Regional update – how flexible benefits is

transforming the packaging of rewards in

Asia
Chow Yoke Fun
Regional Flex Consulting Leader
Key Discussion Points

ƒ What are Flexible Benefits (Flex)

ƒ Transforming the rewards package – Flex Trends & Updates Across

Asia
ƒ Flex in Asia

ƒ Highlights of Mercer Global Employee Choice Survey 2009 Results

ƒ Flex Success Stories

Mercer’s Asia HR Roundtable 2010 2

What are Flexible Benefits
What are Flexible Benefits?

ƒ An innovative way of offering employee benefits

ƒ Basic concept is giving employees choice in selection of their benefits

on year to year basis to meet their diverse and changing needs

Traditional One Size

Flexible Benefits
Fits All Structure

Employees choose the benefits that

Same benefits for ALL employees
meet their individual needs

Mercer’s Asia HR Roundtable 2010 4

Flex Drivers

ƒ Meet diverse employee needs & maximize value of benefit spend

ƒ Employer of Choice for competitive differentiation

ƒ Control escalating benefit costs

ƒ Harmonize benefits across different entities or during M&A

ƒ Communicate benefits as part of total rewards

ƒ Raise employee awareness and appreciation of benefits

ƒ Facilitate benefit program changes

Mercer’s Asia HR Roundtable 2010 5

Different generations have different priorities
One size does not fit all

Groups Matures/ Generation Y/

Baby Boomers Generation X
Traditionalists Millennials

Age 60+ 43 to 60 30 to 42 18 to 29
Characteristics ƒ Values ƒ Indulged ƒ Distrust institutions ƒ Balances work
security ƒ Socially- ƒ Entrepreneurial with family
ƒ Company conscious ƒ Risk takers ƒ Technology-
loyalty ƒ Works hard experts
ƒ Needs work/life
ƒ Inclusive balance ƒ Team-oriented
ƒ Socially-
conscious

Value of Work ƒ Wants ƒ Wants hard ƒ Wants company to ƒ Wants to

expertise and work to be value individual value own
experience to valued contributions contributions
be valued

Drivers in ƒ To build a life ƒ To build a ƒ To live better ƒ To live a

Work better life purposeful life

Sources: Employee Benefits of the future, Employee Benefit Plan Review, Jan 2007
The Next 20 Years: How Customer and Workforce Attitudes will Evolve, N. Howe, W. Strauss 2007
Millenials Rising – The Next Great Generation, Howe and Strauss, Vintage Books 2000
Mercer’s Asia HR Roundtable 2010 6
Flex Models
- Flexible Benefit Continuum

Less Flexibility More Flexibility

Traditional Traditional Modular FSA & Core Plus Cash Plus Cash
Plus Traditional Options Options
Voluntary Coverage
Options

ƒ The employer ƒ Employees are ƒ The employer ƒ The employer ƒ Employees are ƒ Employees are
provides a provided with 2 utilizes a provides a provided with a provided with a
mandatory set of or more traditional core level of set amount of set amount of
benefits complete approach for coverage for cash cash
ƒ The employee packages to catastrophic all benefits ƒ The employer ƒ The employer
has no choice choose from protection e.g. life ƒ The employee facilitates has no
available other ƒ Appropriate for insurance, is provided coverage for involvement in
than opting-out in small to mid-size disability, and with credits to certain the facilitation
certain groups, or for catastrophic purchase benefits, some of benefits
circumstances new flex plans health claims protection of which may
ƒ The employee is available be compulsory
provided with a within the
ƒ The employer health spending other options
provides a account to utilize included in the
mandatory set of for other eligible plan
benefits health and dental
ƒ The employee has expenses
limited flexibility by
virtue of having the
option to purchase
additional life
insurance

Mercer’s Asia HR Roundtable 2010 7

Flex Models
- Core Plus Model
Flex is a scheme which provides options for employees to choose the
benefits which best meet their needs

CORE
BENEFITS

BENEFIT
ENTITLEMENT
FLEX DOLLAR CHOICE OF
ALLOCATION OPTIONAL
BENEFITS

FLEXIBLE
SPENDING
ACCOUNT
(FSA)
Mercer’s Asia HR Roundtable 2010 8
 Flex Models
- Modular Plan
The modular plan design is a set of various packaged plans where employees chose one that best
meet their needs. A minimum package plan usually applies.
The remaining money is also put into a flexible spending account and used for various self-insured
benefits. If the total flex dollars spent exceeds the budget given by the company, the excess is
deducted from salary.
Example: An employee who picks Choice III would have a GTL sum assured of $200,000, a
GPA sum assured of $200,000 and R&B per day limits of $388.
Unspent
Unspent flex flex dollars
dollars
Choice I are
are usually
usually diverted
diverted toto
(Minimum aa flex spending
flex spending
Plan) Choice II Choice III account.
account. The The flex
flex
dollars in a spending
dollars in a spending
500
500 flex
flex dollars
dollars account
account can can be
be used
used
budget
GTL 50,000 100,000 200,000
budget for
for each
each to claim
to claim
employee (family
employee (family reimbursement
reimbursement for: for:
friendly
friendly employers
employers •• Dental
Dental
may
may give
give more
more toto GPA 50,000 100,000 200,000 •• Holiday
Holiday Subsidy
Subsidy
employees
employees withwith •• Chinese
Chinese Physician
Physician
dependents)
dependents) •• Gym Subsidy
Gym Subsidy
GHS R&B: 170 R&B: 250 R&B: 388 •• Encashment
Encashment
(Converted
(Converted to to cash
cash
using a fixed
using a fixed
Price tags for GTL, GPA and GHS 400 500 800 percentage)
percentage)
(in Flex dollars p.a.)

Mercer’s Asia HR Roundtable 2010 9

Transforming the rewards package
– Flex Trends & Updates
Flex Updates Across Asia - 2010

The Trend

Benefits are decided by ƒ Choice & flexibility for employees

organization
ƒ Empowerment
One-size-fits-all
ƒ Diverse work force / culture & needs
disregarding needs of
diverse work force

Provision of benefits w/o Re-defined benefits provision philosophy - one that supports specific
defined HR or corporate corporate / HR objectives eg
philosophy
ƒ maximise value of existing benefits

ƒ health & wellness

ƒ Employer of choice - innovative

ƒ competitiveness

ƒ keeping line with new benefit trends

ƒ institute culture of responsible use of medical benefits

Mercer’s Asia HR Roundtable 2010 11

Flex Updates Across Asia - 2010

The Trend

No control over ƒ Cost management / shifting

escalating cost

Benefits offering on ƒ Move towards defined contribution with better control over benefits
defined benefits spend / budget
structure

No alignment of benefits ƒ Benefits harmonization or alignment across entities within a country or

across entities / business groups
countries
ƒ Regional alignment across countries spearheaded by regional HR
No regional HR co-
ƒ Benefits harmonization during M&As
ordination

Lack of communication ƒ Total rewards strategy / online total rewards statements

of benefits and value
ƒ More effort & interest to communicate value of benefits especially
Compensation separate through flex programs
from benefits
ƒ Help employees better understand insurance & medical benefits –
working jointly with providers

Mercer’s Asia HR Roundtable 2010 12

Flex Updates Across Asia - 2010

The Trend

Plan Design Features ƒ Lifestyle benefits

ƒ More comprehensive local medical coverage

ƒ Interest in including international medical plans to employees using flex

dollars or employee's own cost
ƒ Voluntary benefits

ƒ Work site products & services

ƒ Portability

ƒ Incentives for desired behavior eg environment-friendly behaviour,

community service & contributions

Flex Model ƒ Off-the-shelf solutions for SMEs with lower cost of implementation &
administration

Pension / retirement ƒ Potentially integrating flex with pension / retirement program, if

regulation permits and there are tax efficiencies
Source: Text

Mercer’s Asia HR Roundtable 2010 13

Flex Updates Across Asia - 2010

Current or Previous The Trend

Health & Wellness ƒ Encouraging employee health & wellness, health education
programs
ƒ Health risk profiling, healthy living programs and incentives / rewards
through flex

Financial & Insurance ƒ Incorporate education to help employees make appropriate plans for
planning their future and post-retirement financial and insurance needs

Encashment of Flex ƒ Move towards FSA to encourage specific behavior as in health &
Dollars wellness focus vs encashment

Source: Text

Mercer’s Asia HR Roundtable 2010 14

Flex in Asia
Flex in Asia
- Countries that have mature flex and choice programs

Mature Flex Markets

Singapore
Between 50 - 200 companies on Flex
programs to-date, mostly MNCs in
ok financial services, technology and
logistics industry. Also includes
numerous government ministries and
government-linked organizations
Hong Kong
Malaysia
Malaysia
Similar to Singapore except less than
Singapore 50 companies on Flex
Hong Kong
Less than 50 mostly in financial
services industry

Mercer’s Asia HR Roundtable 2010 16

Flex in Asia
- Countries with moderate levels of choice and flex

ok

Thailand Philippines
Philippines
Less than 50 companies on Flex, mostly
Indonesia pharmaceutical, manufacturing, telco and
BPO industries
Indonesia
Australia Less than 10 companies on Flex, mostly
manufacturing, logistics and pharmaceutical
industries
Australia / Thailand
Less than 5

Mercer’s Asia HR Roundtable 2010 17

Flex in Asia
- Countries that have emerging flex and choice programs

Japan /
China
ok
South
Korea
Taiwan
India
Vietnam
China, Taiwan & India
Less than 10 companies on flex primarily in
technology industry
Japan & South Korea
Less than 5 companies on typical flex
structures and those that we are aware of are
New from technology industry. However, there
Zealand appears to be a prevalence of voluntary top-up
programs in South Korea
Vietnam & New Zealand
No known flex plans to-date

Mercer’s Asia HR Roundtable 2010 18

Flex in Asia
Mature Flex Developing Flex New Flex Markets Immature Flex
Markets Markets Markets

Countries Singapore, Hong Philippines, China, Taiwan, India, New Zealand,

Kong, Malaysia Indonesia, Thailand, Japan, South Korea Vietnam
Australia

Infrastructure Mature market with Developing markets All New markets with no

ok
infrastructure in place with some flex plans in known flex
in terms of ready pool place for several years Markets which have implementations
of insurers, medical and continued growing seen interest in flex
providers, flex interest. and there are some Insurers are unfamiliar
experience & plans in place though with flex and there are
expertise, market Insurers are relatively few. Insurers no known flex
best practices, somewhat familiar are relatively new to providers
technology & internet with flex and there is a flex
growing number of For Australia & New
infrastructure to Japan & Korea Zealand, some of the
support flex vendors providing flex
consulting and more commonly flexed
programs Infrastructure not yet benefits are tied to
administration in place to support flex
services superannuation
programs. Lack of packages and hence
market practice, local may not allow for
flex expertise and flexibility.
experience. Insurers
are generally wary of
flex programs and not
keen to support

Regulatory There is no known regulation that would inhibit introduction of Flex programs in these countries
except ‘diminution of benefits’ regulation in Philippines which does not permit auto reduction of
benefits to core level without employee consent
Mercer’s Asia HR Roundtable 2010 19
Flex in Asia

Mature Flex Markets Developing Flex New Flex Markets Immature Flex
Markets Markets

Countries Singapore, Hong Philippines, China, Taiwan, India, New Zealand,

Kong, Malaysia Indonesia, Thailand, Japan, South Korea Vietnam
Australia
ok
Tax Singapore & Philippines & All FSA Fringe benefit tax
Malaysia Thailand reimbursement items applies on employers
are taxable in hands
Some tax efficiencies Some tax efficiencies of employees.
available as FSA available as some
reimbursements for FSA reimbursement Additionally, fringe
medical, dental, health items are tax exempt benefit tax is levied on
screening & maternity for employees employers in India
expenses for
employee, spouse & Indonesia
children are generally All FSA
tax exempt for reimbursement items
employees are taxable in hands
Hong Kong of employees

All FSA Australia

reimbursement items Fringe Benefit Tax
are taxable in hands applies on employers
of employees

Mercer’s Asia HR Roundtable 2010 20

Flex in Asia

Mature Flex Developing New Flex Markets Immature Flex Markets

Markets Flex Markets

Countries Singapore, Hong Philippines, China, Taiwan, India, Japan, New Zealand, Vietnam
Kong, Malaysia Indonesia, South Korea
Thailand,
Australia

3 key ƒ Talent attraction & retention

ok ƒTalent attraction &
advantages retention
ƒ Better meet needs of diverse employee profile
of Flex ƒ Better meet needs of
ƒ Long term cost containment
diverse employee
profile
ƒ Competitive
differentiation

3 key ƒ Cost especially ongoing flex admin ƒ Cost especially ongoing flex ƒ Fringe benefit tax
barriers to costs admin costs
ƒ Lack of infrastructure
introducing ƒ Employees’ ability to understand flex ƒ Lack of infrastructure support support from insurers,
flex and make appropriate decisions from insurers, local local consultants and
during annual selections consultants and administrators
administrators
ƒ Admin complexities & workload ƒ Lack of market
ƒ No tax efficiency for prevalence
ƒ Australia – Fringe Benefit Tax
employers & employees in
Taiwan, India, Japan & South
Korea eg fringe benefit tax in
India
Mercer’s Asia HR Roundtable 2010 21
Flex in Asia
Mature Flex Markets Developing Flex New Flex Markets Immature Flex
Markets Markets

Countries Singapore, Hong Kong, Philippines, Indonesia, China, Taiwan, India, New Zealand,
Malaysia Thailand, Australia Japan, South Korea Vietnam

Common Comprehensive Core Plus Philippines, Indonesia, China, Taiwan & India Not known
Flex Models Thailand
Comprehensiveok
Comprehensive Core
Core Plus
Plus
Japan & South Korea
Flexible Spending
Account Only Voluntary Top-Up

Australia Flexible Spending

Account Only
Flexible Spending
Account

Benefits Life & Accident Insurance China, Taiwan & India Not known
Commonly Medical Outpatient & Inpatient Insurance Same as Singapore,
Flexed Hong Kong & Malaysia
Dependant Coverage
South Korea
Dental Insurance
Life & Accident Insurance
Maternity Insurance
Allowances
Health Screening Insurance
Japan
Some Allowances
Not known

Mercer’s Asia HR Roundtable 2010 22

Highlights of Mercer Global
Employee Choice Survey 2009
- Asia Pacific regional overview
Country Participation in Asia Pacific
Others, 3% Australia, 5%
Vietnam, 6%
Thailand, 4%

Singapore, 11%

ok
Philippines,
10%
China, 43%

Malaysia, 4%
Profile of Respondents
Indonesia, 4%
India, 2% 1. Mainly Manufacturing (50%)
Hong Kong, 7%
2. About a third (31%) employs between 251 to
1,000 employees
3. Average employee age is 33
Asia Pacific constitutes 34% of
total respondents 4. Nearly 1 in 2 employees is female
5. Nearly 1 in 3 employees in a collective
bargaining arrangement

Mercer 2009 Global Survey on Employee Choice

Mercer’s Asia HR Roundtable 2010 24

 Most important benefit priorities for the next three years

Increase employees’ understanding and appreciation of existing benefits

55%

Integrate health and group benefits into a total rewards approach

ok 36%

Educate employees about their health risks and how to improve their health
33%

Ensure equitable benefits across employees groups in home country

31%

Ease the administration of benefits programs

30%

Mercer 2009 Global Survey on Employee Choice

Mercer’s Asia HR Roundtable 2010 25

View towards offering choice
Among respondents not currently offering choice

Interested to

ok
provide choice,
29%

Have not
considered but
receptive, 46%

Definite plans to
introduce choice,
7%

Not likely to offer

choice, 18%

Mercer 2009 Global Survey on Employee Choice

Mercer’s Asia HR Roundtable 2010 26

 Degree of Choice

Employees have
a great deal of
choice, 2%
Employees have
some choice,
17%

ok Reasons for not providing choice

Do not agree to
choice, 15%

Same benefits
package for all
employees , No advantage,
81% 25%

Cost, 66%

Our employees
have not asked
for choice, 30% Not permitted by
legislation, 5%
Mercer 2009 Global Survey on Employee Choice

Mercer’s Asia HR Roundtable 2010 27

 Significant challenges perceived in setting up flex

Key challenges perceived Developing Markets

Australia & Thailand – Cost
• Complexity of administration (59%) Philippines – Resource
• Cost (57%)
• Resource constraints (43%)
• Demonstrating returns on investment (38%)
• Employee communication (28%) ok Thailand
• Legal or tax issues (25%) Philippines

• Technology (23%)
Australia

New Markets
Mature Markets
Indonesia & Vietnam – Cost
Singapore – Cost
India & China – Resource
Hong Kong – Admin Complexity China
Malaysia - Technology
India

Vietnam

Hong
Kong Indonesia
Malaysia

Singapore

Mercer 2009 Global Survey on Employee Choice

Mercer’s Asia HR Roundtable 2010 28
Main objectives for offering flex / choice
Respond to diverse workforce needs and values
75%

Remain competitive in our marketplace

63%

Maximise value of existing benefit spend ok

61%

Increase employees’ understanding and appreciation of the value of their benefits

58%
Flex Met Original Objectives?
Improve employee engagement
Strongly agree,
11%
48%

Don't Know /
Can't measure,
15%

Strongly
Disagree, 0%
Disagree, 4%

Agree, 70%

Mercer 2009 Global Survey on Employee Choice

Mercer’s Asia HR Roundtable 2010 29

Employees’ response to choice

Employee Responses in APAC Developing Markets

• More positive than negative (62%) More positive than negative
• Strongly positive (23%)
• Evenly mixed between positive & negative (13%)
• More negative than positive (2%)
ok Thailand
Philippines

Australia

New Markets
Mature Markets Strongly positive
More positive than negative China

India

Vietnam
Hong
Kong
Malaysia
Indonesia
Singapore

Mercer 2009 Global Survey on Employee Choice

Mercer’s Asia HR Roundtable 2010 30
Impact of choice on benefit cost
Benefit cost today compared to what it would have been without adding
choice

Significantly
lower, 9%
Largely
ok unaffected, 26%

Somewhat lower,
19%

Significantly
higher, 19%
Somewhat
higher, 28%

Mercer 2009 Global Survey on Employee Choice

Mercer’s Asia HR Roundtable 2010 31

Benefits most commonly offered in flex or choice program

Developing Markets
Common Benefits in flex or choice programs Insurance
ƒ Insurance – Medical, Dependents’ coverage,
Accident, Life and Dental
ƒ Allowances – Mobile phone, Gym club membership,
ok
Housing, Public Transport (commuting) and Cars Thailand
Philippines
ƒ Others – Health screening, Retirement (voluntary
pension), Holidays
Australia

New Markets
Allowances
Mature Markets
Insurance China

India

Vietnam

Hong
Kong Indonesia
Malaysia

Singapore

Mercer 2009 Global Survey on Employee Choice

Mercer’s Asia HR Roundtable 2010 32

Approach to administration

Outsource entire
process with key
decisions
remaining in-

ok
house, 28%

Exclusively in-
house, 34%

Co-source
approach with a
mixture of in-
house and
outsourced
Primarily in- resources, 19%
house, using
existing
resources and
technology, 19%

Mercer 2009 Global Survey on Employee Choice

Mercer’s Asia HR Roundtable 2010 33

Mercer Global Employee Choice Survey 2009
- Key Thoughts

ƒ Significant % of employers in Asia Pacific currently do not offer

choice but are receptive with many expressing interest in doing so
ƒ 50% of respondents are from manufacturing industry – reflecting an
interest in employee choice programs
ok from an industry which
traditionally does not do so
ƒ Some key challenges are perceived but experience of mature
markets attest to the success of flex and choice programs in meeting
corporate objectives
ƒ Success of flex and choice is also evident in
ƒ employees’ positive response
ƒ the many companies who have provided such and intend to
continue doing so even during current economic environment

Mercer’s Asia HR Roundtable 2010 34

Flex Success Stories
Success Story 1
Flex redesign and migration (Singapore financial services firm)
Situation
ƒ Company needed to review their flex plan design which
was unchanged for several years; employees were asking
for greater flexibility and more options
ƒ Company wanted flex plan to support new focus on health
& wellness and consumerism
ƒ Flex administration was on a manual basis using legacy
system; employees had to contact HR to obtain
information on their selected benefits, FSA claims, flex
points balance, etc.; company wanted to encourage an
employee self-service culture and provide 24/7 access to
such information
Action
ƒ Mercer undertook analysis of current utilization,
selections & flex costs, and market benchmarking
ƒ A plan redesign was established to meet desired
objectives and impact on company cost and winners /
losers were identified
ƒ Changes were made in pricing strategy to provide some
cost savings to the company
ƒ Mercer provided a bundled solution of consulting,
broking and online flex administration services and
worked closely with client HR and IT to ensure
successful migration and launch
Mercer’s Asia HR Roundtable 2010
Challenge
ƒ Flex redesign must be on cost-neutral basis or with some
cost savings
ƒ Transition to self-service culture with need to educate
employees and convince them of merits
ƒ Plan design changes and migration to online system
ok required approval and involvement of key stakeholders in
US (e.g., Global Rewards team, Global IT team etc);
needed to factor these approval processes within a tight
timeline
Results
ƒ Revised plan design was well supported by US as it
encourages consumerism and health & wellness
ƒ Revised pricing strategy enabled company to achieve the
targeted % cost savings
ƒ Employees, though initially hesitant, liked the revised plan
as it offers greater flexibility, options and provides incentive
for good consumerism behavior
ƒ HR able to redeploy internal resources
ƒ The online system is well received as employees have
24/7 access to their account to check their benefits, claims
status, flex points balances, etc
36
Success Story 2
Instituting Cost Sharing Culture – Co-payments
Situation
ƒ Hospitality industry. Had in-house clinic which
was well-utilized by employees
ƒ Industry notorious for high staff turnover. Desired
competitive differentiation to attract & retain staff
ƒ Also faced issue of rising medical cost especially
outpatient and productivity loss & cost due to high
sick leave consumption
Action
ƒ Decision was taken to introduce flex for two key
objectives – market differentiator and cost
containment
ƒ Co-payment for each doctor visit was introduced
ƒ Company funded co-payments for 5 visits per
employee. If not utilized, balance is encashed at
year end
ƒ No Sick Leave Incentive was introduced to
reward employees with low or no sick leave
usage
Mercer’s Asia HR Roundtable 2010
Challenge
ƒ No limit to outpatient utilization. Analysis showed
average of 22 visits to the doctor per employee
each year. This is very high in comparison to
industry average of between 5-7
ƒ Medical cost-sharing in form of co-payments is not
common market practice
Results
ƒ Immediate result in reduction of doctor visits from
average of 22 to 17 per employee each year
ƒ In first year, achieved savings of about 5
visits or $125 per employee which translated
into $125,000
ƒ Sick leave utilization declined hence increasing
productivity and reducing replacement cost
ƒ Company invested some of these savings back
into flex plan by giving employees more flex
dollars
37
Success Story 3
Medical Wellness Spending Account
Situation
ƒ Financial services industry
ƒ Medical outpatient cost increasing 30% p.a.
ƒ Moved to managed care program in 1998 –
helped contain cost but resulted in employee
dissatisfaction & complaints
ƒ Change in provider did not help
Action
ƒ Introduced Medical Wellness Spending Account
in 2001
ƒ Allocation based on average spent by
employees. % unused Spending Account
converted to Wellness Dollars
ƒ Wellness Dollars used for approved items eg
TCM, immunization, dental, optical, personal
insurance policies
Mercer’s Asia HR Roundtable 2010
Challenge
ƒ Needed win-win arrangement for company and
employees
ƒ Look for alternative solution than managed care to
address employees’ dissatisfactions without
increasing costs
Results
ƒ Significant fall in medical outpatient utilization
resulted in S$1m savings over 4 years
ƒ Better employee retention
ƒ Higher productivity as absenteeism rate declined
from average of 3.18 days to 2.4 days over 3 years
ƒ Employer branding
ƒ Employees take charge of own health & medical
spend
38
Thank you
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