A ROUNDUP OF FLEXIBLE COMPENSATION ACTIVITY BY REGION...

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90-00530R000400730013-9
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 8
• Document Creation Date: December 22, 2016
• Document Release Date: August 27, 2012
• Sequence Number: 13
• Publication Date: July 1, 1986
• Content Type: MISC

Declassified and and Approved For Release 2012/08/27: CIA-RDP90-00530R000400730013-9 '
0 -3
Hewitt Associates
gn
tke catp"I's
July/August 1986
A roundup of flexible
compensation activity by
region . . .
Midwest
USG Corporation?innovative
human resource environment
translates into flexibility in
employee benefits
p.1
East
Charles of the Ritz?"consumer
choice" provides back drop for
employee choice under flexible
program
P.3
South
State of Georgia goes flexible for
55,000 employees. . . including
state legislators
p.4
West
Vons Grocery Company uses
flexible program to highlight
total compensation
p.6
Canada
IMC?a pioneer in flexible
compensation "north of the
border"
P.7
USG Corporation is a holding company for several operating
subsidiaries which are well known in the building products
and industrial processes markets. The Chicago-based
corporation had $2.53 billion in 1985 sales and ranked 152
on the Fortune 500 Industrials listing. The corporation
has long maintained a competitive employee benefit
program. Modifications made in 1983 helped bring medical
costs largely under control. Workforce demographics, while
changing, probably are more distinguished by the long
service of employees than the diversity.
What factors prompted USG to implement a flexible
compensation program? "Trends?or more precisely, the lack
thereof," comments Hal Pendexter, Vice President, Human
Resources. "We conducted focus meetings with groups of
employees throughout the organization and discovered no
pressing need for one particular type of benefit or program
enhancement. In the aggregate, we found that employees
valued our overall benefit package, but various employee
groups placed emphasis on different components. The only
consensus was that employees wanted to be able to control
benefit decisions and adapt benefits to their current needs'
Separately, USG had introduced Section 401(k) salary
reduction savings in July 1983, with enviable results.
"We had 96% participation in the first year," notes Peter
Maitland, Director, Employee Benefits. "We interpreted those
results as a sign that pre-tax employee contributions and
flexible spending accounts would be readily understood?
even welcomed?by our employee population':
Copyright C 1986, Hewitt Associates
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USG "SelectBenefits" went into effect July 1 of this year for 4,700 salaried
employees of the USG holding company and certain subsidiaries. The credit
formula provides a flat-dollar amount (unrelated to family status), plus a
percentage of pay (related to age). The program offers choices in the areas of
medical (with three deductible levels ranging upward from $200 single/$400
family); life insurance (up to five times pay) with AD&D (up to 21/2 times pay),
plus a new dependent life option; as well as time off (employees may buy or sell
one week, but may not sell below a minimum vacation schedule of two weeks).
The program also offers spending accounts ("SelectAccounts") for payment of
health care (including dental, vision, and hearing) and dependent care expenses.
Employees may take unused credits in cash?or deposit amounts in the
Investment Plan.
Some highlights from the election results . . .
? 74% of employees made one or more changes from the previous program.
? 14% of employees opted for higher deductible medical ($500/$1,000 or
$1,000/$2,000).
? 10% of employees increased their level of life insurance, while 6% decreased
coverage.
? 49% selected the new dependent life option.
? 9% of employees bought an additional week of vacation, while 12% sold
a week.
? 28% established health care spending accounts and 2% did so for dependent
care expenses.
? 7% deposited leftover credits in the savings plan?more than the 4% who
elected a cash option.
"Given our previous benefit package as the starting point, and the fact that
employees know they can select again in six months, we didn't anticipate a
groundswell of change?this time out," explains Pete Maitland. "Besides, what
statistics fail to show is employee reaction. Informal feedback indicates that
employees are literally delighted with the opportunity to make changes, whether
or not they actually did so. We've been credited with having implemented a
bold, different, and responsive program!'
Contributes Hal Pendexter: "SelectBenefits suits today's USG Corporation?
both in terms of responsiveness to employee needs and as an expression of
management intent. Back a year or so ago, we brought a broad outline of the
proposed flexible program to senior management?and received full support
even in the earliest stages of development. We are an innovative employer and
we wanted our benefit package to be on the leading edge of plan design?
representative of the corporation!'
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East
When Charles of the Ritz Group, Ltd., a major cosmetics manufacturer
headquartered in New York City, explored alternatives to controlling benefit
costs, one choice was to cut back the medical program for everyone. But a very
different-looking workforce instead prompted Charles of the Ritz to explore a
flexible compensation program.
Consider the employee demographics at Charles of the Ritz. Among the
company's 1,200 employees, single employees represent half the workforce.
Close to two-thirds of the employees are female. In addition, the company's
employees are relatively young both in terms of average age (36 years) and
service (5 years).
According to John Hawkins, Director of Compensation and Benefits, "Our
'one-size-fits-all' benefits were largely unappreciated by the majority of our
employees. For our people, consumer choice is a way of life. We thought
our employees would value benefits more by being able to 'shop for' the
coverages suited to their individual security needs."
Effective July 1, Charles of the Ritz implemented a "classic" flexible
compensation program. While the company continues to cover most of the
cost of benefits, employees decide how the dollars are allocated. The program
offers several options in medical, dental, disability, life insurance (employee and
dependent), plus flexible spending accounts to pay for health and dependent
care expenses. Also, employees entitled to less than four weeks of vacation
may buy up to five additional days, in half-day increments. Employees with
more than four weeks of vacation may carry forward unused days, but are
ineligible to buy additional days out of concern over bumping up against the
forfeiture rules.
As a means of controlling medical costs, Charles of the Ritz moved from a
noncontributory first-dollar medical plan to a comprehensive approach
offering choices among three different deductibles ($100 single/$200 family to
$500 single/$1,000 family) and out-of-pocket limits ($1,000/$2,000 to $1,500/
$3,000), plus HMOs. Two dental options also are offered. Or, employees may
opt out of health coverage entirely. Interestingly, the allocation of flexible
credits is tied to the health benefits employees actually choose. Depending on
the type of coverage selected (not the level) employees receive from $583 to
$1,159 ($2,283 family) in flexible credits, plus nearly 1% of pay, as follows:
Health Care Choices at Charles of the Ritz
Receives FlexCredits of . . .
To buy
. . .
Single
Family
High
Low
High
Low
An employee choosing . . .
Single
Family
Option
Option
Option
Option
Medical and dental
$1,159
$2,283
$1,051
$ 863
$2,640
$2,162
Medical only
$1,083
$2,083
$ 859
$ 704
$2,264
$1,850
Dental only
$ 659
$ 783
$ 192
$ 159
$ 376
$ 312
No coverage
$ 583
$ 583
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Under the program, a single employee choosing the richest medical and
dental plan options would have leftover credits. An employee with dependents
also electing the highest options would have to make contributions for the
same coverage. Notes Mr. Hawkins, "We struggled long and hard over the
decision to ask our employees with dependents to switch from
noncontributory coverage to having to pay something. But for us, this
represented a fair way to introduce cost-sharing. Employees with the
greatest coverage needs are asked to help pay the cost for that coverage?but are
allowed to pay with pre-tax dollars. Additionally, we wanted employees
with dependents to think twice about 'doubling up' on coverage they might
already have elsewhere
What choices did employees actually make under the new program? First-year
election results verify that employees indeed have a variety of needs...
? 9% bought vacation days.
? 10% of employees opted out of medical coverage.
? 39% elected to "trade" benefits for cash.
? 43% chose life insurance options greater than one times pay.
? 62% added their own money to the program on a pre-tax basis.
A note about timing. . . Once the flexible program was designed, it took
Charles of the Ritz only three months to complete the work needed to
administer and to communicate the program to employees. "Our enthusiasm
snowballed, and we became increasingly determined to meet our July 1 target.
With only 90 days left, we rolled up our sleeves and got the job done," says
Mr. Hawkins.
Regarding the success of the program, he adds, "We consider the election results
proof positive that employees do have different needs that are better met
through flexible compensation'
South
The Georgia State Legislature amended The Official Code of Georgia
Annotated, Title 45, Chapter 18, Article 3 ". . . relating to employees' insurance
and benefit plans, so as to provide for. . . a flexible employee benefit plan
and to promulgate rules and regulations for its administration . . ."
A flexible benefit program mandated by law? That was one of the unusual
aspects of a flexible program implemented July 1 by the State of Georgia for
55,000+ employees of virtually all state agencies, including also state
legislators. Under the new program, employees have the option of retaining
current coverages?or electing participation under the new statewide
flexible benefit program that offers selection of coverage levels.
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Under the direction of Bobbie Jean Bennett, Assistant Commissioner, State
Merit System, the State of Georgia undertook a major overhaul of public sector
employee benefits to accomplish several objectives, including . . .
? Streamline administration. Under the previous system, more than 200 benefit
plans were in place across 26 State of Georgia agencies. Consolidation would
allow for greater efficiency in plan administration?and greater consistency in
the types of benefits offered state employees.
? Capitalize on the "buying power" of the total group for insurance coverages.
With the exception of medical and a special life insurance arrangement
through the pension plan (which are state subsidized), insured-plan coverages
are offered on an employee-pay-all basis. Through the statewide program,
most employees would be able to purchase comparable (or better) coverages
at substantially lower rates.
? Meet employee needs. An attitude study conducted last year indicated that
employees wanted the ability to make choices in benefits. Moreover, if
given the opportunity, over one-half of surveyed employees would change
existing coverages in one or more benefit areas.
Employees opting for the statewide "You Decide" program can structure
coverages in three basic areas: medical, including HMOs, where available; short-
and long-term disability; and life insurance, including AD&D and dependent
life. Few of the options are "brand new"?indeed, "standard" and "high option"
medical existed in the past. But the range of coverages, coupled with the ability
to select levels of protection (e.g., up to three times pay in life insurance), now
are made available on a consistent basis across state agencies. In addition,
employees opting into the statewide program may pay premiums in before-tax
dollars.
"In terms of plan design, our program probably ranks as one of the least
complicated," acknowledges Ms. Bennett, "and for good reasons!' The
communication materials and enrollment procedures, for example, needed
to be readily understood by a large and diverse audience ?"those with advanced
degrees as well as employees with minimal schooling!' Moreover, while
legislation mandated introduction of a flexible benefit program, no new dollars
were allocated for coverages under the state system. "We needed to deliver the
greatest value to employees, while operating within our budgetary constraints!'
"Employee response to You Decide has been very positive," notes Ms. Bennett.
"We had very few problems with incorrect enrollments, or employees not
getting forms in on time And election results have been highly encouraging.
"Our medical program elections remained much as before since the options
were virtually identical. But 54%, which means 30,000 employees in our
environment, signed up for supplemental life insurance, and enrollments
about tripled in each of the disability coverage categories!'
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West
. . . The benefit program provides rich security coverages on a largely
noncontributory basis. . . Since employees pay little for the coverage, few
see benefits as a valuable part of total compensation. . . Employee
demographics have changed over the years and many employees neither
want nor need all the protection the company offers. . . The company prides
itself on offering a leading-edge program for salaried and nonunion hourly
employees?and retaining that differential relative to union groups is important.
These are some of the considerations that prompted privately held Vons
Grocery Company, an 18,000-employee grocery concern headquartered near
Los Angeles, to adopt a broad choicemaking program. Under the Vons
"Personal Choice" program, effective July 1 for 1,200 salaried and nonunion
hourly employees, benefits are presented as one element of a total compensation
package which the employee may restructure to suit individual needs and
circumstances.
The flexible credit formula provides a flat-dollar amount (depending on
elected family status), plus almost 1% of pay. The communication materials
stress to employees that ". . . Personal Choice allows you to direct a portion
of the available benefit dollars to the benefits you most value. Or, if you want to
change the balance between direct pay and benefits, Personal Choice gives you
a way to convert benefit dollars to cash':
Within the benefit area, the program offers a wide array of choices. Included
are four options in medical (including the prior "first-dollar" plan), plus HMOs;
four choices in dental (each designed to encourage preventive care), plus a
prepaid option; election of vision coverage; ten options each in life insurance
and AD&D, plus dependent life; and purchase of additional time off ?up to
three personal holidays. In addition, employees may establish flexible spending
accounts for payment of unreimbursed health care and child care expenses.
An unusual feature of the program, scheduled to take effect January 1, 1987,
involves profit sharing. At that time, after-tax employee contributions will be
converted to pre-tax salary reduction dollars. But the Personal Choice program
will also be expanded to include employee control over the company's profit
sharing allocation. Instead of making "regular" profit sharing contributions,
Vons will allocate profit sharing amounts to employees in the form of
"flexdollars." If employees elect to deposit profit-sharing-derived flexdollars
in the plan, Vons will match employee savings dollar-for-dollar. (The underlying
profit sharing formula will be adjusted to allow for the full matching.) Or
employees may use the profit-related credits to spend on benefit options, or take
these amounts in (taxable) cash. Inclusion of the profit sharing component
expands the range of "choice" available under the program?and helps increase
the visibility of Vons total compensation expenditure.
According to Gary Nelson, Senior Vice President, the features of the program
already in place are being well received by employees. "Employee acceptance of
Personal Choice has been high, although we have observed some reservation as
to management's 'real' reasons for implementing the program. The program was
structured so an employee could choose the benefits in effect before Personal
Choice, but 18% of our employees made alternate choices of medical and dental,
while average life insurance amounts were decreased 13%, and average AD&D
amounts were increased 29%. We are pleased that the options we now offer
better meet the needs of that many people!'
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Canada
Can the enthusiasm for flexible compensation translate "north of the border" to
employees of Canadian operations? According to International Minerals &
Chemical Corporation (IMC), a major producer of fertilizer and other
agricultural products, the answer is "yes" Headquartered in Northbrook,
Illinois, IMC is one of the few U.S. companies to have extended flexible
compensation to employees of its Canadian operations. Effective July 1,
"FlexSecurity" offers broad benefit choices to IMC's 200 salaried Canadian
employees.
The Canadian unveiling of flexible compensation follows the U.S. introduction
by about 18 months. "Flexible compensation was a great success with our U.S.
employees," says Robert Lyter, Manager of Benefits Administration (U.S.). "So
when the time came to update our Canadian benefits, our first thought was to
explore the possibilities of a flexible program. Although it's still a new concept
in Canada, we felt sure it would be popular with employees and would serve
our corporate needs well into the future," adds Mr. Lyter.
Why has it taken so long for Canadian employers to jump on the flexible
compensation bandwagon? John Gugulyn, Industrial Relations Manager
(Canada) explains that like many Canadian employers, IMC initially was
skeptical about the value of flexible compensation. "We weren't sure flexible
compensation was necessary since we have Provincial (government-subsidized)
health care, and medical cost containment is not a driving force here, as it is in
the U.S.," he says. "But after some discussion and evaluation, we realized
flexible compensation was an excellent way to help us meet our objectives of
providing a competitive benefit package and increasing the value of benefits to
employees':
Mr. Gugulyn notes that IMC also had some doubts about employee acceptance
of such a program. Before proceeding with implementation, IMC tested the
program with a random sample of employees. The results were highly favorable.
While 82% of the group said their current benefits were "very good," 80% said
that a flexible program would be "better than their current program:' Over half
of the employees tested said that the most appealing feature of FlexSecurity was
the "ability to choose':
FlexSecurity still provides basic benefits including provincial health insurance,
AD&D, and short-term disability. Choicemaking is available in seven benefit
areas including supplemental medical, dental, term and dependent life, personal
accident (to supplement AD&D), long-term disability, and vacation. In most
areas, IMC provides a core level of coverage and gives employees flexible
dollars to purchase additional coverage. The flexible dollar allowance, which
varies based on pay and family status, enables employees to purchase the same
level of coverage they had previously. Additional coverage may be purchased
through after-tax payroll deductions. At the end of the year, any flexible dollars
not used for benefits may be taken in cash, or deposited in IMC's Group
Registered Retirement Savings Plan.
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The new program offers an extensive range of options in all benefit areas.
Preliminary enrollment results indicate that employees are taking full advantage
of the opportunity to create a benefit package tailored to their needs. For
example, in the area of supplemental medical, most employees (71%) upgraded
their coverage by electing an option that includes hearing and vision benefits.
And, a significant number of employees (22%) chose to buy or sell vacation
days. According to Mr. Gugulyn, "this testifies to the fact that employees
understand and welcome benefit choicemaking."
"Everyone is very pleased with the new program" says Mr. Lyter. "We're riding
high because we've implemented a 'leading edge' benefit program at no
additional cost to the company. And employees are highly flattered that IMC
has made such a grand effort on their behalf."
Hewitt Associates
An international firm of
consultants and actuaries
specializing in the design,
financing, communication,
and administration of
employee benefit and
compensation programs
United States Professional Centers
2100 RiverEdge Parkway, Atlanta, GA 30328
[phone]
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[phone]
40 Highland Avenue, Rowayton, CT 06853
[phone]
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[phone]
25231 Grogan's Mill Road, The Woodlands, TX 77380
[phone]
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Boston Dallas Denver
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International Centers and Offices
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Wiesbaden
Management Compensation Services
8687 East Via de Ventura
Scottsdale, AZ 85258
[phone]
(A wholly-owned, independently
operated division of Hewitt Associates)
Declassified and Approved For Release 2012/08/27: CIA-RDP90-00530R000400730013-9