While GE considers value of raises, spotlight is on total comp
With annual raises potentially on the chopping block at General Electric, C-suites are expected to closely monitor the outcome. Benefit brokers and advisers also might want to do the same to help employer clients tailor total compensation programs to an evolving labor market.
GE executives will decide in the coming months whether to give managers more flexibility in the way they reward employee performance, executives say, rather than be tethered to this longtime HR practice. Their impending review mirrors a trend in Silicon Valley where continuous feedback is replacing traditional annual performance reviews.
However, producers also might want to consider that 20% of 1,500 workers surveyed by the Employee Benefit Research Institute and Greenwald & Associates would prefer higher pay to more robust healthcare benefits. What’s perhaps most significant is that it’s double the percentage who would have made that choice in 2012. One irony observers cite is that higher employer-provided healthcare costs under the Affordable Care Act have flattened wages.
Low unemployment in the 5% range is certainly stoking the talent war to a point where paid leave after the birth of a child is a staple in Silicon Valley, notes Paul Fronstin, director of EBRI’s health research and education program. “Companies are doing what they have to do to be competitive in the labor market, whether it’s raises for key performers or enhanced benefits,” he explains.
While most workers are happy with their health benefits, Fronstin says it’s easy to argue that many of them are over-insured, considering only about 20% of the population accounts for 80% of annual healthcare spending. He says the answer could be more freedom of choice on how dollars are allocated toward pay and benefits, including private exchanges and telemedicine as more cost-conscious conduits across a changing landscape.
It’s all part of a larger movement afoot geared toward customizing rewards for people at different life stages, says Sandra McLellan, who heads up the rewards consulting practice for Willis Towers Watson in North America. For example, some employees may want more paid time off than a salary increase. She says it’s all about tradeoffs.
Whatever is decided, employers and employees alike certainly face tough calls. If a company whose average wage is $60,000 faces a 16% rate increase in its group health insurance plan, the $2,000 more that’s needed per employee would mirror a modest annual pay increase, according to Joe Markland, president of HR Technology Advisors, LLC.
“So how do you take a 3.3% hit per person on their wages for healthcare, and then give them a raise of 3%, while inflation is at about 1%?” he wonders. “How do you absorb 6% to absorb the healthcare cost and give someone a raise? I think all this is steamrolling to a major battle between the government-paid healthcare and private-paid healthcare.”
In designing a total rewards package that will please employees without breaking the bank, the key to success is a thoughtfully designed communication strategy, observes Beverly Beattie, founder and CEO of Selden Beattie Benefit Advisers in Miami.
“The biggest challenge, yet greatest opportunity,” she says, “lies in the creation of a robust employee benefits education program that ultimately increases their value perception of their benefits and may actually leave more money in their pocket.”
Such an effort includes teaching employees how to be wise shoppers of healthcare services and explaining in simple terms the tax savings from contributing to a flexible spending account or health savings account.
Employees also can be taught “how to bundle the right voluntary benefits that help offset large deductibles,” Beattie notes. However, Markland isn’t sure there would be any money left for cash-strapped employees to purchase those financial-protection products.
Education is equally important in shaping communications that benefit brokers and advisers have with their employer clients. “My sense is that the way they consult around benefits needs to be informed by what they know is happening in the compensation space,” McLellan observes.
For example, while some may not be able to suggest how an incentive plan is actually designed, the focus could be on how people receive their rewards for performance. The next step, she says, would be “to ask the question about whether or not some of those should be in benefits.”