A car, a holiday, a nursery ...
Employees may soon be able to pick and mix from a conveyor belt of company benefits, writes Patrick Collinson
Sunday 10 March 1996
This is not some new parlour game but the sort of choice that employees will face if US-style flexible benefit programmes become the norm in Britain.
Companies here already spend billions on perks such as pensions, private medical insurance and company cars. Until recently, most have taken a rigid approach to benefits - a case of "Here's the car keys, whether you want the car or not".
But a revolution is going on in corporate culture. Instead of a fixed range of benefits, companies are beginning to offer employees a menu, from which they can pick and mix, or even "buy" and "sell" benefits.
It means a 25-year-old female might choose nursery care and mortgage assistance, while a 59-year-old male can opt for higher pensions and better medical cover. It also means that employees are not taxed on benefits they do not want.
Employers like it because it generally costs no more and makes employees far more aware of the cost and value of benefits the company provides. Fans of flexible benefit plans insist that a properly organised scheme can improve the well-being of the workforce, build team spirit and boost productivity.
In a typical "flexplan", the company insists on a core of benefits but allows the employee some discretion over others. Core benefits usually include annual leave, pensions, private medical insurance and death-in- service cover. Non-core benefits could include mortgage assistance, workplace nurseries, health club membership, extended maternity leave, group legal coverage, sabbaticals, orproduct and travel discounts.
Mike Elworthy, a consultant with William Mercer, the pay and benefits expert, says: "Take a married couple. Both are working and both have medical cover. But both their employers' schemes offer family cover, so they are duplicating their benefits. Flexplans can deal with that sort of duplication."
Mercury Communications has led the way with flexplans in the UK, with a scheme introduced to its 10,000 employees in 1995. It gives employees flexibility over annual leave, pensions, healthcare, dental insurance, life cover and child-care vouchers. The top choice has been holidays. The company's standard holiday entitlement is 25 days, but under the flexplan, employees can buy up to five extra days or sell up to five days' leave for extra cash.
In its first year of operation, one in seven people chose to alter his or her annual leave. Around 700 opted to "trade up" while nearly 1,000 decided to "trade down" on holiday entitlement. Dental insurance has also been popular, perhaps because of NHS changes.
Stephen Powers, a Mercury spokesman, says: "What we are doing is letting people match benefits to their individual circumstances. It has been very well received by staff and it attracts a lot of people to Mercury. It was even a hit at the graduate recruitment fairs."
It is also a way for employers to control spiralling costs. Flexplans first sprouted in America in the 1970s in response to soaring health costs, which were increasing at double the rate of labour costs.
Mercury insists, however, that its scheme is not a cost-cutting exercise. Its spokesman says: "Flexible benefits do not cost the company anything more or less than the package previously on offer. What we can get is better value in buying benefits as a package than individuals can achieve on their own, as we are a large purchaser."
So why are flexplans still in their infancy in the UK? Part of the reason is an assumption that a lot of the benefits on offer, such as dental care, will be provided by the state. It is no coincidence that the countries where flexible benefits are most popular (the United States, Singapore and Hong Kong) are countries with limited social welfare.
Many personnel departments are resistant to "flexing". Some of the plans offered by companies in America have had to be abandoned because they were too complicated and resulted in huge administration problems.
The typical response from personnel managers is: "My employees don't want choices," "They only want more for nothing," or "They don't want flexible benefits even if we providethem," according to research presented at a Fidelity Investments flexplan conference.
The life insurance companies that underwrite flexible benefits also have misgivings. What they fear is losing control over the risks they take. For example, if an employee can choose a death-in-service benefit of between two and four times salary, insurers fear it is inevitable that the healthier will choose less and the unhealthy more.
q IFA Promotion, which promotes independent financial advice, publishes 'The Good Employers Guide to Employee Benefits'. Call 0117 977 7779.
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