Employee benefits and incentives. 16 May 2017

Transcription

1 Employee benefits and incentives 16 May

2 KS research Ten key trends and behaviours common across them were: Culture of the agency and senior team People: recruitment and retention Agency positioning The client-agency relationship with existing clients Approach to new business Commerciality Financial tracking and measurement - processes and systems Change the way you look at things and the things you look at change Grow your business by growing your clients not just your client list Be strategic and mission critical Many are about your people! The right behaviour leads to success 2

3 Employee incentives Mark Slattery Retention and Reward non cash benefits David Painter / Andrew Kavanagh Insured benefits Pensions Ian Graham Bonus schemes Equity incentives 3

4 Employee benefits: A key tool for retaining and motivating your team Mark Slattery, Director Kingston Smith HR Consultancy 4

5 Brexit planning for the unknown Competition for skilled/entry level roles in services sector Emerging evidence of a trend for EU workers to consider return home or to other EU economies Options to UK economy like Ireland and Germany Some if not complete restriction of free movement New minimum salary requirements for non EU migrants 5

6 Brexit and our sector Growing opinion that there will be people/talent shortages in the wider economy Urgent need for pro active identification of talent gaps and a plan to fill them 6

7 Results of the employee benefits survey 101 respondents from media and communications sectors Considerations: cost, employee feedback, increasing competition Criteria: probationary period, type of position 7

8 Types of benefit offered by respondents Top 5 (Most Offered): Childcare Vouchers, 25+ Days Holiday, Season Ticket Loan, Cycle to Work Scheme, Private Medical Insurance Bottom 5 (Least Offered): Paid Sabbaticals, Personal Accident Insurance, Occupational Pension Scheme, Retail Vouchers, Duvet Days 8

9 Other benefits offered by respondents Daily fresh fruit/breakfast Birthdays off Gym membership Early Fridays (Summer) Christmas shopping day Onsite massage/yoga classes Onsite financial adviser Paid time off for volunteering 9

10 Most popular benefits days holiday per year 2. Flexible working / Season ticket loans 3. Private medical insurance 4. Sports / Gym / Social club membership 5. Childcare vouchers 10

11 What respondents say actually motivates 1. Training and development 2. Salary increases 3. Recognition from management 4. Belonging to a successful team 11

12 Why do our people leave? Most likely Career opportunities Higher salary Personal reasons Least likely More flexible working environment Increased range of benefits 12

13 Attracting, retaining & engaging Top attraction drivers: Employer Response Employee Response 1. Career Advancement 1. Base pay 2. Base Pay 2. Job Security 3. Challenging Work 3. Career Advancement 4. Employer s Reputation 4. L&D Opportunities 5. Employer s Mission/Values 5. Challenging Work 6. L&D Opportunities 6. Employer s Reputation 7. Job Security 7. Paid time off 13

14 Attracting, retaining & engaging Top retention drivers: Employer Responses Employee Responses 1. Base Pay 1. Base Pay 2. Career Advancement 2. Career Advancement 3. Relationship with manager 3. Confidence in senior leaders 4. Limit work-related stress 4. Job Security 5. L&D Opportunities 5. Length of Commute 6. Short-term incentives 6. Relationship with manager 7. Challenging Work 7. Limit work-related stress 14

15 Attracting, retaining & engaging Top engagement drivers: Effective leadership inspiring, envisioning, adapting, transforming Effective managers removing obstacles, respecting, communicating goals Employee experience 15

16 Attracting, retaining & engaging In organisations where employees perceive their managers (but not their leaders) to be effective, 23% of workers are highly engaged Where leaders (but not managers) are perceived as effective, 35% of employees are highly engaged When neither managers nor leaders are perceived as effective, only 8% of employees are highly engaged Where both leaders and managers are perceived by employees as effective, 72% of employees are highly engaged 16

17 Setting a strategy Ask employees what they value Benchmark against competitors do you want to match or exceed what they offer? Keep costs under consideration explore tax efficient and match increased offering to agency growth Review current rewards offered and consider if relevant in supporting business objectives/values Balance benefits and culture 17

18 Employee benefits and incentives David Painter & Andrew Kavanagh Kingston Smith Financial Advisers 18

19 KSFA Introduction to KSFA from David Painter Overview of KSFA Corporate Advisory Services Employer Pension Contribution Levels Benefits of Pension Salary Sacrifice Group Life/Death in Service Group Private Medical Insurance Group Critical Illness Cover Other Insured Employee Benefits 19

20 Summary corporate services 20 Company pensions schemes Scheme design/implementation Salary Sacrifice/Pension Exchange Employee engagement services 1to1, presentations, bespoke comms Group life assurance Registered and Excepted (Relevant Life) Healthcare Other employee protection Group Income Protection Critical Illness Employee Assistance Programmes

21 Trend in Employer Pension Contributions Employee Benefit Survey - Pre Auto Enrolment Pension Contributions highlight Wide range of employer contributions between 1% - 10%+ Higher for board members and senior staff Average 2% - 2.5% of salary Below UK SME average of 3% - 5% Most employees (80%) asked to contribute 1% - 3% 21

22 Employer Contributions Cont. AE minimums set to increase the current averages for both the employer and employee April 2018 April 2019 Qualifying Earnings ( 5,867-45, /18) Employer 2% Total 5% Employer 3% Total 8% Is 8% sufficient to provide comfortable retirement? Employers ideally placed to help employees either Directly - increased contributions or providing incentives Indirectly - financial education within the workplace 22

23 Benefits of pension salary sacrifice Autumn Statement 2017 restricted salary sacrifice options for employee benefits Good news - Pension contributions can still be paid via salary sacrifice agreements Employee Benefits Survey indicates popular with 50% of employers surveyed offering this option 23

24 Benefits of pension salary sacrifice Salary Sacrifice - employee gives up part of salary for a non cash benefit i.e. Sacrifice Salary for extra employer contribution Sacrificed salary not subject to Income Tax or National Insurance (NIC) Saving in Employee NIC either 2% or 11% Saving in Employer NIC 13.8% 24

25 Benefits of pension salary sacrifice cont. Employer saving in NIC could be used to offset the cost of implementation Alternatively reinvested back into pension Should be noted: Change in contractual terms needs agreement Additional admin/advisory costs to implement Not right for all Complex so employee engagement essential 25

26 Life Assurance/Death in Service Provides tax-free lump sum Little direct return for employer - considerable staff goodwill and peace of mind Low cost less than 1% of payroll but less than 50% surveyed provide benefit to all staff Cover for staff typically ranges between 2-4 x salary Executives 4 10x Free cover levels reduce need for medical underwriting Employees - not taxed as a benefit in kind Business expense for employers 26

27 Life Assurance/Death in Service A simple benefit but care is needed Registered Scheme benefits count towards individual Lifetime Allowance (LTA) The LTA for the 2017/18 tax year is 1m Benefits paid over LTA can result in a tax charge of 55% Excepted Group Life similar to Registered scheme Lump sum benefit that does not count towards LTA Excepted schemes may not be suitable for all but with advice solutions can be provided 27

28 Group private medical insurance GPMI is a popular benefit. 73% of employers surveyed offer this benefit Offers access to private medical treatment Helps employers to reduce sickness absence Cover can include consultations, medical tests, in-patient and out-patient procedures Costs can vary greatly to 1,500 per employee 28

29 Group private medical insurance Cost control methods include adding excesses, removing benefits, restricting hospital networks Introduce a Cash Plan to cover excess cost Undertake regular market reviews Employer paid PMI is a benefit in kind Employees pay tax on premiums as benefit in kind Business expense for employers 29

30 Group Critical Illness Cover Tax-free lump sum benefit provided by 3rd of those surveyed Core critical illnesses include cancer, heart attacks and strokes Multiple of salary 2, 3, 4x common Cover below 250,000 no medical underwriting but pre-existing conditions often excluded Employees pay tax on premiums as benefit in kind Business expense for employers 30

31 Group Critical Illness Cover Costs more than a Group Life Scheme 20 lives, 50,000 benefit cost 3k - 4,000 p.a. Cost will depend on age profile and benefit basis Employers need to take care on how to communicate CIC Important to understand and communicate what is covered including Pre Existing Condition exclusions Some insurers may state symptoms must be permanent or the condition is at an advance stage Also, not all types of cancer may be included 31

32 Other insured employee benefit arrangements Group Income Protection and Sick Pay Cover Provide replacement income if an employee can t work due to illness or injury GIP costs upwards of 1% - 2% of salary roll Sick Pay Insurance often less than half GIP cost Employee Assistance Programmes can be offered free with GIP or established as standalone plans EAP provides support and counselling to employees with personal or work-related issues 32

33 Important information The information contained within this presentation is based on our understanding of present law and HM Revenue and Customs practice, which may be subject to change. The value of any tax benefits depends on individual circumstances. This presentation is for information only and does not constitute personal financial advice. A recommendation to invest should not be made on the basis of this presentation alone. The value of an investment can fall as well as rise. If investments are encashed in the early years an investor may get back less than the amount originally invested. In some cases you could lose al of your investment. Kingston Smith Financial Advisers Ltd is an appointed representative of Argentis Financial Management which is authorised and regulated by the Financial Conduct Authority. The Financial Conduct Authority does not regulate tax and trust advice. 33

34 Employee benefits and incentives Ian Graham Kingston Smith 34

35 Segmentation of employees by broad category Talent Top talent but more committed to working with exciting clients and projects than to the company ( nomads ) Key players vital to the future, who would want to contribute long-term as owners and managers ( super stars ) Variable talent of no particular value to the company ( transfer list ) Hardworking and loyal, forming the backbone of the company ( core team ) Commitment 35

36 Potential strategies One framework for everyone Nomads Super stars Structured bonus / equity incentives Transfer list Core Team Simple discretionary bonus where appropriate 36

37 Bonus Schemes what do Companies DO? Survey of 42 media companies, all with turnover in excess of 2m 95% of companies had a bonus scheme of some sort Massive variance in the type and size of schemes as well as eligibility requirements >75% have a structured scheme. 37

38 Who gets a bonus? 50 / 50 split Generally tiered Sales staff separate Directors only is very rare Core team vs Nomads / Superstars Communication is critical 38

39 Simple/ad-hoc bonuses Traditional Christmas bonus Relatively small ( 500-1,000 each) Thanks for hard work Repeat payment creates expectation Employee of the month / similar gifts Other non-cash benefits used Communication is critical 39

40 How BIG is the bonus pool? Only 30% have a defined calculation Usually a fraction of salary or a % of profit Mostly at directors discretion Communication is critical 40

41 How ARE individual bonuses decided? Wide range Often a points system (example below) Tiered payments by grade and/or overall performance Some firms split the pot evenly Sales staff generally separate Handcuffs / bonus growth 41

42 Performance related bonus plan Individuals participate in an annual profit-sharing pool Individuals are allocated points according to various performance criteria Performance criteria will be assessed as part of the annual review process Individuals get bonus based on their proportion of overall points scored Name Team Profit Contribution New Business Client satisfaction Over servicing TOTAL POINTS (Max=40) Ed Nigel Dave Nick

43 Incentives for nomads Talent Top talent but more committed to working with exciting clients and projects than to the company ( nomads ) Weaknesses PROFIT-SHARING SCHEME (with handcuffs) Opportunities Time 43

44 Incentives for super stars Talent POTENTIAL SHAREHOLDERS Key players vital to future and who would want to contribute long term as owners and managers ( superstars ) Opportunities Time 44

45 Equity incentives Key individuals who: make a top class contribution today vital to long term development are seriously interested in making a long-term commitment Continuing contribution adds value to the existing shareholders Restrict to a few individuals Payment made Mistake is often to include Nomads 45

46 Share incentives Phantom share schemes Employee offered the chance to buy shares Unapproved Share Options Enterprise Management Incentive (EMI) Nil / part paid shares Executive Share Options Employee Share Ownership Plan (ESOPS) Share Incentive Plan (SIP) (formerly known as All Employee Share Scheme) Founder shares / growth shares Deferred or capital shares Limited Liability Partnership 46 Employee benefit trusts

47 Shares or OPTIONS? Advantages of share options No immediate cash outlay for option holder Can attach conditions to options No dividend entitlement No need to involve option holder in shareholder decisions Options lapse if employment ends (simplicity) No commitment from employee if share price falls Advantages of share ownership Individual has usually made a financial commitment to company Likely to be valued more than options by individual Feeling of involvement / status in the company If dividend bearing then shares have an immediate tangible value No amendments to shareholders agreement 47

48 Employee buys shares Immediate equity participation Different class of shares provides flexibility Quicker and cheaper than options Test of commitment What price? Uncertain tax treatment Tax implications for recipient if buy at undervalue Consider how to be funded Reduced / no dilution of existing shareholder value 48

49 Share options Shares in the future at today s value No funds required on grant of the option Usually have a waiting period Number exercisable and/or timing of exercise can depend on performance Options usually lapse if employment ends Provides an incentive to stay until an event Often exercisable on sale only Earn-out participation on same basis as founders If unapproved then usually income tax or PAYE/NIC payable on some or all of the gain 49 Enterprise Management Incentive (EMI) an approved scheme is by far most popular

50 Enterprise Management Incentive (EMI) Very tax efficient Entrepreneurs relief ( ER ) should be available on gain made on sale No 5% holding requirement for ER Option period counts towards the 1 year holding requirement for ER Get it right first time as very limited flexibility to vary after grant Many deals being done on a phased basis so ensure exercisable in that scenario Directors discretion 50

51 Founder share schemes Freeze current company value for existing shareholders in Founder shares New shareholders only benefit from future growth Reduced capital rights depresses the value Possibly as low as par value Makes purchase of shares for cash a more realistic prospect Can be layered with EMI 51

52 Company Value Example of Founder share reserving the right to first 2m of proceeds on sale 4,500,000 4,000,000 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000, , Founder value Successor value 52

53 Limited liability partnerships Extremely flexible Profit / equity shares can vary easily No significant tax advantages Relevant in particular circumstances No longer a go to option 53

54 Thank you Mark Slattery Kingston Smith HR Consultancy Andrew Kavanagh Kingston Smith Financial Advisers Ian Graham Kingston Smith 54