Dangling the carrot

More and more companies see perks such as healthcare and shares as important
methods of recruiting and retaining staff. We look at five of the most popular

When labour is scarce, keeping employees happy is no small matter. The past
decade has seen the standard car and insurance being boosted by a whole range
of perks as companies vie with each other to provide the most attractive

And while the pampering used to be restricted to senior executives, today
the aim is to be as inclusive as possible. That means finding less costly
benefits that cater for a variety of needs, with the emphasis as much on fun as
savings and security.

"Employers are beginning to understand that their staff have to balance
work with their personal life, and that encouraging them to enjoy their leisure
time helps retain them," says Wanda Goldwag, managing director of
Airmiles. "People with a healthier, rounded life make better employees in
the long term." Goldwag notes the growing popularity of gym membership,
which is perceived as a perk but also helps keep employees healthy.

Companies have to be much more creative in their approach, she argues.
"When you ask people what they want all social groups say it’s money. But
if employers in the same town drawing from the same labour pool give them that,
all that happens is that the wage bill goes up."

At motivational agency Motivforce, chief executive Randle Stonier sees
traditional perks like cars and shopping vouchers losing their appeal for some
employers, largely because of the increasing cost. He says the gap is being
filled by alternatives such as travel and leisure, that offer entertainment
rather than simply disappearing into the family budget.

Another trend he notes is the move to provide regular opportunities for
training and development, which many employees may consider just as valuable a
benefit as insurance. The key is to provide the right mix, he argues.
"Across the board we are fighting to attract the best people, and so need
to offer them benefits that make them feel valued."


Flexibility and choice are the new watchwords, with employees in many
organisations able to log on to the intranet to select from a cafeteria-style
range of products. Group life-cover continues to be the most popular, reports
benefits consultancy William Mercer, together with pensions which provide
valuable tax breaks. But increasingly employers are offering options like
income protection cover that can protect both parties in the event of enforced

Consultants are often needed to help steer through the constantly shifting
landscape of new products and tax regulations. "One issue that employers
face with pensions is whether to stick with the old type that makes a payment
based on final salary, or shift to a money purchase scheme based on regular
investments," says John Cowell, senior consultant at William Mercer. The
Government’s new stakeholder pension will also have important implications, he

Full health insurance is expensive, but a popular, cheap alternative is the
medical cashplan. This reimburses the costs of dental, optical and other similar
expenses, and can be as little as £50 a year or £250 for families. The employer
can either subsidise the full cost or offer payroll deduction facilities with

"With private medical insurance people are often reluctant to claim,
but with this you can claim year in year out," says Richard Sear, chief
executive of HealthSure, which has doubled its turnover in four years.

But traditional suppliers say while cashplans tend to be the benefit of
choice for industry, the trend in financial services is for employers to extend
full health insurance to all employees. Costs are being kept down by selecting
the hospitals and in some cases getting the employee to make a contribution.

Insurance companies are also catering to emerging needs. Bupa has launched a
childcare service with a wide range of facilities including a parenting
helpline. Anne Greenwood, head of corporate and voluntary consulting, says,
"It’s really starting to take off as companies are more than ever
concerned about the need to encourage women to go out to work."

Another inexpensive option is an employee assistance programme (EAP), which
offers professional counselling for staff with personal problems. Some
companies extend this service to families. Besides filling a need, EAPs help
cut absenteeism and staff turnover.

Share options

One of the first things many employees do on reaching their desks is log on
to the company intranet to check the share price. The small fortunes made by
employees in new media start-ups may the exception rather than the rule. But
for a fast-expanding company giving its staff a slice of the action is a way to
get their commitment.

Several existing schemes enable individuals to share the fortunes of their
employers and win tax breaks. Asda runs the popular Company Share Option Plan
which enables its 26,000 employees to buy tax-protected shares worth up to
£30,000. Sainsbury’s and Tesco, on the other hand, operate an Approved Profit
Sharing (APS) scheme, making tax-deductible payments into a trust which buys
shares in the company and hands them out later to employees.

A third scheme, run by companies such as Abbey National and British Airways,
is Save As You Earn Sharesave, which requires employees to put aside up to £250
per month out of their pay packet. This means signing a contract of up to seven
years, which encourages a degree of forward commitment.

Keen to encourage the stakeholder economy, Chancellor Gordon Brown has
introduced measures that will extend the tax breaks of shares. The All-Employee
Share Plan, expected in the summer, will enable shares to be acquired from
pre-tax salary. If they are invested for five years in a trust they will then
be exempt from income tax and national insurance.

"Employers will be excited about the opportunity to save national
insurance contributions and in some companies they will be able to set up and
run these plans entirely from these savings," says Michael Pearce,
European partner at William Mercer.


Vouchers took a knock last year with the Government’s move to make them liable
for national insurance. Some suppliers insist this has had no effect, while
others acknowledge a downturn in business. In the long term, both believe the
simplicity and motivational impact of vouchers are such that they will always

Virgin Vouchers’ marketing manager Ranjit Thandi says, "For most
companies it is less a question of money than extra administration involved. We
urge clients to build it into their budgets and we find it then becomes less of
an issue."

The attraction of vouchers is the dual qualities of fun and flexibility,
adds Thandi. "If they go for an evening out they will have something to
remember or they may do things they would otherwise never do, like parachuting
or hang-gliding."

An advantage to employers is the provision of redemption reports, that show
what the vouchers are being spent on and when. That helps design the best
benefits package. Kingfisher has found that men’s vouchers often turn up in
Woolworths and Superdrug rather than B&Q, suggesting they often get shared
with the family.

The reach is potentially very wide. Virgin offers vouchers for its various
companies, and has teamed up with travel firms like Eurostar and British
Midland, as well as Acorn Sports, for exotic activities. Whitbread has a range
of hospitality options, while travel is provided by Thomas Cook.

Such arrangements are seen as limited, however, by motivational agency
Capital Incentives, which has negotiated deals with more than 90 store groups
for its Capital Bonds, offering a choice of 30,000 outlets. The firm recently
introduced its Incentive Award Card which can be used in any of the 14 million
outlets that accept Visa. This was used by Abbey National in an incentive
scheme that brought in £7m extra revenue in 1998.


Cheap air fares and the trend towards globalisation are encouraging the use
of travel as an incentive. This can either combine business with leisure, for
instance in a conference in Barcelona, or come in the form of discounted
holidays, vouchers and air miles.

"Travel is a good way of getting people to buy into a company and is
considered as a benefit by HR in a way it certainly would not have been 10
years ago," explains Airmiles’ Goldwag. With schemes like Airmiles,
employers only contribute part of the cost, the rest being made up from
contributions from private credit card spending and other sources.

"All the companies I know are reporting an increase in travel
expenditure, with destinations this year showing a swing to long haul trips to
places such as South Africa, Mauritius and Asia, which is especially good value
at the moment," adds Motivforce’s Stonier.

Capital Incentives is offering a new service through its travel arm Capital
World Travel, which links with providers to provide discounts on holidays and
excursions. Offers are published through in- ternal communications such as
payslips or the intranet, and there is a dedicated telephone order line.

"When we were speaking to HR we learned there might be an untapped
market for this kind of service," says managing director Graham Povey.
"We asked 250 of our top clients if they currently offer travel benefits
as a no-cost option, and almost all said they didn’t but would like to."

Training and development

Employees are motivated by job satisfaction as much as perks. Although
training and development opportunities won’t ever replace traditional benefits,
they are increasingly recognised as an important element of attracting and
keeping staff.

Companies with aspirations to be a "learning organisation" offer
employees free classes at colleges, allowing them to choose whatever they want.
They need not be work related, however with career issues as important as life
cover, particularly for younger employees, wise employers ensure staff enjoy
plenty of opp- ortunities to add to their job skills, maximising their chances
of advancement.

"The most frustrating situation for any manager is when a highly
regarded member of staff leaves the organisation, despite being earmarked for a
more senior role," says Nick Short, managing director of Smart Objectives,
a Bristol-based performance consultancy specialising in general management

Short recommends a personal development plan over 12 to 24 months to provide
a bridge between the employee’s current role and the next. "If the
individual can understand how their development is being planned in the
organisation, they are less likely to be tempted by an opportunity
elsewhere," he points out.

The impetus should come from employees themselves, emphasises Martin Down,
principal consultant at Watson Wyatt. "What tends to happen is that
individuals get sheep dipped in a training programme that relates to the
business’s current needs, whereas ideally they should be allowed to develop in
ways that meet its future requirements," he says.

Another approach to consider is personal careers counselling. Employees can
come to a dead end in their roles, particularly if the organisation is going
through changes. Careers training can help them understand their potential and
spot where they are most likely to be effective. That not only stops them
leaving but helps place the right people in the right roles.

"Staff are greatly encouraged when they see the company investing in
their training, especially if it isn’t going to bring any obvious commercial
benefit in the short term," says Sanders & Sidney managing director
Frances Cook.

By Rob McLuhan

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