Benefit Programs and Indirect Compensation Systems

Please answer these questions in YOUR words. Can not include more that 10% cited


1. List and discuss four possible limitations of merit pay programs.

2. Under what conditions is it appropriate for companies to adopt individual incentive

pay plans?

3. Subjective performance evaluations are subject to several rater errors, which makes

objective measures seem a better alternative. Discuss when subjective performance

evaluations might be better (or more feasible) than objective ratings.

4. Many compensation professionals are faced with making choices about which

discretionary benefits to drop because funds are limited and the costs of these benefits

continually increase. Assume you must make such choices. Rank-order discretionary benefits

from the ones you would most likely eliminate to the ones you would least likely eliminate.

Explain your rationale. Do such factors as the demographic composition of the workforce of the

company matter? Explain. Below is some of the benefits to consider

Health care coverage for employees 91% 9% 0%

Health care coverage for dependents 89% 9% 2%

Company-paid relocation 55% 20% 25%

Amount of employee leave accrual/balances 54% 42% 4%

Defined benefit pension plans 47% 35% 18%

Amount of employee leave carryover from one year to the


46% 42% 13%

Employer match to defined contribution (e.g. 401K) 44% 51% 5%

Paid time off 38% 57% 5%

Workplace flexibility benefits (e.g. telecommuting, flex

time, compressed workweeks)

33% 58% 8%

Paid sick time only 27% 64% 9%

Paid personal days only 22% 67% 11%

Paid vacation time only 9% 91% 0%

5. The authors of these articles focuses on a number of things relating mostly to indirect compensation. Based on your experiences and readings, what do you see as

the future of benefits? How do you envision benefits evolving? Both articles are


Alexander, S. (2015). The secret weapon of modern benefits: A strategic plan. Employee

Benefit Plan Review, 69(9), 12-13.

Brown, D. (2014). The future of reward management: From total reward strategies to

smart rewards.Compensation & Benefits, 46(3), 147-151.

12 March 2015 Employee Benefit Plan Review

■ Focus On … Planning

Times are changing. Affordable Care Act (ACA) compliance, an aging and shrinking workforce, technology, and medical and pharmaceutical advance- ments are on a collision course that is chang- ing the face of compensation and benefits. As a result, senior leadership is relying on their employee benefits professionals more than ever to help them navigate and mitigate risk. The secret weapon is deceptively simple: an Employee Benefits Strategic Plan.

Employee Benefits Strategic Plan

For some, “strategic planning” is a series of formulaic meetings that result in a report that ends up on a shelf, rarely referred to or used until the next cycle. For a select few, however, it is a crucial part of the organiza- tion’s sustainability—a road map used to guide decisions.

Organizational strategic planning sets pri- orities and goals for the future. An Employee Benefit Strategic Plan employs the same approach but is specific to the total compensa- tion approach of the organization. Simply put, in an environment of consistently rising health- care costs and shifting healthcare regulations, it is essential for organizations to create long- term strategies with short-term objectives and have a quick-response review process in place.

The fiscal realities of increasing healthcare costs mixed with ACA unknowns can impact your organization’s financial performance in several ways. It may drag down shareholder value, become a drain on company perfor- mance, or negatively impact the culture and human capital within a business. Yet, with all these negative impacts, most organizations still do only a superficial short-term employee ben- efits plan for themselves.

What constitutes a strategy and how do we actually build a plan? A good definition of strategy is “… choosing to perform different activities that will provide a sustainable compet- itive advantage.” It is a way of thinking about the world and approaching business. Strategic planning is a process to produce innovative and

creative ideas that serve as the core framework for the organization and design its future.

By adopting a strategic employee benefit planning process, organizations can make deci- sions regarding their benefits with significantly less stress for all involved.

How to Create a Strategic Plan Most strategic planning models share a com-

mon discover/analyze/design/build/review struc- ture. This process appears to be simple, but it does have complex and powerful components within each category.

First, confirm that the organization is ready. Building a comprehensive plan requires com- mitment from the top down.

Next, make sure all stakeholders are repre- sented. In addition to the C-Suite and human resources (HR), the committee should include representatives of all major employee groups and functions. It is not uncommon for a stra- tegic planning committee to have 12 or more representatives around the table. That may seem like a lot, but having a broad range of areas represented helps identify issues that top management on their own may not have considered.

Bring in an expert to facilitate, preferably someone who understands your organization’s culture and brings objectivity to the process. Regardless of the industry, companies often find there is remarkable team building and sev- eral “Aha!” moments during the process.

Establish rules of the road and encourage open and honest communication.

• Begin with the past, and lead up to the present. Revisit core values and the mission statement. How did the organization get here, and how is the current system func- tioning? Are our people satisfied?

• Review the context of the current economy and your business sector. Create a SWOT analysis: what are our strengths, weak- nesses, opportunities, and threats? What does our trend line look like if we stay the course? What are the financial drivers and external forces present in the external

The Secret Weapon of Modern Benefits: A Strategic Plan Sheri Alexander

Employee Benefit Plan Review March 2015 13


environment? What are the pro- jected human capital needs in the future compared to the tal- ent available now? Are people retiring too early or not early enough?

• Analyze and begin strategizing. Set metrics in place as guide- posts for the future that are as forward looking as possible. Confirm that those metrics are aligned with the organization’s guiding principles and core values.

• Create a new plan. Consider innovation and “next step” alternatives instead of copying others. Use modeling software (if available) to assess the impact of your proposals. Use a “clean sheet of paper” approach when possible to let your team think in terms of “what is possible” to consider all legitimate ideas.

• Build and implement the new plan. Build, test, adjust, and implement. Remember that com- munication is often overlooked. When you feel you are over- communicating the new plan, you have it about right.

• Check the metrics and correct course. Compare actual perfor- mance to expected, and use the

metrics you put in place during the design. The strategic plan is a “live” document, and is designed for in-flight adjustments.

Make Your Future Happen, Rather than Having It Happen to You

You cannot anticipate every situa- tion, but you can make decisions and react to changing market conditions with the end in mind. It is the dif- ference between being proactive on offense or reactive on defense.

Establish Direction Implementing the process clearly

helps define the purpose of the organization and establishes realis- tic goals and objectives consistent with a mission that can be clearly communicated to all. This process allows you to measure progress and set boundaries for effective benefits decision-making among the group.

Avoid ‘Competitive Convergence’ Organizations have gotten used

to looking at their competitors and their “best practices,” and duplicat- ing them so that it becomes harder to tell the organizations apart. Strategy means having a unique

differentiation that sets you apart from your competitors.

Create Organizational Sustainability

Organizations that do not have a solid foundation and have instead relied on luck or inertia most likely will not be sustainable over the long term. Data reflects that one out of every three organizations at the top of its industry today will not be there in five years.

Do not allow stereotypes of “strategic planning” deter you from embracing the challenge of taking a deeper look at your organization. Having a variety of stakeholders involved can be empowering for them and for the company. The leadership behind such a process will be seen as principled and appreciated for taking the long view of the company and the rela- tionship with its employees. Not enough organizations take the time to do this. Do not make the same mistake. ❂

Sheri Alexander, FLMI, GBA, HIA, a contributing editor for Employee Benefit

Plan Review, is senior vice president at Gregory & Appel.

Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.

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