Issued: January 2009
When it comes to pay review and salary levels it’s all too easy for employees to focus on their salary and to overlook the value of all of their other benefits.
Why do we offer benefits in addition to salary? They can be expensive – an extra 10% to 30%, or even more – and administratively time consuming. Firstly, benefits such as pensions and health benefits are signs of a good employer with a sense of responsibility for its workforce – the moral reason.
However, benefits also play an important role in recruiting, retaining and motivating the workforce. This is particularly true when competition for good people is high, and employees are happy to change jobs regularly in their careers.
But so often when employees are asked about the benefits they are entitled to they are either unaware of them, or do not realise the value they represent. A couple of examples are life assurance and pensions – specifically, employer pension contributions, and tax relief on pensions.
Some scary statistics
Many employers offer life assurance as part of their benefits package. Corporate or group life assurance rates are usually significantly lower than the rates that are available to individuals. The benefit is tax-free to the employee, relatively inexpensive for the employer to provide, and it’s something that many of us need to protect young families or cover mortgages and loans in the event of our death.
A survey conducted by a leading benefits and HR consulting firm found that over three million employees in the UK may not be aware their employer provides life assurance cover for them. How many of them are paying privately for cover they may not need? Do some of them work for you?
Findings from a recent National Association of Pension Funds (NAPF) Workplace Pensions Survey show more work is needed to build employees’ understanding of the benefits of workplace pensions.
An estimated five million employees (three million members and two million non-members) with access to a workplace pension scheme don’t know about tax relief on their pension contributions. One in four (25%) of pension scheme members weren’t aware they received tax relief, rising to two in five (42%) for non-members. Men were more likely to be aware of the tax benefits of pension saving than women.
One in six scheme members (17%) didn’t know how much their employer contributed to their pension. This more than doubled (37%) for those who could join a scheme where they work, but had opted not to. This equates to an estimated 3.8 million employees (2.1 million members/1.7 million non members). Again, do some of them work for you?
With benefits playing a greater role in recruitment and retention, it makes sense for employers to offer a package that is distinctive and attractive. When in a tight labour market they should consider offering at least the same as rivals if they are to stand a chance in competing for talent.
For an employer who offers a competitive package of health and pensions benefits, flexible working, training, professional body membership, sports and social club and so on, the total package for an individual could be as much as 50% higher than the salary alone.
The consequence of employees not recognising this investment can be that the employer commits significant resources each year for little perceived benefit to the individual and none for the business. A recent headline – ‘Employers fork out but British workers in the dark’ – sums this up perfectly!
To overcome this employers are finding it increasingly useful to reinforce to employees their commitment to them beyond their salary alone.
Flexible benefits
Some (almost invariably larger) employers offer a flexible benefits scheme, where employees can pick and choose from a menu of benefits according to their own personal requirements and subject to a set financial limit. For the employer, ‘flex’ can help set them apart from their competitors for staff. The costs of implementing can be offset by savings on the overall reward package, but this depends on the benefits included in the package and economies of scale.
Employees have to understand the benefits on offer – and their value – if they are to make informed choices about the composition of their reward package. A good communication programme is an essential component of a ‘flex’ programme for take-up and employee appreciation; skimping on this part of the project can be a false economy. Communicated properly, flexible benefits can promote better employee engagement and improved recruitment and retention.
But what if the flexible benefits route isn’t right for your organisation? There are lots of ways to raise awareness and appreciation of the benefits package, some of them at very low cost.
Communication, communication, communication!
People want to see that the employer really cares about its workforce and a great benefits package – flexible working, health care and pension provision, for example – implies that the culture and values are good too. But employees won’t fully appreciate the value of their benefits package unless you tell them what it’s worth. Communication is essential if employees are to understand and appreciate what’s being offered.
Employers who offer a good benefits package need to shout about it more. Scan the recruitment adverts – very few employers who offer a pension scheme mention it in the advertisement.
So the way forward is to get your benefits information on your job adverts, the recruitment page of your website, your intranet and any other communication media you use – your staff handbook, a benefits booklet, emails, posters, notice boards, newsletters, staff meetings and/or seminars.
If you run induction sessions for new employees, do you explain the benefits package in detail? Do you ever ask employees what they know or think about their pay and benefits? Are pay and benefits usually discussed only at salary review time – or are they brought to employees’ attention at intervals throughout the year? These are simple steps to raise awareness of the benefits package, with potentially good payback in terms of employee appreciation.
Total Reward Statements
In recent years the popularity of the Total Reward Statement has increased. This is a document which details each of the components of the employee’s benefits package and shows their value. It can be issued to potential recruits at the interview stage, and to employees with their annual pay review letter, on completion of the probationary period or following a promotion. Statements can also be made available online, using anything from relatively simple spreadsheet based calculators to very sophisticated software.
Costs and the size of your workforce will determine how Total Reward Statements can be implemented. Software can be purchased, the project can be outsourced, or the HR Team can tackle the job in-house by valuing the benefits and designing a spreadsheet to do the calculations which are merged into a statement.
The value of some benefits – for example employer pension contributions – is very easy to quantify. It’s a bit more difficult to assess the financial value of non-financial benefits such as flexible working or flexitime, but published research is available in professional journals, from recruitment consultants’ surveys and on the internet.
As most employees have little idea of what their non-salary benefits are worth, a Total Reward Statement can be a real eye-opener, raising awareness and appreciation of benefits and promoting employee engagement. Before my organisation introduced Total Reward Statements, we lost several experienced staff to a competitor who offered higher salaries. When the ‘defectors’ took into account the longer working hours, the loss of up to 12 flexi days and a lower pension contribution, they realised they were worse off overall. Would they have looked elsewhere if they had known more about their benefits package?
Table 1 shows a very simple draft Total Reward Statement.
| Employee Name: |
Value (£) |
| Salary |
|
| Non-consolidated bonus |
|
| Christmas bonus |
|
| Flexitime (value in the market) |
|
| Paid Annual Leave |
|
| Sports and social club (The employers contribution) |
|
| Pension scheme (the employers contribution) |
|
| Learning and development activities (average cost per person) |
|
| Professional membership fees |
|
| Optical care (VDU eye test average price) |
|
| Private medical insurance |
|
| Personal accident insurance |
|
| Death in service benefit |
|
| Permanent health insurance |
|
| Events – Christmas party etc |
|
| Refreshments – drinks, vending machines, water coolers |
|
| Total value of benefits |
|
Sources of help
If you want to improve your employees’ understanding of the benefits package, or the pensions element of it, did you know there are organisations that will provide educational material and/or come to the workplace to run presentations for you?
The Financial Services Authority (FSA) leads the National Strategy for Financial Capability. Its 'Making the Most of Your Money' (MMYM) initiative provides free financial education and information in the workplace using seminars, booklets and an interactive CD-Rom.
The seminar covers day-to-day money management to planning for retirement, including budgeting, borrowing, insurance, savings and investments. It can also be tailored to include information on your organisation's benefits package. More information can be found on the FSA’s website at www.fsa.gov.uk/financial_capability/our-work/workplace/index.shtml
A fact sheet about the MMYM initiative can be downloaded from www.fsa.gov.uk/financial_capability/pdfs/workplace.pdf
The NAPF Workplace Pensions Survey found that an estimated 6.8 million employees (4.1 million members and 2.7 million non-members) with access to a workplace pension scheme felt their employers don’t do enough to explain the pension they offer to employees. Another recent NAPF survey revealed that only 3% of HR Managers felt that employees in their company understood pensions and retirement planning well. Pensionsforce and the Pensions Advisory Service may be able to help you tackle these concerns.
Pensionsforce is an independent workplace education service provided free to employers by the NAPF with support from the Department for Work and Pensions Education Fund. It helps employees understand the importance of planning for their retirement and provides them with information about saving for their future.
Its website www.pensionsforce.co.uk explains to employers what the service offers and how to go about setting up a meeting.
The Pensions Advisory Service (TPAS) is an independent voluntary organisation that is grant-aided by the Department for Work and Pensions. TPAS provides information and guidance to members of the public covering State, company, personal and stakeholder pension schemes. Its services are free; they are provided by a nationwide network of volunteer advisers supported and augmented by technical and administrative staff based in London.
As well as helping members of the public to resolve problems, complaints or disputes with their pension arrangements, TPAS also provides presenters for workplace talks which cover state as well as company pensions. Have a look at the ‘Workplace Talks’ area on its website www.pensionsadvisoryservice.org.uk for more details.
In closing, employers spend a lot more on their staff than they are given credit for. Investing a little more time – and perhaps money – on raising your employees’ awareness of their benefits package is likely to be more than repaid in terms of recruitment, retention and engagement. Go spread the word!