CHICAGO — Faced with rising costs for employee health care, supermarkets need to be careful how they handle the increases so they don't alienate workers by passing on costs or cutting benefits.
Fred Martels, president of People Solution Strategies, St. Louis, who worked with Food Marketing Institute on a newly released study — “2006-2007 Management Compensation” — told members attending the FMI Show here last week to start thinking strategically when it comes to designing their benefits packages. “Typically we look at these cost increases and try to control them either by shifting costs to employees or cutting benefits. That will have diminishing returns,” he said.
The study examines benchmarks for management employees in retail and wholesale companies. The survey profiled 56 companies representing 960,718 employees at 9,034 stores that do $181.1 billion in sales. Compensation and benefits currently account for more than 15% of a company's net sales, making it a critical part of a company's operating budget that affects the bottom line.
Health care premiums have been on a steady increase. Next year they are projected to jump 8%. Today 93% of supermarket companies in the study are sharing health care costs with their employees. Food retailers are on par with the national average when it comes to sharing the cost of health care. Supermarket employees are contributing 20%, compared with 16% nationally, for single coverage. For family coverage, supermarket employees are contributing 25%, compared with 27% nationally.
Supermarkets are very likely to pass increases in health care costs on to their employees. The study said that nearly 80% of supermarkets will pass costs on and 20% will absorb all cost increases. Independents are less likely to pass costs on. The study found that 59% of independents will pass cost increases on, and 36% will absorb them.
Martels also discussed retirement and incentive plans. He noted labor has lost confidence in retirement plans. Workers are slow to adapt to a changing retirement system. Many are counting on benefits that won't be there when they retire. Most workers' savings are modest when it comes to retirement. There is a continued ignorance about Social Security coverage.
A vast majority of companies, 95%, offer some form of bonus/incentive compensation, the study found. The most popular plan is tied to net income. “Net income is a great incentive plan,” said Martels. However, it needs to be tied to the entire management team from corporate to store manager and to others. Such plans also need to be based and examined on a broader range of measures besides labor as a percentage of sales, he added.
“Sometimes you may have an overzealous manager who is just looking at labor percent and labor per sales hour and decides to cut labor to the detriment of customers.”
Martels, who was a vice president of human resources at Dierbergs, St. Louis, urged those attending the session to use their human resource departments more strategically in executing their companies' vision and mission. He called it “Strategic HR.”
“This is making HR the link between marketing and operations. So whatever marketing says the company is going to be and do, then HR has to make sure they get the right people in to do it. Operations have to operate these stores profitably so HR can help them meet that goal by having the right people who are well trained, who know what they are supposed to do and do a good job with customers. Strategic HR can be a direct link to overall success and profitability.”