Tailored employee benefits

ET and MA both work for Citigroup, but they have very different needs in terms of employee benefits. ET is married, has three young children, and a wife who is at home full time. MA too, is married, but her husband has a high-paying job with the federal government, and they have no children. ET is concerned about having a good medical plan and enough life insurance to support his family if he weren’t around. In contrast, MA’s husband already has her medical needs covered on his plan, and life insurance is low priority for both her and her husband. MA is more interested in extra vacation time and long-term financial benefits such as a tax-deferred savings plan.

A standardized benefit package for all package employees at Citigroup would be unlikely to meet the optimal needs of both ET and MA. They could, however, optimize their needs if Citigroup offered flexible benefits.

What are Flexible Benefits?

Flexible benefits allow each employee to pick benefits that suit their needs most. The idea is to allow each employee to choose a benefit package that is individually tailored to his or her own needs and situation. It replaces the traditional “one-benefit-plan-fits-all” programs that dominated organizations for more than 50 years.

Consistent with expectancy theory’s thesis that organizational rewards should be linked to each individual employee’s goals, flexible benefits individualize rewards by allowing each employee to choose the compensation package that best satisfies his or her current needs.

The average organization provides fringe benefits worth approximately 40% of an employee’s salary. Traditional benefit programs were designed for the typical employees of the 1950s— a male with wife and two children at home. Less than 10% of employees now fit this stereotype. While 25% of today’s employees are single, a third are part of two-income families with no children. As such these traditional programs don’t tend to meet the needs of today’s more diverse workforce. Flexible benefits, however, do meet these diverse needs. They can be uniquely tailored to reflect differences in employee needs based on age, marital status, spouses’ benefit status, number and age of dependents, and the like.

The three most popular type of benefit plans are modular plans, core-plus options, and flexible spending accounts. Modular plans are pre-designed packages of benefits, with each module put together to meet the needs of a specific group of employees. So a module designed for single employees with no dependents might include only essential benefits. Another, designed for single parents, might have additional life insurance, disability insurance, and expanded health coverage.

Core-plus plans consist of a core of essential benefits and a menu-like selection of other benefits options from which employees can select and add to the core. Typically, each employee is given “benefit credits,” which allow the “purchase” of additional benefits that uniquely meet his or her needs. Flexible spending plans allow employees to set aside up to the dollar amount offered in the plan to pay for particular services. It’s a convenient way, for example, for employees to pay for health-care and dental premiums. Flexible spending accounts can increase employee take-home pay because employees don’t have to pay taxes on the dollars they spend out of these accounts.

Linking Flexible Benefits and Expectancy Theory:

Giving all employees the same benefits assumed that all employees have the same needs. Of course we know that assumption is false. Thus, flexible benefits turn the benefit expenditure into a motivator.

Consistent with expectancy theory’s thesis that organizational rewards should be linked to each individual employees goals, flexible benefits individualized rewards by allowing each employ to choose the compensation package that best satisfies his or her current needs.

Flexible Benefits in Practice:

Today almost all major Corporations in the United States offer Flexible benefits. And they are becoming a norm in other countries too. For instances a recent survey of 136 Canadian Organizations found that 93% have adopted flexible benefits or will in the near term. And a similar survey of 307 firms in the United Kingdom found that while only 16% have flexible benefits programs in place, another 60% are either in the process of implementing them or are seriously considering it.

Intrinsic Rewards: Employee Recognition Program

LS make only $ 8.50 an hour working at her fast food job in Florida and the job isn’t very challenging or interesting. Yet LS talks enthusiastically about her job, her boss and the company that employs her. What she likes is the fact is that her supervisor appreciates the effort she makes. He compliments her regularly in front of the other people she has been chosen “Employee of the Month” twice in the past six months. LS is also proud to have her picture on that plaque on the wall as a reward for “Employee of the Month”.

Organizations are increasingly recognizing what LS knows: Important work rewards can be both intrinsic and extrinsic. Rewards are intrinsic in the form of employee recognition programs and extrinsic in the form of compensation system. In this article we deal with ways in which managers can reward and motivate employee performance.

In India and most countries of Asia with the exception of Japan Flexible benefits are not offered by employers for various reasons which may create personnel and trade union problems. In India some flexible benefits are offered in a limited way to the top management personnel like Executive Directors, President, Vice President, General Manager etc., It may take a few more years to offer flexible benefits to employees in India and other Asian counties by the managements.