Specialist insurance firm Hiscox has spent the last six years consolidating perks and emphasising calue, says Clare Bettelley.
Hiscox group finance director, Stuart Bridges, cites the equality and transparency of his company’s employee benefits as key to their take up, which no doubt explains why staff costs constitute 40% of the company’s total costs.
According to Bridges, 76% of benefits costs relate to salaries and contractor costs, 11% to pensions, 8% to national insurance, 2% to health, 2% to cars and 1% to ‘other’, which is for one-off gifts such as Christmas hampers.
All staff at the specialist insurance firm, including directors, are entitled to the same benefits with the same hurdle rates, although clearly at different scales. The Hiscox bonus scheme is a case in point. The scheme is based on the UK bond rates, but pitched slightly higher at 15%. “It’s transparent in that we will give all the underwriters their ROE figures each month.”
Hiscox achieved 35% ROE in 2006, which meant that directors’ bonus as a per cent of salary was 274%, which resulted in a £600,000 bonus for Bridges.
Bridges was appointed group finance director in 1998 and has since been instrumental to many changes to Hiscox’s benefits plan, to modify it in line with the company’s pledge for equality.
Car allowances were phased out six years ago. “In those days 25% of staff had cars. We now just have what I would call ‘needs cars’, so the people in our regional offices who are travelling around all have cars, but otherwise we’ve now wrapped the car allowance into their salary.”
Paid season travel cards have also been scrapped, with the benefit integrated into salaries. The company also inherited a number of mortgage benefits from a takeover it executed in 1996 – a benefit relatively common for staff within banks, which could offer staff preferential mortgage rates. Again, as with the travel card and car allowance, Hiscox integrated the benefit into salary with effect from 1 January 2007.
Hiscox’s staff pension scheme was the last piece of the benefits jigsaw to streamline.
“[The defined benefit pension scheme is] worth a lot of money but [at recruitment phase] people tend to look at their bonus and their salary.”
He rejects the suggestion that lack of staff engagement in its defined benefit pension scheme stemmed from the company’s inability to communicate its value. “We put a lot of time into the communication of the value of it – each year we estimate its worth, and staff get a letter from us telling them that in terms of their salary and bonus statement. It would also have the pension added in and how much it was worth.
“But it really did come down to people not appreciating the value of that and some other benefits. It was short-termism. In recruiting, if I’m offering £30,000 [with the DB scheme] and someone else is offering £32,000, [the latter] would win over the pension scheme. You can see when you’re recruiting quite a young workforce why that might happen,” – the average age of Hiscox staff is between 35 and 40 years.
Previously, Hiscox had a number of different schemes. There are two DB schemes that were rolled into one, which both closed to new entrants around 2000. They were also closed to new accrual at the beginning of this year. “It got to the stage where over 50% of the company were on DC, it became inequitable. There was obviously the cost factor – [pensions are] one of our largest liabilities.”
Around 20% of Hiscox’s 575 staff transferred onto the new DC scheme following lengthy internal negotiation. “It took us nine months to consult with them and go through the process.”
Hiscox agreed to pay transitional payments for staff agreeing to switch schemes, which was worth three years’ extra payments into their pension pots, at an agreed sum with Hiscox. In terms of savings made by the scheme switch, Bridges says: “It was not massive due to the fact that pension benefits are now earned on other benefits that have become rolled into salaries.”
Group finance director
Stuart Bridges is a qualified chartered accountant who joined the Group at the start of 1999. He has held posts in various financial services companies in the UK and US, including Henderson Investors. His experience spans a broad spectrum of corporate finance ranging from mergers and acquisitions to banking, fund management and venture capital. He was a member of the Financial Reporting Council’s review group on the Turnbull Guidance on Internal Control. He is also a director of Hiscox Pension Trustees Limited, the company which acts as the corporate trustee for the pension schemes.
Hiscox is a specialist insurance group, providing solutions to unusual problems or risks. There are three main underwriting parts of the Group. Hiscox Global Markets, Hiscox UK and Europe, and Hiscox International.
Hiscox Global Markets underwrites mainly internationally traded business in the London market – generally large or complex business which needs to be shared with other insurers or needs the international licences of Lloyd’s.
Hiscox UK and Europe offer a range of specialist insurance for professionals and business customers, as well as high net worth individuals. Hiscox International includes offshore operations in Bermuda and Guernsey and Hiscox USA.