Benefits have become increasingly sophisticated as a sea-change in attitude has altered the perspective from a necessary evil to a valuable workplace tool. Bea Oaff reports on some key changes
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"In the past eight years there has been a marked change in the way employers approach benefits," says Martyn Phillips, chair of the industry body, Benefits Alliance. "It was seen as something of a necessary evil, but now it is seen as an invaluable tool – crucial for recruiting, motivating and retaining good people." So, just how, and why, have benefits changed since 1997?
We’ll begin with working hours. Although not technically a benefit, the opportunity to operate outside the nine-to-five routine has become popular and prized. Eric Smart, CEO of the workplace consultancy Smart Human Logistics, confirms that "most employees, irrespective of their domestic situation, appreciate the personal freedom it gives them".
Technical advances in the late 1990s, such as reliable Internet, email and voicemail along with relatively inexpensive laptops, mobiles and intranets, gave employees the opportunity to work anywhere, anytime. It then took the efforts of interested parties to get the possibility of flexible working on to the social, political and business agenda. They continuously stated the business case, citing evidence that it lowered levels of stress and staff turnover and lifted levels of productivity and profits.
The software giant Microsoft was convinced from the outset. For years its employees have been able to work flexibly. "It can enable them to do their best," says Anna Pringle, acting UK HR director.
While the business case for working flexibly was being argued so too was the business case for supporting working parents. As Maggy Meade-King, spokeswoman for the campaigning organisation Working Families, says: "There was a growing realisation that to get the most out of mothers and fathers, their personal commitments needed to be better accommodated."
The government, in 2003, raised maternity pay, extended maternity leave and introduced paid paternity leave. It also gave mothers and fathers with children under six "the right to ask" to go part-time. More recently, it made childcare vouchers more tax efficient and, therefore, more attractive. Over the same period, leading companies have introduced their own initiatives – from term-time working to on-site nurseries.
Book publisher Penguin is a case in point. Parents receive up to £95 a week towards the cost of pre-school childcare. They also have generous leave options, including 15 days to nurse a sick child. Additional support comes from an employee counselling service, on-site occupational health centre and a stress-relieving gym. Francesca Dow, managing director of the Penguin imprint Puffin, says these benefits "help retain valuable employees".
The growing emphasis on employee choice and the emergence of other new technologies have created two further developments in benefits. Enter flexible benefits, where employees can spend their own benefits allowance on a select menu of options. And voluntary benefits where employees can spend their taxed income on various products and services at specially negotiated discounts.
It is generally accepted that these approaches really took off in 2002. Paul Watson, chief executive officer of 4th Contact, says: "Companies were open to the idea of offering employees greater responsibility for their benefits, and online applications made that quick, easy and affordable." He notes that, in the last couple of years, flexible and voluntary benefits have received a further boost due to tax changes. Employees can now purchase bikes, computers and mobile phones, as well as health screening and childcare vouchers, without having to pay national insurance or income tax.
The specialist research company T&F Informa is a keen advocate of flexible benefits. Group HR director, Keith Brownlie, says: "We compete in a tough recruitment market and we wanted to give ourselves an edge." Introduced three years ago, the company’s scheme now lets its 1,200 employees select anything from life cover, dental cover and additional pension contributions, to gym membership and travel insurance.
The Adult Learning Inspectorate, a type of Ofsted for further education and training, launched its voluntary and flexible benefits schemes together in 2003. "We wanted one to enhance the other," says HR manager Sue Lanigan. In regard to voluntary benefits, the 270 employees can log on to a site that features deals on everything from flowers, magazine subscriptions and theatre tickets, to white goods and car repairs, to cash plans and eye treatments.
In the background to all of this was the dotcom boom, and bust, and this had its own impact on benefits. Alan Cave, an associate director at industry body the Work Foundation, delivers the following interpretation: "In the late 1990s and early 2000s there was a rush of bright young companies who took a fresh approach to doing business. As for benefits, they focused attention on rewards that tied in to pleasure and leisure and lifestyle generally. "
This legacy lingers. The Internet bank Egg provides an ongoing series of free relaxation treatments. The PR firm TWBA provides three official sleep-in days. The investment bank Goldman Sachs provides an unlimited concierge service. The recruitment agency Reed provides a one-off personal improvement bursary of up to £500 which can be spent on any type of training. The health drinks manufacturer Innocent provides four £1,000 scholarships a year to employees who have a particular ambition they want to fulfill. Last but not least – remember dress down days? Many previously buttoned up firms fostered and have ultimately adopted a more casual dress code.
But what about the more tried and true benefits of old; how have they changed since 1997? Let’s start with pensions. On the whole they used to guarantee an employee two thirds of their final salary. Now they tend to pay out whatever the stock market produces. The reason? The crash three years ago. After reaching a historic high of 6,930 on the last day of trading in 1999 the FTSE 100 had slumped some 43 per cent by July 2002. "It left pension funds with a massive deficit," points out Deborah Cooper, senior research actuary at Mercer HR Consulting. "To stop it getting any bigger new employees were not offered an expensive defined benefit pension but instead a cheaper defined contribution pension."
The spectacular collapse of two global corporations also affected the provision of pensions. Prompted by the bankruptcies of Enron and WorldCom, the largest in US history, the government passed an Act in 2004 that ensures employees will receive some compensation if their pension, along with their employer, goes down.
The economic conditions of the last eight years have impacted on another traditional benefit – share schemes. Their popularity has duly risen and fallen with the stock market. Back in July 2000 the share incentive plan (Sip) received Royal Ascent. Under a Sip employers can offer so-called ‘free shares’ which can be given away to all employees; ‘partnership shares’ which can be bought by staff on a monthly basis; and ‘matching shares’ which can be given by employers to match partnership shares bought by staff. In each case, the shares are exempt from tax and NI provided they are held for five years. Not for nothing are they referred to as golden handcuffs – and certainly when the market was at its heady heights they proved their potential as a retention tool. According to Tim Fevyer, a manager within the compensation department of Lloyds TSB, one of the UK’s largest share scheme administrators, share schemes have had some return to favour as the market has started to climb steadily again.
Relative to pensions and share schemes, other traditional benefits have stayed fairly stable. "Overall insurance and healthcare has remained quite static," says Naomi Saragoussi, senior consultant at Watson Wyatt. Although she admits there has been some increase in the take up of income protection cover, dental plans, health screenings, and possibly counselling and relaxation treatments, usually via either flexible or voluntary benefits. And it is probably true to say that employers are more aware of employee wellbeing (and the cost of stress) than ever before.
In terms of holidays and company cars, Aon consultant Nigel Dumbrill identifies just two modifications. In 1998, employers became legally bound to offer a minimum of 20 days holiday, including public holidays. Most senior managers were already on more than this; the only real difference for them was whether they could use flexible benefits to trade their quota up or down. And company cars? In order to meet environmental targets, in 2002 they started to be taxed on their CO2 emissions rather than by the number of miles driven each year.
So, that’s a summary of how far benefits have come in the last eight years. It just remains to consider how their communication and promotion has kept pace with the times. Mark Eaton, a director with the Personal Group, says methods are much more sophisticated. "Companies have recognised they need to market their benefits, and do it strategically," he adds. These days that may take the form of posters, desk drops, newsletters, email reminders and total reward statements. It may also take the form of one-to-one discussions, group presentations, and complete road shows.
Finally then, a gaze into the future. "It’s hard to predict," says Phillips of the Benefits Alliance, "but I think we will see, if nothing else, companies giving their employees even greater choice – both in how they select and what they select.