This featured article from Philip Hutchinson, Head of Reward Consulting at Jardine Lloyd Thompson Benefit Solutions examines the trend towards providing more flexible benefits options for employees, and looks at the types of options being offered.

Although there has been much interest shown in flexible benefits recently by the trade press, the fact remains that since 1996 only a 200 or so schemes have been set up. These have tended to be large schemes and part of a larger reward strategy.

The basic principle of a flexible benefits scheme is that a cash price is placed on benefits and employees can trade these benefits, exchange them for cash, or conversely cash can be exchanged for benefits.

When first introduced into the UK schemes were over engineered and expensive and based on pure products rather than addressing key issues. These days flexible benefits are more of a strategic policy than an arrangement of advantageous products. Modern technology and new approaches to design have improved costings and made administration much simpler.

Recent market surveys, carried out to determine future demand for flexible benefits, suggest a large proportion (about 70%) of UK organisations believe flexible benefits would be a valuable vehicle for managing cultural change. A smaller amount (about 40%) is actively looking at implementing new schemes.

One of the main reasons for the high interest in flexible benefits is the increasing pace of change, including mergers and acquisitions. Higher expectations, productivity and HR returns have forced modern management to re-evaluate their pay and benefits policies to ensure best value for money and lower risks. More realistic costings and administration is making flexible benefits an attractive vehicle for change.

The UK’s workforce is becoming more diverse and ageing and this is leading to a tightening labour market. Therefore old benefits structures no longer work and simply modernising them is not good enough. The “one size fits all” benefits scheme is no longer feasible.

For instance, there is an increasing concern with the future of retirement in the UK now that it is no longer a pre-requisite to reach the age of 60 / 65. Organisations need to retain high skills, experience and maturity, in this demographic group, as this is where one finds the bulk of their intellectual and emotion wealth. As a result, flexible retirement planning is becoming more important in flexible benefits schemes along with the inclusion of pensions and share schemes.

At the other end of the spectrum, younger employees bring energy and creativity, which complements the intellectual and emotional wealth of the maturer group. Their needs are different though. Shorter term finance, lower levels of responsibility and a “live for today” outlook on life requires a different set of benefits.

In several recent surveys the most common benefits offered in a Flexible Benefits plan were identified as follows:

• Season ticket loan
• Dental insurance
• Home insurance
• Long term care insurance
• Legal advice counseling
• Company cars
• Critical illness insurance
• Share or share option plan
• Luncheon arrangement vouchers
• Group personal pension
• Additional death-in-service insurance
• Buying/selling holidays
• Pension
• Childcare vouchers
• Gym membership
• Subsidised loans
• Pet insurance
• Private fuel

In addition to new products, the modern scheme now includes a suite of voluntary products that can be accessed at any time of the year. This ensures maximized perceived value all year round rather than one a year. These are based on the concept of worksite marketing and include a variety of offerings from holidays to specialty chocolates; discount car purchase to personal computers.

As well as product choice, the way an individual’s Flexible Benefit fund is calculated is also changing. The fund can include all benefits, just Flexible Benefits or the complete reward package. The fund can also be made up of trading salary holidays and allowances along with any top up the Company wishes to put in to the new Scheme.

An increasing trend in the UK is a move towards the concept of total reward. Here the employees can choose exactly how they receive their pay and benefits. However they will still need to reserve money to pay for core benefits, statutory holidays etc. etc. Giving employees a choice over how they receive their reward and then enhancing it is the ultimate form of maximising perceived value.

The emergence of the virtual society has now changed the workplace to one that mirrors the fast moving and perceptive world in which we live. Improved communication and managing expectations is important and one of the most popular reasons for introducing flexible benefits.

The communications of flexible benefits schemes are being used to deliver powerful messages in a way that suite our virtual society. For instance, the creation of a single benefit “brand” encompassing two different schemes.

The key to the successful choice and implementation of a flexible benefits scheme is to establish a clear strategy linked to the overall objectives of the business. Once the strategy is determined, there must be a structured framework for its implementation. This must be based on clear communication, not just the benefits themselves, but also the message which management wishes to send to employees.

• Establish a clear strategy linked to the overall business objectives.
• Ensure a structured framework for implementation.
• Base strategy and implementation on clear communication.
• Deal with infrastructure issues as soon as possible.
• Introduce the initiative at an even pace

Most organisations that have put in flexible benefits have done so to address all of the objectives above. As a consequence they have obtained stepped improvements in addressing the key short and long-term issues facing businesses today.