The Many Benefits of Providing Benefits

When times are tight, employers who cut back on the perks that promote employee loyalty may hurt themselves most of all

A national contest aimed at recognizing private companies that provide excellent employee benefits has turned up a list of "best practices" that earn employee loyalty and help the companies attract talent. "What we saw in all 10 of our winners was both depth and breadth of benefits, high levels of employer contribution, and maximum flexibility and communication," says Carey Jury, spokesman for "The Principal 10 Best Companies for Employee Financial Security," which announced its findings in May, 2002.

Jury is vice-president for employee benefits at Des Moines-based Principal Financial Group, which sponsored the competition. He, and Principal's corporate relations manager, Terri Shell, spoke recently with BusinessWeek Online Smart Answers columnist http://www.businessweek.com:/print/smallbiz/content/may2002/<a%20href= about how benefits do more than boost morale -- they can also lift the bottom line of just about any business. What follow are edited excerpts of their conversation:

Q: You held this first-time competition for companies with between 5 and 1,000 employees. How many entries did you get?
Shell: We had more than 1,000 nominations. A little over 200 companies completed the 7-page application form on our Web site and put themselves into the competition.

Q: Why do these companies do such a great job for their employees?
Jury: What we found is that they do not consider their employee benefits a cost, but an investment. Their reward is very strong retention rates and a much easier time attracting and motivating employees. It truly is about allowing employees to focus all their attention on the customers and not worry about their own financial security.

Q: Do they find that the investment translates into a boost to the bottom line?
Shell: Certainly, in terms of lowered retention rates and the need to constantly recruit and train new employees. For instance, the median employee turnover rate nationwide for the computer software and services sector is 25.2%. One of our winners, Advanced Financial Solutions, produces accounting software and systems. They have 120 employees and their turnover rate over the past five years has been 1%. Another winner, Calence, a network-systems firm, has a 2% turnover rate. Another winner, ECS Inc., of Davenport, Iowa, has lost one employee during the last five years -- a staff member who moved out of the area.

Q: In general, are employee benefits an area that small business needs to do better at?
Jury: We think so. One of our winners, Metropolitan Mortgage of Spokane told us that they went through a difficult financial crisis with the company two years ago and the top management met to discuss cutting benefits. They decided not to do it, and they've since recovered and are back to a good place financially.

It's tempting for businesses because, when they need to cut back, oftentimes the first place they look is at human resources. In fact, many employees of smaller companies feel they may have to sacrifice good benefits. But that shouldn't be true. The companies that really do well by their employees get a big payoff in loyalty and longevity. They've created a business strategy around their employees because they know that having great people means a great bottom line.

Q: Where did the winners come from, in terms of industry and geography?
Shell: They came from all over the place, and from all kinds of industries. We have some high-tech firms, an environmental firm, a construction company, a financial services agency, an ad agency, and a health-care company. They're headquartered from Hawaii to Virginia. The smallest company has 22 employees and the largest, the ad agency, has 460 on staff.

Q: There were nine judges. What were they looking for?
Jury: They wanted to see how companies select, manage, and provide benefits and other programs. The benefits that contribute most directly to long-term financial security are retirement packages with more than one plan, strong medical coverage that includes significant premium subsidies by employers, long-term care and disability options, group life insurance, accidental death and dismemberment coverage, and medical and retirement packages for part-time employees.

Q: What did the winning companies have in common?
Jury: The winners all provided opportunities for employees to be involved in shaping the benefits program -- they offered professional development opportunities, including, in many cases, tuition reimbursement. And they used numerous creative communication methods to encourage employees to participate fully.

Q: Can you give us some specific information on the winning employee-benefits practices?
Jury: All the companies offered medical insurance, retirement plans, group life insurance, long-term disability insurance, and accidental death and dismemberment coverage... and 30% offered profit-sharing plans. All paid at least 80% of their employees' medical insurance -- and six of the 10 paid 100% of the medical premiums. Half of the companies paid 100% of the dependents' premiums.

Of those offering a 401(k) retirement plan, the average employee participation rate is 83%, and all the winning companies match employees' 401(k) contributions. Seven of our 10 winners offered more than one form of retirement plan, including profit sharing and ESOPs [employee stock ownership plans].

The average maximum group life insurance benefit for these 10 companies was $141,500. Eight of the 10 winners offer long-term disability income insurance with a 60% salary payout.

We also looked at how they communicated information about benefits to their employees. The average number of benefit communication methods we saw was five. The most popular were all-employee meetings, individual annual reports, Web-site postings, paycheck stuffers, retirement seminars, and employee surveys.

Half of our winners offered some type of executive benefit offering, the most popular being supplemental death benefits, supplemental executive retirement plans, and nonqualified deferred compensation. Among the voluntary benefits offered were life insurance, dependent life insurance, and accidental death and dismemberment.

Here are the contest winners:

Advanced Financial Solutions (Oklahoma City): A financial services software firm with 220 employees, founded in 1992.
Applied Technology and Management (Gainesville, Fla.): Environmental engineering outfit with 72 employees, founded in 1984.
Calence (Tempe, Ariz.): Network solutions for business applications, founded in 1993, has 110 employees.
ECS(Davenport, Iowa): Designs and installs commercial audiovisual communications systems. Founded in 1990, the firm has 22 employees.
FGM (Dulles, Va.): Software and systems engineering firm with 175 employees, founded in 1987.
MARC USA (Pittsburgh, Pa.): Advertising agency with 460 employees, founded in 1955.
Metropolitan Mortgage & Securities (Spokane, Wash.): Financial products and services firm with 357 employees, founded in 1953.
Nordic Construction (Waipahu, Hawaii): A construction company founded in 1950, has 36 employees.
PRE Holding (Midlothian, Va.): A medical equipment company with 67 employees, founded in 1992.
Tiller Corporation (Maple Grove, Minn.): Produces road construction materials, has 242 employees, and was founded in 1946.

More information on the program and the winners is available at http://www.principal.com/.