X-rated rewards

Companies are quickly learning that to win the loyalty of Generation X they
have to be flexible. Under competitive pressure, they are replacing the
traditional contract with an enticing package of variable work practices and
benefits. By Simon Kent    

The needs and aspirations of "Generation X" are impacting on the
recruitment and retention strategies of many organisations. In his recent
report Managing Talent – Exploring the New Psychological Contract, Tim
Osborn-Jones of Henley Management College concludes that the traditional
psychological contract has been replaced by a complex mix of values, attitudes
to work and benefits. Quantitative solutions – offering more money to employees
– no longer spell recruiting success since they are too easily matched and
topped by competitors.

Add to this the current demographic challenges facing the UK and it is clear
why companies need to take a flexible approach to rewarding their staff.
According to Eddie Hodgart, a consultant at Watson Wyatt, the number of 16- to 25-year-olds
in the UK has dropped significantly over the past 25 years. This statistic is
compounded by the trend for this age group to absent themselves from the
workforce – taking years out travelling or engaging in further and higher

"Industries relying on customer-facing staff or those areas with high
staff turnover need to find new ways of recruiting staff and retaining them
once they are on board," says Hodgart. "Flexible benefits is one of
the options they can use."

According to Jan Paxton, head of product development at RebusHR, flexible
benefits are popular for addressing another common phenomenon of today’s
industry. "When companies merge or form partnerships there are usually
differences in benefits. It can be hard to keep someone motivated when they are
sitting next to someone with extra holiday entitlement," she says.
"Flexible benefits can help with that integration, as well as working as a
good retaining instrument."

In some sectors flexible benefits are the norm for attracting skilled
employees. "We are seeing the high-tech firms along the M4 and M5 corridor
using flexible benefits as a matter of course when recruiting Generation
Xers," says Cathy O’Bright, a consultant with Hewitt Associates.

"Often with these workers there is a desire to have as much cash as
possible. So while a pension could be a good benefit, they may feel more value
from receiving that benefit in cash. That way they can pay off their student
debt or get on to the property ladder. They will worry about the pension later
in their career."

While being driven towards flexible benefits by the demands of the
workforce, new technology is working to make it reality. Company intranets are
being used as interactive communication platforms where employees can view their
entire benefits package and select how many days holiday they would like, what
level of private medical insurance is suitable for them, and whether to buy
childcare vouchers, retail vouchers or even pet insurance.

The same facility is open to companies without intranets. Solutions offered
by companies such as VebNet and mycompanybenefits.co.uk bring Internet-based
benefits sites to organisations of any size.

Eurobenefits, an application service provider (ASP) aimed at larger
corporations, runs a website through which employees can view their benefits,
experiment with benefits modelling and even send their options to an external
financial adviser for impartial advice.

Chairman Robert Paterson believes there is a demand from younger employees
for increased control. "There are greater expectations from employees to
get information relating to their rewards package," he says.
"Companies can no longer compete on salary. They have to be innovative in
the way they reward people. Smart companies are gaining the edge by addressing
the wider issues of communication, flexibility, education and

Even cash plans – traditionally associated with blue-collar workers – are
proving popular among the younger generation. According to Stephen Duff,
marketing director of the Hospital Saturday Fund, some organisations offer cash
plans in addition to private medical insurance.

"Looking at some of the computer companies who use our service, the
average employee age is 26," notes Duff, "The areas in which they
particularly appreciate help are with dental and optical costs and
complimentary health practices."

Rahman Sakaran, marketing director of the HealthSure Group agrees that
healthcare cash plans are one of the fastest growing employee benefits.
"They are seen as an affordable and valuable benefit and, most important,
a repeatable benefit," he says.

While companies flex benefits in all directions, they must still ensure
staff appreciate the value of the entire package they are receiving.
"Companies who use ‘flex’ are moving towards a total compensation
model," says Mike Elworthy, European partner at William M Mercer.
"While you want to promote choice, you also want to maximise the value to

Hewitt’s O’Bright says the consultancy and its clients have adopted total
reward statements. "There is no reference to basic pay," she
explains, "even on job offer letters we state the total value of the flex
fund rather than breaking the figure into basic pay plus benefits."

Watson Wyatt’s Hodgart contends that flexible benefits are simply one
element of an effective recruitment and retention strategy for Generation Xers.
"Companies are using flex but they are also combining it with flexible
work arrangements," he says, "and that is far more powerful than
flexible benefits on their own."

This is the approach adopted at Arthur Andersen, where the point at which
flexible benefits stop and flexible working starts has practically disappeared.
Using their extensive Internet and internal communications system, Andersen employees
can make an annual selection of benefits, including private medical insurance
and holiday entitlement. But alongside this a free second phone line at home,
free Palm Pilots, mobile phones and use of laptops means every employee can
choose where and when they work. Staff are entitled to a six-month sabbatical
after three years’ service which can be used for whatever they desire – charity
work, travel or simply staying at home with their family.

Generation X may have inspired the drive towards flexible benefits but such
benefits are certainly not their exclusive entitlement. Benefit programmes may
still recognise status and longevity of service but there is no guarantee that
older employees value share options over increased holidays any more then young
employees. At the end of the day, benefits should be flexible across the entire
workforce, offering each individual the chance to express how they can best
feel valued by their employer.

"When we design flex programmes we try to view benefits from the employee’s
perspective," says Helen Freeman, a principal at HR consultancy Towers
Perrin. "We carry out employee research to make sure we do understand what
motivates and drives people." In this way the employer can be sure that
the rewards offered really do benefit everyone.

Case study: Ernst and Young
Consultancy offers benefits at a click

Ernst & Young’s flex scheme recognises the value of choice
in its bid to recruit and retain young talent

"Recruitment and retention were
key in our decision to give employees more choice in their benefit
programme," says Richard Gartside, reward and employee relations manager
at consultancy Ernst & Young. "Many of our potential employees are
being offered well developed reward propositions so there was competitive
pressure too."

Ernst & Young’s flex scheme is deployed across the
company’s intranet. Employees can log on at any time to view their current
benefit selection and make changes to their selection every year. "We
wanted to make sure our benefits linked in with the company," explains
Gartside, "We decided not to compete with discount retailers so we have
avoided making offers of mobile phones or similar goods."

Total reward information was a key requirement for the company.
With employees well aware of their value in the market place, Gartside
maintains telling employees the worth of their total benefits package was
crucial to getting maximum value out of the provision of benefits such as life
assurance and pension schemes.

The intranet site also offers the chance for the firm to interact
with flex users. "Our employees are engaged in a dialogue about their
rewards," says Gartside, "If suggestions are made we will consider
those benefits next time."

This feedback has already raised the company’s awareness of the
needs of Generation X. While benefits such as childcare vouchers and medical
insurance may appeal to older employees, new recruits are seeking benefits
which reflect their own current priorities.

"The flex scheme meant that we could signal that the
company was updating its reward offering generally and reflect a move to look
at a more flexible work life processes," says Gartside. "It was
important that this was seen to affect all employees."

This side of the initiative was particularly valuable in a
company where focus traditionally falls on valuing the work of senior partners.

Case study: Tesco
Four-point plan for food store chain

Legislation, value, choice and affordability are the four
factors that shape Tesco’s benefits package 

Supermarket chain Tesco is constantly
developing the range of flexible benefits available to its staff, using its
scale to bring competitive discounts and offers to shopfloor staff, while
offering packages to compete with blue-chip and global organisations at senior
levels. "There are four things we consider when designing benefits,"
says Tesco reward manager Richard Sullivan, "Legislation, value, choice
and affordability."

Changes in legislation around employee share ownership plans
and car tax and emissions have impacted on rewards offered to Tesco staff. The
company recently switched from a money purchase pension to a pension builder
plan designed by Watson Wyatt, reflecting concerns for the value of the
previous scheme while also aligning the benefit closer to the lifestyle of Generation
Xers. "The pension is now based on total earnings throughout an employee’s
career rather than relating to final year earnings," explains Sullivan,
"This means you don’t need to be at the top of your earnings in the last
years of your career. You can contribute however much you want according to
your life priorities."

The company is also considering offering graduate recruits a
lump sum to be used either to pay off student debt or help finance a future
career break. "There has been a swing away from the importance of the
financial package," says Sullivan, "But it is not a very significant
swing. I am seeing more people taking career breaks, going part time and so on,
and it is important that the company supports these kinds of activities."

Sullivan claims the store is moving towards monetarising
benefits – offering cash alternatives wherever possible. Core benefits are
retained  – the pension plan and basic
holiday entitlement – but car, life assurance and private health benefits can
be taken as cash instead. The company recently capped the 10 per cent store
discount for staff at £6,000 per year in order to guarantee the benefit remains
affordable. "For the past four or five years we have been issuing
personalised benefits statements so all employees understand the value of the
benefits we provide," says Sullivan. "Those went out to 150,000
staff, so it represents a massive communication exercise."

Case study: The Bank of Scotland
Perks options empower bank staff  

Rewards scheme at the heart of Bank of Scotland’s culture change,
putting choice and flexibility first  

The Bank of Scotland introduced its
flexible benefits scheme in October last year with help from William M Mercer.
The initiative was designed to fit in with wider changes to the company

"We wanted to promote a culture of flexibility in staff
benefits but also to empower them and give them responsibility," says the
bank’s HR manager Jacqui Comerford. "We made the analogy with our
customers – as a bank we give our customers more choice and flexibility, it is
the same thing with our staff."

Covering all 16,000 employees, the paper-based flex system also
helped with the integration of a number of businesses within the bank, which
were previously operating diverse benefit packages. The new system offers core
benefits plus the ability to flex items such as holidays, life assurance and
private medical insurance. Employees can also purchase dental insurance,
discounted childcare and retail vouchers.

"Staff make their annual selection in August each
year," explains Comerford. "Although if they have lifestyle events –
marriage or childbirth, for example – there is additional flexibility along the

"We are very keen to support family-friendly initiatives
at the bank and the childcare vouchers are considered a major benefit by our
employees." All employees receive a reward statement detailing the total
value of their reward package.

Comerford believes the scheme will transfer to a technology
platform as the bank develops intranet and Internet use. For the time being,
however, the scheme is communicated to through brochures, videos and

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