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EMPLOYEE PREFERENCE ANALYSIS:USING CONJOINT ANALYSIS TO SUPPORT LABOR NEGOTIATIONS AND COMPENSATION PLAN DESIGN

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I - INTRODUCTION

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Every year school districts make decisions that have significant implications for the district and its employees without the benefit of basic information on employee preferences and priorities

In two areas in particular - labor negotiations and the design of employee compensation and benefits plans - decisions are often made without adequate information While districts make a significant effort to understand employee priorities

before entering labor negotiations or designing benefits packages, the results of these efforts tend to be qualitative and anecdotal

In the absence of quantitative information information on employee needs and priorities, district managers have little choice but to defer to labor leaders to accurately represent the views of employees

While most labor leaders work diligently to fairly reflect the views of the workers they represent, in many cases they too would benefit from a more detailed analysis of employee preferences and priorities

Given the costs and operational consequences associated with labor contracts and benefits packages negotiating agreements without a firm understanding of employee preferences and priorities should be avoided if possible

Introduction

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Conjoint analysis provides a powerful tool for addressing the need to better understand employee priorities

Conjoint analysis is a statistical tool that market researchers have used for more than 30 years to help private sector companies understand how to develop products and services that are valued by customers

The results of conjoint analysis are used to answer two basic questions: What product or service attributes do my customers care about? What are the most preferred service attributes?

Conjoint analysis can also be used to support labor negotiations and to design compensation and benefits packages that reflect employee preferences and priorities For example, conjoint analysis can be used to gather quantitative

information on how “rank and file” employees value various issues being considered as part of a labor negotiation

Likewise, conjoint analysis results can be used to structure compensation and benefit packages that best reflect how workers value the individual components of their total compensation

Introduction

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II - USING THE CONJOINT ANALYSIS PROCESS

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The conjoint analysis process consists of a number of steps

The first step consists of defining the key attributes or features of the the activity being evaluated For example, for employee compensation and benefits each type of

benefit being evaluated would be identified (e.g., wages and salary, life insurance, disability insurance, health insurance, etc.)

After defining the key features or attributes of an activity, values or options for each feature or attribute will be selected In the employee compensation and benefits example different salary

levels would be listed as would options for various types of benefits For example, different prescription co-payment options, out-of-pocket

expenses and provider options might be included for employee health benefits

A survey instrument will then be prepared and administered that asks employees to express their preferences for various alternatives

Using The Conjoint Analysis Process

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Conjoint analysis will then be used to quantify employee preferences

Conjoint analysis will then be used to evaluate survey results The value employees place on an attribute will be calculated. This value can be used to compare the importance of the attributes

Information on the relative value of various alternative can then be compared to their costs In particular, options that are costly but are not valued by employees can

be discarded In addition, options for which differences in cost seem disproportionate

to differences in value would be subject to scrutiny For example, if the difference in cost between one option and another

is 50 percent but the difference in value is only 15 percent providing the higher priced option may not be sound

On the other hand, if the difference in cost is 15 percent but the difference in value is 50 percent pursuing the option may be worthwhile

Using The Conjoint Analysis Process

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III - HOW BERKSHIRE ADVISORS CAN SUPPORT EFFORTS TO USE USE CONJOINT ANALYSIS TO SUPPORT LABOR NEGOTIATIONS AND THE DESIGN OF COMPENSATION AND BENEFITS PLANS

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Berkshire Advisors supports efforts to use conjoint analysis to support labor negotiations in a number of ways

Assist in identifying key options to be assessed using conjoint analysis

Develop survey instrument

Administer the survey

Analyze and document survey results

Assist in using conjoint analysis results to assess options

Conduct follow-up conjoint analysis surveys as needed

How Berkshire Advisors Can Support Efforts To Use Conjoint Analysis To Support Labor Negotiations