%).
The BLS reported that the gap widened slightly
since 2005 and is not improving. In addition,
efforts to close the gap appear to be fairly
stagnant.[33] In another study by the National
Partnership for Women and Families on U.S.
Census Bureau data, the median yearly pay for
women who are employed full time is $11,084
less than men's.[82]
With women's issues in the workplace making
more headway in 2013, the gender pay gap
will undoubtedly continue to be part of the
conversation. These recent statistics are a
reminder to employers that when setting
compensation, they are prohibited from
discriminating based on sex under the Equal Pay
Act. Employers must pay employees the same for
"equal work on jobs requiring equal skill, effort,
and responsibility, and which are performed
under similar working conditions."[63]

33

Compensation
Differentiating
pay increases by
performance continues
to be prevalent.

Employers project
2.9%-3.0% pay
increases for
2013/2014.
Salary budget planning surveys for 2013/2014
consistently report average actual pay increases
of about 2.9% for 2013 and project pay increases
of 2.9%-3.0% for 2014 for most levels of
employees, in line with increases of last year.

Numerous surveys suggest that employers are
differentiating pay increases by performance
level. Higher performing employees tend to
receive higher pay increases above the average
increase, while lower performing employees
tend receive lower pay increases below the
average increase.
Average increases for top and average performers
rose in 2013 when compared to 2012. Increases
for top performers average around 4.4% while
increases for average performers average around
2.6%. Employers generally cite average increases
of less than 1% for bottom performers.[15] [102] [160]

Locally, ERC finds that employers are providing
pay increases of 2.9% for 2013 and projecting
the same percentage increase for 2014. Results
of national surveys fluctuate between 2.8% and
3.1%, with the majority indicating 2.9% increases
on average for 2013 and 3.0% increases for
2014.[15] [29] [47] [78] [102] [144] [160] The reasons for these
stagnant pay increases can typically be attributed
to low base salary movement, less hiring and job
expansion, uncertainty regarding the ACA, and
continued economic uncertainty.
The percentage of employers not providing
pay increases or freezing pay continues to
decline across nearly all compensation planning
surveys. Organizations freezing pay are clearly
in the minority, as ERC's research, validated in
other national survey reports, shows that most
employers surveyed are projecting pay increases
in 2014 when compared to the past several years.

34

Talent Management

I

n 2013, many employers
continued to be faced with
stagnant engagement,
challenges with retaining
employees and rising turnover, and
struggles with talent management.
N a m e l y, o r g a n i z a t i o n s ’
performance management,
rewards and recognition,
and leadership development
practices are missing the mark in
some respects, despite research
showing that they significantly
influence engagement, retention,
motivation, and productivity.

and new trends in how employers
deliver training are gradually being
implemented. Coaching and
mentoring are also becoming more
common developmental tools.
In addition, shifting workplace
demographics are sparking debate
in the workplace, and causing
employers to rethink and retool their
talent management practices.

Other areas of talent management
have evolved in the past year,
and will likely continue into next
year. Closing skill gaps continues
to be a priority for employers


35

Talent Management
Research showcases
trends in engagement
and need for
organizations to focus
on career opportunities
that drive higher
engagement.
Research conducted this year reported several
trends in employee engagement. Not only did
employee engagement remain fairly stagnant in
2013, with no major increases or decreases in
engagement levels, but studies continued to find
relationships between employee engagement
and financial performance.[68]
Gallup found that engagement varies according
to several demographic variables. Specifically,
it found that age and length of service affect
engagement. The generations at the beginning
and end of their careers are more engaged
than the generations in the middle of their
careers. Engagement also tends to be higher for
employees with fewer than six months of service
and lowest for employees with fewer than 10
years of service.[68]
In addition, job type, level, and education also
appear to influence engagement. Managers and
executives are the most engaged. Professional
workers tend to be more engaged than
manufacturing, production, transportation,
and sales workers. Employees with a college
degree are less likely to report having a positive,
engaging workplace experience when compared
to employees with less education.[68] [69]
Another survey by Leadership IQ this year found,
not surprisingly, that high performers were the
most engaged in the majority of organizations.


Rarely were middle performers the most engaged,
and they tended to be largely ignored by their
managers. In some organizations, however, low
performers were more motivated, engaged, and
enjoyed working at their organizations more than
middle and high performers. [154]
In terms of what is driving engagement, Aon
Hewitt found that career opportunities was the
top driver that influenced engagement, and that
enabling performance through tools and resources
was the second highest engagement driver.[17]
Despite career development's importance in
driving engagement, programs are lagging in the
workplace. Towers Watson's Talent Management
and Rewards Survey found that few companies
have career paths and only one in four respondents
say that their managers are effective in providing
career management support. Additionally, fewer
than half of organizations say their employees
understand how they can influence their careers
and that employees are able to advance their
careers at their organization given the structure
and tools that are currently in place.[150]

36

Talent Management
Studies report trends
in performance
management practices.
Several new studies report trends in performance
management practices among employers, showcase
performance management best practices, and reveal
what employees want most from the performance
management process.
Early in 2013, SHRM set a performance management
standard which provides organizations with a uniform
way of analyzing and discussing their employee’s
job performance – the first standard established
for performance management. It is a useful set of
best practices for employers, which details several
elements of the performance management process
including manager and employee roles, goal setting,
performance review process and measurement,
performance improvement plans, and connections
to other performance management processes.[131]
A great deal of research this year uncovered
commonalities in factors that drive the success of
performance management processes. Mercer found
that organizations generally have commonalities in
their performance management programs including
setting employee goals, using competencies,
conducting self assessments, incorporating overall
performance ratings, linking performance and pay,
and using a 5-point rating scale. It also showed that
the top driver of successful performance management
was people management skills, specifically setting
employee goals, providing feedback, evaluating
performance, and linking performance to talent
management decisions.[100] Another study conducted
by researchers at Duke University, Harvard Business
School and Yale University this year supported the
use of goal-setting in the performance management
process and found that when employees help create
their own goals, they are more likely to perform at
higher levels.[96]


Deloitte's research suggests similar trends in that
immediate feedback, recognition/strength-based
feedback, peer and multi-source feedback, manager
capability to coach effectively, easy and quick access
to performance data, and performance management
technology are crucial elements of performance
management that drive system effectiveness.[53]
Likewise, in a study conducted by the SHRM, 90%
of organizations believe that feedback from an
employee’s direct supervisor plus feedback from their
peers is the most accurate evaluation of performance,
despite the fact that most do not include peer feedback
as part of the evaluation process. In addition, around
half of employers say their performance management
process is not effective and needs to be overhauled.
[134]

Other studies this year report on employees’
perceptions of their organizations’ current
performance management practices. They show that
employees are generally skeptical of performance
reviews, viewing them as unfair and perceiving them
to not be true indicators or performance, reflecting
only a single point of view, making them feel
undervalued, and not accounting for past work. [73]
[87]
Employees believe that development and growth
should be the top goal for performance management,
and that more recognition, peer feedback or feedback
from others, and immediate feedback are desirable
facets of performance management.[73] Similarly,
another survey showed that the widespread majority
of employees prefer face-to-face meetings about their
performance, and younger employees favor more
performance meetings when compared to older
employees.[38]
On a final note, studies also confirm that the majority of
organizations are applying performance management
to executives, including CEOs. This sends a message
that performance expectations, standards, and
accountability are applicable to all levels of the
organization.[86]

37

Talent Management
Quality of management
linked to productivity,
retention, and
engagement.
More and more research continues to show that
manager quality is very important, and that there
are certain behaviors and attributes that make
employees more satisfied with their manager.
Two studies specifically showed that quality of
management matters in terms of productivity,
retention, and engagement.

lives and who had more positive feelings about
interaction with one’s supervisor, were more
engaged.[48]
Finally, another survey by the Workforce Institute
at Kronos this past year on the attributes of the best
managers found that employees favor managers
who are high achievers, honest, goal-oriented,
and compassionate; invest in their professional
development; and praise them directly. [156]
All of this research points to the importance of
ensuring that managers have the right skills and
behaviors.

In a study by DDI, respondents indicated that
their best bosses recognized them appropriately,
supported them without taking over, involved
them in decisions, took time to explain the
reasons behind their decisions, and helped
maintain their self-esteem. Their best bosses
were also considered more likely to help them
be productive, give them sufficient performance
feedback, effectively handle workplace conflict,
empathize when sharing concerns or frustrations,
and help them solve problems. Boss quality was
tied to whether or not employees felt motivated
to give their best to their manager and their
intention to stay at their organization. The
majority of respondents said they would be 2060% more productive under their best boss. [49]
Similarly, in a study by Dale Carnegie Training,
satisfaction with one’s supervisor played a role
in engagement. Around half of employees who
were satisfied with their manager were engaged
and said they learned a lot from their supervisor.
Forty percent of employees who feel empowered
by their supervisor are engaged. Of the 28% of
employees who felt a negative emotion with their
supervisor, fewer than half of these employees
were engaged. Also, employees who perceived
that their managers cared about their personal


38

Talent Management
“Big Data” starting to
become more common
in HR departments.
The use of “big data” continues to be a key
focus in workplaces and is affecting not only the
skill sets needed in the workforce, but also HR
departments and how they operate. In addition,
"big data" is becoming more important for
employers in achieving goals and making talent
decisions.

executives perceived analytics to be vital to their
organization, and as a result, analytical skills were
viewed as crucial and in demand.[7] Another study
by the American Management Association found
that HR was perceived to have the least analytical
ability than other functions in the age of “big data,”
and will need to spend more time developing and
honing these skills to improve their function’s
effectiveness.[8]

Organizations are increasingly using data and
analytics to drive better talent acquisition,
performance, engagement, compensation,
learning management, and workforce planning
and retention, to name just a few of its many uses.
Specifically, organizations are using workforce
analytics including employee and leadership
research (e.g. employee focus groups, employee
surveys, exit interviews, employee reward
preferences, line manager feedback, and senior
leadership feedback); external benchmarking
(e.g. competitive market data on pay and benefits,
external benchmark data on talent management
practices, data on marketplace prevalence of
reward and talent management programs, and
trends in total reward design); and organizational
analytics (e.g. business performance analytics,
workforce demographic data, and workforce
performance data).[158]
HR is struggling to manage and use this
information, however. A study by SHL this year
found that that HR is overwhelmed by the amount
of workforce data, dissatisfied with how their
organization manages data, and perceive their
organizations to be ineffective in using talent
analytics.[130]
Additionally, a study by the American
Management Association and Institute for
Corporate Productivity found that most

39

Talent Management
considered a valuable developmental tool that
produces long term results.[145] Additionally,
coaching can also be extremely effective at
the line-manager level. In another study by the
Institute for Corporate Productivity this year, use of
one-on-one coaching among frontline managers
was found to have a high correlation with market
performance.[56] Bersin by Deloitte also reports
that organizations with senior leaders who coach
effectively can improve their business results by
21%, on average.[26]

Coaching is being
increasingly used to
develop employees.
A number of surveys this year explored coaching
practices at all levels in the workplace including
coaching for executives, line managers, and
others – even the CEO. Coaching is increasingly
being used to develop leaders for succession,
increase knowledge transfer, improve
performance, drive employee engagement,
reduce attrition, and enhance teamwork. In fact,
coaching from superiors, peers, and external
coaches was ranked the second most commonly
used approach in developing high potentials on
a leadership career track.[54]

But studies have also found that coaching has
room for improvement. As managers are being
encouraged to coach their employees, internal
coaching skills were identified as needing
improvement in a number of studies. In addition,
line leaders who are ineffective at coaching were
seen as a major challenge in the success of high
potential development programs.[54] As a result,
organizations may benefit from enhancing line
leaders’ coaching skills such as in creating shared
goals, asking questions, guiding employees,
giving/receiving feedback, and supporting
employees.

One study by the International Coach Federation in
partnership with PricewaterhouseCoopers found
that coaching is used by many organizations to
achieve optimal performance and effectiveness,
particularly for senior level executives, and is


40

Talent Management
Employee retention is
a major challenge for
employers.
Retention is considered a chief concern by
many employers. Thirty-eight percent of 2,100
randomly selected chief financial officers
reported that retaining valuable staff members
was their biggest staffing concern over the next
12 months, according to a survey by Robert Half.
[123]
Another survey by Cornerstone echoes this
trend, reporting that U.S. employers are looking
at more potential turnover in the next year.[43]
Also, a survey by the American Management
Association revealed that turnover is a growing
workplace issue.[4]
In addition to these studies, Hay Group, in
partnership with the Centre for Economics and
Business Research, found that employee turnover
is set to rise in 2014 worldwide, with more workers
expected to “take flight” as economies see more
growth and employment opportunities increase.
Average employee turnover rates over the next
five years are forecasted to rise from 20.6% to
23.4%.[79] Bersin by Deloitte also confirmed the
trend of growing retention concerns this past
year, and attributed it to work environments not
keeping pace, young employees wanting more
career growth than is currently offered to them,
management not understanding how to motivate
workers, and the influx of social media tools
which make it easier to look for a job.[27]
Yet a number of studies pointed to effective
ways to retain talent. A Randstad study found
that bonuses, promotions, a comfortable and
stimulating work environment, having the ability
to share their ideas and opinions, and investments
in training and professional development were
effective retention tools.[121] Meanwhile, Hay


Group found that confidence in leadership,
opportunity for career development, autonomy,
a supportive work environment, and appropriate
compensation are key factors affecting employee
retention. Employees who are planning to stay
with their organization for more than two years
score their employers over 20% more favorably on
these five factors than employees who are aiming
to leave in the same period.[79] In another study,
Hay Group also found that lack of organizational
support for work/life balance was tied to turnover.
[80]
Additionally, Cornerstone uncovered that
having a good manager with whom they enjoy
working, feeling appreciated by their supervisor;
and having the opportunity to learn, develop,
and advance were key factors that motivated
employees to stay at their organizations.[43]
While retention appears to be a growing concern
for employers in the coming year, there are also
a number of useful strategies that research has
found which can help organizations retain their
employees.

41

Talent Management
Delivery of rewards
and recognition could
improve.

Work, salary, and job
security remain the most
important work values.

A few surveys conducted on rewards and
recognition show that while the majority of
employers have a recognition program in place
and believe that rewards and recognition is
valuable, rewards and recognition practices are
critical for employee engagement and could
improve in many organizations.

The work itself, compensation, and job security
are consistently among the most important job
attributes to the workforce.

A SHRM and Globoforce study found that
managers and directors are most likely to
recognize others, and executives and top
managers were the least likely to recognize other
employees, yet only 49% of employers believe
that managers effectively recognize and reward
performance and only 26% say that employees
are satisfied with the level of recognition they
receive for doing a good job.[134]
The study also noted that most respondents
believe that feeling appreciated by one’s
supervisor has the most impact on engagement.
Likewise, research by Towers Watson and O.C.
Tanner also shows that how recognition is
delivered and presented to employees affects
their engagement, and that employees are
significantly more engaged when recognition
makes them feel appreciated, feels sincere and
personal, connects accomplishments to company
values, and details specific accomplishments.[112]
In addition, a survey by WorldatWork this
past year reports that recognition programs
are perceived to have a positive effect on
engagement, motivation, and satisfaction –
particularly when there is stronger management
support for recognition. Recognition for length of
service, above and beyond performance, peer to
peer, and motivation of specific behaviors were
the most common types of recognition.[162]

In a Monster.com survey, use of skills and abilities,
enjoyment of work, and respect and appreciation
were tied for the top three most important values.
Salary was rated second in importance, and job
security followed, rated third in importance. Other
values that were considered highly important
to job seekers were their supervisor/manager,
training opportunities, performance feedback,
leadership, vacation/paid time off, career
advancement, involvement in decisions, and
corporate culture. Bonuses and work-from-home
options were considered the least important to
job seekers.[106] Additionally, in a study published
in the Employee Benefit Plan Review, salary
and meaningful work were the most important
attributes to workers.[70]
The results of Monster’s survey and the survey
results published in the Employee Benefit Plan
Review mirror those of ERC’s annual survey of over
4,000 top performers in the region, conducted
as part of the NorthCoast 99 program, at least in
terms of attributes considered most important.
In this year’s survey, challenging and meaningful
work was ranked as the most important job
attribute among top performers surveyed, and
compensation and job security followed as the
second and third most important job attributes –
consistent with the findings of Monster’s survey.
Work/life balance, benefits, career development,
leadership, advancement, and autonomy (in
order of importance rankings received) were also
considered important – some of which varied
in importance when compared with Monster’s
survey.

42

Talent Management
Certain training trends
will influence employers
in 2014.
Several training trends emerged during 2013 that
will affect employers’ delivery of learning and
development heading into 2014. They include
the following.
✓ Informal learning, such as discussing best
practices, reading articles and blog posts,
informally talking to mentors, and exchanging
messages with coworkers, is evolving and
more organizations are leveraging it to improve
performance. The majority of organizations plan
to increase their use of informal learning in the
next three years.[21]

✓ Despite an increase in spending, lack of time for
training and development has become a major
impediment to organizations being able to train
and develop their staff. Organizations will need
to find ways to train and develop staff in smaller
increments of time seeing as workers are stretched
for time to develop skills.[3]
✓ Organizations will face challenges in developing
technical, creative, and analytical individuals
(otherwise known as “knowledge workers”), who
have critical skill sets, but who tend to not be as
strong in softer interpersonal skills and people
management.[28]

✓ Although still not very common, mobile learning
will continue to grow. More organizations are
offering learning via mobile devices, which is
an increase from last year. E-learning content
is increasingly being repurposed for mobile
delivery, just-in-time learning, and on-the-job
support.[22]
✓ Mentoring and reverse mentoring are
emerging as important learning tools. Increased
use of mentoring as a developmental tool is
helping organizations pass along older workers’
knowledge to younger employees. More
companies are also using reverse mentoring
in which younger generations are asked to
mentor managers and leaders on social media,
technology, and other relevant topics.[64]
✓ Spending on training and development
is projected to increase. The majority of
organizations project a learning spending increase
in 2014 in the areas of e-learning, leadership and
management development, learning technology,
and performance consulting.[61]


43

Talent Management
Leadership
development: a
growing concern
and priority for many
employers.
Employers are becoming concerned about the
lack of future leaders in their organizations and
putting into place practices to develop leaders.
Across several surveys conducted this year on
leadership development, most organizations
view future leadership of their organization
as a high priority.[123] This includes succession
planning, emerging leaders, and leadership
development of young people.[37]
This trend is further supported with the increase in
spending projected for leadership development.
According to a global survey conducted by The
Conference Board and Right Management this
past fall, spending on leadership development
programs is expected to increase over the
next 12 months for 37% of respondents. More
resources are planned to be allocated to a full
spectrum of leadership learning initiatives
including coaching/mentoring, action learning
initiatives such as business challenges and
simulations, and focused skill development.[144]
Likewise, in a survey by Chief Learning Officer
magazine, around half of organizations surveyed
predict a spending increase in leadership and
management development next year, as well as
other areas of training and development.[61]
In addition to more emphasis and investment
in leadership development, research by the
American Society of Training & Development
(ASTD) shows that leadership learning is changing
and now includes more experiences, dialogue,
movement, humor, reflection, and challenge. In
addition, ongoing coaching following training,
regular refreshers, shorter sessions, online

learning (webinar and mobile formats), and "justin-time" training and exercises are being used
more often to develop leaders.[20] Another study
by Aberdeen shows that organizations with aboveaverage leadership readiness tend to not only use
formal leadership development programs, but
also stretch assignments, on-the-job or formal
coaching, and coaching or mentoring from
internal sources.[1]
Aberdeen's research also pointed to trends in how
organizations are identifying leaders. Specifically,
organizations say that critical thinking and
cognitive ability assessments, customer or client
feedback, multi-rater/360 assessments, hiring
manager and supervisor feedback, and other
skill/behavioral or scenario-based assessments
are most commonly used to identify leaders.[1]
Leaders also continue to be evaluated based on
certain competencies. Studies suggest that key
competencies of leaders are creating a culture
of engagement, business acumen, embracing
diversity, being politically savvy, adaptability/
versatility, effective communication, learning
ability, multicultural awareness, self-motivation/
discipline, and collaboration.[37]
How organizations define leaders is also
changing. A survey by the American Management
Association revealed that more organizations
consider employees to be leaders based on their
influence and performance, rather than their
specific job level.[5]
This year’s research shows that leadership
development continues to be an extremely
important initiative in workplaces, and is evolving
in terms of how organizations are identifying
leaders and developing them for future roles.

44

Talent Management

“

Requests for leadership development
continue to rise from a few years ago.
Most of the training we deliver is geared
towards improving the skills of those who
lead others.
Also, coaching and mentoring, along
with multi-rater/360 degree assessments,
stretch assignments and book study
groups (among other informal learning
methods) are being used more to
augment leadership development, rather
than just providing training alone."

- Chris Kutsko,
Director, Learning &
Development at ERC

Women’s issues in the
workplace become
popular.
Women’s issues in the workplace pertaining to
compensation, work/life, and leadership gaps
were popular topics in 2013, and will likely
continue to be heading into 2014.

✓ Women tend to receive fewer critical assignments
and projects which give them more attention from
the C-suite and that lead to advancement.
✓ Women are leaving their careers to care for
their families because of workplace problems or
because they either couldn’t find part-time options
or found their part-time schedule problematic and
ended up working more hours than intended.
✓ While a number of women advance to middle
management, the percentage of women who
make it to the C-Suite is dramatically low in
comparison.
In addition, leadership development for women
was a key issue for HR and in the media. Not
only did more research confirm the leadership
gaps in many businesses for women (such as
assertiveness, personal branding, time and
priority management, and business leadership
skill), but it also brought to light the different
leadership development needs that women have
than men, and the leadership competencies that
tend to be stronger in women.[94] Some research
conducted even found that women make better
leaders in the workplace.[9]
Women are a critical demographic in most
businesses and certainly even more so in some
industries. As a result, organizations need to
continue to make sure that they are providing
fair opportunities for them in the workplace and
supporting their unique needs.

There was notable conversation and research
conducted which is putting more pressure on
the workplace to provide adequate support for
women’s needs relative to work/life balance,
family, and career development. The Harvard
Business Review, in particular, published a
“research round-up” of women’s issues in the
workplace and reported the following:[77]


45

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