Jan 29, 2008


A major decision for any employer is what types and levels of benefits to include in an overall employee benefit plan. For those few firms that do not have an employee benefit program, this decision involves choosing which benefits to offer initially. However, in most cases, the decision is ongoing and involves either the offering of new or improved benefits or the redesigning of all or a major portion of the benefit plan. An objective of most employee benefit plans is to meet the needs of employees. But what are these needs? If they vary for different groups of employees, should different benefit plans be established? Or should a single plan be designed in which employees are allowed to choose among alternative benefits?

Determining Needs
Every employer wants its employees to appreciate the benefits that are provided. However, employers are becoming increasingly aware that employee benefit programs are failing to achieve this desired level of appreciation. To some extent, this is due to the fact that as employee benefit plans have grown more comprehensive, employees have begun to take the benefits for granted. In addition, the growing consensus seems to be that the traditional methods of determining the types and levels of benefits to offer have lost much of their effectiveness. These include basing benefits on the following factors:

The employer's perception of the employees' needs. This perception is largely based on the opinions of a firm's top management employees whose compensation is much higher than that of the average employee. Therefore, it is not surprising that many recent studies have shown that management's perception of employees' needs often differs from what the employees themselves feel they need.

What competitors are doing. Too often, the emphasis is placed on having an employee benefit package that is virtually identical to that of the competition, even though the makeup of the work force may be different and the employees may have different needs.

Collectively bargained benefits. Many employers pattern their benefit plans for salaried employees after their negotiated plans for union employees. Again, the needs of salaried employees may be substantially different and may call for a totally different plan.

Tax laws and regulations. Benefit plans are often designed to include those benefits that are best suited to the high tax brackets of top executives. The average employee who is in a modest tax bracket may actually have a preference for certain benefits even though they will result in currently taxable income.

In the last few years, two trends have taken place. First, employers have increasingly taken a marketing research approach to employee benefit planning. The employees' preferences for benefits are determined in a way similar to that in which consumers' demands for products are determined. For the most part, this approach has been used only for nonunion employees, because benefits for union employees are decided by collective bargaining. However, some employers and some unions use this procedure as a guide in their negotiations with union employees. Second, employers have increasingly turned to life-cycle and work/life approaches to benefit planning.


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