Is benefits benchmarking still relevant?

Is benefits benchmarking still relevant? For some employers, it may not have been a priority in recent years, with projects such as pensions auto-enrolment compliance and dealing with the bearish economic climate taking precedence.

Standing out from the crowd

If you read nothing else, read this…

  • Benefits benchmarking remains important, but employers should set clear aims and expectations at the outset.
  • Common reasons for benchmarking benefits include good governance, the need to fill a specific role, post-merger or acquisition, or to cater for a new business division.
  • Specialised bespoke benchmarking surveys can be costly, but a lot of information is available free of charge. 

But, as the economy continues to recover and the war for talent picks up pace, many employers are focused on offering a competitive benefits package. After all, no organisation wants to be seen to be lagging behind its competitors.

Richard Colver, head of healthcare and wellbeing at JLT Employee Benefits, says: “[Benchmarking] is important because employers don’t want to be under, over, or out of market. Perception is king. It’s about being in the market and knowing what they need to offer. Employers are trying to take more of a wholesale view of it and know where they are.”

Chris Wilson, director at Reward Consulting Partners, adds: “If you think about the cost of benefits, for a lot of organisations this is in excess of 20% of salary. Benefits are an important factor in attraction and retention of staff.

“Total reward has helped to raise the profile of benefits, so maintaining market position is important. The other important factor is that [benefits] are an indicator of culture and attitude to people and value.

“It is important to know what other organisations are doing and decide what is right for the labour market [that they] are targeting. Different populations will find different things attractive.”

Why benchmark benefits?

There are several reasons why organisations undertake benchmarking exercises. Firstly, benchmarking can give employers a broad idea of what benefits package they should be offering when setting up a new business or division. 

Benchmarking can be equally useful when employers are harmonising packages after a merger or acquisition.

Paul Brown, head of flexible benefits at consultancy Towers Watson, says: “Most organisations should benchmark periodically, but they don’t.”

Brown adds that while some organisations will conduct benchmarking exercises as part of a strategy of good governance, others will do it in response to specific business needs or issues, for example if they are struggling to recruit for a particular role or are looking to move into a new business sector, which may require different employee skillsets, such as a retailer launching an online business.

Martha How, reward partner at Aon Hewitt, says: “[Employers] do it largely because they want to test how competitive their [benefits] package is. A number of organisations have become less market-focused in recent years because turnover has been lower.”

Decide which benefits to benchmark 

Once employers have identified the rationale behind benchmarking their benefits, the next step is to decide which benefits to include in the exercise. Some organisations will benchmark their entire package, but a more common approach is to look at individual core benefits, which are often the most costly elements of a package. These typically include pensions, healthcare and group risk benefits.

But Aon Hewitt’s How warns employers to take care when benchmarking benefits such as private medical insurance (PMI) because available data may not always be sufficiently detailed to enable direct comparisons to be made.

For example, although two competitor organisations may offer PMI for staff, their policies could be vastly different in terms of excess levels, the number of staff covered, and the grade of employees who receive the benefit. “Benchmarking surveys will only show that [an organisation] offers PMI,” says How. “But it is still useful for employers to know that competitors are offering the benefit.”

Shift in employers’ approach to benchmarking

There has also been a shift in the way organisations are benchmarking their benefits.

Claus Adam, benefit product manager of information solutions in Europe at consultancy Mercer, explains: “In the past, benchmarking was around benefits where employers would take a broad market approach. In the last year, we are now seeing organisations looking at sector or peer comparisons.”

Sector-specific data is typically the most detailed in terms of what benefits cover and what is funded for employees.

Where to source data

But sector data is not always easy to source. 

“Some sectors may have to look quite hard to find data, but big sectors have a lot of data available, [for example] retail, technology and pharmaceutical,” says How. “Niche businesses in niche markets may not be so concerned about what other organisations offer.”

Where specific market data is unavailable, employers may be able to tailor general market data to suit their needs. For example, it may simply be a case of them removing, say, data from financial services organisations within a benchmarking report because of the impact of the higher packages typically offered by these organisations, which could skew the data that is relevant for other business sectors. 

Broad sector or industry benchmarking data is most often available from large employee benefits consultancies, such as Towers Watson, Mercer and Aon, as well as organisations such as Incomes Data Services. In some cases, certain information is available free of charge for organisations that take part in benchmarking surveys. Alternatively, such information is available for a fixed subscription fee.

Meanwhile, smaller, more niche organisations can provide data on specific industries, such as the financial services or pharmaceutical sectors.

The cost of benchmarking

However, employers that are planning to use benchmarking data to address a specific issue may find that paying for bespoke information achieves better results for their particular circumstances. The cost of doing so will be driven by factors such as the level of detail required. As a ballpark figure, employers can expect to pay between £10,000 and £20,000, says Towers Watson’s Brown, although in some instances this will be much higher.

“Benchmarking can be really tailored to an organisation’s needs and budget,” adds Mercer’s Adam.

Where employers opt to use generic benchmarking data, they should bear several points in mind. Reward Consulting Partners’ Wilson says some benchmarking surveys tend to focus on big-ticket items, such as pensions, company cars, share options and bonuses, and neglect some of the smaller benefits that may have a greater impact on employee engagement, such as recognition schemes.

“What a survey will tell you is what an organisation is spending on benefits, but is important that the benefits are right for the organisation,” he says. “Unless benefits are properly focused, an employer may be wasting its money.”

Whatever benchmarking data employers use, setting clear priorities around what they want to achieve and identifying where they wish to position themselves in the market will ensure they optimise the value of the exercise. “Prepare a board-level report and colour-code this to show where benefits are above or below market,” says Adam. “Decide if being below market on some is outweighed by benefits that are above market.”

Benchmarking alone may not give employers an accurate reflection of the value of the benefits they offer, adds Adam. “What is the value of the package in the eyes of employees? That is key to the process. [Employers] could have a very expensive package, but may not achieve a high level of employee value.”

So, although benchmarking can be a useful exercise in determining whether an organisation’s benefits package is on the right track for its workforce, such data may not always provide the best value when used in isolation.

As Aon’s How says: “Slavishly following the market misses the point, but benchmarking is still a valid exercise.”

Case study: Aker Solutions

Aker solutions

Aker Solutions benchmarks its benefits package on a global basis to understand what the market norms are in each of the countries in which it operates.

Philip Hutchinson, head of reward at the global provider of products, systems and services to the oil and gas industry, says the organisation starts by looking at the statutory minimums required in each country and what is typically offered above these. It follows this by benchmarking within the oil and gas sector, before looking at contribution levels in individual countries.

This means that Aker knows that the age-related pension contribution structure it offers in the UK is competitive and unlike its competitors’ pension provision, which enables the employer to attract the mature talent it needs for its business.

“Benchmarking enables us to do that in such a way that it still remains attractive,” says Hutchinson. “Not only can we make our package more attractive, but when we send out our offer letter [to new joiners], we can highlight which elements of the package are more attractive.”

Bespoke survey data for a specialised industry typically costs between £2,000 and £3,000, he says.

“We need to be more precise about the oil and gas industry, which is why we are willing to pay,” he adds.

Aker tries to benchmark and gain information informally in countries where benchmarking data is unavailable. “People are generally happy to share [information],” says Hutchinson. “It’s in their interest to do so if they are trying to attract talent to a particular region, such as Angola.”

Forward planning is vital before starting any benchmarking exercise, he advises. 

“Before an employer goes out and benchmarks, they should think about what they want to do with the information. They can then gauge whether it is worth spending the money.”

Samantha Gee: Employers should aim to make their benefits offering unique

Sam Gee

It is really important to know how your core benefits offering stacks up in the market. But being in line with the market offering is just a ticket to the game; most value comes when employees consider benefits to be of value to them. 

Most salary surveys provide a rich source of benefits intelligence and an opportunity to see how competitive various aspects of a package are. That is important, but what is even more important is how this knowledge is then put to use to inform decisions about reward.

Time and time again, we see employers struggling to understand in finite detail what a small handful of direct competitors offer, and then trying to match that package letter for letter, seeing this as the best way to ensure they attract, motivate and retain talent.  

The danger is that this leads to a boring blanket of vanilla benefits offering no excitement, little impact and no hint of what the organisation is all about. 

Sensible employers will ensure their overall benefits package is broadly where they want it to be in the market. Core aspects such as leave, cars, pension and healthcare will be competitive unless something else equally as important is in place.

But the braver organisations will then think even harder and go beyond the norm to seek out differentiators, searching for the things that align well with the values and beliefs of their organisations, yet truly stand out.

Consider the big four professional services firms that offer days off on birthdays, or the offshore platform offering single-occupancy rooms and quality chefs, or the media company rewarding employees with hard-to-obtain tickets. These are the things that employees will talk about with colleagues, friends and potential new hires. 

Employers should use benefits intelligence to ensure their overall benefits offering is competitive in the market, but then look beyond the data to ensure their offering is unique.   

Samantha Gee is client director at Innecto Reward Consulting