The New Total Compensation Picture

Friday, May 16, 2014

 

For some time now the picture of Total Employee Compensation has been changing and evolving.  Few, if any, organizations maintain the concept of cradle-to-grave paternalism which existed prior to and following World War II.  That evolution is best described as a shift in the focus point of those roles and responsibilities of the employer vs. the employee.  This shift is currently best illustrated in the area of retirement as employers have moved from traditional defined benefit pension plans to defined compensation retirement plans, e.g., 401(k), 403(b), and similarly styled arrangements.  However, emerging are the unmistakable signs of a change in the roles and responsibilities of employer sponsored health care benefits.  As with the development of defined compensation retirement plans, the employee has taken on a greater role in selecting and maintaining their health care benefits.  This has and will continue to change the image of Total Employee Compensation.

 

Fundamental to the employer-employee contract is an exchange of value in return for services provided; value may be in the form of direct cash payments, indirect payments for benefits, in-kind values such discounted products and services, and even the value of an organization’s public image.  In the end, the employer-employee relationship is a mutual bond, a co-dependent bond based on a series of reciprocal promises; both parties perceive that such a relationship will benefit each of them respectively.  Total Employee Compensation is that value offered to employees in return for their initial and continued services.

 

The latest influence on the shape of Total Employee Compensation is the on-going role out of national health care reform in the form of the Affordable Care Act.  The opening statement on a Department of Health and Human Services web page reads, in part, “The Affordable Care Act puts consumers back in charge of their health care”.  As a “consumer”, employees have for the last few years begun to move into the environment of Consumer-Directed Health Care Plans.  Such plans remove a significant decision making role from the employer and transfer it to the employee by requiring the employee-consumer to decide when and how to spend their own monies in the form of higher out-of-pocket costs.  As with the growth of defined compensation retirement plans after the 1980’s, Consumer-Directed Health Care Plans are expected to continue their current replacement of more traditional health care plans.

 

Total Employee Compensation is a toolbox employers employ to attract and motivate their talent.  Health care benefits are a major tool through which organizations appeal to and motivate individual to join and support the organization’s mission.  Anything which detracts from an organization’s ability to accomplish that goal may impact the ongoing profitability and viability of an employer.  While most large employers are expected to maintain sponsored health care benefit plans, smaller organizations and those in highly competitive business sectors may find themselves pressured into dropping health care or adopting a strictly defined contribution approach to health care.