As the bill for US health care mounts, companies struggle to reconcile their need to offset the rising cost of employee benefits with the desire to attract and retain the best talent. Some engage in an arms race of sorts, blindly matching or beating the benefits offered by competitors and spending billions of dollars in the process. Yet these benefits often fail to reflect either the preferences of employees or corporate objectives.
A few companies, however, are changing the game. Emerging best practices are reducing the cost of benefits by 10 to 20 percent a year, keeping employee satisfaction steady—or better—and linking these expenditures more tightly to corporate objectives, particularly investments in talent to gain competitive advantage. Such investments are increasingly important to the profitable growth of the world’s most successful companies: from 1995 to 2005, profits per employee jumped to $83,000, from $35,000, and the number of employees more than doubled.1 Benefits represent a major part of that outlay: US companies spend more than $2 trillion on them each year, but though the cost of health care in particular is on the rise, companies aren’t scrutinizing benefits as closely as they do other investments.
Benefits are much more...