Value, Retention Top Trends for the Future

Compensation and benefits experts discuss the pressing issues of providing compensation and benefit packages that present a value proposition to employees.

Melonie Jones
Second VP, Life and Disability Marketing, Assurant Employee Benefits

What we expect to see in 2005 is more sophisticated, knowledge-based purchasing decisions by employers. It is a market-driven phenomenon that has been growing for some time.

As medical costs escalate, overall benefits budgets have felt the squeeze. At the same time, leaner workforces have placed a premium on recruiting and retaining top talent. It is important to offer a comprehensive benefits package that supplements a good medical plan with the ancillary benefits employees want: dental, life and disability.

These factors have led HR professionals to become more savvy. There is a greater emphasis on value over price. Employers are asking more questions and requesting more data to help them better understand what they are getting for their money.

For example, employers want information about the network that comes with the dental plan they purchase. Will their employees find the dentists they want in that network? Will it provide the kind of coverage that encourages preventive care? Sophisticated buyers know that a premium quality dental plan delivers value in two ways: by supporting provider recruitment and retention, and by encouraging the preventive care that can reduce both long-term costs and absenteeism. In the disability arena, the value question boils down to, is this plan and this carrier going to assist my valued employee in returning to work after an injury or illness?

Customer service is another area in which employers are expecting greater value, especially smaller employers that do not have the resources of a large HR department. Employers are looking for carriers that not only issue policies but also provide those additional services and advice essential to handling the more complicated employee benefits needs.

Another key trend is the desire for customization of employee benefit packages either through plan design changes or more cost-sharing measures. Employers of all sizes are less likely to settle for off-the-shelf products that do not specifically meet their needs. Small employers especially recognize and look for the customization that was once unavailable to them.

Finally, there are significant changes in the employers' focus with regards to employee benefits. While employers seek to retain employees, interest rates and other economic factors have made it more difficult for employers to experience rate stability. As these economic factors become less significant in the marketplace, rate stability should return, giving employers the freedom to focus more on the product than on price.

Anne C. Ruddy
Executive Director, WorldatWork

During the next year, the biggest issue for compensation and benefit professionals will be the attraction, retention and motivation (ARM) of the employee workforce. As we move into 2005, it appears the economy is starting to pick up, which will likely generate new employment opportunities. These new opportunities will shift the power back to employees; placing ARM initiatives at the forefront of organizations.

In order for organizations to properly address ARM issues, they must understand the employees' perspectives on pay, benefits and work experience issues. Employees prefer larger, merit-based raises, more affordable healthcare (with similar coverage) and improvements to the work experience. We examine each of these components in turn. 

For 2005, salary increase budgets will remain at historic lows. Based upon the results of the 2004 WorldatWork Salary Budget Survey, salary increases for employees will remain low into next year as well. Depressed salary budgets give employers the opportunity to implement variable pay and pay-for-performance programs to motivate their employees.

The second component is health care because it is such a crucial benefit to employees. As healthcare costs continue to rise, employees will begin contemplating whether the cost of healthcare outweighs the option of foregoing employer-sponsored healthcare altogether. The increase in healthcare costs, coupled with the relatively low salary increases, may cause employees to search for new jobs. Employers need to recognize these pressures on employees and determine new ways of effectively addressing them.

One of the ways employers can establish these ARM initiatives is to explore the intrinsic values employees have in their current roles. How can the organization effect the current "work experience" to attract, retain and motivate? Although compensation and benefits play a crucial role in ARM, so do intrinsic values (telecommuting, covered parking, paid time off, development opportunities). Surveys have consistently shown that compensation attracts employees to organizations but is not the prime motivator in keeping them with the organization. Employers need to keep a pulse on their employee population to determine which "work experience" components their employees value and determine which ones they should offer.

As budgets decrease and employee expenses increase, organizations will need to "tune" into the employee value proposition to ensure that attraction, retention and motivation are at the forefront of the organization.