Jan 27, 2008

WHAT ARE THE EMPLOYER'S OBJECTIVES?

No benefit plan is properly designed unless it meets the employer's objectives. Unfortunately, these objectives may be unclear or nonexistent, particularly in small firms. However, most large corporations have—and all firms should have—specific written objectives that have been approved by the board of directors or by the owners of the firm. These objectives will vary for each individual organization, depending upon such factors as size, location, industry, the results of collective bargaining, and the philosophy of the employer. Without such objectives, it is difficult for the agent, broker, benefit consultant, or third-party administrator to make recommendations or for the firms's in-house benefit staff (often part of the human resources department) to make decisions.

Types of Objectives
Objectives for benefit plans can be general and part of a firm's overall compensation objective, that is, cash and employee benefits in the aggregate. This may be done to achieve a compensation package that is competitive within the firm's geographic area or industry. Such an average objective usually means that the firm wants both its wages and salaries and its employee benefits to be similar to what the competition is offering its employees. There is usually some, but not much, room for creativity in the design of a group benefit plan, unless the plans of the competition are quite diverse.

Some firms have separate objectives for cash compensation and employee benefits. For example, a growing firm may want its cash compensation to be competitive, but it may want its overall employee benefit plan to be above average in order to attract new employees. A difficulty with this type of objective for the plan designer is determining whether the firm wants all aspects of the employee benefit plan to be better than average or whether it would be willing to accept, for example, an average program of group insurance benefits but a better-than-average pension plan and more vacation time for its employees. Note that most objectives, even when they are very detailed, tend to apply to all employee benefits rather than to specific types.

It has become increasingly common for firms, particularly large firms, to maintain a lengthy and often detailed list of objectives for their employee benefit programs. The following are the objectives of one such firm:

- To establish and maintain an employee benefit program that is based primarily on the employees' needs for leisure time and on protection against the risks of old age, loss of health, and loss of life

- To establish and maintain an employee benefit program that complements the efforts of employees on their own behalf

- To evaluate the employee benefit plan annually for its effect on employee morale and productivity, giving consideration to turnover, unfilled positions, attendance, employees' complaints, and employees' opinions

- To compare the employee benefit plan annually with that of other leading companies in the same field and to maintain a benefit plan with an overall level of benefits based on cost per employee that falls within the second quintile of these companies

- To maintain a level of benefits for nonunion employees that represents the same level of expenditures per employee as for union employees

- To determine annually the cost of new, changed, and existing programs as a percentage of salaries and wages and to maintain this percentage as much as possible

- To self-fund benefits to the extent that a long-run cost savings can be expected for the firm and catastrophic losses can be avoided

- To coordinate all benefits with social insurance programs to which the company makes payments

- To provide benefits on a noncontributory basis, except benefits for dependent coverage for which employees should pay a portion of the cost

- To maintain continual communications with all employees concerning benefit programs

Most lists of objectives contain few, if any, specific details regarding what provisions or what types of benefits should be contained in an employee benefit plan. Rather, they establish guidelines—instead of specific performance goals—within which management must operate. For example, the objectives listed above indicate this firm wants a plan that is understood and appreciated by employees and that is designed with employee opinion in mind. No mention, however, is made of how this is to be done. There may be alternative ways for this firm to achieve its objectives. Similarly, the objectives establish guidelines for the cost of providing benefits. Although the firm wants to have a better-than-average plan, it does not want to be a leader. There is a very specific statement about what the relationship between the cost of benefits for union and nonunion employees should be. However, nothing is mentioned to indicate that the benefits for the two groups must also be identical. If the two groups have different needs, different types and levels of benefits may be desired.

Three additional points about employer objectives should be made. First, as times change, benefit objectives may need revision.

Second, the frequent lack of specific guidelines in benefit objectives gives the in-house benefit staff great latitude to be creative, to come up with innovative solutions to benefit problems, and to respond to the changing benefit environment. Such creativity can often lead to success and financial reward. However, a greater degree of freedom to be creative is also often accompanied by being the scapegoat when benefit decisions do not lead to the desired results.

Third, a firm's primary (and possibly only) objective may be to establish an overall employee benefit plan that channels as large a portion of the benefits as possible to the owner or owners. Although this is a poor objective for an overall plan, it is a reality that must be recognized, most commonly in small firms or in firms that have few owners. Large, publicly held corporations sometimes wish to provide better benefits for their executives than for other employees. These extra benefits are likely to be provided under separate executive compensation plans rather than under the benefit plan that applies to all employees.

Who Should Receive Benefits?
As part of establishing its objectives, an employer must determine its responsibilities to various categories of persons who might be eligible for coverage under the firm's overall benefit program. The list is much longer than one might initially think. It includes the following:

- Active full-time employees

- Dependents of active full-time employees

- Retired employees

- Dependents of retired employees

- Part-time employees

- Dependents of part-time employees

- Disabled employees

- Dependents of disabled employees

- Survivors of deceased employees

- Employees who have terminated employment

- Dependents of employees who have terminated employment

- Employees who are temporarily separated from employment (for example, employees on family leave)

- Dependents of employees who are temporarily separated from em-ployment

Obviously, most benefits are given to employees, and some benefits are given to their dependents, such as medical expense coverage. Whether other groups on the list receive any benefits depends on several factors. These include the attitude of the employer and the degree to which protection is available under other programs, such as Social Security. In addition, federal and state laws play a role. For example, some benefits must be continued because of family leave legislation. In addition, medical expense coverage must be continued in many cases as a result of COBRA.

1 comments:

Christopher Goulds said...

A clear and concise set of goals should always be set in stone before any business goes ahead with a benefits strategy. Without one, employers may find it hard to set up a solid offering, and may find it even harder to communicate just what is on offer to their employees.

A clear strategy, a set of desired outcomes and a solution for communicating these benefits (whether it's benefits statements, emails, company intranet or online)is essential if a business and it's employees are going to make the most of an employee benefits package.

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