L’Oreal gives pension scheme a makeover

When beauty product company L’Oreal decided its pension scheme needed a makeover, it asked its employees what they wanted, says Padraig Floyd

L’Oreal is a company that divides the nation. Its TV adverts are incomprehensible to most men, yet women in their millions consume the products advertised on a daily basis.

It is no surprise the company is a household name, having operated in the UK since the 1930s (see box below), but it is also keen to be a part of the lives of its employees and is proud of its paternalistic attitude towards reward and benefits. That said, a couple of years ago it started to get the feeling it could be doing more and thought it was time to overhaul its pension scheme.

Of course, preliminary work for the company’s auto-enrolment staging date in the last quarter of 2013 had some influence on this decision. The firm could have gone for an off-the-shelf group personal pension but wanted to maintain its existing trust-based occupational scheme, and implement a plan that would serve the needs of its people. This meant going back to the drawing board, says the man charged with effecting the change, L’Oreal UK and Ireland’s HR, compensation and benefits director, Ben Marks.

“It was heavily linked to communication and engagement,” he says. “The company was really struggling with how to engage new employees with our benefit offering, particularly pensions.

“The material we had to encourage people to join the scheme didn’t make it very user-friendly.

“This is partly because pensions are inherently complicated and it isn’t easy to make investment decisions.”

So L’Oreal did what all good companies do and asked its employees what they would like to see in a new scheme. Through a series of communication exercises, focus groups and feedback sessions, it discovered staff wanted a good scheme that would manage the volatility their investments faced in markets they could not control, using products simple enough for them to understand.

Investment structure

These findings were placed the heart of the review of the pension scheme and greatly influenced the new investment structure (see box below).

Unlike most DC schemes, there is no longer a default option. In other words, all members must decide where their contributions will be invested. This is because L’Oreal wants scheme members to have a better understanding of their pension saving. The choice has been limited to help employees make an active selection.

This may seem counter-intuitive, but more choice leads to more confusion. Behavioural psychology has shown that if forced to make a decision in such a situation, consumers will select the middle path, whether it is suitable for them or not.

With the trustees ensuring that all the investments are appropriate for the risk profile of the fund they are in, members can feel more comfortable about making a decision on their investments, says Marks.

But investment was not the only major change to L’Oreal’s pension. Despite being more than a year away from starting auto-enrolment, the company removed the previous joining restrictions, which is not as daft as it might sound.

“This works well because new employees are pretty revved up on their first day,” says Marks, “so to get them to do the right thing and join all the benefit plans, we removed the waiting period so they could join straight away.”

This has had an immediate effect, with the scheme already seeing a 15% to 20% growth in membership.

One of the more surprising elements of this process has been the attitude of HR professionals within the organisation.

“The focus groups showed that internal HR colleagues realised they would appreciate some help in talking about saving for retirement,” says Marks. So some basic training was arranged so the HR department could help drive home the communications messages.

Giving confidence

“It was about giving people the confidence to discuss their pension,” Marks adds. “If you keep things simple, DC is not too hard a subject to broach with employees.”

Marks believes one of the most powerful tools has been the booklets staff receive before they have their formal induction.

“The approach is simple and relevant and it is here you can engage them,” he says. “We also have a good intranet called L’Oreal and Me that covers all our compensation, benefit, reward and wellbeing elements.”

L’Oreal’s proactive approach is clearly having an impact. Its pension participation rate has already increased and there is anecdotal evidence that the new scheme has been well received.

“It’s not just about pensions,” he says. “We have rebranded the benefits with the whole of wellbeing and benefits, so the new structure is designed to show the value of the benefits that L’Oreal provides.”

Part of Marks’ remit is to review the whole reward strategy, which may include the use of corporate platforms or corporate Isas (individual savings accounts).

“It could be an opportunity to launch one or two other benefit or savings plans or even a whole range of flexible benefits on one platform,” he adds. “It is really a case of understanding everything that can be done.”

But Marks’ immediate focus will be on the challenges of auto-enrolment, the greatest of which is access. “So many of L’Oreal’s employees are in the field and are not computer-based, so it is not easy to get access to them to deliver any kind of communication, let alone benefits,” he says.

Marks concedes that as many as one-third of employees could opt out of auto-enrolment, but he is determined to ensure the message about the value the company provides to its employees will get through, and “nothing is off the table” in terms of how to get that message across.

“So we need to be pretty innovative,” says Marks. “Smartphones may be one way of achieving this, as everyone seems to have one. So we must look at the population we are communicating with, where they are based, how we get access to them and what is available from a technology perspective.”


L’Oreal: the facts

Founded in 1909 in Paris, L’Oreal has been operating in the UK for more than 80 years after being established in 1932 and in the UK is based in Hammersmith, London.

It is now the sixth largest subsidiary of one of the world’s largest beauty companies which has €19.5 billion (£15.5 billion) of sales, 67,000 employees worldwide and 23 global beauty brands.

L’Oreal has more than 3,000 employees in the UK and Ireland, with many based in the cosmetics sections of the largest department stores.

The business comprises four main divisions: professional – predominantly hair salons with a large proportion of field-based door-to-door account managers; consumer products – which includes brands such as L’Oreal Paris, Garnier and Maybelline; the luxury products division – beauty consultants with premier products such as Lancome and fragrances such as Giorgio Armani or Yves Saint Laurent; and active cosmetics – specialist skin care that is sold in pharmacies such as Vichy and La Roche Posay.

Nobody’s default but my own: how the pension works

L’Oreal’s legacy scheme needed an overhaul. The investment strategy was old-school in design, with a 100% equity asset allocation for all members in the accumulation phase, with basic lifestyling kicking in five years from retirement.

The company didn’t think this was good enough to ensure staff had a good retirement income.

The new scheme has two investment approaches. If staff aren’t confident enough to make detailed selections, they can use the Easy Select plan, which has three risk-based funds – Basic (70% diversified growth funds, corporate bonds and gilts), Balanced and Adventurous, which have, respectively, 70% and 80% exposure to global equities.

“One of the key things the trustees wanted was to better manage the volatility of different strategies,” says Philip Smith, head of defined contribution and wealth at Buck Consultants.

For those who want more control of their investments, there is also the Expert Select option. This has funds in most major asset classes, including global equities, absolute return, diversified growth, ethical and corporate bonds.

The most striking element of Easy Select is that there is no default option. All members have to decide where to invest.

Lifestyling starts 15 years from retirement for those with lower-risk funds, then 10 years for Balanced and seven for the Adventurous fund choice.

Minimum employee contribution rates start at 4% up to 7%, to which the employer contributes 6% and 9%, respectively, for employees with less than 10 years’ service and 9% and 12% for those with more.

Read more articles from the Workplace Savings Quarterly