Benefits - The Changing Landscape

The increasingly diverse needs of employees can no longer be fully met through standard benefits structures. Businesses face rising cost pressures, a hardening insurance market and healthcare inflation, but at the same time, they must enhance benefits to meet employees’ shifting requirements. At a recent India CHRO Forum session in Mumbai, Pratik Kar, Executive Vice President & Head Business Development – Health Solutions at Aon; and Bhargavi Kakunuri, Country HR Lead at MSD India, took participants through a case study to highlight the types of opportunities that can be seized within existing compensation structures while ensuring that the overall cost outgo remains under control.

The Case For Tailored Benefits

In any diverse organisation, employee needs will both vary and continually evolve. Seeing that its standardised core benefits programme failed to yield the desired results, MSD India shifted to an individualised, flexible benefits system. This simplified the administration of benefits and allowed employees to choose and customise the ones that suited them.

Aon’s database categorises employers into two distinct clusters. The first comprises low-retention employers who opt for immediate cash incentives, such as mid-year increments, budget increments and accelerated promotions. The second includes high-retention employers that follow a long-term approach to ensuring work-life balance. While the first group has an average attrition rate of 25.2%, for the second, it was just 12%. Further, voluntary attrition is much lower in the high-retention cluster, underscoring the criticality of work-life balance strategies.

The Shift To Flexible Benefits

MSD partnered with Aon to assess employees’ priorities, surveying them about both, the present benefits they most value, and their preferences for future benefits. The aim was to discern specific needs based on employee demographics, including distinguishing between those with dependents and those without. MSD also acknowledged that employees tend to compare their choices with each other before making a decision. Consequently, it created a system that enabled individual benchmarking, while streamlining benefit-selection, administration and communication processes. Its benefits package offers a comprehensive array of 25 options, a combination of insurance, non-insurance and wellness plans. Noteworthy additions to the plan options include coverage for parents-in-law, health checkups and vaccinations, critical illness plans, group medical coverage, child care plans and access to health coaching services. These varied choices cater to workers’ diverse needs and preferences.

MSD allocated a benefits budget of Rs 10,000 per employee. It achieved this by presenting employees with the opportunity to exchange their leaves for benefits, and they were also given the option of contributing their personal funds. Notably, two-thirds of employees opted to invest their own funds, leveraging the bulk discounts available to the company to access specific benefits. Currently, 99.3% of employees are enrolled in the plan. With no major escalation in cost, it has managed to deliver a big increase in the perceived benefits to employees. Significantly, MSD’s employee-engagement scores have improved, from 42% to 45%.

Flaws In The Current Framework

While the design of MSD’s plan is cost-effective, there may be some inherent flaws in it. However, it will take 2-3 years of post-implementation experience to understand the stability and any possible drawbacks. What is already clear is that organisations should seek to steer clear of cash-out options, even though employees generally prefer cash in hand. Offering this option can diminish uptake for other benefits, potentially transforming a flexible benefits plan into a cash-out plan. This is apparent from the fact that 66% of employees willingly forgo a portion of their pay to access specific benefits – a 10-15% increased compared to the previous arrangement. Yet, it is important to also recognise that just ~15% of employees regularly make benefit claims, suggesting that the remaining 85% may not derive significant value from the money spent on them.

Promoting Employee Well-being

In the aftermath of the pandemic, organisations have shifted their focus towards well-being initiatives, particularly in the realm of mental health. Barriers to accessing benefits in this regard include a lack of awareness about the necessary care, the prevalence of stigma (leading to self-denial) and uncertainty about where to seek assistance. Effective communication is the key to addressing mental well-being. A unified platform that consolidates all employee activities can be highly effective, facilitating streamlined communication. Technology integration with the HRIS system and KPI is crucial for a seamless process, as operational issues may arise if these components are not interconnected.