How About a “Market” for Employee Benefits?

In most of my client assignments, I get opporutnities to interact with employees during one-on-one interviews and focus groups. I try to understand their points of view about the organization they work for. Inevitably, compensation & benefits comes up as a discussion point. And no suprises here – nobody seems to be satisfied with what they get. Not only do I see people dissatisfied with their compensation, but the mix of benefits (insurance, retirements, vacation time, medical leaves etc.) too registers discontent. Employees compain of not getting what they want and the right quantum of benefits. To make the situation worse, most employees feel quite helpless about this situation, seeing ‘changing jobs’ as the only resort to get what they want. So, employees change jobs and land up in another company, where their needs may still be unmet and they may feel disillusioned again. The vicious circle!! And, ultimately, both the organization and the employee are at a loss. Organizations incur attrition costs and lose human assets, while employees continue to feel bad about their RoI from the relationship with the organization.

Employee Resignation

Optimization of benefits is a challenge which many organizations grapple with. Each employee has his / her own expectations and sometimes one wonders – how much can you customize! Customizing benefits is quite a task. How does one design systems that meets the needs of all the employees. The standard response of most HR professionals is – “do a survey”. Sure, surveys serve an important purpose and provide crucial data-driven intelligence about what employees want. But, the pitfall is that surveys report ‘averages’ and an average is merely a simple summary score. Employees are asking for customization, not averages!

Benefits PuzzleSo, how do leaders address this significant problem?

I have an experimental approach which would put the onus of the core task of ‘customization’ on the employees themselves. What HR should lay down is a “base set” of benefits mix. It should stipulate the minimum days of vacation, medical leaves, basic health / life insurance etc provided to all employees. This base set should act as the ‘floor’ or minimum entitlements. Next, employees need to be allotted “benefit credits”. And we transform the old one-way benefits system into a two-way “market” for benefits! Employees could use the credits to enhance any parts of the benefits program to suit their personal requirements. All “top-ups” or benefits enhancement would cost “credits”, reflecting their real world values. And, employees would be empowered to make their own choices from the basket of benefits available to them. Of course, the basket should have a reasonable number of options for employees to choose from. So, for instance, Mr. X who has already taken up a medical plan for 10 years on his own and doesn’t want anymore, could use his “benefits credits” to get more vacation days or enhance contribution to his retirement corpus or simply redeem the credits for cash to boost base pay!! The system empower the employees and puts them in-charge of their benefits, subject to “regulation”. In fact, the “trade” data from such an experiment would help HR leaders derive the importance of the various benefits options and help in fine-tuning the program for subsequent years.

SolutionThe system descibed above may appear unstable and too unstructured. But, “structure” is afterall structure, and is inherently inflexible. We can’t be using traditional system design techniques to solve problems which the same techniques have not addressed adequately in so many years. Of course, the system I propose may fail too, but I feel it is about time we start trying new things!



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6 thoughts on “How About a “Market” for Employee Benefits?

  1. I agree to the thing that sometimes the company misjudge the requirements of employees. They try and apply the same stick in the name of company policy on leaves, reimbursements, benefits and timings to all employees. Although all such things will be valued differently by different individuals depending on their age, economic situation, personal preferences, habits and priorities. But when being forced to do something in the name of policy which it annoys the individual. So a flexible system could help in containing this annoyance.

    But there is another angle to it which is more financial in nature

    1. The cost of managing such a benefit plan will be higher than the method on same policy applies to all because how much we dislike it the economies of scale does come in play.

    2. Some employees will try to convert majority of the benefits ashard cash which actually would ultimately compromise their satisfaction with the job and job environment. But certainly there is alot of work that can be done in this direction because this will increase the satisfaction score for all employees.

    I think this is same as the company giving the employee an option on how he wants his CTC to be broken up and travel freak would allocate lot of money to LTA where as a more intelectual guy will like to get more benefits in terms of learning allowance.

    What I feel is that their is alot of scope to alter the global policies in MNCs to suit the needs of people in specific countries because the generally the policies if they are made by a people who are not very attached to the culture of people living across the globe it result in discontent.

    I hope this comment is helpful. Corporate HR needs to learn alot about these issues and you are the guys who can make them understand, because the direct feedback is not working out.

    -Rishi

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  2. The cost for a custom program like this may be high, but it could possibly be off-set by improved job engagement and reduced attrition.
    It’s is possible that employees use their ‘credits’ to “chase” a particular benefit. That should be fine and is consistent with the objective of the experiment.
    The system will be more flexible than “determining the composition of CTC” because employee needs are dynamic over time.
    True, localization of global policies is a huge challenge. Maybe, it is the next step for this experiment.

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  3. A very interesting persepctive. Surely we need to digress from traditional approaches if we were to strike a deal.

    Possibly organizations should run a pilot to see how this can work; It would help to understand which sections of their employees are able to maximise this kind of a free market approach and which sections need some amount of handholidng around this.

    Like you mentioned, we need to try this out to see how other best solutions can be crafted out of this. Sad but true, the so called solutions that organizations have been blindly following all these decade simply have lost their glamour as well as their purpose!

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  4. Pingback: 2009’s first Carnival of HR! : HR india

  5. Pingback: The Impact of A Flexible Benefits System on Employee Engagement « Mumblr

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