Why is it that employee benefits is so… well, boring? In too many organisations, all the attention is on the cash elements of the rewards package: salary, bonuses, sales comp or long-term incentives. Benefits, in my experience, are too often taken for granted. Here in Asia, employee benefits practices are generally very immature, compared to western practices. There is very little creativity, deviation from market norms or risk taking. We design compensation programs, in addition to annual benchmarking; but benefits are simply benchmarked and recalibrated in most Asian organizations, as I see it. Not enough benefits design is taking place in this part of the world. Not nearly enough.
In the U.S. and Europe, where salaries are generally much higher, the art and science of effective benefits design is very mature, highly sophisticated and there are many examples of flexible, personal, thoughtful, socially responsible, tax-effective, inclusive, well-communicated and consumer-driven benefits practices. Funding mechanisms, portability rules, carry-over provisions, pooling and other features and practices make the benefits practices of many companies really stand out. There are some very brilliant benefits practices out there. (Mercer recently issued highlights of research on popular voluntary benefits, by region: Infographic by Mercer Insights)
Yet, in many emerging markets–even developed ones like Singapore or Hong Kong–benefits practices often simply follow the herd.
Why is this? In my experience both in the U.S. and in Asia Pacific, I have seen the following factors limit the effectiveness of benefits practices in much of Asia:
- Risk aversion–no one wants to gamble their career on a benefits idea that breaks away from market norms. And it is perfectly acceptable in most locations in Asia, to simply benchmark your benefits every year or two, and make a few adjustments here or there. In China, this mentality (or virtue) is called zhong yong (take the middle way).
- “Gap” mentality–we benchmark in order to find gaps, with the assumption that gaps are bad. If we are leading the market, we conclude we are overspending. If we lag the market, we assume it hurts attraction and retention. Too many copy cats, not enough trendsetters.
- Oversimplification–compensation practices vary radically between rank and file, professionals, managers, sales people and executives. Yet in the benefits area, we tend to view the whole workforce and “aim for the middle” in terms of what we think people want and value in their benefits.
- Scale–larger organisations can segment their employee benefits and still have economies of scale. For example, offering supplemental voluntary insurance choices might result in less than a 10% take-up rate, yet still the group of takers is large enough to get good rates from an insurer. The world’s largest multinationals still tend to be American and European, yet even among the large Asian employers, segmentation and flex plans–choice–is catching on very slowly.
- Less diverse populations–for sure, Singapore, Hong Kong, Sydney and other major business locations have highly diverse populations. Employers in these locations are generally more likely to offer choice, or to provide segmented benefits offerings. China, Korea, Japan, Thailand, Indonesia and The Phlippines, in contrast, are more homogenous. For example, in The Philippines, it is assumed the entire workforce values taking Holy Week off (the week before Easter). In China, no one would consider their paid holidays to be lacking as long as they include mid-autumn festival, spring festival (Chinese New Year), Tomb Sweeping Day and National Day. The Indian population may not appear so diverse from the outside, but it is one of the most highly diverse populations on the planet, in terms of religion and culture.
- Lack of Awareness–if following the herd is good enough, then there is no burning platform to look outside the box at more creative and sophisticated benefits practices.
- Paternalistic cultures-In Asia, many people still assume their governments and employers are looking out for them, and that life insurance, retirement and healthcare will be covered sufficiently. People don’t see themselves as “consumers” of benefits (meaning to say, behaving as if they were spending their own money on benefits), but instead see themselves simply as the “benefi-ciaries” of benefits their government or their company has decided are right for them.
- Cost-sharing–flowing from this paternalistic view, is the expectation that the government and my employer will fund our benefits. We pay very little of our own money, so why should we pay much attention? In the U.S. the average employee participating in their company’s group health benefits plan is paying more than 10%–sometimes as much as 30% or more–of their health insurance, even if they never see the doctor!
The potential for brilliant benefits practices is just enormous. Generally, American and European rewards professionals get this, and they compete for talent using their benefits arsenal just as much as cash rewards. In Asia, there is still a strong focus on cash in China, India, and most of Southeast Asia, as rising middle class talents seek to earn more in order to buy more and save more, and to fulfill filial obligations, while being taxed very heavily in most cases. But focusing on cash competition for your broad workforce is not sustainable (for key talent, yes, but not for the entire workforce). The BPO/Call Center industry in the Philippines is now larger than in India, largely because years and years of annual salary increases ranging from 8-14% in India have reduced or eliminated their low-cost advantage compared to The Philippines, where industry salary increases have been in the 6-8% range. (There is also some debate as to whether English is spoken with less accent in the Philippines as well!)
Managing cash compensation effectively will always be vital, and will continue to require brilliant, creative and unique approaches, to win the talent war. But those organisations that can devote their attention to the benefits area will quickly find a universe of great ideas and opportunities, and by seizing upon these ideas, can emerge as an employers of choice within their industry.
Asia–start thinking benefits.