Introducing flex is a complex issue. Employers need to analyse why they are looking at flex because it won’t suit all employers. If flex does get the green light, support at each line of the business is crucial, says Victoria Furness
Case Study: Ajilon
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Flexible benefits schemes first came into vogue when organisations realised the one-size-fits-all employee benefits model no longer suited their workforce. But it is no small undertaking, so employers should take a close look at flex before taking the plunge. The first item on any organisation’s agenda should be an analysis of why they want to implement a flexible benefits plan. When Lloyds TSB decided to go down the flex route, it had clear reasons for offering such a scheme.
Tim Fevyer, senior manager for compensation and benefits at the banking group, says: "We wanted to do something that would help our recruitment, contain turnover, improve employee engagement, meet the needs of an increasingly diverse workforce, and help capture what the benefits meant for staff." According to Tim Roberts, managing director of internal communications consultancy Talking People, it is becoming increasingly common for financial directors to intervene and ask to see the financial benefits of flex.
He suggests creating the equivalent of a business plan detailing factors such as costs, ease of implementation and competitive pressures. Philip Hutchinson, director of HR and reward consulting at AWD Consulting, agrees: "I tell my clients there has to be a quantifiable reason for implementing a flexible benefits scheme, whether it be a reduction in the recruitment bill or an increase in productivity, and there have to be figures to support this." Although many in the industry believe flex is the best thing since sliced bread, the reality is that it will not suit all employers. An organisation with 50 employees, for example, might want to consider a voluntary benefits scheme instead, which may be more cost-effective.
Wolverhampton & Dudley Breweries made a conscious decision not to offer a full flexible benefits scheme and only offers staff the opportunity to flex their car and holiday entitlements. Wasted expenditure is part of the reason for its decision, but group HR director, Steve Rowlands, also believes that bosses should put in place restrictions to prevent employees from making decisions they might later regret. "One company we bought had a flexible benefits scheme in which an employee could make significant changes to their pension contributions and cancel their medical insurance in order to afford a higher level of company car. This might not be a bad thing for employees when they are in their 20s, but what about when they are in their 30s or 40s?"
For those that decide to go down the flex route, support from senior management and each line of the business is crucial. "Ensure you have complete commitment from everyone from the start," recommends Claire Parkinson, compensation and benefits adviser at medical device manufacturer Smith & Nephew. It was due to roll out its flexible benefits scheme in January this year, but this has since been postponed to May following its decision to include operative staff in the scheme, which doubled the project’s scope. Organisations should also ensure they have a specific project team in place to oversee the scheme’s design and implementation. This should not just consist of HR and benefits staff, but also departments such as payroll, communications and legal as well as a dedicated project manager (see page 29).
When it comes to choosing an external provider, experts recommend that employers shop around as not only do the services available vary, so do costs. "Be sure about what you are looking for, how you want the organisation to help you and what you do not want them to do," recommends Lloyds TSB’s Fevyer. Designing the scheme is the most important part of the process and, invariably, the stage at which most problems can occur if areas such as tax and employment law are overlooked. "Do not forget to obtain approval from the Inland Revenue because what you are essentially doing with flex is restating everyone’s contracts on an annual basis," warns Marc Bishop, head of reward and recognition for British Gas, who was responsible for implementing a flexible benefits scheme at Centrica.
AWD’s Hutchinson suggests that employers allow at least six-to-nine months for to design and implement a scheme. "It can be completed in less time, but often it is the factors you cannot control that slow the process down. Or you might find that the employee data needs cleaning," he explains. Sorting the data is one of the key stages during a scheme’s implementation – and often one of the most challenging. "Start early because it has a greater degree of complexity and you could find that a piece of information – such as the age of an employee’s dependants if offering family life insurance – is critical under flex, even though it was irrelevant before," says Lloyds TSB’s Fevyer.
Rather than taking a gung ho approach to introducing flex, most experts recommend that the first year be treated as a pilot project to find out how manageable the scheme is and identify which benefits employees favour. This is the approach Smith & Nephew has taken. "We did not want people trading cars, for instance, because we were not sure how manageable it would be. But each January, we will be refreshing the scheme and adding new benefits," explains Parkinson.
While easing employees into flex, AWD’s Hutchinson recommends looking at where you want your organisation to be in five years’ time. "Include an element of trading salary, for example, if you want to go down the flex rewards route ultimately." Key to the success of any flex scheme is communication, says Lloyds TSB’s Fevyer. The financial services provider used roadshows when rolling out its scheme. "We were able to talk to about 20,000 people over a three-month period."
Recruitment group, Ajilon, also realised the benefits of face-to-face communication. Julie Bowen, group HR manager, admits: "We overestimated how many people would read their emails. So we also did lots of desk drops, posters and recruited flex champions." Branding is another tactic that employers can use to give their flex scheme its own identity. However, while Talking People’s Roberts backs the concept, he recommends employers ensure this will appeal to staff. "Some branding has been appalling. Calling a scheme ‘Choices’, for example, will not catch employees’ imagination."
Maintaining a scheme once it is up and running, and modifying it to meet employees’ demands is also vital to its long-term success. "Keep the scheme fresh. I always look at the take-up of vouchers and replace the bottom two," advises British Gas’ Bishop. After all, no-one wants their flex scheme to have been a wasted exercise, given the challenges involved in designing and implementing it. But "once you are in flex, it gets a lot easier," explains Ajilon’s Bowen.
Affinity flex An arrangement whereby the employer sets up a series of opportunities for the employee to purchase discounted benefits from net pay, either by direct payroll deduction or by debit/credit card.
Bilateral flex One or more individual arrangements for the employee to sacrifice cash reward for a particular benefit. This is normally actioned through a salary sacrifice mechanism, by which name it is more commonly known.
Full flex A comprehensive mechanism based either on employer discretion or salary sacrifice, which allows organisations to provide a wide range of benefits for employees to choose from.
Recruiting the right assistance for implementation The impetus for creating a flexible benefits scheme at recruitment group Ajilon arose when the HR team was looking at how it could streamline benefits provision across its diverse range of companies. Ajilon chose to work with provider Motivano and began to identify the benefits it wanted to include in the scheme.
According to Katie Ivie, group HR manager, communication was vital. "Having a marketing person on the team was absolutely essential." The company took the decision to make the introduction of its flexible benefits scheme the first project that reinforced the Ajilon brand. "We called the scheme Enjoy! And designed the logo to look like the Ajilon logo, so that the two become synonymous in employees’ minds," says Julie Bowen, also group HR manager.
The first part of its scheme, called Lifestyle, went live in October 2003 and enabled employees to gain discounts on a range of goods and services. The second was a voluntary benefits package, which launched in March 2004. Three months later, the full flex scheme went live with take-up rates of 80% in both elections.