Total Rewards: Building Strategies That Work—For Everyone
By Anya Levykh
While ‘Total Rewards’ might sound like an ad for a bank account to many, HR professionals know its full worth. In the post-2008 world, organizations of all sizes are taking a closer look at all facets of compensation. More than ever, total rewards has become the keystone for attracting the right new hires, as well as retaining existing talent.
Faced with an ever-growing array of challenges and opportunities alike, the fine balance between the bottom line and engaged employees goes beyond the five key elements of total rewards. Compensation, benefits, work-life balance, performance and recognition, development and career opportunities: these are just the starting point—a launch pad from which all good things must grow.
In today’s ever-competitive marketplace, attracting and retaining the right kind of talent is about more than throwing around big dollars and extended health plans. Employees are increasingly looking for what’s beyond the numbers. Likewise, organizations are more likely to be thinking outside the box to create packages that work—for everyone. What is it, then, that makes for a successful total rewards package?
Defining the Organization
The first question to ask when trying to figure out the ideal package is so existential that many organizations overlook it entirely. That question, “Who am I?” or, more specifically, “Who is my organization?” is not easily answered, according to Laura Williams, director, health strategy for Shepell-fgi.
“Organizations are struggling to find the balance between providing the best plan they possibly can while still managing costs, as well as the expectations of employees, and meeting the organization’s goals from a cultural perspective,” explains Williams.
Focusing on that cultural perspective, according to Williams, is one of the best ways to maximize the effectiveness of your offering—both in terms of employee satisfaction and engagement, and the organization’s financials. Happy employees are healthy employees, argues Williams, and the statistics seem to back her up. “When you look at the correlation between the number of days off work and engagement scores, for instance, you see that the more employees are engaged with their organization, the healthier that organization is.”
Finding the Industry Fit
However, there is no one perfect system, according to Clint Mahlman, chief operating officer and senior vice-president for London Drugs Ltd.
“It also has to fit the industry,” says Mahlman. “For instance, we’re in retail, which is extremely different from the classic corporate office environment. We have a very large part-time workforce, and, within that workforce, there are many people who don’t want to work full time; they’ve chosen part-time for varied and specific reasons.”
“Part of the strategy we’ve taken is to look at groups of people employed in a similar way, and offer systems and incentives, pay and benefits, that fit within that group—balanced with what we can afford,” Mahlman continues. “That’s always a challenge. In retail, there’s an extremely low margin as we don’t have the payroll resources that many traditional corporate environments have. So, we have to make sure that every payroll dollar is maximized and that we can link each dollar back to productivity in a very direct way.”
The Target Workforce
Looking at what you have, however, isn’t enough. There is also the question of what—and who—you will need down the road.
“It’s the million-dollar question,” says Kevin Jeffrey, FCHRP, principal at Point Break Consulting Group. “What happens, more often than not, is that many organizations simply like to copy what others have. No one wants to be too far from the norm, so they like to hull around the same place. Sometimes that can work if they’re in a similar industry and they’re going after the same target employee, but the engineering firm whose target hire is a 40-ish mid-career engineer, should probably have a different rewards and benefit package from the dot-com company whose target hire is a 23-year-old techie. Most companies should decide what kind of employees they need and then design programs to fit that particular model.”
It’s not as easy as it sounds. While some organizations, Jeffrey explains, can easily figure out who their target employee is, with other industries it becomes slightly more complicated.
“If you’re a manufacturing organization, for instance, then you have a number of different target employees. You have people who may work on the assembly line, you’ve got a sales force, a number of administrative positions, plus other various roles. The average person working on the shop floor may not have the same wants, needs and desires as the sales person who is constantly traveling on the road, or an administrative staff member who may be a secondary wage earner. So, it can be difficult figuring out who the target employee is because there are many roles to fill. Then the challenge becomes, how do you create a benefit package for those people?”
Generational Needs and Know How
Moreover, looking at the types of jobs being done is only part of the equation. An equally vital factor is the age and life stage of the individual employee. A recent graduate just entering the workforce will have different expectations and priorities from a seasoned employee who is approaching retirement.
For instance, “we have a group RRSP program,” explains Mahlman. “We were one of the very first companies to offer that. It’s the classic matching program, where we’ll match whatever an employee puts in, up to a certain amount. It’s not uncommon that we have to send letters to fairly young employees, for whom retirement seems a million years away, reminding them that we need their forms to start giving them money. But then fast-forward the clock to when those employees hit their 40s and early 50s, and suddenly they become hyper-sensitive and extremely engaged in matters regarding their group RRSP and ask questions that they probably should have asked themselves 15 or 20 years ago. For every employee, their need states are different at different times of their life.”
This creates unique challenges for organizations, not only in terms of customizing packages, but also in terms of complying with provincial labour laws. “With our under-25 workforce, they often want a type of work environment and schedule that, in many cases, our employment standards don’t even contemplate as possible.”
Mahlman cites the case of employees who are also post-secondary students and are looking for flexibility in their work schedules. Some would prefer to work a few hours during peak daytime hours, and complete the balance of their shift after their classes have finished. The problem, according to Mahlman, is that provincial labour laws, with their strict rules about things like total time spans for split shifts, and minimum number of hours between shifts, often make that impossible.
“It’s a case where the legislation hasn’t caught up to the needs of the workforce,” explains Mahlman, “so if an employee wanted to work late one day and then come back in early the next morning, the law, which varies by province, may not allow for that. We’re starting to see this much more frequently, that employees want more flexibility in how they approach work and it’s not only an employer issue, it’s a societal issue that we have to come to grips with.”
Baldev Gill, VP, human resources and finance for CGA-Canada, agrees. “We’re finding that the younger generation now coming into our workforce is looking less for cash as a reward than they are for flexible work options. In general, they would prefer time off in lieu of cash. They understand that if they take the cash, there’s an immediate offset, called tax, and they don’t see the value of having that compensation discounted, so they would rather take the option for banked or flexible time. Many older employees, on the other hand, prefer to be paid out and deal with their taxes on their own.”
Shifting Paradigms Surround Retirement
The needs of older versus younger employees is something that crops up in every industry. The fact that older workers are not necessarily retiring at age 65 also has an impact—in both positive and challenging ways.
“Think back 10 years to how many employers had mandatory retirement at age 65,” says Mahlman. “These days that’s extremely unusual. Now you’re seeing those paradigms of how people work, when they work, and how much they work, being challenged as much as questions of compensation and benefits. In virtually every area of our operation, we have employees who are working past the age of 65. Senior employees are often very productive, because of their experience levels, but we also find that they are looking for more flexibility. Some don’t want to work full-time. They want to transition while still enjoying their work. They’re looking to maintain a social presence in their work, so they’re looking at ways of job sharing or reducing their hours to part-time. Fortunately, at London Drugs, we have a very direct and open dialogue with our employees, and we really enjoy those conversations with them.”
However, the needs of older employees do create challenges with direct benefit services such as RRSP matching programs. “Those older employees who are still working and contributing to the group RRSP program start to run into government rules,” explains Mahlman. “They have to start to pull out because they can no longer maintain an RRSP past a certain age, as it has to be converted per federal government rules. Those are things that we never had to contemplate in years past.
“That’s where you have to answer questions like, ‘Do we take the money that was traditionally given for RRSPs and convert it into something else?’ Fortunately, in our company, employees can also purchase TFSAs and other GICs and other financial instruments, which can be matched. However, these aren’t all issues that can be solved easily, as it involves complicated tax laws that aren’t so easy to change.”
Gill agrees. “We have a few individuals who are past age 65 and still working with us, and we see that they still have a lot to contribute and are not even close to retirement in terms of their energy levels, so we embrace that. I think the government is trying to address the changing needs of today’s workforce, but it obviously takes time.”
CGA-Canada’s solution was to convert these workers to something similar to a savings account, which the association matches in the same way that they do with RRSPs. It’s another way of showing how much the organization values their workers, regardless of age. “Our older employees, most of whom have been here for decades, carry so much institutional knowledge and experience, for instance, that isn’t necessarily documented in files and computers, but is extremely valuable and hard to replace,” explains Gill. “We don’t want to penalize workers just because they’ve reached a certain age.”
Between legislative and administrative concerns, creating packages for the full spectrum of employees can be daunting. “When instituting flexible work hours and telecommuting options [at CGA-Canada],” says Gill, “there was much concern among senior management about productivity and managing work flow, and, of course, management and administration of all of these programs. We found, however, that if everything is well managed, and both staff and management are clear on what the expectations are, then productivity is actually improved.”
Flexibility Not Without Its Costs
Managing expectations is certainly a large part of the total rewards game. “That’s where flexible benefit plans can play a very large role,” says Jeffrey. “Generally, in a traditional benefit plan, you can create a set of benefits that include your life insurance, pension, dental plan, etc., and that plan will probably satisfy 60 to 70 per cent of your employees. But the idea of being able to satisfy everybody becomes an impossibility. Flexible benefits can make a big change to that.”
These “cafeteria-style” plans allow employees to pick and choose where they can spend a certain dollar amount beyond their base benefits, much like picking out lunch from a cafeteria buffet.
The problem with flexible benefit plans, according to Jeffrey, is that they are quite a bit more expensive than a traditional one-size-fits-all plan. “There are two reasons for this,” he explains. “They’re more difficult to administer, which leads to higher administrative costs, and in actual claims costs—since the amount of underlying claims is what drives costs—they have higher claims than a normal plan would. In a perfect world, everyone would love to have a flexible benefits plan, but, in reality, most people can’t afford it. You ultimately create a spiral, because people use more of what they want, appropriately, so the prices go up for that particular bucket, and then those people pay more to use those options more. If you don’t design them correctly, with proper controls in place, they can become very expensive. That’s why a one-size-fits-all plan is less expensive, as you don’t have that selection risk.”
Many companies try to find something that fits in between the two extremes. “What a lot of companies do is give everyone a certain package including pension, life and disability, and then give options for items like dental, extended medical, etc.,” says Jeffrey. “So, by restricting choice your costs become more manageable, but by definition you’re going to satisfy less people.”
The Growing Costs of Wellness
There is also the issue of the changing medical needs of today’s workforce, at every stage and age. “Drug coverage is becoming more and more expensive,” says Williams. “Especially when it comes to biologic drugs like insulin, for which there is no generic substitute.”
Williams also points to the increasing impact of mental health issues in the workplace. “When you look at drug trends in terms of frequency and number of drug claims, and look at what those drugs are prescribed for, you see that mental health is the main reason,” states Williams. “Between 40 and 60 per cent of all diagnoses are related to mental health issues. And approximately 60 to 70 per cent of spending per employee goes towards drugs. For employees with long-term needs, those drugs can cost anywhere between $15,000 and $150,000 per year per employee, and that is for their lifetime. And, often, these are employees who are in their 20s or 30s, so the company needs to look at how they can deliver these programs without incurring financial hardship.”
What organizations also need to ponder, according to Williams, is what their goals are with programs like Employee Assistance Programs (EAPs) and extended health—and how that is not only meeting the needs of employees, but creating proactive systems that can help mitigate such large reactive costs.
Innovative EAP Taps Tech
One way Shepell-fgi is doing this is through their innovative EAP, which now offers video counselling, a mobile app that allows employees to text counsellors and get immediate responses, and telephonic coaching in a wide range of areas from nutrition and fitness to mental health resiliency. “It’s a very innovative way of reaching people, and we find that we are reaching a whole new demographic of people who would never have used an EAP previously,” says Williams.
That demographic can come from surprising places. Williams’ company initially set up the video counselling for employees in remote areas or small towns, but found that the service became extremely popular for couples counselling in large urban centres like Vancouver and Toronto, where busy lives and childcare needs often led to cancelled appointments. With the video service, the number of cancellations has decreased significantly.
“Years ago, utilization of EAPs was quite low, but now that people are seeing the value in them, they are an inexpensive way of providing a lot of services that are fantastic for their employees,” enthuses Williams. “What else could you buy for your employees for $40 per year?”
The Crystal Ball
What’s in the future for total rewards? One thing all agree on is that a hybrid model for benefits is on the upswing, as is an increasing demand for flexibility over cash, and more choice in terms of services and growth opportunities.
“A good plan doesn’t remain static,” says Jeffrey. “It should morph over the years, as your workforce changes, and as new technologies and new benefits come to the fore.”
Anya Levykh is a freelance writer with a passion for food and editor for CGA-Canada.
(PeopleTalk Summer 2013)