Optimising the value of benefits

In tough times, optimising the value of benefits will boost staff appreciation and engagement, but does not have to cost the earth, says Debbie Lovewell

As the recession takes a stronger grip across the UK, cash-strapped consumers fearful for their jobs are on the hunt for whatever bargains they can find. They are scouring the supermarket aisles for special offers and, in the case of larger ticket items, have come out in droves to take advantage of unprecedented sales discounts of up to 70% in a bid to gain optimum value for their money.

Reward and benefits professionals who are finding that their budgets are under pressure are also taking steps to ensure they are making the most of what they have by optimising their benefits programmes. Proving that schemes are valued by staff and effective is important when questions are being raised about benefits expenditure.

Chris Noon, a partner at Hymans Robertson, explains: “[Employers] should be investing now in making more of their benefits and making employees feel more connected to the organisation and its benefits provision.”

Before compensation and benefits professionals can begin to optimise the value of the benefits that are provided, they must first ensure they have established key objectives, and identified the organisation’s business goals and requirements. They should also make sure they understand their organisation’s workforce demographics and the type of benefits that employees are most likely to value at different life stages.

“Benefits products do not understand that workforce demographics differ widely,” says Noon. “[Employers] have a set of wide employee requirements and most benefits plans do not reflect these. Also, just changing the way benefits plans operate so they better reflect employee needs will have a massive impact on staff appreciation of benefits and the degree to which [benefits] are optimal in terms of participation.”

Maximise take up One of the first steps towards achieving greater optimisation is to look at the take up of benefits to ensure employees who should be participating in schemes have opted to join. For example, an employee who is married with a family should be thinking about taking life assurance, explains Noon.

In some cases, ensuring that employees take advantage of relevant perks on offer need not cost the organisation any extra money. Where pensions are concerned, for instance, employers should review whether staff are contributing appropriate amounts, and even question whether paying into a pension scheme is the best option for them in the current climate. Chris Wilson, director of consultancy Rewarding People, says: “Often, employees won’t want to put money into a pension scheme where they cannot access it for a while, particularly if they are aged under 35 [years] and might be under pressure to save for a mortgage [for example].”

Reviewing the options that are on offer can also help to optimise the value of a benefits package. Perks that only receive a low take up, for example, could be removed and the subsequent savings invested elsewhere, such as introducing new options into a flexible or voluntary benefits scheme. Dorian Hannington, a manager of flexible benefits administration and consulting at consultancy Enrich, says: “This is a good time to be taking a hard look at what benefits you have got and saying ‘well, actually if we only have half a dozen people taking this up and we have got several thousand people who are eligible for it, is it really a benefit that we want to retain, or could we take it out and simplify the structure, or maybe just make way for something fresh that may have wider appeal?’ “[Employers] can quite easily refresh a scheme and therefore generate interest just by introducing one or two benefits. There is no particular cost to the employer other than the implementation of them, but it helps to generate something new [for staff] to talk about in terms of benefits.”

If employers do not already offer tax-efficient benefits via salary sacrifice, such as childcare vouchers, bikes for work and pension contributions, then introducing these can result in savings as organisations will not have to pay up to 12.8% in national insurance contributions (NICs) on the amount of salary that is being sacrificed by the employee. Staff are likely to value such options because they themselves will save on income tax and NICs.

“For certain benefits that have an employer NI benefit, driving take-up provides a positive benefit for [organisations],” says Hannington. “That can either be a means by which they can help to support the running of a scheme [as they] are provided with a budget that they wouldn’t otherwise have, [that can] perhaps be used to assist employees by introducing a flex fund or by introducing new benefits in order to freshen up. They can create a virtuous circle there where the increase in take-up can actually help to support the ongoing costs of a scheme.”

Further savings can be achieved by carrying out a review of providers or benchmarking premiums against suppliers in the market to ensure that the best deal is being obtained, not simply in relation to price, but also the extent of the services being offered. The process can also reveal costly overlaps or errors in provision. Jon Bryant, a regional director for benefits and communication at JLT Online Benefits, says one of his clients received a refund cheque for £53,000 after switching brokers and identifying that its previous adviser had done its accounts incorrectly for four years.

Once armed with the knowledge of how their premiums and policies stack up, employers can use this information to try to negotiate a better deal with their existing providers. Re-broking insured benefits is one step that employers can take to try to save costs. “There are lots of good deals to be had by competitively rebroking,” says Wilson.

“Unfortunately, it is all too easy [for employers] to accept the existing provider’s offer. Employers need to plan their renewals further in advance and test the market.”

However, Richard Doig, total reward consultant at Heath Lambert, explains: ” It is a last resort to move away from a provider. We would rather negotiate with the existing provider to reduce the rate. You can recommend employers move from one policy to another, but if you are not careful, you can move them to an [inferior] product. The trick is offering a more cost-effective solution that does not impact on employees in terms of value. Instead of ripping benefits programmes apart and reviewing everything, employers should discuss with providers the possibility of re-negotiating [costs].”

Communication In many cases, employers will not need to make any changes to their package to enhance the value of their perks, as altering their communications strategy will be enough to make a significant difference. All too often, employees do not know which benefits they receive or are eligible for, which can greatly impact appreciation and take-up rates. Simply issuing generic communications on perks, however, will often fail to grab employees’ attention or engage staff. “Employers need to rethink how they go about communicating benefits,” says Noon.

A more effective way of communicating benefits is to personalise messages for staff, by adopting marketing techniques similar to those used by retailers such as Amazon, which suggests options that may be of interest based on individuals’ past selections.

Jacqueline Otten, a principal at Towers Perrin, says: “I think this is a very interesting approach. We all respond to consumer [marketing] and it is a way of lifting employee communications [above how] it has always been done. It adds variety.”

However, this approach may be best suited to lifestyle perks, says Bryant. “I do think it’s a bit like predicting future performance on investment returns on past performance. Where it does work well is when you have obviously got the interests that are there and you are asking [staff] what their interests are. It is quite easy to do on lifestyle-based benefits. Where it is more difficult to achieve is on core basic benefits [such as] pensions, group income protection cover and critical illness insurance – the things people do not want to think about as they are medical and they are quite depressing benefits, but actually in these times they are more important. If you take more of a mixed approach, more of a coherent approach [to communications] then that gets to the employee more.”

Employers can also use the data they hold on employees to promote perks that are deemed to suit employees’ circumstances, such as communicating childcare vouchers and family-friendly benefits to parents.

Using this information for targeted messages that make suggestions of relevant or useful benefits helps employers to boost factors such as employee engagement, loyalty and retention. Staff who feel their employer is connecting with them through benefits may be less likely to move jobs as they will understand the full value of the package they receive and how it is relevant to them.

Simplicity and ensuring staff fully understand each of the benefits they receive should be at the heart of any communications strategy, says Noon.

“Rather than communicating tax breaks on tax-efficient benefits, [phrase it as] 60% off childcare. Give them some context in terms of what it means rather than giving them a choice they do not understand.”

Marketing similar perks together or linking them to a wider theme or event, such as a wellbeing week, can also help optimise the value of benefits. This can better engage staff with perks, by placing them into a wider context and demonstrating how employees can obtain greater value from their benefits if they do not use them in isolation.

The timing of communications can also help to optimise the value of perks. In some cases, employers may be able to boost employee appreciation of benefits by communicating them more frequently. Most flexible benefits schemes, for example, are typically communicated around the time of their annual renewal period. However, there may be a case for communicating such schemes more frequently to employees, and possibly enabling them to enrol on more than one occasion throughout the year. One hurdle to operating a scheme for enrolment more regularly is that tax-efficient benefits offered via salary sacrifice must be offered for a set period, typically for 12 months, to gain HM Revenue and Customs’ approval, says Bryant.

“We have got one client that, every month, runs a workshop [about] their flex system. So we open the flex system up every month for them. It is mainly for new starters, but they also invite along people who have not made a decision. We only allow them to make decisions on benefits that are not [offered via] salary sacrifice to get over the long-term commitment issue and we do a reconciliation at the end of the year.”

The timing of communications can now be planned more easily because the development of automated systems means that employers can set rules determining when emails will be automatically sent to staff. For example, emails can be sent prior to the opening of an enrolment period for a flex scheme, and to let staff know when it has opened for them to make their selections.

Technological developments also mean it is becoming easier for employers to demonstrate how certain perks can be used in conjunction with others to provide better value. Standard Life, for example, is currently developing an employee wealth plan, using technology acquired through its acquisition of Vebnet last year, which ultimately will offer pensions, savings and flexible benefits options through a single portal. JP Morgan Invest also offers an online financial education tool that links shares and pensions.

Being able to access benefits through one technology platform will enable employees to optimise the value that they get from perks because they will easily be able to identify how to best manage their money and make the most of any tax breaks available to them. For example, those who belong to a share incentive plan (Sip) will be able to obtain double tax relief if they roll their tax-free shares when the scheme matures into a group self-invested personal pension (Sipp) offered through the same system.

In addition, running perks, such as a voluntary benefits plan, through the same portal as a flexible benefits scheme can help to keep employees engaged with flex throughout the year rather than simply reminding them of what is on offer annually during the plan’s election period. “What has happened over the past few years is that flex platforms have become more of an intranet [site],” says Doig. “[If employers add voluntary benefits], they are immediately channelling employees to the flex site on a more regular basis.”

Whatever steps employers take to optimise the value of their perks, they may need to redefine how they intend to measure their success. Whatever they do to communicate the benefits on offer, not all employees will respond by actively taking up perks or making selections every time, says Bryant. “It’s still getting the engagement, because the employee is aware of it. It just might not be relevant to them at that particular stage. Employers need to go back to basics at the moment [and] really focus on making some cost-saving measures where possible but also making sure the decisions are not just short-term, knee-jerk reactions,” says Bryant. “That is quite important, otherwise they will end up spending more money making changes than actually just making some slight alterations.”†

Case study

Nationwide looks to choice
Nationwide Building Society optimises the value of its benefits package by keeping its offering fresh for staff and promoting certain perks at key times.

When communicating benefits during its flex enrolment period at the end of last year, for example, it focused attention on the discounted retail shopping vouchers offered through the scheme to help staff recognise the savings that are available. Rosemary Crabb, flexible benefits manager, says: “With the credit crunch affecting everyone’s budget, we expect to see even more employees taking this up.” In 2006, the organisation researched the possibility of segmenting its workforce to determine which perks are key to individuals and groups, but decided not to progress this further. “We ensure employees have the flexibility to choose the benefits that really matter to them,” says Crabb. “Being able to select from a wide range of options means they can tailor their package to suit their needs.”

Optimisation tips

†• Personalise communications to better engage employees with benefits and make suggestions of appropriate perks based on their lifestyle and circumstances.
• Communicate benefits more regularly.
• Review the benefits on offer to ensure they are all valued by staff and have a good level of take up. Replace those that do not to refresh the package.
• Enabling staff to access their perks through a single portal can help them to better manage their benefits and make the link between them to help them gain the most value.
• Rebroking perks, as well as benchmarking providers and costs, can help to optimise benefits spend.