Optimizing total rewards in a downturn

Publicizing existing benefits increases perceived value without adding cost

Earlier this year, Tim Hortons published its first total rewards statements for employees, outlining all the things employees receive but may not appreciate at work — which include competitive base salaries, retirement savings plans, incentive programs, service awards, health benefits, learning and development and the work environment. The paper copies could be taken home and shared with families of the 1,800 corporate employees, says Michelle Preyde, senior director of corporate HR at Tim Hortons in Oakville, Ont.

“It’s more of a philosophy for us — it’s not just about compensation and benefits, it’s about the total offering of the company,” she says. “We want to be competitive with the base pay offering and incentive offering and we want to be the leader in non-cash rewards, offer those things that make a difference to employees in terms of their working experience.”

Even before the economic downturn, employers were realizing increased, well-articulated communication around total rewards was highly valuable. Total reward statements and portals show employees the whole picture and help them understand what’s in it for them. This increases the perceived value without actually costing additional money, says Ofelia Isabel, a principal in the Toronto office of Towers Perrin.

While certain organizations have had to make changes because they are facing tough times, those in better shape are taking the time “to get this right,” says Isabel.

“They’re using this as an opportunity to really look overall to see how they’re spending dollars in all rewards and trying to make sure it makes sense and has appropriate return on investment. A lot of organizations haven’t gone through that exercise in a long time.”

Employers are definitely doing more when it comes to total rewards optimization and there are great tools available to make those connections, to gauge employee impact, engagement, satisfaction and perceived value, says Isabel.

Many companies have learned making quick cuts and changes to benefits can mean trouble, she says.

“For employees, it feels like death by a thousand cuts, so employers are stepping back and really thinking about things and the long-term implications,” says Isabel. “Those quick fixes are rarely the right thing for an organization and the impact on employees for dollars saved is never worthwhile.”

The major cost-cutting measures in the area of total rewards include frozen pay levels, deferred pay increases, smaller bonuses and salary cuts for specific groups, according to a May survey by Mercer of 330 Canadian organizations. When it comes to health and group benefits, recessionary measures include audits to confirm member eligibility, understanding the drivers of cost and productivity, and changing financial assumptions about cost. Also popular this year and next year, according to Mercer, are increased employee contributions for health coverage, increased cost-sharing and lower-cost options.

“Canadian employers do not appear to have taken drastic cost-cutting measures,” says Fatima Di Biase, a Vancouver-based principal in Mercer’s health and benefits business. “We are seeing attempts by employers — that offer benefits that differ among employee groups or businesses where there are multiple providers — they’re taking this opportunity to harmonize their plans, consolidate their providers and streamline the administration.”

While employers might not be slashing much when it comes to compensation and benefits, “We’re certainly not seeing a lot of benefit enhancements, people are not making their benefit plans richer these days,” says Stuart Monteith, senior vice-president of group benefits at Sun Life Canada.

Employers are also less inclined to sponsor new retirement benefits because they add up to an expensive, long-term obligation. And having gone through a year of “very complex, complicated benefits and pensions and bonuses,” organizations are also looking for more simplicity in their plans through consolidation, he says.

“HR departments are getting skinnier and skinnier on budgets and looking for easier ways to manage benefit plans,” he says.

Case Studies

Benefits offered by Purolator, Tim Hortons

In response to recessionary issues, Purolator froze salaries for management professionals and above in 2009. It’s the only cutback the company has done and is not a rollback, says Stephen Deegan, Mississauga, Ont.-based vice-president of HR at Purolator. While the company has had discussions around cuts, it’s more important to maintain the offerings and make sure people understand the total rewards, he says.

“You read employers are not contributing to a pension plan or mandatory leaves — we haven’t done that,” he says. “To have a competitive advantage, we need to have a strong total rewards offering.”

Through market studies and internal effectiveness surveys, Purolator solicits feedback from 11,500 employees and decides where it can make improvements to its total rewards. That led, for example, to the introduction of flexible benefits in 2006, as flexibility has emerged as a popular option with the multi-generational workforce.

“The whole total rewards positioning for us is designed to attract talent to the organization externally and internally to motivate the existing employee base,” says Deegan.

Purolator is also gearing up for its sponsorship of the Vancouver Olympics in 2010, giving a segment of employees volunteer opportunities. It also introduced a community service sabbatical program in 2008, where two employees can take up to six months of paid leave to work for a charitable organization.

Tim Hortons is vying to help employees with retirement savings in offering the tax free savings account (TFSA) to employees. The account is offered in addition to a defined contribution pension plan (where Tim Hortons contributes twice the amount of the employee) and employer-sponsored RRSP.

The coffee chain also offers a comprehensive traditional health plan paid for by the company and, despite the recession, the company has not looked for ways to cut costs in the benefits program, says Michelle Preyde, senior director of corporate HR at Tim Hortons in Oakville, Ont. Tim Hortons meets twice a year with consultants to ensure the plan is operating properly and service levels are where it expects them to be.

“We’ve been very fortunate with our utilization of drugs,” she says. “We very rarely talk with our insurer about significant premium increases because our utilization is so good. We like to think we’re ahead of the curve.”

And the company has managed to remain healthy during the recession, with no cuts to pay and bonuses issued to employees earlier this year.

“We have, however, implemented a few changes to ensure that we remain a healthy company,” says Preyde. “For example, we deferred our annual merit process until we are comfortable with what is happening in the economy.”

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