Strategic Benefits: interview with David Kast, head of HR at Hogg Robinson Group
David Woods, September 13, 2011
If one word could be used to sum up the past three years in the business world, it would have to be: cuts. Cuts in budgets, overheads, pay and staff numbers dominated minds of employers in the private sector, as recession gripped the world – and cuts in budgets, headcounts and pensions continue to afflict the UK’s public sector, as the Government struggles to cut the nation’s debt.
While businesses counted the cost of staying afloat, 2009 saw the rise of the 'staycation', as holidaymakers took breaks in the UK rather than venturing further afield. Lavish nights in five star hotels turned to budget B&B stays and video conferencing grew in popularity. The Office for National Statistics, said business trips fell by 25% between 2009 and 2010.
And Hogg Robinson Group (HRG), which specialises in business travel, felt the pinch. Its 2009/10 financial report showed a drop in revenue of 9.2% from the previous year.
HRG organises business trips for clients, offering services ranging from checking passports and visa requirements to booking flights and collecting people from the airport.
It was forced to react quickly to a foreboding climate. Head of HR David Kast explains: "We are a sales and marketing-led company. We are innovative and make things happen, rather than debating around a table. We put employees through a lot. The CEO wrote to all employees as part of a programme called 'Options for Change'. We asked staff to suggest ways to save costs, to prevent compulsory redundancies."
The firm saw an 80% response rate from its 22,000 staff (1,650 are UK based). "Some employees voluntarily took pay cuts, some took unpaid leave or sabbaticals, while others made part-time or flexible working arrangements," explains Kast. But one thing the company did not cut back on - and this year has invested further in - is its employee benefits.
"I never faced any pressure from the CEO or the board to cut back on employee benefits," says Kast. "We have a very strong culture here of being friendly and family-orientated. We have tremendous loyalty from our employees and we are about giving people benefits that help them and their families.
"Health benefits mean staff have peace of mind and are more focused on their work when they are here. And with numerous companies closing defined benefit schemes, we keep the final salary scheme open for existing members and we have no plans to close it."
Since 1999, HRG has operated a flexible benefits scheme and three years ago, in a bid to save money, it moved this from paper-based to an online platform for administration. The scheme gives staff a set number of points, which they can use to purchase benefits from a list during a June 'flex window'.
Benefits include private medical insurance (all staff receive a health cash plan as a core benefit), travel insurance, dental insurance, critical illness cover for staff or dependents, a wine club, life assurance for partners or dependents (staff receive life assurance as a core benefit), additional voluntary contributions into pensions for staff in the defined contribution scheme, a healthcare cash plan for partners or dependents, childcare vouchers, personal accident insurance, additional life cover, health screening and a cycle-to-work scheme.
Staff can also take the option to trade up to five days of their annual leave for more perks or money, or buy up to five days' holiday with their flex points.
Kast has no plans to remove or cut back on the flex scheme. He says: "The age profile of our employees is quite wide and as employees get older, their benefits needs change. Younger staff might want more holiday, while older colleagues have a need for PMI cover. We want staff to be able to pick and choose." He doesn't think cutting back on benefits spend means cutting back on benefits, either. "We pay PMI claims ourselves," Kast says. "And even a few claims every year were running away in cost. But, working with brokers, we decided if we provided a cash plan as a core benefit, it would control the costs of the PMI claims. It has really helped us contain the budgets."
In 2011, HRG's fortunes look promising. Its most recent financial results, published in May, show a 10% increase in revenue on May 2010, with profits before tax up 16% on the previous year, to £32.9 million.
Kast decided this April was the right time to upgrade HRG's benefits scheme. "We put employees through a lot [during the recession] and it was time to relaunch." But the revamp of its recognition scheme was not just about saying 'thank you' to staff - it was part of a strategic plan to "reenergise and increase employee engagement", he says. The relaunch was developed across internal communications, marketing and HR.
Staff are invited to nominate a colleague who they believe has gone beyond the call of duty and a monthly winner is decided by senior management. At the end of the year, all the monthly winners are invited to an awards ceremony and enjoy a hotel stay and dinner. The overall winner wins an all- expenses paid world trip. Branded leaflets and marketing information helped to create a buzz all around the business.
And when it comes to reward strategy going forward, Kast is already preparing for the long game. In July, HRG opened a three-year share scheme for staff, in a bid to engage employees with a longer term view of their reward. Having experienced pay freezes during the recession, employees are able to save money from their salary, added to by the company, allowing staff to purchase shares after three years.
"It's a win-win situation," says Kast. "If the company does well, employees will make money out of shares. If not, they will be able to take the money back from their savings after three years. For us, it is a great retention tool and it encourages staff to engage with the success of the business."
And with just over a year to go until all employees will be automatically enrolled into an occupational pension, and HR magazine's 2011 Reward Survey revealing 34% of employers have not given any thought to the situation, HRG has already set about plans for how to manage the changes.
Having once owned pensions consultancy Xafinity, board members know only too well the complex systems needed to ensure a smooth transition. With the stakeholder scheme, members can choose the monthly sum they wish to contribute, with the firm adding contributions linked to years of service.
Staff can use flex-points to pay additional contributions into their stakeholder schemes - more savings for retirement. Kast has not yet decided to adopt National Employee Savings Trust (NEST) arrangements for people not taking up pensions, but decisions are set to be made shortly and an action plan will follow. And as a trustee of the pension scheme, Kast can be sure HR will have a decision-making role in its future.
So, with employee engagement and the cost of providing a competitive scheme occupying the minds of HR directors, as austerity measures retain grip over employers, HRG seems to have sussed out the secret to a successful benefits strategy.
"We are always revising costs, but we have never cut back on benefits," reiterates Kast. "We ask employees how to develop a benefits strategy that suits both them and the company and they tell us. We have constant re-evaluation of the benefits.
"It is our culture to listen to staff and communicate with them - and this comes from the CEO. We make sure no one department owns employee benefits - it belongs to HR, marketing, employees and the business as a whole.
"Hopefully, we won't have to revert to the horrible days of pay freezes. But we will keep choice at the heart of what we do for staff, talk with our employees directly and engage with them transparently."