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Regional update – how flexible benefits is

transforming the packaging of rewards inAsia

Chow Yoke FunRegional Flex Consulting Leader



2Mercer’s Asia HR Roundtable 2010

Key Discussion Points

What are Flexible Benefits (Flex)

Transforming the rewards package – Flex Trends & Updates AcrossAsia

Flex in Asia

Highlights of Mercer Global Employee Choice Survey 2009 Results

Flex Success Stories



What are Flexible Benefits




What are Flexible Benefits?

An innovative way of offering employee benefits

Basic concept is giving employees choice in selection of their benefitson year to year basis to meet their diverse and changing needs

Traditional One SizeFits All Structure

Flexible Benefits

Same benefits for ALL employeesEmployees choose the benefits that

meet their individual needs




Flex Drivers

Meet diverse employee needs & maximize value of benefit spend

Employer of Choice for competitive differentiation

Control escalating benefit costsHarmonize benefits across different entities or during M&A

Communicate benefits as part of total rewards

Raise employee awareness and appreciation of benefits

Facilitate benefit program changes




Different generations have different prioritiesOne size does not fit all

Balances workwith familyTechnology-expertsTeam-oriented

Socially-conscious

Distrust institutionsEntrepreneurialRisk takersNeeds work/lifebalance

IndulgedSocially-consciousWorks hard

ValuessecurityCompanyloyaltyInclusive

Characteristics

To live better

Wants company tovalue individualindividualcontributionscontributions

30 to 4230 to 42

Generation X

To live apurposeful life

To build abetter life

To build a lifeDrivers inWork

Wants tovalue ownowncontributionscontributions

Wants hardhardworkwork to bevalued

Wantsexpertiseexpertise andexperienceexperience tobe valued

Value of Work

18 to 2918 to 2943 to 6043 to 6060+60+Age

Generation Y/MillennialsBaby BoomersMatures/

TraditionalistsGroups

Sources: Employee Benefits of the future, Employee Benefit Plan Review, Jan 2007The Next 20 Years: How Customer and Workforce Attitudes will Evolve, N. Howe, W. Strauss 2007Millenials Rising – The Next Great Generation, Howe and Strauss, Vintage Books 2000




Flex Models- Flexible Benefit Continuum

More FlexibilityLess Flexibility

Traditional

The employerprovides amandatory set ofbenefitsThe employeehas no choiceavailable otherthan opting-out incertaincircumstances

The employerprovides amandatory set ofbenefits

The employee haslimited flexibility byvirtue of having theoption to purchaseadditional lifeinsurance

Employees areprovided with 2or morecompletepackages tochoose fromAppropriate forsmall to mid-sizegroups, or fornew flex plans

The employerutilizes atraditionalapproach forcatastrophicprotection e.g. lifeinsurance,disability, andcatastrophichealth claimsThe employee isprovided with ahealth spendingaccount to utilizefor other eligiblehealth and dentalexpenses

The employerprovides acore level ofcoverage forall benefitsThe employeeis providedwith credits topurchaseprotectionavailablewithin theother optionsincluded in theplan

Employees areprovided with aset amount ofcashThe employerfacilitatescoverage forcertainbenefits, someof which maybe compulsory

Cash Plus

Options

Employees areprovided with aset amount ofcashThe employerhas noinvolvement inthe facilitationof benefits

Traditional

PlusVoluntaryOptions

Modular FSA &

TraditionalCoverage

Core Plus

Options

Cash




Flex Models- Core Plus Model

Flex is a scheme which provides options for employees to choose thebenefits which best meet their needs

BENEFITENTITLEMENT

COREBENEFITS

FLEX DOLLARALLOCATION

CHOICE OFOPTIONALBENEFITS

FLEXIBLESPENDINGACCOUNT

(FSA)




Flex Models- Modular Plan

The modular plan design is a set of various packaged plans where employees chose one that bestmeet their needs. A minimum package plan usually applies.

The remaining money is also put into a flexible spending account and used for various self-insuredbenefits. 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, aGPA sum assured of $200,000 and R&B per day limits of $388.

Choice IChoice I(Minimum(Minimum

Plan)Plan) Choice IIChoice II Choice IIIChoice III

50,000

50,000

R&B: 170

800500400Price tags for GTL, GPA and GHS(in Flex dollars p.a.)

500 flex dollarsbudget for each

employee (familyfriendly employersmay give more toemployees with

dependents)

500 flex dollarsbudget for each

employee (familyfriendly employersmay give more toemployees with

dependents)

GPA

GTL

GHS

100,000

100,000

R&B: 250

200,000

200,000

R&B: 388

Unspent flex dollarsare usually diverted toa flex spendingaccount. The flexdollars in a spendingaccount can be usedto claimreimbursement for:• Dental• Holiday Subsidy

• Chinese Physician• Gym Subsidy• Encashment(Converted to cashusing a fixedpercentage)

Unspent flex dollarsare usually diverted toa flex spending

account. The flexdollars in a spendingaccount can be usedto claimreimbursement for:• Dental• Holiday Subsidy• Chinese Physician• Gym Subsidy• Encashment(Converted to cashusing a fixedpercentage)



Transforming the rewards package

– Flex Trends & Updates




Flex Updates Across Asia - 2010

Re-defined benefits provision philosophy - one that supports specific

corporate / HR objectives egmaximise value of existing benefits

health & wellness

Employer of choice - innovative

competitivenesskeeping line with new benefit trends

institute culture of responsible use of medical benefits

Provision of benefits w/o

defined HR or corporatephilosophy

Choice & flexibility for employees

EmpowermentDiverse work force / culture & needs

Benefits are decided byorganization

One-size-fits-alldisregarding needs ofdiverse work force

The Trend





Cost management / shiftingNo control overescalating cost

Move towards defined contribution with better control over benefitsspend / budget

Benefits offering ondefined benefitsstructure

The Trend

Total rewards strategy / online total rewards statements

More effort & interest to communicate value of benefits especiallythrough flex programs

Help employees better understand insurance & medical benefits – working jointly with providers

Lack of communication

of benefits and valueCompensation separatefrom benefits

Benefits harmonization or alignment across entities within a country or

business groupsRegional alignment across countries spearheaded by regional HR

Benefits harmonization during M&As

No alignment of benefits

across entities /countries

No regional HR co-ordination





Source: Text

Lifestyle benefits

More comprehensive local medical coverageInterest in including international medical plans to employees using flexdollars or employee's own cost

Voluntary benefits

Work site products & services

Portability

Incentives for desired behavior eg environment-friendly behaviour,community service & contributions

Plan Design Features

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

Flex Model

The Trend

Potentially integrating flex with pension / retirement program, ifregulation permits and there are tax efficiencies

Pension / retirement





Source: Text

Encouraging employee health & wellness, health educationHealth risk profiling, healthy living programs and incentives / rewardsthrough flex

Health & Wellnessprograms

The TrendCurrent or Previous

Move towards FSA to encourage specific behavior as in health &wellness focus vs encashment

Encashment of FlexDollars

Incorporate education to help employees make appropriate plans fortheir future and post-retirement financial and insurance needs

Financial & Insuranceplanning



Flex in Asia




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

ok

Mature Flex Markets

Hong Kong

MalaysiaSingapore

Singapore

Between 50 - 200 companies on Flex

programs to-date, mostly MNCs infinancial services, technology and

logistics industry . Also includesnumerous government ministries and

government-linked organizations

Malaysia

Similar to Singapore except less than50 companies on Flex

Hong Kong

Less than 50 mostly in financialservices industry




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

ok

Philippines

Less than 50 companies on Flex, mostlypharmaceutical, manufacturing, telco and

BPO industries

Indonesia

Less than 10 companies on Flex, mostly

manufacturing, logistics and pharmaceuticalindustries

Australia / Thailand

Less than 5

IndonesiaPhilippines

Australia

Thailand




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

ok

TaiwanIndia

China

China, Taiwan & IndiaLess 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 arefrom technology industry. However, thereappears to be a prevalence of voluntary top-up

programs in South Korea

Vietnam & New Zealand

No known flex plans to-date

Japan /SouthKorea

NewZealand

Vietnam




Flex in Asia

okNew markets with noknown fleximplementations

Insurers are unfamiliarwith flex and there areno known flexproviders

For Australia & NewZealand, some of themore commonly flexedbenefits are tied tosuperannuationpackages and hencemay not allow forflexibility.

All

Markets which haveseen interest in flexand there are someplans in place thoughrelatively few. Insurersare relatively new toflex

Japan & Korea

Infrastructure not yetin place to support flexprograms. Lack ofmarket practice, localflex expertise andexperience. Insurersare generally wary offlex programs and notkeen to support

Developing marketswith some flex plans inplace for several yearsand continued growinginterest.

Insurers aresomewhat familiarwith flex and there is agrowing number ofvendors providing flexconsulting andadministrationservices

Mature market withinfrastructure in placein terms of ready poolof insurers, medicalproviders, flexexperience &expertise, marketbest practices,

technology & internetinfrastructure tosupport flexprograms

Infrastructure

New Zealand,Vietnam

China, Taiwan, India,Japan, South Korea

Philippines,Indonesia, Thailand,Australia

Singapore, HongKong, Malaysia

Countries

There is no known regulation that would inhibit introduction of Flex programs in these countriesexcept ‘diminution of benefits’ regulation in Philippines which does not permit auto reduction of

benefits to core level without employee consent

Regulatory

Immature FlexMarketsNew Flex MarketsDeveloping FlexMarketsMature FlexMarkets




Flex in Asia

okFringe benefit taxapplies on employers

All FSAreimbursement itemsare taxable in handsof employees.

Additionally, fringebenefit tax is levied onemployers in India

Philippines &Thailand

Some tax efficienciesavailable as someFSA reimbursementitems are tax exemptfor employees

Indonesia

All FSAreimbursement itemsare taxable in hands

of employeesAustralia

Fringe Benefit Taxapplies on employers

Singapore &Malaysia

Some tax efficienciesavailable as FSAreimbursements formedical, dental, healthscreening & maternityexpenses foremployee, spouse &children are generallytax exempt foremployees

Hong Kong

All FSAreimbursement itemsare taxable in handsof employees

Tax

New Zealand,Vietnam


Philippines,Indonesia, Thailand,

Australia


Countries

Immature FlexMarkets

New Flex MarketsDeveloping FlexMarkets

Mature Flex Markets




Flex in Asia

ok Talent attraction &retention

Better meet needs ofdiverse employeeprofile

Competitivedifferentiation

Talent attraction & retention

Better meet needs of diverse employee profile

Long term cost containment

3 keyadvantagesof Flex

New Zealand, VietnamChina, Taiwan, India, Japan,South Korea

Philippines,Indonesia,Thailand,Australia


Countries

Fringe benefit tax

Lack of infrastructuresupport from insurers,local consultants andadministrators

Lack of marketprevalence

Cost especially ongoing flexadmin costs

Lack of infrastructure supportfrom insurers, localconsultants andadministrators

No tax efficiency foremployers & employees inTaiwan, India, Japan & SouthKorea eg fringe benefit tax inIndia

Cost especially ongoing flex admincosts

Employees’ ability to understand flexand make appropriate decisionsduring annual selections

Admin complexities & workload

Australia – Fringe Benefit Tax

3 keybarriers tointroducingflex

Immature Flex MarketsNew Flex MarketsDevelopingFlex Markets

Mature FlexMarkets




Flex in Asia

ok

Not knownChina, Taiwan & India

Comprehensive CorePlus

Japan & South Korea

Voluntary Top-Up

Flexible Spending

Account Only

Philippines, Indonesia,

ThailandComprehensive CorePlus

Flexible SpendingAccount Only

Australia

Flexible SpendingAccount

Comprehensive Core PlusCommon

Flex Models

New Zealand,Vietnam


Philippines, Indonesia,Thailand, Australia

Singapore, Hong Kong,Malaysia

Countries

Not knownChina, Taiwan & India

Same as Singapore,Hong Kong & Malaysia

South Korea

Life & Accident Insurance

Allowances

Japan

Not known

Life & Accident Insurance

Medical Outpatient & Inpatient Insurance

Dependant Coverage

Dental Insurance

Maternity Insurance

Health Screening Insurance

Some Allowances

BenefitsCommonlyFlexed

Immature FlexMarkets

New Flex MarketsDeveloping FlexMarkets

Mature Flex Markets



Highlights of Mercer Global

Employee Choice Survey 2009- Asia Pacific regional overview




Most important benefit priorities for the next three years

ok

30%

31%

36%

55%

33%

Increase employees’ understanding and appreciation of existing benefits

Integrate health and group benefits into a total rewards approach

Ease the administration of benefits programs

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

Ensure equitable benefits across employees groups in home country

Mercer 2009 Global Survey on Employee Choice




View towards offering choiceAmong respondents not currently offering choice

ok

Have not

considered butreceptive, 46%

Not likely to offerchoice, 18%

Interested to

provide choice,29%

Definite plans tointroduce choice,

7%





ok

Same benefitspackage for all

employees ,81%

Employees havesome choice,

17%

Employees havea great deal of

choice, 2%


Cost, 66%

Not permitted bylegislation, 5%

Our employeeshave not askedfor choice, 30%

No advantage,25%

Do not agree tochoice, 15%

Reasons for not providing choice

Degree of Choice




Significant challenges perceived in setting up flex

okPhilippines

Thailand

Australia

Indonesia

India

China

Vietnam

Developing MarketsAustralia & Thailand – CostPhilippines – Resource

New MarketsIndonesia & Vietnam – CostIndia & China – Resource

Key challenges perceived• Complexity of administration (59%)• Cost (57%)• Resource constraints (43%)

• Demonstrating returns on investment (38%)• Employee communication (28%)• Legal or tax issues (25%)• Technology (23%)


HongKong

Malaysia

Singapore

Mature MarketsSingapore – CostHong Kong – Admin ComplexityMalaysia - Technology




Main objectives for offering flex / choice

ok

48%

58%

61%

63%

75%Respond to diverse workforce needs and values

Remain competitive in our marketplace

Improve employee engagement

Maximise value of existing benefit spend

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


Agree, 70%

Disagree, 4%

StronglyDisagree, 0%

Don't Know /Can't measure,

15%

Strongly agree,11%

Flex Met Original Objectives?




Employees’ response to choice

okPhilippines

Thailand

Australia

Indonesia

India

China

Vietnam

New MarketsStrongly positive

Employee Responses in APAC• More positive than negative (62%)• Strongly positive (23%)• Evenly mixed between positive & negative (13%)

• More negative than positive (2%)


HongKong

Malaysia

Singapore

Mature MarketsMore positive than negative

Developing MarketsMore positive than negative




Impact of choice on benefit costBenefit cost today compared to what it would have been without addingchoice

okLargely

unaffected, 26%

Significantly

higher, 19%Somewhat

higher, 28%

Somewhat lower,19%

Significantlylower, 9%





Benefits most commonly offered in flex or choice program

ok PhilippinesThailand

Australia

Indonesia

India

China

Vietnam

Developing MarketsInsurance

New MarketsAllowances

Common Benefits in flex or choice programsInsurance – Medical, Dependents’ coverage,Accident, Life and DentalAllowances – Mobile phone, Gym club membership,

Housing, Public Transport (commuting) and CarsOthers – Health screening, Retirement (voluntarypension), Holidays


HongKong

Malaysia

Singapore

Mature MarketsInsurance




Approach to administration

ok

Outsource entireprocess with key

decisionsremaining in-

house, 28%

Primarily in-

house, usingexisting

resources andtechnology, 19%

Co-sourceapproach with a

mixture of in-house and

outsourcedresources, 19%

Exclusively in-house, 34%





Mercer Global Employee Choice Survey 2009- Key Thoughts

ok

Significant % of employers in Asia Pacific currently do not offerchoice but are receptive with many expressing interest in doing so

50% of respondents are from manufacturing industry – reflecting an

interest in employee choice programs from an industry whichtraditionally does not do so

Some key challenges are perceived but experience of maturemarkets attest to the success of flex and choice programs in meetingcorporate objectives

Success of flex and choice is also evident inemployees’ positive response

the many companies who have provided such and intend tocontinue doing so even during current economic environment



Flex Success Stories




Success Story 1Flex redesign and migration (Singapore financial services firm)

ok

S i t u a t i o n Chal lenge

Action

Revised plan design was well supported by US as itencourages consumerism and health & wellness

Revised pricing strategy enabled company to achieve thetargeted % cost savings

Employees, though initially hesitant, liked the revised planas it offers greater flexibility, options and provides incentivefor good consumerism behavior

HR able to redeploy internal resources

The online system is well received as employees have24/7 access to their account to check their benefits, claims

status, flex points balances, etc

Resu l t s

Company needed to review their flex plan design whichwas unchanged for several years; employees were askingfor greater flexibility and more options

Company wanted flex plan to support new focus on health& wellness and consumerism

Flex administration was on a manual basis using legacysystem; employees had to contact HR to obtaininformation on their selected benefits, FSA claims, flexpoints balance, etc.; company wanted to encourage anemployee self-service culture and provide 24/7 access tosuch information

Flex redesign must be on cost-neutral basis or with somecost savings

Transition to self-service culture with need to educateemployees and convince them of merits

Plan design changes and migration to online systemrequired approval and involvement of key stakeholders inUS (e.g., Global Rewards team, Global IT team etc);needed to factor these approval processes within a tighttimeline

Mercer undertook analysis of current utilization,selections & flex costs, and market benchmarking

A plan redesign was established to meet desiredobjectives and impact on company cost and winners / losers were identified

Changes were made in pricing strategy to provide somecost savings to the company

Mercer provided a bundled solution of consulting,broking and online flex administration services andworked closely with client HR and IT to ensuresuccessful migration and launch




Success Story 2Instituting Cost Sharing Culture – Co-payments

S i t u a t i o n

Decision was taken to introduce flex for two keyobjectives – market differentiator and costcontainment

Co-payment for each doctor visit was introduced

Company funded co-payments for 5 visits peremployee. If not utilized, balance is encashed atyear end

No Sick Leave Incentive was introduced toreward employees with low or no sick leaveusage

Hospitality industry. Had in-house clinic whichwas well-utilized by employees

Industry notorious for high staff turnover. Desired

competitive differentiation to attract & retain staffAlso faced issue of rising medical cost especiallyoutpatient and productivity loss & cost due to highsick leave consumption

Chal lenge

A c t i o n

Immediate result in reduction of doctor visits fromaverage of 22 to 17 per employee each year

In first year, achieved savings of about 5visits or $125 per employee which translatedinto $125,000

Sick leave utilization declined hence increasingproductivity and reducing replacement cost

Company invested some of these savings backinto flex plan by giving employees more flexdollars

Resu l t s

No limit to outpatient utilization. Analysis showedaverage of 22 visits to the doctor per employeeeach year. This is very high in comparison toindustry average of between 5-7

Medical cost-sharing in form of co-payments is notcommon market practice




Success Story 3Medical Wellness Spending Account

S i t u a t i o n

Introduced Medical Wellness Spending Accountin 2001

Allocation based on average spent byemployees. % unused Spending Accountconverted to Wellness DollarsWellness Dollars used for approved items egTCM, immunization, dental, optical, personalinsurance policies

Financial services industry

Medical outpatient cost increasing 30% p.a.

Moved to managed care program in 1998 – helped contain cost but resulted in employeedissatisfaction & complaints

Change in provider did not help

Chal lenge

A c t i o n

Significant fall in medical outpatient utilizationresulted in S$1m savings over 4 years

Better employee retention

Higher productivity as absenteeism rate declinedfrom average of 3.18 days to 2.4 days over 3 years

Employer branding

Employees take charge of own health & medicalspend

Resu l t s

Needed win-win arrangement for company andemployees

Look for alternative solution than managed care toaddress employees’ dissatisfactions withoutincreasing costs



Thank you



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