How Do You Design Your Benefits Programs?

When I first got into this business, sometime during Anno Domini, benefits design and redesign assignments were fairly common. The commonality was not just in the frequency either, but in the underlying themes. Almost without exception, the focus was on one or more of these:

• Recruitment -- making sure that those elements that would appeal to potential new employees were there
• Retention -- making sure there were sufficient handcuffs to retain existing employees
• Competitiveness -- ensuring that the program in total fared well against the programs of comparator companies, and sometimes getting even more granular and doing this on a component-by-component basis
• Being leading edge -- being the first kid on the block, so to speak, to have a particular type of new program

To the naked eye, each of these seems to make sense. As we all know, the costs of recruiting the best and the brightest are high. And, while studies that have attempted to quantify the cost have provided disparate results, many that I have read have suggested that the cost of replacing talent that leaves when you would prefer they stay can range from one-half to more than three times pay with multiples tending to increase as levels of pay increase.

So, of course, as time has gone by, and we have all gotten smarter, the focus is on these same elements even more, isn't it? Well, no it's not. In 2011, a meaningfully larger part of Anno Domini than when I began this segment of my working lifetime, the trends are very different. What's important now? Consider these:

• Recruiting -- with a rare exception, figuring out which benefits are absolutely needed to play and offering just those ... in other words, offer health care, paid time off, and flexible work options such as telecommuting and customizable work schedules
• Retention -- providing oftentimes deceptive communications to make adverse benefit changes not look so bad
• Competitiveness -- it's no longer about being competitive with your peer group, it's about not looking too uncompetitive
• Leading edge -- will you be the first kid on your block to find a new benefits reduction technique to save money without appearing to miserly to your employees

Wow! If I were an employee of a large company that thinks that way, I would not be happy. But, the fact is that I am a benefits professional and I can see through changes like this when they are made. But, to the average employee, the change from a final average pay pension plan to a cash balance plan may not seem like much. They still have a pension, don't they? And, their new pension is easier to understand. Later, the cash balance plan with, say, 5% of pay employer allocations (pay credits) gets replaced by an enhanced 401(k) plan match (less than 5% of pay). But, nobody talks about pension anymore. On the other hand, lots of people talk about these wonderful plans with their neighbors (401(k), 401k, 401, 201k, 101k, 4OK). Yes, I've heard them all, and if an employee thinks they have a good 401(k) plan, they may think they have a good deal. Sometimes, just having a 401(k) plan without an employer match seems to be enough.

Many of the most admired companies do things differently. They still offer benefits and other similar programs to their employees that they can't get elsewhere in town. They spend more on their benefits programs and they are, in my opinion, rewarded for it. How does this work?

• Employees figure it out when they get something better
• Employees that get something better are happier
• That happiness translates to higher productivity
• That happiness also translates to better customer service ... the smiles come through in person, on the phone, and in those little conversations with neighbors
• Profitability is higher because of that better customer service and higher productivity
• Rewards are passed on to employees
• Unwanted turnover is negligible
• The world is saved

Well, that last one may be a bit foolhardy, but the rest of them are not far-fetched. I know that you can't just up and change your miserly benefits program to rich one, but when you are making long-term plans, consider how you can gradually make changes where you spend money to improve the bottom line.

I know, it's a new concept. Nobody will ever do it. Go ahead. Buck the trend. Blame it on me.