I recently had an enlightening conversation with a client on a strategic perspective regarding employee benefits plans. The client asked a simple question: Who does this right? After pausing to collect my thoughts, I began to ramble off the names of a number of plan sponsors that I thought did a good job with their benefits programs. But shortly after the meeting, I started to chastise myself for giving the wrong answer. It wasn’t that the examples I provided were wrong, they just were not necessarily the right examples for this particular employer. What works well for one employer does not mean that it will work—or is even relevant—for the next employer.
So what are best practices? There are a number of definitions for this term, but simply put, a best practice is the best way of doing something. It is a useful benchmark or framework within which to compare how you might be doing something today such as a specific plan provision or, more broadly, a guiding principle. However, and this is critically important, a best practice must be considered within the context of the organization—where it is today and where it will be tomorrow. A best practice for one organization may not be appropriate for the next; it has to be relevant. For example, flexible benefits are often cited as a best practice in the benefits world. I agree that meeting the needs/wants/expectations of employees should be a best practice. However, I could argue that flexible benefits may not be the right approach for many organizations.
With this important caveat—that a best practice must ultimately be considered within the context of the organization—it is not a simple matter of plug and play. I do believe there are a number of broad-based guiding principles that need to be considered by all employee benefits plan sponsors looking to maximize their return on their investment in these programs.
Alignment — Your benefits plan commitments should be completely aligned with your HR strategy, which, in turn, must support your overall business/organizational strategy and corporate values. Your benefits plan must have a purpose. Many organizations have an attraction and retention imperative. How do your benefits programs support your activities in this area today? And how might this imperative change over time, and how must your benefits plan respond? This is a pretty fundamental starting point, but it is one that—more times than not—is either completely missed or dismissed as not being important. Misalignment increases the probability of a poor return immeasurably.
Investment — I have already alluded to this in prior articles: a benefits plan should be considered an investment and not simply a cost. It is an important difference. A cost is something you manage, generally downward. An investment is something from which you expect a return, and, depending on the return, you may be prepared to invest more or less. There are a great number of areas of potential return through an employee benefits program such as employee/organizational health, risk management, talent acquisition, etc.—all of which contribute to the bottom line whether this is defined in profit or organizational effectiveness terms.
Risk — A benefits program is also a useful risk management tool for organizations. It helps to manage a number of risks related to ill health, disability, etc. And the nature of these risks is constantly changing. A best practice is to understand the nature of these risks for your organization—articulate your risk tolerance—and to develop an appropriate risk-sharing philosophy/approach.
Holistic view — We tend to define employee benefits in very narrow terms. We often refer to them as the benefits within our group insurance program (e.g., life, AD&D, disability, health and dental). If you ask your employees to define their benefits, chances are they have a much wider perspective—it might include time off, training, fitness memberships, etc. The opportunity is to take a much broader perspective in how we define benefits and to create greater alignment across this spectrum. It also opens up a much broader conversation when it comes to the question, How can we improve our benefits plan?
Relevance — There are a couple of aspects of relevance. I do believe that a benefits program should deliver on the needs/wants/expectations of a substantial portion of the employee population. It is difficult to “hit the mark” for everyone. If you are not addressing the needs of most employees, you are not maximizing the return on your benefits program. Increasingly, this translates into incorporating more flexibility into plan design but as already mentioned there are different approaches. The other aspect of relevance is more of an external perspective. It is difficult to ignore the competitive environment within which every organization operates, so understanding how your benefits compare is a useful benchmark. You then need to determine how relevant this is for your organization and if it is relevant where you want to fit. Are you a leader or a follower?
Delivery/communication — The best benefits plan design is not the best design if there are problems with the delivery and/or if the program is not well understood by employees. These need to be key considerations in any benefits program. As a general comment, many plan sponsors do not communicate often enough nor are they considering how to enhance the overall benefits value proposition through alternative delivery channels (e.g., online, web-based tools, etc.). With technology advancements, there are tremendous opportunities to think outside the box and drive more value out of these programs.
So when asked who does it right, it never feels good to say it depends—even though that is the correct answer. A best practice is clearly not a best practice if considered out of context. However, I do believe that the six broad-based guiding principles articulated in this article are a useful construct for every benefits plan sponsor to evaluate their benefits plan commitments. And if you do, you have every right to say “we do it right.”