UV Letters

Nov 4, 2016 BACK

Shhhh… This Employee Benefit Is Secret

Volume VI, #23

I’ve never understood why some people insist on keeping their ideas secret. I always assume if I have an idea, dozens of others have had the same one. It’s not ideas that determine success, it’s execution. Which is why, from the beginning, I’ve always been happy to freely share my many amazing ideas. Given my first job as a waiter, early ideas revolved around food service. I had a detailed plan for a high-end breakfast cereal bar and faxed a proposal to Kellogg’s to establish the Times Square flagship location of “Cereal Killer.” Then there was “World Pizza,” where you’d order your pizza in the shape of your geographic territory of choice, with local (and topographically correct) toppings. The challenge, I recall, was finding pizzaiolos who were also trained geographers – foreshadowing today’s shortage of hybrid workers with both baseline and technical skills. Then there was a period I couldn’t stop talking about my plan for creating a “Deadliest Catch”-inspired workplace reality TV show: “Deadliest Starbucks.”

On the other extreme was my classmate Ian. Ian had an idea for a device that would ensure you’d never lose your keys (or the TV remote control – a bigger concern in college). But he wouldn’t tell any of us how it would work, paranoid that someone would steal his idea. In time, it became impossible to even discuss it. Keep in mind, this was the same Ian who, one intoxicated evening, was persuaded by one of my roommates to (lightly) carve the letter “L” into his forehead to demonstrate how liberal he was. He executed on this, but not on his idea for the device. Who knows what might have been if he hadn’t tried to keep it secret (the idea for the device, not his liberalism).

The same can be said of the tuition assistance benefit offered by most employers: more could be accomplished if employers weren’t trying so hard to keep it secret.

***

With nearly 6 million open jobs unfilled while nearly 8 million Americans are unemployed and looking for work, the skills gap between what employers are seeking and what postsecondary institutions are producing has never received more attention – particularly from employers, who are increasingly voicing displeasure. According to a survey by Gallup and the Lumina Foundation, only 11% of employers think graduating students have the skills that their businesses need. Moreover, an AACU survey released last year reported 75% of employers believe recent graduates are not well prepared in critical thinking and analytic reasoning, written and oral communication, complex problem solving, innovation and creativity, and applying knowledge and skills to real world settings.

One underreported but nonetheless remarkable fact about this state of affairs is that employers are far from passive bystanders. America’s employers spend approximately $22 billion each year on college and university tuition in the form of tuition assistance programs (TAP). According to Deloitte, 71% of U.S. employers offer tuition assistance to their employees, with a maximum benefit of $5,250 per year excluded from taxable income. TAP represents over 5% of total spending on college and university tuition. For many programs and more than a few institutions, TAP is a primary source of enrollment and revenue.

So why aren’t employers attempting to strategically direct their $22 billion to close the skills gap? A few years ago, one university I was involved with had a relationship with AT&T. The institution offered a low tuition level to AT&T employees looking to take advantage of the Company’s TAP. But when the university utilized a third-party employee discount network – a company permitted by AT&T to e-mail weekly deals to its employees – to promote its offer and over 250 employees enrolled, AT&T human resources was shocked and stunned (particularly the manager responsible for managing the Company’s TAP, and its budget). As a result, AT&T effectively hung up on this university.

This all made sense to me after speaking with Tyton Partners, which has done work on TAP, and provided me with excerpts from an interview they’d conducted with a director of corporate outreach at a large public university:

Tuition assistance (TA) is really more of an island [at employers]. The TA budget is separate from Training and Development, and Training and Development is perceived as more important. Companies don’t really promote TA because it becomes more expensive.

Most TAP-providing employers do so out of a sense that it reduces employee attrition. Some studies have shown that it can cut attrition by more than half for less-tenured employees, although fewer than 5% of employers ever bother to measure this. As a result, TAP is categorized as one retention-enhancing employee benefit among many – disconnected from strategic HR goals like closing the skills gap. As with other benefits, annual budgets are set, and managers are incentivized to manage to those budgets.

This the source of the strong incentive to keep TAP secret, and equally, to make it relatively cumbersome to use. 60% of employers with TAP require employees to pay out of pocket, and then submit for reimbursement. And reimbursement is far from guaranteed. 95% of employers require at least a C grade in order to reimburse. Some require a B or better for graduate-level courses. Among employers with reimbursement (as opposed to direct pay) policies, TAP utilization rates are 50% lower.

At most employers, TAP is stuck in a vicious cycle. Structured like any other benefit, there’s a failure to promote, resulting in low participation rates – estimated at only 5% of eligible employees. Low participation rates mean employers don’t bother investing in tracking outcomes. According to Tyton’s source, “I know of only 5-6 companies that actually track progress of employees going to school. Probably 90% of companies do not track or care if employees drop out.” Without tracking, employers can’t even consider directing TAP strategically to address the skills gap.

What could employers do with TAP if they weren’t so busy keeping it secret? Amazon recently announced a new TAP program called Career Choice that pre-pays 95% of tuition, fees and textbooks, but only for programs “in areas that are in high demand according to sources like the U.S. Bureau of Labor Statistics.” Amazingly, Amazon funds programs “regardless of whether those skills are relevant to a career at Amazon.” So Amazon funds “high-demand occupations such as aircraft mechanics, computer-aided design, machine tool technologies, medical lab technologies and nursing.” This is a TAP program squarely aimed at closing the skills gap.

***

So here’s another idea that’s somewhat less than amazing: if you’re spending $22 billion annually on college and university tuition, consider trying to direct that spend before complaining about being unable to find qualified employees. Because here’s a secret employers won’t be able to keep much longer: By failing to be strategic about tuition assistance programs, employers are helping to perpetuate postsecondary programs that are, at best, unaligned to workforce needs, and more probably irrelevant to workforce needs – theirs or anyone’s.

By continuing to direct TAP dollars to random higher education programs, employers are engaging in classic enabling behavior. An important first step to closing the skills gap is for employers to stop spending TAP dollars that are making the problem worse.

University Ventures (UV) is the premier investment firm focused exclusively on the global higher education sector. UV pursues a differentiated strategy of 'innovation from within'. By partnering with top-tier universities and colleges, and then strategically directing private capital to develop programs of exceptional quality that address major economic and social needs, UV is setting new standards for student outcomes and advancing the development of the next generation of colleges and universities on a global scale.

Comments

David Aronson 2016-11-06 11:44
Great post. Two thoughts: (1) The budgeting aspect covered here is key for many employers as a $5,250 reimbursement can be hard to swallow. Just as companies are increasingly moving to private health exchanges in order to reduce risk and increase employee accountability, they will also move to... Read more defined contribution models for educational assistance where employees finance their education and receive $xxx per month toward their student loans. (2) Engagement may be more relevant to employers than having the right skills. The Amazon plan is an example of this. People experiencing financial stress are more likely to be absent or be distracted at work. Student loans create financial stress for nearly 3/4 of college grads and companies are increasingly taking the initiative to contribute toward the repayment of student loans. Check out Rep. Dold's Help for Students and Parents Act would roll employer contributions to student loans under the tax advantages of TAP + offer similar incentives for 529 plans.

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Three articles that tell us where the puck is going in higher education

1. Unacceptable Financial Strain Washington Post profile of new President of NYU who acknowledges current tuition level places “an unacceptable financial strain on too many students,” by Nick Anderson. [One step already taken is to lower] a planned increase in tuition and fees. Instead of an increase of about 3.5 percent to 3.9 percent, which had been typical, the increase was 2.7 percent. That translates to tuition and fees this school year of $49,062. Read more 2. Governing By Regulation Seton Hall Professor Robert Kelchen’s blogpost on the final Borrower Defense to Repayment rules: Will this be the Obama Administration’s “greatest” higher education legacy? Although these new regulations are a clear and needed victory for students who attended undeniably fraudulent colleges, the ripple effects regarding the definition of “substantial” misrepresentation could affect a broad group of well-intending nonprofit colleges that either made honest mistakes or happened across a sympathetic judge or jury. Read more 3. Pathways to High-Value Careers Change Magazine article on the skills gap and the emergence of intermediaries providing students with high ROI pathways to employment, by Ryan Craig. Dozens of new pathways are emerging across a range of sectors, from IT to healthcare to manufacturing and business services. All have great potential to accommodate hundreds of thousands of students annually. They have several advantages. First, neither the college nor employer needs to do the heavy lifting; the recruitment and training risks are borne by the intermediary. Second, the intermediary is providing not only relevant industry-specific curriculum but also employer-specific training that significantly increases the appeal and value of the student to a target employer. Third, the pathway costs nothing for students, and students are effectively guaranteed employment if they complete the training. Finally, these aren’t pathways to further professional training but rather direct points of entry to some of the fastest growing sectors of the economy. These pathways provide a way for a large number of talented new grads to start their careers, a win for them and for the economy. Read more