The search for key benefit providers must not be based on cost alone, and expert advice may be needed to locate the best candidates, says Jenny Keefe
One of the great things about the employee benefits market is its diversity. But for employers looking to buy new perks, that can be a drawback. Even if they have an idea which benefit they want to buy, they are often uncertain about which provider to choose. The problem is, it can seem like there are too many providers, too many schemes, and too many options. It is just baffling.
If employers want the best provider to meet their needs, they should not just go for the cheapest. In these tough economic times, there is a trend to think about cost above anything else, including a provider’s track record and suitability. Charles Cotton, reward adviser at the Chartered Institute of Personnel and Development (CIPD), says: “One of the mistakes employers are making is focusing on cost to the exclusion of everything else, and not thinking through the long-term costs of such an approach on employees.”
Financial stability important
“It is likely that whichever political party comes to power next year, the state of the UK economy will ensure many benefits tax breaks are reviewed again, and more changes to benefits may follow. Given this, childcare vouchers may not be an isolated case. Diversification of product range will make a provider more financially robust, which is important for employers to consider.”
Despite most budgets being slashed, many employers are still seeking to buy new perks. According to the Employee Benefits Research 2009, published in May, 17% of employers were planning to launch schemes.
Benefits professionals are not helped in their quest by the huge variation in procurement strategies from one perk to the next, with the process depending on the scheme’s type, complexity and cost. For example, procuring a new pension plan requires an entirely different approach to a voluntary benefits scheme. Martha How, head of reward at consultancy Hewitt Associates, says: “For cycle-to-work schemes, there are only three to five credible suppliers, and the service does not vary hugely, so buying these can be simple. But with medical benefits, employers have to consider the variety of designs possible, the issues around claims records, exclusions and the effect on other healthcare policies.”
Determine your aims
Before employers begin, they must determine their aims. For example, do they want to boost engagement, merge a business with a new acquisition, or simply reward staff? Andy Philpott, marketing director at provider Accor Services, says: “By being clear about what they want benefits to deliver, employers will be able to select a provider that shares their values, and has helped similar organisations achieve the same objectives.”
Other points to consider include who to involve. The key players should be HR, benefits, finance and, if there is one, the procurement department. Employers should also not forget the techies, who can advise on compatibility, security and other IT issues. But HR should have the final word, says How. “Generally, it is wise for the buying decision to be carried out by a benefits professional, rather than simply by the in-house procurement function,” she says.
Criteria for compiling a shortlist
When it comes to compiling a shortlist and assessing providers’ prospects, employers should set out a range of criteria, focusing on track record, service, stability, systems and communications, and devise a score based on their answers. Key questions to ask will vary according to the benefit concerned. For example, when sourcing insurance benefits and some healthcare perks, employers need to ask about levels of cover and exclusions. Matt Waller, chief executive officer at flex provider Benefex, says: “By creating criteria like this, employers ensure they get what they require, rather than what is cheap.”
“Also think about the type of employees who are being targeted. Can the provider offer appropriate solutions for these groups?”
At this point, most organisations embark on a beauty parade of shortlisted providers. But this can be a flawed strategy, says Origen’s Herbert. “While [beauty parades] are sometimes desirable, they are time-heavy and often produce a weak result, particularly if the personality of the presenters clashes with the employer decision-makers.”
Using a consultancy
In some cases, using a consultancy might be a better bet as the professionals are paid to make a full-time job of researching providers. Consultants assess hopefuls by scrutinising their financial stability and service level charges and they should be able to suggest one provider for the employer to grill. Paul Waters, senior consultant at Hymans Robertson, says: “Employers should seek professional help unless they are experienced in the area concerned. It will cost less than making the wrong choice, and can help negotiate the best terms.”
When buying benefits technology, such as flexible or voluntary benefits platforms, it pays to see the system in action first, says Robin Hames, head of technical, marketing and research at Bluefin Corporate Consulting. “If employers are new to online benefits technology, all the prominent systems will have a wow factor,” he explains.
“It is easy for them to be swayed. The biggest mistake they make is to procure on the wow factor, and then end up saddled with an inflexible, inappropriate system. All platforms and portals have their strengths and weaknesses.
See suppliers in action
That is why it is important to see more than one in action. And never accept the answer ‘it cannot be done’ because this usually means ‘it cannot be done on our system’.”
After clinching the deal, it is time to launch the scheme. Nick Thomson, director of small and medium-sized enterprises and alliances at Ceridian, says: “When the elements of the scheme have been selected, employers should work with providers to launch the scheme. This will require comprehensive communications around key milestones in the project.”
Finally, reviewing the scheme is crucial, which means looking at management information to check take-up levels. Mark Carman, marketing manager at Motivano, says: “Employers forget the importance of measuring and evaluating benefits. This must be considered at the earliest possible stage. What is the point in spending money on reward if they do not know if it is valued, or even being used?”
Case study: Mouchel checks providers’ past
Engineering and consultancy group Mouchel uses a benefits consultancy to pick its perfect providers. The company, which has 10,000 employees, relies on its consultant to sift through dozens of new and existing providers to narrow the choice to a few.
But Mouchel still has the final say when procuring a benefit. Kate Moore, benefits adviser, says: “We ensure we are confident we will have a good relationship with the provider, and that it understands the needs behind the company wanting to use it.”
The firm offers a flexible benefits scheme, as well as tax-efficient perks such as childcare vouchers and a cycle-to-work scheme. Moore says it pays to delve into a potential provider’s past. “Employers should ensure they have good, reliable references from other organisations that use that provider,” she says. “It is important to ensure the provider is a reliable competitor in the market, therefore the history of the company is vital.” She adds it is also crucial to monitor benefits once they are in place. “Although the provider must be proactive, employers also have to work with them to keep them up to date with any changes to their business to get the most out of the benefit.”
10 questions to ask a potential provider
1. How diverse is its business and product range?
2. How much will the scheme cost the organisation?
3. What makes it different from the competition?
4. Has it had any similar clients, and what are its client retention levels?
5. How well does it monitor any upcoming legislation?
6. Can it provide at least two references from clients?
7. Exactly how will the IT system work, for both employer and employee?
8. Can it offer effective management information services?
9. What communications support does it offer?
10. In its experience, what challenges could the project possibly face, for example, delays, administrative issues, and so on?
Read more articles from Special report 2009: benefits procurement