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You’ve heard the phrase “beauty is in the eye of the beholder”. What does it have to do with group benefits?  Well, it’s pretty simple.  When HR people design benefit packages, they usually base the design on the perceived needs of the mythical ‘average’ employee.  In reality, the value of the benefit plan is seen by the employees not based on the “average” but on their own personal situation.  It’s a bit like having one hand in scalding water and one hand in ice water and declaring the temperature to be just right on average.  To get maximum value out of your benefit investment, you need to step back and look more closely at the customers.

One of the factors which influence how an employee values the benefit plan is where that employee is in their life cycle, which in turn is generally a function of the age of the employee.

Lets take a garden variety benefit plan.  In Canada, this might include life insurance equal to two times base salary, disability benefits based on 70% of base salary, a medical plan which includes drugs, hospital, paramedical and vision plus a dental plan which covers basic treatment and partly covers more elective and expensive dental services like crowns, bridges and braces. The retirement savings benefits will depend to some extent on the nature of the business, the maturity of the organization and the demographic makeup of the workforce.  For sake of example, let’s make it a defined contribution pension plan with the employer matching 75% of the employee’s contribution which can be anything up to 10% of base salary per year.

Employee A is a young recent graduate with no family to take care of and multiple opportunities in the job market. Frankly, Employee A and his cohort are not likely to place too much currency on the benefit plan.  When they do use the benefits, it is likely to be for basic dental care and the occasional massage.  They would rather have cash and flexible work arrangements, based on surveys that Watson Wyatt has conducted with top performing employees.  If offered the choice, through a flexible benefits program, we would expect to see Employee A select the lowest levels of coverage in favour of optimizing disposable income. We also anticipate that Employee A may opt for the lowest level of contribution to the pension plan, planning to set money aside later in his personal RRSP to avoid having money locked into the employer’s pension plan.

Employee A is considering a career move to a competitor.  Lets say that the cash elements are comparable and both positions offer the same opportunities for an enriching future.  The competitor is a relatively new company, whose benefit plans consist of one times salary for life insurance, employee-paid disability coverage and a medical plan.  They offer an RRSP with a 50% match on the first 5% of employee contributions.  As a young single employee, there might be considerable attraction in the flexibility of the younger new firm and the lesser benefits may not be a strong consideration in deciding between the two firms.

It is now ten years later and Employee A is again considering a career move to a competitor.  Employee A’s spouse reminds him that at least one of the children will be needing braces and that she has a minor but persistent health condition which she manages by complying with the prescription drug regimen that her physician has developed for her.  Suddenly the benefit plans take on higher meaning to Employee A. In addition to caring for the health and dental needs of the family, Employee A is looking into the future and starting to plan for a long and healthy retirement.  While there is nothing wrong with the other company’s benefit plan, it no longer looks as attractive to Employee A.  Unless there are other factors influencing the decision [and there often are], the employee decides that the grass is not greener on the other side and decides to stay productively engaged with your organization.

In another ten years, Employee A begins to see the value of the disability and retirement benefits with new appreciation. His spouse has a solid career track of her own, and they have been able to coordinate medical and dental benefits to cover 100% of most expenses between the two plans.  If considering a move to a company not offering dental benefits, for example, Employee A now takes into account that his spouse has coverage for benefits enjoyed by the family and also that individual disability protection insurance becomes more difficult to purchase as a mature individual.  The company match on his retirement savings becomes more important as he looks forward to early retirement.

Same benefits, but the value of the individual benefits and the overall offering will vary depending on where the employee is in their lifecycle and whether there is access to benefits through the spouse.

How does an HR manager design the benefit offering to meet not only the needs of a diverse employee base, but also their changing needs over time?  Sounds complicated?  There is no magic formula but there are tried and true ways to find the right balance.
The first step is to start thinking about the employees as customers and apply basic marketing techniques to uncover their needs. “Know thy customer” makes as much sense in employee benefits as it does in any other aspect of your business.

How do you find out what the customer wants and values? One can often simply ask the customer about what is working, what isn’t working and what could be changed to make it better. Asking the customer requires a bit of expectation management.  If certain elements of the benefit package cannot be changed, channel your dialogue to those elements which you are prepared to change.  Be prepared to educate them on what they currently have, and be very clear about how far you are prepared to go.  Most people will be willing to share their perspective, particularly when it is their benefit plan that you are asking about.

Choosing your method of inquiry warrants thoughtful planning.  If you are a smaller organization, you may be able to hold a lunch and learn, and make the learning a two-way street. If you are part of a larger organization, you may need to use a survey to capture the feedback you seek.  Surveys can be paper-based but increasingly we see organizations using electronic surveys distributed through their intranets or e-mailing links to an externally managed on-line survey. In addition to being relatively inexpensive, surveys can also be inclusive, allowing better sampling across the employee population.

The medium for obtaining input should reflect the culture of your organization, and the subject matter itself.  Focus groups allow you to probe more deeply behind the expressed feedback and to test some of the ideas you already have.  Employee advisory groups can provide input and help you to test the new ideas as they evolve as well as a potential pool of resources to communicate and champion the changes as they are introduced. Depending on the degree of change, and the anticipated cost of the change, asking the end-user for input before you commit to change can be an essential tool in understanding the needs of your employee base.

You may find that the plan design is not broken, and that better communication with the employees is the area on which you should focus your energy.  Too often we hear of employee dissatisfaction only to find that they were not aware of what they already have.  Communication is not a one time event and needs regular attention if one seeks to have employees appreciate what they have. Is the communication material littered with jargon and acronyms? Do you remind employees at least annually of what they have? If you don’t regularly tell them, they will intimately know those benefits they most frequently use, and too often they will remember what the benefit plan does not pay for instead of seeing the complete package.

Employer-provided benefit plans are not intended to meet all of the needs of all employees. While most benefit plans are still designed to capture the average needs, flexible benefit plans provide some degree of choice within the plan to allow the employee to select coverage levels based on individual need. Flexible benefit plans generally require some investment of the employee’s time, particularly for the first enrollment. In most cases, some of the choices are available using company paid funds, while other more elective choices may require the employee to participate in the cost.  By nature, flexible benefits require more administration and may not be right for your organization.

With the advent of more and more employee self-service via intranets, it is possible to offer a suite of employee-paid benefits and products over and above the company plan.  Allowing employees to buy through the company can help recognize diversity, without committing the organization to financially supporting the needs of a minority.  Offering on-line access to products available through payroll deduction or direct purchase can enhance the value of the offering to the employee, provided the products offered represent convenience or a lower cost than the employee would have been able to arrange as a single buyer.

You also need to take into account the impact of your vendors, the insurers and third party administrators who deliver the daily experience to your employees.  Call center wait times, claim processing turn-around-times, accuracy and even courtesy can influence the value that your employees derive from the benefit package. Make sure their service and quality standards are maintained at a level that make them a positive factor for your employees and their families.

When you start to look at the benefit plan, take into account that your current workforce may or not be reflective of your future workforce.  Many Canadian organizations are struggling with a bi-modal workforce, with large concentrations at the junior entry level and large concentrations of employees within a few years of retirement. You may find that there are certain departments or functions for which it will be critical to be able to attract talent in the future. Understanding your business, and its resource needs will help you design a benefit plan which is not only a good fit for today, but sustainable into the future.

About the Author:

Jane Petruniak is the Western Canada Leader, Health and Welfare for Towers Perrin.



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