Reward and benefits: Rewarding in a recession

In the coming months, the pressure will be on HR professionals to cut staff benefits, so they will need to find innovative, cost-effective rewards that genuinely motivate employees.

As the economic gloom deepens and the threat of job losses sends employer confidence to an all-time low, the pressure is growing on HR departments to cut expenditure. The slowdown may have started with the financial services industry, but it’s now spreading through the economy and decision makers in almost every sector are reviewing what’s essential and what’s expendable.

Some experts believe that employee benefits will be severely cut in the next 12 months as organisations look to reduce their costs.

Business and management trainer Steve Miller warns: “We’ve had it easy over the past 10 years, but the next two years at least will see businesses cutting costs like never before.

“My advice to HR professionals is simple – cut the costs of your current reward package by at least 15% to help protect your organisation from the commercial pressures it will face over the next two years.”

Others, however, argue that it’s more important than ever to invest in benefits during times of financial crisis. Share option plans, for example, involve no immediate financial outlay and can be an effective way to retain talented employees.

Long-term incentives

Ben Barrat, practice partner at recruitment firm Alexander Mann Solutions, explains: “Long-term incentive schemes, such as share option plans, were once reserved for very senior staff, but in today’s talent shortage climate, they are now being offered at the middle management level to proactively attract and retain key people.”

Forward-thinking employers recognise the importance of offering a wide range of rewards and benefits in today’s environment, according to Barrat. They recognise that reward packages are important not only for staying competitive, but for motivating existing staff. Those with an eye on the long term are not simply taking a knife to the benefits budget, but nor are they ignoring the realities of the new economy, he says. 

Producing results

Progressive employers are, instead, taking a close look at what they can offer and ensuring that those benefits are producing the intended results. And this is producing a welcome wave of innovation in rewards and benefits programmes.

Ben Black, director of My Family Care, which provides benefits to blue-chip companies such as high street bank Abbey, law firm Herbert Smith, and oil giant Shell, says: “This is a great time to look and see which benefits are really essential. Ask yourself if you’re getting value for money. Now is the time to find out who the best providers are in a particular area and review the services you are receiving.”

The company car, for example, first became popular during the wage freezes of the 1960s, and there are signs that in today’s equally austere environment it’s becoming fashionable again.

Lesley Fidler, group director of employer consulting at accountancy firm Baker Tilly, says: “If fuel costs stay relatively high, and the Inland Revenue persists in its refusal to increase statutory mileage rates, company cars and free fuel begin to look much more appealing than cash. And it could push more drivers back into company cars, and those with company cars back into taking free fuel.”

Offering sabbaticals is another growing trend. Reducing pay and benefits does little to save a business money, and can have a very negative impact on morale and productivity. Reducing the headcount, however, is a far more effective way of saving money, but it does leave the problem of what to do when the good times return.

The ideal solution is one that reduces headcount during the downturn, and then allows you to rapidly restore the resource, skills and expertise in the upturn. A growing number of companies are finding that sabbaticals are an excellent way of achieving this, while also providing a benefit that many employees value highly.

Career breaks growing

Nine out of 10 people interviewed by Personneltoday.com last year said they would relish taking a career break, and Gap Year for Grown Ups, a gap travel provider, has seen a 300% growth since 2005.

In a recent survey by pollsters YouGov, on behalf of Direct Line Travel Insurance, one in three people said they would be more likely to remain with an organisation long-term if it offered a career break.

Taxation and benefits are always closely linked. However, in the current economic environment, HR professionals are working more closely than ever with their colleagues in finance to ensure the benefits they offer are as tax-efficient as possible.

Nick Davies, director of reward and employment tax at accountancy firm Armstrong Watson, says: “The introduction of a salary sacrifice scheme could help reduce costs. Salary sacrifice allows an employee to forfeit part of their salary in exchange for the employer providing them with other benefits.

“Although, in practice, the employee is paying for their reward by sacrificing an element of taxed salary, because the benefits provided in lieu are often exempt from tax and national insurance contributions, the savings can be dramatic.

Davies adds: “A very popular item under salary sacrifice arrangements is childcare vouchers. These can be provided by the employer free of tax and national insurance, up to quite generous limits. I can personally vouch for these arrangements as Armstrong Watson provides such a scheme, and the net saving to me is £984 [per year].”

Whatever benefits you do offer, it’s vital that you make your staff aware of them.

Mark Eaton, director at benefits provider Personal Group, explains: “By providing employees with a steady flow of benefits information, and by being more innovative with the way they advertise benefits, organisations can add value and increase take-up rates.

“Having fun with benefit packages by offering competitions can also help this. Employees are asked questions about what benefits they currently receive and are automatically placed in a prize draw afterwards – they get to learn about what is on offer in the process.”

Two-way communication

The communication must, however, be two-way. You can spend all the money you like on a generous, innovative and well-communicated benefits package, but if it isn’t what your staff want, it will have no impact on recruitment, retention or productivity.

Recent research by insurance provider AIG UK Benefits has shown that while 86% of employers claim to consult with their employees about benefits, only 23% of employees actually say they are consulted.

In the coming months, HR professionals across the UK will face enormous pressure to cut employee benefits. Some of those cuts will be unavoidable, but many will be sensible. They must rise to the challenge of finding innovative, cost-effective benefits that genuinely motivate individual employees.

Meeting this challenge is vital, not only for the prosperity, even survival, of the companies they work for, but also for the credibility of the HR profession. In the good times it fought hard to be viewed as a strategic partner. It must now demonstrate that it has an equally vital role to play during the bad times.

Maintaining motivation and morale

Jonathan Fitchew is the founder of sales recruitment, development and training specialist Pareto Law, a past winner of the Sunday Times Best Small Company to Work For award.

“The credit crunch is forcing a lot of businesses to assess their expenditure on benefits. However, while this might be necessary, it doesn’t mean you should forget about staff motivation altogether. Think smarter, and develop more cost-effective ways to motivate your team,” he says.

Fitchew outlines five steps he is taking to maintain staff motivation in these tough times:

  1. Communication – Keep everyone informed of company successes through regular communication, such as a weekly motivational newsletter.
  2. Company awards – If you don’t already have them, introduce company awards. These can be weekly, monthly, quarterly and annually, and don’t need to cost you a fortune. Just to be awarded salesperson of the month, and to receive a token bottle of wine, for example, will motivate people and help encourage performance.
  3. The little extras – You may no longer be able to offer big bonuses, but you can implement things such as letting employees leave work early on a Friday, or giving them their birthday off. At Pareto, we also give our top monthly performer a month of free lunches.
  4. Add some fun – We’ve used themed days for years, and they create a real buzz. When the schools went back, everyone dressed in school uniform. When England played Australia in the Ashes, we all came to work in cricketing whites. Get everyone involved and the office will come alive.
  5. Personal support – This is completely free, but can make a huge difference to individual motivation. Ensure each member of staff has a mentor that they can go to and learn from. At Pareto, everyone can speak to a director at any time for advice and support.

What are the most cost-effective ways of rewarding staff in recession?

Stephen Kramer
Managing director, Bright Horizons (employer-sponsored childcare specialist)

“In today’s rapidly ageing society, increasing numbers of employees are juggling work demands with responsibilities for not only children but adult dependants. Problems accessing care result in stress and disrupted workloads, both for the employee and their colleagues.

“As a result, many employers are now looking to provide dependant care support for their employees. Tangible returns on investment have been demonstrated from this benefit, which attracts, retains and supports key performers.

“For working families struggling to find affordable, reliable dependant care, few benefits deliver a more valued reward.”

Martin Cooper
Sales and marketing manager, Love2Reward

“We’re seeing a big increase in the use of voluntary benefits. As budgets are increasingly being cut, companies obviously want to offer cost-effective benefits and retain good staff. Voluntary benefits are one way to do this. Employees have the opportunity to buy, say 10% off car insurance, but the employer only has to pay limited costs.

“Reward and recognition programmes are also starting to combine so that there’s one cross-company platform that operates one individual suggestion scheme, from refer-a-friend to going the extra mile. Companies are joining the dots by offering one-service-for-all benefits.”

Philip Wood
Executive director, sales and marketing, Health Shield Friendly Society (health cash plan provider)

“Despite the credit crunch, we continue to see an increase in the number of new employer-funded company health cash plan schemes.

“More and more companies, both large and small, are seeing the value of providing a cost-effective and flexible health cash plan for all staff.

“Offering cash-back refunds on dental, optical, physiotherapy and health and wellbeing costs, employees value the fact their employer is thinking about their health and wellbeing in difficult times. More importantly, staff also get to see the value of having their everyday healthcare costs taken care of.”