Are employers returning to a paternalistic benefits approach?


If you read nothing else, read this…

  • The traditional paternalistic benefits approach, which is based upon employees staying in a job for life, is considered to be expensive and outdated.
  • Benefits strategies have moved towards the approach of offering employees choice and control over their own benefits package.
  • The new paternalism landscape empowers staff with opportunities to help themselves.

The employment landscape undergoes continual change, whether that is the introduction of the national living wage, responding to the pension freedoms and the ageing workforce, or changing legislation on childcare and parental leave. Employers have to be able to constantly respond and adapt to these changes in order to retain a competitive edge, and their benefits strategy is often a key component in achieving this goal. To meet these challenges, the industry could be looking at a return to a more paternalistic benefits world.

Paternalism is dead…

Some may argue that the paternalistic ways of old are dead and buried, and that employee choice and control is paramount nowadays, but it would seem that not all employees or employers are happy to exchange responsibility completely.

As employees face their own challenges with rising costs of living and the struggle to balance work and home life, they look to their employer to offer assistance. A recent survey of employees and employers by Davidson Asset Management, Employee benefits: 2035, published in September 2015, found that 87% of respondents think it is their employer’s responsibility to explain how they can get the most out of their benefits package. In addition, 48% view mortgage advice as a useful benefit for employers to provide.

But it is not a complete reinstatement of the traditional paternalistic approach. This way of thinking is not relevant for today’s workforces because it does not acknowledge two fundamental factors, says Martha How, reward partner at Aon Employee Benefits. “One is that people don’t stay with the same employer for the whole of their lives and the old paternalism was predicated on defined benefit (DB) pension plans and healthcare plans. That disappeared in the 1970s.

“The second reason why old paternalism doesn’t work is because it’s too expensive and commercially, all organisations need to get a return on investment (ROI) on their employment spend and their benefits spend,” she adds.

New paternalism landscape

What is emerging in the reward and benefits space is ‘new paternalism’. “It’s much more realistic in terms of the commercial realities of the labour environment; acknowledging that [employees] will have five or six employers in their working lives, and acknowledging that people may want to work different hours,” says How. “It’s a much more fluid environment, and, of course, cost is more important too.”

Employers adopting this new paternalism strategy are looking to support employees and do the right thing, but to do so in a way that is not about dictating and control. It is aimed at enabling, educating and empowering employees to take responsibility. This is nowhere more evident than in the increasing number of employers that are investing time, money and efforts into the health and wellbeing of employees. This does not have to be at a huge cost to the employer, and many have introduced fitness programmes and wellbeing initiatives. One might argue that this serves the employer by helping to reduce absenteeism and improve productivity, but it can also be seen as a means by which an employer is enabling staff to take responsibility for their health and wellbeing; the organisation is the vehicle through this is achieved. “All those sorts of things that are an employer encouraging, educating and empowering, but, most crucially, not picking up the bill,” says How. “Health and wellbeing strategies are great evidence [of new paternalism]. Most credible employers of any real size have reviewed, restated or, for the first time, put in place a health and wellbeing strategy in the last few years.”

While paternalism might bring with it notions of employer-owned housing, all-staff holidays or even paid-for all-employee lunches, new paternalism is also concerned with making sure employees are aware of the benefits available to them. “For those [employers] that are paternalistic, they’ll make sure that their core package is a really good one, they’ll benchmark against competitors and make sure they offer a good standard,” says Kim Honess, head of flexible benefits at Towers Watson. “They also spend money communicating the benefits available, and making sure employees understand the value of those benefits.”

Financial education

An extension of this, and further evidence of what could be considered the new paternalism, is investment in financial education strategies. Providing financial education programmes enables employees to take control of their finances, but again, they are driven by the employer providing the opportunities. Rather than an old-fashioned school classroom arrangement whereby employees are talked at, financial education places the responsibility at the feet of employees. Tim Perkins, founder and director at Nudge Global, says: “There is some anxiety around doing too much for employees. Rather than telling people what to do and offering specific products to take up, it’s more a case of organisations wanting to help their people help themselves.”

Perkins explains that Nudge’s research, Dare to dream: Twenty16, the full results of which are due to be published in January 2016, shows that 90% of employer respondents want to provide online tools on a self-serve basis, thereby giving staff the tools to help themselves.   

The rise in financial education has recently been driven by the introduction of pension freedoms in April 2015 and associated tax changes. “With freedom comes choice and with choice comes the dilemma of having to know what you’re doing,” says Honess. “A lot of [employers] realised that their staff do look to them as a trusted source of information.”

Employee choice

Although the recession has technically ended, many organisations are not cash-rich and there is a focus on tax-efficient benefits and tax breaks. “A lot of the financial education is making sure [employees] do realise where they can get tax breaks to make sure they’ve got the most tax-efficient benefits for them, and increase their take-home pay,” says Honess. Flexible and voluntary benefits, although they centre around employee empowerment by nature, play into new paternalism’s constitution of shared responsibility and employee choice. “Flexible benefits, which has been around for years, where employees voluntarily increase their cover, makes perfect sense,” says How. “It’s just another example of an employer providing opportunity, education and empowerment, and an employee picking up some of the tab.”

Voluntary benefits can give employees access to luxuries that they might not otherwise consider. Mark Carman, director of communication services at Eden red, says: “Technology benefits are a big plus: for employees who are generally lower paid, technology is quite a high priority for them. The salary sacrifice on technology is quite popular.”

Taking a new paternalistic approach to benefits must come from a solid foundation in the organisation. It might not have traditionally had a paternalistic culture but if that is the benefits strategy it is following, then it must have some alignment to the culture of the business and its values if it is to motivate and engage employees and therefore drive performance. Janice Haddon, managing director at Morgan Redwood, explains: “An organisation and leaders really need to believe in what they’re doing to put those strategies in place, so having a solid culture and values in place on which to base those different reward and wellbeing strategies is quite a key thing. It does have to emanate from a solid foundation.”

While the benefits landscape is not turning full circle to the old paternalistic reward model, the new strategy that educates and enables employees will continue as long as employers want to ‘do the right thing’ for staff while keeping costs under control.

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EB_011215_017.pdfRicher Sounds offers unusual benefits to look after employees

Electrical retailer Richer Sounds takes an interesting approach to employee benefits using employer-owned resources; staff have access to holiday homes and the use of the company Bentley.

While the benefit of an employer-owned holiday home might at one time have been considered a traditional, paternalistic benefit, the reason for offering it is to create a happy and motivated workforce. John Clayton, operations director, explains: “The original thinking behind it from our owner Julian Richer was to give [employees] somewhere they could go to relax and recharge their batteries, something over and above their normal salaries. It’s important for colleagues to have good holidays, and [then they] are rested and will enjoy work more.”

Richer Sounds bought its first holiday home around 20 years ago, and now owns a number in various UK locations, including a beach house in Pevensey Bay, Eastbourne, Chesil Beach, Dorset, Scarborough and Brighton, as well as properties in Amsterdam and Marbella.

The holiday homes are available to all staff after six months of service for a small fee because it is a taxable benefit.

“It’s all part of the culture,” says Clayton. “We have a lot of benefits for colleagues, and these are just part of the package. Really the idea is to give colleagues something back and for them to get a holiday. Some people can’t afford an expensive holiday abroad, and it’s to make sure people have the opportunity if they want to.”

The employer also offers a month’s use of the company Bentley to the store that has scored highest on customer service each month.

Richer Sounds also pays for chiropody treatment and massages for its 500 employees. In addition, it runs a bring-your-pet-to-work scheme and employees get an extra day of holiday on their birthday.

EB_011215_018.pdfCharles Cotton: Employees need to make informed decisions

Paternalism has become somewhat of a pejorative term in HR. It commonly refers to the slightly patronising attitude that the manager knows best what their employees should have in terms of workplace benefits. Such an approach reminds me of the TV series Downton Abbey, where those living upstairs feel a moral obligation to look after the interests of those living downstairs, not always in a way that is appreciated by their servants.

But HR professionals have actually adopted a rather laissez-faire approach to workplace benefits, where employers typically offer a range of options and then leave the workers to select those that best suit their needs and wants. This reflects changes in our economy and society, where social aspirations and technological change now means that working for just one or two employers over one’s working life is no longer the norm, and benefits need to be equally flexible and tailored.

However, the Chartered Institute of Personnel and Development’s (CIPD’s) recent report, Show me the money! The Behavioural science of reward, published in March 2015, indicates that offering individuals a smorgasbord of choice may not encourage staff to join, stay and engage with an organisation. Too much choice could encourage inertia because individuals are more worried about making the wrong choices than the correct ones. They can also make inappropriate decisions because they are forced into instinctive rather than deliberative thinking, while myopia and discounting the probability of the very unlikely means that they don’t explore risk benefits and pension plans.

If employers want to harness staff enthusiasm and ideas, then they have to adopt an outlook somewhere along the continuum between paternalism and a laissez-faire approach to benefits. When it comes to choice, firms should consider limiting the size of the benefit buffet by offering employees a restricted menu of meaningful and appropriately framed options; they should also be given sufficient time to make their selections. In addition, employers need to adopt an approach that offers staff the financial information, advice and guidance that they need to make informed decisions.

Charles Cotton is performance and reward adviser at the Chartered Institute of Personnel and Development (CIPD)