NEW YORK – It’s easy to blame a faltering company on a flimsy business model, shoddy management or a lack of revenue. But the silent killer for many enterprises is out-of-control human resources costs.
So says a consultant with a leading risk and insurance services company. “HR costs are escalating more than anything else. As an industry we need to get our arms around this,” said Stephen J. Gambale, a consultant with Marsh Consulting Services, which works with companies to develop manageable HR programs.
It wasn’t long ago that the economy was hot, the stock market was surging and dotcom mania was sweeping the business landscape. A tight labor market forced companies to compete vigorously for top talent. Much of the compensation focused on generous options packages. But as a further inducement, companies offered free medical and dental, and a litany of perks like nap rooms and climbing walls.
“Companies gave away the store without regard to costs,” said Gambale, who added that virtually every company Marsh consults with saw expenses outpace revenue.
The economy has cooled considerably, dotcom hysteria has waned and businesses have gone under or resorted to layoffs. And while HR costs have lessened somewhat, there is still too much being spent, Gambale said.
To begin with, companies must align their business objectives with their HR and budget objectives, or managing costs will be difficult.
How aggressive should the employer be?
In lieu of layoffs, Gambale suggests employers offer to cut employee compensation during tough times. “More companies are doing it,” he said.
Another approach, in good times and bad, is to increase employee contributions and consider more restrictive health plans. Take health care, for example. In New York, where it costs $4,500 annually to provide medical insurance for each employee, most companies are now requiring employees to contribute to a plan of their choice. The percentages range from 25% contribution for individuals and 50% or more for family plans. Gambale said why not ask employees to pony up a bigger percentage, like 100%.
For small employers in Manhattan, HMOs are approximately 20% cheaper than plans with a non-network option.
The trend of employee pay-all plans is gaining traction. A flexible spending account, or FSA, lets employees set aside a certain pre-tax amount that can be used for medical or personal expenses. FSAs are a great way for companies to cut down on expenses, Gambale said.
Gambale suggested that companies look long and hard at offering long-term disability to employees. “Do you really need it?” he asked. “Maybe you don’t.”
He said life insurance should be capped at $50,000.
Paid time off, a precious commodity for workers, should be trimmed, the consultant said, and employers should use PTO banks. An employee can use the PTO bank to deduct days (say, 15 a year) for whatever purpose, instead of having to differentiate among sick, personal or vacation days.
Above all, Gambale says to communicate your objectives and provide comparisons and benchmarking studies to support your message. “Communication is key” to retaining good employees, he said, “and most aren’t doing it. They take employees for granted.”.