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Employees Benefits: A Historical Perspective

Monday, June 25, 2012

Traditionally, employee benefits have been regarded mainly as a retention tool or, originally, as a moral obligation for employers.

In the earliest days of benefit provision in the UK, some employers offered benefits to employees because they believed that their organisation had a moral duty to look after its employees, a policy commonly referred to as paternalism. Such an approach developed from the mid-1800s and was popularised by (then) Quaker-owned companies including Fry and Cadbury.

At the turn of the 20th century the state began to introduce benefits for the general population and, after the Second World War, the welfare state was established to provide a comprehensive array of benefits including unemployment insurance, sick pay and state pensions, in addition to the foundation of the National Health Service.

While many state benefits have continued to be universally provided as a safety net, organisations have tended to build on this provision by offering their own more generous or complementary pension or health arrangements to employees.

During the 1970s, the implementation of incomes policy controlling the growth of cash pay, combined with the high marginal taxation levels prevailing at that time, drove many employers to develop more generous benefits provisions, especially for senior staff, to circumvent the difficulties in rewarding employees via basic cash pay.

The taxation regime surrounding employee benefits has tightened since around the 1980s, limiting the attractions of certain benefits over cash. However, it can prove difficult for employers to remove or downgrade certain benefits once they have become an established part of employee packages.

In recent years, employers have started to adopt a more individualistic approach to how employees are rewarded, transferring more of the risk (and, potentially, reward) and cost of the provision to their workers. With pay, there has been a move away from collective bargaining, across-the-board pay rises and service-related increments, to performance-related arrangements, while benefit provision has seen a widespread shift from final salary pension schemes to money purchase plans (particularly in the private sector) and some movement from fixed benefits to flexible and voluntary arrangements.

Increasingly, benefits are no longer regarded solely as a retention tool. Research indicates that there are many factors in an organisation’s employment proposition and that what makes them attractive might depend on the individual employee’s circumstances (such as age or caring responsibilities). This has led to the concept of ‘total reward,’ i.e. that organisations should adopt a bundle of mutually supporting financial and non-financial rewards (such as flexi-time or home working) that are aligned to the needs of the organisation and its employees. Such an approach has led many employers to regard employee benefits as a strategic tool to assist with employee recruitment and retention and/or align employee behaviours with business objectives.

One major current issue in benefit provision is the concern among some employers as to whether their employees are in a position to adjust to this new benefit landscape where they shoulder more of the risk (and reward). There is a belief that if employers give employees more freedom and choice they also have a moral duty to help educate employees about the possible consequences of their benefit choices and to help them make well-informed decisions around what level of savings or health coverage they will need throughout their employment life cycle.

Source: The Chartered Institute of Personnel and Development (www.cipd.co.uk )

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