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Compensation planning in a family business

By Kathy J. Marshack, Ph.D., P.S.

For years Arnie looked forward to having his son and daughter join him in his publishing business. Arnie and his wife, Ilsa, had rebuilt the business after Arnie’s father lost everything due to some poor planning and miscalculating the marketplace. Even though the business went under when Arnie was in college, he could see the potential. He had a degree in marketing and knew the publishing business from the inside out. With Ilsa’s accounting background, they systematically restored the business to a healthy functioning. About the time that Arnie’s and Ilsa’s two children were off to college the business was in expansion mode and Arnie was counting on his son and daughter to help take the company into the twenty-first century. The children were eager to help out too. They were getting relevant degrees in college, had acquired internships at publishing houses back East, and upon graduation were ready to come home and learn the family business under Mom’s and Dad’s tutelage.

Arnie and Ilsa had laid the groundwork well for inviting their children into the family business. The kids had seen how hard their parents worked, but they weren’t ignored. The family always came first. Also Arnie and Ilsa involved the children in the business from the start. Even as toddlers, they played in the office. As older children, they helped out with odd projects and straightening up. They were familiar with all of the employees, who felt like one big extended family to them. In high school, the children tried their hands out with some of the professional work. Frequently the family business was a subject for a high school project. It was common knowledge and often discussed that both son and daughter were welcome to work in the family business after they completed college.

All seemed to be going as planned until the day came to discuss the employment agreement with each child. Never before had the family had to consider real business when dealing with each other. As teenagers, the kids had been paid minimum wage or a bit better. There were no benefits or perks because their parents took care of those things. Now the children were adults, responsible for their own lives, which meant that negotiating compensation had to be strictly business. The children couldn’t be expected to work for minimum wage anymore and they expected to be compensated for contributions they made to the company. Arnie and Ilsa had some work cut out for them.

The question was, How to compensate their children, as if they were regular employees, but with the added benefit of having trusted family members to help run the business? Compensating relatives is a sticky business. Not all people are really created equal. It is sometimes very difficult to assess and compare the talents of family members who are also employees. Nor do all family members contribute equally to the business. As a result of the stress that this causes, many family business owners ignore the problem and let compensation become a breeding ground for dissension in the family. For example, many wives in family businesses do not earn a salary at all. The reason given by the CEO for this is that it saves on taxes. The justification is that she is an owner of the business, so she is growing an investment. However, the research also shows that family business wives are invisible when it comes to decision making and that they feel isolated and unappreciated. Lack of a salary or a nominal salary may account for this.

A recent survey by Mass Mutual Insurance Company reports a wide discrepancy between the salaries of sons and the salaries of daughters in family businesses across America. On average the typical son in a family business earns $115,000, while his sister earns only $19,000. These salaries also reflect the tendency of family firms to view the contributions of women as of less value and the strength of primogeniture in succession planning. In other words sons are groomed for leadership while daughters are groomed for supportive roles and paid less than their brothers.

In other situations, CEOs of family firms attempt to avoid the problem of compensation for family member/employees by paying everyone the same, even themselves. Or they hire a family member simply because they are family, regardless of their abilities. The problem with this method is that the talented and creative employees are not rewarded for their work and may become resentful of the family members they must “carry.” And the employees who are overpaid are not getting accurate feedback for their work performance, which makes it hard to improve. Likewise the CEO is not really viewed as sacrificing when he or she takes a low salary. Rather he or she is viewed as a weak leader.

Although it is not easy to put aside the anxiety caused by developing a fair compensation plan for your family members/employees, it is absolutely necessary if business is to thrive. Family relationships built upon honesty are far superior to the games required by compensation plans designed to avoid friction. So if you follow the advice of experts you will design your compensation plan according to these five steps:

  1. Write up accurate job descriptions for each employee. Include responsibilities, level of authority, technical skills, level of experience and education required for each job.
  2. Identify what your compensation philosophy is. Do you want to pay about average, or higher? Do you want to attract talent from other companies? Do you want to offset the typical male/female wage differential? Are you a training ground for young, inexperienced people?
  3. Gather information on the salaries of similar positions in your industry. Size up companies that are similar to yours in number of employees, revenue, product, geographic location, etc. What salaries and other benefits do these similar organizations pay their employees?
  4. Develop a succession plan. How will a successor to the leadership be identified among family member/employees? How will they be prepared for leadership? How will this choice affect the morale of the family/business? How will this successor be compensated?
  5. Design an affordable plan. Obviously you want to do the best you can with the dollars you have. What can you afford to compensate each family member/employee relative to their contribution?

After you have a compensation plan that reflects the family’s values as well as sound business practices, you are in position to negotiate an employment contract with a family member. It is important that everything is spelled out up front so that when you have an annual review, there is a way to compare employee performance with outlined expectations in the job description. Salary increases can then be based upon the employee’s true accomplishments.

It will be hard for Ilsa and Arnie to totally separate their love for their children from this matter-of-fact compensation plan. There is room in any business for discretion in awarding raises and other forms of compensation. However, when the money decisions are made strictly from emotion or avoidance of emotion, there is bound to be trouble. As the CEO of a family business, make the best decision you can for the business. As a parent or a spouse, encourage your family member/employee to achieve their greatest potential within or outside the business. In this way both business and family wins.

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Sex and Infidelity in the Family Firm

By Kathy J. Marshack, Ph.D., P.S.

Bill and Monica and Hillary and Andy and Cathy and Paula and … I’m not sure where the connections stop. Obviously infidelity, sexual improprieties and the abuse of power are hot topics right now. With the whole country entranced by the White House sex scandal, you may wonder how I can come up with a column that will take your attention away from the President’s sex life. But SEX just happens to be the subject of this month’s column … Sex and Infidelity in the Family Firm.

You may wonder, as some of us do, why sex causes such problems for people. After all, the sex drive is a normal and necessary part of human life. The problem isn’t that we have a sex drive. The problem is what we do with that drive. As with most human skills sex can be used in a positive healthy way or it can be used to abuse and manipulate. Sex can lead to pleasure, or a love bond within a relationship. Or sex can lead to pain, suffering and corruption.

There is very little in human life that is instinctual. Although the sex drive may be with us from birth, expression of our sexuality is learned. And unfortunately much of what we learn as we grow up, about appropriate sexual behavior is gathered from unreliable sources such as childhood friends, pornographic materials hidden from our parents, television and movies, or worse, through exploitation by unethical adults. Other than a perfunctory sex-education class in public school, where the emphasis is on health and procreation, where does a child learn about sexual techniques, or the relationship between sex and love, or the subtleties of sex in the workplace? Where do they learn about ethics?

Many parents oppose even the scant sex education offered in the public schools. They maintain that sexuality should be taught by the parents, that it is a private matter, that exposing children to these subjects in school will encourage promiscuity. Regardless of the merit of these arguments, I have met few parents who openly discuss sexuality with their kids. Most parents tell me they are more than willing to answer any questions their kids ask about sex, as if any kid in their right mind will let their parents know they are thinking about sex!

So with that minor digression taken care of, back to sex in the family firm. If most of us get a poor education about how to develop our sexual instincts into a healthy expression of our sexuality, then it’s quite likely that most families experience problems at one time or another such as sexual inappropriateness, infidelity, and even abuse. And if that is true for many families, it is true for many family firms.

Jan and Dale were really scared when I first met them. They had been frustrated for years by the poor work performance of their son, Drake whom they were grooming to take over the business when they retired. Drake just didn’t seem to have leadership abilities and his latest escapade was about to sink everything. A female employee had filed a sexual harassment complaint against Drake. It appeared to be true and well documented.

This was not a simple situation of parents neglecting their sons’ sex education, although they had done that too. Jan and Dale had not dealt with their own unresolved problems regarding sex. In earlier years, Dale had been involved in more than one affair. Each affair ended quietly and the couple never again spoke of the problem. Unfortunately, this lack of communication lead to repeated affairs, rather than resolution of the couple’s marital and sexual problems. While Jan thought she was suffering silently and Dale was always repentant, the couple’s children were being profoundly affected. Drake was angry that his father would betray his mother and he was angry that his mother would let Dale get away with it. What Drake was learning about sexuality as a child is that it is something that should be a secret, that sexual behavior hurts other people but that there is nothing you can do about it, that women are helpless in the face of a man’s advances. It is not surprising that with these mixed up messages, Drake went too far when he propositioned an employee. No one had educated him about how to properly handle his sexual impulses. For Dale and Jan, the sexual harassment lawsuit was a wake up call. Sex was only one area in their marriage that was a problem because of poor communication and inappropriate use of power. But it is not only the marriage that is affected. Employees, vendors, business associates, and customers are all affected when sexual improprieties are hidden in a family firm. Drake’s inability to develop leadership in the workplace was a direct result of having no respect for his father. Dale’s leadership was questioned by employees because his son was so irresponsible. Jan was viewed as a long suffering inept wife rather than the competent chief financial officer that she was capable of being. These are not desirable images and certainly affect the bottom line.

Even if infidelity, sexual improprieties and abuse of power do not affect your bottom line, they certainly affect your sense of self esteem and the health of your relationships with the ones you love. So why do people risk it? Lack of education is one reason, as I have already discussed. But other reasons abound too. Essentially sexual misbehavior is a signal of some deeper problem. With the President it could be that power has gone to his head, that when you’re at the top there is no way to assess what normal is anymore. With Monica it could be that she feels powerless in many ways, except when she is seducing men. With Dale, the affairs represented his lack of confidence in dealing with his well educated wife. For Drake, sexual power over an employee was the only way to feel powerful at all, since he was failing miserably in the family business.

Whatever the reason for the sexual impropriety, don’t keep it a secret. Use the signal for what it is, a message about a much needed change in your life and relationships. Among families in business, because of the need to be supportive, nurturing and protective of family members, sexual improprieties are covered up more often than in other settings. As embarrassing as it is to bring these things out, it is more embarrassing to pass the problem along to the next generation and risk everything you have worked so hard for. Seek professional, confidential help from a psychologist.

The President is about to balance the budget, but what has captured America’s attention is his sexual liaisons. If sex is a problem in your family firm, even if you think it is a tightly held secret, just what do you think your customers, employees and other business associates are talking about?

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Are you Mom and Pop in the Office?


By Kathy J. Marshack, Ph.D., P.S.

Fran and Larry are corporate farmers. They have a large operation that grew from one farm, when Larry took over the business from his father, to three farms and a retail outlet, plus several related agricultural investments. They continue to expand north and south along the fertile valleys of the Pacific Northwest.

Many of the employees have worked for Larry and Fran since the time of Larry’s father, but most are new hires. As the business expanded, the company changed from a small “Mom and Pop” operation to a sophisticated multi-level enterprise, racking up impressive national and international sales. This growth required hiring more technical, sales and even marketing personnel to help prepare the business for the next millennium.

Both Larry and Fran have college degrees and are proud of bringing their agricultural business into the computer age. They have talented, well trained farm hands, mechanics, foremen, sales people, office staff and managers, who are helping the business grow in a healthy and competitive way. They have one son in college, studying farm management and a daughter already working full time in the retail outlet. They thought they covered everything when they took the business over from Larry’s dad and began moving into the future. What they had not counted on was human nature.

The element of human nature that I refer to is the tendency of employees to relate to an entrepreneurial couple as “Mom” and “Pop.” You may never have considered this phenomenon before, but if you are a member of a husband/wife entrepreneurial team, you probably know what I mean. And if you work for an entrepreneurial couple, I am sure that at least once, you have referred to them as “Mom” and “Pop,” if not to their faces, certainly to other employees.

Some entrepreneurial couples do not mind the stereotyping. They enjoy the role of parenting their extended business family. They even refer to the company as “one big happy family.” If employees do not mind being treated like children, even indulged children, this is not a problem. However, problems arise when the transference creates more unpleasant connections. Not all employees nor employers have fond memories of their childhoods and they may have unresolved issues between themselves and their parents. These unresolved issues can erupt between employer and employee when the setup is a “Mom” and “Pop” business.

With Larry and Fran there were several signals that they were being treated like parents by employees, even when they themselves did not overtly acknowledge their role as “Mom” and “Pop.” Just because they are a husband/wife team, and have grown children involved in the business, employees infer a parent/child relationship. For example, employees often come to Fran about problems they are having with Larry, even though Fran has no authority in their area. They request of her to intercede.

In another situation, Larry found one employee seeking his approval for nearly every aspect of his job. Even though this manager is quite capable, and came highly recommended, he seemed to be unable to operate independently. This sounds typical of an insecure child who needs Dad’s praise in order to feel loved.

A third example really brought the problem home for Larry and Fran. The couple noticed that whenever they openly disagreed about something at work, such as at a meeting with their managers, the employees involved would immediately become quiet. Where once there had been a feedback session among owners and managers, there were now intimidated children waiting to see how the fight between “Mom” and “Pop” would end.

The solution to these interesting problems is to bring the situation out into the open. I find that entrepreneurial couples who recognize that there will be “Mom” and “Pop” transference at the business between themselves and employees, are in a much better position to diffuse it. For example, Fran can gently remind the employee who seeks her protection from “Pop” that the employee is a capable adult that they hired to handle the job. Therefore, there is every reason to believe that Larry will be respectful and solution oriented regardless of the problem brought to him by the employee.

Larry may need more in depth discussions with the manager who constantly seeks his approval. Depending upon the personalities involved, Larry may even be able to bring the issue of a father-son parallel out in the open. For example, he might say, “You know, just because I’m the owner, doesn’t mean I know everything. It’s not like I am your dad or anything and you have to be perfect to please me. Relax and do your best. That’s what I pay you for.”

In the board room, I think Larry and Fran can be quite direct with their executive team. They may even have some training with their managers on the subject of the psychodynamics of business systems run by husband/wife teams, so when the transference blooms they can go right to the heart of the matter. For example, when an argument opens between Fran and Larry, they can look at the intimidated children/employees and joke, “Don’t worry. We won’t make you choose sides between ‘Mom’ and ‘Pop’.”

All businesses are human relationships first and product second. This is not just true of family firms, but is seen more poignantly in businesses where there is an overlap of family or couple system and the business system. Complicating things further is that employees bring lessons from their childhoods and their marriages into the work place and make meaning accordingly of the behavior of entrepreneurial couples. By recognizing this dynamic and developing ways of diffusing the counterproductive interpretations of “Mom” and “Pop”, entrepreneurial couples will be leagues ahead of their competitors.

To improve your skill at identifying when this kind of transference is happening, keep in mind these basic presuppositions about couple-owned and family-owned firms.

  1. Most people make psychological meaning of a situation at an emotional level first; a more rational, adult interpretation comes second.
  2. All entrepreneurial couples will be viewed as “Mom” and “Pop” by all employees at some time or another, whether you set it up that way or not.
  3. All of us learned about relationships and teamwork in our families of origin, so it is natural to return to those lessons in a setting that represents a family constellation.
  4. Your creativity is limited if you are playing a role, such as “Mom” or “Pop.” Step out of the role and become a fully functioning adult again, and your employee will also.
  5. If you have not resolved problematic relationships in your own family of origin, you will play them out at work, just as your employees do.

Some entrepreneurial couples have tried to solve the “Mom” and “Pop” problem by keeping their personal lives totally separate from their work. Others have opted out of couple entrepreneurship altogether. Still others have gone to the other extreme, where the business becomes their family, and they have no life outside of work. None of these options are necessary, however.

As an entrepreneurial couple, you are both spouses and business partners, sometimes alternating between these roles several times in one day. It is impossible to separate these worlds of home and work, when you work with the one you love. But it is possible to track which role currently is in the foreground. All you really need to do to keep the system humming is to ask yourself two questions:

  • Which role is in the foreground now?
  • Is this the most appropriate role for this context?
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“Overcoming” holiday blues, for yourself and employees


By Kathy J. Marshack, Ph.D., P.S.

Every year as the winter holidays draw near there is a rash of stories on the radio and television and in the newspapers about coping with the Holiday Blues. While it is admirable that the media finds this kind of story worthwhile, I’d like to correct some misconceptions about the holiday blues. First and foremost among the corrections is that the problem is highly over-rated.

The truth is that the holiday blues don’t start in November or even December. People hold off feeling miserable until January. The number of calls to psychologists dwindle to a trickle during the holiday months. Then the calls roar to an all time high in January for the entire year. Again in May there is another major increase in calls for help, sometimes equaling the calls in January. In August calls drop very low again, but not nearly to the low level of calls in the month of December.

Let’s take a look at this phenomenon so that you can be better prepared to handle your Blues when and if they come, or recognize when a loved one needs help. It’s really not hard to understand why we postpone depression during the holidays. We are distracted. There is a flurry of activity to keep us busy. The stores are very inviting with the decorations, music and multiple activities to distract us from normal life. There are concerts, plays, ball games, holiday specials on television, the latest holiday release in the movie theaters. The general atmosphere at most places of business is light. There is an understanding that the real work is postponed until January. There are parties and family get-togethers. Even if you have no friends or family and hate to shop, you can’t turn on the radio or drive down the street without noticing the holiday preparations. All of this serves to distract us from our daily concerns. We are swept along into a river of denial about what our true life situation is all about. We come to believe that the holiday spirit is healing and rejuvenating and that all of our problems will melt away.

At the very least, we put our problems on hold because we are just too darned busy to attend to them. Then January hits like it has in our area for the last two years. We are flooded with feelings and frozen with fear. The holidays have come and gone and we are no better off. The same painful family problems exist. Love interests did not magically materialize over the holidays. The winter ski vacation leaves you feeling frazzled and in debt. You are as disenchanted with your work situation as before the holidays, and no closer to a solution. I call this time of year, the Post-Holiday Let-Down. And it is one of the most difficult times of the year for most people, whether or not you actually have something to brood about. In January, you can no longer allow distractions to keep you from the reality of your life, love or work situation. There are no distractions to facilitate denial. Just two to three months of dark, cold, dreary days, with no significant holidays to break up the tedium.

Then with the first hint of Spring, people start feeling a little better. If you can hold on during the darkest days and nights of January and February, the lengthening days of March and April give us hope that Spring will restore us and bring about the changes that are needed in our lives. When May arrives with sunshine and buds on the trees, we hope that we’ll be well into our happy transformation.

Unfortunately, denial is not a useful tool when it comes to solving problems. Neither is praying for sunshine or a holiday. The truth is that May is the month during which the greatest number of suicide attempts are made. Again, our anticipation of problem resolution with the arrival of Spring is not justified. It is very painful to face the beginning of a new calendar year in January and a new growth year in the Spring, yet have no new agenda for one’s life.

Just as with eating well and getting exercise, in order to maintain your psychological health, a regular routine needs to be established. It’s hard not to be distracted by the holidays or a warm August vacation. Go ahead and enjoy these diversions. But recognize that they are not solutions. Be honest with yourself and do the hard work of revamping the lifestyle or personality that lead to your life/love/career dilemmas.

Do something each day to resolve these problems and to build a new plan of action for the days after the holidays. Some likely activities include reading and attending seminars on topics specific to your situation, meditation, increased levels of whole-person exercise such as yoga and tai chi, and joining a support group. Encourage family and friends to attend classes with you so that you have people with whom to discuss your thoughts and feelings. In this way you will realize that you are not the only one experiencing the Post-Holiday Let-Down. There are those few of you who actually do experience the holiday blues. Apparently you are not as easily distracted by the holiday hoopla. You may have the type of personality that is keenly aware of the world around you, which makes you prone to depression anyway. For example, there are plenty of things in the world to be depressed about. It’s just that most of us ignore the situation even during times other than the holidays. So if you are one of these people it is vital that you seek the support and professional guidance that exists in abundance around you. Just because everyone else is in denial during the holidays, doesn’t mean you aren’t reading your situation correctly. If you are depressed, tackle the problem immediately. Meditate, read, attend classes and support groups and seek the help of a psychologist.

Depression is no Humbug, but you will be better prepared for the Post-Holiday Let-Down if you understand when it actually happens. If you expect the Holiday Blues in December, you may be unprepared to care for yourself when those blues actually come in January.

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Are Co-Dependency and Kindness the same?


By Kathy J. Marshack, Ph.D., P.S.

When yet another check bounced, the sixth in three months, Lenny became worried. He knew that he was not very interested in balancing the books, personal or business. He always left that up to the bookkeeper anyway. The business seemed to be doing well, so whenever a personal check bounced, Lenny always covered it promptly from savings or taking another draw from the business. But this time, things seemed to be getting worse. Lenny wondered if he were slipping up at work, in ways that could cost he and Linda their livelihood. So he asked Linda to meet with himself and their CPA to take a look at the budget. After giving the couple the usual advice on how to tighten the financial system, the CPA pointed out to Lenny that his business accounts were always up to date. Never once in seven years had he bounced a check. Yet in the personal account he shared with Linda, checks bounced every month. Since Lenny was the one responsible for signing the checks at work, he took a closer look at what Linda was doing with their personal account. To his surprise, Lenny discovered that Linda was writing checks for $20.00 or $30.00 over the purchase nearly every time she shopped. Recently one check written on a twenty dollar purchase, was written for $120.00. The problem was getting worse! Lenny confronted Linda privately and in a tearful discussion learned that she was using the money to support a drug addiction. Because the couple is very successful in their business, and have plenty of money to spend, Lenny hadn’t noticed the excesses his wife was spending on her leisure activities. Only when the checks started to bounce more often did he become concerned. His concern about the erratic spending, lead him to discover that his wife was deeply troubled. The story doesn’t stop here, because Lenny and Linda have much work to do to clean up the addiction problem. This isn’t just Linda’s problem though. Lenny needs help in converting his concept of kindness. Lenny knew each time a check bounced that it had been written by Linda. But he took care of it without bothering her. He reasoned that she didn’t have the financial sense that he did. She was good with the customers and vendors so he managed the day to day business stuff.

He thought of himself as helping Linda by taking the financial burden off of her shoulders. You can see however, that he was not really any help. He only helped Linda ignore her growing dependence upon drugs. Lenny’s help is really co-dependence. An individual is co-dependent when they inadvertently or even consciously encourage the addicts dependency upon their drug. You can be co-dependent with drugs and alcohol or any other immature or unwise behavior that leads to serious dysfunction or life threatening consequences. In other words, co-dependency refers to an attitude, not necessarily chemical dependency. If you are ignoring or sanctioning the dysfunctional behavior of a loved one, such as Lenny did with Linda, you are co-dependent. This is no kindness to the one you love. The reason it is so easy to confuse kindness and co-dependency is that they are essentially the same behavior within different contexts. To be kind means to give unconditionally, to share, to show that you care for another person. When the giving, sharing and caring is reciprocated by a healthy individual, the condition is kindness. However, when the kindness is not reciprocated, when you find yourself giving and giving and giving, it may be co-dependency. Lenny found himself taking care of Linda’s bounced checks over and over and over again, without any commitment from Linda to change. This is co-dependency. Kindness does not always require reciprocity. You may feel that you want to give unconditionally on occasion. At the holidays, we often feel that those who have should contribute to those who have not. However, giving should not involve sacrificing oneself, especially if it doesn’t help and if it even makes matters worse. Because Lenny and Linda made plenty of money, it did not seem like a sacrifice to cover the bad checks. However, Lenny’s self esteem was beginning to suffer. He thought that he was becoming forgetful and that he could sabotage the success of their small business, thus risking their retirement.

It hardly makes sense that helping Linda means that Lenny should sacrifice his self confidence. Remaining a kind person while at the same time breaking co-dependency may seem like a difficult task. I have certainly had many people complain that I am asking them to be mean when I suggest breaking the destructive co-dependency pattern. If you love someone who is in trouble, why can’t you help them? The key word here is help. Was Lenny really helpful by continuing to cover Linda’s bad checks? If you are doing all of the work toward solving a problem, what is the other person learning? If the other person is chemically dependent, they learn from your kindness to continue their troublesome behavior. But if you stop helping in a co-dependent way, you may offer your loved one the chance to show you they can solve the problem themselves. Lenny controlled the situation by paying for the checks but he didn’t resolve it. Since there was plenty of money, the problem was not hitting the pocket book, but Lenny’s conscience instead. This is usually your first clue that you are in a co-dependent relationship. For some reason you accept the responsibility while your partner gets off the hook. Instead of control, however, consider another form of kindness, respect. If you respect your loved one, then trust that they can take responsibility for their faults and clean them up. In other words, show the chemically dependent person that you respect them enough to let them show you what they are made of. If they have the right stuff, they will clean up their own act. In fact, the very act of turning the problem back to the person who created it, frees both of you to take responsibility for your own actions. So how do you tell the difference between co-dependence and kindness? Well, one feels bad and the other feels good. One covers up the real problem, while the other brings the problem to the surface. One destroys self esteem, while the other encourages self esteem. Since you have a choice, the choice seems pretty simple. Choose positive self esteem, honesty in solving problems, and taking and giving appropriate responsibility for one’s actions.

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Does Cutting Costs Create Mental Illness?

By Kathy J. Marshack, Ph.D., P.S.

Recently I heard a well known Dale Carnegie graduate give a talk on how to attract new business. He used as an example, what attracted him to the family physician who had attended to him, his wife and children for years. The good doctor had given a similar talk at a public event and impressed the man with his expertise, solid reputation, and sincerity. For something as personal and life important as the health care of his family, the man wanted such an individual as this dedicated doctor. And for years his initial decision to choose this physician proved to be a good one. Yet in spite of the importance of choosing the “right” health care professional, this Carnegie graduate dropped the doctor like a “hot potato” when managed care rolled into town. Because his company chose a managed care plan that would not allow the doctor to join the panel, the dedicated patient who had so carefully chosen and developed a meaningful relationship with his health care provider, decided to follow the impersonal dictates of the managed care plan. Closer to my own area of practice, psychology, is another story that is even more disconcerting. A young teenage girl had been treated for depression by a psychologist. In actuality she was not seriously depressed but rather angry at her boyfriend for being somewhat shallow. The girl’s parents called the managed care company and were referred to the psychologist. After a few short sessions with the psychologist, the girl felt she had more control of the situation and would not allow the boyfriend’s manipulation to continue. Two weeks after terminating psychotherapy, the girl and her father had a fight that erupted into yelling and screaming between the two of them. The father in frustration called his managed care plan (an 800 number in southern California) and told them his daughter was suicidal. Without any psychiatric evaluation and without contacting the daughter’s psychotherapist, the clerk at the other end of the 800 number advised the father to take the girl to a psychiatric hospital. Although the girl was not suicidal and didn’t need hospitalization, she did learn to fear her father and to behave lest she be hospitalized again. Not a healthy outcome. By now you probably have the tone of this article. While managed care may save your company dollars, and while there is a need for health care reform, you might think twice about just what you are subjecting yourself, your employees and your family to. The mistakes made by the Carnegie graduate and the father of the teenager are not uncommon. There is a mystique about managed care. People have come to believe that the 800 number is like a parent, able to solve all of their woes. They believe that they will get the same personal service they received for years by a doctor who knows them. They are puzzled when the service they do receive is not sufficient to resolve the problem. Often they assume that there is nothing more that can be done, since their managed care company has not authorized additional services. It’s as if the managed care company has assumed the paternalistic mystique that the family doctor once held. But now the mystique has no concern about the individual, only cutting medical costs.

All right, I realize that I am biased on this subject, given that I am one of those doctors that is being pressed by the managed care industry. It may be hard for some of you to accept my complaints about managed care, even though others of you have your concerns too. So let me relate a few statistics to bring you up to date on the state of the art when it comes to psychotherapy. The following points come from recent published research. Ninety percent of emergency room visits are psychosomatic in origin. In a review of 58 studies, 85% of the studies found substantial reductions in the medical and surgical costs of patients who regularly used psychotherapy. In a review of 475 studies, the authors found that the average psychotherapy patient at the end of treatment was better off than 80% of those patients who need psychotherapy but remain untreated. Therapist competence relates more to client improvement than does the particular treatment modality. By 8 sessions of psychotherapy 50% of the patients are measurably improved. By 26 sessions or about six months of psychotherapy, 75% of patients are improved. Cognitive-Behavioral psychotherapy alone is as effective and efficient in treating depression as are drugs, or drugs and cognitive-behavioral therapy combined. Drugs have side effects. These are pretty impressive statistics. If as an employer you could improve the health of an employee, certainly you would see an improvement in your bottom line. Healthy employees produce. Most managed care companies, however, are not into improving employee health, but in cutting insurance and medical costs. If they were really interested in your bottom line, why are they not increasing mental health benefits? If psychotherapy works as well as or better than drugs; if psychotherapy reduces emergency room visits and medical and surgical costs; if psychotherapy works better than no psychotherapy; if competent experienced psychologists are part of the success, why then are benefits for psychotherapy being slashed and watered down so dramatically? You may question my findings, noting that your managed care plan includes mental health benefits. However, if you review your benefits in particular, you will find some serious flaws. Such flaws include the fact that your employee is entitled to five or ten employee assistance visits with a counselor. If the problem cannot be resolved in five or ten sessions, they get no more. Also the counselor they must see cannot be of their own choosing. Many of the psychotherapists contracted to managed care companies are inexperienced master’s level people. Another flaw is that all psychotherapy plans must be reviewed with the clerk at the managed care company. The treatment plan is not a confidential arrangement between the client and the psychologist. It is part of a computer record available not only to the insurance company, but to the managed care company who reviews and authorizes insurance claims.

There are some estimates that up to 12 people see your psychotherapy treatment plan. For things as personal as serious depression, or marital problems, this is hardly sensitive or confidential. Furthermore, do you really want an anonymous clerk to be making decisions about your personal mental health? A third flaw is that the managed care company makes decisions about what kind of treatment you should receive based upon actuarial tables. It is not based upon your unique situation, nor what you and the doctor feel would be best. There is no sensitivity to your needs, but what fits the budget. If psychologist competence is significant to treatment outcome, then why is a clerk making these decisions? I personally am willing to participate in only three managed care plans for the above reasons and more. I will work only with those plans that leave the treatment plan between myself and the client. I will work only with those plans that maintain client right to confidentiality. I will work only with those plans that pay me what I am worth as a seasoned professional. I will work only with those plans that authorize appropriate treatment and will not cut off therapy for short term gain, forgetting the long term health loss. If you are shopping for a new health plan and if you are considering a managed care plan, why would you be interested in my point of view? After all, as I said earlier, I am biased in favor of preserving my profession. But there are compelling reasons to take a good look at all sides of the situation. It’s like my CPA says about taxes. If you find a way to save some taxes in one area of your business, you ultimately pay more tax somewhere else. It’s the same with mental health. If you cut premiums and cut services to your employees when it comes to their mental health, you pay the price in increased medical and surgical costs, employee accidents, higher turnover rate and so on. In an ideal world, there would be enough to go around; enough dollars to pay for health care and the ability to choose any provider you wished. However, obviously employers have to strike a reasonable balance and health care has skyrocketed. But in the time that medical and surgical costs have skyrocketed, mental health costs have not grown. They are essentially at the same utilization rate and cost as they have been for decades. So psychotherapy is not the place to cut. It just doesn’t make financial sense, when the price you pay is increased health problems. So when you are shopping around for a health plan, I hope you consider just what you are buying when it comes to mental health benefits. ? Do you have ample psychotherapy benefits; at least 26 to 52 visits per year per employee? Do you have the right to choose the most experienced and competent psychologist? Is there true confidentiality guaranteed? Is the treatment plan dictated by actuarial tables or by the unique needs of the situation and the employee? Is the payment to the therapist worth the time of a competent professional, or are you forced to seek out an untrained, inexperienced person who will charge rock bottom prices?

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