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Case Study

Pay-for-Performance Puts Twin Cities’ Neediest Residents to Work

Objective: In the Twin Cities, where the unemployment rate among African Americans is over 20% compared to just 6.6% for whites, a local anti-poverty organization leverages an innovative pay-for-performance model in which the State reimburses the organization for workforce training once very low-income residents are placed into a jobs earning more than $20,000.

Major Participants: Twin Cities RISE! (TCR!), the State of Minnesota, U.S. Department of Labor, RS Eden, Minnesota Department of Corrections, various local educational and training providers, more than 150 local hiring partners.

Background: Traditional workforce training programs often require the service provider to meet rigorous performance goals, thereby forcing the provider to cream participants from the top in order to meet those goals. Ultimately, this means that the residents in greatest needs often have the least access to the vital resources to help them prepare for meaningful employment.

In 1993, Steve Rothschild, a former Executive Vice President at General Mills, founded Twin Cities RISE!, an innovative workforce development organization whose mission is “to provide employers with skilled workers – primarily men from communities of color in the Twin Cities area – by training underemployed and unemployed adults for skilled jobs that pay a living wage of at least $20,000 annually” with benefits.  Though TCR! initially began as an intensive coaching program for men of color, it has since evolved to include low-income residents from all backgrounds with an added in-house training component.

How it Works: Those interested in the program must attend a one-hour orientation and complete a demographic survey and reading assessment. Weekly, program coaches meet and must make unanimous decisions as to who will be admitted into the program. Once admitted, participants go through an 8-week provisional period called “Foundation 1”. Foundation 1 includes career fundamentals, writing fundamentals and computer applications. Upon completion of Foundation 1, TCR! participants are offered the opportunity to sign a partnership agreement for a loan to continue training. By signing, the participant acknowledges that the training costs approximately $18,000 for TCR!, that TCR! will give participants a $7,500 forgivable loan to put towards that training, but if the participant does not complete the full TCR! program, he or she must repay that $7,500 in full.

Foundation 2 dives deeper into career fundamentals, speech craft and career tracks. Foundation 3 prepares participants for employment with help in topics like resume writing, interviewing and negotiating job offers. A final “Advanced” stage focuses on marketing candidates and assists with the job search strategy. Through every stage, Empowerment Training is critical. This training focuses on cognitively restructuring a person’s mindset in order to make individuals contemplate the impact of their actions by teaching ways of thinking and behaving that are more conducive to success.

There are two unique aspects of the TCR! model that have contributed to its success. First, employers from across industries help design the curriculum each year. The business community also plays an active role by offering internships, conducting mock interviews, and ultimately, hiring graduates from the program. Second, TCR! has reached an agreement with the state to develop an innovative financing tool. Using a pay-for-performance model (often confused with performance-based contract), the state pays TCR! $9,000 when TCR! demonstrates that it has placed one of its graduates into a job that pays at least $20,000 annually. TCR! can secure an additional $9,000 in payment if the graduate remains in that position for at least one year. The rationale for this funding agreement is that the state reaps a total benefit of $31,000 when a person’s income increases from $10,000 to $20,000 by the simple fact that he or she is no longer on state subsidies, and rather contributes to the state’s tax rolls. No payment is made by the state if a person drops out of the TCR! program.

Results for Local Economy: For every $1 invested in the TCR! program by the State of Minnesota, $7.71 are returned to taxpayers from increased tax receipts, reduced state subsidies and reduced recidivism among program graduates – amounting to a 671% return. Participants increased annual income by an average of 355% to $26,788 plus benefits, compared to just $5,889 prior to program enrollment. Among graduates, 81% remain in their jobs after one year; 70% remain for more than two years.

Remaining Challenges: Converting recruits into active Foundation 2 participants remains a challenge. In 2010, TCR! generated nearly 4,000 applications and of these, only 805 were admitted into the initial 8-week session. Only 172 completed the 8-week session, and only 130 of these signed the contract and enrolled in Foundation 2 and signed the legally-binding contract to accept the loan and participate in the program.

Related, many of those who are recruited are not converted into active program participants because they face other life challenges: drug abuse, homelessness, lack of child care and/or poor reading and writing skills. While TCR! has some funds available for supplemental services such as transit passes and mental health assessments, substance abuse and housing continue to hinder participant success. TCR!, on its own, cannot provide the requisite services needed to help participants overcome these barriers.

Lessons Learned: A market-driven approach has been critical to sustain corporate participation. Unlike traditional workforce development programs that target individuals for improvement, the TCR! model puts employers at the forefront; employers are considered the primary customers of TCR! services. Half of the board of directors is comprised of business professionals, and the TRC! CEO has traditionally been a leader from the business community.

Finally, despite retention challenges, the inclusion of empowerment training has been a critical feature in helping people from among the hardest-to-hire demographics (criminal backgrounds, long-term unemployment, extreme poverty) find meaningful, career employment. This component helps re-train participants with a mindset that only they have the power to reshape their destinies. The career coaches and staff must also undergo empowerment training, building an environment with the shared understanding that positive behaviors will increase the likelihood of program success.

To learn more about Twin Cities RISE!, visit http://twincitiesrise.org.

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