Employee benefits: packages

Benefits do matter – but employers aren’t necessarily getting maximum value
from them. This is a problem when there is strong competition to recruit and
retain for talented personnel.

’Benefits still have a very big part to play in the total reward mix,’ says
Philip Hutchinson, a principal at Mercer Human Resource Consulting with a focus
on benefits strategy and management. ‘They are still vitally important in the
war for talent.’ Benefits typically have a higher perceived value than cash, so
employers who provide the most attractive benefits packages should be able to
differentiate themselves from the rest.

Graduates are being more selective when it comes to employment decisions,
looking hard at what a career path or employer will offer them in the short,
medium and long term. ‘They are also increasingly being quite vocal in terms of
the hours they want or the package they want,’ says Alison Haynes, partner in
the employer solutions group at Deloitte. Even employers considered among the
most desirable are having to look to their laurels when it comes to the packages
they are offering.

‘Over the last five years employees have become quite happy to say `this
package is not quite working for me’, `I don’t want to pay as much in pension
contributions’, or `I want to pay more’ or `I want more holiday’. It’s
acceptable to ask for what you want now.’ Career prospects will not be damaged,’
Haynes says.

’You have got to produce the right package to get the right staff,’ confirms
Gary Hull, director of HR services at PricewaterhouseCoopers. ‘It’s a
competitive environment.’

That said, not all employees necessarily care about anything apart from how
much cash they will take home. ‘For low paid employees, it’s purely about cash,’
Hull says. ‘They don’t value benefits in the same way others might.’ Low paid
employees may not see their job as a long-term one, for example, and hence have
no interest in the company pension scheme.

’However, as people have more spendable income and more ability to make
choices, benefits are more important,’ Hull says. ‘When you get to middle
managers, they are looking for different things at different times. Young people
may look for cars and extra holiday. As people get older they look for pensions,
private medical insurance, dental insurance…’

Dental and eye-care insurance are both becoming more popular, Hull notes,
often being provided through affinity schemes. The employer can negotiate
beneficial rates with third parties for the provision of such insurance and
other services. Employees can then pay for the services they want out of after
tax income, getting the advantage of lower rates than they would be able to find

Attractive benefits don’t have to be unusual or new. ‘I am seeing real
enthusiasm for old-style benefits like the provision of food – a canteen
providing breakfast, lunch and dinner,’ Haynes says. Employees like this benefit
because they don’t have to worry about getting food during a busy working day.

Pensions remain an extremely popular benefit, particularly where employers
run final salary schemes. ‘Employees do value them greatly, though they are
becoming increasingly costly for employers,’ Hull says.

Employees in companies with such schemes may well have a strong incentive to
stay with their employer. When such schemes are closed, perhaps in order to
reduce future costs or control risk, the change needs to be handled sensitively.
‘It’s then all the more important that employers offer a broader and wider range
of benefits that employees value,’ Hull says.

Travel insurance has also become a popular benefit. ‘A lot of employees like
to travel and employers can negotiate better terms with insurers,’ Hull
explains. ‘So travel insurance is a commonly introduced benefit now.’

At the higher end of the employment market, concierge services are also
valued by employees seeking a better work/life balance. Concierge service
providers offer huge potential support, from picking up dry-cleaning to letting
a plumber into the employee’s house. ‘Making the working environment more
comfortable for employees is proving popular for people at all grades,’ Haynes

Flexible benefits have become relatively common, because of the value seen in
enabling individual staff to create a personalised benefits package that suits
their needs at their stage of life. They can also be tax efficient.

Not for everyone

‘The most commonly introduced flexible benefit is childcare vouchers,’ says
Hull. ‘It ticks the boxes – getting people back to work, family values – but
only 2-3% of the workforce takes them up.’ That may be because, obviously, not
everyone has children, but there are other complications too, such as the
interplay with the working tax credit.

’You can earn reasonable amounts and still qualify for working tax credit,’
Hull says. ‘But if people take the vouchers, they lose up to 80% of the credit
they might get for their childcare costs because the employer is now paying for
it.’ Nevertheless, employers see childcare vouchers as attractive benefits to
introduce because of the government’s support by making them tax free.

Other such tax-free benefits include the provision of bicycles and home
computers. However, the experience of the childcare vouchers shows that just
because benefits are tax free, that doesn’t mean employees will necessarily want
to take them up.

One quirk of the benefits world is that the prevailing culture in an
organisation can influence employee perceptions about what they value. The ‘peer
pressure’ within the organisation has an impact. ‘If the bulk of the people in
the organisation think that private medical insurance is brilliant, then
regardless of whether that’s right or wrong, it will be important to people,’
Hutchinson says.

Employers seem to understand the importance of getting their benefits
offering right. The Chartered Institute of Personnel and Development’s annual
survey report on reward management for 2006 predicted a busy year for reward

Many of the 535 organisations participating were planning to expand or
enhance their benefit offering. Tax-advantaged childcare vouchers, bicycles and
home computer benefits were found to be particularly popular among employers in
terms of the new benefits options they planned to introduce.

But offering the benefits isn’t enough. Employers need to work harder at
communicating the value of the benefits to their personnel. In the 2006/2007
annual employee benefits survey from Origen, a financial advice specialist
within life insurance and pensions group Aegon, 25% of employers believed their
staff attached little value or were indifferent to non-salary benefits, while
only 13% believed their staff valued them highly. This may be due in part to
inadequate communication of what benefits are worth to employees, or the full
range of options that are available.

Human behaviour being what it is, employees often value benefits most when
they are changed. ‘So if you are making changes, you have to be careful not to
have a negative impact,’ Hutchinson says. ‘But a change also catches attention
and gives an opportunity to communicate something else, and perhaps to enforce
the employer brand.’

One potential problem with benefits packages, Hutchinson notes, revolves
around how to maintain the successful impact they initially make. Employees may
be impressed and appreciate the benefits on implementation, but maintaining that
value perception can be hard. ‘There’s not very much new happening,’ Hutchinson
says. ‘We have all heard about flexible benefits. What’s the differentiator?’

This means that employers are focusing more on how they engage with the
workforce, including how they communicate with staff. ‘It’s not what you have
got, it’s how you use it,’ says Hutchinson. ‘It’s about employers being smarter
about what they have already got.’

Company cars: Perk or Burden

Another traditional, long-standing benefit is the company car. ‘Company cars
have had a chequered history,’ Alison Haynes says. ‘Employees like them more
than many employers would like to think. ‘When company cars stopped being tax
efficient, employees didn’t opt for a cash alternative as quickly as many
employers expected. ‘Employees didn’t necessarily go for the cash,’ Haynes says.
‘That’s maybe partly because of inertia or lack of understanding, or they
couldn’t get the credit to buy their own cars.’

In addition, even if the company car option was more expensive, it was a
known cost and a monthly one that employees were happy with. The fact that
employers’ buying power in terms of insurance could also be turned to the
individual’s advantage was another bonus. Overall, many employees still thought
company cars were a good idea. ‘Pure financial logic doesn’t necessarily apply
[with benefits],’ Haynes says. ‘Some of the more touchy-feely issues are much
more important.’

Traditionally company cars were provided for those who really needed them,
such as salesmen, and as a perk to valued personnel. ‘It was a sign that you had
arrived and were a highly valued, senior person,’ Haynes says.But employers are
now increasingly offering cars to a wider range of employees – perhaps, for
example, those who might need them to help get their children to a childminder,
or who can’t take on more credit to buy the car they want themselves.

Related reading