The workforce of the near future will consist of members among at least four or five generations: baby boomers, Gen X, Gen Y, Gen Z and millennials.
Employees across these generations can range in age from 18-70--thus, the compensation, retirement and benefits options that each of them seeks can greatly vary, and it’s up to employers to meet their diverse needs.
To best manage these needs, it’s crucial to first understand that every generation is really a group of individuals who grew up at the same time, and thus often share similar experiences, perspectives and desires. From a general perspective, the emphasis on individuality has led to fast change.
To remain competitive, businesses must determine the best process for managing these differences in order to retain employees and boost productivity. However, there have been few changes made in the way organizations structure their benefits offerings. Many employers still offer their traditional benefits packages, which typically include base pay, incentives, benefits, retirement, time off and ancillary benefits (Total Compensation). Sure, some companies may also offer remote work opportunities, specialized maternity and paternity benefits and discounted gym memberships. However, from a Total Compensation offering – not much has really changed.
Organizations have continued down the same path of one-size-fits-all in their Total Compensation offerings. Although employers largely recognize that they have a multigenerational workforce, the traditional benefits approach has largely remained intact.
Consider these mindsets:
- “We target our compensation at the median of the market.”
- “Our health benefits are very competitive offering PPO and HDHPs with ‘reasonable’ required premiums.”
- “We have a great 401(k) plan that matches 50% of the first 6% deferred.”
- “We have attractive PTO benefits.”
So, does it make sense that a person who is 25 has the same options as a person who is 45 or 55? We tinker with this question every year.
As multiple generations continue to interact, companies can no longer assume that high pay, basic medical benefits, and a solid 401(k) plan will help secure top talent. As more employees retire, Baby Boomers seek postretirement careers; Gen Xers demand challenging but balanced work assignments; and Millennials expect high perks in exchange for their loyalty and technological savvy — leaders must find creative ways to recruit and retain talent.
The Case for a 'Menu' of Total Compensation Offerings
What about the possibility of structuring total compensation offerings in bundles of options, where employees can choose benefits offerings that best suit their needs? Employees can migrate among these choices over their careers as their needs evolve.
Packages can be created that remain cost-effective while providing real choices. Consider providing employees with the option of reducing pay in exchange for more time off? Or packages that permit a meaningful option to opt-out of benefits in exchange for an increase in compensation?
Organizations have a unique opportunity to take a fresh, strategic, total compensation approach to planning. They can create a framework that aims to accomplish the following objectives:
- Cost containment
- Flexibility to meet diverse employee needs, while not creating administrative and compliance nightmares
- Creating new competitive advantages that will increase retention and attraction
- Leveraging the new healthcare environment in promoting and insuring the health of their employees
- Reassessing the role the employer plays in providing base pay, incentives, and other benefits (e.g. retirement, time off, etc.).
- Building a workforce that is healthy, present, and high performing.
- Aligning the total compensation strategy that:
- Aims for consistency with local relevance
- Provides core security and increases employee choices
- Improves the employee experience
- Creates a platform on which to deliver high-performing programs
Employer engagement may vary in the future, as some companies will continue down the one-size-fits-all path while others choose to facilitate workers’ abilities to take more direct ownership of their pay and benefits. Any changes must permit an employer to maintain its responsibilities in the most effective way. Under either scenario, employers must communicate effectively about their benefit programs to align employer/employee expectations.
The employer-sponsored benefits system based on the principle that employers are best equipped to design, fund, and implement benefit and reward strategies that are best suited for their workforce may continue.
Some strategies will involve a traditional approach in which employers closely manage plan funding and administration. Some employers may find it more appropriate to serve as a facilitator by empowering individuals to take a more direct ownership approach of their benefits. Both approaches will require an increased emphasis on education, communication, and behavioral economics. The logical conclusion from this is that avoidance of the traditional approach is necessary.
Elliot Dinkin is president and CEO at Cowden Associates, Inc., specializing in helping corporate clients find the best solutions, both for the enterprise and its employees, with regard to compensation, health-care benefits, retirement and pension issues, and Taft-Hartley fund consulting.
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