Just how beneficial are your employee benefits? Remuneration experts argue that neither companies nor their staff derive good value from the traditional benefit package which applies a standard formula across the entire workforce. Benefits, they say, should be tailored to individual as well as organisational requirements.
Flexible benefits, also known as cafeteria plans, make this possible by allowing employees to select particular features, and design their own packages to meet specific personal or family needs. They choose from a menu of options such as pension, health screening, additional holidays, dental health/child insurance, income protection, mortgage assistance, child care - and cash. Flexible systems are already well established in the US, and they are attracting attention in the UK. 'They give employees greater choice and greater control, and allow employers to be seen as proactive, innovative and looking after their workforce,' maintains Mike Elworthy, flexible benefits consultant at Mercer Fraser.
Nevertheless, fewer than one UK employer in five currently offers its staff this flexibility, according to a recent survey of personnel directors by Cigna Employee Benefits. Slightly more than a fifth of the respondents confessed to being interested in the concept, even though not yet ready to apply it. A further 35% were considering flexible benefits or gathering information on the subject. As memories of the recession recede, the need to retain and attract good employees will tend to grow, argues Cigna's managing director Chris James: 'Increasingly, employers will need to compete for key skilled employees. The importance of an attractive employee benefits package cannot be overestimated.' But while personnel directors may be eager to discuss flexible benefits, they should be careful about committing themselves, says Roger Dolphin, head of strategic benefit management at Sedgwick Noble Lowndes (SNL). 'Often they have no strategic approach to benefits. More flexible benefits may indeed be right for a company, but they must first ask how the benefits system fits into the overall corporate plan - and what they intend to achieve by providing it.' 'Over the years, remuneration policy has changed but benefits packages tend to plod on, unchanged and unchallenged. Too often companies know the cost of the benefits they provide, but not their value,' observes Richard Baker, head of human resources at Hoechst Roussel, which recently undertook a review of the purpose and cost-effectiveness of its £6.5 million annual benefits spend. The review revealed that (excluding company cars) only 2-4 % of Hoechst Roussel staff got anything from their benefits in any given year. This was apparently because most benefits provide cover for unlikely or distant eventualities, such as prolonged sickness or death.
'We had to look at the value we are getting from offering benefits when 98% of our staff did not use them,' says Baker. 'Given that most people believe in no job for life, perhaps more people want remuneration and benefits today rather than tomorrow.' Baker concluded that the current range of benefits was unlikely to be valued highly, and employee research endorsed his view. Some 90% of the 1,100 employees wanted greater choice of benefits, and 95% asked for more influence over the composition of their benefits. 'Giving people choice in the benefits package is viewed as a benefit in itself,' says Baker. 'In future we hope to make the benefits package a part of remuneration, inherently what people want, a support to company culture, and part of the entire recruitment and retention policy.' Mercury Communications introduced a flexible benefit scheme for its 10,000 employees in January. Offering benefits ranging from longer holidays to child care vouchers, the scheme is not compulsory although one in three Mercury employees has opted in. 'We felt a more flexible system would allow us to focus on individuals. The response so far has been extremely positive - less than 2% of employees view it as a waste of effort,' says employee benefits manager Russ Wattling.
Asking employees what benefits they would like can produce surprising results, says Dolphin. A recent SNL survey of an electronics company revealed that 85% of the workforce valued benefits above increased pay. First priority of the respondents were sports and social facilities, followed by pension schemes, health screening, short-term savings, holidays, healthcare, share purchase, income protection, mortgage assistance and child care. In another company with a largely female workforce, Dolphin found that the greatest demand was for mobile phones and payment of call charges.
'Clearly there are hard reasons for a company to review its benefits package, including cost and value for money,' notes Dolphin. 'But it clearly can't be right to offer (the same) fixed package to a 59-year old with a family and to a 23-year old single person. Their needs and requirements must be different. An employee's perception of valued benefits will be different from that of the employer, and the employee's perception will change as different life events occur.' Fully integrated cafeteria benefit systems are very rare in the UK so far. Such total systems are complicated and costly to implement, Dolphin points out. A more attractive and manageable system would be a mix of core and flexible benefits. 'That's more likely to meet corporate objectives (which might include health screening of all employees, for example) while allowing employees some flexibility around the core. This system is more balanced than one which provides either too much or too little individual choice.'.