Employee Benefits: A Balancing Act
Offering a good benefits package is like performing 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 an expense category that can account for a third of payroll costs as reckoned by the U.S. Chamber of Commerce.
So what's the secret? Design a basket of benefits that gives you the most employee satisfaction for the buck invested. As for which benefits should go in that basket, the answer can be found from 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, a research outfit based in Brookfield, Wis. "It doesn't do you any good to spend money implementing a benefits plan that people don't care about."
Run A Survey
While informal discussions with employees can highlight desired benefits, a more structured approach will be more reliable. "Conducting a survey of your employees is important," says Stich. "Tie in the results with what other employers are offering in your region. You want to make sure your benefits are competitive."
One caveat: Your survey should assess the willingness of employees to contribute a portion of their pay to their coveted benefits. Enthusiasm for life insurance, for example, may cool when employees are informed 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 some new research by the Principal Financial Group, Des Moines, Iowa. This insurance company has just issued the results of its own survey in a report titled, "The Principal Financial Well Being Index." The data offer insight into what makes employees excited.
What's the most coveted benefit in the survey? No surprise here: health insurance. Virtually nine out of 10 employed people cite the benefit 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, reports Principal Financial. Further, about one out 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 pretty much 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. And how about profit-sharing plans and stock options? Only about one of three employees rated them as important. Other benefits to consider are paid holidays, vacation and paid-time-off banks, paid and unpaid leaves of absence, and financial and retirement planning.
While surveying employees is a great idea, 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," cautions Ian Jacobsen, a management consultant based in Morgan Hill, Ca. "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."
Retirement Plans
As noted above, 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," says Stich. "People are looking for some retirement security."
Challenging economic times have endangered the all-important employer contributions at these plans. According to data from Bank of America, one out of four employers curtailed or eliminated their matching funds, and many are not sure when they will resume.
While the economy has recovered recently in terms of corporate profits and stock market performance, many small business owners (and consumers) remain jittery. Now may be a good time to dust off your own paperwork and see if a rebound in sales performance justifies expanding your retirement plan offerings, according to a recent Bank of America report titled "Small Business Retirement Planning."
"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," says the report.
Disability Income
Workers' compensation protects your workers 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.
How can you control the rising costs of disability income insurance? Institute "early return to work" policies. That's because the costs of a disability go far beyond disability payments and insurance premiums. Other costs 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 these in place for staff members covered by workers' comp, but have not extended the programs to cover people absent under short-term or long-term disability. Now is the time to do so.
Cohesive Approach
Given the fact that hourly workers and salaried staff all demand good benefits as part and parcel of the employment agreement, your challenge is to offer the right mix that helps retain good personnel while maintaining a healthy bottom line.
To some extent benefits provisions are piloted by company philosophy. "Some employers have a paternalistic attitude," says Stich. "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' health care 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 draconian measures are needed to cap spiraling expenses. Take action now to review your entire benefits package. Survey your staff to find out what benefits they really want, in contrast with the benefits you have always assumed are most important. And 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 cost sharing and by responsible utilization of benefits.
Phillip M. Perry is a New York-based writer and consultant.
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