Financial Resource

In the West, for many years now, the extra ‘employee benefits’ derived from a remuneration strategy are as much a part of the ‘take home’ as the salary itself. I can distinctly remember my first company car – a bright yellow four door job with a 1.3 litre engine – but it didn’t matter that I looked like I was driving a canary – at only 24 years of age I had a brand new car! The fact that I looked like all travelling salesmen, didn’t deter my enthusiasm one bit!

Throughout the Seventies and Eighties as I gained various promotions and company moves, I was spurred on with the promises of bigger and better cars – the salary was secondary!! Eventually I aspired to the company boardroom and the ultimate prize of a top of the range Jaguar XJ – mid life but still highly motivated by the company car benefit.

Employee benefits are today a very sophisticated industry and like all things in working life we have moved on from simply giving a company motor car to dreaming up highly sophisticated packages designed to assist in recruiting, retaining and motivating the best people in the marketplace.

The multinational companies and large institutions are all trying to outdo each other for the cream of each year’s crop of top graduates and recruiting the right people today starts at job fairs in the Universities – for these companies salary simply is not enough – everyone is seeking the ultimate prize of the key to the Executive Washroom!!

Recruitment runs hand in hand with retention – after all why spend a great deal of money recruiting the best of the best only to lose them to your competitor inside a couple of years. Hence the growth in the Employee Benefits Industry and the growth in the product ranges on offer:

Golden Hello’s, Stock Options, Share Purchase schemes, Group Medical, Group Retirement Plans, Group Life, Group Critical Illness, Motor Cars, Barter Deals, Luncheon Vouchers, Voluntary Deals, the list goes on and on.

Cars probably still top of the list of visible goodies – at a company meeting you really would rather be driving up next to your colleagues in a Mercedes Coupe rather than a Toyota  Camry.

Fleet management allows employers to offer company cars to employees in different forms. If not given a traditional company car, staff are likely to receive this perk as a cash allowance which they can use to lease, purchase or hire a vehicle. Employers need to choose the most appropriate solution for drivers, whether that is an employee car ownership scheme or traditional company car, or a combination of schemes to meet various needs. It is a decision that is complicated by maintenance management, as well as health issues such as corporate manslaughter and fleet risk. Issues around health and safety are usually associated with the cash allowance scheme because here the employee has the freedom to choose his or her own vehicle, and their choice may not necessarily be a correct fit for the job in hand – do you want your top salesman driving a souped up sports car for instance? Cars are a very emotive issue many staff have left companies simply to get a better car

Most expatriates will need some form of health insurance. The type of cover will depend on which country (or countries) the employee is based in, how much they will be travelling for work, the level of risk, whether their family is accompanying them, and where they are likely to receive treatment in case of an incident (back in their own country, in the country they are posted in, or in a third country). The institutions competing for this business will hack their rates to get the deal but companies choose their Group Health scheme on rates alone at their peril. Many employees leave companies because their family is not covered adequately on the company scheme. You can have the best management in the world managing and motivating your staff but if when the staff member get home all that happens is continuous major grief over little Johnnies poor medical assistance in a foreign company because the company scheme doesn’t cover pre existing conditions or doesn’t provide cover in the best hospitals and your staff retention is under threat. Likewise a Group Health scheme badly managed by the broker who is giving little or no service will lead to a great deal of extra work burdening an already over worked HR department.

What about the actual money rewards?

Clearly salary must be positioned right and must meet the competition in the marketplace; however a salary on its own does not motivate key staff to stay with a company or to increase performance. In the GCC expatriate market there are mandatory gratuity schemes in place as an end of service bonus based on salary and years served. In many countries these gratuities as they are based on basic salary lead to the management of companies splitting salaries into a range of remuneration to deliberately keep the gratuity payments down, so a ,000.00 salary may be shown in the countries labour departments as only 00.00 salary and the rest is made up in housing and education allowances plus guaranteed bonus. This misguided approach to gratuity payments is not conducive to staff retention. More and more companies are now looking to manage their gratuity payments with formal retirement schemes provided either by the International Insurance companies like Zurich and Friends Provident or bespoke systems put together by professional employee benefit companies. One of the largest companies in the Gulf, Emirates Airline, has for many years run its own retirement scheme via an employee benefit trust with the management of the employees assets contracted out to world class fund managers like Fidelity and Merril Lynch. The choice of retirement benefit management generally comes down to size of company – the larger the company the better opportunity to create a bespoke system. Professional advice is necessary to make the right decision.

Managing international benefits is complex due to different tax and employment legislation rules in different countries around the world. Each country has its own statutory benefits, while local employers will offer staff perks based on local wage and employment demands. This complexity is heightened for global reward managers who also post expatriates to foreign offices, and need to consider business travel insurance, overseas medical insurance and dealing with relocation services.

Employee share schemes are becoming more popular as staff retention becomes a major issue. The Hotel industry for one is finding staff retention a great challenge. There are a number of different ways to create share savings such as share save plan or share incentive plan managed in an employee benefit trust held in one of the worlds offshore financial centers such as Jersey. Similar arrangements can be made through executive share option plans for very senior employees.

Once a company has decided on it range of employee benefits and who gets what the biggest job is to communicate this to staff.

We as individuals are responsible to our spouses and families for the planning of our own finances. We need to identify the risks in life and put adequate protection in place, we need to identify the goals and aspirations of our family members and make sure that we plan accordingly. Often we do not fully understand the benefits in the workplace.

Financial education helps employees to understand the value of benefits such as pensions and share schemes. Employers can help staff make wise decisions about money and investments through workplace workshops or seminars and information. Tools such as benefits modelers, meanwhile, can help staff to calculate the impact of decisions they make around particular perks, for example, when setting retirement contribution levels or selecting which options to take in a flexible benefits scheme.  Some companies include the added perk of personal debt management, which can help to reduce employees’ stress levels and so indirectly contribute to improved performance. Many believe that financial education is going to become more common in the workplace as organisations want their staff to get to grips with making their own investment decisions. In the West many large companies provide access to financial advice, bringing in Chartered Financial Planners to advise employees on their financial benefits.

Some employers may query why they should provide financial education for staff. The benefits are clear.

For starters, the more education you give staff about the perks on offer, say on retirement benefits or shares, the more likely they are to understand their true worth. This is important. If staff value the benefits on offer then they are likely to hold their employer in higher esteem which, in turn, should boost productivity and staff retention.

But the most compelling reason though is some research conducted in the US by Dr E Thomas Garman, president of the Personal Finance Employee Education Foundation, which demonstrates the positive impact of financial education on employee productivity levels

Dr Thomas asked a number of financial advisory companies what were their attitudes of employees to offering financial education in the workplace?

Their answers were as follows (% in brackets)

1.      It increases appreciation of the value of benefits 83%

2.      It increases retirement plan take-up and/or plan contributions 50%

3.      It should be essential in all workplaces 39%

4.      It will help employees resolve a retirement savings crisis 32%

5.      It increases share scheme take up 21%

6.      It is not the employer’s responsibility 17%

Dr Thomas then asked the employees what proportion of respondents think employers should give

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