Employee Benefits Benchmarking: The Essential Guide to Boost Competitiveness and Retain Top Talent
Employee benefits benchmarking is the practice of comparing your company's benefits offerings against other employers. This involves gathering and analyzing data on the types of benefits provided, participation rates, and costs of benefits at peer organizations. The goal is to evaluate how competitive your benefits packages are in attracting and retaining employees.
Benchmarking benefits is a vital process for HR leaders and benefits managers today. With the war for talent in full force, companies realize they need a compelling benefits program to differentiate themselves. Employees view benefits as a significant part of their total compensation. In fact, a recent survey found that 79% of employees would prefer new or improved benefits over a pay raise. Benefits also provide financial protection and promote well-being for employees.
By benchmarking benefits, companies can validate that their offerings align to company values and business goals. The data helps inform strategic decisions on enhancing, adding, or removing certain benefits. This ensures companies provide the most impactful benefits to employees within budget constraints. Overall, benchmarking allows organizations to optimize their benefits packages to attract and retain top talent while managing costs.
Benefits of Benchmarking Your Employee Benefits
There are several key benefits to regularly benchmarking your employee benefits program against other companies:
Assess Competitiveness of Your Offerings
Benchmarking allows you to see exactly how your benefits stack up against other employers in your industry and region. This helps you evaluate if your benefits are competitive enough to attract and retain talent, or if there are gaps you need to address. According to Mercer's 2022 Benefits Benchmarking survey, 89% of companies view benchmarking as an important tool for assessing competitiveness.
Identify Areas for Improvement
By comparing your benefits plan design, participation rates, and costs against industry benchmarks, you can pinpoint specific areas that may need enhancement or change. Benchmarking makes it easy to identify benefits that are underperforming or not cost-effective.
Validate Your Program is Aligned to Company Values
Benchmark data allows you to see what benefits are most common or valued within your industry. This helps validate that the benefits you offer align to your company values and culture, and the needs of your workforce. For example, PTO policies can vary widely between industries.
Keep Pace with Evolving Industry Trends
Regular benchmarking provides insight into which new benefits are gaining popularity, which are fading, and where you may be lagging behind. It helps you keep your program evolving based on broader industry shifts. According to Aon's survey, 34% of employers enhanced mental health benefits in 2022 based on benchmarking data.
What Should You Benchmark?
When conducting employee benefits benchmarking, it's important to look at your major benefit categories comprehensively. Key benefits that companies should benchmark include:
Health Insurance
One of the most crucial benefits to benchmark is health insurance. Look at factors like:
Plan types offered (HMO, PPO, etc. Extended Health, Prescription Drugs, Disability, etc.)
Monthly premiums for employee-only and family coverage
Deductibles, copays, coinsurance, and out-of-pocket maximums
Employer contribution strategy
Benchmark against companies in your industry and region. Health insurance costs and plan designs can vary widely. Staying competitive is key.
Retirement Savings Plans
Retirement plans are a vital part of the overall benefits package. Important factors to benchmark include:
401(k) Group RRSP and other plan types offered
Employer match amounts and vesting schedules
Profit sharing contributions
Investment funds and fees
Benchmarking retirement plans will help assess competitiveness of company contributions and plan designs.
Paid Time Off
Paid time off and leave policies have become differentiators for employers. Benchmark:
Vacation days, sick days, and personal days offered
Parental leave, bereavement, jury duty, and other policies
Whether PTO is allowed to rollover or be cashed out
Understanding industry norms will enable smart PTO policy decisions.
Perks and Wellness Programs
Other voluntary benefits and perks to benchmark include:
Flexible work arrangements
Tuition assistance
Onsite amenities
Wellness programs
Benchmarking perks can help identify new offerings employees value most.
Data Sources
There are several key sources to find reliable benchmarking data:
Industry Surveys from Firms Like Mercer and Aon Hewitt: These consulting firms conduct massive annual surveys across industries to benchmark different components of compensation and benefits. The survey data allows customized comparisons by company size, geography, and industry.
Industry-Specific Reports: Many associations and industry groups publish annual benchmarking reports focused specifically on companies in that sector. These provide tailored data from your direct competitors.
Government Data from the Bureau of Labor Statistics: The BLS National Compensation Survey provides comprehensive benchmarking data on the prevalence and costs of employee benefits programs across industries.
Consultants: Benefits consultants can provide customized benchmarking analysis by tapping into proprietary survey data and tailoring comparisons for your specific organization.
Best Practices for Ongoing Benchmarking
To get the most value from employee benefits benchmarking, it's important to make it an ongoing practice rather than a one-time event. Here are some best practices to follow:
Conduct benchmarking at least annually. The benefits landscape can change quickly, so benchmarks from even a year ago may be outdated. Aim to benchmark key aspects of your benefits program every year.
Compare your benefits data primarily to companies in your same industry and of similar size. While national data provides helpful context, your direct competitors' benefits will be the most relevant comparison.
Look at multi-year trends in the data, not just one year. Identify patterns over time to guide your benefits strategy rather than overreacting to one data point.
Incorporate benchmarking into your overall benefits strategy and calendar. Use it to make intentional, proactive decisions about your benefits offerings.
Following these best practices will ensure you are using fresh, relevant data to optimize your employee benefits program over time.
Using Benchmarking to Enhance Your Benefits Strategy
One of the most important reasons to conduct regular benefits benchmarking is to identify gaps and opportunities to enhance your overall benefits strategy. By comparing your program to industry averages and top competitors, you can pinpoint areas where your offerings may be lacking or misaligned with employee needs.
For example, if your data shows your health insurance premium contributions are 10% higher than the industry average, you may have an opportunity to renegotiate with carriers or adjust plan designs to reduce costs. Or if your retirement match falls short of competitors, you can focus on incrementally improving that benefit over time.
Benchmarking allows you to weigh the tradeoffs between cost and competitiveness. While you may not match the highest industry benchmarks in every area, you can use the data to prioritize the benefits that matter most to your employees and culture. The goal is to balance cost containment with providing a complete, compelling package.
When making changes based on benchmarking, it's often best to take an incremental approach over several years rather than drastic changes all at once. This allows you to communicate thoughtfully with employees and gather feedback along the way. The benchmarking data provides the "why" behind your strategy so you can show how changes align to external benchmarks.
Avoiding Common Benchmarking Mistakes
When conducting benefits benchmarking, it's important to avoid some common pitfalls that can lead to flawed data and poor decisions. Here are some key mistakes to avoid:
Comparing unlike companies or industries - It's crucial to compare your data to companies that are similar in terms of size, industry, geographic location, etc. Comparing vastlyComparing to vastly different organizations won't provide an apples-to-apples comparison.
Focusing solely on cost reduction - The goal shouldn't just be to cut costs. Benchmarking should inform ways to align benefits with company values and talent needs.
Failing to communicate context of changes - Don't just announce changes. Provide context from benchmarking data to explain the reasons behind changes.
Relying on a single data source - Use multiple surveys and reports for a more complete picture. No one source can cover everything.
Lagging on conducting updated benchmarks - Regularly benchmarking (at least annually) is key to stay on top of trends.
By being mindful of these common mistakes, you can get the most value out of benchmarking to enhance your benefits program.
Key Takeaways
Employee benefits benchmarking provides valuable insights that enable companies to optimize their benefits packages. By comparing their offerings to industry standards, companies can identify gaps, remain competitive, and make data-driven decisions.
Here are some of the key takeaways on best practices for benefits benchmarking:
Conduct annual benchmarking to keep pace with trends
Use multiple data sources for a comprehensive view
Compare to companies of similar size and industry
Align benefits to company values and talent needs
Make incremental changes over time
Communicate context for changes to employees
Overall, regular benefits benchmarking allows companies to provide a competitive package that helps attract and retain top talent. It has become a vital practice for modern HR leaders looking to optimize their rewards strategies.
Conclusion
In conclusion, employee benefits benchmarking is a critical practice for HR professionals and business leaders looking to optimize their compensation packages. As discussed, key benefits include assessing competitiveness, identifying areas for improvement, aligning to company values, keeping pace with industry trends, and making data-driven decisions. Core elements to benchmark are health insurance, retirement plans, paid time off, voluntary benefits, and wellness programs.
Reliable data can be obtained from surveys, consultants, government sources, and industry reports. Best practices involve annual benchmarking, comparing similar companies, analyzing trends over time, and incorporating insights into your overall strategy. Benchmarking allows you to enhance your benefits strategy by focusing on the offerings employees value most while balancing costs. Avoid common mistakes like improper comparisons, overemphasizing cost reduction, and ineffective communication. In summary, routinely benchmarking your benefits against industry standards is vital for attracting and retaining top talent while maximizing your compensation investment.
We encourage leaders to start benchmarking their employee benefits today using the best practices outlined above. An optimized benefits package is a key competitive advantage in this labor market. Take the first step by analyzing your current offerings compared to industry benchmarks. From there, identify strategic opportunities to enhance your benefits strategy. With the right data-driven approach to benefits benchmarking, you can contain costs while providing a program aligned to your talent goals and company values.