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Cardinal Health Revamps Cost-Of-Living Adjustment, Earns LDP Award

Cardinal Health Revamps Cost-Of-Living Adjustment, Earns LDP Award

LDP Connect’s annual LDP Award recognizes initiatives that bring innovation and transformation to early career talent development programs.

It also recognizes the individuals behind these transformations. 2019’s award winner is Cardinal Health’s EMERGE program. We talked with Jill Spohn, who transformed her leadership development program’s cost-of-living adjustment process, reducing costs, increasing transparency and making additional rotations possible.

The Problem the Early Career Program Faced

Recent acquisitions have expanded Cardinal Health’s global footprint, so international fluidity and cultural fluency are more important than ever. EMERGE participants go through three 12-month rotations, and relocation is often required.

When program participants rotate to more expensive locations, the cost-of-living adjustment (COLA) gives them the financial assistance they need to transition to their new environment. In the past, however, the COLA process received consistent negative feedback. Lack of transparency and perceived unfairness were common complaints.

“This used to be one of the biggest pain points of our administrative responsibilities,” Jill says. “It was grueling. We had a lot of tough conversations, we were making a lot of exceptions, and things weren’t necessarily fair.”

The relocation amounts participants received when moving to similar geographic locations were often different – which caused problems when participants started comparing notes.

Jill and her team faced an immediate challenge. Cardinal’s relocation/COLA policy is enterprise-wide and not specific to her talent development program. With more than 50,000 global employees, every change to policy language and process had to be vetted through legal stakeholders. Jill and her team had to present their recommendations to each of nine functional steering committees. A lot of questions needed answers.

Changing the Cost-of-Living Approach

With the necessary approvals in place, Jill’s team collaborated with a relocation vendor to update policy language and mitigate risk. Changing the way COLA analyses were conducted was the next big step.

Previously, the analyses factored participants’ job functions, their year in the program, and salary. Therefore, someone with a higher salary would receive a lower cost-of-living adjustment.

“Ultimately, we determined that’s not the way we want to go about it,” Jill says. “Why should someone with a technical background not receive the same cost of living as someone with a marketing degree? We wanted to be more consistent.” Under the revised approach, everyone in a particular area would get the same relocation amount, regardless of the facility they were assigned and their base salary.

“We decided to take an average salary and submit one request per location,” Jill explains. Running one COLA per geographic area means reducing the need (and the cost) for multiple analyses of the same region. Composite analyses of the surrounding areas of a metropolitan location gives a single, consistent COLA amount for that area.

“Being consistent about those processes allowed us to run one analysis for Boston, for example, and one analysis for Chicago. And once we had that number, that’s what everybody in that city was going to recieve.”

Now, each analysis is based on demographic data. For example, most program participants are in their 20s, single and renting. This data is benchmarked against an area’s cost of living. The new approach is more transparent. Program participants know exactly how much assistance they would get before they commit to a role. Stakeholders know exact costs prior to budgeting season, as well.

Implementation and Impact On The LDP

The program management team and the enterprise-level relocation advisor rolled out the changes via trainings and dissemination of new tools and resources. Right away, participants who had previously received inconsistent relocation funds started requesting retroactive payments. Terminating participants tried to dispute the validity of their past repayment agreements, arguing the changes nullified their agreements.

These reactions led to difficult conversations, first with legal council to determine if the program was obligated to provide retro-payment, and then to participants after it was decided to not offer retro-payments for past inconsistencies.

These problems aside, how did the initiative perform? What measurable impact did it have on program participants and on the business?  

“The most tangible piece always comes back to savings,” Jill says. “The administrative hours have been hugely impacted in a positive way.”

Cardinal Health has taken a much more stringent approach on Selling, General & Administrative Expense (SG&A) costs in the last year. EMERGE started running analyses bi-annually rather than annually—unless a specific location has a volatile cost of living. Less frequent analyses reduced associated costs and administrative overhead.

Another success metric has been the consistency of COLA payment. Thoughtful program governance demands internal equity. Previously, program managers went to steering committees for exceptions fairly often. Now there are fewer complaints about inconsistencies between payments and about the number of exceptions made.

“We are quick to try to be as consistent as possible,” she says. “We are always mindful of fairness, even when it comes to the small things.”

The Numbers Behind the COLA Revamp

Take a look at the program’s “Metrics of Success” for 2017:

  • Complaints from participants – At least 1 per participant receiving assistance (approximately 40)
  • Number of analyses run – 40+
  • Cost of analyses – $10,000
  • Inconsistent payments received – 16
  • Exceptions made – 11
  • Administrative hours – 30 minutes per analysis, 3 hours per exception = 55 hours
  • Functional leader support – Inconsistent

Compare those numbers to the same metrics from 2019:

  • Complaints from participants – 0
  • Number of analyses run – 8
  • Cost of analyses – $2,000
  • Inconsistent payments received – 0
  • Exceptions made – 0
  • Administrative hours – 30 minutes per analysis = 4 hours
  • Functional leader support – Full Support

Negative feedback from participants and stakeholders, along with exceptions, were slashed to zero.

EMERGE: Moving Forward

Jill and her teammates expect the revamped process to provide a cost savings for years to come. They say the program management team can now focus on more strategic initiatives, such as seeking out impactful rotations for participants and re-evaluating developmental conference content. They’ll spend less time handling transactional procedures and exceptions.

With a better picture of costs, the EMERGE team can be more mindful about the locations that they choose. They can also manage expectations when participants coming from high-cost areas get lower base-plus-COLA offers after graduating from the program.

“We’ve been able to open up to new and exciting field locations because we know that we have a consistent process. We don’t receive the pushback we used to get because there’s a lot more trust between us, the participants and the steering committees.”

cost-of-living adjustment: 2019 EMERGE graduates
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