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EXECUTIVE ROUNDTABLE / Business Owners, Company Presidents
and CEO's Share Advice

Dropping Company Benefits Could Do More Harm Than Good

April 29, 2001

TEC Worldwide is an international organization of more than 7,000 business owners, company presidents and chief executives. TEC members meet in small peer groups to share their business experiences and help one another solve problems. The following questions and answers are based on recent TEC meetings in Southern California.

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Question: My medical benefits plan costs have been rising significantly. I'm considering discontinuing the plan and instead paying my employees a set amount of cash so they can buy their own medical insurance. What are the pros and cons of such an approach?

Answer: At first glance, eliminating costly benefits plans might seem like a good idea. But a lot more is involved than just dollars and cents.

On the plus side, offering cash payments in lieu of a traditional benefits plan would enable you to fix your contribution at a predetermined level, make it easier to budget those costs and, to some extent (depending on whether you define your contribution at a fixed level or tie it to some inflationary index), insulate you from the vagaries of the medical insurance market. It also would eliminate the time and costs involved in administering your plan and free your human resources people to focus on other issues.

Despite those pluses, ditching your benefits plan could cause more harm than good. According to Wade Olson, president of the Precept Group, a Newport Beach-based employee benefits consulting firm, it would significantly reduce your ability to compete in today's labor market. Like it or not, medical benefits (along with paid holidays, sick leave and vacation time) have become an expected condition of employment.

As an employer, you have no legal obligation to provide these benefits, yet today's workers consider them part of the unspoken contract between employer and employee. Stop offering medical benefits and you could turn off large numbers of qualified job candidates. Even if you give employees the funds to buy their own benefits, most wouldn't know where to go or what to buy. Those who make poor buying decisions probably will resent and blame you for forcing them to make the decision in the first place.

Depending on the age and health of individual employees, some will be able to buy more insurance than others. Suppose you give each employee $3,000 to buy medical insurance. An unmarried 21-year-old could easily have money left over after purchasing a policy. In contrast, a 51-year-old employee with a family may have to pay several thousand dollars more out of pocket to obtain coverage. That kind of situation does not lead to harmony and goodwill among your employees.

Ultimately, it comes down to the kind of relationship you want to have with your employees. Helping them deal with these kinds of personal and life issues creates a bond that fosters respect for you as an employer and loyalty to the company. Given the cost of finding and hiring top talent in today's competitive labor market, your benefits package could turn out to be a bargain in the long run.

If limiting your contribution level is a major issue, try unbundling your benefits plan, offering a variety of choices and letting employees choose the benefits they want. This forces employees to become better-educated consumers, make better buying decisions and have a greater sense of appreciation for the plan. Equally important, it lets you define your contribution level and manage costs without creating long-term morale and recruiting problems.

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Q: We're switching to a new and fairly complex customer contact management software this year. To get my staff up to speed as quickly as possible, I want to hire a software training firm. This is my first time hiring this type of service. What should I look for when screening candidates?

A: The Internet offers a great way to gather information on software training firms in your area. Once you have narrowed your choices down to two or three finalists, says Kathy Johnson, president and CEO of Mentor Training in San Jose, conduct an on-site inspection of each facility.

This is especially important if you intend to send your employees to the training firm rather than have its instructors conduct classes at your place of business. During your tour, pay attention to the following areas:

* The state of the facilities: Do the computers look up-to-date and well-maintained? Are the classrooms neat and well-organized? Does it look and feel like an environment in which learning will take place? If possible, observe a classroom session.

* The quality of the instructors: How much experience do they have teaching the classes your employees will take? How long have the instructors been with the training firm? Are they certified by the appropriate software manufacturers?

* Follow-up support: What services does the company offer in conjunction with the training (i.e. tutoring, consulting or technical support)?

* The quality of classroom materials: Ask to see a sample of the course curriculum and any printed support materials.

* Class size: How many students are in each class? Ideally, the student-to-teacher ratio should not exceed 12 to 1.

* Cancellation policy: What happens if you need to cancel or reschedule a class? How does the firm handle makeup sessions for individual employees?

As with any product or service, beware the low-cost provider. Inordinately low prices usually mean large class size, inexperienced instructors and little or no after-class support. Spending the extra dollars to ensure your employees receive quality training will pay for itself in the long run.

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If there is a business issue you would like addressed in this column, contact TEC at (800) 274-2367, Ext. 3177. To learn more about TEC, visit http://www.teconline.com.

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