Searching for benefit optimization
Employers advised to come up with differentiated 'employee deals' to attract and retain top talents
By Towers Watson
Asia Pacific is leading recent economic rebound with most businesses across the region forecasting growth. This expected growth is reflected in renewed concerns about retention of key talent.
Towers Watson’s research indicated that employees and employers often do not have mindshare regarding attraction and retention drivers, with employers underestimating the importance of financial planning support and enhanced benefits for employees.
Employers in Asia Pacific are now looking for ways to balance the need to manage benefit cost/premium increases, and the need to derive a greater return of investment (ROI) for the benefit spend. If employee benefits are to be considered a key component of the company’s employee value proposition (EVP), HR (Human Resource) and business leaders will need to rethink and enhance their benefit offerings. If they want to both retain key talent and attract the vital skills the company will need to maximize opportunities in the recovering economy.
Retention issue emerges as economy recovers
While attracting key talent is one business imperative in the current economic climate, retaining existing high-performers is arguably more important. During the last two to three years, employees’ need for stability meant that retention was not generally an issue. Most employees were relieved to have kept their roles through the austerity measures, and were prepared to overlook any inadequacies of their employers.
However, now that the recession in Asia seems to be largely behind us, some employees, particularly those unengaged before the recession, are considering career moves. In a recent Towers Watson survey, many employers in Asia were predicting retention of key talent to become increasingly challenging in the short term. It would also appear that 40 percent or responding employees in Asia Pacific are “open to offers” suggesting a low degree of engagement with their current employer, which will further compound retention issues.
Engagement, attraction and retention
The key to being an employer of choice and attracting and retaining the very best talent in the country or industry lies in the employers’ ability to articulate and deliver on a compelling EVP and to fully engage employees.
A compelling EVP comprises many criteria like company brand, market reputation, training and development programs, career development opportunities, leadership quality, corporate and social responsibility agendas, and of course, compensation and benefits. The Towers Watson Talent Management & Reward Study compared the opinions of both employee and employer with regards to attraction and retention drivers and the results clearly indicated a disconnect on some criteria.
Financial burden on Koreans
The survey demonstrated employers’ underestimation regarding the importance of the convenient working location and employee benefits in attracting talent to the business. In addition, the survey revealed that employees and employers do not agree on the value of pension benefits in the future and access to financial planning resources.
The “access to financial planning resources,” a criterion that 87 percent of employees in Asia selected as top retention driver, in particular, left a notable remark on employers. When Asian employees were asked if they were worried about their financial futures and who they believed were responsible for their financial futures, the majority of employees from most countries responded that they were concerned about their financial futures and accepted that the responsibility was theirs.
Korean employees were most worried about their future finances, with 76 percent of respondents demonstrating concerns, compared to Japan (54 percent) and China (53 percent). About 79 percent of Korean employees also thought the responsibility for financial future laid within themselves.
These findings would suggest that employers in Asia have an opportunity to review their approach to employee benefits and make changes that will have a higher value impact with employees and forge a stronger emotional connection between employee, their benefits and their employer. In fact, financial advice has been a common supplementary benefit in some European countries for a number of years.
Optimizing the benefit spend
It is ironic that employers in Asia are spending as much as 40 percent of payroll on the employee benefit provision, but only few employees understood and valued such benefits. One could argue that this is due to a lack of communication regarding the employee benefits scheme, equally however, one could also argue that the benefits available may not be relevant and therefore of great value to all employees.
An optimized employee benefit program is a key component of a compelling EVP, and with the annual cost of these program being as much as 40 percent of payroll and rising, often, more can be done to ensure that this spend is effectively allocated and communicated.
Towers Watson’s global research shows that the biggest concern of employers is the gap between the actual benefit spend and the employee perception of how much is being spent. When conducting specific client survey work, it is common to find that employees believe that their benefits only total around 8 percent of their annual base salary, when the actual spend is upwards of 20 percent.
In some cases, more effective communication would be the solution, however, in most cases, where the benefits approach is traditional, by simply educating the employee’s about how much is actually being spent, does not guarantee that employee’s will then value the benefits more. In fact, this may only serve to illustrate wasted dollars in the employee’s eyes. For the employee to really value the benefits spend, the options available must be relevant to the employees’ current situation.
The objective of a benefits optimization project is to calibrate the benefit spend to both the corporate people objectives and the diverse needs of the workforce. This calibration is often a fine balancing act between controlling costs and employee desires and should be treated as an ongoing project spanning many years.
Why traditional approaches to benefits don’t work
Workforce profiles vary in the region and it is widely accepted by HR professionals that people will have different benefit requirements at different stages of their lives. Age is one criterion to be considered when designing a benefits program; it should not however, be the only criteria. Not everyone will get married and have children, not everyone has the same retirement planning needs, not everyone will lead a healthy lifestyle and it is entirely possible these days for a 50-year-old to have similar interests and lifestyle to a 20-year-old.
Employees want control, and flexible benefits provide employees with the ability to control.
In Asia we regularly hear employers citing that “cash is king,” and this is often a true statement, especially when a traditional employee benefit approach is taken. Many employers in the region offer similar benefits, often mandatory, with little or no facility for the employee to choose the benefits they value most, so they do not offer much differentiation from one employer to the next.
Salary will nearly always be the primary criteria people use to compare career opportunities, but benefits can also be a great differentiator if relevant choices are available and well communicated.
Our Global Workforce Study clearly demonstrates that employees in Korea would also like some level of control over how their benefit dollars are allocated. 38 percent of Korean employees said that the organization gives them complete freedom to allocate rewards they desire.
About 48 percent said that the organization provides a safety net within which they have some choices to allocate rewards, while 14 percent said organization decides how to allocate all rewards.
Globally, we are seeing a shift away from paternalistic approaches to employee benefits toward employee choice and employee self-reliance. In line with changing global trend, Korea saw the first implementation of flexible benefits in 1997, and it has been spreading throughout corporations, SMEs and venture companies since 2000.
The flexible benefits adopted by Korean companies include various selective benefit options such as health management, self-development, travel, entertainment, dining, and psychological counseling, which reflect organizations’ efforts to improve employees’ overall welfare and lifestyle.
In addition, flexible benefits designed based on company’s value or characteristics may help differentiate the firm from other companies, thus further positive effects such as employee motivation and maintaining talents can be expected.
Due to social conditions including participation of women, aging society, and the need for leisurely activities following five working days, employees’ desire for benefits is shifting from materialistic or monetary to non-materialistic values. Based on such trend, companies are more interested in selective benefit system that meets various employee needs within the HR cost budget.
Increasing ROI on benefits spent on employees
Across Asia Pacific, employers are spending upwards of 20 percent of payroll providing benefits to employees. And controlling this cost as well as increasing ROI had become top priorities. Most employers offer benefit programs that follow the market norm and few place much emphasis on communication, so it should come as no surprise that most employees have a low value perception regarding what is on offer.
The continued economic recovery is good news. However, it will bring increased talent movement and a subsequent increase in the costs of attracting and retaining key staff. Employees understand that their financial future is in their own hands, and they would value assistance planning for this future and control over the distribution of their benefit dollars.
Employers should consider the long-term impact of their aging workforce and question whether or not the current benefit program adequately supports employees to plan for their retirement. Given that the majority of employers surveyed in Asia are expecting it to be a tough challenge to attract and retain top talent, now seems an appropriate time to consider how effectively the business differentiates itself from competing employers and perhaps to consider how compelling the benefits component of their employee “deal” is.
A well-defined and -communicated corporate benefits strategy that is calibrated to the business objectives fosters self-reliance and empowers the employee to acquire the benefits that are most appropriate in their circumstances. This will also help employers to positively differentiate themselves from other businesses and improve their ability to attract and retain the talent that are vital to excel in the resurging economy.
This article was provided by Towers Watson Korea.
* Employee Value Proposition (EVP) refers to balance of the rewards and benefits that are received by employees in return for their performance at the workplace.