How talent wars are reshaping compensation, benefits plan design

Trends in compensation and benefits package design continue to reflect employers’ difficulties in attracting enough warm bodies to get the work done. A recent survey of more than 4,000 organizations reveals that this year, employers are sweetening compensation while tending to leave well enough alone when it comes to plan design.

The 2022 Workforce Trends Report: Physical & Emotional Wellbeing, by the consulting firm Gallagher, suggests that the majority of employers, large and small, are reluctant to continue the benefits strategy of cost-sharing that had taken root prior to the pandemic. Instead, they are either standing pat with benefits, or finding more creative ways to configure their package to make it more attractive to employees. Meantime, they are boosting compensation as a quick fix to lure new talent and retain existing staff.

The survey found that 78% of respondents are enhancing base pay, up 6% from last year. Enhancing medical benefits remained a top priority–but only for 33% of respondents. In the 2021 survey, 55% cited it as the top priority.

Related: 5 ways to optimize your benefits package for economic uncertainty

“Competitive pressures in the labor market are causing some employers to hesitate when considering plan design changes. Reluctance to give employees any reason to look elsewhere for employment has reduced overall sensitivity to medical trends and has eased increases in cost sharing and similar measures,” Gallagher commented. “Continual staffing needs have made compensation a key bargaining chip for acquiring and keeping employees on board. In 2022 … While increases to compensation are still trending upward, benefits expansion has tailed off.”

One of the trends-within-the-trends found that domestic partners are becoming a bona fide part of the family at many organizations. “Domestic partners are eligible for medical benefits at 42% of organizations, and 24% provide this opportunity to their active part-time employees.” One trending-down benefit: supplemental medical coverage for executives. This once-popular perk is now available to just 5% of execs, according to the survey.

Reining in pharmacy costs

Respondents demonstrated an increasing appetite for reining in pharmacy costs, and for making pharmacy benefits a less bitter pill for plan members to swallow. While far from a universal tactic, carving out pharmacy benefit manager (PBM) services is gaining traction.

“This is a fundamental decision for the self-insured, and large employers have tended to choose this option in recent years,” the survey remarked. “The trend continues for this cohort in 2022, rising 4 percentage points since 2021 to 40%. A transition to carve-outs among upper midsize (22%) and lower midsize (11%) employers has also occurred, up 5 points and 4 points respectively, marking a departure from years of relatively stable rates.”

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Smaller numbers of large employers are flirting with other options. Some of the largest are “unbundling and separately contracting their PBM services, such as specialty pharmacy, in an effort to optimize overall results.” Some now offer plan members a separate pharmacy benefit deductible, in which case, Gallagher said, “the total cost of their pharmacy and medical deductibles is less than what they would have paid for a single deductible under a medical plan. Reduced out-of-pocket expenses clearly benefit employees, which makes this cost sharing approach an interesting contender for competitive improvements to benefit design.”

Dental benefits “is practically a given for employers,” the report said, with 69% of employers offering it as part of the standard benefits package, and 27% as a voluntary benefit. As with dental, other benefits are now more readily available as voluntaries as employers attempt to offer benefits to segments of the workforce outside of the basic plan. A quarter of those surveyed said they had enhanced their voluntary offerings for 2022.

Employers are intrigued by the plethora of HR platforms and other HR management tools that are entering the marketplace. Seven out of 10 respondents said they would expand or replace their current HR technology within two years.

Finally, the survey asked employers about absence management priorities. Keeping pace with emerging government regulations remained the top complaint, followed by the impact of absence of productivity. Employers also reported struggling with the tracking of time off for employees related to regulatory requirements, and also cited “manager education” with respect to absence policies as a headache.