The London Business School 'Human Capital Series', hosted Duncan Brown and John Campbell, on the 11th of July, to speak on the topic of 'Strategic Reward'. They had an interesting take on the topic.
HR text books, they said, can't help you with your Reward Strategy and clinical hot house models of Reward Strategy are a waste of time! This, coming from a man who has co-written one of the best books on 'Strategic Reward' in the UK over the last couple of years and from another who heads Reward for one of the largest financial institutions in the world, was a bit of a shock. But Duncan Brown and John Campbell were both very clear; if your Reward Strategy can't engage your employees, it is meaningless. People don't necessarily trust their employers. The paternalistic models of Employee-Employer relationships have all but died. And informing your employees that their Reward structure is changing fills them with dread, not expectation. So what exactly should we be doing in such a situation?
We have written a white paper summarising the discussions emanating from the event.
Email me at GirishMenezes@hotmail.com for a copy.
Sir Andrew Likierman and Vicky Wright will be speaking on the topic of 'Linking Employee Compensation to Performance' on the 1st of November. Drop me an email if you would like to be included on the mailing list for the registration form.
Friday 27 July 2007
Tuesday 17 July 2007
Employee Benefits - Back to Basics!
As the dust settles on the NI/Tax-enabled Flexible Benefits frenzy that died a sudden death with the pulling of the HCI scheme in May 2006, a small group of UK Organisations continue to march toward offering their Employees choice. According to research commissioned by Employee Benefits Magazine and JP Morgan Invest this year, 25% of organisations in the UK with over 5,000 employees now offer Flex. Overall, companies offering flexibility to at least a proportion of their staff have increased to 27% from 15% three years ago. But this interest in Flex is now a controlled process, by a select group of companies, rather than the mad scramble we have seen over the least few years.
I personally speak to over 500 organisations every year and meet with approximately a third of the FTSE 350 annually and I see a clear change in the interest levels of these organisations and the reasons that are being put forward to implementing Flex.
In August 2005 we conducted research across the FTSE 250 to evaluate the drivers toward Flexible Benefits and the top three were all ‘Employer-focussed’:
- Employee retention
- Employer Tax and NI savings
- Capping of Employer benefit costs
Today, the drivers are all centred back on the ‘Employee’ and the twin drivers of Recruitment and Retention that kicked of the interest in Flexible Benefits in the 1990’s.
The Employee Benefits / JP Morgan Invest research lists the following issues shaping benefits strategies today:
- Improving perceived value of the benefits package
- Making benefits more cost effective
- Communicating benefits
- Desire to improve staff engagement
- Desire for flexibility
In fact, I have heard more about ‘Employer Brand’ and ‘Employer of Choice’ over the first 6 months of 2007 than the previous three years put together.
This is not surprising as Recruitment is now the top problem for more than half of all UK companies ahead of business strategy or management according to a new study by KPMG and the Recruitment and Employment Confederation and this is causing a renewed pressure to build ‘Employer Brand’ and re-look at Reward strategies.
This in turn is re-surfacing three key objectives:
- Offer Employees flexibility to choose their own preferred compensation & benefit package
- Increase take-home pay through group discounts and NI/Tax savings
- Communication of better value through ‘Total Reward’ and ‘Total Value’ statements
Employee flexibility
Of the 20 or so benefits that most organisations offer as part of their flex package, there are some clear winners and losers. The most popular benefits tend to be SAYE, Life Assurance and Private Medical. This appears to be equally fuelled by the importance Employees placed in the benefits as well as positive subsidisation of the benefits by Employers. This is usually followed by Catering Vouchers and Retirement/Investment benefits. Benefits that tend not to get such great take up are the nice-to-haves like Health Assessments, Car Parking and Lifestyle Management. Only the top 10 benefits on average get double digit take-up.
The biggest difference in benefit take-up rates are by age rather than sex, grade or income.
- Under 20 year-olds stick to staples like SAYE, Life Assurance and PMI choices and take the rest as cash
- Catering vouchers have a strong take-up by 20 – 40 year-olds
- Childcare Voucher take-up is expectedly highest in the 30 – 40 year-old group
- A sharp increase in interest in Retail Vouchers is usually seen in the 40 – 50 year-old age group
- The over 50’s had a significantly greater interest in retirement benefits
This clearly does indicate a strong positive-negative preference to specific benefits by certain age groups and lumping them all into a single regimented benefit set is unlikely to be valued by individual employees in the same way. Of course, providing the benefits means investing in technology, systems and processes that can administer these benefits easily and cost-effectively, as well as in communicating the value of the offering appropriately.
Expanding take-home pay
Historically, in the UK, there has been a strong focus on base salary. However, there is an increasing realisation that the two critical factors in terms of Employee compensation are ‘Cost to Company’ and ‘Employee Take-Home Pay’. Employees tend to calculate take-home pay as post-tax cash plus value of appreciated benefits.
In research we conducted this year, there were significant cash savings through employee discounts, as well as NI and Tax savings to Employees who were able to invest in Benefits of their own choice. On average, there was a £355 saving for each employee that equated to 1.2% of salary at the basic level. Larger NI and Tax saving interventions increased this by 1.3% to result in a 2.5% saving on average for each employee. This is a substantial saving in a year where average salary increases have been 3.6% from June 2006 to 2007 according to Voca and disposable income is shrinking rapidly in the face of rising consumer debt.
These sort of Salary Sacrifice based benefits and Voluntary Benefits based on Group Discounts are seen as very attractive to Employees, but only if offered within a unified Employer-based system with a solid communication process behind the initiative.
Total Reward and Total Value
Of course, the key to investing in sourcing these benefits, placing them in a unified system and allowing your employees to make choices around their selection, is ensuring that your employees understand the value of what has been given to them.
Two Employers I have met over the last couple of months with approximately the same Employee size had dramatically different result from their Flex initiative. One Employer got a 70% take-up rate for their benefit programme and the other had a take-up rate of less than 7%.
Communication was key to the first company reaching a 70% take-up rate and the other failing miserably in their attempt to benefits nirvana. Communication initiatives do not come cheap and cannot deal with these large issues if done in an ad hoc manner. It needs to be done in a sustained manner and focus on the larger picture of what is on offer, the advantages, the value of the discounts, as well as the NI and Tax savings received by investing in these benefits. Take-home glossy brochures, employee forums, expert advisors, Total Reward / Total Value statements and Modellers can all help bring the message home to each and every one of your Employees.
Conclusion
Most companies I am speaking to currently have already made these choices and are investing in solid Reward Strategy planning, selecting robust systems that can deal with the administration of these strategies in a low maintenance and automated manner, and kicking off communication programmes that can bring their employees along with them as they progress along the path of sharing the Compensation and Reward strategy with their Employees rather than focussing on a top-down vision of what Employees want and need. It’s really refreshing to get back to basics and deliver sensible Benefits Administration solutions that work.
If you would like to learn more about our research in this area or our delivery methodology for Benefits Administration solutions, do drop me an email at GirishMenezes@hotmail.com.
I personally speak to over 500 organisations every year and meet with approximately a third of the FTSE 350 annually and I see a clear change in the interest levels of these organisations and the reasons that are being put forward to implementing Flex.
In August 2005 we conducted research across the FTSE 250 to evaluate the drivers toward Flexible Benefits and the top three were all ‘Employer-focussed’:
- Employee retention
- Employer Tax and NI savings
- Capping of Employer benefit costs
Today, the drivers are all centred back on the ‘Employee’ and the twin drivers of Recruitment and Retention that kicked of the interest in Flexible Benefits in the 1990’s.
The Employee Benefits / JP Morgan Invest research lists the following issues shaping benefits strategies today:
- Improving perceived value of the benefits package
- Making benefits more cost effective
- Communicating benefits
- Desire to improve staff engagement
- Desire for flexibility
In fact, I have heard more about ‘Employer Brand’ and ‘Employer of Choice’ over the first 6 months of 2007 than the previous three years put together.
This is not surprising as Recruitment is now the top problem for more than half of all UK companies ahead of business strategy or management according to a new study by KPMG and the Recruitment and Employment Confederation and this is causing a renewed pressure to build ‘Employer Brand’ and re-look at Reward strategies.
This in turn is re-surfacing three key objectives:
- Offer Employees flexibility to choose their own preferred compensation & benefit package
- Increase take-home pay through group discounts and NI/Tax savings
- Communication of better value through ‘Total Reward’ and ‘Total Value’ statements
Employee flexibility
Of the 20 or so benefits that most organisations offer as part of their flex package, there are some clear winners and losers. The most popular benefits tend to be SAYE, Life Assurance and Private Medical. This appears to be equally fuelled by the importance Employees placed in the benefits as well as positive subsidisation of the benefits by Employers. This is usually followed by Catering Vouchers and Retirement/Investment benefits. Benefits that tend not to get such great take up are the nice-to-haves like Health Assessments, Car Parking and Lifestyle Management. Only the top 10 benefits on average get double digit take-up.
The biggest difference in benefit take-up rates are by age rather than sex, grade or income.
- Under 20 year-olds stick to staples like SAYE, Life Assurance and PMI choices and take the rest as cash
- Catering vouchers have a strong take-up by 20 – 40 year-olds
- Childcare Voucher take-up is expectedly highest in the 30 – 40 year-old group
- A sharp increase in interest in Retail Vouchers is usually seen in the 40 – 50 year-old age group
- The over 50’s had a significantly greater interest in retirement benefits
This clearly does indicate a strong positive-negative preference to specific benefits by certain age groups and lumping them all into a single regimented benefit set is unlikely to be valued by individual employees in the same way. Of course, providing the benefits means investing in technology, systems and processes that can administer these benefits easily and cost-effectively, as well as in communicating the value of the offering appropriately.
Expanding take-home pay
Historically, in the UK, there has been a strong focus on base salary. However, there is an increasing realisation that the two critical factors in terms of Employee compensation are ‘Cost to Company’ and ‘Employee Take-Home Pay’. Employees tend to calculate take-home pay as post-tax cash plus value of appreciated benefits.
In research we conducted this year, there were significant cash savings through employee discounts, as well as NI and Tax savings to Employees who were able to invest in Benefits of their own choice. On average, there was a £355 saving for each employee that equated to 1.2% of salary at the basic level. Larger NI and Tax saving interventions increased this by 1.3% to result in a 2.5% saving on average for each employee. This is a substantial saving in a year where average salary increases have been 3.6% from June 2006 to 2007 according to Voca and disposable income is shrinking rapidly in the face of rising consumer debt.
These sort of Salary Sacrifice based benefits and Voluntary Benefits based on Group Discounts are seen as very attractive to Employees, but only if offered within a unified Employer-based system with a solid communication process behind the initiative.
Total Reward and Total Value
Of course, the key to investing in sourcing these benefits, placing them in a unified system and allowing your employees to make choices around their selection, is ensuring that your employees understand the value of what has been given to them.
Two Employers I have met over the last couple of months with approximately the same Employee size had dramatically different result from their Flex initiative. One Employer got a 70% take-up rate for their benefit programme and the other had a take-up rate of less than 7%.
Communication was key to the first company reaching a 70% take-up rate and the other failing miserably in their attempt to benefits nirvana. Communication initiatives do not come cheap and cannot deal with these large issues if done in an ad hoc manner. It needs to be done in a sustained manner and focus on the larger picture of what is on offer, the advantages, the value of the discounts, as well as the NI and Tax savings received by investing in these benefits. Take-home glossy brochures, employee forums, expert advisors, Total Reward / Total Value statements and Modellers can all help bring the message home to each and every one of your Employees.
Conclusion
Most companies I am speaking to currently have already made these choices and are investing in solid Reward Strategy planning, selecting robust systems that can deal with the administration of these strategies in a low maintenance and automated manner, and kicking off communication programmes that can bring their employees along with them as they progress along the path of sharing the Compensation and Reward strategy with their Employees rather than focussing on a top-down vision of what Employees want and need. It’s really refreshing to get back to basics and deliver sensible Benefits Administration solutions that work.
If you would like to learn more about our research in this area or our delivery methodology for Benefits Administration solutions, do drop me an email at GirishMenezes@hotmail.com.
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