Designing a Well-Received Employee Benefits Package When Cost Cuts Are Necessary

Thanks for joining me for this edition of Pacific on Research. Without further ado, let’s jump in.

Our client, a mid-sized employer, came to us with a question: how should they design and fund their employee benefit offerings to optimize employee satisfaction and retention, and attract new talent? But there was a catch. Due to a changing marketplace, the company needed to cut some costs as well, all while continuing to grow their organization in the face of strict competition.

The company had a mix of benefits offerings, including health plans, a 401k with matching, stock options, sick and vacation time, a flexible savings plan, dental, vision, HSAs, short and long term disability, life insurance, and even discounts with cell phone carriers and other companies. Understanding and separating the cost, value, and impact of all of these programs was daunting for our client.

Many companies, regardless of size and industry, face this same question. Companies don’t operate in a vacuum, competition in every industry forces companies to weigh costs against the value of a strong and loyal workforce. Even companies with high-trajectory growth ultimately face this challenge once revenue growth normalizes, and managing operating costs becomes first priority.

Despite the deep subject matter expertise many HR and Benefits Departments hold about the cost side of benefits, there can be a gap when it comes to identifying how adjusting benefit offerings and levels will be perceived by employees. And employees also feel that disconnect.  They may question how their benefits compare to competitors, how the company arrived at its offerings, and most importantly, they may feel like they do not have a voice in their choices.

To provide our client with information and insights to make clear-eyed decisions with predictable outcomes, we came up with a mixed methodology qualitative/quantitative approach that used traditional marketing research methodologies and analytical techniques in new ways.

We started with an online bulletin board, in which about twenty-five employees from different levels of the company anonymously answered questions posed by our moderator, and were able to see the views of their colleagues and even dialogue with them, over the course of two days. Employees shared, in depth, their:

  • Awareness of which benefits their company offers

  • Understanding of how the different benefits actually work

  • Views of the role that the benefits play in overall job satisfaction, tenure, accepting the job, etc.

  • Perceptions of how company benefits compare with other employers

  • Prioritization of which benefits are most/least important

  • Willingness to surrender certain benefits, and what their expectations would be in return

  • Process for learning about benefits at the company, and how they want to learn about them

  • Areas of confusion about benefits

  • Wish lists and changes they would like to see

The bulletin board provided us with thoughtful and concrete answers, some out-of-the-box thinking, and a surprisingly consistent and palpable sense of employees’ positives, pain points, and areas of confusion.  It did something else as well. Employees were appreciative of the chance to participate in the process, and felt empowered and vested in the results. Here are a few of many comments we received:

“I really appreciate this opportunity to share our thoughts on our benefits package.  I think this shows a really "classy organization" that tries to get meaningful feedback from their employees.  Hopefully (my company) will be able to take some of these suggestions and mold a benefit package that is used by more of their employees to meet their ever changing needs.  Thank you.”

And this:

“It would be wonderful to be able to see the results from this research and what the company will do with this information.”

Quantitative Phase

Using our qualitative exploration as a springboard, we developed an instrument which included several conjoint trade-off exercises. A trade-off experiment allows us to understand not only the relative importance (also known as share of preference) of each tested benefit, but also what employees are willing to give up or “trade-off” for benefit features that they most value.  While market researchers have been using conjoint methodologies and approaches for years to solve a myriad of business issues from product development, to pricing, to testing which feature attributes actually drive sales, the use of this methodology is often not thought of when it comes to Human Resource business decisions.

In our study, we utilized two trade-off experiments:   

  • One trade-off experiment was designed to analyze how employees choose between medical plans.

  • A second trade-off experiment was administered to understand the importance of individual plan features, and how each individual component of a medical plan contributes to the overall plan selection.

This analysis also allowed us to examine what employees were willing to give up in order to receive the features that were most critical to them.

Among other objectives, we designed this phase to generate the underlying data to create a benefits package simulator. Our clients would be able to adjust benefits in the simulator, and view the results in terms of employee acceptance of various package configurations – to determine optimal configurations at varying overall cost levels. Pretty cool, right?

In addition, there were a lot of great findings brought to light:  

  • Employees at different levels had different perceptions of risk: officers and management felt much more secure in their financial future at the company, and thought benefits were great; other staff had a different perception, and were willing to risk higher long term expenses to avoid short term costs. It’s no surprise that lower compensated staff were more focused on keeping monthly bills down, and more keenly aware of annual increases in rates.

  • Employees had always reported to management (and to HR) that they understood the company’s HSA health plan, which was much less expensive for the company to offer. However, deeper questioning demonstrated fundamental misunderstandings about how the plan worked, and this deterred many employees from choosing it. Here’s a choice quote:

“I don't know how this worked and no one knew how to explain it to me when I was choosing my plan so I went with the other one which is the one everyone understood.”

  • Employees wanted more communication and weren’t getting it.

  • Employees had clear priorities on which benefits were most important, starting with medical insurance and 401k, and clear ideas of which they could reduce or live without.

Not surprisingly, it turns out that employees, like all of us, want it all:  more benefits and lower costs. But a well-designed research trade-off analysis can tease out exactly what is most important and where reductions can be made without impacting overall employee morale and still achieving the needed cost savings for the organization. For our client, this information was gold:

  • The employees initially expressed that they wanted (even demanded) health plan choice, but once they understood it raised overall costs, only a minority continued to say choice was important to them.

  • Employees were willing to pay their own dental premium, receive a reduction in their 401K match from 6 percent to 4 percent, and/or receive a reduction in profit sharing discretionary contribution from the current calculation, if it meant that other benefit levels would stay intact.

  • Employees wanted much more communication about how their benefit package could help them plan for their future and protect their family financially.

  • There was fear and uncertainty surrounding the HSA health plan, centered around a perceived lack of coverage, and a fundamental misunderstanding about the product being inferior or offering less protection for their family.

  • Health plan findings were especially significant:

    • Health plan premium increases of up to 15 percent would be tolerated by employees; providing it was accompanied by a larger company HSA contribution.

    • Monthly premiums accounted for a third of the total decision on which plan to choose.

    • The type of plan accounted for more than a quarter of the decision, followed by deductible.

    • Yearly out of pocket maximums accounted for 14 percent of the decision and co-insurance accounted for only 10 percent of the total decision.

Share of importance (% each benefit has on overall package choice)

Share of importance (% each benefit has on overall package choice)

With the simulator in hand, and clear direction on next steps, our client was able to quickly move to design an effective benefits package that met their cost criteria. At the same time, the company created strategies to tackle areas of employee concern and confusion, and capitalize on areas that employees felt good about. The study also generated employee goodwill towards the company; employees appreciated having a hand in the process.

Well, I hope you’ve enjoyed the read, and maybe generated a few ideas about your own organization.

We’d love to hear your thoughts, so please drop us a line. Or if you’re the meeting type, let us treat you to a cup of coffee and a cruller: