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BENEFIT PLANNERS CONFRONT INFLATION

BENEFIT PLANNERS CONFRONT INFLATION

June 30
10:59 2022

BENEFITS TRENDS
FOR 2022

Lessons from the pandemic linger
as compensation costs rise

“Turnover has been at an all-time high, and new employees are coming in at
premium pay positions when compared to those who have left.”

—Andre Rooks
Partner and Career Practice Leader
Mercer


By Thomas A. McCoy, CLU


Hard-to-control inflation is top-of-mind for both employers and employees. It feels like the 1970s all over again—the cycle of employers raising prices and wages simply to “catch up” with inflation, only to be left with the frustrating feeling of being stuck in the same place, as on a treadmill, or losing ground.
What’s different this time around is that today’s elevated inflation comes on the heels of the pandemic’s disruptions to the workplace and companies seeking to add more workers. Principal Financial’s Well-Being IndexSM, based on an independent survey conducted in March of this year, found that 53% of businesses were increasing their number of employees—or trying to—compared to 32% a year earlier.

As companies consider their strategy for attracting and retaining high-quality employees, it’s obvious that their benefits programs take on added significance. According to Principal Financial’s survey, 37% of employers said they are increasing the quality of benefits they already offer to help with employee recruitment and retention.

“Employers are keeping a close eye on inflation, weighing the impact of rising costs of doing business with how much they can invest in talent—for both recruitment and retention,” said Amy Friedrich, president of U.S. Insurance Solutions at Principal. “Increasing costs have prompted businesses to get more creative in how they attract new talent and improve the employee experience as they boost hiring efforts.”

When employers surveyed for the Principal study were asked what benefits they were increasing in order to improve employee satisfaction and well-being, the top three named were disability insurance (short-term or long-term), vacation time and mental health/well-being programs.
Principal’s study also showed that 49% of employers were offering flexible work schedules or increased time off, and 45% were offering more remote and hybrid work flexibility.

Prudential’s Pulse of the American Worker Survey, conducted independently in February of this year, found that among workers who are considering switching employers, 71% would be more likely to stay with their present employer for higher pay; and 28% would be more likely to stay for a better retirement/401(k) plan. Almost as many (27%) cited “increased flexibility around schedules” as a reason for staying with their current employer.
Benefits brokers are likely to find plan sponsors receptive to enhancing benefits but, at the same time, weighed down by the uncertainty of inflationary pressures. Mercer’s U.S. Compensation Planning Survey shows that employers’ average budget projections for total pay increases for 2022 were revised upward from 3.5% last November to 3.8% in March of this year—the highest projections since 2008.

However, Mercer’s study notes that these budgeted figures don’t tell the whole story. Actual year-over-year pay increases are averaging 4.9% as a result of adjustments employers are making “in real time” to attract employees. Among retail businesses, budgets called for a 2.9% increase, and the actual base pay per capita change is coming in at 7.7%.

Andre Rooks, partner and career practice leader at Mercer in Chicago, told a recent Mercer webinar that the tight labor market has forced employers to make additional “reactive changes” to pay amounts. “While most employers have not done this organization-wide, they have done this for individuals or select functions where they are seeing the greatest pressure.”

Employers sometimes are having to rewrite their pay guidelines with new hires, he noted. “Turnover has been at an all-time high, and new employees are coming in at premium pay positions when compared to those who have left.”

Mercer research shows that employers also are making significant use of bonus payments linked to performance. “With uncertainty about a potential recession ahead, they have been relying on incentives as one strategy to reward workers in a way that doesn’t increase fixed base wages,” Rooks said.
Recent research by insurers and national brokers shows that workers are sizing up their benefits package from a long-term perspective, with a growing number favoring retirement plan enhancements and “quality of life” components such as job schedule flexibility.

Willis Towers Watson’s (WTW) Global Benefits Attitudes Survey, conducted in January, found that the benefit that workers most wanted their employers to focus on was retirement (44%); second was flexible work (39%). WTW’s survey included responses from 9,600 U.S. employees of mid-sized and large companies.

Six out of 10 workers cited their employer’s retirement benefits as an important reason they remain with their current employer—compared to 41% in 2010. Almost half (47%) said their company’s retirement program and healthcare benefits (48%) were important reasons why they joined their employers vs. 25% and 32% respectively in 2010.

Within the group of employees who rated flexible work as an important benefit, 50% said they want more generous time off and sick leave; 47% want remote work options; and 45% said they want the option to determine when they work.

More than half of the 2,000 workers in Prudential’s study (56%) said they had or would consider prioritizing job stability over salary. In another somewhat surprising sign that employees are looking for “stability,” 51% of the workers said they plan to work for one company until they retire, an increase of 19 percentage points since 2019. This includes 44% of Millennials—up 15 percentage points since 2019.

Close to half of the workers (45%) in Prudential’s study said they feel more empowered to ask their employer for benefits and accommodations they need to manage work and life, and a quarter have already had those conversations with managers.

The results of these various studies provide brokers with a pretty good idea of trends in what employees are looking for in their benefits program and how some employers are responding. Still, benefits and wages are intrinsically linked, and the inflation cloud looms large.

“We’ve gotten so many questions from our clients about how compensation should be impacted by inflation,” said Rooks. “It’s a tricky question.”
He reminded the Mercer webinar audience, “Right now there are twice as many job openings as there are workers. Turnover is still at record levels. Employers must take steps to be sure their pay is competitive—and not just in the aggregate. They should conduct analyses to be sure their long-term employees are at market rates and not lagging behind.”

Rooks mentioned three ideas for employers to consider to combat inflation’s impact on worker pay. First, he said, they can deal separately with the effect of inflation on lower-wage workers. “About one-third of organizations have taken, or are considering taking, a ‘living wage’ approach to setting a minimum wage internally. This may be especially relevant in high-cost markets,” he pointed out.

“Second, some employers are looking at lump-sum awards, stipends or commuting assistance.” Finally, he noted, “Now is the time to increase compensation transparency.” He said that in most organizations, this is lagging, “and so most employees still naturally assume that they are underpaid.”
Even though inflation may be the crisis du jour, there are signs that the pandemic continues to influence worker attitudes about what they value from their employer. Prudential’s study found that 20% of workers would be willing to take a pay cut (by a median amount of 10%) if it means they could have a better work-life balance or work for themselves.

Among those in managerial roles at their employer, 60% said the pandemic has had a negative impact on their mental health, and 40% said it has caused them to prioritize their mental health over their career.

First, a once-in-a-century pandemic, and now the highest inflation level in more than 40 years have dramatically reshaped the workplace. A well-thought-out employee benefits plan has never been more critical.


The author

Thomas A. McCoy, CLU, is an Indiana-based freelance insurance writer.

About Author

Jim Brooks

Jim Brooks

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