article from2016 HUMAN CAPITAL INSIGHTS & STRATEGIES REPORT

Compensation and Benefits – the Risk of Maintaining the Status QuoKent Lonsdale, Area Senior Vice President, Operations & Client Services, Eastern Region

Joe Milano, Area Vice President, Mid Atlantic Region

Predictably, managing healthcare costs and recruiting and developing talent ranked as top organizational concerns in 2015, according to a recent benchmarking survey of U.S. employers.1 What’s surprising about this continuing trend is that only 10% of respondents have a written compensation and benefits strategy. For organizations that haven’t adopted this approach, it may be time to reconsider. A deeper dive into the data reveals that best-in-class employers are more likely to have a written total rewards plan.

Why is a structured compensation and benefits strategy important? Most employers don’t spend enough time evaluating the risk of maintaining the status quo of current compensation and benefit programs. To ensure these programs are sustainable, they need to understand why they have them and how they support their organization’s business objectives. It should also be evident to employers that the current cost trajectory can be supported within their revenue and other expense forecasts. Data suggests that having a strategic plan that includes cost projections is an attribute of best-in-class employers.2 Business today is very dynamic, and maintaining existing programs may not be the best “chess move” to ensure industry relevance.

Getting it right: The impact on engagement, productivity and sustainabilityPlanning the right compensation and benefits for today’s multicultural, multi-generational workforce is tricky. Although organizations have their own unique culture, philosophy, goals and objectives, “people challenges” are a relatively consistent concern. How do employers provide a benefits plan that appeals to all generations? Offering employees more compensation options, with more flexibility, is key to a sustainable total rewards approach.

Compensation and benefit programs are foundational to recruiting, retaining and motivating employees. To resonate with employees, the approach that employers take to pay, like their benefits strategy, should support their organization’s culture, purpose and values. How they reward their people says a lot about the organization to their workforce, and reflects on their reputation in the talent marketplace.

Striking the right balanceThe compensation and benefits landscape is characterized by continual challenges and opportunities. To help employers respond effectively, a sustainability strategy should include planning for the proper amount of attrition. How is the employer helping people retire, and are they leaving at a manageable rate? Are employees who don’t fit the culture or are disengaged sticking around?

Research has found that the number of engaged U.S. employees reached a three-year high of 32.9% in February 2015, a 1.5% increase over the prior year.3 With heightened awareness of engagement as a meaningful metric, it’s important for employers to measure how well they’ve moved the needle. Evaluating whether employees are adequately motivated to maintain productivity can be helpful. Is there a point of diminishing marginal returns? Or do some employers just need their “toxic” employees to leave? Finding the right turnover rate is increasingly important to sustainable programs.

When no one wants to leave, it creates a bottleneck for upward mobility of talent, and puts pressure on organizations that are trying to strike the right balance of rewards. Once they “get it right,” how can they drive necessary turnover? How do they motivate the “wrong” people, those who don’t fit the culture or are not engaged, to exit the company?

article from 2016 HUMAN CAPITAL INSIGHTS & STRATEGIES REPORT

Consulting and insurance brokerage services to be provided by Gallagher Benefit Services, Inc. and/or its affiliate Gallagher Benefit Services (Canada) Group Inc. Gallagher Benefit Services, Inc. is a licensed insurance agency that does business in California as “Gallagher Benefit Services of California Insurance Services” and in Massachusetts as “Gallagher Benefit Insurance Services.” Neither Arthur J. Gallagher & Co., nor its affiliates provide accounting, legal or tax advice.

© 2016 Gallagher Benefit Services, Inc.

This is just one of 19 articles from Arthur J. Gallagher & Co.’s 2016 Human Capital Insights & Strategies Report.

To download the full report, visit ajg.com/hcinsights2016.

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All employers are fighting a compensation and benefits sustainability battle that requires engaging their workforce. And, every employer needs to help their employees see (and feel) the value of being accountable for their own productivity, financial health and wellbeing. Building a strategic plan for communicating the organization’s commitment to employees and creating compensation and benefit programs that support their culture is part of that battle. Together, these pursuits are also a winning proposition. When employers implement a strategic plan and then monitor, measure and modify it, they’re in a strong position to build a sustainable total rewards program and compete for the best talent.

1 Arthur J. Gallagher & Co., “2015 Benefits Strategy & Benchmarking Survey – U.S. National Report,” August 20152 Arthur J. Gallagher & Co., “2015 Best-in-Class Benchmarking Analysis,” March 20153 Gallup, “U.S. Employee Engagement Reaches Three-Year High,” March 2015