Return to Table of Contents

The Innovative Workplace

What's the benefit in benefits?

What's the benefit in benefits?

By Don Phin

I recently had lunch with Patrick Casinelli and Matt Noonan, benefits brokers from the Cavignac Insurance Agency in San Diego. They are HR That Works members, Sitkins members, and Benefits Growth Network (BGN) members. They wanted to discuss what prompted today's business owners to purchase benefits for their employees. Here are some of the issues that arose during the conversation.

First of all, not everyone is clear about why a company provides benefits at all. Theoretically, they are there to help hire people and retain them. There may be other motivators as well. Let's look at some of these implied promises:


Unfortunately, most companies are trying not to hire new employees and, given the latest economic climate, won't be doing much hiring for a while. Even if they're growing in revenue, they're not growing in head count. (One reason why they are growing in profit.) So, if they're not hiring anyone, then that's certainly not a reason for having benefits.

Now let's say they are hiring someone. The question becomes: What is the "tipping point" when it comes to providing benefits? For example, if they're hiring a 20-something workforce, does anyone really care about benefits? Would a good benefits program help them hire one extra better employee who would not have come on board otherwise? We should be asking to what degree employees make the decision to work for one employer or another based on their benefits programs.

How much does the availability of what level of benefits weigh in the equation given the job position? For example, does the retail clerk weigh $8 an hour with good benefits vs. $10 an hour and no benefits? How does that change with a 50% co-pay or HSA plan? Perhaps because there are so many variables, I've seen very little data that will give a solid answer either way. Of course, you can survey your existing employees to see how they respond, but they will have an inherent bias having already made the decision to work at your company.

I've often challenged business owners with the question: "What if a company decided to provide no benefits at all and simply pay their employees a little bit extra (something that will be easier to do within a few short years)?" What would be the impact then? Perhaps they'd only be able to hire healthy employees with healthy families. Fact is, the 80/20 rule applies to benefits—20% of the employees get 80% of the benefit overall. In today's health care system, the healthy employee is significantly penalized. Wellness plans do very little to reward that employee. At most, that employee can get a 20% improvement in premium if they get all the bells and whistles. Is that really enough of an incentive to motivate an already healthy employee?


To what degree does the richness of a company's benefit program actually retain a single employee who might otherwise be motivated to move elsewhere? What would prompt such a need in the first place? Simply the fear of their bad health or that of a loved one? Patrick told me that if someone has a spouse with a very serious illness, such as life-threatening cancer, or the need for expensive surgery, their medical bills could actually make the premiums so high that that employer is literally kicked out of the marketplace. What then? In that case nine of the employees are paying for the medical care of the tenth that, in turn, eliminated them from the marketplace. Sound fair to anyone? Or, is that the implied nature of the beast?

While it certainly sounds cold, is that employee who has a medical problem or is helping with someone else's medical problem truly a productive employee? How many people really work harder at their jobs or stay at their jobs simply because the company has a better benefit plan? Again, I've seen no statistics to support this.

So here's the question again: What is the "tipping point" of what is enough benefits (anything more than "enough" is illogical) to have someone either stay with your company or leave another company to come work for you?

The social contract

While I was reading the excellent book Predictably Irrational, author Daniel Ariely caught my attention with a few of his comments around benefits. First of all, he said that benefits are part of a "social contract" as opposed to an "economic" one that you have with employees. Let me give you an idea of the distinction between the two types of contracts. Let's say you have a company with 15 employees and someone walks around with 15 cookies he or she baked for the office. Most people, quickly realizing there is one cookie per employee, will take only one. This is what you mean by a social contract. On the other hand, if the person was charging for the cookies as part of a fundraiser, then you have almost no guilt in taking half of them because it is an economic contract.

Benefits tend to straddle both sides of the line. For example, Ariely surmised that providing a total compensation statement (a list of all the individual's company-paid benefits and their costs) might end up taking benefits out of the social contract and putting it solely into the economic one, thereby actually diminishing the social "glue" developed by benefits. A social contract is about caring. An economic contract is about getting paid.

Some companies want to have the very best possible benefit programs to show that they care more than anyone else. Hopefully, they're in a business that is robust and where there are high margins which allow them to afford to do this. For example, if you are a retail operation competing with J.C. Penney or Wal-Mart, just how rich can your benefit plan be?

Wellness programs

Last, let me discuss the primary value-added service provided by health care providers—wellness. What we are learning about wellness programs is this: Like a fad diet, their effect doesn't last for very long. There's an initial spike in improved eating and exercise habits which eventually falls off—generally no later than the next major holiday. The carrot and stick approach offered by mandatory wellness programs—subject to HIPAA, ADA, and other regulations—hasn't been shown to work long-term and is imbedded with substantial EPL risk. Employees already know that poor health habits will cost them more. Fact is, wellness has very little to do with financial incentives and everything to do with poor habits and self-esteem.

A friend of mine and Webinar guest for HR That Works, Dr. Robert Smith, and I had a very interesting conversation about what makes for great fitness coaches. He works with a national fitness chain that wanted to understand why some of their fitness instructors had much larger and much longer sustainable client bases and much better results than other trainers. They wanted to know if their training methodologies were actually in alignment with what made for good trainers. Bob did his assessment of their top performers and worst performers and came up with the startling conclusion: The company was training towards the profile of the worst performers! They were training their trainers to be sympathetic. "Oh, I understand why it's so difficult to eat right and exercise..." In a sense, they appealed to the victim in that person.

On the other hand, the most successful trainers, with the largest client base and the best results, were more like Marine Corps drill sergeants. They weren't buying any of the victimology. Sorry, but that doesn't work here. You're either committed or you're out. These trainers produced profound and life-changing impacts. So, how many of you are going to be wellness training drill sergeants? Do these people even exist? How do we kick people in the rear end so hard that they get past the habits in year two, three, and beyond?

One thing that I think is really important to understand about wellness is that it starts at the top. The Cavignac firm is one of the "fittest" firms I've ever had the pleasure of knowing. That begins with the leadership of the company being extremely fit themselves. Their wellness program works because they set the example. Leadership gives no implied "permission" for employees to fall into bad habits. Leadership pressure and resulting peer pressure is what makes their program work.


1. Will your clients be hiring? Find out what the ROI of the benefit program is in terms of helping with hiring. What is "just enough benefits" to attract top-ranked employees? How do you help them to market those benefits to candidates?

2. Be clear about how well it's helping to retain existing employees. Same questions as above. How can you help employers keep benefits top of mind? Remember, the greatest benefit is the one last received. How can you share stories, without violating privacy rights, about the benefit of those benefits? Remember, what is true for your clients is true for their employees—nobody appreciates the risk until they've actually suffered a loss. When you have good health insurance and an unexpected medical problem, its value suddenly takes on a brand-new meaning.

3. Understand the fine line between social contracts and economic ones. Try not to lose the value of the social contract when communicating the cost of these programs.

4. Employees may need the equivalent of the drill sergeant to show long-term results from wellness programs. Are you going to supply that person or will he or she be appointed from within?

5. Last, wellness starts at the top. It starts with your being an example of wellness; your firm's being an example of wellness; and then passing that on to the leadership of your clients. Ultimately you want the ownership and management to exhibit a culture of wellness and not just a wellness program.

Should be plenty of food for thought. Please share your thoughts on it.

The author

Don Phin is president of the Employer Advisors Network, Inc., and the author of the "HR That Works" series of compliance and management products. He can be contacted at


Click thumbnail below to launch
story in our Flip Book edition













Return to Table of Contents