Retailers must respond to employee benefits trends

The employer--employee relationship has its foundation in a very basic premise--the employer receives services from the employee in return for compensation. The competitive factors within the marketplace have played a significant role in requiring employers to be more responsive to employee needs, structuring compensation programs to attract and keep good employees. This article will review an important form of compensation--employee benefits.

Evolution of Benefits

Until the 1940's most employers did not provide any form of compensation to employees other than cash compensation. As we moved into the 1940's, and particularly after World War II, organizations began to establish benefit programs providing employees with limited medical coverage.

Initially these programs offered a very basic coverage, but evolved over time to include such additional coverages as major medical, short- and long-term disability, and accidental death and disememberment. Todaythese programs represent the basic medical coverages in most companies.

They have been supplemented, however, by other types of programs which have become commonplace in recent years. Such programs include group life insurance, pension vehicles and tuition reimbursement. In many firms there are thrift savings plans, profit sharing, and stock purchase programs. The retail industry has been responsive in providing these basic benefit programs.

As the needs of employees change, it is no longer sufficient to provide only the very basic benefit coverages. The demographics of the work force today are different, and, as a result, many employees are seeking benefits that are different in scope and structure.

One of the concepts that has become popular in the benefits area is that of flexible benefits. Such a program gives the employee an opportunity to select those benefits which the employee perceives as most advantageous.

A younger employee, for example, might find extra vacation time to be more attractive than a thrift savings program. Older employees, however, will normally place a greater emphasis on the existence of stock purchase, pension, and 401-K plans--those programs which result in capital accumulation for retirement purposes.

Basic Programs

Number surveys conducted for retail clients reveal that retail organizations offer a core group of benefit programs, and are sensitive to changes in the benefits are. Let us review some of the specific elements of these surveys.

Medical programs such as Blue Cross and Blue Shield and major medical are available to practically all employees, with approximately 60% of the employers assuming the entire cost of premium payments. the cost of the premiums to the employees, where applicable, vary dependingon individual or family coverage. A majority of the medical plans offered by retailers make provisions for 80% reimbursement after the appropriate deductible is satisfied. Only 20% of the medical plans offered by retailers provide 100% reimbursement.

Most retailers provide accidental death and dismemberment insurance programs, with the requirement that employers and employees share the premium cost for the programs. About 55% of retailers provide some form of dental care coverage to their employees. Payment of premiums by the employers range from 50% to 100% of such costs.

The great majority of the retail organizations provide group life insurance programs to employees. The insurance amounts vary from one-to-three times salary and more. Over 75% of the organizations require no contribution from the employee for the basic life insurance coverage. Additional life insurance amounts, however, do require contributions from the employee. In many cases, retailers impose ceilings on these additional insurance policies ranging from $50,000 to $250,000.

Optical programs have grown in popularity, but not to the extent of dental care programs. Less than 30% of retail firms offer an optical program, with the cost usually absorbed by the employer. the coverage normally includes eye examinations and corrective eyewear. About 80% of the retail establishments offer some type of short- and long-term disability program, and more than half pay the full cost of the program.

Pension plans have become extremely commonplace. Usually the larger the number of employees in an organization, the more sophisticated the pension plan. The plans usually include eligibility requirements relative to the age of the employee and years of service with the organization.

Tuition reimbursement programs have grown dramatically over the past few years. According to survey sources, 85% of retailers provide tuition reimbursement programs to their employees. Various reimbursement procedures include a percentage reimbursement for all costs related to a program, a percentage reimbursement based on grades achieved, and one set amount for all costs incurred.

A small percentage of retail organizations offer thrift saving plans to employees. In such a program, the organization matches or shares in the contribution of funds placed into a savings fund vehicle for the employee. Some major retailers, of course, provide stock purchase programs to their employees. An increasing number are offering the 401(K) programs. These are savings plans by which the employee diverts pretax dollars into a fund which normally attracts a certain amount of matching funds from the employer.

These basic core programs have resulted in significant expense for employers. Industry statistics indicate that benefit programs have been increasing steadily over the years and now equal approximately 35% of an employee's cash compensation. It is evident that employers believe that cost corrective action must be taken if they are to continue to provide adequate benefit coverage.

Emerging Trends

Reviewing benefit programs today, one sees several trends emerging. Employers are less inclined to add new benefit programs to their existing portfolio, and at the same time are asking employees to pay more of the premium costs. This is particularly true for the medical, dental, and optical programs. Employers are also increasing deductibles, requiring second opinions, and placing other restrictions.

Benefit plan structures are coming under attack as well. Many employers are finding it appropriate to terminate pension plans and replace them with other vehicles in order to enjoy excess assets which have accumulated for the programs, and yet which are not necessary to fund the programs properly.

some programs are growing in popularity. One of these is the 401(K) plan. Over 50% of the Fortune 500 corporations now provide this plan. Even though the concept of the 401(K) plan is under close scrutiny by Congress, it is believed the program will survive this investigation and continue to represent a viable constructive program for the employee.

Such programs as optical care and prescription drug continue to grow in popularity, although not nearly to the extent of just a few years ago. There will also be increased demands placed on the employee to provide additional payment of premiums and to satisfy other specific conditions.

Employees continue to want to choose among various benefit programs. It will be necessary, then, for employers to become familiar with the concept of the cafeteria style or flexible benefit approaches, and structure benefit programs accordingly.

Further Issues

As each organization looks to the future, it can anticipate an employer-employee relationship dependent upon not only proper monetary compensation but also benefits programs which provide physical and financial protection. This will be true regardless of employee level or whether it is a union or nonunion environment.

The union employee, of course, is covered by contract terms and conditions. Nonunion employees, particularly if they are working in an environment where a union contract exists, can expect and will demand benefit programs comparable to those enjoyed by the union employees. In turns, middle to senior management level employees will require programs which are not only comparable to those available to nonexempt employees, but also can provide to the additional coverages if the manager is willing to pay the price.

In the case of key executive personnel, benefits will be a major part of the appropriate incentives to keep executives with the organization. Such benefit programs include supplemental medical programs (provided free of charge), supplemental life insurance, physical examination on a yearly basis fully paid by employer, additional insurance policies relative to accidental death and dismemberment of the employee and his or her family members, travel accident insurance coverage for business related activities, and supplemental pension benefits.

The key concepts in the future are going to be; 1) cost containment in the entire area of benefit programs; 2) benefit programs which are flexible in nature to allow different segments of the employee population to enjoy different types of programs; 3) specific benefit programs to satisfy the needs of executive level employees; and 4) benefit programs which are appropriately established and structured to allow the employer to remain competitive within the marketplace.

These concepts cannot be addressed, however, unless the employer takes an interest in understanding what the needs of the employee base are and what is evolving in the marketplace. It should be the responsibility of the human resources department within every retail establishment to conduct ongoing surveys to determine exactly what types of benefits are desired, and under what conditions these benefits should be provided to employees. It is recommended that the survey process be conducted on an annual basis.

Outside Challenges

Retailers must also be sensitive to the fact that they are competing with many nonretail organizations for certain kinds of personnel. Therefore besides being competitive with retail organizations, retailers must compete with local, regional, and, in some cases, national non-retail organizations.

Retailers also have Congress to contend with. Many of the traditional employee benefits are coming under increasing scrutiny, particularly as they relate to their tax free status. Such programs as the 401(K), tuition reimbursement, free life insurance, have many opponents among the hallowed halls of Congress.

The corporate community can expect to find itself on the defensive in the years ahead, justifying the existence of particular kinds of benefit programs, and how and to whom these programs are administered. Without the tax-free status that most of these programs currently enjoy, much of the incentive to offer the programs is lost. Retailers must watch closely the changing conditions, and be prepared to provide the necessary response in the actions as circumstances dictate.

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