JCK Business Report

EMPLOYEE DEPARTURES ARE COSTLY

What’s the cost to a company when employees leave, voluntarily or involuntarily?

A recent telephone survey of 206 employers conducted by New York-based William M. Mercer Inc. shows that the expense can be considerable – more than $10,000 per position for 45% of respondents.

The pie chart at right shows a breakdown of how much companies typically spend to fill an open position. The costs take into account recruiting expenses, which can vary depending on the type of position and local job market; management time used to interview; training costs for new hires; and lost productivity.

Most respondents (55%) said turn- over is either a critical or a major issue for senior management. About one-third (36%) said turnover is only a minor issue, and 9% said it’s not an issue at all. More than a third of the respondents represented firms with 1,000 or fewer employees.

What causes employees to leave? The respondents’ answers are listed in the bar chart at right.

When asked about steps taken to reduce turnover, almost half of respondents (48%) said they have made changes to compensation programs in the past year, and 15% plan to make such changes in the coming year.

MULE WANTED: NO REFERENCES REQUIRED

“Willing-to-work hayburner needed for new Sierra County venture. Offering adventure or retirement position to the right party. Requires four steady legs, ability to work underground shifts and a certain stubbornness. Will not discriminate because of race, creed, national origin, sex or size of ears.” – Ad in the Mountain Messenger, Downeville, Calif.

The jewelry industry always faces daunting hiring challenges, but in the case of Michael Miller, CEO of Original Sixteen to One Mine Inc., in California’s Sierra Nevadas, the task was unique. As his half-serious, half-humorous newspaper ad notes, he needed a mule or donkey. The task: to pull ore carts in a gold mine shaft that hadn’t been operated since the 1930s. The mine’s antiquated quarter-mile of track would not be able to bear the load of a modern, battery-powered locomotive.

After a flurry of media coverage surrounding the ad, Miller found two promising candidates. The first, a waist-high miniature donkey, was his personal favorite. But, given the social temperament of most donkeys, he would have had to buy a second donkey so she wouldn’t get lonely. “Even though she was really cute, it would mean one more mouth to feed,” Miller says.

So he decided to “hire” Goliath instead. A 16-year-old mule named in jesting reference to his diminutive stature – a good 300 pounds below the typical mule weight of 900 pounds – Goliath seemed like a good choice, given that mules traditionally were used in California gold mines. Plus, Goliath’s owner was willing to settle for barter – most of his asking price of $800 in gold from the mine.

It’s not the first time Miller, 55, has made an unconventional choice in his professional life. After working for years in the restaurant business and as a builder in Santa Barbara, Calif., he took over the reins of the Original Sixteen to One Mine in Alleghany, Calif., in 1983 after waging a proxy fight with the “rich, tired old owners and management.”

In recent years, the firm’s vein of gold in quartz has yielded high-quality specimens with butter-yellow gold flecks in snowy-white quartz. The company mined 6,000 ounces of gold in 1997 and took in $2.17 million in gross revenues – about 80% of it from gold sales to bullion markets. Because of the slump in gold prices, though, the Original Sixteen to One Mine posted a net loss of $319,000 last year and traded at $2 a share, down from its 1995 price of $7.75.

The remaining 20% of the company’s revenues came from its gold sales division. It primarily sells slabs but also markets specimens and the company’s gold jewelry, designed in-house. “I’m not pleased with the jewelry designs, yet I know that the stone is appealing and has a place beside the finest of the fine,” says Miller. The company’s gold in quartz has retailed for as high as $55 a karat. “Yet this stuff is more rare than diamonds,” he says.

It’s a stone with varying appeal, says Miller. “Men particularly like it, and also strong women. Most women don’t want to wear it because they haven’t seen it anyplace else. But you get a certain type of woman who says ‘Whoa, this gives me a good feeling: I’m going to wear this.’ ”

The company (origsix.com) is actually the second oldest U.S. publicly listed gold mining company and is traded through the Pacific Stock Exchange with a ticker symbol of OAU. Its corporate headquarters is located just over the mine in an old theater once owned by the company in Alleghany, population 80. The community is located at a 5,000-ft. elevation perched to the side of a steep mountainside, and is one hour’s drive north of Lake Tahoe.

Once Goliath comes on board, he’ll be working with a team of three on the historic Rainbow mine. Miller decided to explore the shaft when a team of miners pulled out 100 ounces of gold while exploring the Rainbow after their regular work shift. “We looked at the maps and the geology and said this looks like an interesting heading,” Miller says.

Though the addition of a mule sounds more like a tourism ploy than a profit-making strategy, it’s actually the most cost-effective way to explore the Rainbow without replacing its antiquated track.

Besides, Miller thinks Goliath will fit in well with the crew. “My reading about the mules used in gold mining is that the miners got attached to them and treated them really well. A lot of our guys chew tobacco, and I guess mules like it, too. It would be a good fit.”

CHECK THESE WEB SITES BEFORE YOU TRAVEL

Business travel is a fact of life for many jewelers and for the many designers and sales representatives associated with the jewelry industry. If you’re hoping to tap into the travel resources available on the Internet but don’t want to take the time winnowing through poorly designed or overly commercial sites, here’s a useful list:

  • Good restaurants: Check out sites such as www.restaurantrow.com, which has listings in 23 countries, and www.cuisinenet.com for information on restaurants, ratings, and prices in major cities throughout the United States. Portions of Zagat restaurant surveys also are available online at www.pathfinder.com/cgi-bin/zagat/homepage.

  • Good fun: Start by visiting www.towd.com. This is a worldwide directory of government tourism offices as well as visitors’ and convention bureaus. Click on your intended destination, and a wealth of information should pop up. The advantage of this site: It’s noncommercial.

  • Ground transportation: To scout out the easiest and cheapest way to get from the airport to your destination in most United States cities, see www.thetrip.com. Listings for inexpensive shuttle services in 14 cities are available at www.supershuttle.com. Need directions for a drive from one part of the country to another or just across town? See www.mapblast.com.

  • Weather: See the Weather Channel’s www.weather.com for detailed U.S. and international weather reports.

  • Local time: Need to know what time it is in London or Hong Kong? Try www.hilink.com.au/times/ for a compendium of worldwide time zone information.

  • Exchange rates: Check out www.xe.net/currency/. If you want more in-depth information, visit www.wiso.gwdg.de/ifbg/currency.html.

  • Per diem: To see what the Internal Revenue Service views as a fair per diem expense for a given U.S. city (there have been some recent per diem updates), see www.irs.ustreas.gov, the surprisingly user-friendly IRS Web site. In its “search” section, enter the words “per diem” for reports on acceptable spending limits. You’ll want to look at Publication 1542, Per Diem Rates, which lists recently updated per diem rates for U.S. cities (just click on the word “tables” to find particular cities). The search will pull up other useful per diem-related publications that define what types of per diem costs are acceptable and explain how to document these costs.

Remember that one aspect of the Internet is that Web sites pop up and disappear without warning. That’s a possibility for some of the locations listed here, and for some of the sites you reach by double-clicking on underlined text. For other travel sites, use America On Line’s travel section or search engines such as Yahoo!, Excite, Lycos, and Metacrawler.com.

CASE STUDY: WHEN EMPLOYEES STEAL

Smith Jewelers has been a family-owned and -operated store for decades. With business increasing, the owner decided to hire his first non-family employee.

After numerous interviews, Smith (not his real name) chose Nathan, who quickly fit into the daily routine. A few months after congratulating himself on his ability to judge character, Smith noticed that jewelry was disappearing. Suspecting theft, he contacted the police, who suggested he do a secret inventory. It showed a significant shortage.

Family members were shocked and couldn’t believe Nathan had stolen from them. Unable to stay silent any longer, the owner confronted Nathan, who admitted to the theft.

Nathan fled the store, and the owner called the police. Unfortunately, by the time they arrived, Nathan was long gone – along with the jewelry, valued at $50,000.

Would insurance cover this loss? Jewelers Block policies, which cover inventory, don’t provide compensation for losses due to employee theft or dishonesty. Many jewelers choose an endorsement to their standard business owner’s policy that adds this coverage for an additional premium.

Employee theft is an uncomfortable issue, and it can be difficult to prove. Here are some steps to reduce the likelihood of such losses:

  • If you believe an employee is stealing from your store, ask your attorney whether you should suspend the employee with pay during an investigation, whether you should contact the police, and when to contact your insurance company. It’s important to take action immediately to prevent additional losses, protect the safety of other employees, and improve the odds of retrieving stolen goods.

  • Ask every job candidate to complete a written application that includes a work history and list of references. If you see gaps between jobs, ask the candidate to explain. Once you’ve decided whom you’d like to hire, take the time to do a background investigation yourself or, if the position merits the investment, go through a private investigation agency. Remember that it’s much easier to hire the right employee than to fire one who’s dishonest.

  • Background checks should include a thorough investigation of the applicant’s employment references. Verify work history, and ask previous employers whether they’d rehire the individual – why or why not. Also, confirm all degrees and certifications, and check personal references.

Credit checks may be important, given that someone who is heavily in debt may be more inclined to steal. Criminal records checks can be conducted if an employer can convince law-enforcement agencies of a genuine need for this information. Such a need arises when an employee’s position could jeopardize the company’s financial position or public image.

Drug tests are another screen to consider, especially when other local employers do them. If you don’t screen and other employers do, guess who’s going to fill your applicant pool.

Written permission for the credit check, criminal records test, and drug test may be required, depending on state law (consult with your attorney). When the request for permission appears on the job application form, there’s an added benefit: It tends to scare off undesirable candidates.

  • Include an ethics policy in your employee handbook. It should be required reading for all employees and should define employee theft, your expectations for employee integrity and honesty, procedures for reporting employee theft, and consequences for committing this crime. Let employees know dishonesty won’t be tolerated.

  • Discuss your expectations regarding the ethics policy and internal theft when training new employees and as part of employee meetings.

  • Internal safeguards and documentation are critical. Make periodic inventory spot checks to note any losses. Make sure your video surveillance footage captures the entire showroom floor. Keep videotapes for several weeks, longer if you suspect theft.

This is one of a series of case studies prepared by Ronald R. Harder, president and CEO of Jewelers Mutual Insurance Co.