· Features

Employee benefits: Demand for more integrated flexible benefits services has driven a trend towards consolidation of the main market players.

After years of relative stability, it seems the world of flexible benefits is changing. Recently, there has been a clear move to consolidation, both by those that advise on flexible benefits and the providers that underpin the implementation, administration and delivery of such schemes. It has been particularly prevalent among the global consultancies - such as Watson Wyatt and Towers Perrin, which merged in January to become Towers Watson - and the likes of Standard Life which, in November 2008, finalised its purchase of employee benefits software specialist Vebnet.

Such moves are a classic response to recession - making large-scale economies in administrative costs. However, experts argue this trend is recognition that market success is limited to those with the right resources in place. "In the past, firms have thought they could offer a flex service without being 100% sure of what was involved, including knowledge of systems, implementation, consultancy, communication, administration and ongoing management," says Julia Turney, proposition development manager at Jelf Employee Benefits. "It really requires a specialist for each of these areas and, once this becomes evident, a decision is taken to perhaps partner with another firm that already has all of this in place." But more recent deals and less formal partnerships between suppliers also reflect how far flexible benefits have evolved. "Our research has shown the main barriers to uptake by employers is no longer the administrative costs and the tax implications, it's communications," says Duncan Brown, director of rewards services at the Institute for Employment Studies (IES).

Certainly, the majority of employers no longer regard flexible benefits as a simple staff retention tool. Rather, by allowing employees to mix and match options, organisations are seeking to reward and engage the individuals they need to meet specific business goals. "There is no point organisations offering such benefits unless their people buy into the scheme," says Alistair Denton, managing director of employee benefits at the newly created Edenred. Unveiled in July, following the two-year integration of Accor Services, Capital Incentives & Motivation and Motivano, Edenred is focused on giving buyers an integrated total reward and incentive solution. "It fits with the times, where buyers are looking for more rounded solutions, of which flex and total reward are just one element," says Denton.

This view is echoed by Kevin Harrington, director of Sodexho Motivation Solutions. "I don't know anybody who decided to embark on a career in HR to become a buyer," he says. "Reward packages are just a small part of the HR role, so increasingly we're seeing tenders for things like childcare vouchers, where the prospective purchaser only wants people to respond if they're able to provide other services on top. In many ways clients are demanding consolidation themselves."

However, with Standard Life entering the market through its purchase of Vebnet and rumours that other financial service providers are poised to make similar moves, it seems other forces are at play. "As the financial landscape for pension providers has changed, so they have issues around long-term profitability and how to differentiate their offer to employers and thereby encourage greater take-up of corporate pensions by employees," says James Verner, sales director at Vebnet, which has invested £4 million this year alone in developing its technology.

Three years ago, Standard Life decided the solution was to deliver benefits and financial education for blue-chip organisations. As a result, it launched a corporate wrap product in July, integrating financial education with allowing corporate customers to track both their employee benefits and personal finances through a single website.

"To be successful in this business does require continual investment in technology to cope with changes in the market, such as the emergence of the new National Employment Savings Trust," says Michael Whitfield, CEO of Thomsons Online Benefits."

This demand for ongoing investment, alongside the difficulties of creating a client book, may also explain why relatively few new players have entered the market in recent years. However, this could change if and when demand for flexible benefits increases. According to the IES, uptake among employers has remained steady for the past few years. "Between a quarter and a third of organisations currently have some level of flex in their benefits scheme," says Brown. "But we may be getting close to a tipping point."

Until then, there seems little danger that flexible benefits may move into the hands of just a few big players. "There will always be smaller niche companies coming into the market," says Matt Waller, CEO of rewards and benefits provider Benefex. "And as the big players get bigger, some organisations will not want to be a small part of a large entity, so will look to buy from specialist providers."

Nevertheless, the trend for buyers to demand end-to-end solutions and for providers to want top-down control of the value chain means the pattern for consolidation is likely to continue. However, the future market direction is also likely to be governed by the demands of the employees.

"As Generation Y moves up the management ladder, organisations are going to have to examine what flexibility means, and all the signs indicate the governing metric will be time rather than money," says Harrington.

This view is endorsed by a recent study, The Changing Face of Reward, by Ceridian and Vebnet. It reveals that employees want help not just with pay, but also with the lifestyle and home issues that affect their performance. "From this we conclude we are more likely to see health and wellness and flexibility becoming a central issue. Specialist suppliers will come together under one banner to provide a single employee-focused solution encompassing benefits, employee assistance programmes and HR services," concludes Ceridian's director of SME and Alliances, Nick Thomson. Consolidation? We may not have seen an end to it yet. HR


- November 2008

Standard Life acquires benefits software specialist Vebnet

- January 2009

After integration of Orbit Benefits and SBJ Benefit, AXA launches Bluefin, offering insurance broking, financial advice, wealth management

- April 2009

Ceridian partners with Vebnet to integrate benefits with its HR outsourcing offering under the name flexAbility

- January 2010

Towers Watson merges with Watson Wyatt Worldwide to become Towers Perrin

- February 2010

Benefex acquires small and medium-sized enterprise specialist Premier Employee Solutions and its subsidiaries

- July 2010

Having acquired Capital Incentives in 2004 and a majority stake in Motivano in 2007, Accor Services launches Edenred, offering flexible benefits, employee savings, salary sacrifice, rewards, expense management and communications services

- July 2010

Aon Consulting and Hewitt Associates merge to create Aon Hewitt