watsonwyatt.com Employee Benefits Trends 2009 Asia Pacific Benefits Trends Survey Report
Employee Benefits Trends 2009 Asia Pacific Benefits Trends Survey Report Table of Contents Executive summary... 2 Key findings... 3 About the survey... 3 Top HR challenges... 4 Benefits strategy... 5 Benefits provision... 7 Key drivers of benefits provision... 8 Is higher benefits spending by an employer valued more by employees?... 9 Reporting to employees on their benefits...10 Administration of benefits...11 Benefits design - flexible or traditional?...12 Conclusion...13 Featured Figures Figure 1: Top HR challenges... 4 Figure 2: Corporate benefits strategy... 5 Figure 3: Last review of benefits strategy... 6 Figure 4: Type of benefits design... 7 Figure 5: Most popular benefits... 7 Figure 6: Top drivers of benefits provision... 8 Figure 7: Spending on benefits as a percentage of payroll... 9 Figure 8: Spending on benefits versus value... 9 Figure 9: Benefits communication to employees... 10 Figure 10: Value attached by type of reporting... 10 Figure 11: Administration of benefits... 11 Figure 12: Flexible versus traditional benefits... 12
Executive summary The economic turbulence of the past year has driven organisations across the globe to make short and long term cut-backs in almost every aspect of their operating costs. In many cases, the single biggest business cost is people: salaries and benefits. Most organisations have responded by implementing salary freezes or containing salary growth. On the other hand, growth in benefit costs remains in the double digits and shows no signs of easing, particularly with medical costs continuing to rise. Despite the investment made by organisations in benefits programmes, Watson Wyatt s research shows that a large number of employees still do not understand or fully value their benefits programmes. Our clients have told us they need help in both getting a better return on their investment in benefits programmes and developing strategies to contain future cost increases. Through our global research, we are able to identify the direction that companies are taking with their employee benefits programs, so they can position themselves to retain key workers both through the recession and to better position themselves for the increased war-fortalent when the recession passes. We recently conducted a region-wide research project to identify benefits trends across Asia. Our key findings were: Despite economic changes many organisations have not implemented or reviewed their benefits strategy Despite the high spend on benefits across the region, about half the organisations do not communicate the total reward value to employees, and one-third of employees do not value the benefits investment made by organisations There is an increasing trend to provide flexible benefits programmes for employees where they can choose the benefits that they value the most. Where flexible benefits programmes have been implemented, it is more common for firms that provide flexible benefits to have a well defined corporate benefit strategy in place and communicate information on benefits to their employees. Additionally, a greater proportion of these organisations have reviewed their benefits strategy in the last six months and are more positive about the effectiveness of benefits provided. Based on the findings of both our global and Asia Pacific research, we believe that organisations who have a clearly defined benefits strategy, effective employee communication programmes around total rewards, and who provide employee choice through flexible benefits are better positioned to manage costs and have greater success in the attraction, retention and engagement of key talent the most important factor for competitive success. 2 Asia Pacific Benefits Trends Survey Report 2009
Key findings Controlling cost is the biggest and most widely cited HR challenge. One-third of firms surveyed do not have a benefits strategy in place, but 83 percent of those who have feel that the benefits provided are effective in meeting the needs of their employees. Despite a tough economic environment, more than one-third of the companies have not reviewed their benefits strategy in the last 12 months Traditional benefits dominate but one-third are exploring flexible benefits. 40 percent of the respondents spend over 20 percent of their payroll on employee benefits. However, the variation across countries surveyed is significant. Over one-third of the employees do not value benefits sufficiently, irrespective of what employers spend. Only half the respondents have a benefit communication programme in place. About the survey Watson Wyatt recently conducted an Employee Benefits Trends survey across 12 countries in the Asia Pacific region - China, Hong Kong, India, Korea, Malaysia, Philippines, Singapore, Taiwan, Thailand, Japan, Indonesia and Vietnam. The survey took place in June/July 2009. The participants were asked to answer over 15 questions on various aspects of employee benefits including key HR challenges, key drivers of benefits design, benefits strategy, benefits provisions, benefits spend, benefits communication and effectiveness. The results are based on 278 responses, primarily from HR executives. 42 percent of respondents belong to companies with less than 500 employees, one third are from companies with over 500 but less than 2,500 employees and about one quarter are those with over 2,500 employees. Asia Pacific Benefits Trends Survey Report 2009 3
Top HR challenges The survey showed that Controlling Cost is the key HR challenge as cited by HR professionals. This can be understood in the light of tighter corporate budgets brought about by the financial crisis. Amongst the eleven challenges outlined in the survey which included challenges like attraction and retention, organisational transformation, improving communication, implementing flexible benefits, risk management etc Controlling Cost emerged the most widely cited challenge 64 percent of the respondents cite it as one of their top three challenges - with 37 percent of those respondents naming it biggest. Besides costs, the second most important concern among HR professionals in Asia seems to be attraction and retention: 55 percent of the respondents cited it among the top three key challenges. Improving performance management and organisational transformation also stand out as big issues that companies are expecting to face in the next 12 to 18 months. Though the top three HR challenges faced by companies are similar across countries, there are some differences too. Controlling Costs is the most widely cited challenge in Hong Kong, India, Malaysia and Philippines. Attraction and Retention is the most important issue in China and Vietnam while Improving performance management is the most important issue in Thailand. Figure 1 Top HR challenges % of responses 70% 60% 50% 40% 13% 14% 16% 15% 3rd Biggest 30% 20% 37% 20% 22% 2nd Biggest Biggest 10% 0% 19% 13% Controlling Cost Attraction & Retention Improving Performance Management 4 Asia Pacific Benefits Trends Survey Report 2009
Benefits strategy An employee benefits programme has three key objectives: to attract, retain and engage an organisation s employees. It is thus important for companies to have a good understanding of the objectives that benefits provision should meet. A well-laid out benefits strategy can play an instrumental role in achieving these objectives. The benefits trends survey results show that 34 percent of the respondents do not yet have a corporate benefits strategy in place. This is an alarming result especially in the aftermath of the recent economic crisis. The survey also finds that of the employers who have a benefits strategy in place, 83 percent believe that their benefits strategy is effective in meeting the needs of the employees. Looking at variations across countries, the survey reveals that China and India stand out as countries with the highest percentage of respondents having a corporate benefits strategy in place - 84 and 79 percent respectively. In contrast to this, almost 45 percent of the firms in the sample in Thailand and Vietnam do not have a benefits strategy. According to the results, 54 percent of the respondents say that their benefits strategy is determined locally or with local inputs, while 33 percent say that it is determined globally or with global inputs. However, the proportion of companies where benefits strategies are determined globally is slightly higher in India, China and the Philippines, for about 40 percent of the companies. Our survey also suggests that the effectiveness of the benefits strategy does not seem to be affected by where it is determined. Figure 2 Corporate benefits strategy No 34% Yes 66% Asia Pacific Benefits Trends Survey Report 2009 5
Despite the tough economic climate, 38 percent of the companies surveyed have not reviewed their benefits strategy in the last 12 months. There are significant differences across countries in the region though. While almost half the companies in Hong Kong have not reviewed their strategy in the last one year, 84 percent of the companies in Vietnam have done so. The survey shows that the majority of firms - 74 percent in the sample - provide benefits at the average market benefits level. However, about 21 percent of the companies in the region provide benefits at or above the 75th percentile. Here too, country differences are apparent with fewer Hong Kong companies benchmarking above median (only 7 percent) and more Indian and Thai companies benchmarking above median (about 33 percent). We also find that companies, across the region, typically benchmark their benefits against local competitors. 38 percent of companies surveyed have not reviewed their benefits strategy in last 12 months. Figure 3 Last review of benefits strategy in Asia Pacific Less than 6 months 27% 6-12 months 35% 12-24 months 25% More than 24 months 13% 0% 10% 20% 30% 40% % of responses 6 Asia Pacific Benefits Trends Survey Report 2009
Benefits provision Traditional benefits dominate but flexible benefits schemes are also gaining favour. This holds true for employers across all countries. Organisations generally offer a wide range of benefits to meet the needs of their employees. Medical screening, life insurance provision, additional annual leave, pension schemes and dental checkups are among the most common benefits provided in the region. Our survey respondents suggest that private medical insurance and additional annual leave are the most popular benefits with employees. As different benefits provisions serve different needs of employees, employers are taking steps to make sure that there are enough benefits available to cater to the needs of a diverse workforce. Employers across the region are planning to implement or further increase the provision of benefits. Retirement schemes, medical screening, additional annual leave, life insurance and company car feature among the benefits that companies plan to introduce in the near future. Figure 4 Type of benefits design Traditional 73% Flexible Benefits 17% Considering Flex 15% Statutory Benefits only 10% Implementing Flex 6% 0% 10% 20% 30% 40% 50% 60% 70% 80% % of responses Figure 5 Most popular benefits Asia Pacific Benefits Trends Survey Report 2009 7
Key drivers of benefits provision According to the survey, cost is the most important factor driving decisions on the level and range of benefits to be offered to employees. Most respondents say it is either cost of implementation or ongoing costs that drive the decision. Gaining buy-in from the board and employee opinion are among the other major drivers. Figure 6 Top drivers of benefits provision Employee Opinion 10% 16% 14% Gaining buy-in from the Board 12% 15% 14% Costs (implementation) 28% 13% 6% Costs (Ongoing) 37% 25% 13% 0% 20% 40% 60% 80% Biggest 2nd Biggest 3rd Biggest % of responses Cost, besides being a key HR challenge, is also the most important factor driving benefits provision. 8 Asia Pacific Benefits Trends Survey Report 2009
Is higher benefits spending by an employer valued more by employees? It is easy to understand why cost emerges as both a key HR challenge and a driver of benefits provision. Companies in Asia seem to be spending a significant proportion of their payroll on benefits. 40 percent of the respondents spend over 20 percent of the payroll on benefits, 35 percent spend 10 20 percent while 25 percent of companies spend less than 10 percent on benefits. However, as shown in the figure below, there are significant differences between countries. While only 9 percent of firms in Vietnam spend over 20 percent of payroll on benefits, the figure is as high as 80 percent for the Philippines. However, as shown in Figure 8, irrespective of what employers spend, over 40 percent of them think that employees undervalue benefits provided to them (cases where employees either value them a bit or don t value them enough or at all). More than 55 percent of the employers in China think that employees undervalue the benefits provided by them. This is in contrast to India, Malaysia and Thailand where employers are more positive about the value that employees associate with benefits only about one-fourth think that employees undervalue the benefits given to them. Figure 7 Spending on benefits as a percentage of payroll Over 20% 10-20% Less than 10% Asia Pacific 40 35 25 Philippines 80 16 4 China 56 20 24 Malaysia 42 47 11 Thailand 40 27 33 India 35 26 39 Hong Kong 22 49 30 Vietnam 9 61 30 *The figures above may not total to 100 due to rounding off Figure 8 Spending on benefits versus value 60% 54% % of responses 40% 20% 48% 33% 33% 48% 26% 21% 10% 8% 6% 7% 5% 0% Over 20% 10-20% < 10% Spending on Benefits as a % of payroll Highly value Value them a bit Value them quite a lot Don't value them enough/at all Asia Pacific Benefits Trends Survey Report 2009 9
Figure 9 Benefits communication to employees Reporting to employees on their benefits Watson Wyatt s WorkAsia TM research reveals that the provision of benefitsrelated information boosts overall employee satisfaction with the benefits package. Benefits satisfaction itself is positively correlated with employee engagement. Thus, it is important for firms to create an environment that includes a clear dissemination of information and clarity around the benefits provided. As can be seen in Figure 9, only half of the employers surveyed report to employees on their benefits package, and that reporting is mainly paper based. Also, the survey reveals that a greater proportion of employers with a webbased reporting system say that their employees value their benefits arrangement (Figure 10). Figure 10 Value attached by type of reporting % responses 70% 60% 50% 40% 30% 20% 10% 0% 67% 49% 44% 36% 33% 21% 14% 10% 10% 9% 2% 4% Yes, web-based Yes, paper based No Highly value them Value them quite a lot Value them a bit Don't Value 10 Asia Pacific Benefits Trends Survey Report 2009
Administration of benefits There is still significant opportunity for organisations to improve the efficiency of benefit administration and reduce the overall administrative burden and cost. 70 percent of the companies in the survey administer benefits in-house and the administration is mostly paper-based. 19 percent use third party administrators. Use of outsourced HR support is much lower with only 7 percent of employers using it. Figure 11 Administration of benefits In-House Third Party/ Outsourced Vietnam 92 7 Malaysia 76 20 Thailand 74 17 Hong Kong 66 26 China 55 41 Philippines 54 30 India 50 42 Asia Pacific Benefits Trends Survey Report 2009 11
Benefit design - flexible or traditional? Provision of traditional benefits, under which a similar set of benefits are offered to all employees, is dominant in the region. However, such a benefits design has a limitation employees cannot select the benefits they value the most and are provided with a one-size-fits-all solution. In view of the fact that employers spend a substantial amount of money on benefits provision, there is increasing pressure on HR managers to deliver a more value-effective benefits design. Flexible benefits is an approach that has the potential to overcome the limitations of traditional benefits design. It provides a better control over costs, improves employee perception of benefits and thus contributes towards furthering employees total reward satisfaction and engagement. Despite the advantages that a flexible benefits scheme has, only 17 percent of the companies in our sample currently provide flexible benefits, however it is becoming more popular with 6 percent of the companies in the process of implementing it and 15 percent considering implementing it. Clients reported that where flexible benefits plans were in place, the benefits programmes were reviewed more frequently and have a greater level of employee communication. They were thus regarded as more effective. Figure 12 Flexible versus traditional benefits Flexible benefits Traditional benefits Corporate benefit strategy 68% 62% Reviewed benefits in last six months Spending over 1/5th as a % of payroll Regard benefits as 'effective' or 'very effective' 40% 23% 32% 42% 88% 79% Report to employees 55% 37% 12 Asia Pacific Benefits Trends Survey Report 2009
Conclusion Despite the significant spend on benefits across Asia Pacific, not all organisations have a benefits strategy and many have not reviewed their strategy for some time. About half the organisations surveyed do not provide communication programmes around the total employee reward; few allow employees to choose the benefits that they value the most and therefore, not surprisingly, the total investment is still not well appreciated by employees. If we compare firms that are providing a flexible benefits scheme with those that are providing traditional benefits, we find that it is more common for firms that provide flexible benefits to have a well defined corporate benefits strategy in place and communicate information on benefits to their employees. Additionally, a greater proportion of these firms have reviewed their benefits strategy in the last six months and are more positive about the effectiveness of benefits provided. The organisations that have taken this action, and made adjustments to suit the 2009 and 2010 business climate will fare better, both in cost savings and employee attraction, retention and engagement leading to a better competitive edge. About Watson Wyatt Worldwide Watson Wyatt is the trusted business partner to the world s leading organisations on people and financial issues. Our client relationships, many spanning decades, define who we are. They are shaped by a deep understanding of our clients needs, a collaborative working style and a firm-wide commitment to service excellence. Our consultants bring fresh thinking to client issues, along with the experience and research to know what really works. They deliver practical, evidence-based solutions that are tailored to your organisation s culture and goals. With 7,700 associates in 32 countries, our global services include: Managing the cost and effectiveness of employee benefits programmes Developing attraction, retention and reward strategies that help create competitive advantage Advising pension plan sponsors and other institutions on optimal investment strategies Providing strategic and financial advice to insurance and financial services companies Delivering related technology, outsourcing and data services For more information, please contact your nearest Watson Wyatt consultant or visit watsonwyatt.com. Asia Pacific Benefits Trends Survey Report 2009 13
locations ASIA-PACIFIC Bangkok Beijing Bengaluru Delhi Guangzhou Hanoi Ho Chi Minh Hong Kong Jakarta Kolkata Kuala Lumpur Manila Melbourne Mumbai Seoul Shanghai Shenzen Singapore Sydney Taipei Tokyo Wuhan EUROPE Amsterdam Apeldoorn Birmingham Bristol Brussels Budapest Dublin Düsseldorf Edinburgh Eindhoven Frankfurt Leeds Levallois-Perret Lisbon London Madrid Manchester Milan Munich Nieuwegein Paris Purmerend Ratingen Redhill Reigate Rome Rotterdam Stockholm Vienna Welwyn Wiesbaden Woerden Zürich LATIN AMERICA Bogotá Buenos Aires Mexico City Montevideo San Juan Santiago São Paolo NORTH AMERICA Atlanta Berwyn, Pa Boston Calgary Charlotte Chicago Cincinnati Cleveland Columbus Dallas Denver Detroit Grand Rapids Honolulu Houston Irvine Kitchener-Waterloo Los Angeles Memphis Miami Minneapolis Montréal New York Paramus, N.J. Philadelphia Phoenix Portland Rochelle Park, N.J. St. Louis San Diego San Francisco Santa Clara Seattle Stamford Tampa Toronto Vancouver Washington, D.C. watsonwyatt.com Watson Wyatt Limited September 2009 Ref: AP Flex Ben Report