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09/20/2013

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I have never worked for a company that did this. But I agree with you. The initial idea of 'cafeteria compensation' was to develop a 'market basket' from which the workforce can select the elements of total rewards that they want. At the time the most wise of organizations had a 'core' of reward elements that they offered such as a variable pay plan based on business metrics, a base pay plan, and a basic benefits plan. Then the workforce had some dollars available for making choices. And the things mentioned in this article were often in the 'basket'. It involved the workforce in designing their own rewards and also had some required elements that made sense to the organization.

Interesting post and I hope we get some discussion about the issues you identify.

Thanks for the comment Jay.

I once did a flex project. Not being an expert ---- I created a pie chart showing total amount spent on benefits (benefits only on flex) and then a pie chart showing percent spent as well as $ amount on each.

Let employees select which ones they wanted (no new ones allowed in the interest of simplicity the first time around)as long as the they didn't exceed the total.

I know this wasn't very sophisticated and the total amount changed slightly due to the selections made but again this was in Hong Kong and didn't want to analyze it to death. Also had to determine the company had enough $$ in benefits to make flex worthwhile.

Overall a fun project and employees appreciated it. Administrative nightmare but HR and Finance were "up" for it.

I think we are getting close to a point at which we can establish or determine the 'true' economic value of any given role.

At that point, it seems facially obvious (to me, anyway) that there would be enormous competitive advantage in offering a current or prospective incumbent whatever equivalent combination of pay and benefits they prefer.

Many years ago (hate to think) I worked in Santa Monica for Rand Corporation. I had a number of large federal contracts to do pay surveys for the government auditors. We got funded for a study that was called, cafeteria compensation' and that project was the source of what was called 'compensation choice-making'. We got two clients: Educational Testing Service and TRW Systems and 'cafeteria compensation' was launched. Then I joined Hewitt Associates as one of the early partners and we spent a lot of time on choice-making.

The concept was an early success and many of the elements are around today. The thing we were never able to deal with effectively is the government decided that if cash is a choice in flexible compensation then no matter what you pick it is taxed as cash. So the choice between cash and benefits was killed and flexible compensation became something insurance companies used to sell insurance products. It was a great idea stuck down by the tax collector and 'stabbed to death' by the insurance companies.

If you think about it 'thinking people' would like customizing their total rewards programs. It is one of many really great opportunities in the total rewards business that died but it was a super idea.

@ Jay Schuster: Further evidence, were any necessary, of the pernicious effects of the dead hand of the nanny state.

You have not seen anything yet until we get into the Obama health solutions. The only viable way to provide 'affordable care' was to offer a 'single payer' solution of some sort. But to get the program approved they needed the insurance companies so we got what we are going to get. If you think that universal healthcare is a good idea you need to look at how it is successful in other countries. And none of them have a model anything like what we are getting with the solution that is now upon us. None of the federals who are bringing us 'Affordable Healthcare' have ever had to run a company and the designers of the program just got a 'bailout' from any of the negatives of what they designed so it will not impact their healthcare at all.

When you see major employers dropping healthcare and reducing hiring because of a government solution of some sort that is a problem for us all. If we believe that universal healthcare is a good idea and are willing to pay for it the best way to provide it was to somehow extend Medicare which actually works pretty well.

It seems to me we are all waiting around for the next tragic event our federals have planned for us. If you like 'choice making' of any sort you need to wonder who is making the 'choices' for us relative to healthcare planning.

Thank you Jay and Tony for sharing your thoughts.

All you readers out there! Has anyone been through the process of having to cut perks like these? How did the employees react? Any lessons learned you can share?

When the price of coffee in the company cafeteria was increased (from a super-subsidized level to a merely modestly subsidized level), the senior executive secretaries who remembered the founder's original price-point promise threatened to organize. We bought them off with personalized parking spaces.

The old attitude was that entitlements are infinite. What people have NOW was expected to be perpetual except for additions in the future. "Pay always increases," etc. This is a new world today for total reward professionals.

A wise (and relatively young) CFO told me many years ago that "WHATEVER HAS BEEN GIVEN CAN NEVER BE TAKEN AWAY". I think he was onto something.

Jacque,

There are a lot of unknown variables to provide any real recommendations. I was working in Silicon Valley when the bubble burst in the early 2000’s. The company I worked for had some of the typical perk of the day (free drinks and snacks, happy hour,…). The effectiveness of any solutions is only as good as its communication. The company I was working for was not decisive and cut many of the perks without much communication and then started monthly RIF’s as the tech sector continued to experience problems. Employee engagement and moral was low but not because they took the perks away, it was because there was a lack of leadership and effective communication.

Weather you keep the perks and reduce more heads and other controllable costs or get rid of the perks and change the employment relationship the more important question is what is your workforce strategy. If you get rid of the perks does it change your attractiveness to top candidates? Do you just need a minor adjustment or a major business overhaul? Sometimes cutting more heads from the organization while still taking care of the survivors is the right call.

Trevor --- thanks for sharing. I know that perks aren't necessarily a big deal but they are something that HR can try to insure are managed correctly with as little fuss as possible.

Agree there are lots of options to consider when cutting costs. Cutting perks/benefits for survivors might end up better than laying people off ---- and then again it might not be.

Each company is different with different options to consider.

I do, however, believe that if a company keeps perks, they need to keep them "fresh". So they need to be changed every few years. Asking for employee input on what to take away/introduce is the way to go.

FYI in some countries once a benefit, compensation plan, etc. is provided it can never be terminated. Companies build "sunset clauses" into plans as a way around this. Example: A new bonus plan would be communicated as effective between __ date and __ date. Then if the company wants it can extend the plan for period of time, etc. Or terminate it and try another one in its place --- or nothing.

I'm not sure if all of the listed elements are perks or just a way of doing business.
But if they are and actually work to attract, retain etc why not keep them. Do they work to retain?
If they can be monetised I would not be averse to some form of cafeteria as even Gen Y get older and their personal profile changes and consequently needs may change too.

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