The biggest fundamental change facing the benefits marketplace is the drive for data. This gear shift is driven by pressure on cost, and is being spurred on by the change to the way benefits advisers are remunerated following the retail distribution review (RDR).
If you read nothing else, read this…
- Cost is driving HR to use data to justify benefits decisions.
- In the future, readily accessible data will change the way benefits programmes are designed.
- Data is everywhere, but a balance must be struck between drowning in data and not having enough and therefore making blind decisions.
- Employees are a rich source of data.
Dr Eric Tyree, chief data scientist at Capita Employee Benefits, says: “The change in the commission rules [under RDR] means that the economic pressure to be able to demonstrate and deliver value is going to be enormous.”
Under the old rules, employers were able to buy administration systems and pensions without actually paying for them. “But suddenly, now that people have to pay for this stuff, the ball game has changed,” says Tyree. “So all this technology around data, around automation of business processes, is going to come flooding into the market. You will see a lot more sophisticated software coming in and HR will have to work harder to justify decisions with hard data.”
To date, much of the benefits market has trailed miserably behind marketing, finance or even IT when it comes to using data as part of their daily business toolkit. These other professionals tend to start business conversations with hard financial data, then move on to the softer practices. HR can be guilty of trying to do this in reverse.
Using data to develop programmes
However, experts agree that, with the right data at their fingertips, benefits managers could develop more appropriate benefits programmes for their workforces, getting a clearer sight of workforce demographics, wellness issues and staff needs, as well as driving down benefits costs.
Driving down risk insurance premiums
Premiums on risk insurances can also be driven down by delving into better data on workforces, not least because pre-empting health problems is a lot cheaper than trying to remedy them. “If you can identify potential health risks early, you can intervene for free,” says Tyree.
A drop in annual premiums has proved the business case for employers using Punter Southall Health and Protection Consulting’s (PSHPC) platform for managing employee data and group protection insurances, Gladis. On average, these employers have reduced their premiums by up to 30% below market averages over the past year, according to a PSHPC report published in April.
John Dean, managing director at PSHPC, says: “This is very compelling evidence that employers which supply regular, accurate data… not only reduce the risk of claims being declined, but also obtain better premium rates. These lower rates are achievable because insurers are working with more accurate and timely data than they had in the past, enabling them to price schemes more realistically, rather than having to make assumptions on data.”
Dean says the Financial Conduct Authority is keen to see this accurate data because it wants to know that employers are paying for insurance based on accurately assessed risk.
Better data leads to better design
Enhanced, up-to-date group risk data could be a potentially rich vein to mine, says Dean. “You can get a lot more forensic data on employees in companies and in the economy as a whole,” he adds.
That way, the data can yield robust information on the ageing population and the effects of people working longer. The development of apps and wellness wrist bracelets could also show how often people exercise, how they sleep, what engages them, what their working patterns are, how many emails they send, and what holidays they take.
This would enable providers and employers to build healthier, more constructive environments for staff. This would not be at an individual level (data protection and privacy are paramount), but by cohort. Employers could analyse which parts of the business are doing well, where things are not working, and what the turnover levels, stress levels and performance levels are. “If you know more about the people, you can get better at designing products that are good for them,” says Dean.
How to track down financial data
But all data is not always readily available, and there is a danger that benefits managers could expend all their energy trying to find it, rather than putting their effort into using it. Nigel Bateman, director in the international consulting group at Towers Watson, says: “Most multinationals have made some strides towards [getting more data]. But there is more work to do on precision. The risk is that data is so big that employers spend too much time obtaining it.”
One aspect of data that is captured by all organisations, yet is underused, is the amount of money spent on benefits and related functions. “The information on the cost of providing benefits is amazingly weak,” says Bateman. “If you can crack that, the return piece becomes not easy, but less difficult.”
The problem is that how the data is captured varies. Invariably, cost will not appear in HR systems, but sit in finance systems. Here again, a problem arises because the accounting lines into which different benefits and related expenditures are put varies, so it hard to know where to look.
Add to this the fact that HR and finance departments are notorious for not understanding each other because they think in different ways and determination to mine this data can wilt. But if benefits managers can persevere, they will find more information than they expected. “Those organisations that have cracked this have found it invaluable,” says Bateman.
Which data to sift
Using data to become more effective and efficient sounds like a good idea, but benefits managers should bear in mind that they need to know what data will be useful to sift, rather than just having lots of information and not knowing what to do with it. “The risk is that the data is so big that you expend significant amount of effort in trying to maintain it,” says Bateman. “That actually dilutes [people’s] energy to do anything with it.”
Employers do not need to build a huge data warehouse to have all data at their fingertips at once. Capita’s Tyree advises: “Pick one or two very specific things that give the highest ROI [return on investment] right away. Chalk up a success so the organisation can see you are doing it in a controlled way and getting some success. Then you can move on to the next thing. The worst thing to do is to try to solve everything all at once. Do a few applications at a time, then step back and consider building some integration around them. Or not, as needed.”
One of the techniques used by consultants is portfolio optimisation, in which employers trade risk and reward. But organisations can be reluctant to spend on this type of analysis. Towers Watson’s Bateman says: “At the moment, employers are spending all these hundreds of millions of pounds on benefits fairly blind. So it doesn’t feel like that much money to understand how to spend those hundreds of millions.”
Use employee feedback and perception
Another rich source of data is employee perception. This can throw up a wealth of pointers on how to craft benefits programmes that will be better valued. Bateman thinks there has been much less diligence about gathering this data, and less consistency. “It always seems to be something that is regarded with significant reluctance, which I find amazing because it is like trying to design a car without having any idea what the driver wants,” he says.
Bateman uses conjoint analysis, which asks, for example: if you have x to spend, would you spend it on this or that? “It then goes beyond that straightforward choice to make the trade-offs progressively more difficult, based on what the employee has told us so far,” he says. “The employer is seeking MI [management information] that doesn’t exist, but what it is doing is seeking information that is particularly useful to its purpose.”
Silverman Research works with the likes of Unilever (see case study below) using a crowd-sourcing and social techniques tool with free text to analyse how staff feel about a range of issues, including reward, as well as to analyse how they make benefits choices and decisions. Michael Silverman, managing director of Silverman Research, says: “A lot of employers do not know how to analyse staff surveys, so we help with that.
“We use the software to analyse comments and free text to create themes. It doesn’t just use key words; it processes grammar and quite complicated syntax. It can read the sentiment and emotion and produce scores on different aspects.”
Simple insights can change the way HR looks at planning. Capita’s Tyree says: “What drives employees’ views of their employers is socio-economics.”
For example, staff that are single parents or part of a dual-income couple with dependants are likely to be very loyal to their employer if they have the opportunity to trade holidays, work flexibly and can access benefits targeted to them. “They will not leave for slightly more money,” says Tyree. “You can find this out just by looking at who your employees are by applying simple consumer demographic analysis. Broad trends are all over the place.”
Silverman also recommends that employers focus on staff internally, and not always look to benchmark externally. “Organisations are so different, it is better to focus in on what their own staff want,” he says.
Case study: Unilever builds global staff benefits data tool
Peter Newhouse, head of global reward at Unilever, says: “It is probably the biggest database of its kind anywhere. This is ‘always-on’ feedback.”
It is now used in more than 100 countries, covering about 15,000 management staff. Unilever is currently extending it to white-collar non-management staff, with about 44,000 people now included. “The ambition is to stretch it to everybody,” says Newhouse.
“What we have done [with the TRS] is create something that is more dynamic, so the rules of the calculation are held in our total reward system.
“We can therefore generate TRS dynamically at any time. And they are updated, so if someone moves position, gets a pay increase or changes job, the TRS updates all that kind of stuff.”
The TRS is linked with a survey system from Silverman Research, called Rate My Reward, which is configured to ask staff about every element of their remuneration package, and pose questions around advocacy (for example, Would you speak highly about your reward at Unilever without being asked?).
“So we can build up a picture of what people feel about their reward package,” says Newhouse. “Because it is fed off the TRS system, all the questions are relevant to their own package.”
The feedback goes into reward development plans, which have six dimensions:
- How money is spent on reward. Unilever spends more than €6 billion a year on reward, its second largest expenditure. The system shows how much goes on fixed pay, variable pay, benefits, cars, and so on. The categorisation is common across all countries. “We can analyse for every country, for every segment, how we spend our money on reward,” says Newhouse.
- How staff feel about their reward.
- Unilever uses it to benchmark itself against the market. Is it high? Low? Where is it weak, or strong?
- Employee engagement results.
- It looks at philosophy. Newhouse says: “We say, just because a reward element might not be popular, it doesn’t mean we are not going to do it. It may mean we need to communicate more effectively, it does not mean we will necessarily abandon it. But is it useful to see what it looks like from the receiving end, not just from our point of view.”
- Most importantly, business results.
Newhouse adds: “The intention would be to take those six inputs and try to work to some optimum balance,” says Newhouse. “We say, if we tilt the reward proposition in these kinds of ways and we are aligned to the market in this kind of way, and our philosophy is aligned like this and our general engagement is like that and the business results are improving, then we must have got something right. We must have got an optimum mix.
“So, for the first time, what we are trying to do, which is different from the way reward is normally approached, is that we are trying to steer the entire reward proposition with employee feedback and insight as a real conscious driver.
“My philosophy is that if I am spending a euro on pay that is not valued, then I am wasting that euro. I am not getting impact for that euro. But if it is valued, I am getting more than a euro’s worth of value out of it.”
Where to find benefits data
- HR systems, especially for staff demographics.
- Finance systems for spend and ROI.
- Employee surveys or feedback.
- Suppliers’ management information.
- Buy market benchmarking data.
Viewpoint: Ian McKenna: How employers can use data better
Organisations want to know as much as they can about customers, so they can better design services to meet their needs. Shouldn’t the same apply to employees?
Big data is transforming the way organisations work, from retail to healthcare, enabling unprecedented insight into a wide range of areas. Employee benefits should not be exempt from this process because the benefits can be just as significant for HR as they can for sales and marketing.
One practical application of this is financial wellness services. Designed to help employees take better control of their day-to-day finances, the best systems enable users to aggregate details of all their bank accounts, credit cards and other financial arrangements into a single service. This enables employees to have a clearer understanding of how they spend their money and, in turn, to help them learn better budgeting techniques.
Such information can also be aggregated to help an employer better understand staff expenditure. For reasons of confidentiality, this is typically only appropriate where more than 250 staff use such a service. However, having a clear picture of what overall employees spend most money on has obvious advantages when reviewing benefits packages.
It may also be worth giving special consideration to services where wider information can be available in addition to the primary benefit. This can increasingly be the case with some healthcare services, for example eyecare.
Analysis reported in February by US-based human capital risk management firm HCMS Group and eyecare provider VSP highlighted the fact that non-invasive eye examinations can now identify the early onset of many chronic conditions, such as diabetes, high blood pressure and high cholesterol.
With an estimated 500,000 working days lost every year to diabetes and 4.5 million to heart and blood pressure-related conditions, benefits that open the possibility of early action to address such conditions can help employers and employees alike.
Ian McKenna is director of the Finance and Technology Research Centre