Case study: Cashing in on travel savings
Robert Bowers, a newly-recruited conductor at London Overground, values the company’s defined benefit (DB) pension scheme and travel discounts. He is also interested in paying pension contributions via salary sacrifice, which results in savings on tax and national insurance (NI).
Bowers, who joined London Overground in February, makes significant savings on travel because of the 75% discount he is entitled to for rail travel throughout the country, together with a free Oyster Card on all London Underground services.
He says: “I come from Bletchley [Milton Keynes] every day, which is a £280 [saving] a month. It is incredible how much I am saving.”
London Overground Rail Operations is gearing up for a busy time during this summer’s Olympics and Paralympics and has made sure of getting all its staff on board, says Nicola Sullivan
This summer, the 2012 Olympic and Paralympic Games will see more than six million sports fans flock to London to watch the world’s top athletes compete for glory.
Spectators will be putting much thought into their travel plans, but their preparations will not compare with those at London Overground Rail Operations, one of the train companies tasked with ensuring games-goers reach their destinations in the capital, ranging from the Olympic Stadium in Stratford, east London, to the equestrian venue in Greenwich Park, south-east London, and Wembley, north-west London for football events.
For example, the North London line, operated by London Overground, which runs from Richmond in south-west London to Stratford, will operate up to 10 trains an hour during the Games, compared with the two or three an hour it ran when it took over from its previous management, Silverlink Metro in 2007.
Darren Hockaday, HR director at London Overground, says: “It will be very much a turn-up-and-go service. What customers experience in the peak [hours] in terms of frequency they will get all day from 6am to 1am.”
But the Transport for London-managed operator, created from a joint venture between Hong Kong metro rail operator MTR Corporation and Laing Rail in 2007, is no stranger to growing passenger numbers.
According to Hockaday, in the last 12 to 18 months, it has seen them surge from about 80,000 to more than 300,000 a day.
Hockaday’s own Olympic challenge has been to overhaul London Overground’s employment contract terms to ensure its frontline staff are fully equipped and appropriately rewarded to meet the transport demands posed by the games. “We are asking our employees to be flexible about where they work, when they work, how long they work and how late they work,” he says.
New employee terms and conditions, which will apply to specified periods before, during and after the games, were agreed after several months of negotiations with the National Union of Rail, Maritime and Transport Workers (RMT) last year.
Front-line staff will be paid time and a quarter instead of their normal shift rate, which the RMT says will result in a minimum extra payment of £650 for each employee over the period of the agreement, depending on the number of shifts worked. Certain other grades of staff, who will be needed before, during and after the games, will be paid at time and one eighth, and a number of night-shift workers will receive time plus 40%.
Downtime for train cleaning
Hockaday says: “Night shifts will become even more valuable during the Olympics in terms of train cleaning. This is the only feasible downtime we get to go into the carriages and give them a good clean.”
To implement the new pay rates, London Overground has been working with IT services firm Atos and sister firm Chiltern Railways, from where the network’s payroll systems are managed.
In theory, the new process is simple. Employee timesheet data will be fed into the system, supported by new payroll software provided by Atos, which will automatically calculate the correct additional pay, whether it applies to work completed during the Olympics, before or after, and whether it is a weekend or night shift.
“We have a spreadsheet to support the building of a new bit of software that will be needed for the payroll system. It looks like something more akin to the Enigma code – that is what I have nicknamed it,” says Hockaday. “We have just got to make sure we get that Enigma code right, so we pay people what they are expecting. It is quite a complex challenge in terms of the payroll.”
This is the second major HR project London Overground has undertaken in the past few years. The first involved harmonising its benefits package after it took over the management of Silverlink Metro in 2007, as part of a modernisation project. This involved consolidating 13 station staff job grades into three and awarding pay rises to a number of employees, some as much as 30%.
Hockaday says: “Some of the grades were low historically. It was about creating a more equitable situation and more fairness across all station grades. The terms and conditions had been around for many years and would have originated from British Rail when steam trains were operating. This was a change that needed to happen for the different way in which this railway was to operate.”
London Overground’s defined benefit (DB) pension scheme has survived remarkably unscathed when compared to other organisations. In fact, the train operator is in the enviable position of being close to reducing both employee and employer contributions after the scheme revealed a £2.1 million surplus at its last actuarial evaluation. The scheme’s previous deficit was plugged when London Overground took over from Silverlink Metro in 2007.
Within the DB scheme, the organisation operates a growth-pooled fund for its 1,030 active and deferred members, which aims to provide long-term capital growth from a diversified pool of assets, including equities, commodities, cash, government bonds, non-government bonds, indexed-linked bonds and infrastructure. RPMI, owned by the Railway Pensions Trustee Company, provides administration and trustee services for the plan.
Under the scheme’s structure, 40% of contributions are paid by employees and 60% by London Overground, a ratio that will be maintained. But the train operator is currently in consultation with scheme members and unions, including RMT, about reducing employees’ contributions from 10.6% to 9.28% from July. Employer contributions could fall from 15.9% to 13.92%.
Pension contributions down
Hockaday, says: “Although the contributions are coming down, they are not coming down as much as we could afford.
“We are keeping a buffer of slightly more contributions, which is seen as a very good compromise with our trade union colleagues. This was what the business was proposing to do in terms of having the right balance between keeping the scheme affordable.”
Hockaday is expecting an increase in pension membership and plans to keep a close eye on the scheme. The scheme will be evaluated further in 2013 to monitor fund performance, active membership and the number of scheme retirees. “I’m having to pinch myself,” he says. “You hear about pension schemes in all sectors, public and private, and here we are talking about our scheme 100% funded and us reducing contributions.”
Hockaday says London Overground is fully prepared for the forthcoming pension reforms because it already automatically enrols new starters into its DB scheme. During their induction, staff receive information about the scheme, including how to opt out.
The firm favours its traditional face-to-face method of communication over a wide-ranging approach using multi-media platforms. Key benefit messages, such as the recent revision of contract terms, are often first delivered to support staff and directors over a mug of coffee and slice of cake. These employees then cascade the messages down to all staff across the network. London Overground’s internal employee magazine, Exchange, and weekly email bulletin are also used to support message delivery.
Hockaday adds: “One of the main ways we communicate is face to face. This means all of us, including heads of departments, line managers and directors, being out there talking to staff. It keeps us close to our front-line staff, close to the issues, and means we are in a position to support them better.”
London Overground at a glance
London Overground Rail Operations operates a suburban rail network across 20 of London’s 33 boroughs. Its lines include North London (Richmond to Stratford), West London (Willesden Junction to Clapham Junction), Gospel Oak to Barking, and Euston to Watford. It took over these lines from Silverlink Metro in 2007 and took on management of the extended East London line in 2010.
London Overground was created from a joint venture between Hong Kong metro rail operator, MTR Corporation, and Laing Rail in 2007. Later that year, Laing Rail’s parent, Henderson Group, sold its rail division to German national rail operator Deutsche Bahn.
London Overground is now jointly owned by Arriva UK Trains, a subsidiary of Deutsche Bahn, and MTR, and is controlled by Transport for London (TFL).
Its workforce has grown from just over 500 to 1,200 staff in the last four years, and passenger numbers have soared from 80,000 to over 300,000 a day in the past 12 to 18 months.
According to TFL, London Overground’s revenue totalled £61 million for the 12 months to 31 March 2011, which was 78% up on 2009/10. TFL attributes this growth to the opening of the East London line in May 2010, and its extension to Highbury and Islington in 2011.
Career history: Darren Hockaday
Darren Hockaday was appointed HR director at London Overground Rail Operations when it took over from Silverlink Metro in 2007.
He is most proud of the changes he has made to employees’ terms and conditions ahead of the 2012 Olympic and Paralympic Games.
He says: “It is a key achievement to have done all of this without any strike action, while changing the terms and conditions, bringing in 800 new people, and enhancing our benefits.
“I liken it to operating in a goldfish bowl. We have a high profile and there is high-visibility press coverage of industrial action in the transport sector. It is political, the Mayor and MPs all want to look after the interests of the travelling public, and we have strong unions.”
Before joining London Overground, Hockaday was interim talent development manager, Europe, Middle East and Africa, at Burger King, where he implemented a talent review process across all restaurants and management in Europe.
In 2006, he spent four months as interim capability, talent and leadership project manager at First Group after three years at Tube Lines as head of learning and development. Previously, he was HR manager at Airbus.
The benefits
Pension
Defined benefit (DB) pension scheme available for all staff.
Contribution rates for employees and employers could soon be reduced following a consultation. Contributions can also be paid via salary sacrifice.
Family-friendly benefits
Childcare vouchers.
Paternity pay of one week at full pay and one week at half pay.
Maternity pay of 12 weeks’ full pay and six weeks’ half pay.
Flexible working.
Healthcare
Private medical insurance for senior managers, including worldwide travel insurance for individuals. Previous medical history is not accounted for.
Travel benefits
Free Oyster card on all Tube map services for employee and nominee (includes London Overground, Tram, Docklands Light Railway, Tube).
75% discount on rail travel throughout England, Wales and Scotland for leisure and residential (includes commuting season ticket) for employee and spouse/partner and dependants under 16 years of age.
Free leisure travel for employees, their partner and dependants under 16 years old for train services operated by Arriva Trains Wales, Cross Country and Chiltern Railways.
Bikes-for-work scheme.
Holidays
25 days plus bank holidays.
Others
Season ticket loans.
Retail discount scheme.
Long-service awards.
Sports club.
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