Hong Kong's economy appears to have turned the corner, if we can believe the latest evidence, but that will present many businesses in Hong Kong and the mainland with a new set of human resources challenges. While the overall mood may well be improving, that does not necessarily translate into an immediate lift in sales, revenue and profitability.
Employers will still have to keep a tight lid on costs and expenditure, at a time when staff will be expecting a swift return to the kind of year-end bonuses, salary increments and company-funded benefits that they were able to enjoy before the recession struck.
The important thing now for corporate policymakers is to strike the right balance. Obviously, if an organisation has pulled through the worst of the crisis largely thanks to the efforts and sacrifices of its employees, there should be some scope to recognise this with monetary rewards. However, looking a little further ahead, the impending recovery also provides an opportunity to conduct a thorough review of the company's existing compensation and benefit policies.
Some may be outdated, others unused or undeserved. So, rather than simply reinstating whatever went before, it is advisable to take a good, hard look at who gets what and, wherever possible, to realign benefits to match performance and individual preferences.
The key to a good system of company benefits is to provide what people need and appreciate - for example, medical cover for family members - and be ready to adapt this in line with changing circumstances.
When doing a review, a good starting point is to put costs associated with retirement and company-funded health plans under the spotlight. Much of the focus in the past year has been on cash compensation, deferred bonuses, expense allowances and entertainment budgets. That is understandable because these are areas where quick cuts can be made.
However, broad trends suggest that the cost of premium payments in Asia will rise significantly over the next five years, thereby taking a bigger slice of corporate expenditure. Factors contributing to this situation include stress in the workplace, leading to a higher incidence of illness and a greater volume of claims. Clearly, more claims drive up the cost of any health care plan.
Staff covered by a medical plan their employer pays for have a strong tendency to make full use of it. They go for more check-ups, expect specialist treatment for relatively minor complaints, and decide to go through with long-deferred medical procedures. This isn't cynicism, just a normal reaction when a benefit is available.
Insurance companies, like every other business, are under pressure to keep improving profits. Consequently, they will be looking to push premiums up, pointing to the escalating cost of medical care and, no doubt, all sorts of statistics about chronic lifestyle-driven diseases.
To contend with this, while still acting fairly towards staff, employers should avoid knee-jerk reactions. They need to define and target the benefits more cleverly. There are a number of ways to achieve this, which include:
Motivate employees to be smart consumers Companies can increase the use of the more cost-effective choices in their plans, such as preferred provider networks and generic drug options. By providing higher reimbursement limits for anyone using these options it will be possible to increase awareness that coverage funded by the company does not come "free".
Allow tailored choices Giving employees the chance to select the benefits they are most likely to need rather than having a "one size fits all" approach to corporate medical plans can make a big difference. In principle, it means that companies should no longer have to pay for a standard benefits "package", which might well be underused by, say, an organisation with staff of a low average age. Against that, though, extra coverage could be extended for employees with young children or those advised to have additional preventative screening.
Rigorously manage vendors Many multinationals are now seeking multicountry, multiyear deals with their health care vendors and consultants. What they find, though, is that the strategic use of buying power can result in significant savings. Success depends, of course, on detailed research, careful comparisons and expert negotiation, and keeping a sharp eye on where most claims subsequently originate.
Taking this approach, the motivation for employers should not be simply a desire to cut costs. Rather, the smarter companies will be thinking long term and seeing this as a matter of strategic vision. It is a way of adapting to changing economic realities and taking practical steps to provide benefits that people most need and, therefore, most appreciate. The key is to take a far-sighted and holistic view of the problem, recognising how much of a positive impact a carefully structured and well-aligned benefits programme can have on motivation, engagement and the continuing struggle to retain good staff.
This is not to say that cost controls are unimportant. Rather, that taking a longer-term view of rewards and incremental benefits can achieve overall savings and ultimately provide better "value". A company that has the advantages of lower staff turnover and flexible non-cash incentives linked to fulfilling business strategy will generally come out well ahead.
In Hong Kong the MPF is a specific area where companies have scope to adjust benefits to reward individual performance. The basic scheme requires employers to make a certain level of set contributions. However, the MPF framework places no restrictions on voluntary employer contributions, and there is a great deal of freedom to design and target these voluntary contributions as they see fit.
In reality, though, very few companies take this opportunity. Surveys routinely reveal that the majority apply a fixed contribution rate for all employees or have a service-related rate. This means that there is no significant differentiation made for levels of seniority or roles.
However, employers can make better use of their retirement plans to reward specific staff or everyone on the payroll. They can adjust self-imposed limits and decide on their own eligibility criteria for making voluntary contributions and the way that benefits would accrue. Such a system will give good long-term returns and improve staff retention because of restrictions on withdrawals. If handled properly such measures can play a big part in achieving a more sustainable cost structure and a more balanced compensation programme.
Companies can also consider more innovative approaches. These include introducing profit-linked contribution rates to their retirement plans. The company's voluntary contributions are based on annual results, creating a clear pay-for-performance component. It serves to focus employees on profitability, recognise their efforts as a group and strengthen their ties to the company.
For many employers, taking this path would represent a fundamental shift in approach to employee benefits. That, though, may be just what is needed to meet the challenges of a fast changing economy and the expectations of a workforce whose foremost concern in any job is "what's in it for them". To make it happen there are two overarching elements:
Employee education Staff need to fully understand the potential value of their various benefits. Otherwise, they may well underestimate what the company is providing on their behalf. Information also allows employees to make sensible choices that make the most of the benefits available, yet manage to rein in unnecessary costs.
A holistic view of benefits and cost control This requires a clear understanding of the factors driving costs and a feel for where future costs will emerge. If employers know how the corporate profile and average age are changing, they can foresee latent health risks, anticipate staff expectations, and realign benefits accordingly.
Written by Douglas Gibbons, health and benefits consulting leader, and Jacklyn Zhang, retirement, risk and finance business consultant for Mercer Hong Kong
