We often ask employers if they feel that benefits are an expense or an investment. Most respond they’re an investment. The follow-up question is: What is the return on investment of your benefits? This usually gets blank stares. As it relates to attraction and retention, the benefits industry often creates the illusion that all benefits have an equal impact on both objectives. It’s justified because we have such a diversified workforce and it’s hard to say what motivates and what doesn’t. It is then implied that employers need to invest in every benefit manufactured to achieve their goals. The reality is some benefits have a greater impact on retention. The question is which ones.
Benefits can be categorized in many ways, but if you look at them in terms of how they are awarded, you have two categories. There are participation-based benefits and productivity-based benefits. If you exclude health insurance, productivity-based benefits have a much more dramatic effect on retention. However, for a variety of reasons, these are less common and not that well known.
Participation-based benefits are given to everyone as they are hired. They include health insurance, employer-paid basic group coverages, and access to the retirement plan. These are the benefits most commonly offered and with which people are most familiar. Of the participation-based benefits, the one that often monopolizes the benefit budget and requires the most time commitment is health insurance. If you were to google “employee benefit companies,” you will find that most are primarily health insurance providers. This is just an observation, not a complaint. Of the participation-based benefits, health insurance likely has the most retention potential. We have seen many employees stay in their jobs to age 65 merely to avoid paying for their own health insurance. This type of retention is not ideal for the employer in many ways.
Productivity-based benefits are awarded selectively and usually tied to some type of accomplishment. For a variety of reasons, these benefits are less common to the point that many employers are unaware they exist. They are usually not provided by your typical health insurance benefits company. This area can get very technical but can be simplified depending upon plan design. These benefits are referred to as non-qualified as opposed to qualified. Both have their own set of rules, but non-qualified benefits allow for more creativity and, most importantly, the ability to be selective. Think of productivity-based benefits as a promise from the employer. It can be as simple as “I’m going to pay for your additional insurance/ investment for as long as you stay with the company.” This is a “you stay/we pay” plan type. It could also be a promise of a future reward: “If you stay until some designated time, you will be rewarded a lump sum or income over a period of time.” Imagine being the recipient of either of these types of benefits. How would that impact your desire to stay with the employer? These are powerful retention tools that aren’t applicable for every situation but can make a difference in the right situation. A benefit for the employer is that some productivity-based plan designs offer cost recovery features, making them more attractive and very affordable.
As you can see, not all benefits have the same ability to attract and retain your hard-to-replace employees. To be able to know the difference, make sure your advisor speaks all six of these languages: insurance and investment, individual and group coverages, and qualified and non-qualified plans.