Top People Management Stories of 2008

The following are our choices for the top five human resource-related stories for 2008 based on their long-term resonance.

College graduates know fear for the first time in 25 years. The end of “Wall Street” combined with what looks to be the longest and deepest recession since the early 1980s will cause a reshuffling of convenient generational descriptors. Recent college and MBA graduates (is it generation x, y or z?) here-to-now best know for impatience with corporate hierarchy, “portfolio careers” and placing a premium on work-life balance will begin to appreciate just having a job. This group will become the most productive and focused cohort of graduates in 25 years.

Unions have a dead cat bounce
On the face of it, 2008 would seem to be a great year for Unions. The election of Barack Obama and Democratic majorities in the House and Senate brought the passage of the Employee Free Choice Act closer to reality and the economic uncertainty has created a more union-supportive atmosphere.

Consider the success of the sit-in by laid-off workers at the closed Republic Windows and Doors plant in Chicago. A year ago, the protest would probably have been ignored, even in Chicago. But in 2008, the protest for severance pay gained national press and support. Ultimately it ended in the protesters favor when several banks that had done business with Republic agreed to provide “loans” to Republic (which will never be repaid) to pay some of the severance.

A number of signs, however, show no let-up in the general anti-Union trend in the US. The public was so resistant to a bail-out of the UAW that the Democratic controlled congress could not enact any legislation in that regard. Even the Obama administration has publicly stated that it will not favor a bail-out without significant concessions from the UAW. The Screen Actors guild could not maintain any semblance of solidarity in its negotiations with the Producers and has punted on a strike due to lack of Union support.

The NFL players union reminded the public why they are distrustful of the motives of the modern Union. It filed a grievance challenging the suspension and fine the Giants levied against receiver Plaxico Burress after he accidentally shot himself in a nightclub on Nov. 29.

While all the union bodies have not been buried, the graves have been dug. 2008 further demonstrates that a global economy combined with bipartisan support for free trade leaves little oxygen to sustain traditional unions.

401(k) plans take the place of defined benefit plans as a regulatory punching bag. Since the passage of ERISA in 1975, defined benefit plans have been the beneficiary of annual visits by legal and accounting regulatory authorities (e.g., TRA ’86, TEFRA, REA, FAS 158) making them too expensive, too risky and too unattractive to higher paid employees compared to defined contribution 401(k)-type plans. Not coincidentally, over this same period defined contribution plans have supplanted defined benefit plans as corporate America’s predominant retirement savings vehicle.

In 2008 Congress and the Courts began to catch up with the trend. The Department of Labor published proposed regulations defining the kinds of investment advice that can be provided to individuals with defined contribution accounts and significantly enhanced the disclosures that Companies must make to plan participants around plan investment and administrative fees. Congress has several bills in various stages of Enactment requiring even more disclosures than Labor’s regulations. The Supreme Court, in its “LaRue” decision allowed individuals to bring suit against 401(k) plans to recover losses when their investment instructions are ignored or the account is otherwise mishandled. Prior to this decision courts generally held that only suits on behalf of the Plan for plan losses could be brought.

With the increasing importance of 401(k)s, Congress and the Courts will continue to tighten the regulations and make it easier for individuals to bring suit. If 401(k)s were a stock, now might be the time to sell it short.

The era of big CEO pay comes to an end.
This is of course a relative statement. The ability to effectively lead a large public company is a rare skill that will, and should, continue to get richly rewarded. But, 2008 was a tipping point bringing to an end an era of CEO dominance in setting CEO compensation.

2008 brought no major government legislation or SEC rule making around executive compensation beyond restrictions for the relatively few companies participating in the TARP. Instead, a more powerful force was at work. It became impossible for anyone to ignore the leadership failures throughout Corporate America that went together with large paydays. It was just too obvious that General Motors, Bear Sterns, Lehman Brothers, et al., were mismanaged for a number of years while CEOs were given star ratings and big bonuses.

As in the past, Boards will remain at a disadvantage compared to CEOs in negotiating pay. CEOs and their executive teams have the advantage in information, incentives and leverage. But what will change is what will be considered an acceptable range and approach to compensation. CEOs will moderate their pay demands and recommend less compensation in the form of pure equity or options. They will ask for more compensation with objective performance thresholds, greater use of claw backs and more truly stretch performance goals.

The stars align for major health care reform
2008 was also a tipping point for health care. The year saw the election of a president who put major health care reform at the top of his agenda and big Democratic majorities in both houses of Congress.

The last time this happened was in 1992 and health care reform cratered barely two years later. Unlike in 1994, however, reform will not flounder on middle class fears of change, insurance company lobbying and the public’s general distrust of government intervention in the private sector. The middle class no longer believes that the health care system, while flawed, at least provides pretty good health care for them. The costs and managed-care bureaucracy have started to hit even those with the best corporate plan and Government intervention in a major part of the economy does not seem as radical as it did in 1994.

Expect to see major health care reform enacted in 2010.