What is driving employers’ flexible benefits strategies?

Flexible benefits December feature-2015

Need to know:

  • Any flexible benefit scheme should factor in both employee and employer needs.
  • Technology and administration requirements also need to be considered.
  • Businesses should also think about the frequency of enrolment windows.

Find out why flexibility is vital for the modern workforce at Employee Benefits Live 2016 on 11 October at Olympia National, London

In order to remain competitive in the battle for talent acquisition, many organisations review their employee benefits strategies to ensure they remain attractive to existing and prospective recruits, as well as fulfilling wider objectives around being seen as a responsible employer.

For many, this means the concept of flexible benefits remains high on the agenda, albeit a less ambitious operation than may have existed in the past, when employees could be awarded a pot of money and given a wide choice of options on how to spend this.

Many employers recognise the appeal of offering a flex scheme to staff. Matt Duffy, head of online consulting at Aon Employee Benefits, says: “The flexibility is more around employees being able to tweak the levels of cover, so to either increase over and above core [provision] or add partners and dependants on, and also managing benefits where there is flexibility, so salary sacrifice benefits such as pensions and childcare.”

Meeting employee needs

The reasons behind offering a flex scheme, or even in the benefits that are included in one, differ among employers. Some employers in the technology, retail and financial sectors are now starting to personalise schemes to better meet the needs of their own workforces, says Matthew Gregson, consulting director at Thomsons Online Benefits. “We are starting to see everything from wearable technology to individual savings accounts [Isas] within flex schemes,” he says. “Finance benefits can include mortgage advice or student loan matching schemes, and health benefits are moving beyond private medical insurance [PMI] to wellbeing accounts.”

There is also some differentiation in the level of benefit that is offered on certain benefits. There is also a trend towards providing flexibility around pension contributions, says Ed Smithson, head of flexible benefits, share plans and communications at Buck Consultants, a Xerox company. “The employer who would traditionally have provided an 8% pension contribution is now saying employees only need to put 5% into a pension and then the rest could go into an Isa, an early student loan repayment, a share plan or an early mortgage repayment scheme,” he says. “That’s now starting to appear in flex.”

Organisational strategy

A flexible benefits strategy also needs to factor in the strategy and aims of the organisation; something that Hope Construction Materials prioritised when it looked to develop a platform in 2014. “On their own they’re not unique; it’s the package that makes them different, certainly in our sector,” says Jim Verity, HR director. “We do a lot around employee wellbeing so we have an employee assistance programme, we offer discount deals through various organisations and we have flexible holiday entitlement, which allows people to buy up to an additional five days of holiday a year.” On top of that there are some added extras, such as a voucher to buy baby items for anyone who has a baby and a volunteering scheme that allows people two days of paid leave a year to undertake a charitable initiative.

Cost of benefits provision

Other factors also come into the drivers behind flex. Inevitably, cost is an issue, and this can require a different way of thinking, says Gregson. “Healthcare and protection benefits, such as life and medical cover, are continuing to escalate above inflation,” he says. “Employers should review their commitment to these ‘defined benefits’ and consider putting these into a flex pot to ensure this is something they can continue to offer further down the line.”

Technology capabilities 

Technology can also have an influence on what an employer includes in its flex scheme, particularly around how well any new system can integrate with other solutions, such as payroll or wider HR systems. “Technology should be flexible enough to meet the requirements of clients to engage and of providers to manage benefits effectively,” says Matthew Hunnybun, partner at KPMG. “If a provider can allow an employee to select a benefit on their site at any point throughout a year, and in some cases result in 48-hour delivery or immediate cover and if the employer’s payroll can accommodate those changes, then the flex system should be capable of managing that choice.”

The administration burden associated with any scheme also needs to be taken into account, says Graham Tiney, a partner at Secondsight. “They should decide what internal resource may be required to administer the project, or if they are going to outsource,” he says. “Managing the data side of such a project can be very time consuming.”

Multiple enrolment windows

Another factor is how often to allow people to choose or alter the benefits they select. “There is a growing interest in having multiple windows throughout the year,” says Smithson. “But we have to remember that certain insurances aren’t going to allow [employees] to select benefits at any time, because of the risk of people selecting things at the point at which they think they’re going to need to claim on them.”

Such decisions are likely to confront more benefits teams in the coming years, as flex schemes continue to grow in popularity. Gregson says: “Within the FTSE 100, 70-80% of [organisations] now have flex schemes, and it’s becoming standard across most industries, from retail to banking. Organisations need to meet a huge variety of needs in their benefits provision, and flex needs to be at the heart of this.”

The decision to implement flex, and what to include, can be multi-faceted, and with careful planning and implementation, an employer can ensure a scheme is a success among staff.

Pepsico-Product-2013PepsiCo relaunches flexible benefits to meet employee requirements

When food and drinks manufacturer PepsiCo looked to relaunch its flexible benefits scheme in 2015, it was keen to introduce a new benefit and so undertook a series of questionnaires and focus groups with employees.

Kajal Mistry, total rewards officer, says: “It had been two years since a new benefit had been introduced so we wanted to select one that would be popular with employees and generate some excitement and engagement.”

One of the top requests was for leisure travel insurance, and this was implemented with the option of extending cover to family members, as well as employees.

Alongside this, working with consultant Like Minds, PepsiCo set about redesigning the flexible benefits website, with the aim of reflecting the five pillars of the global organisation’s total reward strategy: pay; health and insurance; healthy living; retirement; and work-life balance, and promoted this through a variety of channels, including emails, e-cards and plasma screen televisions, along with messages that appeared on the screens of employees’ desk phones.

The employer decided to maintain its previous approach of having a four-week enrolment window during April and May. “It fits in well from a business perspective and it’s also just before the summer starts so employees can also think about the benefits that could support their work-life balance with school holidays such as childcare vouchers, and cycle-to-work vouchers with brighter mornings and evenings,” Mistry adds.

The relaunch has already seen a 56% increase in employees accessing the website, and levels of take-up have either increased or remained the same in 13 out of the 15 pre-existing benefits.

Hugh Cook-2015Dr Hugh Cook: The outcomes and complexities of flexible benefits schemes

Theoretically, the motivation for employers to offer flexible benefits schemes stems from their need to attract employees and reduce labour turnover. Both are key measures of labour market performance, which ought to be improved by offering benefits that are attractive to a wider range of workers. Given the increasing demographic diversity of labour markets, flexible and wider ranging benefits that can be selected contingent upon employee needs, will, for many employers, be a cost-effective route to improving labour market performance indicators.

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However, such schemes bring a degree of complexity to the reward process and therefore attention should be paid to their implementation in order to maximise positive employee, and consequent performance, benefits. For example, taking the implementation of employee stock ownership (ESO), research by Andrew Pendleton and Andrew Robinson, in Employee stock ownership, involvement and productivity: An interaction-based approach, published in Industrial and Labor Relations Review, 2010, points towards a variable interacting effect with wider human resources management (HRM) mechanisms of employee voice and participation. An ESO with minority participation requires complementing processes of employee voice in order to deliver productivity improvements, whereas an ESO with majority participation works independently. Such complexities highlight the need for qualified and nuanced understanding by employers of the processes through which various schemes work in practice. Flex schemes are becoming increasingly common, so as is the case with strategic HRM systems, those firms paying attention to coherent implementation are those likely to achieve productivity benefits.

Dr Hugh Cook is lecturer in employment relations and human resource management at Leeds University Business School