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Benefits Program Helps Retain Frontline Workers

February 1, 1993
Related Topics: Benefit Design and Communication, Retention, Featured Article
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Manor Care Inc.'s chairman, Stewart Bainum Jr., made a commitment for the 1990s: His company would become one of the great service organizations of the world and be known as the provider of choice in the areas it serves.

"For years we compared ourselves with other companies in both the health care and the lodging industries. We compared favorably by a number of different standard measures, such as financial returns and so on," says Bainum. "We decided, however, that it wasn't sufficient, so we made it our aspiration to become a great service organization."

The Silver Spring, Maryland-based Manor Care is a holding company that's the parent to two organizations. One of these companies, Choice Hotels International, oversees a franchise system that includes 2,350 hotels in 22 countries. The other organization, Manor HealthCare Corp., operates 167 nursing centers nationwide, an acute care hospital, retirement living units, a wholesale pharmacy business and medical aid training schools. Manor Care also has a hotel-operating division.

Bainum realized that the organization's hope for accomplishing its goal of becoming a great service provider depended in large part on its frontline service employees. These are the people who deal directly with the company's customers. They also make up a substantial amount of the employee base. In the health care side of the business alone, for instance, 10,000 of the 20,000 employees are certified nursing assistants-the workers who help people in the company's care to dress, eat and bathe.

Realizing the importance of frontline employees to its growth, Manor Care turned its attention to the perennial problem of turnover, which, in the service industries, is in excess of 100% among these workers. "We didn't feel we could be a great service organization and deliver fine service if we continued to have a high turnover," explains Chuck Shields, Manor Care's vice president of human resources for the company.

For several months, Manor Care investigated why certain employees stayed and others didn't. Part of the process involved conducting and documenting thorough exit interviews and analyzing employee surveys. In addition, Manor Care hired a Baltimore-based consulting firm, Bolton Offutt Donovan Inc., to conduct focus groups out in the field. In these focus groups, employees talked about what motivates them, why they like their work, why they're working for Manor Care and why they stay.

Manor Care also launched an examination of its benefits program. The company discovered that, although its benefits package was good, it wasn't meeting the needs of its employees. For example, for medical benefits, workers had a choice between a traditional indemnity health care plan and a Preferred Provider Organization (PPO) at all company locations. Several locations across the nation also had Health Maintenance Organizations (HMOs) as an option.

Despite the many choices, the enrollment in all three options was quite low. Only 15% of the 25,000 employees used the PPO, for example.

Shields found similar statistics for the pension plan being offered to employees, a traditional 401(k) plan that matched employee contributions dollar for dollar. "We discovered that of the employees making $12,000 a year or less, only 20% were participating in the 401(k) program," says Shields. "This sent us a clear message that, although we had a very good plan, our average, frontline employee couldn't afford to participate in it because it was a contributory plan."

The company concluded that if it wanted to reduce its turnover of front-line employees and thus improve its service, it first needed to serve its employees' needs better. To do this, the company set out to redesign its benefits program.

What resulted was the creation of a program unlike any before it-a benefits program that compensated lower-paid employees based on greater percentages of their salaries than for higher-paid employees. It was one that rewards length of service with the company.

Employees needed an affordable pension plan.
The first challenge that the company faced in revising its benefits plan was to create a pension plan in which its frontline employees could afford to participate. Bainum suggested initiating a noncontributory retirement plan.

The plan he had in mind, however, was different from most other company-paid retirement savings plans: He proposed that the lower-paid employees, who can't afford to invest in a 401(k) program, receive a contribution that was a higher percentage than that of the higher-paid workers. The team of benefits designers, which included Shields and his benefits staff, the hired consultants and a steering committee made up of people from both the corporate holding company and the operating business units, embraced Bainum's idea and came up with the Cash Balance Account plan.

Here's how it works. Contrary to most contributory plans, which make contributions based on a uniform percentage for all participants, the Manor Care plan adjusts its contribution percentages according to employee salaries, giving a proportionately higher amount at the lower salary ranges. For example, for the first $12,000 of the individual's annual salary, he or she earns an additional 3%, which the organization contributes to his or her retirement account. For the next $6,000 to $18,000 of earnings, the contribution by the company to the retirement plan is calculated at 2% of salary. For earnings between $18,000 and $100,000, the company reduces its contribution to 1%. No contributions are made for salary that exceeds $100,000.

The Cash Balance Account plan also takes into account the length of service with Manor Care. If an employee's age plus his or her years of service equal 55, the contribution percentages increase to 4% for the first $12,000 earned, 3% for the next $6,000 and 2% for any amount earned between $18,000 and $100,000. For example, a 45-year-old employee who has worked for the company for 10 years would qualify for the increased contribution.

For those employees who choose to increase the amount of money from their pay that is put aside for savings, the company has kept its 401(k) plan. The plan has been altered, however, to reward increased length of service by increasing the amount of the company's contributions for long-term workers.

Employees who have worked for Manor Care for at least one year, putting in 1,000 hours or more annually, can receive a 25% match to their contributions by the company if they participate in the program. The company's match increases to 75% after five years and reaches 100% when an employee has worked for the company for 10 years.

Medical benefits must be affordable.
Just as with the retirement fund plan, the company wanted its medical plan offerings to reward for length of service and to be affordable for front-line employees. Health care costs are escalating continuously, but, according to Shields, it was the cost to employees, rather than the cost to the company, that was the motivating factor in the redesign of the organization's medical coverage. On the other hand, the company certainly didn't intend to create a program that would cost the company more money, Shields says. It simply wanted to implement a plan that would serve its employees better at a cost no higher than for the previous plan.

Shields and his design crew came up with a traditional indemnity plan in which employees' deductibles progress and out-of-pocket expenses are based on salary. In other words, the more an employee earns, the higher his or her deductible and expenses will be. For lower-paid employees who can't afford high deductibles and expenses, this means lower costs. For instance, for an employee who earns less than $12,000 a year, the deductible for medical care is $150. An employee who earns $50,000 or more annually, on the other hand, has to meet a $550 deductible.

To reward an employee for length of service, the company decreases the contribution amount that employees must pay to participate as their years of service increase. Therefore, the company picks up an increasing proportion of the cost of the medical plan for long-term employees.

As Joann Young, a nursing assistant at Manor Care Nursing Center in Arlington, Virginia, found out, staying with the organization can be a real advantage. Employed with the company for nearly 12 years, Young's medical plan now is paid for completely by the company.

An additional feature of the Benefits of Choice plan is the option of switching at any time between the indemnity plan and the HMOs, which are offered at 70% of the Manor Care operating units. During open enrollment, employees may sign up for the traditional indemnity plan, the HMOs or the managed care, point-of-service plan, which allows employees to use the indemnity plan when they want to use their own doctors, and the HMOs for service in which they feel comfortable seeing the doctor available at their health care facility. For example, if an employee has a cold, he or she may not mind going to a network doctor for treatment, which is covered by the company and requires no deductibles on his or her part.

If within the same year, however, the same employee discovers that he or she needs major surgery and requires a specialist who isn't part of the network, the employee may switch to the indemnity plan and pay the deductibles and out-of-pocket expenses. Of course, under the plan, the employee could again go back to a network doctor under the HMOs at a later time that same year, if desired.

"We implemented the point-of-service plan," says Shields, "because we were so confident that the network we had chosen was a quality network, and because we were absolutely sure that after employees tried it, they would like it, we tried to make it very easy for them to try it," he says.

Apparently, the plan to initiate use is working. According to Emory Allen, director of benefits at Manor Care, 90% of the people working in facilities in which HMOs are in place-and the managed care option is available-are participating in the plan. Of the 25,000 people employed by the company, 11,000 are enrolled in one of the three medical plans: 2,500 currently are enrolled in the HMOs, 2,000 are using the indemnity plan, and 6,000 have opted for the flexibility of the point-of-service plan.

For those employees who opt not to join any of the medical plans, however, the company offers another option: the opportunity to cash out. Employees may receive the money that otherwise would be used for their medical plan to pay for other benefits, or to add to their pay.

Employee response has been favorable.
Regardless of whether they have joined any of the new benefits plans, a majority of the Manor Care employees are pleased with the new program. According to a follow-up survey conducted at the time of the rollout of the program, 85% of the employees indicated that they felt the benefits had either improved or substantially improved compared with the previous plans. "For me, the changes in the program were great," says Young, who, by having her medical insurance 100% paid by the company, now has more money to invest in her 401(k) plan.

Most of the employees who weren't excited about the changes were, understandably, the higher-paid employees. Shields admits that these employees, if they leave the company after just five or six years, will accumulate slightly less money in their retirement plans than they would have if the old plan were still in place, which matched their contributions dollar for dollar after just one year. If they stay until retirement, however, Shields says that they will earn an amount of retirement pay equal to the amount they would have earned in the previous plan.

Also, one revision to the 401(k) plan works to the advantage of the higher-paid employees. At the time the plan was revised, the company increased the employee contribution limit from 6% of pretax income to 15%, allowing employees to save an increased amount of money and further decrease their yearly taxable income.

Shields says that part of the communications process at the rollout of the program was to make sure that the employees at all salary levels understood how to make the benefits program work for them. He admits that the company never had focused very strongly on communicating the value of the benefits plan to the employees. After putting so much effort into developing the new program, however, the HR department committed itself to making sure that the employees knew what their options were, and how the different plans could benefit them.

The internal communications function of Shields' training-and-development department assisted the benefits department in designing all the communications materials including:

  • Bulletins and newsletters
  • Letters to employees' homes
  • A videotape and overhead projections for presentations
  • Workbooks.

In addition to creating the printed materials, the benefits department trained 49 people from both the corporate staff and from the operating end of the business to be presenters at the operating units. During a three-week period, the presenters communicated the program to employees throughout the nation, answered their questions in open forums and trained one person in each facility to present the program to new employees as they become eligible. For employees who had further questions, the company furnished a toll-free telephone number that would connect them with a benefits coordinator at the corporate office. The presenters also were encouraged to call the hot line if there were any questions they couldn't answer.

The communications plan proved to be a major factor in employee acceptance of the benefits program. Dick Donovan, a managing partner at Bolton Offutt Donovan, says that for him, the most rewarding aspect of putting together the benefits program was seeing that the employees appreciate it. "Too often, things that organizations put a lot of effort into are ho-hummed by their employees," says Donovan. "It's nice to find that at Manor Care, the employees really did genuinely appreciate the efforts." This employee appreciation has contributed greatly to the success of the benefits plan in achieving its objectives of reducing turnover and improving customer service.

The program has realized its twin goals.
Throughout the country, Manor Care's turnover for all employees is down 12% since the announcement of the Benefits of Choice program in November 1991. More significant, the turnover among frontline employees, which was 72% in October 1991, decreased 25% immediately after the initial meetings with them about the plan. As of July 1992, the turnover rate of nurses' aides at Manor Care was at 56%.

In turn, customer service quality has increased. According to customer satisfaction surveys that are completed by 10,000 of Manor Care's health care customers annually, satisfaction with the company's employees has increased five points this year. "We feel strongly that our benefits programs have contributed to these positive trends," says Bainum, although he realizes that other factors have had an influence as well. (See "Other Programs Also Address Retention.")

What Bainum may not realize is that his company's new benefits program may become a trend in the service industries. "There's such a strong recruiting pressure within these organizations to keep their facilities staffed. The fact that Manor Care was able to get this done gave them a recruiting advantage in the marketplace," Donovan says, adding that his consulting firm already has heard from several of Manor Care's competitors asking for help in developing similar programs. If imitation really is the highest form of flattery, then Manor Care should be proud.

Personnel Journal, February 1993, Vol. 72, No. 2, pp. 88-94.

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