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Feeling the Benefits Squeeze, Employers Turn to Flex

Budgets continue to take a toll on benefits. Workplace flexibility, wellness programs and better communication may ease the pain.

July 12, 2011
Related Topics: Flexible Work, Strategy and Management
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Faced with the rising cost of health care on the one hand and the need for enticing benefits packages to compete for talent on the other, many organizations are feeling the squeeze.

According to the Society for Human Resource Management (SHRM) “2011 Employee Benefits Research Report,” released in June at SHRM’s annual conference, nearly three-fourths of the 600 HR practitioners surveyed reported the economy has negatively impacted their benefits offerings, an increase of 5 percent over 2010’s already grim figures.

“It’s hard to tell if it’s going to be sustained or not, but it has been a downward trend for the last two and a half years,” said Mark Schmit, director of research for SHRM.

Schmit said benefits are closely tied to wages so that when the economy goes into recession and wages drop, benefits do too. Wage growth is expected to pick up modestly this year, increasing 2.8 percent in 2011 and 2.9 percent in 2012, according to a WorldatWork salary budget survey.

“Having said that, there’s still the impact of rising cost on certain benefits,” Schmit said. “The rising cost of health care, for example, has a large impact on what employers can afford in other benefit areas and what they have to pass on to their employees.”

Passing that cost off to employees drags down satisfaction with benefits, meaning employers need to find creative ways to compensate for higher costs and loss of benefits to continue to compete for talent, Schmit said.

Discretionary benefits that cost the organization little in terms of administrative time and dollars are an option. According to the SHRM research, workplace flexibility programs increased in 2011, and more than half of organizations (53 percent) now offer programs like flextime and job sharing as an added benefit, up from 49 percent in 2010.

“The trend there is on a steeper incline for large companies than for small companies,” Schmit said. “Part of that is due to the cutbacks that small companies have had to make during the recession.”

While smaller companies find it hard to offer flextime because of limited staff, Schmit expects flexible work will continue to grow as the economy picks up steam and employers try to soften the blow of rising benefit costs in other areas.

“The demographic changes that we’re seeing in our country are starting to demand it as well,” he said. “The younger generation [is] demanding it. Two of the largest growing segments of our workforce — women and minorities — are demanding it in greater amounts.”

Wellness programs, such as health screening, lifestyle coaching, preventive programs and fitness incentives, are an additional benefit that organizations can deploy to soften the blow of increased cost. Wellness programs have experienced minimal gains over time — 58 percent offered them in 2008 and it has since risen to 60 percent in 2011, indicating room for growth.

“We see both the flexible work and the wellness pieces both as being those benefits with real potential that haven’t yet been fully recognized and that have been flat over the last five years,” Schmit said. “We believe that both are capable of reducing cost and increasing job satisfaction.”

While increasing discretionary benefits can help organizations cope with higher costs and compete for talent, it’s also important that organizations provide clear communication to employees about their offering to boost satisfaction and retention, especially as they push higher costs onto the workforce.

Unfortunately, Prudential’s annual study of employee benefits, released in March, indicated that communication was another casualty of the recession. The study — now in its fifth year — surveyed 1,350 plan sponsors, 1,200 plan participants and a smaller pool of benefits brokers and found that controlling cost remains a top objective.

“It appears that even if we’re in a recovery, those things haven’t changed much,” said Jean Wiskowski, chief marketing officer for Prudential's group insurance business. “Employers are still not necessarily putting their dollars on communications at all.”

The average employer uses four or five communication methods, such as group enrollment meetings, email and home mailings, Wiskowski said. Prudential’s research indicates that leading companies deploy up to 10 ways to communicate with employees about benefits, including social media and smartphones.

Wiskowski said those companies are able to balance cost-cutting pressure with effective communication about their benefits package, using tailored messaging to differentiate communication for workers nearing retirement from that delivered to younger workers for example. Internal Prudential studies indicate that 88 percent of employees want information relevant to where they are in their career. Female workers in particular seem receptive to customized messages.

“As a rule, certainly with life insurance, females tend to be underinsured versus their male counterparts, and there are a lot of females that now tend to be single heads of household and they don’t always recognize that they need to have that life insurance,” Wiskowski said.

The rise of social and mobile communication has opened new windows and new challenges for benefit communication. Younger workers in particular want to engage through multiple methods. Experimentation is important but to avoid potential privacy issues organizations need a social media policy in place.

“Benefit communication leaders seem to be testing the waters and it seems to be somewhat successful in trying different methods,” Wiskowski said.

However they are communicated, benefits play a key role in driving employee satisfaction and attracting talent, particularly when the economy is tough.

“If the minimum benefits aren’t there and you have a competitive labor market coming back from a recession, it’s going to be hard to compete if you’ve cut your benefits back so far that you’re not competitive anymore,” Schmit said.

He can be reached at mikep@talentmgt.com.

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