Adding extra value to benefits

Those who have shelled out for season tickets to watch their favourite football team will from time to time question the value for money they get. Last season, personal finance website set out to help football fans shed some light on the issue by compiling a league table comparing the price of a season ticket with the number of goals scored at a team’s home ground.

Manchester City finished at the bottom of the league, netting just 10 goals at home, meaning fans shelled out £46.75 for every goal. Blackburn Rovers represented the best value for money, with a cost per goal of just £11.25 after scoring 31 goals at home.

If only it were as simple to analyse where an organisation’s benefits package stands in the value-for-money league. In the worsening economic climate, cost control is becoming a priority for employers and many are scratching their heads for ways to add value to existing schemes.

Before employers can even begin to think about ways of maximising the value of their benefits offering, some research is essential. The first step is to work out exactly how much the organisation is spending on perks.

But Charles Cotton, reward adviser at the Chartered Institute of Personnel Development (CIPD), says this is often overlooked. “HR departments need to calculate the cost of their benefits package [including] pension contributions, holidays, sick pay and employer national insurance contributions (NICs), before they can work out where they can get value for money. However, not all employers do this.”

Once they have got tabs on their expenditure, employers should consider whether they could get a better deal by switching providers for some benefits. By rebroking perks they may find that some providers may add extra services to win the business. It is also worth bearing in mind whether options offered to staff, for example, through flexible benefits or voluntary benefits schemes offer them value for money.

Compare dealsGary Smith, a senior consultant at Watson Wyatt, says there is an acid test for value. “One way to measure the value of a benefit is to consider whether the employer can provide it at a better price, or higher quality, than the employee could if they bought it. This is usually the case with pensions, even ignoring employer contributions, and risk benefits such as life cover and medical insurance.”

Before shelling out large sums on perks, employers could also consider ways to give staff a boost for free. Sometimes less can be more, says Gill Crowther, director of HR at Nominet, the internet registry body for UK domain names. “Free benefits can be effective too [as] being thoughtful counts for a lot. Financial benefits are not always the answer, and not all [perks] have to relate to money.”

For example, Nominet’s 150 employees receive 30 days of holiday each year and the company invests heavily in management training. “Most importantly, we realise that you can’t make things right for people by throwing money at benefits packages. We are a not-for-profit organisation, so this is not an option for us. Instead, we have to invest in engaging people. We have to have strong values and leaders that act as role models for them. We have to help people see how they fit into the big picture and to find ways to love the jobs that they do,” explains Crowther.

That is not to say that scrimping on benefits always pays. A pricey perk can deliver for itself a hundred-fold if it hooks staff in and improves productivity. Of course, such perks must be used selectively because of their cost.

Paying out large sums on ill-favoured schemes is wasteful, so the key to adding value is working out what staff really want. Gareth Ashley-Jones, head of flexible benefits at Aon Consulting, says: “A wonderfully simple way of getting employee engagement is to form focus groups to look at future benefits and come up with a top five, then employees can vote on which three they would like to be introduced.”

But employers should exercise caution if taking this approach, says the CIPD’s Cotton. “I know of employers that got feedback from staff saying they wanted a particular benefit, which was provided, but later withdrawn due to poor take-up. It’s important to stand back and think whether staff really need the perk they’re asking for. Perhaps it can be piloted at one site, or in a single department, before being rolled out across the organisation.”

One way to boost the value of benefits in employees’ eyes is by dividing the workforce into segments to ensure the package contains something to meet the majority’s needs and then promoting relevant options to each group. Employees with families, for example, may be more interested in flexible working arrangements and childcare, yet this might not win over younger employees.

Tom Brown, vice president of HR for Europe, Middle East and Africa (EMEA) at Juniper Networks, which makes internet network equipment, says: “At different points in a career there are differences in what people value. Earlier in their careers, people generally value cash more than, for instance, a pension, but this often reverses later in their career.”

Jon White, manager of leisure activities and partner choice at John Lewis Partnership, seconds this. “It is essential to understand the wants and needs of every aspect of the workforce to ensure that what we provide is timely and meaningful. Being bold and able to react to their needs will achieve results,” he says.

While many employers offer staff a percentage of their salary in the form of pension contributions, younger staff may prefer a helping hand to get on the property ladder, in the form of a contribution to a savings account or mortgage deposit.

Aon’s Jones says: “We have seen a recent growth in the number of clients who have introduced a mortgage deposit for first-time buyers. Some also provide employees with short-term support for mortgage payments when they buy their first property, as an alternative to pension fund membership.”

Similarly, younger employees may attach more value to a scheme that directs employers’ contributions into paying off their student loans in their early years of employment.

Sparking debateBut while this trend may be appreciated by some groups of employees, it has sparked a debate over employers’ duty of care. With many employees grossly under-saving for retirement, some industry professionals believe employers should ensure staff make sufficient pension contributions. Not to mention the fact that pensions are tax and NIC-efficient, while cash sums are taxable.

Martha How, head of reward consulting at Hewitt Associates, says: “Employers that are thinking about this are also looking into financial education to ensure that if staff decide to take cash instead of a pension contribution, they fully understand the consequences. Many employers offer employees the chance to pay a bonus into their pension instead of taking it as cash and this idea is just the same idea, but in reverse.”

While it is all very well trying to add value to schemes by serving up what employees want, How says employers should also consider their duty of care to staff. “Increasingly, with the spread of flexible benefits plans, employers are shifting from a traditional, paternalistic position to providing opportunities for employees to make benefits decisions for themselves. This is spreading to benefits such as pensions, but employers are understandably cautious. They do not wish to facilitate workers making potentially bad decisions,” she says.

So investing in education and communication is worth every penny when it comes to boosting employees’ perception of the value of their benefits. In many cases, Juniper Networks’ Brown says the value is already there, but staff just don’t know it.

“Communication is the key to engaging staff early in their tenure, which creates awareness and interest, and drives participation. Sometimes employees do not value a particular benefit, not for any intrinsic reasons, but because they do not realise its real value. If the value is presented clearly by an expert in the subject, the approval level for a specific benefit will increase and with it employee satisfaction,” he says.

Face-to-face financial education and total reward or benefits statements can be used for this purpose. Richard Morgan, head of consulting at Vebnet, also recommends targeting audiences carefully. “If we compare a graduate with a mature professional, they have different lifestyle, financial and cultural preferences. Communications that can be tailored to target different employee segments will tend to be more successful because they are more personal,” he explainsSimplicity is at the heart of good communication, says April Quinton, compensation and benefits manager at Coca-Cola European Union Group. “We provide good quality benefits, then set them up in a way that makes them easy to access, and provide clear explanations so they are understood, all of which leads to the employee valuing them.”


Council’s positive statement

Crawley Borough Council provides its 800 staff with benefits statements to give them the lowdown on their perks.

Sarah Barnes, the council’s human resources manager, believes it is pointless spending out large sums of money on perks if employees don’t use them.

“We recently produced our first personalised annual benefits statement for staff, which outlined the range of benefits of working for the council,” she says.

The statements set out workers’ final salary pension scheme, long-service payments and holiday. They also allow HR to refresh employees’ memories of the available flexible working options, travel loans and childcare provision. “The statements were an excellent way to remind staff of both the financial and non-financial benefits available. We aim to be regarded as an employer of choice in the local area and providing an attractive pay and benefits package can help us recruit and retain staff,” says Barnes.


Mintel researches perks’ spend

As befits a market research company, Mintel uses employee opinion polls to help it get the most out of its benefits budget.

As well as tapping staff for their views, Steve Charlton, director of HR, benchmarks Mintel against the benefits offered by other employers. “We continuously check that we are offering the benefits that our employees want through an annual employee survey, as well as reviewing lists of most admired companies to see what they are doing,” he explains.

Mintel has more than 500 staff globally, with 266 based in the UK. Among the benefits on offer in the UK are childcare vouchers, bicycle loans, season ticket loans and life assurance.

One of the company’s most popular benefits, however, is a free breakfast for staff who get into work early, demonstrating that it is often the little things that hold the greatest appeal.

Charlton believes communication is vital. “We regularly remind employees that these benefits are available and encourage as many people as possible to sign up to them,” he says.

His top tip for adding value to benefits is to keep it simple and relevant for staff. “You get more impact through offering one exciting benefit rather than lots of average regular benefits. Out of all the benefits we provide, the free breakfasts are definitely the most talked about,” he says.


Eden Project employees help cultivate their package

Each year, the Eden Project appoints a working party of employees to decide how best to spend benefits cash.

Leah Brewer, people development manager at the ecological attraction, says: “A working party of employees drafts the proposed reward package for the forthcoming year, working alongside me.” She adds that by talking to staff to find out what is important to them, the organisation can then look into the potential advantages of introducing particular benefits. “If the team feel that they are being heard, they are more likely to accept something for what it is meant for,” says Brewer.

The centre, which has 400 staff, offers a defined contribution pension scheme with a maximum employer contribution of 9percent, private medical insurance, childcare vouchers and voluntary benefits.

Alongside subsidised aromatherapy massage and physiotherapy, the Eden Project is also trialling reflexology and yoga classes for employees. Staff can also bring up to five friends and family to the park for free as many times as they like.

Brewer adds that keeping staff abreast of the perks on offer is the best way to add value. “We found that some people weren’t returning their death-in-service expression-of-wishes form, which lets the employer know who they wanted to [receive] certain benefits if anything happened to them. We thought this was because people didn’t understand how it affected their wills, so we brought in a solicitor to discuss the subject. Shortly after, we received several forms.”