Flexible benefits can be perceived as costly schemes to implement, which is why HR and benefits professionals need to learn how to convince finance directors of the merits of such a strategy.
If you read nothing else read this…
- Benefits teams must first understand what motivates finance directors.
- Soft measures such as how flexible benefits can aid staff retention and recruitment costs could also help win buy-in.
- But clear return on investment must be included in any business case, for example savings made from salary sacrifice benefits.
- Employers can work with their chosen provider and consultants to get finance directors on board early on in the process.
Benefits professionals must first understand what motivates finance directors, which, in most cases, is the return on investment (ROI) that can be gained from implementing a scheme.
Terry Gostelow, account director at Staffcare, says: “When dealing with a finance director, the first and foremost thing is to know the audience and what is going to motivate them. They will, of course, be interested in the numbers but knowing the individual will only help to get buy-in for any introduction, change or update to a flexible benefits scheme.”
Highlighting the ROI through soft and hard messages
However, highlighting the ROI to a finance director will have to come through constructing a business case that contains both soft and hard messages on the subject to make an impact around the boardroom table.
Soft measures can include measuring the scheme’s impact on areas such as engagement, recruitment and retention, while hard measures illustrate to a finance director the amount of cash that can be saved by the business.
David Walker, chief commercial officer at Personal Group, says: “Sometimes a good business case is not all about the cost. There are good messages an HR director can use to get buy-in, such as the cost to the business if it does not implement flex, the cost associated with not being able to recruit new talent because the proposition is not as compelling. There is a need to inject a bit of fear into finance directors through financial and non-financial calculations.”
Mike Dugdale, chief financial officer at Personal Group, adds: “From my perspective, finance directors all too often think of it as a cost rather than an investment. They need to step away from this and look at the bigger picture as to what flex can bring to the business.”
The question of how to get buy-in for flexible benefits has been around for more than 10 years, but the task is now considerably harder for HR and benefits professionals. Martha How, reward partner at Aon Employee Benefits, says: “Ten years ago it was easier to answer [this question] compared with now. Employers were introducing flex when they also introduced salary sacrifice benefits, which made it easier to create a business case to highlight the national insurance [NI] savings that would pay for the scheme cost pretty quickly. It was more of a slam dunk 10 years ago.”
Showcase the correct data
It is less of a slam dunk now and, given finance directors’ accountancy-based skillsets, not surprisingly data is king to win buy-in, despite the strong messages generated by soft measures.
There is a need for benefits and HR professionals to provide data, demonstrating that introducing a scheme will be cost effective. And with so many employers already having saved cash from tax-efficient benefits, such as pensions and childcare vouchers, it has become harder to highlight the ROI necessary.
“If an employer has taken all of the salary sacrifice savings already from having these as standalone benefits but now wants to implement flex, the cost savings and financial agenda is less clear,” adds How.
But this does not mean the savings agenda cannot be made from the introduction of new tax-efficient benefits to a scheme, such as company car schemes, computer schemes and bikes for work.
Another tactic to secure buy-in for flexible benefits, be that for a new scheme or a technology upgrade, could be to work with the benefits provider or consultant to get the finance director on board early on in the process to help them further understand the benefits a scheme can bring.
Gethin Nadin, head of strategic alliances at Benefex, says: “We have seen a change in tactics with how we deal with prospects and have established that the more involved a finance director is as early on as possible in the thought process, the more understanding they have of not just the potential ROI, but also how a scheme could increase recruitment and retention.”
While finding the evidence to secure an investment will help to gain a finance director’s support, the way HR and benefits professionals present their case is always the key.
As well as the right jargon, finance directors will also consider proposals that link to broader business objectives.
Using the right terminology is crucial, says Personal Group’s Dugdale. “Every finance director likes to see how it fits in with the overall business strategy and increase the values of an organisation to staff. Articulating something like that will get it higher on the agenda. Think strategically as to how it aligns to overall objectives and do not think of flex as an HR operational investment. That will help win buy-in.”
Duncan Brown: Making the case for flexible benefits
Finance directors and board colleagues may accept that offering a good benefits package secures higher-quality staff and, as efficiency wage theory suggests, take the pressure off base pay levels and increases.
Flexible benefits is very much a minority employer pursuit, concentrated among larger organisations in the private sector. Only 20% of all UK employers in the Chartered Institute of Personnel and Development’s Annual reward management survey, published in 2013, use the approach.
A higher proportion of employers will almost certainly be experiencing a growing diversity of their workforce, and some research studies suggest that certain employee groups, such as working parents, place a value on arrangements such as flexible working hours that is way above their actual cost to the employer. One study, The effects of a flexible benefits expert system on employee decisions and satisfaction, published in 1993, carried out in a bank, for example, found that employees valued simply being offered a choice, which led to a more favourable view of their total package.
Although, offer too many choices and our aversion to regret and loss may outweigh this effect.
So, for the answer, we must go back to what one might expect for finance directors and indeed any rational investor: how does the cost to set up and run compare with the financial returns? For example, how does John Lewis afford its wonderful benefits package, or US convenience store QuikTrip afford to pay its store staff a living wage, well above the market median on base pay? Were their finance directors asleep when the proposals went through?
No, far from it: these two and many other forward-thinking employers clearly make the case for investing in their staff rewards because the returns in terms of staff quality can be shown to be proportionately much greater, with sales per employee at QuikTrip, for example, 50% higher than their competitors, enough to make any finance director dip into his or her wallet.
So borrow a financial analyst if you need to, but make sure you can show a positive return on the investment in flex if you want to get the finance director and board on side.
Duncan Brown is head of HR consulting at the Institute for Employment Studies
Case study: Nexen wins buy-in for new flexible benefits technology
Oil and gas organisation Nexen had to get buy-in for new flexible benefits technology to help pool its benefits online for its 700 employees.
It also had to agree with directors the move to outsourcing benefits.
The moves were designed to help employees get a greater understanding of the benefits the organisation offered and to open up its benefits to be more flexible for staff, moving away from an annual flex window to enable staff to use the scheme and select benefits throughout the year.
This was also key to reducing the administration costs for the business.
To win buy-in, Nexen focused its approach on the efficiencies the project would bring, as well as the increase in employee engagement levels.
Anish Gajree, senior compensation and benefits advisor at Nexen, says: “It was a big change for us and it was about looking at efficiencies and how we could be more cutting edge.
“We highlighted to directors that the scheme fitted in well with what the organisation was looking to do, while outsourcing made sure we were not wasting people’s time.
“We brought all this together and showcased what we would do with the rebranding of the benefits, making it more efficient and put that in front of the finance director [FD] with hard statistics to back it up.”
It launched the new scheme, which is provided by Benefex in September 2014. Since then, it has seen engagement levels increase. More than 86% of employees have interacted with the new portal and chosen benefits.
Nexen also worked with the provider during the buy-in process to highlight competitor case studies from the oil and gas industry to help win its bid.
Gajree says: “By being able to show case studies, directors [could see] that by doing this we competed with our peers and showed we were not lagging behind. It reinforced what we were trying to achieve.
“But an FD likes numbers, [demonstrating that] we did this, but for other employers it should be important to show too. It is like a Dragon’s Den moment; if the numbers are right, then you have got the buy-in.”
We faced a similar challenge in moving the conversations from ‘nice to have’ to ‘business imperative’ so we created our ‘SLEEPING TIGER’ interactive calculator that clearly illustrates the current costs the organisation is carrying and the ROI benefits to be had. This helped.