Low-cost perks and adding value will be high on the agenda for benefits professionals during the economic downturn, but reward will continue to play a vital role for employers says Jenny Keefe
It was more than 15 years ago when the full impact of a recession last hit the workplace. In the intervening years the top brains in the benefits world have not had to think about the effect of a downturn when predicting future trends for benefits.
When it came to mapping the benefits landscape, many said flexible working would continue to grow; online communication would increasingly take over from paper-based materials; and employers would struggle to convince staff of the importance of saving for retirement.
However, now a new issue is on everyone’s mind: the impact of the credit crunch. Amid the country’s greatest economic uncertainty since the 1930s, benefits experts are peering anxiously into the future and wondering how this recession will affect perks.
Shaun Tyson, professor of human resource management at Cranfield University, predicts much belt-tightening in the industry. “Organisations are likely to critically review their benefits programmes, with a cost, rather than an employee retention, focus,” he says. “There will be greater emphasis on value for money and non-financial rewards, such as development and training.”
The latest trend in the benefits world is to ensure that existing schemes are valued.
Simon Hemmings, benefits manager, Europe and Asia at inter-dealer broker ICAP, says: “Most employers are looking to stabilise their spend on reward in the coming year, and concentrate their efforts on better communication, to ensure benefits are properly valued.”
Among the money-saving measures organisations are likely to use are insurance pooling and switching to cheaper suppliers, says Liz Dunalp, chief human resources officer at auction house Christie’s. “Organisations are looking to ensure that core benefits, such as pensions and medical insurance, remain market competitive, while making savings where possible,” she says. “This trend is likely to continue in the current climate.”
If the economy doesn’t right itself soon, Dunalp says some perks might even be axed altogether. “Companies may also look to cut non-core, costly benefits such as luncheon vouchers and gym membership,” she says. “These will be replaced by [cost-neutral] benefits such as buying and selling holiday.”
But organisations should think twice before embarking on radical cost-cutting programmes, says Paul Sparrow, professor of international human resource management at Lancaster University Management School. “If benefits are taken away, staff will see this as very unfair,” he says. “The thought process could well be, ‘if senior managers, [in particular in the banking industry], can get away with deals and buy-offs, why start penny-pinching over my travel pass?’ Organisations will need to be careful to manage the psychological signals they send out.”
In any case, employers cannot remove contractual benefits from their packages without consulting staff about the changes.
Bumpy financial times could also change which perks workers value most going forward. When staff are feeling the financial pinch, hard cash will often matter to them more than other benefits, says Sparrow. “We should expect staff to want to see more immediate and cashable rewards, as they feel insecure and will want to use benefits to help give some control over their financial affairs, for example, to reduce debt or to cut household expenditure.”
But it is not all bad news. Charles Cotton, reward and employment conditions adviser at the Chartered Institute of Personnel and Development (CIPD), says the downturn could signal the rise of a new community spirit. “The big trend in the past 10-to-15 years has been the individualisation of reward. Most private sector employers now link a pay rise or a bonus to an assessment of an individual’s contribution to the organisation. This trend is under way in the public and voluntary sectors.”
Cotton forecasts an increased focus on schemes that promote togetherness, such as staff parties and team days, instead of on benefits which isolate workers, such as flexible working arrangements. Perks that are open to all, for example, pension schemes, paid leave and staff canteens, are also good options.
“After what has gone on in the City, there is concern that the atomisation of reward may be going too far and that employees are now more concerned about striking deals with their employers and asking ‘what is in it for me?’ Going forward, employers will focus on benefits that promote collective endeavour instead,” he says.
Big changes also lie ahead for specific benefits, particularly pensions. The question currently on many people’s lips is how the pensions reforms due in 2012 will impact on employers. From that date, staff who are not in a qualifying scheme will be enrolled automatically. Workers can opt out if they wish, but if they stay in the scheme, employers must contribute at least 3% of salary, while the employee must put in 4%. There will also be a system of personal accounts, into which staff will be enrolled if their employer does not offer a scheme that meets the government’s criteria.
Some employers have doubts about the effectiveness of the reforms. Despite the government’s aim of saving people from poverty in retirement, some 78% of employers are not convinced the reforms will solve the pensions crisis, according to the Employee Benefits/Axa Pensions Research 2008, published in July last year. The survey also found that 5% of employers think the reforms will lead to the closure of their stakeholder scheme, while 4% of respondents say they will have to cut current benefits to fund the additional contributions.
But these fears could be unfounded, says independent pensions consultant Ros Altman. “Personal accounts could actually end up saving many employers money,” she says. “[Many] employers that are already contributing to pensions are putting in more than 3%, so there may be an opportunity for them to cut back to 3%. They will also be able to transfer their existing pension arrangements to personal accounts, which should remove some of the administrative costs.”
Whatever course of action employers take, not all will be happy. “For smaller employers that are not already contributing to a pension, personal accounts will be a greater burden and will increase labour costs,” says Altman. “That means bigger administrative headaches.”
The safety of occupational pension schemes and investments has also been called into doubt after the collapse of a number of high-profile banks. “If there are problems with any of the big insurance companies in the future, as we have seen with banks such as Icesave, then this will further dent confidence in pensions,” says Altman. “It could also damage attitudes towards annuities. It is highly likely that more employees will opt out of their company pension scheme, keeping their cash rather than putting it into the ‘locked box’ of a pension.”
Employers may also wish to review their flexible benefits schemes as the perk becomes more widespread. In February 2008, nearly one-third (31%) of employers had a flex scheme in place, and a further quarter were considering introducing one, according to the Employee Benefits/Towers Perrin Flexible Benefits Research 2008.
Christie’s Dunalp puts flexible benefits’ popularity down to the increasing affordability of technology systems. “Over the past few years, we have seen flexible benefits schemes becoming increasingly popular because the technology platform required to provide them has become cheaper,” she says.
But as more and more employers introduce a flexible benefits scheme, they will need to find new ways to develop their offering and differentiate themselves from competitors, particularly if they have offered flex for several years. Paul Waters, senior consultant at Hymans Robertson, explains: “In response to flexible benefits plans becoming more mainstream, some organisations, particularly the early adopters, have had to continue to develop their schemes.”
Innovative flex options can set canny employers apart from the herd. When asked which new perks they intended to add to their flexible benefits scheme, socially-responsible benefits topped the list for respondents to Employee Benefits’ aforementioned research. The three most popular options were carbon offsetting, cycle-to-work schemes and charitable giving.
But employers should think beyond simply adding perks, says Waters. “Standing out is less about extending the range of benefits, which, at best, only offers differentiation for a limited time, and more about designing communication and delivery approaches to improve take-up.”
Employee wellbeing also looks set to continue to be a major trend, says ICAP’s Hemmings. “The two main things on our agenda are personal accounts and preventative measures to take care of our employees so that they stay healthy. We are also making sure we prepare our employees for issues that may affect how they work, such as stress.”
In chilly economic climates, policies and perks that are perceived as an indulgence are typically the first to fall by the wayside. Traditionally, options such as environmental perks may have been viewed in this way. However, green issues are high on many employers’ agendas and some may amend existing polices around them, for example, fleet.
Almost nine-in-10 employees (87%) say carbon dioxide emissions will influence their choice of company car, according to a November 2008 online survey by Leasedrive Velo Group. Moreover, nearly three-quarters (71%) say they are willing to pay to offset the carbon emissions they create by driving their company car. “Company car changes will continue as part of coherent policies to reduce carbon footprints and to produce greener answers to travel costs,” says Cranfield’s Tyson.
But benefits options are not the only aspect of reward that will continue to evolve. The technology behind schemes will also develop further. In particular, more and more schemes will be moved online, says Graziella Swan, HR director for design and advertising charity D&AD. “In the future, there will be more online communication and more self-administered benefits management,” she says.
However, Hymans Robertson’s Waters says that when it comes to online marketing and communication around benefits, the industry has been slow to adapt to the internet. “Relative to retail marketing technologies such as Amazon’s, benefits technologies are still in the dark ages,” he says. “Employers should take their lead from companies such as HSBC and Tesco. There needs to be more targeting of benefits provision and messaging based on population segmentation techniques, including benefits behaviour and demographics.”
Waters says the next step will be for employees to access personal benefits data on the go, via their mobile phones.
While the state of the economy may limit additional investment in perks, it will not stymie development†
How to future-proof perks†
As pressure mounts to cut costs, find ways to add value to existing employee benefits, for example, through a more effective communication strategy and switching to suppliers.
Target your market
To stay competitive in the future, employers will need to attract diverse groups of employees, especially women, new graduates and older workers. So organisations will need to adapt benefits and communication strategies to the different segments of their workforce.
Turn an ageing workforce into an asset
Employers need to analyse and understand the effects of an ageing workforce and step in early with relevant measures, such as alternative working patterns, and new health and wellbeing programmes to combat employee absence.
Get a life
Employees are increasingly picking jobs based on the quality of the work-life balance on offer. Employers should investigate flexible working options, home working and family-friendly policies to make sure they attract the top talent.
Do not give up on corporate social responsibility
Given the current economic slump, it might be tempting to cut back on corporate social responsibility policies. But, in the long term, these help employers attract the brightest candidates and can enhance the organisation’s reputation.
Remember cash is king
In today’s climate, employees will be looking for ways to stretch their cash further, so employers should focus on schemes that help staff save money, such as financial education and voluntary benefits plans.
- How are things shaping up for reward?
One-fifth of employers are planning to change their pension arrangements. The most popular options among those who are looking to do so are increasing employer contributions and bringing in salary sacrifice arrangements forpension contributions.
- One-third of organisations currently have a reward strategy, while a quarter plan to create one.
- More employers are introducing new benefits or enhancing their existing provision than reducing benefits. The benefits most likely to be introduced are childcare vouchers (10% of all employers), bicycle loans (9%) and mentoring schemes (7%).
- However, 15% of employers intend to phase out an existing benefit. Topping the list of those to be removed are home computers (5%), company cars (3%), car allowances (3%), all-employee car ownership schemes (1%) and car loans (1%).