Designing Your Benefit Strategy

Larry Price
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Wednesday - September 10, 2008
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When the economy gets sluggish, more and more companies try to come up with new strategies to motivate their employees. A most frequently used one is to use pay as an incentive. These days, financial incentives are such a powerful motivational weapon that management can easily lose control of the situation. Benefits, in the long term, are more important.

We are currently observing the by-product of this strategy in several businesses in Hawaii, including the hotel and broadcasting industries. Pay-for-performance systems often provoke conflict and competition in an organization. It may reduce employees’intrinsic drives and reduce employees’ incentives to engage in activities that benefit the organization unless they are promised an explicit reward. Those receiving less than they feel they deserve may try to get back at those receiving more by sabotaging a project or management initiative, or as we have seen locally, using a confrontational commercial.

The performance of most executives, because of the sluggish economy, is under heavy scrutiny. Executives who receive “golden parachutes” or “sweetheart severance” packages have caused a lot of anguish for employees being laid off without adequate notification or concern for their economic survival. Blue-collar workers cannot understand why a board of directors would approve of such deals for disgraced CEOs when many employees who are laid off receive at most a few weeks’ severance pay.

It’s happening in Hawaii, and there doesn’t seem to be anyone interested in correcting the situation. It’s all too easy to blame it on the cost of oil, the government’s reluctance to drill for domestic oil or some other farfetched third-party influence.

But these types of deals are typically a result of the negotiating process in the executive’s exit from the organization, contract expiration and other factors. The stakes are high at the executive level, and this is the norm rather than the exception. I’m sure it comes as no surprise to workers that executives are normally treated very differently than most other members of the work force.

Because pay incentives are an important component of executives’ total compensation, the seemingly outrageous amounts paid out reflect not only base salary but all the other elements of executive compensation, including bonuses, perks and short- and long-term incentives.

We expect most employees to act ethically, even though they have a lot of opportunity to take advantage of an incentive system though inappropriate behavior.

One of our big problems in the government work force is the lack of accountability for overtime pay. In many cases it is a staggering amount and causes budget shortfalls that cannot be hidden forever, because in tough economic times every taxpayer penny will be publicly counted eventually.

I believe that most employees act ethically. However, if you have 15,000 employees and only 1 percent act unethically, that means that you will have 150 employees acting unethically and abusing the benefit package. Let’s face it, 150 people can cause a significant amount of damage.

Many workers - public and private - don’t understand that their benefits are part of their overall compensation package. The law, with only a few exceptions, requires all U.S. employers to provide Social Security, workers’ compensation and unemployment insurance. Another benefit added to the list in recent years is unpaid leave for employees in certain family and medical circumstances.

When you add all of these to an employee’s total benefit package, it has to be aligned with the organization’s overall compensation strategy and its ability to pay.

Simply put, many of the strategies are not effective today. The benefits mix is the complete package that a company chooses to offer its employees. The benefits’ amount choice governs the percentage of the total compensation package that will be allocated to benefits compared to the other components of the package like base salary and pay incentives. The latest fad in management is flexibility in the choice of benefits, which gives a degree of freedom for employees to tailor the benefits package to fit their personal needs.

It is important for employees, especially in Hawaii with its array of out-of-town business owners, to understand how their base pay and benefits are developed strategically and stop worrying so much about the “golden parachutes” their executives will receive whether or not they meet the board of directors’ goals and objectives.

The anti-management ads we are seeing and listening to are a recent ploy by workers’ groups and, unfortunately, there is little chance of them achieving their desired goal.

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