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Total Rewardsinstructor’s ManualBenefits and Business atAflac and L.L. BeanBy Sandra M. Reed, SPHR

Project TeamAuthor:Sandra M. Reed, SPHRSHRM project contributors: Bill Schaefer, SPHRNancy A. Woolever, SPHRExternal contributor:Sharon H. LeonardCopy editing:Katya Scanlan, copy editorDesign:Kellyn Lombardi, graphic designer 2009 Society for Human Resource Management. Sandra M. Reed, SPHRNote to HR faculty and instructors: SHRM cases and modules are intended for use in HR classrooms atuniversities. Teaching notes are included with each. While our current intent is to make the materials availablewithout charge, we reserve the right to impose charges should we deem it necessary to support the program. However,currently, these resources are available free of charge to all. Please duplicate only the number of copies needed,one for each student in the class.For more information, please contact:SHRM Academic Initiatives1800 Duke Street, Alexandria, VA 22314, USAPhone: (800) 283-7476 Fax: (703) 535-6432Web: M

Case OverviewIn its 2008 annual Job Satisfaction Survey Report, the Society for Human ResourceManagement (SHRM) reported that for the past five years, employees ratedcompensation and benefits among the top three aspects most important to theirjob. But despite the importance of these aspects, employee satisfaction with theircompensation and benefits packages remains low. According to a Conference Boardreport, “employees are least satisfied with their companies’ bonus plans, promotionpolicies, health plans and pensions”. Employers are missing critical opportunities tomaximize employee job satisfaction and other organizational outcomes through theirtotal rewards programs.1In the book Dynamic Compensation for Changing organizations: People, Performance& Pay, The Hay Group asserts that traditional pay structures no longer keeppace with the emerging, strategy-focused organizations that exist in today’sglobally competitive market. “What shifted were organizational work values, workcultures and business strategies. Although they have been largely overlooked,dramatic changes in the organizational rules have frequently rendered traditionalcompensation strategies ineffective. Employees today are expected to work in teamsrather than solely on their own. They are expected to keep learning new skills andto assume broader roles. They are expected to take more risks and responsibility forresults. As a consequence, we are slowly coming to the realization that we may bepaying for the wrong things, sending inconsistent messages about the company to itsemployees, or creating artificial expectations of continued advancement and raises,no matter how well the company performs.”2Furthermore, in its publication Implementing Total Rewards Strategies, SHRMnotes that “the right total rewards system—a blend of monetary and non-monetaryrewards offered to employees—can generate valuable business results. These resultsrange from enhanced individual and organizational performance to improved jobsatisfaction, employee loyalty and workforce morale.”3Today, HR professionals are responsible for programs far beyond the profession’sadministrative personnel roots. They are expected to measure the success or failure ofHR practices based on the achievement of organizational outcomes. Brand identity,bottom-line profitability, employee job satisfaction and increased management focusare all outcomes that can be achieved in part through an organization’s total rewardsprogram. This case examines two very different organizations and how they aligntheir total rewards programs with their organizational goals and values. 2009 Society for Human Resource Management. Sandra M. Reed, SPHR 1

Assignment DetailsLevel of DifficultyModerateAudienceUndergraduateSummary of SpecificsnnThis case study is focused on how two different companies use total rewards tosupport the organization’s mission and values and achieve strategic outcomes.nnIt includes an overview of the two companies, Aflac Insurance, a publicly tradedcompany, and L.L.Bean, a privately held retail store. The Aflac case study is basedon an interview with Casey Graves, Aflac vice president of Human Resources,about Aflac’s compensation and benefits programs, with emphasis on how totalrewards statements and employee communication helped the company improveemployee job satisfaction and retention. The L.L.Bean case focuses on howelements of total rewards are used as tools to enhance the strategic review process.nnBoth companies have extensive employee recognition and rewards programsdesigned to support specific outcomes, such as employee training and development,work/family balance, and equitable compensation practices, as well as to create apositive work environment for their employees.nnThe case study ends with a team presentation using PowerPoint with the goal toeducate fellow students on the team’s findings and opinions.HR Topics CoverednnTotal rewardsnnTotal rewards statementsnnStrategic planningnnCorporate valuesnnCorporate social responsibility2 2009 Society for Human Resource Management. Sandra M. Reed, SPHR

Learning Applications and ObjectivesBy the end of this case study, students will be able to:nnCorrectly define elements of strategic compensation and benefits administration.nnApply the concepts of traditional and lifestyle benefits administration as a tool toachieve corporate objectives.nnUnderstand that strong shareholder returns and excellent customer service areachieved through employees, not in spite of them, and that employees are moreassets than liabilities.TasksnnStudents will select either the Aflac or the L.L.Bean case as a basis of studyfor their team presentation. This exercise is not meant to be a comparison ofcompanies, but rather an exploration of how two different companies use theircompensation and benefits structures to achieve organizational outcomes.nnUsing the material presented in the case studies and publicly available informationobtained through independent research, student teams will create a PowerPointpresentation to present to the class. It may be useful to have students prepare abibliography and summary of the resources used to ensure that the appropriatelevel of research is conducted to accomplish these objectives.Information to be Included in Student PresentationsStudent presentations should include the following information:1. Company overview.2. How the company uses its own products or services to enhance the totalcompensation for its employees.3. The internal strengths and weaknesses your team identified and how thecompany responded to these factors from a total rewards perspective.4. The external opportunities and threats your team identified and how thecompany responded to these factors from a total rewards perspective.5. Examples of traditional and non-traditional rewards and how they are used tomeet organizational objectives.6. How the company aligns its benefits with its corporate values.7. Recommendations by the team regarding an expansion of the benefits programsoffered at the company that would further align HR with the accomplishment oforganizational goals and values. 2009 Society for Human Resource Management. Sandra M. Reed, SPHR 3

Recommended ReadingIt may serve the objectives of this case study to assign this case at the beginningof the semester and require a summary of each of the web sites researched to becompleted a week prior to the final presentation. This is more likely to result inthe students accessing the data they will need to accomplish the objectives so thatlearning occurs.nnMathis, R.L., & Jackson, J. H. (2007). Human resource management (12thedition) [Section IV, Compensating Human Resources, Chapters 12-14].United States: Southwestern Publishing.nnHeneman, R. L. (2007). Implementing total rewards strategies. Alexandria,VA: SHRM Foundation. Retrieved from wardsStratReport.pdf.nnAflac corporate web site: www.aflac.com.nnL.L.Bean corporate web site: www.llbean.comnnDaigle, L. (2005, April 15). Aflac. Retrieved from www.georgiaencyclopedia.org/nge/Article.jsp?id h-1754.nnAflac. (2008, January 22). Aflac ranked among the 100 Best Places To Work for tenthconsecutive year [press release]. Retrieved from spx?rid 1098780.nnNecerra, J. (2004, April ). A tale of two companies. CNN Money. Retrieved fromhttp://money.cnn.com/magazines/fortune/fortune archive/2004/04/05/366369/index.htm.nnGorman, L. (2006). L. L. Bean: The making of an American icon. Cambridge, MA:Harvard Business School Press.nnL.L.Bean is number one in customer service. (2008). Retrieved from r-service-in-2007-035941.nnSimon, E. (2006, December 5). Attention workers, eat your vegetables.Herald Tribune. Retrieved from www.heraldtribune.com/apps/pbcs.dll/article?AID /20061205/BUSINESS/612050545/1007.nnL.L.Bean (2006, August 30). L.L.Bean named one of AARP’s Best Employersfor Workers Over 50 [press release]. Retrieved from m/stories/08302006 LLBean NamedOne of AARP Best Employers for Workers over 50.html.4 2009 Society for Human Resource Management. Sandra M. Reed, SPHR

nnL.L.Bean Inc. reports 2006 net sales results. (2007, March 9). PR Newswire.Retrieved from www.prnewswire.com/cgi-bin/stories.pl?ACCT 109&STORY /www/story/03-09-2007/0004543313&EDATE.nnMcGregor, J. (2008, January). The right perks. Business Week. Retrievedfrom http://images.businessweek.com/ss/08/01/0117 global perks/index 01.htm?campaign id msn.nnAARP.org. (2008, September). L.L.Bean, Inc.: 2008 AARP Best Employers forWorkers Over 50. Retrieved from www.aarp.org/money/work/best employers/articles/ll bean 2008.html. 2009 Society for Human Resource Management. Sandra M. Reed, SPHR 5

Aflac InsuranceCompany InformationAflac is a Fortune 500 insurance company founded in 1955 by three brothers, John,Paul and Bill Amos. Today, Aflac employs more than 4,500 people and has morethan 71,000 licensed independent agents throughout the United States and Japan.The following is an excerpt from the New York Stock Exchange business summary.“Aflac Incorporated is a general business holding company and acts as a managementcompany, overseeing the operations of its subsidiaries by providing managementservices and making capital available. Its principal business is supplemental healthand life insurance, which is marketed and administered through its subsidiary,American Family Life Assurance Company of Columbus (Aflac), which operatesin the United States (Aflac U.S.) and as a branch in Japan (Aflac Japan). Aflac’sinsurance business consists of two segments: Aflac Japan and Aflac U.S. Aflac Japansells cancer plans, care plans, general medical indemnity plans, medical/sicknessriders, living benefit life plans, ordinary life insurance plans and annuities. Aflac U.S.sells cancer plans and various types of health insurance, including accident/disability,fixed-benefit dental, sickness and hospital indemnity, vision care, hospital intensivecare, long-term care, ordinary life and short-term disability plans.”Aflac Corporate Philosophy“Since its beginning, Aflac has believed that the best way to succeed in our businessis to value people. Treating employees with care, dignity and fairness are foundingprinciples of Aflac.”Aflac’s MissionTo combine innovative strategic marketing with quality products and services atcompetitive prices to provide the best insurance value for consumers.6 2009 Society for Human Resource Management. Sandra M. Reed, SPHR

Guiding PrinciplesTo offer quality products and services at competitive prices and use new technologyto better serve our policyholders.nnBuild better value for our shareholders.nnSupply quality service for our agents.nnProvide an enriching and rewarding workplace for our employees.The Case at AflacWith a desire to be an employer of choice, Aflac Insurance is no stranger to thecompetition for talent among employers in the United States. In fact, accordingto the Bureau of Labor Statistics (BLS), the unemployment rate in the insuranceindustry was at 3.3 percent in March 2008, a number consistently below thenational and state levels in other industries (Exhibits A and B). This makes findingand retaining qualified individuals to deliver positive results to shareholders anongoing challenge.Organizational outcomes related to human resources at Aflac reflect many of thebasic functions, including recruiting, retention, diversity and training. At Aflac,the company strives to deliver quality service to its 4,500 employees while stayingcompetitive in the insurance market. Aflac prides itself on being ahead of the curvefrom a consumer perspective and desires to mirror that philosophy in its treatment ofemployees. How does the company made famous by the duck maintain the integrityof its brand while delivering results through its people? How important are benefitsand compensation to the company’s ability to compete in a growing industry?Casey Graves, vice president of human resources in charge of compensation andbenefits at Aflac, says that the needs of the company’s employees continue to be thedriving factor behind Aflac’s total rewards programs. As with most programs, itbegins with an employee needs assessment and continues to be measured throughoutcomes, which have been directly influenced through the company’s enhancedtotal rewards efforts. The consistent thread throughout this process, according toGraves, is the quality of communication. Graves explains that Aflac’s total rewardsstatements have evolved from a one-page document to an in-depth review of the truevalue of the employment compensation and benefits.Employee satisfaction surveys and focus groups conducted in 2007 with Aflacemployees and managers drove the needs identification process. A key focus of thesurvey was to help recruit talent and improve retention in an industry with lowunemployment rates. Although survey results varied, Aflac’s response was consistent:to give employees what they need from a benefits perspective while balancing thecost, all within a rapid period of growth. 2009 Society for Human Resource Management. Sandra M. Reed, SPHR 7

Throughout the process, the company focused on providing value-added programsthat would improve employee job satisfaction, support organizational initiativesand provide opportunities for professional development. Aflac seeks to accomplishthis by:nnnnnnProviding Aflac products to employees at little to no cost—for example,offering employer-paid life insurance, a company-paid cancer policy and companysubsidized accident protection insurance.Providing total rewards in line with philanthropic goals. Aflac dedicatesresources to efforts that support the community in four areas: health, education,youth and the arts. One benefit offered to Aflac employees is the recognition ofa “Volunteer of the Month,” in which an employee is awarded for the time spentvolunteering at his or her charity of choice.Developing employees for their next career level through extensive employeetraining and leadership programs to keep pace with the strategic growth goalsbeing executed company-wide. More than 91 percent of Aflac’s employees atthe senior vice president level and above have been promoted through the ranks.Aflac’s corporate training department hosts two employee learning initiatives. Thefirst is a leadership development program with on-site courses for all employeesfrom entry level to senior management. There are three levels of classes; someclasses require employees to have taken prerequisite courses that are a part of theoffered curriculum. Instructor-led classes offer a variety of subjects for workersseeking both career and personal development and are designed to help employeesachieve a quality work/life balance. Course topics range from “Managing YourCareer” to “Preventing Diabetes.”Cost-containment is on every HR professional’s mind when discussing employeebenefits. According to the National Coalition on Healthcare, the cost of offeringhealth insurance continues to outpace inflation. In fact, “in 2007, employer healthinsurance premiums increased by 6.1 percent, which was two times the rate ofinflation. The annual premium for an employer health plan covering a family of fouraveraged nearly 12,100. The annual premium for single coverage averaged over 4,400.” And, as Graves points out, that is added to the cost of steadily growingthe business each year, which includes adding staff. Suddenly, employee benefitsbecome a conspicuous line item on profit and loss statements and must thereforeenhance the achievement of organizational outcomes in order to be justified. Animportant theme in Aflac’s communication to its employees is that the health carecost containment is an employer and employee shared responsibility.8 2009 Society for Human Resource Management. Sandra M. Reed, SPHR

Aflac seeks to administer benefits in a cost-effective manner while staying true tothe concept of employee service. Aflac recognizes the actual value of employeebenefits, and as a result, its overall philosophy is that “it’s all about the employee.”For Aflac, in addition to competitive salaries, it includes designing benefits packagesthat reflect the needs of a multi-generational workforce—some seeking portability,others seeking stability. It is about creating a positive work environment that isconducive to productivity—by offering one of the largest on-site child care facilitiesin the United States. Aflac sponsors outdoor adventure days, on-site fitness centersand service discounts. It pays 100 percent of the employee premium for its groundbreaking cancer insurance, in line with the company’s philanthropic commitments asa socially responsible organization, positioning Aflac to lead its industry to enhancedservice levels. These benefits, according to Graves, send the message to employeesthat they and their lifestyles are important to the organization. The proof continuesto be demonstrated in recent employee survey results:nnApproximately 90 percent of employees were attracted to and remain at Aflacbecause of company reputation.nnEmployees are happy with the profit-sharing bonus, with 81 percent of employeessaying they believe it is better than that of other companies.nnEighty-nine percent of employees consider Aflac’s total rewards statement aneffective communication tool.Perhaps most telling of all in the competitive world of insurance—employee turnoverfell below 10 percent in the first quarter of 2008. 2009 Society for Human Resource Management. Sandra M. Reed, SPHR 9

Exhibit A: The Bureau of Labor Statistics, April 2008Insurance Carriers and Related Activities: NAICS 524Employment, Unemployment & Layoffs:Data seriesDec. 2007Jan. 2008Feb. 2008Mar. 2008Employment, all employees(seasonally adjusted)2,316.82,313.9(P) 2,310.2(P) 2,314.1Employment, nonsupervisory workers1,848.01,836.0(P) 1,839.72.3%2.9%2.6%Mass layoff events9137Initial claimants for unemploymentbenefits5141,022468Employment (in thousands)UnemploymentUnemployment rate3.3%LayoffsFootnotes (P) Preliminary(Source: Current Employment Statistics, Current Population Survey, Mass Layoff Statistics)Exhibit B: The Bureau of Labor Statistics, United States CivilianUnemployment Rate, All IndustriesLabor Force Statistics from the Current Population 4.94.85.15.05.55.