Dairy Crest focuses on total reward

Case study: Flexible working appreciated

Steven Phillips has been supporting applications team leader in Dairy Crest’s business systems department since February 2010. He has been with the company since August 2000, and worked previously as a business analyst.
In his current role, Phillips has responsibility for the operational management of a wide range of supporting applications, which include systems for farmer payments and transport and document management.

Among the benefits on offer at Dairy Crest, Phillips appreciates the flexible working opportunities, which help him maintain a healthy work-life balance.

“Dairy Crest gives me the flexibility to take my son to school three days a week,” he says. “We have recently introduced policies within business systems that demonstrate a consistent approach across all teams for personal development and flexible working.”

Phillips is a participant in the company’s current sharesave scheme, which matures in October 2012. He explains: “It is a great way for me to save money straight out of my wages.”

And, as a big milk drinker, Phillips takes advantage of the 10% discount on the company’s Milk and More doorstep delivery service. “In the past, we have had up to 20 pints a week delivered,” he says.

Dairy Crest’s desire to fulfil its total reward philosophy has led to some tough decisions on benefits, reveals Jennifer Paterson

The September 2011 white paper, A report on the UK dairy industry, by the sector’s trade body, Dairy UK, revealed that 96% of Brits regularly eat or drink dairy products. It therefore comes as little surprise that Dairy Crest, the FTSE 250 dairy products provider, sells 2.2 billion litres of milk each year.

The company has spent the last five years developing a total reward philosophy to underpin its employee benefits programme for its 6,000 staff. Rob Tansey, Dairy Crest’s group HR director, says: “We believe that reward has a way of defining culture, and without doubt has an impact on engagement and performance. But we are not a direct sales company, a retail organisation or a financial institution, so the impact of reward can be limited. The philosophy we have here is that it is not just about pound notes, it is about the total reward offering.”

Its total reward approach covers a wide range of benefits, including learning and development, flexible working, bonus schemes, share plans and a recognition programme. Tansey adds: “A lot of the power comes from the non-financial stuff. We have an outdoor pool, a tennis court, a gym, a pitch-and-putt golf course and an onsite canteen. It sounds paternalistic, but these things have value, as much as an increase in pay. Our philosophy is about getting that balance right.”

While developing its total reward philosophy, Dairy Crest has had to make some tough choices. The liabilities associated with its defined benefit (DB) pension scheme were growing to a potential £2 billion. In 2006, the scheme was closed to new entrants and replaced by a defined contribution (DC) stakeholder arrangement. The DB scheme was then closed to future accrual in 2010.

“When we have to make difficult decisions, like closing the pension scheme, we have to do it sensitively, in a way that means staff do not feel short-changed and get something else that is competitive,” says Tansey. “How do you close a pension scheme to future accrual and still grow engagement and motivation? It is the way it is done and what is offered in its place. That defines what we do in terms of remuneration and benefits. With the financial climate, the growing deficit and the realisation that liabilities were growing beyond anything that was acceptable, we realised it was not sustainable. But we went about it in a consultative manner.”

Competitive DC arrangement

Dairy Crest consulted extensively with employees and trade unions, held a series of employee roadshows with consultancy Aon (now part of Aon Hewitt) and its pension provider Zurich, and launched a helpline. Tansey says: “By showing staff the future liabilities’ curve, it told them everything they needed to know, and they understood it. We were also able to provide a very competitive DC arrangement, and that was the key.”

The company’s DC scheme provides seven-times life assurance and critical illness cover for all employees, and allows staff to take early retirement on grounds of ill-health. “We tried to package the DC scheme so we were not leaving employees out on a limb,” says Tansey. “We were able to almost crystallise the final salary benefits they had earned up to April 2010, and have an alternative that was very competitive and very compelling. We did it without a negative impact on morale.”

Dairy Crest also offered DB scheme members the option to take an enhanced transfer value (ETV), communicating this through information packs at the end of 2011. Staff who accepted the offer had to put the cash enhancement into the DC scheme. At the age of 55, they then have the option of taking their investment in the form of a pension or a tax-free lump sum, or to continue investing in a different scheme. “A small number of employees took the option up,” says Tansey. “It had a small impact on future liabilities, but we had an obligation to look at what we could do to reduce the liabilities of the final salary scheme.”

Auto-enrolment preparations

About 40% of Dairy Crest’s workforce is now in the DC scheme and, as part of the 2012 pension reforms, the company will look at auto-enrolment later this year as it approaches an April 2013 staging date. The biggest challenge for Dairy Crest will be the added burden of administration and costs, says Tansey. “We want to encourage employees to join the scheme, but we accept there will be a cost impact and we will just need to manage it.”

In addition to the overhaul of Dairy Crest’s pension arrangements, over the past five years Tansey has focused on addressing the vision and values of the business, and tying that into the reward offering. “With these things, it can always end up being just posters on the wall, but actions have become a real moral compass for the way we manage our business, and a real way of guiding how we behave and the decisions we make,” he says. “Now it manifests itself everywhere in the business. Our reward mechanisms, performance management, recruitment and training all have that link with our values and vision.”

Over the past two years, Dairy Crest has put more than 100 managers through its learning and development programmes. It offers e-learning and onsite classroom training, and has introduced a foundation degree in dairy manufacturing and apprenticeships in dairy engineering.

“There is personal development and training, technical training around IT skills, and even language training,” says Tansey. “It can be around presentation or time management, or things they want to do at a personal level. We do not want to make it too work-focused, but we want to offer things that will make staff better at their jobs. So we try to create blended-learning opportunities.”

In the past 12 months, Dairy Crest has also worked on developing a bonus scheme for all staff. Under the scheme, an annual performance review for each employee sets personal objectives, which affects the bonus they receive. There is a bonus incentive scheme at each manufacturing and processing site, and at the company’s 120 delivery depots.

Tansey says: “The site incentive scheme is a balance scorecard, so we are looking at efficiencies in keeping costs down, but also metrics for service, quality, and health and safety. In simple terms, the sites have targets to hit. We review them quarterly and, if there is a bonus, it is split across the site.”

Over the past two years, Dairy Crest has focused on offering staff more flexible working opportunities, including job shares, part-time working and 12-month sabbaticals.

Three-year sharesave scheme

For 10 years, staff have had access to a three-year sharesave scheme. “We get a good take-up from staff who believe in the business and see the scheme’s merits,” says Tansey.

Meanwhile, an employee reward and recognition scheme was launched three years ago, offering three levels of award. Staff can nominate colleagues for the £50 bronze award, which is handed out to about 15% of the workforce each year. The silver award of £250 is a monthly award based on senior management nominations, with winners put forward for the annual gold award of £1,500.

There is also a team-of-the-year award, which sees a £7,500 award presented to a group of staff who have made a significant impact on the business. The 2011 winning team is based in Davidstow, where Dairy Crest makes Cathedral City cheese. These employees proposed the installation of a biomass boiler, which operates on wood chippings rather than oil. “They got a grant from the local authority and introduced it,” explains Tansey. “Not only has it had a massive impact on our carbon footprint, it has actually saved a lot of money in terms of annual cost.”

Thinking about benefits in a wider business and total reward context, therefore, is a key focus for the company, explains Tansey. “We have created our offering by being competitive, being relevant to our business, and not just looking at pay.

Dairy Crest Group at a glance

Dairy Crest Group is a dairy products manufacturer and distributor established in 1980 as the processing arm of the Milk Marketing Board, which was set up in 1933. Privatised in August 1996 and listed on the London Stock Exchange, it is now a FTSE 250 company. It has a turnover of £1.6 billion a year and achieved £796.2 million of revenue for the six months to 30 September 2011.

Dairy Crest sells 2.2 billion litres of milk every year. Its products also include cheese, butters and spreads, with brands including Cathedral City, Clover, Country Life, Frijj, Utterly Butterly, Vitalite and Yoplait. It acquired French brand St Hubert in 2007 with its brands Cholegram, Le Fleurier, Omega 3 and VallŽ. Dairy Crest’s doorstep delivery business, Milk and More, went online in the same year.

Its 6,000-strong UK workforce has a male/female split of 80/20, of which over 40% are aged over 50.


Career history:†Rob Tansey

Rob Tansey has been group HR director at Dairy Crest Group for five years. He started his 25-year career in HR in the engineering sector, with two years spent working as employee relations officer at power transmission and engineering firm, Fenner.

He has since held a range of HR roles, including personnel and training officer at Burton Group (now Arcadia); divisional personnel and training manager at furniture retailer Harris Queensway; head of HR at Wickes Building and Supplies; director of personnel at pharmaceutical firm Celesio; and group HR director at Travis Perkins.

Since joining Dairy Crest, Tansey has developed the company’s total reward strategy in line with its vision and values. This has included the launch of a learning and development programme and the closure of the company’s defined benefit (DB) pension scheme to both new entrants and future accrual. “I am most proud of what we have done at Dairy Crest,” he says.

Tansey was featured in the Hot 100 benefits managers in Employee Benefits’ February 2012 issue.

The benefits at Dairy Crest

• Defined benefit pension scheme closed to new entrants in 2006 and to future accrual in 2010.
• Stakeholder pension scheme for all staff. Contributions matched by the employer at a 1.25 basis, but capped at maximum employer contribution of 10%. For senior managers, employer contribution is 1:2, but capped at employer contribution of 16%.

• Private medical insurance available to certain employee grades.
• Health cash plan via voluntary benefits.
• Discounted dental and eyecare via voluntary benefits.

Group risk
• Income protection for certain grades.
• Critical illness for pension members.
• Life assurance at seven-times salary for pension members.
• Personal accident insurance.

• Senior employees qualify for a car as a benefit, but can take cash instead.

Share schemes
• Three-year sharesave schemes.

Other benefits
• Flexible working opportunities for all employees.
• Annual bonus for all employees.
• Onsite canteen, onsite gym, outdoor swimming pool, pitch-and-putt golf course and tennis court at head office.
• 10% discount on Milk and More doorstep delivery.
• Employee discounts scheme.
• Bikes-for-work scheme.

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