Employer profile: Telefonica O2 UK

As a leading player in a highly-competitive market, Telefonica O2 is keen to connect its staff to distinctively different reward, says Tom Washington

Looking down over the hundreds of headset-wearing customer service staff working in Telefonica O2 UK’s vast Runcorn call centre brings the task of a reward manager sharply into focus.

Colin Watt, head of reward and representation at O2, says: “When I first joined, I was shown this call centre and told ‘right, these are the people you’ve got to look after’.”

Despite being a little daunted by this prospect, Watt, along with his reward team, seem to be motivating staff with aplomb. The telecommunications firm currently boasts the UK’s largest active mobile customer base, with more than 20 million mobile and broadband customers. This is quite an achievement considering back in 2002, one of the things O2 seemed best at was losing customers.

As any customer-orientated employer will know, dissatisfied and disengaged staff do not make for a good service. “If we were a football team, we would be Manchester United or Chelsea,” says Watt. “There is a lack of complacency at O2 and our chief executive officer (CEO) has openly said that second is nowhere. That is why [our reward strategy] has to be good enough for the people who made us number one. We want our reward to be distinctively different.”

Pay and bonuses increased

This year saw O2 buck the trend in most of the private sector by awarding some staff pay increases and bonuses in April. Pay rises ranged up to 9%. “While most organisations focus on the retail price index (RPI), we did not,” says Watt. “The RPI was around 5% last year, but at the time we implemented our pay deal, it was 0%. We did not want to be seen as opportunistic and say ‘well, the world has changed, thanks for your performance, but there is not much in it for you’. We had a really good year last year and wanted to make sure our people knew we appreciated it.”

A supportive board and a particularly people-focused CEO, who was willing to make funds available for base pay rises and bonuses, is testament to the way O2 treats its staff, says Watt. “We do not even have to argue our point. The CEO knows how important it is that as much as we live up to our promise to our shareholders, we also have to live up to our people promise. From a reward philosophy point of view, we stuck to our principles.”

Strong position

O2 was formed in 2001 after the demerger of BT’s mobile phone business, BT Wireless. Since then, it has consolidated a strong position in the mobile operator arena, and has moved into the broadband market in recent years. The O2 group was bought by Spanish firm Telefonica in 2006, with the deal described at the time as the biggest all-cash takeover in the history of the telecommunications industry.

Penetration of mobile handsets in the UK now stands at over 100%. This means many people have two phones, so there is only so much business available for the likes of O2, Vodafone, T-Mobile and Orange to compete for. This has forced mobile operators to explore other avenues of revenue, rather than relying on updating phones and tariffs.

“The mobile market itself is mature and in decline, so competition is really tight, but we are continuing to win in a challenging environment,” says Watt. “People are spending less but, thankfully, they are still spending money with us.”

O2 has also been enterprising in its alternative ventures, such as its sponsorship of the former Millennium Dome, which has been rejuvenated into the fastest-selling music venue in the world, ahead of New York’s Madison Square Garden. In addition, its move to gain exclusivity as the only UK phone operator to stock Apple’s iPhone has proved a lucrative revenue stream. More recently, O2 has fought off competition from Vodafone and Orange to become exclusive UK stockist of Palm Pre, the iPhone’s successor-in-waiting.

Big changes to reward

Since Watt joined O2 from Co-operative Financial Services 18 months ago, he has overseen some big changes to its reward provision. After joining the firm, he tested its existing benefits package, and knew it was not good enough. “I expected something different,” he recalls. “The service was not great. I looked at some invoices and knew we could do better.”

His first move was to take a hard line with O2’s suppliers, gathering them all into a meeting to discuss his plans. “Everyone is really proud to work for O2 and we want to work as a team with our providers, but some of them were not up to the job,” he says. “We are number one across our industry in most things you would want to measure, so why were we dealing with organisations that did not meet our benchmark?

“I said to them: ‘You might notice some suppliers are not in the room today, and the reason is because we did not think they were up to turning into partners. You are part of our team.’ Now they are coming to us without being prompted with ideas of what they can do. That was the tipping point in the process.”

Online employee benefits portal

The biggest improvement project undertaken around reward so far has been the development of a new, all-encompassing benefits portal, O2rewards.com, last November. The site, which staff can access at work or at home, is an ultra-modern, interactive benefits hub. Through the site, employees can make their annual flexible benefits selections, access total reward statements, monitor their pension fund, and access all O2’s voluntary benefits and discounts.

“It brought together lots of things that were being offered but no one could find in one place,” says Watt. “It was about clearing some of the mist around the existing benefits.”

The site has proved to be a success, increasing unique flex enrolments by 20% to a total of more than 50%.

Voluntary benefits

O2 has also updated its voluntary benefits plan, provided by Next Jump. More than half of its 12,000 staff have registered to use the scheme and have collectively spent over £1.2 million since its launch last October, racking up savings of £350,000 in the process. “I sat down with my team to work out how we could put something in place so people spend their money in a much more efficient way, to make them think working for O2 is really good and that they can not go anywhere else. That was the challenge we set ourselves,” says Watt.

But he concedes his biggest challenge remains finding a way to achieve complete understanding of benefits among all staff, especially the 3,500 who work in the firm’s retail outlets. Watt explains most staff would prefer face-to-face communication, so he has set to work implementing an online tool to get closer to this goal. “It will be as close as you will get to be able to do face-to-face for all staff.”

Learning fund

This year, O2 has also introduced a learning fund, through which staff can take an educational course, such as learning a language, silversmith training or coaching on parenting skills. If an employee invests £80 a month, O2 will contribute an extra £40.

Employee share scheme

Looking to the future, O2’s global HR team is planning to implement an all-employee share scheme. “The share scheme has not been around since the Telefonica buyout, but as a high-performing company in the UK, which is part of a plc, we should have a scheme,” says Watt. “Telefonica has listened, but wants to make sure the share scheme is available for everyone across the globe. It will be very hard to implement and a massive undertaking, but will be the final piece in the benefits jigsaw because we have already got a good pension scheme, and a full range of financial and lifestyle benefits.”

O2’s backing by Spanish telecoms giant Telefonica means it has a supportive parent organisation with the financial clout to continue to invest in new opportunities. But Watt says O2’s HR function remains autonomous. Although it must keep European colleagues fully briefed, it is not governed by them.

And the benefits of being a global organisation do not end there, says Watt. All HR staff have access to an online community forum called HR Wings, which offers a platform for HR teams across the world to obtain help and advice from their 2,500 counterparts.

“If we were just a mobile operator in a decreasing market, we might be a bit worried,” says Watt. “But as we have the strength and backing from Telefonica, we can go after new business, global deals and, most importantly, continue to invest in our people.”


O2 at a glance:

Telefonica O2 UK started out as part of BT Wireless before it was demerged in 2001. Spanish telecommunications firm Telefonica bought the business in 2006, and its UK arm became known as Telefonica O2 UK. It has since consolidated a strong position in mobile telecommunications and has recently begun to provide broadband services.

O2 now boasts the UK’s largest active mobile customer base, with more than 20 million mobile and broadband customers. It added more than 250,000 contract customers in the first three months of 2009 – a growth of about 20% year-on-year. At the end of March 2009, this group made up more than 40% of its total base.

According to O2’s first-quarter results to the end of March 2009, it achieved revenue growth of nearly 7%, fuelled by trends such as mobile data usage, whereby mobile phone users access the internet through their handsets.

The company has a big retail presence in the high street, with 400 stores and 3,500 staff. It has also moved into selling different products and services through its stores, including its own range of laptops.

O2’s headquarters is in Slough, with customer service centres in Runcorn, Bury, Leeds and Glasgow.

The make-up of its workforce is 55% male, 45% female, with an average age of 32. The average length of service among O2 employees is five years.

Career profile: Colin Watt

Colin Watt, head of reward and representation at Telefonica O2 UK, joined the firm 18 months ago. He is responsible for the design and delivery of compensation and benefits at the company.

Watt previously spent five years at Co-operative Financial Services as its head of employee relations, where he focused on renegotiating schemes and benefits to staff.

Before that, he worked at Royal Liver Assurance for 10 years, the Channel Tunnel, and Tesco. Working across a variety of sectors has given him a great breadth of experience and, in particular, Watt cites the Channel Tunnel as an amazing project to be involved in.

Providing something unique for O2 employees is what currently drives Watt. “We want to offer something that is distinctively different for our people who consistently perform,” he says. “We have to live up to the values we use for our customers: bold, open, trusted and clear. With about 2,500 call centres in the north-west of England, there is lots of opportunity for people to go somewhere else, so working here has got to be different.”

Employee View: Perks are music to the ears

Victoria Carline has worked at O2 for almost five years. In her current role as team manager, she manages 18 lead advisers across the firm’s Runcorn site, who provide support for escalated calls, including authorisation of phone credit and lifting restrictions on handsets.

Using O2’s partnership with technology manufacturer Apple, she has been able to buy goods such as iPods and MacBooks for herself and her family at a discount of up to 17%. “I knew we could get a discount, but did not know just how easy it was going to be,” says Carline. “I just went into the Apple store, showed them my work ID, and they gave me a discount.”

She is also passionate about music and regularly takes advantage of being offered priority tickets at O2-sponsored music venues. “Some tickets would normally be really hard to get hold of, but I have been able to see great bands in tiny venues,” she says.

What are the benefits?

Trust-based defined contribution pension scheme. Contributions can be made via salary sacrifice and O2 matches the employee contribution up to 10%, with a minimum employee contribution of 4%. Defined benefit scheme that is closed to new members.

Private medical insurance: all managers are eligible to participate in the O2 Healthcare Scheme, which has four levels of cover to suit individual needs.

Voluntary benefits:
Range of discounts on products and services, including a concierge service, childcare vouchers, retail vouchers, cycle-to-work scheme, carbon offsetting scheme, dental cover and healthcare cash plan.

Flexible benefits:
Range of lifestyle, healthcare, financial and protection benefits.

Ranges from 25 to 30 days a year.

Annual bonus scheme for all staff.

Annual performance-based Telefonica share plan for selected senior staff.