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Do it Right or Risk Getting Burned

September 2, 2003
Related Topics: Benefit Design and Communication, Featured Article, Compensation

Employees are never happy to learn that they’ll have to pay more money for health care, pension and other benefits. And employers abhor delivering the news. Still, it’s a problem that must be addressed, industry experts say. Recognizing the value of good, early communication can significantly smooth the way for benefit take-aways. Ignoring it can lead to misunderstandings, morale problems and even lawsuits.

    The corporate landscape is littered with problems and bad headlines stemming from proposed benefit changes that blew up on the companies that made them. A strike early this year at Lockheed Martin is blamed in part on copayment increases in the company’s drug-benefits program. A proposed change in IBM’s pension plan has created a public relations nightmare. American Airlines, after extracting promises of wage and benefit cuts of $1.6 billion from its unions, nearly blew its strategy to escape bankruptcy when it was revealed that the airline was planning to give top executives bonuses and bankruptcy-safe pensions at the same time it was cutting other employees’ pay. The ensuing uproar caused the airline to back away from the executives’ perk package.

Softening the blow
    Just how many of these problems could have been solved with better communication is uncertain. But what is clear is that better communication can soften the blow when it comes, if not eliminate harmful aftershocks. Experts say it boils down to this: Do it right or risk getting burned.

    Attorney Bruce Schwartz, a member of the Jackson Lewis benefits practice group, says that because of a widespread retrenchment, communicating benefit changes is a constant challenge. And one often not given enough attention. The first step, he says, should be to run the changes by the legal department.

    Although companies can debate whether to break the news during a town hall meeting or send a written message, Schwartz says, either way it boils down to good, clear communication. "Clarity is the most important thing," he says. Companies have to speak with one voice. And not just with a voice that makes all the necessary legal points. Schwartz has seen many cases of benefit-plan booklets or written announcements that contain all the necessary information but are almost impossible for anyone to figure out except those who are experts on the subject.

    "It always comes down to a good written product," Schwartz says. "Good writing takes time, and I don’t think people give it the time they should. There is nothing worse than an employee who has an expectation of something other than what the benefit is."

    Consultant Mitchell Lee Marks, author of Charging Back Up the Hill, says that communicating benefit changes is similar to the challenges companies face when they are recovering from mergers, acquisitions and downsizing. At such times, employees are suspicious and cynical about management’s intentions, and they crave information. At the same time, senior executives are wary of saying too much to employees. His advice to companies is to begin communicating with employees honestly and openly well before there is a need to transmit bad news. A crisis "is not the time to build your credibility," he says. "This is the time to ride on your credibility. If you’ve established credibility, you have a buffer."

"The truth is often less negative than the worst-case scenarios that employees imagine. You have to get out there, be honest, say what’s going on, be as specific as you can."

Information, please
    Failure to keep workers informed will only provide fuel for the rumor mill, Marks says. "First and foremost, be honest. Just say what it’s about. It’s amazing how well employees will listen," he says. "In most cases, the rumor mill is much worse than reality. The truth is often less negative than the worst-case scenarios that employees imagine. You have to get out there, be honest, say what’s going on, be as specific as you can."

    Marks encourages companies to tell workers what other employers in their industry or region with similar benefits are doing, an approach that he says is ignored too often. He also suggests periodic assessments to get a fix on whether the workforce hears the same message that management thinks it is sending. It’s better to over communicate than under communicate, Marks says. "You’ve got to say it over and over again. There is no substitute for saying things over and over again."

    Finally, Marks says management should let the workforce express its feelings. If employees don’t have an outlet for their anger inside the company, it may be transferred to customers. "Give people a chance to vent internally instead of externally," he advises.

    One of the companies most active in studying--and delivering--benefit changes is Medco Health Solutions, Inc., which generated $33 billion in revenues last year and is among the largest pharmaceutical-benefit managers in the world. Medco knows as well as any company the problems that can arise from delivering benefits. The company is battling two whistle-blower lawsuits and an investigation by the U.S. over claims, dating back five years, about drug pricing.

    David Halter, a Medco vice president, says that information about plan changes is one of the most difficult messages to deliver. He compares the process to having a root canal. Figuring out how to communicate the change is just as important as the technical aspects of the plan itself, he says. Some companies rely on a one-time communication during their annual open-enrollment period, which he believes is a mistake. What is even worse is when employees hear about changes in prescription plans when they go to a pharmacy to have a prescription filled.

Letters are a start
    Medco’s research shows that employees would much rather learn about benefit changes in letters. But the company’s internal research also shows that a multifaceted approach, including telephone calls and e-mails, is important. Companies that effectively communicate plan changes will get a significant return on investment, Halter says. Ineffective communication, on the other hand, leads to higher service costs, member dissatisfaction and delays in acceptance that can cut into potential plan savings.

    As an example of a successful new plan, Halter points to a Fortune 500 manufacturing client that tripled copayments on its drug plan without an open employee revolt. The company realized an annual savings of $250,000. Facing big increases in benefit costs, the company hired Medco to come up with a plan for communicating the changes to employees. Under the old plan, workers could buy 100 pills at retail pharmacies with one copayment, enough for a three-month supply. The new rules limited prescriptions to a 34-day supply, effectively tripling the copayment.

    But Medco developed a way to ease the pain. It told members of the prescription drug plan how they could achieve significant savings by having the drugs delivered to their home via mail. Using home delivery, employees could save $24 per brand prescription and $10 for each generic prescription. The home-delivery plan works best for patients with chronic medical conditions who have an ongoing need for daily medications, exactly the client group most likely to buy three months’ worth of medication at a time.

    The success of the plan depended on a significant change in employee behavior. Medco announced the changes through direct mail. "It was a fairly straightforward message," Halter says. The commonly held notion that plan members don’t read written materials is a myth, he says. Letters announcing the plan went out during open enrollment. One selling point was that with home delivery, members would have to reorder prescriptions only four times a year. If they continued to buy medicine at a pharmacy, they would have to make 12 separate trips. "The plan was a complete success," Halter says. "The client said they did not receive a single complaint."

Workforce Management, September 2003, pp. 80-83 -- Subscribe Now!

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