Flexible benefits: Measuring return on investment

Measuring the success of flexible benefits is key to ensuring a plan is providing value, so Sarah Coles looks at the methods employers can use to ensure their scheme is paying its way

The purse strings have never been tighter, and finance departments want to be sure every penny of expenditure is justified. So, to continue investing in a flexible benefits scheme, benefits professionals must be able to prove an ability to deliver tangible business objectives. The basis of any proof begins with measurement, but how can they measure the success of flex?

Many organisations begin by looking at take-up. Paul Ashcroft, a principal at consultancy firm Mercer, says employers will often select a certain level of take-up as a target at the outset. This is a reasonable, if crude, measure of interest, but this kind of approach is limited because it will only tell employers what staff did, not how or why.

High take-up of flex

In some cases, this may also be irrelevant because the success of some benefits may not hinge on high take-up figures.

“Something like a cycle-to-work scheme, for example, may only be taken up by a small fraction of the population, but will still deliver on the objective of enabling people to cycle to work where practical,” explains Ashcroft.

Measures of success, therefore, need to go further. The next stage is to examine data on how employees engage with the scheme. Paul Brown, a senior consultant with Watson Wyatt, says: “Some companies use the number of employees that have logged in and interrogated their options as a measure of success, targeting around 75%. Others consider that at least one change from the fixed package of benefits represents active participation. A realistic target for this is 40% to 50% for new flex plans.

“At a more detailed level, typical of companies that have mature flex plans, the number of employees participating in individual benefits is measured to look at the cost/benefit of each element of the package.”

Many online systems will automatically compile these statistics, providing a surprising level of detail, within their management information functions.

Although engagement with the process is a basic minimum requirement, most employers want to go far beyond this to discover the scheme’s impact on employees.

Staff surveys

For this level of measurement, surveys are the next port of call. Philip Smith, head of financial planning at Buck Consultants, says: “Best practice is to survey before and after implementation.”

Watson Wyatt’s Brown adds: “In this way, employers can measure how successful flex has been in increasing employees’ understanding of the benefits available to them and the value of their package.”

The Employee Benefits/Towers Perrin Flexible Benefits Research, published in March 2009, found 72% of the 832 respondents who measured the success of their scheme look at employee satisfaction levels. Staff surveys are one of the easiest ways to monitor this.

Using focus groups to further interrogate survey results enables employers to put them into context. Jon Bryant, regional director, benefits and communications at JLT Online Benefits, says: “[Employers] might run a scheme where take-up is low, then they might run a survey where the attitude to benefits is that they are poor. But if they were then to run a focus group to talk through the package, those same people may be more appreciative of the benefit. So they would see it was not the package itself that needed rethinking, but education and communication.”
Control costs of flexible benefits

A combination of these approaches is key to determining whether flex has succeeded in improving employees’ appreciation and understanding of benefits. Another common reason for introducing a flexible benefits plan is to cut or control costs. “From a financial perspective, the best measure of real value added by a flex plan is the amount of income tax and national insurance (NI) contribution savings made,” says Brown. “Pensions salary sacrifice alone can deliver typical company savings of £150 per employee.”

Employee Benefits’ aforementioned survey showed identifying tax savings was the second most common measure of success, used by 54% of respondents. NI savings for employers were cited as the third most important measure, followed by NI savings for employees. But these are not the only economies to take into account. Staff can make savings by accessing perks more cheaply than they could in the individual market. And employers can gain savings from any self-service elements. “This can strip out some administrative tasks from the HR department,” says Brown.

These cost savings can then be quantified, to produce a cost/benefit analysis of the flexible benefits scheme.

Improving recruitment and retention

Alternatively, schemes may be introduced with a more far-reaching objective in mind, such as improvements in recruitment or retention. But success in this context is more difficult to measure. “Anything subjective is going to be open to debate,” says Smith “How do you measure the effect on recruitment, for example? A host of other things also affect recruitment, such as the labour market and what the competition is doing at the time.

“You might say that the cost of recruitment has come down since the scheme was introduced, but that could be for any number of reasons.”

Measurement of success in this context involves a variety of factors, including take-up, surveys, focus groups and cost-measurements, as well as measures specific to the objective.

Take retention, for example. Employers can measure any change in retention trends after the scheme is introduced. They can ask questions in employee surveys or focus groups and leaving interviews to ascertain the effect of benefits on retention.

Employee feedback

Meanwhile, employers can measure any changes in recruitment costs using feedback from interviews, employee surveys and measures, such as offer-to-acceptance ratios.

Employers that adopt a balanced approach and use a number of measurement methods will be able to piece together a more complete picture of how successful their flexible benefits scheme is, as well as identify remedies to revive a struggling scheme.

“We had a client where dental insurance take-up went down 11% in a year,” says JLT’s Bryant. “But when we looked into the detail, we saw 10% of that 11% were employees who were pregnant. When you are pregnant, you are entitled to free dental treatment, so you do not need cover.

“So [employers] need to do this kind of contextual analysis. They need to understand the reasons behind things, so they do not end up making the wrong decisions.”

Lacked resources

So measurement is vital, but far from simple. According to the Employee Benefits’ research, only two-thirds of schemes are measured for success. More than 30% of respondents said they lacked the resources for the job, 25% said they did not have the time and 8% said there was no available budget.

But the arguments for finding the time and resources are compelling. This is the only way for employers to ensure the money they are spending on flexible benefits is an investment rather than a waste, and convince the finance director the scheme is worth continuing.


Case Study: Cofunds

Financial services company Cofunds operates in a sector where demand for talent is high and generous remuneration is expected, so it needed a package to support growth.

It chose a flexible benefits plan to improve the perceived value of reward and, ultimately, to act as an effective recruitment and retention tool.

The firm gave staff a pot of money on top of salary, pension and core benefits, worth 4% of salary. This was a serious investment, so Cofunds used a combination of measures to quantify the scheme’s success.

First, it identified 92% of staff logged on to the benefits portal, run by Thomsons Online Benefits, and tailored the benefits package to suit their needs. It then asked about the plan in its staff engagement survey and found 90.8% of employees agreed having flex made the business more competitive.

Meanwhile, 84.2% of employees agreed flex made a real difference in supporting their needs and lifestyle. Almost all (94.4%) of employees agreed they felt more positive about the business now it was providing flexible benefits.

Click here for more flexible benefits news and analysis

Click on the links below for more sections:

Flexible benefits: Interview with Marianne Hugget of The Work Foundation

Flexible benefits: Structuring flexible benefits plans

Flexible benefits employer profile: White and Case

Flexible benefits: Selecting the right perks

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Flexible benefits: Measuring return on investment

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