Thomas E. Murphy 1

Benefits and Beyond C. 10

Human Capital and Benefit MetricsThomas E. Murphy

Miami University

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Evaluate

Figure 1HRM’s “Select to Profits” Loop

Enroll

P

Select

Productivity

Enroll Train

MotivateCosts

Profits

Sales

Reward

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Figure 2Linking Customers to Employees

1. Customer Data Determines Expectations for Service and Quality

2. Employee Data Determines Capacity of Organization to Deliver

3. Based upon Research, HRM Designs Practice to Meet Customer Expectations

4. HRM Pilots and Tests to See What Works, What Does Not, and Financial Returns

5. HRM Implements Proven Practices and Measures Customer Response

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Metrics – Four Aspects

What is the problem or opportunity? What are the solution alternatives? Do the solutions work? How well are we administering the

solutions?

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Why do This? Because fundamental business

decisions involve the allocation of capital.

Capital is allocated based upon projected returns.

If HRM cannot demonstrate the financial returns of programs, including its employee benefits then it should not get the capital or it will not retain the program.

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They support the business strategy.

They should comply with the 4 principles of the Benefits Model

They can generate real financial returns!

Benefits CAN add value!

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Can health care or a retirement plan create value for the employer?

If benefits are simply an expense why are you offering them?

Subject the benefit process to the same capital allocation process you follow for “hard investment,” such as a new distribution center, or new software installation.

More specifically . . .

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What is the ROI of a new child care benefit for employees?

What is the financial return of a new “wellness” program?

What impact on behavior would a results based retirement plan have on employees?

How would a new HDHCP health care plan design positively affect productivity?

How to measure financial value of benefits.

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Benefits Metrics – R U on the bus?

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Where do you sit on the bus?

Near the window so you know when to get off . . .

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Are there recruiting, absenteeism, or turnover problems?

Are they causally related to absence of day care facility?

What is the cost to the employer of these problems?

What mitigating impact would day care center have?

Who would use it?

The Analysis – day care center

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What are the operational alternatives to the day care center?

How much does each cost? How would the benefit be financed? Should the users pay some or all of the

cost? Projecting the impact of the benefit on the

problems identified, what will be the ROI (NPV) of the new center?

How do you get all of this data?

The Analysis. . .

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Employee surveys Benchmark

comparisons Activity based

costing Financial projections Mine the

Information system data bases – 4 what?

Pilots controlling for variables

Trial and error Baseline measures

– productivity, absenteeism, recruiting, retention and turnover, and more

Data Sources

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There is only so much money to spend. The best proposals will get the money. Benefits should be required to submit to this

process as well. AND: Don’t forget the BENEFITS MODEL!! See Figure 10.1 (at 297) – Flow Chart And, don’t dismiss “voluntary benefits.”

(see: www.voluntary.com/)

The Capital Allocation Process

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Are the benefits well administered?

What is the administrative work flow? Can it be improved? Outsourced?

Benchmark your competitors.

Can we change the design to make the benefits more cost effective?

Is Six Sigma relevant to benefit administration?

Example: life insurance and beneficiaries(301)

Benefits – efficacy and efficiency

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Measure the effectiveness of your TPA. Include performance criteria in contract

with TPA – claims processing, customer lines, communications.

Do employees know and appreciate their benefits?

Do employees have a sound understanding as to how their retirement plan works?

If not, what value does it have?

Benefits . . What else?

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Use an employee benefit survey and questions that might require them to choose what they want and what they are willing to give up in exchange:

Would you rather have life or disability insurance? Health care or retirement?

Are you wasting money on certain benefits?

Benefits . . What else?

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Are you communicating?

New Challenges Neuroscience?

Multi-Generational? Demographics – older

workers? Do they understand

their benefits? Do they value their

benefits? How are their

behaviors affected?

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What if your health care costs are higher than competition? What are the alternatives?

Should you be measuring the overall health of your workforce and determine its impact on health care costs and productivity?

How can you measure the financial returns of a Wellness Project?

Benefits . . What else?

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Assess state of health Calculate health care

costs and drivers. Identify risk factors

that are driving health care conditions and utilization.

Calculate impact on productivity, attendance, retention, and costs? Others?

Design medically based plan to mitigate risk factors.

Take baselines. Set goals, cost limits Create incentives to

modify behaviors, compliance, medical interventions and management.

Compare baselines to new data.

Analysis- ROI of Wellness?

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Calculate the “value” of the differences in risk factors.

What would have been the H.C. expenses had they not been reduced?

What impact on productivity, attendance, and retention? What value here?

(returns – costs) ÷ costs = ROI See: Table 10.3 Wellness Plan Components

(322).

Analysis- ROI of Wellness

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HRMS Medical claims data Clinical outcomes measures Surveys of competitors and peers Employee surveys Community data BLS/Census Bureau The professional literature

Sources of Data: Figure 10.2 (304)

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What percentage of final pay will the 3 pillars generate at retirement age?

How to communicate and educate?

Burham and 401(k)

Will your retirement plan support retirement?

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Link 401(k) and Productivity

Hypothesis Proof

Savers postpone gratification.

Savers view the long term as important.

Savers are more productive workers

Could 401(k) be used as a signal to recruit high potential employees?

Link between high current savings rates and participants’ productivity?

Link merit increases? Other proxies for

“savers:” long term care insurance, MBA benefit, non-qualified deferred comp.?

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How would you show this?

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Surveys (customers, employees – link to sales, productivity, operational, profit drivers)

Return on Investment Net Present Value Internal Rate of Return The Payback period

Measurements . . .

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The Benefits Model The Flowchart of Data and Measurement,

Figure 10.1 (297) The Balanced Value Cards, Table 10.1

(health care) and 10.2 (retirement) at 312, 313

Design tools and metrics

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Your CEO wants to offer an early retirement incentive to certain segment of the workforce in order to reduce labor costs. He anticipates that some of these positions will be re-filled by lower paid new hires. How would you go about using data and metrics to evaluate the potential return of such a program?

Query:

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How much will it take to incent people to leave?

What are targeted savings?

How do you control legal issues?

Who is eligible? Loss of productivity

Replacement and other costs

Head count control for the future?

What is ROI? What is Payback

Period?

Criteria to evaluate “package”

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Does the DBP encourage longer and more loyal service?

Does it make financial sense to offer an early retirement provision in your DBP?

Could you increase productivity by inserting a profit or other performance match into your DCP?

Do reward incentives (Stock options, bonus, gain sharing) really affect productivity?

Other metrics and retirement

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What can the employer do to maximize the value of benefits among its employees?

What steps might impact the rate of participation among NHCEs and what is the return here?

What are employee expectations with respect to their retirement?

How can you evaluate your retirement fiduciaries?

Other metrics and retirement

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Since the PPA of 2006 clarified some of the problematic issues of CBPs, your CEO has wants to convert the current FAP DBP to a CBP.

What factors would be relevant to making a determination as to the advisability of the proposal? What would be the potential returns and costs? How is the Benefits Model relevant? What would be the optimal design of a CBP?

How would you evaluate the change?

New Retirement Plan

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Investment performance of choices

Relevant to demographics of employees

Compare to indices Cost of

administration Service level goals

Quality and relevance of participant communications and decision support

Use of proper technology

Timely upgrades for legal compliance

See: page 317

DCP administrator evaluation

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Your CEO wants to institute an EAP. It will provide confidential psychological assistance to employees who: abuse alcohol or drugs, are the victims of physical spousal or partner abuse, have recently suffered a traumatic experience, or are dealing with divorce or other family crises.

Describe steps you would take and optimal design of an EAP. How would you evaluate?

Employee Assistance Plan?

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Your CEO thinks it would be a good idea to have a worksite center that provides health care treatment, exams, counseling, and prescriptions designed to complement family physician, urgent care, and emergency room.

What are the issues, steps you would take, range of possible designs, and your optimal design?

How would you evaluate?

Worksite Health Care

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Your CEO wants to institute several “Work Life” programs that would provide: flexible scheduling as well as several educational programs including parenting skills, financial planning, English language, and how to care for aging parents.

What steps would you take, what are the issues, alternative designs, and how would you calculate the ROI?

Work Life Programs

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(1) health care is not a commodity –(2) The health care plan should enhance productivity of the workforce. (3) Does it do this on a cost effective basis?

Metrics and health care

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Your HR Director wants to offer flu shots to your employees. What are the data you need, the issues, alternative designs.

How would you go about effectively measuring the return on such a proposal? (see pages 318-319)

What about including dependents in the program?

Query: Through with Flu?

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See: Table 10.3 Metrics and health care step-by-step approach (320)

How would you evaluate taking preventive care costs out of the “deductible?” Remember: it costs to annul your deductible; what’s the return?

Revisit Figure 7.1 (The Pyramid – Optimum Intervention Intervals at 186)

Health Care and Metrics

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What’s your overall employee health? Proxies could include absenteeism,

productivity, health care claims costs, job tenure, wellness health assessment data, and overall form and fitness.

How does your health care plan impact this? Would a design change be more effective? What could you change – identify a range of

solutions.

Health Care and Metrics

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Evaluating providers . . .

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Where is the data and how do you evaluate it?

What do you compare? What do you do when you know which

providers are offering the best care? Could there be a value based competitive

market among providers? The best are rewarded for providing the

best value – quality outcomes on a cost efficient basis.

Evaluating providers

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Evaluating providers

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Based upon clinical outcomes, their length of stay, and their costs.

DO THEY GET IT RIGHT THE FIRST TIME? Mayo Clinic has lowest health care costs.

Why? Their work is focused on quality outcomes

and not “guesswork.” Accordingly, their prices are lower. Should we pay for performance?

Evaluating providers

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Patient satisfaction? Process and health care protocols? Compare actual outcomes – did the patient

die, recover, return to the ER shortly after, have an infection, live a normal life afterward? Was the condition properly diagnosed, treated, surgically repaired?

How do we get this data? Some providers are building it.

Provider evaluations

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Were alternatives attempted? Was surgery necessary? (Define) Was surgery a clinical success? Mortality? Was there a post surgical infection? What was expected time and level of

recovery vs. actual? Was there a subsequent re-admission? What is level of pain, mobility, and physical

activity six months after vs. expected?

Back Surgery – herniated disc

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How do we compare patients with different conditions?

See Exercise No. 4 at page 329 www.hospitalcompare.hhs.gov/ www.healthgrades.com

www.leapfroggroup.org/

Comparing Providers

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Can’t manage what we don’t measure.

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The best way to make health care more affordable.

See “My View” at: www.managementandbeyond.com/blog

But we have to get the right data to make it work.

How will this happen?

This could be . . .

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Who’s in your network?

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Exercise 4(128) - Provider Metrics

Results, experience, and process compliance

Mortality Re-admission Recovery period Hospital/surgical

infection Prescription errors Patient safety Length of stay Cost

Patient satisfaction Inter-professional

communications Process compliance Sound medical records

system Technology Clinical outcomes by

MDA Staffing

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Exercise 7 (329) 401(k)

(a) Account Balance (b) communications

Current savings Savings rate Wages – current and

future Current age Expect to retire at

age? Investment returns Employer matches

Develop self-instructional calculators

Use internet calculators

Communicate via annual benefit estimators

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Exercise 7 (329) 401(k)

(c) Under subscribed Under savings . . .

Change match Go to Safe Harbor Change vesting Increase match based

upon years of service New effort on

investment education Offer “DBP Floor Plan”

if 401(k) flops

Use images and multi-generational communications.

Offer Life Cycle (Age Based) investment funds.

Offer Profit match Provide annuity option

at or near retirement

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Exercise 7 (329) 401(k)

(d) New Data (e) New info

Precise demographics Employee

expectations about retirement and retirement age and income.

What are their barriers?

Investment savvy?

Enhance their understanding about the Plan

Future value of dollar. Add Social Security

estimates. Explain what it will

take. Financial advisors? Plan costs

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Do they need individual investment help and planning?

(f) Measuring success There may be no rescue

Surveys Changes in

participation rates Changes in savings

rates. Changes in % of final

pay replacement rates Employee satisfaction

and understanding of Plan.