Smart and efficient

Foresight offers advice on how employers can implement cost-effective benefit programmes, while keeping employees motivated.

How do you maximise employee benefits and reduce costs? As more businesses become aware of the inherent value of retaining talent, this conundrum of increasing the value of the employee experience without incurring a financial burden presents itself.

“We are seeing a continuing focus on flexible schemes,” says Tony Morgan, head of sales and client relationship management for Mercer’s UK outsourcing business. “Employers are getting smarter and learning how to maximise value through the design and content of schemes; delivering efficiencies in tax and national insurance liability. Because the benefits market is incredibly competitive, they are also re-brokering these benefits in many cases, bringing their costs down.”

As discussed on page 4 of this publication, salary sacrifice is an increasingly popular method of achieving this. “An employee agrees to reduce their salary by an agreed amount, say £1,000, and in return the employer provides them with a matching benefit such as £1,000 worth of childcare vouchers,” Tony explains.

“Those vouchers are not subject to income tax or national insurance whereas your salary is*. Therefore, over the course of a year, your gross salary will have reduced by around £600 after deductions and you have a benefit worth £1,000 in its place. That’s an absolute no-brainer if you have childcare costs.”

There are a number of benefits to which salary sacrifice could be extended such as bicycles-to-work schemes, company cars or holidays generating significant cost savings for both employer and employee. Tony believes the concept of tailored employee benefits is likely to gain traction as the need for it becomes more evident. A recent Mercer survey highlighted this: “We analysed data from all our clients with flex schemes and found a much lower take-up of perks among younger workers,” he elaborates. “That’s because, at the moment, they have different needs. They come out of university and are not really interested in a pension or family life or medical cover. They’ve got to pay off their student loan and buy their first house.”

Mercer is launching a new lifestyle savings account product which will address this and cater for the younger generation. “You get the most out of these schemes by tailoring them to the individual. It allows an employer to say ‘there is something of value for you here’ – lifestyle accounts, voluntary discount schemes, elderly care, school fees and addressing the increasing demand, particularly among younger workers, to follow a greener agenda.”

Most of these schemes will save the employer significant amounts of national insurance contributions and, by providing bespoke benefits to staff, reduce turnover.

The other big challenge facing organisations is communicating such innovations to an audience who may not respond to traditional channels. “This generation communicates through websites, SMS, social networking sites, podcasts and video streaming. Employers are now realising that they not only have to provide the right content, but the right media too.”

Technology holds the key to this evolution and segmentation in the work place, with each employee enjoying benefits tailored to their specific needs. Tony is enthusiastic about the opportunities in this brave new world. “We have an amazing amount of intellectual capital at Mercer. That allows us to create new ideas and take that to market. We can deliver strategic concepts to help employers formulate their views and get from where they are now to where they want to be.”

Tony adds: “Employers have always wanted to be innovative but didn’t have the time or the technology to develop ideas. Now they can access both and enjoy significant benefits for business and employees alike.”

* The Government has announced its intention to phase out tax relief on childcare vouchers over the next six years. More information is expected in the Pre Budget Report in November 2009.

Retention of key talent

Faced with the implications of salary freezes and bonus cuts businesses are seeking new ways to retain the talent within their workforce. A set of targeted initiatives is a priority in achieving this and ensuring a strong position when the market recovers. Employers should consider implementing such programmes in the three key areas of retaining talent:

Total reward

A comprehensive review of existing reward expenditure is recommended, including the provision of innovative cost-containment solutions. This enables a more holistic approach to total reward, recognising compensation, benefits, work/lifestyle choices and career development opportunities.

Performance Management

Employers are urged to seek out expertise in performance management system design, expert trainers who can support managers and custom designed tools and methodology. This not only helps identify key talent, but assists in engaging and motivating such individuals.

Tactical deployments

Organisations can deploy key talent in line with business needs and focus as recognition of their performance and contribution. This should be supported with workforce planning and segmentation to identify critical business areas and the individuals to deploy.

For more information on Mercer’s new lifestyle savings product, our Healthconnect tool or how we can help you to set effective talent retention strategies, contact your Mercer consultant or e-mail Mercer Foresight