Get staff to see the true value of perks

Executive summary

• As the recession bites, employers are becoming more demanding of their employee benefits packages, wanting more tangible business benefits. Benefits only work if staff value them.

• Good communication can dramatically boost employee satisfaction and, in turn, commitment to the organisation. Communication needs to be targeted at staff whose engagement and productivity will be needed to pull organisations through the recession and out the other side.

• Most employees grossly underestimate the value of their benefits package. Using total reward statements and face-to-face workshops can improve this.

• In the current climate any new benefits should be introduced with caution, especially if there are pay freezes and staff may prefer more cash.

• Some employers are adopting a policy of non-communication in the hope of reducing take-up rates and so cutting costs

Main Feature

As the recession bites, employers are more demanding of their employee benefits packages; expecting them to deliver more tangible business benefits.

Take pensions, for example. Last year’s research by Alexander Forbes, Return on Pensions Expenditure Survey, November 2008, showed that the most important reason for providing a pension scheme is still ‘to enable staff to retire with financial security’ (cited by 74% of employers), but that the economic motivators of aiding staff recruitment (cited by 61%) and retention (cited by 69%) have grown most in importance over recent months – up 11% and 19% respectively since 2007.

The survey concludes that, with money too tight for pay rises, employers are waking up to the potential of employee benefits as an effective HR tool.

Of course, employee benefits will only work to attract, retain and motivate staff if the staff in question know about them and, crucially, value them. It seems they rarely do. The Thomsons Online Benefits report, Employee Rewards Watch 2008, shows that, while employers might spend 15-25% of payroll on the employee benefits package (and in some cases more), less than a third feel this expenditure is appreciated by their staff.

Turning this situation around is crucial for organisations that now expect their benefits package to deliver on business objectives that will see them through the recession. The big question, inevitably, is how? Communication is obviously a big part of the answer. Figures from Mercer Human Resource Consulting show how good communication of the reward package can dramatically boost employee satisfaction and, in turn, commitment to the organisation, while poor communication has the opposite effect (see charts, below left).

Pinning down exactly what constitutes ‘good’ communication is not easy. The Alexander Forbes report shows there is often a significant disparity between the information employers provide and what employees say they receive.

For example, 61% of employers say they tell staff about the total value of their benefits, whereas only 49% of employees say they receive this information, and 54% say they provide workplace education about pensions but only 27% of their staff know about it.

The survey concludes, “in many cases employers have selected the right channels for communication, it is simply that the message is not getting through”. In other words, it’s not just about the method of communication you use, it’s the quality of delivery that counts.

Another issue is the timing of communication. Julie Naismith, head of reward at Towers Perrin, says generally when communicating the reward package, a disproportionate amount of time and money is spent on communicating to people who don’t yet belong to the organisation and to people who are about to leave.

If benefits are going to be more effective at engaging, motivating and retaining employees, more communication effort needs to be directed at current workers – the people whose engagement and productivity will be needed to pull organisations through the recession and out the other side.

Total reward statements – which show staff the value of benefits alongside the other elements of reward, such as base pay, training and health and well-being initiatives – fit the bill in this respect. Since most employees grossly underestimate the value of their benefits package, seeing it set out in black and white and put in the context of total reward can have quite an impact.

David Conroy, principal at Mercer, says: “Our view is that all parts of the package need to be communicated – especially now, when money is tight, and bonuses may not be paying out.”

Naismith agrees that total reward statements are worth doing as long as an organisation’s systems already hold the necessary data (not a problem for a well-managed organisation, she suggests). However, she warns, total reward statements are no silver bullet. “[They] have a really big impact in the first year and, to a degree in the second, [but] you do get quite a rapidly diminishing return as people get used to them. Companies that do implement [a total reward statement] do see a benefit, but you have to be careful to keep it fresh, to keep it alive.”

The experience of Information Resources Incorporated confirms that total reward statements are no universal panacea. When advisers from benefits communication specialists Secondsight sat down with the market research company’s staff, they found 59% were unsure what their benefits were – even though they could access this information at any time via the company’s online total reward statement.

Face-to-face presentations by Secondsight resulted in a much better appreciation of the value of the benefits package. In fact, following the presentations, staff overestimated the average benefit spend at 15% when it was, in fact, 10%. The online total reward statement was subsequently switched off! The value of face-to-face communication is something emphasised by most of the experts we spoke to. “We still find group presentations [for 12 to 15 employees] and individual consultations by far the most effective way to communicate because people feel engaged… and can ask the questions really relevant to them,” says Jarrod Parker, employee benefits director at Alexander Forbes.

“Of course not every company can make staff available for one-to-one consultations, especially in the position that a lot of companies are in at the moment. But if you kick off with a group presentation and then point them in the direction of literature they can download – or even hard-copy literature – we find that works very well,” he says.

Colin Evans, head of UK reward practice at Hay- group, says the key to success with any communications exercise is to understand your audience; he even recommends asking staff what types of communication work best for them. “I’ve seen too many organisations where employees just don’t get it because their employers are just not getting into their minds and asking them ‘how do you understand things?'” “Another aspect of a well-run pay system – one where employees are really ‘getting’ the reward deal – are where managers are at the heart of the communication,” says Naismith.

So it’s time for finance directors to leave their offices and get down onto the shopfloor, perhaps? “Results from engagement surveys tell us that where managers are responsible for communicating [their own] decisions, employees become much more involved and understand the pay deal much better.”

Mercer’s Conroy recommends making more of existing communication channels such as team briefings (which, he says, benefits information can be “plugged into quite effectively”) and the HR pages of company intranet sites.

Conroy says making more use of existing in-house methods of communication is not only a cheap (often nil cost) option, but in the current climate may feel more appropriate than a lot of razzmatazz – especially where an employer is merely advertising existing benefits, not introducing new ones.

As well as in-house communications, it makes sense to see what help your benefit providers can offer on a nil cost basis. For example, group personal pension providers often have teams that will come out and do roadshows. “They are not going to give individual advice, so they probably won’t increase contributions or add a lot of value, but they should help keep things on an even keel,” says Darren Lafferty, director at Secondsight.

Beyond straightforward communication, Lafferty says that there are a lot of extra bolt-on services that employers can get for free – but usually only if they ask. “For example, a number of life insurance providers will provide a free employee assistance programme (EAP),” he says. “It’s free to the employer, but can be communicated as a real [extra] benefit to the employee – and they do appreciate it when they are told about it.”

Similarly, some private medical insurers have created online medical assessments, which again can be marketed as a benefit in their own right. “People like going online and filling in these things,” says Lafferty. In fact, he says, they can be good news all round – by highlighting potential problems early on and offering the opportunity for early intervention, they have the potential for reducing long-term claims and ultimately keeping premiums down.

Few employers are likely to have the stomach for a complete benefits overhaul in the current climate, though some are looking to cut back on less valued benefits. Group income protection insurance is one of the most obvious candidates. There may be contractual issues with ditching it altogether, but tweaking it so that it pays out for just five years, rather than through to retirement, for example, offers the opportunity for genuine savings – which could be redirected to more popular benefits.

There are certain benefits that would appear to fit the times we are in. Anecdotal evidence suggests that there has been an upsurge in demand for retail vouchers as people become more concerned about the cost of living, for example.

Understandably, where employers are introducing new benefits, they are seeking to do it on a cost-neutral basis. “Some employers are extending the benefit offer to include additional ‘voluntary’ benefits, whereby they make use of their corporate buying power and offer employees additional benefits, but via salary sacrifice of some sort. [This gives] the perception of a benefit provision increase but the costs to the employer are minimal or nil,” confirms Conroy.

However, he warns that in the current climate any new benefits should be introduced with caution: “There is a bit of a mixed message if you are saying ‘there’s a pay freeze and your bonus is being cut, but there are these new benefits’. You could find people saying ‘actually, we’d prefer the cash’.”

Another – possibly in some cases unintended – consequence of raising the profile of employee benefits is that you increase take-up rates and claims on insurances. “Are you happy with that?” asks Parker of Alexander Forbes. “Have you got the budget to support it?” Some employers clearly have not.

Indeed, while many are looking to engage and motivate staff by enhancing appreciation of the employee benefits package, others are adopting a policy of non-communication in the hope of reducing take-up rates and so cutting costs.

Mercer’s Conroy cites one client that usually has a policy of actively encouraging take-up of the pension plan, which is “soft-pedaling on that a bit at the moment” in the hope of saving some employers’ contribution. The same client usually publicises the availability of annual medicals too, but as it is only charged for each medical completed, this year is only providing them for staff who ask.

“I think it is indicative,” says Conroy. “Employers think: ‘if we keep quiet about this benefit we’re going to save a few bob’.”

Unlike most of the advisers we spoke to, Haygroup’s Evans has not come across any clients actively seeking to play down the value of their benefits package. “That’s not really the way companies think”, he maintains. “Particularly with things such as pensions, where the cost of providing them is quite high, and changes in legislation will put the emphasis on looking after employees, not communicating is not an option.”

Conroy takes a slightly more pragmatic view: “Recognising the cost control priorities of finance directors, our advice is to be strategic about it and have some kind of plan, rather than just flitting from one knee-jerk reaction to another.”

Case study: Fidelity National Information Services

Fidelity National Information Services increased employee take-up, appreciation and contributions to its pension scheme – and still saved money.

Fidelity National Information Services used adviser Secondsight to introduce a programme of one-to-one pension consultations with staff which was paid for by increasing the annual management charge from 0.8% to 1% At the same time, to ensure that the scheme members were no worse off, it introduced salary sacrifice which resulted in £63,000 National Insurance savings per annum, £49,000 of which was passed back to the staff as pension contributions, £14,000 of which was retained by the company As a result of the changes and the communications programme, 86% of members increased their contribution levels, while average employee contribution levels rose from 3.1% to 6.8%.

The proportion of people on target to receive the pension they want more than trebled to 64%, while 85% of members valued the pension more highly (even though they were aware of the higher annual management charge)

More than 50% of the members agreed that the pension ‘would now be a good reason to stay with the company’.