Return on benefit spend has been described as one of the most elusive goals for HR departments, but finding ways to even assess the evidence and measure results can present real problems. Seán Flynn investigates
As the UK economy continues to struggle, there is increasing pressure on companies to find savings and, by extension, for individual departments to justify budgets.
A metric to evaluate the efficiency of an investment may be a basic piece of kit in a finance director's tool box, but the utility of such rigid empirical benchmarks in the world of intangibles that govern benefit spend is altogether more problematic.
In an ideal world, organisations could manage their benefits spend to accurately predict which schemes - and what part of benefit schemes - were likely to perform best. But, of course, that is not the world we live in.
Evaluation in terms of financial performance continues to prove difficult, and reliance on the so-called soft factors, such as employee response to benefit schemes, is often seen as an alternative.
Iain Chadwick, senior corporate consultant at Johnson Fleming, describes return on investment (ROI) on benefit spend as one of the ‘Holy Grails' of the industry.
What is ROI?
He says: "What is ROI? It might be increased motivation; it might be better recruitment and retention. You can measure recruitment and retention but it is very hard to really accurately determine what's caused this."
There is evidence that many companies are still failing to capture even the basic information needed to make the most cursory of empirical decisions on benefit spend.
A little over half (54%) of companies surveyed by the Chartered Institute of Personnel and Development (CIPD) in 2009 were calculating the size of their total remuneration spend (pay, benefits and other rewards, as well as national insurance contributions).
And an Institute for Employment Studies (IES) paper from 2009 states that "despite the very obvious cost of pay budgets, incentives and benefits plans, the spread of sophisticated HR information systems and shared service centres, the widespread adoption of balanced scorecards and near-universal pay benchmarking, many organisations seem to have little concrete evidence to justify their reward practices".
Many reasons are cited for this lack of evaluation. When the IES surveyed benefits specialists in 2009, they asked respondents how they were evaluating the effectiveness of their reward offering, why evaluation was important, and how they proposed to implement it.
Only 45% of respondents had conducted a full and systematic evaluation of their reward practices. In cases where no evaluation had been carried out, 48% of those surveyed cited lack of time or resources and 19% said they lacked the data and information to make that kind of analysis.
