Compensation and benefits in modern organizations

New Trends in Employee Compensation and Benefits

This essay examines new trends in compensation and benefits. The essay discusses the impact of benefits offerings for both employer and employee, and reviews recent trends and discusses their significance.

Reasons for working vary from individual to individual, and compensation is usually among the most important reasons. However, many people list other factors that are almost equally important to them. These factors can range from opportunities to develop new skills, to an experiencing a sense of community, to more tangible benefits such as provisions for retirement. Currently benefits programs account for approximately one third of the average worker's total compensation, based on the size, profitability and philosophy of a particular employer. Programs that are effectively designed and promoted work to the advantage of both employers and employees (Wish).

Compensation packages have changed significantly over the years. They no longer consist of a flat percentage increase once a year, but rather, have evolved to include a combination of perks and benefits. These changes have occurred in response to a shift in people's wants and needs, and companies, in their desire to remain competitive, have modified their compensation programs as well. Employers who want to attract, retain, and motivate people who are committed to their success use employee compensation and benefits to accomplish this (Zoo Media Group).

Organizations are responding to a number of factors that influence new trends in compensation. These factors include the changing business environment and the impact of such things as new technology like the Internet, downsizing as a result of economic downturns, and transitioning to flexible and contingency workforces. Operational changes have impacted companies' approach to compensation as well. Many organizations no longer follow the old business model wherein authority is dictated from the top down; this model has been replaced by horizontal cross-functional teams which in turn require a different method for rewarding performance. Companies also need their compensation programs to advance productivity and cost cutting efforts, which goals require employee buy-in (Zoo Media Group).As a result, more companies are moving toward variable pay for performance, with less focus on increases to base pay.

One recent trend in compensation focuses on employee work/life balance initiatives. This emphasis is becoming increasingly important to employees, especially with the increases in two-career families. Employees are willing to give up large pay increases in exchange for accommodations that help them achieve a more balanced lifestyle. Companies have found an advantage in offering flexible work schedules. Rather than the traditional eight hour workday Monday through Friday, employees may find alternate work arrangements more attractive, such as working four ten hour days, job sharing, or working from home to avoid the daily commute (Zoo Media Group).

Indirect compensation components focused on employee wellness initiatives are also growing in popularity. Organizations are adding such benefits as having health clubs on site with free memberships for employees. Other companies offer yoga classes or massage therapy during the workday or free wellness seminars. It is in the organization's best interests to focus on reducing stress at work and in employees' work lives. Consequently, wellness initiatives in the workplace benefit the organization by reducing employee absenteeism due to illness and workplace injuries (Zoo Media Group).

The number of women in the workforce has increased dramatically in recent decades, leading to an increase in programs designed to help working mothers. This shift has led to a greater emphasis on flexible work schedules, day care, and leaves of absence to care for children. Because of the cost of employer-sponsored day care centers, more employers find an affordable alternative in offering flexible spending accounts for child care (Wish).

Longer life spans and the number of baby boomers approaching retirement age are also leading to changes in employee benefits. As a result, employee pension plans have taken on greater importance. At the same time, younger employees are more concerned with benefits that help assist with affordable elder care and time off to care for aging parents (Wish).

Given all the current economic uncertainty, it is not surprising that surveys show changing trends in employee benefits. The Society for Human Resource Management (SHRM) reported the following trends based on their 2011 survey:

On average, companies spent 19% of an employee's annual salary on mandatory benefits, 19% on voluntary benefits and 11% on pay for time not worked benefits.

Survey respondents reported that health savings accounts were becoming more prevalent, while HMO plans were continuing to decline in popularity.

The survey also showed that during the last year, slightly more companies offered health care premium discounts for employees who had an annual health risk assessment, participated in a weight loss or wellness program, and/or had not used tobacco products.

Financial and compensation benefits that experienced considerable declines in the past five years included educational assistance programs, incentive bonus plans for executives, life insurance for dependents and undergraduate educational assistance.

Employee services benefits have also declined, including executive club memberships, legal assistance/services, mentoring programs, organization-sponsored sports teams, professional development opportunities and travel planning services.

Survey respondents also indicated that housing and relocation benefits declined significantly over the last five years (SHRM).

As might be expected, insecurity over the economy is impacting employers' benefits offerings. In general, employers are more cost conscious and they continue to shift more of the cost burden for benefits to their employees. An increase of 5% more respondents, from 72 to 77%, reported that employee benefit offerings were negatively affected by the economy. Employers kept basic benefits such as paid holidays, life insurance, prescription drug program coverage and dental insurance while reducing other health-care related offerings such as long-term care insurance and retiree health coverage (Gioia-Herman).