Feature – Benchmarking your benefits

In summary
Keeping a eye on what your competitors are offering staff makes good sense, but new legislation means that caution should be exercise when forming networking groups exchange benefits information, for fear of price fixing allegations in terms of salary packages.
Many consultants provide benchmarking surveys, which can be used to ascertain the common offerings in your marketplace.
Case study: Mazda Motors UK

Article in full
Just as most people buying a house take a keen interest in the one next door, it is natural for companies that spend heavily on benefits to want to know how they compare with their competitors.

HR managers want to ensure that they are getting value for money and most don’t want to be accused of being out of step. Even companies that pride themselves on not having a herd mentality have little to lose by running a quick eye over the opposition, especially when the costs of doing so are unlikely to prove too prohibitive.

Lisa Page, senior consultant at benefits specialist Aon, says: “A minority of clients, probably less than 10%, say that they don’t want to engage in benchmarking because they feel that they are already doing everything they can on benefits, have other priorities, or know they are not going to act on the results. But there is a lot to be said for [benchmarking] every three or five years, just to know whether you are better or worse than anyone else.”

Employers can then either change their benefits or use the results as a communications tool to let potential employees know the organisation is offering an above average package. Page adds: “Benchmarking tends to be something clients think of doing when they are about to make big changes, but very few do it regularly.”

At one extreme, benchmarking exercises that provide a basic perspective of the competition can be carried out simply by talking informally to peers within the industry, reading trade magazines and obtaining feedback from candidates at job interviews.

In some fields, HR managers also form industry-wide groups that meet regularly to exchange data comparables, but this type of networking has decreased noticeably in the past few years in response to fears of falling foul of the law.

Benchmarking has therefore become more consultancy-based and the major benefits consultants are all involved – to at least some degree. Some only provide this advice to existing clients but the major benchmarking players find they are also contacted specifically for the purpose. Mercer HR Consulting, for example, reports that around half the employers it provides benchmarking services to are not existing clients.

Most employers require a service for pay and bonuses as well as for benefits, although some just want one for their benefits range or even for individual benefits in isolation.

As a starting point, most benefits consultancies offer generic benchmarking surveys providing statistical analysis of general market practices. Watson Wyatt, for example, runs a compensation database of over 400 employers that includes information on benefits, primarily pensions, cars, life cover, private medical insurance, income protection, share options and other long-term incentives. Organisations that subscribe to this receive regular annual benefit surveys at a cost of between £1,500 and £2,000 a year, but they must participate in the survey.

Hay Group provides a survey of around 200 companies at a cost of £1,250, but subscribers must participate in the next survey. Mercer HR Consulting is unusual in giving free highlight reports to its 350 survey participants while Gissings Advisory Services provides a free annual survey to all its 400 clients, which does not involve participation.

Most generic surveys focus on the levels of benefits that employers provide to different strata of employees. They can include details about employer contribution levels and aspects of scheme design, such as excesses and exclusions.

But some only consider benefit provision across all sectors and employers normally want an analysis on a specific sector or professional groupings basis or even on individual competitors. They also usually want to know the actual values of different levels of benefit provision and may even require help in identifying who their competitors actually are. Obtaining all this additional advice for an entire benefits range is unlikely to cost more than £5,000.

David Wreford, senior consultant at Mercer, says: “Most generic surveys just describe practices in percentage terms but many companies want total remuneration calculations on a per benefits per person basis and they also want our analysis of the data integrated with their needs. Some even want to make comparisons between the benefits being offered by their own subsidiaries.

“We get a lot of enquiries about what is normal when it comes to switching from defined benefit to defined contribution pension schemes and to pulling out of company cars. Companies want to know if many of their competitors have already done what they are thinking about doing and often it gives them the confidence to proceed.”

Some players will offer a choice of benchmarking on a UK-only, European or global basis and some will also provide benchmarking information about future benefit designs and structures. But if an employer is seeking a standard UK-only service, there is much to be said for sticking with their regular benefits consultant.

Some employers even choose to benchmark the benchmarkers to ensure they are getting good value. Kevin Condon, director of employee benefits at Towry Law, says: “We do this by asking the existing consultant and others of a similar size to tender for the business and then look at alternative medium- sized benefits consultants in terms of the services they provide and the cost.”

Legal limits
The introduction of two pieces of legislation during recent years has made employers wary of forming networking groups to exchange benchmarking information about employee benefits.

Chapter 1 of the Competition Act 1998, which came into force in March 2000, prohibits restrictive agreements. The Enterprise Act 2002, the relevant provisions for which came into force in July 2003, has extended this to criminalise hardcore cartel behaviour for individuals.

The fear is that if different firms which are competing for recruits in a sector share information about benefits it could now lead to allegations of price fixing in terms of salary packages.

Gavin Robert, partner at Linklaters Competition Department, says: “These Acts probably have led to less networking, but in practice it’s only in limited circumstances that [organisations] could fall foul of the law when sharing information on employee benefits.

“Specialist sectors where people are very important, such as professional services, involve the greatest risk with regard to exchanging detailed specific information on [remuneration] packages. And even then, sharing information could be a breach of the Competition Act but is very unlikely to be a criminal offence.”

Mazda Motors UK
is only too aware of the importance of staying up-to-date with competitor developments and uses Hay Group to conduct a benchmarking analysis every two years.This involves comparing its remuneration and benefits packages against 22 blue chip companies, including other automotive firms; and against a more general service industry database. It was last conducted in June 2004.

The fact that Mazda Motors UK gives every employee a car was found to be a major differentiating factor from some competitors, which only provide a car for certain grades. Its benefits package, which is the same for all its 90 employees, was also found to be much flatter than usual.

Jemma Galbraith-Marten, HR officer at Mazda Motors UK, says: “You must benchmark regularly because current information may not be valid in a few years’ time. We’ve found the exercise very useful in terms of recognising our general position in the marketplace and it has fuelled a lot of internal debate about how we recognise and reward our employees.

“It has helped us to set grades within the company and to pitch effectively for recruitment. It has also stimulated conversations about whether to provide a flex scheme because, in view of our benefits package, some individuals may find that more flexibility better addresses work-life balance issues.”