How to gain value on investment from employee benefits

Benefits strategy debate - value

Just how organisations approach the issue of employee benefits, and the broader topics of engagement, motivation and retention, differs from sector to sector and one employer to another.

Alan Ritchie, head of trustee and employer proposition at Standard Life, believes there are fundamentally two types of employer. “There are those which see their pension and benefits as a cost to the business and want to minimise that, and those which see these as a profit centre because they see their people as one of their biggest assets and they want to use them to get an edge in a competitive employment market,” he explains.

This tallies with the experience of Debra Corey, group reward director at Reward Gateway. “I have worked at some [organisations] where I couldn’t be a penny over my starting point on benefits, and I had to get really creative,” she says. “But now I work for [an organisation] that does HR technology, so my board gets it, and I haven’t had to convince them of the importance of what I’m doing.”

She has just completed her first global benefits review and has been pleasantly surprised by the emphasis being placed on the value of investment rather than the return on investment (ROI). “I’ve increased my benefits spend by 50%,” she says. “I kept thinking they were going to pull the plug on all the new benefits that I was implementing.”

Business case

Most organisations sit somewhere in the middle and policies can also change according to market conditions or other factors. Richard Morgan, head of Vebnet, says: “There’s one client I’m working with at the moment that wanted to embark on flex for the first time and [it was] probably a little bit behind the kerb.

“The business case started off around employee engagement, because [it] really hadn’t done an awful lot around that to sell the employee value proposition to employees, and the other was efficiency. But in the last three months, [its] particular industry has slowed down somewhat, the focus has changed, and now it’s gone back to a financial ROI and how we can save [it] money. It just depends on what the particular focus the board happens to be at the time.”

In some cases, benefits can be introduced as a result of a personal affiliation, says Charles Cotton, performance and reward adviser at the Chartered Institute of Personnel and Development (CIPD). “Suddenly someone on the management team may have an issue with their parents, and the next minute eldercare shoots up the corporate agenda,” he says. “Lots of organisations are doing interesting things in that area, and it’s often because of the personal experience of somebody at the top.”

Justifying benefits

Often, it can be hard to justify why benefits exist at all, adds Duncan Brown, head of HR consultancy at the Institute for Employment Studies. “Sometimes they are just there, and employers struggle to give a reason for it,” he says. “If they do it’s a history lesson, rather than because they want to take the business in a certain direction.”

A well-thought-through benefits package needs to factor in both what the organisation is looking to achieve and can afford but also what employees want, says Cotton. “There’s not much point in having an aligned benefits strategy if it’s not going to meet the needs and the aspirations, and wants of employees, because [employers] are not going to get the talent that [they need,” he says. “Similarly, there’s not much point in having a fantastic benefits package if you’re going to run out of money eventually because you can’t afford it.”

Google is perhaps the ultimate example of shaping a strategy around the needs of employees, implementing specific initiatives such as free washing machines for staff simply because that was what its founders needed at the time, says Brown. “[It] didn’t have a written defined strategy, but the people setting it up probably needed a washing machine at work, or their friends did, and as the business grew that’s stayed integral to the whole concept of a benefits package that supports people,” he says.

Yet, the reality for many organisations is that there are restrictions on what they can afford, and also what they need to do to attract talent, says Brown. “Rather than it being two ends of the spectrum, the labour market often divides into talented professional employees in a superstar market versus organisations where they maybe have a small core of professionals but otherwise it’s a case of keeping that cost to an absolute minimum.”

Impact of national living wage

The impact of the national living wage, which came into effect in April 2016, has clearly had an impact on the ability of retailers to spend money on benefits, adds Corey. “I don’t know how [employers] will be able to afford it because it’s really challenging when you have to increase those salaries so much,” she says. “It’s the right thing to do, but it can be very costly. But that wasn’t what the government was trying to do, to disrupt good benefits packages.”

Yet employers operating in low-paid sectors may increasingly find themselves having to choose between paying people a higher salary and offering them more through benefits, says Brown. “There are clearly choices around the type of deal that [employers] are going to give and what the emphasis on pay and benefits is,” he says. “Are employers going to say their staff are intelligent people and give them the cash so they can make the decisions themselves? Or are they going to provide a much better offer and try to distinguish themselves from the competition?”

Benefits professionals have a role to play here in helping to make the case for continuing to invest in benefits, as well as other employee initiatives, which can mean talking to executives in their own language, attempting to demonstrate a bottom-line return. “I remember when I [worked for] a retailer I used to say that the stores only have to sell one more pair of jeans a day for me to put this new benefit in,” says Corey. “I truly tried to convert it into their language.”

Putting value on benefits

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One potential problem here, though, is that it can be hard to put a value on certain elements that are actually hugely appreciated by employees. “Engagement surveys quite clearly show that some benefits are valued more than their economic cost,” says Brown. “If I’m able to work flexibly and I need to do that to look after my kids, actually that’s invaluable, and if another employer didn’t offer that, it could offer me a rich pension or £50,000 more salary, but I wouldn’t want to do it. What’s interesting is that some employers with rich packages do it because it’s part of what their identity, whereas other businesses want to see the analysis and what employees think of it.”

Some benefits, too, should be above any business case, adds Corey. “If I put in an employee assistance programme, I’m doing it to help the 5% of the employees that I know might use it,” she says. “If I know that it saved somebody from committing suicide, to me that’s an ROI. A lot of the time we just put benefits in because we think it’s the right thing to do.”