IF YOU READ NOTHING ELSE, READ THIS…
- Employee benefits reviews are driven by an employer’s desire to control costs, retain talent and harmonise their perks across multiple business sites.
- Reviews should be based on clear business objectives and employee feedback.
- Employers should ensure that any benefits they want to replace do not form part of an employee’s contract of employment.
- Employers should constantly review the reasons why they offer employee benefits to their workforce.
A review of their employee benefits package may be the last thing on some employers’ minds, but savvy HR and compensation and benefits professionals understand the power of an up-to-date, competitive offering.
These individuals know the importance of evolving benefits in line with regulatory changes, such as auto-enrolment. They will have considered whether their organisation’s pension scheme is fit for purpose under the reforms and how manageable the administration costs will be.
These professionals also understand the role benefits play in helping to increase staff productivity in the current economic climate. Charles Alberts, a senior employee benefits consultant at Lorica Employee Benefits, says: “Businesses need to get more out of their staff, so there is a big focus on productivity. Losing people from a business, particularly good people, distracts employers from their core market activity, so I think that core engagement piece is quite important.”
Larger employers, meanwhile, are reviewing their benefits offerings to ensure these are harmonised and integrated across business divisions. These are typically employers that have merged or acquired new businesses with employees on legacy benefits packages.
Multi-territory reviews
Some multinational employers are also conducting multi-territory benefits reviews. David Wreford, a principal at Mercer, says: “In various cases, they are mainly driven by good practice: an organisation wants to ensure it is doing the right thing.”
So what constitutes good practice when it comes to a benefits review?
Richard Roper, managing director, employee benefit solutions at JLT Employee Benefits, says preparation is key. His four-pronged approach starts with internal analysis: what does an employer want to say to the market and to its employees? Next comes workforce analysis, identifying employees’ needs, and external analysis to identify what an employer’s market competitors are offering. Employers should decide what benefits they need to offer to compete on staff recruitment and retention by first identifying the minimum requirements. Finally, organisations should review their existing benefits structure and costs to assess the value for money they are getting, says Roper.
Ascertaining employees’ existing benefits arrangements was one of the biggest challenges for engineering group Ramboll when reviewing its benefits package. Human resources director Gareth Williams says: “Having a clear picture of [employees’] total reward package involved digging out a lot of data from different HR systems, which informed us of the benefits discrepancies.
“[Employers should] get a clear view of all the remuneration data on each employee as quickly as possible at the outset of the project. This can take time and can slow down progress mid-project.”
Workforce attitudes
Ramboll surveyed its workforce on attitudes to their benefits in December 2012 and will do so again this summer to see what impact its new benefits package has made, and the extent to which perks are valued.
Employers can help optimise the value of the benefits they offer by ensuring there are no overlaps in product and service provision, which can result from market developments. For example, is an employer paying for a separate employee assistance programme (EAP) when is included as part its group income protection policy or health cash plan?
During this assessment, employers should ensure product providers are keeping their own costs down, particularly in the healthcare market. For example, Buck Consultants conducted a straw poll of healthcare providers and found that they were quoting medical inflation at between 6% and 9.5%.
Chris Evans, head of strategic solutions at Buck Consultants, says: “The bigger question behind this is: what are insurers doing to control this cost? There is a responsibility on insurers to address this issue.”
But employee benefits advisers are united in their belief that future benefits reviews should be driven by staff needs rather than providers and their propositions.
Surveys and focus groups
Employee surveys and focus groups can help employers identify employees’ needs. But Oliver Bence, head of strategic solutions at Benefex, says: “Surveys are a cheap and easy way to obtain some feedback from a set of employees, but in reality I don’t believe they are as effective as other methods.”
Bence believes focus groups produce a far greater understanding of employees’ needs, particularly if an organisation’s HR and benefits professionals do not attend, which he says helps to encourage employee participation.
But identifying employee needs is not without its challenges, not least because staff do not always know what they want. JLT’s Roper says: “If employers ask employees what they want, a lot of the time they will want everything and that costs a lot of money.”
Lorica’s Alberts adds: “I find some employers are hesitant to survey employees about benefits because I often hear this concern that they will create an expectation of lots of new benefits being launched if they ask [employees] a question about a particular benefit. But I think it’s all in how that is communicated to employees. I think [employers] should be transparent with staff.”
Not too transparent
But that does not necessarily mean employers should be transparent to the point of communicating the benefits review itself to employees. Mercer’s Wreford says: “I wouldn’t go loud on the fact that [employers are] doing a review unless it’s been triggered by some poor response from an employee attitude survey.”
A review of an employee benefits package can take from a few weeks to several months to complete, depending on the depth of the review and the work required. But Alex Tullett, head of benefits strategy at Capita Employee Benefits, says employers should avoid a formulaic approach. He advises against organisations conducting a review every certain number of years, or looking at the process from the point of view of ‘this is new in the market, perhaps we should have one’, which is not necessarily a credible way of doing things.
Tullett says: “Keeping up with the Joneses is not necessarily the best option when it comes to supplying benefits to employees. Employers have got to start with: ‘what are we trying to achieve?’”
JLT’s Roper adds: “I think employers should take a very open-minded view and go back to grass roots and question why they first started offering employee benefits. I think that has got lost over the years.”
Regardless of the time a review takes, employers should ensure that they undertake the process regularly to ensure they continue to offer an attractive benefits proposition to their workforce.
Viewpoint: Jenna Poon, associate, Freshfields Bruckhaus Deringer
HR practitioners need to be aware of the potential legal pitfalls when making any changes to their employee benefits.
Employers need to ensure that the benefits being replaced do not form part of an employee’s terms and conditions, that they are not cemented in contracts of employment. If this is the case, an employee’s consent will be required in order to change those benefits.
When examining employment contracts, any collective bargaining agreements should also be reviewed to ensure they do not provide for information and consultation obligations on the employer in the event of a change in employee benefits. It is rare that there will be consultation requirements, but this should be checked.
Even if a benefit does not expressly form part of an employee’s terms of employment, this does not necessarily mean it might not be an implied term.
Employees may argue they have an acquired right to the benefit based on the fact they have received it for a number of years and have an expectation of continuing to do so. If they are successful in any such argument, any change to the benefit that is detrimental to them will be a breach of their employment terms.
Most benefit policies contain express wording providing that the benefits are discretionary in nature, but in certain countries this in itself might not defeat any acquired rights arguments.
Finally, once new benefits are to be put in place, to avoid any of the above pitfalls, employers need to ensure that any benefit rules and communication documents clearly and explicitly state that the benefits are discretionary in nature, subject to change depending on policies in force from time to time, and that participation in any one year does not necessarily mean that future participation is guaranteed.
Case study: Ramboll re-engineers benefits after merger
Engineering group Ramboll decided to review its employee benefits package after acquiring rival organisation Gifford in 2011.
Gareth Williams, human resources director at Ramboll, says: “We had two aims: to look at affordable ways of aligning two sets of total remuneration and benefit practices across the new business, and to test our offering and ensure we were competitive in attracting, retaining and engaging our staff.”
Williams says high staff turnover is a current issue at Ramboll. At 16%, it is 3% to 4% higher than the average for the market sector.
Ramboll appointed Lorica Employee Benefits to undertake the review in the third quarter of 2012. It began by assessing the two employers’ pension schemes, a group personal pension (GPP) provided by Standard Life at Ramboll and a GPP run by Friends Life at Gifford.
As a result of the review, Ramboll will switch to one pension provider, Aegon, with effect from 1 May. All current members of the legacy GPPs at Ramboll and Gifford have until 1 June to move to the new Aegon GPP, the same date when Ramboll will stop paying employer contributions to the old schemes.
Williams says: “We felt [Ramboll’s] annual management charge (AMC) was out of kilter with the market and so, by combining the two businesses into one, we could perhaps command a better AMC.”
Before the acquisition, Ramboll had 450 employees, of which 300 were members of the Standard Life GPP, which charged an AMC of 1%. This compares with 0.43% for Aegon’s scheme. Gifford’s GPP charged an AMC of 0.56%.
The Standard Life scheme was non-contributory, with Ramboll contributing between 5% and 10% for all staff except directors, for whom it contributed 10%.
Under the terms of the Aegon scheme, staff can contribute a maximum of 5% of gross pay, which Ramboll will match at 5%.
The next stage of the project involved a review of the existing benefits offered by Ramboll and Gifford, which has resulted in an enhancement of some core benefits. For example, Ramboll will offer employer-funded private medical insurance (PMI) to all staff, including the 500 acquired with Gifford, from 1 May. Staff will be able to flex up to include cover for their spouse and/or families through Ramboll’s new flexible benefits platform, Ramboll Choices, provided by Lorica.
First-time flex
This is the first time Ramboll has offered flex to its employees. Williams says: “It would have cost about £1.5 million to take each [benefit] component and upgrade it to the highest, which we couldn’t afford.”
Ramboll has also introduced voluntary benefits for the first time, following employee survey feedback. These include dental cover from Denplan, critical illness insurance from Friends Life, group income protection from Unum, life assurance from Legal and General, health screening by Bupa and gym membership from Incorpore.
The organisation also plans to phase out its car fleet from 1 April and will introduce a cash allowance for all employees, which is already offered to certain staff. The value of the allowance varies, with middle managers at Gifford currently receiving £2,250 and those at Ramboll receiving £5,000.
Williams says: “We expect it to probably be cost neutral.”
Ramboll plans to increase its company-wide employee car allowance, which will result in middle managers’ allowance rising from £2,250 to £3,300.
