2. Session Objectives
Business Impact of Pay or Play Decisions for HR
Implications to Total Rewards Strategy
Role of Benefits in Employee Engagement
Key Considerations for Achieving an Optimal Total Rewards Strategy
2
3. T he Af for dable Car e
Act
The Affordable Care Act (ACA) offers employers the
choice to “pay or play”
Employers can offer health insurance to their workforce or pay a
non-deductible tax penalty to the IRS
Health care exchanges provide an open market where customers
can pick the right plan at the right price for their needs
3
4. Wer e You Ready for
HCR THEN?
In 2010, most employers predicted reform would have no impact
on workforce management objectives.
Improving productivity 72%
Engaging employees in driving business results 74%
Attracting and retaining talent 67%
Providing effect total rewards package 49%
Health care reform is forcing employers rethink their employee
value proposition and educate workers about how their
health-related behaviors affect the bottom line.
4
5. Are You Ready for
HCR NOW?
Fewer than half of human
resources and employee benefits
decision makers are confident
that they understand employer
responsibilities under the ACA
More than 50% of small and midsized companies are not prepared
to provide the SBC, and a third of large companies are also not
prepared for this requirement
Roughly a fifth to a third do
not or are not sure if they
expect some degree of impact
resulting from the
establishment of public
Source: ADP Research Institute Survey May 2012
Exchanges on January 1, 2014 5
6. Health Car e Refor m
Drives Business
Outcomes
How will employers respond?
Most Employers Expect to “Play” by Retaining a Medical Program
after 2014
15%
"Pay" options
13%
67%
"Play" options
67%
Finance
18%
Don't know HR
20%
Source: 2011 Towers Watson-Forbes Survey: Opportunity to Align Cost and Talent Objectives
6
7. T he Impact of Health
Exchanges
What is the difference between private and public
health exchanges?
Private exchange is funded using a defined contribution approach
Under this plan, the employer funds a defined account on a pre-
tax basis for each eligible employee who then purchases health
coverage within the exchange 33000516
Private corporate exchanges are considered employer-sponsored
health coverage
7
8. Defined Benefit vs.
Defined Contribution
Defined Benefit Defined Contribution
Employer contributes Employer contributes
finite amount towards finite amount towards
employee’s health employee’s health
insurance insurance
Variable employer cost Employer controls
of health care annual cost increases
Uncertain annual health Increased product
care cost increases options selected by
Limited product options employee
selected by employer Recommendation
Limited decision engine to identify best
support for choosing option for employee
health plan
88
9. Poll
What impact will Reform have on my company’s ability to achieve
workforce management goals (productivity, attraction and retention,
competitive rewards package)?
1. Positive Impact
2. No impact
3. Negative Impact
10
9
10. Health Car e Refor m
Drives Business
Outcomes
“Pay or Play” decision impacts:
Different workforce composition- more part-time workers
Reallocation of total rewards package- additional compensation in lieu
of health insurance
More health care choices for employees- workforce uncertainty
Corporate image and perception
Internal and external administrative challenges (data gathering, tracking
and reporting)
Competition for critical talent
10
11. Implications to Total
Rewar ds Str ate g y
Health Care Reform will have a direct impact on:
Attraction and retention
Total Rewards mix
Employee engagement
Competitive position in the marketplace
Employers must take into consideration:
Organizational Philosophy/ Mission/Values
Competition for talent
Employer Value Proposition
11
13. Total Rewar ds
Str ate g y- Key
Consider ations
Does your Total Rewards program attract, retain and engage the
talent you need?
Does your Total Rewards program align employee behavior with
the organization’s overall strategic objectives?
What are the tradeoffs for balancing employer and employee
objectives?
Do employee understand the value of their Total Compensation
package?
13
14. Poll
Are you having difficulties with attracting and retaining top
talent and those with critical skills in your organization?
1. Yes
2. No
10
14
15. Attr action and
Retention Issues
Evolve Around
Critical Skills
% of Companies Citing
2007 2008 2009 2010 2011
RETENTION Difficulties
Critical-skill employees 49% 47% 16% 31% 36%
Top-performing employees 40% 37% 14% 25% 28%
All employees 27% 19% 5% 11% 11%
Quit rate 2.1% 1.9% 1.2% 1.3% 1.3%
Number of quits per month (in
millions) 3.1 2.7 1.7 1.8 1.9
Sources: 2011/2012 Talent Management and Rewards Study, Towers Watson
and the U.S. Bureau of Labor Services
15
16. Employee Value
Pr oposition (EVP)
Total Rewards is a key component of a company’s EVP.
Business Strategy Business Results
Organizational Context Employee Performance
Human Capital Practice Financial Performance
Brand Promise Customer Engagement
16
17. W hat is your
Employee Value
Pr oposition?
Benefits Medical Prescription Drug Plan Legally Required /
Dental Life Insurance Mandated
(Unemployment, Social
Vision EAP Security, Workers’
FSA Retirement (DB and Compensation, Medicare
DC) and State Disability)
Comp Fixed Pay (aka base Variable Pay (at risk)
pay)
Performance Performance and Goal Self, Peer and 360 Formal or informal
and Setting degree feedback Cash or noncash
Recognition Ongoing coaching and Rewards and rewards
feedback Recognition
Development Tuition reimbursement Corporate universities Internships
and Career and / or discounts Coaching / Mentoring Apprenticeships
Opportunities Attendance at outside On-the-job learning Job rotations
seminars
Work-Life Health and Wellness Workplace Flexibility Community Involvement
Caring for Dependents Paid & Unpaid Time Off Culture Change
Initiatives
17
18. W hy is it Impor tant?
Optimal Mix Employ Drive
The Company’s
of Reward Top Talent Business
Ability To
Elements That Is Success
Attract 1. Compensation Engaged Performance
Motivate 2. Benefits Satisfied Results
Retain 3. Work-Life
4. Performance &
Recognition
5. Development
& Career
Opportunities
18
19. Attr acting and Retaining
Critical Wor kfor ce
Se gments
Ho
What are the current
demand / supply
characteristics of your
labor market?
Is a particular skill set
or expertise in especially
high demand?
Which positions are
most critical to the
company’s success?
Which positions are
the hardest to find and
keep?
19
20. T he Reality is…
Organizations Must Consider:
Understanding the different segments of their workforce and
implementing tailored strategies to attract, develop and retain
them
Falling too far behind increases the risk of losing key talent when
the economy turns around
68% of employees said their benefits influence whether they
choose to stay in their current job (Source: MetLife; 7th Annual Study of
Employee Benefits Trends)
Job candidates evaluate not only salary but total rewards
packages
20
21. Poll
Do you think that your top competitors will maintain
employer sponsored health insurance benefits?
1.Yes
2. No
10
21
22. Employee
Enga gement
Definition of a Fully Engaged Employee
Is enthusiastic and inspired by his/her work
Is willing to “go the extra mile”
Believes they can affect quality, customer service, and business
costs
Believes in the organization and works to make it better
Understands organizational context and the “bigger picture”
Respects colleagues and helps others
Remains at the organization despite opportunities elsewhere
22
23. W hy Employee
Enga gement Matter s
It is estimated that disengagement costs
companies $350 Billion per year in lost
productivity.1
Higher productivity
Lower turnover
Attract top talent
Enhanced reputation
Improved customer satisfaction and
loyalty
Reduced absenteeism
Sustainable growth
Resilient in the face of change
Source: 1
Gallup August 2009 Employee Engagement Index
23
24. T he Impor tance of Health Car e
Benefits
Employers underestimate the importance of health care benefits to
attracting employees
All Employees High-Potential Employees
Rank Employers Employees Rank Employers Employees
1 Base Pay Job Security 1 Challenging work Job Security
2 Organization’s Base Pay 2 Career development Base pay
mission and opportunities
values
3 Organization’s Health care benefits 3 Organization’s Career development
reputation as a mission, vision and opportunities
great place to values
work
4 Career Length of commute 4 Base pay Promotion opportunity
development
opportunities
5 Challenging work Vacation/PTO 5 Organization’s Health care benefits
financial performance
24
Source: Towers Watson 2011 Talent Management and Rewards Survey
25. T he Role of Benefits
in Employee
Enga gement
Organizations Must Consider:
An effective benefits strategy tailored to the needs of the
workforce creates a positive brand image
Sends a message
• We care about our employees
• You are joining a healthy and engaged team
A recent MetLife study noted that 68% of employees said their
benefits influence whether or not they choose to stay in their
current job
Gather and analyze information (benchmarking, demographics,
surveys)
Inventory current benefits offerings. Do they align with overall
benefits strategy?
25
26. W hat Do Employees
Want?
The current system of job-based
Value in
benefit coverage restricts choice Employer
and that employees greatly Benefits
value being able to exercise that
choice
Employees value choice in Provide
Change
more
health plan offerings Options for
Would be
Slow
Employees most often selected Employees
plans within the same price
range as their current employer-
offered plans
26
26
27. W hat Do Employer s
Want? benefits to employees as part of the employee’s total
Continue to offer
compensation package
Source: 2012 Survey on Employer Health Benefit Plans and Preferences by Oliver Wyman
27
27
28. W hat Can Employer s
Do?
Continue to Reduce Benefits / Cost Shift to Employees
Offer Value Based Benefits or Wellness Incentives
Offer Narrow Networks / Implement Compliance Models
Get Out – Move Employees to Public Exchange
Defined Contribution with Private Exchange
28
28
29. Employer
Considerations
Before dropping health coverage, employers should
consider:
Tax implications – employer and employee premiums are pre-tax
shielded from FICA and income taxes
Coverage in the exchange may be inferior to employer sponsored
health plans 33000516
Moving to the exchange is an all or nothing proposition
29
30. Implications to Total
Rewar ds Str ate g y
Health Care Reform will have a direct impact on:
Attraction and retention
Total Rewards mix
Employee engagement
Competitive position in the marketplace
Employers must take into consideration:
Organizational Philosophy/ Mission/Values
Competition for talent
Employer Value Proposition
30
31. Total Rewar ds
Str ate g y- Key
Consider ations and engage the
Does your Total Rewards program attract, retain
talent you need?
Does your Total Rewards program align employee behavior with
the organization’s overall strategic objectives?
What are the tradeoffs for balancing employer and employee
objectives?
Do employee understand the value of their Total Compensation
package?
31
32. Take a Str ate gic View
Health care strategy, as an element of the Employee Value
Proposition, is formed through internal discovery, internal
philosophy and competitive pressures.
How does this decision affect employees? Your competitive
positioning?
Would these dollars be reinvested elsewhere in Total Reward
Portfolio
Would you lose control over the company's investment of
workforce health?
Can you still influence employee well-being and productivity?
Group benefits plan vs. private exchange?
32
33. Do Your Homewor k
As with any major change initiative, people need to be involved to
build acceptance and adjust behaviors.
Gather and analyze information (benchmarking, demographics,
surveys)
Consider internal and external factors that may influence your
health care strategy
Inventory current benefits offerings. Do they align with overall
benefits strategy?
Understand your health plan offerings and costs
Know the provisions of the new health-care reform law
33
34. Poll
If Reform increases your organization’s health care costs
would you:
1. Pass cost increase to
employee- increase
share of health costs
paid by employee
2. Reduce health benefits
3. Absorb cost in the
business
10
34
35. Health Car e Refor m is
a Catal yst for Change
Employers now have a significant opportunity to reshape their
Employee Value Proposition and Total Rewards strategy to:
Ensure competitiveness while managing costs
Align employer and employee goals
Update Total Rewards programs to maximize employee
engagement
Enhance corporate image through effective communication and
change management programs
35
36. Education is Key
Educate management on reform and their implications
Model financial impact of reform on the organization
Educate employees on reform and their implication
Reexamine your benefits strategy regularly
36
37. Change Mana gement
As with any major change initiative, people need to be involved to
build acceptance and adjust behaviors:
Significant effort is necessary to educate and engage employees
Enlist support from leaders
Solicit employee input
Communicate relevant and timely information on an ongoing basis
to employees
Engage employees in a meaningful conversation about health care
37
38. Pr epar e Mana gement
for Change
Use health care strategy to inform management how Health Care
Reform continues to affect the company.
Changing health care landscape affects business overall
What competitors are likely to do
How the organization aligns its health care strategy with its total
rewards strategy
The potential impact of health care related decisions on employee
relations and productivity
38
39. Pr epar e Employees
for Change
In 2010, most employers predicted reform would have no impact
on workforce management objectives.
Communicate relevant and timely information on an ongoing basis
to employees
Focus on the total health experience as part of the employee value
proposition
Engage employees in a meaningful conversation about health care
39
40. Achieving the Optimal
Total Rewar ds
Str ate g y
Organizations Must:
Understand the critical workforce segments and implement
strategies to attract develop and retain them
Create a mix of rewards to balance company and employee needs
Design total rewards strategy to influence the right behaviors to
drive business results
Continuously evaluate the rewards mix – to avoid losing key talent
when the economy turns around
40
41. Key Takeaways
Align Employee Value Proposition and Total Rewards Strategy
Engage leaders and employees regularly and act on feedback
Measure results in context of business outcomes
Recognize that improved workforce health increases employee
engagement, which in turn improves business results
41
So more and more organizations are readdressing the need to have a competitive compensation program that attracts and retains employees AND drives high performance Aside from competitiveness, it’s important when you have limited dollars and budgets, that you allocate the top rewards to your highest performers and to those in mission critical roles You just can’t fall too far behind or you’ll risk losing key talent when the economy turns around…
(Extremely/Very Confident: Fewer than half of human resources and employee benefits decision makers across all sized companies are highly confident that they understand employer responsibilities under the ACA. Small = 20%, Midsized = 17%, Large = 41%). ADP Research Institute, “Talent Management in 2011: Perceptions and Realities” • According to participants in a recent Aberdeen Group survey, six out of the 10 top challenges for achieving business goals are HR related and span all aspects of talent management, including recruiting, performance management, succession planning, and compensation. What’s more, recent research shows that many companies are struggling to fill critical jobs – whether by recruiting external candidates or promoting internal qualified candidates – due to a lack of the necessary job skills. Source Aberdeen Group, “ Quarterly Business Review Survey,” 2011, 1). S ix out of the 10 top challenges for achieving business goals are HR related and span all aspects of talent management, including recruiting, performance management, succession planning, and compensation . The implications of health care reform will be far reaching for cost management, talent management and productivity. To position themselves for the long term, employers need to model the fi facial implications, the myriad business scenarios and the impact of health care reform legislation on their current employee value proposition. Keep abreast of evolving regulatory interpretation One of the most prominent features of the PPACA is its complexity and sheer volume. As a result, interpretive regulations to implement the law will be required for years to come. Keeping abreast of this evolving guidance and sharing the emerging implications with key stakeholders, including boards of directors and senior management, is critical. Gather and analyze necessary information (e.g., competitive practices, cost drivers, industry trends, benchmark data, workforce demographics, and results from employee satisfaction surveys). Consider all internal and external factors that may influence and guide your recommendation for a health-care strategy. Understand your health-plan offerings and plan costs. Know the provisions of the new health-care reform law. Comply with all legal requirements. Stay up-to-date on legislative and regulatory updates. Source Aberdeen Group, “ Quarterly Business Review Survey,” 2011, 1).
Mid-term: More utilization of private and public exchanges Long-term: Will ACA be repealed?
So more and more organizations are readdressing the need to have a competitive compensation program that attracts and retains employees AND drives high performance Aside from competitiveness, it’s important when you have limited dollars and budgets, that you allocate the top rewards to your highest performers and to those in mission critical roles You just can’t fall too far behind or you’ll risk losing key talent when the economy turns around…
Health care reform is forcing employers rethink their employee value proposition and educate workers about how their health-related behaviors affect the bottom line.
Anyone here a member of WorldatWork? WorldatWork is the professional association of HR professionals in compensation, worklife, and overall total rewards. I am a big believer in their total rewards model which emphasizes that you have to look at rewards more holistically—Compensation is one piece of the employee value proposition. But you can’t just focus on compensation. You have to look at the bigger picture of “total rewards” which also includes benefits, work-life balance, performance and recognition, and career development opportunities. It is all about the integration of these five elements to effectively attract, retain, and motivate the talent required to achieve the desired business results. Key point…..a satisfied and engaged workforce….satisfied and engaged workforce creates a high performance work culture and drives results. The portfolio should allow employers to align what they expect and reward with what employees want and have to deliver. Align with business strategy Is optimized to deliver the right ROI for the right level of cost and risk Drivers required employee behaviors
According to a recent study by the Adberdeen Group, Six out of the 10 top challenges for achieving business goals are HR Related Many companies are struggling to fill critical jobs In fact, by the end of last year, we were already seeing attraction and retention issues particularly among high potentials and top performers… When you look at retention--- Companies are not having a difficult time retaining employees EXCEPT for those in critical skills and to some degree, high performers. People are not quitting their jobs—you can see that the voluntarily quit rates are much less now…1.3% than 3.1% in 2007. Nevertheless, the really top performers and those who are highly skilled are highly mobile, and employers are concerned about losing them. Other Notes: Before recession, approximately 5 million employees per month left their jobs; NOW it’s fewer than 3.5 million people per month have changed jobs over the past two years—this is a 30% DROP in voluntary turnover. While unemployment remains high indicating an abundance of available workers- employers say they are having problems attracting critical skill and high performing employees
What is your Employee Value Proposition? An optimal mix of rewards elements to balance company and employee needs Recognition: Acknowledges or gives special attention to employee actions, efforts, behavior or performance
What Positions are going to have the biggest impact to your company’s bottom line? What positions are the most difficult to fill? Identify and Evaluate Workforce Segments Level of difficulty of sourcing for the skills/roles within this segment Level of costs involved in hiring employees within this segment Level of costs involved in training the employees within this segment Level of future availability of the roles/skills within this segment Degree of specialized skills or knowledge required for roles within this segment Level of current market value (compensation offered) of the roles within this segment Degree of competition for this segment in the marketplace Today’s workforce is more global, celebrates greater diversity and employs more knowledge workers than ever before. With an increasingly diverse workforce, no single reward element will be a value driver. The implication is that HR practitioners and managers who understand their employees’ life stages and rewards priorities can begin to fashion a more relevant and meaningful total rewards package, thereby increasing their odds of retaining employees and driving down turnover and replacement costs. If you are not already, you should regularly be reviewing the organization’s workforce, based on various life stages: Social Statuses Age Years of experience in current field Years of experience in organization Number and age of children Number and age of adult dependents Marital status Supervisor status Employment status of spouse/partner Gender Race/ethnicity Income What are the organizational capabilities and competencies needed to meet these challenges? Do they currently exist? If not, where are the gaps? What are the current demand/supply characteristics of your labor market? Is a particular skill set or expertise in especially high demand at present? Which position are most critical to the company’s success? Which are the hardest to find and keep - those that create competitive advantage? How competitive is your industry for human capital? What is the availability of critical talent in your industry? What are your key challenges with respect to attracting, retaining and motivating the right talent? Have you identified the key competencies and skills that most directly impact the success of your people and your business?
So more and more organizations are readdressing the need to have a competitive compensation program that attracts and retains employees AND drives high performance Aside from competitiveness, it’s important when you have limited dollars and budgets, that you allocate the top rewards to your highest performers and to those in mission critical roles You just can’t fall too far behind or you’ll risk losing key talent when the economy turns around… Today, the most desirable job candidates evaluate not just salary, but total reward packages that include a mixture of base pay, bonus potential, and the quality and value of the complete benefits package. There are a variety of recruiting websites that provide checklists and tools to help employees and job applicants with the analysis of total rewards.
Definition of a fully engaged employee Is enthusiastic and inspired by his/her work Is willing to “go the extra mile” Believes that they can affect quality, customer service, and business costs Believes in the organization and works to make it better Understands organizational context and the “bigger picture” Respects colleagues and help others Remains at the organization despite opportunities elsewhere
The best-performing companies know that an employee engagement improvement strategy linked to the achievement of corporate goals will help them win in the marketplace. Beyond the significant differences engaged workgroups show in productivity, profitability, safety incidents, and absenteeism versus disengaged workgroups, we have proven that engaged organizations have 2.6 times the earnings per share (EPS) growth rate compared to organizations with lower engagement in their same industry. Watson Wyatt's 2008/2009 WorkUSA Report, Driving Business Results Through Continuous Engagement , released Feb. 10, 2009, reports that highly-engaged employees are twice as likely as their less-engaged peers to be top performers. Moreover, when employees are highly engaged, their companies enjoy 26 percent higher employee productivity, have lower turnover risk and are more likely to attract top talent. Such workers miss 20 percent fewer days of work, and three-quarters of them exceeded or far exceeded expectations in their most recent performance review. Additionally, highly-engaged workers tend to be more supportive of organizational change initiatives and resilient in the face of change. “ During periods of turmoil—when the organization is undertaking cost-reduction measures, consolidations or other dramatic change events that will profoundly impact employees—maintaining or enhancing employee engagement can be critical to the organization’s return to profitability,” the report notes. Watson Wyatt surveyed more than 13,000 full-time U.S. workers in May and June 2008, before the full advent of the financial crisis.
So more and more organizations are readdressing the need to have a competitive compensation program that attracts and retains employees AND drives high performance Aside from competitiveness, it’s important when you have limited dollars and budgets, that you allocate the top rewards to your highest performers and to those in mission critical roles You just can’t fall too far behind or you’ll risk losing key talent when the economy turns around…
So more and more organizations are readdressing the need to have a competitive compensation program that attracts and retains employees AND drives high performance Aside from competitiveness, it’s important when you have limited dollars and budgets, that you allocate the top rewards to your highest performers and to those in mission critical roles You just can’t fall too far behind or you’ll risk losing key talent when the economy turns around…
The implications of health care reform will be far reaching for cost management, talent management and productivity. To position themselves for the long term, employers need to model the fi facial implications, the myriad business scenarios and the impact of health care reform legislation on their current employee value proposition. Keep abreast of evolving regulatory interpretation One of the most prominent features of the PPACA is its complexity and sheer volume. As a result, interpretive regulations to implement the law will be required for years to come. Keeping abreast of this evolving guidance and sharing the emerging implications with key stakeholders, including boards of directors and senior management, is critical. Gather and analyze necessary information (e.g., competitive practices, cost drivers, industry trends, benchmark data, workforce demographics, and results from employee satisfaction surveys). Consider all internal and external factors that may influence and guide your recommendation for a health-care strategy. Understand your health-plan offerings and plan costs. Know the provisions of the new health-care reform law. Comply with all legal requirements. Stay up-to-date on legislative and regulatory updates.
Health care is a catalyst for rethinking Total Rewards Continually mounting health care costs and the implication of health care reform are converging to ignite a new and different dialogue about health benefits within total rewards CFOs must rethink health care within unit labor costs in our global economy and are considering reducing costs/volatility or exiting health benefits HR leaders often see health care as crowding out other elements of total rewards and are increasingly receptive to more aggressive trend mitigation and workforce health improvement strategies Wellbeing is a theme often heard with senior HR leaders. The concept ties work-life balance, work environment, financial security, health-wealth attainment and support resources to help employees in achieving their goals With the advent of health reform, health care has become a total business issue
The potential impact of health care-related decisions on: Competitive advantage Reinvesting money in other areas of total rewards offerings (e.g., wages, salaries) Employee expectations Employee relations Presenteeism Disability claims Absenteeism Organizational productivity Employee engagement Health and productivity Attraction and retention Company reputation Employee morale Employee satisfaction
Health care is a catalyst for rethinking Total Rewards Continually mounting health care costs and the implication of health care reform are converging to ignite a new and different dialogue about health benefits within total rewards CFOs must rethink health care within unit labor costs in our global economy and are considering reducing costs/volatility or exiting health benefits HR leaders often see health care as crowding out other elements of total rewards and are increasingly receptive to more aggressive trend mitigation and workforce health improvement strategies Wellbeing is a theme often heard with senior HR leaders. The concept ties work-life balance, work environment, financial security, health-wealth attainment and support resources to help employees in achieving their goals With the advent of health reform, health care has become a total business issue “ culture of health” environment sends a strong message that senior leaders are concerned about employee well-being. Finally, engaged employees are far more likely to devote discretionary effort to their jobs, which in turn leads to performance improvement for the organization.
So more and more organizations are readdressing the need to have a competitive compensation program that attracts and retains employees AND drives high performance Aside from competitiveness, it’s important when you have limited dollars and budgets, that you allocate the top rewards to your highest performers and to those in mission critical roles You just can’t fall too far behind or you’ll risk losing key talent when the economy turns around…
Human Capital is an Asset … Manage it Whether a company competes on the basis of productivity, innovation, customer loyalty, efficiency, speed, or agility, the workforce has a make-or-break impact on those results . It is important to have the right talent, with the right skills, in the right place, at the right time, and at the right cost .