Turbulence in the economy means that many companies are looking toward their benefits package as a way to save money. But the employee benefits package is a critical tool to attract and keep top-quality employees. It should be designed with those employees firmly in mind, appealing to what is important to them and giving you the edge as an employer of choice. But is that still possible, given economic woes?
It’s possible and important, says Dr. Ronald Leopold, vice president at MetLife. “We need to look beyond the challenges of this year,” he explains. Leopold’s new book, The Benefits Edge: Honing the Competitive Value of Employee Benefits, is a guide for employers that want to design the optimum benefits program for their particular employee group.
“Employers are spending $8,000 to $10,000 per employee on benefits that are intended to drive loyalty and performance. The goals of the benefits package are to attract, retain, and increase productivity. But we live in a world where one size no longer fits all. Employers need to think about how to craft their benefits package to resonate with a diverse workforce.”
Leopold wants employers to think differently about benefits, asking themselves questions like, “Do we have the right benefits programs in place for this particular company? Do our employees know about them, understand them, and take full advantage of them? Are we leveraging our benefits to provide the greatest value?”
New Economy, Continuing Problems
Even before the recent financial crisis, Leopold says American companies had reached a breaking point in terms of the cost of benefits. Healthcare and retirement costs are spiraling; economic problems have only added to the situation. A changing workforce, where differences in generations, lifestyles, and life stages require different options and approaches, adds to the turmoil. And technological innovations now bring more opportunity to provide choices than ever before. The result is a truly unique period in the evolution of benefits, and some accompanying complexities.
Leopold suggests you think about benefits in a new way, beginning with these four critical areas: (1) cultivating health and well-being; (2) fostering financial security; (3) promoting life balance; and (4) crafting an unparalleled employee experience. Notice that he does not mention specific benefits.
“Employers should take a broad view,” he says. Health and well-being, for example, is a goal; health insurance is a way to achieve it. The same is true for retirement plans. They are a way to provide for an employee’s financial security, not an end in themselves. Focus on the goal first, and then on the means to achieve the goal, Leopold recommends.
Align Business, Employee Goals
After studying industry research, Leopold says that employers cannot maximize the return on their benefits investment without aligning their business goals with employee goals of security, fulfillment, and personal relevance. “Employee benefits are strategic tools that can enable employers to strengthen connections with their employees, which is important given that good talent is a perennial source of competitive advantage.”
With employee goals in mind, companies have the opportunity to create a unique benefits package that can improve morale. That’s important because, as author David Sirota points out in his book, The Enthusiastic Employee: How Companies Profit by Giving Workers What They Want (Wharton School Publishing), companies with higher employee morale outperform their peers. Sirota cites Intuit and Barron’s as examples of companies where employee morale led to corporate results exceeding those of peer organizations.
Sirota’s research showed that in 28 companies employing a total of 920,000 people, the share price of the 14 companies with the highest morale increased an average of 16% in 2004. Compare that to the averages in those companies’ industries, where share price in the same period increased 6%. Companies where morale was low saw a share price increase of, on average, 3%.
Which Category Fits Your Company?
One size doesn’t fit all employers, either. Leopold categorizes employers into one of four profiles, based on their answers to two questions: How much money does your company spend on benefits as compared to your competitors? And, how highly do you prioritize meeting the needs of a diverse workforce?
Based on their answers, companies can determine whether they are traditional, standard, flexible, or progressive, and that helps them determine how they are positioned as a competitor for talent in their own marketplace. The profile, Leopold says, can help a company determine whether their benefits programs are doing all they can to drive business objectives, whether their benefits are driving value, and whether they should make changes. The four profiles are described here.
Traditional. Traditional companies tend toward paternalism, spending more with less flexibility. According to his research, Leopold says that 18% of companies fall into this category. They may continue to offer defined benefits plans and consider health and retirement plans essential, funding them to the maximum extent possible.
Traditional companies are more subject to the effects of an aging population than are employers who do not expect to fully fund core benefits. Leopold believes these companies should think about ways they can increase 24/7 communication with their employees, via the Internet and using communication that is targeted to various employee groups.
Standard. Standard companies are those spending less and offering less choice in benefits. These companies, 28% according to Leopold’s research, strive to provide a basic level of benefits, often for employees only. Instead of extending benefits to dependents, their programs often serve as a means for employees to obtain group rates for their coverage. These companies see cost-control as a primary objective, rather than increasing value.
Leopold’s suggestion for them is to strive to understand what types of benefits employees truly value, based on the employee goals mentioned earlier. With that kind of understanding, employers can offer alternative benefits without increasing costs.
Flexible. The category Leopold calls “flexible” encompasses 22% of companies. These are the employers who offer more choice but spend less on benefits. Because they tend to be very aware of their competition, not to mention their own limited budgets, they seek out more options but make very deliberate decisions about how to spend their benefit dollars.
These employers often provide self-education opportunities for employees, utilizing the Internet. Employees in these companies often view their choices as a key reason to remain with the employer, so cutting costs by eliminating choice is not the best option. Instead, actively managing the programs to ensure plan participation and concentrating on communicating the current offerings may reap the best results.
Progressive. The largest number of companies, 32%, fit into the category Leopold calls Progressive. Progressive companies spend more and offer more choices. They are usually the first to implement innovative policies and creative solutions, such as telecommuting, job sharing, and domestic-partner benefits.
As their competitors reach for more choices and/or more spending in the ongoing effort to increase employee loyalty, Progressive companies should resist the temptation to sit back and wait, says Leopold. They are already at the forefront, and he recommends they continue to strive for that leadership role.
“It is important for employers to realize that a greater investment in employee benefits programs does not necessarily mean greater benefits spending,” Leopold says. “Supporting voluntary benefits, providing access to educational resources, and improving benefits communications should also be considered part of the ‘investment’ equation.” Know your company, and know your employees. Then you can realize the most value from your benefits package.