How to… Introduce a flexible benefits plan

Flexible benefits, or ‘cafeteria benefits’ or ‘flex’ as they’re sometimes
referred to, allow employees to choose from a menu of optional benefits (which
can range from private medical insurance to share schemes) to suit their
preferences and lifestyle requirements.

Why is it important?

One of the most commonly cited reasons for introducing flexible benefits is
to improve recruitment and retention. Certainly in fiercely competitive
recruitment arenas, offering employees the option of a custom-made package of
benefits can be a decisive factor in attracting and retaining high performers.
Get the flexible plan right and it says a great deal about you as a company and
can enhance your employer branding, which, in turn, feeds into HR’s strategic
aim of making the organisation agile and fluid.

There is now a heightened awareness of flexible benefits among employers and
evidence suggests uptake will continue to grow. IRS Employment Review’s annual Pay
Prospects Survey 2002 indicates that for the past two years, flexible benefits
has topped the agenda for organisations considering changes to their reward
systems. Nearly one in four (23.3 per cent) of respondents reported that they
will consider a change or are introducing flexible benefits over the next 12

There can also be a financial imperative for introducing a flexible benefits
plan since fixing an allowance per head enables companies to more accurately
predict spend and manage the cost of their benefits.

Planning and design

Ask what the firm wants to achieve from the introduction of flexible
benefits. At the top of the agenda must be how it will fit with the overall
business and compensation strategy. Other issues to consider include: the
impact it might have on company culture and if it will have the desired
motivational effects.

The next stage is to determine how far you want to take the plan in terms of
its range and sophistication – will the same set of benefits offered to the
chief executive be available to those on the shopfloor?

Once you’ve decided how the plan will operate, you will need to assess its
likely impact on existing HR policies, such as sick or maternity leave, as well
as on HR and payroll systems.

Of crucial importance is working out the level of spend per employee and
what will and won’t be included. Spend per head is regarded as so critical by
some experts that 80 per cent of your efforts should be devoted to this task
and just 20 per cent to what goes in to the plan.

Choosing the range

To make sure the package of benefits is right, it is a good idea to set up
staff focus groups and steering committees. Once you have a broad picture of
the kind of benefits that suits the workforce, you can then call in the benefits
providers, all of which will be beating a path to your door as the market is
very competitive. The profile of providers range from traditional benefits
consultancies such as Mercer Human Resource Consulting, Watson Wyatt and Towers
Perrin to big accountancy firms such as Deloitte & Touche, through to
insurance brokers, niche players and application service provider (ASP)
companies, which will host and run your entire flexible benefits system for
you. Typically, ASP-based systems can be accessed by employees at their
desktops via the web or an intranet. Staff cannot only see the range of
benefits available, along with their value, but can also make their own
selection online at the click of a mouse.


You could have the best benefits package in the world, but if employees
aren’t aware of what’s on offer, you might as well not bother. Employees need
to know what’s being offered, how it differs from what was available before,
how they can determine the best solution and whether that benefit is open to
them, and how they go about making the transaction.

One idea is to give the flexible benefits plan a brand name and market it to
employees as a B2E (business to employee) service. You don’t have to go so far
as having baseball caps and T-shirts but a strong identity or catchy tagline
can help. United Utilities Service Delivery division branded its plan
benefitSDirect with the S and D in capitals to identify with the name of the
division, while online grocer Ocado promoted its plan as a ‘framework to

You could also use employee champions, who are fully versed with the new
plan, to sell it to staff is a useful strategy.

An online interface to the benefits package, as mentioned above, can be a
powerful communication tool as employees can see what’s available from the
comfort of their desktop. An online benefits system can also tell them the
precise value of their own package.


Irrespective of your emotional attachment to the flexible benefits plan it
is necessary to coolly appraise the level of its success. To what extent has it
met the organisation’s original goals? Has it reduced staff turnover? Are
employees more motivated? Have cost savings been achieved?

If not, you probably need to make changes. But at the same time don’t be
hasty with any decision to change the provider or a specific benefit – it may
take a bit of time for its first-rate qualities to spread by word of mouth.

Where can I get more info?


– Tolley’s Flexible Benefits: A Practical Guide Tolley Publishing £55.99
ISBN 075451966

– Flexible Benefits: Choice and Reward Croner Publications £9.50 ISBN


– 2002 UK Employee Reward and Benefits Report Watson Wyatt £295 Contact
Julie Newman 01737 274477


If you only do five things

1 Have clear aims for what you want the plan to achieve

2 Involve staff in selecting the benefits package

3 Make sure the plan is properly communicated and understandable

4 Appraise whether it has achieved the desired outcome

5 Investigate what your rivals are offering

Expert’s view Trevor Blackman on introducing a flexible benefits plan

Trevor Blackman is head of reward at
the Royal Bank of Scotland Group

What was the main driver for
introducing a flexible benefits scheme?

The real issue was value rather than cost. Historically, the
sector has been paternalistic about benefits and staff have been used to having
an ‘entitlement’. Flexible benefits allows us to offer an annual ‘total rewards
statement’ that shows people the real value of what they’re getting.

What was the biggest obstacle you
faced when introducing the scheme?

RBSelect was introduced in October 1998 for 25,000 people. With
the expansion of the scheme to NatWest and Direct Line, there are now 65,000
staff involved, so administration was obviously a challenge. Its success
depended on admin being cost-effective and user-friendly, and we chose to
outsource this function. Communication takes a good deal of time, because there
is always scepticism with this kind of initiative – it sounds too good to be

Has it changed company culture?

RBSelect has been a key tool in smoothing the process of
integration with NatWest and bringing together two different cultures. Being
able to offer the added benefit of choice helped in moving employees over to
RBS terms and conditions. It’s also made people more aware of the benefits of
working for a large company, and that their potential rewards are about a lot more
than just a percentage salary increase.

Has it resulted in tangible
business benefits?

Staff appreciate what they’re getting and know they have a
level of flexibility that is different from most other organisations at the
moment, and if they are thinking about a move, then they have clear information
on what benefits they actually receive. All of this means an advantage in terms
of recruitment and retention.

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