In an increasingly competitive labour market, the employee benefit package is becoming an important ...
In an increasingly competitive labour market, the employee benefit package is becoming an important tool for businesses, not just in attracting staff, but in retaining and motivating them.
But to achieve this goal, employers need to provide benefits that will be valued by their staff. While four times salary death in service will be important to those with families, it will hold little appeal to an office junior.
This has led employers to take more interest in the benefit package they offer, with many keen to offer flexible benefits which enable the employee to choose what suits their needs. But before employers start thinking about the employee benefits package, they need to think about how the scheme will be implemented.
Correct handling of administration, communication and designing the right benefit package will be key to the success of the scheme. This is particularly important for larger clients wanting to go the flex route.
Getting it right
Chris Noon, head of e-human resources at employee benefit consultancy Hewitt Associates, says: "Flex is a huge change initiative and it impacts human resources, legal systems, line managers and employees. The process can often take up to 18 months from start to finish."
Employers also need to understand what they are buying. "Employers need to be sold flexible benefits as a need and understand how the scheme will support their business, otherwise it will fail," he adds.
The final package, flexible or not, will ultimately depend on the culture of the workplace, says Brian Rawle, marketing manager at Scottish Equitable Employee Benefits. "The adviser will first need to establish the type of industry as well as the workforce the client is in, as there are differences in what people find attractive. Cash-rich and forward-thinking companies will consider a high level of benefit, such as income protection, as they will want to look after their families and their lifestyle," says Rawle.
But other companies may not have the same priorities. "In retail and manufacturing companies, there is often less take-up of insurance, companies also have less to spend and so are looking for immediate lifestyle benefits, such as cars," he adds.
Once the employer has decided to put the scheme in place, they must first establish what benefits the employees are most likely to value. Rawle says: "There is no point implementing a complex package if the employees only want a pension, or a company car."
Roger Dolphin, partner at employee benefit consultant Watson Wyatt, says that in order to do this, employers need to think beyond benefits.
"Businesses need to think about want they want to achieve before thinking about benefits. They need to think about the whole reward framework, of which benefits are just a part."
This includes consideration to direct pay or salary and indirect pay, which includes benefits and non-cash related recognition. Then they must think about job design, skill and career development and the environment in which their staff work.
He adds that it is important to ask staff what they actually want from their employer and determine whether providing these will help motivate them. "Employers need to think about their business and their employees as individuals, not as one body."
Research can be carried out using a combination of focus groups, workshops and questionnaires and this provides employers with the opportunity to explain benefits to their staff. Take up of products such as critical illness or income protection is unlikely to be high if staff do not understand what they are.
In a flexible scheme, failure to do this can prove costly, according to Simon Gadd, director of group risk (marketing and actuarial) at Legal & General. "To achieve the benefits of flexible scheme, employees need to buy in to it. As part of the scheme, the employer will have to introduce a new administration system to support it and this costs money. If only a small proportion of employees understand why they should have these benefits, most will only buy the minimum. If this is the case, employers are better off leaving a traditional group risk scheme in place."
On a smaller scale
It is also important for smaller employers with more basic benefit packages to do their research. Smaller companies do not have the economies of scale or the necessary resources to introduce flexible benefits, this means if the scheme is to meet the business' objective then it needs to ensure it is pitched correctly. A scheme designed to attract, retain and motivate staff will not meet this objective if the staff do not value the chosen benefits.
For a small company introducing a more basic package the need to communicate with employees and conduct research is arguably more important, says Nicola Smith, communications manager of employee benefits at Swiss Life.
"For a smaller company, the employee benefit package will be a more significant spend. Turnover will be smaller as will profit margins and they are less able to absorb the cost," she says.
Yet this is often easier for the smaller company, Smith adds. "Smaller companies are more likely to have a good knowledge of their employee profile."
But the communication process does not stop at the research stage. Noon says that communication can be one of the biggest obstacles facing clients. "Employees do act with cynicism when changes occur. This means line managers need to be kept informed as they will need to talk to staff about it. there also needs to be communication across all stakeholders such as human resources, business leaders, unions and the employees," he says.
A flex scheme cannot help but fail if it is not communicated effectively. This is not the case on group risk schemes where employees do not have the ability to select their own benefits the employer will know which staff have which benefits, and when an employee dies or becomes ill a claim will be made and the benefit paid. However, while schemes can function like this, the employer is not getting the best value for money.
There are a number of ways employers can promote schemes. Larger companies are increasingly using electronic means to communicate to staff, but this is not always possible in the smaller setting. Smith says: "Companies may not have intranets and where people are not desk-based they may not have email. But there are other ways people can put posters up on noticeboards, put information in the payslip and send out booklets to staff." Advisers can work with benefit providers to provide help in this area.
Once a scheme is up and running the communication process does not stop.
The success of any employee benefit scheme ultimately depends on how much the recipients value it and this is difficult when details of the package are buried in the terms of the contract, or hidden away in an employee handbook.
Gadd says: "If you do not communicate a traditional scheme, the only employees that value their benefits are those that claim. If employees do not understand the benefits they have, they do not place any value on them."
This means that when employees are deciding whether to move jobs, the employee benefits package they currently receive will not factor in their decision.
Staff reminders
Marcus Underhill, head of flexible benefit consulting at Mercers, says a growing number of firms are actively reminding staff of the value of their benefit package. He says: "Some companies now include a total remuneration statement on the payslip which highlights to the employee the value of working there."
This is particularly important in industries such as IT and telecommunications, adds Underhill. "Employees will often compare their package with the benefits of being self-employed and working on a consultancy basis. If they are earning £30,000 but have £10,000 in benefits, becoming self-employed to earn an income of £35,000 would be a poor choice."
Much of the communication going forward will involve ongoing research and regular reviews with staff to ensure benefit packages are doing their job.
Smith says this can be achieved with annual reviews. "Employers need to recommunicate with staff to see how satisfied they are a good opportunity is to work this in with staff appraisals."
Employee benefits are without a doubt changing and this occurring across the board not just in larger companies where flexible benefits are beginning to take off. Employees are becoming much more sophisticated and more demanding of their employers.
"Employees are becoming more aware of what is available to them, they are asking questions about their benefits something that would not have happened 10 years ago," says Underhill.
As stakeholder gradually brings the subject of employee benefits to the table this trend can only increase and filter down to smaller organisations.
But employers need to remember a successful employee benefit strategy is not just about offering staff more benefits. Communication and research will be essential if businesses are to achieve their goals and get a return on their investment.
Rachel Williams is deputy editor
