Trends in Employee Benefits

Cost–Containment Big Issues for Employers Indirect pay in the form of various kinds of benefits that employers provide for Canadian workers are undergoing significant changes as companies strive to control total compensation costs. Among the emerging trends affecting employee benefits: an emphasis on wellness programs designed to promote a healthier workforce — and thereby reduce overall sick days and paid sick time. efforts to alter existing health and dental plans with a view to reducing soaring premium costs, especially those related to prescribed medicines. more aggressive return-to-work programs aimed at getting workers back to work sooner, whether employees are on workers’ compensation or on short-or long-term disability plans. the substitution of guaranteed annual pay increases with plans that link pay upgrades to measurable performance. The recently released Conference Board of Canada survey Compensation Outlook 2004 shows that 75% of responding companies had their benefit costs increase in 2003; most expect further increases in 2004. The ageing workforce is largely the reason for increased pension and health-benefit costs. Benefits of all sorts are being placed under the microscope by employers throughout North America as employers scramble to find ways to cut overall compensations costs. The unilateral reduction of base pay isn’t always an option for employers, especially in unionized environments. And in non-unionized environments, tampering with an employee’s base wages or salary can have a deleterious effect on morale and on recruitment and retention. However, the other component of compensation — indirect pay — makes for an easier cost-cutting target. More employers are investing in workplace wellness programs that promote healthy lifestyles among the workforce. The benefits are two-fold: Wellness programs enable employers to show employees that they really are interested in their overall well-being; and Wellness programs have a great pay-back on investment. Some companies with years of experience with Wellness programs are reporting savings of $3 for every one dollar invested. The savings are coming from reduced absenteeism and a concurrent reduction in paid sick time. Additional unquantifiable benefits come in the form of improved employee morale, which always results in improved productivity. A more difficult problem for employers is how to control costs related to group health and dental plan premiums. The big-ticket expense, which shows no signs of reversing because of the medical requirements of the ageing workforce, is prescription drugs. Some group plans are revising their drug formulary lists to exclude the most costly prescribed drugs; others require that prescriptions be filled with less-costly generic drugs, unless a physician insists on a brand-name product. In general, employees should not expect to see enhancements in the health and dental coverage levels they now enjoy through their group plans at work. If anything, employers will be committed to gradual reductions in coverage levels. One example is the increasingly common change in dental coverage for routine recall examinations to every nine months rather than six. On the return-to-work front, even smaller employers are waking up to the fact that improperly managed workers’ compensation files are a huge drain on profitability. It is horrendously expensive for employers to have injured workers on lost-time compensation claims rather than on the company payroll. More employers will be implementing “early and safe return to work” programs. As well, employers will be more aggressive in finding modified and accommodated jobs for workers who cannot fully perform their usual jobs because of injury or illness. Trend-spotters in the United States note that more employers in that country are taking a tough look at the benefits and perquisites they provide. The Associated Press reports that U.S. employers are ending job-sharing programs and compressed work weeks. “It’s hard economic times,” said Lori Rosen, a workplace analyst for CCH Inc., a Riverwoods, Ill.-based business information publisher. “People are saying, ‘Where can I cut?’ And it’s looking like they’re saying, ‘Well, this is a benefit. I gave it. I can take it away.’ ” The fact that neither of those kinds of employee benefits don’t add significant costs to a company’s bottom line is a measure how seriously employers are trying to trim their total compensation costs. Job sharing and flexible working hours speak to employees’ abilities to balance the demands of their work and personal lives. The elimination of such programs suggests that the employers’ attitude is, ‘Well, at least you still have your job.’ Worse, it will provide no incentive for other employers to adopt such employee-friendly approaches. In other workplaces, employers are dispensing with the annual “guaranteed” increase in employees’ base pay. That historic approach, which typically provided annual increases at or near the rate of inflation, at least kept most workers at par with changes in the Consumer Price Index. The Conference Board Survey says that more employers are abandoning the historic approach and tying annual pay increases to performance. Employees who are deemed to be “adding value” to an organization will receive annual increases of some sort; those who aren’t, will not. It is difficult to argue the business rationale for this change. By introducing the variable of performance pay into the compensation mix, employers do not face an annual “fixed” increase in the base-pay portion of compensation costs. The Conference Board’s Outlook 2004 survey says average wage increases next year will be lower than in recent years precisely because organizations are anxious to control compensation costs. “Average wage increases will decline for the third consecutive year and fewer employees are receiving increases than in the past,” said the board’s Prem Benimadhu, vice-president, organizational performance. "Canada is being squeezed between low-cost countries such as China and high-productivity economies such as the United States.” He said that compensation increases that are not backed by more productivity will further erode the competitiveness of Canadian firms. The survey shows average wage increases of 3.2% for non-unionized workers and 2.6 for unionized.

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