How to invest more in your workforce for the future; and lower the price

Joost Houtman

by Joost Houtman and Adam McKinnon; This is the English version of an earlier Dutch publication

Attracting and retaining talent is one of the biggest challenges organizations face when building their workforce for the future. When competing for talent it is the Employee Value Proposition (EVP) that a company offers that determines their success in attracting and retaining talent.

The EVP is the total package of value that employees receive in return for their inputs. It consists of immaterial rewards, such as a sense of purpose and achievement. But for many people the material rewards (e.g. wealth and health benefits) are of critical importance.

Base pay usually comprises the largest costs in the total rewards package. But costs associated with benefits such as pension plans, extra time off, stock options, company cars and parental leave are still significant. Perhaps more importantly, benefits can ‘overdeliver’: Whereas base pay delivers exactly as much value to the employee as it costs the employer (1 Euro spent equals 1 Euro earned), benefits may have varying levels of “perceived value”. Some of them may be valued at less than they cost the organization (i.e. a weak benefit), while others may be valued higher than they cost (i.e. a strong benefit). Determining perceived value in the eyes of employees enables an optimized organizational EVP.

Competitive advantage

Creating a competitive advantage in the war for talent should be quite simple then. The trick is to invest in those benefits that have high levels of “perceived value”, while benefits that have low levels of perceived value should be avoided. Of course, to be able to make those optimal investments an organization needs to know:

1)     The cost of each benefit;

2)     The amount of perceived value employees associate with each benefit

The first point, costing each benefit, is fairly straightforward. However, determining the perceived value associated with benefits may appear more challenging.

Fortunately, an analytic technique called Conjoint Analysis is a great solution to that challenge. Using conjoint analysis, we are able to quantify the perceived value employees associate with each benefit, relative to other benefits. This relative scoring of benefits enables us to rank the attractiveness for each benefit. This ranking of benefits can also be done by demographic subgroups (e.g. individuals with dependents, new employees, expats) to create tailored EVPs (i.e. emphasizing subsidized childcare benefits to select employees).

Conjoint analysis: know what employees value most

How does conjoint analysis work? First, a comprehensive list of an organization’s benefits is compiled. This list can include current benefits offered, or benefits the organization is considering to offer in the future. In addition, benefits needs not be limited to financially oriented topics, but can include ‘softer’ elements of the EVP (e.g. career progression, learning opportunities, inspiring company purpose and broader employee experience topics) that may be important to current or prospective employees.

Each benefit is presented to employees in combination with 3 or other benefits.  The respondent then identifies the most valued and the least valued benefit in each combination of benefits. By consistently presenting all the benefits in different combinations, it is possible to calculate how each benefit is valued by an employee. The example below contains the (fictional) results for Company X. The higher the score, the more value employees associated with that benefit.

As the example makes clear, “Base Pay” is by far the most valued part of the EVP for this organization. At the other end, Flexible Spending Accounts are poorly valued. Combined with a thorough analysis of the costs attributed to each item, the analysis allows for a well-founded decision about the optimum way to invest in benefits. Benefits that have low perceived value can be cut, in favor of benefits that deliver high perceived value. Of particular importance are those benefits that a high perceived value and low delivery cost.

Ideally, the organization would also benchmark their EVP against the market, and against competing markets their (prospective) employees could go to. Doing so in combination with the results of the conjoint analysis and the cost analysis would show the organization:

  1. How each benefit is valued;
  2. Which benefits offer surplus value to the employee compared to costs incurred by the organization;
  3. The attractiveness of an organization’s EVP relative to competitors.

EVP and employee engagement

Mercer|Sirota offers conjoint analysis in conjunction with engagement surveys. The combination offers great synergy, since many organization conduct engagement surveys regularly. This presents the option to include the conjoint questions focused on the EVP at limited extra cost. It also enables deeper analysis of the data, by calculating the value of each benefit relative to employees’ engagement. Such an integrated approach enables advanced data analysis into the drivers of employees’ intention to join and stay with the organization.

Interested to learn more about how to build your workforce for the future leveraging conjoint analysis? Please contact me at joost.houtman@mercer.com or call me at +31 (0) 6 11075653.

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