Employers Struggle With Communicating Benefits Cuts

By Louise Esola

Sep. 1, 2009

Salary freezes, salary cuts, shortened workweeks, halting 401(k) matches and layoffs are almost a daily event in many business sectors as employers navigate the tough economy.

Employees are aware of the economic downturn, but experts say companies still should tread carefully when deciding how to communicate changes that usually mean less money in employees’ pockets.

Transparency, without the spin, is a best practice for companies that are scaling back, says Nicole Melton, a Philadelphia-based senior consultant and communication practice leader with Watson Wyatt Worldwide.

“We want [employers] to be straightforward and empathetic,” she says. “Be candid.”

Showing employees the financial reasons behind the changes is key, says Ken Groh, a Chicago-based vice president of the communication group with Aon Consulting. “Show them exactly why you have to do this,” he says.

That’s what JohnsonDiversey, a Sturtevant, Wisconsin-based provider of commercial cleaning products and services, did when it decided last year to switch from a traditional preferred provider organization health care plan to a consumer-driven plan and its retirement program from a pension to a 401(k) starting this year.

Todd Blazei, vice president of total rewards for JohnsonDiversey, says the company was aware employees might view the changes negatively. That’s why the company spent months planning how it would break the news.

In the end, JohnsonDiversey disclosed the changes in waves. First, the company’s CEO delivered what Blazei described as an in-depth video presentation discussing the company’s struggles in keeping up with rising health care costs and pension obligations.

Then, employees received two newsletters within two months, highlighting the changes to their health benefits and retirement plans. Roughly one month before open enrollment began, JohnsonDiversey hosted town hall-style meetings, by phone and in person, for employee questions.

By then, the affected 2,000 U.S.-based employees had few questions and concerns, Blazei says.

“People understood why,” he says. “We presented a clear business case for making the changes. Employees heard the same message several times. It wasn’t watered down and they got the information.”

Experts say such a super-informative method, delivered by those in key leadership positions, is the best way to approach employees with benefits changes. While companies may not have months to prepare, communicate and make benefits changes, they still should make a thorough presentation.

Melton says one major pitfall for employers to avoid is assuming workers understand why the company is scaling back. Employees, she says, want to see the numbers. Companies that fail this sort of disclosure risk damaging employee morale, she says.

There is a trust factor that gets lost when employers leave their employees out of the loop on specifics, says Groh. “This is particularly sensitive now because people think they did nothing wrong and they think that it’s the greed on Wall Street,” he says. “You can see why employees can be angry and demoralized.”

That’s why experts say leadership visibility is important when a company makes changes. “There’s no room for innuendo,” Melton says.

This leads to another pitfall for companies to avoid: the lack of empathy from frontline managers and top executives in initiating such changes, she says.

“Employees do understand. … We’re inundated with the news on how the economy is affecting the world and employees want to know how solvent their company is, but they need to know this information is coming from human beings,” Melton says. “They want to know how this is affecting everyone in the company.”

Memphis, Tennessee-based FedEx Corp. put empathy into play last year when it trimmed executive salaries within weeks of reducing retirement contributions, a company spokeswoman says. The point, she says, was for employees to understand that the economy was affecting the entire company, and not just those who deliver the packages.

Not all companies, however, will tackle areas such as executive pay when trimming their budgets, and some may be operating in the black while still trimming employee benefits, experts agree. This can muddy the water when getting the message across, Melton says.

“Dialogue between employers and employees is a must,” Groh says. “The message has to be, ‘We are in this together.’ Some companies have come out and said they do not want to lay people off, so instead they are going to a four-day workweek, for example. If you share the information the right way, people will get it.”

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