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Employee Team Designs Flexible Benefits Program

April 1, 1994
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Related Topics: Benefit Design and Communication, Featured Article
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As corporations across the United States recognize employee diversity, many are finding that their benefits packages are out of date. But in switching to flexible benefits, few companies directly involve employees in deciding what options to offer.

At the Quaker Oats Company, employee participation is part of the corporate framework. In fact, the Chicago-based marketer of consumer grocery products was one of the first to implement a health-care spending account more than a decade ago. So, in 1991, when Quaker decided to offer a comprehensive program of flexible benefits, the HR department took an extra step to maximize employee involvement: It enlisted an employee team to design the program. This innovative approach helped the company find the glitches in the old plan, and as a result, the new plan was met with overwhelming approval.

Quaker's HR department first considered updating its benefits program in December 1991. Bruce Nicholas, HR director in the Chicago Pet Foods Division, says top management suspected it might be spending money on benefits that weren't of value to employees. To attract and retain quality workers, the company felt it should offer its work force a flexible compensation program. "We wanted to provide a menu of items that would more effectively meet individual and family needs," Nicholas recalls. The impetus wasn't to cut costs, adds Melanie Pheatt, manager of benefit plans at Quaker headquarters. "The basic notion was to come up with a cost-neutral plan. However, we were to encourage the continuation of our cost-containment effort."

In January 1992, Quaker took the first steps in creating the new program. The HR department mailed a survey to the homes of 6,600 employees who'd be affected (those not covered by a collective-bargaining agreement). Quaker informed them that a flexible-benefits plan was in the works and that their input would form the basis for putting it together. The survey covered such topics as how workers felt about current benefits, what future benefits they'd prefer and how, personally, they'd reallocate benefits spending.

Just under half the employees responded. Traditionally, the next step would have been to "closet a bunch of HR executives together" to design a sample plan, which then would have been tested with focus groups before HR professionals designed the final package, says Pheatt. Quaker opted to be nontraditional.

HR selects employees for its Flex Team.
HR professionals at Quaker knew that they wanted to involve employees in the planning process. Because Quaker has a long tradition of involving workers at all levels in corporate change, top management agreed. To get input from the greatest percentage of the work force, the HR staff selected 15 individuals for a Flex Team who could represent the demographics of the entire work force.

Susan Koralik, a partner in Lincoln-shire, Illinois-based Hewitt Associates, worked with Quaker's Flex Team. She says that only six U.S. companies have delegated the design of a flexible-benefits program to employees. Koralik admits that approach can better meet employee needs, but says that not all companies want to give employees so much control.

However, Quaker wanted the input. To find Flex Team applicants, the human resources department advertised through a formal job posting that was placed on bulletin boards or mailed to employees' homes. This job posting detailed applicant qualifications and responsibilities, as well as the schedule of Flex Team meetings.

On the application, employees were asked to state why they wanted to be a team member and what they could contribute. They also were required to obtain their managers' approval. "We didn't really want people to have special knowledge of benefits, other than whatever they might know from using a benefits plan themselves," Pheatt says.

Forty people, representing each of the company's five divisions, applied to be members of the team. With these applications, the HR directors from each division got together to discuss the strengths of each applicant, as well as the specific work-force population he or she would represent. "We brainstormed all the various types of people and personal situations we had in our work force," says Nicholas. "Then we matched the applicants to those various demographics we wanted represented on the team."

Ted Molski, senior design engineer at the Barrington, Illinois, research facility, and Sharon Jones, safety and health manager at the Jackson, Tennessee, manufacturing site, were two employees who made the final team. Molski, a 12-year company veteran nearing retirement, was interested in protecting pension-related benefits. Jones, a single parent who had been employed with the company for only six months, was recruited by her plant manager to apply because she previously had worked for a company that had a flex plan, and she could bring an outsider's viewpoint to discussions. Personally, she was interested in adding optional vacation time or sick days so employees could attend to personal needs. Also, she represented employees working at the company plant. "We had only one medical-plan option, and didn't have access to an HMO or PPO. Our employees complained that we didn't have a prescription drug card, like many other industrial plants in our area," says Jones.

HR establishes the team guidelines.
In February 1992, the Flex Team began meeting approximately one day a week at a hotel near the Chicago headquarters. The company provided travel expenses and hotel accommodations for those traveling from out of town.

Before discussing benefits options, Pheatt, who was the team member representing HR, explained the ground rules. First, the new benefits package couldn't cost more than the current one. Second, the package had to be legal. Third, and perhaps most importantly, it had to reflect the broad needs of the entire work force.

To build trust among team members, the team also performed various ice-breaking exercises, which were facilitated by Pheatt. One such exercise involved selecting a hat from a collection and explaining how it most fit their personality. "We tied this into the thought that we will be wearing a number of different hats and representing all the people who work at the Quaker Oats company, not just ourselves," says Pheatt.

After warm-up sessions, the group established the following vision statement: "To design an innovative employee-benefits program which better accommodates individual employee needs and preferences, provides more equitable risk and reward opportunities, will not increase Quaker's costs beyond acceptable inflation, and will be something that makes a difference and follows life cycles. This will be done through the application of flexible-benefits principles, and the program will add value for employees without adding cost."

The team also set rules for how they'd treat each other, including specifics for handling conflict. These included taking a break if members were just arguing and not accomplishing anything, prioritizing or voting on issues when necessary, not lobbying or pressuring individuals and not forming pressure groups or cliques.

Further, says Pheatt, the Flex Team agreed that no "killer phrases" would be used, such as "that will never work," "that is a stupid idea," or "we tried that already and it was a disaster." The group also agreed to help and support each other, and to give each idea adequate consideration. To reinforce these ideals-as well as provide a good tension reliever-five large cushioned balls were thrown at team members who broke the rules.

Team members establish top priorities.
The meetings were conducted professionally and with an eye toward total group participation, says Pheatt. Each meeting had an agenda, and specific time limits were set for each discussion. There were discussion facilitators and timekeepers nominated for each meeting. To get a greater volume of ideas and participation, members frequently broke up into small groups-but never with the same group members-to work on the same or different ideas. There also were scheduled breaks and, to ensure interaction among members, everyone was instructed to sit in a different seat following these breaks.

The first meeting was an idea-generating session. From the preposterous (an employee dating service) to the serious (long-term elderly care), more than 100 different benefits concepts were suggested, with members writing their ideas on paper and then pasting them up on the wall.

At the second meeting, held in March, the team reviewed the responses from the previous employee survey, as well as the results from a similar survey conducted at the Chicago headquarters on work/family needs. In addition, the Flex Team heard a brief overview of the benefits concept and explanations of different types of plans and how they deliver value through group buying and payroll deductions.

Armed with this information, the team began the task of ranking the 100 proposed benefits according to importance. Between the second and third meeting, individual members informally met with co-workers to discuss their rankings and ensure that they accurately reflected overall needs.

As the group began to focus intensely on the top 15 to 20 proposals, it became necessary to rely on the expertise of benefits consultants. In January 1992, Quaker Oats had contracted with Hewitt Associates, a company specializing in employee benefits and compensation, to assist in the formation of its new flexible-benefits plan. Three Hewitt consultants specializing in actuarial information, communications and plan design attended the Flex Team's meetings to provide insight and facilitate discussions when necessary. "Sometimes we were asked to facilitate a discussion about alternatives available in whatever the current topic was, such as child care or dental benefits," Koralik remembers.

"If we can be known as a benefit innovator, it'll help us attract top-notch employees."
Melanie Pheatt,
Quaker Oats Company

The consultants also provided research on what other companies had done in various benefits areas, put together cost-value analyses on some benefits items, calculated total package costs as items were added or deleted, and designed a number of sample plans from final benefits selections. Pheatt says the HR department experimented with various combinations of benefits choices. For example, they looked at company matches on health-care spending accounts that varied from zero to more than 25%. "We took the [sample] plans apart, toyed with different percentage matches and tried to figure out the best way to balance the needs of our demographic groups," says Pheatt.

One area of concern for the team members was rewarding healthy and safe employees. They wanted to build a reward system into the plan. The result was the Healthy Lifestyle Program, which enables employees (and spouses who are covered under Quaker's medical plan) to earn up to $250 each in flex credits. In 1993, as a way of introducing employees to the program, all received $110 in credits, with the option of adding $140 more for making a series of pledges:

  • No drinking to excess, misuse of prescription drugs or use of illegal drugs ($50 in flex credits)
  • Use of a seat belt, car seats for small children and a helmet when riding a motorcycle ($20)
  • Aerobic exercise for at least 20 minutes, at least three times a week ($20)
  • No use of tobacco products for six months prior to implementation of the program and no tobacco use in the future ($50).

This year, employees could earn the $110 in free credits by participating in screening tests and taking the following steps:

  • Completing a Health Risk Appraisal Questionnaire
  • Maintaining blood pressure under 140/90 or seeking treatment
  • Maintaining cholesterol under 200 or seeking treatment
  • Maintaining weight within acceptable ranges or enrolling in a program.

The team also decided employees with dependents should share a greater portion of the cost of medical coverage. "The team members wanted to provide a better balance for those employees who are single and have no other dependents," says Pheatt. Today, Quaker's commitment to affordable family medical coverage remains, but its subsidy for dependents is reduced. "Consequently, a single person ends up with a few more company dollars to use as he or she sees fit," Pheatt adds.

Several other options were eliminated to add flexibility to the program. These include:

  • A reduction in basic company-paid life insurance to one times annual pay, with higher levels of coverage available under optional life insurance
  • The elimination of survivor income benefits
  • Slightly lower company-paid long-term disability insurance benefits, with a higher coverage option available for purchase with flex credits.

By May 1992, the Flex Team had agreed upon an initial plan design. The plan included such benefits choices as buying and selling vacation days, vision-care discounts, higher dental-care coverage through a new dental PPO network and cash for unused benefits dollars (see "New Flex Program Expands Employee Options"). To obtain work-force feedback, the human resources department held 10 focus groups with a total of 150 employees. Pheatt says that to test the proposed plan most effectively, focus-group participants were selected according to overall employee demographics.

The focus-groups proved that the Flex Team served its purpose. Sixty percent of the test group said they liked the proposed plan better than the current one, compared with a Hewitt data-base norm of 40%. (Hewitt's data base consisted of employers similar to Quaker Oats, who recently had put in cost-neutral benefits plans.) In addition, 92% of the test group said the proposed plan was as good as or better than the current plan.

Communication of the program is vital to its success.
With details of the new QuakerFlex program in place, the Flex Team turned to the task of communicating it to management and employees. The first step-attaining management buy-in-was accomplished through a routine formal presentation of the final plan to the management team. Pheatt says that Quaker's corporate culture contributed to top management's acceptance of the plan's design.

To communicate changes to the employees, Pheatt asked 10 members (who had expressed an interest in developing a communications and enrollment program) to attend two more meetings in June. To begin these meetings, Hewitt consultants provided a selection of sample designs for printed brochures, communications pieces and enrollment materials. In addition, they gave informal presentations on targeting an audience through printed materials and verbal communications. "We chose a marketdriven communication approach that was selected by the employee team," explains Koralik. "We tried to assess how different employees learn and grasp information."

Hewitt and Quaker Oats' benefits department worked with an outside designer to create printed materials. Quaker chose a zebra motif, because although all zebras look alike, their individual patterns are unique. Thus, Quaker communicated to employees that through QuakerFlex, each individual could develop his or her own unique benefits package.

Following the suggestions of the employee subteam, Quaker involved employees in the communications process as meeting leaders and peer-enrollment counselors. More than 250 employees from all locations went through a three-day training program in Chicago to learn to conduct small-group employee meetings. Although some were HR personnel, the majority were rank-and-file employees who actually conducted the sessions for their peers.

In July, Quaker began the print campaign. First, HR sent a four-page brochure announcing that QuakerFlex was coming and that more information would be forthcoming. This brochure, delivered to each employee's desk, introduced the zebra motif. In August and September came a six-page brochure describing the philosophy behind the change to flexible benefits and an outline of new benefits options, as well as a brochure on the new Health Budget Account.

In August, they mailed a brochure on the Healthy Lifestyles Program to employees' homes. Employees choosing to enroll in this program were instructed to return an enclosed pledge form by September 4 so their credit calculations could be included in their personal benefits report. Finally, HR scheduled employee meetings for October. Notices of voluntary three-hour employee meetings were posted at all company locations.

By this point, Pheatt says that it was apparent that the 250 employee meeting leaders were generating excitement for the program. In one division, meeting leaders placed large magnetized zebras on their desks to identify themselves as enrollment counselors.

Employees enroll in the flex-benefits program.
The enrollment sessions-held in groups of 20 to 30 employees-began with a one-hour video and slide presentation outlining the QuakerFlex program, including its individual benefits features and the enrollment procedure. Then, employees participated in an exercise in which they chose benefits options for three different hypothetical employees who had different family and personal situations. Pheatt says this session was essential in explaining the program to employees. "They could see what the decision-making process was like, what they would have to consider when making their own selections and how this plan came to have value," she explains.

After the meetings, HR mailed the new QuakerFlex benefits package to employees' homes, giving information on individual flex credits, benefits options and the voice-response enrollment process. Counselors assisted employees with enrolling in the program by phone. "We had blocks of time set up, beginning at six in the morning and continuing into the evening hours so we could reach production employees from second and third shifts," says Jones, explaining how her Tennessee plant accommodated workers in the process.

Enrollment began in October 1992 and closed in December. Pheatt says that fewer than 2% of employees failed to meet the deadline; these workers received benefits according to a default provision. Employees participated in new benefits options according to the following percentages:

  • 90% chose Healthy Lifestyle credits
  • 72% chose matched medical-care spending accounts;
  • 6% chose matched dependent-care spending accounts
  • 35% chose a managed medical-coverage option
  • 26% bought vacation
  • 9% sold vacation.

Quaker begins to see results.

Quaker is now in its second year with the flexible-benefits plan. While it's still too early to calculate the financial impact, the company is planning to do an analysis within a year. In addition, the company is planning another employee survey later in 1994 to test employee response.

There already has been some positive feedback. When CBS Nightly News did a segment on Quaker's benefits last August, the station asked for volunteers to speak on camera about the Healthy Lifestyle credits and other benefits areas. "You would not believe the number of employees who came forward and had positive things to say about the new benefits plan and the fact that the company used an employee team to develop it," Pheatt says.

Mark Censits, an assistant brand manager of Quaker Instant Oatmeal in the Chicago headquarters, was one such employee. He says that the bottom-line benefit he realized was a smaller out-of-pocket contribution for 1993 than for 1992. Censits took advantage of the Healthy Lifestyle credits and thus was more able financially to opt out of managed care in purchasing family medical coverage for his two small children. "Even though my health is good, I still want to be able to choose my own doctors and not be tied into any plan or prescribed physician," he explains.

Flex Team member Molski says that other workers are more accepting of the changes because a team of employees designed the plan. "They could see how we tried to be fair to as wide a cross section of employees as possible," he adds.

Koralik of Hewitt agrees. "If you really want a program that is designed for employees, this is the ideal solution," she points out. "The more involvement you get from employees, the better the plan will be in addressing employee needs."

Pheatt believes the new program's success lies in delivering better benefits value to a diverse work force. "If we can be known as a benefit innovator, it'll help us attract and retain top-notch employees."

Personnel Journal, April 1994, Vol.73, No. 4, pp. 30-39.

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