In a highly-competitive labor market, a generous benefits package is a critical component of your company’s ability to attract and retain the right employees. But generous should not mean foolhardy. You need to be smart about how you spend this enormous pot of money, which can easily be 35 percent (or more) of total compensation costs. You want to develop a benefits package that really matters to your employees and improves their quality of life.
So, how do you do that?
Unfortunately, HR professionals frequently choose one of the following ill-advised strategies:
- Benchmark against others and do what everyone else is doing
- Rely on the advice of their benefits provider
- Do what they’ve always done in the past
However common these strategies might be, they are all inherently flawed. First, it’s hard for your business to distinguish itself if you’re simply doing what everyone else does. Second, your benefits provider has little incentive to provide you with the most cost-effective solution. And third, doing what you’ve always done is, at best, a formula for long-term mediocrity.
There are a few other impressive-sounding options that we actively recommend our clients avoid. Happily, there are also some better alternatives as well.
Why You Should NOT Use Conjoint Analysis
When HR practitioners seek to tackle the benefits question in a more rigorous manner, they frequently turn to conjoint analysis. This is a method that analyzes the inter-relationship of various levels of benefit characteristics, quality, and price. (Not surprisingly, many benefits firms also suggest this option.)
Often this actually amounts to putting the fox in charge of the henhouse (and paying extra to your benefits firm for this analysis).
Beyond that, there are three other reasons we recommend avoiding this strategy:
- A properly-designed conjoint analysis typically imposes a significant burden on survey respondents (in terms of both time and mental energy).
- Conjoint analysis frequently leads to false precision in its conclusions.
- It’s most useful when price and “willingness to pay” are important components being examined. While this makes sense for health insurance and some other benefits, it’s rarely helpful when looking at the full spectrum of possible employee benefits.
Our Recommended Alternatives
Based on what we’ve learned from working with clients on these types of questions over the years, we have successfully used the following two alternative approaches to identify how to optimize your employee benefits package.
- Asking employees to rank two components each for an array of benefits:
- The importance of the benefit (or an intangible attribute such as employee mentoring) to them personally
- The current presence (or lack thereof) of each benefit or intangible attribute
- By comparing these two pieces of information, it is simple to determine which are over- or under-represented. For example, there will be some benefits or intangibles that people want but say they don’t have, and others that employees perhaps do have but don’t particularly care about.
- Although this method does not provide guidance on pricing (how much your employees might be willing to pay for various benefits), it provides a broad overview consisting of fact-based guidance on the types of changes you might want to make to your benefit offerings and package.
- The advantages of this method are that it is straightforward, intuitive, and easy on your employees.
- Alternatively, you can ask employees to “rank order” the importance of an array of benefits, including both current benefits and others being considered. You should supplement that information by asking about level of utilization and satisfaction with each element of your current benefits package, including major subcomponents.
- You should also ask about overall satisfaction with the benefit package.
- This information again provides the raw data needed for a statistical analysis of your current benefits package and points to areas where it could be revised.
- As with option #1, it does not include pricing detail but is straightforward, easy to understand. It is relatively easy on respondents in terms of time and energy.
Bottom line? Don’t be swayed by accepted wisdom or doing what everyone else is doing. Instead, start with one of the two straightforward, quick, cost-effective methods to get the business intelligence you need from your employees. Then use that information to create a benefits package that allows your company to distinguish itself from the pack.