3 Ways to Assess the Value of Your Benefits Program
There are many articles out there advising employees on how to assess the value of their particular benefits package. But there are few guides telling benefits administrators how to assess and measure the value of their overall program.
Not all programs are an equally good fit for all organizations. Worse, whether a program is a good fit or not can change over time. If benefits administrators do not periodically revisit the value of their programs, the consequences could include added costs, stunted uptake, and ineffective incentives.
The impact of a benefits program needs to be measured against other options for attracting and retaining talent. For example, suppose an organization employs around 1,000 people, with an average salary of $50,000. Is it worthwhile giving the top half of this workforce a 5% pay raise? Or would added benefits be a better investment? Giving a 5% raise to the top 500 employees would cost an additional $1,250,000 a year. For a fraction of this amount, the same company could offer most of those employees better benefits.
Still, benefits are not cost neutral. And there are several reasons why you might not be getting the value out of your benefits program that you should be. So choosing which benefits to offer takes careful consideration. This decision should be reviewed periodically, well before the chaos of open enrollment periods.
Here, then, are three things to consider when weighing the value of your program:
1. Good Old-Fashioned ROI for Your Benefits Program
An organization’s investment in its employees starts at the hiring stage and continues well after they have ceased full-time employment. A good benefits program will help attract and retain the best employees. So the cost of your benefits program can be seen as an investment in employees, and the return on that investment will help establish the value of the program.
Consider the costs associated with replacing a valued employee— expenditures saved if that valued employee stays, and thus money that is “freed up” for other organizational needs:
- Recruiting and advertising the position
- Onboarding and orientation
- Additional employee training
- Compensation and benefits during orientation
- Lost productivity (until the new employee hits “peak productivity”)
In fact, estimates place replacement costs at 16% to 20% of annual salary for employees making $50,000 or less. (For employees making more, the percentage can be even higher.)
Chances are, if you have a sizable employee pool, you already have statistics on employee turnover and might even know the costs associated with that turnover. To see what portion of employees would stay, make benefits discussion a part of your exit interview (below). If you know how many employees would stay with a better benefits package, you’ll be able to figure out the money saved from having a better package, and hence the return on that investment.
2. Unscheduled Absences: A Warning Sign
Unscheduled absences by themselves cost U.S. businesses $660 per year per employee, meaning larger employers are losing millions of dollars in direct costs and lowered productivity. Unscheduled absences, besides being bad in and of themselves, are also a warning sign that benefits packages are not working.
Why? Obviously, personal illness is one leading cause of unscheduled absences. Many absences due to personal illness occur because employees need procedures done that require a significant part of the work day—procedures that could have been prevented with the right measures. Unusually high absences for personal illness might be avoided with better wellness programs and/or better health insurance coverage.
Still, it is estimated that only about a third (34%) of unscheduled absences are for personal illness. The rest occur for a variety of reasons, among them the need to care for sick family members and deal with home or car issues. Having benefits that recognize and simplify that kind of work-life balance might be in order.
Whether sick leave is health related or due to a pattern of abuse is a large question. But organizations can actively reduce absenteeism through intelligent investments. Employee wellness programs can promote better health and management of chronic conditions. And a human resource management system (HRMS) can make information about absences available to managers, so it’s easier to identify possible patterns of abuse and address them with employees.
3. Exit Interviews: Are the Benefits Attractive to Talent?
At the risk of seeming obvious, the best way to assess the value of your benefits program is to ask those who are (or are not) taking advantage of them. Because the goal is to attract and retain talent, a good time to do this is at the exit interview. Be straightforward: Ask to what extent benefits played a role in the employee’s decision to leave. This will give you a good feel for whether or not you need to alter your offerings.
If your employee pool considers your benefits program to be valuable, enrollment is high, and unscheduled absences are not a program, then your program is doing what it was designed to do. Proving its value, then, is simply a matter of providing numbers that show the cost savings of retaining your talent…which should reflect a substantial ROI.
On the other hand, if your benefits program is not contributing to employee attraction and retention, the cost of a better benefits program must be weighed against other alternatives. Again, though, benefits programs will often be less costly than, say, a modest pay raise.
Knowing this, however, requires crunching the numbers. If you would like further assistance in comparing costs and/or making a case to management, contact us. We’ve helped many clients assess the value of their current benefits program and found ways they can save in the long term through better programs and better service.