By David Moo, International Benefits Consultant, Hewitt Associates
Mention the phrase “cost control” in a typical workplace and you can expect to hear groans. Employees typically expect that “cost control” involves taking something away from them.
Flexible rewards plans provide a rare opportunity for companies to save money while also providing employees with something that they will value. The employer gains the ability to control ongoing benefit cost increases. The employee gains the ability to optimise their benefits programme to meet their needs—resulting in higher value without an increased cost to the company.
Flexible rewards defined
Put simply, a flexible rewards programme allows employees to choose some components of their rewards package. While there are variations, a typical structure in Hong Kong will involve:
- Core Package: the baseline pay and benefits components provided to all employees
- Flex Credits provided by the company to each individual employee
- Flex Options (the “menu” of choices, with prices assigned to each one)
- Flex Allocation: the employees allocate their individual Credits to the Options of their choosing.
- Besides the Flex Credits, the employee may have the option of “downgrading” some of the Core Package items and receiving additional Flex Credits to allocate to other programmes.
Within this general framework, the company has the freedom to design the structure however desired. The Core Package may be a “bare bones” set of plans (in which case the Flex Credits are likely to be substantial), or it may match the pre-Flex package (in which case the additional Flex Credits may be very small). Flex Credits can be designed to match the current employee-by-employee cost structure, or they can be designed to incentive or reward employees for behaviours or achievements, service or job-level related, healthy practices incentives, etc., The key is to design a programme that reinforces the company’s employer value proposition, employer brand and company culture.
Cost management
Currently, most employers in Hong Kong have little control over their benefits cost. MPF or ORSO contributions are typically tied to employee salaries with many companies paying contributions on actual salaries rather than only salary up to the mandatory cap. The other major category of benefit costs in Hong Kong comes from medical and life insurance programmes.
After designing and implementing an insurance programme, the cost of the programme for the future is largely out of the company’s control. While the employer retains the right to redesign the programme, typically any reduction in benefit levels is received poorly by the employees. Thus, even if the company desires to keep insurance benefit costs at a consistent level, if the insurance premiums increase, there are no good options with a standard benefits programme.
With a flexible rewards programme, the insurance benefits can be one part of the overall package. The company has full control over the amount of Flex Credits provided each year. If the insurance premiums increase by 10% but the company only increases Flex Credits by 5%, then some of the insurance cost increases are shared with employees. Some may choose to continue their current coverage and sacrifice some other rewards items, while others may choose a less expensive plan. Either way, they clearly see that their employer has provided more value to them—and the cost of insurance is out of their control. Compare this to a company without a flex system deciding to reduce the insurance cover due to high premium increases: in this situation, the employees may blame the company for the reduction in cover.
Value to employees
The other side of the Flex “Win/Win” is for employees. We have seen how employees may have to share in cost increases in future. But most providers of Flex programmes in Asia and around the world find that employees’ satisfaction with benefits and overall engagement increase dramatically with the introduction of Flex. Hewitt Associates’ data shows employee satisfaction with benefits programmes is at very low levels—and decreasing, despite increased cost to companies.
Flex is the solution.
Flex increases employee understanding of benefits. There is high correlation between those who do not fully understand their benefits programme and those who do not appreciate it. Flex programmes require employers to communicate the full benefits programme and employees to interact with it regularly.
Flex increases the perceived value of the benefits programme. An individual employee can direct the employer’s benefits spend towards the particular mix of programmes they will value the most.
Flex can increase the actual value of the company’s rewards. Many flex programmes allow employees to purchase insurance, travel, or many retail products at special group rates.
Flex can make employees’ lives easier. At a time when many are “cash-rich but time-poor”, a well-designed flex plan can allow employees to manage their financial security, travel, and various other items in a convenient, easy-to-use structure.
Since the typical flex programme will allow employees to at least match their current benefits programme, the transition to flex results in no employees losing out. As long as the plan is well-communicated so employees understand it well, the launch of a flex programme can both improve employee satisfaction—and thus their productivity—and allow the company to manage costs.
Paul Arkwright
Publisher
