Right now, in a genuine effort to help their people, some employers – in MMB’s experience – are looking at reducing employee benefits with a view to shifting any savings on benefits into uplifts in wages. In this article, we caution against making any knee-jerk reactions that might cause negative ripples across the workforce.
Evidence from the 2008 recession, with regards to the impact of cutting benefits, suggests this might only lead to a negative impact on employee satisfaction and, in turn, performance and retention. Against this backdrop, it’s worth investigating all cost saving options – because there are others – before going straight for the chop.
The Bank of England warned that the UK is now headed for its longest recession since records began a century ago. It expects GDP (gross domestic product) to continue falling through 2023 and into the first half of 2024. The projected two-year downturn is set to be “very challenging” the Bank said, costing around 500,000 jobs and piling on pressure on already pinched businesses and households.
What does history tell us?
Lessons from the past give us the ability to avoid mistakes and create better paths for the future. So, what does history tell us about the impact on people and business of making cuts to benefits.
Academic evidence during the last recession, suggests that employers should stick to “long-term employee benefit strategies, avoid frequent adjustments and provide multiple types of employee benefits, to increase affective organisational commitment”.1
Meanwhile, separate research around the same time suggests that if employers feel they must make changes, they should be careful about which benefits they cut, because some are more popular than others; life and pensions representing the most popular in the UK for example.2
Savings usually need to be made somewhere in order to survive a storm. And, unfortunately, the likelihood of downsizing and job loss is increased during an economic recession, bringing the feeling for many that “we’re just glad we’ve got a job”.
A lot of research has focused on the health-related effects of unemployment and job insecurity. But the effect on the wellbeing of those employees who manage to remain in work – and the consequent impact on business – has received less attention.3
That said, research has investigated the impact (in terms of employee strain and satisfaction specifically) of recession-related organisational changes on those who remain in work during a period of downsizing and job loss. These organisational changes included: reduced employee benefits; increased workload; reorganisation; transfers; frozen/cut wages; reduced hours; restricted overtime; mandatory leave; and restricted training. Researchers found that even those individuals lucky enough to still have a job during a recession can experience strain and impaired satisfaction, with knock-on effects on performance and retention.3
Analysis, carried out by the researchers, indicated that for both strain and impaired satisfaction, a reduction in employee benefits represented a significant contributory factor (while increased workload was found to be the top factor in strain, and restricted overtime was the top factor for impaired satisfaction). Interestingly, they also found that the organisational changes lowest in significance in terms of impact on employee strain and satisfaction were: frozen/cut wages; and a reduction in contracted hours.3
This arguably begs the question, why cut benefits to increase wages? Especially when you consider the potential consequences.
Take group life, for example, the actual £1 for £1 difference if you were to reduce coverage from, say, 6x life to 4x life is not all that significant, especially when weighed up against the potential for poor employee decisions and future challenges for beneficiaries.
And now greater impetus to consider wellbeing
There’s clearly an employer Duty of Care consideration to be made when thinking about changes to benefits, as there was back in 2008. In other words, it’s an employer’s duty to protect the health, safety and welfare of their employees.
But now there’s arguably even greater – and broader – impetus to focus on this aspect, taking wellbeing out of the Health & Safety agenda and putting it in the boardroom; in terms of it being a core foundation of the ‘S’ within a business ESG (Environment, Social, Governance) strategy.4
The S in ESG is now becoming of critical importance to investors and other stakeholders.5
It’s becoming widely recognised that employee mental health and wellbeing should form the measurable foundation of the S in ESG. The MindForward Alliance believes that this needs to underpin the success of business strategy.4
All employee benefits arguably need to be considered through a Duty of Care / ESG lens before making any changes. And this needs to be done in terms of all aspects of wellbeing together, instead of in isolated pillars – physical, psychological, financial and social wellbeing – as well as diversity, equity and inclusion (DEI) as part of that. It’s also important too, to consider the views of employees as well as employers because the two might not match up.
For example, Legal & General Group Protection’s latest Wellbeing at Work Barometer revealed a 20-percentage point difference in opinion between employers and employees when both groups were asked how they rated their organisation’s performance on ‘offering benefits and services that support diversity, equity and inclusion goals’: 77% of employers said (net) ‘Good’ in comparison to 57% of employees.6
It’s important to consider that Duty of Care and ESG commitments might be breached purely through a lack of communication, never mind making cuts; for example, where life cover and the Lifetime Allowance (LTA) is concerned. The LTA is the total amount you can build up in all your pension savings without incurring a tax charge. There are notable instances where employees have breached their LTA and their employer hasn’t communicated the implications of this clearly. Then there’s a claim and the employer must have some tough conversations with the beneficiaries; implications and conversations that could have been avoided.
Finally, it’s worth noting that all companies with more than 500 employees will be expected to report on ESG in its entirety when the Corporate Sustainability Reporting Directive comes into play in 2024; another reason why short term gain (benefit cuts) might only lead to long term pain.
And if the Covid-19 pandemic taught us anything, it’s that a focus on the wellbeing of people is critical to helping business weather a storm.
Top tips for avoiding benefit cuts
- Look at the benefits you already have through ESG and Duty of Care lenses. Then consider potential ways to make cost savings. For example, Mercer Marsh Benefits recently helped an employer increase employee participation in their salary sacrifice scheme, which achieved around £100K of savings. The client used these savings to reduce the excess on the healthcare scheme. These moves could also be considered supportive of DEI goals.
- Improve benefits navigation and accessibility. The bigger the company, the larger the number of benefits. This can make things confusing for employees, in terms of knowing which benefits and services are relevant to a particular need and also how to access them. Get help – for both the employer and employee – to navigate everything and to understand how benefits and services can work hand in hand, from Occupational Health and Vocational Rehabilitation, to Virtual GPs, Employee Assistance Programmes, and targeted programmes such as Long Covid support; whether standalone benefits and services or included with existing Risk and Health benefits.
- Ensure better value from what you’ve got. Work proactively with consultants and insurers to help: improve wellbeing communication; identify problems early; and even prevent issues arising in the first place. For example, Group Income Protection insurers don’t just help with salary replacement, they can also help with stress risk assessments, employee communication that better connects, direct helplines to vocational clinical specialists for HR and Line Managers, absence prevention and multidisciplinary support to help people get back to life- and work- ability when they are off sick and prior to a claim even kicking in.
- Education, Education, Education. Help employees regain control over their day-to-day finances in the midst of the cost-of-living crisis, to help ensure they don’t make any knee-jerk reactions either. Mercer Marsh Benefits recently updated its Workplace Education Proposition to do just that. The proposition ranges from bespoke group or one-to-one education sessions for everything from: budgeting, debt and money management; and understanding pension benefit options; to preparing for retirement. Also, employer support services, such as redundancy counselling, and support with DEI considerations and high earners.
1Galanaki, E. (2020). Effects of employee benefits on affective and continuance commitment during times of crisis. International journal of manpower. Vol. 41 (2), pp. 220-238
2Rasheed, B., A. (2013) The employee benefits industry and benefit practices following the 2008 recession: an Irish context. Dublin Business School.
3Jones, M., D., Sliter, M., Sinclair, R., R. (2015). Overload, and cutbacks, and freezes, Oh My! The relative effects of the recession-related stressors on employee strain and job satisfaction. Stress & Health. Vol. 32(5), pp.447-448
4 MindForward Alliance / City Mental Health Alliance (2022) Putting the wellbeing of employees into the ‘S’ of your ESG strategy.
5 Tahmincioglu, E. (2019). To figure out the “S” in ESG, look within: Directors need to assess how their core business connects to society. Directors & Boards. Vol. 43(2), pp.24-25
6 Legal & General Wellbeing at Work Barometer 2022. Legal & General commissioned Opinium to carry out this research, involving 1,005 senior managers or above in business’ with over 10 employees. Also 1,040 middle managers or below in business’ with over 10 employees. Field dates, 1 June 2022 – 11 June 2022.