I have learned that our benefits “package” was just as important as wages and salaries in how our employees felt about the “fairness” of their overall compensation. ÿ
Our wage strategy was to pay below average on direct compensation, but to offer better benefits than most other businesses of our size. ÿSince we were along the Boston-Route 128 corridor, high-tech companies were able to pay more than us, and we were not making high-tech products. ÿEarly on, we joined an employers’ group so we could benchmark ourselves, and every three years we conducted an employee survey that included wages and benefits and therefore could assess our employees’ opinions and areas to focus on to reduce complaints. ÿWe generally awarded 2-4% annual wage increases based on merit, but were being constantly faced with double-digit increases in costs for medical, dental, life, workers’ compensation and disability insurances.
For health benefits, we discovered early on that the traditional, well-known programs like Blue Cross or PPO’s such as Harvard Pilgrim were expensive, and as a small company with 100 participants we had very little leverage. ÿWe moved quickly to smaller plans, where we could tweak some of the variables like co-payments, deductables and service limits. ÿWe finally settled on “self-insurance,” which gave us the most flexibility and control over the rates and the plan offering. ÿWe selected a “Doctors Network” and worked with a third party administrator to set our levels of deductibles and co-pays. ÿWe had the ability to adjust the plan to offer mental health support, smoker cessation programs and nutrition training, which was important to many employees.
The primary advantage of “self-insurance” is that we were able to see a direct link between our health costs and employees’ personal choices. ÿOur profit-sharing bonuses were based on company profits and impacted by these costs. ÿWe could work more closely with employees who were “high users” to review strategies that reduced their costs…they knew we cared and appreciated it. ÿEach year, we fine-tuned the plan to make adjustments that helped contain costs, address issues that employees were having with providers and reflected the health needs of our population. ÿRisks of “runaway costs” in any given year were mitigated by “stop loss” insurance coverages and reinsurance. ÿUnlike the “pool” programs in which we had participated in the past, our costs more closely reflected our own population. ÿThis approach was more complicated and required much more attention to detail, but our employees appreciated it.
We required that employees pay, on a seniority-based sliding scale, between 40% and 20% of the premiums. ÿTax shielding was provided for their contributions, and we did not negotiate with employees for “better wages” if they did not need insurance based on a spouse’s program. ÿWe encouraged everyone to sign up but could not force it and always reminded employees that coverage was most important for “significant” medical events. ÿAlthough we were unable to find a self-insured dental program, we did offer a plan with annual ceilings and regular preventive checkups as well as the same employee contribution ratios. ÿ
One of the more fulfilling benefits we offered was for eye-care. ÿAs we began to emphasize quality more, we discovered that many employees just could not see well! ÿWhen we pointed out a flaw or scratch on a part, we would hear “I can’t see that!”, yet our customers could! ÿIn conjunction with a local optometrist, we required and paid for annual eye exams and covered the cost of prescription safety glasses, and they could purchase other glasses or contacts on their own at a discount. ÿTwo employees discovered that they were blind in one eye, others had corrections they did not know about, and positive screenings for eye diseases were referred to specialists. ÿNeedless to say, our quality improved!
Workers’ Compensation costs actually had the most direct correlation to our efforts. Governed by state laws, if an employee was hurt on the job, medical costs and unemployment wages were paid by the state and charged back directly to employers. ÿWith metal saws, punch presses and a high-pressure/high-temperature aluminum extrusion press, we worked hard to provide a safe environment and emphasize safe practices to avoid injuries. ÿI anguished over every “Code Red” when someone was hurt because I felt ultimately “responsible” for an injury. ÿWe worked closely with employees to get them back to work as soon as possible and to keep them out of the hands of the daytime TV lawyers!
We replaced a very expensive uniform cleaning service with a 60% reimbursement for “work-wear” with our company logo on it that allowed employees to wash their own clothes and wear what they wanted. ÿThey were much more careful about spending our money when they had to contribute some of their own and felt much better about their “fashion statements” than about having to wear a company uniform. ÿStaff, office and shop were all proud to wear the clothes with the company logo.
Early on, we implemented a 401k plan with a 50% employee match. ÿ33% of our profit-sharing went directly to employees’ 401k with the balance in cash. ÿWe were very liberal about supporting employees’ desires to “borrow” against their accounts; after all, it was their money. ÿBringing in an investment advisor on a regular basis got us out of the business of providing “advice” and helped employees choose between the variety of choices in our plan. ÿWe setup a rapid vesting program on our matching portions. ÿWe felt there was a lot of flexibility in our plan to make it easy for employees to save for retirement.
With all the current focus on health care costs, it is easy to see how our system is. ÿUsers are not paying the costs, employers are. ÿEven with our own company involvement with the health care providers, we seemed to have very little leverage, and doctors seemed to have little focus on the cost side. ÿAt least with our own “tailored” systems and “self-insurance,” we were able to educate our employees to be conscientious “buyers” of health care, which resulted in improvements in our bottom line and on their quarterly bonus checks. We learned that we could have an impact!
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Jim Sharpe (MBA `76) is one of the HBS Entrepreneurs-in-Residence for the 2009-2010 academic year, who ran an aluminum manufacturing business for 21 years while working with his wife, Debby Stein Sharpe (MBA `81) after both left careers at GE and large companies and sold the business in late 2008. Jim can be reached at: email@example.com, 310 Rock Center, 617-496-6285.