Greater onus on employers to look after staff needs

In the early 19th century, entrepreneur Robert Owen inherited a large mill in New Lanark, Scotland. The factory and surrounding area was overpopulated by thousands of workers from the slums and workhouses of nearby Glasgow and Edinburgh, so Owen, finding the conditions to be unacceptable, took the radical step of providing housing and other support for his staff.

In 1816, the social reformer opened the first infant school in Britain for employees’ children. He cared for his staff in a paternalistic way by providing for their needs.

Although this type of welfare provision was expensive, Owen realised that it helped to motivate employees, and in turn enhanced their contribution towards sustaining a profitable enterprise.

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By today’s standards, providing such support to employees’ is virtually unheard of. Employers have to prove the effectiveness of every penny spent to shareholders and investors and so keep a tight rain on reward budgets. Employees’ expectations of employers have also changed and the idea of living in on-site employer-provided housing might not go down so well with staff who have access to a welfare state with education for their children, social housing and a national health service.

One thing today’s employers have in common with Owen, however, is that they still want to look after employees so they remain motivated and contribute effectively to the business.

The term paternalism has, for many benefits practitioners, become associated with a past when employees were loyal and much more dependant. Paul Bissell, head of rewards at Nationwide Building Society, says: “My view of paternalism is that the employer is protective [of staff].”

But attitudes to reward have moved on with many employers backing away from dictating what benefits staff are to receive, and instead opting to provide choice. Paul White, senior consultant at Aon Consulting, says: “Paternalism draws up connotations of a father figure who makes decisions for his children’s own good, even if it goes against the wishes of the child.”

Government influence

Employers are also operating under cost constraints which in the case of pensions has led them to offload some of the responsibility for providing for employees’ retirement to staff themselves. The trend away from defined benefit (DB) to defined contribution (DC) schemes places greater onus on employees to make decisions about their future, for example, in terms of investment choices and pension contribution rates.

However, over the last couple of years, the government has been moving towards pushing employers to take a more active role in their employees’ welfare.

When the government’s latest pensions reforms come into effect in 2012, employers will be required to contribute 3% of an employee’s salary into either an occupational pension or personal account.

The workplace has also been identified by Otto Thoresen’s Review of generic financial advice, published in March, as an avenue for delivering generic financial advice.

Dame Carol Black’s review of the health of Britain’s working age population Working for a healthy tomorrow has also highlighted the need for employers to become more involved in providing workplace health and wellbeing initiatives for staff.

Martha How, head of reward consulting at Hewitt Associates, believes the government is stepping back and offloading responsibility for employees’ wellbeing to employers. “I don’t see how economically, the government could do any more,” she says.

But she also makes the point that employers could use a little help from government in the form of more tax breaks around perks.

Aon’s White explains that the government has always been the last recourse in providing state benefits such as pensions and healthcare, but with rising costs it is encouraging employers to increase the level of care they provide for staff.

Its current approach may give employers a lot to think about, however, and a new wave of paternalism could be upon us. Philip Hutchinson, head of corporate Sipp sales at Pointon York Sipp Solutions, says: “It could be argued that the government is encouraging companies to go down a paternalistic route, but you could argue some employers are there already.”

Many employers provide extensive benefits packages for their staff, however, they are reluctant to be labelled paternalistic. Increasingly they are offering employees the opportunity to select benefits that suit their needs through schemes such as flexible benefits. “Employers don’t want to patronise employees by making their benefits decisions for them. They are allowing staff a choice of the benefits that best suit them,” says White.

Chris Bruce, managing director of Thomsons Online Benefits, says that flexible benefits schemes could be viewed as a new form of paternalism, as these enable employers to offer perks that can be seen as caring for employees by meeting as many of their requirements as possible.

Hewitt’s How says that the ability to offer choice has moved benefits provision on. “Twenty years ago, the vast majority of employers adopted a paternalistic mindset where benefits were simply given to employees who had no choice. The employer made the decisions and that was that,” she adds.

This type of approach is now outdated, she says, as employees may no longer value a core benefits package, but instead look for options that suit their personal situations and lifestyle. How explains that those employers that are giving staff choice rather than presuming what their best interests are able to demonstrate that they care for staff by enabling them to have control over their own lives. “Employers are increasingly becoming more caring, but less paternalistic. It is more now about employers demonstrating good citizenship,” she explains.

Empower with choice

Chemicals and paint firm ICI is among those employers that have moved from providing a fixed benefits package to a flex scheme in order to provide staff with greater choice. Lisa Harrison, benefits manager, explains: “ICI had been fairly paternalistic in its approach to benefits, but we wanted to move from this outlook to a position where we could empower employees and give them a greater deal of choice. We believe we can be caring without being paternalistic.”

By offering staff a degree of choice, employers are able to demonstrate that they respect the fact that staff are adults and are able to make their own decisions. “[A firm] is likely to have more engaged employees if it is adopting an approach which gives employees flexibility,” says Bissell.

Hutchinson believes employees are savvier than they were twenty years ago and will not be so easily told what to do, but there are occasions where employers may want to ensure that staff continue to receive a minimum level of benefits. In this instance, he says employers should be more subtle in the way that they provide for the welfare of their staff. “Encouraging people to make flexible benefits choices once a year, or auto-enroling staff into a pension scheme is still intrusive but it is delivered in a subtle way,” he says.

Many employers that offer flex schemes, for example, still encourage staff to take up a pension as a core benefit, or make sure they cannot flex below a set level of death in service cover, as these perks are considered to be in employees’ best interests.

When considering what approach to take to benefits provision, Sarah Brown, a principal at Mercer, believes employers should think about their business requirements. There is no longer a need for them to be as paternalistic as they once were as employees are not so loyal anymore. “[Staff] used to start at a job and stay there for life, so there needed to be a greater relationship between employer and employee. This is not the case anymore. A person may only stay with an employer for a few years,” she says.

Employers should consider offering perks that not only provide for the welfare of staff, but also help with recruitment and retention, and maximise employee productivity. For example, occupational health and absence management tools help employers to effectively manage employees. “This is not about being paternalistic. It is about doing the best thing for the strategy of the business,” she says.

Nevertheless, some employers remain proud to be considered paternalistic. Organisations in the public sector still offer final salary pension schemes, for example. Bruce believes some employees prefer to work for a paternalistic organisation that will protect and care for them. However, paternalistic employers should support their benefits strategy with strong communications, he says, in order to attract and retain staff. “I think there are employers who want to embrace paternalism, but they don’t want to [be seen to] communicate to staff that they know what’s best for them,” he adds.

Educate well

Providing education and communication for employees is vital if employers want to be paternal towards staff or if they wish to empower their workforce to make their own decisions. This could be as simple as providing employees with financial education, for example, which equips staff with any necessary knowledge, but ultimately leaves financial decisions in their hands.

Hutchinson explains: “[Staff] could be encouraged to do their own thing to create their own wealth, but the employer could say ‘don’t worry, we will help you if you need it’.”

Whatever approach employers take, there is often a fine line between caring and interfering. Hutchinson advises employers to carry out staff surveys to ascertain what benefits employees want, as a benefits strategy often depends on the needs of the workforce as well as an organisation’s business objectives.

Overall, the idea of paternalism and its accompanying connotations may be considered somewhat archaic in relation to today’s workforce, however, there are still some advantages to employers helping to provide for the wellbeing of their employees.

Thinking back to Robert Owen and his New Lanark community, while he put social reform into practice with his workforce, he was, first and foremost, a shrewd businessman who was almost certainly not naive. He proved critics wrong by adopting a paternalistic stance and operating a successful business. So while his methods may be outdated by today’s standards his example is still worth considering to some degree by employers looking to demonstrate an element of care towards employees EB

Case study

Cadbury squares away its modern sweeteners

Practising Quakers George and Richard Cadbury were famed for founding the Bournville Village in the late 19th century to house their burgeoning workforce.

They provided housing, health and fitness benefits, as well as one of the first pension schemes in the UK. With a long history as a paternalistic organisation, Cadbury Schweppes is now keen to be seen as a more benevolent employer.

It has provided a flexible benefits plan for staff since 1997. Senior employees are given an allowance and other staff can pay for the benefits through salary sacrifice arrangements.

The firm also offers flexible working and wellbeing initiatives, which adhere to the Cadbury brothers’ values.

Employees are not coerced into selecting benefits, but they are told what is available.

Suzanne Laverick, UK employee benefits manager, says: “We give staff an informed choice and the flexibility to do what they want.”†

Case study

Staff health fairs make for better transport bodies

Although London Underground offers health and wellbeing initiatives to its 1,271 employees, it does not consider this to be particularly paternalistic.

The organisation has, in the past, run health fairs at 31 of its sites, offering staff cholesterol and diabetes checks, advice on stress, information on healthy eating from a nutritionist, and access to a physiotherapist.

Staff attended in their own time. The events were communicated using posters and leaflets.

Dr Olivia Carlton, head of occupational health at Transport for London and London Underground, explains: “Paternalism is the employer saying ‘I know what’s good for staff more than they do’.” Although London Underground covered the cost of providing the health fairs for staff, the events were designed to help staff to look after themselves rather than the organisation taking active responsibility for this.

“We are providing help, but we wanted staff to take responsibility for their own health and drive the programmes they need in order to recover as it actually reaps dividends,” Carlton explains.