A Supreme Court ruling on the constitutionality of the Patient Protection and Affordable Care Act is expected at the end of June, which could unravel the reform that employers have been dealing with since the first wave of provisions rolled out in 2011.
“These provisions generally caused employers to pay more for their benefit plans,” says Sandy Ageloff, Health and Group Benefits leader, Southwest, for Towers Watson. “This impacted a number of large employers in the self-funded category, with a cost increase somewhere in the range of 0.5 percent to 2 percent.”
While you might be tempted to take a wait-and-see approach instead of preparing for additional provisions set to roll out in 2014 and 2018, that could be dangerous.
“It’s better to have a portfolio of scenario planning rather than having the act upheld and be saying, ‘We were waiting to see what would happen before we did anything,’” says Ageloff.
Smart Business spoke with Ageloff about how employers need to shift their strategic focus around the role health benefits play today and determine what role they should play in the future.
How could the upcoming Supreme Court decision on health care reform impact employers?
Regardless of the outcome, this will generate strong political reactions from both sides of the aisle. If upheld, we expect to see Republicans in Congress attempt to repeal certain provisions of the legislation and to defund specific elements, especially the state insurance exchanges set to begin in 2014.
If the legislation is ruled unconstitutional, we expect the Supreme Court will make a high-level statement and push it back to Congress and the Oval Office to sort out. The challenge is that a number of things that have been implemented would be politically difficult to undo for both parties, such as the 100 percent preventive care clause, the removal of lifetime maximums on coverage and the expansion of dependent coverage. Even if the government is silent on those provisions, the question becomes, ‘Would employers and insurance carriers actually undo them?’
With a ruling due so soon, why shouldn’t employers wait to see what happens?
Employers should act now because of the very broad business implications that health care reform could have. Employers should be treating it as business contingency planning and need to understand their options.
Also, there are multiple touch points, such as underlying health care costs, attraction and retention, and work force composition. Employers that have large seasonal, part-time and variable work forces might face issues in 2014 when they have to offer coverage to anyone working 30 or more hours per week. These employers have a very fundamental business decision to make about how to structure their work force and they might want to redefine how they manage workers. By the time the Supreme Court decision comes out, there won’t be much time for large employers to have their strategy in place by January 2014.
What else do employers need to keep in mind regarding health care reform?
The next milestone is 2014, when state insurance exchanges are set to go live, the individual mandate for all U.S. citizens to enroll in some form of health care coverage or pay a penalty will be enforced, and employers who offer coverage and don’t meet certain eligibility and employee contribution affordability requirements will face government penalties.
It’s important for employers to understand who in their workforce meets those eligibility requirements. If they don’t, it will trigger a penalty on the employer’s entire work force population. For large organizations (e.g., a company with 5,000 eligible employees), penalties could reach $10 million, depending on the scenario.
What consequences could result if employers pass on health care increases to employees or reduce benefits?
In the U.S., benefits are a top-five attractor for employees looking externally for a position, and it influences retention and engagement. Employees have become more sophisticated at evaluating not only their take-home pay but also the benefits that employers offer.
Top talent is difficult to attract and retain. The challenges for employers are making sure they are in the right competitive phase and are not overbenefitting people, as well. Finding the balance between what employees want and what employers can afford is important.
How can employers cope with current changes to the health care laws?
Cost control is one way to create a sustainable benefits plan. Another is to focus on employee health. There’s a need to decrease the rate of increasing costs. While the Consumer Price Index remains in the low single digits, health care costs are trending as a three- to four-time multiplier on the general CPI number. As a result, employers with business growing at a much slower rate face health care costs that are growing exponentially. By focusing on the health of employees, employers can change the rate of increases over time.
What are challenges of focusing on the health of employees?
The two biggest challenges are capturing employees’ attention and making them comfortable with the fact that the employer has a sincere interest in their well being. There’s a growing sense of skepticism about why employers care about employees’ health, so making sure they understand what’s in it for them is important. Make sure they understand it’s a win-win — employers have healthier employees who are at work more often and who are more vital and engaged, and employees gain a better quality of life. They have the chance to become fitter and healthier, spend less of their own money on health care and live longer to enjoy the fruits of retirement.
Sandy Ageloff is Health and Group Benefits leader, Southwest, at Towers Watson. Reach her at (310) 551-5709 or firstname.lastname@example.org.
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Successful retirement plan financial management requires careful coordination on the part of the employer. Without the knowledge to properly manage the plan, plan sponsors could face serious repercussions, says Gary Gausman, a senior consulting actuary at Towers Watson.
“For plan sponsors to manage their programs, there are four main areas to focus on — benefits policy, funding policy, investment policy and accounting policy,” says Gausman. “There are a number of things you can do in each area, and there is a lot of interaction between them that you need to be aware of.”
Smart Business spoke with Gausman about the keys to successful retirement plan financial management.
What do plan sponsors need to know about their benefits policy?
Look at the plan design to determine benefits that are going to be earned in the future and how you are going to deliver those. Also, look at your exit strategy for legacy liability. Employees have already earned benefits for service rendered to date, and there’s liability associated with those that you need to deal with. With legacy liability, there are former employees who are retired and are currently receiving benefits, those who have terminated employment and are not earning additional benefits but are entitled to benefits in the future, and active employees.
Retirees are receiving a monthly benefit and there’s not a lot the employer can do because benefits have already been earned and are being received. But you can mitigate the risks associated with retirees by purchasing an annuity contract from an insurance company to take that liability off your hands.
For those who have terminated employment who have not yet started their benefits but are entitled to future benefits, consider offering them the benefit in one lump sum payment. If someone is 45 and entitled to $1,500 a month starting at age 65, perhaps that person would rather get a lump sum now equal to the value of those payments. That removes some employer risk. Annuity benefits are payable until the person dies, which might not be for decades. But if you pay a lump sum equal to the actuarial value of the payments, you are done.
With active employees, look at plan design. Traditional plans are final average pay plans, where if you work for a company for 30 years, you get, for example, 1.5 percent of your final average pay per year, or 45 percent of your final average pay, starting at age 65. The risk to the employer is that the benefit is indexed to what the employee earned, for example, in the last five years before retirement, which could spike dramatically in an inflationary period. As a result, many employers have shifted to a career average approach, in which benefits are instead based on what the employee earned ratably over his or her career.
How can employers address funding policies?
To maintain the tax-qualified status of plans, employers must satisfy various rules, including putting in a certain amount of money every year. Historically, some have put in the bare minimum, but in 2006, new rules said that, in addition to satisfying minimum funding requirements, you also have to maintain a certain funded ratio, which is the assets of the plan divided by liability, to continue to operate the plan according to all of its intentions and be able to take advantage of funding exemptions. For example, if a plan allows lump sums, it must maintain an 80 percent funded ratio in order to be able to pay out lump sums
If a company is just trying to satisfy the minimum funding rules while maintain that 80 percent ratio, additional volatility in the contribution amount could ensue. Companies could instead consider a more generous funding pattern to develop a cushion so that in lean years, when plan assets may have dropped and business results aren’t up to expectations, you can draw on that excess. This funding policy could involve, for example, contributing a certain percentage of pay each year.
In the 1990s, when things were going well, some companies took their eye off the ball. They didn’t have to make minimum contributions because their assets were doing so well, and in many cases, that has come back to bite them, as they haven’t built up the excess they now would like to have.
How can investment policies impact employers?
For years, employers chased returns and forgot about liabilities in the plan and how those would play out over time. In the last 10 years, that strategy has not worked well, as the stock market has been very erratic. As a result, when liabilities increase, assets may decrease, creating an even wider gap. Employers are taking a more focused look at investments, trying to better match assets and liabilities so that if liabilities increase, assets increase, as well, and the gap will not change as much. With the transition to cash balance type plans that allow employees to take lump sums at termination, you need to make sure you have the liquidity to pay those out. And to do that, employers need to look at investments in a different light and better align them with their liabilities.
How do accounting policies play into the mix?
When implementing pension plans, companies made certain elections, and they are mostly tied to those. If you change your accounting policies or methods, it must be to a ‘preferred’ method. For example, many companies chose smoothing in their accounting policies. Depending on the methods chosen, this could mean that if assets tanked last year, they would not have to recognize the full decrease in one year, but rather could spread it out over up to five years. That’s been fine, but the trend in accounting is toward ‘mark to market’ accounting, which eliminates smoothing. The auditor wants to know exactly what your assets and liabilities are based on current market conditions, i.e., current interest rate market and current asset markets. This can have implications for a company’s investment policy and funding policy, for example. By understanding each of these areas and how they work together, companies can position themselves for successful retirement plan financial management and minimize their risks.
Gary Gausman is a senior consulting actuary at Towers Watson. Reach him at (818) 623-4763 or Gary.Gausman@towerswatson.com.
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Every employer considers foundational rewards — base pay, benefits, retirement packages and paid time off — when working to attract and retain employees. But there’s more to it than that, if you want your employees to remain engaged in their work, says Josh Strok, Director of Rewards, Talent and Communication at Towers Watson.
“You should consider performance-based rewards, such as merit-based pay, bonus plans and recognition programs, which help differentiate performance and reward top performers,” says Strok. “These rewards focus employees on the company’s priorities, as workers see where the organization is putting additional dollars. There are also career and environmental rewards, which include career development opportunities, training, mentoring, corporate social responsibility and wellness programs.”
Smart Business spoke with Strok about how employers can use total rewards optimization to allocate their reward investments for maximum return.
Why should an employer create a total rewards program?
We know organizations have placed additional burdens on employees since the beginning of the recent recession. In our 2011/2012 Talent Management and Rewards Study, nearly two-thirds of organizations have employees working more hours over the past three years, and over half of the companies expect this to continue over the next three years. Coupled with the increasing difficulty to attract and retain top performers and people with critical skills, crafting appropriate total rewards programs is more important than ever.
Employers are worried they might not be able to meet employees’ expectations as the labor market heats up and workers gain more negotiating leverage. By evaluating your total rewards offering now, you can determine how to strengthen your organization’s employee value proposition — and minimize the risk associated with losing critical-skill talent.
Most employers know that a highly engaged work force is a leading indicator of strong financial performance. So they’re working to deliver an employee deal that engenders workers’ rational, emotional and cognitive commitment to the business. When committed fully, employees are more willing to make a discretionary effort to go above and beyond the minimum that’s required.
Has total rewards optimization been overlooked?
Yes, until recently. In the past, employers typically started from a compensation and benefit standpoint, which addressed foundational and some performance rewards. However, they developed and managed the various components as very separate programs. Today, more companies recognize the power of blending these reward programs and looking for ways to reinforce the overall total rewards deal.
CHROs and CFOs know they have one pool of money to spend on all aspects of total rewards — health care and retirement benefits, job training and base pay increases. With limited dollars, they’re trying to figure out how to get the biggest bang for their buck. The challenge is to offer the right deal to the right employees — a deal that will keep top-priority workers highly engaged — within the confines of the company’s fiscal constraints.
In putting together a total rewards optimization (TRO) program, how should employers begin?
Start by looking at what you have in place and how you spend your dollars, and determining whether that’s competitive against companies with which you compete for talent.
Next, understand your employees’ preferences and use employee surveys with conjoint analysis to determine which rewards have the biggest impact on employee attitudes and behavior. Segment your work force and ask employees in each segment what they want and what they’re willing to trade off. For example, if you can spend $100, would employees rather have a lower health care deductible or a better training and development program? Or more base pay or a better retirement program?
Based on that feedback, you can look to shift your investments among programs (i.e., portfolio optimization) to create total reward portfolios that deliver the highest return. The goal is to invest finite reward dollars across the work force in a way that balances organizational and employee interests creating the highest possible perceived value at the most economical level.
For instance, if employees say lower health care costs are more important to them than the retirement program, explore the opportunity to invest more in health care programs if you reduce your 401(k) match. If so, employees will be more engaged with that deal, because you tried to construct a total rewards program in light of their wants and needs.
Rebalance your allocation, and make trade-offs you can live with. You’re not going to eliminate your 401(k) plan, but maybe you can spend less there to better invest in areas your employees value more.
How do employers determine whether the total rewards optimization program is succeeding?
After a year or two with the new program in place, you should assess its effectiveness. This is an ongoing part of an effective total rewards strategy. Be sure to check with employees. Do people feel better about their jobs and about what’s going on in the company? If you were trying to address unwanted turnover, look at the hard metrics. If you formerly had 8 percent turnover and now have 4 percent, clearly what you’ve done is working. If you were looking to save money, did you do so at the expense of reduced engagement?
The issue isn’t only about deciding whether to spend more or less in total. The real questions are whether you know what your employees value, and whether you can adjust your total rewards investments accordingly. You don’t have to do it all at once in a full-scale redesign. Many employers do it in steps and focus on big-ticket programs or areas that earn the least employee value.
Josh Strok is Director, Rewards, Talent and Communication at Towers Watson. Reach him at Joshua.Strok@towerswatson.com or (818) 623-4577.
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The days of rushing into mergers and acquisitions are over. Companies today are doing more due diligence up front, and making a bigger effort to integrate acquired companies, says Iain Jones, FFA, director, International Consulting Group, Towers Watson.
“Business leaders are recognizing that they must allow people more time to do due diligence, and that there shouldn’t be a rush to get due diligence done too quickly,” says Jones. “In the heady deal-saturated times, there was significant competition for targets, but people are realizing that there are consequences to ignoring potential obligations, so they need appropriate due diligence.”
Smart Business spoke with Jones about M&A trends and how HR can play a critical role in the process.
What are the current trends in mergers and acquisitions?
First, not all transactions are closing. There’s more willingness for companies to walk away from deals as they are no longer brushing off risks and saying they’ll deal with them later. Second, smaller deals are dominating. There aren’t as many as multibillion-dollar deals as we used to see. Third, there are quite a few spinoffs, companies shrinking to grow as they take flak in earnings because they’re too diversified. Fourth, there is a growing importance of emerging markets and, finally, global perspective does matter. Companies in the U.S. are acquiring what they thought was a U.S. company, then realizing that, because of the way we’ve globalized, those companies have operations around the world.
What are the challenges of international acquisitions, and how can companies overcome them?
The biggest challenge is that you get into a multitude of cultures, regulations, time zones and languages to deal with, all of which can be exacerbated if you haven’t had operations in those countries before. You have to figure out all the legal pieces and do your due diligence. Get outside support with the skills and global resources to support such deals.
Another reason for bringing in external advisers is that, as you move into multiple countries, one person running the deal simply cannot handle the volume coming at them.
Businesses also need to balance global consistency on certain items with country specificity. That’s where you need advice, someone who can say, ‘Yes, you can apply that across the world,’ or ‘No, there are EU regulations that say you can’t do that.’ It’s important to identify those advisers before you need them, because, once the need arises, you’ll be too busy blocking and tackling the issues that come up to give enough attention to adviser selection.
What role can a company’s HR staff play in an acquisition?
People are the fabric of the deal and HR glues it all together. Deals succeed with long-term integration and people buying into the long-term vision and strategy. Engagement drops in periods of uncertainty during a deal. There’s a clear link between engagement, productivity and business results; to the extent that you can minimize that uncertainty, you can minimize the drop in productivity. That is a key role for HR.
How can business leaders prepare their HR department to take a lead role in a merger or acquisition?
First, HR needs to prepare themselves for deals. Business leaders should train them on the role of M&A in the business and how they can contribute to the deal success from talent, culture and HR functional perspectives. This role needs to be earned though, which is why experienced acquirers invest so much in training HR.
When a deal hits, get them involved from the beginning. Let them in on the change management aspects of the deal. Get them to lay out the long-term vision up front and communicate it to employees. Tell them what’s coming. Changes may not happen immediately but it reassures them that those key issues are being looked at.
Another vital element for the HR side is to work on culture, which is so key in a deal. There are different ways to go with culture but, if HR is allowed to do that assessment, they can advise business leaders on how to approach and integrate the target company in a more effective way, including identifying and focusing on the things that matter most to employees.
How important is it to integrate acquired companies, and how do you begin?
It depends on the business strategy. If you’re looking at a standalone company, you may just take it on as it is. It may be simply a different ownership structure with work as usual.
With a full integration, however, you really need to engage people, welcoming them to the company and explaining what it means to them.
Too often, when a large company acquires a smaller one, there’s insufficient communication and employees of the acquired company are just expected to adapt. That doesn’t just happen — the acquired company has a certain culture and a successful way they are working that you want to capture. Take the time to understand what is working so well at this company.
On day one, let people know your long-term vision and likely timing of the various aspects (e.g. job structures/grading alignment). This communication is vital to minimize that crippling uncertainty. If you leave a gap in knowledge open, people fill in the gaps with potentially false information.
Successful integration may also involve not touching things on the operations side until you have a clearer picture of how they work. There is normally something very powerful in that company and it is the reason you’re buying it. You have to be careful you aren’t killing the goose that’s laying the golden egg.
Iain Jones, FFA, is director of the International Consulting Group at Towers Watson. Reach him at email@example.com or (949) 253-5249.
First e-commerce revised the need for brick and mortar, then Web 2.0 redefined the voice of the customer. Now the rise of mobile technology and online collaboration has killed the dream of work-life balance, which has a direct impact on employee engagement.
A study of 80 global companies, conducted by Paul DeYoung and Tracy Shamas and several colleagues from Towers Watson, reveals that employees need new competencies and behaviors to manage their personal obligations with the demands of today’s 24/7 work environment. Instead of striving for balance, employees must learn to harmonize work and play so companies can reap the benefits of our connected world without sacrificing employees’ discretionary effort.
“Compartmentalizing our activities doesn’t fit today’s digital world,” says Paul DeYoung, Southern California director of Talent Management and Organizational Alignment for Towers Watson. “Employees need to harmonize their work and personal pursuits, because doing so exponentially increases engagement and the bottom line.”
Smart Business spoke with DeYoung about the demise of work-life balance and how replacing it with harmonious integration can exponentially increase and sustain employee engagement.
What is exponential engagement (EE) and why is it important?
Thanks to a growing body of evidence, executives have embraced the notion that employee engagement has a significant impact on an organization’s financial results. But after combing through the data, we’ve identified two factors that influence an employee’s desire and willingness to contribute discretionary effort toward their job. The first is enablement, which exists when employees have the necessary support and tools to work efficiently and effectively over time; the second is energy, which comes from a healthful work environment that supports employees’ physical, social and emotional well-being. When these elements converge, the result is EE, which is capable of lifting a company to even greater financial heights.
How is EE impacted by harmonious integration?
Harmonious integration describes an employee’s ability to manage the demands of the modern work environment with his or her personal commitments, which is integral to emotional well-being. When companies are too focused on the bottom line and continue to raise the bar, the ensuing stress can sap employees’ energy, and, in our surveys, a better work environment and culture has supplanted compensation as the top reason for changing jobs among stressed employees. And when employees don’t have the financial resources or tools to sustain high levels of performance, frustration sets in and they ultimately burn out and check out.
How does EE influence business results?
Towers Watson studied the impact of engagement, enablement and energy across 50 global companies and found that those firms with EE had operating margins three times greater than companies optimizing only one of the contributing elements. To perform at their best, employees need positive and healthy working environments that help sustain high energy levels. For example, clear priorities, effective teams, respectful colleagues, and a balance between performance expectations and job pressures all contribute to employees’ sense of well-being on the job. In turn, positive well-being generates energy and supports sustained effort. On the other hand, motivation driven by the fear of losing your job or recessionary-induced pressures is unsustainable.
How can companies help employees learn the art of harmonious integration?
Employers can solicit feedback through employee opinion surveys and then initiate changes and offer courses to help employees increase their ability to deal with the pressure. But the best way to teach the behaviors that lead to harmonious integration is through mentoring and modeling. For example, our research shows that individuals who achieve harmony are good time managers, they know when it’s time to turn off the infiltration of e-mail and text messages and they have the ability to transition between work and personal commitments without getting frazzled. The best way to become effective at this new skill is to study others who are good at it and get feedback either through a coach or mentor. It’s also critical that executives recognize the problem and support change, before engagement erodes.
How can executives support, encourage and model harmonious integration?
Executives need to be cognizant of their own behaviors, because they impact everyone around them. In fact, based on our research, we’ve revised our executive Competency Atlas (Towers Watson’s competency dictionary) by adding ‘work and personal harmony’ to the list of must-have leadership characteristics and values. Let’s see how you stack up. First, do you send e-mails in the middle of the night? Do you require employees to be accessible on weekends or during vacations? Be conscious of the message you’re sending through your actions and respect others’ need for harmony when scheduling meetings and conference calls. Second, make sure your expectations are proportional and appropriate. It’s OK to have high expectations for your fellow executives, but don’t expect them to answer off-hour calls just because you happen to be available. Third, be a catalyst for change by endorsing training and mentoring programs and making cultural modifications based upon the feedback from employee surveys. Finally, if you’ve had the pedal to the metal during the recession, the early recovery period may be the perfect time to make additional hires and reduce organizational stress so employees can cope with the loss of work-life balance. And while doing that, don’t forget to take care of yourself.
Paul DeYoung is the Southern California director of Talent Management and Organizational Alignment for Towers Watson. Reach him at (949) 253-5215 or firstname.lastname@example.org.
Executives frequently face gut-wrenching decisions while seeking alternatives to cash-guzzling call centers. Off-shoring the work is a popular choice, but it eliminates jobs for U.S. workers and alienates customers who have to overcome language and cultural barriers while conducting phone transactions with overseas agents. Some companies have even relocated centers to lower-cost states or counties, but they are dismayed to find that the move produces only a temporary reprieve from exorbitant turnover and growing labor expenses, as competitors often follow and ignite a recruiting war.
While most executives continue to grapple with the problem, a few innovative companies have solved it by quietly tapping underutilized pools of talent and allowing the employees to work from home.
“The benefits of this model far exceeded the expectations of most firms who participated in our recent study,” says Gloria Gowens, director of Towers Watson’s Rewards, Talent Management and Communications initiatives for call centers. “Retention was so much better that brick-and-mortar cost savings were just the icing on the cake.”
Smart Business spoke with Gowens about the unexpected benefits of deploying virtual contact centers.
What can we learn from studying the success of early adopters?
We surveyed 16 companies, most of which utilized the model for a period of one to six years and deployed 18 to 1,500 home-based workers each. They expected to reap savings from closing or repurposing facilities, but, surprisingly, 75 percent discovered that home-based workers outperformed their on-site counterparts as measured by key performance indicators such as productivity, work quality and customer satisfaction. And, 40 percent found the engagement scores for home-based workers were higher than the scores for their counterparts in brick-and-mortar operations. Turnover of home-based workers averaged just 5 percent to 28 percent, which was an improvement when compared to the attrition rate for on-site agents.
Why is the virtual model so advantageous for talent management?
Essentially there are no boundaries when recruiting home-based workers, so employers can tap less-competitive or even rural areas to source the best talent. In fact, employees only need reliable high-speed Internet service, a quiet space to work and a landline phone, so the talent pool is practically endless. Working from home also attracts non-traditional part-time employees who need flexible hours, like students, teachers and stay-at-home parents, and who often have a hard time finding suitable supplemental employment. Benefit cost for some at-home workers tends to be lower, because they average about 20 hours per week. A key satisfier for home-based workers is that they don’t incur the ancillary costs of working outside the home like commuting, parking and business attire.
Is it difficult to manage a remote work force?
Contrary to popular belief, the data shows that remote workers don’t need constant supervision and in-person bonding opportunities to thrive and, though it sounds like a cliché, these employees have lower absenteeism and are more productive because working from home suits their lifestyle and preferences. New workers can be trained in the brick-and-mortar site, or in a virtual classroom. Thin client technology and automatic call distribution makes it easy to monitor agent activity, add or delete users, and route calls to home-based workers; in fact agents can even bump difficult calls to supervisors. Managers enjoy greater span of control since they communicate with employees via chat rooms, instant messaging and traditional conference calls; in fact, one innovative manager engages his group by holding virtual donut-eating contests. Best of all, some firms found it’s easier to staff difficult split shifts and they no longer worry about phone coverage on snow days.
How can executives assess the viability of transitioning to a virtual model?
Employers should conduct a feasibility study that considers the critical success factors and lessons learned by those with successful deployment experience; include these factors:
- Structural considerations. Develop the work force configuration model, deployment strategy and the projected costs.
- People considerations. Establish the desired candidate profile, recruiting and selection strategy, compensation and benefits structure and the performance expectations for remote workers.
- Process considerations. Consider employee training, scheduling, agent career paths and the communication process.
- Technology considerations. Assess the equipment requirements, tech support needs and the protocol for system downtime.
- Management considerations. How will team leaders coach the agents and keep them motivated and engaged?
What are the next steps once the feasibility study is completed?
Employers could launch a pilot program, assess the outcomes and refine the model before scheduling full deployment. Early adopters found that hiring new employees wasn’t the best way to test the model, because it compared the performance of rookies with veterans. Instead, allow experienced agents to work from home during the pilot and slowly integrate new hires, because it simulates a realistic scenario. They also resoundingly endorse the need for structured deployment, as it allows companies to optimize savings by strategically shuttering one call center at a time.
Gloria Gowens is director of Rewards, Talent Management and Communications at Towers Watson. Reach her at (949) 735-2933 or email@example.com.
After two years of layoffs, salary freezes and shifting benefit costs, employers are worried about attracting, retaining and engaging top talent now that the economy is improving. In fact, 52 percent of U.S. employers say it’s already difficult to attract employees with critical skills and 25 percent say it’s hard to retain top performers according to the 2010 Towers Watson Global Talent Management and Rewards Survey.
Given these emerging challenges and the ongoing need to contain costs, it’s imperative that employers invest precious dollars in rewards that resonate with employees and prospects. Unfortunately, many organizations are using insufficient data or old intelligence to determine employee preferences, so they’re spending money on programs that have little impact on retention or engagement.
“There’s a gap between the rewards many employers are offering and what employees want,” says Darryl Roberts Ph.D., senior consultant for Organizational Surveys and Insights at Towers Watson. “By listening to their employees and giving them a say in determining their rewards, employers can boost engagement, retention and productivity without increasing expenditures.”
Smart Business spoke with Roberts about the current state of employee rewards and how employers can optimize expenditures by delivering programs that meet employee preferences in a cost-effective way.
What are the challenges facing employers now that the economy is improving?
Our research shows significant gaps between what employers believe is most important to employees and what employees actually want. And given the recent economic obstacles, many HR and business executives are out of touch with employee preferences. For example, 86 percent of the U.S. employees surveyed in the 2010 Towers Watson Global Workforce Study cited improved work-life balance as a retention factor, yet relatively few employers offer flexible schedules despite the often-modest cost of instituting a program. And 62 percent of employees said rapid skill development contributes to a preferred work situation yet only 33 percent of employers said it is available in their organizations.
The good news is employers don’t have to increase rewards spending if they just listen to their employees and recalibrate their current expenditures.
How can employers determine employee preferences and optimize rewards expenditures?
The goal of Total Rewards Optimization (TRO) is to help organizations generate the highest possible perceived value for rewards at the most economical cost. We start by conducting a conjoint survey that determines employee preferences by testing a number of specific reward options. Throughout the process, employees are forced to make trade-offs and prioritize rewards, not look at each reward separately. For example, employees may be asked if they prefer a higher employer 401(k) contribution and less training, or a lower employer 401(k) contribution and more training. Our experience shows that employees understand the challenges employers face and are capable of making prudent choices if they’re brought into the conversation. Next, we analyze the data to identify rewards portfolios that have the highest impact on desirable employee behaviors while delivering the greatest ROI. The process also highlights the best rewards mix at different expenditure levels because there’s not necessarily a one-to-one relationship between cost and employee perception. Some rewards may be less costly but highly valued by employees, while others may be expensive but not deliver enough value to justify their expense.
What else will employers discover through the TRO process?
TRO provides employers with valuable information to calibrate rewards by answering these critical questions.
• What is the right level of total investment in employees? Is the organization spending the right amount? Are there opportunities to do more with less? Conversely, is there an economic case to increase rewards spending?
• Which rewards enable the business plan by driving desirable employee behavior? Organizations may be spending too much on some rewards but not enough on others, and may also have opportunities to modify some rewards programs in ways that improve ROI.
• How should rewards be tailored by employee segment? Employees value different things at different points in their careers or employment situation. For example, early-career employees may place a higher value on learning and development while more experienced workers may value larger 401(k) matches. And employers may need to tailor programs to attract and retain employees with scarce skills such as engineers or IT professionals.
How has TRO helped companies optimize reward expenditures?
When a manufacturing company faced unsustainable pension and benefits costs, it was able to launch pension program changes for new hires, redesign retiree medical and change the distribution of stock options to lower expenses with minimal impact on active employees. A health care provider found that an improved work environment, paid time off for training and more predictable work schedules were more valuable than higher pay and subsequently reduced the annual turnover of clinical staff by 25 percent. And when a large grocery chain faced intense competition and margin pressures, they instituted a program that reduced reward expenditures by $50 million while reinforcing employee behaviors that increased customer loyalty, without increasing employee turnover.
TRO helps employers better invest valuable dollars in rewards that support their business plan.
Darryl Roberts, Ph.D., is a senior consultant for Organizational Surveys and Insights at Towers Watson. Reach him at (949) 253-5229 or firstname.lastname@example.org.
Legislators were undoubtedly well-intentioned when they set out to reform the nation’s health care system, but the lawmaking process often creates collateral damage, and this time the silent casualties may include your company’s absence and disability programs. The bill mandates specific provisions that weaken an employer’s ability to manage employee health, and ultimately their attendance and productivity. Because HR professionals are focused on revising the company’s current health plan and mitigating the upcoming cost increases, there is little time and focus remaining to manage absence and productivity.
“Employers can take some simple steps now to protect productivity while their attention is diverted between now and when the law takes full effect in 2014,” says Skip Simonds, practice leader for Absence and Disability Management for the Western Region at Towers Watson.
Smart Business spoke with Simonds about the impact of health care reform on employer absence and disability programs and the action steps that will help keep employee productivity intact.
How does health care reform weaken existing absence and disability programs?
The primary goal of health care reform was to provide benefits to a broader segment of the U.S. population and control costs, but it’s created additional administrative burdens for employers, and limits their ability to manage employee health by allowing employees to opt out of the company plan or purchase coverage in state-run pools. Employers have been able to drive substantial gains in productivity, because they’ve designed plans that influence and reward specific employee behaviors. And data shows that taking a holistic approach and creating complementary health, wellness, absence, workers’ compensation and disability programs is the best way to control costs while limiting abuses and absenteeism. If you remove a few pieces of the puzzle, you diminish the efficacy of the entire program. To make matters worse, the changes come on the heels of recession-induced staff reductions, so HR has limited resources to deal with the problem.
How should employers adapt current programs to drive productivity?
Switch to a paid time off (PTO) plan instead of allotting specific time for sick leave or vacation. PTO plans shift the burden and cost of managing incidental absences onto employees and boost productivity by reducing the use of unplanned sick days for questionable reasons. Studies show that employees are more likely to work through marginal illnesses and avoid taking ‘mental health’ days so they can save their time off for vacations. If you don’t switch to PTO, consider boosting the effectiveness of your current program by offering a bodacious prize for perfect attendance. One company increased perfect attendance from 10 percent to 50 percent of the employee population by entering the names of perfect attendees into an annual drawing for a new car. The car cost $40,000, but the incentive reduced lost time expenses by $450,000.
What other changes should employers consider?
Create an economic incentive for employees to return to work by reducing the short-term disability benefits from 100 percent to 60 percent or 66 percent of income. Simultaneously if supervisors are resistant to providing transitional work, charge the costs of that light duty to their cost center regardless of who provides it. The best way to reduce absenteeism and disability costs is by making sure that everyone has some skin in the game.
How can employers focus on this problem with limited HR staff?
Outsource the management of FMLA to an insurance company or third-party provider. Engaging a knowledgeable partner is like getting a free staff member, and an outsider has the freedom to quiz medical providers and find alternate treatments that reduce the need for missed time. Outsourcing also allows HR to focus on more important issues, and our experience shows that it increases compliance with a very cumbersome law that allows employees to take time off intermittently. This is especially true in California with its myriad of mandated leaves. A recent three-year study showed that intermittent benefits accounted for 19 percent of all FMLA taken, and employers with integrated FMLA/disability administration had lower costs than employers without integration that included 22 percent fewer lost work days and 36 percent fewer repeat users.
How can employers use data to boost the effectiveness of absence and disability programs?
Outsourced providers generally offer robust data collection, which illustrates the close link between employees’ utilization of sick time, short-term disability and workers’ compensation. Review the data on a quarterly basis to spot trends and hold vendors accountable to provide recommendations that will improve your program and results. Only 11 percent of employees that file medical claims also file lost time claims, but those employees drive 53 percent of medical and disability benefit dollars; so a decrease in disability costs can yield an even larger decrease in health care costs. But what’s most troubling is that 96 percent of CFOs say they understand the connection between employee health, lost time and productivity, but 78 percent don’t receive any meaningful data to help them analyze or manage the situation. Suffice to say that employers stand to reap tangible savings by simply collecting data and reviewing it on a regular basis.
Skip Simonds is the practice leader for Absence and Disability Management for the Western Region at Towers Watson. Reach him at (818) 623-4576 or email@example.com.