BusinessWest Staff, Author at BusinessWest

Tenants Must Beware of the Hidden Costs Often Found in Leases

Stephen Shatz

In this day of concern about operating costs, tenants should be wary of hidden expenses in leases.
Basic rent is not the only cost. In fact, the items often labeled as “additional rent” may approach, if not exceed, basic lease payments.
Additional rent expenses such as real estate taxes, special district taxes, insurance, and other operating expenses are often charged and apportioned based on a tenant’s proportionate share of the square footage of a building. There are several items of concern with additional rent. Here are some that all business owners should be aware of, and they are often in the form of questions that must be answered:

• How is proportionate share calculated? If based on square footage, what system has been used (BOMA or other standard)? Has the space in fact been measured? Tenants should attempt to have the space measured or reserve the right to do so, and if there is a variance of say 3% of the lease square footage, the landlord should pay for the measurement, and, of course, the payments should be adjusted.
Also, are these costs to be calculated as an increase above an agreed base year and, if so, is it a calendar year or a tax fiscal year?
• Are “operating expenses” clearly defined in the lease? Are they for services provided by unrelated third parties? Not infrequently, these services are provided by a related company at costs that exceed market rates. Do operating expenses include depreciation or replacement of capital elements of the property? If they do, these costs might easily exceed basic rent.
What is of further concern is that the lease may say the landlord is responsible for capital repairs, but yet the additional rent provisions will attempt to pass on these costs to the tenant. Furthermore, tenants should reserve the right to audit all operating expenses, and again, if there is a 3% or more variance, the cost of the audit should be paid by landlord, and, of course, the payments should be adjusted.
• Tenants need to be careful in negotiating maintenance, repair, and replacement obligations. The elements of the leased premises that the tenant is required to maintain need to be carefully detailed. Avoid provisions that say the “interior of the leased premises and all elements therein” as a standard for the tenant’s obligations. This standard could easily require maintenance and repair to major mechanicals and HVAC systems, the costs of which could far exceed basic rent.
Care should be taken not to agree to “replace” the interior elements, because the cost of doing so for plumbing, HVAC, and electrical equipment could be quite high. In addition, replacement provides a windfall for landlords, because the elements so replaced easily could have a useful life far exceeding the lease term.
• Lastly, but not finally, care should be taken when agreeing to have either basic rent or operating-expense rent increased by rises in the so‑called “cost of living.” The standard measures for these increases are published by the U.S. Bureau of Labor Statistics and vary by region and by a description of the items in the shopping cart that are being measured. Energy costs and medical expenses tend to artificially inflate these indices, and every attempt should be made to use an index that does not use these highly volatile categories.

Though it is difficult to anticipate all potential hidden costs in a lease, a careful reading of the document and a successful negotiation can limit a tenant’s exposure to them and avoid unpleasant surprises.

Attorney Stephen A. Shatz, a shareholder with the Springfield-based firm Shatz, Schwartz, & Fentin, concentrates his practice in the areas of real estate development, real estate finance, and commercial leasing. He is a New England Super Lawyer in the field of real estate, 2004-present; (413) 736-0375.

Building Blocks

Commercial Real Estate Sections

Race Street Project Embodies Progress in Holyoke’s Innovation District

Martin Kane says the Race Street building that has become the Holyoke Professional Arts Center has “great bones.”

It’s called the Holyoke Professional Arts Center, or PAC, a retrofitted old mill building on Race Street in Holyoke that was once home to a company that made slitter knives. Soon, the Providence Prenatal Center of Holyoke and Tapestry Health will be tenants and thus part of a revitalization that is helping to change the look and feel of the city’s downtown and a section known as the Innovation District.

The banner gracing the front of the building at 306 Race St. in Holyoke is 25 feet wide, and it needs every bit of that length to contain all the information crammed onto it.
If one has the time and inclination, he or she could stop, read, and learn that the more-than-century-old, two-story, 18,000-square-foot building is now called the Holyoke Professional Arts Center (PAC) at Mahoney Place, with the latter part of that name referring to family members of the property’s owner, Jeff Cunningham. One could also see the creative logo for this facility, with a flywheel, similar to the ones that can be seen in the ceiling on the second floor, inside the ‘C’ in PAC.
Reading on, one could learn that the Providence Prenatal Center of Holyoke, a component of the Sisters of Providence Health System, and Tapestry Health, an agency that provides a wide range of health services to women through several locations in Western Mass., will be the first new tenants in the center. And, when seeing the name of the brokerage firm (King & Newton) handling the building — as well as a phone number and Web site — one could surmise that there is still space to be leased — roughly 10,000 square feet of it, to be more specific. Reading still further, one would note that Southbridge Savings Bank financed this endeavor, and also see some commentary in the form of a line that announces this project as “a new era in the rebirth of Holyoke.”
But while this banner tells much of the story concerning this downtown landmark and what its reuse means in the larger scheme of things, it doesn’t tell it all. Indeed, there is a lot of history to this building, and an intriguing series of developments that led to an elaborate construction kick-off ceremony on April 7, said Martin Kane, the broker with King & Newton who has handled the building for years and worked with Cunningham to give it a new start.
Meanwhile, this project is just one of several that are changing the look and feel of this section of downtown Holyoke — a few nearby buildings have been converted into artists lofts and a new convenience store recently opened — and there is the promise of much more to come.
That’s because 306 Race St. sits directly across the canal from the property that will be transformed into the Green High Performance Computing Center that is expected to fuel additional development in the downtown area, across Holyoke, and perhaps well beyond.
“We’re seeing a lot of interest in properties in that section of the city,” said Kathy Anderson, director of the Holyoke Office of Planning and Development. “We’re meeting with people and talking, and in the meantime we’re looking at what we need to do to spark private development there.”
Anderson said there are more developments — from new stages of the city’s canal walk project to the possible reintroduction of commuter rail service after a more-than-40-year absence, that could spur more progress in the central business district of the Paper City and a section now known as the Innovation District. Taken together, the initiatives are a classic case of public-sector investments designed to inspire private-sector spending.
“There’s private development happening, and that’s what we were hoping for,” she said of the Race Street project and others like it. “The Innovation District Task Force is charged with creating ways to leverage the high-performance computing center, to take advantage of it and make something more happen in Holyoke and the region because of it.
“This is just one small project taking shape across the canal,” she said of the PAC. “They’ll be seeing what’s going on outside their windows; people are getting excited about this — there’s a lot of interest in downtown Holyoke.”
For this issue and its focus on commercial real estate, BusinessWest takes an indepth look at the Race Street project and how it is just one small example of progress in Holyoke’s downtown, and evidence of that new era in the rebirth of Holyoke that the banner announces.

Building Momentum
“Great bones.”
That was the descriptive phrase Kane used at least a few times to describe the L-shaped Race Street building as he gave BusinessWest a tour of all three levels. “Rock solid” was also tossed out a few times for emphasis.
Such language was deployed to convey the sentiment that while this property has seen better days, it certainly has intriguing ones ahead of it, and has the foundation, in more ways than one, for new and intriguing uses.
Tracing the history of the property, Kane said it dates back to the late 19th century, and has housed a number of different manufacturing operations over the years. Most recently, it was home to Service Machine, an outfit that made slitter knives, which was purchased by Cunningham, a Worcester-based real estate developer, several years ago.
After that business and its equipment were moved to another facility owned by Cunningham, the property stood vacant for some time, said Kane, adding that Cunningham approached him in early 2008 to explore new options for filling the square footage.
“He asked me what I thought the highest, best use was,” Kane recalled, “ and I told him I thought it would be a good location for offices and service businesses.”
Plans to lease out the property for such purposes hit a brick wall in the form of the Great Recession, which created a huge glut of manufacturing, office, and warehouse space in Holyoke and across the region. But when Kane offered the site as a possible option for administrators at the Providence Prenatal Center of Holyoke, who were looking to trade up from space on High Street, there was strong interest.
“We explored it, and it got to the stage where there were lease negotiations, but nothing came from them,” said Kane, adding that by the spring of 2010, Cunningham was ready to put the property on the market, when the SPHS was approached one more time.
This time, a deal was struck, he said, adding that several months later, Tapestry Health, which has an office on Main Street in Holyoke, signed a letter of intent to relocate to the Race Street facility. Those two agencies will occupy the first floor of the building, said Kane, adding that the 6,000 square feet on the second floor and roughly 4,000 square feet in the lower level have a number of potential uses.
As he gave his tour, Kane gestured out an open window on the second floor to the buildings across the canal that will become the high-performance computing center, and expressed the hope — and expectation — that the much-anticipated project would attract a number of technology-related ventures to the downtown area.
“This would be an ideal site for a Web-development company,” he said of the longer leg of the ‘L,’ which has several of those aforementioned flywheels in the ceiling. “The computing center could generate a lot of interest in this space.”
The same could be said for the whole of Holyoke’s so-called Innovation District, said Anderson, adding that the HPCC is the largest of several developments that could bring new businesses — and greater vibrancy — to the downtown.
Another is the potential for the return of commuter rail, last seen in Holyoke in the late 1960s, she said, adding that the Paper City would be part of service that would run from New Haven into Southern Vermont.
City officials are currently looking at two options for a train station — the former station on Bowers Street, designed by HH Richardson, built in 1883, now owned by the Holyoke G&E, and vacant for some time, and a site for new construction at the corner of Dwight and Main Streets.
“We’re trying to get a train station up and running by the time the train goes by,” said Anderson, adding that the larger mission is to make infrastructure improvements that will connect the recently opened intermodal transporation center on Maple Street, as well as the canal walk, to that train station, wherever it is located.
Meanwhile, the canal walk project is bringing more vibrancy to the downtown area, said Anderson, adding that open studios conducted by groups of artists now located in buildings on nearby Dwight Street are creating more foot traffic in the area. One goal, long term, is to utilize a section of Race Street between Appleton and Dwight Streets for open-air festivals.
Overall, city planning officials are talking with developers now making inquiries about downtown Holyoke and its Innovation District, while also working to determine what additional steps can be taken to inspire and facilitate private-sector spending.
“We’re looking at it from the prospective of what we need to do to create more growth in that area,” she explained. “What type of public investments do we have to make in order to spur private development? We’re looking under the street, on top of the street — do we need to work on our water-supply system or fiber optic infrastructure? We’re preparing for the future growth of the city for the next 30 to 50 years.”

Positive Sign
The banner across the front of the Race Street building provides some good reading, and the expectation is that there will be more of these to appear on downtown properties in the months and years to come.
In many ways, it is a sign of the times, a sign of progress, and a sign of how public investment can spur private development — in both a figurative and very literal way.

George O’Brien can be reached at [email protected]

Counting on Them

A list of area accounting firms

Click hereAccountingFirmsBW0411b

Tax-exempt Bonds

These Are Commercial Loans at Below-market Interest Rates

Gary Fentin

For business owners and nonprofit managers, there is a way to finance your next capital project from your own bank, on the same terms you would obtain conventionally — but at a reduced interest rate.
The vehicle is a tax-exempt bond issued by the Mass. Development Finance Agency (“MassDevelopment”), a product that comes in several forms, including industrial revenue bonds (IRBs), bonds for nonprofit organizations (501c3 bonds), and bonds for other eligible entities.
But what is a tax-exempt bond? What do they cost? How do you get one? Who is eligible? Are they more trouble than they’re worth? These are all commonly asked questions.
This article is geared primarily to tax-exempt bonds that are purchased by a bank or single lending institution. Bonds that are publicly issued or credit-enhanced involve additional parties and additional cost. Here are the answers to those questions and several others.

What is a Tax-exempt Bond? It is a financing vehicle that works basically like a loan from a bank that satisfies certain federal tax and MassDevelopment requirements. From the borrower’s and the bank’s perspective, it looks and feels like a regular bank loan, typically with the same payment terms and collateral as the borrower would obtain generally, but with a lower interest rate.

What are the federal tax requirements? The primary federal tax requirement is that the project finance capital costs incurred for qualified initiatives. Although there are other federal tax requirements, if your project qualifies and you feel that a bond is cost effective, you should contact MassDevelopment or the author of this article to inquire regarding qualification.

What are the MassDevelopment requirements? MassDevelopment must approve the project and the applicant. This is a fairly straightforward process that includes speaking to the local MassDevelopment representative for Western Mass., Frank Canning, and completing and submitting an application. Canning will coordinate with one of the agency’s bond counsels to review the application and to prepare the forms of votes for the agency approval and notices of public hearing. Shatz, Schwartz and Fentin, P.C. is the only approved MassDevelopment bond counsel firm with offices located west of Worcester.

What is a qualified project? Tax-exempt bonds are available to finance eligible capital costs incurred in Massachusetts by manufacturing companies, 501(c)(3) entities, and certain assisted-living and long-term-care facility developers, affordable rental housing developers, and solid waste and recycling facilities.

What do they cost? The cost of an IRB includes the following: (1) the cost the borrower would otherwise incur to close a conventional loan for the same project with a bank (2) plus MassDevelopment’s issuance fee and the cost of bond counsel, which is generally $12,000 to $13,000. For a bond amount of $2 million, MassDevelopment’s fee would be $20,000 (1%) for a manufacturing project, or $10,000 (.5%) for a 501(c)(3) project, plus $13,000 bond-counsel fee, for a total of about $33,000 for a manufacturing project and $23,000 for a 501(c)(3) project.

Are they worth the money? Typically the interest rate on a bond is up to 2% or more less than conventional financing. For a $2 million bond, the interest savings could be $40,000 in the first year, which would pay all of the extra issuance costs in one year. The savings on a $1 million bond ($20,000) would pay the extra issuance costs in about one year for a 501(c)(3) project, and in about 1.5 years for a manufacturing project.

What does bond counsel do? Bond counsel is responsible for filing the necessary federal and state approval and filing documents, drafting the basic bond documents, and issuing an opinion that interest payments received on the bond are exempt from federal taxation. The exemption from federal taxation of interest on the bond is the reason that the bank can charge a lower interest rate and still earn a similar after-tax yield as it would have received on a conventional loan.
Bond counsel is also allowed to represent the borrower or the bank, in addition to acting as bond counsel.

Who should you contact to see if you are eligible? Frank Canning at MassDevelopment, 1350 Main St. 11th Floor, Springfield, MA 01103; (413) 731-8848; [email protected]

How long do they take to get? A bond can usually close on the same closing schedule the bank and the borrower would use for a conventional loan. Generally it takes about 4-6 weeks to close a bond from the issuance of a bank’s commitment letter, which is the time that the borrower and the bank generally need to prepare and submit their respective due diligence items.

Attorney Gary S. Fentin is a shareholder of Shatz, Schwartz and Fentin, P.C., and concentrates his practice in the areas of commercial and real estate finance and development, industrial revenue bonds, affordable housing, estate planning, business law, and business foreclosures and workouts. He is the only approved bond counsel for Massachusetts Development Finance Agency with offices located west of Worcester; (413) 737-1131.

Taking a Look at Roth 401(k)s

This Plan May Have Attractive Benefits for Many Individuals

Roth IRA conversions received a lot of press coverage in 2010 because the income limitation on these conversions disappeared. The Roth 401(k) has received much less attention, but offers similar tax-free growth advantages to a Roth IRA. Indeed, even if you decided a Roth IRA conversion was not right for you, Roth 401(k)s are worth a look.
A Roth 401(k) is a retirement savings plan that may be offered by employers in addition to a traditional 401(k) plan. Both of these plans allow employees to designate a portion of their current salary to be contributed to the plan with the intention of using it to pay for retirement expenses in the future. The essential difference between these two types of 401(k)s is that unlike a traditional 401(k) plan, contributions to a Roth 401(k) are made with after-tax dollars. However, qualified withdrawals from your Roth 401(k) are not subject to income taxes, unlike withdrawals from a traditional 401(k).
The Roth 401(k) first became available in January 2006. According to a 2011 survey by benefit consulting firm Aon Hewitt, more than 36% of mid-to-large companies now offer a Roth 401(k) retirement plan, and this number is expected to reach 50% of employers by 2012. Non-profit and public employers that offer a 403(b) also have the option of offering a Roth 403(b), which follows most of the same rules as a Roth 401(k). So, chances are you currently have or will soon have the opportunity to contribute to a Roth 401(k) and may want to examine whether switching your contributions from a traditional 401(k) to a Roth is beneficial for you.

Let’s look at some important features of the Roth 401(k):

• There is no income ceiling for contributors — employees at all income levels are able to make contributions.
• Contributions are made with after-tax dollars, and “qualified distributions” may be withdrawn without tax or penalty.
• Contribution limits for 2011 are the same as a traditional 401(k) or 403(b) — $16,500 per year and $5,500 additional catch-up contributions if you are over 50.
• After age 59½ — and at least five years after the first contributions to a plan — investment earnings can be withdrawn tax-free.
• Minimum annual distributions must begin at age 70½, though a Roth 401(k) can be rolled into a Roth IRA, which does not require withdrawals.
• Employer contributions or matches will be made on a pre-tax basis (the same as a traditional 401(k)).

Perhaps the most crucial consideration in weighing a decision between a traditional or Roth 401(k) is your tax bracket — now and in the future. If you expect to be in the same or a higher tax bracket when you retire, a Roth 401(k) could result in greater savings. However, if you think you will be in a lower tax bracket after you stop working, it may be preferable to contribute to a traditional 401(k). The younger you are the more compelling the Roth 401(k) is likely to be.
Also, if you are a higher-income employee and are expecting tax rates in general to rise, you might also find a Roth 401(k) attractive because you will be paying the income tax on your contributions at today’s rates. If you are uncertain about tax rates in the future, you may want to stay with a traditional 401(k). As an alternative you might want to consider, separate annual contributions to a non-deductible IRA and then convert the non-deductible IRA to a Roth IRA. In this way, you have diversified your future tax burden by having both tax-deferred and tax-free income sources.
Let’s look at some situations that apply to managers and employees at all levels.
A young manager in her 30s and just starting out in the workforce may anticipate that her earnings will be much higher in the future and thus will be subject to higher tax rates. This person is likely to find contributing to a Roth 401(k) to be advantageous until she is in a higher tax bracket. She can fund the Roth 401(k) now with after-tax dollars and never have to worry about paying taxes on it in the future.
An executive in the middle of his or her career may currently be in one of the top tax brackets. In this case, contributing to a traditional 401(k) will allow him to defer taxes now when his tax rate is high and pay them in the future when his tax rate is lower.
A manager near the end of his career who will likely be in the same or higher income tax bracket during retirement may benefit from contributing to a Roth 401(k). Making contributions now to a Roth 401(k) using after-tax dollars will eliminate the possibility that these dollars would be subject to higher taxes in the future.
If you decide to move forward with a Roth 401(k), make sure you review how it will impact your net take-home pay. Most people select the amount they will contribute to retirement plans based on a percentage of salary. It is important to remember that if you currently contribute 10% of your salary to a traditional 401(k) and you switch to a Roth 401(k), your net take-home pay will decrease because you will need to start paying taxes on the amount contributed to your Roth 401(k). It is recommended that you ask your payroll department to calculate the difference in net take home pay from contributions to a Roth 401(k) vs. a traditional 401(k).

Doug Wheat, CFP, is a financial planner with Family Wealth Management; www.fwmgt.com.

The 401(k) on Auto Pilot

These Tools Can Help Secure Individuals a Paycheck for Life

Charlie Epstein

We live in a world of automatic. From your coffee maker to your car, automatic makes our lives easier every day.
And since the Pension Protection Act of 2006, automatic has made its way into the world of the 401(k). This has greatly helped plan sponsors encourage their plan participants to save more and build their retirement accounts. There are four ‘automatic’ tools that can help ensure successful retirement outcomes for 401(k) plan participants: automatic enrollment, automatic increase, automatic default, and automatic open re-enrollment.
Here’s how they work:

Automatic Enrollment
This first automatic tool allows employers to automatically enroll their employees as participants in their companies’ 401(k) plans. This feature uses the inactivity of employees to their advantage. About 18% of large employers (companies with 1,000 or more employees) automatically enroll all employees (both new and existing workers). Considering that the opt-out rate in these employers’ plans is less than 10% of employees who are automatically enrolled, this feature does a great deal to boost enrollment.
If they do not opt out of participating in the plan, participants will begin saving for their future without even lifting a finger.

Automatic Increase
Automatic increase is another great feature to use in increasing the amount that each participant contributes to his or her plan. A 10% contribution rate provides for a successful retirement that also helps to offset inflation. However, many participants are currently saving on average well below this level. By automatically increasing contributions 1% each year up to 10%, plan sponsors can help to steer their plan participants in the right direction toward appropriate savings for retirement.

Automatic Default into a Qualified Default Investment Account (QDIA)
Today the majority of 401(k) plans allow individual participants to exercise control over the investment decisions of the assets in their 401(k) plan. But what happens if a participant enrolls in the plan but never elects where his or his employers matching contributions should be invested? In the past, this money was directed to a money market account, where it may remain for years. What happens if that employee is only earning a paltry 1% for 30 years? Who will be deemed responsible for that investment choice?
To provide protection to the plan sponsor fiduciary (think you, the business owner) from bearing the personal liability for an employee’s lack of interest in their 401(k) choice, ERISA allows the plan “fiduciary” protection to automatically direct 401(k) participants’ money to a qualified deferred investment account — typically a lifestyle fund, balanced fund, or target-date fund. This greatly relieves the plan sponsor of the burden of chasing down participants to make investment elections.
While the plan sponsor is still responsible for justifying the QDIA it selects and continuing the due-diligence of these funds, this feature provides fiduciary protection. When a participant is automatically defaulted into a QDIA, the plan fiduciary is protected against an employee lawsuit regarding that choice. This automatic feature not only protects plan sponsors and fiduciaries from a lawsuit, but it also protects employees from making poor investment selections.
The majority of 401(k) participants fall into the “don’t know and don’t want to know how to invest” group. For this reason, more than 70% of new 401(k) contributions go into a QDIA . By educating plan sponsors and fiduciaries, plan advisors can provide direction and confidence in their QDIA choice.

Automatic Open Re-enrollment
The automatic open re-enrollment keeps participants in a plan. Once a year, participants receive a letter stating that they will have 30 days to review their investment choices and, unless the plan sponsor receives notice otherwise, they will be automatically enrolled into a QDIA. The result of this feature has increased employee involvement in a QDIA, which, in turn, enhances the employer’s fiduciary protection.
It’s no secret that if employees and plan participants are left to their own devices, they will, most likely, not save enough for retirement. This retirement-savings auto-pilot program is attractive to plan sponsors and fiduciaries because of the liability protection it provides. It also pays dividends for the plan participants, because they are automatically positioned as intelligent savers, enrolling in their company’s 401(k) plan, automatically escalating their contributions, defaulting into a QDIA, and re-enrolling into that account. Automatic is a great innovation, and it has benefited and will continue to benefit the 401(k) industry well into the future.
Automatic enrollment has already been adopted by 40% to 50% of employers. However, many smaller and mid-size plans have been reluctant to add these features, for fear of negative feedback from their employees.
The benefits of these automatic features should not be overlooked by both small- and medium-sized businesses, and their employees. For the owner or an over-staffed administrative person, there is greater ease in gaining employee participation in a valuable benefit that you are sponsoring and paying for. In addition, the fiduciary protection afforded by ERISA makes these features even more enticing.
For the employees, ease of participation and in the end, greater employee success in replacing their future income and creating a paycheck for life make this a win-win feature for everyone.

Charlie Epstein, CLU, ChFC, AIF® is the founder of The 401k Coach® Program (www.the401kcoach.com), which offers expert training for financial professionals to develop the skills, systems, and processes necessary to excel in the 401(k) industry and facilitate successful retirement outcomes for plan sponsors and participants. Epstein has frequently been named to 401kWire’s Top 100 Most Influential People in the 401(k) Industry List and Top 300 Most Influential DC Advisor List and was recently named to the Legg Mason Retirement Advisory Council.

Room to Grow

New Monson Savings Bank President Has Ambitious Plans

Steven Lowell says his primary goal is to continue Monson Savings’ strong growth pattern.

Under the leadership of just-retired President Roland Desrochers, Monson Savings Bank tripled its assets over the past 15 years while adding two branches, a loan center, and a host of retail and business programs. After he announced his retirement last year, the bank’s trustees launched a search for someone with the vision to take MSB to the next level. They think they’ve found that person in Steven Lowell, who says he wants to continue to grow market share while maintaining the community ties that customers have come to appreciate.

Steven Lowell knows something about growing community banks.
As chief operating officer and executive vice president of Cape Cod Cooperative Bank, he saw that institution expand from $150 million in assets to more than $580 million today.
He also knows something about long commutes, for years spending about three hours each day in the car between his workplace and his Central Mass. home.
In his new position as president of Monson Savings Bank, he plans on continuing one of those trends and drastically reducing the other.
“Commuting to Monson isn’t nearly as bad as going to the Cape,” he said. “This has cut my commute in half, so that’s been quite pleasurable.”
That should give Lowell plenty of extra time to contemplate ways to continue a similar growth pattern at MSB, which, under recently retired President Roland Desrochers, has seen its assets increase from around $80 million to $236 million in 15 years. The new man in charge says that’s only a start.
“I like building things, and clearly this bank is at a point where it needs to grow,” Lowell said. “Roland has done a great job growing it to the size it is, but it’s getting harder and harder for a small bank to be able to compete. The bank has built a great infrastructure; now we’ve got to build the size of the bank to fit that infrastructure.
“The opportunity to manage that growth is a huge appeal to me,” he continued. “I had the experience of doing that on the Cape, and I look forward to doing similar things here.”
Desrochers, who will stay on as CEO until June to oversee the transition in an advisory role, is pleased with who the bank’s trustees chose as his successor.
“I felt it was appropriate to provide as much time as possible for the board to make a decision about the individual who would replace me,” he told BusinessWest. “So I announced my retirement to the board last June, and we started the search process last September.”
The bank appointed a search committee and hired a search firm to manage the process and identify a number of candidates to interview. Eventually, they whittled the list to two, and in the end chose Lowell.
“He has a community-banking background, so he definitely fit into our culture,” Desrochers said. “He’s used to working in the community as well, which is an important facet. He’s knowledgable in business, and we felt he would work very will with the management team.”
Lowell said the transition has been smooth.
“Roland has been really helpful, introducing me to people in the community, helping me get ingrained in the culture of the bank,” he said. “We are a community-based organization, and that’s been my background, too. That part of the transition has been really easy. I think I’m the beneficiary of what Roland has set up here.”
Desrochers said the bank’s threefold growth in assets in the past decade and a half are a product of a deliberate, controlled growth plan. As opposed to the rapid branch proliferation of other regional institutions, MSB has added a loan center and expanded from one branch to three (adding sites in Wilbraham and Hampden) during his tenure.
“We’ve had pretty good growth, and it’s been profitable growth,” he said. “I think that’s an integral part of it. You just can’t grow for the sake of growth; you’ve got to make sure you have profitable growth and can maintain and increase your capital position.”
“It was challenging initially as an $80 million institution — talk about economies of scale,” Desrochers added. “We weren’t doing very many retail products at the time, there hadn’t been many loan products, so we needed to expand those areas. We were just a small, sleepy, small-town bank, and there’s nothing wrong with that by any means, but we needed to do something to make sure it existed longer-term.”
Now that Monson Savings has secured a stronger foothold, Lowell intends to shepherd the 139-year-old institution to the next level. For this issue, he spoke with BusinessWest about how he plans to do that, and why he’s feeling positive about much more than a shorter commute.

High Tech, High Touch
Lowell said one of the things that impressed him about MSB was the caliber of its management team — “a really positive sign for our ability to grow in the future” — but also its Internet offerings, from its online banking services to remote-deposit capture for businesses and a mobile-banking platform that’s in development.
“The use of technology is very impressive for a bank of this size,” he said. “They have done most of the things larger banks, including the one I came from, have done; for an organization of this size, we’re really ahead of the technology curve. It’ll be a challenge to continue to do that, but it’s very important. Customers are all about convenience, and technology allows you to be as convenient as the major banks.”
Community banks these days, he explained, must balance strong in-person customer service — traditionally one of their main selling points — with the ease of the online experience, Lowell added.
“That’s the challenge. We do a great job with customers in our lobby — that’s how we build relationships — but we also want to deliver that high level of service electronically. If we can do that, then everyone wins.”
The bank also uses an active Facebook page to reach out to customers. Desrochers recently spearheaded a project to ask customers on the social-networking site to identify nonprofits and charitable organizations they would like the bank to support; MSB made contributions to the top 10 vote-getters, on top of its other giving for the year.
“It was a great program and very well-received,” Lowell said, “and it helps bring us closer to our customers and the community.”
But philanthropy only goes so far in attracting and retaining customers, and Desrochers touts a number of retail initiatives introduced in recent years, such as First Rate Checking, a high-rate savings product tied to a checking account; Cash Back Checking, an account that pays the depositor back when they use their debit card; and NextGen Banking, which targets specific age groups with different features, such as enhanced online and ATM access for college-age customers.
“NextGen Banking has turned out to be quite popular,” he said. “Part of that is financial literacy and teaching younger people how to manage their money in a way that’s responsible and hopefully builds them into good customers for the future.”
Lowell also noted that the bank allows use of foreign ATMs and refunds the fees customers incur by using them — an appreciated service at a bank with only five of its own ATM locations. “A customer on the Cape may have trouble finding us, and it’s important that they have access to our products,” he said.
Desrochers agreed. “Everyone’s looking for convenience, what makes it easy for them,” he said. “That’s also true on the business side. We have cash management we’re able to offer through our technology. It really allows businesses to keep watch over their money and move money around electronically.”

Better Days

Roland Desrochers described his 15 years at Monson Savings as a very exciting time for the bank.

These products are being offered at a time when banks are starting to see business tick up after some sluggish years, particularly in business lending.
“We’re starting to see a little more demand for commercial loans,” Lowell said. “We see signs that companies are willing to start reinvesting in their businesses and expanding — certainly not at a really fast level, but there are positive signs, and we haven’t seen those for awhile.”
Lending for home purchases, however, remains stagnant. “The big concern is that everyone has refinanced their mortgage, so the residential-mortgage business is really slow,” he said. “Unless we see property values go up and people looking to build new homes, that’s going to continue to be low for a little while.”
That trend is balanced by an ever-growing line of investment and insurance products that make Monson Savings, as Lowell put it, “pretty much a one-stop shop” for customers who want that.
“We have financial services available to both retail and commercial customers,” Desrochers added. “It’s nice to be able to say we have these mutual funds or annuity products. We can also help businesses with 401(k)s, life insurance, things of that nature. Those are important products to be able to offer.”
Overall, it adds up to a strong foundation on which to build, Lowell said.
“The primary goal is definitely to grow the size of the organization,” he told BusinessWest. “We know it needs to be larger in order to remain relevant in the marketplace, so we’re looking to do that.
“We’re also looking to expand commercial lending, and it doesn’t have to be limited to the three towns where we’re located,” he added. “We also need to keep a close watch on expenses; we need to remain profitable.”
Meanwhile, being a community bank, he stressed the importance of continuing the bank’s civic responsibilities.
“Right now, 10% of our bottom line goes back to the community in donations,” Lowell said. “That’s something the bank has done in the past that we’re looking to keep doing as we go forward. It’s a win-win for everyone; we get our business from the community, and for us to give back to the community, I think, completes that deal.”
As for Desrochers, he has no regrets upon leaving in June.
“This is why I’m retiring,” he said at one point, holding up the mug from which he had been sipping.
No, he’s not going into the coffee business. On the plastic container are several photographs of his grandchildren, a 6-year-old and a 3-year-old twins. Despite the regulatory and other challenges in banking today, he’s enjoyed his time at Monson Savings, but at this point in his life, he says he will enjoy the extra time with his family even more.
“I can’t believe it’s been 15 years already,” he said, “but it’s been an exciting time.”
Steven Lowell thinks the future can be just as exciting.

Joseph Bednar can be reached at [email protected]

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Exercise in Sound Management

For Lower Insurance Premiums, it Pays to Keep Employees Fit

Healthier employees lead to lower premiums, according to numerous studies. If companies can help their workers improve their health without cutting benefits or shifting more premium costs to employees, where is the downside? After all, Fortune 1000 companies have been using wellness programs for years to combat the rising costs of health care.
So, the question is, why aren’t smaller companies using this proven method to lower their health care costs?
Randy Boss, a risk architect for Ottawa Kent Insurance in Jenison, Mich., helps companies implement successful wellness programs. And he says he can understand how employers feel.
“They’re frustrated because most likely they have tried things that didn’t work,” said Boss. “There seems to be a wellness vendor on every street corner these days and many use ROIs from Fortune 1000 wellness programs as their own, yet they had nothing to do with that program.”
All wellness programs are not equal! This is a very important problem and something companies need to understand when selecting the appropriate wellness program for their company.” Secondly, Boss says, “businesses tend to think short-term and not long-term, and expect to see solid and immediate savings on their health care costs.”
Yet, the benefits of having healthy workers transcend reduced health care costs, including workers’ compensation and lower absenteeism. Healthy workers are less prone to injury and when injured, they recover quicker than less healthy workers. Conversely, out-of-shape workers are at a higher risk for injury and healing is often delayed and complicated by other health factors. If workers change and modify their lifestyle and reduce their health risks, medical costs decline.
While this may seem intuitive, the connection between wellness and workers’ compensation has been slow to take root. The reasons appear to be separate risk-management departments overseeing workers’ comp and group health, concerns about expanding the employers’ liability for work-related injuries, a focus on workplace safety rather than workers’ health, and a number of small companies with high workers’ comp costs that do not offer health insurance have all been contributing factors. Still, one of the major areas of concern for employers is an out-of-shape employee.
According to a recent Duke University study, the cost of obesity among full-time employees is estimated to be $73.1 billion a year. This is the first study to quantify the total value of lost job productivity as a result of health problems, which is more costly than medical expenditures.
The report recommends that employers promote healthy foods in the workplace, encourage a culture of wellness from the CEO on down, and provide economic and other incentives to employees who show signs of improvement. And there is evidence that this plan can work for employers.
A University of Michigan study of a Midwest utility company’s workplace wellness program found that over nine years, the utility company spent $7.3 million for the program and reaped $12.1 million in savings. Medical and pharmacy costs, time off, and worker’s compensation factored into the savings. The study, which took into account a number of costs, including indirect costs of implementing wellness programs, such as recruitment and the cost of changing menus, showed that wellness programs work long-term even though employees aged during the course of the study.
Overall, the program cost the employer $100 per employee. The cost of lost work time, workers’ compensation, and pharmacy and medical expenses among employees who participated each year increased by $96, compared with a $355 increase among employees who did not participate.
This is good news for employers. Amid heightened cost pressures and leaner staffs brought about by the prolonged economic downturn, employers need to reduce all types of absences to help maintain productivity. While employers tend to focus their energies on controlling the highly visible health care costs, which are more easily shifted, there are significant opportunities to control other costs with wellness programs.
On average, employers can see a 30% reduction in workers’ compensation and disability claim costs, according to a review of 42 published studies involving the economic returns of wellness programs. Moreover, such programs will reduce the costs of absences that, according to the 2010 Kronos/Mercer Survey on the Total Financial Impact of Employee Absences, add up to 8.7% of payroll costs, more than half the cost of health care.
It stands to reason that healthier employees will use less sick time. But ultimately, companies need to make a commitment to helping their employees stay in better shape.
“Employers should focus on health and wellness at work,” says Boss. “Businesses should allocate 2% to 3% of their budget to an effective program that includes at least 90% participation by employees and a wellness coach on site to effect behavior change.”
Although budget and company size will dictate the type of program a company can undertake, there are five steps that companies should take before launching a wellness program:
Evaluate. Know your cost drivers. Analyze workers’ compensation, health care, and absenteeism data to identify common issues and trends. Understand the legal regulations governing wellness programs.
Do a workplace assessment. Examine the physical and cultural framework in which the wellness program will operate. Consider opportunities for on-site physical activity, partnerships with community wellness providers, local gyms or health and nutrition classes, on-site vending machines and cafeteria, etc. Identify the interests and motivation of employees as well as barriers to employee participation through surveys, wellness committees, along with an analysis of past efforts.
Educate. For several years, businesses have been shifting more of the costs of health insurance to workers through increased premiums and higher deductibles. Since 2005 workers’ contributions to premiums have gone up 47%, while wages have increased 18%. Employees are feeling the pinch. Show them how participating in a wellness program can affect premiums as a result of making less use of medical care.
Obtain management support. A wellness program will not succeed without the ongoing support of management. Communicate the goals of the program and assess the commitment of supervisors and management.
Identify goals and metrics for measuring success. When implementing a wellness initiative, senior management will want to see a return on investment. Establishing a consensus on the goals or metrics for measuring the success of the program will help shape the program and ensure its success.
When it comes to implementing a wellness plan at your place of business, it’s really all about risk versus reward. And the rewards can be huge, but only if the plan is properly implemented and the management team is committed to its success.

Preston Diamond is managing director and co-founder of the Institute of WorkComp Professionals (IWCP), based in Asheville, N.C. In 2010, IWCP created a sister organization, the Institute of Benefits & Wellness Advisors, that trains, tests and certifies select insurance professionals to apply the concepts of risk management to benefit; (828) 274-0959.

Workforce in Progress

Employment Board’s Strategic Plan Identifies Challenges, Game Plans

Bill Ward says that one of the goals of REB’s new plan is to have the organization become known as the leading source of regional labor market information and innovative ideas.

The days when a college degree or training certificate combined with years of experience were enough to ensure job security and a steady path toward advancement have all but disappeared.
Today, rapid advances in technology and outsourcing have made job competition fierce. In fact, one of the key findings in the recently released Regional Employment Board of Hampden County Strategic Workforce Development Plan for Hampden County 2011-2013 is that life-long learning is essential to job creation, retention, and the economic health of the region.
The report, which took nine months to produce and involved partnerships, collaborations, a retreat, and data compiled over a six-year period, paints a clear picture of the state of the region’s economy, workforce trends, challenges, and opportunities for growth.
REB Executive Director William Ward says the plan also creates a framework for solutions to the identified challenges and covers a broad continuum, which begins at the pre-school level and runs into the future, addressing gaps that local businesses anticipate over the next decade.
“The REB is embarking upon a new and more expansive strategic direction, and we’re looking at workforce development in a more comprehensive way, because we want to build a more prosperous community,” Ward explained. “One of the essential components of a high quality of life is safe, secure employment with adequate pay.”
Meanwhile, he continued, there is a direct relationship between the number of people with the requisite skills to fill open positions and the strength of the economy in Western Mass.
“When a company inquires about moving to a new location, one of its top three questions is, ‘what is your workforce like?’ he told BusinessWest, adding, “people call it ‘talent management.’ So, the REB looks at jobs and their connection to human capital and views it in terms of supply and demand. We ask what employers are looking for and then look to see whether we are producing sufficient numbers of people to meet their needs, or overproducing them.”
Ward said many jobs have moved to Boston, which has an economy based largely on higher education, health care, and financial services, due to the abundance of qualified talent there.

REP staffers Kelly Aiken and David Cruise are focusing on training in health care and precision manufacturing, respectively, to meet the needs of businesses today and in the future.

Still, health care is the largest employer in Western Mass., and the area boasts a large number of precision manufacturing companies not found in the Boston region, he said. These two sectors play prominently in the report, along with the need for more education for people along the continuum.
Ward said that last year, more than 20,000 area residents sought employment assistance at the REB’s one-stop career centers in Springfield and Holyoke (FutureWorks and Career Point, respectively), but fewer than half were able to secure jobs. At the same time, many good-paying positions went unfilled, especially in health care, precision manufacturing, human services, and financial services. The reason? A lack of qualified candidates.
Kelly Aiken, the REB’s project director of Health Care Initiatives, said it’s critical that the curriculum at local schools and training centers is in line with both the needs of industry and job seekers. “Education doesn’t move as fast as industry, so we had to figure out a way to ensure a continuum for learners and career pathways. These are main threads that run through the report,” she said.
The REB doesn’t train people, but it is the “go-to place” for companies to find out how they can find qualified workers or obtain grants or other assistance to help them train their workforce or hire new people,” said Ward, adding that the organization uses federal dollars to set up training programs and facilitates the infrastructure between education and local companies.
“This is a business-led organization, and our role is to ensure that state and federal investments in workforce development are wisely spent and have a good return on investment,” he continued. “The REB’s new strategic plan is data driven and we aim to be the leading source of regional labor market information and innovative ideas for advancing workforce development.”
The REB develops, plans, and contracts with providers to hold workshops for people in the job market through its one-stop career centers, and also community colleges and training schools. It also works hand-in-hand with businesses to create internships and increase work-based learning opportunities that align closely with the needs of industry.
“The jobs that have left this region are not coming back,” Ward explained. “And if new jobs emerge, people will need new skills, so workforce training is integral to our mission.”

Learning Curves
Springfeld and Holyoke have been earmarked as Gateway Cities with high levels of poverty and comparatively high dropout rates within their school districts, and those figures play a significant role in the REB’s report.
Ward said recent research shows that 74% of students who don’t read well in third grade will continue to have difficulty, which can lead to dropping out of school and lost opportunities. And local MCAS scores show gaps in the areas of reading, science, and technology — areas directly related to the types of jobs that will be available to graduates in the future. The picture doesn’t get better at the community college level, where one of every three students drops out because their schooling is too costly or they need too much remediation.
“Although Massachusetts ranks number-one in public education and the use of technology, the problem is that we have pockets and gaps within the community with very low achievement,” Ward explained. “Springfield and Holyoke are two of those pockets, so we need to make an above-average investment to close the educational skill gap. That’s why a strategic plan for our area is very different than one for Boston or Cambridge would be.”
The REB has several initiatives in place to expand family literacy. One is a pilot program called “Talk, Read, Succeed,” which is a collaboration between Springfield Public Schools, the United Way, Springfield Housing Authority, and the Irene E. and George A. Davis Foundation. The goal of this early-literacy project is to help ensure that children from 200 families in two Springfield public housing developments are proficient readers by the end of third grade.
Ward said studies show that the vocabulary of first-grade students is directly related to their environment. Children from poor neighborhoods and homes are deficient in this area, and once they start school, they usually experience learning setbacks every summer.
The staff members in “Talk, Read, Succeed” will work with families to help them increase their children’s vocabularies, and will also provide programs to help improve the odds that students will retain what they learned in school. In addition to helping children, “we’re also going to set up literacy programs for parents who want to learn English or get a GED,” Ward said.
The Hasbro Summer Learning Initiative is another program with a similar goal. In its third year, it serves about 2,000 children up to age 12 during the summer. Ward said the data is very clear that students in the program are making gains every summer instead of losing what they learned.

Making Connections
The new workforce plan also reinforces the REB’s commitment to partnerships. Ward said government cannot pay the entire bill for ongoing education, and that local businesses need to make investments in workforce development to remain competitive.
“They need to see it as an investment, not as a cost. Although we focus on adults, youth is the pipeline of the future and that begins at the pre-kindergarten level and goes up to age 21,” he explained. “We have to find ways to prepare our youth, stem the dropout rate and increase the graduation rate. It’s not simple, but we need to manage our human capital because it is the only way to ensure that the supply will meet the demand.”
Precision manufacturing is one of the areas targeted in the new plan, and David Cruise, director of Business and Employer Services, has been working with the Western Mass. Chapter of the National Tooling and Machining Assoc. (WMNTMA) to make gains in this arena using data collected from 33 local employers over a period of six years.
Last year these employers added 103 new jobs, which represents a 8.6% increase over the previous year. In addition, their sales increased 9.5% over the previous year to about $21 million.
“The sector is growing, and the REB has targeted it as having significant long-term potential for the area,” Cruise said. “The work they are doing is not going offshore, so we are trying to have the Pioneer Valley become ‘Precision Valley.’ We have companies here with the technology, leadership, and the skilled workforce to become what can be known as a precision manufacturing hot spot.”
WMNTMA and REB have joined forces, and are offering 34 evening courses for incumbent workers. They are also working diligently to encourage junior high school students and even elementary school students to to consider manufacturing — a sector that that has taken some public relations hits over the years as plants have shut down and jobs have moved overseas — as a viable career option.
In addition, local employers are donating equipment to schools, staging workshops and conducting tours of their facilities to showcase the types of jobs and environments they offer, and attract young people.
“The continuum is important, so we have put together a training network that utilizes the resources at several local companies along with local vocational technical high schools and Springfield Technical Community College, which is a major venue because it has a mechanical engineering technology program,” Cruise said. “Incumbent employees are volunteering for this training, and classes are held at these sites four nights a week.”
The new workplace plan also recognizes the industry’s concerns over its graying workforce. “The owners of precision machining companies are very concerned about how they will replace those individuals. They expect to lose 25% to 27% of their employees over the next decade,” Cruise said.
Health care is also a major focal point of the new strategic report. “The plan highlights the fact that we are actively engaged in convening and building partnerships to ensure the region has a quality health care workforce,” Aiken said, adding that there is a major focus on jobs in elder care that will open up due to the fact that Baby Boomers are aging.
In fact, the face of the medical field is changing, and Aiken said health care workers of the future will need to plan to work in long-term care, home health, and community based venues instead of setting their sights only on acute care facilities or hospitals.
“It is our job to consistently stay in front of industry needs, which we do through partnerships, data collection, changing curriculums, and matching people with jobs,” she told BusinessWest. “One of the key themes of the strategic plan is how to do a better job defining and promoting seamless career pathways. Health care is changing dramatically, and it is a challenge to marry sector initiatives with federal funds to build a system that will support people on their continuous lifelong journey.”
In short, cooperation and investment in education is critical, and strategic workforce collaborations are more important than ever before.

The Bottom Line
Officials at the REB recognize that their goals are ambitious, but they plan to measure their progress, and are guardedly optimistic about the future.
“What is new about our sector initiatives is the realization that people need to learn outside of their silos,” Aiken explained. “Ongoing, sustained partnerships are required to ensure that we are always ahead of the game.”
Ward agreed. “The report is a call to action,” he said. “Everyone in the community needs to work more closely so the size and preparedness of our current and future workforce will make us more competitive as a region.”

Out of Focus

Presenteeism Is a Growing Workplace Challenge

Bob Oldenberg says that in an era of two-income households, parents are bringing more stress and anxiety with them to the workplace.

Everyone knows what absenteeism is — staying home from work due to sickness or some other reason. Not everyone has heard of its counterpart, presenteeism — but anyone can understand the concept, which is basically coming to work but being too sick, distracted by personal issues, or just plain disinterested to get much done. It’s a major cost to employers — and a growing problem, as technology provides new ways to waste time on the job. While it’s impossible to eliminate presenteeism entirely, some human-resources experts say effective communication between management and workers can reduce its impact.

Virtually everyone has shown up at work under the weather, with nagging allergies, a nasty cold, or a more serious chronic condition.
Or they’ve spent the workday anxiously fretting over their failing marriage, their kids’ failing grades, or their parents’ failing health.
Or they’re just, well, failing to get anything done, arriving at the office more in the mood to post on Facebook and text their friends than earn the money they’re being paid.
All of these situations fall under the umbrella of presenteeism, which is a term not everyone has heard, yet is a concept anyone can understand.
Originally, presenteeism signified the opposite of absenteeism, explained Sandy Reynolds, executive vice president of the Employer’s Resource Group at Associated Industries of Massachusetts (AIM). “It meant somebody who came to work when they were sick because they wouldn’t get paid at home. And there is a cost to having people come to work when they’re sick, in terms of reduced productivity.
“Over time,” she continued, “in the business community, the definition has been expanded to people who are at work who are either not well or distracted by child-care issues, elder-care issues, marital problems, discipline issues with their kids — in general, people who are coming to work but are not fully productive because of some health-related or family-related issue.”
And for employers, it’s a monumentally costly issue. According to the Society for Human Resources Management, absenteeism costs U.S. companies $118 billion annually in medical expenses and lost productivity. But presenteeism — stemming from illness, stress, family and personal issues, and what the society calls an “entitlement mentality” — costs companies an estimated $180 million.
Other estimates are even higher, and most studies admit that it’s not an easy number to pin down. And it’s not a problem that can ever be totally eradicated — as long as human beings, and not machines, are doing the work.
“Many times in the traditional work world, things are happening in our lives that are out of our control,” said Patricia Guenette, vice president of Human Resources for Square One, the Springfield-based early-education provider. “They could be marital issues, financial issues, educational issues — a variety of things can happen in everyday life, regardless of your status.”
If this broader definition of presenteeism is a relatively new concept, that’s partly due to the fact that today’s professionals bring more personal baggage with them to work because no one’s at home to focus on these issues.
“In very many families, both parents are working,” said Bob Oldenburg, director of the Baystate Employee Assistance Program in Springfield, a department of Baystate Health.
“If you look back a generation ago, you typically had a working father and a mom at home, which freed up the dad to focus on work,” he continued. “Those days are long gone; even in intact families, quite often both people are breadwinners in order maintain a certain standard of living, and that creates pressure because neither may be available to deal with what’s going on at home.”
Reynolds, Guenette, and Oldenburg were among the panelists at a recent seminar on presenteeism sponsored by AIM and the Economic Development Council of Western Mass. They spoke to BusinessWest about reasons employers need to hear such a discussion, and what they can do to help workers who are struggling to balance work and life — and often falling short in both realms.

Present and Unaccounted For
Presenteeism is a fairly new concept, Oldenburg said.
“It was developed over the past 15 to 20 years or so, and while the term can sound pejorative, I think it’s important to point out that there’s a variety of demographic trends driving this issue. All of us can identify a time when we fell into the category of being at work but not being as efficient or productive as we could be.”
Indeed, the reasons for a notable uptick in presenteeism — and corresponding loss of productivity — are many, but most reflect changes in the modern workplace. They include:
• Two-income households and more working mothers. As Oldenburg noted, the past 40 years have seen a dramatic demographic shift in how families divide work and home duties. Where the 1950s model saw a working father and a mother holding down the home front and its attendant child-care duties, the modern family is more-often characterized by two incomes, or, in many cases, working single mothers.
This means that, when a child is too sick to go to school, or other household issues arise, one parent’s workday is often disrupted.
“One thing I urge employees to do is be better-prepared to deal with unexpected circumstances and have back-up plans for when a child suddenly becomes ill or a child needs to be picked up from school,” Guenette said.
If someone doesn’t have child-care plans they feel comfortable with, she added, “often their mental status isn’t there at all; while at work they’re thinking about the care of their child — is the child getting nurtured? Is the child eating? All those things reduce their level of productivity at work. If they had an appropriate backup plan, it’s an easier transition, and then they can really focus on going to work and giving it their all.”
On the flip side, many parents use their limited sick days to stay home when their children are home from school with an illness, and consequently don’t have any when they’re sick themselves — which risks the spread of illness throughout the office, thereby compounding the effects of presenteeism in its classic form.
• The ‘sandwich generation.’ This is a term that descibes people who are both raising children and providing some level of care to their elderly parents — while, in many cases, holding down full-time jobs. Needless to say, the distractions from the home front can mount quickly, Oldenburg noted.
“That’s a really new concept, the reality that we have a generation of people at work dealing with issues at both ends of the spectrum,” he said. “These pressures are pushing on people who are trying to work while meeting the challenges from two generations, above and below.”
• The ‘knowledge economy.’ “Before,” Oldenburg said, “many workplaces just needed your arms and legs; if you put the widget in the right place and didn’t stick your arm in the machine, that was fine. People were needed for what they could do, not their hearts and minds.”
But today, he continued, “the economy has moved in a direction where workplaces, in order to be most effective, need not only your arms and legs, but hearts and minds. That kind of engagement requires a higher level of attention and ‘presentness,’ if you will.” And that can magnify everyday distractions to the point of seriously hindering productivity.
At the same time, he said, the global economy has forced many companies to scale back and require greater productivity from each employee — making each distracted worker more of a liability to the business than he or she used to be.
• The rise of the Internet. A 1999 study sponsored by the Employers Health Coalition calculated that lost productivity from presenteeism is 7.5 times greater than that from absenteeism. That statistic has only risen since then, as the Internet — not to mention texting and other high-tech communications — has become a much more ubiquitous use of office time, and not just for work-related duties.
“It’s so much easier today to look busy because so much work is done on the computer, and unless you have all the computers facing your doorway, it’s a huge problem for employers,” Reynolds said. “Employees spend an unbelievable amount of time surfing the Web. It’s a lot easier to look busy when you’re not doing the work you’re supposed to be doing.”
• Everything else. It was easier to gauge the extent of presenteeism when it simply meant coming to work sick, but including every other distraction in the definition makes it tougher for employers to get their arms around.
“Whether it’s asthma, allergies, or chronic conditions, people might be at their desks but not productive because of how they’re feeling physically,” Oldenburg said. “But it’s more than that: anything that’s going on that keeps people from being active and engaged at work — including interpersonal or relational issues — may drive presenteeism.”

Human Resources
In the face of what must seem like overwhelming amounts of wasted time, many employers are asking what they can do to reverse the trend toward presenteeism. Equally important, Reynolds said, is what they should not do.
“Any time an employee is at work and is not able or willing to give 100% effort, it’s a problem for the employer,” she conceded. “But they can’t solve people’s personal issues. While they should give people information about resources available to them, and encourage them to take advantage of those resources, if they try to solve their problems, it’s a disaster.”
That said, any personal distraction is an issue for employers who are paying for time focused on the job.
“Ultimately the jobs have to be done,” Reynolds said. “Don’t be oblivious to what’s going on in the company, but be realistic about what you can provide and the ultimate reason the company is there and the employee is there. The best employers are not heartless; they care very much, but they realize they don’t have a magic pill, and they can’t solve everyone’s problems.”
So what can they do? She and others pointed to employee-assistance programs (like Oldenburg’s in the Baystate system) and other human-resources outreach efforts that can link employees with outside resources to help them deal with personal, financial, or family matters.
“There’s no way to eliminate presenteeism 100%, but you can diminish it greatly using a variety of different resources,” Guenette said. “Having resources to help in those difficult circumstances, and somebody to turn to on a consistent basis, is usually a big help for employees.”
Part and parcel of the employee-assistance process, Oldenburg said, is understanding the needs of the company’s workers.
“Because Baystate is a health care organization and we are a woman-dominated workplace demographically,” he explained, “in addressing presenteeism, Baystate wants to look at the kinds of issues showing up primarily for women. The goal is knowing what kinds of challenges are facing your workforce and the variety of ways you can get at that.”
Square One’s Guenette agreed. “You really need to know the demographics of your workplace, and understand the needs of your employees, to be able to respond to those needs,” she said. “If the workplace is mainly from the Baby Boom generation, their needs will be different than an organization where most employees are females and in their childbearing years.”
Another key factor, Oldenburg said, is knowing the difference between employee satisfaction and employment engagement. His organization and others are starting to move toward surveying workers on both.
“It’s management’s responsibility to know what’s going on when productivity or performance is suffering. It’s an issue,” Reynolds said. “It’s all about whether an employee is engaged and willing to give effort toward their job.
“You may have an employee who’s very satisfied; he likes the company and is paid adequately,” she added. “Yet, he may not be very engaged at all in the work he should be doing. I think that was an eye-opener to some people in the room” at last month’s seminar.
Guenette said good employers understand, for example, why parents (especially first-timers) will fret over leaving their child in the care of someone new, which is why it’s important that a working mother or father plan ahead for such contingencies. But, in the same way, employers can plan ahead too, by understanding the unique personal needs of their workforce.
“The sooner you begin to identify and address these issues, the better it’s going to go for the organization and the employee,” Oldenburg explained, adding that employers can also model good wellness habits — healthy snacks in vending machines, posted signs about handwashing and infection control — that cut down on the number of employees who come to work sick.
Meanwhile, he added, “there are many ways in which supervisors and managers can check in with employees and identify when there might be an issue, and point people in the right direction.”
Guenette agreed that communication is key.
“Our workforce knows they’re valued, and as an employer, you want to work with them to handle their issues,” she said. “When you give them opportunities and resources to choose from, it makes the whole situation much better for them, and for us as an employer.”
Meaning that life goes on — but the work gets done.

Joseph Bednar can be reached at [email protected]

Opinion

Opinion

To Keep Jobs, Don’t Kill Tax Incentives

The debate about state economic policy has escalated in recent weeks, fueled by Fidelity’s decision to move jobs to neighboring states. While it’s good to have an honest and open conversation about state economic policy, we shouldn’t focus the discussion so narrowly that we miss the bigger picture.
Every month thousands of Massachusetts companies make decisions about adding, locating, or reducing jobs. The question is how to make more of those decisions go in our favor. The best way to do so is by sustaining the state’s leading industries, including financial services.
Financial services is a huge, under-realized contributor to Massachusetts’ economic strength, directly employing nearly 170,000 people and supporting one to two times that number of jobs in related industries.
The tax benefits from those jobs are immense — income tax payments representing 20% of total income-tax collections, hundreds of millions of dollars in state sales taxes, and hundreds of millions in property taxes.
How can this economic cluster be protected and nurtured in the face of competition and technological innovation that enables many of its functions to be performed anywhere in the world? A key answer can be found in a forward-thinking tax policy enacted in the mid-1990s — single-sales-factor apportionment.
The single sales factor bases firms’ state income tax on their sales in Massachusetts, instead of on a combination of sales, property, and payroll. It has been unfairly labeled a “Fidelity tax break’’ — unfair because it affects an entire industry, not just one company, and because it is not a tax break.
When Massachusetts passed a single sales factor law in the mid-1990s, it lowered the cost of employing people here. It spurred the creation of thousands of new jobs, preserved thousands more, and was fully complied with by the companies it affected.
More than half of all states have adopted some form of single-sales-factor apportionment. The adoption of single sales by neighboring and competitor states should lead us not to question its effectiveness or validity, but to strengthen our resolve to preserve it.
The financial services story — of large economic impacts, and tax policies that promote growth — applies equally to manufacturing, high technology, and other critical industries.
If we preserve the single-sales-factor, and take additional steps to lower the cost of job creation, we will win more than our fair share of battles for jobs and investment.
The future of the Massachusetts economy depends on it.

Michael Widmer is president of the Massachusetts Taxpayers Foundation. Jim Klocke is executive vice president of the Greater Boston Chamber of Commerce.

Editorial

Opinion

Assessing the Job at Hand

The trends and statistics that form the basis of the Regional Employment Board of Hampden County’s latest strategic initiative are not exactly recent phenomena, and together, they would hardly be considered a news flash.
But they are still eye-opening, and comprise a significant challenge for this region moving forward.
Summing up what the report’s authors have noted, or recorded, there remains a significant gap in this region between what many employers are seeking in terms of requisite abilities and skill sets from their workers, and what is apparently available in the region’s workforce as currently comprised. This sobering realization can be drawn from the fact that we still have a rather high unemployment rate in Western Mass. — around 9% according to most estimates, with that number much higher in some metropolitan areas like Springfield and Holyoke — and yet there are many employers in several sectors of the economy, from health care to precision manufacturing, who have vacancies they can’t fill because they can’t find skilled workers.
This is a rather unique problem for this region, historically, and one that constitutes a major economic development agenda item, even if some still don’t understand that the phrases ‘workforce issues’ and ‘economic development’ can and must be put together in the same sentence.
Indeed, while most consider economic development to be luring new businesses to the region, building clusters of companies of specific sectors, such as green energy and biotechnology, and enabling existing companies to expand, none of that can really happen — even if the economic conditions were favorable — unless this area had the workforce to support such growth.
Which is why we’re glad that the REB has not only put a plan down on paper — it’s known officially as the ‘Strategic Workforce Development Plan for Hampden County 2011-2013’ — but has developed a game plan for addressing some of the major issues, and has the ability to keep these matters front and center, where they belong.
In short, the report concludes that closing that gap — the overriding mission beyond the strategic plan — will not be easy and it won’t happen overnight. But it must be done, and it will involve the continuation of several current collaborative efforts, and some new ones, to get the job done.
And the work encompasses many different elements, from promoting pre-school programs and helping young people gain the reading skills they need, to introducing junior high school students to the benefits of a career in precision manufacturing; from working with health care providers and area colleges to ensure that graduates have the skills necessary to succeed in specific careers, to the fostering of mentoring programs that will help curb the high drop-out rates in several areas cities.
For decades now, the REB’s unofficial mission has been to help create employment opportunities, anticipate where the jobs will be for the short and long term, and partner with area institutions to ensure that there is a match between the skills needed for those jobs and the skills possessed by those in the workforce. The mission hasn’t changed, but there is now a greater sense of urgency, because, in very simple terms, that aforementioned gap is getting wider, not narrower.
And unless that trend is reversed, cities and towns across the region will suffer in their efforts to attract new companies and diversify their bases of businesses.
Workforce development certainly would not be considered the glamorous side of economic development, which is reserved for those announcements of new companies or expansions of existing ones involving hundreds of jobs. But those announcements won’t come unless this region has workers of sufficient quantity and quality.
As we’ve said many times, and we’ll keep saying it— workforce development is economic development.

Profiles in Business

Features

He’s in the Business of Making “Entertaining Art”

Kevin Rhodes Music Director, Springfield Symphony Orchestra

Kevin Rhodes was on a tight schedule, but then … he usually is.
On the day he managed to squeeze in some time for BusinessWest, Rhodes, the long-time music director of the Springfield Symphony Orchestra, had a lot on his plate, including everything from rehearsals to auditions for ‘first oboe.’
He was actually on break from the latter when he sat down for an interview in a tiny room off the box office at Symphony Hall, a site chosen to ensure that those vying for a job with the SSO would have complete quiet for their tryouts.
Candidate review — and the ultimate selections — in such searches are made by committee, Rhodes explained, adding that he is among several, including others in the orchestra who will play alongside the first oboe, who will listen to the hopefuls as they perform behind a curtain, so that the music — and only the music — is under consideration.
“These are completely anonymous … we’re careful not to use any gender-specific pronouns — people will just say ‘candidate No. 5,’ or ‘the next candidate,” Rhodes explained, adding that the work of assessing hopefuls’ abilities to play music and perform as part of the SSO is a very subjective exercise, a blend of art, science, and entertainment.
Which makes it much like the profession of orchestral conducting itself.
“People ask me if what I do is art or entertainment,” Rhodes, now wrapping up his 10th season with the SSO, explained. “I like to tell them that I try to make it entertaining art.”
There is much more to the job description, of course, he went on, adding that, to one degree or another, conductors must be musicians, marketers, and, in many ways, promoters of the arts, and especially music, in the communities in which they work. Rhodes has woven all three into his tenure with the SSO, and is credited by many with bringing heightened energy and a greater sense of awareness to the 67-year-old orchestra.
Meanwhile, he has become the face of the SSO — his image is used in most all of the orchestra’s marketing materials — and a fixture in the community, performing, guest lecturing, and teaching classes such as the one at the Community Music School on how to listen to music.
“There are several different ways to listen,” he said, adding that he explains them over the course of four sessions that are part of the school’s adult education extension program. “You can let the sound wash over you, like you’re taking a wonderful bath in it. But there is a more ultimately rewarding way, if one has just has a few tools to do that.
“It’s called ‘active listening,’ where while you’re listening to it, you’re sort of sorting through what’s coming at you,” he continued, gesturing with his hands in motions not unlike conducting, while noting that it would take several hours to explain exactly how one does such sorting.
For this, the latest in its ongoing series of profiles, BusinessWest did some active listening, and learning, as Rhodes discussed everything from his batons and how he needs to find another supplier — “I’m actually running low on them” — to how he’s reducing that tight schedule, or “calming the rhythm down,” as he put it,” in some respects, but still racking up the frequent-flyer miles.

Achievements of Note
On the day he spoke with BusinessWest, Rhodes was without his watch.
“I hardly ever forget it, but today I did, and I feel quite naked without it” he said, adding that, unlike those who rely on their cell phone for the time, he still looks at his wrist several dozen times a day.
And he needs to, given the schedule he keeps with just his two main professional assignments — as music director with the SSO and also with the Traverse Symphony Orchestra in Michigan. Consider this rundown of one recent stretch, which was, in most ways, quite typical.
“Three weeks ago, we had a big concert here with a huge reception after for my new contract signing,” he started. “The next two days were full of auditions, and the two after that were huge youth concerts, with thousands of kids. I then flew to Michigan, and the next day had a full day of meetings, a radio interview and a preview party for the upcoming season. The following days were filled with rehearsals with chorus and orchestra for Braham’s Requiem, then the performances and receptions. I did a radio commercial on Monday, flew home Monday night, and taught my class in listening to music on Tuesday.”
And while he’s forever looking at his watch, Rhodes also spends considerable time adjusting it for the time zone he happens to be in — or is flying toward.
Indeed, since leaving a host of concurrent assignments in Europe for his position with the SSO in 2001, Rhodes has crossed the Atlantic countless times for guest-conducting work at such venues as the Paris Opera, La Scala in Milan, the Verona Opera, and the Dutch National Ballet, among others. And in recent years, his plane rides have been longer; he toured Australia with the Paris Ballet in 2009, and last fall, he joined the Dutch National Ballet on tour in China.
Such locations, and assignments, are literally worlds away from Evansville, Ind., where Rhodes was born, spent many days (and also nights and early mornings) at his parents’ 24-hour “trucker diner,” and developed his passion for music.
“When I was in kindergarten, I was totally taken with the teacher playing the piano, so I started bugging my parents for lessons,” he said, adding that his family secured a piano from the same man who serviced the juke boxes at the family’s diner. “I found a young teacher — I think she was 16 when I started with her — and started playing in the school choir when I was 11.
“This led to playing for community theater when I was 13, and conducting for community theater when I was in high school,” he continued. “And by that time, it was pretty clear what I wanted to do.”
He received a bachelor’s degree in Piano Performance from Michigan State University, and later a master’s in Orchestral Conducting at the University of Illinois. He then served as music director of the Albuquerque Civic Light Opera, while also teaching piano at the University of New Mexico, before relocating to Switzerland in 1991.
His professional career unfolded in Europe, where he led many different orchestras, including the Vienna State Opera Orchestra (the Vienna Philharmonic), the Berlin Staatskapple, the Zagreb Philharmonic, the Dusseldorf Symphony, the Duisburg Philharmonic, the Swiss Chamber Philharmonic, the Symphony Orchestra of Madrid, the Basel Symphony Orchestra, and many others.
By 2001, he said, he and his wife made a conscious decision to return to the United States, and thus began what he called a quiet search for job opportunities. This can be a lengthy, laborious process, he continued, adding that positions like the one that opened in Springfield are filled at a “glacial pace.”
Citing the factors that brought him to Symphony Hall, he said geography played a small part — “Springfield is a perfect springboard to Europe” — but the institution and what people told him about it weighed much more heavily.
“I made some calls to people I knew in the Northeast,” he said. “They all raved about it, I applied, and it all worked out.”

Sound Strategy
As he talked about his work and job description, Rhodes returned to those words ‘art’ and ‘entertainment.’ They are both integral to what he does as music director.
But there is much more to it than that, he said, adding that he considers work to promote the orchestra, music, and the arts in general, to be a big part of his assignment.
And it’s a part he enjoys and feels quite comfortable doing.
“I seem to have an outgoing personality and I like people,” he explained. “I like meeting people and talking with people, and a love talking about music, so for me it’s an easy fit; I started going out in front of people at age 10 at kiddie talent shows, so I’m comfortable with the entertainment part of this and being the face of the orchestra.”
Rhodes said that not all conductors are as adept at, or comfortable with, the marketing aspects of this profession, and with larger orchestras those skills are certainly less necessary. But in markets like Springfield it’s what he called “a huge responsibility.”
And it takes many forms, from media interviews, to being highly visible in the community and doing what would be considered outreach work, to helping the public access and appreciate music.
“One of the messages I try to leave with people is that there’s so much that they can know about any piece of music that we play, but they can actually enjoy it without knowing any of that,” he explained. “It’s like listening to music — there are many ways to do it; you can listen to Beethoven knowing all about him, or you can listen to it, and enjoy it, thinking ‘that’s Beethoven, whoever that is.’
“I always try to make that point, because so often people think there’s no way they can enjoy it unless they know a whole ton about Beethoven,” he continued. “Once you get people over that fear, that concern factor, it’s amazing how it almost becomes a drug; they come more and more and they get more into it. It is infectious, and it’s great to see this curiosity inside of people that they didn’t know they had.”
Looking ahead, Rhodes, with that new contract signed, said his immediate career goals involve continuing the work he’s done in Springfield, Michigan, and elsewhere, specifically those efforts to introduce people across all social strata to music and essentially make them thirsty for more.
“I want to continue to expand our audience,” he explained, “but with the audience we have, which is very dedicated to us, I want to expand the concept of what is possible for them; I want them to expand their world and enable them to gain more from the experience of listening to what the orchestra plays.”
He’ll have plenty of opportunities to do that, because despite this talk of scaling back, schedule wise, he’s actually taking on more — at least on this side of the Atlantic.
In recent years, a typical schedule would look like the 2009-2010 slate, which included nine concerts in Springfield, six in Michigan, three productions with the Paris Ballet, or roughly 60 performances, two series of productions with the Dutch National Ballet in Amsterdam (another 30 performances), and a production at La Scala, with nine or 10 performances. And for this season, he took on the additional assignment of music director of the Pro Arte Chamber Orchestra in Cambridge, Mass., and four performances there.
To create some breathing room, he’ll pare the schedule in Europe slightly.
“There have been several occasions when I’ll be finishing the last performance in Europe on a Tuesday or Wednesday and get back either the night before, or even the day we begin rehearsals for a concert here,” he explained. “I’m calming it down from that.”

The Finale
As for those batons he uses … Rhodes said his supply came mostly via a “very colorful character” who hung around the Vienna State Opera in the 1990s.
“He had this music publishing and baton-making business, and it was all quite suspicious,” he said, choosing that last word carefully while noting that this was the middle man in the operation and the batons were actually made by someone else. “I am concerned, because I’m getting low on these, and I believe both of those characters are no longer with us.”
Finding a new supplier will be something else he’ll have to find room for in that schedule that soon will be lighter but still quite crowded — in between teaching people how to listen to music, assessing first oboe candidates, and, most importantly, making art entertaining.

George O’Brien can be reached at [email protected]

Nick Gelfand: 33