Employee Benefits/JP Morgan INVEST Benefits Research 2007: Strategy

How reward strategies impact on employer organisations

Impact of benefits strategies

To some extent To a significant extent
It helps improve staff motivation/productivity 62% 20%
It engages staff in the organisation 62% 18%
It is an effective recruitment tool 57% 32%
It promotes work-life balance 56% 24%
It is an effective retention tool 55% 32%
Employees clearly understand our benefits strategy 55% 30%
It is flexible enough to meet
changing business conditions/needs
55% 25%
It encourages desired culture and behaviours 54% 29%
It is clearly linked to business strategy 53% 32%
It is viewed as a source of competitive advantage 52% 26%
It promotes a high performance culture 51% 18%
It helps in attracting and recruiting talent 49% 46%
It helps control sickness absence 46% 8%
It enables reward decisions to be made locally 45% 15%
It is driven by job grade 44% 16%
It is driven by length of service 39% 6%
It is presented as a total reward strategy 31% 25%
Sample: all respondents

The issues shaping benefits strategies

To some extent
Improving perceived value of the benefits package 73%
Making benefits more cost effective 65%
Communicating benefits 63%
Desire to improve staff engagement levels 58%
Desire for flexibility 57%
Matching benefits to employee needs 55%
Improving effectiveness of the benefits package 54%
Presenting it as a total reward strategy 49%
Aligning benefits with business strategy 48%
Effects of legislation (such as pensions changes or age laws) 43%
Harmonisation of terms and conditions/benefits 37%
Linking benefits to performance 37%
Aligning benefits with HR strategy 35%
Poaching of staff by competitors 35%
Helping staff to understand pensions/retirement planning 35%
Ageing workforce 28%
Encouraging pension scheme take-up 27%
Easing organisational change
(eg merger, acquisition, downsizing, expansion)
Breaking down workforce hierarchies 20%
Operating on a global/multinational basis 16%
Managing multiple pension schemes 13%
Sample: all respondents

Commentary on graphs

Perceptions of the impact of benefits strategies have moved on in recent years. There was a time when staff retention and recruitment were indisputably at the top of the list of functions that apply to benefits strategies. And, indeed, they were when Employee Benefits last conducted a survey into UK employers’ benefits strategies three years ago (The Benefits Research 2004 was published in that year’s Benefits Book) and employers were asked to indicate how their benefits strategies could be best described. While these two factors are still significant, the concepts of staff engagement and motivation linked to productivity have now both come to the fore.

This perhaps demonstrates that engagement has become a key function of the benefits strategy. It is closely linked to staff motivation and, in turn, productivity. The emergence of these two concepts may be explained by the fact that the world of compensation and benefits has now become much more sophisticated. Benefits experts argue that perks should not be viewed simply as a necessary cost of recruitment and retention, they should instead also be perceived as a means of boosting productivity and service levels through staff engagement and motivation.

A further example of how benefit strategies have evolved is the increase in emphasis placed upon the promotion of work-life balance which, when we last conducted this research, lagged towards the bottom of the table. Interestingly, 66% of publicly-quoted companies claim that their benefits strategies promote work-life balance to some extent, compared with 50% of public sector organisations, while 38% of public sector organisations adopt the function to a significant extent, compared with only 16% of listed firms. While 53% of organisations link their benefits strategy to business strategy to some extent, this is most apparent among publicly-listed companies. But despite the vast amount of money spent on healthcare benefits by employers, just 46% say it helps with sickness absence.

When it comes to the cost of benefits, little has changed since our survey into the benefits strategies of UK employers back in 2004. Almost two-fifths of employers spend between 11% and 20% of payroll on benefits. Just 8% spend more than 30%, while 18% put a value on the benefits package of between 21% and 30% of payroll. However, just 16% of organisations employing 500 or fewer staff spend more than 21% of payroll on benefits, compared with 33% of employers with a workforce of more than 500. This may indicate that smaller organisations have tighter budgets.

Given the amount of money spent on perks, it is perhaps no surprise that the biggest issue shaping employers’ benefits strategies is the need to improve the perceived value of the benefits package (73%), regardless of their size or type of organisation. Only those employers with between 1,000 and 5,000 staff are more concerned with communicating their benefits strategy.

The need to improve the perceived value of the benefits package also topped the list of issues facing employers when we last undertook a survey into benefits strategies in 2004. The solution partly lies in the communication of the benefits package, which is a concern for 63% of employers. Unless employees are told how much their benefits are worth they will not have any appreciation of their actual or potential value. Making benefits more cost-effective remains the second most important issue to shape benefits strategies, with 65% of employers citing it as a problem. However, public sector organisations rank improving staff engagement levels, improving the effectiveness of benefits and communicating perks higher up their agenda.

Employee engagement, total reward and flexibility also all feature highly on the list of issues taxing the minds of employers. It seems more employers have now got to grips with aligning benefits strategy with business strategy compared with three years ago. Then 63% of employers cited it is an issue, now it is 48%. Meanwhile, the proportion citing the alignment of benefits to HR strategy as an issue has shrunk from 42% to 35%.

The last year or so has been hectic for employers as they have had to get to grips with reams of new legislation that affects benefits, including pensions simplification and ageism laws. So it is no surprise that 43% said legislation has been an issue shaping benefits strategies.