Well-structured employee benefits are good for workers – and profits


Many employers land up with a hotchpotch of employee benefits that they and their employees do not really understand and, even worse, that their staff sometimes fail to appreciate.

Often, the package of benefits is the outcome of diverse factors such as union/employee negotiations and the products sold by financial advisers, but the result can be counter-productive, Alex-ander Forbes, the largest administrator of employee benefits in South Africa, has found.

Alexander Forbes’s research shows that most employers need comprehensively to revise their employee benefits, from medical scheme subsidies to retirement funds. And the reasons for doing this are not purely altruistic but in the interest of profitability.

Most employers do not appreciate that it is necessary to provide an integrated package of employee benefits that is shaped to meet the individual needs of employees, Alexander Forbes says in an over-300-page book published recently.

It also says that employee benefits are often too narrow to benefit employees properly.

Alexander Forbes says benefits should not be limited to providing a retirement fund, death and disability assurance and a medical scheme subsidy; a properly integrated package of employee benefits should include teaching employees how to manage debt, budget and save.

An over-indebted employee is likely to be less productive than one who budgets and makes sound financial plans. The over-indebted employee is likely to have a high level of absenteeism and suffer from poor health brought on by worrying about how to repay his or her debt.

Edward Kieswetter, chief executive of Alexander Forbes, says that if employers introduce proper employee benefits, not only will their companies gain, but so will the economy, primarily because employees will have less debt and will save at a higher rate. “This is positive for the social fibre of our country.”

Kieswetter says Alexander Forbes’s aims in publishing its comprehensive research on employee benefits are:

* To share the insights that Alexander Forbes has developed over many years of research into employee benefit structures;

* To contribute to the critical dialogue that will lay the foundation for government’s reform of the social security system; and

* To raise awareness of the need to improve the nation’s culture of saving.

John Anderson, head of research and development at Alexander Forbes, says benefit programmes can improve the overall well-being of employees.

But Anderson warns that unless it is recognised that the different components of employee well-being, the stakeholders and the benefits are interdependent, employee benefit programmes are unlikely to deliver to their full potential.

Alexander Forbes’s research and analysis has found that employee welfare and company profits should improve if employee benefits are integrated; based on employees’ individual needs; reviewed regularly; consistent with an organisation’s values; and coupled with an appropriate and effective education and wellness strategy.

Anderson says employers need to understand that the physical, mental and financial health of employees are critically inter-related. “A properly managed employee benefit structure can lead to less absenteeism and greater productivity for an employer.”

Anderson says one of the big problems with current employee benefit structures is that they are based mainly on a one-size-fits-all solution for employees. This can be harmful to employees and, ultimately, the employer. He cites the following examples:

* Making it compulsory for low-income earners to contribute to an employer-based retirement fund may lower their standard of living while they are working.

* Employers may try to increase the portion of contributions directed towards their employees’ retirement funding by reducing the amount paid for disability assurance.

* One way to lower the cost of disability assurance is to increase the waiting period before the benefit is paid. But increasing the waiting period may result in an employee with a disability claim running out of paid leave before the benefit starts to be paid, resulting in a break in income. This may leave the employee unable to afford to belong to a medical scheme, precisely when he or she needs healthcare cover the most.

Anderson warns that the ripple effects of changing one aspect of a complex system of employee benefits can be significant, particularly if they are not understood or managed.

But Anderson says that the “inter-connectedness can also be used to effect positive change. An employee assistance programme can offer employees financial advice, which can help with their levels of indebtedness, which in turn frees up more money for saving or buying risk benefits as a household. Integrating this with a wellness programme that allows employees to track and be rewarded for their progress may support these positive changes.”

Alexander Forbes’s research on employee benefits should be read in detail by employers and employee representatives.

ESSENTIAL ELEMENTS OF A BENEFITS PACKAGE THAT PROVIDES VALUE

The “right” package of employee benefits involves finding the appropriate rewards mix of pay, “traditional” benefits, such as a retirement fund, and additional benefits, such as staff training.

Alexander Forbes says five factors can help to determine whether or not a package of benefits will deliver value for employers and employees. These factors are integration, education and communication, focusing on needs, consistency with an organisation’s values and regular reviews.

* Integration. John Anderson, head of research and development at Alexander Forbes, says statistics suggest that, to date, employers have not been successful at offering a full spectrum of wellness benefits, let alone integrating them. Although 92 percent of the employers surveyed by Alexander Forbes agreed that looking after their employees’ financial, physical and mental well-being would boost productivity, only 28 percent of them incorporated all three of these into their wellness programmes.

Employers may be reluctant to invest more in their wellness programmes because of the poor uptake by employees, Anderson says. Almost two-thirds of the employers surveyed reported that their wellness programmes were used by fewer than half of their workforce, mainly because of a lack of interest or awareness.

Wellness programmes and initiatives to boost employee engagement may yield mediocre results unless these programmes and initiatives are supported by appropriate and effective education and communication campaigns, Anderson says.

* Education and communication. Anderson says where the default employee benefit arrangements are not appropriate to employees’ needs, individuals may make choices to try to rectify this. These choices may be exercised within the employee benefits system, or employees may decide to buy additional products.

Unfortunately, employees are seldom proactive and, when they do make choices, the choices are often inappropriate. This may be because employees do not understand their overall financial situation or how their decisions will affect their financial situation, Anderson says.

He says part of the problem is the absence of a strategy to educate employees about their benefits, which includes meaningful and adequate communication that engages employees better.

* Focusing on needs. Anderson says employee benefit packages could be structured more effectively by taking account of the needs of employees. Primary needs should be taken care of before more long-term needs, such as saving for retirement. For example, Anderson says a medical scheme subsidy may meet an employee’s need for healthcare cover, but this benefit would be of considerably less value to an employee who does not have access to the more basic need of clean water.

The survey found that employers and employees perceive needs differently (see “Who considers what benefits to be more important”, link at the end of this article). Anderson says this shows the danger of adopting a one-size-fits-all approach to the design of employee benefits.

* Consistency with an organisation’s values. Anderson says every organisation needs to have a brand that speaks to its values. Millions of rands are spent on building and maintaining brand messages to generate revenue. But these messages are not always the same as the ones that are conveyed to employees through their employee benefits, he says.

Communication about employee benefits should promote an organisation’s values. The result is that employees then identify more strongly with the company’s values.

* Regular reviews. Given the rapid pace of change experienced by both companies and individuals, it is unlikely that a static employee benefits package will meet everyone’s needs over time, Anderson says.

A survey undertaken by Alexander Forbes in 2011 found that over 1 000 retirement funds had not reviewed their death benefits in a decade.

However, Alexander Forbes’s latest research into employee benefits established that almost half of employers perform some kind of review of their benefits programmes annually, although 34 percent seldom undertake a review.

More needs to be done to ensure that employee benefits keep pace with economic and demographic changes, Anderson says.

AN ENGAGED WORKFORCE IS MORE PRODUCTIVE

Well-structured employee benefit programmes encourage engagement between employers and employees, which is a key factor in employee satisfaction, productivity and the overall well-being of staff. This is one of the main conclusions of Alexander Forbes’s research and analysis of employee benefit programmes.

John Anderson, head of research and development at Alexander Forbes, says research has shown that an engaged work unit is 38 percent more productive, and 27 percent more profitable, than a disengaged one.

In addition, organisations that have employee engagement levels in the top quartile have enjoyed a growth in earnings per share that is 2.6 times greater than that of organisations with below-average levels of engagement.

“Another study found that, over a 12-month period, organisations with high levels of employee engagement showed an improvement in operating income of 19.2 percent. In contrast, organisations with poor employee engagement levels saw a decline in operating income of 32.7 percent,” he says.

A holistic benefits programme that is structured to address employees’ physical, mental and financial health can offer employers a significant return on their investment, Anderson says. For every rand invested, the returns can range from R4.50 to R23. This return is delivered through improved financial health and savings on absenteeism, retraining and the cost of insured benefits.

In a survey of employers, Alexander Forbes found that most employees appreciate the need to be actively engaged with employers through, among other things, employee benefit programmes.

Anderson says the precise role of employee benefits in stimulating employee engagement is difficult to quantify, although it is relatively intuitive to appreciate.

An Alexander Forbes survey of employers and employees found that the wrong employee benefits could lead to a breakdown in relations between employees and their employers.

When asked if employee benefits were important for employee engagement, 84 percent of the employers said yes, with just 13 percent stating that other aspects of the work environment were more important and three percent saying they were uncertain.

Graph: Who considers what benefits to be more important


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