In order to attract and retain top talent, organizations need to offer benefits programs that suit individual needs and life stages in addition to providing transparency and portability.
“Compensation and benefits” is one of the most criticized expense items in the business world. At the same time, it’s one of the most important for reaching business results. This leaves HR with the quandary of managing total rewards budgets in order to achieve high employee satisfaction, low turnover and high productivity, all while holding down costs.
At any company, the ultimate goal of total rewards management — the sum of cash rewards (salary) and in-kind rewards (benefits) — is to ensure that employees take more ownership of their work in order to improve service quality, customer satisfaction, productivity and efficiency.
Benefits are an important piece of the equation. According to the results of Mercer’s 2016 Total Remuneration Survey in Turkey, in which hundreds of companies participate each year, benefits constitute 10%–15% of the total rewards package of analyst and expert-level positions. At the level of manager and director, benefits constitute 15%–20% of the total rewards package in Turkey.
Benefits are one of the most visible, and thus most criticized, parts of the package. Employees question and compare their benefits packages and use them as leverage to negotiate with their employers. Moreover, recent surveys reveal that employee awareness of benefits is lacking. Companies need ways to better communicate their benefits programs, tailor their benefits to their own demographic needs, meet diversified employee requirements and define benefits strategies that resonate with employees.
Benefits programs change from country to country with different labor laws, social security programs and cultural and demographic factors. But benefits are not just a legal requirement: they’re also a way of effectively managing employment costs, improving service and attracting talent. When we look at companies in the East and West, we see a shared need for flexibility in benefits offerings in the digital age. Flexibility allows companies to strategically allocate their benefits budget toward initiatives that directly contribute to a more productive, happy and healthy workforce.
Are your benefits flexible? An employee benefits checklist
• Our benefits respond to changes in employee position, marital status and income level.
• We communicate our benefits in a summary of the employee’s total rewards package, as well as changes to our benefits.
• We review and change our policies as our business and demographic needs change.
• We allow employees to form their own benefits packages in line with their needs.
• We give employees the opportunity to exchange benefits while keeping within the allocated budget.
• We give employees access to discounted prices, tax advantages and national security premium exemptions to help keep benefits affordable.
According to Mercer’s Total Remuneration Survey, the countries where flexible benefits programs are most prevalent are the UK, the US, Spain, Sweden, Norway, Denmark, China, India and Singapore. In Western economies, companies implement flexible benefits programs in order to provide more options, share costs and help employees better understand the value of offered benefits. In Eastern economies, flexible benefits programs allow companies to differentiate themselves in a developing industry and growing economy.
How Adding Flexibility Helps Companies Stay Cost Neutral
Due to political and economic concerns in Turkey over the past five years, companies have generally preferred to remain reactive in terms of benefits prevalence. They’re now looking for ways to promote diversity and provide options to employees while staying within allocated budgets. The prevalence level of flexible benefits rose from 11% in 2013 to 31% in 2015 in Turkey. With these programs, leading companies are starting to provide new benefits to their employees and offer the opportunity to exchange benefits. Challenger companies are also considering flexible benefits programs as a way of competing with the pioneers.
Moving to a flexible benefits program is not easy. It involves redesigning the benefits package, complete with professional employee communications. To justify such a large-scale HR project, the program must deliver on containing costs and increasing employee satisfaction.
Let’s look at an example of a company that provided more choice while staying cost-neutral. The figures are in Turkish lira and our employee is married. The value of the benefits package is 11,417 lira, with a gross cost to the company of 12,204 lira (after the national social security premium the employer must pay).
With the flex structure, the employee gets new benefits: a shopping voucher (with a 5% discount), a DC pension plan and a medical checkup — a service that is not included in Turkish medical plans. The employee also has the option to increase medical plan coverage by exchanging current benefits (transportation allowance, meal voucher and clothing voucher). By exchanging benefits, employees are able to benefit not only from discounted prices but also from the tax advantages that come with DC and medical plans. When we compare the total net value of the employee’s previous benefits design with the new design, we see that the employee is now realizing an extra 437 lira in benefits value. By using a flexible structure, the employer stays cost-neutral while employees can personalize or even increase their level of benefits.
The Future of Flexible Benefits
A growing number of employees today expect their employers to use their purchasing power to offer them discounted prices and tax-advantage opportunities. This is especially evident in markets where the GDP growth rate is shrinking and the pressure on wage increases is very high (due to rising inflation), including Turkey, Brazil, South Africa, Mexico and Poland. Companies in these markets are increasingly asking their employees what they want and trying to provide them with a wide range of options to support attraction and retention.
These organizations need to find effective ways to manage rewards while meeting the diverse needs of employees. Flexible benefits programs are a way of offering these options while staying cost-neutral, increasing engagement and promoting employee accountability.