INDIVIDUAL REMUNERATION PACKAGES

Over the last 15 years or so, a lot has been written about the concept of 'cafeteria' or 'flexible' remuneration packages. Most of the work, and the practice, originated in the United States and other countries such as Australia where the tax regime is helpful to this approach. The idea essentially is that employees should be offered the chance to select how they wish to be paid in terms of cash and benefits and so have their remuneration tailored to their personal ambitions and lifestyle.

For executives in particular, the story does not end there. Many remuneration packages are individually negotiated and tailored at the time of recruitment to a board level appointment. As companies find that they cannot always promote to board level from within, they face increasingly tough negotiations on remuneration packages from those they seek to recruit from outside. In some cases the demand may not be for a package which is only nationally competitive, but for a globally competitive one, especially at the top of major multinationals. There are a number of reasons for this:

1.  Directors, perhaps comfortably in post somewhere else and approached by executive search consultants, often feel they are in a good position to negotiate major improvements for themselves as an 'incentive' to move (they might be being enticed into a volatile and precarious environment where job security cannot be guaranteed, or one which is much more publicly exposed).

2.  People are more aware than ever of market rates for top executives and see a move as an opportunity to 'catch up' to a more realistic level. People at board level usually expect a substantial improvement in earnings to make it worth their while to move. This can make recruiting top calibre directors from outside very expensive, unless they are working in a sector or organization where they are currently underpriced.

3.  Directors may employ their own specialist remuneration and sometimes pension advisers to make sure they get a good deal.

4.  Being an effective director generally goes with having an ambitious and assertive personality - it is unreal to expect such people not to be shrewd negotiators and to look after their own interests, especially if they perceive that they are being brought in to wake up a 'sleepy' organization. In such circumstances they will often see a shake-up on the pay front (which usually means moving to the more competitive end of market practice), as part of a necessary process of change.

HR directors, company secretaries and indeed chief executives increasingly therefore often need to be flexible when faced with demands from an executive they may have spent a long time trying to entice and will need to have:

§  a willingness to tailor the remuneration package to fit individual requirements;

§  a clear idea of which items of pay they are prepared to negotiate on;

§  the ability to cost out alternatives quickly;

§  a maximum total earnings cost they are prepared to go to get the executive they are after;

§  a prepared case to defend a package which other directors or even shareholders may initially perceive as an anomaly.

MODIFYING THE BENEFITS PACKAGE

The steps required to modify or redesign the benefits package are as follows:

1.     Analyse trends in the market place using survey and other data for the provision of benefits, and assess what is regarded as the best practice in each area.

2.     Analyse trends in the recruitment and retention of staff to assess, in the light of the market survey, any areas where it is believed that improvements in the benefits package and/or the way it is applied might improve the ability of the organization to attract and retain staff.

3.     Assess in discussions with management what it wants the employee benefits, strategies and policies of the organization to achieve and the extent to which the present arrangements satisfy these objectives.

4.     Consult employees on their needs (consider using an attitude survey for this purpose).

5.     Obtain the views of relevant trade unions or staff associations.

6.     Assess the tax implications of current and projected government policies.

7.     In the light of these processes of analysis and consultation:

a.     conduct an overall review of employee benefits strategies under the headings listed above;

b.    review each of the main policy areas as set out in the key dimensions part of this section;

c.     decide, on the basis of these reviews, any changes required to strategies and policies and the steps required to get these changes formulated, agreed and introduced.

8.     In the light of revised strategies and policies and by reference to the analytical and consultative steps taken earlier (stages 1 to 5):

a.     subject each benefit to careful scrutiny to determine any changes required to content or application;

b.    examine the costs of each benefit and assess whether it is providing value for money (this involves comparing the cost of providing and administering the benefit with an assessment of the extent to which it is meeting the needs of the company and its employees - clearly low cost to employer/high value to employee items will be the most attractive);

c.     decide if any additional items should be included in the package and assess their likely contributions to meeting organizational and individual needs and their overall cost effectiveness;

d.    decide if any items should be eliminated on cost-effectiveness grounds - but beware of taking away traditional benefits if the timing is poor and the change is the wrong symbolic act;

e.     plan the steps required to make the changes, including the design of the benefit, consultation with staff and methods of communicating information on the changes to all those affected including tax implications).

9.     Introduce the changes, ensuring that the supporting administrative systems are properly installed and that the communication programme takes place as planned.