Stephen Jones is an employee benefits consultant at our London office. He believes the unprecedented loss of confidence in conventional stock market-linked company pension schemes is forcing high-flyers and employers alike to seek more attractive alternatives.
Factors like low unemployment and the ongoing competition for the best talent put constant pressure on employers to develop their reward strategies.
It’s getting harder and more expensive to attract and retain high-flyers. Given the hefty costs of attracting, hiring, training and developing new employees, it is no surprise that companies are giving high priority to creating benefits programs that will enhance employee loyalty.
As ever, managers are interested in controlling costs but these days the need to engender loyalty means more than bearing the initial cost of attracting employees. In order to keep them it becomes necessary to address their more diverse needs – increasing job satisfaction and productivity, for example, or helping them to make better decisions regarding their personal finances.
These factors are shaping today’s benefits industry.
The rise and rise of the benefit consultant
Pressure to enhance employee rewards as cost efficiently as possible has created a huge opportunity for a new breed of specialists – benefit consultants – who are retained to assist employers in designing a benefits strategy that will differentiate them from competitors in the recruitment stakes.
In the not too distant past, many organisations would have taken the view that benefit consultancy is a prohibitively expensive fad. More recently, however, a proliferation in this arena of information technologies has effectively lowered the cost of entry.
Most consultancy firms are able to advise on a wide range of employee benefits, offering sufficient diversity to establish unique and attractive benefit packages. More and more companies are considering benefit consultancy services as a useful addition to their corporate armory.
The value of consultant advice should not be underestimated, particularly during times of significant change. The process of corporate restructuring or benefits re-engineering can be fraught with pitfalls.
Filling the information gap
Research in 2003 by Aon Consulting concluded that an incredible 93% of employees do not appreciate the value of their benefits package. The consequences are clear and well understood by benefit managers, ‘hiding your light under a bushel’ springs to mind. Not communicating the true worth of a benefits package will leave employees feeling that they are inadequately rewarded and in turn, increase their inclination to find alternative employment.
This points to a failure in internal communication rather then a flaw in the benefits argument. If your company is investing in an attractive benefits offer, it makes sense to ensure that employees appreciate it. Most HR directors would agree and are developing their benefit communication strategies accordingly.
The days of the flyer pinned to a notice board are over. Employers are turning to benefit consultants, even creative agencies, to devise better methods of internal communication and the best strategies for using them. IT is increasingly playing a vital role in employer communication strategies. Use of the internet, intranets and e-mail make it easier, and often cheaper, to raise awareness and recall of the benefit conditions under which staff are already working.
The benefits of a good education
One of the strongest themes to emerge in the last year has been the need to educate employees, particularly in the area of pensions.
The UK’s pension crisis has been well documented and whilst employees seem to recognise the importance of a pension they do not necessarily take ownership of this critical decision and understand how much, and when, they need to save for their own retirement.
Recent research from Datamonitor showed that only 8% of respondents viewed pension saving as ‘not worthwhile’. That said, a mere 30% recognised the need to save more than the recommended 10% of salary (Datamonitor – Crisis? What Crisis? Consumer Attitudes to and Knowledge of Pensions – Published 12th December 2003).
It is in light of such discouraging data that employers are turning to outside benefits professionals. As employees’ personal finances become increasingly complex the provision of tailored, independent, personal financial advice is seen as having particular value.
One size does not fit all
Modern employees have a very different set of needs from those of preceding generations. They actively seek benefits that suit their aspirations, lifestyle and family needs, rather than simply accepting the company’s standard package, provided on the basis of grade, length of service or seniority.
This has led to the increased provision of flexible benefit plans, which offer employees the ability to select from a menu of benefit options instead, thereby giving employers the opportunity to tailor its benefits proposition to meet the needs of its employees.
Examples of greater flexibility typically include offering more options based around traditional benefits such as private medical insurance (for example buying a higher level of cover or adding a spouse), death in service cover (changing from 2x to 3x salary) and buying/selling holidays.
We are increasingly seeing evidence of employers putting a much wider diversity of flexible benefits in place to reflect the differing requirements of employees – retail and childcare vouchers, massage at work, gym memberships or spa days.
In addition, the provision of voluntary benefits has become increasingly popular. Importantly, introducing voluntary benefits enables an employer to increase the range of benefits on offer without necessarily increasing their costs. Employees select and pay for the products and services they require using the collective purchasing power of their fellow employees to gain discounted prices.
Manage it yourself
In recent years many organisations have introduced HR software to lower their transactional costs and to improve reporting on key performance indicators such as headcount, turnover, and absence rates. There has also been a trend towards the introduction of self-service functions that allow employees to access and update their own records and make common HR requests such as absence requests and address changes. By enabling such transactions to be carried out on a self-service basis, the administrative routine is reduced, enabling HR officers to devote more efforts to added value services.
However, in the more specialist area of employee benefits administration we have not yet seen the same level of technology adoption thus far. Given the need for employers to continue to lower their transactional costs further, to improve the communication of their employee benefits and to gain better value for their benefits spend, we expect to see this changing over the next few years. Switching from gym membership to discount vouchers on-line, at will, should be a perfectly workable arrangement.
A fresh approach – excite, engage, educate
To truly revolutionise the communication of employee benefits, employers need to move away from focussing all their benefits communication upfront, at the point where the employee joins.
Traditional methods such as their employment contract, handbook and induction session are fine but there is a compelling argument for using a variety of different communication methods throughout the duration of their employment.
Employers must excite, educate and engage employees so that they understand and truly value their employee benefit package and have the information and tools they need, when they need them, rather than simply issuing hollow statements once a year.
By way of example, UHY Hacker Young (in conjunction with Thomson’s Benefits Consultants) has found that there is a dramatic way to increase both the number of employees who contribute to schemes and their level of contributions. They offer employees an interactive retirement planning tool. It enables them to model what contributions they need to make to achieve their desired retirement income and age. In addition it gives employees the ability to view the value of their investment funds and to change their contribution level and investment strategy. Employee surveys indicate that using such tools has a significant impact on their level of understanding and interaction with their pension.
A little familiarisation with web-based technology allows employers to put in place more flexible and individually tailored programmes. They no longer face the headache of complex paper-based administration. That said, technology on its own rarely offers a complete solution.
A truly effective benefits strategy must have expert advice and consultancy as its backbone.