A PEST Analysis: WageWorks

Abstract

There are four key facets to examine in a PEST analysis. Examining political, environmental, social, and technological factors in the macro-economic world aid corporate leaders in developing a marketing strategy. In business school, analysis of major corporations commonly involves a SWOT analysis. While there are similarities, a PEST analysis looks more toward the “big picture” opportunities and threats. Professor Francis Aguilar is often credited with the PEST tool. That is not to say that both of these analytical tools are not complimentary. To the contrary they may be used together for a thorough understanding of a corporation, and its intended direction.

Keywords: Social, Economics, Technology, Business, Anthropology, SWOT analysis

PEST: Wageworks

Although the history of PEST analysis is not absolutely traceable, the earliest reference to it appears to be by Francis Aguilar who discussed the pneumonic in 1967 while giving guidance in “Scanning the Business Environment” (Morrison 2012). A PEST analysis breaks down key macro-environmental factors that influence a company’s strategy and success. Specifically the acronym stands for political, environmental, social and technological factors of importance. Another variance of it PESTEL would include environmental and legal factors. Those factors are easily grouped into the standard PEST model as well. Together all these factors influence a company’s performance. Often the analysis is accompanied by the ever popular, at least in business schools, SWOT analysis, which takes into consideration a company’s strengths, weaknesses, opportunities and threats. One is not “better” than the other, and the use of these two methods together is likely most advantageous.

WageWorks, founded in the year 2000, is a corporation that administers consumer-directed benefits (CDBs) for many major companies, and even entire states, across the United States. These benefits reduce their employee’s taxable income and potentially provide the employees with substantial tax savings which is usually assessed the corresponding tax year. CDBs are also beneficial for the employers who profit from the corporate tax advantages that US tax laws provide. Consumer directed benefits can take the form of health savings accounts (HSAs), flexible spending accounts (FSA’s), and commuter benefits, just to name a few. Simply put, these programs allow for a pre-tax deduction to be taken from employees’ payrolls. They claim the funds, usually within the same taxable year or within a given grace period, by providing proof of eligible expenses in the form of a claim. WageWorks then pays out the pre-tax deductions via check or direct deposit to the participants’ personal bank account, or sometimes directly to a service provider at the employee’s request.

Political Factors to Consider

WageWorks, being a third party administrator of tax favored accounts, relies on a number of political factors to ensure continued success. The political factors are closely tied to the laws and regulations pertaining to tax laws. Political stability is important to WageWorks and other corporations across the country. Some important factors to consider include corruption and tax policies.

Corruption

Ensuring that corruption is kept to as minimal a level as possible is a continued concern for the political arena in general, but is also applicable to WageWorks specifically. Recently, WageWorks presented in the news with the CEO, CFO, and General Counsel resigning due to so called “material weaknesses” in their financial reporting (Armental 2018). Essentially, WageWorks showed inflated earnings for 2016 and 2017 plan years (Peterson 2018). These types of errors can tarnish a company’s reputation and make investors nervous.

Material weaknesses in financial reporting are admittedly suspicious but not necessarily corruption in the sense that people think about such things as insider trading or bribery. Still, WageWorks must be careful not to tarnish its image in the eyes of the American people. Arguably the company caught mistakes in the reporting and are effectively reviewing and updating their reports. A company that boasts of key values that include accountability, respect, and customer centricity must tread lightly when these types of errors present themselves.

Tax Policy

Tax policies, controlled by the US government Office of Tax Policy, have to do with what taxes to impose, the tax rate, and who will be taxed. This office implements policies, reviews Internal Revenue Code, and much more. The policies having to do with what is permissible to be considered a pre-tax deduction, or not, are of primary concern for WageWorks. For example, while Botox injections for cosmetic reasons is not considered a tax-favored expense, if the Botox is medically necessary (as it is for the treatment of migraines under a doctor’s supervision) the expense would be allowable (FSAFEDS 2018). These sort of gray areas require fine distinctions and loopholes. A letter of medical necessity, or prescription, can make an otherwise unallowable expenses considerable. If an expense is found to be ineligible after the item has already been purchased on the account card, if it is not substituted with an eligible transaction, the amount of that transaction would be reclassified as taxable income after the plan year ends.

The federal government determines many factors having to do with pre-tax benefits. One factor that changes every year, for example, is the mileage rate that a participant can claim with their eligible expenses. This rate went from $.17 per mile in 2017 to $.18 per mile this in 2018 (FSAFEDS 2018). While mileage rate has a small impact on claims overall, it is a factor that potential customers take into account about claims which is out of WageWorks’ control. Another limitation imposed by the federal government would be the end age of eligibility for dependent care accounts. Child care expenses, up to $5000.00 per year for those who file married/jointly are tax favored but only children 12 and under are eligible (FSAFEDS 2018). The dependent care account does make allowances for disabled care (with a letter of medical need) or elder care. For the most part, dependent care FSAs are largely used for child care expenses but are available for the aforementioned reasons as well (IRS 2018). Many participants argue that children over the age of 12 still need to be cared for while the parent is working (FSAFEDS 2018). Apparently the federal government disagrees. Participants that are looking for a change in the laws are asked to petition their congress man.

When WageWorks is hired by a new client, a contract is generated that is specific to the needs of the client and outlines what is expected from WageWorks as an administrator. These contracts are subject laws pertaining to contract enforcement. There are many ways that WageWorks may be subject to fine or penalties. Many of the consumer-directed benefits deal with health information which is protected under the Health Portability and Accountability Act of 1996, better known as HIPAA. The consequences for HIPAA violations can be very costly, with penalties costing as much as $50,000 per violation if not corrected within the proper time frame (AMA 2018). Needless to say that an employee is not permitted to make many, if any, mistakes when dealing with client’s personal health information. WageWorks goes to great lengths to ensure their employees are properly educated on the law and how to avoid these costly errors.

In addition to costly HIPAA violation fines, WageWorks may be subject to penalties related to obligatory performance standards and guarantees in their contracts. So, for example, in Customer Service, the requirement may be to answer 80 percent of calls in 30 seconds or less with a specified penalty if these terms are not met, usually in the thousands of dollars, evaluated quarterly.

Mandatory and Voluntary Benefits

In the United States, all full time employees are required to have social security deductions/credits, unemployment insurance, worker’s compensation insurance, paid at least minimum wage, and overtime pay at a rate of time and a half (Morgan 2018). WageWorks absolutely abides by these requirement. In addition to these, there are voluntary benefits which are the basis of most of WageWork’s business. In addition to administering pre-tax accounts like the flexible spending account, WageWorks is often hired to administer the deduction of voluntary benefits, both pre-tax and post-tax benefits.

The political arena determines what is considered allowable for pre-tax and what must be deducted only after the salary has been taxed. In other words a pre-tax deduction will reduce the overall taxable income, and a post- tax deduction will not affect taxable wages or taxes owed. Life insurance and Roth 401-K accounts are examples of post-tax deductions while flexible spending accounts and health savings accounts are pre-tax. IRS Section 125 defines rules that allow employers to offer what is referred to as “cafeteria style” benefits plans to their employees. The imagery of employees passing through a cafeteria and choosing such benefits as health insurance, dental insurance, life insurance etc. for their tray is not lost on the Internal Revenue Service. After all who doesn’t like having a little choice in their benefits? The catch comes with not properly understanding the overwhelming amount of material involved with seemingly anything IRS in nature. Companies would rather hire an administrator like WageWorks which specializes in these things, rather than learn the tedious material themselves. WageWorks is happy to oblige!

Economic Factors to Consider

The economy has an impact on businesses, without question. WageWorks is impacted by economic factors such as economic growth rate, discretionary income, labor costs and productivity, education level in the workforce, have an effect on WageWorks. Economist can spend their whole lives trying to understand all the influences that shape an economy or similarly all the ways that the economy can shape the world. WageWorks.

Economic Growth

The economic growth rate is the measure of the change in the GDP (gross domestic product) from year to year and measures the general direction and magnitude of growth (BEA 2018). The US has a long term growth rate around 2-3% (BEA 2018). As one may expect, when the overall economy is experiencing growth, it is understandable that corporations in that economy are also more likely to grow, although not necessarily. WageWorks is indeed experiencing growth as can be seen by their new office space in downtown Milwaukee. A ribbon cutting ceremony just took place on June 27, 2018 (WageWorks 2018).

Economic growth is nearly synonymous with productivity. Most of the economic growth in the 20th century was due to increased output per unit of labor, supplies, energy, and property. The causational relationship between growth and input seems to be that the more inputs included the better the growth (Kendrick 1961). So it stands to reason that the more demand for products, and the introduction of new products, should see an increase in growth.

Interest Rates

Interest rates are described as the amount of interest due during a given period which can be considered as a portion of the amount that was lent, deposited or borrowed (Oxford Dictionary 2018). Popularly expressed as an annual percentage, it is the rate that a bank/lender charges to allow borrowing of money. Interest rates affect a company’s cost of capital, the debt and equity, and therefore growth and expansion. For the perspective of an investor, interest rates impact how much can be expected in returns on their investment.

Discretionary Income

Discretionary income is the quantity of income remaining after deduction of taxes, mandatory charges, and expenditures on needed items (SDR 2018). Discretionary income does not always imply growth in the stock market, but it is a good factor to consider. Generally speaking more discretionary income will generally lead to growth in consumption which could lead to higher earnings and stock value. From an economic standpoint discretionary income can be an important marker for health and is used to calculate ratios such as MPC (Marginal Propensity to Consume) and MPS (Marginal Propensity to Save). These ratios can tell economists if consumers are spending money they actually have, or are using credit cards and other debt instruments to cover needs. This type of action was prevalent in recent times during the bubble of 2005 where the US personal savings rate went negative for four consecutive months.

Socio-Cultural Factors to Consider

Culture influences so very much in the way customers act and invest. The society and culture that a corporation supports should play an important role in the strategy of a company. The management services industry must market itself in such a way that few, if any, cultural norms are violated if they intend on being successful. Understanding the needs and the wants of the people, and their culture, will translate into higher profits when done correctly. Leadership in WageWorks should analyze education level, demographics, attitudes and other key facets of socio-cultural influence.

Profiling For Success

Marketing strategists often choose to make a profile of characteristics to identify their target market. This is certainly an important study in business schools across the nation, however there is also a largely psychological factor that plays into skilled marketing strategy. Understanding people and culture is vital to ensure that the company does not unknowing communicate its mission erroneously. Strategists identify demographic data (age, location, gender, income level, education level, marital status, occupation, ethnic background) as well as psychographic data (hobbies, interests, values, attitudes, behaviors, lifestyle preferences) to create the target market profile and align their business strategy for that region accordingly (Pilcher 2018).

Demographics

WageWorks’ corporate headquarters is located in San Mateo, California. This area is progressive and has its own specific subculture when compared to other locations where WageWorks sports a physical location, such as Alpharetta, Ga. Anthropologists have long studied how cultures vary based on many factors, but geographic location certainly plays a part. When comparing the GA culturally or economically, to CA one begins to see some very distinct differences. This means that WageWorks’ marketing team would develop a strategy differently to meet the needs and expectations of that region. It is important to note how complex these identification can be. For example, while Alpharetta, Ga is in the conservative southern US, it is on the outskirts of a large city Atlanta. So while the general region is conservative the fact that it lands specifically in an urban area also plays a part. San Mateo is located near San Francisco another major urban center in the state of California, there in we see the similarities and the logic that likely led WageWorks to those locations.

Education level impacts culture by introducing ideas and providing a platform to test learned ones. Education also impacts the likelihood of higher earnings in the area (Porter 2014). The other side of that higher earnings coin, is the likelihood that along with earning higher salaries, more education can mean more debt as well. Either way, the education level of a marketing target plays a role in how much the individuals may be able to spend as well as how much they will expect to earn.

On the WageWorks’ internal website employees are reminded of the corporate mission and vision. The mission is stated as: “We empower people to lead happier, healthier and more productive lives by saving them money on critical expenses such as healthcare and their commute.” Empowering people, simply put, is commendable and no easy feat, but WageWorks does provide an avenue to do just that. A company that wants to save people money can actually do so and still profit and grow. The WageWorks’ Values are how the company expects to achieve their mission.

Having an engaging environment that demands constant betterment is just one factor that influences professionals. Upward mobility is essential for employees to strive for. Employees need an attainable goal, so they can set a new slightly more demanding goal next time. With the goal setting and grading that is done each year, an employee is aware of where they stand in terms of achieving their goals. Their perception is compared to the perception of their manager which creates an environment where the employee is either assured that they are moving in the right direction, as far as management is concerned, or perhaps may need to take different approach to achieve a more advanced position within the company.

Psychographic

Is there a “type” of person that doesn’t like pre-tax deductions? The answer is yes. Marketing strategists must isolate regions that are more likely to want their services and market accordingly. Every day, customer service talks to disgruntled employees who vow to never use the services again and those who praise the services. In human nature, not everyone is going to be all for a particular product, or against it.

Some people have the attitude of avoiding “government meddling” in their lives. It is not that they don’t like saving hundreds of dollars, maybe thousands depended on how many benefits they have, it is the fact that the do not want their sensitive health information being reviewed by our claims department. Some people are very private and become bothered by the idea of strangers knowing they just had a colonoscopy. They are certainly displeased when claim gets rejected requiring a description of the service. Customer Service Supervisor Kanisha J. states, “I do not know how many times I have been told “it is none of your business what I went to the doctor for” the truth of the matter is that we need the description of service to prove the expense was indeed eligible. Some diagnosis are very sensitive. She goes onto explain,

“We deal with people that have been diagnosed with AIDS, cancer, bipolar disorder, and other diagnosis that people are embarrassed or ashamed of. They don’t want to discuss their personal health information and they certainly do not want some stranger telling them they need to provide more details. That can make or break participation in these accounts. I have had many people over the year that opted out of the account because they felt that it was too intrusive” (2018).

Of course that seems to apply more to the health care account than the commuter benefits or other seemingly less private matters. Taking that into consideration, it seems that certain diagnostic communities are less likely to be in the strategist’s targeted market. Of course, that is not all encompassing either. Plenty of our participants to have a diagnosis most would consider sensitive and there is no problem what-so-ever. Although WageWorks is required to prove that the service was eligible it does not required a diagnosis, simply a description of service. So, an EOB (Explanation of Benefits) from the insurance provider is a preferred document. On it, the name of the doctor, patient responsibility, service date and no terribly personal data.

Having worked for Wageworks for the last ten years, Jones has seen the LGBT movement take shape across the country. Before the legalization of gay marriage in states that WageWorks services, gay couples would have not had the benefit of claiming their spouses expenses. They would have just been considered unmarried and therefore not eligible. Jones goes onto say, “Personally, I think the LGBT movement has helped WageWorks, in that legalized marriage has opened up possibilities in groups of people that previously really wouldn’t have been considered eligible for some of these benefits” (2018). On June 26, 2015 Supreme Court ruling of Obergefell v. Hodges established that same sex marriage could marry same terms and conditions as opposite-sex couples, with all the accompanying rights and responsibilities. (Supreme Court 2015).

Technological Factors to Consider

Technology is rapidly evolving and shaping our world as we know it. WageWorks is impacted greatly by technology in several ways. For example, with the implementation and self-serve options on the website a decline in call volume can be observed. This potentially translates into needing fewer customer service representatives. Many participants that call in want to speak to a person, so it is unlikely that Customer Service will become 100 percent automated. WageWorks wants to preserve that “person touch” that only a human voice and logic can offer at this time. However, it is likely that Customer Service will see a reduction on the number of representatives required to meet customer needs since the most common reasons for calling in would be able to be handled directly on the website (Jones 2018).

Updating Hardware/Software

Hardware and software must be upgraded to meet the ever evolving world around us. This means that eventually entire account platforms need to be not only updated but replaced. For representatives that have worked with a particular program for years learning an entirely new system can be somewhat challenging. The dynamic that accompanies “experts” on one system becoming novice again makes room for new employees and those that are naturally more adept at the different or newer system.

Mobile Devices and Apps

Other recent technological developments include the mobile device applications. This is closely related to the software updates, but specific to the handheld app specifically designed for mobile devices. What this means to participants is that they can file a claim with substantially less effort if they take an image of their document and submit it electronically. As with the callers that wish to speak to a live person, there will always be participants that choose to mail in their claims as opposed to using any sort of technology. However, a growing number of participants are taking advantage of the ability to submit their claims electronically.

Each year more modifications are made to facilitate the self-serve aspect of the applications and online environment. Customer input on ease of access and desired additions influences the WageWorks IT team greatly. Customer Service representatives serve as liaisons between the decision makers in WageWorks executive management team and the customers themselves. The management of the Customer Service and Claims departments has a huge impact on the company because these are the departments that most often have contact with the employees themselves. If Customer Service and effectively interpret the needs of the customers and communicate those needs with executives who have the authority to make needed changes, the company is likely to continue to grow and expand.

Social Media

Social media has become something so culturally invasive that it has become hard to fathom a successful business that is not on Facebook, Instagram, Twitter and others. As with most major companies, you can find WageWorks on Linked in and Connect with those with similar interests. Marketers are not strangers to the impact of advertising on social media and spend millions in advertising and marketing strategists’ salaries. The impact of social marketing is thought to be so profound that our presidential election has been investigated on the basis of voter opinion being swayed by the ads and actions of these social medial giants (Penzenstadler 2018).

Environmental Factors to Consider

WageWorks’ “Go Green Initiative” has been largely successful. The beauty of this movement is the conservation of valuable natural resources while also reducing cost and waste. Managers encourage their team to print as little as possible and distribute most correspondence electronically when at all possible. The number of secure shred bins has been reduced and the cost of paying a company to dispose of the sensitive shredded material has been as well. The offering of electronic correspondence to participants is also a huge savings for the company. The majority of participants take advantage of the electronic distribution of statements and other notices and fewer and fewer mailing are required. WageWorks prides itself on being sensitive to the limitation of resources on the planet and wants to present itself as a concerned corporate citizen doing its part to save the planet. The fact that electronic distribution saves the company money and saves their customer time really makes “going green” an easy decision.

Reducing Waste

WageWorks has an office in Tempe, AZ, an area that gets only nine inches of rain per year, and takes reducing the waste of water very seriously (US Climate Date 2018). WW has installed special toilets in their facility which allows the employee to select the action that the toilet is being used for. If the action requires more water in the flush they hit one button and if the action does not require as much water they press a different button to flush. This is very commendable action on the company’s part which can be mirrored in facilities across the nation. Even in those facilities not practically located in a desert. The waste of water is a huge environmental concern across the planet yet excessive gallons of water are used simply to flush away waste. WageWorks also uses more commonly recognized faucets which allow a small quantity of water to be dispensed for the purpose of handwashing, and which automatically shut off after a few seconds. A visitor will never see a faucet left on in the bathroom wasting precious resources.

The use of sensors in WageWorks’ buildings reduces the waste of electricity from leaving lights on when a room is not in use. There are no “switches” to turn on an off. Admittedly, an employee in a training class may need to move around frequently to ensure that lights are not extinguished while there are still employees in the room. This is a small price to pay to conserve resources and capital.

Conclusion

There is a reason WageWorks is an industry leader in consumer directed benefits. It takes the time to do the needed research in each element of PEST and SWOT analysis. Wageworks is in a position to succeed. They have positioned themselves strategically in a market that is profitable. Barring avoidable corruption, WageWorks has the political, economic, social, and technological things needed to be an extremely successful company.

References

American Medical Association. (2018). HIPAA Violations & Enforcement. Retrieved from https://www.ama-assn.org/practice-management/hipaa-violations-enforcement

Armental, M. (2018) WageWorks Shuffles Top Leaders After Audit Identifies Weaknesses in Financial Reporting. Retrieved from https://www.wsj.com/articles/wageworks-shuffles-top-leaders-after-audit-identifies-weaknesses-in-financial-reporting-1522967124.

Brealey, Myers, Allen. Principles of Corporate Finance. McGraw Hill, Chapter 10.

Bureau of Economic Analysis. US Department of Commerce. (2018). Retrieved from https://bea.gov/newsreleases/glance.htm.

Bloomberg (2017) Company Overview. Of WageWorks, Inc. Retrieved from

https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=515408.

Discretionary Income (2018) https://www.investopedia.com/terms/d/discretionaryincome.asp.

Economic Growth Rate (2018) https://www.investopedia.com/terms/e/economicgrowthrate.asp.

Ferenzi, Katey. (2018). How to Identify and Analyze Your Target Market in 2018. Retrieved from https://www.bigcommerce.com/blog/target-market-analysis/.

FSAFEDS U.S. Office of Personnel Management. (2018) Dependent Care FSA. Retrieved from https://fsafeds.com/explore/dcfsa.

FSAFEDS (2018) Eligible Health Care FSA (HC FSA) Expenses. Retrieved from https://www.fsafeds.com/explore/hcfsa/expenses?q=botox

Garvin, D., Edminson, A., and Gino, F (2008) Is yours a learning organization? Harvard Business Review. Retrieved from https://hbr.org/2008/03/is-yours-a-learning-organization.

Globe News Wire. (2018) WageWorks Marks Growth with Grand Opening in CityCenter at 735 in Downtown Milwaukee. Retrieved from https://finance.yahoo.com/news/wageworks-marks-growth-grand-opening-120000079.html.

IR-2017-204 (2017) Standard Mileage Rates for 2018 Up from Rates for 2017. Retrieved from https://www.irs.gov/newsroom/standard-mileage-rates-for-2018-up-from-rates-for-2017

Jones, K. (2018) Interview regarding Customer Service at WageWorks. Conducted June 25, 2018.

Interest rate - Definition of interest rate in English by Oxford Dictionaries. Oxford Dictionaries

Kendrick, J. W. (1961) "Productivity trends in the United States," Princeton University Press

Mind Tools Content Team. Retrieved from https://www.mindtools.com/pages/article/newTMC_09.htm

Morgan, R. (2018). Five Mandatory Benefits for Full-Time Employees. Retrieved from http://smallbusiness.chron.com/five-mandatory-benefits-fulltime-employees-18874.html.

Morrison, M. (2012). History of PEST analysis. Retrieved from https://rapidbi.com/history-of-pest-analysis.

Obergefell et al. v. Hodges, Director, Ohio, Department of Health, et al.(2015) Supremecourt.gov. Retrieved June 26, 2015.

Pilcher, J. (2018) Psychographics vs. Demographics: Do Financial Marketers Need a New Model? Retrieved from https://thefinancialbrand.com/41814/psychographics-demographics-bank-credit-union-marketing/

Penzenstadler, N. (2018) We read every one of the 3,517 Facebook ads bought by Russians. Here's what we found. Retrieved from https://www.usatoday.com/story/news/2018/05/11/what-we-found-facebook-ads-russians-accused-election-meddling/602319002/

Peterson, B. (2018). Two top execs are out at WageWorks following findings that the company reported inflated revenue and profit numbers. Retrieved from http://www.businessinsider.com/wageworks-execs-resign-audit-misreported-revenue-and-profit-2018-4

Porter, E. (2014). A simple equation: More education = More income. Retrieved from https://www.nytimes.com/2014/09/11/business/economy/a-simple-equation-more-education-more-income.html.

Senge, P. (2006). The fifth discipline: The art and practice of the learning organization (Rev. and updated. ed.). New York, NY: Doubleday/Currency.

Sourmaides, D. 2018. Discretionary Income – What it is and how to calculate it. Retrieved from https://www.studentdebtrelief.us/knowledge-base/discretionary-income/.

US Climate Data (2018) Climate Tempe, AZ. Retrieved from https://www.usclimatedata.com/climate/tempe/arizona/united-states/usaz0233

US Department of Health and Human Services. (2018). Health information privacy. Retrieved from https://www.hhs.gov/hipaa/index.html.

WageWorks, Inc. (2017) WageWorks Supports Continued Growth with New Office Space in Downtown Milwaukee. Retrieved from https://www.wageworks.com/about/news/press-releases/december-2017/wageworks-supports-continued-growth-with-new-office-space-in-downtown-milwaukee/