Good morning. My name is Jay, and I'll be your conference operator today. I would like to welcome everyone to Insperity first quarter 2022 earnings conference call. At this time, I would like to introduce today's speakers. Joining us are Paul Sarvadi, Chairman of the Board and Chief Executive Officer, and Douglas Sharp, Senior Vice President of Finance, Chief Financial Officer, and Treasurer. At this time, I would like to turn the call over to Douglas Sharp. Mr. Sharp, please go ahead.
Thank you. We appreciate you joining us. Let me begin by outlining our plan for this morning's call. First, I'm going to discuss the details behind our first quarter 2022 financial results, followed by comments on the key drivers behind our Q1 results and our plan over the remainder of the year. I will return to provide our financial guidance for the second quarter and an update to the full year guidance. We will then end the call with a question and answer session. Now before we begin, I would like to remind you that Mr. Sarvadi or I may make forward-looking statements during today's call, which are subject to risks, uncertainties and assumptions. In addition, some of our discussion may include non-GAAP financial measures.
For a more detailed discussion of the risks and uncertainties that could cause actual results to differ materially from any forward-looking statements and reconciliations of non-GAAP financial measures, please see the company's public filings, including the Form 8-K filed today, which are available on our website. Now let's discuss our strong first quarter results in which we exceeded both our worksite employee growth and earnings expectations. We achieved adjusted EBITDA of $119 million, a 14% increase over Q1 of 2021, and adjusted earnings per share of $1.99. These results reflect growth in the average number of paid worksite employees above the high end of our forecasted range, pricing above targeted levels, effective management of our direct cost programs and operating leverage.
As for our growth metrics, the average number of paid worksite employees increased by 19.5% over Q1 of 2021. Most of you are aware, the year-end transition from 2021 to 2022, in which we enroll new clients from our fall sales campaign and renew approximately 45% of our existing clients, was important to our 2022 starting point and therefore our full year growth expectations. We are pleased to report a very strong year-end transition as demonstrated by a 3.6% sequential increase in the average number of paid worksite employees from Q4 of last year to Q1 of this year. As for the drivers of this growth, worksite employees paid from new client sales increased 37% over the first quarter of 2021.
First quarter client attrition was near our historical low, totaling only 8.5%, and an improvement over Q1 of 2021's attrition of 12%. Our clients continue to experience robust hiring in spite of the current tight labor market. First quarter gross profit was managed above forecast on the outperformance in the worksite employee growth, pricing above targeted levels, and a favorable contribution from our direct cost areas. As for our payroll tax area, while unemployment levels have fluctuated over the course of the pandemic, our state unemployment tax rates have remained below anticipated levels, resulting in a favorable contribution to gross profit. Our workers' compensation program continues to perform well as a result of our ongoing management of safety practices and claims.
Workers' compensation costs also include the favorable impact from the reduction in the number of claims due to the work from home status of many of our clients' employees. Q1 benefit costs came in at expected levels while benefit pricing allocations exceeded our targets. We continue to take what we believe is a conservative approach in estimating our benefit cost trend at budgeted levels for the full year in what appears to be an improving, although still uncertain environment. Now let's put a gross profit comparison to Q1 of 2021 in which we achieved 14% growth. Keep in mind that this is affected by the additional payroll tax surplus in the first quarter of 2021, including the receipt of prior period payroll tax refunds and the quarterly fluctuations in healthcare costs related to the pandemic last year.
Now as for our operating expenses, our Q1 spend reflects the initiatives in our five-year plan discussed in our previous earnings call. This spend includes investments in our service capacity relative to our worksite employee growth, national marketing initiatives and technology, including the ongoing implementation of Salesforce. We implemented a new quarterly incentive program for our BPAs during the quarter to drive further improvements in sales efficiency. We also made targeted adjustments to the compensation levels of our corporate staff, given the current labor market dynamics and our ongoing management of recruiting and retention goals. While making these investments, the overall leverage in our cost structure resulted in a 7% decline in operating expense per worksite employee from Q1 of 2021. Now, our financial position and liquidity remain strong as we continue investment in our growth and provide returns to our shareholders.
During the quarter, we repurchased 308,000 shares of stock at a cost of $27 million and paid out $17 million in cash dividends. We ended Q1 with $153 million of adjusted cash and $370 million of debt. Now, at this time, I'd like to turn the call over to Paul.
Thank you, Doug, and thank you all for joining our call. My comments today will address three key areas for Insperity stakeholders. First, I'll provide specifics regarding the momentum drivers behind our strong Q1 results. Second, I'll comment on how this momentum and our key initiatives provide confidence in raising our guidance for the balance of 2022. I'll finish by providing some color around the extraordinary shareholder return opportunity of our recently launched five-year plan. Our strong Q1 performance was the result of continuing momentum in all our growth drivers, namely new client sales, retention, and client hiring. Our dramatic 37% increase in worksite employees paid from our successful conversion of booked sales from our fall campaign into new clients and near historical high retention from our successful campaign, combined with continued strong hiring in our client base to drive nearly 20% unit growth.
New booked sales in the first quarter continued this strong momentum with both core and mid-market sales coming in over 120% of sales budget. Booked sales came in 28% higher than the comparable period last year, with 3% fewer business performance advisors, demonstrating significant increase in sales efficiency over 30%. In the first quarter, BPA's tier levels were determined based upon final 2021 sales levels. Sales management was successful last year in increasing the number of BPAs at Tier 3 or above by 18%. This movement in our most experienced and productive BPAs was a significant contributor to the sales efficiency gain.
This strong sales momentum also flowed over into booked sales of our traditional employment solution, Workforce Acceleration, coming in at 126% of sales budget and 140% increase over the comparable period last year. The traction we've gained in this initiative is evident, increasing the revenues on this service 39% over the same period one year ago. Several key initiatives are behind these strong sales results, including recent marketing success, capitalizing on increased demand in the marketplace for our sophisticated HR solutions. Booked worksite employees sold from marketing programs were up 29% over Q1 of 2021. Inbound leads converted into booked sales increased 34%, and worksite employees booked from these inbound leads more than doubled. Sales efficiency for marketing-assisted deals booked in the quarter increased 36%, contributing to the overall sales efficiency improvement.
Another key driver of these impressive sales results is the recent implementation of a new quarterly bonus component of BPA compensation. BPAs now have quarterly targets based upon their respective tier levels and earn a bonus for achieving and exceeding these targets. This first quarter showed immediate signs of validation of this approach in generating excitement, extra effort, and strong results. Another highlight of the quarter was the excellent client satisfaction and retention from the fall campaign that continued throughout the quarter. Our service team and all those that support them across the country have done an outstanding job serving clients and meeting their needs in the face of this considerable growth. Client net hiring was also impressive in Q1 despite the tight labor market. Our clients are continuing to do well in the battle to recruit and retain employees with the support of our services.
Demand for employees continues to be high, driving wage increases within our client base over 7%, and overtime was above 11% of base pay. Commissions and bonuses paid to employees at client locations also provide some insight to the sales success in the small to medium-sized business community and efforts to compensate to retain staff. Both measures were significantly higher in the first quarter than we have seen historically. At the same time, business owner confidence has been weakening somewhat with inflation concerns moving to the top of the owner's significant issues list in the recent NFIB survey. At this point, the real-time metrics we have as the HR department for over 11,000 businesses across the country do not reflect a slowdown in hiring. For now, it appears to be more of a general concern small business owners have about the future.
Another welcome highlight from this quarter was the contribution from gross profit drivers, including slightly higher surpluses than forecasted due to effective management of price allocations and cost. The noise we've experienced in the healthcare plan during the pandemic appears to have waned somewhat, and we believe our conservatism in pricing allocations and cost estimation is appropriate. As Doug mentioned, we also saw significant operating leverage in the quarter, which is also an important factor in our business model. All in, the first quarter was an excellent start to 2022. Now, as we look ahead to the balance of the year, our confidence in raising guidance is due to our expectation of many of these recent positive trends to continue. We expect our growth to be fueled by our higher starting point in paid worksite employees, BPA performance at their current tiers, and continued strong retention.
Now we're cautious about client hiring continuing at recent levels due to the tightness of the labor market and business owner concern about inflation in the economy. We still expect some client hiring, but we believe it's prudent to build in a lower rate going forward. Our confidence in our raised profitability expectations is based upon the combination of this higher growth and our gross profit contribution and operating leverage trends. This profitability is consistent with how our model has performed in historical periods of high worksite employee growth. We also have key initiatives that support these expectations, including a clear focus on sales efficiency, effective pricing, and growing our service organization. This quarter, we're implementing some new incentives to our sales management compensation, which we believe will continue the sales efficiency improvements and new business pricing priorities.
In addition, the marketing and business development team applied the learnings from the successful fall marketing campaign in 10 markets to enrich the spring program, further expanding into all Insperity markets. We recently launched a fully integrated marketing program in all 41 markets in an effort to continue this momentum. We are also going live this quarter on our Salesforce implementation across our growth organization, which we believe will improve our efficiency going forward. We expect to implement the implementation across the rest of the company early next year. Another important initiative we have over the balance of this year is an aggressive corporate recruiting plan to add both service and sales staff. We've also felt the effects of the tight labor market and have made enhancements that we believe will allow us to achieve staffing targets to support our growth and client retention priorities.
It's apparent we're off to an excellent start for our first quarter of our five-year plan, and our guidance implies a strong first year in 2022. Also, our key initiatives are laying the groundwork to capitalize on the growth and profitability outlook we see ahead. This new five-year plan has extraordinary potential beyond what we have seen in previous successful five-year runs. For example, from 2014 to 2019, our compound annual growth rate in paid worksite employees was over 12% and in adjusted EBITDA was over 24%. Our total return to shareholders was even more remarkable at 434% over that period. Quarterly dividends increased an average of 27% each year, and the share price increased more than fivefold.
This was not surprising over that period because our business model is designed to produce double-digit unit growth, slightly higher gross profit growth, and some operating leverage, producing adjusted EBITDA growth north of 20%. Historically, this double-digit growth has been fueled by increasing the number of BPAs at a double-digit pace. For example, in the period I just described, the compound annual growth rate for BPA growth was 12%. The five-year plan we've just launched has three significant distinctions that I believe can drive adjusted EBITDA growth rates even higher. The first distinction is the marketplace demand I've described over the last several quarters. The impact of the pandemic and all the after effects drove home the importance and the direct connection between a sophisticated HR function and business survival and success.
We have seen this reaction in our clients, prospects, and those who invest in small to medium-sized businesses. This increase in demand and receptivity is the initial reason we thoroughly developed and implemented this plan. I believe it is a significant industry-specific wave we can capitalize on over the next five years. The other two distinct differences are within our business model. First, the traction we have with our traditional employment solution, Workforce Acceleration, has the potential to add to gross profit in a way we have not seen before. Small increases in gross profit per worksite employee in our model drives significant increases in adjusted EBITDA. This source of gross profit also is not healthcare cost dependent, and if it were to grow significantly, could help to mitigate our overall volatility.
Workforce Acceleration has the potential to improve our sales efficiency, lower BPA turnover, and enhance our customer for life strategy for long-term client retention. The second distinctive difference in our business model for this five-year plan is the sales efficiency gain we have begun to see and will strive to further improve. This creates the potential for us to grow faster with a BPA growth rate below the unit growth rate, which would add operating leverage we have not seen before. I see the potential, if we are successful on this five-year plan, to grow faster, add to gross profit per worksite employee, and have more operating leverage than our last run. This could mean significantly higher adjusted EBITDA growth, which we believe could create extraordinary returns to shareholders.
Insperity is laser-focused across the company on the 10 critical success factors expected to drive home the goals of this new five-year plan. We are off to a great start and hopeful for a bright future for all Insperity stakeholders. At this point, I'd like to pass the call back to Doug.
Thanks, Paul. Now let me update our guidance, which we are raising our 2022 growth and earnings expectations based upon our outperformance in Q1 and an improvement in our growth and profitability outlook over the remainder of the year. We are now forecasting 15.5%-17.5% work site employee growth for the full year, an improvement over our initial guidance of 14.5%-16.5% growth. This expected increase is based upon a higher starting point going into Q2, continuing sales momentum, maintaining client retention at our budgeted high levels, and continuing net hiring by our clients, however, slightly below recent trends given the potential impact of a further tightening in the labor market and inflationary pressures on the business environment.
We are forecasting Q2 paid worksite employee growth of 18%-19% over Q2 of 2021. We also now expect 2022 gross profit to be higher than our initial budget based upon the Q1 outperformance and the recent positive trends in both pricing and direct costs. We continue to be mindful of the ongoing uncertainty associated with the pandemic, and therefore continue to forecast a benefit cost trend over the remainder of the year in line with our initial budget. While we expect to get some further upside from the payroll tax and workers' compensation areas, keep in mind that outperformance in the payroll tax area is largely concentrated in Q1 as we earn a surplus prior to worksite employees reaching their state unemployment tax wage limits.
Our forecasted operating costs continue to reflect our 2022 plan of investing in our five-year plan initiatives with the expectation of achieving overall operating leverage at our expected work site employee growth rates. We are now estimating a 2022 effective income tax rate of 28%. When taking into account these factors, we have raised and narrowed our range of 2022 adjusted EBITDA from initial guidance of $251 million-$311 million to our updated guidance of $285 million-$327 million. As for full-year 2022 adjusted EPS, we are now forecasting a range of $4.31-$5.09, up from our previous guidance of $3.74-$4.86.
As for Q2, we are forecasting adjusted EBITDA in a range of $60 million-$73 million, and adjusted EPS from $0.88-$1.12, which takes into account our typical typical quarterly earnings pattern. As you may recall, our Q1 results are typically higher than subsequent quarters, as we earn a higher level of payroll tax surplus prior to work site employees reaching their taxable wage limits, and benefit costs are typically lower in Q1 and step up over the remainder of the year as deductibles are met. Now at this time, I'd like to open up the call for questions.
Thank you. As a reminder, if you would like to ask a question, please press star then the number one on your telephone keypad. If you would like to withdraw your question, please press the pound key. Thank you. Our first question comes from the line of Andrew Nicholas of William Blair. Your line is open.
Hi, good morning. Thank you for taking my questions. First one is just on kind of the sales force productivity. Obviously it seems to be increasing at a relatively strong rate. I'm wondering how much of that is a consequence of a longer tenure or a longer average tenure in the sales force. Maybe kind of within that, have you seen any change in retention levels or I guess the opposite being attrition within your sales force? Obviously, it is a tight labor market. You're seeing that in your client base as well. Just wondering how you're thinking about retaining that talent and how big of a component that is to productivity growth.
Yeah, thanks for the question. It is a very important aspect of our effort to improve sales efficiency. You know, within the numbers I talked about today, you can kind of see the picture there because we had about 30%, a 30% improvement or increase in sales efficiency, and we had an 18% increase in the number of BPAs that are in tier level three and above. You know, that's a big chunk of the natural effect of sales efficiency gain from a more experienced BPA growth. Now, the other balance of that, the other 12%, you know, came from a combination of other things. The marketing results that were so strong in terms of bringing qualified leads in, for example.
Also the recent compensation tweak that we put in place that allows for each BPA within their tiers to have targeted objectives each quarter and earn bonuses each quarter. It also drives them to try to work hard to get to the next tier level where the bonuses are higher for being in that tier. We just have a lot of things that are, you know, really, I would say they're just tracks that lead to improved sales efficiency. This is a perfect time for that because the overriding thing that is allowing all these to gain traction earlier, I think is just the demand we see in the marketplace at large, and the doors that are open to go see prospects, and the opportunity for BPAs to have enough repetitions.
I think the other factor that's key is the way that we have really optimized the remote selling element. You know, we'll be mixing back in face-to-face visits at the right time to, you know, further enhance the closing rate. Those are all factors and, you know, this is why we're really excited about the longer term. You know, great strides already in sales efficiency, but many things that we believe will continue that trend.
That's very helpful. Thank you. Maybe as a follow-up to the last part of your answer, in terms of the new sales momentum, are you seeing any material difference in kind of the competitive nature of the market? Or, are you seeing better win rates coming against other competitors? I'm just curious if this is primarily execution on a large runway for growth, or if there are some competitive takeaways and higher win rates as a consequence of some of those other items you mentioned. Thank you.
Well, another very good question. I'll just tell you, this is more an intuitive answer than it is, you know, supported by a lot of detailed information. But what I see happening is that the result of the pandemic period and all these aftereffects really drove home the need to, you know, both for survival and, you know, to really succeed, to have a very sophisticated HR function. What's unique about Insperity is that we are the premium service in the marketplace, differentiated by the breadth of our services, the depth of our services, and the level of care. Those three things add up to an incredibly sophisticated HR function. I believe that we have our competitive advantage that's always been there, is highlighted in a dramatic way right now because that type of service is what companies really want and need.
I think that's an uphill climb for a lot of other companies in our space. You know, they have good services to, you know, either reduce cost or to reduce administrative effort. Those are good things too. But that really sophisticated, complete HR function is really something that, you know, we're a category of one.
Thank you. Next question comes from the line of Tobey Sommer of Truist. Your line is open.
Thanks, Paul. I was wondering if you could give us an update on how the benefit trends progressed during the quarter post Omicron, or at least the first Omicron variant. Whether you think that the effects of that are sort of clearly visible to you, or we still have a you know couple of months of data to be collected from UnitedHealthcare to kind of have a real clear picture about how that unfolds.
Yeah, let me let Doug give you more details about it. From my perspective, what we've seen is pretty clear that, you know, you had the two variants that, you know, drove up COVID-related costs. We talked a lot about that last period. We trended off of those high results just to be conservative. We've seen some waning, as I discussed, in the COVID-related areas. We're also just cautious about the potential for acute issues and other things that are longer term effects from the pandemic that can still come in. We're just gonna continue to be conservative about that. I'll pass it on to Doug there.
Yeah. I think as you're probably aware, Tobey, you know, in the fourth quarter, we had the convergence of Delta and the beginnings of Omicron. As we moved into the first quarter, you know, you still had some hangover effect of Omicron, at least through the month of January, probably part of February, as a result of that increased testing, some increased vaccination during those months. I think since then, we have seen it wane a little bit, as it relates to that. I think that's good news. As we look forward for the remainder of the year, I think there's still uncertainty as to whether utilization, whether it be care that was previously deferred, particularly elective surgeries or things like that have to have some catch-up that replace.
Replace the waning effect of COVID and COVID costs. You know, will it replace it or not? Will there be some upside? We're hopeful that there will be, but I think it's prudent right now with still quite a bit of level of uncertainty to continue to forecast at our initial budgeted levels on the cost side. The other important takeaway is on the pricing side. We're doing an effective job of pricing, you know, at least really through the whole pandemic stage. We've talked about this in past quarters, how we've looked through the pandemic, have priced over the long term. Over the two years, 2020 and 2021, our pricing was fairly matched with those two periods on the benefit cost side.
As we move forward into 2022, our first quarter pricing and cost levels were matched very well. I think we're positioned that for the remainder of the year, if in fact, the utilization doesn't replace COVID costs and we don't have another wave on the COVID side. You know, we're hopeful that there could be some upside. It's just too early to tell.
Okay. Thank you. I appreciate all that color. I wanted to ask a question about your total addressable market, how you think about that. You know, several years ago, you started offering some non-co-employment options, and now the pandemic, as you said, a lot of knock-on effects highlighted the value of the PEO service. How do you think about your addressable market and whether or not it's sort of grown? 'Cause certainly the volume growth in WSEEs is pretty remarkable. Thank you.
Yeah, that's a great question, Toby. You know, we still see clearly within the data that we're able to evaluate that there's, you know, over 600,000, what I'd call perfect fit clients that fit the demographic and psychographic profile of the 11,000 clients we have. You know, we see a huge market that, you know, we have, you know, a long time to keep penetrating. What's exciting to me is now we also have, you know, clients that we're offering the Workforce Acceleration to that, where we can cast the net wider into that 600,000 target customers and bring them in, and also have customers that are on the co-employment model that sometimes wanna move off of that, can go back to the traditional employment solution.
I think our long-term view and ability to bring them in, have them move up or have them move across into other services is really strong. You know, that again is part of why when I look at even this five-year plan, I really see the potential to grow our core business at, you know, historical double-digit rates, but adding also the, I should say above historical double-digit rates and have the traditional employment service sales add to our gross profit in a strong way. You know, that's what I talked about, those two distinctive elements of our model that are different for this five years, growing at a faster rate with fewer BPAs, having a contribution from the Workforce Acceleration that drives our gross profit.
Of course, with the operating leverage both in the service and sales side, that means Adjusted EBITDA at higher rates than our previous run.
Thank you. Next question comes from the line of Jeff Martin of Roth Capital Partners. Your line is open.
Thanks. Good morning. Paul, I was just curious if you could talk about the concentration of the BPAs in various tiers. How many are, you know, at tier three or above? What kind of progression timeline is there for that? It sounds like, you know, the incentive changes that you put in place are having a significant impact there.
Yeah, thank you. You know, we have, as we've talked about in the past, the typical length of time for a new BPA coming on to reach, you know, that tier two level is about a, you know, 12- to 18-month period. We want them in, you know, tier one is that is what they're in early on. You know, to get to tier two, typically it's around that 18-month to a couple year period. We're seeing folks be able to do that earlier, so that's a good sign. We're looking at the entire flow and moving as many as possible, you know, at very much an individual level. Now, over the balance of this year, you know, we will be growing our BPA team, again, starting to ramp up growth.
You know, we're expecting to get to around 700 or so BPAs at the end of the year. We get back to, you know, maybe around 10% growth in the number of BPAs early next year sometime. That is the right rate for the sales efficiency gain to put us, you know, into the mid-teens double-digit growth on an ongoing basis, which is our target to get where we wanna go. A lot of this is, you know, really dependent on this focus that we have of moving individual BPAs up through the tiers. What's exciting about where we are now is we have real alignment on that goal throughout the sales organization, not just sales management trying to do their job of moving those folks through there.
Now the BPAs are so connected to that through the new compensation system and really all across the company. One of our 10 key success factors in this five-year plan, you know, critical success factors is the improvement in sales efficiency. There's a tremendous focus on that across the company that I believe will have a nice effect going forward.
Okay, great. I was curious if you could speak a little bit more to the mid-market. It looks like it grew in line with the rest of the business. Are there specific initiatives in the mid-market that you're putting in place to have that success there? Maybe compare that to, you know, over the past 12 months, what you've seen in the mid-market, you know, from a sales potential.
Yeah, I appreciate the question. I'm very excited about what's happening in mid-market right now. It's really the fact that, you know, core sales, mid-market, and Workforce Acceleration are now a real understanding across the sales organization that it's three prongs that all are significant, important, you know, equally committed to across the company. You know, in mid-market this year, you know, we're already off to a great start, and the pipeline is way ahead of last year already because so much alignment around all three of those. You know, our leads for mid-market come out of our BPA team, and now the alignment within how they're compensated and how they work together on these larger accounts is, I think a very smooth operation now.
Again, it's the alignment issue that I think makes the biggest difference. We're off to a great start. Pipeline's in great shape. You know, keep in mind it's still the smaller part of the business and it, you know, there's some, you know. There are bigger pieces when they come and go, but I really do see more consistency coming in that area of our business, and that will really be helpful on the sales efficiency front as well.
Thank you. Next question comes from the line of Mark Marcon of Baird. Your line is open.
Good morning, and thanks for taking my questions. Really strong growth with regards to the worksite employees. I'm wondering, can you comment on two aspects? One, you know, what are you seeing, Paul, with regards to the broadening of the acceptance of the PEO concept outside of, you know, your biggest states? To what extent are we starting to see, you know, increased adoption in some of the less established states, and the response to some of your marketing efforts? And then secondly, when we take a look at the fee revenue per worksite employee, can you talk a little bit about what you're seeing from a pricing perspective? And to what degree is your fee revenue per worksite employee directly tied to, you know, the level of compensation for the employees?
Great. Those are both good questions. First of all, on what we're seeing, I think I would have to say that the biggest difference in seeing this receptivity all across the country, there's two components to it. One, of course, I mentioned in the remarks, which was about our, you know, marketing effort that we went through last fall, focused on localized marketing plans. Every market has different aspects to what drives the awareness in that market. We've now done that across, you know, all 41 markets for this spring. You can see our revenue growth across the country. You know, we were over 20% revenue growth in all of our regions. You know, things are happening broadly. Why is that?
I think one of the biggest things that is impressive to me, that gives me confidence about the future is the way that investors, board members, you know, whether it's venture capital or private equity, folks that used to be kind of a stumbling block or a hurdle for us to close a piece of business. You know, we would try to go through the selling process with the CEO, and then they'd go to their investors. There were a lot of folks that, you know, didn't like the idea of investing funds into that HR function. Now the awareness of how important this is and how it actually helps the profitability and the building value in that company, I think that's really made a difference across the board.
Now on the pricing side, let me just say that, you know, I think we're all over that. One of the other critical success factors, in that, of the 10 factors that we have the company focused on is the issue of the potential for inflation to have a dramatic effect over these next several years. Now, we also believe it's really important to make sure we're doing everything we can to recruit and retain the right people, 'cause that's obviously, you know, super important to us. We can't help others take care of their people if we don't do a great job taking care of our own. We've already, as Doug mentioned in his remarks, made investments, internally, on the compensation side.
We have a tight connection between what we do on the operating side of the business and how all that flows through to pricing. We have a pricing plan that, within our both new and renewing business, in that part of our organization, you know, have a game plan going forward for this year that we believe is fully appropriate and reflects the fact that it is a marketplace where price increases need to be passed on. You know, I mentioned in my remarks that we have some sales management compensation tweaks that also help them be in concert with that same approach for this year. I think we're in great shape on that front.
The last thing I would say on that is that when wages are going up like they are, in the marketplace, our increases that are passed on that are reflected as a percentage of the wages, you know, we can actually pass on more, and it just looks and feels like less, because it doesn't move the percentage up very much. We think we have a very good environment for being effective at passing appropriate increases along.
That's great. Can you talk a little bit more about, you know, just the benefit cost expectation for the balance of the year? Are you assuming that there will be some sort of, you know, increase in terms of, you know, elective surgeries that were deferred? Or how are you thinking about that?
Yeah, I think just to kind of reiterate a little bit of what Doug's comments. You know, when we looked at the going forward for the balance of the year, even though we're seeing some of the cost drivers wane, especially related to the COVID-related cost, you know, we felt like it was still important to stick with our cost trend that we established just a couple months ago. Because even if there's a waning of the COVID cost, you have the possibility of both acute care cost and/or you know deferred cost from elective surgeries and stuff that can come through over the balance of the year. You know, another quarter out, we're gonna have a little bit better view into that.
If those don't come in, absolutely there'd be more upside than what we've forecasted. I think it's only prudent to you know be in a position to be expecting some of those things and you know who knows if another variant's gonna come out or whatever. You know it's just too early to tell, and so we're sticking with the higher trend that we adopted early this year in our budget.
That sounds very prudent. Thanks, Paul.
Thank you.
Thank you. I would now like to turn the call over to Paul Sarvadi for closing remarks.
Once again, I would just like to thank everybody for being on the call today. We look forward to continuing the success throughout this year and in year one of our five-year plan that we believe will provide extraordinary shareholder return opportunity. Thank you again for your participation. We look forward to providing information next quarter.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Have a great day.