BenefitNews.com

Studies reveal conflicting trends among wages, benefits
Kevin Sweeney
Employee Benefit News, October 2003

Which has the greater pull in attracting and retaining workers: fatter paychecks or better benefits? The latest research hasn't settled the question, but it does highlight some of the factors that should go into making this decision.

While one new survey suggests that small-business owners favor the paycheck over benefits, another found that employees place greater emphasis on health benefits and are even willing to help shoulder the costs of one of the main drivers of health care increases - prescription drugs.

The National Federation of Independent Business (NFIB), which represents small business owners, recently asked its members how they would allocate a $1 increase in employee compensation. Almost three-quarters said they would boost wages or salary with that extra dollar. Paid-time off (5.2%), health insurance benefits (4.7%) and pension benefits (2.4%) added up to afterthoughts.

When pressed to reveal what was driving this hypothetical distribution, the employers said it was based on perceived employee desires. In fact, 82% of those polled said workers would also pick higher wages/salaries. Just 4% sided with health benefits, and less than 1% felt workers would want pension increases.

"[Small employers] listen to what their employees tell them and what they hear employees say to one another," notes William Dennis, Jr., senior research fellow at NFIB's Research Foundation. "Remember that the critical figure is compensation; the choices among wage and benefits occurs within that overall figure. So, small employers offer what appears to be employee priorities, other factors equal."

But results from a Consortium Health Plans study of 1,000 adults across the country paint a very different picture. Here, 80% of respondents cite health insurance as a major factor in their decision to accept or keep a job. In addition, 45% say they would opt for more comprehensive health coverage over a pay increase.

"Our annual survey findings increasingly affirm that health benefits are key to job satisfaction, both in terms of employment choices and staying with the company," says Debra Shepard, vice president of marketing for Consortium. "What is startling to me is the price elasticity with regard to employees being willing to share in paying benefits."

Indeed, the Consortium study found that almost two-thirds of employees convey a readiness to pay a greater premium to maintain prescription drug coverage, as part of a rising demand for Rx benefit offerings.

"Quality has emerged as a vital factor," Shepard explains. "Employees are ready to pay out of their own pockets for continued prescription drug coverage."

Another survey - this one by Stony Brook University - found that a whopping 71% of adults would choose a job with a lower salary and health benefits over one paying a higher salary without coverage. Seventy-three percent of the 865 people responding rated good health care benefits as very important. Most respondents also rated good retirement benefits (66%) and job security (71%) above salary.

Demographics key

The decision whether to hike salaries or bolster benefits is largely being driven by analysis of employee populations.

"Employers have to know their population and know where they will get the most bang," observes Dan Moynihan, principal with Compensation Resources. "There is a push-pull among employers trying to maximize retention and satisfaction. They are trying to find the right balance, and the answer depends on the employer."

For example, smaller companies with a young population might not entice many workers with retirement incentives.

"Small employers want the best labor force that they can afford," Dennis says. "Wages have the added advantage of allowing one dollar in increased compensation to flow directly to employees rather than having part drained off in administration, commissions, etc. Small-business owners obviously feel that it will help them with the employee pool from which they recruit."

But one of the most compelling reasons small companies might favor salaries is due to their inability to effectively manage employee benefits.

"Small employers are more interested in salary increases because they are pretty unsophisticated in administrative processes and structures," indicates Michael Garelik, practice leader with the Philadelphia office of Watson Wyatt. "It is much easier for them to do something on the salary side than deal with benefit issues.

Conversely, for larger companies, it might seem easier to hold down employee salaries in a stagnant job market (although this could change next year - see sidebar). In lieu of wage increases, boosting health benefits is becoming a greater priority for such organizations.

"A lot of employers are stuck," Moynihan notes. "The real cause of the problem is they are looking at 15-30% increases in health care costs. But there is a recognition among employees that not all these benefits are free and a realization that there is some increased cost-sharing."

Moynihan says that salaries are typically not "what make people tick," ranking fourth on most compensation surveys. This could account for the greater support for health benefits illustrated in the Consortium study.

In addition, salary increases have remained relatively unchanged on a large scale over the past few years. This salary restraint, combined with robust health care costsharing, may prompt many employees to desire higher-quality health benefit packages.

"Middle-class people have seen deductibles on benefits going up," Garelik says. "For many, it's been a larger portion than some increases have been in salary. Because of the health care debate and the issues associated with dealing with claims, people have become more concerned about health care."

Emphasize the package

Whatever the total compensation approach taken by individual corporations, it is crucial to make employees aware of the total investment the company is making in its workforce.

"Very often employees are truly surprised by the amount their employer is spending over and above their salary," says David Janus, director of business development at Charlton Consulting. "When an employee's complete compensation package is clearly illustrated and explained, the package becomes that much more effective."

With consolidation the rule rather than the exception among many HR staffs, communication campaigns have taken a backseat.

"I think employers spend a lot of time on administration, but not as much time really helping their employees understand their benefits," Garelik says. "From an ROI perspective, companies aren't making some of the investment to get the most out of their benefits. There isn't as much explanation on what certain benefits mean to people." -K.S.

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