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Employee Benefits: Balancing Cost and Employee Satisfaction

An impressive benefits package is one way to woo top talent, but employers must carefully weigh benefit costs with the company's bottom line.

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.

Communication: The Key

Benefits are powerful motivators to attract and retain the best employees. But if people are unaware of the value of their benefits, your business will not get top value for the dollar invested. "Oftentimes, organizations do not invest enough resources to communicate what benefits they offer and convey their value," says Lenny Sanicola, benefits practice leader at human resources research organization WorldatWork. "Employers should make sure that communication initiatives are top of mind when putting a package of benefits together, and not make communication a byproduct." Employers can do a better job by helping employees make the connection between their needs and the programs available to them, Sanicola adds. "Finally, another mistake to avoid is talking about benefits to your employees with lots of acronyms and terminology they may not understand," Sanicola says. "Use terms employees can understand. Often, that might mean talking about how a particular benefit fulfills a need at a particular life stage of an individual. Or address the need for income protection, or the availability of pay for time not worked."

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.

Stay Realistic
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.

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