CRW • Corporate Report • Wisconsin's Business Magazine

In the current economic climate, hard decisions have become even more difficult to make, particularly when they require a difficult balancing act to succeed.

A southern Wisconsin publishing firm employing nearly 200 workers kept its health insurance, 401(k) matches, life insurance offerings and other benefits intact, but laid-off workers, froze salaries and reduced the workweek and employee pay in 2009.
While company insiders predict a fourth-quarter rebound and eventual benefits reinstatement, its workers felt the impact of these changes through reduced paychecks and increased workloads. But because these adjustments positively impacted the company’s bottom line, the firm kept the majority of its workers employed, despite a projected $35 million drop in revenue.

On the opposite end of the spectrum, a Door County assisted living facility feeling the economic pinch has opted to stop offering employee benefits come year’s end.

Neither is an optimum choice, but they are both examples of what companies are doing to remain viable. These companies are hardly unique in the measures they are taking to weather the economic downturn. As the troubled economy drums down company profits, Wisconsin firms are instituting cost cutting measures of their own to stay afloat. Employee benefits represent one area getting a second look.

In October 2008, Watson Wyatt, a global consulting firm focused on human capital and financial management with Midwest-based offices in Madison, Chicago and Minneapolis, began surveying top-performing companies about actions they were taking to cope with economic troubles. The company’s 2009/2010 U.S. Strategic Rewards Report revealed that 72 percent of survey participants had laid off 7 percent or more of their workforce in 2009, but also took other actions to avoid or minimize layoffs. The survey found:

• 64 percent implemented hiring freezes,
• 54 percent froze salaries,
• 52 percent restricted overtime hours,
• 19 percent reduced bonuses,
• 19 percent instituted mandatory furloughs,
• 15 percent reduced salaries,
• 12 percent reduced or eliminated 401(k) matches, and
• 10 percent reduced benefits.

The surveys considered two cost-cutting areas: Employee compensation (salaries, base pay, bonuses, health and life insurance, etc.) and other expense trimming (layoffs, travel and training moratoriums or spending cuts), and found “there had been cost cutting across the board,” reports Fred Crandall, Ph.D., a senior consultant in Watson Wyatt’s Chicago office.

“Certain types of cost cutting were more prevalent than others,” he says. “The first cuts and deepest ones were made in regard to hiring freezes, pay freezes and reduction of overtime. But companies seem reluctant to make permanent changes in benefits that greatly impact employee satisfaction and goodwill.”

That being said, while companies kept benefit changes to a minimum, that’s not to say they didn’t touch benefits at all. Survey participants admitted trimming employer contributions to health benefits, increasing health premiums and reducing or eliminating 401(k) contributions. While some companies report plans to reinstate these benefits in 2010, they also indicate they do not plan to restore them to their previous levels, according to Watson Wyatt’s “Effect of the Economic Crisis on HR Programs” released in August.

It’s not surprising that companies scaled back health benefit offerings. According to the Kaiser Family Foundations’ 2009 Employer Health Benefits Survey, premiums for employer-sponsored health insurance rose to $13,375 for family coverage, with employees paying approximately $3,500 and employers shouldering the rest. The study also reported family premiums rose 5 percent in 2009, while general inflation fell 0.7 percent. Among the firms offering benefits (60 percent), 21 percent reported reducing the scope of these benefits and increasing employee-paid premiums in the past year.

Employers also tightened their belts by providing plans with higher deductibles ($1,000 or more), the report found. More than 13 percent of large firms set health insurance deductibles higher than $1,000, while 40 percent of smaller firms put deductibles at or above $1,000 with 16 percent of that number setting deductibles higher than $2,000. When the survey asked companies about their plans for 2010, 21 percent stated they were “very likely” to raise premium contributions next year and 16 percent said they were “very likely” to raise deductibles.

A prescription for healthy benefits

“It’s kind of scary when companies start eliminating health care benefits altogether, stop looking for alternatives or feel there are no alternatives,” says Angie Heim, owner of The Employer Group in Verona. “There are alternatives. But, you have to look for them.”

Banding together to purchase health insurance as a larger group represents one means small firms can employ to toe the line on health care insurance benefits, says Heim, who indicates when small companies purchase insurance as a singular entity it jacks up the price.

She offers an example from her own life. “I had my gallbladder out and it cost close to $20,000 and I didn’t even stay overnight,” she says. “When a company only has five people on a health plan, it is not paying enough in premiums to cover even a $20,000 surgery. Thus when someone has a more serious medical need, the insurance company will raise rates to make up for the fact that the company overspent.”

To illustrate the impact a group buy can make, Heim points out that The Employer Group has 300 people from various companies on a single health plan and approximately 800 on a dental plan. Leveraging this larger buy kept insurance costs status quo in 2009. “In 2008 premiums increased 6 percent and in 2007, 2 percent, in a world where increases are generally 10 to 15 percent a year,” Heim says.

Slightly tweaking benefit plans also can help keep skyrocketing insurance costs at bay, adds Heim. And while companies seem reluctant to drastically reduce 401(k) benefits, some Wisconsin firms have reduced company matches or tied them to company profitability, she adds. The mechanism of choice, she says, has been to delay contributions until year’s end and tie them to the company’s bottom line.

“They are not getting rid of the 401(k) or eliminating contributions, they are using the delay as a means to control costs,” she explains. “If they budgeted correctly, they will have X number of dollars at year’s end to contribute.”

Recruiting and retention woes

While the worst of the recession appears to be over, the U.S. Strategic Rewards Report cautions companies to expect decisions made during the downturn to impact the workforce for some time to come. The actions employers took to weather the economic storm have seriously damaged employee engagement, according to Crandall.

“Employee engagement, which is similar to motivation and satisfaction, is down this year,” he says. “It is really down for high-performing employees, whose expectations and hopes have been dashed.”

He explains Watson Wyatt studies found employee engagement fell 9 percent in 2009 and close to 25 percent for top-performing employees. Forty-six of the surveyed companies reported they fear increased difficulty in attracting critical-skill employees and 50 percent worry they’ll experience difficulty retaining existing employees because of their actions.

“Companies seem very concerned that they are going to lose high-performing employees because engagement is down so much,” Crandall says. “Even so, employees seem more sensitive to these issues than employers right now, which is not a good sign for keeping people.”

The hard truth about soft benefits

To increase employee engagement, Wisconsin employers should seek ways to restore corporate culture and build morale lost through cost-cutting measures, says Heim.

A Wisconsin engineering firm The Employer Group works with seeks to recruit top-notch people. It does so by offering an array of benefits, often unheard of anymore. For example, this company pays short-term disability and offers an opt-out credit for those employees declining health insurance coverage. When employees do not take health insurance, 75 percent of what the company would have paid out in premiums goes directly into their paychecks.

While this company is unique and goes above and beyond, Heim says there are low-cost, soft benefits that can greatly enhance employee satisfaction. A company might be unable to offer short-term disability but can instead incorporate a means for employees to earn a reserve-type policy, so time off is available when employees need it. Offering two weeks of vacation the first year, as opposed to one week, can both attract and retain employees. Bonuses tied to profitability can boost employee motivation. Flexible hours can contribute to employee satisfaction. The Employer Group changed its work hours to 7:30-5:30 Monday through Thursday, allowing workers to leave at noon on Fridays. It was so well received that Heim says, “You would have thought we’d given them a $1 an hour raise. Our employees really viewed that as a benefit.”

The important thing to remember in today’s employment climate, Heim maintains, is to build a culture that says, “This is the company we have and these are the benefits you receive.” While benefits such as casual Fridays where workers can wear jeans or flexible hours seem small, Heim says they make tough changes such as reduced health care benefits a little more palatable.

By Ronnie Garrett

Ronnie Garrett is a freelance writer based in Fort Atkinson, Wis. She may be reached at garrettnco@yahoo.com or www.garrettncostudios.com.

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