Whats fair?

April 2008 » Columns
Rules are rules. Stick to them or you’ll end up opening yourselves in the future to the unintended consequences of being nice guys.
David M. Wahby

Dear Dave,
We need an outside opinion on a recent personnel matter to determine if we handled it correctly or, if not, to learn from it for future reference. Two employees resigned late last year: Steve, a white male who has worked for us for 14 years; and Ellen, a minority female who has worked for us for seven years.

Steve submitted his resignation on Dec. 11. He worked the last five years in our land development department but had been at odds with two recent hires, one of which was the new manager of the land development department. Steve had not been very cooperative to the new hires’ requests and did not seem willing to work with them. We believe he feels that he was passed up with these new hires. Steve received a civil technology degree rather than a civil engineering degree. He still does not have his license and does not seem driven to complete his paperwork and file an application to sit for the exam.
Ellen gave us her resignation on Dec. 12. She is a very quite person and kept to herself. Ellen attended graduate school part-time while working with our firm and we reimbursed her for educational expenses up to a maximum of $3,000 per year. The department manager had a hard time keeping Ellen motivated. In fairness, I think that might have been more of a department management issue than an Ellen problem.

Steve resigned effective Dec. 28; Ellen resigned effective Dec. 27. Our management team met to discuss the resignations and decided to make Dec. 21 their last day at work, but still pay them through their last days referenced in their resignation letters. After that meeting, Steve met with our human resources (HR) manager to discuss the process for leaving the firm. Our HR manager informed Steve that he had to be on the payroll on Dec. 31 to be eligible for the profit sharing and ESOP contributions for that year. Hearing this, Steve wanted to change his resignation date until January. Our HR manager told Steve she would have to get back with him about changing his end date. Ellen never did talk with the HR manager before she left on Dec. 21.

Since we cut them loose on Dec. 21 and yet paid them through their dates of resignation as specified in their letters, neither was eligible for 2007 benefits for the profit sharing plan and ESOP. We worry that this information will circulate throughout the office and create a lot of ill feelings. If we agreed to Steve’s amended request to extend his employment through the end of the year and not Ellen’s, we are not following our HR guidelines and are providing special considerations for a certain white male employee. If we extended Steve’s employment date, we felt we would have had to extend Ellen’s employment date to provide her the same benefits. If we did this, where would we draw the line in the sand with future resignations in December? If someone provides a resignation letter on Dec. 1, do we have an obligation to carry them to Dec. 31?

Along the same lines, if someone decides to quit after their 995th hour of employment in any given year, are we obligated to tell them to work 1,000 hours to earn credit for that year? How would you have handled this?
C.O., Texas

Dear C.O.,
There is an adage that goes something like, "No good deed goes unpunished." Even though it seems like it would have been a perfectly innocent gesture of goodwill to extend Steve’s and Ellen’s last days to get them through the end of the year, I would not recommend doing so because of the precedent you will have established going forward.

You raise excellent points. Where do you reset the line once you move the line? Ultimately, you end up with no line at all. The rules for participation in qualified plans were designed to protect not only the interest of participants, but the firms that sponsor such plans. I know it might feel severe, but rules are rules. Stick to them or you’ll end up opening yourselves in the future to the unintended consequences of being nice guys.

Ratios (one more time)

Dear Dave,
I recently attended a mini-course in finance you presented for the American Council of Engineering Companies of Minnesota and really enjoyed it. We’ve begun to create some reports using the multipliers and ratios you recommend all firms track and are a little confused on a few. In particular, I’m trying to understand the difference between the Breakeven Multiplier and the Effective Multiplier. Also, you used the term Net Service Revenue, which I’m not clear on. Could you go through this for me?
M.B., Minn.

Dear M.B.,
Net Service Revenue is Gross Fees less (or net of) any sub consultants or any other direct expenses incurred on projects. The Breakeven Multiplier is Indirect Expenses (before any discretionary expenses such as bonuses or profit sharing contributions) divided by Direct Labor. The Effective Multiplier is Net Service Revenue divided by Direct Labor. The margin by which the Effective Multiplier is greater then the Breakeven Multiplier is a measure of the firm’s profitability on its Direct Labor—the greater the margin, the higher the profit.

Get answers to your questions about design firm and project management, finances, marketing, and related topics by sending them to Q&A c/o: CE News, One IBM Plaza, 330 N. Wabash, Suite 3201, Chicago, IL 60611, or faxing them to CE News at 312-628-5878. Include your name and telephone number in all correspondence. Your name will not be used in connection with published questions. David Wahby is president of Wahby & Associates (www.wahby.com), a management consulting firm serving A/E clients. He can be reached at 616-977-9756 or via e-mail at wahby@wahby.com.


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