Over the course of three weeks, we’ll hear from Aon colleagues on how economic challenges are impacting all solutions, clients and colleagues in a special edition takeover of the “On Aon” podcast.
This week, host and Aon’s U.S. President, Charles Philpott, welcomes Head of Human Capital Solutions, North America, Brooke Green; Large Market Segment Leader for Health Solutions, North America, Kim Hurst and Head of U.S. Retirement, Jennifer Brasher; to discuss the challenges that HR leaders are facing given increased economic volatility.
Additional Resources:
Inflation is Influencing Business Risk Management — Take Steps to Mitigate its Impact
Aon 2021 Global Wellbeing Survey
38: On Aon’s Balancing of Inflation and Employee Benefits with Dave Guilmette
39: On Aon’s View on Challenging Economic Times – Part One with Eric Andersen and Leslie Follmer
40: On Aon’s View on Challenging Economic Times – Part Two with Joe Peiser
Tweetables:
“Employer communication and education is key to get employee savings to the right amount for retirement.” — Jennifer Brashe
Voiceover:
Welcome to the third and final episode of the special edition takeover series of On Aon, a podcast featuring conversations between colleagues on, well, Aon. In this three-part takeover series, we'll hear from Aon colleagues on how economic challenges are impacting all solutions, clients and colleagues. This week we hear from Brooke Green, Jennifer Brasher and Kim Hurst about the challenges that HR leaders are facing, given increased economic volatility. And now, this week's host, Charles Philpott.
Charles Philpott:
Hi listeners. It's me again, Charles Philpott, president of Aon's US region. If you listened to our last podcast, you know a bit about me. And for those who are joining us, I've held this position for one exciting year, and I've been with Aon since 1997. As we heard on our last On Aon episode, we're continuing to review the impact of unprecedented inflation and the likely prospect of a recession 2023.
So, now, we're taking a step back to focus on how these economic issues are impacting employers, the investments they're making in their people and the challenges they're facing as they manage these investments. As a last episode in a three-part series, what we're calling an On Aon takeover, I am thrilled to be joined by Brooke Green, Head of Human Capital Solutions North America, Kim Hurst, large market segment leader for Health Solutions and Jennifer Brasher, Head of U.S. Retirement, as we focus on the very specific challenges HR leaders are facing, given increased economic volatility. So, thanks for being here, Brooke, Kim and Jennifer.
Brooke Green:
Thanks, Charles for having me. The timing on this topic just couldn't be better. So, much is happening in the economy and also in the legal environment that have got our clients concerned. So, I'm really glad we're all talking today.
Kim Hurst:
Thank you, Charles. It's an honor to be here. This is such an important and really interconnected topic that we're talking about today. You just can't separate the spend on total compensation and the impact it has on healthcare. I look forward to the discussion and then talking about those intricacies in more detail.
Jennifer Brasher:
Thank you also, Charles, I'm really glad to be here with our On Aon listeners today. These are critical times for retirement programs and decisions that employers make now will help shape the outcomes for employees for many, many years to come.
Charles Philpott:
Well, I'm always thrilled to be with all three of you. I know that our most complicated problems can be solved with this team. So, why don't we just go ahead and jump right in the questions. Brooke, I'm going to direct this one at you. So, if we step back and we think about the first two episodes of this series, we spoke a lot about specific challenges organizations are facing given increased economic volatility, as well as the impact it has on risk managers. So, today, really what I want to do is dive into how HR leaders are thinking about this. So, Brooke, what are some of the main challenges that today's economy has been causing for HR leaders?
Brooke Green:
Well, the financials I think are probably the biggest challenge. HR leaders have been through the ringer. It's just been a very difficult couple of years on so many fronts with wellbeing and turnover. But I do think going into 2023, the financials of total rewards are going to be the biggest challenge. And Charles, what we know from previous recessions is that companies start to take a look at what and who they're spending money on and whether they can start to shift some of that focus to non-cash elements of total rewards.
The other thing I think is when funds are limited, the key is really being able to extract employee value anywhere you can get it. And a growing number of companies are actually asking their employees what it is they value before they make any sweeping changes, which seems so logical, but it's not always done.
And then the other thing I think is we can probably expect to see some companies downsizing or restructuring, but part from right now a handful of companies doing layoffs, what we're really seeing is HR leaders and companies slowing things down. So, for example, we do a practices survey. And in May, 40 percent of companies were aggressively hiring. And in September, only 25 percent were aggressively hiring. So, I think you're seeing a pivot from this aggressive sort of feeding frenzy in the market to a real focus on retaining the most important people and doubling down on retention. And then finally, pay transparency laws are a huge challenge for HR leaders right now. We could talk about that later.
Charles Philpott:
And thanks for that. And it just seems like it's happening so quickly too. And so that pivot, it's a quick pivot. And so maybe going over to you, Kim, I'm curious to hear about your perspective about the unexpected impact or the ripple effects, especially in the large market that you know so well.
Kim Hurst:
Yeah, thanks Charles. Our largest clients have already started planning for 2024, which is kind of jarring as many are, and open enrollment for the 2023 year. One of the things that we are talking a lot to clients about is the fact that for the first time, general inflation is actually higher than healthcare inflation. And the tension than that pulls that higher, general inflation is having that overall healthcare inflation, could pull what was about a 6 percent inflation rate for healthcare expenses up closer to nine. And how do they navigate that? Brooke talked a lot about the investment that employers are making in people, and we also talk about the tension that exists that between investing in differentiated benefits and yet the pressure to be efficient and watch costs. Our clients live in that space, being pulled in two directions.
Also, as Brooke was talking about, more and more employers are asking what employees value and actually getting different answers. So, it's driving a need to what we call hyper personalized benefits. So, make benefits unique to even smaller groups of populations. And that is really hard when our clients are looking back at the year and probably have overspent on the compensation budget. And that compensation budget already was higher than it was anticipated to be the year before. So, I think living in that tension spot of trying to be differentiated and yet, still watch the investment dollars is where we're trying to help our clients navigate.
Charles Philpott:
Right. Well, I just think about even ourselves. We've got enrollment coming up and I know it's got to be challenging this year. But I didn't realize it's even going to be even that much more challenging in '24. So, thanks for that perspective. And maybe Jennifer, going over to you and being all things retirement, maybe provide your perspective on this changing landscape.
Jennifer Brasher:
Well, Charles, the changing landscape is really interesting. And as I look at employers and what steps they need to take as they go into 2023 and beyond, it really depends on what kind of retirement program a company has. For companies that have defined benefit pension plans, their funded status of their plan may be better than it was a year ago, which is surprising with what's going on in the capital markets. But with the rise in interest rates, we are seeing a lot of companies that have higher funded ratios on their pension plan, which may present opportunities for them that they may have had in the past in terms of de-risking their plan. So, we are always encouraging employers as they go into a new year to look at what steps they want to take for their plans over their upcoming year and beyond that, think about their long-term strategies that will work in all economic environments.
And we anticipate that 2023 will be a strong year for companies to consider de-risking their balance sheet by selling some or all of their defined benefit pension obligations. For companies that have defined contribution plans such as 401(k), the outlook's a little bit different. Employees are likely seeing losses in their retirement plans, which may delay their plans to retire. If someone wanted to retire next year, their balances may be 20 percent less than they were a year ago. So, there's creating anxiety by employers who are getting close to retirement. Also, those are looking at their retirement savings and seeing such a big savings erode this year.
So, we also may see employees change their saving habits. So, what are employers doing to help their employees understand what they need to do to save knowing for now, but in the future? There's employees that are needing money for everyday life, to spend on food, rent, gas, and so they may be reducing their 401(k) savings. So, employers really need to be thinking about how they help those employees. And it's also a great opportunity right now to look at how the retirement plans can help diversity and inclusion priorities.
And a couple other areas that employees should be looking at, fiduciary should review their governance structure, think about potentially outsourcing 401(k) plan oversight that saves cost, both internally for the company and for their employees through a pooled employer plan. And then also, partner with 401(k) providers and participant education, as I mentioned. Financial wellbeing is so important that companies need to be looking at next year.
Charles Philpott:
So, actually, it's challenging times, challenging situation. But that was great to hear that there are options for our employers, what they can be doing and how they can be attacking that from outsourcing and the ways that we can help them with a PEP plan. So, maybe, Brooke, why I go back to you and what would you think would be most helpful for our HR leaders to be thinking about when they are heading into 2023 here?
Brooke Green:
Yeah, Charles, I think for thinking about 2023, I think we're all assuming that the HR leaders are going to be very focused on cost and optimizing spend, which it's not untrue. But I really think they should spend more of the time thinking about managing the organizational capability. And what do I mean by that? There's a lot of focus right now on skills and future skills and making sure companies are ready and have the skills they need to, I'd say, meet their roadmaps in terms of innovation. So, I think making sure we know what skills we need, what kinds of gaps we have, reskilling existing employees is one thing that I think a lot of companies are investing in. But the other thing is really making sure we have the fit. And so, I think when resources are limited and we're not doing a ton of hiring, we'd better be sure we're getting the right people who are connected to the purpose of the organization.
I would say making sure we've got the right people, that we're hiring the right people, that we're retaining the right people, and then really focusing in on the skills we're going to need for the future. And if we don't have the luxury of going out and buying those skills, for lack of a better way to put it, do we have an internal talent pool that we could re-skill and repurpose and shift a little bit that way? So, that's what I would say is really focusing on the people, the capabilities and the fit, too. I think purpose is going to be a huge driver, particularly when there's a lot of focus right now on ESG, environment, social and governance, and companies are really trying to connect their employees to their purpose. So, I also think that's an investment area that's not that hard to do for HR leaders.
Charles Philpott:
I love that perspective about purpose too, Brooke. We have three children that have just now graduated from college, and they really put a lot of emphasis on purpose. So, I know that the employers out there really have to focus on that. So, Kim, maybe if I could just get some perspective from you again, in terms of how should clients be focused on, at this time, and how is Aon supporting them?
Kim Hurst:
So, Charles, thank you so much for that question. We're really encouraging our clients to focus on three dimensions relative to their benefits plans. And the first is shoring up the core, so making sure that the foundation is efficient and effective and encouraging clients to be comfortable with directing their employees to the right decision and being a little bit more active in that conversation. Really focusing on ensuring that there's access to care and its affordable care for everyone. There is a growing population within our clients' workforce of what we call functionally uninsured people who do have insurance but can't afford the elements of the plan design. And that's very true right now as people are making tradeoffs decisions between rent and filling a prescription or gas and going to a therapy session. So, focusing on that access issue. And then challenging their existing models to increasingly reflect virtual care, so better access.
The second dimension, and I think this has come up in Brooke's comments as well as Jennifer's, is just to make benefits meaningful. Allow your employees the opportunity to personalize their benefits, connect the benefits that you're offering to the overall culture of the business and the impact that it has to the business. And then finally, just given the volatility of the world that we're all operating in, we're encouraging our clients to build a really agile work infrastructure. And by that we mean test and learn. Don't just try one solution. Be open to trying out various point solutions, using technology to stay relevant and adaptable. And then using data to measure performance for all the things that you're doing so that you can know quickly whether a solution has been successful or not. So, really those three key areas are the areas we're asking our clients to do more thinking and working together to find solutions.
Charles Philpott:
So, great feedback, Kim. And so, Jennifer, why don't you round us out here. So, how can employers help their employees think about saving for retirement, given the many needs of employers during these challenging financial times and also given differing retirement time horizons?
Jennifer Brasher:
Yeah, I think it's critical, Charles, that employers communicate well and often with their employees during these challenging times. Employers can help with financial literacy, providing tools for employees to prepare budgets, help employees understand the consequences of missed 401(k) matches and the longer-term implications of not saving now. As we talked about earlier, some employees are just trying to get by and live these days, and that's okay. But I think it's important that employers recognize that and are still communicating and helping employees as they can. And as the financial situation improves, communication and education is still key in order to get employees saving the right amount for retirement. And employees need to have financial cushions for the future economic downturn. So, I would just kind of round that out again, saying I think communication is key both now and continued going to the future.
Charles Philpott:
I think that's so true. And employees being the most important asset that a company has, there are going to be a lot of questions in transparent communication. It will be so important. And I know you and your team are so well positioned to help with that. So, at this point, I think that is going to wrap up this discussion. I really appreciate your time today, Brooke and Kim and Jennifer. It has been a great discussion. By now, our listeners know we're changing up our closing questions from our last couple of episodes, and we've asked our previous guests the same question. What are you most excited about as we head into the end of 2022? And Brooke, why don't I go to you first?
Brooke Green:
Oh, sure. Charles, I'm actually excited about pay transparency, which I know sounds weird, but there are new laws coming for pay transparency and it's somewhat nerve-wracking for our clients to get ready for those. And in California, where I live, it's coming on the 1st of January and New York City just implemented it on November 1st, really disclosing the range of pay for jobs. And even employees can ask, what's the range of pay for their job?
And so, the reason I'm excited is because I've been doing this, been a compensation consultant for about 25 years, and I've heard for all of those 25 years from employers who really aspire to be more transparent with employees about the way rewards are determined. And yet, when we ask companies how transparent, how they feel about their communications, there's none out there that would give themselves a good grade. Nobody gets an A. So, I do think that the legislation almost accelerates what companies have been trying to do. And I actually think it's a huge opportunity for companies to improve their employee confidence in the way they pay and move away from black box pay management. So, it's not going to be easy, but I am actually excited to see how it plays out.
Charles Philpott:
Yeah, I think it will maybe be a little bit challenging for some employers to get their arms around that and have the proper communication. But I know employees are looking forward to that, employers are as well. And so that's great. It's a wonderful move in the right direction. And so, Kim, I'm going to come over to you now. What are you most excited about as we finish the year here?
Kim Hurst:
Thanks, Charles. I'm pretty excited about the opportunity to work with our clients on diversity, equity, and inclusion issues through the lens of affordability. As I mentioned earlier, there's a population emerging from the economic conditions of people who are functionally uninsured, which is really an equity issue in our workforce today. So, the ability to affect and impact the work that our clients are doing in this space is really personally important to me in a way in which we can have real meaningful impact on our clients' workforces.
Charles Philpott:
Yeah, I know, cost and affordability, it's a tricky one, and we are certainly in a great position to help our clients think through that one. And so, last but not least, Jennifer, when we think about retirement, what are you most excited about as you head into the end of the year?
Jennifer Brasher:
Yeah. Well, thank you Charles for having me today. It's great to be with this panel. This is such an important topic, the times we're in. And as you know, we've got such great colleagues here at Aon and wonderful, innovative solutions for our clients that I'm really looking forward to sharing those more broadly in ‘23. And this year, as you know, we've moved to this new organizational structure with a helix model, we are collaborating more across solution lines than we ever have before. And so, Brooke and Kim and our teams are talking and we're coming up with solutions to meet unmet demand in the market. And so, I'm really excited about this next year about how we're going to bring those together and serve our clients and help our colleagues even more than we have this year.
Charles Philpott:
Well, I appreciate all of your enthusiasm. There are some exciting things to look forward to. And as we do in our wrap of the On Aon experience here, we wrap with a final question for all of our guests. One word answer. What word would you use to inspire our HR manager clients as they think about these challenging times we're facing right now? Jennifer, how about you?
Jennifer Brasher:
Resilience.
Charles Philpott:
And that is one that certainly comes to mind. And Kim, I'm going to come over to you now. What word?
Kim Hurst:
Curiosity.
Charles Philpott:
And Brooke, why don't you round us out here?
Brooke Green:
Just one word? It's never been easy for me. I'm not very concise. Dialogue. Dialogue.
Charles Philpott:
Dialogue. Goes right back to what we talked about earlier, communication, right?
Voiceover:
This has been the third and final episode in a special edition takeover series of the On Aon podcast around economic challenges. Thank you for listening. If you enjoyed this week's episode, tune in next week for a new episode around cyber resilience. To learn more about Aon, it's colleagues, solutions and news, check out our show notes and visit our website at aon.com.