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- Some employers are linking performance incentives with flexible benefits schemes.
- This enables them to reward employees with additional points or funds to spend through flex for good performance or hitting targets.
- Employers can also use such schemes to reward staff at particular times of the year, such as Christmas.
- Integrating these schemes enables employers to link their business objectives and reduce administration and communication costs.
A growing number of employers are seeing the advantages of linking employee incentive schemes with flexible benefits, says Liz Morrell
Employers have traditionally run incentive schemes and performance-management programmes separately from flexible benefits plans. Yet as employers look to cut costs while increasing benefits for employees in the current climate, a new initiative linking these different strands enables staff to choose how they want to be rewarded. Manesh Patel, head of client implementation and account management at You at Work, says: “Performance management and long-term recognition [schemes] were historically standalone things done on an ad-hoc or semi-formalised basis.”
But now things are changing as employers look to integrate performance management and incentive schemes into their flex plans. “Over the last year and a half, we are starting to see them being linked,” says Patel.
Matt Waller, chief executive officer of Benefex, agrees: “They were historically separate things, but now more and more people are looking at how to integrate them and make them work together.”
It seems employers are beginning to realise staff can get greater long-term gratification from having a bigger cash pot to spend on flex, rather than the often short-term nature of other rewards. Patel says: “Employers are starting to say that instead of a long-term performance award or performance management, we can link it in to flex or benefits of employment.”
Points or bigger flex fund
In this way, employers can reward staff for performance with additional amounts to spend through flex, either in the form of points or a bigger flex fund.
Wendy Fleet, principal at Mercer, says this has a number of advantages for both employee and employer. “It is about creating more engagement by having a cohesive approach to total reward management, putting benefits in a broader context embracing compensation, development and career, work and lifestyle, and benefits.”
It also enables employers to link business objectives together, says Fleet. “It is the ability to reinforce core elements of reward strategy and demonstrate stronger linkage to that strategy by broadening the context [employers] are communicating to staff.”
Employers might also be able to cut the cost of administration and communication of such schemes if they are linked. In fact, cost-cutting is one of the main drivers for linking them. Patel says: “Employers are formally recognising and rewarding as well as incentivising people to outperform, and in the current climate that is very tough. People are using it as an incentive motivation tool.”
Linking performance incentives and employee recognition schemes to flex can also enable employers to reward staff at key times of year, such as Christmas. In sectors where this is a vital period for business, such as retail and hospitality, employers can use such schemes to encourage staff to meet targets and boost performance.
Christmas gift through flex
Alternatively, employers can reward staff with a nominal amount to spend through flex as a Christmas gift. This can be motivational or help to boost staff loyalty at a time when pay is still frozen in some organisations.
Linking performance to flex can also help to drive change within an organisation. Paul Bartlett, head of employee benefits at Grass Roots, says: “Benefits become part of a performance culture, so to earn more, people have to work harder.”
Fleet adds: “It gives schemes greater impact, driving increased performance because of the relevance to the individual and the ability for them to directly influence the inputs and outputs needed.”
The greater flexibility and value employees can get, for example from putting incentive points towards flex benefits, can also help to retain and attract staff because employees will better understand the full value of their package than when each strand of reward and recognition is treated separately.
Employers are investigating the advantages of this approach in some sectors more than in others, says You at Work’s Patel. “We are seeing the public sector look into it a bit more and the ones we have had dialogues with are looking at where to cut costs to service without cutting the benefits proposition.”
Better employee data
Closer integration of performance and flex also yields better data on what is working across the business. Mercer’s Fleet says: “It enables employers to analyse data to better isolate the factors that drive performance. For example, the performance level of an employee can be analysed directly against the type of benefits they select or the number of incentives they achieve, giving rich data to predict future behaviour and performance.”
But the link-up may not be as simple as it sounds. One potential downfall is if employees fail to understand the implications of bringing flex and performance together. Patel says: “If employers are bringing performance-related measures into a flexible benefits scheme, the rules have to be clear.
“In a flex fund, if they give someone £50 this year, they have to decide if that is a one-off £50 or if it is repeatable. It has to be clearly documented.” Employers must also clearly set out what happens if an employee does not perform. “They do not want staff to not be performing but still be earning through their benefits,” says Grass Roots’ Bartlett.
If that happened, it could have an impact on motivation. Also, employers must have a policy in place for the inflationary effect of benefits, says Bartlett. “With some benefits, the rate of cost growth can be quite significant. For example, if staff are buying healthcare from their flex pot, employers need to make sure the flex pot grows at least by the cost of the benefits for those that continue to perform.”
From a technological point of view, linking flex with incentives can be relatively straightforward. In its simplest form, it is achieved using a portal that allows all the strands to be communicated in one place. At a more complex level, it involves trading incentives and performance awards within the flex environment, says Fleet. “It needs a content management system to allow the linking of urls and the provision of content right through to a rules-based system to differentiate benefits or information offered.”
Employers can use standalone software, but internal systems such an intranet or extranet are also an option.
But although the technological changes may be relatively simple, a bigger challenge can be creating the right culture for the initiative to work. Ideally, a performance-based mentality should already exist. Bartlett says: “If employers are not in a performance-based culture, it would jar against that if they pay people to do a job and then say the benefits relate to that. What they are trying to do is avoid making it complex.”
Waller adds: “People we have seen do it well are those that have a real bonus culture, such as lawyers, consultancies and financial services. They are used to that culture being ingrained, where there are clear performance-focused objectives and they are alert to what performance management is.”
But it seems the jury is still out on the effectiveness of such schemes. Mark Childs, director at consultancy Total Reward Solutions, says: “Generally, I would argue it is ill-advised to link benefits to individual performance. Benefits are provided to protect staff against the contingencies of life, such as death, disability, poverty in old age or ill-health. Employees are frequently victims of things like disability and it seems perverse to set a higher rate of benefit on the basis of someone’s contribution to the business.”
Case study: Towry plays its card right
Wealth management firm Towry uses a traditional incentive mechanic, a pre-paid MasterCard (Spree card), to deliver flexible benefits for its staff.
Employees have the option to load funds onto the Spree card, which is provided by P&MM Motivation, and can get 5-15% savings at selected retailers. Towry also uses the card to pay staff any amount that remains in their flexible benefits fund. To date, 35% of its employees have opted for their benefits to be loaded via the Spree-flex card.
Adrian Duncan, business development director at P&MM Motivation, says other employers have taken this one step further and also pay incentive and recognition payments onto the card.
“This means that one mechanic can be utilised to deliver a range of reward solutions across different objectives while minimising costs and system fees,” says Duncan.
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