3rd December 2009 www.employeebenefits.co.uk
Long service should still be rewarded, says Nicola Sullivan
With the notion of a job for life now firmly in the past, employers may wonder whether long-service awards are still relevant. In many cases, organisations may feel they can take a rain check on rewarding long service during a recession because, for many employees, opportunities for moving jobs are severely restricted.
But the need to motivate staff is probably as strong as ever. Many employers will not have a lot of spare cash around for recruiting and training new staff, so will want to hang on to their most talented and skilled workers to keep their business going through the rest of the recession and ensure it remains competitive in the upturn.
Sheila Sheldon, director of European operations at Michael C Fina, says: "Holding on to valued staff and encouraging them to progress within an organisation is an important challenge, and by not implementing effective long-service schemes, employers may see an increase in staff turnover, disengagement and recurring recruitment costs."
Jock Jordan, group sales director at the Gift Voucher Shop, adds: "If an employer spends a lot of time upping people's skills, it will want to hold on to them."
Start awards at early stage
As it becomes increasingly rare for many employees to stay with an organisation for 20 years or more, employers might consider changing their long-service award scheme to begin rewarding staff loyalty after as little as one year. This is particularly relevant in sectors such as catering and hospitality, which traditionally have high turnover rates.
For example, after one year with an organisation, an employee might be given a certificate and a letter of thanks. Then, after five years, for instance, the value of any reward may reach £50, going up incrementally every five years, so someone clocking up 15 years could receive a gift worth £150.
But employers should ensure the value of a reward reflects an employee's marketability and appeal to the organisation's competitors, says Steve Baker, director of sales and marketing at Projectlink Motivation.
Key periods for staff leaving
He says that although employers use rigid reward structures to create a level playing field, these sometimes fail to take account of when an individual is most likely to leave. So, if staff are most likely to leave their employer after
two years' service, there is little point in setting the first long-service reward milestone at five years.
The types of gift offered through long-service schemes have also changed a lot over the years. Instead of traditional items, such as a gold watch or company-branded tie or scarf, most organisations now favour rewards such as gift vouchers, retail discount cards and experience days.
Robert Holman, head of reward and pensions at Sodexo, says: "Recognition of service can be made through a range of simple awards that can go from a badge, certificate and presentation after one year, to an annual dinner, a gift and an all-expenses-paid trip to some of London's finest landmarks after 20 years of service and beyond."
Long-serving employees could also be given customised pre-paid electronic cards, onto which cash sums can be loaded. These can be company-branded and personalised for the employee, including their name and length of service. Often, staff are given their own log-in and password, enabling them to access a website that includes details of the awards they are entitled to.
These cards can be particularly useful for employers with an international workforce. Like credit cards, they can be validated by networks such as Visa or Mastercard, so can be used all over the world.
However, cash and non-cash awards differ from a tax perspective. Non-cash awards are exempt from tax provided they are made to mark at least 20 years of service, are worth no more than £50 per year of service and no other award for loyalty has been made in the previous 10 years. Where a non-cash award is worth more than £50 per year of service, but meets the other two criteria, only class 1A national insurance contributions (NICs) are due on the value above the threshold, which must be reported under form P11D. However, cash awards do not attract the same tax breaks.
Fair remuneration package
Of course, there are other factors beside recognition schemes that encourage staff to stay with their employer, such as a remuneration package that is seen to be fair. Kuljit Kaur, head of business development at P&MM, says: "Trust is really important. There needs to be an open-door policy and employees need to feel they can chat things through with managers. The culture of the business is hugely important."
Some employers turn the concept of long service on its head and actively encourage staff to leave to make way for new talent. Ben Wells, senior consultant at Buck Consultants, says organisations waiting for the "baby boomer" generation to retire can sometimes find it hard to drive new talent through the business. "An organisation might have a lot of longer-serving staff who have perhaps got past the situation where they are adding huge amounts of value and are sticking around, accumulating final salary pension benefits."
One option is to incentivise older staff to leave early by offering them a retirement savings pot. Such benefits are entirely separate from pension plans and are typically awarded to staff 10 years before they reach retirement age. The fund, which cannot be touched until the employee has retired, is often offered through an employee benefits trust.
So, when deciding on a long-service programme, employers should aim to retain and motivate their most valuable staff, but must also establish whether the concept fits with their overall business objectives.
• Changing workforce demographics and the decline of a job for life mean many long-service schemes award staff loyalty after a much shorter period of time, particularly in sectors with high turnover.
• Employers often design long-service schemes to offer employees as wide a choice of rewards as possible.
• Where employers provide non-cash awards to employees, these are eligible for tax efficiencies, provided they meet certain criteria.
• Although rigid recognition structures create a level playing field, they can sometimes fail to take account of the period of service when employees are most likely to leave the company.
Case study: DHL Express delivers vouchers
DHL Express recognises loyalty by rewarding staff who stay with the firm for 10, 20 and 30 years.
The firm's long-service scheme, launched in June 2006, awards retail vouchers worth between £100 and £500, depending on the employee's length of service.
Provided by Capital Incentives and Motivation, the scheme offers Capital Bond vouchers that can be redeemed at various stores and restaurants, including Selfridges, Hamleys, Boots, Beefeater and TGI Fridays.
Bruce Sayers, senior director of reward and recognition at DHL Express, says: "From our point of view, we value loyalty. There is a huge population [of employees] that have significant service within our business and we want to recognise that."
However, Sayers admits the organisation's long-service programme is not as cost-efficient as he would like it to be. "We recognise the scheme is not as tax-efficient as it could be and DHL Express will certainly be looking into that," he adds.