Vicki Taylor questions the effectiveness of flexible benefits in both engaging and retaining employees
Case studies: Lloyds TSB, The Royal Bank of Scotland
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Flexible benefits schemes are just one tool at the disposal of HR departments to help recruit, retain and motivate staff. The question is: how effective are they at making employees feel engaged and satisfied with their employer?
Employee Benefits/Towers Perrin flexible benefits research 2006 found the majority of respondents thought the main advantage of flex was it enabled them to recognise their workforce’s diverse needs and values (80%).
The second most cited advantage was that flex helped to improve the employer’s image (61%). A further 57% said flexible benefits helped improve retention, while 52% said that schemes helped with recruitment. Annika Haslett, manager of flexible benefits at consultancy Gissings, agrees that employee engagement is just one reason why organisations implement flexible benefits plans. "I don’t think there is ever just one reason why [flex] goes in. From the finance side of the company, things like National Insurance savings are attractive. For HR, it is a lot to do with engaging employees and improving their perception of the firm."
Sally Russell, regional practice leader at HR consultancy RightCoutts, believes flexible benefits can help improve employee engagement, but only if the options staff can choose from are high up on their list of values. "As long as there is a menu of options that can appeal to different types of people with different lifestyles then I think [flexible benefits] can work very well."
In her opinion, one mistake that many employers make, is failing to look at the workforce and analysing the potential popularity of benefits options . It is a missed opportunity that could help make flex more engaging for staff. "There are some very generic flexible benefits that organisations tend to go down the route of.
If they were to do some form of survey or focus groups to actually establish what the profile of their own organisation would value [they could improve staff engagement]. "If it is an organisation where they have a lot of young people for example, perhaps in a call centre, then they might be looking for very different benefits to employees who are more established."
Of course, the only way to gauge whether introducing flexible benefits has had a positive impact on employee engagement is to measure the reactions of the workforce to the package. "Surveying staff is a good way to [tell if they are engaged], but keep it quite short and uncomplicated to fill in. Focus groups are something else that can be used to engage employees and ask for their thoughts on what to do next with the scheme," says Haslett.
Dilys Robinson, principal research fellow at the Institute for Employment Studies, agrees that employee surveys can be valuable for measuring engagement. "If you want to measure [engagement with flex] properly you have to include it in something like an attitude survey, where you would be asking employees what they think about different aspects of the organisation. If you had a set of statements which were all about flexible benefits you could see whether it is actually driving engagement."
In Robinson’s experience, flex is unlikely to be a driver for employee engagement on its own. "Engagement is more about values, believing in what the company is doing, the company’s products and all of that kind of thing. Obviously, the package is part of that, but there isn’t necessarily a direct link."
Although flex is not always the biggest factor in employee engagement, one thing is clear: making unwelcome changes to employees’ reward packages can have a big impact on disengaging the workforce. "What definitely happens is if you take away the reward, the view of the organisation will immediately plummet," adds Robinson.
Richard Morgan, head of flexible benefits at Watson Wyatt, agrees that flex schemes can play a role in employee engagement but says they aren’t the whole story. However, Watson Wyatt’s Total Reward Survey 2005 found a strong correlation between engagement and the flexibility of reward packages. Staff with a greater degree of flexibility in their package were also less likely to want to leave a company.
"You’ve really got to look at the bigger picture on this. I don’t think flexible benefits on its own is likely to show a significant increase in engagement. It is to do with lots of other things you do and the overall picture you paint for employees. It’s also about having interesting work, good working conditions, good managers and competitive pay. If you start getting any of these things wrong then it starts to undermine the whole thing.
Flexible benefits is an important piece in quite a large jigsaw," he says. But Morgan also warns that flexible benefits can actually be demotivating rather than engaging if employers get it wrong. "We would definitely advise organisations to carefully consider the mood of employees when trying to introduce flexible benefits. It should be and is a positive thing, but only if you’ve got some of the more important things right already."
Taking away a final salary pension scheme and implementing flex as a sweetener, for example, is unlikely to impress. Another way of ensuring that a flex scheme helps to boost engagement levels is to ensure that the package is well communicated and refreshed from time-to-time. "Sometimes [flexible benefits] fall down because once it has been launched and is in place for a while people can take it for granted.
Those organisations that do offer flexible benefits really ought to wave the banner about it and be saying that part of our differentials [is that we offer flexible benefits] and that is why you should work for us and stay working for us," explains Russell
Case study: Lloyds TSB
Lloyds TSB’s flexible benefits package, Flavours, has had a positive impact on employee engagement. Elizabeth Yates, manager of compensation and benefits, says: "I think because we offer a benefits package where people can have a say in how they are rewarded it has a positive impact on employee engagement levels."
Lloyds TSB has offered a flexible benefits plan to its 70,000 staff since 2003. Employees receive 4% of their annual salary to spend on a wide range of benefits, and can also use up to 50% of their salary on flexible benefits if they wish. Employee surveys show that 95% of staff believe the range of benefits is relevant to their needs and a further 92% say flex is a valuable part of their overall package.
Yates says that the company deliberately hasn’t measured the impact of flex on recruitment and retention because the benefits package is seen as just part of a much wider picture. "What we do know is that people really value their benefits package and they would be hard pushed from our market research to find a package that is as good with [another] employer," she adds.
Case study: The Royal Bank of Scotland
The Royal Bank of Scotland (RBS) offers a flexible benefits scheme as part of a total reward offering. It believes the package plays an important part in engaging employees. Staff can spend their base salary, benefits funding (if they are entitled to any) and bonuses on a range of benefits. These include private medical cover, bikes for work, childcare vouchers and a range of voluntary discounts.
They can also buy and sell holiday. Trevor Blackman, head of reward, explains: "Where employees in the marketplace would be eligible for a car or private medical insurance at managerial level then they get given 10% of their base salary [towards their benefit allowance]. Non-managerial staff use money from their monthly earnings to purchase things."
The organisation carries out an annual employee opinion survey, which goes out to its 135,000 strong workforce and has a 86% participation rate. It is used, among other things, to measure the impact of various workplace factors on employee engagement. "Our data shows that [reward] is the third most important driver.
Ahead of that lies performance management at number one and leadership at number two. That is entirely consistent with all external data – it is nothing special about RBS. What it is though, is an important number three, so getting the design right is very important," explains Blackman.