Thanks to the downturn, employers are focusing more than ever on costs. Where does this leave benefits provision? David Rowley asked four experts how they would make sure benefits spend is effective and efficient.
Employees at American Express UK have recently been forced to make the decision between agreeing an end to employer contributions into their pension schemes, or the threat of more of their colleagues losing their jobs.
Ultimately, their jobs were more important. In such dire straits, benefits might not look that essential, but unless gone about in the right manner, the removal or downsizing of a benefits package can have a knock-on effect in employee engagement out of all proportion to the money saved by the employer.
So benefits managers need to tread lightly.
Now more than ever, clear evidence of the popularity of benefits are needed. The case study (see below) of the staff appreciation of share schemes at a leading fund manager shows one of the clearest indications of the value of a benefit to an organisation in these lean times.
Adviser, reward, Chartered Institute of Personnel & Development
Business development director, JLT Online Benefits
Service delivery director, Asperity
Global reward director, Thomsons Online Benefits
Q How much does it matter – now we’re in a downturn that looks like lasting a while – that employers provide benefits that aid retention?
Cotton: The recession is a chance for employers to examine reward and benefits policies, and validate them against the business strategy. But while staff will accept benefit cuts if they can see the strategic sense, they won’t if they think their firm is using the recession as a chance to cut back benefits.
Bryant: Staff are increasingly asked to make sacrifices during a recession. So, the provision of a good benefits package becomes more important. The saving available to employers should they reduce/remove benefits is not normally business critical, and often creates a downwards spiral of poor morale, poor quality, poor service, lost clients etc.
Underhill: In any downturn, organisations can typically retrench 10-20% of staff. This leaves 80-90% to retain and build a future with. So it is important to think long/medium term. Market downturns are often used to realign total reward or reallocate the cost between elements such as base pay, benefits, and incentive structures.
Farrow: It matters a great deal. As has happened in all previous recessions, staff are re-evaluating their career and lifestyle choices. A good employer will wish to ensure that its benefits are relevant and valued, and in doing so act as a barrier to exit in employee deliberations.
Q What benefits spend is likely to be the most marginal?
Cotton: You need to be able to validate and evaluate their benefit strategy, otherwise you won’t be able to assess the impact of cutting a benefit. For instance, you may scrap the end-of-year annual party, but this could have a bigger than anticipated negative impact on employee engagement, whereas not paying out a bonus may be seen as acceptable as employees can rationalise this against the economic climate.
Bryant: The key is to ensure that the value of the current benefit provision is maximised and the employer has made every effort to run each benefit in the most cost-efficient way possible. The easiest benefits to reduce will be those that are poorly understood, such as income protection. Employers need to be aware that the reduction of any insurance-related benefit will mean that they could be effectively self-insuring the liability.
Underhill: There are some underlying trends on reducing benefit administration costs, moving to defined contribution pension plans and taking advantage of any tax-efficient structures that have been accelerated by the recession. All can reduce costs. In my view, marginal spend is less of a discussion point than discretionary spend or value for money. There is also a view on flex plans that employees can have too much choice.
Farrow: The key employer challenge here is to spend smarter. A lot of money and time is invested in over-complicated consultancy and over-engineered IT platforms for flexible benefits provision that devour enormous sums of money every time there is a change request. Staff are looking for reward structures that provide immediate and sustainable benefits, which are clear and easy to understand and not riddled with ifs, buts and maybes.
Q What are the hallmarks of effective benefit provision?
Cotton: Knowing how much money you’re spending, what you’re spending your money on, and why. Also, being able to demonstrate a return on investment so you’re able to work out which benefits can be cut back with minimal impact on employee engagement and which ones will have a significant impact.
Bryant: In my view, tax efficiency, automation of joiner/leaver/status changes, maximising the full value through total reward, and the inclusion of core benefits on the same system as voluntary benefits or flexible benefits.
Underhill: Supports the business strategy and is executed efficiently in terms of sourcing, delivery and customer service. It is scenario-proof in that it has the flexibility to adapt to differing internal and external market conditions. Also, staff should feel they have a sense of ownership in ensuring it is fit for purpose.
Farrow: The hallmark of effective benefits provision is a workforce that is fully engaged with the employer’s benefit offering and is able to make real choices and use self-serve without being tied to inflexible arrangements that meet the needs of the lowest common denominator.
Q How can you best measure the effectiveness of a benefit?
Cotton: Look at HR measures, in terms of participation, such as staff feedback – say, through opinion surveys – employee engagement (in terms of surveys), the rate and cost of employee turnover, the cost and rate of absenteeism, the number of job offers refused, the rate of innovation, etc, as well as business metrics, such as customer satisfaction, profit, revenue, waste, downtime, etc.
Bryant: This depends on the HR/benefit strategy of each organisation. However, key metrics could be: offer-to-acceptance ratio; benefit take-up rate year-on-year and sector benchmarked; employee opinion on the benefit, the choice available, the cost and effectiveness of the usage; demographic analysis; and cost-effectiveness in terms of admin, tax, queries, etc.
Underhill: Large firms can use statistical models to look at multiple input factors, outcomes and cause and effect. This is becoming more mainstream with the sophisticated online tools available. Otherwise it’s a combination of analysing factors such as staff input and feedback, market benchmarking of benefit levels, supplier strategies and performance, and flawless and cost-effective execution.
Farrow: The key ingredient to enable effective measurement is securing a supplier that is capable of providing relevant content, communications and hard evidence. Beware of analysis that is heavy on narrative and light on numbers and is riddled with extrapolations and ‘illustrative’ charts.
Q What should you do if you discover your benefits programme isn’t delivering what your employer wants?
Cotton: It is your role to help your employer understand the positive and negative implications of scrapping or introducing new benefits, by asking them to validate their actions against business strategy. Ideally, if you have a robust benefit strategy and evaluation system, you will be going to the board with ideas and suggestions, rather than them coming to you with complaints.
Bryant: Staff should always feedback to employers on the benefits they would like. Most organisations would relish this as they probably spend considerable time, effort and cost on trying to find out. Also, compare cost to ensure you have the best value for money. Look at the administration processes, as most organisations can save time/effort/money in this area. Last, outsource the provision to specialists.
Underhill: For most benefits or reward managers, this does not come out of the blue. They measure the areas I touched upon in the previous question and get a feel for the issues and potential causes and effects. They often identify and lead the discussion within the organisation. From then, it is a case of agreeing with stakeholders the best approach to realign the strategy.
Farrow: Do some research on the internet, and talk to friends in other companies about their programmes. Find a local champion, perhaps someone in the staff association or someone on a career development programme looking to impress. Use the staff suggestion scheme to express your views. Things have changed in the benefits industry. Don’t accept second best.
The user view
Pete Harris, reward manager at Friends Provident, says: “I would argue that an effective benefit provision is one that is simple to understand, not costly to administer, and is valued by current and prospective employees.
“It should also not require an excessive amount of management time to set up or maintain. If you are offering a benefit with very little take-up but that requires regular reviews with suppliers, then why go to all the effort?
“Now is the time to complete a detailed review identifying benefits that are core to the reward strategy. The benefits that are not should be assessed to consider whether they should be stopped or changed.
The core benefits should be reviewed to see whether the cost of providing them can be reduced by re-negotiating terms with suppliers or making minor adjustments. If you have a procurement team, get them involved in the review.”
Case study: Benefit survey
‘Does participating in employee share schemes make me go the extra mile?’ This is one of the questions employees of Henderson Global Investors receive on an annual basis, when being quizzed about their attitudes to a generous choice of share save, share incentive plan and company share option plans – the full gamut of government-approved share plans.
The answer, most recently, has come back as 68%. To Jeremy Mindell, senior reward and tax manager at Henderson, this is a pretty good figure. “Our satisfaction levels over the past three years show that our share schemes do add to the productivity of the company,” he says.
The effectiveness of these share plans has also been measured in terms of participation rates and levels of staff turnover. “We have looked at turnover rates in different departments, with varying levels of share scheme participation, and it is quite clear that those with higher participation have lower turnover rates, and vice-versa.”