Employee Reward

Top 5 reasons employees don't save for retirement - and what we can do about it

2011-06-21T06:27:00.000-07:00

It’s a question many employers ask themselves. Findings from initial research by Buck Consultants, through its think tank Financial Frontiers, turned up 5 attitudes and beliefs at the root of the problem.

Here are the highlights:

I may die tomorrow
Contrary to all health statistics, people are caught up in a morbid grip of fatalism. Statistically, we know that the average citizen is due to live to 80. Cambridge University geneticist and researcher, Dr Aubrey de Grey claims that the first person to live to 1000 has already been born. Yet, feedback from Financial Frontiers research shows a belief system that discourages retirement savings.

Work ‘till I die
A second stream of thought is that people will be able to work until they die. The reality is that this is just not going to be possible. Many will need to sell their homes to meet the bare minimum of care in their old age. Entire professions will not be able to maintain their livelihood due to the preciseness of their skills, the need for manual labour, or due to the sensitivity of the task.

Someone will look after me
There is a strong paternalistic streak in people’s worldview. The blue-collar workforce still believes in a job for life. Young, well educated and highly paid employees believe that the government will look after them financially. The belief was almost religious. The overall message was “something will happen and it will all work out”.

Can’t save, won’t save
After evaluating the research, there was a growing question: is lack of savings due to the high cost of living or other priorities? A 45-year-old research participant said, “I say bugger it, live for today”. The focus appears to be on enjoying the moment rather than worrying about the future. Holidays, a car, electronics and clothes were seen to be more important than retirement savings.

Can’t do the math
Overall, people who had taken a look at their finances decided that saving for retirement fell in the “too hard bucket”. They don’t save in percentages, but rather put away small amounts of money whenever they can. They do not understand compounding, either on their salary or on the interest on capital. They find it difficult to compute what needs to go into the pot and what is likely to come out.

People invest their money in things they believe they understand. Mortgages and property together topped the list of savings vehicles. Current and savings accounts came next. New tax-free savings accounts have gained traction with savers as investment vehicles. Finally, even credit cards showed up on the list of savings vehicles, but not a word on pensions.

Buck’s research suggests key barriers to retirement savings are behavioural. The research has explored how people in the study have made positive financial decisions outside of the workspace and these have a direct impact on how employers can encourage retirement savings. There is a growing belief that employers are at the start of employees’ journey in making sensible decisions around their finances and retirement savings behaviour.

For a full review of the research, download “How to overcome employee apathy over retirement savings”.

If you’re not saving for your retirement, what’s your reason?

The Intelligent Pensions Push

2011-03-14T10:32:00.000-07:00

Published in Pensions Week, 14th March 2011

A Google search for ‘Pension’ gives 74.3 million results in 0,2 seconds. Type in ‘Pensions Week’ and even before I press Enter, I am asked whether I want the magazine, the awards or whether my query is related to David Rowley or James Redgrave. It is amazing how Google searches tens of billions of pages to pinpoint the specific page we are searching for.

Now enter stage left onto the floor of the average pensions company in the United Kingdom and you may be forgiven if you were to believe that you had stepped into a Kafka novel, with a well defined bureaucracy, cupboards full of paper, boxes overflowing with micro fiche and earnest looking employees tapping away on calculators.

You may wonder whether the internet has passed these people by. But no, they are on LinkedIn, Facebook, tweeting, texting and watching football via streaming video. So why is there this chasm between their private and corporate technology capabilities?

For example, imagine an employee or HR representative scanning a marriage certificate on a multifunctional device quite common in most offices. Intelligent software already has the capability to recognise the type of document and recommend a variety of next steps.

Does the document need to be forwarded to HR, the reward department and the pension team? Would the employee like to update their ‘Expression of Wish’ form or add their spouse to their private medical arrangement? Perhaps getting married may change their attitude to risk, so should we therefore remind them of their DC fund choice? Or in this new Corporate Wrap world, enquire about their interest in a mortgage at a special company rate? Does the DB pension system need to update the requirement for a spouse’s pension, which automatically updates the Actuarial valuation? Of course, the Trustees should be able to log into their Trustee dashboard and track all of this in real time.

The catch is that in the global world we live Marriage Certificates come in all shapes, sizes and languages. The beauty of technology is that today it can recognise most languages and translate it into appropriately. Optical Character Recognition makes the size and shape of the paper irrelevant.

We have seen this happening in the world of personal finance where we are able to log into a single portal to track our savings account, credit card balance, ISA’s, mortgage repayment and stock market investments. The market is increasingly requesting this ease of access in the workplace.

Pensions companies are spending large amounts of money and time on developing that perfect mix of product and service backed by seamless technology for the workplace. The winning answer will be defined not by a self serving strategy to sell financial products, but looking at ways to truly add value to Trustees, HR and employees.

For further information on the future of technology in pensions email girishmenezes @ hotmail.com

People learn from People

2010-11-01T11:10:00.000-07:00

Written by Maggie Williams, Editor of Engaged Investor magazine.

Girish Menezes explains that there are better ways to engage with members than through dry product information

How do people prefer to learn about pensions? Based on research that Buck has carried out into members’ engagement with their pensions and workplace savings, it’s in a very different way from the approach the pensions industry currently takes.

We found that many employees’ perception of pensions is that they are ‘smoke and mirrors’ – they don’t know what is going in, or what’s likely to come out. As such, the communications they were receiving about their savings was just not connecting with them.

The research also explored how employees normally learn about pensions and savings and found that that they will go online to money education and comparison websites for expert opinions – as well as referencing consumer reviews of products, similar to those that you might find on Amazon.com. In the same vein, they will explore newspapers and financial consumer magazines, again looking for independent, expert opinion as well as reviews from fellow savers.

However, we found that the most important place that employees go for financial information is to family, friends and work colleagues, especially supervisors. These are people they trust and they feel they will get a completely independent review from them. In contrast, unless they have a very high income, they don’t use independent financial advisers (IFAs), questioning their value and independence.

Taking all of that information into account, you can conclude that people learn from people. They want to talk to peers, friends and family, either in person, or online and they like independent information on websites or in newspapers and periodicals.

If you take those findings and compare them to how we communicate with employees about their pensions, you realise that there is a huge gap. We typically send them a piece of paper – a company document that is not always written in an interesting manner. We don’t provide any statistics around what others are doing; there’s no expert opinion, little face to face communication – very little overlap with how members actually learn.

It’s also worth noting that, given the low opinion many employees have about pensions, perhaps pension communication should not be shown on it own, but integrated as part of a wider benefits package. This could incorporate details on other benefits such as childcare vouchers and healthcare. An employee that doesn’t have a high opinion of pensions is unlikely to open a pensions-specific communication, but will be more interested in their broader benefits package.

While websites are an increasingly popular means of communicating about pensions, it’s not just about the channel, but also about how you communicate. For example, we found out that employees at one of our client companies didn’t trust its HR function, and as such didn’t respond well to communications from it. Employees did, however, trust their supervisors. So we built a pack to help the supervisors create a discussion around why pensions are important. From that, pension take-up went up by 40%. It really showed that creating communication between people is vital.

It doesn’t matter what medium you’re using, but the core idea of discussing options and opinions with others is how people learn, not by reading dry text.

Collective communications - Helping to solve the DC engagement problem

2010-11-01T11:06:00.000-07:00

A thought provoking research report from Spence Johnson where they argue that a DC pensions communications campaign that is directed at a target membership audience of less than approximately 50,000 is sub-scale.

You can download it (PDF 3.5mb) from

http://www.spencejohnson.com/resources/BB6+CollectiveComms+100922.pdf

Why employees don’t engage with pensions - and what we can do about it

2010-09-21T12:45:00.000-07:00

The worst kept secret in the world of pensions is that with the shift from DB to DC pension, employees just cannot either understand or engage with them. Employees appreciate the company match and tax saving elements, but find it difficult to make any analytical choices around their pensions and tend to remain in the default fund. They also have little confidence around the ultimate retirement pot there are likely to receive at the end of the savings cycle.

As an industry, we recognise the seismic shifts in the employee financial landscape that have caused the change. However, the way forward to rectify this situation will require significant changes in how we currently support this important employee benefit. We need to make pensions simpler, continue to offer strong governance structures, embed pension within the broader employee reward package and start educating employees as to how pensions work and the benefits of taking an active interest in the choices we offer them.

Am I bovvered?
HR and finance directors across the country complain about the lack of engagement employees have with their pension schemes. We know that our DC members do not contribute enough; 95% of them drop straight into the default option and most contemporary research indicates that members neither value their pension nor expect it to meet their retirement needs. This attitude is reflected across psychographic and demographic groups. The situation is leading to HR and finance professionals wondering why they themselves should be bothered. Wouldn’t it just make more sense to shut the current arrangement down and place their employee retirement savings into NEST?

Reports on the demise of pensions are greatly exaggerated
Clearly pensions are here to stay, at least within our lifetime. It will take decades to wind up the large number of final salary schemes in existence, even those which have already closed to future accrual. We also have a significant percentage of these final salary schemes still open to both current members and future employees.

The Government and industry leaders realise that pensions are the best way to ensure retirement savings across the workforce and continue to support them with developments such as tax exemptions, matched contributions and auto-enrolment. This, of course, means that a minimum of 8% of salary costs are going to be invested into the pension scheme (within the appropriate bands). Quality pension schemes will have even higher contribution rates.

This is a large slice of operational costs for most UK organisations and will compound itself over the years. Pension provision will therefore continue to be scrutinised at the most senior levels of industry and government and is not likely to become redundant just yet.

Into the valley of death
Earlier this year, Buck brought together a think tank of pension professionals, a number of academics and leading HR thinkers, to analyse the issues involved and possible solutions. The conclusions showed the current situation to be dire – the group believed that the pensions industry is facing an accelerated decline and we will need to work hard to make it relevant again. This article explores some of the issues and possible solutions discussed by the group.

I don’t believe it
We fear that pensions are sinking amongst the benefits mix in terms of desirability and relevance. People are changing jobs more often and find that the small pots of money they have spread out over multiple companies do not add up to any significant retirement pot.

Employees see pensions as a high-risk investment. They do not understand what experience trustees bring to the table, or the options offered by the scheme, nor do they trust that the sponsor behind the scheme will be in existence when they retire.

They claim that the Government compounds the problem by frequently changing the rules; capping pension contributions, moving to CPI increases and tinkering with the taxation benefits of a pension.

But their biggest frustration is with the communication around the scheme. It is often difficult to find, incomprehensible and does not help them understand how the pension scheme works.

All change!
The think tank identified three main areas to focus on so that we can remedy this situation, particularly in respect of DC arrangements:

- Choice architecture
- Embedding pension within a broader reward framework
- Education, education, education.

Choice architecture
We need to build our pension processes around making the right decisions easy for the average member. The Government and the pensions industry appear to agree that the best way to ensure that large swathes of the UK population are covered financially for retirement is through auto-enrolment. There is also a mood in the industry to push this all the way to compulsion. There still appear to be concerns regarding the adequacy of the contribution rates, the age of commencement of participation and gaps in employment. However, auto-enrolment will go a long way toward increasing pension coverage.

Ensuring that the default option is fit for purpose is an important second step. Multiple default options for different psychographic and demographic groups can clearly be useful. The ability to modify the default options over time based on member profile and environmental factors would be even more beneficial. The industry recognises this as a significant concern and we can look forward to a growing number of solutions coming to market over the next couple of years.

The group also believed that we need to explore other areas of choice architecture. For example, making the pension scheme more accessible using web technology, making it easier to make choices, and improving the quality of the financial education we offer.

Embed pensions within the broader reward framework
The group was unanimous in agreeing that pension schemes needed to integrate themselves within the broader reward framework. The prevailing process still expects an employee to go to one website for their pension, another for their shares and a third for their ‘flexible benefits’. Some benefits can be controlled via a web page, whereas others require slips of paper and telephone calls. Employees expect an integrated experience, and technology allows us to meet this need. Employees should be able to go to a single website to access DB, DC, GPP, share options, ISA, flex and salary information. This will ensure that the pension arrangement is integrated within the wider reward package and receives more attention, due to repeated visits to the site.

Education, education, education
A compelling method of enabling choice architecture is communication and education. The legal view is finally changing with respect to this. The HR and pension lawyers I have spoken to recently, agree that we need to improve the communication and education around our pension schemes. Employees do not read the communication we currently send out and modellers have limited interest. Employees are used to Google, Facebook and You Tube as communication tools and we need to match this functionality to keep their interest.

We therefore need to use peer statistics, web-based forums and streaming video to improve employee understanding of how their pension schemes work, the options available and expected results. This will help bring pension communication on par with the communication available around other available employee benefits.

Employees are able to investigate other savings options relatively easily such as shares, ISAs, high interest bonds and property. However, there is no publicly available information on the pension scheme, and companies are realising that it is their duty to provide this in a format that meets their employees’ learning styles. There are a number of companies which have already started down this path with excellent results. At Buck, we have a recent example of increasing membership of a DC scheme by 40% using an innovative communication initiative.

Conclusion
Overall, the results of the think tank discussions painted a worse picture than we expected. However, we believe that there are clear opportunities to redress the situation. What is encouraging is that there is a broad-based consensus that changes need to be made, as well as on the general direction of these changes. Our recommendations – choice architecture, embedding pension within a broader reward framework and improved education – are easy to make. The challenge is in the detail as to how exactly to implement them.

For further information on the work we are doing in this area, please email me at girishmenezes@hotmail.com

The Future of Reward

2010-07-26T02:42:00.000-07:00

One thing about writing on the future is that at the time of writing you cannot be wrong even though you almost certainly will be. However, by the time the future becomes the present almost everyone will have forgotten what you predicted. So with that comfort in mind here are some ideas from Michael Rose on how he sees the future of reward over the next 5 to 10 years.He has identified six themes and for each he suggest the impact on reward. Some are a continuation of existing trends. Others may be new.

Click here for the PDF: http://alturl.com/3t4wd

Needing a nudge?

2010-07-23T04:32:00.000-07:00

Article in Engaged Investor.

Girish Menezes explains how sometimes employees need to be ‘nudged’ to make the right decisions – and why members need a healthy financial diet to plan for retirement.

Why is members’ interest in their pensions so important?

Individuals tend to move job more frequently, take more career breaks and continue working for longer than in the past. This has tended to mean that pensions have become less relevant – and less appreciated as a benefit. There is often a real lack of understanding amongst members of pension schemes about their benefits and how they operate. And, there is also often a lack of interest, or ‘member engagement’.

However, this reduced engagement comes at a time when members really need to be more involved in their pension savings. Buck carried out research published in March 2010 that showed 100 per cent of the employers we interviewed have either already closed their DB scheme to new employees or plan to do so in the next three years. As we move into a defined contribution (DC) world, member engagement really matters. Our research also showed that employers are not closing DB schemes because they’ve ceased to care about their employees’ pensions – they are closing them because of the risks involved. 28 per cent of respondents said that they continue to offer a pension because they believe it allows them to remain competitive, and 20 per cent use it as a way of retaining staff. So, employers are still putting substantial contributions into their employees’ pension funds. It’s important that the value is understood – and that members make effective decisions around their savings.

How can we improve engagement?

Buck Consultants established the Financial Frontier Trust, a group of leading HR, pension and benefit professionals and academics, at the beginning of 2010. One of the topics that the group discussed is whether there is such as thing as an ideal ‘financial diet’. Just like the food we eat, our savings need to be in the right proportions – for example, pension savings could be viewed as the ‘protein’ in that diet – a longterm, tax-exempt approach. However there are also short and medium-term needs, analogous to carbohydrates – such as ISAs, or perhaps debt repayment. And, of course, just like a real diet, we do need a sensible amount of fat – or, in the financial diet, higher risk investments like shares.

Unfortunately not everyone has the same appetite for savings as they do for food! People need to be ‘nudged’ towards making financial decisions – just like they sometimes have to be nudged towards making the right diet choices. People tend to avoid making financial decisions – for a variety of reasons including fear and inertia – and need to be ‘nudged’ towards making those decisions through being provided with the right products, services and means of enrolment.

However, not everyone will react positively to being ‘nudged’ – and different demographics will respond to different methods of nudging. The products on offer for savings will be one part of that process – offering the right mix of short, mid and long-term savings for that ‘financial diet’ is one consideration. Another is the way in which members are given information – for example, older members may respond better to printed information, whereas younger employees might be more influenced by social networks such as Facebook and by peer group behaviour.

How can this be applied in practice?

There are a number of ways that employers can help with ‘nudging’ their employees towards creating their own financial security. As we’ve seen, offering the right financial products, giving the right messages and delivering them over the right medium are all vital. Bringing those factors ogether in one easily accessible place is also significant.

Technology has a big role to play in that process. Benefit portals that provide a single centre where an employee can not only see their benefits so far, but also think about their retirement requirements – and even their next career steps – are one option. To date, much of the work that has been done on benefits portals has been in the US – and although there are similarities with the UK, there are also substantial differences.

Buck’s response in the UK is its Compass system, a rewards portal which breaks down employees’ needs from three different angles: ‘see, learn and do’:

See – provides an employee with an overview of all of their company benefits. This could include former DB pensions, the value of current DC pensions, any additional voluntary contributions (AVCs) and any other benefits provided by the company. This could include other savings tools such as ISAs, if they were on offer.

Learn – this section uses ‘stochastic modelling’ to provide best estimates on what employees can expect in their retirement, based on when they expect to retire, how much they are contributing to their savings, their appetite for risk and what their retirement needs will be. It can also give employees information about the next steps in their careers.

Do – this section provides features for members to take practical action – from updating their details, to opening an ISA or increasing their pension contributions. There is definitely an appetite now for this type of approach to benefits - from employers, trustees and scheme members. Technology and strategy can be used to meet that appetite – and feed it with the right financial diet.

Why do we bother about pension?

2010-05-20T05:27:00.000-07:00

The world of pension has largely split into at least three distinct points of view .

The rationalist - This group of people insist that employees don't care about pension. They believe that we should give employees the cheapest option that meets legislative requirements.

The realist - The second group of people believe that pensions provide substantial value that is only realised when employees hit their late 30s - early 40s. But engaging employees in choice is a losing battle. They would like the industry to focus on how to give employees the best default (or multiple defaults) possible to ensure that they can retire with safety net below them.

The innovators - Finally, there is a group of people who recognise that employees run complex calculations when playing fantasy football or the lotto. Experience from Australia indicates that given a pot of money, direct investment into shares and financial education - even younger employees get really involved with savings and investment. Companies are spending too much money on pension and benefits not to try to make them engaging. We need to explore options around DC, ISA's, shares and other forms of employer-based financial vehicles to move employees along the financial maturity curve.

The big question of course is - which of these groups of people are right...and in what circumstances (type of employer, employee profile, etc).

I'm running some qualitative and quantitative research around this area. If you have any research that could shed light on this area, do email it to me. If you are interested in the results of this research, do drop me an email at girishmenezes @hotmail.com.

Compensation & Benefits Manager wanted

2010-05-18T13:23:00.000-07:00

Just received a requirement for a UK Compensation & Benefits Manager for a global company. The role is based in London and will have a team of two. Email me for a job specification at girishmenezes@hotmail.com.

Charlie Kirby rocks!

2010-05-18T10:42:00.000-07:00

Unfortunately, I missed Pension Rocks, organised by Charlie and Pensions Week.

Have a look at the video here: www.youtube.com/pensionsweek

Apparently, it was a great night and not to be missed the next time around.

Special Purpose Vehicles for pensions

2010-05-18T10:38:00.000-07:00

SPV's are growing in importance to hold contingent assets for pension schemes. There are various advantages, including the possibility of using these for softer assets such as brands and IP. Worth talking to your lawyer or accountant about this. We're probably going to organise an event around this topic. Let me know if you are interested in speaking or attending.

NEST administration contract re-examined

2010-05-17T06:08:00.000-07:00

The contract for administering the National Employment Savings Trust will be re-examined, says David Laws.

All secretaries of state have been asked to re-examine all spending approvals since January 1 this year and all pilot schemes. Where projects were good value for money and consistent with the government's priorities, they would go ahead but, where they were not, "it would be irresponsible to waste money on them".

TCS became the only bidder left in the race after Great-West Retirement Services (Europe); Logica UK; and Danish pension fund and administration provider ATP Group withdrew from the competitive dialogue process at the end of last year - leading to questions over whether the contract would be good value. At the time of GWRS's withdrawal Liberal Democrat pensions spokesman Steve Webb said the TCS "had the government over a barrel" and questioned whether the contract would provide value for money.

Auto enrolment and the minimum contribution levels look set to stay. Wouldn't bet on NEST launching in 2012 in the same guise as it is today.

‘Nudging’ employees toward better financial choices

2010-05-17T01:59:00.000-07:00

Buck Consultants has brought together a group of leading HR, Pension and Benefits professionals, as well as academics functioning within the retirement savings and behavioural change space, as the core of a Brains Trust to help us explore the issues we all face around employees’ retirement security. We hit a seam of excellent ideas and suggestions from the evening and will be researching these over the spring.

The research explores how to help employees make better savings and investment choices; whether there is such a thing as an ‘Ideal Financial Diet’ and whether it is possible to ‘nudge’ employees toward making these choices.

What was made abundantly clear over the evening is the changing nature of employment, with employees transferring more often between jobs and with more career breaks. This has made pension - both DB and DC - of less relevance as a savings vehicle. There was also recognition of the change in the definition of retirement. People are working longer - whether for financial reasons or through boredom. This resulted in the impression that pensions is dead as a solution for long term saving. Therefore, how are we to define, as we sought to do, the 'Ideal Financial Diet' for our employees?

In retrospect, perhaps we were too harsh. When looked at within the overall scope of a financial diet, pension does reduce in importance in the current work environment. But perhaps there is merely a need to broaden our perspective of the various disparate elements that make up this diet rather than rejecting the concept of pension altogether.

Much as we would break down a healthy diet into protein, carbohydrate and fat; perhaps we could break down a financial diet into long term (the protein), medium term (the carbohydrate) and 'with health risks' (the sugar and fat) and use this to piece together the various savings and risk instruments that could play a part within this diet.

Long Term Savings
For long term savings, a pension still appears to be an excellent vehicle for retirement savings; given the tax incentives, employer contributions and inaccessibility once invested. Even at the lowest tax bracket, 80p invested in an employer matched pension rounds upward to £2.00 immediately. It would be difficult not to be able to profit from that incentive over the lifetime of the investment, as long as the money is invested according to a reasonably sensible plan.

We had some thought regarding contribution levels that could be recommended. Simple mathematics suggests that a 15% contribution rate should result in a good statistical chance of a 50% salary replacement ratio at retirement: Potentially a sensible target to aim for. Due to gaps in employment, one would probably want to aim higher than 15% to meet the replacement ratio, but this is unlikely to be feasible for most of the employed population.

Of course, with an employer matched pension contribution, the impact on an employees’ net pay is merely 4.5% to 6%, depending on their tax band. This correlates closely with the NAPF Quality Mark Plus programme or a 1/60th DB pension.

Another useful long term savings instrument that was discussed was Long Term Care. However, it was recognised that no suitable product currently exists in the UK. Perhaps in the continued absence of any clear proposals from the state this is something product providers need to consider as there appeared to be quite an interest in how this could be delivered.

Short Term Savings
For short term savings, the ideal savings instrument appears to be the ISA. There has been a lot of talk in the industry of companies introducing this as a benefit, perhaps even matching employees’ investment into these instruments. However, this has not really taken off. Perhaps the government needs to consider ways to incentivise companies to offer them within the employee benefits package. It is a less onerous way of starting an employee on the path to savings and investments. The money is easily accessible for a down payment on a mortgage, children's tuition or to meet other medium term requirements such as covering the cost of illness.

Ideally, one would hope that both pensions and ISAs would be used in parallel to balance long and short term savings goals. Contribution levels would necessarily vary according to each employee’s financial circumstances and the specific vehicle offered by the employer. With ISA limits raised to £5,100 (cash) and £10,200 (stocks and shares) for all investors from April 2010 there should be sufficient leeway to make significant investments into this savings
vehicle.

Using the broad government definition of savings including the reduction of debt, the other two clear favourites as short term savings instruments are the repayment of student loans and mortgages. Again, perhaps the government needs to recognize the importance of these options and encourage companies to offer them within the employee benefit mix. One could also wonder whether arrangements could be made to deal with the issues around managing credit card and store card debt.

Instruments with Health Warnings
Finally, are the savings and risk instruments with health warnings. First on the list is the variety of employer share option schemes. The Brains Trust believed that these are not appropriate for many types of employees as they are highly risky equity investments with no diversification. Research has shown that employees do not recognise the risks and hold on to the shares as an act of loyalty and belief in their company. Of course, there is a distinct possibility of losing money on these investments and, in extreme situations this can coincide with the loss of their jobs. Employees at Enron and, more recently, at Lehman Brothers, have been stung quite badly with this situation. Targeting appropriate employees, educating and potentially devolving the shares into more diversified instruments may help reduce some of the concerns.

Other instruments that come with a health warning are insurances. Life insurance is useful once one has dependants, but may not necessarily be relevant in other situations. Private Medical and Dental may also be valuable to employees who can afford and prefer private care, but may not be useful to the rest of your workforce.

It is also important to consider other tax efficient schemes such as childcare vouchers and cycle 2 work and the significant savings employees can receive through bulk discounts and shopping vouchers.

The ‘Ideal Financial Diet’
Broadly through the discussion it appears that we can make a recommendation for the 'Ideal Financial Diet' for employees: A DC pension contribution of at least 15% or a 1/60th DB pension; a steady investment in ISA's; repayment of student loans, mortgages and other debt. Coming with a health warning are the various employee stock options, insurances, other tax efficient schemes and group discounts.

Of course, this may not be necessary or ideal for every single person. Professor of Finance of Bath University, Ania Zalewska, says, “Knowing that our healthy diet should contain more proteins than carbs, sugar and fat does not mean we keep the proportions in the right order. Moreover, these proportions can change not only with age (babies need lots of fat, for example) but also conditions (Inuits do not eat so much fruit and vegetables as Amazon tribes do).” There will also always be people who do not believe that they need the security of savings, for a variety of reasons. However, as retirement professionals, that must not dissuade us from making a stand and defining what we believe constitutes a suitable and pragmatic financial diet.

Where do we go from here?
If we can agree that an ideal financial diet consists of a broad range of savings and investment instruments, we can then begin evaluating whether we should indeed offer these vehicles within the employer-employee relationship and whether it is possible to ‘nudge’ employees toward making these choices. Through the evening a number of these issues were discussed and they now need to be tested using properly calibrated qualitative and quantitative research.

Possible areas that could be researched are:

• What is the current financial diet of our employees, how it has changed over time and are we really that poorly nourished?
• How does Psychographic and Demographic segmentation impact propensity toward being nudged?
• What is the impact of various mechanisms and products on different populations of your employee base?
• What are employees’ attitudes toward paternalism? Can we trust organisations to make decisions that are beneficial to employees? Would paternalism be more or less attractive to employees and how would this change based on employee segmentation and culture?
• Is there a role for the Government? Will legislation make it easier or more complex to deliver an ideal financial diet? Would it be legal to nudge employees toward investing in some of these financial products? If not, should the law or regulatory requirements be changed?
• What are employees’ attitudes toward risk and how should this impact the default options and choices that we put before them?
• What are their current attitudes toward savings and retirement? Has the downturn already prompted change? What are the processes that could create a change in attitudes toward savings for different cohorts?
• Would auto-enrolment across savings and risk instruments be beneficial, legal and/or advisable? Should this apply only to selected instruments and if so, where should the dividing line be drawn?
• Should we be changing our employee education programmes based on learning styles and preferences?
• What would be the impact of broader/more open peer comparison and discussion amongst employees? Would this result in improved choices (with examples such as http://www.amazon.com/ and http://www.moneysupermarketmarket.com/)?

We intend to run qualitative groups across a set of companies, followed by quantitative research, the results of which will be released in June.

Is 'Nudging' right
There appeared to be a mixed response to 'nudging' employees toward an ideal financial diet with roughly half of the Brains Trust supporting this objective and the other half wondering whether this was just a mini nanny state with shareholders behind it. Of course we also had extreme views of whether nudging is too soft and whether we need to employ cattle prods, such as compulsory retirement savings.

At this stage, we would prefer to let employees speak for themselves and register their attitude toward corporate nudging. We would also like to test out various options; products, behavioural models, education and processes and evaluate whether we can indeed use these to nudge employees in the direction of positive financial decisions. We would expect that the various segments of employees, based on psychographics and demographics, will have different reactions to our stimulus. Lastly of course, we would need to take legal advice on the legality of such action.

For further information, please contact:
Girish Menezes
Email: girishmenezes @hotmail.com

UK Benefits Market – Are We There Yet?

2007-12-11T08:48:00.001-08:00

Another typical day on the road. I met yet another FTSE 250 company with their benefits all over the place. Pension schemes divided between a large Actuary and an IFA, Share scheme with a Share Administration provider, Risk benefits provided through one company and Medical benefits through another; separate providers for Voluntary Benefits, Childcare Vouchers, Bikes and Total Reward Statements; and an overall realisation, that the system is just not working.

Organisations seem to be battling some very major issues; the closure of DB schemes, spiralling costs of benefits, re-inventing the pay package to meet new hire expectations, re-negotiating the packages of current employees, managing complex eligibility requirements of historic employment contracts; the last thing they need is a web of supplier networks attempting to deliver against these requirements.

Employers appear to be coming around to the discovery that there are core benefits; savings, risk and health; that need to be provided to a certain level as a key responsibility to their staff; and then there are Employee Discount schemes that can stand alone in cyberspace for anyone who is interested.

Even after stripping out the chaff from the core though, they are not the simple things that could be administered off spreadsheets in the past.

The reasons for the increased difficulty are:
- Cost
- Complexity
- Change

Cost
Pensions were the first benefit to bust the bank, spectacularly! But the cost of most other health and risk products is spiralling as well to a lesser extent. Companies are also realising as they begin to consolidate benefits across the organisations that they may have multiple deals in place with a single health insurer, or are paying far too much for their life insurance. Interestingly, it is the rare company that actually knows the amount they spend on their benefits, let alone administration of those benefits. But all this is changing as the spotlight turns on to this part of the compensation package.

Complexity
Organisations are growing rapidly and often by acquisition. Over time, multiple levels of terms and conditions are created, usually quite invisible to the benefits department. As organisations begin to consolidate their benefits and analyse eligibility, the true complexity of the benefits emerge and the realisation that the age old methods of administering benefits cannot continue.

Change
Finally, in the post-DB era, companies are realising that they need to offer employees multiple methods of saving for retirement and this by definition means enabling employees to switch funds between Pension, Shares, Mortgage Repayment and other similar savings and risk products. This requires technology, availability of data, automated workflow and occasionally, manpower to grease the wheels.

Reward & Benefits departments are therefore focussing on re-evaluating their Benefits strategy and looking at three key objectives:

- Streamline eligibility and processes
- Consolidate benefits brokering, access and delivery
- Outsource as much of the delivery as possible

So in answer to the question, “Are we there yet?” the answer has to be a resounding “No”!

To learn more about how this is being done, email the author at girishmenezes@hotmail.com

Reward Strategy? Am I Bovvered?

2007-07-27T03:54:00.000-07:00

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.

Employee Benefits - Back to Basics!

2007-07-17T03:05:00.000-07:00

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.

'What's Strategy got to do with Reward' - a London Business School event

2007-05-03T05:03:00.000-07:00

The London Business School 'Human Capital Club' is hosting their next 'Human Capital Forum' on the 11th of July from 19:00 to 21:00 focussing on the 'Alignment of Reward with Business Strategy'.

Moderating the event will be:

John Campbell, Director Rewards & Recognition, Citigroup Global Consumer Group EMEA and Former CIPD Vice President, International

Duncan Brown, PricewaterhouseCoopers, Former Assistant Director General CIPD, Author of 'Strategic Reward: Making it Happen' and LBS Alumnus

Key agenda items will be:

- Common problems Organisation's are having with Reward Strategy and Change
- Key areas successful companies are addressing to align Reward with Corporate Strategy
- Case studies of successful companies in the UK and Europe
- Key differences between successful and unsuccessful businesses

The Club gathers senior HR thought leaders at the London Business School every quarter to discuss specific topics of interest to the HR community and ask specific Academics, Practitioners and Consultants to host the event as moderators/thought leaders/case studies. We end each session with drinks and canapés and write-up the results of the discussion as a thought piece.

Please email me at GirishMenezes@hotmail.com for the registration form to sign up for the event. There is a £20 charge to cover expenses including drinks and canapés.

How much do you spend on Employee Benefits?

2007-05-03T05:01:00.000-07:00

At a recent conference I attended at the Ritz, organised by B2E Solutions, ten heads of Compensation & Benefits from some of the largest UK organisations admitted that they did not know how much money they spend on Benefits Administration. In fact, we frequently we meet FTSE 250 companies who do not even know how many employees they have on a given day, let alone what the financial spend on these employees are.

Given that up to 50% of your cost base is likely to be your employee salary costs and over 10% of salary is tied up in benefits, it is becoming increasingly obvious that historic methods of administering the financial aspects of Employee Reward are not going to be acceptable moving forward. Fortunately, it is possible to integrate all of these seperate employee costs using fairly accepted best practice and easily available technology solutions.

In an organisation we visited last month a plethora of departments were responsible for benefits delivery. HR Shared Services managed the Payroll and Contracts of Management and Clerical staff, whereas Blue Collar workers were managed by local offices. Finance handled Pension contributions, Risk processed Life and Medical insurance and Procurement dealt with cars. Voluntary benefits were offered by an external organisation off their generic website. In such a situation, it would be a time-consuming and expensive project to understand take-up, preferences and cost analysis of particular benefits to the workforce and unsurprising how little HR knows about the Employee spend.

There is quite clearly a need to integrate all these disparate elements together, but where will you find the business case for such a project?

Know your Costs
A solution that can integrate all of the individual components of the Employee financial package for the purpose of Management Accounting is itself a hygiene factor today. It must be a prerequisite that HR should be able to capture and track Employee Costs by group and type in as near to real time as possible. At this stage the key factor in the decision process is the analysis of where all the various pieces of data resides and how easy it would be to interface or integrate the various processes to enable one-view of the Employee financial package. You could make various decisions about maintaining separate databases and software for the various parts of the package, or bringing them together within a single software application.

Demographic Profiling
Once a single view of the Employee financial profile has been created, it is then possible to profile your costs and the value it provides across the organisation. It is possible to benchmark take-up rates against other similar organisations and come to conclusions regarding the viability of certain benefits or a realisation that perhaps greater communication is required for others. Older workers for example have been found to prefer discounted shopping coupons for example. Understanding this value being created or destroyed for various parts of your organisation helps you create the appropriate emphasis during the recruitment cycle, as well as during Annual Enrolment.

Target Communication
Analysis of your benefit programme can aid in both the marketing of current benefits to appropriate segments of the organisation as well as help gauge the efficacy of new benefits that you may decide to introduce to the organisation. This is especially true in complex multi-company organisations with disparate interests across employee groups. For this reason, none of the voluntary benefit firms in the UK are actually turning in a profit. This is due to the emerging realisation that putting together a laundry list of badly marketed discounted offers on a non-company website is not sufficiently interesting enough to drive employee engagement and purchase. It is the well managed and marketed internal benefit programmes that achieve the compensation goals that we desire. In the earlier example, skewing communication about retail vouchers toward older employees could help ensure that they extract maximum value out of the benefits that you have negotiated for them. In another example, a major building company realised that marketing childcare vouchers in employee's homes as opposed to site-based communication enabled them to encourage take-up in 50% of the estimated eligible population.

Control/reduce benefit costs
Data mining of your benefit programme coupled with employee feedback can help evaluate the cost to benefit ratio of your various benefit programmes. This can ensure that you aren't spending excessively on certain products, where it isn't required or appreciated. Over £2Bn is spent every year on benefits in the UK and it is estimated that a fair proportion is wasted. In a major Financial Services company, individual employees could choose which members of their family they could cover with PMI and dental insurance but hadn't actually negotiated a per family member rate with the providers.

Conclusion
Given the large amounts of money currently being spent on Compensation & Benefits and the importance of Human Capital, it is only right that we turn our magnifying glasses on to the appropriateness of the benefit spend. It will however require some strategic thinking, an investment in technology and a change in processes before it is possible to actually be able to move toward the ideal of having a transparent benefit programme and the ability to slice and dice it into an intelligent reward programme.

If you would like to learn more about how to take control of your Compensation & Benefits spend email me at GirishMenezes@hotmail.com

Employee Reward and the 80/20 rule

2007-04-30T04:30:00.000-07:00

At the last CIPD Reward SIG event, Duncan Brown presented some of the results from recent research he conducted at the CIPD. One of the key slides that caught my imagination was the time-value split between Reward Strategy and Reward Administration.

According to the research conducted by the CIPD ‘Supporting business strategy’ and ‘Developing reward strategy’ were ranked at 65% and 62% respectively in terms of ‘Most important’ to the roles of the respondents, but only 13% and 33% respectively in terms of ‘Time consuming’. On the other hand, ‘Reward Administration’ was ranked at a mere 18% in terms of ‘Most important’, but 63% in terms of ‘Most time consuming’.

As a Benefits Administration specialist I find this statistic quite amazing as this reflects a key problem I personally face when I go to market.

Since Benefits Administration is clearly not a priority for the Reward professional, it is difficult to get quality time to discuss the issues surrounding the topic and possible solutions. On the other hand however, Benefits Administration takes up a significant chunk of the Reward professionals time, so a little time spent up-front in trying to find a workable solution to the problem may enable him or her to focus more attention to the truly key issues of ‘Reward Strategy’ and alignment of Reward Strategy to business needs.

A second interesting observation, is that in recent research conducted by SBC Systems and our sister firm B2E Solutions, we discovered that of companies that offered more complex benefits, nearly 70% of FTSE 250 companies outsource all or part of their Benefits Administration. This should really be the perfect strategy for reducing the time spent on Benefits Administration down to the 18% allocation it deserves. But given that this is not the case, is this the time to explore a different option?

To learn more about how we help simplify and automate the administration of complex Benefit and Reward strategies, send an email to GirishMenezes@hotmail.com

Read a whitepaper on simplifying Benefits Administration here: http://employeereward.blogspot.com/2007/02/5-steps-to-benefits-administration.html

Read a copy of a study we completed on Benefits Administration trends and Best Practice here: http://employeereward.blogspot.com/2007/02/benefits-administration-in-united.html

Is Flexible Benefits Worth the Trouble? - the 5 Levels of Complexity

2007-03-02T11:51:00.000-08:00

According to recent research, 59% of UK organisations have or are planning to have a Flexible Benefits programme within the next two years. But 57% of employers believe that the cost of implementation and the complexity of administration are the biggest problems with setting up and running a flexible benefits scheme. So the big question on people’s minds when dipping their toes into Flex is whether ‘Flex is worth the trouble’.

Is Flexible Benefits worth the trouble?
Within organisations that my company has implemented Benefits Administration solutions, we have reached 70% employee engagement in terms of employee population who have changed their benefit mix in some way. At least one of our Clients has seen dramatic improvements in retention rates and over 50% of companies who have implemented Flexible Benefits claim that Flexible Benefits improves recruitment and retention figures. That indicates to me and my Clients that implementing Flexible Benefits is indeed worth the trouble.

However, in the rush to implement Flexible Benefits, we have found that the reason a number of companies face administration nightmares is that their focus tends to be solely on the superficial layer that is the choice of Benefits themselves, and forget some of the far more important factors that need to be ascertained around the administration of these benefits.

What are the key complexities to administer Flexible Benefits?
The 5 levels of complexity that need to be addressed as part of implementing Flexible Benefits are:

- Benefits mix
- Eligibility matrix
- Workflow design
- Data mapping
- Channel selection

Benefits mix
Most organisations spend a considerable amount of time, effort and money on selecting the Benefits in their Flexible Benefits mix. In fact, Companies are often days away from Open Enrolment when the benefit supplier’s change or an additional benefit added or subtracted from the plan. Demographic profiling of employees, focus groups, supplier selection panels, procurement negotiations and feasibility studies based on benefit take-up and NI/Tax savings are some of the tools used for this purpose. This is a critical first stage in the implementation of Flexible Benefits, however once completed, Clients tend to drop straight down to ‘Channel selection’ stage without bothering to fine-tune some of the other pieces in the puzzle.

Eligibility matrix
Almost every Client or prospective Client I have met tends to tell me that eligibility criterion in their company is really very simple. And on closer inspection, this is almost never the case. Benefit eligibility tends to be built up over time and based around changing employer-employee relationships, individual negotiations, mergers, acquisitions and disposals. As a result, the benefit eligibility matrix is usually extremely complex. Even post harmonisation, it takes an iron will, well structured templates, and a time-tested system to capture all of the eligibility exceptions that you will find across your company. Once you do however make the effort to create your three-ring binder containing your eligibility matrix, this suddenly gives you the power to intelligently interrogate choices made in the benefit selection process and thereby enables you the opportunity to reduce your overall benefit costs.

Workflow design
Once you have a clear idea regarding the benefits on offer and have mapped the eligibility criteria across your organisation, you will realise that a variety of sub-optimal historic workflow have been put into place to support the benefit selection process. The trick is to get away from historic decisions and look at the Benefits and supporting Workflow with an entirely new set of eyes. You would expect that the Consultancy paid to prepare your Benefit Case would have investigated the optimal workflow to support the process; however this is almost never the case. Once you have arrived at your best-practice Benefit Administration workflow, you can easily automate these via readily available software solutions.

Data mapping
Once you have the workflow sorted out, you can then go down a level and look at the data map that you need to put into place to make the solution work seamlessly. Where is the data stored, and how do you get it from one place to the other. SBC Systems routinely tests systems using live data as this flushes out corrupt data that could create mystifying issues if left unchecked. Data cleansing and the putting into place of strong processes to keep the data clean is a critical step to ensure the smooth running of your Benefits Administration system.

Channel selection
Only after thoroughly specifying the first four layers of complexity in the Benefits Administration process, should a company begin investigating channel options and the channel itself can be broken down into a variety of specific components.

The key components are:

Benefit selection mechanism – web / paper / telephone
Help & Assistance – Online help, Paper based communication and Tele-services
Back-end processes – Back-office systems for changing data, inputting paper enrolment, reporting and event management
Change control – Design, delivery and testing of annual enrolment changes and mid-year changes
Delivery – Outsourced, Externally hosted, Internally resourced

Conclusion
Flexible Benefits has proven itself as a tool for employee engagement, recruitment and retention to a significant percentage of UK Organisations. We appear to be now moving into the second phase where organisations are being forced to implement Flexible Benefits due to competitive pressures and the need to be seen as the ‘Employer of Choice’. There is a very real concern though that administration of Flexible Benefits is not easy and there is a need to do a far more thorough audit of the Benefits Administration processes rather than just focussing on the Benefits themselves. Since the UK Flex market is reaching maturity, it is possible to find organisations who have successfully implemented Flexible Benefits in organisations like yours, and it is therefore possible to tap into their knowledge of best practice prior to implementing Flex. Finally though, it must be remembered that auditing these processes that lie beneath the benefits requires a greater investment than is now being made by most companies.

Hope this article helps you in your next Benefit Administration project. If you would like to know more about the work we do in this area or you want to do an audit of your own Benefits Administration system contact us at GirishMenezes @hotmail.com

Benefits Administration in the United Kingdom - Survey of Trends, Drivers and Best Practice

2007-02-01T03:27:00.000-08:00

This is the Management Summary of a survey I conducted with B2E Solutions. If you want a copy of the full report in PDF you can email me at GirishMenezes@hotmail.com

===================================================

As we all know "flex" is back on the agenda of nearly every company of any size in the UK, a result which is borne out by many recent surveys. Wanting to analyse trends within the ‘largest UK private companies’ as a route to develop some guidelines or trends, we carried out research on a sample of the 250 largest companies in the U.K. We were surprised to find that over 40% of these organisations claim to have a fully implemented flexible benefits package in place.

Another interesting result of the survey was that over 90% of respondents who currently outsource some or part of their administration indicated that they were unhappy with their administrative arrangements and over 75% intend to change their administration arrangements over the next two years. Given this context, it is perhaps no surprise that 59% of our sample reported still using Excel spreadsheets to manage their benefits.

Interestingly 50% of the organisations surveyed would like to bring their administration in-house. A trend reflected in the fact that all of the organisations currently running their administration in-house (using software as opposed to excel sheets) are happy with their current administrative arrangements.

The survey we carried out personally approached the directors and managers with responsibility for HR and/or benefits within the participating companies. The data we have collected from these individuals give some unique insights into the experiences of some of our larger companies that seem to be leading to this result.

One clear conclusion is that simply adopting flex is not the path to better benefits management. The root of the dissatisfaction seems to lie in the administrative arrangements companies have in place to manage their benefits. As we all know, flex potentially increases the amount of administration, so an inadequate administrative system will be even less satisfactory with flex. Merely outsourcing this problem does not appear to help.

We explored the decisions behind choosing an administrative solution, but found this quite standard; reduction of errors, flexibility of the solution and service from the supplier.

Finally, it is interesting to note that organisations with live flexible benefit programmes cite employee retention, NI savings and the capping of rising benefit costs as the three key drivers of flexible benefits in their organisations. This is in contrast to schemes yet to take off who tend to focus on requirements like harmonisation, recruitment and retention.

This indicates, that at least for this sample of blue chip companies, the core requirement in successfully implemented schemes is for a flex benefits system which goes beyond simply being an attractive feature for active and potential employees to having the capability of being a powerful tool for other management objectives (like cost control).

The unavoidable conclusion seems to be that a successful flexible benefit programme requires three key features:

• A well thought out administrative system that reduces errors, is flexible around requirements and may be supported by a responsive supplier(s)
• A robust and flexible piece of technology that can enable this in a cost-effective manner
• A clear business case based around the harder factors dealing with cost savings and control

If our larger companies are the trend setters for the rest of us, perhaps some of these results will help us make decisions to avoid the pitfalls they have already experienced. As we all know, the supply of sophisticated flex software is improving and the cost structure for in-house and ASP offerings has significantly undercut the more traditional outsourcing arrangements. We have the options. Let’s go test!

The research was covered by Employee Benefits magazine here: http://www.employeebenefits.co.uk/item/799/pg_dtl_art_news/297/pg_ftr_art

And by Personnel Today magazine here: http://www.personneltoday.com/Articles/2005/11/22/32689/making-the-most-of-flexible-benefits.html

I'm always happy to link to new research in this area. Let me know if you have conducted anything of this nature.

5 Steps to Benefits Administration Heaven

2007-02-01T02:06:00.000-08:00

A Client recently asked me if I had a ‘Benefits Administration Supplier checklist’ fand so I thought that it might be useful to actually create one for him. I've now converted it into a white paper, which I hoped may be of interest to a wider audience. For a PDF copy of the full report send me an email at GirishMenezes@hotmail.com

What began as a laundry list of tips and tricks based on our almost 30 years of experience in this industry was edited down to five key elements. We have billed these as the 5 C’s of Benefits Administration supplier selection.

- Complexity
- Configurability
- Change process
- Control
- Costs

Whether you are in the early stages of investigating the options facing you in terms of Benefits Administration solutions, in the midst of renewing a contract, or merely attempting to benchmark your current solution against the market - I would hope that this checklist will help you work through a process of requirement definition and supplier selection.

Different Clients in the Benefits market have very different requirements, internal capabilities and company policy. All of these dictate very different choices in terms of supplier. I have therefore tried to make this list as agnostic as possible, to enable the appropriate decisions by Individual organisations.

So without much further ado, let’s get on with the checklist.

COMPLEXITY
The first key element to note while selecting a supplier is to audit the complexity of your own requirement. The vast numbers of SME organisations across the United Kingdom have a fairly standard requirement and they can almost always pick up an off-the-shelf solution that meets their needs. The system sucks up their employee and benefit data once a year, employees make their elections, and the system spews out the monthly payroll deduction numbers. New hires, leavers, the odd exclusion or an employee who goes on maternity leave, are then processed as the issue crops up.

However, there are a number of reasons why your own requirement may not be as straightforward. The key reasons for this would be number of employees (complexity begins at numbers as low as 3,000), multiple eligibility requirements, interfaces with multiple systems (HRIS/Payroll/Time & Attendance), percentage of employees with no online access, high employee turnover, a requirement for greater control over data and reporting or data security.

Most of this complexity requires changes to the underlying code in most Benefits Administration solutions in the UK. And on the odd occasion that a Client has worked with a supplier to implement the necessary modifications to their systems, the following year brings a slew of additional changes that require going back to code once again.

Be honest about your own requirement and investigate whether the suppliers you are speaking to have actually delivered against a similar specification. If your requirement is complex - do select a supplier with the appropriate level of flexibility in their configuration engine.

CONFIGURABILITY
Phase II of the process is therefore looking at the configurability of the system. Regardless of your requirement – the nature of the Benefits market defines some level of sophistication in regards to configurability.

There are three key factors that one needs to keep in mind when analysing configurability for benchmarking purposes.

􀂄 The Rules Engine
􀂄 Reports & Forms
􀂄 Interfaces

Semantics is a strange beast. Every Benefits Administration solution supplier in the country offers a ‘rules engine’. Of course, as we know, a ‘rules engine’ is nothing more that a list of rules that operate in unison. A project plan in Excel has built-in mini ‘rules engines’ hidden around the spreadsheet. How does that differ from the complex configurable rules engines required by a 5,000, 50,000 or 500,000 employee organisation?

There really is no clever answer other than to do some research of your own. Nothing beats the hard graft of hands-on research; have a look at the all of the solutions available, let your IT team do the due diligence, and speak to some of the Clients who have already implemented some of these solutions.

Different levels of complexity have different levels of requirements. And in the end, you may have to make certain compromises depending on you financial/risk profile.

Do not take for granted that outsourcing your requirement will solve all of your problems with complexity. Outsourcing companies tend to be very rigid in what they deliver and making changes to their delivery and processes can be incredibly expensive.

Reports & Forms are simpler to benchmark. Systems usually come with a specific number of built-in reports and forms and a budget for ad-hoc requirements. An enquiry process is required in terms of the ability of the Client (i.e. you) to define the built-in reports, any limits on the ad-hoc reports and the costs for developing anything not covered by the quoted prices. Reports and Forms are especially important if a lot of the deliverable (Total Reward Statements, Election and confirmation forms, etc.) needs to be in the form of paper.

Finally, there must be an investigation into interfaces. How does one get data into and out of the system? This depends on the number and type of your interfaces (HRIS/Payroll/Benefit provider/Pension/Share scheme/Excel spreadsheets).

Data is often dirty, complex, multi-system and difficult to process. If you have to press three buttons to process a single HR import every week; that gives you a 6 permutations across 52 instances a year. What chance do you have of getting it right every time? Multiply that by a number of HRIS imports, payroll exports and perhaps an overlay of weekly and monthly payroll runs, and you are well on your way to understanding the criticality of automated interfaces.
Changing benefit providers, cantankerous controllers of your ERP system and complex multi-lined HRIS files create additional problems.

Critically remember that it isn’t about the initial configuration process of the rules, reports, forms and interfaces; it’s all about keeping them running and updated on an ongoing basis. Verify your requirements and then confirmation from the supplier that they are covered by their quote.

CHANGE PROCESS
This brings us to the criticality of the change control process. What is the process for making ongoing changes in the system? How long will it take and how much does it cost? What happens if the supplier delivers the system on spec, but the spec turns out to be wrong? Will the supplier have to go all the way back to code to make the modifications?

Since the change control process is always fraught with difficulties, it is worth checking whether some of these changes can be made internally by you or your team. Can your team be trained to do this? What are the types of changes that can be transferred to your internal team?

Finally, what is the audit process on all of these changes? Are the changes made on the live system? Will the system have to be taken offline to apply the changes? Are the changes tracked with time stamps and person who made the change?

Of course, very little of this matters if your requirement is simple and straightforward. But even if that is the case, it is always worth clarifying these issues before signing a contract.

The costs of change can be prohibitive. This is especially true if you are using an ERP or HRIS system. In the case of a system built in-house or an out-of-the-box solution, it is often better to just bin the system and start from scratch to get up to speed on current market requirements.

CONTROL
There are three levels of control that organisations wish to retain.

􀂄 Employee and Administrator workflow
􀂄 Employee and Company data
􀂄 Modifications of the system

Most companies wish to control the experience, workflow and choices their employees and administrators face during their interaction with the benefits selection process. In smaller organisations, it may be possible to identify off-the-shelf software that meets with your requirements. However, more complex requirements require system modifications of some degree.

In a recent study Met Life discovered that on average employees spend less than 30 minutes a year on selecting their benefits. My organisation has worked on this understanding for years and advises clients to create as much guided workflow as possible to ensure that the employee and administrator experience is as simple and pleasurable as possible. The more complex the requirement, the more important to work with living templates that can be adapted to changing employee, administrative, legal and benefit provider requirements.

The second level of control required is the ability to control the employee and company specific data within the system. This could be driven by a need for data security, or arguably far more important, the need to mine the data. This ability to analyse the data can give organisations key insights into employee motivation and cost drivers.

Finally, based on the earlier two points, a number of organisations believe that the best way they can capture control and offer value from a system is by transferring the skills to modify the system internally. This enables them to truly adapt the employee experience, workflow, reports and interfaces to their own internal requirements.

The final decision in all these matters finally depends on need, company policy and the ability of internal resources.

COSTS
Last but not least is the importance of costs. As we know, costs can add up dramatically, sometimes exponentially, if a requirement has not been mutually defined and accepted on both sides.

Many of our Clients find themselves signed up to a deal with a supplier who failed to mention that they expect Clients to do their own eligibility calculations and deliver to the supplier a single Excel file in a specific format.

This of course may be completely acceptable to some Clients, but as complexity grows, the key selling point of a Benefits Administration solution should be the ability to work seamlessly and in an automated fashion with raw data from the Clients current system’s and to deliver to their employees, administrators, payroll division and benefit providers suitable data with the minimum involvement of the Clients personnel.

Though the technology to do this is available – very few suppliers have made the necessary investment to upgrade their solutions to the required level.

The second area where costs can go out of control is ongoing changes. Frequently, annual system changes can cost as much as the initial setup charge. This can hit a company quite badly when considering the ‘total cost of ownership’ over a 3 to 5 year period. Setup charges reduce as a result of the configurability of the system, so the more complex your requirement, the greater the amount of due diligence is required to benchmark the configurability of the various solutions in the market.

Finally, the key issue of cost is contained in the ongoing support of the system. How much does it cost to create a new report? What is the cost of the sometimes near unlimited assistance that you may require? Is it possible to transfer skills to your internal team to ensure certain modifications can be contained as an internal expense? What will the system modification cost be if you merge, acquire a new company or make some other major structural change?

All of these costs can add up to a significant sum and a true picture of the desired solution can only emerge from benchmarking over a 3 – 5 year cycle.

Of course, it doesn’t help benchmarking the costs of a supplier focused on complex solutions with a purveyor of out-of-the-box solutions. This may sound ridiculous – but it happens more often than you think. Choose your relevant set of suppliers before benchmarking them against one another.

CONCLUSION
There are a number of Benefits Administration solutions in the market today and specific suppliers specialise in specific areas of the market. This could be defined by size (SME), functionality (out-of-the-box/fixed benefits/configurable), services (benefit design/IFA/administration solution), focus (ESS / Administrative tools), or delivery model (Outsourced/In-house).

Working through the 5c checklist will ensure that you select the right solution for your own specific requirement.

In summary, these steps are:

􀂄 Audit the complexity (or simplicity) of your requirement as honestly as possible
􀂄 Benchmark the configurability of the supplier’s solution and match them against your own needs
􀂄 Investigate and map the change control process and options
􀂄 Evaluate your own internal needs for control and compare them to supplier deliverables
􀂄 Do a ‘total cost of ownership’ comparison across the relevant suppliers

Hope you found this checklist helpful.

To learn more about how to audit your Benefit Administration requirements please send me an email at GirishMenezes@hotmail.com.

Read a whitepaper on simplifying Benefits Administration here: http://employeereward.blogspot.com/2007/02/5-steps-to-benefits-administration.html

Read a copy of a study we completed on Benefits Administration trends and best Practice here: http://employeereward.blogspot.com/2007/02/benefits-administration-in-united.html

£150K job opportunity in Comp & Ben

2007-02-01T02:02:00.000-08:00

I have just heard of a job opportunity which may be of interest. A global outsourcer is looking for someone to run their global comp and bens services offerings for their HR Services in the UK.

Key points are :

• Line HR experience preferred
• Good understanding of Comp and Bens on a global basis
• Able to think strategically
• Based in UK/Europe
• Will pay £110K plus up to 30% perf bonus

If anyone is interested, drop me an email at GirishMenezes @hotmail.com.

Child Trust Funds

2007-02-01T01:59:00.000-08:00

Friends of mine at a leading UK Benefits Consultancy have recommended a scheme to the Inland Revenue around Child Trust Funds.

The idea is to offer a 'salary sacrifice' based scheme to encourage parents to invest up to £1,200 for a child per year. Income arising on the money and investments in a CTF account is already exempt from tax. HM Revenue & Customs are keen to promote Child Trust Funds as they see this as a key way for us to save for future generations as well as to encourage a savings habit in them.

Financial education is a key part of the CTF and all children will receive financial education to help them manage their money with future needs in mind. Information will be available for parents, teachers and children over the lifetime of a child's CTF account.

No word back from the Inland Revenue yet...further information when available. But I think we can all agree that it is a benefit with a truly noble cause.

I would be interested in any comments on this benefit or any alternative views or strategies that people may be putting in place.

Do employees value their benefits?

2007-02-01T01:50:00.000-08:00

Ten heads of Compensation & Benefits from a cross-section of FTSE 250 companies gathered for tea at the Ritz in July to discuss the business case for Flex. I was one of the fortunate few to get in through the gates to help organise the event and thought that you might be interested in some of the findings. There were some amazing insights I gained from the forum as a whole, but the key finding for me was the enormous gap between the HR department's need to demonstrate the value they offer through the benefit package and the rude reality that is life.

Participants were asked to score the importance of certain criterion and then rate their own companies on a scale of 1-5. Across the attendees, the importance of employees understanding their benefit package stood at 98%, but the feeling was that delivery is at a paltry 30%. The importance of reporting on benefit costs and take-up stood at 98%, but the reality stood at 40%. In fact, the group felt that their rating of how well they deliver on awareness of employees of all elements of their benefits package stands at a low of 48%.

Given the vast steps technology has taken over the last ten years, it is a shame that we should still be in this position. There are more than enough options available to meet these requirements and I believe that four simple steps can help organisations move a long way in terms of meeting these goals.

Demonstrate value
One of the key drivers for best-of-breed benefits administration solutions is the flexible way in which they can place a value on the benefits received by your employees and present them in an interesting manner. Comparative charts can include market value, tax and NI savings, as well as group discounts. Every organisation has a different set of benefits, eligibility criterion, valuation methodologies and presentation benchmarks. Organisations who are managing to demonstrate the value of their benefits are the ones who realise this and stop trying to shoe horn their complex requirements into a rigid out-of-the-box solution.

Amalgamate benefits
My wife works for a leading UK bank and while doing my annual accounts we decided to create a Total Reward statement for her to get a full picture of our financial health. She was absolutely amazed when she realised how much she had gained through her stock option plan and via commission. This is a frequent situation I bump into at Client offices. Salary, parking, shares, and commission are rarely stored on the same software. As a result, it is the rare organisation, who can manage to amalgamate all of this information and therefore demonstrate the `Total Value' of the compensation and benefit package to an individual employee.

Automate updates
Total Reward is becoming more common in large organisations, though I am sure that you will agree that these statements, more often than not, miss out certain key benefits (canteen, parking and training are almost always going to be missed out). These statements are then printed out on statements that look more like black & white ATM advice slips than a presentation of your annual reward. What is worse is that they are out-of-date even before you have received them. It is a rare company that has invested in the ability to both amalgamate the data across sources, as well as enable the automation of the update process to ensure that the `Total Value' statement stays abreast with share price changes and commission payments.

The issue of course with both amalgamation and automation is the cost of change. The amount of time and cost that it takes to design and implement the initial solution is thrown to the wind when the payroll system changes the following year or you change your PMI provider. However, I think we all know that flexible systems do already exist and are able to meet these demands. It is not fair on your company or your shareholders if best efforts are not made to invest in these systems.

Communicate highlights
Finally, the key to highlighting `Total Value' to employees is to communicate. Having an online `Total Value' statement that stays up-to-date with employees financial status will go a long way to increasing employee understanding of the value of their benefits. But focused communication on the fringe benefits of training spends, employer awards and work culture can re-emphasise the HR departments focus on the individual employee. It is simple enough then to link back this communication with the "Total Value' position.

The marketplace certainly seems to believe that change is required if we are to meet this basic vision of being able to demonstrate the value of their benefits to employees and I am sure that I am personally committed to this goal as well.

If you would like to be put on the Tea @ the Ritz list, receive more information about the findings of the forum, or learn more about options in the area of `Total Value' statements, contact me at GirishMenezes@hotmail.com.