Financial benefits that make staff stick

Financial benefits are an important part of a comprehensive and competitive employee benefits package. Teresa Russell speaks with two organisations offering financial benefits packages with broad ranges of flexible options which are contributing to retaining and attracting talented staff

Thee meaning of the phrase ‘salary package’ has changed dramatically in the last 25 years. It used to mean cash plus a fully maintained company car plus a bonus (but only if you worked in sales). The equation these days is way too complex to include in this one paragraph. It now has to take into account factors such as superannuation, fringe benefits tax and payroll tax legislation. There are all the pre-tax deductions that can legally minimise PAYE tax. There are also many different types of leases and company share acquisition programs.

In recent times, a whole new industry of financial advisers has sprung up, replacing an annual chat with the accountant. And now, companies employ specialists to deal with all these complexities – the compensation and benefits manager.

Flexible salary packaging is available to the majority of staff within Australian organisations, according to a recently released 2004 Benefits Report produced by Classified Salary Information Services. However, senior managers and those who work for a large organisation are more likely to have access to this benefit.

The most common benefits offered to senior managers for salary packaging include access to cars and additional contributions to superannuation. General staff are most likely to be offered these, as well as laptop computers. Unsurprisingly, these benefits are subject to either concessional Fringe Benefits Tax or are FBT exempt.

BOC Group

Andrew Nottage, director, compensation and benefits Asia Pacific for industrial gases and services company BOC, explains the major shift in approach to benefits that BOC undertook six years ago. “We used to dictate what benefits went to which people, specifying car models and contribution levels to pension funds etc. We then decided that if our employees were capable of managing this business, they should be allowed to manage their own benefits,” says Nottage.

The benefits overhaul coincided with the global introduction of both share plans and incentive payments within BOC. Managers were given a total compensation package, which they could structure however they pleased. Changes included access to novated car leases, a variety of choices with superannuation and choice of base salary. BOC also took the opportunity to build annual leave loading into the salary, to encourage staff to take accumulated recreation leave.

“As an organisation, we’ve been careful not to give financial advice and have encouraged our employees to seek independent advice, before structuring their packages,” says Nottage.

“We aim to reduce administration costs while improving our offerings to staff when we pass the responsibility for managing benefits on to the employee. When we outsourced car administration, the vendor helped us provide our staff with superior service and flexibility in packaging,” says Nottage.

Some of the changes were initially not well received, because some people were reluctant to manage their own affairs, while others missed the status that came with particular benefits. However Nottage believes that the new flexible benefits are now universally appreciated.

A recent popular innovation at BOC has been the introduction of deferred and exempt company share plans, where permanent employees can invest as much as $1,000 in pre-tax dollars purchasing BOC shares. Despite the fact that the company is listed on both the London and New York Stock Exchanges, bringing exchange rate fluctuations into the calculation, 15 per cent of employees have taken up the benefit. Like any new benefit introduced at BOC, this one was also justified by a business plan.

Total packaging and tax effective share plans have been just a part of BOC’s overall approach to restructuring financial benefits during the past six years. BOC has changed all frontline staff from hourly rate plus overtime, to salary plus performance bonus during this time. This has not only resulted in improved superannuated base rates for employees and a step change improvement in the value of leave entitlements. It has also developed a company-wide focus on operational outcomes, a decreased focus on hours spent at work and, most importantly, a corporate culture of personal accountability. “It’s now a much more effective win/win formula than the rigid remuneration prescriptions of the past,” Nottage states.

Different financial benefits are attractive to different demographic populations. This is especially evident at BOC with superannuation contributions. Despite the fact that BOC’s superannuation fund is among the top performing funds in Australia, its younger staff still put in the minimum amount, while some approaching retirement contribute up to 40 per cent of their salary. BOC hopes to make its fund more attractive to all staff and is currently considering proposals to allow spouses to become members, as well as providing more flexibility in terms of choice of investments.

Nottage places an emphasis on communication when launching new benefits. “We used email, video tapes, a printed booklet and a roadshow when we promoted the employee share plan last year. I think a lot of companies fall by the wayside with benefits because they don’t communicate well to their staff,”he says.

A successful benefits package must also be flexible enough to suit all employees and the company’s choice of any provider must be sound, Nottage adds. “You have to consult widely before introducing a benefit and ensure that senior management fully supports any initiative. Benefits are not the most important factor in retaining and attracting staff, but they are an intricate part of an employee value proposition,”he concludes.

Lend Lease

Beth Winchester is the Asia Pacific human resources manager for Lend Lease. The company has a cultural heritage of wealth creation for all staff and an innovative and egalitarian attitude to benefits, according to Winchester, in which everyone has access to the same benefits. Lend Lease was one of the first companies in Australia to offer in-house corporate childcare at its Sydney head office. Because it lacked the critical mass to provide a similar service in Melbourne or Brisbane, the company provided interstate staff assistance in finding childcare, then paid them a rebate equal to the benefit to its Sydney employees received.

Winchester says that the key to Lend Lease’s benefits package is flexibility. People are paid their package as either 100 per cent cash or cash plus benefits. Benefits include operating or novated car leasing, in-house childcare, laptops, salary sacrifice superannuation payments, access to financial planning services (the initial consultation is paid for by the company) and an employee share acquisition plan. In this plan, an employee can receive 5 per cent of their base salary in shares, which are held in trust. The employee receives annual dividend payments and only gets access to the shares when they leave the company, at which point tax is payable.

“The biggest challenge when offering any benefit is to keep up with the changes in legislation and the impact that any change has on the value of the benefit,” says Winchester. She says she hasn’t noted any differences between blue and white collar employees or any gender bias when it comes to the benefits chosen, but that the difference lies in the current life cycle of staff. “When my children were young, I used the child-care centre, but that’s a benefit I’m no longer interested in. That’s why any benefits package has to be flexible, so that people can choose benefits that are meaningful to them at certain stages of their lives,” she explains.

Winchester is continually reviewing Lend Lease’s benefits offering. She is organising internal focus groups to discuss what’s hot and what’s not. In the past, she has commissioned a special report to benchmark the company’s benefits in the Australian marketplace. She draws inspiration from networking, trade magazines, providers and employees when trying to discover what is new, different and cost effective in the market.

“The way you communicate a benefit is extremely important. A glossy 50-page flyer never goes down well,” Winchester has found. She advocates the use of a variety of media from electronic to print, access to answers about benefits right through the week, and to “never underestimate the value of a good roadshow”.

Winchester believes that a competitive benefits package has a high impact on staff retention, although it is really the culture that keeps people in an organisation. Before designing a benefits package, she advises consulting staff on benefit preferences and fitting benefits to the size of your organisation. “You should do a few things well, rather that trying to offer everything to everyone,” Winchester concludes.