Thought leaders: Academic insights: Flex can incentivise staff cost-effectively

Flexible benefits can play an important role in reward during tough economic times, says Peter Reilly

The recession and climate of public sector spending cuts should mean good times for providers of flexible benefits. The reasons are twofold. Firstly, one of the attractions of flex is that it can adjust costs to changing business circumstances and reduce fixed costs. Back in 1992, Schuster and Zingheim argued that traditional benefits systems were too tenure-related, providing fixed entitlements. Instead, they claimed flexible benefits fulfilled an organisation’s strategic aims of cost control and performance improvement. Secondly, flexible benefits give cash-strapped employers the chance to offer something to the workforce when traditional cost-of-living-type increases are hard to justify.

Of course, life will not be so easy for flexible benefits suppliers. Twenty years of progressive reward practice has meant many organisations have already exited from tenure-related benefits, such as long-service awards and have kept others where they cannot or do not want to change, such as service-based leave. Similarly, some grade-related benefits, especially company cars, have already become more flexible. Moreover, the fixed-cost issue was never as important in the UK as in the US.

These observations do not stop organisations finding innovative ways of rewarding staff. Even with small budgets, much can still be done. The interesting question is, how will the benefits be selected and positioned? In a tight labour market that lasted for over 10 years, much of the focus was on benefits that would attract and retain staff against stiff competition for the right skills, for example childcare or insurance offerings. Although there is still this driver in some places, in others, the slack labour market has reduced pressure to outbid the opposition.

Then there are the corporate social responsibility (CSR)-type benefits. Organisations showed off their green credentials by offering bikes for work, incentives for using public transport, and funding in terms of time or money for environmental projects.

My suspicion is that during tougher times, the focus, especially in the public sector, will be on incentivising or recognising good performance in a cost-effective manner. Like CSR initiatives, this will be less about flexibility in terms of offering choice, and more about employers finding cheap ways to pep up their remuneration package, but in ways that direct the money to those they want to encourage.

So we should expect to see a greater blurring between benefits and recognition – perhaps performance-related benefits? Organisations may replicate practices seen in the recession to protect jobs where possible, with an emphasis on temporal and financial flexibility. But for the negative press on bonuses, variable pay ought to have a heyday.

Finally, there might be more emphasis on total reward, so employees realise the benefits they derive from all elements of the employment relationship and do not just think about their frozen, or chilled, basic pay. Interestingly, we might (after a pause during the worst times of job cutting) see a return of interest in an employee value proposition (EVP). This will be less designed to recruit and retain, and be more about recognising employee rights and responsibilities.

Those that survive this period of retrenchment need to understand what the future deal will be. It will have to have some positive aspects, especially given the loss of a sense of job security. This is where flexible benefits may make a reappearance. The requirement to segment the reward offer has not gone away, and more sophisticated employers will want to hit different buttons with different employee groups and reflect greater empowerment in their jobs – the consequence of delayering and devolved decision-making – and greater control over aspects of their reward.

Peter Reilly is director HR research and consultancy at the Institute for Employment Studies


New pay: Linking employee and organisational performance, Schuster JR and Zingham P, Lexington Books

Learning from the downturn: Key messages from an employer perspective, Chubb C, Reilly P and Usher T, Institute for Employment Studies

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