It was in 1943 that psychologist Abraham Maslow produced his hierarchy of needs, a sort of sliding-scale of basic human wants that begins at one end with basic physiological needs (food, warmth, shelter) and pinnacles at the other with self-esteem (feelings of worth, confidence, dignity and recognition).
It is easy to see how employee benefits fit so easily into this model. If basic pay is what satisfies employees' most basic needs, nice-to-have recognition (maybe profit-related pay, bonuses, long-service awards and peer admiration) is the stuff that boosts people's ultimate sense of worth and wellbeing.
But just as Maslow observed that in times of hardship, people accept a lower level of need (where the basics take precedence over the nice-to-haves), could this current economic climate similarly affect expectations, with pay rather than benefits becoming what matters?
The surprise answer could be yes. This is one of the findings of the inaugural HR Reward Survey in association with benefits provider Vebnet. Conducted during October and November last year, it received responses from 175 HR directors/managers. Asking about all areas of benefit provision in the coming year, the survey finds cash seems to be back, with nearly half of respondents (47.3%) saying they felt fixing the basics - base salary competitiveness - was their number one concern, rather than, say, total reward competitiveness, at 25.7%, and flexibility in reward (15.1%). In fact the second-greatest number-one-rated concern after salary competitiveness was performance-related pay.
Respondents' concerns that employees need to feel they are getting a good salary, rather than good benefits, seems to be the pervading theme of the research. When asked what they thought employees' main concerns were about their benefits provision, more HR respondents believed employees would 'rather have cash than benefits' (with 43.5% saying it was their number one issue). Only 11% thought having flexibility of reward to meet the needs of employees was their top concern, and only 20% gave harmonising benefits inconsistencies as their number one issue.
Interestingly, these concerns are set against the greatest people issue respondents identified - performance (higher even than engagement). Nearly 48% of those who completed our questionnaire cited this as their top issue, ahead of retention. HR departments are clearly seeing pay as the main lever that determines output and retention in an uncertain economy. Benefits seem to be pushed to the back, with HR believing staff would rather see real cash in their pockets, rather than receive intangible benefits. Ironically, despite pay being the main worry of respondents, both 'cost control' and 'cost reduction' were also mirror concerns. (This was raised by 30% of respondents each).
Increasing pay while reducing costs may seem like opposing ambitions, but a third main finding was that many HR professionals feel worried that employees do not adequately know about the benefits package they receive. According to Richard Morgan, director of consulting services at Vebnet, this lack of understanding is the central point that needs addressing. "Employees want more cash but there won't be much scope for pay discussions. We're seeing short-term demand for money, but it's vital HR sees the role benefits have to play in reward in the longer term. The opportunity flexible benefits has is that benefits choices can leave people feeling like their money can go further, and this needs communicating."
Morgan says it is disappointing that, given the cash-in-pocket benefit that flex offers, there aren't more companies thinking of taking it up. Just 13.5% of companies say they intend to introduce a flexible benefits plan and 62% say they don't offer one at all. "I think there isn't a clear understanding about how it can make savings," he says.
According to the survey, just 22.3% of respondents actually offered staff a total rewards statement, and Morgan also feels this does not allow staff to see how they can effectively earn more cash through salary sacrifice and NI savings. "It's no surprise there is a link between lack of total rewards statements and a lack of understanding about the total benefits package," he says.
A feature Morgan says will soon start to be talked about is 'cost containment', where to protect themselves against any rises in the costs of benefits (such as healthcare, which is showing 10% per year inflation, see page 34), the employer will have already decided what they are willing to pay. Staff will then be asked to pay the difference, or choose another benefit. "This may not sound like great news," he says, "but it's an interesting issue, and again draws upon the importance of employees fully understanding their benefits package."
Bosses clearly need to do a better job. Only 11.8% of respondents strongly agreed that there is a 'clear and consistent' brand for all of their reward/benefits communications, and even fewer (7.1%) strongly agreed employees actually knew how and where to access information about their benefits. When it came to specifically asking about pensions, more thought employees did not have enough information about planning for their retirement than did (43.1% vs 29.9%).
That said, salary sacrifice - one of the best ways of maximising pay - is well used. The most popular benefit was also something that makes a real difference to employees' incomes - childcare vouchers via salary sacrifice. Two fifths of companies also offer pension contribution in this way.
It seems that just as there are more ways to skin a cat, there are more ways to help give employees the perception of better pay. Careful benefits provision will be the way to let staff see that they are getting more for their salary. Flex could be the answer to both cutting costs and achieving a real sense of better pay and conditions.
Full results will be unveiled at a breakfast briefing in association with Vebnet on 15 January. For more details contact Eliza Bailey on 020 8267 4629.
WHO WE SURVEYED
HR magazine surveyed a range of organisations across a spectrum of industries (including manufacturing, construction, finance, IT, retailing and distribution, hotels and restaurants, utilities and agriculture). Turnover of these ranged from under £5 million to more than £1 billion. The majority (nearly one third) were in the £10-£100 million turnover bracket, and most employed between 1,000 and 5,000 people. The majority of respondents were HR managers (49.3%), while a fifth were HR directors; 86% of respondents were in the private sector; 14% were from the public sector, with the majority of these (a third), being local councils.
WHAT ARE YOUR MAIN REWARD ISSUES?
1st priority 2nd priority
Base salary competitiveness 47.3 20.0
performance related pay 29.6 26.8
Cost control 29.5 28.4
Cost reduction 28.8 28.8
Total reward competitiveness 25.7 27.7
Improving effectiveness of current
benefits spend 20.9 28.4
Harmonisation and/or removing inconsistencies 20.0 30.7
Flexibility of reward to meet needs of business 15.1 32.3
Flexibility of reward to meet needs of employees 11.4 27.8
Administration 8.7 10.9
Overseas strategy 13.0 15.2
Source: Human Resources/Vebnet.
WHAT ARE YOUR MAIN BENEFITS ISSUES?
Final-salary pensions costs 36.4
Employees do not understand benefits package 35.7
Long-term sickness provision/costs 25.0
Uncompetitive benefits package 23.8
Company cars 22.9
Lack of joined -up thinking with overall package 22.1
Employees demanding more flexibility 16.1
Employees demanding more benefits 15.9
Private medical insurance costs 15.5
Share plans 15.0
Appropriateness of non final-salary
pensions schemes 13.0
Greater focus on 'green' issues 2.2
WHAT ARE YOUR EMPLOYEES' MAIN BENEFITS CONCERNS?
1st priority %
Would rather have cash than benefits 43.5
Uncompetitive total package 42.2
Lack of understanding of benefits provided 41.0
Defined contribution pension's ability to
meet retirement needs 33.3
Benefits don't match individual needs 21.3
Lack of financial awareness 20.7
Won't be with employer for long so don't
take up benefits 13.6
DOES YOUR ORGANISATION HAVE A FLEX PLAN?
No, but intend to 13.5
Yes - for more than 3 years ago 11.7
Yes - within last 12 months 7.4
Yes - more than 12 months ago but less than
3 years ago 5.5