PENSIONS & EMPLOYEE BENEFITS - More than just cash in the bank.

Flexible benefits have remained a subject of much suspicion in the UK, despite claims that they help employers recruit and retain staff and need not necessarily increase costs. The schemes usually work by allocating employees a number of credit points. Each benefit costs a certain number of these credits and staff can mix and match until they have reached their total allocated number of credits. The company car is one of the most obvious benefits that can be flexed, with more than half of companies now offering staff cash alternatives; many can now also upgrade or downgrade. Others include the ability to top up life assurance, vouchers for nurseries and the option of increasing employer pension contribution levels. These schemes flourished in the US during the Reagan years when companies were under pressure to cut the cost of offering private health cover to staff. Now almost 75% of large US companies allow workers to build their own benefits package, but in the UK a recent survey found fewer than 100 major UK corporations who offered the same. However, the roll call does include some of the biggest companies in the country: Abbey National, Scottish & Newcastle, Cadbury Schweppes and Cable & Wireless were in the first wave. Cable & Wireless employee benefits manager, Russ Watling, says their objective in setting up a scheme was to: “remain cost neutral and to add choice”. According to PricewaterhouseCoopers senior manager, Martha How, this is true for most of the companies involved: “From the schemes I know a fair bit about, around 50% have been cost neutral with about 10% actually reducing costs. Certainly, if you design it well and manage the costs up front you can do it on a cost-neutral basis. But that’s not what it’s about. The companies involved are those who want to be leading-edge employers where recruitment and retention is more of an issue.” The fear of losing the best candidates can force companies to introduce a flex scheme. Price Waterhouse introduced flex in 1997, quickly followed by KPMG. “We had it under review but for one of our major competitors to go down that route does focus the mind,” admits KPMG human resources director Jill King. However, some well-publicised schemes have fallen on their faces with costs spiralling out of control. The experts suggest this is because they were not properly researched or designed. The first stage of any feasibility study should obviously look at costings: current and potential costs under the new scheme. The potential costs will obviously depend on the benefits offered and these must be tailored towards the company’s own objectives. For example, private medical cover is seen by some organisations as a core benefit as it keeps employees healthy or ensures they get back to work as quickly as possible. The flexibility here may only be to decide on whether additional family members are covered. The decision on such things as buying or selling holiday entitlement will also vary from company to company. Some believe an employee taking extra days off will increase productivity and therefore charge a low rate while others fear short staffing. For example, Cable & Wireless charges 1/260th of the employee’s yearly salary for an extra day (based on 260 working days in a year) while ICL calculates the cost using 365 days. Unexpectedly, publisher Emap found more people were selling holidays than buying. They attribute this to an unusually young workforce placing a higher value on the extra cash. There are several key questions when looking at flexible benefits: are you obliged to continue providing the benefits to all staff? does the benefit offer as many advantages to you as to the employee? and will bulk discounts be lost if employees are allowed to opt out? However, once you’ve decided on the design of the scheme there’s still a long way to go. You have to gain the Inland Revenue’s approval, gain employees’ approval and amend their contracts and ensure there are adequate staff to administer the scheme once it is in full flight. But some companies have decided the schemes are simply not practical and these are increasingly following a cheaper route. Asda, the BBC, BT, British Airways and others have formed the Benefits Alliance which offers voluntary benefits to their staff. The companies’ combined leverage enables them to negotiate cheaper deals for their staff on everything from conveyancing to dental care. “We wanted to learn to walk before we could run and decided we weren’t ready for an elaborate formal flexible benefits scheme but still wanted to create a climate of flexibility and choice,” explains BT benefits manager Alisdair Rintoul. “It sends the message out that we’re keen on human resources and that we’re pulling all the levers we can, people join and stay with companies for a variety of reasons and this could be one of them. Our employees feel more valued but we’re not actually spending any of the company’s money.”