Alice: “Would you tell me, please, which way I ought to go from here?”
The Cheshire Cat: “That depends a good deal on where you want to get to.”
Alice: “I don’t much care where.”
The Cheshire Cat: “Then it doesn’t much matter which way you go.”
Lewis Carroll “Alice in Wonderland”
As a Total Rewards professional that focuses on employee benefits plans, I have been hearing more and more that my clients are re-considering their compensation strategy. As such employers and plan administrators have been eager to review their employee benefits programs. I have no doubt a lot of the 17th Floor members are having similar discussions internally and with their own advisors and consultants.
With that in mind, I thought it would be beneficial to share an exercise I like to do with my clients about how to frame these sort of discussions. The goal is to understand what the individual client’s 'benefit philosophy' is, and how that measures up against their current plan.
So what does Benefits Philosophy mean?
Well it is simply a better way to understand the goals each organization has for its benefit program. It’s not often employers sit down and take a holistic view at the employee benefits plans, often times the program was implemented by someone else, and inherited by the current administrator.
Benefits plans are often tweaked and adjusted without a deep look into why the program is set up the way it is in the first place. The benefits philosophy discussion is a great way to understand where you want the benefits program to be and then charting the path on how to get there.
6 Main Considerations When Thinking About Your Own Benefits Philosophy and Benefits Plan
1. Flexible vs Traditional
A traditional benefits plan is a single program design that applies to all employees. A flexible benefits plan allows varying levels of employee choice of benefits. As our workforce demographics continue to change and become more diverse, flexibility and custom benefits are becoming far more common than ever before. Organizations of all sizes can now access extremely flexible plan options for members, but not all organizations want or need all of the flexibility available to them.
2. Simplicity vs Diversity
A simple benefits plan is generally provided by a single insurer. A diverse program allows for the participation of multiple specialty service providers. The overwhelming majority of employers in Canada have their benefits program with a single carrier, but a growing number are using a multiple carrier arrangement. Understanding the benefits and challenges of both a simple and diverse program will lead to finding the right fit for your firm. Maybe a single carrier would work best for your company, maybe using 5 carriers would be the best, or maybe it's somewhere in between.
3. Competitive vs Leader
A competitive benefits plan is aligned with average benefits in your sector or the general market. A leader program has trend elements and is common among early adopters. This conversation can take a broader tone about how the organization sees itself from a compensation and total rewards perspective. This can include feedback from the diversity and inclusion team, the recruitment team, the payroll team and senior leadership. One firm might choose to be a leader in a particular benefit category while remaining only competitive in the others, another firm might choose be an industry leader in salaries and bonuses while staying competitive with the benefits plans. This is why inter-departmental and stakeholder input is critical to this component of the benefits philosophy.
4. Flat vs Class Driven
A benefit plan may be flat (single class for all employees) or be class driven (different plan designs for different employee groups). This is a relevant discussion for law firms as an example, most use a class driven system with lawyers and administrative staff being separated, but would further division make sense? Maybe breaking lawyers into associates and partners would also have some benefits for the firm.
5. Employee Paid vs Employer Paid
Mandatory benefit plans require a minimum of 50% employer participation in cost. The rest of the benefits plan cost can either be employer or employee paid or a cost share between both parties. While it is recommended that employees do pay for disability benefits, the rest of this discussion is entirely subjective to the employer.
6. Risk Tolerance
Would you prioritize predictable monthly expenses over potential cost savings with some variability? There is plan design risk, funding risk, and employee engagement risk. Can you manage unexpected costs? These sorts of discussions are very important when understanding how to build and structure the employee benefits programs and often times come up when discussing the other benefits philosophy considerations.
More often than not, organizations are not in one camp vs the other on any of the above mentioned topics. Considering each category carefully will help to prioritize what is important for your firm. Ultimately the purpose of this activity is to really reassess your organizational goals for employee benefits. Does your current benefits plan help you achieve those goals? If not, it will help guide you in that direction.
Understanding your own organizational benefits philosophy will help guide conversations with your consultant, internal stakeholders and employees alike.
Feel free to reach out if you have any questions or would like some help figuring out your own benefits philosophy: Joshua_Ruiters@ajg.com. You can also watch our panel discussion on this topic with Josh What is your firm's “Benefits Philosophy”?
What is the benefits philosophy in your company? Do you adopt a similar approach than Josh Ruiters, and why? Tell us in the comments section below.
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