Optimising ROI in Employee Benefits.

Key points

• High utilisation rates of benefits do not always reflect their true value.

• Comparing a benefits package to market standards might not be the right approach as what works for surpassing competitors might not meet the relevant employees' needs.

• Effective benefits packages must be adaptable to different life stages, align with company values, incorporate employee feedback and have effective messaging to ensure they are valued and support the company’s goals for talent attraction and retention.

Commentary

Return on Investment (ROI) is a common measure of how profitable an investment is. It’s relatively straightforward to calculate ROI when evaluating stocks, assessing the benefits of acquiring a business, or determining the success of a real estate deal. However, when it comes to assessing whether an organisation’s benefits are providing a good return for both the company and its employees, the process becomes more complex.

Traditionally, the effectiveness of benefits has been gauged by measuring their utilisation rates. In theory, if a benefit is used frequently, it suggests that it is appreciated and valuable to employees. Higher utilisation rates generally indicate that the benefit is meeting employee needs and delivering a tangible return for the company. However, this approach is not always accurate. For instance, Employee Assistance Programs (EAPs) often show low utilisation rates but are still considered essential for improving employee wellbeing. These programs offer access to professional counselors and therapists who help employees manage personal and work-related issues, highlighting that the true value of a benefit is not always reflected in its usage statistics. Similarly, organisations with a relatively young demographic may have low utilisation for their Life Insurance offering as let's face it, who wants to think about dying when they are young however; may still be highly valued by the more mature members of the workforce.

Another method is to evaluate how the benefits package stacks up against the broader market. This involves determining whether the package is aligned with, competitive against, or exceeds market practice. A competitive benefits package is typically designed to offer superior options for employees, meet their needs comprehensively, and attract and retain top talent. However, attempting to surpass competitors can sometimes lead to innovative but less company relevant solutions. For example, while a four-day workweek might be seen as a cutting-edge benefit, implementing it company-wide rather than as an addition to a flexible working policy might not always yield the desired results. Some employees might prefer the ability to adjust their daily hours to accommodate family needs rather than having an extra day off.

So, how can companies design a benefits package that truly meets employees' needs, aligns with their core values, and also attracts and retains top talent?

• Diverse Employee Needs: Not every benefit will be valued equally by all employees. People’s needs and preferences vary based on their age, life circumstances, and career stage. Benefits that are important at one point in an employee’s life may not be as relevant later, and vice versa. Therefore, a benefits package needs to be adaptable, offering options that cater to employees at different stages of their lives. This doesn’t have to mean an endless list of benefits. It could involve offering different levels within a benefit or renaming a benefit to serve multiple purposes. For instance, offering varying levels of superannuation contributions or rebranding a “discounted gym membership” to “discounted wellness membership” could cater to those interested in activities like art classes, not just gym workouts, that people use to relax and unwind.

• Align with Company Values: Companies need to clearly define what they want to be known for and identify which benefits reflect their core values. Whether the company aims to be “family-friendly,” “flexible,” or “market-leading,” benefits should align with these objectives. Once the company’s desired reputation is clear, benefits that support this image should be emphasised and offered to all employees. Other benefits can be provided as additional options, potentially at a cost to employees, either in full or in part.

• Gather Employee Feedback: Understanding what current employees value is crucial. This doesn't mean you need to implement every item on their wish list, but it helps to gauge whether existing benefits are effectively communicated and appreciated. For instance, if employees feel that a life insurance policy covering only one times their annual salary isn't enough given their financial responsibilities, this feedback can inform adjustments to the benefits package. Additionally, it's important to assess whether employees are aware of the benefits available to them—low utilisation may simply be due to inadequate communication.

• Effective messaging of any tailoring: While many companies choose to provide an enhanced benefits package for their executive team, it's important to understand the reasoning behind this decision. For example, if an organisation grants additional annual leave days to executives while only allowing the general staff to purchase extra leave, this could be perceived negatively. Typically, executives, being higher earners, have a greater capacity to afford the cost of purchasing additional leave, which may make such a policy seem inequitable to the broader workforce. On the other hand, providing coaching or mentoring to employees as part of a succession plan for executive roles can be a valuable strategy to prepare them for the next step in their career and an easy message to convey to the wider population.

In summary, evaluating the effectiveness of employee benefits involves a more nuanced approach. By addressing the above elements thoughtfully, organisations can craft a benefits package that not only enhances employee satisfaction but also supports overall company goals and fosters a positive work environment.