In these recession-hit times many organisations can no longer afford to offer employees monetary rewards. Therefore, benefits have come under the spotlight as way to incentivise staff while limiting employer spending. For those responsible for the provision of benefits it is important to take a proactive, strategic approach to planning, rather than sit back and wait for the traditional warning signs to appear – for example, downsizing, expansion, mergers and acquisitions – before taking action.
Carrying out regular and thorough reviews of a company’s benefits offering is essential to ensure it remains attractive, competitive and cost-effective – as well as to keep it one step ahead of the trends. Checks must be comprehensive and incorporate all elements of the benefits package. However, this can be a challenging task. With a wide and varied selection of benefits on offer, an increasing number of employers are depending on strategic benefit planning to balance existing schemes as well as to achieve long-term corporate goals.
The challenges do not end once a plan is in place, as it is imperative that the message is communicated to employees so they are aware of what is on offer and appreciate the value of their benefits package.
With this in mind, Pay & Benefits invited industry experts to share their views and advice on the issues surrounding strategic benefits planning.
Kavitha Sivasubramaniam (KS), Editor, Pay & Benefits magazine (chair)
Anthea Cassano (AC), Compensation and Benefits Manager, Ceridian
Charles Cotton (CC), Public Policy Adviser, Reward, CIPD
Alistair Denton (AD), UK Managing Director, Edenred
Philip Curtis (PC), Managing Director, Fair Care Employee Benefits
Jonathan Watts-Lay (JWL), Founding Director, WEALTH at work
KS: What is happening in today’s employee benefits market?
JWL: There’s massive change going on. Companies are realising that they offer a whole range of benefits and that those benefits are growing all the time. Now we’re in tough economic conditions they’ve got to think about whether those benefits are the right ones to recruit, retain and engage their employees. There are a lot of companies that are taking a big review of those benefits and looking at how they can change the structure to drive more value for different segments of their employees – ideally at no extra cost to themselves.
AD: A huge proportion of people don’t understand what benefits they receive or their value, and potentially don’t understand how to engage with a strategy or a benefits offering that will help them in their personal life.
AC: Companies also want to maximise the opportunities for themselves and their employees. In the past companies have had wide benefits offerings, however the recession has forced them to make sure that they are still getting value for money and that their employees understand their value. It is forcing them to understand the true scale and cost of the benefits package.
PC: Yes that is true, but there is also a huge emphasis on saving money across corporate Britain.
CC: If you went back 20 years the focus would have been on service excellence – producing employee benefits in a great way that employees valued. We then saw a shift from having benefits as a discreet function to being brought together as a reward function. We’ve seen a move from a service-driven to a more business-process driven activity. Then in the downturn it became apparent that so much focus had been on supporting the short-term business performance that it had crowded out thought on what makes for the long-term, sustainable performance. Benefits professionals are not only looking at how their activities support the business but how they are aligned with the contexts in which the firm operates and how they make the organisation more effective.
Market developments
AD: Compensation and benefits professionals are needing to demonstrate the value the business is getting and measure how successful the strategies are that have been implemented. It’s a way of measuring and then managing that return on investment (ROI), and getting that connected to performance. It’s about reward and recognition in the workplace to drive engagement and performance.
CC: Performance is important, but it’s also about helping to develop the appropriate environment and culture so that you help create and sustain an organisation that is not only able to cope with the stresses and strains of change but is also able to take advantage of the opportunities that change presents.
JWL: Companies are realising that there are things now which can be done very efficiently and drive real value. In the past you would have an independent pensions function, you would have share schemes that were run by the company secretariat that was independent. You might then have an HR or reward function that would look after other benefits which were separate, so there was quite a bit of silo thinking. By joining those things together there’s value that can be driven for the employee.
That’s one of the changes that is occurring which is more strategic. Companies are now talking about retirement age. Over the past 10 years when companies have moved from defined benefit (DB) to defined contribution (DC) pensions there was a “bury your head in the sand” mentality because they knew that the DC message wasn’t as good as the DB. The result is that take-up of these schemes is generally very poor and even where there is take-up, contribution levels tend to be very low. Now companies are thinking again because if people can’t afford to retire and there’s no legal retirement age, that may mean that they need to carry on employing these people and is that actually in their long-term interest as a business?
Total reward is an interesting concept – it is just adding up all of the things that an individual happens to have. It is not the true value of what you can drive from your workforce as it just tells you of the benefits that an employee has happened to have taken; without realising the additional benefits that they could have got by linking some of the benefits that are already available.
KS: How important is it for companies to review their benefits plan?
PC: They need to continually assess and reassess what their employees want, but there is a little bit of a disparity between what employees want and what they need. They all want £10 in their pocket today, but they probably need an extra employer contribution of three per cent into their pension plan. So you have an issue of educating your workforce in order to keep them interested, which is extremely difficult.
CC: That is where the interest in the last few years has been around behavioural economics, where organisations are looking at how you can use employee inertia to your benefit – defaulting them automatically into a pension scheme rather than letting them get so worried about making such a life-changing decision that they don’t make it. Research appears to indicate that people are more concerned about losing money than gaining it, so the idea would be to focus in on financial security. For instance whether the pension default fund involves a significant amount of risk. Once employees start to get used to pensions and become more confident about taking money decisions, then the employer can help them become more adventurous in their investment choices.
Employee demographics
AD: Different people, at different stages of their life, for different reasons, have different requirements. As you progress through life you start thinking quite differently from how you would have 20 years ago. Therefore, from a compensation and benefits perspective, understanding those different requirements is key. The debate between generations X and Y is becoming far more prevalent now. There should be an understanding of the marketing strategies an organisation would use on their own products to communicate to their employees. It must demonstrate how savings could be brought to them via their benefits and how it could help them in their monthly pay.
CC: It’s important to look at the demographics. Last year Chartered Institute of Personnel and Development (CIPD) research found that the most valued benefit in terms of joining a firm for 20–29-year-olds was a pension, while this benefit was not regarded highly among 40–4 9-year-olds. However, when it came to decisions about whether to stay with a firm, the pension was the key benefit encouraging the 40–49-year-olds to remain with their employer, while for the 20–2 9-year-olds the pension did not feature very highly in their decision on whether to leave. Overall, it’s important to recognise that benefits can influence employee decisions to join, stay and engage, but these influences can differ by age, sex, grade, career responsibilities, etc.
AC: Organisations have been guilty in the past of assuming that they know what the right benefit package is. A lot of that has been driven by trying to offer the most attractive benefit package possible. Now that we’re in difficult times and looking at the best value, we also need to ask our people what they want and what’s important to them, understand the demographic and engaging with employees. Once a year, at least, organisations should be looking at their benefits offering and asking individuals specific questions around what’s important to them.
CC: It’s also difficult to manage expectations at the same time. When companies say, “we’re going to talk to you about the benefits”; in this climate people assume that they’re going to be taken away. Even if you’ve got the best intentions, you’ve got to be careful that engagement doesn’t create false hopes or false fears.
JWL: There is an emergence of companies going for a “one number” concept where you give your staff a percentage of salary and you have a menu of benefits that are available. But what you’re doing is taking benefits that don’t normally form part of the benefits window, such as ISAs or Save As You Earn (SAYE) schemes. For example, a 25-year-old, who is interested in saving for a deposit for a flat or for a car rather than a pension, could opt to elect to contribute, say, two or three per cent into the SAYE scheme. Then at the end of the scheme period at the very least they’ll get the money back with a little interest, or if things go really well and the stock rises they will get even more.
It’s trying to balance what organisations already have but presenting it in a way that employees can see more value from. It means that the benefits package has an added attraction. It may not work in all companies, but it is quite an interesting way to look at how benefits are structured and allowing people to self-select within an existing range of benefits – it doesn’t have to be anything new.
CC: The challenge, and the opportunity as well, is that during the recession the CIPD predicted that there would be more job losses than there were. The reason why we believe that our predictions were wrong is because of the way that employers were able to flexibly reduce pay costs. More of the total pay cost is represented by variable pay, which should reflect how well the organisation and economy is doing. The challenge around benefits is how you make them more flexible to change. We’ve seen a shift in pensions from DB to DC schemes, and may now witness a shift in the benefits package with organisations defining their contributions rather than defining the benefits.
AD: There’s also the issue of managing suppliers and making sure that you’re getting the best that you can from your supplier. Sometimes certain benefits within the package haven’t been re-brokered or reviewed for three to five years and that is madness. It’s about making sure that you are driving best value from suppliers in the marketplace because you can make savings. Organisations should do that as regularly as possible.
KS: Is a survey the best way to do that?
AD: There are two things: you absolutely must talk to your employees and understand their needs and requirements. Second, the organisation must get their suppliers to rebroker and retender on a regular basis to make sure that they’re driving best value. There are three key ways to drive benefits: best value from your providers, providing the best benefits that address the needs and the requirements of your employees, and then there’s the whole engagement of tax efficient benefits. If you’re working with those three strands, effectively what you’re doing is driving value and making sure that the costs are managed as well as they possibly could be.
Communicating effectively
KS: What advice would you give to companies which are doing this?
CC: One form of evaluation is experience, so find out what other organisations are doing. Sometimes there’s a danger in having so much to do with the day-to-day issues that you become very focused on delivering within your own organisation and not looking at what’s going on elsewhere.
AD: If an organisation is reviewing its benefits, ultimately change will need the support of the senior leadership team within the business, because the changes will need to be managed. When you’re changing anything that impacts individual employees within the business it may be looked at negatively unless it’s managed well. Very early on in that process it’s important to engage and make sure that the people who have the legitimating power to make change happen are engaged into the process.
AC: In these difficult times most organisations have reviewed their benefit offering and have been put under pressure by their board to reduce benefit costs. The key thing has been how well you articulate that message and how well you engage with the people, making sure that they understand the reason that you’re doing it.
CC: The downturn has focused minds, especially in the private sector because to carry the workers with them, employers had to explain pay freezes and pay cuts.
I believe that it will be difficult now for organisations to reign back on their employee communications when the good times start to come. If there are issues around employee engagement, then it may not be a problem around the method of communication, but an issue with the organisation itself and its culture. Also there are issues around the language – it should be pitched at the employees.
JWL: Companies are sending out brochures and putting information on the intranet which no one ever really reads, and it’s just a waste of money. If you’re a large company and you employ 10,000 people then you probably have a cross-section of society who are all at different earning levels and are motivated by different things. You have got to take a marketing approach to it, to segment those staff and the messages, and make sure that it is engaged communication.
AC: Simplicity is really key when it comes to communicating benefits. What adds real value is if you’ve linked up with a flex provider, where the tool enables you to see, very simply, what your resulting net pay is going to be. Long gone are the days of total reward, where you send out a statement in advance and it would tot up your total compensation. Now companies are using a straightforward and simple tool which enables the employee to drive the decisions that they think they want and understand what the impact is on their net pay. That is really important as it sends a clear and simplified message to the employee saying this is what you’re actually going to earn. If you explain benefits in layman’s terms to individuals then you will get a lot more value out of your benefits offering.
KS: Is communication the main problem when it comes to changing the benefits offering?
PC: It is partly that and it’s partly education. If you introduce choice into the benefits package it can be a great thing, but by introducing that choice you take on the responsibility for educating your employees too – if you don’t it will fall flat on its face. Education can be quite expensive. Ideally you would have a financial adviser spending time with each employee, but that’s not the easiest thing to fund.
JWL: I agree with that sentiment but in most cases if you have a really good education programme, where you’re working in groups, you don’t have to provide advice to all (although it does depend on the group and what the topic is that you’re discussing, for example those at retirement should be given advice), but as a general rule of thumb a good education programme, if delivered well, should satisfy 80–90 per cent of people without the need for advice. If talking to a group of 25-year-olds, they just need good workplace financial education so that they understand what choices they have, what the pros and cons of those choices are, and allow them to self-select based on
that knowledge.
PC: It begs the question how responsible should employers be for the financial welfare of their staff? If you look at businesses like Cadbury or Clarks shoes, with the Quaker approach, they created a whole village to house their staff with a whole-life view. We’ve got a working population that doesn’t stand still for very long, who will move from one employer to another on a whim. You have to give the employee what they want.
AD: Going back to communication, it is language as well. We have some clients who have diverse types of employee, and therefore you really have to put it in a language that people understand. In business, communication is one of the biggest challenges we have – so don’t just think about the benefits.
JWL: As an example, around four years ago a company we know about had a SAYE scheme with a share price that was performing very well. The scheme matured and the staff who were in it made quite a lot of money. At the end of the tax year the reward department received complaints because people had started getting tax bills. The reason for this was because the scheme was so successful that when they sold their shares they had breached the Capital Gains Tax limit. What annoyed the company was that they had invited all of those who were in the scheme to in-house seminars to talk to them about this maturing scheme, but they cancelled most of them because people weren’t interested. The communication said – you’re in this share scheme, it’s maturing in six weeks, if you’re interested in finding out more please attend this seminar. The staff were watching the share price every day and knew that they were in the money, so they didn’t understand why they had to go to a seminar when they already knew the outcome. The following year there was another share scheme which was very successful again, so they really needed to do the seminars to avoid a repeat of people complaining about their tax bills. We suggested that the communication should be about how to mitigate tax, because a lot of people were in line for a tax bill again. This time they were inundated with people attending. Communication should be targeted to make sure that you don’t get the headline message wrong, as in this case.
CC: The language that is used within the organisation is important not just to the employees, but for the organisation itself. Benefits are often seen as something for the employee rather than as a benefit for the employer. Back in the Victorian era, a lot of pension schemes were considered as an employer benefit; they were there to help the employer manage the workforce. It ensured a continued outflow of employees, as you didn’t want an 80–90-year-old falling into the machinery and disrupting production. The pension plan was there in order to help those who were unable to work to leave when they reached a certain age, with dignity intact. In the last 50 years that has been forgotten – it has all been about pensions as a recruitment, retention, and engagement tool. Perhaps now with the demise of the default retirement age and people living for longer, organisations will start to look at pensions again as a useful management tool.
AC: It’s important that benefits are just one part of any people strategy. There are lots of other aspects about leadership, culture and change management methodologies, etc that the HR department needs to consider. Making sure that the overall people strategy is aligned is pretty important. That will determine language and how you connect benefits to performance because the whole thing needs to gel.
Generational benefits
AD: When I was in my early 20s I couldn’t really have cared about what my benefits were – what was more important to me then was how the organisation was funding education and that it was allowing me to progress my own skills that would ultimately get me to where I needed to be. I was interested in long-term development and being able to pay the mortgage, whereas now it’s very different.
CC: The latest workforce generation is a lot more curious as to why things are going on. Perhaps previous generations may have been more deferential. Organisations now have to spend more time explaining what they’re doing and why, so that workers have a certain amount of ownership over the change.
AC: In the short-term, behaviours are driven by what’s happening around them, so if people have been given a pay rise or a bonus, rather than investing it in a pension, they’ve probably been using it as income. As things improve, there’s an opportunity for organisations to think where people are on that curve – things that perhaps employees scaled back on in the short-term so as to maximise their immediate income. But longer-term, organisations need to think about how the employee is going to behave and what is going to be important to them. It requires an understanding of where you are and what the risks are if you don’t look at your position compared to the economy and compared to where your competitors are, and to where your employees want to be.
AD: Time, money and capability is essential. Have you got the time, has the organisation got the money and is there the capability to enable changes to take place? It’s getting the mix of those three things right which will help an organisation to move forward.
CC: The problem is that benefit professionals are focused on supporting short-term business performance, rather than asking themselves and the firm how benefits will support the business in three or four years’ time and what this may mean for what benefits are offered, how and why. If benefit professionals are going to add value for their organisation then they will need to raise their heads from their desks and take a broader perspective.
AC: It shouldn’t be hard. If you look at what your longer-term plan is and what the shape of the organisation is going to be, you should then be able to identify the type of people you’re going to need, hold on to, and recruit. Therefore, make sure your benefits package is fit for purpose. Years ago, there were employer benefits and now it is employee benefits – what’s in it for me, rather than what’s in it for the organisation. Employees probably think quite sceptically, certainly where benefits packages have been changed during the recession, but the focus has really shifted over the past 10 years. Going forward you need to think about where your organisation is heading.
CC: The experience of the last few years has revealed that the days of detailed long-term business plans and benefit strategies are toast. What’s important is creating an organisational culture that is resilient to pressure, agile and able to take advantage of opportunities as they arise.
PC: If you have the goodwill of your employees it is much easier to effect change. Where you have negativity, which can happen easily, things become extremely difficult and we’re seeing that at the moment with some of the union activity. The trust and goodwill of your staff is difficult to gain but quite easy to lose. Sometimes simple things make a difference just to show you care. Putting a discount scheme in place – it doesn’t have to be expensive or difficult.
Flexibility is key
AC: Sometimes it’s about being flexible and taking opportunities. It’s quite easy to lock yourself into an annual flexible benefits cycle and then give people the opportunity to choose once a year. But if you have a pay increase or a bonus it’s also giving people the opportunity to do something with that money – either salary sacrifice or pension etc – rather than being so rigid. If you’re flexible and give people some thought then they will respond to that.
JWL: A lot of effort goes into what benefits individuals should take but when they come out of it, particularly with things like share schemes, companies don’t make the most of it. That is when the value is being received by the individual and yet companies lose sight of that, they’re just worried about how many people have joined the scheme this year, and it’s a massive missed opportunity.
CC: It’s winning over the line managers as they may not want employees spending time faffing around making choices on their flexible benefit arrangements. It’s trying to get over to line managers the importance of explaining to their team the benefits that the organisation provides.
KS: Are companies looking to retain staff in this way?
CC: There can be cost and tax advantages by offering benefits instead of just giving people £2,000 or £3,000 extra in pay. If you think of behavioural economics, giving people more money doesn’t necessarily lead to increased engagement.
PC: Staff retention isn’t on most employers’ minds at the moment – many are downsizing and redundancy has been widespread. However, making those who are left behind feel good and productive is key and also you need to look ahead to when things do change. You want a streamlined, yet efficient and motivated workforce, so a lot of the rules that apply in the good times apply in the bad as well.
AC: Typically organisations have been very reactive. If you take a long-term view now, there’s that opportunity, and perhaps it’ll take a year or two before the recruitment markets take an upturn, but it’s better to do it now than perhaps in a year’s time when it’s too late.
PC: We must not forget how expensive and time consuming recruiting is.
CC: A lot of organisations aren’t as focused on retention as they were; however there are still skill shortages out there for certain industries and for certain occupations. In the depths of the recession they just can’t find the staff with the skills to do the jobs and that’s why there is concern around the migration cap, which is going to hit some organisations because there isn’t the readily available talent in the UK.
KS: What are the most popular benefits being offered and have they changed in recent years?
CC: There are certain benefits that seem to be popular irrespective of race or gender or age and that tends to be with flexibility around holidays. The popularity of other benefits can depend on how much employees earn, their age, their care responsibilities, etc. So you need to look at your demographics and work out what makes sense for your business, as well as for your employees.
AC: There are trends with popularities but it tends to be the ability to buy or sell holidays. Private medical insurance (PMI) is also a particularly popular benefit, especially if it is fully funded or has the ability to flex part of it. The ability to flex funded benefits, no matter what they are, is key. Employers are tending towards providing more voluntary benefits: that is something that has really increased in the past five years or so, trying to give more for less as much as possible. Employers see it as a way of widening their benefit portfolio without having to add in a significant amount of cost. Popularity from an employer’s perspective is more voluntary benefits and more salary sacrifice opportunities, whereas employees are tending to go for the things around lifestyle and maximising their earnings.
KS: What has driven these changes?
AD: We as a business have seen a significant growth in the amount of organisations putting childcare in. More businesses are now looking at salary sacrifice benefits because of the savings that can be made for the employer and the employee, whether that be childcare, bikes or pensions. Therefore, there is an opportunity to reduce the costs to the business by providing these types of benefits, and this is helping to drive a change within organisations that perhaps haven’t done anything different for a number of years.
KS: How can the benefits offering help businesses achieve their corporate goals?
CC: It’s a balancing act for an organisation that is trying to promote flexible working and work–life balance. For example, a firm may have a free car park so that their part-time female staff can drop the kids at school and go on to work, and then pick them up afterwards. However, this can clash with its green agenda, which is promoting the use of public transport rather than cars. The company has two conflicting objectives for its benefit strategy, is the environment more important, or the agenda of supporting working parents? In the end they may decide to support the working parents and realise that are other ways to hit their green agenda. Sometimes the benefits can cause problems as you need to balance objectives that may not be mutually exclusive.
AD: Is it just benefits or is it about reward and recognition? The recognition part of anybody’s package is where an organisation can connect its corporate objectives with the individual’s goals and tasks. Many organisations are missing a trick on how you bring together benefits and recognition programmes to be well positioned together and focused on achieving the corporate goals. There’s a lot of work to be done there, both from the provider perspective and the HR and business people.
KS: How important is it to have a flexible package?
CC: From the employers’ perspective you don’t want a huge fixed cost year in year out, especially if the economy takes a downturn. We have seen organisations being able to adjust the pay bill to such an extent that they were perhaps able to save costs there rather than having to make people redundant. Organisations are wondering why they can’t get the same amount of flexibility from their benefits expenditure, which is why they will be looking towards flexible benefit accounts and other forms of flexibility. This will provide the opportunity to flex up or down according to how the economy is doing. From the employees’ point of view it’s important that they choose those benefits that best meet their needs and wants. It’s giving them the flexibility to maximise their expenditure and make savings.
AC: In this environment, where companies are merging in order to save and manage costs better, you’ve got to have a flexible arrangement in place. The days of having very rigid life events in a flex scheme are going – it’s looking wider than the traditional elements such as marriage and children to other reasons why people would want to make that change – whether it be financial reasons or because their partner has other arrangements in place. It’s being in tune with the employee. If you make it more flexible it will make them more engaged than saying “flex renewal is in January, you have to make that choice then”.
Organisational values
CC: It also supports organisations trying to recognise and support certain types of values. If you want employees to be flexible, adaptable and creative you need a benefit package which reflects this.
KS: Do employees value flexibility more than having an attractive benefits package at the outset?
AD: One of the values that you get by offering a flexible benefits package is that those people who decide to engage in it actually make a choice, which means that they are thinking and deciding about spending an amount of money. This gets someone to understand more fully what they do get and that these benefits are on top of their base salary, which takes the level of understanding about their benefits package one step further.
AC: In terms of education, it’s key that the employer take some responsibility in making sure that if they are giving that option they’ve made the risk of doing that very clear to the employee. It’s a very fine line to tread between education and social responsibility to the employee.
JWL: It goes back to the pensions debate, about employees not saving enough for their retirement and whether employers have a responsibility for that. While employers don’t want to insist that employees must pay into a pension, they do feel some kind of obligation to make sure that people understand the implication of not contributing. Most employers want to give choice to employees but feel they have some sort of a duty of care.
PC: Life assurance is an interesting one – it’s very common but who does it benefit? It’s not you or your employees; it’s the people who are left behind.
AC: Regarding people taking total cash instead of certain benefits, when you give that opportunity you then find out that cost comes through a different route ie you lose your scale and buying power in some benefits. It’s creating that balance of flexibility and choice and making sure that you then don’t end up paying for it in some other way. It could be the cost of having a loss of scale or whether you haven’t given enough flexibility and therefore employees vote with their feet and go and work for a more flexible organisation. It’s a fine balancing act.
AD: Small, medium and large companies, and many in different sectors, are offering flexible benefits today because their key competitors are doing it. The other challenge is between small businesses and larger ones. Small businesses will find it more difficult to offer a true flexible benefits scheme simply because of the number of employees they have. So how do they bring perceived flexibility in that is good for their employees because they don’t necessarily have the buying power. There’s lots of external dynamics which will determine whether or not an organisation should or shouldn’t. But most organisations can bring flexibility in provided they think about it creatively, without it being an all encompassing flexible benefits scheme. Flexibility of benefits doesn’t necessarily equal a flex scheme.
AC: Total reward doesn’t necessarily equal a sum of all parts. So when you give a small and a large organisation a comparative example, total reward in a small firm can be the opportunity to make much more of an impact; it can be the environment, culture; it can be the opportunity to develop faster than in a larger organisation. A lot of compensation theorists have moved away from the concept that total reward is about the total value of the elements in your benefits package and is much wider than that. It’s about being in a great place to work, more so than “what do I get in my pay package?”
JWL: The profile of the company and its employees is key. For example, a large catering firm with a lot of minimum-wage employees could not afford to put benefits in place for people who were at that low salary level. There was this whole element that it would be very de-motivational as these employees would rather have an extra 50 pence per hour than have a pension contribution, so they are completely driven by salary. When you get to that lower end what they care about is having enough money to pay the rent, so there’s a whole new dynamic that comes into play.
AC: It’s a mixture of understanding your demographic and the market that you’re recruiting in. If you can match the two then you can better position your offering.
JWL: How many working days lost through financial worries and concerns can be alleviated through the benefits package? Particularly around debt and debt management, with employees having to find money at the end of the month to service the debt payment. So how can they be helped in the workplace, if actually the cost of not helping them is that they’re going absent.
CC: For a lot of the employee assistance programme (EAP) providers that deal with debt management, most of their calls on that subject used to be around Christmas and New Year. Now there isn’t that peak – it’s just constant.
AC: That just goes to show the value of having an EAP, as it gives a certain amount of reassurance for employees. At the moment the reliance on EAPs is on how to get free advice and also being able to pick up the phone to someone and offload concerns. If you can provide that as an employer then you are responding to employees and their needs in these difficult times. Having an EAP is great value to the employees and the employers as well. With other things like PMI, if you’ve got preventative measures upfront, like an EAP, you can then look again at your PMI and ask if you need to have certain parts of the policy in place. Are you paying twice for anything and also are we improving our claims by having the prevention upfront? Right now more reliance is being placed on EAPs and employers want to make sure that they don’t bear costs at the back end.
JWL: Another dynamic is that companies are now looking within the people and benefits area at where the risk is. So the risk of increased absenteeism, the risk to production and productivity, as well as the risk of people not understanding pensions and the risks of people not paying into them and then employers not being able to retire employees in years to come.
KS: How important is it to tailor benefits communication?
AD: It’s about understanding who your employees are, what they get and how they will understand what is available, ie through the language that is used to get the message across. Communication is a number one priority; if you don’t get that right then you’re not going to reach the benefit that the company can get by providing all of these things. Understanding the target audience, the message and the media to be used is key and it will mean that different types of communication have to take place through different media, with different language to different employee groups.
JWL: Companies are now looking at how they can put real numbers on this to demonstrate that it is or isn’t effective. The starting point of this is the segmentation, looking at sub groups and the employee population, seeing what the issue is. A company that we work with has 20,000 employees. One in three were in a DC plan that had been running for five years. Out of that third, roughly half of them hadn’t done any matched contributions at all. The employer believed this was because of affordability. However, these people were paid way above the national average so we thought that it was about understanding. The company believed that because they’d sent out the literature and it was on the intranet they didn’t need to do anything else, but employees needed to be motivated to look at that information. We got people engaged and on the first round of our education programme broadly 25 per cent of people started matching contributions. Of those 25 per cent, 85 per cent went to the maximum contribution. Perhaps in a different organisation or a different segment of that workforce that may well not have been the case, but it’s a very vivid example that you’ve got to segment it and then measure, because if you just take 20,000 employees and say it’s on the intranet it’s not going to work.
AD: Don’t assume that people are going to engage in it, make them want to. You’ve got to make it compelling enough for them to want to do
something different.
Educating employees
AC: Communication is key, more so this year than ever before because a lot of organisations may have restructured their benefits, cut them back or reduced the policies. The worst thing that they can do is to get to the flex renewal and stay silent. Individuals will realise that there’s less in their take-home. It’s really key that they target those people who have previously made those choices and tell them that unfortunately this benefit will cost X this year or it will not be worth as much this year. If you explain it in a language which helps them understand the rationale and be upfront, then there’s
more understanding.
AD: Communication is one of the biggest battles. You can give people information but you are then relying on them reading and understanding it. It’s never ending. You have to look at new, creative ways to get people to understand it. Don’t assume just because you’ve communicated it that people have understood or bothered to engage with it. It’s important to find new ways to get that other party to want to listen.
PC: With most flexible benefit offerings it’s a once a year show, where employees get a month to make their mind up. Then they forget about it for 11 months – so it becomes a bit of a chore when it comes around. This also creates a lot of work for the compensation and benefits team, which would be better spread throughout the year.
JWL: The issue is concentrating on what’s going in and not about what’s coming out the other end. So if you’ve got share scheme maturities or other things going in that are driving value, that just gets lost because you’re only concentrating on the one end which is a lost opportunity.
CC: Consider the message that you’re sending out. Why is this benefit being offered in the first place? What values, behaviours, skills or performances is the offering of this benefit meant to support? Use the whole issue around communication to think about how important these benefits are if they’re going to speak to employees.
Benefits going forward
KS: How can technology help to monitor the overall success of a benefits scheme?
AD: It can help management and administration for the HR department, but it’s also making it available for the employee when they want to engage with it. It’s bringing it all together so that there’s one place for employees to go that allows them to engage in, understand or manage their benefits.
AC: Think of the end user’s experience and the accessibility of it all. It’s no good if it’s very complicated and the end user doesn’t understand how it works and can’t find the information that they need. They can easily become disengaged, so it’s about providing the right technology that helps the end user find out what they need to know.
PC: Ideally you would allow employees to make changes every month, though if you mention that to your payroll manager they’d probably faint. But as technology improves and gets cheaper there’s more “straight through” processing, ie payroll adjustments can be made automatically. Something like a childcare voucher scheme sits in a flex scheme but it has to be open all year round to conform to HM Revenue & Customs requirements. Lots of flex schemes are opening windows every month to accommodate that.
KS: What other changes do you think will happen?
PC: There needs to be a big push to encourage employees to contribute to their DB pension schemes; which is a big task as they’re so cynical.
JWL: With flexible saving in the workplace such as share schemes, saving into a pension or ISA, you’ve got a range of vehicles and so you need technology to pull it all together. Ultimately there can be efficiency in that, different schemes can be run by different individuals at the organisation and technology can bring it together to co-ordinate it much more effectively. The other benefit is that technology now allows for multiple windows to be created. So if you offer all employees a range of flexible saving options, you can organise a separate window which can be more sophisticated for those who want to know more. It allows you to have a simple technology infrastructure that you can process and administer very easily or you can have a greater sophistication for different groups.
AC: The majority of employees don’t understand investment management. Those who do maximise the opportunity in the choices that they make in their pension investment. In the future there’s an opportunity for providers to be able to build the technology to enable people to understand more about that side of pension investment, the potential risk and gain.
JWL: The progression means that at the end of an SAYE scheme your only option is not just to take the money, but enables you to potentially place that money into your pension at a touch of a button.
AD: That’s where it goes well beyond benefits – in the next five to 10 years it’s all about bringing in the whole recognition piece. It’s about performance management, it’s about organisations getting the reward and recognition policies directly connected to the business. We will go beyond benefits and into the reward and recognition scheme in a much tighter way. Also, the Government will continue to look at what’s provided and what the tax legislation should be around benefits, which we will need to keep a very close eye on.