Did I Hear this Correctly?

I’m attending the Minnesota State Bar Association’s conference on Small Business. I’m attending the session by Marilyn Clark from Dorsey & Whitney, LLP on Hiring, Firing and Disciplining Employees. She started with some statistics and the first one I heard was this: 49% of current lawsuits deal with employment related issues in one way or another. That seems like a pretty high percentage.

I exchanged emails today with Marilyn.  What she said was that 49% of companies report their heaviest legal case loads have to do with employment-related issues, but that 25% of all Federal cases deal with employment related issues.

Bill English, CEO

Shortage of Skilled Workers leads to Rising Wages for Open Positions

The Wall Street Journal has another story about the shortage of skilled workers. I’ve blogged about this problem before and found this article’s facts to be consistent with what I’ve read from one local college and from CNN. Other articles about this problem are easily findable with a good Bing or Google search:

Industry Week


In an October 24 article, Peter Capelli asserts that the real shortage has much to do with companies not wanting to invest in training new workers while pointing the finger at the government and the education system for not producing the right skill sets that fit their needs. So companies report a shortage of skilled workers rather than looking at how they can restructure jobs and then do in-company training to get workers who have the aptitude and willingness to learn up-to-speed to do the job functions required.

Capelli also asserts that perhaps the real shortage has more to do with a company not giving a sufficient compensation package to attract people who could and would otherwise do the job. I tend to agree with his assertion. Today’s WSJ article points out the negatives of the job and then outlines the compensation package:

“This doesn’t require a bachelor’s degree but demands technical skills gained either through an associates’ degree or four years of experience in electronics. And it is grueling work. Technicians have to climb 50-foot communications towers, clamber up utility poles and work outdoors through Wyoming winters and Kansas summers. They put in 10-hour days, in clusters of eight or ten days, and are routinely away from home more than half of each month. Apart from the necessary skills, said Union Pacific’s construction manager for the Denver region, John Haberle, the job has two things that make attracting workers hard: the heights and the travel…Standing at the front of the room, Ms. Bailey described the deal. As installation technicians, they would earn $21.64 an hour, or close to $48,000 a year for the railroad’s regular work schedule. Overtime could add thousand dollars more. If they stuck with it and advanced through union ranks, they could earn more than $68,000 a year before overtime. She also told them Union Pacific would cover 85% of workers’ health-insurance premiums, subsidize college courses they took and pay a traditional pension.”

Being a bit facetious to make a point, suppose they compensated these positions at $120K/annual instead of $48K/annual: what do you think would happen? Add to that the idea that the company would train you to do the job and ensure that you could receive additional training to grow professionally and have your benefits covered. In this scenario, they would be able to attract all the talent they would need. Now, I’m not suggesting that $120K is the right compensation package, I’m merely making a point: There are always people who will do a job for a price. One of the few things you really own is your own labor and believe it or not, we all try to sell that labor for the best overall compensation package we can get.

To the company’s defense (in this story, Union Pacific), all of us have heard for decades how good our public school education system is and how it is the government’s role to provide job-retraining dollars so that workers can get training to find better compensating jobs. When this is the constant mantra of our public schools and our state and federal government systems, it would stand to reason that corporations would sit on the sidelines and accept this indirect subsidy for their businesses. What business doesn’t want the perfect worker to show up and be ready to do the entire job, perfectly, day 1?

But there is also a shift in our workforce as to what constitutes a “good” job or career. Our younger crew is increasingly resistant to doing hard manual labor. Having grown up with constant praise that was often out of balance with the results of their efforts, they now can’t really see themselves having to perform hard, tiring work for (what they perceive to be) low wages, especially in an industry not know for its’ warmth and encouragement.

I see the causes of this problem (like most problems) as multi-faceted: We probably do lack skilled workers, but those jobs likely lack sufficient compensation. Companies need to accept the role of educator and trainer again and our workforce needs to see these skilled jobs in the same light they view computer jobs or being the winner of American Idol. For now, Union Pacific should take a serious look at raising the compensation package for their skilled workers, invest in the professional development of those workers and take responsibility for growing the workforce that they can’t find.

To Union Pacific’s defense, they would have to re-do their income and expense models in order to raise the compensation for these jobs. But that’s how markets work. When demand for a good or service increases while supply stays the same, the price goes up. I don’t doubt that UP has limits within which it can raise compensation rates before it goes negative on its’ profits. But that’s the art and challenge of running a business – balance competing and often mutually exclusive demands and interests in a business to make the entire thing – moving parts and all – work better together for everyone.

Bill English, CEO

Friday Five for November 11

Because employers are increasingly feeling the financial cost for employees health costs, they are start (essentially) to assess fines on employees who don’t take advantage of their wellness programs. What’s interesting to me about this is that this illustrates a basic principle in life: “he who pays also controls”. It’s not rocket science. If you want to know who is really in charge, just find out who is financially responsible. Unless the Government has specific laws in given situations restricting control from those who pay, this is a life principle you can rely on. If we expect employers to continue to shoulder an increasing cost of our health care, then we should expect them to take actions like this – actions which can lower their costs.

Data breaches continue to be an issue. Here is a short article that discusses common sense questions to ask yourself when it comes to protecting customer data.

Why do Managers micro-manage? This is a good, brief blog post on why we micro-manage. I can attest that I have been guilty of both points: feeling disconnected and not knowing how to move out of my comfort zone into a more strategic role. I like the phrase in this article: What got you here won’t get you there. I might need to pick up the book too.

I find that I’m running my business a bit differently than many on several fronts. I don’t know if this is good or bad, but I have a plethora of folks who I ask to speak truth into my life, character and work performance. One of the areas that I manage differently is HR. I consider HR to be both tactical and strategic because of their abilities to help myself and others recruit and find the right personnel for my company. This HBR article eludes to this way of incorporating HR into the leadership aspects of running a company. I rely heavily on my Vice President of HR to help me understand how my decisions affect different aspects of my company. She brings to the table a unique perspective that often causes me to re-think a decision. I would encourage those who run small businesses to view their HR personnel as more than just an outsourced function that is an evil necessity to the growth of your business. Instead, I would encourage you to view HR as a core player on your management team that can help you drive growth and profit by finding and recruiting better talent into your company.

While I don’t agree with everything in this article, I do agree that leadership encompasses the whole person. It is difficult to lead if you are deficient physically, socially or mentally. I would also submit that having a right relationship with Jesus Christ is the foundation for all of your other relationships. When you’re out of fellowship with God, other relationships on earth tend to deteriorate. Leadership isn’t about giving orders and holding people accountable – though that is an aspect. It is as much about who you are as a person as it is about what you do in your role as a leader.

Bill English, CEO

An Example of Unintended Consequences to a Well-Meaning Actions

I continue to believe that the subprime mess that nearly brought this country to its’ knees is a result of the government, banks and borrowers working together to create this mess. This article from the New York Times illustrates that the government encouraged the banks to make bad loans. While I fully content the banks should have pushed back and told the government to back off because what the government was proposing didn’t make sense: they were proposing that the banks engage in unsafe lending practices. The entire reason that the banks had rules on who they can loan to is because not everyone is credit worthy for a home mortgage, so they should only lend to those who have a high likelihood of paying back the loan. Managing one’s finances to the point where one is credit worthy means that the borrower has “skin in the game” and has risk when they take out the loan. Without that risk and working to be credit worthy, one has less appreciation for the gravity of taking out a loan and the inherent risk of not paying back the loan.

The banks don’t really care, since their risk is mostly mitigated by the government, since the risk of nonpayment on the loans is transferred to Fannie and Freddie when they guarantee the loans to the banks. The banks saw an opportunity to make money with little risk. Coupled with the government’s encouragement, they had little reason to say “no”. Connect that to a lack of ethics and sense of “doing what is right even if it means saying “no” to profits”, the banks were in a position to partner with the government to take advantage of unsuspecting borrowers who were suddenly told they could quality for a loan and get a house.

There is plenty of sin to be found on every front here. Politicians shouldn’t have used the dreams of their constituents plus the banking system to garner more support and votes. The banks shouldn’t have agreed to go along with this stupid idea. And the borrowers should have had the self-discipline to not enter into loans they couldn’t afford and had little possibility of paying back. All of us have been hurt by this. We should learn that the government isn’t always right and doing it just because you “can” doesn’t mean you “should”. But this article is eerily scary on its’ predictive accuracy. I’ve reposted it here so you don’t have to click the link above.

Fannie Mae Eases Credit To Aid Mortgage Lending

Published: September 30, 1999

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets — including the New York metropolitan region — will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation’s biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates — anywhere from three to four percentage points higher than conventional loans.

”Fannie Mae has expanded home ownership for millions of families in the 1990’s by reducing down payment requirements,” said Franklin D. Raines, Fannie Mae’s chairman and chief executive officer. ”Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.”

Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980’s.

”From the perspective of many people, including me, this is another thrift industry growing up around us,” said Peter Wallison a resident fellow at the American Enterprise Institute. ”If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.”

Under Fannie Mae’s pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a conventional, 30-year fixed rate mortgage of less than $240,000 — a rate that currently averages about 7.76 per cent. If the borrower makes his or her monthly payments on time for two years, the one percentage point premium is dropped.

Fannie Mae, the nation’s biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.

Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites.

Home ownership has, in fact, exploded among minorities during the economic boom of the 1990’s. The number of mortgages extended to Hispanic applicants jumped by 87.2 per cent from 1993 to 1998, according to Harvard University’s Joint Center for Housing Studies. During that same period the number of African Americans who got mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent.

In contrast, the number of non-Hispanic whites who received loans for homes increased by 31.2 per cent.

Despite these gains, home ownership rates for minorities continue to lag behind non-Hispanic whites, in part because blacks and Hispanics in particular tend to have on average worse credit ratings.

In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae’s and Freddie Mac’s portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.

The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.

Bill English, CEO