How the benefits portfolio is key to boosting employee retention
by Mark WestMr. West is the national vice president of business solutions at Principal Financial Group®, Des Moines, Iowa. Visit principal.com/ownerinsights.
Looking back one year since the start of the COVID-19 pandemic in the U.S., business owners are reflecting on the biggest challenges they faced and how they might continue to overcome them, as the nation moves toward recovery.
While the pandemic and associated uncertainty prompted mass layoffs across industries, other industries flourished and competed for talent. The Bureau of Labor Statistics (BLS) reported that more than two percent of the total workforce in the U.S. (3.5 million people) left their jobs voluntarily by October of 2020. And this loss had a significant impact on small businesses.
Employees’ reasons for leaving were as unique as the individuals themselves, and included the impacts of increased caregiving responsibilities, lack of job flexibility, opportunities to work from home, or the desire to explore a different career path. As we move forward, it is critical that business owners retain the talent they relied on during the pandemic, as well as attract new employees, to grow their business and account for any loss of employees during the past year.
To do so, small businesses must demonstrate why their companies stand out and the unique opportunities they can offer via company culture, growth opportunities and competitive employee benefits.
The most recent findings from the Principal® Business Owner Insights research provide valuable insights on what benefits business owners are prioritizing and offers a look at potential gaps. Financial professionals may support small business clients through this shift and help them identify which benefits may be a fit for each unique employers’ workforce.
Improving Retention and Productivity Through Employee Benefits
Employee benefits do more than just aid in the recruiting process. They also boost employee productivity. A study published by LIMRA on how employees are adapting workplace benefits under COVID-19, revealed that 40 percent of employers say the coronavirus pandemic has impacted their perspective about the importance of benefits. The shift is almost universally towards viewing benefits as more important. And, as COVID-19 caused many of us to come to grips with our own mortality and the need to protect our loved ones for the future, the same study cited 54 percent of employees viewed their insurance benefits as more valuable than they did before the pandemic.
According to the latest research by Principal®, a growing number of business owners (65%) say employee benefits improve retention, and more than half say employee benefits improve workplace productivity.
Your clients may already have benefits in place—like health and wellness solutions and qualified retirement plans. Many employees have come to expect those benefits from their employer. And business owners realize the importance too, as health and wellness solutions have ranked a top 3 priority since 2008, according to the Principal® Business Owner Insights.
TIP: Financial professionals should assess client benefit packages and suggest they enhance their benefits to include non-medical and voluntary benefits that meet the needs of their employees, for example, health and wellness solutions or critical illness insurance. Employees have come to expect these benefits from their employers and will be more apt to stay with the company if they know they have this coverage on an ongoing basis.
Managing Employee Benefit Costs
While business owners say they use their benefit packages to attract and retain employees, they’re also looking for ways to manage benefit costs without impacting the bottom line. This is especially important as many owners may have faced cash flow issues amidst the pandemic. In fact, 50 percent of business owners say affordability is an important factor in choosing employee benefits, according to Principal®Business Owner Insights.
TIP: Financial professionals should look for benefits that offer clients flexibility to help them meet their employees’ needs and also stay within their budgets. For example, some carriers offer dental insurance that can be customized, with clients selecting from a wide range of deductibles, coinsurance, and maximum options. Each selection influences the bottom line, and financial professionals may help them effectively understand pricing differences. Recommending voluntary, employee-paid benefits to clients may also help them fill benefit gaps, meet the diverse needs of their employees, and offset the rising costs of healthcare benefits.
More business owners report that a competitive landscape influences their company’s employee benefit decisions. How do clients know if they’re offering a competitive benefits package to attract qualified job applicants?
TIP: Financial professionals may also help clients benchmark their benefits with similarly sized organizations in their region and industry using digital solutions. For example, Principal offers the Principal® Benefit Design Tool, an online platform that creates reports for clients showing how their group dental, long-term disability, short-term disability, life insurance, and retirement plans compare against peers.
Increasing Number of Key Employees
In addition to the general employee base, business owners are also focused on recruiting, rewarding, and retaining key employees. (i.e. those who are critical to the success of the business) And, there are more of them to reward than in years prior. The number of key employees per organization has increased, with 35 percent of business owners reporting they have four or more key employees in 2021 compared to 21 percent in 2008.
No matter how many key employees a company has, supplemental benefits are a way to attract and retain top talent. Over half (55%) of owners want to reward their key employees with additional benefits.
In terms of offering supplemental key employee benefits, individual disability income insurance is the most common (35%) followed by deferred compensation-future benefits (27%), and executive bonus plans (26%).
TIP: Financial professionals should discuss supplemental key employee benefit solutions with clients to help them:
- Recruit top talent by offering highly competitive benefits
- Reward key employees through performance-based solutions/plans
- Retain employees through plans that encourage loyalty, for example, offering benefits that help secure employees’ financial futures both before and after retirement
How do financial professionals fit into the equation? Business owners recognize the importance of working with the right financial professionals. And they’re using the services financial professionals provide in increasing numbers. In fact, leveraging the support of a financial professional has grown almost 20 percent since 2015—with 73 percent of business owners now working with a financial professional, according to Principal® research. The most important factors for business owners when looking for a financial professional continue to be expertise and cost of services.
If 2020 taught us anything, it was that everything can change in an instant. Some clients’ businesses may have grown as they were suited to serve customers’ evolving needs or could pivot their business model quickly. Other clients had to completely reinvent the way they did business in order to keep the doors open. Business owners are resilient. Showing them how benefits play a key role in their growth strategy will be instrumental in helping them get through whatever situation or crisis is thrown their way in the future, and will enable them to continue to thrive moving forward.
The 2021 Principal® Business Owner Insights survey is based on 1,011 online interviews with business owners, each with 2-499 employees. It was conducted in January 2021 by Dynata.
The subject matter in this communication is educational only and provided with the understanding that Principal® is not rendering legal, accounting, investment or tax advice. You should consult with appropriate counsel, financial professionals, and other advisors on all matters pertaining to legal, tax, investment or accounting obligations and requirements.
©2021 Principal Financial Services, Inc. Insurance products issued by Principal National Life Insurance Co (except in NY) and Principal Life Insurance Co. Plan administrative services offered by Principal Life. Principal Funds, Inc. is distributed by Principal Funds Distributor, Inc. Securities offered through Principal Securities, Inc., 888-774-6267, member SIPC and/or independent broker/-dealers. Referenced companies are members of the Principal Financial Group®, Des Moines, IA 50392.
1. 2021 Principal Business Owner Insights.
2. How Are Employers Adapting Workplace Benefits Under COVID-19. LIMRA, 2020.
3. Non-medical and Voluntary employee benefits. Principal® Business Owner Insights, Principal 2021.
4. Benefit Design Tool, Principal.
5. Business Owner Research, Principal.
6. Principal Business Owner Insights, Principal.