Does Your Employer Have The Right To Select Your Physician And Review The Results Of Your Annual Checkup?

Have you been following the recent debate over President Donald Trump’s health? His personal physician recently summarized his annual checkup by declaring that the President is in “excellent health,” and is “absolutely … fit for duty.”

But others who reviewed the President’s lab results assert that he must “ … increase the dose of his cholesterol-lowering medication and make necessary lifestyle changes … (to reduce his) moderate risk of having a heart attack in the next three to five years …”

Embedded in this debate is the natural awkwardness of revealing any individual’s private health information to others. After all, wouldn’t you feel uncomfortable if the results of your annual checkup were revealed to others and then openly debated by them?

Even federal Senators, state Governors, and other high-ranking elected officials are not subjected to such personal scrutiny. Only the President has been required to submit to it.

In the private sector, though, similar debates have simmered for years about whether publicly traded companies should monitor and disclose the health risks that are faced by their Chief Executive Officers. Apple, for instance, was sharply criticized for keeping many of the details regarding Steve Jobs’ mortal illness confidential. And its Board never insisted on selecting Jobs’ primary care physician.

In contrast, the railroad transportation firm CSX is now opting for a policy of full transparency. Its Board of Directors, responding to the sudden death of its recently deceased CEO, recently decided to “ … require the railroad’s chief executive to submit to an annual physical exam that will be reviewed by the board … (to be performed by) a medical provider chosen by the board …”

This policy inevitably raises an important governance concern. Namely, are companies entitled to select their CEOs’ physicians, and then to review their private health information? The need for such transparency may be understandable, but is the policy itself appropriate?

After all, CEOs are not the only key employees within firms. There are undoubtedly dozens, or even hundreds, of workers within each company who may be deemed key members of the work force.

Should companies have the right to monitor all of their private health information? Where does an employee’s right to privacy outweigh a company’s need for information? And which employees, if any, should be subjected to such scrutiny?

Today, this question may only affect the President of the United States, the incoming Chief Executive Officer of CSX, and a few other key employees of various firms. In the near future, though, it may affect all of us.

American Capitalism

Remember Yahoo? Twenty years ago, it was a titan of the internet, with services that ranged from email to search to web hosting to video.

But it failed to maintain its competitive position against emerging firms like Google, Facebook, and Amazon. And although it hired Marissa Mayer away from Google in 2012 to become its new Chief Executive Officer, its market share continued to decline.

Even worse, the firm suffered multiple massive data breaches during Mayer’s reign. Hackers gained access to the personal information of (quite literally) billions of users, while Mayer arranged for the firm’s American assets to be sold to Verizon.

To be fair, one can certainly argue that Yahoo was beyond any chance of resuscitation when Mayer came aboard as its Chief Executive Officer. And yet one cannot deny that the firm clearly failed under her watch.

So what will happen to Mayer after Verizon acquires Yahoo? Apparently, she’ll receive a $23 million severance package. And earlier this month, the firm publicly clarified that she will earn these benefits on top of $56 million worth of previously earned stock options.

Ms. Mayer undeniably risked her career by moving from Google to Yahoo. And according to the principles of American capitalism, she should have expected to receive lavish economic rewards if she had succeeded at reviving the firm.

But according to those same principles, stakeholders in failed organizations should expect to share in the losses of their business entities. After all, if they are eager to share in the spoils of success, they should also be willing to bear the risks of failure.

But in Mayer’s case, and in many similar cases, the very corporate officers who preside over the failure of their firms are immensely (and perversely) rewarded for their outcomes. In other words, they receive the spoils of success, whether they actually succeed or fail.

That may simply represent an ingrained feature of American capitalism. But it cannot possibly be a productive condition for the long-term health of the American economy.

Your Employer And Your Health

Have you seen SPECTRE, the latest James Bond film? It includes a scene in which South Africa decides to oppose the other nations in the world’s G-9 (i.e. group of nine largest countries) by refusing to share private data about their citizens in an initiative to fight terrorism. But then the evil organization SPECTRE attacks Cape Town, and the South Africans drop their opposition to data sharing.

As if to emphasize this inclination towards sharing private personal data, last week, the Vitality Group of the South African firm Discovery Limited released Reporting on Health: A Roadmap for Investors, Companies, and Reporting Platforms. More than a dozen global organizations, including IBM, Johnson & Johnson, Merck, PepsiCo, Unilever and the Robert Wood Johnson Foundation voiced their support of this report’s recommendations at the World Economic Forum in Davos, Switzerland.

And what did the Vitality report say? It recommended that corporations publicly report on the workforce health metrics of their human capital. In other words, in addition to issuing financial statements and (in certain industries) environmental impact statistics, the Vitality Group and its supporting organizations called for companies to tell the world about the health of their employees.

For instance, according to the Comprehensive Health Metrics Scorecard in Appendix C of the Vitality report, companies should perform health risk assessments and biometric screenings of their employees. To facilitate such activities, companies should incentivize employees to disclose their physical activities, eating habits, alcohol consumption habits, mental health status, sleep patterns, and other wellness information.

Then, according to Vitality, these companies should summarize this information and share it with the general public. The report doesn’t appear to address privacy regulations like the HIPAA federal legislation in the United States, although it does briefly acknowledge privacy concerns by noting that:

For companies that are collecting and analyzing health data, we encourage the highest respect of privacy by using aggregate-level data and by reporting changes over time to ensure that the reporting itself does not unintentionally translate into an incentive for companies to hire healthier employees.

Are you satisfied with this acknowledgment, or does it leave you feeling a bit queasy? Indeed, some of us might squirm at the prospect of our employers collecting such detailed personal information, even if they only publicly disclose the data on an aggregate basis over time.

In the United States, of course, this data can be found in the clinical records of medical providers. Health insurers and managed care organizations also collect such information through the HEDIS metrics of the NCQA.

But it may be difficult to find American employees who are willing to share such information with their employers. Although data privacy doesn’t appear to be a major priority in James Bond’s fantasy world, it is indeed a significant consideration in our own real world.

Life Insurance Shenanigans

What are shenanigans? The Merriam-Webster dictionary defines them as “tricky or questionable practices or conduct.”

A prime example of such a shenanigan is an employee benefit that was recently proposed for the teachers of the Pasco County, Florida public school system. A small group of private investors offered to create an organization that would provide free life insurance to the teachers, as well as an equally free death benefit for the school district.

Why would these private investors offer free life insurance to the teachers and the school district of Pasco County? By basing the insurance company in Bermuda and passing death benefits through an off-shore trust in the Cayman Islands, the investors planned to avoid all federal, state, and local income taxes in the United States. In addition, by basing the company and trust in a pair of off shore regulatory and tax havens, the group planned to avoid many governmental oversight functions as well.

But the most important factor involved the youthful ages of most of the 9,769 teachers. Because the investors were forecasting that only thirteen teachers would die annually during the early years of the insurance program, they were free to dedicate the lion’s share of any early tax free profits to other purposes. The investors could, for instance, use the funds to pay dividends to themselves, or to allow the profits to accumulate in their tax-free off shore investment accounts.

Last week, when questions arose about the personal and professional backgrounds of the investors, the school district walked away from the plan. Nevertheless, for a time, they did actively consider entrusting their employees’ life insurance benefits to a “tricky or questionable” proposal that promised free coverage for all.

Insurance companies, of course, have been engaging in “tricky or questionable” practices for years. In 1991, for instance, Executive Life of California and Mutual Benefit Life of New Jersey both went bankrupt because of excessively risky investments in junk bonds and other securities. For the first time, policy holders with Guaranteed Investment Contracts (GICs) learned that there was nothing “guaranteed” about the GICs that were issued by their life insurers.

And more recently, in 2008/09, the government of the United States bailed out AIG because of concerns that its failure would destroy the global economy. Although AIG did indeed sell insurance policies, its insolvency was attributable to its transactions involving the creation of credit default swaps on collateralized debt obligations. Such transactions, by and large, fell outside of the regulatory umbrellas of the federal authorities and state insurance commissioners.

Thus, we should give the school district of Pasco County full credit for learning from these prior experiences and declining the offer of free life insurance. When insurers propose risk-free returns at little or no cost, the only prudent response is “thanks, but no thanks.” After all, any such proposal is most likely a shenanigan.

The Perils Of Measuring, And Rewarding, Performance

It’s important to measure employee performance, isn’t it? By measuring success, and by rewarding it, we can identify superior performers and encourage others to strive for excellence.

Indeed, the logic of this philosophy appears to be self-evident. And yet, in a number of recent cases, measurement and compensation systems appear to have backfired in a dramatic fashion.

Just two days ago, for instance, General Eric Shinseki of the United States Department of Veterans Affairs resigned from his leadership role in the wake of an exploding health care scandal. Apparently, many military veterans have died while waiting for appointments to receive care, although Department employees recorded that they weren’t waiting at all.

And why did those employees falsify their records? Apparently, they knew that the Department did not possess the primary care resources to serve the needs of the veterans. But they also knew that the Department was collecting wait time metrics, and that lower waiting times would be rewarded by higher compensation.

So, lacking the resources to improve the system’s performance, the employees falsified the measurements and collected the compensation. It was a simple, yet effective, scheme.

The case is reminiscent of many other situations in the education sector. Recent laws and programs such as No Child Left Behind and Common Core have heavily emphasized standardized tests. A school with students who produce low scores may lose its funding, and individual teachers who teach low scoring students may be penalized and even publicly shamed.

But public school funding levels have been slashed in the wake of the Great Recession, leaving fewer resources to invest in scholastic activities. So, lacking the means to improve their students’ test scores, many educators have resorted to falsifying those measurements.

An explanation, of course, is not an excuse. There is truly no excuse for falsifying measurements, certainly not with the intention of masking situations where veterans die awaiting care and children fail to receive a satisfactory education.

Nevertheless, when measurements are utilized to determine employee compensation during a period of scarce or inadequate resources, it isn’t difficult to explain why individuals will feel compelled to falsify records. In other words, these recent scandals certainly weren’t unforeseeable events.

How would you establish the right “mix” of performance measurement, compensation, and oversight activities at your organization?

The Debate About Employee Stacking

Can you believe that a dozen years have passed since General Electric’s iconic CEO Jack Welch retired and passed the helm to Jeff Immelt? Despite the passage of time, Mr. Welch’s pioneering theories of human resource management still dominate the strategic policies and procedures of many firms.

Consider Welch’s theory of employee stacking, for instance. Under Welch’s leadership, GE implemented a policy of assigning each employee a performance grade once or twice a year. The top 20% were then rewarded with promotions and bonuses, and were groomed to become the future leaders of the firm.

And the bottom 10%? They were “encouraged” (euphemistically speaking) to leave the firm.

Welch argued that this policy appropriately purged his firm of under performers and provided suitable attention and support to star employees. And today, many firms still follow this policy. In fact, even companies that compete in industries where employees must collaborate in teams — such as Yahoo, for instance — are practicing this stacking technique.

But last week, Microsoft decided to abandon its stacking policy. The reason? Its executives concluded that the practice greatly discouraged collaboration between divisions and among employees.

It’s easy to understand why Microsoft would arrive at this conclusion. Let’s assume, for instance, that Microsoft assigns ten programmers to a project team that intends to develop a service that competes with Twitter or Facebook. And let’s assume that all ten programmers are equally competent employees.

What would happen if the Project Director tells the ten team members that, every six months, (s)he will be forced by Microsoft executives to identify two star performers for promotion and one under performer for dismissal? Even though all ten employees are equally competent?

Such a policy would inevitably result in the use of minor, or even trivial, factors to distinguish star performers from under performers. The programmers would thus start to compete with each other about minor or trivial matters, and would not collaborate to develop a service that could compete with Twitter or Facebook.

That’s exactly what is now occurring at Microsoft; it explains why the firm has decided to abandon its policy of stacking. And yet CEO Marissa Meyer of Yahoo! and executives at other organizations continue to implement the policy.

Thus, human resource professionals will likely debate employee stacking for the foreseeable future. Indeed, the theory appears to be as controversial today as when Jack Welch first pioneered it more than a decade ago.