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Mercer Survey Finds Employee Benefits of Increasing Importance

Employee benefits are clearly becoming increasingly important elements of rewards packages a Mercer survey has found, with 75 percent of companies in already offering employees protection for death and long-term disability.

Medical care is a key macro issue in the Gulf States, and in Saudi Arabia there is a well documented drive to manage dependence on public healthcare systems. The Kingdom has already implemented legislation that requires employers to purchase locally approved medical insurance for their employees and dependants under the Cooperative Insurance Law.

Mercer’s survey, which was carried out in Saudi Arabia and other countries in July and August of 2009, shows that medical plans have become not only more common but that benefits included within plans are richer, with far more companies including benefits such as dental and maternity cover, both of which are up around 10 percent on 2007 levels. However, the increase in benefits provisions within plans coupled with increased claims is fuelling high medical plan premium inflation across the region – in the range of 10 percent to 15 percent per annum for many employers.

Callum Burns-Green, head of Mercer’s benefits consulting team in the Middle East commented that employers will need to consider proactive measures to address premium inflation if costs are to be controlled.

“The type of medical cost management that has become common in other markets such as the US, where employers take an active role in wellness initiatives to educate employees on the risks of certain lifestyle choices and facilitate access to health initiatives should be considered from the longer term perspective of reducing medical insurance claims and resulting premiums. Employers and their advisers will also need to get underneath claims data to be able to structure discussions with providers around whether certain levels of premium increases are justified for their employee groups.”

Flexible benefits are something that a number of employers are expressing interest in and this is another area that can potentially reduce employer costs.

“We would expect to start to see employers offer a core, compliant level of medical insurance with the facility for employees to top this up with higher levels of cover at their own cost. This type of employee choice can be applied across a range of benefits and is recognised in other markets as a tool for employers to control spends on rewards” said Mr Burns-Green.

Also highlighted in Mercer’s Saudi Arabia benefits survey was that 75 percent of companies offer protection benefits for employees that cover death, accidental death and long-term disability for all illnesses and injuries, regardless whether it was work-related or not.  Most plans provide a multiple of salary benefit, usually as a lump sum benefit and usually based on basic salary alone.

End of service benefits, otherwise known as termination indemnities or end of service gratuities, are usually payable to all employees immediately after termination.   In Saudi Arabia 10 to 20 percent of participants offer enhanced end of service benefits above the statutory minimum.

Mazen Abukhater, an actuary in Mercer’s benefits team commented that “the end of service benefit is not often a well communicated, well understood or well valued benefit by employees, especially expatriates, so enhancing it may not always be the most effective way for employers to direct Riyals on employee rewards”.

In terms of Mercer’s survey, 32 percent of companies across the GCC now say they offer some form of retirement benefit. Companies either provide the retirement benefit in addition to the mandatory end-of-service benefit or provide only the higher of the retirement plan benefit or the end-of-service benefit. Retirement Savings Plans offer employees access to group investment funds at a far reduced cost than is typically possible for individual investors.

In terms of the prevalence of other benefits, the most popular are annual airfares, settling in allowance, mobile phones and company cars. “It is not uncommon for employee benefits to represent over 10% of total employer expenditure on rewards” commented Mr Burns-Green. “It is important that employers review this to ensure that they are spending this money in ways that are understood and valued by employees”.

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