After everything that has happened in 2008--extraordinary market volatility, the mortgage and banking crisis, client fears and revenue challenges from declining assets under management--employee policy manuals may seem relatively unimportant. But it could be costing you more than you realize if you don't have them or if you do but they're improperly prepared.

As financial advisory firms face a potential decline in profits, it's reasonable to think firm owners might want to find more efficient ways to manage a practice. And one of the most fundamental steps in managing employees is establishing and enforcing rules for the workplace-rules that govern what your employees can and cannot do. The value of such rules is multifaceted. They allow you to both set standards of work performance and behavior for your employees and establish what's inappropriate, too.

Let's talk about standard policies, such as those regarding work hours, holidays, company benefits, etc. A firm owner can often make these policies better by protecting the firm from abuses by errant employees. For example, if you set work hours as, say, 9 a.m. to 5 p.m. and a salaried employee shows up consistently late for work and fails to make up the time, there might not be any repercussions for that employee unless you also lay out in your policy manual negative consequences if the time is not made up in some other way (for example, you could reduce the number of personal days or make a cut in the next paycheck). An employee who is given 30 minutes for lunch but takes close to an hour is costing the firm money if that time is not made up. If a firm pays for eight hours of productivity (in salary), it is reasonable for the owner to expect eight hours of productive work from the employee.

This might seem like nitpicking, but in tight-budget times, but consider that similar abuses by multiple employees over the course of an entire year would multiply the effect, meaning you're paying thousands of dollars in salary unmatched by an equivalent amount of productive work. This is just one example of how an improperly written policy could be costing your firm.

But certainly, a good manual does more than just enforce work standards. It would also address the employees' use of the Internet. Many firms establish a policy prohibiting personal Internet use, particularly to keep employees from using company computers to visit questionable Web sites; to prohibit them from downloading potentially harmful software, images or other media; or to keep them from using the Internet for chat rooms or instant messaging. It could hurt the firm if clients or others people see questionable Web sites or images appear on a computer screen at the company, and could open the firm up to potential lawsuits, sexual harassment claims or worse. Having unauthorized software downloads, meanwhile, could subject the firm to malicious software, Trojan viruses or intrusive software intended to extract personal information. Moreover, employees who spend time on these activities are, in effect, stealing time away from their work. Ultimately, this costs the firm money.

Yet another example is a policy limiting or prohibiting personal cell phone use during work hours, one of the more difficult policies to enforce. Younger employees grew up with cell phones and text messaging. For them, it is inconceivable to go through a day without access to either one. Yet they clearly interfere with an employee's office duties.

Studies have shown that the interruption of an analytical job, however brief, could mean a 25-minute gap in the employee's time (on average) before he or she can mentally get back on task, according to a 2006 study at the University of California at Irvine. Add to this the time it takes to respond to something else like a personal text message for, let's say, two minutes, and we're up to 27 minutes. Multiply this times four to five messages per day, times four employees times 20 days of work per month and you could be looking at more than 2,000 hours a year lost. At $30 per hour, this could be costing the firm more than an employee's yearly salary in lost productivity. But because the infraction is so minor and the costs are not readily quantifiable, employers often don't recognize it for the huge expense that it is.

Employees can also, of course, abuse annual vacation time, personal days, sick days or other time off that they are being compensated for. For example, say an employee has banked 15 days for sick leave and 21 for vacation after using neither during a lengthy period of time on the job. What if the employee then decides to take all 36 days at the same time (just because the policy manual does not specifically prohibit it) and then quits right afterward. The result is a substantial gap in productivity, not to mention the costs of hiring and training a new person to take over.

Such a situation begs for a stipulation in the manual that caps banked days (or requires that they be used within a specified period of time). It also raises a question about how you time your paydays. One solution is to stagger them-setting the actual payday or deposit day one week after the pay period ends to minimize sudden employee departures.

Many employers view the employee policy manual as a defensive legal measure, and this is true to an extent, as employers must be able to provide information about their employees' status under the Fair Labor Standards Act (FLSA) and some state laws, and the policy manual is one way to keep them in compliance. A manual can also help indemnify the firm against potential employee litigation such as wrongful termination lawsuits, discrimination suits, unemployment compensation claims or other actions. (The FLSA, enacted in 1938 and amended many times since, sets minimum wage requirements, overtime pay, record keeping and other standards for employment. For a fact sheet on the FLSA as it applies to the financial services industry, visit www.dol.gov/esa/whd/regs/compliance/fairpay/fs17m_financial.pdf.)

Employee manuals also set standards for the way your employees handle confidential client information-holding them to a privacy standards and asking them to sign nondisclosure, nonsolicitation type agreements, even if they are not licensed individuals. Otherwise, an employee could leave to join another firm and bring a "prospect" list of your current clients with him, as long as the policy manual doesn't spell out the legal consequences of doing so.

All that notwithstanding, the employee policy manual should strive to do more than just outline the negative aspects of work. The manual is also an opportunity for the firm to paint a picture of itself and explain what it is like to work there. It should include a mission/vision statement, articulate a set of core beliefs about the value of employees and describe the kind of environment in which you think they perform best. It should set out work hours and breaks, explain how clients should be treated in communications, and say what is expected of the employee as they work with others in the firm. The manual can outline all the benefits of working in the firm, such as retirement plans, medical, dental, life, disability, vacations, sick days, jury duty pay, etc. And it should include a statement about any changes that have been made in the policy since the last one was written.

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