Employers beware: a poorly designed and poorly understood benefits approach could be costing you dearly in money and talent.
This is particularly true at a time when the UK continues to experience labour and skills shortages. Top talent is in high demand, with many candidates receiving multiple job offers. If a benefits package isn’t up to scratch, they will simply go elsewhere.
Figures from the Chartered Institute of Personnel and Development indicate that the UK’s 34% average worker churn rate is among the highest in Europe. And this situation exacts a price. Losing and replacing each individual can cost between 80-200% of their salary, according to a study from Oxford Economics.
Unsurprisingly, offering an appropriate benefits package is becoming increasingly vital for the growing number of employers focusing on retention.
A recent report published by pensions, benefits, investment and wealth advisory firm Isio reveals a clear link between benefits and retention levels. It shows that employees who feel their benefits package offers everything they need are much less likely to switch jobs. Some 58% said they have no plans to do so compared with 40% across the wider population. The survey of 7,674 private sector employees was conducted on behalf of Isio by pollster, YouGov*.
Ensuring benefits are relevant
It is worth noting that benefits include financial offerings, such as pensions, and non-financial ones, such as flexible working and healthcare. Whatever form they take, employers must ensure they are relevant to employee needs and reflect what they care about and value. Andy Craig, who leads Isio’s reward and benefits practice, says the equation here is simple.
If you’re deriving lots of benefits from working for an organisation, you’ll connect with that organisation and feel more satisfied and engaged
“If you’re deriving lots of benefits from working for an organisation, you’ll connect with that organisation and feel more satisfied and engaged,” he explains. “But if they don’t feel relevant, you won’t experience these things as benefits and won’t attach value to them. You won’t feel your employer understands or is addressing your needs.”
Unfortunately, many employees do not consider their benefits relevant, nor do they value them. Isio’s report indicates, for instance, that a worrying 26% of those questioned believe either most or all the benefits on offer are irrelevant. A further 43% felt their benefits were only partially relevant. Unsurprisingly then, employee uptake and appreciation of benefits remains consistently low.
A key problem here is that most benefits strategies have been developed sporadically. Employers make small, regular updates around the edges without reviewing their schemes against principles to see if they truly meet employee needs.
For example, in the middle of today’s cost-of-living crisis, some employees may perceive their benefits focus more on safety and security (for instance, death in service, sick pay and retirement) and less on their more pressing physiological needs (food, warmth and shelter), as laid out in Maslow’s Hierarchy of Needs.
The importance of demographics
Another common challenge is that most benefits are weighted towards older and more affluent workers.
Craig explains: “Most benefit programmes have an age bias. For example, they offer a big financial subsidy to help employees save for retirement, which is a priority when you’re older. However, most do nothing to help people buy a house, which is what the younger generation is more focused on.”
But age is not the only factor. Gender is another. For instance, Isio’s research points to a clear link between an individual’s confidence in their financial abilities and the likelihood of them staying with their employer.
If individuals have low financial confidence, they are 34% more likely to feel their benefits fail to match requirements. They are also 23% more likely to want to change jobs over the next year.
As Craig points out: “Financial confidence is critical for people to get the best out of their benefits and feel in control. If they have that confidence, they use them more effectively and cherish them more. This, by extension, leads to a greater appreciation of what their employer is doing for them, more loyalty and higher retention levels.”
A major problem, however, is that more women tend to have low financial confidence. A mere 18% would describe themselves as being ‘very confident’ when making financial decisions compared with 27% of men.
“Although there may be a financial confidence gap between men and women, this doesn’t translate to a capability gap. “Our data shows that confidence can often be misplaced,” says Jen Norris, Isio’s head of employee and member support.
Unlocking the true value of benefits
There are, therefore, several considerations when trying to unlock the true value of benefits for employers and their workforce. Firstly, it is undoubtedly important to personalise them for specific demographics.
A second but just as crucial point is helping employees engage with their benefits more effectively by providing relevant support and education. Unfortunately, doing so tends to be the exception rather than the rule today.
Those who ignore this second consideration risk throwing money down the drain as their benefits simply won’t be used or used well. The scale of the problem becomes clear when businesses combine expenditure on the benefits themselves with the cost of poor engagement, low retention rates and high recruitment fees.
Many organisations now see the advantage of moving beyond traditional benefit brokers and benefits platforms
“The key to unlocking the power of benefits and finances lies in having both knowledge and confidence. Different people will need help with one, or the other, or both – but what our experience shows is that most people benefit from financial guidance to support this,” says Norris.
“Employers are increasingly alive to this issue and we often work with them to provide a listening ear and a helping hand to their employees on financial topics whether that be saving for their first home or a decision around retirement.”
Many organisations now see the advantage of moving beyond traditional benefit brokers and benefits platforms. Advisors like Isio, for example, take a more strategic and data led approach to get the design right. This enables them to produce coherent strategies for clients that provide the right benefits and include appropriate support structures. The aim is to ensure employees understand and use the benefits being offered.
The issue is that most benefits packages have evolved over decades and are rarely based on a clear rationale or strategy, Craig says. But many employers are realising that it no longer makes sense to simply keep adding new products to their portfolio and hoping for the best.
“A lot of organisations come to us for help as they aspire to tackle the issue but don’t have the time or bandwidth or struggle to make a business case for tackling this kind of ‘silent cost’,” says Craig. “But at a time when employee experience is paramount, it’s becoming too important to just languish on the to-do list year after year.”
Isio offers a benefits review service to help organisations identify whether the benefits currently offered to employees are truly valued and identifies opportunities to improve them.
Learn more about Isio Reward & Benefits here or contact curious@isio.com
* In conjunction with YouGov, Isio surveyed 7,674 private sector employees in June 2023 on a range of issues surrounding employee benefits and personal finance concerns. Responses for don’t know or prefer not to say answers have been removed, unless explicitly shown
