Phillip M. Perry (Spring 2011)
A good benefits package is like a tightrope act. From one side, you want to offer a program that keeps your best employees from jumping ship. From the other, you want to trim expenses that can account for a third of payroll costs, according to the U.S. Chamber of Commerce.
The challenge is designing a basket of benefits that gives you the greatest employee satisfaction for the buck. As for which benefits should go in that basket, ask the intended recipients.
"The first thing to do is find out what your employees really want," says Julie Stich, senior information and research specialist at the International Foundation of Employee Benefit Plans. "It doesn't do you any good to spend money implementing a benefits plan that people don't care about."
Survey Employee Preferences
While informal discussions with employees can highlight desired benefits, a structured approach is more reliable. "Conducting a survey of your employees is important," Stich says. "Tie in the results with what other employers are offering in your region. You want to make sure your benefits are competitive."
Your survey should assess the willingness of employees to contribute a portion of their pay to desired benefits. Enthusiasm for life insurance may cool when employees learn that part or all of the premiums would be deducted from their paychecks.
You can get a rough idea of what your employees will say in your survey from the results of research by the Principal Financial Group. In its Principal Financial Well Being Index, the group offers insight into which benefits employees want.
It's no surprise that health insurance is the most coveted benefit. Virtually nine out of 10 employed people cite it as extremely important.
Employees continue to contribute more to the cost of their health insurance, a trend that has continued over the past decade. Some 36 percent of respondents reported increases in co-pays and 32 percent in deductibles over the past year, Financial says. Further, about one of 10 employees has experienced a reduction in medical benefit coverage options.
The second most coveted benefit is a defined contribution retirement plan, ranked as important by seven of 10 employees. Dental insurance virtually tied for second place.
Enthusiasm tends to trail off significantly for other benefits. Roughly half of respondents rated disability, vision, and life insurance as important. As for profit sharing plans and stock options, only about one of three employees rated them as important. Other benefits for employers to consider are paid holidays, vacation and paid-time-off pools, paid and unpaid leaves of absence, and financial and retirement planning.
While surveying employees is a good starting point, avoid raising unrealistic expectations by asking about benefits that are too costly. "The biggest mistake is to fail to set some limit on benefit costs per full-time-equivalent employee, and then ask employees what they want," says Ian Jacobsen, a management consultant in Morgan Hill, California. "Asking about specific benefits raises hopes they will be offered and that the employer will pay for all or part of them. When expectations are shattered, morale suffers."
Remember that the employer's costs go beyond the basic contributions to premiums. Maintaining programs can be expensive when employees pepper your support staff with questions and request assistance. Do you have the personnel required to maintain the records required by a potential benefit?
"Employers need to not only assess their budget, but also the legal, regulatory, and tax impact of proposed benefits and the company's ability to effectively manage their programs," says Lenny Sanicola, benefits practice leader at human resources research organization WorldatWork.
Retirement plans are the second most popular benefit after health insurance. "When you are finished working, you want to be able to have money set aside," Stich says. "People are looking for some retirement security."
Challenging economic times have endangered important employer contributions to these plans. One of four employers curtailed or eliminated their matching funds, according to Bank of America data, and many are not sure when they will resume.
While the economy has begun to recover, many small business owners (and consumers) remain jittery. Now may be a good time to review your paperwork to see if a rebound in sales performance justifies expanding your retirement plan offerings, according to Bank of America's "Small Business Retirement Planning" report.
"A post-recession environment offers small businesses the chance to review any difficult decisions made during periods of slow growth to see if updated business plans could support new, more positive changes in plan benefits or services," the report recommends.
Employers can choose from a huge selection of retirement plans. But beware the temptation to buy a plan off the shelf without considering alternatives. Comparison shopping is critical, since organizations that sell these plans can vary widely in terms of administration costs.
Note that not all demographic groups have an equal interest in retirement plans. "A younger demographic will probably be less interested in retirement and possibly more interested in childcare," Jacobsen says.
Workers compensation protects employees from financial disaster if they are injured on the job. But what if the injury takes place outside of work? That's where long- and short-term disability comes to the rescue. It can be a valuable benefit.
To control rising disability income insurance costs, institute "early return to work" policies, as the costs of injuries go far beyond disability payments and insurance premiums. Other expenses include lost productivity, overtime for employees required to accomplish the missing person's work, and training time. Whatever you can do to return the employee to work quickly can make a big difference.
To encourage early return, institute workplace programs that will accommodate workers who suffer from temporary disabilities. Many employers have such programs for staff members covered by workers comp, but have not extended the programs to cover absences under short- or long-term disability. Now is the time to do so.
Not all benefits are costly. Indeed, some low-cost ones may be highly effective. Consider flex time. Your employees may value the ability to adjust their working hours to their personal needs, and letting them do so might not have much of an effect on your bottom line.
"People want more flexibility in their hours today, with all of the demands we are faced with in terms of families and work" Stich says. "They want to work from home maybe once a week, or have the flexibility to come in and leave when they can. It's nice, for example, to be able to attend a child's recital in the afternoon."
Increasing in popularity are so-called "voluntary benefits," which encompass an entire range of employee-paid benefits that an employer offers with minimal costs and relatively easy administration. Although employees pay the full premium costs, they are offered at group discount rates.
The top voluntary benefits offered, according to Principal's report, are dental (52 percent of employers), vision (41 percent), short-term disability (36 percent), and long-term disability (34 percent).
A Cohesive Approach
Given the fact that hourly workers and salaried staff all demand good benefits as part of the employment agreement, your challenge is to offer the right mix to retain good personnel while maintaining a healthy bottom line.
To some extent, company philosophy dictates benefits provisions. "Some employers have a paternalistic attitude," Stich says. "They may institute traditional defined benefit plans or generous health insurance or life insurance plans. Other employers want to `help employees help themselves,' so maybe their retirement program consists of a 401(k) plan, which helps employees save while they put money aside. Or perhaps they offer a consumer-driven healthcare plan with higher deductibles. In such cases, employees are more responsible for making their own decisions."
Left uncontrolled, the rising costs of employee benefits can erode your bottom line and lead to staff discontent when the business takes draconian measures to cap spiraling expenses. Act now and review your entire benefits package. Survey your staff to find out what benefits they really want, as opposed to the benefits you have assumed are most important. Finally, share information on growing costs with your employees. When employees know the effect that benefits have on the health of your company, they will be more willing to help by sharing costs and utilizing benefits responsibly.
"In designing their benefits packages, employers need to take a step back and determine how their programs support their larger business goals," Sanicola says. "The bottom line is this: What does the organization need to do from an employee benefits perspective to attract and retain the individuals it needs to help drive the company's success? Employers need to look at all of this from a strategic perspective."