The Talent Challenge: Winning in the New Reality · Management Consultant B eing able to offer better services, technologies, strategies, products and cost structures can make one

The Talent Challenge: Winning in the New Reality

issue four

2015Quarterly issue one

2016

Chief EditorSabine Hoover

Chief Marketing OfficerDavid Harrell

Graphic DesignerMary Humphrey

Information GraphicsDebby Dunn

Cover Erda Estremera

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To access more Quarterly articles, go to: www.fmiquarterly.com

Copyright © 2016 FMI Corporation. All rights reserved. Published since 2003 by FMI Corporation, 5171 Glenwood Ave., Raleigh, North Carolina 27612.

Printed in the United States of America.

The Talent Challenge: Winning in the New Reality 4

CHRIS DAUM AND SABINE HOOVER

Building a Culture of Engagement: Why It Matters 6

JEREMY BROWN

Four Fundamentals of Highly Effective Boards 12

TIM TOKARCZYK AND MICHAEL MANGUM

Time to Drain the Pool 18

SAL DIFONZO

Hire or Acquire? 24

JOHN STEINEGGER AND TIM HUCKABY

The Big Crew Change: How to Empower Your 30

Next Generation of Field Leaders

part 1

ETHAN COWLES

The Big Crew Change: How to Break into the Succession Plan 37

part 2

ED ROWELL AND KIM JONES

Debunking Millennial Myths 44

SABINE HOOVER

ZURICH FEATURE

Opioid Abuse: The Undetected Risk in Your Organization 54

DR. JOSEPH SEMKIU AND ERIC LAMBERT

The Talent Challenge: Winning in the New Reality

Message from Chris Daum, FMI’s CEO

T oday’s engineering and construction (E&C) industry talent challenges are not new. However, we are at a critical inflection point: Ten thousand baby boomers are retiring daily across the U.S., leaving behind an incredible void of knowledge and

experience — particularly in the engineering and construction space. Baby boomers created billion-dollar companies over the past several decades and they are now handing over these firms to younger generations, including the millennials.

Last year, millennials surpassed the baby boom generation as the nation’s largest living cohort and now make up 34% of the nation’s workforce. Firms across all industries are vying to attract and retain this young generation, which is adding more pressure and competition to the E&C industry’s acute talent challenge. Compounding this dilemma is an industry that’s moving toward progressively bigger and more complex projects with higher risk profiles and new delivery mechanisms — all of which require innovative leadership skills and new technical capabilities to make E&C companies succeed in the future.

It is within this context that we present a number of approaches and solutions to confronting the talent challenge from different angles. There is no magic bullet to solve this problem anytime soon. But having a better understanding of important issues that today’s construction workforce faces — and being open to hearing what employees (of all ages) are looking for in an employer — is essential to winning this battle over time.

Chris Daum,CEO, FMI Corporation

2016 issue 1 fmi quarterly l 5

Editor’s Note (Sabine Hoover)Welcome to FMI’s first 2016 Quarterly issue. In this publication, we

cover a number of relevant business topics that relate to the E&C industry’s most important resource: its people. The topics covered range from how to build a culture of engagement to developing your next generation of field leaders to preventing opioid abuse in your firm, to name just a few.

Knowing that the talent challenge is complex and not easily resolved, we have identified four key industry issues and included various solutions to these problems. These solutions and strategies are intended to help and inform readers as they deal with the people issue in their daily conversations and decision-making. This is by no means an exhaustive list of solutions but instead a springboard for starting an industry-wide conversation on how to tackle the talent challenge.

The industry issues and associated solutions are as follows:

ISSUE: Attracting and retaining a young workforceSolutions

• Understanding the millennials: myths and truths• How to build a culture of engagement across all generations• The new accountability of peak boards in influencing the talent challenge• Re-inventing your bonus pool structure: a new model

ISSUE: Lack of skilled workersSolutions

• Five ways to start preparing your field leaders for the big crew change• Key considerations for hiring versus acquiring talent

ISSUE: Retiring boomers and succession planningSolution

• How field leaders can break into the succession plan

ISSUE: The increase in human risksSolution

• How to develop a culture of transparency and trust to prevent opioid abuse

Our goal with this issue is to help you, the reader, make informed choices and develop effective strategies for filling the talent void, attracting and retaining millennial workers, and creating an environment where your company can continue growing and prospering well into the future.

Building a Culture of Engagement: Why It Matters

JEREMY BROWN

“Culture eats strategy for breakfast.”

—Peter Drucker, Writer, Professor and

Management Consultant

B eing able to offer better services, technologies, strategies, products and cost structures can make one organization better than the next, but all of these factors are replicable. What does withstand the test of time and make companies better than their

competitors is a workforce comprising engaged and motivated employees. That’s because engaged workers consistently outperform those who are distant and uninterested in their work. As a result, in the struggle over competitive advantage and skilled talent, the company with the engaged employees will win the war and the battle.

For the construction industry especially — where according to our latest research almost 86% of employers are facing skilled labor shortages1 — the topic of employee engagement is more critical than ever. In this article, we present six universal employee engagement drivers and provide recommendations on how companies can develop sustainable, engaging cultures. Insights are based on FMI’s industry research and conversations with FMI’s partner Leigh Branham, a nationally renowned expert and author of three best-selling books on the subject of employee engagement.

The Disengagement Crisis — The Big PictureAccording to Gallup’s latest research, nearly a third (32.5%) of U.S.

workers were engaged in their jobs earlier this year (Figure 1). The majority (51.9%) of U.S. employees were “not engaged” in January, and 15.7% were “actively disengaged.” In other words, almost 70% of today’s American workers are “not engaged” or “actively disengaged” and therefore emotionally disconnected from their workplaces and less likely to be productive.

Gallup estimates that these actively disengaged employees cost the U.S. between $450 billion to $550 billion in lost productivity every year. In addition, these employees are also “more likely to steal from their companies, negatively influence their co-workers, miss workdays and drive customers away.”2

In conversations with construction industry executives, we have found that the topic of employee engagement is often perceived as something fuzzy and elusive. Responses like “We are contractors. We build stuff. Either you like to build stuff, or you don’t. I’m not so concerned about the fuzzy stuff,” are not uncommon. Yet, at the same time, these executives admit that their employees are their most important assets.

Branham explains the situation as follows: “Whether company leaders know how to derive better value from the employer-employee relationship or not, they at least fundamentally understand that different levels of ‘buy-in’ create different results — some better than others. There are hard elements to employee engagement; it’s not just a ‘feel good’ thing. Those basic elements are: Do employees know how to do their jobs effectively? Do they have the right resources to be effective? Are they surrounded by people that they like


1EXHIBIT U.S. EMPLOYEE ENGAGEMENTMONTHLY AVERAGES: 2011-2016

40

28

36

32

20

24

% En

gage

d Em

ploy

ees

2011 2012 20142013 2015 2016

Figures shown are for January of each year.Source: GALLUP

8 l building a culture of engagement: why it matters

and respect? Do their managers care about them? And do they feel that they are advancing their career and skill sets? You can actually measure those things. They are easy to say and hard to do… and it takes a lot of management and leadership attention to move the needle.”

In construction, where employers are struggling to attract and retain skilled workers, it is time for a fundamental mind shift. The talent challenge is not going away anytime soon; good, skilled workers will likely remain a scarce resource in the future. In fact, now is the time to think of employees as your clients and look for new ways to attract and hold onto them long term. Following are six key drivers that are fundamental to developing a sustainable and engaging company culture.

Fundamental Drivers of Employee EngagementOver the years, Branham has studied data patterns in millions of

employee engagement surveys and has narrowed it down to six universal drivers for employee engagement. Branham’s findings support FMI’s industry insights based on employee engagement surveys conducted with more than 50 construction firms as well as a millennial-specific engagement study that included almost 400 industry stakeholders.

1. Caring, competent and engaging senior leadersAccording to Branham, these individuals are competent, visionary and

clear about where the company is headed. This point is especially important for young people who are just kicking off their careers. By explaining the whole picture, company leaders can connect the meaning to their employees. This, in turn, gives workers a clear sense of purpose and an understanding of how their efforts fit within the larger plan.

According to FMI’s research, when the company’s vision is inspiring and clearly communicated, younger workers (millennials) are 25% more likely to stay longer with the company compared to those who don’t understand the company’s vision and direction.

2. Effective managers who keep employees aligned and engagedBy paying attention to cues from senior leaders on effective employee

supervision and guidance, the best managers outline clear, concise expectations and provide frequent feedback to workers.

According to FMI’s observations, this is an area where the construction industry is currently undergoing some big changes. It’s time to eradicate the archaic management models frequently used in the construction industry and implement performance management processes that factor in ongoing training, coaching, development and associated metrics. By listening to their employees and by taking into account their individual career aspirations and plans, effective managers can develop personalized development programs


that help strengthen the entire organization and engage the whole workforce for the long term.

3. Effective teamwork at all levels According to Branham’s research, companies that are considered “best

places to work” have fewer hierarchical barriers, or silos, across the organization. They also encourage a high degree of interaction and communication between top and front-line employees. Conversely, in non-engaging company cultures, employees typically feel isolated from senior leaders.

The need for better teamwork and communication across all organizational levels — especially between the field and the office — is an ongoing struggle for many construction firms. By encouraging and enabling better communication and more frequent interactions, for example, the field-office relationship can be significantly improved. Put simply, by getting people to work face-to-face, have open conversations via phone, and gain a better understanding of one another’s work environments, these traditional divisions can work together more effectively.

4. Job enrichment and professional growthEmployees like challenges, but they also want to know that they’re well-suited

for their positions. Branham’s research confirms that successful employers interview and vet new candidates more thoroughly and place an emphasis on cultural fit first and role fit second. They are also very careful about matching employees’ skills and capabilities with corresponding roles and positions.

This is particularly relevant in construction, where many companies lack well-defined career tracks or comprehensive talent development and leadership programs. For younger employees who are just kicking off their careers and feeling out their opportunities, understanding how they can advance from point A to point B is critical. This notion was also confirmed in our millennial study, where survey respondents who understood their career paths and opportunities within their firms were more likely to remain long term with their companies compared to those who didn’t understand their advancement opportunities. And it’s not mainly about advancement; it’s about continuous learning. Paradoxically, the more employees learn and build their resumes, the more likely they are to stay and stay engaged.

5. Valuing employee contributions Branham confirms that, “Employees who are paid in proportion to their

efforts feel more valued. If they receive frequent praise and recognition or a simple ‘thank you for going above and beyond,’ they feel more valued and want to put in more effort. If they are given the right tools to do their job and are given a voice in the kinds of decisions that affect them, they feel even more valued and energized.”3

10 l building a culture of engagement: why it matters

6. Concern for employees’ well-beingBy displaying true concern for their valued workers, companies can

significantly improve employee engagement, loyalty and long-term staying power — none of which is easy to achieve in today’s competitive business environment. In the best workplaces, senior-level executives operate on the philosophy that if you give to employees, they will give back to their companies. This is a far cry from traditional belief systems centered on the idea that if managers give to employees, they will take advantage of the company.

Setting the tone and defining the vision around a culture of engagement is no easy task for leaders, but when done right, it can turn your company into an employer of choice. FMI’s industry research4 indicates that employees (of all ages) who perceive senior management’s commitment to their wellbeing are engaged and more likely to remain long term with their companies compared to those who don’t feel appreciated or valued (Fig. 2).

Branham states, “The real meat and potatoes of what it takes to be an employer that engages your workers is providing clear, consistent feedback. There is an art to (performance) feedback. Routine, purposeful check-ins are

2EXHIBIT SENIOR MANAGEMENT’SCOMMITMENT TO PEOPLE...

86%

2% 5% 5% 2%

4% 4% 0% 0%

0%14% 14%

29%

0% 15%31% 23%

5+ years 4-5 years 2-4 years 1-2 years 1 year or less

5+ years 4-5 years 2-4 years 1-2 years 1 year or less

92%

43%

31%

Non-Millennials

Millennials

IS REFLECTED IN PEOPLE’S LEVEL OF ENGAGEMENT AND LOYALTY TO THE COMPANY

Senior management has sincere interest in my well-being.

Agree

Likely to stay...

Disagree

Agree

Likely to stay...Disagree

Source: FMI 2015 Millennials Survey


gradually replacing the arduous, time-consuming and less impactful annual reviews. This type of feedback about individual progress and company objectives is much more meaningful to your employees than putting a ping-pong table in the break room or holding a company picnic…. Invest the time and energy into training your managers to give candid feedback and getting to know your employees personally and understand what makes them tick.”

What’s Next?As the millennial generation

continues to make its way into the workforce, and as all levels of employees seek out the most fruitful and rewarding job opportunities in today’s marketplace, leading construction firms will continue to build and shape cultures of engagement. Branham frequently quotes Peter Drucker who famously said, “Culture eats strategy for breakfast.”

Engagement, like a company’s vision, starts at the top and requires leaders to continuously challenge team members and consciously demonstrate a focused effort to engage their employees. FMI will continue to research this area over the coming year, knowing that it will be an especially valuable competitive advantage as the older generations transition out of the workforce and as a new, young generation takes over. Q

Jeremy Brown is a senior consultant for FMI. He can be reached at 303.398.7205 or at

[email protected].

1 Talent Development in the Construction Industry. 2015 FMI Industry Survey.

2 State of the American Workplace. Employee Engagement Insights for U.S. Business Leaders. Gallup. 2013.

3 Why Putting Your People First Makes Good Business Sense. Kathryn Jones. THISISKC.com

4 Millennials in Construction: Learning to Engage a New Workforce. 2015 FMI Industry Survey.

“Being noticed for the hard work you are doing is a big deal in the construction industry. When executives tell you they appreciate your hard work, it really goes a long way.” — MILLENNIAL SURVEY PARTICIPANT

Four Fundamentals of Highly Effective Boards

TIM TOKARCZYK AND MICHAEL MANGUM

When done well, the cost of assembling a peak-performing board is more than offset by its overwhelming benefits.

C ompanies throughout the engineering and construction industry are seeking innovative solutions to the myriad challenges they face in today’s competitive business environment. Leaders are confronted with talent pressures, changing technologies, increased

competition, demographic shifts, economic uncertainty and various other seemingly random obstacles on a daily basis. To find solutions, leaders are considering a long list of options, including re-examining the way they recruit, onboard, train and develop their people; hiring talent with unique skill sets; re-examining their business models; forming new partnerships; joining peer groups; and finding ways to cut costs and increase productivity. Through it all, one powerful asset is often overlooked or not fully utilized: the board of directors (even more specifically, the use of independent outside directors as members of those boards).

Most businesses are legally required to elect a board by its authorizing state. And while public corporations have strict guidelines specifying the board’s role, all organizations can benefit from moving beyond the basic requirements. An effective board protects the interests of the executive team,

stakeholders and the larger organization, while also providing perspective that can bridge gaps between these groups.1 A board of this nature, performing at its peak level, can contribute directly to a company’s competitive advantage. Unfortunately, too few organizations in the construction industry have neither fully leveraged this resource, nor taken the time to attract top-level external talent to fill its seats.

Transforming OrganizationsOwners and management of closely held firms often underestimate

the power and potential of a carefully selected board. We hear comments ranging from, “No one will be interested in serving on our board,” to “Where would we go to even begin the process of finding high-capacity, experienced outside directors?”

When properly formed and leveraged, a board of directors can help transform a company by utilizing collective experiences and different perspectives. Build-ing, developing and utilizing highly effective boards takes the right people, positive group dynamics, proper evaluation, continual adjustment and a mentality that the group’s purpose is to better the organization itself. It also requires an intentional, focused process that’s clearly aligned to the organizational vision.

FMI works with engineering and construction firm leaders across North America who want to know how they can either form an effective board, or ensure that their current board is operating as effectively as possible. Based on extensive research on boards and in-depth conversations with key leaders in the industry, FMI designed the Peak Boards model to help organizations ensure their boards of directors reach their peak level of performance (Figure 1).

The model comprises four areas that are


1EXHIBIT FMI’SPEAK BOARDS MODEL

Source: Model developed by FMI. Concept is based on in-depth industry research.

MEMBERSHIP PROCESS

FOCUS

Leadthe

BoardConstruct

theBoard

DriveTeam

Performance

LeverageExpertise

Adviseand

Appraise

Inspirethe

Future

OrchestrateE�ective Meetings

VISION

14 l four fundamentals of highly effective boards

critical for developing an effective board of directors: vision, membership, process and focus. It is important to remember that creating a peak board is a process and not a stand-alone event. Here is how you can get started:

VisionBefore any board-related discussion can take place, an organization must

clarify its own unique vision. The best organizations have clearly identified and communicated their Core Purpose, Core Values, Big Hairy Audacious Goal (BHAG) and Vivid Description.2 The board must understand the organization’s vision and align its actions accordingly. Without a clear vision to guide the board, its members can easily lead the organization astray.

MembershipMany organizations select board members in a haphazard fashion and

wind up with disappointing results. Leading organizations understand that who sits around the table is the most critical piece of board development. The best-designed boards have members with complimentary knowledge, skills and abilities, rather than large overlaps among individual members. In addition,

the most successful boards have members who are independent from the organization (i.e., not employed or closely affiliated with it).3

As one research participant from a large, publicly traded firm explained, “We don’t need a whole bunch of people on the board with industry knowledge because, hopefully, the CEO and the management team already bring that knowledge to the table.”

The value of outside perspectives can be priceless. When properly assembled, the directors bring a slate of talent that can help the business achieve its long-term goals and realize its vision.

In addition to membership composition, leadership also plays

a critical role in the board’s success. While CEOs often serve as board chairs, the overall research evidence is mixed on whether this is an effective tactic or not.4 Each organization will need to make its own decision regarding board leadership, and leaders must not take this decision lightly. Depending on the organization and its structure, vision and business goals, it may be more or

The value of outside perspectives can be priceless. When properly assembled, the directors bring a slate of talent that can help the business achieve its long-term goals and realize its vision.


less effective to have the CEO, or an external member, serve as chair. Alternately, a lead director is selected from the pool of outside members to work with the CEO/chair to ensure effective governance and proper board focus.

Too often, organizations speed through the board formation process without giving it the intentional focus it needs and deserves. When done right, this process ensures that the right people are sitting around the table and that they can offer a variety of different perspectives and leverage diverse knowledge and experience.

ProcessIn our interviews with industry

leaders, exactly how the board interacts, emerged as one of the biggest weaknesses of existing boards. Without careful consideration of the structure and format of the meetings, they can easily deteriorate into unfocused, frustrating and ineffective events. The most productive meetings require advanced preparation and engaged board members who can focus their energies on organizational goals.

We strongly recommend that a board develops an annual calendar, determining what areas require focus and attention over the course of a given year. This ensures a balanced board calendar with ample time to tackle key strategic topics (versus a more casual review due to the agenda crush of other weighty issues).

Many organizations also forget that a board of directors is really a team. As such, team dynamics come into play with a board. How do the members communicate with each other? Is there trust among board members? How does the board handle internal conflict? Is there a process for giving and receiving feedback among the members? Many companies mistakenly believe a board will be effective simply by assembling a group of smart, experienced individuals. However, the best organizations are intentional about building a truly effective team at this level.

FocusFar too many boards lose sight of their intended roles. Members of these

dysfunctional boards do not fully understand their roles and typically devote

Many companies mistakenly believe a board will be effective simply by assembling a group of smart, experienced individuals. The best organizations are intentional about building a truly effective team at this level.

16 l four fundamentals of highly effective boards

time to operational and day-to-day issues rather than fulfilling the broader, more strategic roles of the board.5

Keeping an Eye on the FutureEffective boards serve a vital role by keeping an eye on the horizon and

encouraging the organization to think long term about its vision and business objectives. This includes encouraging innovative thinking throughout the organization, driving strategy, assessing and mitigating risk and fostering financial health.

A CEO from FMI’s personal interviews said, “Having an engaged, active, energized board with a lot of smart people on it is going to make me a better CEO. They help us recognize some of our blind spots and things we can’t see because we’re too close to the business.”

Today’s boards, in particular, must tackle the topics of talent development and succession planning. Best practices suggest that boards should be proactive not only in planning for the CEO’s succession, but also for future board

members.6 Furthermore, boards can play a key role in appointing committees made up of board members and senior staff to develop new human resources policies and practices. Ideally, human resources experts are actively involved in board meetings and decisions.

Finally, the board needs to embody the role of steward of policies and procedures by following a Noses In, Fingers Out (“NIFO”) approach. NIFO is one of the most critical aspects of directorship. Far too often, we see boards that operate like a shadow executive team, second-guessing the CEO and delving into the implementation details as if leading day-to-day

affairs. This is most prevalent when the outside directors are either current or former CEOs. It is vital to understand that the role of director is very different from that of CEO. Ignoring this fact can create tension and conflict and erode trust in the boardroom.

Finding a Seat at the TableIn this article, we’ve covered the critical areas for board development at

a high level. Because each organization has a different vision, the board of

It is vital to understand that the role of director is very different from that of CEO. Ignoring this fact can create tension and conflict and erode trust in the boardroom.


directors will morph according to the organization’s culture and strategic objectives. By focusing on the aforementioned areas and aligning the board with the company’s unique culture, organizations can greatly benefit from this resource.

Based on our research, there is no greater untapped resource to help propel a business to new heights than a solid board of directors. When done well, the cost of assembling a peak-performing board is more than offset by its overwhelming benefits. Our industry is fortunate to have an abundance of talented, experienced leaders who can bring fresh perspectives to businesses of virtually any size or scope. Our hope is that more firms will see these leaders as a way to ensure a healthy business future by finding a seat for them at the board table. Q

Tim Tokarczyk is a consultant with FMI. He can be reached at 303.377.4740 or at

[email protected]. Michael Mangum is a senior consultant with FMI. He can be

reached at 919.785.9219 or at [email protected].

1 Williamson, O. E. (1985) The economic institutions of capitalism: Firms, markets and relational contracting. New York: Macmillan.

2 Collins, J. & Porras, J. (1994) Built to Last: Successful Habits of Visionary Companies New York: Harper Business.

3 Hermalin, B. E., & Weisbach, M. S. (2001). Boards of directors as an endogenously determined institution: A survey of the economic literature (No. w8161). National Bureau of Economic Research.

4 Van den Berghe, L. A., & Levrau, A. (2004). Evaluating Boards of Directors: what constitutes a good corporate board? Corporate Governance: An International Review, 12(4), 461-478. doi:10.1111/j.1467-8683.2004.00387.x

5 Ibid.

6 Deloitte. (2014). Business succession planning: Cultivating enduring value. Retrieved from http://www2.deloitte.com/us/en/services/consulting.html

Time to Drain the Pool

SAL DIFONZO

Re-inventing your bonus pool structure: a new model

T he economy has improved and you have two job offers. If these were your choices, how would you rather work?

The Old Way: 100% Discretionary “Trust Me” PlanCompany A offers a market-competitive base salary but has a purely

discretionary bonus plan. If the company makes money and the owner decides to share some of the profits, he or she will give you a bonus in the form of a “to be determined” award one year from now. There are no criteria, and the company certainly will not commit to a defined bonus amount. Just do a good job and hang in there.

The New Way: Structured Incentive PlanCompany B also offers a market-competitive base salary, but it’s in

the minority 25% of contractors that offer a structured incentive plan. The company tells you that your target bonus opportunity is 15% of your base project management salary. The upside opportunity can be as much as 25%. There are three ways to earn your bonus: company performance, business unit performance and individual goals. You will receive three simple goals from your manager that will be easy to understand. However, these targets are “stretch goals” that are above your regular job duties. Your job is to complete projects on time and on budget. Extra cash is waiting for you if you can also increase margins over estimate and ensure customers are delighted.

Which company would you choose? The company where the owner arbitrarily decides what you receive, or the one that presented you with a documented incentive plan tied to the business strategy that also shows you how to earn your bonus and how much it will be?


There is a significant shift occurring in the engineering and construction (E&C) industry in how companies are paying bonuses to their employees. The trend is to move away from purely discretionary plans and toward structured incentive plans (with some discretion on individual performance measures). Owners need not disclose their actual profit numbers when using structured plans; communicating as a percentage to goal (e.g., company performance is at 105% to goal) is sufficient. Employees can look up performance on a pay table and identify their award percentage next to the achievement percentage.

Current Practice: Top-Down, Pool-Based FundingYou can’t blame company owners for their age-old pay practices. The

majority of the industry is family-run or privately held. Owners like exerting control through entirely discretionary plans. Having no commitments or promises relieves stress, but it is becoming harder to recruit with “trust me” incentive plans. The modern and more competitive workforce demands a fair deal where they know the rules upfront and they know about the bonus opportunity before taking the job.

Top-down funding approaches are prevalent in the construction industry. In fact, a recent FMI compensation survey found that 75% of contractors use top-down funding models for their incentive compensation plans (Figure 1). A top-down model allocates a portion of profits for incentives and then managers allocate the pool in a discretionary manner. The average budget for annual bonus programs is 15% of net profit before tax (Figure 2). Actual award amounts may not relate to employee expectations or labor market norms.

1EXHIBIT MOST INCENTIVE COMPENSATIONPLANS DON’T WORK

Incentive Compensation Plans UsedPerceived Effectiveness

Of Incentive Compensation Plans

Discretionary Incentives

Structured/FormulaicIncentive Plans

Profit-Sharing Plan

Executive Long-TermIncentive Plan

Sales and BDIncentive Plan

Executive Short-TermIncentive Plan

Other

79%Are Not Achieving Effective Results

21%Very Effective

Source: FMI Compensation Survey 2013

75%

54%

53%

28%

28%

27%

1%

20 l time to drain the pool

The two key problems with top-down funding are:

1. It is a function of headcount. The individual award amount depends on the size of the pool and the number of employees participating in the pool. Increasing headcount will reduce award amounts if the size of the pool does not increase.

2. Pools tend to pay out regardless of performance. Perhaps a company has a $3 million net profit goal. Even if it only achieves $1 million, there is a pool formula that pays out a portion of any dollar earned (e.g., paying out 15% of $1 million).

The question is, how do you explain to an employee that the company made more profit and individual performance was stellar, but bonuses will be lower because the company hired 20 more people. An unintended consequence can occur when management chooses to limit hiring in order to maximize bonuses, even though the company needs more human resources to grow and handle the workload.

Less than 5% of pretax net income

Between 5 to 10% of pretax net income






More than 35% of pretax net income

N/A, have not been offering ICP long

2EXHIBIT COMPENSATIONBENCHMARKS

Source: FMI Compensation Survey 2013

BONUS BUDGETS AVERAGE 15.7% OF PRETAX NET PROFIT

23%

16%

17%

14%

11%

12%

3%

3%

1%

Percentage of Respondents


Bottom-Up Funding: Another WayBottom-up funding looks to the labor market to establish target incentives

as a percentage of base salary. If project managers earn 15% of base salary on average, for example, then a $1 million payroll for 10 project managers should yield a budget of $150,000 for bonuses. Here are the key advantages to this type of funding:

1. Bottom-up funding guarantees a given level of pay for a given level of performance. It moves away from “trust me” and moves toward a calculable outcome. Employee commitment increases when the company makes a commitment to its workforce.

2. It is easier to recruit with a known target incentive and upside opportunity. Because recruiting is easier, it becomes an advantage over the competition when attracting star talent (vs. “trust me” plans).

3. There is a written plan document. The plan document becomes a recruiting tool that contains the plan description, calculation examples and terms/conditions.

4. Budgeting is more consistent. With known headcount and target incentives, CFOs can treat the incentive budget as a variable cost with a direct link to profitability.

How to Build a Bottom-Up Funding MethodologyWhen developing a bottom-up funding approach, these seven steps must

be factored into the process:

1. Determine owners’ return on equity requirement. Contractors take a lot of risk in this low-margin industry, and they demand a high return on their capital investment given the risks involved. The Risk Management Association publishes average returns on equity for different types of general and specialty subcontractors. Returns should be better than a Vanguard bond fund!

2. Install a fail-safe. A significant weakness of pool-based funding is that it tends to pay regardless of achievement. Set a fail-safe, based on owner return on equity requirement. This is often 50%-60% of the net profit goal for the year.

3. Do your research. Use empirical labor market intelligence to establish target incentives for each position. Why guess? There are several industry sources for company-reported data on E&C jobs.

4. Conduct a budget roll-up. Do the math. Ten project managers at 15% is a number. Five project engineers at 10% is a number. Add all of the target incentive budgets to derive an overall bonus budget.

5. Model your cost. Model out expenditures for a typical year, a high- performing year and a low-performing year. Run a pro forma using last year’s results. What is the stress test or max payout allowed under the plan?

22 l time to drain the pool

6. Adjust target incentives to match affordability. After benchmarking and cost modeling, you may discover that market rates are out of your budget. Simply ratchet down target incentives until the budget meets your affordability requirements. You may also need to update your compensation philosophy to guide future pay decisions to a level that you eventually want to pay.

7. Define the upside ratio. Set the upside or maximum opportunity under the bonus plan. Most plans have an upside of 150% of the target incentive. Therefore, if the target incentive were 10%, the upside would be 15%.

Get Ahead and “Drain the Pool”The manufacturing, high-tech and health care industries have all used

structured incentive plans for decades. The engineering and construction industries have not followed suit. There are very few public E&C companies, and a large portion of the industry’s privately held firms use top-down, pool-based funding bonus formulas.

Bottom-up funding is another way to create a financially accountable plan that features definitive target incentives. Employees are more motivated

to perform when they know how much they can earn and what the related requirements are. Bottom-up funding is also more financially accountable because it pays owners first, requires a minimum level of profit to fund the plan, and contains a fail-safe to prevent the plan from ever owing more in bonus payments than profits earned.

Finally, bottom-up funding can mean the difference between success and failure in today’s competitive business environment. With economic conditions improving and an expanded number of job choices

opening up for construction workers, the importance of developing structured compensation plans based on measurable criteria and centered on employee performance and development will only increase in the coming years. Q

Sal DiFonzo is a managing director for FMI. He can be reached at 602.772.3427 or at

[email protected].

Bottom-up funding can mean the difference between success and failure in today’s competitive business environment.


ILLUSTRATION OF POOL-BASED FUNDING VS. BOTTOM-UP FUNDING

Pool-based funding with 20% payout formula

YEAR ONE• Companyachieves$3millionprofitbeforetaxesandincentivesonagoal of$3million.

• $3millionx20%=$600,000employeebonuspool.

• $600,000distributedonadiscretionarybasisto100employeesis$6,000 averagebonus.

• Capitalexpendituresandloancommitmentstake$3millionx50%=$1.5million

• Ownerspocket$3millionx30%=$900,000

YEAR TWO• Companyachieves$1millionprofitbeforetaxesandincentivesonagoal of$3million.

• $1millionx20%=$200,000employeebonuspool.

• $200,000distributedonadiscretionarybasisto100employeesis$2,000 averagebonus.

• Capitalexpendituresandloancommitmentstake$1millionx50%=$500,000

• Ownerspocket$0becausetheydeembonusestoolowanddecidetogiveuptheir returnonequitytoaddanother$300,000tothebonuspool.Oneowneractually withdrawsmoneyfromacashbankaccounttothrowanother$100,000intothe poolsothatthebonuspoolequalsthatoflastyear.

Bottom-up funding with target incentives by position connected to the labor market

YEAR ONE• Companyachieves$3millionprofitbeforetaxesandincentivesonagoal of$3million.

• “Fail-safe”is50%ofprofitgoaltoturn-onplan,sothetriggerismetandthe bonusplanisfunded.

• Ownerreturnonequity(ROE)requirementis25%,given$6millioncapitalinthe business,or$1.5million.Therefore,ownertakes$1.5millionof$3millionfirstand beforeemployeebonusesarepaid.

• Market-basedbudgetattargetperformancefor100peopleis$600,000.

• Employeesreceive$600,000or$6,000averagebonus.

• Capitalexpendituresandloancommitmentsreceiveremaining$3million– $1.5million-$600,000=$900,000.Ifmorecapitalexpendituresorfundingforloan commitmentsisrequired,ownersmustlowertheROE.

YEAR TWO• Companyachieves$1millionprofitbeforetaxesandincentivesonagoal of$3million.

• “Fail-safe”is50%ofprofitgoaltoturn-onplan,sothistriggerisnotmet.

• Employeesdonotreceiveabonusduetolowcompanyperformanceandfail-safe nottriggered.

• Ownersarepaidfirst,andtheyareentitledtotheentire$1million,butcapital expendituresandloancommitmentsrequire$900,000,andtheownersreceive $100,000inatoughyear,buttheystilldobetterthanintheirformerpool-basedplan.

Hire or Acquire?

JOHN STEINEGGER AND TIM HUCKABY

Adding some rigor to the decision of whether to hire versus acquire employees.

T here are a number of reasons why buyers acquire companies. Buyers often use acquisitions to expand and diversify into new geographic or vertical markets; gain client access, master agreements, and project resumes; acquire intellectual property,

brands, or products; gain scale and scope advantages; or simply grow revenues and profits. Although there are usually multiple reasons for an acquisition, buyers are placing increasing importance on the acquisition of talent. Among other things, acquisitions can provide buyers immediate access to a large, well-functioning, skilled, and tenured employee base.

In this article, we explore how companies may consider acquiring an employee base in a single transaction (or series of transactions) versus hiring and building an employee base over time. Of course, in almost all real-world scenarios, the strategic decision to buy versus build goes far beyond considerations about employees. Factors like access to clients, corporate brand, corporate culture, project resume, market position and intellectual property must also be considered carefully before such decisions are made. Nonetheless, the employee base is often an important component of the buy versus build analysis, and we believe it is sometimes useful to isolate this component for evaluation.

A Simplified AnalysisThe actual analysis underlying a decision of whether to buy an operating

company or build such capabilities (i.e., a “buy versus build” analysis) is highly

complex and involves numerous factors beyond the scope of this article. Nonetheless, for the purpose of highlighting the “hire versus acquire” component of this decision, we have set forth a simplified illustration below. In this example, we assume that a company wants to enter a new geographic market and is evaluating two options:

Option A – Acquire a target company that has assembled a well-performing employee base; or

Option B – Hire and train multiple employees.

Our specific financial assumptions for both options are set forth in the example below.

In our simplified scenario, the company can estimate the breakeven point between buying a target company with the required employees (Option A – shown in Exhibit 1a) or hiring and training the workers over time (Option B – shown in Exhibit 1b). The company can also run sensitivity analyses on the underlying assumptions to better understand the impact of those assumptions on the breakeven point. Although many non-quantitative factors must be taken into consideration for a final decision, we find that companies gain some useful insights via this exercise.

This type of exercise highlights at least three factors that must be evaluated in a hire versus acquire analysis: costs, risks and timing. These factors apply to both acquiring and hiring and are summarized in Exhibit 2.


HIRE VS. ACQUIRE EXAMPLE$THOUSANDS1aEX

HIBIT

YEAR 4YEAR 3ACQUIRE YEAR 5

Personnel

Employees Acquired

Cumulative Employees

Financial Build

Annual Revenue (1)

Employee Costs Fully Loaded (2)

Pre-Tax Earnings

Taxes

After-Tax Cash Flows (2)

–

100

$10,000

8,000

2,000

(800)

$1,200

–

100

$10,000

8,000

2,000

(800)

$1,200

–

100

$10,000

8,000

2,000

(800)

$1,200

YEAR 2YEAR 1

100

100

$10,000

8,000

2,000

(800)

$1,200

–

100

$10,000

8,000

2,000

(800)

$1,200

(1) Assumes revenue of $100,000 per employee.(2) Each employee costs $80,000 fully loaded.

26 l hire or acquire?

Six Key Decision FactorsIn practice, companies need to consider the following factors when deciding

whether to hire or acquire:

Specialized Employee Groups Some employee groups are harder to assemble than others. Certain specialty

engineers, technical-based employees, or emerging sector employees (like solar or energy efficiency) come to mind. If you are hiring for extremely specialized jobs and responsibilities, and if acquired human resources are lacking in certain areas, then you will have to dedicate more resources to training and education.

HIRE VS. ACQUIRE EXAMPLE$THOUSANDS1bEX

HIBIT

YEAR 4YEAR 3HIRE YEAR 5YEAR 2YEAR 1

YEAR 4YEAR 3HIRE VS. ACQUIRE YEAR 5YEAR 2YEAR 1

Acquire – After-Tax Net Cash Flows

Hire – After-Tax Net Cash Flows

Incremental Cash Flows via Acquisition

Discount Rate 15%

Breakeven Point* $3,178

$1,200

390

$810

$1,200

1,020

$180

$1,200

1,200

$–

$1,200

(420)

$1,620

$1,200

(300)

$1,500

Personnel

Employees Hired (1)

Percentage Retained (2)

Net Employees Hired

Cumulative Employees

Financial Build

Annual Revenue (3)

Employee Costs Fully Loaded (4)

Incremental Recruiting/Training Costs (5)

Pre-Tax Earnings/(Loss)

(Tax Expense)/Tax Bene�t

Net After-Tax Expense

25

80%

20

100

$8,250

7,350

250

650

(260)

$390

–

–

–

100

$9,750

8,050

–

1,700

(680)

$1,020

–

–

–

100

$10,000

8,000

–

2,000

(800)

$1,200

50

80%

40

40

$1,500

1,700

500

(700)

280

($420)

50

80%

40

80

$5,000

5,000

500

(500)

200

($300)

Note: (1) Employees are hired evenly throughout year and a maximum of 50 per year can be hired.(2) 20% of initial hires do not result in productive employees and are terminated after 3 months on average.(3) Employees generate $100,000 of revenue per year after a 3-month start-up period.(4) Each employee costs $80,000 fully loaded.(5) Each emloyee costs $10,000 to recruit and train.

* An acquirer can pay this amount, including transaction costs, and be in the same position as hiring.This simpli�ed analysis does not consider the tax deductibility of purchase price and other factors.


Effective Teams Good teamwork is necessary for any construction or engineering firm.

Companies must be able to bring individuals together in a very effective manner to deliver multifaceted projects under tight schedules. Productive and efficient teams don’t happen just by accident. Teams are efficient because their members work collaboratively, sharing and coordinating resources around common goals. The best teams are also productive because they have worked out ways to resolve conflicts and address challenges (both big and small) as they surface. Team formation takes time, and certain teams, such as business development or software development teams, can be difficult to assemble. The individuals that make up these teams may be highly skilled within their own disciplines, but their effectiveness is often only as good as their ability to participate in well-functioning teams.

Corporate CultureDefined as the pervasive values, beliefs, and attitudes that characterize

a company and guide its practices, corporate culture plays a key role in the success of today’s construction and engineering firms. According to industry estimates, a strong culture can account for 20 to 30 percent of the differential in corporate performance when compared with “culturally unremarkable” competitors. This double-digit differential can give culturally-oriented companies a significant advantage in today’s competitive business environment. However, achieving it can be more difficult than it looks. In most cases, a company’s existing culture may be easier to extend to hired individuals than to an acquired group of employees. On the other hand, the acquired group may have developed a culture that is attractive to the buyer and may already be working effectively in the market.

Costs

Risks

Timing

• Multiple smaller costs (recruit, train)

• Team formation• Bad hires

• Increased optionally if market conditions or corporate strategychange

• Miss near term revenue• May miss window of opportunity

• One-time larger acquisition cost

• All risks of acquisition• Cultural �t and integration• Team retention risks

• Immediate revenue capture• Instant market presence

HIRE ACQUIRE

2EXHIBIT THREE KEY FACTORS THAT MUST BE EVALUATEDIN A HIRE VERSUS ACQUIRE ANALYSIS

28 l hire or acquire?

Employee and Acquisition Market DynamicsOften, employee markets are tightest when revenue opportunities are

greatest. We can see evidence of this in the current, post-recession marketplace where certain sectors are experiencing high levels of growth and are in need of workers to help support that expansion. According to the Bureau of Labor Statistics, over the past 12 months, the number of unemployed persons and the unemployment rate were down by 1.1 million and 0.8 of a percentage point, respectively. These market dynamics can have a significant impact on a firm’s ability to hire multiple employees at once versus acquire an already-stable base of workers. Likewise, acquisitions are often more expensive when labor markets are tight and economic activity is robust. Accordingly, the relative state of the employee and acquisition markets should be taken into account when deciding whether to hire new employees or acquire an existing company that already has an established employee pool.

Staged Investments and Optionality

Hiring is a staged investment with built-in optionality. The strategy can be changed on short notice with limited sunk costs. Acquisitions are larger bets, with the benefits and risks of such a venture. If an organization is more comfortable with incremental changes, then hiring individual employees could be seen as a “safer” bet than adding multiple workers via aquisition.

Speed to Market The counter argument to

staged investments and optionality is the need to capture market opportunities quickly. In such cases, companies must consider the significant scalability opportunities associated with increasing human resource numbers with a single action such as an acquisition.

Tackling a Multidimensional DecisionIn summary, the decision to buy versus build is complex and

multidimensional. Increasingly, the embedded decision to acquire versus hire is an important component of a company’s overall strategic analysis. Most

The relative state of the employee and acquisition markets should be taken into account when deciding whether to hire new employees or acquire an existing company that already has an established employee pool.


real-world scenarios do not lend themselves to accurate quantification of hiring versus acquiring. Nonetheless, working through a high-level analysis can be a valuable exercise that highlights key assumptions and factors, indicates sensitivities to such factors and provides insights into relevant ranges and breakeven points.

Carefully considering the results of such analyses, while keeping an eye on the bigger picture and maintaining a healthy sense of the inherent limitations, gives decision makers a better perspective on the question of hiring versus acquiring. Q

Tim Huckaby is the president of FMI Capital Advisors, Inc. and the managing director of FMI’s

Energy Services and Cleantech. He can be reached at 303.398.7265 or [email protected].

John Steinegger is a vice president with FMI Capital Advisors, Inc. He can be reached at

303.398.7210 or at [email protected].

The Big Crew Change: How to Empower Your Next Generation of Field Leaders part 1

ETHAN COWLES

Many of today’s construction employers lack a clear grasp of their employees’ skills and competencies.

L eadership development is key to growth, profitability and long-term survival in today’s construction industry. For too long, the industry has neglected this aspect of field-based people development. With 10,000 baby boomers retiring each day across

America, the issue has turned into a crisis. Insights from FMI’s Project Manager Academy (PMA) surveys confirm

that the majority of young project field leaders are overworked and not receiving adequate support or skills training. These are disturbing trends in a job market where skilled labor is hard to find and even harder to retain. It is even more shocking considering that field leaders are often responsible for managing thousands of dollars on a daily basis, and carry the risk and livelihood of their companies and clients on their shoulders.

The following article is the first in a two-part series that highlights how the industry is missing the mark on field leader training and development. It also provides insights and recommendations on how companies need to shift gears and rethink field leader education completely. Information is based on various FMI industry studies as well as informal client observations over the years.


The Ugly, Naked TruthThe volume of work that a

top field leader manages over his or her 30-year-long career is staggering. Most senior field leaders are responsible for managing millions of dollars’ — if not hundreds of millions of dollars’ — worth of work during that time span. And the shocking reality is that most of these senior professionals had to teach themselves how to do their jobs. Moreover, many of them still struggle to meet or keep up with today’s leading professional standards.

As Mark Breslin, CEO of United Contractors, asks, “What other industry turns over hundreds of millions of dollars of work to guys that they do not prepare adequately for the job? Only in construction. More importantly, how much longer can we fool ourselves around the crucial conclusion that field leaders in this critical profit leadership position need new skills, tools and strategies?”

FMI has found this to be true for many construction firms. It is a clear indication that contractors have not taken seriously the lack of skilled and accomplished field leaders. In fact, when it comes to training and growing young field leaders, construction employers don’t seem to be focused on developing the appropriate skill sets needed to carry out the vast array of critical responsibilities. Most don’t even define critical skills and behaviors, nor do they develop ways to assess and measure current competency levels.

As one of FMI’s consultants explains, “I often see young construction professionals who lack basic hard skills and business knowledge. There’s just nobody there to teach them how to put together a budget or a schedule. You can’t just learn these skills by yourself behind closed doors by completing an internal online training course. And then these people are held accountable for things they don’t even comprehend.”

Surveys conducted at recent FMI Project Manager Academy programs highlight young field leaders’ struggles in the following key areas (as summarized in Figure 1):

Business, Financials, Schedules• Project scheduling• Understanding project financials (profit, cash, forecasting)

When it comes to training and growing young field leaders, construction employers don’t seem to be focused on developing the appropriate skill sets needed to carry out the vast array of critical responsibilities.

32 l the big crew change: how to empower your next generation of field leaders

Staff, Workforce• Leading project teams (communication, managing, mentoring, negotiating)• Managing meetings• Building buy-in across various divisions and departments• Understanding performance and measurement expectations

Time, Productivity• Focusing on field success, productivity and efficiency• Managing site logistics (including material management and inventory

control)

Based on conversations with FMI’s PMA participants, the majority of these young field leaders feel overwhelmed and overextended, and are often close to burnout because they’re struggling to keep up in their jobs without receiving the necessary support and training from their employers and immediate supervisors.

FMI’s recent Talent Development Survey sheds light on how employers in construction just seem to check off the training initiative from their to-do lists and convince themselves that they are making a commitment to their people. According to our research, 53% of employer survey respondents don’t track return on investment for employee training (Figure 2). Often, training isn’t even tied to performance metrics or career plans. Frankly, career plans rarely exist.

Five Ways to Prepare for the Big Crew ChangeOver the years, FMI’s project execution team has worked with hundreds

of field crews to improve the productivity and profitability of construction firms. During this process, we have helped develop hundreds of young field leaders who are now moving into senior field leader positions. Following are five recommendations of how companies can support and develop their younger field leaders effectively over time:

1EXHIBIT YOUNG FIELD LEADERSSTRUGGLE WITH RESPONSIBILITIES

Business, Financials, Schedules

Staff, Workforce

Time, Productivity

30

40

18

THAT FALL WITHIN THE FOLLOWING THREE MAIN CATEGORIESNumber of Responses

Source: FMI PMA Survey Data 2015


1. Define, measure and improve skills. One of the biggest gaps in construction skills education today is that many

employers lack a clear grasp of their employees’ skills and competencies. A first step in assessing peoples’ skills is to define what the minimum requirements are that meet or exceed expectations. For example, what would a “rock star” project manager look like? What skill sets would he or she have to prove in regards to budgeting, scheduling or leading teams?

In a second step, ask the question: Can we measure skill sets? Can we test for them? This should go beyond the typical manager approval routine and involve case studies or other forms of practical testing. Again, an in-house online training course where a young field manager doesn’t step a foot outside and get real-life experience will not be adequate.

Finally, in a third step, if someone is below minimum standards and does not meet certain skills expectations, identify resources necessary to support that person. Too often, young field employees are left alone to figure things out by themselves — much like their older peers — which isn’t an effective and engaging way to develop and retain people long term.

2. Reassess your field leaders’ time utilization. Field leaders are highly valuable and so is their time. With this in mind,

companies should consider hiring additional staff to manage day-to-day project administrative tasks, thus freeing up project leaders’ time and making them more effective. And while more overhead translates into higher expenses,

2EXHIBIT MOST EMPLOYERS DON’T TRACK ROI FOR TRAINING

We do not track ROI for training

Changes in job performance before and after training

Employee satisfaction surveys

Employee turnover

Knowledge tests

Needs assessment for later retraining

Speed of internal promotions

Self-directed training information

Other

36%

53%

31%

Source: FMI 2015 Talent Development Survey

How does your company track the return on investment of employee training?

9%

26%

9%

3%

7%

3%


the payback is far greater given the immediate positive impacts on productivity and profitability.

As one FMI productivity expert explains, “The amount of time today’s project managers and field leaders spend on dealing with tedious administrative tasks is absurd. With the growing complexity of project teams and project administration, adding more administrative support is a simple way to boost project leaders’ efficiency and impact companies’ bottom line considerably.”

Reassessing your field leaders’ time utilization also presents the opportunity to create a “learning lab” for younger project managers who can gain valuable

exposure to project-related tasks and take on an important support role — yet another plus for the company itself.

3. Build deep bench strength. We often see companies devote

resources to employees who aren’t well-suited for advancement or for leadership positions. However, by identifying high-performing individuals, companies can more deliberately allocate resources to those individuals with the highest potential. According to our research, companies that have well-structured plans for developing high-performing

employees combine several key aspects of professional development, including structured coaching and mentoring, individualized professional development and career path planning.

Highly innovative companies are adopting internal employee bench-marking systems that link employee performance data to organizational performance. Providing these performance measures not only fosters healthy internal competition but also aligns employees with the company’s strategic goals. By coupling these strategies, companies can effectively nurture their best employees and provide specialized training to allow continued employee advancement — a key ingredient for the long-term engagement of a younger workforce.

4. Train your senior field leaders how to teach. Create a mentoring system that supports younger field leaders while

also providing an important platform for knowledge transfer. This will go a long way in addressing one of the major challenges in this big crew shift: The fact that many of the older field leaders simply don’t know how to teach and

By identifying high- performing individuals, companies can more deliberately allocate resources to those individuals with the highest potential.


transfer knowledge to their younger peers. In some cases, this is because many senior field leaders never went through a formal training program themselves and therefore never learned the “science” of budgeting, scheduling or mentoring in a structured way. Often, senior field leaders’ knowledge is based on their instinct and experience, which makes knowledge transfer and training difficult and frustrating for younger generations.

Finally, it’s not just about teaching technical skills. Construction requires hands-on training, practice and ongoing mentoring. Successful companies are starting to implement programs and processes that incorporate different levels of experiential learning with various degrees of supervision. For example, the military-based model, EDIP (Explain, Demonstrate, Imitate and Practice), can be an effective approach to teaching inexperienced field leaders, in tandem with ongoing coaching and mentoring by senior managers.

5. Understand your company demographics. Based on FMI’s field observations, we suspect that the majority of

construction companies underestimate their field leaders’ average age and therefore don’t have a full grasp of today’s field leadership crisis. As a start, company executives must assess and map out the demographic composition of all key positions in the organization in order to plan strategically for the imminent crew change. For example, by having a clear understanding of how many senior employees will retire in a given year, companies can start developing leadership pipelines and mentoring programs to ensure timely knowledge and skills transfer.

Don’t Just Set it and Forget itIn today’s competitive talent

environment, construction firm leaders must constantly focus on acquiring, developing and retaining the best people. Field leaders are responsible for managing thousands of dollars’ worth of client work each day and can make or break a construction firm. Having skilled front-line leaders is probably the competitive differentiator in a world where construction clients are highly cost- sensitive and risk-averse.

However, with baby boomers retiring in droves, construction firms face a true leadership crisis at all company levels — but particularly at the field level.

Company executives must assess and map out the demographic composition of all key positions in the organization in order to plan strategically for the imminent crew change.


Based on FMI’s observations, very few companies are properly prepared for this huge transition.

As Breslin confirms, “Most of the crew on every job in the U.S. and Canada are going home soon and they are never coming back. No organization that I know of is fully prepared for this situation. Maybe 25% are actively working on it with a plan of action, 50% are aware of it and talking about it and 25% are simply doomed and won’t know it until it is too late.”

Construction firms that want to survive and thrive in the future have no choice but to invest heavily in their young field leaders today. Training and development shouldn’t ever be about checking a box that says, “We did four hours of training and scheduling.” It should be about actually doing, measuring and improving the acquired skills, knowledge and leadership behaviors. It is time to look at field leader development as a continuous journey — not just a “set it and forget it” task. Q

Ethan Cowles is a principal with FMI. He can be reached at 303.398.7276 or at

[email protected].

1 In this article, we define foremen, superintendents and project managers as field leaders.


The Big Crew Change: How to Break into the Succession Plan part 2

ED ROWELL AND KIM JONES

To truly break into the succession plan takes an enormous amount of focus, dedication, commitment and motivation for anyone looking up the career ladder.

T he following article is the second in a two-part series. In part one of this series, we pointed out how the construction industry is neglecting field leader education and discussed possible strategies for tackling this important issue. In this article, we show how field

leaders can start breaking into the succession plan by building their leadership skills and capabilities in the face of the big crew transition.

Senior leadership often discusses succession planning exclusively among a select group of people. Plans are formulated and the top two to three levels of leadership begin the grooming process over several years. For anyone who is not privy to those conversations, succession can seem like a vague and mysterious concept. Figuring out how to even be considered as a part of the succession plan seems like a feat in and of itself, let alone developing the necessary knowledge, skills and abilities needed to potentially lead a division or the organization in the future.

In today’s competitive talent environment, it is critical to set a clear path for developing and growing high potential field leaders. Strategic organizations are reconsidering their traditional view of succession planning, where only the top two to three leadership layers are a part of the plan. They are starting to

38 l the big crew change: how to break into the succession plan

include the level that has the most profound impact on the bread and butter of construction organizations — the projects.

The New Definition of LeadershipWhen it comes to succession planning, most construction organizations

focus on C-suite positions and often overlook leadership positions at lower levels. According to FMI’s latest Talent Development Survey,1 just 6% of construction firms have succession plans in place for field leaders, compared to 32% for executives (Figure 1). Traditional succession planning models show that these ratios are the norm across any industry. This leaves a huge gap and an even bigger opportunity for companies to develop leadership programs and succession plans at the middle-management levels, particularly for field supervision.

Right now, project managers, superintendents and foremen are seeing the biggest leadership gaps. They may have heard rumblings about a succession plan in passing, but are often left out of the conversation. Whether this is intentional or not, many of them often ask FMI questions like: “How do I become part of my firm’s succession plan? Is there anything I can do to help myself become a better leader?”

Rather than wait for the offer to receive development, leaders often

1EXHIBIT CONSTRUCTION FIRMS FOCUSPRIMARILY ON SUCCESSION PLANS

32%

15%

6% 5%3%

Executives SeniorManagers

ProjectManagers

FieldManagers

ExperiencedTrade/CraftPersonnel

FOR EXECUTIVESFor which of the following positions does your company have a well-de�ned succession plan?

Source: FMI Talent Development Survey 2015.


want to build their own leadership skills proactively. There is a lot of unease over this topic. This anxiety comes from the leaders who are ready to retire as well as from the other end of the spectrum — the leaders who are keenly aware of their skill deficiencies. This angst leads to hesitancy for everyone who is considering retirement and promotional opportunities. Some of that hesitancy is based on misconceptions and stereotypes about the ascending generation (see FMI’s Quarterly article “Debunking Millennial Myths”), or simply because executives don’t know how to create a deep enough strategy to develop their field leaders — an effort that requires more than just basic training.

So, how does our industry begin to develop this talent layer? Leadership development tactics vary based on the needs of each individual, but there are some tried and true methods for building technical and operational skills. According to FMI’s research and observations, the most common tactics are job and task rotations or the EDIP (Explain, Demonstrate, Imitate and Practice)2

approach, where tangible skills are learned and practiced on a daily basis.On the job training, technical expertise and operational experience are

what form our field leaders. So where is the gap? Soft skill development is simply not a prevalent topic of conversation on projects. That doesn’t mean field leaders are not open to learning soft leadership skills or that they are not able to use the skills once they’ve learned them. FMI’s Center for Strategic Leadership (CSL) notably observes that leadership development at the field level “sticks” more often than at the senior and executive leadership levels. It’s an interesting concept to consider. Field leaders are hungry for learning and development, and they are in the perfect position to practice new skills. They can incorporate newly acquired knowledge and skills into their daily routines and they receive feedback from their crews and other colleagues around them — all in real time. This scenario is what FMI would call a “perfect storm” for leadership development (in a good way) because these are ideal environments in which leaders can grow their abilities immensely.

Finally, it is important to note that today’s field leaders have different expectations than their predecessors a decade ago. They are expected to manage and lead teams and projects. Both of these responsibilities require very different skill sets and competencies but are necessary to deliver in tandem. Simply put, managing includes Planning, Organizing and Controlling

Field leaders are hungry for learning and development, and they are in the perfect position to practice new skills.


(POC) the resources on your team and project. Leading includes Setting Direction, Aligning Resources and Motivating and Inspiring (SAM) the project team. As field level workers progress from their field roles into a management role, interpersonal and leadership skills become significantly more important.

As outlined in the Relative Importance of Skills diagram in Figure 2, a field employee requires a high level of technical skills and a lower level of management and interpersonal skills. As they move into management roles, the importance of their skill set shifts because their technical skills become less relevant while their interpersonal and managerial skills become more so. Consider this: The area in the middle of Figure 2 is where the majority of the construction industry’s field leaders currently reside. They have to balance all three types of skills at the same time, all while keeping their projects on schedule and on budget. Unless you have training, coaching, mentoring or other development, this can be a very scary and intimidating place to be as a construction worker.

A Simple but Effective Place to StartIf you are wondering what you can do to break into the succession plan

at your organization, FMI’s Center for Strategic Leadership has a simple but effective place for you to start your leadership journey. The emphasis is on

2EXHIBIT RELATIVE IMPORTANCE OF SKILLSFOR LEADERS AS THEY PROGRESS

High

IMPORTANCE

Low

Low

Field Level Executive Level High

IN THEIR CAREERS

Source: Adapted from Scott Tonidandel, Phillip W. Braddy, John W. Fleenor, (2012) “Relative Importance of Managerial Skills for Predicting E�ectiveness,” Journal of Managerial Psychology, Vol. 27, Issue: 6, pp. 636-655.

Interpersonal SkillsManagement Skills

Technical Skills


the word start because formal training programs (i.e., FMI’s Field Leadership Institute), mentoring and coaching are also effective development tactics to consider.

According to the U.S. Army’s Be-Know-Do (BKD) model, character, competence and action are the three qualities shared by great leaders. Effective leader development for anyone in a leadership role, including field soldiers and field construction workers, focuses on the leader’s character and values (“Be”), their competencies (“Know”), and their decisions and actions (“Do”).

As you begin to think about yourself as a leader, consider the questions below. What is your worldview on each topic? What does success look like? Why?

BE — The “BE” component focuses on the leader’s character and gives him or her the courage to do what is right, regardless of the consequences or current circumstances. As such, aspiring and up-and-coming leaders should be tuned into their own personal core values, as well as those of their organizations. Questions they can ask themselves include:

• What kind of leader do I want to become? Why?• Where do I want to be as a person, employee and leader at the end

of my career?• What actions should I take now

to help me get there?• What actions should I stop

doing that are holding me back in my career?

• What are my personal values? Why?

• Who do I look up to as a leader? How can I surround myself with more people like that?

• What can I learn from the strong leaders around me?

The Army, for example, relies on seven core values as a common understanding for what it means to be a contributor to the armed forces. Many construction organizations have a set of core values as well. It’s important to honestly ask yourself if you are personally aligned with those values. Clarity on your own personal values and personal mission statement will help you answer that question. Listed below are the Army’s seven core values:

• Loyalty • Respect • Honor • Personal courage• Duty • Selfless service • Integrity

Aspiring and up-and-coming leaders should be tuned into their own personal core values, as well as those of their organizations.


KNOW — This is about the knowledge and skill sets that leaders need to be competent in their respective roles within the industry. The Army has categorized their necessary skill sets into four areas (listed below), but the same principles can be applied to the construction industry. First, identify what each category means to you and your current situation. Provide examples for yourself. Then rate yourself on a scale of 1–10 (1 low, 10 high). How well are you doing in each of these areas? Where are the priorities for your knowledge, skill and ability development?

The Army’s four skill areas include:

• Interpersonal skills • Technical skills• Conceptual skills • Tactical skills

It is important to note that leaders’ mastery of the knowledge and skills required for their roles is essential to the success of the organization as a whole. Questions they should ask themselves as they move into field leadership roles in construction include: What do I need to know for…

• My job?• The business?• Contracts (buying and selling processes)?• Negotiations?• Project profitability?• Where am I now versus where I need to be to reach my goals?

DO — Leaders combine everything that they believe in and know when providing direction and purpose to others. The following three actions listed by the U.S. Army’s model all relate to different things a leader can do in order to progress themselves, their business or their team.

• Influence • Operate • Improve

Depending on where you are in your career, the actions under DO may mean something completely different to you compared to your older or younger colleagues. Questions field leaders should ask themselves include:

• Where are my leadership skills deficient?• How can I influence others in a more effective manner?• What areas of my own personal operations and the team’s operations

can be more effective?• Where can I improve as a leader and on our projects?• What actions am I proud of? How can I continue to focus my energy there?


Using this simple but effective model, field leaders can very accurately pinpoint:

• Where they stand right now;• What skills, education, experience, and/or training they need to be able

to lead effectively; and• What steps they need to take to be able to achieve their career goals.

Succession management doesn’t have to be limited to one or two organizational layers. Whether you are a senior leader or an aspiring leader in your organization, developing the mid-level managers and field-level talent will be a true game changer for your business and for the industry as a whole. To truly break into the succession plan takes an enormous amount of focus, dedication, commitment and motivation for anyone looking up the career ladder. It’s doable and attainable, but it will require you to proactively build your leadership skills, openly receive coaching and mentoring from those around you and to continue to clarify the path for your leadership journey. As the saying goes, “The world is your oyster!” Q

Kim Jones and Ed Rowell are consultants with FMI’s Center for Strategic Leadership

practice. Kim can be reached at 303.398.7245 or at [email protected]. Ed can be reached

at 303.398.7244 or at [email protected]


2 See part one of this series: The Big Crew Change: How to Empower Your Next Generation of Field Leaders. Ethan Cowles. FMI Quarterly, Issue 1. 2016

Debunking Millennial Myths

SABINE HOOVER

Rather than focusing on outdated stereotypes, construction employers should develop workplaces where top talent across all generations can engage and thrive.

M illennials1 are an 80-million strong generation today. In 2015, they surpassed the baby boom generation as the nation’s largest living cohort and now make up 34% of the nation’s workforce, according to the Pew Research Center.

This number is expected to grow to 50% by 2020. Many American millennials graduated from college with staggering

amounts of student loan debt and started their careers in one of the greatest recessions of all time. Seen as trendsetters, millennials are well known for their outspoken qualities and knowledge of everything from technology to fashion to food. As a result, they have puzzled companies and marketers for years. Furthermore, millennials are often saddled with a reputation for being entitled, disloyal, lazy or optimistic go-getters, but it turns out that they’re actually not that different from their older work colleagues.

In 2015, FMI surveyed almost 400 construction industry professionals, more than 200 of which were millennials, in order to measure this young generation’s level of engagement and explore what a millennial worker is truly looking for in an employer. The following article presents five key misconceptions of this young generation and explains what they are looking for in a construction industry employer.


Myths and TruthsThe information and opinions swirling around the millennial generation

can be broken down into two categories: myths and truths. Based on our industry survey2 and dozens of conversations with millennial employees in construction, we have uncovered the following myths surrounding this largely misunderstood workforce:

Myth 1. Millennials are LazyFact: Millennials are eager to be challenged and ready to go beyond what is required to make their companies succeed.

For years, pundits and contemporary publications have criticized millennials for being lazy. It turns out, however, that this might be one of the greatest misunderstandings about this generation. According to a recent survey published by the HR Policy Foundation,3 two-thirds of the companies surveyed said that their millennial employees were making significant contributions in the workplaces due to their inquisitive nature, tech-savviness and drive for innovation.

Responses from millennials in the construction industry confirm this position. Almost 70% of participants expressed their willingness to work beyond what is required of them to help the business succeed (Figure 1). Like other generations before them, millennials want to be challenged with interesting and meaningful work.

As one survey participant put it: “When trying to engage millennials, it is important to emphasize the appealing aspects of the industry. In construction,

1EXHIBIT MILLENNIALS WANT TO BE CHALLENGEDAND HELP THEIR COMPANIES SUCCEED

Strongly agree:I am willing to work beyond what is

required of me to help the business succeed.

Strongly agree:I am interested in challenging

work assignments.


MillennialsNon-Millennials

60%41%

51%67%

46 l debunking millennial myths

projects are always different. Showing millennials the challenges each project offers gives them a sense of purpose and greater determination. The constantly changing work environment offers a more exciting route compared with the monotony of replicated day-to-day activities.”

Not unlike other generations that enter the workplace, millennials have new perspectives to share, innovative ideas about getting things done, and interesting ways of tackling problems. They are less willing to accept the “old school” methods of completing work, and they are always searching for new ways to streamline processes and increase efficiencies. This mindset is critical for pushing the industry forward. Failing to nurture the innovative and inquisitive nature of younger workers will create disengagement among employees and result in a less productive workforce over time.

Myth 2. Millennials are Job HoppersFact: Millennials want job security and stability.

Much like their predecessors, millennials are interested in job security and stability. And despite popular belief, they aren’t poised to switch jobs as soon as another opportunity presents itself. That said, these younger workers come from a “connected” generation that truly values collaboration, teamwork and social opportunities. Our study also indicates that millennials value the use of new and innovative technologies to solve client and corporate challenges. Letting young people contribute and participate in such meaningful ways — and showing genuine interest in their careers and personal lives — is key to engaging them long term.

Company cultures focused on employee engagement require a defined and well-communicated company vision. This point is especially important for young people who are kicking off their careers. By explaining the whole picture, company leaders can connect the meaning to their employees. This, in turn, gives workers a clear sense of purpose and an understanding of how their efforts fit within the larger plan. According to our research, when the company’s vision is inspiring and clearly communicated, millennials are 25% more likely to stay longer with the company compared to those who don’t understand the company’s vision and direction.

These younger workers come from a “connected” generation that truly values collaboration, teamwork and social opportunities.


Myth 3. Millennials are Altruistic and Don’t Care about MoneyFact: For millennials, money is very important.

For years, thought leaders have been talking about how millennials are just out for a “purpose crusade” and how they are more interested in meaning than money. Our research paints a much different picture. When asked what’s most important to them, millennials rank competitive pay as their highest concern.

Haydn Shaw, a renowned generational expert, confirmed this finding and says, “The vast majority of surveys show that millennials rank base pay as the most important factor in selecting and staying in a job, just as the other three generations do. They want meaningful work and a supportive culture to work in, but they want a well-paying job and career advancement more.”4

Using well-defined incentives that motivate their employees to go beyond the call of duty, progressive construction firms are taking charge and improving company performance. Beginning with a well-defined incentive compensation system, companies can effectively develop employees who excel at maximum levels and beyond. With the right combination of clear direction, quality feedback, and tangible rewards, employees become engaged and satisfied with their jobs. This, in turn, helps to create a win-win situation, where employees are inspired by the fact that management truly values their efforts.

Myth 4. Millennials Want Constant AcclaimFact: Millennials want regular feedback — not because they are looking for a trophy, but because they are still learning the ropes.

Feedback is a big topic for millennials in construction. Young construction employees are looking for mentors and coaches to help them learn the business and understand the ins and outs of their daily tasks and routines. In this Quarterly issue, we explore this topic in more depth in the context of field leader development.5

Progressive construction firms have started to create formal coaching and mentoring systems that support younger employees while also providing an important platform for knowledge transfer. By weaving these programs into their company fabric — and making them a part of employee performance

With the right combination of clear direction, quality feedback, and tangible rewards, employees become engaged and satisfied with their jobs.


reviews — firms can effectively reach the 75% of millennials who see mentoring as being crucial to their success. Unfortunately, most construction employers are still missing the mark in this area.

According to our latest Talent Development Survey,6 more than three-quarters of all participants (77%) are counting on annual reviews to increase employee performance and development. Conversely, almost 50% of our millennial survey participants stated that they wanted feedback on a monthly basis — a key indicator of how this young generation is driving change in performance management and overall communication (Figure 2). This generation is used to speedier reactions and responses; annual reviews are no longer a viable solution. Employers must shift their mindsets and start developing mechanisms for frequent, in-person communication and information exchange across all company levels and age groups.

Myth 5. Millennials are EntitledFact: Millennials are ambitious and eager to make an impact in their careers, which sometimes can be misread as entitlement or even arrogance.

This young generation of workers wants to participate and contribute in meaningful ways. They enjoy collaborative employment opportunities that allow them to stretch their creative wings, share new ideas and actively participate in their companies’ successes. Too often, old job descriptions and company policies keep younger workers from contributing at levels that would create real value for their employers. In such cases, executives should think about how to change their work environments, team configurations and incentives.

Our millennial research also confirms that if employees feel like they are making progress and advancing in their careers, they will be more likely to

85%In Person

15%Other

2EXHIBIT MILLENNIALS WANT ONGOINGFACE-TO-FACE FEEDBACK AND INTERACTION

I would prefer to receive feedback...I would prefer for

feedback to be provided...

Monthly

On an “as needed” basis

Weekly

Daily

Only during the evaluation process


48%

24%

20%

5%

4%


remain with their companies for the long term. Of survey respondents indicating that they understood their career paths and opportunities within their firms, 81% of millennials expected to stay more than five years at their company. Conversely, of those respondents not expecting to stay more than five years, one-third were unsure of their current roles, responsibilities and expectations.

The topic of career development is particularly relevant for companies in the construction industry, where many firms lack well-defined job tracks or comprehensive talent development and leadership programs. With young, ambitious millennials wanting to learn, improve and advance through an organization, employers must develop better solutions and challenge the old ways of “how things used to be done”— starting with the ways people interact and collaborate with one another.

What Does This Mean for You?As millennials become the dominant generation in today’s workforce,

companies must be cognizant of the actions they take to engage these employees. Aligning each individual’s development plan with the company’s vision and goals is essential in ensuring improved engagement. Millennials are especially eager to contribute and want to know that they are adding value to the company. Never before have the company’s mission and vision been so important to a workforce.

The following business implications, which are structured around three organizational levels (strategic, operational and tactical), can help organizations make sure they have the basis for engaging and aligning their millennial workforce with the bigger picture. Q

Sabine Hoover is FMI’s content director and chief editor for the FMI Quarterly. She may be

reached at 303.398.7238 or via email at [email protected].

1 Individuals born between 1980 and 2000.

2 Millennials in Construction: Learning to Engage a New Workforce. 2015 FMI Industry Survey.

3 Talent Sustainability Report. The CHRO View From the Front Lines of the War on Talent. HR Policy Foundation. April 24, 2015.

4 Haydn Shaw. Sticking Points: How to Get 4 Generations Working Together in the 12 Places They Come Apart. July 22, 2013.

5 The Big Crew Change: How to Empower Your Next Generation of Field Leaders. Part One. Ethan Cowles. FMI Quarterly, Issue 1. 2016. and The Big Crew Change: Breaking into the Succession Plan. Part Two. Kim Jones and Ed Rowell. FMI Quarterly, Issue 1. 2016.



Start by identifying an inspiring visionand communicate that vision clearly to the company.

De�ne a focused and strategic talent development program for all employees.

Use the vision to drive a culture of engagement by aligning the organization around the vision.

Emphasize quality training and continuous employee development. Training should be seen as a continual process, not a one-time “event.”

Develop processes for building corporate communities that trulyinspire and engage employees longterm.

Promote a collaborative and transparent work culture.

Attract and retain key employees forcontinued company growth.

Develop the necessary framework toe�ectively communicate the company’s vision across theorganization.

Develop and implement performancemanagement processes that factor inongoing training, coaching,development and associatedperformance metrics.

Develop systems and tools for diagnosing corporate culture.

By implementing an e�ective performance management process, companies can identify employees that are poised for high performance.

A culture of engagement starts at thetop and requires leaders tocontinuously challenge team members and consciously demonstrate a focused e�ort to engage employees. Vision requires near constant communication,so leaders must recognize it is an essential aspect of their responsibilities.

Develop speci�c interview questions for hiring new candidates to make sure they are a good cultural match.

Leaders need to stay in touch with their workforce and remain “approachable.”

Employees need to understand what their career can look like long term with your company.

The organization’s culture needs to be healthy and productive.

Redesign the hiring process to place an emphasis on cultural �t �rst and role �t second.

Develop formal learning and engagement plans that leverage new technologies, methodologies and outcomes. Leverage senior leaders in mentorship roles for younger employees.

Develop individualized career plans and adjust on a continuous basis.

Conduct culture surveys and employee engagement assessments to review the current state of the organization and track progress as it improves.

3aEXHIBIT

BUSINESS IMPLICATIONS

Vision

Culture of Engagement

Strategic Level Operational Level Tactical Level


Develop a talent strategy that aligns with the corporate vision and culture.

Reinvent your human resources business and corporate policies to develop employees at all levels with the skills they will need to help theorganization realize its vision.

Build a focused and strategic talentdevelopment program that is closely aligned with other core operationalfunctions (e.g., estimating, project management, project controls, accounting, etc.) and that aligns withthe overall corporate strategic goals.

Develop a communication platformwhere all employees can provide ideas and suggestions around strategic business issues as well as concernsthey may have about less e�ectivecharacteristics of the corporate culture.

E�ective performance managementprocesses correlate directly tosustainable company growth. Leadersmust leverage this advantage withmerit-based systems by de�ning expectations and standards for the team and individuals, and talkingopenly about shared objectives and goals.

By encouraging collaboration andimplementing programs to solicit suggestions and feedback, companies can better engage their employees and provide the opportunity to connectwith the company’s larger strategicpicture. Leaders need to be open toemployees asking questions about thevision and raising any concerns theyhave. Open communication about the vision is critical to ensure the workforce understands and supports it.

When hiring new employees, alignment with the organization’s vision and culture should be the priority. Candidates with great knowledge and experience but whom do not �t the vision or the culture will eventually leave due to that misalignment. It is easier to teach a new hire a speci�c skill and much harder to encourage him or her to change to �t the culture.

Incorporate innovation within talent development programs. Leverage innovation to connect older and younger employees.

Clearly de�ned career plans allow employees to understand the knowledge and skills they will need to progress through the organization. Without clear career plans, millennials may feel like they have plateaued or are stuck and look for their next opportunity outside of your company.

Anticipate potential feedback and be prepared to make substantive changes based on input from millennials as well as other constituencies. Even great cultures have aspects that frustrate employees. Great organizations want to understand where they are weakest so they can chart a path for improvement.

3bEXHIBIT

TalentStrategy




Millennials don’t just want to knowwhat the vision is but also how theycan help achieve that vision. They want to know how their speci�c tasks and responsibilities help contribute to the overall vision.

Old policies and job descriptions may stand in the way of millennialscontributing at a level that would bringreal value to their companies. To further drive the culture of engagement, encourage millennials toparticipate in the process of rewriting old policies and job descriptions. Seek feedback on the e�ectiveness of thestrategic talent development program and adjust accordingly. The programneeds to continually evolve to meet the changing demands of your workforce.

Millennials are still early in their careers, so they are looking for personal and professional developmental opportunities. They want to learn and grow in their roles and know they are working for anorganization focused on their continual development, rather than treating them like cogs in a machine. Upgrading their skills is a major motivator for many millennials.

Millennial employees that feel motivated and free to provide input on strategic company objectives (and know their opinions will be heard) are more likely to feel they are making animpact at the company. Many millennials express a desire for more communication from their leaders—they want to be activelyinvolved in their workplaces, and themore they understand, the more connected they will feel. Many millennials believe it’s impossible toover-communicate with them.

High performers who are challenged at work and feel they are aiding in the success of the business are more likely to be promoters of engagement. Millennials are the most connected generation in the workforce, so they will actively communicate with others outside the organization. If you can inspire millennials to be vocal supporters of your culture, they can be a great source for referring other millennials.

Millennials welcome the opportunity to provide input and new ideas that promote innovation. They want to see a direct connection between their work and the company’s vision. Millennials are content to work hard, but they want to know their e�orts will have a meaningful impact. Leverage their perspectives and ideas to engagethem, while also bene�ting from their innovative insights.

Millennials want to work with people who share similar values and objectives as they do. If they see employees who don’t �t the vision or culture and yet go unchecked, it can be discouraging and create skepticismabout the company’s vision.

Millennials bene�t from real-time feedback and a program that has the infrastructure for goals that can change. Millennials are comfortable with changing technology and want to work for organizations that stay up to date with the latest technologies.

Millennials want to understand their career opportunities and how they can move from A to B. Most millennials are willing to “pay their dues,” but want to understand the general time frame and path before them. They want to know opportunities are available to them, and if they work hard, they will be rewarded with career progression.

Millennials want to know that the company has an accurate view of itself.Leaders should both communicate the positives of the organization as well as acknowledge the areas they areworking to improve. Many millennials get frustrated when they believe an organization is plagued by blind spots or maintains an inaccurate view of its strengths and weaknesses.

3cEXHIBIT

Implications for Millennials




An effective opioid management programfocuses on

building a culture of safety

where everyone in the company — as well as

its outside providers — is committed to

collaboration and communication.

DR. JOSEPH SEMKIU AND ERIC LAMBERT

Opioid Abuse: The Undetected Risk in Your Organization

ZURICH FEATURE

Painkiller medications — also known as opioids —

can be effective in managing a worker’s pain, but they

also come with a high likelihood of long-term overuse

and abuse. A recent Mayo Clinic study revealed that one in four

patients prescribed an opioid painkiller for the first time progressed

to long-term prescriptions.1

The opioid “epidemic” drives increased medical and workers’ compensation costs in many industries, and particularly in construction, where employees are at a higher risk of on-the-job injuries or accidents. Workers who abuse opioids can also injure themselves and others — actions that ultimately can affect both productivity and profitability. The average lost-time workers’ compensation claim for workers using opioid painkillers can total as much as $117,000, which is 900% higher than the cost for workers who do not take opioid painkillers.2

In addition, opioid abuse can lead to other potentially serious issues such as depression, difficulty participating in return-to-work programs, inappropriate diversion of drugs, longer disability leaves and even accidental overdose or death. One recent report revealed that workers who use opioid painkillers for more than a week to treat on-the-job injuries, have double the risk of being disabled just one year later.3

56 l opioid abuse: the undetected risk in your organization

The Dangerous Mix: Opioids and Existing ConditionsMore than 100,000 people in the United States have died — directly or

indirectly — from prescribed opioids since prescribing policies changed in the late 1990s when regulations were lifted to allow opioid use for non-cancer pain.4 For many years, there was no concern around the liberal use of opioids to treat pain, especially with pain being introduced as the “fifth vital sign” in 1999, and thus requiring a pain intensity rating as part of admission, daily and discharge notes. In addition, allied health providers and nurses are required to report all complaints of pain, and hospital accreditation requires pain control documentation.

Since the late 1990s, pharmaceutical companies have introduced many brand-name opioids. While many workers use these narcotics responsibly, it’s been shown that certain people are predisposed to opioid abuse, including

smokers, those with a history of alcohol/substance abuse and those with depression or other psychological issues. What’s troubling is that studies show construction workers tend to fit that risk profile. For example, approximately 16% of construction workers have used alcohol heavily in the last month, and a little more than 11% have used illegal drugs during the last 30 days.5

Guidelines from the American College of Occupational and Environmental Medicine (ACOEM), an organization that focuses on issues relating to employee health, clearly state that, “Chronic opioid

use is not recommended for patients who perform safety-sensitive jobs.” The ACOEM now cautions against chronic or acute opioid use in connection with positions such as operating heavy equipment, driving a forklift, working at heights or working at tasks requiring high levels of cognitive function.6

Opioid Abuse: The Buck Stops With the EmployerRecent court rulings in workers’ compensation cases have held

employers responsible for the liability and costs of opioid overuse and abuse. In 15 court cases from 2009 through 2015, an employer was sued because of the prescribed use of opioids to treat workplace injuries that resulted in worker addiction or death.7 In addition, employers and their workers’ compensation insurance carrier have been ordered to pay for detoxification

While the likelihood of a costly court case may be low, the sheer number of employees on opioids is driving up the cost of workers’ compensation claims.


and medical-assisted treatment services as well as death benefits to surviving family members.

While the likelihood of a costly court case may be low, the sheer number of employees on opioids is driving up the cost of workers’ compensation claims. From 2003 to 2011, the prescription costs within a claim doubled. Opioids alone accounted for 25% of drug costs in 2011.8

The Hopkins- Accident Research Fund Study in 2012 found that workers prescribed even one opioid had average total claim costs more than three times greater than claimants with similar claims who didn’t get opioids.9 Any construction company wanting to keep both a healthy workforce and bottom line should consider ways to manage opioid prescription dispensing and potential worker abuse.

Five Ways Employers Can Manage Opioid AbuseEmployers tend to think that it is none of their business what medications

their employees are taking. That philosophy has come under question due to an opioid problem so dominant in today’s culture, that the Health and Human Services (HHS) Department has earmarked $133 million in 2016 to fight what it calls an “opioid crisis.” In 2013 HHS reports that prescription opioids accounted for 37% of drug overdose deaths.10

An effective opioid management program focuses on building a culture of safety where everyone in the company is committed to collaborating and communicating around these five pillars:

1. Communicate the importance of monitoring signs of abuseManagement should communicate the company stance on substance and

opioid abuse prevention to employees. People throughout the organization

Disability durationon

Medical costss

Risk of surgrgery (3 times)

Late opopioid use (6 times)

Costsosts

Lost time ffrom work

Duration of paid temporary disabilityof paid temporary

Indemnityy

Attorney innvolvement

Open claimm

Accidentall overdose

Morbidity and mortality (8.9 fold)and mortality (8

1EXHIBIT OPIOID ABUSEINCREASED COSTS AND DEATHS

Use in �rst 15 days

When 2 or more prescriptions

for narcotics present

Narcotics with over 100

morphine equivalents per day

INCREASED

Source: Swedlow, A., L.B. Gardner, J. Ireland, and E. Genovese. "Pain Management and the Use of Opioids in the Treatment of Back Conditions in the California Workers’ Compensation System," California Workers’ Compensation Institute, June 2008Webster, B.S., S.K. Verma, R.J. Gatchel. "Relationship Between Early Opioid Prescribing for Acute Occupational Low Back Pain and Disability Duration, Medical Costs, Subsequent Surgery and Late Opioid Use," Spine, 2007, 32 (19) 2127-2132Bohnert, A.S., M. Valenstein, M. Blair, et al. "Association Between Opioid Prescribing Patterns and Opioid Overdose-Related Deaths," JAMA, 2011 305:1315-1321

58 l opioid abuse: the undetected risk in your organization

should be trained to identify signs of potential opioid abuse: lack of concentration or coordination, abnormal gait, clumsiness and decreased physical and psychological engagement. In addition, an employer should have a substance abuse testing program for times when there is reasonable suspicion, with supervisors trained to recognize potential substance abuse. The company should also have an Employee Assistance Program (EAP) available for employee referrals, as needed. Finally, a confidential phone number can be posted so workers are comfortable reporting concerns or asking questions.

2. Provide ongoing support and safe return-to-work procedures Safety is the primary focus on any job site. As part of ongoing toolbox

talks, workers should receive information about substance abuse and the importance of drug testing to keep everyone safe on the site. Return-to-work policies should be developed that consider “fitness for duty” criteria for employees taking an opioid medication in order to determine their capacity to perform their jobs.

3. Coordinate drug testing and medical managementThe dramatic increase in opioid abuse is causing many employers to revisit

their policies around their scope of drug testing. While drug testing as part of the job offer and post-accident has been the norm in recent years, employers are beginning to institute random testing as well as for “just cause” — when a specific set of behaviors is potentially causing a safety issue.

4. Integrate health care, workers’ comp and wellness benefitsCoordination between a company’s health care benefits providers,

workers’ compensation carriers and on-site wellness program is critical to worker safety and prevention programs for prescription opioid use. Working closely with these important partners helps a company understand the extent of opioid use and the need for programs to prevent and manage opioid abuse. Wellness programs help workers avoid injuries and manage chronic pain post-injury.

5. Partner with insurance providers to ensure evidence-based prescribing guidelines are followed

Physicians play a critical role in prescription drug misuse and abuse prevention. They can screen their patients to identify signs of prescription drug abuse or dependence, and talk with patients about the negative effects of misusing prescription drugs. A company should ensure that all health care and prescription benefit providers have a program to review and that they only allow prescriptions for opioids after a careful evaluation of patients for mental health issues, current substance abuse or other evidence of potential opioid abuse.

A Culture of Healthy WorkersThe construction industry is facing a talent shortfall due to an aging

workforce and lack of skilled younger entrants into the industry. That’s why keeping current workers injury free and preventing opioid abuse is critical. Achieving this goal requires a commitment by management to provide a culture of open communication around making safe and healthy choices — both on the job and with physicians and other providers around pain management.

The construction industry will also benefit by having integrated and supportive return-to-work programs in place, as well as preventative programs that demonstrate a clear message to workers that management cares about their health and wellbeing. Q

Dr. Joe Semkiu is the associate medical director for Zurich North America. He can be reached

at 847.240.4527 or via email at [email protected]. Eric Lambert is the national

customer solutions director for Zurich’s Commercial Markets group. He can be reached at

508.864.0577 or via email at eric.lambert @zurichna.com.

1 Theimer, Sharon. “One in 4 People Prescribed Opioids Progressed to Longer-Term Prescriptions,” Mayo Clinic News Network, July 1, 2015. http://newsnetwork.mayoclinic.org/discussion/one-in-4-people-prescribed-opioids-progressed- to-longer-term-prescriptions/

2 Tao, Xuguang (Grant), MD, PhD; Robert A. Lavin, MD, MS; Larry Yuspeh BA; Virginia M. Weaver, MD, MPH; and Edward J. Bernacki, MD, MPH. “The Association of the Use of Opioid and Psychotropic Medications with Workers’ Compensation Claim Costs and Lost Work Time,” Journal of Environmental and Occupational Health, February 2015. http://journals.lww.com/joem/Abstract/2015/02000/The_Association_of_the_Use_of_Opioid_and.13.aspx

3 Tao, Xuguang, February 2015

4 John Hopkins Bloomberg School of Public Health. “The Prescription Opioid Epidemic: An Evidence-Based Approach,” November 2015. http://www.jhsph.edu/research/centers-and-institutes/center-for-drug-safety-and-effectiveness/ opioid-epidemic-town-hall-2015/JHSPH%20Opioid%20Docket%20Submission%20FINAL.pdf

5 The CBHSQ Report. “Substance Use and Substance Use Disorder by Industry,” SAMSHA, April 16, 2015. http://www.samhsa.gov/data/sites/default/files/report_1959/ShortReport-1959.pdf

6 LexisNexis® Legal Newsroom. “ACOEM Updates Guideline Regarding the Use of Opioids in Safety Sensitive Jobs,” July 16, 2014. http://www.lexisnexis.com/legalnewsroom/workers-compensation/b/recent-cases-news-trends-developments/archive/2014/07/16/acoem-updates-guideline-regarding-the-use-of-opioids-in-safety-sensitive-jobs.aspx

7 The National Law Review. “Prescription Drug Overdoses May Be Compensable Under Workers’ Comp,” July 17, 2015. http://www.natlawreview.com/article/prescription-drug-overdoses-may-be-compensable-under-workers-comp

8 National Council on Compensation Insurance. 2013 Annual Issues Symposium. May 16, 2013

9 National Safety Council. “The proactive role employers can take: opioids in the workplace,” 2014. http://www.nsc.org/RxDrugOverdoseDocuments/proactive-role-employers-can-take-opioids-in-the-workplace.pdf

10 U.S. Department of Health & Human Services. “HHS takes strong steps to address opioid-drug related overdose, death and dependence,” March 26, 2015. http://www.hhs.gov/about/news/2015/03/26/hhs-takes-strong-steps-to-address-opioid-drug-related-overdose-death-and-dependence.html

The information in this publication was compiled from sources believed to be reliable for informational purposes only. All sample policies and procedures herein should serve as a guideline, which you can use to create your own policies and procedures. We trust that you will customize these samples to reflect your own operations and believe that these samples may serve as a helpful platform for this endeavor. Any and all information contained herein is not intended to constitute advice (particularly not legal advice). Accordingly, persons requiring advice should consult independent advisors when developing programs and policies. We do not guarantee the accuracy of this information or any results and further assume no liability in connection with this publication and sample policies and procedures, including any information, methods or safety suggestions contained herein. We undertake no obligation to publicly update or revise any of this information, whether to reflect new information, future developments, events or circumstances or otherwise. Moreover, Zurich reminds you that this cannot be assumed to contain every acceptable safety and compliance procedure or that additional procedures might not be appropriate under the circumstances. The subject matter of this publication is not tied to any specific insurance product nor will adopting these policies and procedures ensure coverage under any insurance policy.

© 2016 Zurich American Insurance Company
