Technology giant Oracle is keen for its employees to take responsibility for their future wellbeing
Vance Kearney, vice-president for HR, Europe, Middle East and Africa (EMEA) at Oracle, is a champion of tough love, hence his creation of an employee benefits package based on personal responsibility, rather than a welfare state-esque dependency, at the technology firm.
Kearney has worked hard during his 20-year tenure to evolve Oracle’s paternalistic approach to benefits, to one where staff are encouraged to take responsibility and control of their wellbeing and future.
In his characteristically no-nonsense approach to HR, Kearney says: “We cannot seem to resist nannying people and telling them what is good for them. This encourages a dependency culture: somebody else will write the rules, somebody else will take responsibility, somebody else will make the decisions. That is fine in the nursery, but it is not fine in adulthood.”
Retirement planning is a case in point. Oracle focuses its group personal pension (GPP) plan communications and financial education seminars on ensuring that staff are prepared.
Kearney explains: “We have to make employees aware at the very earliest opportunity, and remind them regularly, that their income in retirement will be determined solely by the decisions they make: how much they decide to contribute, at what age they decide to contribute, and the decisions they make about investment choices. The previous regimes, whether a trust-based scheme or an unaffordable final salary promise, are seriously flawed.”
In 1990, Oracle introduced a trust-based, money purchase pension scheme with a final salary component based on an accrual rate of 1/80th with provider Aegon. It was forced to reassess the sustainability of the scheme in 2002. A review, led by adviser Mercer, resulted in the closure of the scheme’s final salary component to new entrants that year.
The firm went on to close its money purchase scheme in 2010, replacing it with a GPP provided by Standard Life in January 2011. This has since been rolled out to all 4,936 of its UK staff. It also consolidated 31 legacy pension plans inherited from acquisitions, with the help of provider Secondsight.
Kearney says: “We have made some fundamental mistakes in the management of pensions, not just as a company or as an industry, but perhaps as a country. The mistake we have made is not to sufficiently enable and encourage employees to take charge of their own destiny.
“The final salary model, which is increasingly unaffordable, was a promise we made that is impossible to keep. It was a paternalistic promise that said we would take care of everything. That was the first mistake, because we cannot take care of everything.”
Financial education seminars
Oracle offers financial education seminars to staff as part of its efforts to pass the onus for retirement planning on to individuals. Regular face-to-face seminars are run for all employees, with attendance compulsory for all new starters.
Kearney adds: “It is a duty of employers to provide that and it is a duty that is frequently failed by the trust-based [pensions] environment. The fundamental flaw in this design is, generally speaking, that trustees make decisions on behalf of everybody, rather than on behalf of individuals, and the system is risk-averse because the investment managers follow the crowd.
“To make good decisions for individual employees, the employer needs to know the full picture around that individual’s life: their goals, what they wish to achieve from their pension and, most of all, what other investments or provisions they are making. One-size-fits-all just cannot deliver the kind of individual support that is necessary.”
Oracle uses the seminars to target the 10% of staff that do not participate in the GPP and the 10% who are not contributing at the maximum level, which is a matched contribution of 6%. Its other communication methods include emails and letters that are sent to employees’ home addresses.
“People do not wake up one morning at the age of 28 saying, ‘I really must take a look at how my pension projections are going’,” says Kearney. “We cannot just put the information out there and expect employees to respond. Whether it is a newsletter, an individual calculation or a website, the employer has got to get more on the front foot, engage staff face to face and show them examples of the effect on pensions of decisions made in their 20s, not on decisions made in their 40s.”
In view of the 90% take up of Oracle’s GPP, Kearney is unfazed about any challenges posed by the forthcoming pension reforms.
However, he believes that the shifting of responsibility away from the state towards the employer should result in a reduction in the taxation of employment.
“If you are going to increase the cost of employment for employers and move the provision of what were historically state benefits back to the employer and [staff], then there needs to be a reciprocal reduction in the taxation of employment,” he says. “I am all in favour of auto-enrolment, but I am not in favour of increasing the tax on employment.”
“Having said that, my position is European-wide, and the taxation on employment in the UK is one of the lowest in Europe. Compared to France, where national insurance is 50%, or Italy where it is 22%, the UK, at 12%, looks pretty good. But under the French system, the state takes entire responsibility for pension provision. In those countries, the taxes are high, but the state’s provision is equally high. It is a different model.”
Oracle’s changes to its pensions provision followed the introduction of a flexible benefits scheme in 2000, which was designed to optimise employees’ choice of benefits. “This paternalistic way we have of thinking we know best drives me nuts,” he says. “Employees know best. They may need education, but it is not for us to decide how they spend their money. I want to push employees in the right direction, but I do not want to ultimately dictate the choices they make.
“If I give everybody the same benefits and do not allow them to mix and match, I am not giving them choice. Why should an employee who happens to be married with four children receive a much greater benefit in terms of [private] medical insurance (PMI) than someone who is single and has no dependants? If we are going to start with the premise that employees are grown-ups, then we have got to give them choice.”
Flexible benefits scheme
Oracle’s flexible benefits scheme, which gives staff points to spend on benefits or take as cash, includes additional pension contributions, PMI for staff and their dependants, life assurance and critical illness insurance for staff and spouse, income protection, dental insurance, a company car scheme, and health screening. These include well-women and well-man screening, cardiovascular scans, intestinal and bowel scanning, mole checks and mammograms.
Health screening is available to all staff through flex, with plans to introduce more complex assessments, such as genetic screening and full body scanning. “I would like preventative healthcare,” says Kearney. “I would like to see us try to divert more of our attention to early-detection screening. I would rather our employees stayed fit longer and do not get sick, rather than us paying their doctor’s bills after they are sick.
“I want people to participate in health screening for their own assessment of their health risks, so they can take the right decisions about their health and their lifestyle to keep them fit and healthy. This is the general strategic direction: rather than fixing employees when they are broken, I would like them not to get broken in the first place.”
Kearney means broken in a physical, emotional and financial sense. “It is valuable for us to have a workforce that is fit and healthy and active,” he says. “Supporting the health and wellbeing of staff is a mutual benefit.
“When we spend a pound on that, we get more benefit than if we were spending a pound of cash, because we are getting the added benefit of a healthy workforce.”
Oracle at a glance
Oracle is a software company and provider of computer hardware products and services.
It develops, manufactures, markets, distributes and services database and middleware software, applications software and hardware systems, primarily consisting of computer server and storage products.
Founded in 1977, Oracle has 4,936 employees in the UK and 23,456 across Europe, the Middle East and Africa (EMEA). Internationally, it operates in 89 countries, with a global headcount of 108,000 staff.
Its acquisitions have included PeopleSoft, Siebel Systems, Hyperion Corporation, BEA Systems and Sun Microsystems.
Oracle’s group annual revenue increased by 33% to $35.6 billion (£22.5 billion) during the financial year ending 31 May 2011.
Career history: Vance Kearney
Vance Kearney joined Oracle as UK director of HR in November 1991. He was promoted to vice-president for HR, Europe, Middle East and Africa (EMEA) in 2000.
In his current role, Kearney is responsible for close to 24,000 employees in 71 countries.
Kearney previously worked as HR director at Data General Corporation for five years and industrial relations manager at Standard Telephones and Cables (STC) for four years.
He specialises in mergers and acquisitions, trans-national employment laws, and incentive plan design.
During his 20-year tenure at Oracle, Kearney has been involved in a number of significant reward and benefits changes, however, he is most proud of the introduction of a flexible benefits scheme in 2000, and the changes made to the company’s pensions provision since 2002.
• A group personal pension (GPP) plan, introduced in January 2011, is open to all staff. Oracle matches the employee contribution up to a maximum of 6%.
• The final salary component of a money purchase pension scheme was closed to new entrants in 2002.
• The money purchase plan was closed in 2011 on the introduction of the GPP.
• Private medical insurance (PMI) is available to all staff and dependants through the flexible benefits scheme.
• Dental cover is available to employees through the flex scheme.
• Life assurance and critical illness cover are available to all staff and spouses through flex.
• Health screening is available through flex.
• Income protection and personal accident insurance are core for all staff.
• Employee assistance programme (EAP) for all staff.
• Car allowances for eligible employees.
• Staff can take out car leases through an employee car ownership scheme and pay for it through their flex fund.
• Opportunities for flexible working and varied work patterns.
• 28 days as standard. Staff can purchase up to 15 additional days through flex, bringing total possible annual holiday to a maximum of 43 days.
• Subsidised on-site canteen. Employee discount scheme. Financial education seminars.
Employee case study: Flexible benefits are a big draw at Oracle
Gianni Russo has worked at Oracle for 10 years as senior human capital management solutions specialist.
The company’s flexible benefits scheme was one reason why he decided to join the group. He says: “It gives me the ability to be completely flexible. Each year I might choose one or two different benefits, but I typically choose to take some of the cash.”
Oracle offers flex points through the scheme, which can be used to purchase benefits or take in the form of cash.
“I choose dental cover, private medical insurance, and I choose to put some of the points towards a car,” he says.
Russo is one of nearly 90% of Oracle staff enrolled in the group personal pension. “At this point in my life, I could choose, or not choose, to put additional funds into my pension scheme, which is a great facility,” he says.
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