Employee absenteeism is a worldwide problem. One US solution could help all companies.

Employee abuse of the Federal Medical Leave Act (FMLA), also known as the "Take off anytime you want law," is financially damaging companies in industries ranging from manufacturing to aerospace. Although enacted more than 10 years ago, the cumulative effects are only recently becoming evident on a large scale. For example:

• A large manufacturing plant moved to Mexico due to losing approximately 68,000 work hours annually from intermittent FMLA abuse.

• A major airline discovered that increased intermittent FMLA abuse in reservation centers directly correlated to reduced ticket sales.

• A Fortune 500 software company's sales and technical support revenue dropped significantly in 2002 as a direct result of FMLA abuse.

• A major aerospace contractor (70,000 employees) has identified more than US $600 million in costs annually associated with absenteeism.

In other words, the handwriting is on the wall for the oil and gas industry because of its wide scope of potential liability. As more employees and plaintiff attorneys see what they can do to turn the system to their advantage, the oil and gas industry, based on sheer size, will see just how massive an impact FMLA non-compliance can have.

Oil company risk

An overview of the oil and gas industry's global scope and specifically a sampling of executive compensation provide a snapshot that can help reveal the outsized risks that oil and gas companies face from individual or class-action lawsuits.

Some of the more common news headlines involving the oil industry trumpet lawsuits about royalties, environmental pollution and shareholder dissatisfaction. Other legal problems are either more low-key issues or newly emerging ones that have not prompted companies to really take notice or be concerned. One of the new legal "hot buttons," while not currently lighting up the oil industry's radar screen, can potentially strike directly at executives themselves and not simply the corporation.

It's the bland-sounding FMLA, which at most would cause industry executives to dismiss even its discussion with a cursory "That's why we have a well-staffed human resources (HR) department. They'll deal with it. It's not on the agenda for company officers charged with E&P (exploration and production) responsibilities." But that's precisely the problem. HR is not effectively dealing with absenteeism and multimillion-dollar jury awards are beginning to accumulate, making it an "overnight" oil industry executive issue.

Absenteeism, sounding as humdrum as FMLA itself, is about as threatening as shifting snowdrifts - until they become avalanches. That's because absence management is wrapped inside three key issues that any executive typically does consider relevant to daily operations; risk management, workforce management and controlling administrative costs. And the new iron in the fire is personal liability for a company's executives and management. Therefore, risk management must tackle a new obstacle.

For instance, in November 2002, a jury awarded a plaintiff approximately $12 million ($750,000 in compensatory damages and $11 million punitive), finding two supervisors guilty of interfering with an employee's federal leave rights - with the supervisors being fined $400,000 each. The plaintiff claimed his employer forced him to choose between his job and caring for his sick parents and eventually fired him. Company supervisors literally paid the price.

Recommendations

To effectively manage risk both for an oil company and its executives/management, the first priority is awareness that this is a legal problem, a risk problem, an employee management problem and a major administrative problem. With absenteeism becoming one of the most serious issues facing corporations today, hark back to the onset of unionization. Many non-union companies were intent on remaining union-free because of the awareness about possible effects on operational productivity.

These effects usually took the form of grievances or strikes and the adverse impact of companies not being able to meet contractual obligations. Similarly, the new leave and absence regulations are becoming a significant operational issue, with a direct impact on companies' ability to properly staff and conduct daily operations.

Second, executives and management must demonstrate - from the oil field to the corporate penthouse - the commitment to ensure that the entire scope of employee attendance is tracked, administered and properly managed. If, as the old axiom goes, "Employees are our (a respective company's) most valuable resource," there must be an upper-level commitment to ensure that employees are actually at work doing their

jobs daily.

To carry out this commitment, there must be a collaborative effort among the chief executive officer, chief financial officer, risk manager, benefits administrator and HR director to get everyone "on the same page." Otherwise, HR continually finds itself pleading its case upward within the company ("We've got to do something about the effect of these complicated FMLA regs") instead of having a top-down commitment to proactively attack the problem.

Third, take the widely-practiced lessons-learned which began with the total quality management (TQM) movement. When TQM started taking industry by storm, its key features involved critiquing policies, procedures and practices to improve processes to the optimum level. Fast forward to today and executives should look beyond manual reporting to the technology advances in absence and leave management that have just recently become available.

Expedite solutions

While HR is still grappling with absenteeism by focusing all its efforts around tracking the number of absences occurring during a specific time period, a considerably scientifically-driven approach has evolved.

The science of absence management looks at absence patterns, frequencies and recurring reasons. Then, managers apply a statistical analysis showing specific employees who are absent significantly beyond the company's workforce norm through a statistical probability of their absence pattern versus that of other employees. Literally, individuals fraudulently claiming leave are pinpointed beyond reasonable doubt.

How much further can scientific methodology and technology go in converting a problem into an executive solution? Consider a fairly sizeable multi-site oil company with 36,000 employees. To properly administer leave and absence management manually, the company would require approximately eight full-time employees, each handling one leave every 3 hours. Think about the cost and productivity drain of that approach.

Using the systemized approach, manpower can be dramatically reduced to only three full-time employees, with the entire leave process only requiring about 45 minutes i.e., a 75% time saving. Another company using the systemized approach and technology has been able to reduce that number to one administrator for 19,000 employees. Yet, in contrast, other companies have 2,000 to 3,000 employees and two full-time administrators working manually.

With technology, the focus remains the same, but with quite different scenarios: reducing administrative time, reducing risk by significantly improving compliance with both federal and state leave laws, and helping identify those who are not properly utilizing the FMLA so that corrective action can be taken.

Proactive approach

One of the key reasons why companies do not have this issue under control is because, at most organizations in the oil patch and in industry generally, absentee problems never make their way out of HR. Instead, they are tracked, administered and reported as best possible by those who may have attended a quick seminar and misunderstood employee rights and related company responsibilities. In short, the situation is not being managed at a higher level.

When executive management steps into the picture, proactively becoming aware and committed, absenteeism can be effectively reduced which:

• reduces administrative time,

• reduces potential for loss of company assets and personal liability, and

• has a positive effect on employee morale and quality of work.

Even more, safety is a key issue in the oil and and gas industry, and reduced absenteeism reduces on-the-job accidents. When employees are on inappropriate leave of absence, their positions are often filled by others not as qualified or knowledgeable about the specific job at hand. Studies have shown that "fill-in" employees who have to immediately assume another employee's job or have to do crossover training are more likely to have accidents.

Looking ahead

In this litigious era, oil and gas executives at varied management levels cannot afford the luxury of either ignoring absenteeism as a viable issue or assuming that HR will do its job and protect them from corporate/personal liability. The mandate is straightforward: executives should take a proactive approach toward eliminating absence/leave abuse that should not be occurring and is wasting company resources on a large scale.

The challenge of the future is to aggressively deal with this issue to ensure that the law is being followed while minimizing the time required to accomplish this task. While this may not be simple, it certainly keeps risk management in the best position for all concerned.

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