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The flex capacitor: Back to the future of benefits


Back to the future of benefits

Flexible benefits can be a great recruitment and retention perk as part of a total rewards package. But what exactly should you be offering staff – if anything at all – and what’s the incentive for take up? Louise Druce investigates.

Flexible benefits have been around for years but they are finally being more recognised as a great way to support the all-important employee work-life balance, at little real cost to employers. But, as the saying goes, only fools rush in.

Deciding what to flex means understanding the benefits already in place in your company and what will appeal most to the workforce. Childcare vouchers in a small, predominately single male company are unlikely to be snapped up anytime soon, for instance, just as company car perks are unlikely to appeal to green-minded employees who live close to work and rarely leave the office to conduct business.

Benefits introduced by firms in last six months

Flexible hours: 15 per cent

Bonuses: 11 per cent

Pensions: 11 per cent

Health insurance: 11 per cent

Extra holiday: 10 per cent

Gym membership: 8 per cent

Source: Robert Half Spring 2007 employment index

That’s why the choice of flexible benefits is gradually expanding to appeal to a wider range of lifestyles inside and outside of work, comprising anything from private medical insurance, pensions, life insurance and cheaper car parking to subsidised canteen meals, wine club membership, holiday perks and company bicycles.

“We see the prevalence of flexible benefits, and their design, as a measure of maturity of companies’ benefit plans, their attitude towards attraction and retention of employees and the depth of their pockets,” says David Wreford of HR consulting company Mercer, which conducted a survey on the prevalence of flexible benefits in financial services companies – which incidentally stood at 29 per cent. “Flex plans are highly suited to dynamic businesses and support the values they are trying to promote.”

And not just in the financial services sector. Just over one in 10 companies are now offering flexible benefits, according to a survey by the Chartered Institute of Personnel and Development (CIPD), a figure that looks set to grow. But what exactly are flexible benefits and what advantage do they offer?

Flexing your benefit muscle

According to the CIPD’s definition, the premise is to offer a scheme that allows employees to vary their pay and benefits package to satisfy their personal requirements. However, flexible benefits should not be confused with voluntary benefit schemes, where employers arrange bulk discounts with external providers, or net pay schemes, when employees pay for extra benefits. Most schemes are initially based on the existing benefits provision in the company, which are then used to construct a new package.

The employee is given an allowance, a list of available benefits and how much they cost to buy and sell, with a limit on how much salary can be used to acquire extras. The good news for the employer is that most come with automatic tax and NI savings – although this must be thoroughly checked and any liabilities communicated to the employee.

“For us, the most popular benefits are life insurance, pensions, private medical insurance and holiday purchase,” says Ingrid Waterfield, reward manager at KPMG. She explains how every year, in the build up to the renewal period, the company hosts a virtual roadshow so staff can look online at the benefits on offer before they commit. The benefits calculator provided can then be used to work out the impact on their monthly pay.

“We can change the benefits we provide. The key thing for us is choice and ensuring we are providing what the employees want. We want them to feel more involved and in control of what they receive, and that indirectly helps with retention.”

As well as retaining staff, it is also being used as part of the recruitment process. “One of the reasons we introduced flexible benefits was to remain competitive because in our industry there is a war for talent,” says Waterfield. “When we recruit people, we provide a token reward statement as well as information about the flexible benefits we provide. The reward team provides training to the recruitment team about our total reward scheme. Within that, we explain about the flexible benefit offerings.”

Is it really working?

The real question is: are flexible schemes any good? To answer that, you need to look at what the company is trying to achieve and benchmark it. For example, if you are introducing flexible benefits to become a more attractive employer then you need to have measures in place looking at things such as employee turnover rates, training, job applicants and success rates.

“Flexible benefits is sometimes described as a solution in search of a problem, so it helps if the organisation can work out what the problem is.”

Charles Cotton, CIPD’s reward and conditions adviser

“Flexible benefits is sometimes described as a solution in search of a problem, so it helps if the organisation can work out what the problem is, what they are trying to achieve and how flexible benefits go into that,” explains Charles Cotton, the CIPD’s reward and conditions adviser.

“It can be difficult to work out whether flexible benefits are the sole cause of all the positive results but, all things being equal, flexible benefits should be associated with positive development. If it isn’t, then either flexible benefits are not the answer to the solution or perhaps they haven’t been implemented or communicated very well.”

KPMG measures its success in three main ways: through the media – the Sunday Times has regularly ranked it in the top three for the best big company award, which surveys around 10 per cent of staff on how good the benefits package is; through an annual people survey, that asks whether or not the benefits programme fits with their needs (74 per cent expressed satisfaction this year), and through the annual Flextra survey, which asks people more specifically about the process of flexible renewal and how the plan can be improved. As a result of the last Flextra survey, KPMG has this year introduced a way to allow employees to flex their bonus into their pension.

It goes back to communication. “The major issue for any organisation going into a flex scheme is good communication, especially during the transformation from an old scheme to something new, otherwise the employee ends up selecting what they originally had in their package,” says Simon Parsons, director of payments, benefits and compliance strategies at flexible benefits specialist Ceridian. “There is an element of promoting why and what the benefits of changing the package to suit their needs are.”

When they know they have choice, Parsons believes one of the advantages of flexible benefits is that employees don’t feel forced into something they don’t feel fits. “It gives them some sort of anchor,” he adds. “If you are giving them something meaningful then they have more reason to stay with the company and feel it is more applicable to their family or the circumstances they find themselves in.”

Flexible benefits in action

ING Direct
On 1 January, ING Direct launched a scheme aimed at increasing flex choice without increasing cost by allowing staff to trade off existing benefits or part of their salary, such as 1 per cent of the 5 per cent pension contribution or using a portion of private medical insurance for other options. Other tax-efficient benefits include childcare vouchers and company bikes. According to HR director Jennie Monon, rebrokering benefits meant a better deal with suppliers to cover running costs and the scheme was also intended to improve retention in its call centre environment.

The company is constantly looking at better ways to communicate its benefits scheme, coming up with a new theme and variety of media options each year as well as looking at options such as online registration. In the 2007 enrolment year, the campaign targeted out-of-work activities to show how flexible benefits can support employees’ hobbies and interests. Additional benefits include subsidised canteens and discounts on retail vouchers. Flex take-up has mushroomed from an initial 19 per cent in the pilot four years ago to 74 per cent this year.

The building society has an impressive range of flexible benefits to accommodate a diverse workforce, including green schemes such as carbon offsetting options. Childcare vouchers are one of the fastest growing monetary perk but according to awards analyst Rosemary Crabb, RAC breakdown cover has proved the most popular benefit, with more than 2,000 staff opting in. With Christmas fast-approaching, employees also have the option of topping up an account in which non-cash awards and rewards are credited, including seasonal gifts and some bonuses.

Source: Employee Benefits

One Response

  1. Another good piece of research
    Good article, interesting to hear about the CIPD research. I certainly agree with the point about communications and as I recall that was also the main finding (amongst others) of another piece of research: “Employee Reward Watch” by thomsons online benefits. I believe over 500 companies took part so it is very credible. It can be downloaded free from under the “useful stuff” button.

    I see from their news page that they are starting the research for the next report and those who take part will get the 2008 report automatically. Worth considering maybe.

    I hope this helps add more insight into this interesting topic.


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