Benefits Cost Management in Asia Pacific: Value Perception among Employees

August 17, 20158:29 am2406 views

Benefits form an integral part of the employee value proposition. They act as a reward lever to help attract, retain and engage employees as a part of the growing enterprise for long. However, benefits cost that already represent a significant percentage of the payroll is continuing to increase. Thus, employers in Asia Pacific are facing a two-sided challenge.

According to Tower Watson’s 2015 Asia Pacific Benefit Trends survey, “Just over four in 10 employers spend over 20% of payroll on benefit schemes, and third of the respondents surveyed say this number continues to increase rapidly.”

However, despite this significant spend, only 16 percent employers say that their benefits are highly valued by employees. As we all know, a “one size fits all” benefits strategy is unlikely to be successful.

In order to be effective, a benefit strategy must be aligned to business objectives, be flexible enough to suit diverse employee needs, and be administered and communicated in a way that employees find simple and engaging.

This survey highlights some key findings as mentioned below. Employers in Asia Pacific are now taking steps in the right direction, to design innovative and flexible benefits which will help them drive business strategy.

  • Attraction and retention of key talent is a major focus for organisations’ benefit strategies, with 66% of employers saying that it is a key objective.
  • Benefit costs continue to rise and were cited by over three-quarters of respondents as a major challenge.
  • Employers that communicate benefits effectively and take employee insights into account when determining which benefits to offer see higher value in their benefits programs.
  • Companies those who have implemented flexible benefits say they have been successful in promoting employee understanding/appreciation of benefits (67%) and improving attraction and retention (59%).

Hence, employers in Asia Pacific now understand the importance of having a benefit strategy that is consistent and sustainable in the long run. More than four in 10 employers in China (43%) and Japan (44%) say they do not have a long-term benefit strategy. In contrast, only 10% in Taiwan do not have a benefit cost management strategy in place.

Employees view benefits such as retirement and health as an important reason to work for or stay with their current employer. Poor understanding of benefit cost management has resulted in escalation of benefit costs on a vast majority (76 percent) of employers. Companies increasingly are struggling with benefits governance, juggling multiple systems, vendors and administrative platforms.

See: Job Vacancies Increase by 18% year-on-year in Asia Pacific

In Indonesia, 57% of employers cited the impact of regulatory changes/changes to statutory benefits as a challenge, reflecting recent changes to statutory healthcare provision, and additional statutory retirement provision expected this year.

Costs are particularly high in Philippines and Indonesia, where 38% and 29% of employers respectively spend upwards of 30% of payroll on benefits.

In the Philippines, high benefit costs are driven by a significant spend on medical benefits (which often extend to parents of employees) as well as retirement benefits (the Philippines still sees relatively high prevalence of defined benefit plans).

The converse is true of Vietnam, where almost three in five (58%) of employers spend less than 20% of payroll on benefits.

In India, the relatively low benefit cost is a reflection that some benefits that are seen as traditional in other countries, in India are viewed as part of payroll, or ”cost to company” (CTC) — for example, medical outpatient allowances or Provident Fund contributions.

To manage benefit costs, some companies plan to introduce a cost sharing strategy. This study suggests that employers are gradually drifting away from the culture of benefits entitlement, and towards encouraging employees to take ownership and control of their benefits.

  • The employers that are planning instead to introduce (26%) or increase (32%) flexibility in their benefits may be taking a more cost-effective approach to ensuring that employee benefit needs are met.
  • The proportion of companies planning to introduce or increase flexibility in their benefits next year is two to three times greater than the number that have done so in the last year.
  • For employers, greater employee participation can be an important step towards achieving one of their most important strategic benefit cost management objectives: to improve attraction, retention and engagement, and to increase the perceived value that employees have of their benefits.
  • While most employers offer traditional benefits such as medical inpatient, outpatient and annual leave, these types of packages tend to be seen as a given. To truly differentiate themselves, employers need to be more innovative in their offerings.

Employers face a gap between the amount of money they spend on their benefit plans, and the value that employees derive from that spend. And simply spending more does not help add value; in fact it may compound the problem by widening the gap further.

There seems to be a direct link between the value derived from benefits and taking into account employee insights when choosing which benefits to provide.

This sounds logical — employees will naturally value benefits that they themselves have expressed an interest in having. Taking into account employee insights may make the employee feel like a valued stakeholder in the organisation, and that their views are important.

It might also make them feel more engaged in their benefits plan. This also gains significance as employers try to hold employees accountable for their benefits plan.

Also read: Singapore has highest C-level salaries in Asia Pacific

Image credits: towerswatson.com

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