LONDON 14 March 2006: The biggest HR challenge facing companies this year is implementing culture change, according to new research carried out by leading employee benefits and technology provider, thomsons online benefits.

This finding was one of a number of insights revealed in the third annual "Employee Rewards Watch", a study of 468 UK firms.

The biggest HR challenges cited in the two previous years research of controlling costs and complying with employment law had dropped to second and third positions respectively.

Other findings for 2006 include:

Employee Benefits

• Since the inaugural Employee Rewards Watch survey in 2004, there has been a marked increase in companies not only offering an employee benefits package (almost ten per cent rise), but also the numbers who are considering, are in process, or have already implemented a flexible benefits scheme (up from 17.5 per cent to 31.6 per cent).
  
  
• Less than one in ten respondents (6.3 per cent) think that their employees highly value their employee benefits. Interestingly respondents with flexible benefits schemes are much more likely to think that their employees value their benefits highly or quite a lot.
  
  
• Almost half of the respondents with benefits (45.7 per cent), do not know how much they are spending on them.

Flexible Benefits

• More than three quarters of respondents with flexible benefits in place report that it has assisted employee recruitment.
  
  
• 2005 proved to be by far the busiest year for flexible benefit implementations with around a third (32.6 per cent) of all schemes implemented happening last year. Around three quarters of respondents who are considering or in the process of implementing flexible benefits are hoping to implement them in 2006.
  
  
• Despite the increasing emphasis on HR metrics just under a quarter of respondents (23.9 per cent) have measured the cost savings their scheme has generated.
  
  
• The potential future growth of flexible benefits is underlined by the fact that 45.1 per cent of respondents who currently operate a standard benefits package have considered implementing them.

Pensions Simplification

• Nearly half (48.5 per cent) of employers do not plan to financially compensate employees affected by the lifetime limit imposed by pensions simplification legislation or "A day". A large proportion of companies (43.3 per cent) have still not decided what action to take and a mere handful (2 per cent) plan to compensate all employees.
  
  
• Similarly nearly half of respondents (49.8 per cent) do not plan to pay for financial advice for employees affected by A day, and again a high proportion of companies (33.1 per cent) are still undecided on what action they are taking relating to the provision of such advice.

Pensions

• The most commonly anticipated response amongst respondents should compulsory employer pension contributions be introduced was to look for other cost savings in the business (42.5 per cent). Perhaps surprisingly only one in ten respondents anticipated that such a move would force them to reduce their headcount.
• The majority of respondents thought that compulsory employer pension contributions either would (45.1 per cent) or probably would (32.5 per cent) be introduced in the UK.
  
  
• Just two in ten employers are now operating a defined benefit scheme that is open to all employees.
  
  
• When asked what they thought would help resolve the pensions crisis, the majority of respondents highlighted five actions: access for individuals to their likely retirement income (61.8 per cent), tax incentives for employees (60.3 per cent), compulsory employee pension contributions (55.1 per cent), tax incentives for employers (54.7 per cent) and compulsory employer pension contributions (51.3 per cent). Less than half of respondents viewed the measure suggested in the Turner report (automatic enrolment of employees into pension) as a solution.

Performance Management

• Around half of employers (49.9 per cent) do not link their employee benefits to performance management processes. Of the third of respondents reporting a link between their benefits and their performance management process, 16.8% claimed a direct link and 14.9% an indirect link. One in ten respondents (10.2 per cent) report having no performance management process in their business.

Salary Sacrifice

• Around four in ten companies who have employee benefits (39.8 per cent) have implemented salary sacrifice, with a further two in ten (22.4 per cent) intending to in the next year.
  
  
• To date the most widely implemented salary sacrifice option by far was childcare vouchers (79.8 per cent), with roughly equal numbers offering salary sacrifice for pension (39.9 per cent) and home computers (38.0 per cent). Over the next year around a third of respondents are considering implementing salary sacrifice options on home computers (34.4 per cent) and bicycles (32.5 per cent).
  
  
• Four out of ten respondents (40.5 per cent) maintained that they had generated the level of tax and national insurance savings they had expected as a result of implementing salary sacrifice. The lack of HR metrics in place was again highlighted with around a third of respondents (31.9 per cent) neglecting to measure what savings have been made.

Michael Whitfield, managing director of thomsons online benefits, comments: "Employee Rewards Watch has become a benchmark publication for the HR industry documenting all the key trends and developments in the reward arena. The results for 2006 once again demonstrate the speed of change in this fast moving field as companies struggle to attract, retain and motivate the best people.

"Despite the fact that it is only weeks away, our research indicates that many companies have still not decided how they will respond to and communicate their pension or group life assurance arrangements post 'A day'. Clearly this is a worrying sign and indicates the poor job the Government has done in explaining and preparing employers for this wholesale change.

"In contrast employers do seem to be grasping the mettle when it comes to implementing new employee benefits. Flexible benefits and salary sacrifice continue to grow in popularity and it is gratifying to see three quarters of companies with flexible benefits noting their positive impact on recruitment. However, it is imperative that having invested in flex or salary sacrifice, HR professionals derive maximum value from their investment and actually measure the success of the scheme and the tangible savings made."

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