When it comes to maximizing return on investment (ROI) for private equity (PE) firms, the focus is often on revenue growth, operations, and strategic positioning to make a company more valuable. However, one often overlooked area that holds significant potential for cost savings is employee benefits. For private equity firms, strategically managing employee benefits can significantly impact the bottom line without sacrificing employee satisfaction or productivity, both needed to drive long-term success.
The Hidden Cost of Employee Benefits
Employee benefits can be expensive for companies for several reasons. The primary costs stem from a combination of mandatory benefits, healthcare-related expenses, and the desire to offer competitive packages to attract and retain employees. The top three line items that typically contribute to these expenses include health insurance premiums, retirement plans, and paid time off. Even though paid time off is not an “out-of-pocket” expense per se, the cost is embedded in the salaries that are paid to employees during their time off.
How Employee Benefits Impact ROI
When fund managers evaluate the financial performance of a portfolio of companies, it’s easy for them to focus on direct revenue-generating activities like sales and marketing, upselling, launching new products, or forming strategic partnerships. At the same time, attention is often given to cost-cutting measures such as outsourcing, renegotiating terms with service providers, or reducing discretionary spending. However, reviewing employee benefits can uncover opportunities to optimize costs without sacrificing value.
This approach mirrors the transformation of Edward Lewis, the main character from Pretty Woman. In the movie, Edward starts out as a successful businessman with a ruthless plan to buy and dissolve struggling companies. His focus was on cutting costs, consolidating, and maximizing profits — often with little regard for the impact on employees. While his approach seemed financially sound in the short term, it lacked long-term sustainability for lasting success.
However, as the story unfolds, Edward has a change of heart. He shifts from wanting to dissolve a company to actively working to save it and make it stronger. This shift represents a more sustainable approach, one that aligns with modern private equity thinking — maximizing ROI isn’t just about cutting costs, it’s about strategically managing every aspect of a business to ensure its long-term health and growth.
This is exactly how we approach things at BSI. We take a comprehensive assessment of our client’s benefit plans and provide expert guidance in areas such as plan design optimization, leveraging group purchasing power, negotiating better rates, and benchmarking against industry standards. We also explore alternative funding arrangements, review claims data, monitor benefits utilization, and evaluate tax-advantaged plans, along with cost-effective add-ons. For example, by implementing a high-deductible health plan (HDHPs) paired with a Health Savings Account (HSA) our clients and their employees can achieve significant savings. The HDHP reduces premiums for employers, while the HSA offers tax advantages and enables employees to save for future medical expenses.. By proactively analyzing how employees are using their benefits, we identify opportunities to adjust plans in ways that generate real value and cost savings — ultimately delivering a strong return on investment (ROI).
Long-Term ROI through Education and Employee Well-being
While cutting costs in the short term is important, engaging employees with their benefits and prioritizing their health is essential for achieving long-term ROI. Providing continuous education about benefits and implementing strategic wellness programs—driven by claims data—can improve employee health and well-being. Employees who understand their benefits and how to navigate their healthcare options make better choices, ultimately helping to reduce costs. Offering competitive benefits packages is crucial for attracting top talent, especially in industries where skilled workers are in high demand. A healthy and engaged workforce leads to increased productivity, lower turnover, and a stronger company culture, all of which contribute to sustained, long-term ROI.