Overworked & Understaffed

Recession erodes employee morale and leaves staffs stretched thin.

April 1, 2011




  • Maintaining peak productivity with a downsized staff is the biggest HR challenge facing many CUs.
  • Short-term benefits of this strategy are impressive, but negative consequences are beginning to emerge.
  • Board focus: Support flexible work arrangements—such as telecommuting, flexible hours, and mobile technology—when possible to retain top talent and boost morale.

Overworked and understaffed. Welcome to the post-recession workplace.

Keeping employees engaged and motivated in an environment like this will be the greatest human resource (HR) challenge for the foreseeable future, according to a recent poll of HR executives conducted by the Society for Human Resource Management (SHRM).

Most employers are operating at much lower staffing levels than they did before the recession. And despite some signs of economic recovery, employers are taking a cautious approach to hiring.

To encourage employees to perform at their best, employers will need to improve morale and engagement levels, and possibly boost retention efforts.

At the height of the economic downturn, employers were forced to downsize staffs. As a result, many organizations have become accustomed to delivering their core products and services with fewer employees, according to Michael Norman and J.P. Elliott of Sibson Consulting.

“While the short-term benefits are obvious, the long-term implications of this new way of working aren’t as apparent,” they say.

Norman and Elliott say some of the problems emerging from the “do more with less” strategy are:

• Diminished capacity, capability, and agility. Not being properly staffed can directly influence your cost structure, cash flow, and ability to deliver financial services.

Misaligned organizational structure. Rapid reorganization of business units or functions has led to organizational structures that are no longer aligned properly to support the business model.

• Broken business processes. Even before the economic downturn, many organizations didn’t document core business processes or support them
with technology. If employees with knowledge of manual processes were let go, business processes suffered.

• Declining work force engagement. While downsizing can improve productivity, it can also damage employee morale. Disengaged employees will be the first to go when the economy improves.

“The costs and complexities of doing more with less are real,” say Norman and Elliott. “But this way of doing business is here to stay. The challenge is to operate in this environment while keeping employee performance and engagement high.”

Hiring & pay plans

Most employers are waiting for the economy to stabilize before hiring full-time staff. Employers have grown accustomed to getting the job done with fewer employees or by using part-time staff or temp agencies.

But the number of employers planning to hire full-time staff is gradually increasing, according to CareerBuilder’s annual job forecast. About 25% of employers plan to hire full-time employees in 2011, up from 20% in 2010 and 14% in 2009.

While credit union data on this improvement is being tabulated for CUNA’s 2011-2012 Complete Credit Union Staff Salary Survey Report, credit unions appear to be part of the increasing hiring trend.

Several reports indicate employers have budgeted for wage increases averaging 2.8% in 2011. This is higher than increases in the past two years, although still lower than pre-recession levels.

About 76% of employers that froze pay between June 2009 and December 2010 have either rescinded the pay freezes or plan to do so soon, according to research from Buck Consultants.

But pay freezes might not disappear completely, warns Tom Burke, principal at Buck Consultants. Wage increases depend on economic stability, sustained growth, and significant improvement in the employment rate, he says. Instead of increasing base pay, many employers are offering incentives tied to organizational growth and keeping the lid on base-pay increases.

The Dodd-Frank Wall Street Reform and Consumer Protection Act released new requirements regarding executive compensation. The provision affecting credit unions with more than $1 billion in assets requires disclosure of all incentive-based compensation arrangements to determine if they’re considered excessive or risky and could result in a material loss to the insurance fund. At press time, NCUA was expected to issue a final rule in April.

Next: Health-care costs

Health-care costs

Per-employee costs for health-care coverage increased 6.9% last year, according to consulting firm Mercer’s 2010 National Survey of Employer-Sponsored Health Plans. This is the highest increase recorded by Mercer since 2004.

Employers appear unconvinced that the Patient Protection and Affordable Care Act (PPACA) will lower the costs associated with employer-based health plans. About 85% of employers think it’s unlikely the provisions under PPACA will reduce the rate of health-care cost increases, according to the Midwest Business Group on Health.

Uncertainty over costs is prompting employers to decide whether to continue offering health benefits and comply with PPACA, or to drop health benefits and pay the penalty. Even though the costs of offering an employer-based health plan are at the root of the play-or-pay decision, employers need to take into account other factors. Their decisions will affect recruitment, retention, morale, productivity, absenteeism, and presenteeism (coming to work sick).

Another issue related to the costs of offering employer-based health plans is the “Cadillac” tax. Beginning in 2018, employers must pay a 40% excise tax on high-value health plans. Plans (health insurance coverage costs and the costs of a wellness program) that exceed a threshold of $10,200 for single coverage and $27,500 for family coverage are considered high-value plans.

Also, discrimination rules under the PPACA prohibit employers from providing executive health plans that go beyond the group health plans offered to staff. In accordance with discrimination rules, employers are required to establish an appeal process for contesting claim payments and coverage refusals.

This new provision generally won’t affect credit unions because they aren’t strong users of executive health plans. In fact, less than 10% of credit unions with assets of $100 million or more provide an executive health plan to CEOs or senior executives, according to CUNA’s 2010-2011 CEO Total Compensation Survey and 2010-2011 Senior Executives Total Compensation Survey.

To get around this provision, however, some employers that offer executive health plans say they might increase executive pay to make up for the reduction in benefits.

Not all of these regulations are set in stone. Expect changes relating to the legislation, due to the turnover of congressional seats in the 2010 midterm elections. In particular, repeals and changes to health-care reform provisions are likely.

The U.S. Chamber of Commerce’s top priorities regarding health-care reform are:

  • Repealing the 2011 exclusion on purchasing over-the-counter medication under flexible spending accounts and health savings accounts (HSA);
  • Repealing the 2011 tax form 1099 requirement for all vendor transactions exceeding $600;
  • Possibly changing the 2012 requirement to report the value of an employee’s health benefits on individual W-2 forms;
  • Repealing the 2014 employer mandate to provide health coverage or pay a penalty; and
  • Repealing the 2018 excise tax on high-value health plans.

Preventive services

As of Jan. 1, 2011, preventive services, such as annual physicals and immunizations, must be covered fully under the PPACA, unless these services are obtained through an out-of-network provider.

If a service is rated A or B by the U.S. Preventive Services Task Force, it’s deemed a preventive service. Also under the new law, preauthorization requirements for emergency room visits or visits to OB/GYN specialists are prohibited under employer-based health plans.

The intention behind this part of the health-care reform law is to ensure access to services needed to stay healthy and to increase use of these services. Although employers can’t force employees to take advantage of preven­tive services, they can provide incentives for employees to use them. Employers, for example, can reduce employees’ share of cost-sharing if they use the services.

Though many employers already cover preventive services, most don’t cover all the preventive services with task force ratings of A or B. Employer-based health plans often don’t cover these services in full. While some insurance companies already include preventive services in their plans, the costs of adding any or all of these services will be passed on to plan participants.

The actual cost of the provisions is unknown, due to the range of preventive services already included in employers’ health-care plans, and the range of co-payments and cost-sharing for these services. Also unknown is the number of employees who will use the services. The provisions will increase the cost of the average health plan 1% to 2%, estimates Bill Rosenberg, a PricewaterhouseCoopers director.

Next: Wellness programs

Wellness programs

To promote consumers’ involvement in their health-care decisions—which also reduces health-care expenses in the long run—regulations regarding wellness programs are included in health-care reform. Wellness programs provide a way for employers to lower the cost of health insurance coverage and reduce expenses, due to a decrease in absenteeism and presenteeism.

Employers can receive premium discounts of up to 30% of the cost of coverage for offering wellness programs to employees. Employers also can offer increased incentives to employees for participating in their wellness programs and for meeting certain health targets.

For employers whose programs meet the PPACA conditions, employees can receive up to a 20% rebate of the portion they pay for the total health insurance premium, the amount they pay in cost-sharing, and co-payment waivers. Employers must offer an alternative to employees who have physical or medical limitations that prevent them from participating or from meeting the health targets.

Employers also must meet requirements regarding wellness program structuring. Employers, for instance, are required to pay the entire cost of implementing a wellness program. And employers can’t assign any copayments or cost-sharing to their wellness initiatives.

Employers also are required to evaluate their wellness programs. The Department of Health and Human Services will provide assistance and resources to help with the evaluations.

Health-care plans

Because of the costs and reporting burdens of complying with the PPACA, many expect to see significant growth in consumer-driven health plans (CDHP). In the next 10 years, CDHPs could be more prevalent than preferred provider organization (PPO) plans. Premium increases under CDHPs are typically lower than those of PPO plans. In addition, CDHPs provide a way for employers to avoid the Cadillac tax.

Some employers offer their employees only a CDHP, or a CDHP along with a PPO. In general, employers offer CDHPs in conjunction with HSAs or health reimbursement arrangements (HRA). With these savings plans, the employer and/or the employee place a specified dollar amount in the plan.

Both HRAs and HSAs tend to encourage consumers to explore all options and corresponding costs. Benefit design, however, affects this likelihood. Consumers are less likely to question tests or treatment if their out-of-pocket expenses are low, and more likely to consider all angles of the test or treatment before going forward if the plan has high deductibles or out-of-pocket expenses.

The main difference between these accounts is
that HSAs belong to the employee and HRAs belong to the employer. The employer and/or the employee contribute money to an HSA, whereas only the employer contributes to an HRA. As such, the money not used in an HSA accumulates from year to year. On the other hand, the money left over in an
HRA rolls over at the employer’s discretion, and
goes back to the employer if the employee leaves the organization.

Health-care coverage and other benefits, wages, and working environment all contribute to the morale, and hence the productivity, of employees. To attract and retain peak performers, your credit union will need to be creative and flexible in administering all three.


Flexibility can increase productivity

Flexible work arrangements—such as telecommuting, flexible hours, and mobile technology—help employees achieve work/life balance, which increases morale. Flexibility also helps employers attract, reward, and retain peak performers.

Another benefit of providing flexibility is that it can make up for low wage increases. As a reflection of the slowly improving economy, both the incidence and the percentage of pay raises are slowly growing. Compensation experts, however, predict that annual wage increases won’t return to the “old norm” of 3% to 4%. Instead, the “new norm” will be wage increases of 2% to 3%—and incentive plans.

“Workplace flexibility helps businesses succeed and employees thrive by giving people an integral role in deciding how, when, and where they do their best work,” according to“That means higher productivity and employee engagement, lower turnover costs, and more innovation.”




  1. 2011-2012 Credit Union Environmental Scan
  2. 2011-2012 Complete Credit Union Staff Salary Survey Report

• U.S. Preventive Services Task Force