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Lucy Nicholson reveals...
Meet the entrepreneur on a mission to cool down stresses execs over a hot stove at her base in Cumbria. EN reaches for the blue plasters as Lucy Nicholson reveals...
| Show us the money |
| Thursday, 30 November 2006 | |
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William Hall finds out the best ways of keeping the troops happy. John Timpson, chairman of the Timpson family’s shoe repair and key cutting retail chain, is a generous sort. His staff have free use of four holiday homes, are given a day off on their birthday, and can draw on a staff hardship fund if times get tough.  But Timpson, who keeps in close touch with his staff by personally editing the company’s weekly newsletter, is well aware that generous benefit packages have their limitations when it comes to motivating and retaining staff. “Never forget that people come to work for money”, says Timpson, whose firm is on target to generate operating profits of £12 million this year – nearly double the figure of two years ago. “The most important thing is to pick the right person and get the salary right”, says Timpson. Timpson’s biggest staff incentive is its weekly store-based bonus scheme, where shop staff share 15 per cent of the weekly takings above a target threshold. “Weekly bonuses are what get the adrenaline going”, says Timpson. Other staff benefits pale by comparison. It used to be said that the rate of pay was the most important element in attracting staff, and the provision of generous benefits was the best way of keeping them and reducing staff turnover. The latter costs an average £4,625 per leaver, according to the latest Chartered Institute of Personnel and Development (CIPD) survey. But the changing dynamics of the employment market have meant that a standard pay and benefits package that attracts and retains one individual may be completely inappropriate for another. Younger staff are more attracted by lifestyle benefits such as extra holidays, Christmas parties and shopping discounts, while older staff put more emphasis on benefits such as healthcare, car and pensions. The same is equally true for entrepreneurs. The growing difficulty in recruiting good staff means that a “one size fits all” benefits package is no longer enough to boost recruitment and retain staff. The widespread acceptance of Enterprise Management Incentive (EMI) schemes, where private companies can tie in key employees with generous options, has shown that they can be a very powerful incentive for the top echelon of managers in small and mediumsized enterprises (SMEs). For example, a senior member of staff granted £50,000 of options under an EMI scheme could find they have doubled in value by the time he/she comes to exercise them. There is no income tax payable and any capital gains tax due on the gain could be as low as 10 per cent, explains John O’Mahony, a tax director with accountancy firm Tenon. But EMI schemes only work for a tiny section of a company’s staff and are often linked to special events, such as the exit of a management buy-out. It is a far harder task to work out which benefits work for a company’s workforce as a whole. This is the reason for the growing interest in flexible benefits schemes, where staff can choose from a menu of benefit options ranging from a company car and life insurance, to extra holiday and childcare vouchers. It is often tied in with a scheme where staff “sacrifice” part of their salary so they can choose their benefits up to a certain value. For example, a person on a £30,000 a year salary could agree to “sacrifice” £5,000 in return for accepting the same value in benefits. There are advantages in terms of lowering an employee’s tax cost and also reducing the national insurance contributions of both employer and employee. According to the annual Thomson Online Benefits’ 2006 Rewards Watch survey, the number of companies offering a flexible benefits scheme has nearly doubled to 31.6 per cent of the survey sample over the last two years. “Most employers, I estimate more than two thirds, who have put salary sacrifice/flexible benefits packages in place believe that they have had a material impact on recruitment and retention”, says John Harding, a director with PricewaterhouseCoopers’ (PwC) human resources team. However, flexible benefit packages are not ideal for every company. “There is a critical mass of 300-400 employees at which flexible benefits scheme tend to work. These types of schemes are more popular in sectors that have relatively high paid staff, such as IT, media, and legal firms,” says Harding. Mike O’Halloran, managing director of OP Building Maintenance Services, a Warrington-based contractor, runs a company which does not suit flexible benefits packages. His company has 100 staff and revenues of £5 million. Nevertheless, he has had no difficulty in attracting and retaining staff. “The money has got to be right, and we offer a profit-related bonus for a handful of senior staff”, says O’Halloran. Smaller companies do have an advantage in terms of culture, though. Karen Horne, a partner in Ernst & Young’s northern Human Capital (which sounds like a term invented by the US military) department says that smaller companies can foster a close-knit culture and team spirit that can be harder to recreate in larger organisations. O’Halloran agrees. He rewards staff with one-off events, such as nights out at Haydock Park, plus free drinks. “People who work for bigger companies tend to move around a lot. By contrast, we encourage an environment of togetherness. If you are good at your job, you’ll love it here”. O’Halloran’s experience highlights a question facing many smaller SMEs. Can spending extra money on staff benefits/incentives outweigh the simpler option of just paying a higher basic wage to attract and retain staff? Offering a “clean” pay package – a salary plus simple bonus – has its attractions, says CIPD advisor Charles Cotton. It is easily communicated and understood, easy to administer and is also easy to benchmark in the market. In addition, the growing interest of the Inland Revenue has dented the advantages of many benefit schemes. So it might be better for employees to use the cash earned from slightly higher wages to purchase the benefits they value the highest. It is an argument that is supported by research from the Rewards Watch survey. It found that nearly half of the companies surveyed did not know the overall cost of the various benefits they offered. According to the CIPD’s latest research, the average cost of providing benefits is around 15 per cent of a company’s paybill, but that percentage ranges from 10 per cent to 24 per cent. Nevertheless, Cotton also argues that the “clean” pay approach has its disadvantages. Employees could end up paying more for the benefit they purchase on their own behalf than if these had been sourced through the company. And despite the growing interest of the Inland Revenue, some company benefits still have tax advantages. Company cars are still very popular. “Low CO2 emission cars are very tax efficient”, says PwC’s Harding, especially when combined with a salary sacrifice scheme because the tax the individual pays on the car is very low and certainly lower than the tax they would have paid on the salary that’s sacrificed. Harding denies that the Inland Revenue’s growing interest in taxing benefits has curbed their attractions. The most tax advantageous benefit, and one of the more popular ones, is annual leave. “While employers get concerned about staff taking lots of annual leave, properly structured this shouldn’t be a problem,” he says. Another very popular incentive is pension contributions tied in with a salary sacrifice scheme. It means that both employers and employee can save on national insurance contributions. If an employee, for example, is on £20,000 a year and agrees to 5 per cent of the salary being paid into a pension scheme, then the amount of income subject to tax and national insurance falls to £19,000 a year. In that instance, both the employee and employer save on national insurance.       |
