If you read nothing else, read this …
• Measuring the effectiveness of a flexible benefits scheme is essential to demonstrate return on investment.
• Measuring take-up of the scheme is vital, but headline statistics can be misleading and must be delved into.
• Staff surveys are a good tool to measure the qualitative impacts of flex, such as employee engagement and loyalty.
• Financial effectiveness should be communicated to staff in a positive manner, such as savings being reinvested in benefits.
Case study: Trowers and Hamlins briefed on savings
International law firm Trowers and Hamlins launched an online benefits platform last year after previously offering a paper-based flexible benefits scheme.
The firm employs more than 700 people in the UK, Abu Dhabi, Bahrain, Dubai, Egypt and Oman. Following the launch of the new scheme, provided by Thomsons Online Benefits, Trowers and Hamlins measured several elements to test its effectiveness. The financial results showed a £97,000 annual reduction in the firm’s national insurance contributions, and there was also a £33,000 reduction in annual benefits administration costs. Take-up was measured in the company’s separate regions. Data revealed a 33% take-up rate in the UK and a 400% increase in international offices.
Trowers and Hamlins also ran a staff survey to gauge how the scheme was received, which found that 60% of employees agreed they perceived an increase in their remuneration as a result of the scheme, and 79% agreed that they now have a better understanding of their benefits package.
Paul Robinson, HR director at Trowers and Hamlins, says that measuring the scheme’s effectiveness demonstrated that the company had achieved its goals. “As well as the benefits, we have seen improvements in recruitment and retention, and the scheme has also delivered considerable cost savings for the firm,” he says.
Employers must take steps to discover the successes and failures of their flex scheme, says Tom Washington
More and more employers are measuring the effectiveness of their flexible benefits plan. The Employee Benefits/Towers Watson Flexible benefits research 2011 showed 71% did so this year, up from 64% in 2009 and 53% in 2005.
And why wouldn’t they? Keeping track of successes and failures within a scheme is vital, not only to prove its worth amid tighter cost controls, but also to iron out any problems. Chris Bruce, managing director at Thomsons Online Benefits, says: “The cost of flexible benefits can be a significant percentage of an organisation’s total payroll cost, so it is important to know which benefits to invest in, and those that should be changed or removed. Benefits take-up and value can also be a measure of employee engagement.”
Graham Jarvis, managing director at Staffcare, adds: “If employers are investing money and time in developing a flexible benefits scheme, they must understand whether it has had a positive impact on people’s impression of the business and whether it has led to a reduction in turnover and recruitment costs.”
To fully measure the effectiveness of a flex scheme, employers must have set original objectives behind its launch and built a strong business case. But the perennial problem is exactly how to measure flex’s effectiveness. While it is tricky to pin down the exact impact on retention and the associated cost savings, there are other financial metrics to consider.
The biggest benefit of flex, as far as the finance department is concerned, is the tax and national insurance (NI) savings that can be made if the scheme is integrated with a salary sacrifice arrangement. Pension contributions made via salary sacrifice, for example, can see the employer save up to 12.8% on NI contributions.
These savings, which are also achievable through other tax-efficient benefits, such as childcare vouchers and bikes for work, can add up and help to demonstrate a return on investment. Thomas Hiles, benefits manager at banking group BNP Paribas, says the savings are easy to measure. “If hypothetically a flex scheme costs £200,000 to set up and the employer saves £400,000 in its first year, it knows it has a 200% return on investment.
“These figures allow reward professionals to quote internally how much the scheme is saving and how much we can reinvest in the benefits package. Flex allows us to make that kind of statement and it is a great message to pass on to staff, who can be quite sceptical about where the savings will go.”
However, the most common way for employers to get information on the success of their scheme is to obtain data from their flex provider about take-up. This metric gives employers a good idea of how the enrolment window has been received by staff. Market data can also be used to benchmark against other employers in terms of overall take-up or the popularity of certain perks.
But David Wicken, a principal at Mercer, says the statistics can be misleading. “I am never overawed by headline statistics. I see lots of employers saying they have 97% participation, but it is crucial that employees log in to the system and actually do something to their benefits. Quite often, you will see very high success rates, but all people have done is logged in, looked at it and logged out again.”
Andy Woolnough, head of flexible benefits at Enrich, says there is much more to be learned by drilling deeper into the data. “If employers just use one metric, such as the number of submissions, they are then waiting another 12 months [for the next enrolment window] and will not be able to make improvements in the meantime.
Look and feel
“Effectiveness is not just about submissions but it is about someone’s access to it, someone’s navigation around the site, how effective the look and feel is, the benefits range, the flexibility of the choice, and how effectively they have been communicated. So there are lots of areas where it is important to monitor, manage, test and survey.”
It is also important to look at metrics relating to specific groups of staff to see if the flex offering is relevant to the population as a whole. Mercer’s Wicken says: “If employers find they have a lot of people in their thirties who are not doing anything to their benefits, they should ask themselves what they need to do to make the scheme relevant. Do not assume you know what everyone wants.”
After take-up rates, staff surveys are the next most popular means of measuring flex effectiveness, according to the Employee Benefits/Towers Watson research.
Surveying staff before and after a flex scheme is implemented, and before and after renewal periods, will help employers understand if it has had an impact on more qualitative factors such as employee loyalty, engagement and the opinions of the workforce. Exit and entry interviews can also be used to offer insights into whether benefits are a negative or positive factor in recruitment attractiveness and attrition rates.
Woolnough suggests running an employee focus group ahead of creating such a survey. “A focus group allows employers to build up key trends and themes around flex renewal, which allows them to build the main drivers in the survey,” he says. “Putting in some groundwork will mean they get better take-up on the survey and better responses.”
Experts agree it is crucial for employers to deploy the survey as soon as possible after employees have submitted their flex choices. Woolnough adds: “People are still in the ‘euphoria’ moment after making their submissions. That is the time to get them to do a survey about their flex experience because two weeks later no one will want to do a survey about it.”
Thomsons Online Benefits’ Bruce says goals set before flex is launched can be monitored through staff surveys. “One organisation wanted to see if it could improve the perceived value of its total reward and ran another employee survey to monitor this: 60% of employees agreed they perceived an increase in their remuneration.”
Goals around financial savings depend on the size of the organisation, its wage bill and which benefits it includes in the package. But Chris Rees, senior flexible benefits consultant at Buck Consultants, says employers can also estimate up front how much staff will save through benefits such as bikes-for-work schemes and discount vouchers.
“Employers need to revise the targets as the years go on,” he says. “The flex market is always moving because changes happen to things like childcare vouchers, which is less popular than it was, whereas tough financial conditions have meant staff discounts and retail vouchers are increasing in popularity.”
In reality, the success of a flex scheme can be measured only by combining all the above metrics. Setting goals up front is a natural starting point, but monitoring all areas of flex, not just the headline statistics, is vital to prove its worth for the entire organisation.
Read more articles from the flexible benefits supplement