When benchmarking pay against the market, companies often focus on base, bonus and LTI – what we call Total Direct Compensation (TDC). Arguably, one of the more emotive parts of the package is often overlooked – benefits. This is not because they are worthless, in fact the median value of benefits provided to CEOs by FTSE 100 companies (£32,325) exceeds the national average wage by nine percent. Since benefits can have such a material impact on total package and can get tempers rising if they are mishandled, we thought it would be useful to provide a short summary of who benefits from what, as disclosed by the FTSE 100 companies in 2018.
‘What’s the most common benefit?’ We hear you ask…
Based on 2018 market disclosures, the most prevalent benefit is health/medical/dental insurance (89% of the FTSE 100). Second to this is car allowance (74%) followed by financial advice, (30%) and chauffeur services (20%). At the bottom of the list is personal air travel (2%) and it’s interesting to see things like club and gym memberships – once much more prevalent – now only provided by a handful of companies.
Figure 1 – Does your company align with the most common benefit awards in FTSE 100 companies?
How do I know if the size is right?
Most FTSE100 companies (63%) do not disclose the value of individual benefits. Most typically, an aggregate value is provided alongside a list of benefits included. Figure 2 illustrates the interquartile range of total benefit values provided. For CEO roles, this is from £21,000 to almost £63,000 (1-3x). There is real variety in the size of benefit awards made across the FTSE 100.
Are you perhaps being overgenerous in your awards? And do you know if executives truly value the benefits you provide? Is there scope to reallocate cost to things they do value, or even to cut some costs? Engaging in a Total Rewards Optimisation exercise is a really good way to help answer these sorts of questions and can improve your return on investment substantially. (Read more in this edition of Executive Pay Matters: More bang for your buck: improving the effectiveness of reward or on our solution page: Total Rewards Optimization).
Figure 2 – There is a wide range in total benefits opportunity for the CEO in particular
Have you thought about relocation costs?
One word has been as unavoidable in the Board room this year as it has in wider society: Brexit. In the event that an executive changes home or work location, do you know the associated benefits which can or should be provided? Do you know how much these will cost? Are they covered in your published remuneration policy? The prevalence of relocation benefits is limited by the nature of the circumstances in which such benefits are provided but the most commonly provided benefits relate to accommodation and flights or other travel between ‘work’ and ‘home’ locations (7% of the FTSE 100 in 2018). Despite the relatively low occurrence of such benefits, where they are provided they can be of very significant value as we show in Figure 3 below.
Figure 3 – Lower quartile, median and upper quartile relocation benefits
The benefits modernisation agenda
In a changing environment, benefits provision needs to keep pace and companies consistently report an intention to modernise their benefits. Many companies are striving to strike the balance between continuing to offer market competitive core benefits which matter to employees, whilst also improving flexibility to meet the needs of an increasingly diverse workforce – and all while optimising cost. It’s no wonder companies are reaching out for guidance!
In our conversations with clients we have identified five characteristics to watch out for:
- To flex or not to flex
Discussions around flexibility encourage employees to customise their benefits to those most valuable to them, such as cycle to work schemes or gym memberships. Is there such a thing as too much choice though?
- Is the cost too high?
Although companies recognise the importance of offering flexibility, some also identify what not to offer. In other words, those benefits associated with excessive costs in administration, communications or payroll integration (to name but a few…)
- Technology for personalisation
Leading companies increasingly aspire to be at the forefront of technological interfaces with their employees particularly when it comes to communicating – or even ‘marketing’ - their benefits.
- Administration and operations
Make your benefits administration run as smoothly as possible. Leverage internal resourcing, centralise and consolidate providers, and improve collaboration between internal corporate functions.
- Facts and figures
Last but not least, access to transparent, accurate and detailed data is vital in understanding the path to modernisation. Leading companies are increasingly prioritising data collection and analysis – and acting on their findings!
Willis Towers Watson’s Point of View
Hopefully this article has refreshed your memory about some aspects of benefit provision. Don’t forget the following:
Think from the perspective of your audience – when was the last time you refreshed the benefits you offer, or asked employees what they value? Is this likely to be the same in different employee segments? The prize here is significant – you might be able to provide more valuable benefits at the same or even lower cost.
Don’t fall prisoner to the idea that TDC alone matters, and overlook the value - or the cost - of benefits for executives or broader employees. Benefits represent a significant chunk of money that is sometimes deprioritised or even ignored. But the potential reward in terms of employee engagement should not be downplayed.
- Get to grips with how your benefits offering compares to market, both in its current state but also considering trends in the market such as political changes, and the broader modernisation agenda. Willis Towers Watson runs separate surveys with insightful benefits data, find out more at:
Benefits matter, but, like insurance, their value is not appreciated until they are needed. Making your employees more aware of the value they receive by communicating benefits better and allowing more choice is a great way to start. But leading companies are pushing further ahead in this area – and benefitting greatly from their improved approach to benefits.