Model the benefits package around total reward

Take the chance to redesign a benefits package using a total reward approach, says Jenny Keefe

When you are late for a meeting in London, racing around a higgledy-piggledy rabbit warren of streets , it’s easy to long for Manhattan’s straightforward and neatly-planned grid system that means it takes less time to cover the same distance.

Just as London’s street map has evolved over centuries, many employers have developed their benefits packages piecemeal, leaving them without a comprehensive and coherent approach to rewarding employees. But they could take a fresh tack and develop a total reward strategy that deals with benefits and reward as a whole, taking into account every aspect of working life.

This means looking at the big picture and not simply cash reward, says Dave Lawrence, vice president, compensation and benefits Europe, Middle East and Africa at InterContinental Hotels Group (IHG). “Total reward gives employers the chance to provide a range of benefits to employees that are beyond annual basic pay. In turn, these encourage employees to look at the long-term value of working for an organisation such as IHG,” he says.

There are business benefits to be gained from adopting such an approach. James Crossland, business development manager at software company Northgate Information Solutions, says: “Total reward is no longer seen as something that is nice to have. Companies are quickly realising the business benefit of an effective reward programme as an essential tool to attract the highest quality staff and retain them.”

A total reward approach has already been adopted by three-in-10 employers according to the Chartered Institute of Personnel and Development’s 2008 Reward management survey. However, the report, which polled 603 organisations, found that a further fifth plan to do so in 2008.

At the heart of most total reward strategies are total reward statements which set out how much benefits packages are worth in cash. These statements help boost staff awareness of the value of their employer’s packages, says Philip Hollingdale, chief executive officer of Staffcare, an employee benefits software supplier. “Total reward statements are essential to ensure that workers are aware of their precise benefit entitlement and its value, and are reminded at every opportunity.”

The challenge for employers is to decide what benefits to include and what to leave out. The bare essentials that should be included are pay and bonuses along with traditional benefits such as pensions, life insurance and company cars.

But it has long been recognised that employees look for more from their employers than simply a wad of cash. Providing the opportunity to develop personal and professional skills also helps to motivate staff and contributes to their total reward experience. Employers should think about the effect on employees of factors such as their working environment and colleagues.

All organisations, regardless of the size of their workforce or their benefits budget, can implement a total reward strategy, says Tobin Coles, head of flexible benefits at Jelf Group.

“A total reward strategy is suitable for all employers. You could even argue that the smaller you are as an organisation, the more critical individual employees become and the more critical it is to retain them. The only caveat is that the smaller you are, the harder it is to source benefits, so you need to make sure your total reward statement has something of value,” says Coles.

As total reward schemes develop, em-ployers are harnessing the power of web technology to communicate the packages on offer. Many are ditching annual paper-based statements in favour of faster, slicker online versions that can be kept up to date. “Online statements mean that the minute a benefit is added or its value goes up, employee information can be changed online rather than waiting for the following year,” says Coles.

Web-based technology also means that employees are able to click through from their statements to get more information about their perks, including online calculators that predict pension income on retirement. Offline, employers can still use staff handbooks and brochures as part of the communication of total reward packages.

“The communication of total reward is moving on. Podcasts and vodcasts along with other creative online, printed or face-to-face communications are being used to launch and reiterate messages to employees,” says Coles.

But online communication and statements are not suitable for all organisations or employees, says Matt Waller, chief executive officer at Benefex. “Which media is chosen depends on the target population and whether they have computer access.”

Effective communication of total reward means tailoring media and messages to the target audience. “Employers have to make sure that their methods of communication match their employee demographics. Some employees like online information, some like one-to-one, some like group presentations and others like brochures they can see and hold,” adds Waller.

As the concept of total reward becomes more widespread, many organisations are considering rolling out strategies internationally. Elliott Webster, flexible benefits director at consultants PIFC, says: “[An] international total reward strategy is gradually becoming more popular with multinational companies. An international reward approach can align the vision and values of a business across the organisation and allow a group to adopt a common benefits brand.”

But going global has its challenges. Not only does an employer have to ensure its strategy fits with the benefits available in each country as well as its culture, it also has to consider issues of communication including language, media and currency.

“If the system is being implemented from the UK and the local language is used, careful consideration must be given to how details are translated into various dialects. Different cultures can also be a challenge. For example, in the UK life assurance is seen as a benefit provided by a company but in Norway it is seen as a right,” says Webster.

Key to the successful communication of total reward strategies are line managers, whether internationally or in the UK, says Gareth Ashley-Jones, head of flexible benefits and benefits solutions at Aon Consulting.

“Total reward needs the support of line managers to underpin an organisation’s app-roach to things such as compressed working weeks and homeworking. Total reward is a management practice that is complicated because it has far-reaching implications,” adds Ashley-Jones.

How do total reward statements differ from benefit statements?
Friends and family may not fully appreciate the value of the presents you buy them this Christmas.

Individuals apparently value their own purchases at an average of 18% more, per dollar spent, than they value items they receive as gifts, sentimental value excluded, according to a US study Does consumer irrationality trump consumer sovereignty? by Joel Waldfogel, published in 2002.

If anyone conducted a study asking employees to place monetary values on their employee benefits, the difference in perceived value could well be similar.

However, total reward statements provide employers with an opportunity to attach a price tag not only to traditional perks, but also to explain the value of other aspects of rewards to their staff.

Adrian Glew, a director at benefits specialist The Personal Group, says: “Benefit statements typically show the benefits on offer and what each one includes, but they don’t show the financial value of those benefits. Total reward statements show the value of everything.” But the difference between total reward and benefits statements is not just about adding a cash value, it’s about a different approach to benefits. Phil Hollingdale, managing director of Staffcare, says: “Today’s total reward statements typically cover a wide range of benefits including softer benefits such as holiday entitlement and training allowances.” Deciding what aspects of total reward to itemise in a statement can be tricky for employers. The Personal Group’s Glew says: “Anything that adds value to an employee and their overall employment package should be included.

“Many employees are not aware of individual training budgets and actual spend, but these can be included in total reward statements and used to bump up existing packages. Bonuses, shares and anything else that can add value can all be included. The stronger the statement, the better.” Certain benefits are easy to place a cash value on. For example, holiday entitlement is a worker’s annual salary divided by 260 to value a single day’s entitlement, then multiplied by the number of days’ leave. Training and magazine subscriptions can also be shown with monetary values.

But challenges arise when broadening total reward’s remit to include non-traditional perks, says Tobin Coles, head of flexible benefits at Jelf Group.

“Total reward encompasses more than benefits and salary. A reward can also be a quality piece of training that improves career prospects, for example. But therein lies the problem, the point of total reward is to show the value. If there is no value, there is no point. The tough thing is to work out how much an MBA or a course in Excel is worth to an individual’s career development,” says Coles.

So an employer can state the cost of a training course, but calculating the value of the course to an employee’s career is much more complicated.

“It can be difficult to find a meaningful equation – perhaps the value of the training scheme times potential earnings equals the value to a career. I don’t think the industry is going to give up on finding a way to make it work,” says Coles.

Employers may consider avoiding putting price tags on some perks, says Staffcare’s Hollingdale. “With softer benefits such as expensive office furniture, a high-spec computer, free coffee and company events, it could be stretching it to show their monetary value.” He recommends describing these benefits at the end of the statement and selling them with descriptive text rather than a price.

Organisations that place a cash value on all aspects of total reward are embarking on a risky strategy, says Steve Watson, director of consultancy RewardWorks.

“I believe putting a value on all reward elements is futile and dangerous in the long term. You cannot possibly consistently second guess how employees value all the elements in their total reward statements. It’s hard enough valuing the transactional stuff such as final salary pensions. Putting a financial value on total reward could lead to cynicism among employees,” says Watson.

Employers should also consider that some aspects of reward may be more valued by some employees than others.

“We have to think about the personal value of, say, flexible hours to a working family. Things such as this could make a difference, irrespective of relatively minor differences in total remuneration price,” adds Watson.

Benefits to include†

  • Pay†
  • Base pay
  • Contingent pay
  • †Cash bonuses
  • Long-term incentives
  • Shares
  • Profit sharing Benefits
  • Pensions
  • Holidays
  • Healthcare
  • Other perks
  • Flexible working Work environment
  • Core values of the organisation
  • Leadership
  • Employee voice
  • Recognition†
  • Achievement
  • Job design and role development
  • Quality of working life†
  • Work-life balance Learning and development
  • Workplace learning and development
  • Training
  • Performance management
  • Career development†

Case Study: Reinforcing value at GVA†

Property consultant GVA Grimley decided to use total reward statements to reinforce the value of its employment package following the launch of a flexible benefits scheme.

Debbie Taggart, HR manager, says: “Flex went a long way towards helping our employees understand the true value of their remuneration packages but it is obviously very detailed so the overall value of packages is not immediately clear.

“The total reward statement takes all of these benefits and illustrates them in a simple way, so employees can quickly see how each element of their remuneration contributes to their total reward.” The company, which has 1,320 workers, splits its total reward statements into two parts: cash and benefits. “We show cash in the first section – salary, bonus and car allowance – and benefits in the second section – private medical insurance, income protection and life assurance. We then add the two sections together to show total reward,” explains Taggart Pie charts are used to illustrate the breakdown of employees’ packages.

However, when it comes to total reward, the firm sticks to traditional benefits. “We communicate elements such as the working environment via our internal HR policy, so they are not specifically outlined in our total reward statements, although they contribute to the overall picture.”