"The heat about outsourcing generated in last year`s election hid two big facts that every executive, manager, and worker should know.

First, in boardrooms, there is no debate. A number of my colleagues returned from a series of meetings with human resources executives and the message was clear: outsourcing won. It simply makes no sense for companies to do work in- house that can be done better and less expensively by outsiders. Note that I said both "better" and "less expensively." Cutting quality to save a nickel is a fool`s game. That doesn`t mean people won`t do it, but it does mean outsourcing will be less expensive than some hysterical commentators say.

The second big fact:  to outsource successfully, companies have to change their operations. They must get increasingly sophisticated managing processes associated with functions like benefits administration and also at coordinating functions across five or six countries. To do this, says Tom Davenport of Babson College, companies are quality-checking and standardizing processes like paying vendors or administering payroll. But once something becomes standardized, it can become commoditized, cheaper to run. Administrative costs will fall. Talent tied up doing paperwork will be freed. But will this lead to a new kind of rigidity? Are we removing one kind of inflexibility -- bureaucracy-- only to replace it with another, the tyranny of standardized processes?"

Do not forget, we did it to ourselves.

Our national businesses did it to adapt and survive the last recession. This recession started in April 2000 and was a severe blow to many business, many of whom had just finished spending large sums of money on Y2K computer systems upgrades.

American industry had been slowly adopting factory automation for efficiency, productivity and reliability since the mid-1980's. The comprehensive information systems integration, electronic data interchange, web-enabled business functionality spread around the globe and intensive vertical commercial integration practices continued through the turn of the century.

First, the mergers and acquisitions were begun to bring economies of scale and reduce redundant management overhead and workforces. Reduced professional and labor staff, survival-based economically-driven downsizing, actually fostered the necessity of outsourcing in order to get the work done in the absence of adequate employees. This outsourcing was performed domestically at first, although cross-border low-skill labor had been used for quite some time in Mexico, the Caribbean, the Far East, among other low-wage international locations.

Offshoring of contract work and production was the next logical progression because so many well-educated and highly-motivated foreign workers were more than willing to perform all work tasks for less compensation than American workers were. When global telephony and instant information integration was added to this efficiency-driven and productivity-driven management philosophy, these trends leveraged the Internet to push service jobs to lower-wage nations, which rose to the occasion to meet demand.

Many of the senior executives we work with actually were employed in the development and implementation of these trends which got us into this situation. So, here we are, living with the results.

2002:

In 2002 overall job creation and demand for executive talent decreased by 17% compared to 2001. This was a continuation of the trend between 2000 and 2001 (particularly after September 11th), when demand declined by 22%.

2003:

Overall demand for executive talent in the 1st quarter of 2003 was flat compared to the 1st quarter of 2002. In other functional areas, General Management, Human Resources, Operations Management and Finance, the demand for executive talent posted a decline in the 1st quarter of 2003 of 15%, 24%, 8% and 3% respectively compared to the 1st quarter of 2002.

The Executive Talent Demand Index (ETDI) increased 2% during the second quarter of 2003 when compared with the second quarter 2002 after falling 17% in 2002 and remaining flat (0%) in the first quarter of 2003.

Demand for General Management executives posted the most significant decrease of all functions, dropping 13%. Operations Management and Consulting executives each experienced a 3% drop in demand. November 2003: The U.S. economy is still loosing jobs: 3,2 million jobs were lost during the last three years with another 14 million white collar jobs at risk.

2004:

The economy added 112,000 payroll jobs in November, the Labor Department reported on Dec. 3, 2004, far fewer than the month before and not enough to keep up with growth in the adult population. The gain was well below Wall Street forecasts for an increase of about 200,000 jobs, and employment in manufacturing remained stagnant for the third month in a row.

The jobless rate has essentially been flat ever since July. "The economy is adding jobs, but not at a feverish pace," said Richard Yamarone, chief economist at Argus Research, an economic research firm in New York. "Economic growth is not expanding at a pace that can engender stellar job growth, and I think you have to get used to these kinds of numbers."

Though employment has climbed at nearly that pace over the past year, job creation remains far slower since the last recession ended three years ago than it has after any other economic recovery since World War II.

2005: Job growth -- is this it?

Everyone's been waiting for the sluggish job market to break out; that may not happen any time soon.

Study: 43% won't have enough in retirement

By Jeanne Sahadi, CNNMoney.com senior writer

NEW YORK (CNNMoney.com) - A new retirement risk index released Tuesday estimates that 43 percent of working-age households are not likely to have enough retirement income to replicate their current standard of living.

The Center for Retirement Research (CRR) at Boston College created the index and defines "at risk" to mean those households projected to fall at least 10 percent short of their income target in retirement.

The organization assumed a base target of 73 percent of one's pre-retirement income for all households. In other words, a household with $100,000 in annual income before retirement should be able to generate $73,000 from all sources, including savings, Social Security and pensions. Targets, however, vary according to marital status, gender and income.

Those most at risk of missing their goal, according to CRR:

• Low-income Gen Xers (born between 1965 and 1972): 60 percent are at risk of having insufficient funds in retirement.
• Low-income late boomers (born 1955-1964): 54% are at risk.
• Middle-income GenXers: 46% are at risk.
• Two-earner GenX couples: 53% at risk, since they often receive less generous Social Security benefits than one-earner couples.
• Single GenX women: 52% at risk, since they are more likely to be in the bottom third of income earners.

But those percentages could be reduced by doing one of two things: "Even relatively modest adjustments - working two extra years or saving 3 percent more - can substantially improve retirement security," said CRR director Alicia H. Munnell in a statement.

Why risk rates are high

• Life expectancy is on the rise.
• Defined-benefit pensions are on the decline.
• Social Security benefits will replace a smaller percentage of one's pre-retirement income as the age at which workers become eligible for full benefits rises from 65 to 67. By 2030, when the first Gen Xers turn 65, Social Security is projected to cover 33 percent of pre-retirement income after deducting payments for Medicare Part B premiums. That's down from a 40 percent replacement rate in 2002.
• 401(k) balances are not high. The median balance is $60,000 among households nearing retirement.
• Most workers don't save for retirement outside of their 401(k)s.

In arriving at their risk assessment, CRR researchers assumed that in retirement you will need less income than you do while working because your taxes are likely to be lower, you no longer will need to save for retirement and your mortgage is more likely to be paid off.

They further assumed workers would retire at 65, though realistically many may retire before then. The average retirement age today is 63 for men, and 62 for women.

Lastly, they assumed retirees would annuitize savings, and tap their housing wealth through a reverse mortgage. Neither practice is common, but the CRR made the assumptions since both are ways to maximize how far one's resources can stretch.

CRR researchers did not, however, factor in the costs of a potential health care crisis for two reasons: the increase in healthcare costs is hard to predict and only a percentage of households will experience a catastrophic health situation that will throw off finances considerably.

The $354 billion pension problem

Changes in accounting for retiree benefits could mean harder times ahead even for healthy plans.

NEW YORK (CNN/Money) - General Motors' pension pain could soon spread to hundreds of other companies, even those offering relatively healthy traditional pension plans.

The numbers involved are huge: the federal agency that insures traditional plans estimates that companies with underfunded plans need another $354 billion to make good on their promises to employees when they retire.

GM (down $1.65 to $27.52, Research) stock tumbled Thursday after it said the Securities and Exchange Commission was investigating how it accounts for pensions and retiree health care coverage, as well as other parts of the automakers' accounting.

The world's largest automaker says it's one of those companies with healthy pension plans, estimating that at the end of last year its plans had $1.5 billion more than needed to pay promised benefits, despite the company's steep recent losses.

Still, investors seem worried that the automaker might not be in as good a position as it claims. And experts say as more attention is given to the arcane world of accounting for benefits promised to retirees, other companies could also be hit by those doubts.

"It seems to be an extreme overreaction," said Mark Vitner, chief economist for Wachovia Securities, about the hit to GM stock, which pressured the broader market Thursday.

"But pension accounting is awfully complicated and it's an awfully big company, so it's not surprising the markets would get a little spooked by it."

Part of the problem is that the estimates by GM and other companies about the strength of their plans is based on a set of assumptions about things that can't be predicted -- future interest rates and rates of returns on assets going forward, for example, as well as the life expectancy of employees and retirees, and when current employees will retire and start drawing benefits.

Those are assumptions that typical accounting never has to take into consideration.

More conservative approach

Experts say even without any changes in the law, outside accounting firms and regulators are likely to get more conservative about those assumptions going forward, which will change the estimates of how pension funds will fare even without any changes in the plan assets or promised benefits.

Congress is looking at a number of options meant to make employers shore up traditional pension plans.

Already, some estimates using different assumptions show that the GM plans won't have enough funds to pay promised benefits, a status known as underfunded.

The company's current junk bond status is one of the factors that could change assumptions and accounting rules.

The biggest underfunding estimate would come from a worst-case scenario used by the Pension Benefit Guaranty Corp., the federal agency that backs pension plans in the private sector, which assumes a company will terminate the plans rather than continue to make contributions going forward.

"Other people can make certain assumptions that could change that (funding) number," GM spokesman Jerry Dubrowski said. "A minor change to one assumption can have a change in the funding status. It doesn't mean their number is any more or less correct. We believe our number is appropriate."

But those advocating rule changes say they're needed to make retirees' benefits more secure, or to protect taxpayers from having to pay for a savings and loan-type of bailout of the nation's pension plans that some people now fear.

Congress and regulators are looking into what is seen as a growing problem underfunded plans. According to the PBGC, underfunded plans now have an estimated $353.7 billion shortfall in their assets.

Both sides

Experts in the field say that both the critics and proponents of the proposed rule changes have good points.

"There's truth to both sides of the story," said Don Fuerst, worldwide partner at Mercer Human Resource Consulting. "All companies say 'That (plan failure) isn't going to happen to us.' But it's going to happen to some of them. Still it's not going to happen to everybody, so the PBGC numbers are a worst-case scenario."

Fuerst and other experts say they worry that tougher pension rules could mean even more companies will stop offering traditional pension plans, moving toward plans that place investment risk on the employees and retirees, rather than the companies and pension plans.

"We want to help companies that have an underfunded plan improve their funding and stay healthy, and not to give them reason to terminate a plan they otherwise want to keep," said James Klein, president of the American Benefits Council, an advocacy group for major employers on health and retirement issues.

Some of the companies offering plans argue that the proposed changes will make a bad situation worse, forcing companies facing other financial problems to make greater contributions when they are most strapped for cash.

"The best way to protect a pension plan is make sure the companies have the financial wherewithal to continue to operate," said GM's Dubrowski.

NetShare Survey Results

Jof Market Reality For High-End Executives Worse Than Reflected In Unemployment Figures

New survey shows job statistics do not account for 42 percent of execs earning $100k or more who are actively looking for jobs and not collecting unemployment.

Novato, CA- According to the latest poll by NETSHARE, 42 percent of American executives at the high end of the pay scale report that they are not finding work and not collecting unemployment, which means they are not being tracked by recent government unemployment. These executives have fallen off the unemployment radar and are forgotten statistics, according to a recent survey by NETSHARE.

NETSHARE (www.netshare.com), a confidential, subscription-based jobs and networking site for senior executives making $100,000 and up, surveyed over 2,700 six-figure executives across the U.S. via an Internet poll and found:

• Nearly half - 42 percent - of respondents are unemployed and not registered to collect unemployment - thus not counted by the Labor Department in the job market statistics released quarterly.
• Of those currently unemployed, almost 20 percent were self-employed or calling themselves consultants while actively looking for full-time employment.
• Only 8 percent of respondents were unemployed and collecting unemployment.

"I estimate that in my immediate pool there are 300 to 400 people not represented by the government figures as unemployed because their benefits ran out months and months ago, and every one of them is in the $100k plus range," said one NETSHARE member.

The most recent NETSHARE survey results confirm that current labor statistics fail to account for executives and others on the unemployment rolls. The statistics also fail to account for those executives who are "under-employed" or who list themselves as "self- employed" or "consultants" but are actively looking for full-time work. The inconsistencies between the statistics released by the Labor Department and the real figures are the result of the way the statistics are compiled, i.e., using a combination of unemployment figures and a household sampling to determine if people are working or looking for work. Those who are no longer collecting unemployment or list themselves as "self-employed" are not being counted.

"I'm a 'consultant' with no current projects or clients," offered another NETSHARE member. "I have a Master's degree and over 15 years of experience and I can't seem to crack the code to get back on a payroll. My unemployment benefits have expired long ago. It's a tough road and I suspect I'm one of the many flying and dying under the radar."

"In an election year, everyone is trying to put a happy face on the economic situation. The reality is that amongst higher wage earners, the job market is not as rosy as figures indicate," said Dave Theobald, CEO of NETSHARE. "What we are seeing is a different picture - six-figure, seasoned executives, many of them MBAs with stellar pedigrees and credentials, who have given up on finding full-time work and are looking for contract projects to build up some sort of retirement nest egg instead. Or calling themselves 'consultants' while depleting their savings during the search process."

The big kiss-off: Older workers say age bias quashed their careers, but Hershey says it was just part of a restructuring.

Greg Griffin; Denver Post Staff Writer

John Montagne was at the top of his career.

He was Denver-based regional manager for the Hershey Co., overseeing the chocolate-maker's sales from California to Nebraska. At 53, he earned $188,000 a year in salary and benefits.

Then in June 2003, Hershey officials told Montagne that the company was restructuring its sales force and no longer had a place for him. Montagne reluctantly accepted his only option - an early-retirement package.

Now, Montagne claims he and other senior sales managers were forced to leave Hershey based on their age, part of an alleged company strategy to replace them with younger salespeople.

The Centennial resident sued Hershey in 2004, claiming the Hershey, Pa., company violated the Age Discrimination in Employment Act.

"I worked for Hershey for 26 years, and I trusted that they were true to their word and honorable, and, in this case, they weren't," Montagne said in a deposition in February, according to a court transcript.

On Jan. 18, U.S. District Judge Wiley Daniel allowed seven other former Hershey employees to join the suit. But he denied class-action status for the case, which might have included up to 44 more former Hershey employees. Daniel has scheduled a three-week trial starting Oct. 30.

Hershey denies the claims and says in court filings that Montagne left because his position was eliminated in a restructuring of the sales force. Hershey hasn't responded to the other plaintiffs' claims.

"The allegation of age discrimination is absolutely untrue and without merit," said Hershey spokeswoman Stephanie Moritz. "Hershey strongly believes in equal opportunity for all company employees regardless of age, gender, race, religion or disability."

Age-discrimination cases filed with the federal government have risen 26 percent since 1999, though they dipped in 2003 and 2004 with the economic rebound. There were 17,837 cases of age discrimination filed with the federal government in 2004, up from 14,141 in 1999, according to the U.S. Equal Employment Opportunity Commission.

Ruling may drive up suits

Payments from employers resulting from age-discrimination claims brought by the government rose to $69 million in 2004, the highest level since at least 1992, when payments were $57.3 million.

Those figures don't include awards and settlements reached in private litigation, such as the pending Hershey case. The median jury award in age-discrimination cases between 1996 and 2002 was $266,800, according to Jury Verdict Research.

Age-discrimination filings of all kinds could climb higher in coming years as more baby boomers enter their senior years. There were 17.3 million workers 55 and older in the workforce in 2001, according to the Census Bureau's 2001 Current Population Survey. The number is expected to reach 25.3 million by 2015, or 20 percent of the workforce.

Another factor that may drive additional age-discrimination cases is a U.S. Supreme Court decision last year that lowered the threshold for such lawsuits to be filed while at the same time making them harder to prove.

In the Hershey case, the former employees, all at least 49 years old when they left, say the company offered senior members of its sales staff an early-retirement option in 2003.

But they allege that Hershey officials either gave them no option to stay or offered them lower-paying jobs if they did stay, essentially forcing them to leave. The age-discrimination law, which protects workers 40 and older, says early-retirement plans must be voluntary.

Hershey filled their positions with younger salespeople, according to the complaint. It claims the retirement plan was part of an "ageist agenda" by company executives, who allegedly referred to older salespeople as "slot-blockers," "endangered species" and "liabilities."

Montagne declined to comment for this story, and Evergreen attorneys David Feola and William Finger, who are representing the plaintiffs, said the others also could not comment. Those plaintiffs are Charles Kovacs of Hummelstown, Pa.; John Leger of O'Fallon, Mo.; Christine Bukala of Boulder; Dean Schleppi of Indianapolis; Danny Trammell of Kansas City, Mo.; Robert McGrath of Lake Forest, Calif.; and Joseph Ragusa of Birmingham, Ala.

"My clients made all the sacrifices that Hershey asked of them, and at the end of their careers, they were put out to pasture," Feola said. "Collectively, they worked 187 years for Hershey."

Montagne's attorneys have estimated his damages at about $470,000 and said the other plaintiffs suffered comparable losses, putting total damages for the case at about $3.8 million.

Hershey's Moritz would not comment on the specifics of the case. But in court filings, the company said it began a realignment of its sales division in the spring of 2003 that included consolidating and eliminating certain upper-level positions.

Hershey offered senior employees, including Montagne, early-retirement plans with enhanced benefits.

As part of its realignment, Hershey said, Montagne's position was eliminated, and he was deemed unqualified for other available sales jobs.

"The facts do not support Mr. Montagne's allegation that Hershey engaged in unlawful age-based employment decisions," Hershey said in a filing. "Hershey engaged in an extensive competency-based selection process for the positions under the new sales structure. Mr. Montagne did not possess the dimensional qualifications required for the positions."

Texas lawsuit similar

The company also said that the age-related comments made by executives occurred years before the workers lost their jobs and thus aren't relevant.

Last year, two former Hershey regional sales managers in Texas settled their age-discrimination lawsuit against the company. They had made allegations similar to Montagne's and accused the company of orchestrating "a nationwide effort to replace older employees with younger ones."

The Texas suit claimed that "age played a negative role in Hershey's decision-making process, and the discharges ... would not have occurred except for their age."

If the Denver case goes to trial, the plaintiffs will have to prove that age was a primary factor in their dismissals, said Melissa Hart, an associate professor at the University of Colorado School of Law who specializes in employment discrimination.

Hershey might be able to convince a jury that its early-retirement plan was offered in a lawful way and that the company was trying to help workers who were losing their jobs, she said.

Age-discrimination cases of note

• November: An Ohio state appeals court orders a new trial for a salesman whose $25.7 million award in an age-discrimination case was overturned. David Jelinek had won the award in 2002 on claims that Abbott Laboratories forced him into early retirement at age 55.
• July: A California state jury awards $20 million to an 85-year-old doctor, Robert Johnson, who claimed he was forced to retire as chief physician and surgeon at a state prison because of his age. The state says it will appeal.
• March: The U.S. Supreme Court rules that older workers may allege age discrimination even if their employers did not intend to harm them. The ruling, however, also sets a high standard of proof for such cases. In the case, the justices rule against 30 police officers from Jackson, Miss., who had claimed age discrimination. The ruling is expected to boost age-bias cases.
• July 2003: A federal judge rules that IBM discriminated against older workers when it switched from a traditional pension plan to a cash-balance pension plan in the 1990s. IBM has appealed the ruling. In September 2004, it reached a settlement with 130,000 current and former workers in the case, capping its liability at $1.4 billion if it loses the appeal.

OK, so that's the situation we're in. Our job market condition is of our own collective doing, and due to economic forces, it is likely to continue to decline from a senior executive employee's perspective.

Once we understand and accept the facts of our globalized economy, we can move on to make personal decisions about how to move forward with our lives and our livelihoods.

Personal Business Advisors is uniquely qualified to help senior executives evaluate options and make well-matched selections generate income streams that can usually meet or exceed their previous incomes.

Review other pages of this web site to thoroughly explore how PBA can help you in this process.

Outsourcing Innovation

Western corps. began outsourcing manufacturing in '80s & '90s

Today, they are buying complete designs of digital devices

Also: software, aviation, pharmaceuticals, consumer products

"Original-design manufacturers" (ODMS)