If you read nothing else, read this…
• Employee benefits packages must be designed to meet the objectives of the organisation.
• Benefits packages can vary between sectors, but typically reflect the demographics of an organisation.
• Providing tax-efficient benefits will help maximise people’s take-home pay.
• Employee communication and engagement with the design of a benefits strategy is vital.
Case study: Tesco offers wide choice of benefits
Retail giant Tesco offers its employees a wide choice of benefits, including a defined benefit (DB) pension scheme that is open to all staff from day one, three all-employee share schemes, life assurance, childcare vouchers and discounts at theme parks.
The retailer also offers all its employees a discount card, the Privilege card, which gives a 10% discount on shopping in all Tesco stores and online. Staff can save a maximum of £730 a year.
Staff feedback shows the Privilege card is top of the list of most valued benefits. Vicki Etienne, benefits manager at Tesco, says: “It is combined with the Tesco Clubcard, but another reason the Privilege card is so popular is [staff] get immediate benefit from it, they get money off their shopping bill.”
Voluntary benefits include a staff tariff on the Tesco Mobile network and discounts at Tesco Bank. Each pay period, Tesco includes a new offer, for example extra deals on clothing, homeware or photo processing.
With nearly 290,000 UK staff, Tesco has a wide range of needs to consider. “We have a very wide demographic of staff, so we try to make sure there is something for everybody,” says Etienne. “At Christmas, staff are given extra money-off vouchers as a thank-you.”
Case study: Honda helps money go further for staff
At Honda’s factory in Swindon, staff can access benefits to help them make their money go further. The main offerings in the company’s “What if…” scheme are a pension plan, which has the option of additional voluntary contributions, childcare vouchers and a cycle-to-work scheme.
All employees are also offered private medical insurance, subsidised canteens, laundered uniforms and voluntary benefits that include a healthcare cash plan, dental plan, retail vouchers and online discounts through the Perkz-provided website.
Because of the recession, the plant did not operate for four months in 2009, and employee morale was low. But people were still in work, and the company introduced a working time account which enabled it to pay its employees consistently, ‘banking’ hours that either the individual owed or Honda owed if staff had worked overtime.
Honda sought to introduce benefits that helped to make employees’ money go further, says Judy Luckins, section manager, payroll and benefits. “During that period, people were obviously feeling the pinch, so that is when we focused on retail vouchers and Perkz, a scheme that we bought in January 2010,” she adds.
Case study: PricewaterhouseCoopers offers flexible and voluntary perks
PricewaterhouseCoopers (PwC) offers core, flexible and voluntary benefits.
The core benefits - life assurance, personal accident, income protection, and private medical insurance - offer a fixed level of cover, but staff can increase this if they wish.
Flexible benefits include holiday trading - down to a minimum of 20 days or up to a maximum of 30 - a defined contribution (DC) pension, health screening, bikes for work and childcare vouchers. Carolyn Wilkinson, senior employee benefits manager, says: “We have got a flexible benefits plan that is extensive so it can meet the needs of a diverse workforce.”
Voluntary benefits include retail discount vouchers, discounted gym membership, and a concierge service that employees can use to arrange holidays or book theatre tickets, for example.
There is a huge take-up of flex among PwC’s 14,000 staff - about 90% submitted a request during the renewal period in September. One of its most popular benefits is theholiday trading scheme, in which nearly 60% of staff opted to take part.
Case study: Unisys has three categories of flex
IT services company Unisys has had a flexible benefits scheme for 13 years. This has changed a lot over that time to reflect staff interests, and is split into three categories - security, wellbeing and lifestyle.
Unisys’ workforce has an 80/20 male/female split, most staff have at least 10 years’ service, and the average salary is about £50,000. Andrew White, reward manager, says: “We found high interest in security-type benefits rather than lifestyle, so tried to tailor as many as we can in the insurance sector.”
Security benefits include critical illness insurance, travel insurance and group income protection. Wellbeing perks include dental insurance and health screening, which staff can also buy for their partner. The lifestyle range includes holiday trading, childcare vouchers and retail vouchers. Unisys also offers experience days and magazine subscriptions.
Core benefits include private medical insurance for all staff, and life assurance.
Most popular benefits are critical illness, dental insurance, holiday trading and income protection.
Case study: BMI Healthcare goes for healthy options
Most of BMI Healthcare’s employees are clinical professionals - nurses, physiotherapists and radiographers - so it is not surprising healthcare is one of the most popular benefits.
The healthcare provider offers a pension, life assurance, paid sick leave beyond statutory requirements, private medical insurance (PMI) and health assessments.
Catherine Ward, group HR director, says: “Because employees are working in that industry, they are aware of the benefits of private healthcare.”
The organisation also offers perks to maximise people’s pay through salary sacrifice schemes, including childcare vouchers.
PMI is voluntary because it attracts a tax benefit. BMI Healthcare pays premiums for the administration, rather than for the insurance. Staff are expected to go to one of BMI’s hospitals as their first port of call if they need healthcare, but there is an option to go outside.
As the new year approaches, we ponder what might be included in an ‘optimum’ benefits package in 2011. Tynan Barton reports
Benefits schemes tend to be built around three main elements: core benefits, such as pensions; flexible and voluntary benefits; and tax-efficient perks. So putting together an ‘optimum’ package requires a great deal of thought for benefits professionals.
The first objective for many employers is to offer core perks such as a pension scheme, healthcare, medical insurance, income protection and life assurance.
A pension has long been viewed as one of the biggest-value items in a benefits package, but with the decline of defined benefit (DB) schemes and the advent of auto-enrolment, benefits strategies could be in for a radical change.
Professor Chris Bones, dean emeritus at Henley Business School and professor of creativity and leadership at Manchester Business School, says: “Either the employer can reduce the value of benefits as a whole, or employees can push for benefit improvement in other areas because the value of the whole package to them is much less than it was five years ago, even though the cost may be the same to the employer.”
The public sector will also see changes. The Local Government Pension Scheme is a fundamental part of local authorities’ benefits offering, but it is coming under scrutiny, along with other perks, as councils seek to trim their budgets. Stephen Moir, treasurer at the Public Sector People Managers Association (PPMA), says: “What we are having to do is review benefits, decide whether or not they are value for money, and whether they are sustainable in the context of significant financial reductions for public services.”
A strong trend in benefits is to encourage workplace saving, so the optimum package could include a scheme that addresses the mid-term financial demands on staff, such as schooling, parental care, sabbaticals, or the need to support a partner’s break away from work. Employees’ immediate and short-term financial needs can be met through salary and bonuses, and their long-term needs through a pension, but David Wreford, principal at Mercer, has noted a current trend among employers to look at how they can meet these medium-term financial needs.
“There are things like sharesave arrangements in businesses that do provide employees with some medium-term wealth creation,” he says. “We are seeing interest from employers in introducing things like company-sponsored [individual savings accounts] (Isas) as a component of the package to address that particular issue.”
Widening the benefits offering
Employers’ second objective in creating the optimum package involves widening their benefits offering to include, for example, an employee assistance programme (EAP), health screening, season ticket loans and childcare vouchers. This could lead on to flexible benefits, incorporating products such as critical illness cover and travel insurance, and a voluntary benefits portal.
The third element of an optimum perks package aims to maximise the value of employees’ pay, for example through salary sacrifice arrangements and tax-efficient benefits such as childcare vouchers and discount retail vouchers.
Sarah Pickering, managing director at Alvarez and Marsal Taxand UK, says: “If [employers] can deliver to employees pay that is income tax free, or national insurance free, add them to salary sacrifice or allow them to participate in those sorts of benefit, that means the individual ends up with more net pay. So the gross pay does not change, but the cash they can take away and spend at the end of the month is greater.”
So if an employee wants to buy a computer or a mobile phone, for example, a retail discount scheme will increase the buying power of their net pay.
When implementing a benefits package for the first time, employers must assess how it will align with their particular business and workforce. A critical point to consider is the organisation’s objectives, and how it achieves those through its people. Duncan Brown, director of reward services at the Institute for Employment Studies, says employers should bear this in mind when putting together a reward strategy. “What does [how it achieves its objectives] say about the rewards and benefits an organisation needs, compared to the labour market, and service and product competitors? What are the characteristics of those markets in terms of the rewards and benefits they provide?”
Industry sector affects choices
The industry sector in which an organisation operates can have a big influence on the benefits it offers, says Henley Business School’s Bones. “For example, in financial services or in consumer goods, access to subsidised products is a pretty standard part of the benefits package, and this has a value for employees,” he says.
The IES’s Brown says the basic economics and financial margins of particular sectors are a big influence on perks.
“Historically, pharmaceuticals had very good benefits packages and they made very good margins so they could afford it. So a high-reward, high-return philosophy makes sense there. But if you are in a business like travel or retail, the margins are significantly narrower, which means you cannot offer as rich a package.”
The PPMA’s Moir says the benefits offered in the public sector are basically no different from those at any good private sector employer. “If you take things like flexible working, or time off for compassionate leave or to look after a sick dependent, good employment practice is what I see as part of the fundamental benefits proposition.”
Employers in the legal sector are keen to benchmark what competitors are doing, so benefits packages tend to be similar, says Stuart Gray, chief executive of consultancy Portus. “They will all have core benefits - pension, healthcare, income protection, life assurance - but really as a hygiene factor. They have other stuff now - childcare vouchers, bikes for work, and so on. We are seeing some firms with concierge-type services, others that provide access to emergency childcare or eldercare.”
Workforce demographics influential
A workforce’s demographics are also hugely influential on the design of the benefits package. Mercer’s Wreford says: “Ultimately, the goal of your total reward package is about improving performance, attracting and retaining people. So you would do well to listen to what employees need or desire.”
With four generations in the workforce - baby boomers, generations X and Y, and millennials - employers have a wide range of needs to consider, so their benefits package will have to offer choice and flexibility.
There is a strong link between employees’ understanding of how they are rewarded and their satisfaction with those rewards, so communications will also play a key role as employers seek to assemble an optimum benefits package to suit all their staff.
Christmas wish list
Benefits professionals share what would be on their Christmas list if they could include any benefit.
Catherine Ward, group HR director, BMI Healthcare: “Employers do a lot for people with children – we offer vouchers and are flexible around time. But we do not do anything for people with elderly relatives. I would like to see some sort of benefit for people looking after elderly relatives, such as advice and time off.”
Judy Luckins, section manager, payroll and benefits, Honda: “Although we do occasionally buy holidays back, it would be nice to buy and sell more holiday, but it is not realistic for our working environment.”
Andrew White, reward manager, Unisys: “Some kind of salary sacrifice scheme around holidays would be good. If some of the big holiday providers were able to offer substantial discounts on a salary sacrifice basis, that would definitely be of interest to the Unisys population.”
Stephen Moir, treasurer, PPMA: “The best benefits package I could ask for now is not financial, but guaranteed job security for life.”
Vicki Etienne, benefits manager, Tesco: “The one thing staff have asked us for but that we have not yet been able to do is get discounts at cinemas.”
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