In summaryWhile high-cost benefits such as final salary pensions and private medical insurance are perceived to be top of every employee's wishlist, they may not appropriate for everyone. Identifying what your workforce would value is key to providing a package to keep everyone happy.Case study: Eli Lilly
Article in fullWhen assessing benefits it would seem that high value rewards such as a final salary pension scheme or private medical insurance (PMI) would win out every time with most employees. But this is not always the case; in some workplaces having a wide range of cheaper benefits to pick from goes down far better.
A final salary pension is often regarded as the most valuable benefit an employer can offer and there has been massive press coverage about their demise. Yet figures released earlier this year by asset managers JP Morgan Fleming showed more than 60% of the country's top pension funds have been closed to new members.
Clearly, there is an argument that employers which still offer a final salary pension to new staff must be hugely attractive. But if an employer has different types of pension schemes in place this can lead to resentment from staff who are not offered the higher quality, final salary scheme.
Charles Cotton, reward adviser at the Chartered Institute of Personnel and Development (CIPD), believes older staff are more concerned about the type of pension available, but adds: "Final salary schemes are still out there and some companies have made a conscious decision to keep them going."
He points out that less sexy industries may have to spend more on top of the range perks to attract the best recruits while other employers can make savings on benefits because they have no recruitment problems. "Jobs in media are not the best in terms of benefits. People work in this sector because they see it as creative and perhaps because they feel it has kudos and offers autonomy, not because of the pensions provided."
But, is not having access to a final salary scheme really such a disadvantage?
Gareth Emmonds, a consultant with HR specialist Black Mountain, says many younger employees have a far more short-term view and communication is the key to them seeing a defined contribution pension scheme as advantageous in terms of its portability. "The public sector is the stronghold for final salary schemes, but many people would prefer to work in the private sector."
He adds that plenty of younger employees may also not particularly value being offered PMI, even though premiums are costly for fully comprehensive cover. "Employees only appreciate it if they are ill. Group critical illness may be cheaper and have greater appeal for some organisations. In either case, an employer should make sure its employees know the value of what is being provided. Like PMI, critical illness can be expensive to buy individually and it is well worth an employer ensuring it [is included in any] total reward statements."
In some cases, quirky, feel-good benefits may hit the right note above-and-beyond a final salary pension and PMI. Emmonds says: "Innocent Drinks has been featured widely as a great place to work. It hasn't got the most valuable benefits package available but the fact it allows its staff to take unpaid sabbaticals has generated plenty of plaudits. Rather than quality versus quantity, it's about meeting the needs of the workforce."
Innocent has fewer than 50 employees, but Ailana Kamelmacher, a spokeswoman for the drinks firm, says that benefits provision is far more than just having the best pension. "The Innocent scholarship gives employees £1,000 to do something they really want and examples include someone who wanted to do a charity cycle ride, a cookery course in Italy or to finish making a record. Rather than tie people down to specific training, we'll listen to anyone who has a particular course in mind and we provide free monthly massages and fruit, juices and cereal. We also now offer a £2,000 baby bonus, although not many of our staff have children yet." Innocent does provide PMI, but does not contribute into its stakeholder pension - it says this may not be appropriate for all employees.
There is an impression firms may be looking at reducing the amount of benefits they offer. But, according to the CIPD, many employers are looking to enhance the value of existing benefits and offer more. Its Reward Management 2004 survey showed that, in particular, "family-friendly, flexible, voluntary and well-being benefits will receive an overall boost".
Black Mountain's Emmonds says: "There have been employers which have provided an onsite crèche, something many would be nervous about, but which has ended up making them money as well as proving enormously popular with staff, not least because it is reassuring knowing their child is close by."
But, before firms that employ plenty of parents look at what they can provide, he warns: "Employers must be careful about the way they present benefits aimed at parents. Leaving early to pick up a child is fine, but someone without children may feel they need to de-stress at a yoga class. Employers must make sure they are seen as even-handed."
Some would argue that whether an employer decides to dig deep and provide top of the range benefits, or go the cheap and cheerful route, it is all about appropriateness. Emmonds says: "Too many employers fail to get their staff involved. We would advocate finding out what staff want before anything is established."
Carrying out detailed staff surveys and setting up flex schemes are lucrative businesses for consultants. But they claim this is a more sensible investment than running with benefits that just aren't working and, in particular, communications may need a close review. "One large telecoms company spent a fortune on producing a thick new joining pack that few employees read. There was too much detail, and some failed to realise that their new company death-in-service benefit could negate the need to buy their own life assurance," says Emmonds.
John Ingham, head of HR consulting for HR consultancy firm Penna, adds: "There are plenty of cases where there has been low take-up of benefits and unnecessary changes made in the mistaken view it's what employees want. One company I'm aware of said staff could come in at 10am because of problems commuting. But they didn't find out if people would be interested, and after a lot of fanfare, [they found] staff preferred a more difficult journey and to leave earlier."
Making staff feel valued is not just about spending big bucks. "We've seen an increase in companies that are offering staff career consulting. It is about spotting talent and giving those people an indication of what they are worth if they were to look outside and what is available to them within an organisation. It lets them know how valued they are and helps them to make choices about what they want to do. It can help someone recommit to an employer," he says.
A further point to bear in mind when introducing new benefits is to ensure that the quality matches the employer's desired image. Phil Murray, a flex consultant with Hewitt, says: "High quality and cheap benefits do not necessarily sit at opposite ends of the spectrum, but it is important that employers provide premium quality products when they choose to provide benefits such as [home computing schemes]. It is important to maintain the employer's brand in the eyes of employees."
CASE STUDYThe pharmaceutical industry has a reputation for rewarding its people well. Eli Lilly is among the most generous in both quality and quantity. One of its biggest selling points is its non-contributory final salary pension and the company makes communicating retirement options a priority. HR adviser Zara Loughery says: "We introduced our Lilly Flex scheme this year. It allows staff the choice to top-up their pension through salary sacrifice, creating tax efficiencies."
Eli Lilly holds regular face-to-face forums, including individual meetings showing pension projections if required. Those coming up to retirement also have special seminars based on financial planning as well as health and wellbeing.
The flex programme was set up in conjunction with Mercer HR Consulting and provides core benefits including employee-only private medical cover, income protection and life assurance but allows employees to pay extra for higher levels of cover or to provide for partner and family.
Other benefits on offer include dental insurance, PCs, healthcare cash plans, personal accident cover, retail and childcare vouchers, discounted wine delivery and staff can also buy extra holiday on top of the 25 to 28 days provided. Loughery adds: "We're really pleased with the 73% take up of flex, and we're looking at gradually introducing more benefits based on feedback from employees."