Conjoint Case Study: Employee Benefits Package

UMDF (the name and findings are disguised) is a major accounting and consulting firm operating across 70+ countries. In Australia, every year the firm hires roughly a hundred university graduates for entry-level accountancy positions across its three offices in Melbourne, Canberra, and Sydney. The firm is keen on employing and developing newly minted graduates who can quickly start adding value to the company and who provide leverage to the more experienced and therefore costlier employees.

The firm is not alone in hiring university accounting graduates, competing with a host of local and international accounting firms, with every firm aiming to get over two thousand job applications and vying for the best talent. Recently, competitors started emphasising their various employee perks in university recruitment events, which has prompted the HR team to review the firm’s benefits for entry-level staff.

While the composition of the benefits can be adjusted, the firm is not prepared to substantially increase the total value of the package. Therefore, it is important to understand what drives applicants’ choice in applying for graduate roles. In order to do that, UMDF’s HR team decided to conduct a conjoint study looking at the following attributes of the pay packages:

• Base salary, testing the following levels: $63K p.a. $66K p.a., or $69K p.a.
• Superannuation contribution rate: 9.5% (minimum contribution as per legislated superannuation guarantee) vs. 10%
• Annual leave: 20 days vs. 25 days
• Health insurance fund: Bupa, Medibank Private, or none
• Parental leave: 10 days, 1 month, 2 months
• Life insurance amount: none, $200K, or $400K

Bereavement and sick leave entitlements as well as the bonus structure were decided to be kept the same. The firm fielded the survey to 200 accounting graduates without using its name and data collection took 5 days.

You can take an example benefits package conjoint survey.

Preferences for features of the salary package

The results of the conjoint study came to show that graduates care about health insurance most, followed by life insurance and salary. Parental leave, annual leave, and superannuation contribution were less important factors in their decision-making. Preferences for superannuation options came out in an unexpected order: 10% was rated lower than 9.5%. However, this difference is so small that it can be ignored.

Constructing optimal remuneration package

Normally, choosing an optimal package would involve market simulation involving competitive options. However, UMDF looked only at itself in this study. Therefore the optimal option was chosen to be the one that is the highest rated within the company’s budget constraint of $87K p.a. (excluding certain overheads, bereavement leave, sick leaves and bonus).

To find such an option, UMDF looked at the “ranked list of concepts as preferred by respondents” (a standard output of Conjoint.ly) and assess the cost of each of the options, considering the following components:

• Base salary (as given in the levels: $63K, $66K, $69K).
• Payroll tax: 9% of salary.
• Superannuation: 9.5% or 10% of the salary.
• Annual leave: Number of days / 250 working days × base salary.
• Parental leave: Number of days / 250 working days × base salary × 10% probability of taking the leave.
• Health insurance: $2,985 p.a. for Bupa or $3,450 for Medibank.
• Life insurance: $2K for the $400K option or $950 for the $200K option.

The resultant table containing the full list of concepts is shown below. You can also download our Excel example model for cost-based optimal package selection.

To identify which of these options are optimal, UMDF looked at the plot of preference scores vs. total cost for options near the budget constraint of $87K p.a. (highlighted in red below).

The following two options are close together on the scale of preferences, differing only in the percentage for superannuation. UMDF chose the first of these two options.