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Benefits: What’s the alternative? By Annie Hayes

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Money
With a tight labour market in our midst and fierce competition for key talent burgeoning, organisations are being forced into being ever more inventive with their benefits; in this feature Annie Hayes, HR Zone Editor reports on the range of ‘alternative’ schemes on offer in UK plc.


Engaging the workforce:
Charles Cotton, reward adviser at the Chartered Institute of Personnel and Development (CIPD) says that organisations are battling with two competing pressures: “On the one hand they’re dealing with cost and quality pressures and on the other they’re facing a shortage of key labour which is pushing up the wage bill.”

All this, he says, results in reward specialists having to be more innovative about the reward packages they offer to lure talent. One approach is to link reward to business strategy, a solution that the Honda Racing F1 team adopted. All employees at the company are on a 40-hour-a-week basic contract. However, because of the nature of the work and the staff’s drive to be winners, substantial amounts of unpaid overtime are the norm.

To foster teamwork, the organisation has come up with an innovative way to structure its bonus scheme that directly aligns with the business strategy. The scheme is based upon two elements. Firstly, there is a reward for race-finishing position, paid immediately after the result and, secondly, an end-of-season bonus. The in-season payment goes into payslips the month after a relevant points placing has been achieved. The end-of-season bonus is linked to the team’s finishing position in the Formula One World Championship.

John Marsden, HR Director commenting in the CIPD’s survey said: “Reward is constantly being reviewed to ensure that it helps us achieve our goal of becoming world champions. This means ensuring that our reward practices allow us to attract and retain the right calibre of employee as well as encouraging and supporting teamwork and sharing with them the successes that we achieve on the race track.”

“Reward is constantly being reviewed to ensure that it helps us achieve our goal of becoming world champions. This means ensuring that our reward practices allow us to attract and retain the right calibre of employee as well as encouraging and supporting teamwork and sharing with them the successes that we achieve on the race track.”

John Marsden, HR Director Honda Racing F1 team.

But according to the CIPD survey and unlike Honda, most employers are failing to adopt a strategic approach to reward. One possible explanation, according to the professional body is that there is no business strategy to align it to, or, if there is one, it’s so weak it’s not worth aligning a reward strategy to it.

Shifting the cost of benefits:
We’re also witnessing a shift in the cost of rewards and benefits from employer to employee, most noticeably for pensions. As final salary schemes increasingly dwindle, businesses are pushing the costs of pensions in the form of defined contribution schemes onto employees. Just under one-fifth of employers in the CIPD’s annual reward survey said they’d be amending their existing pension arrangements in 2006. One of the most popular amendments is to increase both the employer and employee contributions in an attempt to reduce the pension deficit.

This has triggered a change in the role of the employer from financial provider to educator. Bosses are increasingly focusing on making their employees as financially aware as possible in order to help them make the right choices. There has been an expansion in the proportion of employers offering some or all employees free independent financial advice up from 14% in 2005 to 17% in 2006 and this is predicted to hit 23% by 2007, according to the findings of the CIPD’s survey.

Paul Sellers, Policy Adviser for the Trades Union Congress (TUC) told me that it’s crucial that employers wake up to this new responsibility. “The TUC favours a degree of compulsion when it comes to pensions and it’s increasingly important that employers educate workers about saving for retirement to ensure that they don’t end up in poverty.”

For trade unions, says Sellars, a key point is that employees should be in a position to make informed choices. “For example, most people would be better off claiming tax credits than they would taking a childcare voucher, and some salary sacrifice schemes reduce NI and tax payments from employees, which may not be a good thing when it comes to pension entitlements etc.”

“Most people would be better off claiming tax credits than they would taking a childcare voucher, and some salary sacrifice schemes reduce NI and tax payments from employees, which may not be a good thing when it comes to pension entitlements etc.”

Paul Sellers, Policy Adviser for the Trades Union Congress.

John Chilman, Group Pensions Director for First Group the largest bus and train provider in the UK with 74,000 staff, 44,000 of whom are based in the UK has done just this – putting financial education and management at the forefront of his rewards strategy.

Many of this large workforce are on take home weekly pay deals that fall below the national average. And for these workers becoming disenfranchised with the high street banks and getting into trouble with unscrupulous lenders is not out of the ordinary.

“We set up a Credit Union, a mutual. Members can borrow against their savings after a certain period reducing in many cases the cost of their borrowing to a fraction of their previous deals. We’ve saved five houses from being repossessed this year.”

And the rationale behind this explains Chilman is that for workers who are struggling with financial management their issues and concern impinge upon their general wellbeing and what they can bring to the company. By controlling this problem first they can then start to encourage their low earners to think about saving for the future.

Putting employee needs first:
HSA, the healthcare group has also recognised the importance of matching employee needs to rewards. With over half, 59% of their staff under the age of 40 and many finding pensions a remote concept; the healthcare provider decided it was time to look at a reward scheme to help those looking to get across the threshold and into their first home.

And whilst the tax and national insurance implications make it less attractive then a pension’s saving, the take up has been encouraging. Mark Day, HSA’s Human Resources Director tells me that as people reach their goal they can then transition out of the scheme and focus on their pension plans.

And according to the CIPD’s survey these ‘alternative’ schemes are gaining in popularity.

The third way:
Voluntary and flexible benefits look set to expand – voluntary benefits where employers provide third-party goods and services at a discount excite most interest, especially among the budget-conscious voluntary sector employers and organisations employing more than 250 staff, says the professional body.

Snowdrop, the software services outfit have agreements in place with a range of local suppliers. Employees can take advantage of discounts ranging from conveyancing work, gym membership, food at local restaurants, keys and shoe repairs, home and car insurance and car maintenance.

Whilst at the Nationwide, arrangements are in place with a number of external suppliers, the RAC are used for car breakdown cover, Nationwide’s Positive Care Plan is provided by AIG and Halfords is employed for the Bikes For Work Scheme.

The popularity of childcare vouchers also continues. Indeed amongst the top benefits being amended this year according to the CIPD survey are childcare vouchers and bicycles. The number offering childcare vouchers and bicycles will expand by 69%.

Publishing group, Penguin have place childcare responsibilities as a key issue. The organisation not only offers a childcare allowance but it also offers an impressively generous maternity package from which mums can take up to six months on full pay, followed by a further six months at the statutory unpaid level. While new fathers can also take the opportunity of taking up to 20 days paid, paternity leave to bond with their newborns.

Flexible benefits are also moving up a gear, although many organisations have as yet to cotton onto the returns. For Nationwide they’re central to their rewards strategy: “Over the last ten years flexible benefits have become increasingly more important and it’s amazing that more companies don’t see this,” comments Paul Bissell, Senior Reward Manager and the CIPD’s Vice President of Reward.

” Over the last ten years flexible benefits have become increasingly more important and it’s amazing that more companies don’t see this.”

Paul Bissell, Senior Reward Manager, Nationwide and the CIPD’s Vice President of Reward.

“The 2006 CIPD reward management survey, which assessed the benefits structures in place of 535 companies, showed that the number of organisations offering flexible benefits is incredibly low. It’s less than ten per cent and the volume of benefits on offer is low too.”

Bussell says that providing such benefits gives the company a competitive advantage: “You can be 90% ahead of the pack simply by having a flexible benefits scheme in place.”

Sellers warns, however, that in too many cases flexible benefits packages are only offered to senior managers. Organisations including Cadbury Schweppes and Severn Trent Water are the exceptions, he says – in both cases the flexible benefits package is extended to all grades of workers.

Thank you goes a long way:
Non-financial rewards are also gaining in popularity. Snowdrop rewards those employees that go the extra mile. Melanie Guy, HR manager for the firm says: “Line managers nominate someone from outside their team and they’re invited to go to our reward room and pick a prize – they’ve ranged from a personal shopping trip at Topshop, to a night out in stretch Limo, fancy restaurants and clay-pigeon shooting and the employee can take a colleague with them too it’s really popular and encourages great performance.”

AXA PPP healthcare, a UK-based business with 1,800 staff also emphasises the importance of rewarding employees. They do it with fun.

Mark Moorton, HR Director comments: “We have themed days to celebrate the World Cup or Valentine’s Day for example. Employees can come to work in fancy dress and we have competitions and activities.”

Just saying thank you and giving recognition for a job well done pays dividends.

Organisations it would seem are becoming smarter at segmenting their workforces. Just as a retailer does, reward specialists are now focusing their benefits packages on the needs and wants of the differnt factions within their workforce.

Employers are beginning to shift their role into one of educator, upskilling themselves as communicators and facilitators of financial management rather than purely as providers. The upshot of this is that employers are extending their range of benefits beyond the traditional suite of core products and as pensions promises fail to entice workers they’re being increasingly more inventive to boot.

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Annie Hayes

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