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Wednesday, 17th April 2024
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Cafeteria benefits - a recruitment and retention solution for the financial services industry Back  
Since labour market power is now with employees rather than employers, a human resource management approach that adjusts to the trend is more likely to be successful, writes Ray McKenna.
One of the greatest challenges facing employers in the new economy is the war for talent, in other words the recruitment and retention of key staff. Ireland’s tiger economy has re-focused companies’ attention on their greatest asset, their people, and how to retain, motivate and attract this increasingly rare resource.

“Who’s interviewing who” is now a commonly asked question by financial services companies as Ireland’s financial Celtic cubs turn the tables on potential employers. These potential employees are no longer satisfied to accept traditional terms and conditions of employment and are increasingly negotiating lucrative contracts or terms and conditions of employment that suit their particular needs.

These developments have lead to a dual problem for financial services employers: the requirement to control costs while at the same time remaining a leading edge employer and meeting the increasingly high requirements financial professionals are placing on them as potential employers. Increasingly financial services companies are turning to a concept known as flexible benefits (Flex) or cafeteria benefits to deal with these conflicting problems.

A flexible approach
At a core level Flex converts an individual’s traditional employee benefits such as holidays, pension, car, and life assurance into a monetary amount or credits which they can then spend to create a benefits package to suit their particular needs.

Underlying the concept of flexible benefits is the belief that different financial services employees have different and changing needs throughout their careers. For example, salary and holiday needs may be more important than pension planning for those in their mid 20’s. In their late 20’s and early 30’s maximising salary and earnings to fund the purchase of a home becomes more important. The flexible benefit approach allows financial professionals to decide on the individual benefits package that suits their individual needs at any given point in time.

This approach need not increase the spend of a bank or any other type of financial services company but it does give control of the benefit spend to individual employees. Indeed, by highlighting the actual cost of individual benefits, a greater awareness and, hopefully, appreciation will be raised among employees for their existing benefit provisions.

A recent survey undertaken by Arthur Andersen reveals that of the respondents who are not currently operating flex schemes, 40 per cent are actively considering the introduction of some element of choice or flexibility to their existing benefit provisions. The most commonly cited reasons are identified in the graph entitled ‘Reasons to introduce flexible benefits’.

In extending flexibility to employees, financial services companies are not necessarily forfeiting all control over benefits. In many instances these companies will insist on the compulsory provision of certain “core” benefits as part of a flexible benefits programme such as some amount of retirement funding, life and long-term disability provision and perhaps private medical insurance. The most common core benefits are set out in ‘Most common core benefits’.

Flex also allows financial services companies to introduce new benefits as well as the core benefits, such as share plans, discounted retail vouchers, and critical illness cover. This can be implemented without attracting additional cost as employees are merely deciding on how to allocate their individual spend. The graph entitled ‘Most common benefits offered through flex schemes’ illustrate that the most common benefits covered by flex schemes are holidays, health insurance, life insurance, pensions and cars.

Why a flexible benefit approach for the financial services sector?
The Arthur Andersen survey also showed that the general drive behind the move to Flex came from the human resources function within companies. However, increasingly we are also seeing a separate and distinct business cases for the introduction of flexible benefits. Firstly, this has been driven by the need to control costs. Flex has been used, particularly in the United States, as a mechanism of buying out onerous benefits, for example final salary pension schemes and company car provisions, and harmonising the benefit provision between different divisions or functions following a merger or acquisition.

While the concept is simple, there are a number of potential barriers/difficulties in moving to a flexible benefits concept. The biggest barriers cited by those who have been through a flex implementation are the difficulties of communication and administration. However, the use of online enrolment and administration tools, third party administrators and a well thought out communications programme can overcome these barriers. In general the perceived problems are normally outweighed by the positive impacts that flex can achieve.

In March ’99 Arthur Andersen launched Alpha, a flexible benefit plan for its own staff, with the following results:
• 32 per cent of employees actively changed their existing benefit provisions;
• Every benefit, including four new benefits added, was taken up;
• There is an increasing awareness of the cost of benefits.

The flex forum - flexibility online
Part of my firm’s increasing focus on and commitment to the new economy includes the establishment of the Arthur Andersen Flex Forum, a knowledge-sharing website within the human resources arena.

In recent years, we have conducted surveys on company attitudes towards flexible benefits. We have considered, for example, how many companies were operating flexible benefits and what had been gained from its introduction. This year, Arthur Andersen conducted a broader in-depth survey of the flexibility required in the workplace to meet diverse needs of businesses as well as employees through the forum.

Financial services companies were among those who participated in the online survey. The soon-to-be published results will include a comprehensive and broad ranging commentary regarding the current status of flexibility within the new economy. This will provide financial services and other companies with an opportunity to benchmark where their policies fit with general market trends. This, we would argue, is critical for financial service companies hoping to win the war for talent in the new economy.

The traditional approach to benefit provision is increasingly inappropriate in a changed working environment in the financial services sector. With greater career opportunities, changing work practices and changing lifestyles, companies must adopt an appropriate benefit philosophy. Flex, while not the total solution, is an approach that more financial services companies will turn to in the coming years.

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