· 7 min read · Features

HR reward special 2/7: a good pay and benefits package can be key in retaining and incentivising staff but it has to work for the business


A woolly or paternalistic approach to employee benefits won’t cut the mustard at most businesses today.

In workplaces dominated by return on investment (ROI), key performance indicators (KPIs) and other measures of performance and effectiveness, building a reward strategy based on what might be 'nice to have' is jarringly out of place.

That said, considering the important role benefits can play in attracting, retaining, motivating and engaging staff, few employers have succeeded in aligning reward to overall business strategy. Is it time to consider reward and benefits in a different, more searching light?

"Employee benefits should always be aligned with your employees' wants and needs," says Daniel Kasmir, chief HR officer at wealth management company, FNZ. "That sounds obvious, but many companies have instigated and rolled out a mish-mash of benefits over the years, such as childcare vouchers and family healthcare, to find, post survey roll-out, that the majority aren't married and under 26 years of age, without children. They then wonder why take-up was so limited and staff morale at an all-time low."

But good research naturally has an important role to play in shaping how to reward and engage with employees. Construction company Balfour Beatty recently carried out research into its employee promise, what it was that attracted employees to the company, what they liked about it and what encouraged them to stay.

"This has shown us that having a fair pay and benefits package is more important to our people than individual benefits," says Penny Davis, people and talent director, Balfour Beatty Services. "New employees don't accept or decline a position on the basis of benefits, but if they are receiving something that is useful to them it can act as an added incentive. Therefore we focus on giving our employees choice rather than any specific market-leading benefit."

Davis points out that motivation can be complex. In her experience, it is not always the highest earners or those receiving the most valuable benefits that are the most motivated among the workforce - it is those with a sense of purpose and a feeling that what they are doing is valued. The aim at Balfour Beatty, therefore, is to promote that culture through the benefits and rewards on offer. Doing this well, adds Davis, ties in to the bigger picture relating to the style of leadership the company promotes and creating a working culture about which employees can feel proud.

The point is echoed by Matt Waller, founder and CEO of online benefits company, Benefex. He asserts that the most effective reward programmes strike a balance between benefiting the business and making employees happy.

"Clearly, you can just continue to spend, spend, spend on benefits or wider reward," he says. "But for clients who have achieved the highest employee engagement, they typically aren't the highest payers or the ones who provide the highest fund for benefits. It is about creating something that fits with your strategy, is appropriate and works for the business."

Barry Hoffman, group HRD at IT services company, Computacenter, is sceptical as to whether ROI calculations can really be applied effectively to benefits. Its benefits portfolio is skewed towards salary sacrifice, because, Hoffman believes, this gives a clearer picture of people's appetite for one particular benefit over another.

"You can't attribute engagement or effort to one or other benefit," he says. "There are so many variables that it's a fool's errand. We do benchmark ourselves, but take the results with an enormous pinch of salt - if everyone else is doing X, but we don't feel it is right for us, we won't do it."

International hotel chain IHG aims to offer a competitive combined pay and benefits package for hotel employees in the UK that is equal to or above the average pay for similar roles, for example, committing to becoming a London Living Wage employer. It takes part in a number of surveys to ensure rates of pay and benefits for roles are competitive within its sector. Benefits are reviewed regularly "to ensure they are competitive relative to local conditions", says David Lawrence, IHG VP compensation and benefits for EMEA.

For Mercer principal Eddie Hodgart, measuring ROI on benefits is "the holy grail". Suppliers and employers have struggled to quantify impact with accuracy. Hodgart believes it is often programme design that undermines effectiveness, rather than "a lack of perceived value of the benefits".

"With take-up rates, the big issue is that we never get to the bottom of why it's high or low," says Hodgart. "If I don't take up a benefit, is it because I don't value it, or because I don't understand it? It is important for employers to speak to employees on a more qualitative basis to find out why."

Chris Charman, director of the UK reward practice at Towers Watson, says his advice to clients is to benchmark to understand the baseline level of competitiveness to ensure market parity. Slavishly following the market as the only input is not necessarily the right thing to do, as more unusual benefits can give some character to the package, preferably reflecting the company ethos and style, he says.

"We would recommend getting the balance right between comparing against named competitors and a decent-sized sample," says Charman. "A happy medium is a sector- orientated comparator group with named key competitors that will resonate with stakeholders. Consideration should also be given to the diversity of talent markets from which organisations attract talent; it may necessitate flexible benefits to accommodate diverse market expectations."

Staff are not in a position to press for much better packages at the moment, with growth weak and unemployment high. This throws up provocative questions. Are employers hooked on austerity? Should they invest more in staff to stimulate employee engagement and broader economic growth?

Aon Hewitt principal Duncan Brown thinks they should. "How do businesses grow and succeed? Through a well- motivated and well-rewarded workforce: you can't have one without the other. There has been a focus on cost over the past three years but we now have an employee engagement recession and employers need to re-orient their reward and benefits policies to address that, if they want to improve their performance and emerge from the economic slump."


Employers looking at benefits in this light, aligning them with a core business goal of growth, will have a clearer sense of their strategic value. While ROI metrics remain elusive, a clear sense of impact on engagement can be established by taking the trouble to talk - and listen - to staff.

Focus on fleet

A company car is a popular benefit, but what is the business case to offer it rather than a cash allowance? There are three prime reasons: budgeting of costs, management of risk and reduction of CO2 emissions.

"With the pressure on managing costs even greater, providing a company car is a better option to a cash-for-car allowance," says Roddy Graham, commercial director, fleet management firm, Leasedrive and chairman of the Institute of Car Fleet Management. "It may cost employers more to reimburse a grey fleet driver, who will be more inclined to view business mileage reimbursement as a potential money-making exercise, itself counter-productive to CSR commitments. Paying grey fleet drivers to use their own vehicles makes no financial sense if they cover high mileages."

With duty of care high up on the board agenda, provision of a company car offers the peace of mind it is properly maintained, safe and roadworthy. Moreover, the clean technology incorporated in new vehicles provides a significant reduction in CO2 emissions.

According to Graham, the average age of a privately-owned vehicle used on public sector business is 6.7 years old, compared to about 18 months for company cars.

Car salary sacrifice is increasing in popularity, due to advantages it offers at a time when employers are under pressure to keep salary costs in check. Salary sacrifice is perceived as a creative way to deliver added value by allowing employees to make "significant cost savings versus retail" through tax savings, insurance and maintenance savings and from enhanced corporate discounts, says Ian Hughes, commercial director of fleet firm Zenith.

Benefits for working parents

Childcare costs in the UK are among the highest in the world. As a result, childcare vouchers are a benefit that is much appreciated by those working parents that receive it.

With vouchers the first £55 earned per week for basic rate taxpayers and the first £28 earned per week for higher rate tax payers is exempted from payment of tax and national insurance contributions.

"This means that a family paying basic rate tax, where both parents receive childcare vouchers, could save up to £1,800 a year on their childcare costs," says Anand Shukla, chief executive of childcare charity, Daycare Trust. "Different exemption rates apply for higher and additional rate taxpayers."

Busy Bees, a major childcare provider in the UK, is campaigning to raise the cap on childcare vouchers from £55 to £75 per week, in a bid to make childcare more affordable. Its chief executive John Woodward says he is "amazed" at the number of employers and individuals who are still unaware of the existence of childcare vouchers. It is thought there are in excess of 500,000 working parents throughout the UK using childcare vouchers, but actual figures are unknown.

Given that there is negligible cost to employers, it is not as if an ROI calculation is required to justify their provision. However, Woodward argues that employers who shun this benefit may regret it. "If you have a member of staff who stops work because they can't afford childcare, that is a big problem for you."

Investment bank Bank of America Merrill Lynch runs a returning talent programme as a way to support staff, particularly women. It works in partnership with Mumsnet - to help it find talent that might otherwise be an untapped resource - and Executive Coaching Consultancy, which delivers maternity coaching workshops to employees and their managers.

Michelle Fullerton, head of diversity and inclusion at Bank of America Merrill Lynch, says: "To us, diversity means business. There is a strong business case for doing this, as it impacts positively on our employer brand and gives us access to a talent pool that other people are not reaching."

Spread the news

The ideal scenario sees HR balance employee demand for benefits with costs - to get both board buy-in and employees engaged. Success in this respect is more likely if flexible benefits are offered, where the budget/costs can be fixed per employee, but the choice can be almost unlimited.

However, director of the UK reward practice at Towers Watson, Chris Charman, believes a large amount of money is wasted in reward spend. The reason they are not as successful as they might be is a failure at communicating effectively what they offer, how it works and why.

Only 4% of companies in its Towers Watson Total Reward Communications pulse survey from June 2012 exhibited a best practice approach to thinking about communicating total reward.

"Some 90% of organisations say their main reason for communicating total rewards is to improve understanding of the value of rewards, yet only 23% believed their staff had a good understanding of the value," says Charman. "It is a significant waste of money and effort."

The CIPD/Benefex Reward Management Survey 2012 found:

  • Nine in 10 employers contribute to an employee pension scheme
  • Most common benefits overall: paid leave beyond statutory requirement (65%); training and development (65%); and childcare vouchers (62%)
  • Most common benefits restricted to certain grades: car allowance (62%); company car (54%); and private medical insurance (40%).
  • Most common benefits as part of a flexible benefits scheme: dental insurance (46%); cycle-to-work schemes (44%); childcare vouchers (42%); and health screening (38%)