How to optimise the value of your reward programmes
There are two ways to maximise the value of an organisation’s reward programmes, you can:
- increase the perceived value in the eyes of the recipients or,
- reduce the costs of the programmes.
These are not mutually exclusive; far from it, they may well work best in tandem. For example, if you are making savings in some parts of your reward programmes then ensure that people in the organisation recognise the true value of other parts.
Helping employees to understand their benefits package
In a significant number of surveys it has been found that most employees did not understand their benefits package.
A company survey we ran a few years ago found that 32% of people thought they had no long-term disability cover and 24% thought they had no life cover. In fact, they all had both and the cost of providing these benefits to the people who did not know they had them was a little under £1m a year.
In cases like these, ensuring that people understand the value of some of the rewards that they are getting can help offset the impact of reductions elsewhere.
This is particularly true in times of financial difficulties. While the emphasis is quite naturally on saving costs, many organisations seem to do little to ensure the value of those things not being changed is understood and valued appropriately.
Explain the value
We believe that you should always explain the value in terms of what it may cost an employee to replace it themselves, where appropriate.
The best example is group private medical insurance (PMI). When the company pays the premium, the tax (P11D) cost to the employee can be as little as 10% of what it would cost them to provide PMI for themselves and probably for worse cover. A similar example is defined benefit pensions. There is really no point emphasising the contribution that the employer pays as a percentage of salary. This is somewhat irrelevant. Much better to use the cost of one year’s accrual. This is the effective cost of providing the future pension, which ultimately must be paid for and is equivalent to what they would have had to put away for themselves.
Flexible Benefits plans, which can be introduced cost effectively even to small organisations, require employees to engage with the system even if they don’t change anything. This can be an important part of helping communicate the value.
Reducing the cost of your reward programme
When considering where you might want to make savings, you need to understand what parts of your reward programme people value the most and the least. It makes little sense to cut the most valued elements if you could cut the least valued. But, to make this decision you do need to have asked!
Also identify if some savings can be made with no negative impact on employees. For example, by using existing tax effective plans like salary sacrifice. Or changing an insured medical plan to a trust to save the insurance premium tax (IPT). Perhaps, you could deliver value using an approved share plan rather than salary. It is always worth looking at these sorts of savings first.
But always take a balanced view. If you think about making cuts, also think about maximising value elsewhere.
Seeking external support to maximize the value of your reward programme
It can sometimes be difficult to really assess the views and knowledge your own employees have of your reward programme. You may not know about all of the savings available to you. It may be just a case of better implementation or promotion of your current reward programme, with little extensive overhaul needed.
Our Reward Review 360 is a good way to make an assessment of all of the ways you could be maximizing the value and impact of your rewards and benefits.