Colleagues with benefits: the pros and cons of employee segmentation

By Charles Cotton, Senior Reward Adviser

For employers, what are the advantages of segmenting the benefits that they offer to employees or segmenting the workforce when it comes to communicating the benefit package? Can such an approach help an organisation better target resources, or might it end up creating dissent and disunity?

The 2018 reward management survey: focus on employee benefits, in partnership with LCP, finds many employers do segment their benefits offering. While certain benefits tend to be on offer to all employees (such as a Christmas party, paid leave for bereavement or occupational sick pay), others are segmented according to things like an employee’s grade (certain perks may be linked to status, such as a company car), location (those in head office may have a wider range of benefits, such as an onsite canteen, than those who work in a local office) or occupation (if you are in an in-demand job, you may be offered relocation assistance to move employer or location).

One of the benefits of segmenting benefits is that you can target scarce financial rewards at key individuals in terms of their recruitment or retention. For example, a relocation package can help attract someone with the right skills and experience for the business, while a private medical package and generous pension scheme might encourage them to stay.

Another advantage of linking benefit provision to grade or seniority, is that this can further incentivise individuals to acquire the skills and experiences that the firm is looking for in its senior roles. Though some employees, for instance sales representatives, may still get a company car not because of their status, but because they need it to do their job.

In addition, some senior employees may like receiving benefits linked to status because it sends a message to their colleagues, friends and family that they do a job that is valued by their employer. While we may be reluctant to talk with friends and family about our pay, we may be happier to convey our success by parking a quality company car on their drive.

The drawback with segmentation is that some employees who are unable to access these benefits because of their location, occupation or grade may feel resentful, particularly if they know or think that those who do qualify for them already get paid more than them. Even if the benefit isn’t financial, some employees who are not able to access that perk may feel it’s unfair that some can. For instance, one kind of non-financial benefit is the ability to work from home. However, certain employees may not be able to enjoy this form of flexible working if they are employed in a retail store, for example, while their colleagues based in the head-office can.

Allocating benefits according to a certain set of criteria may result in some employees perceiving that there is one set of rules for them and another for certain colleagues, leading to disharmony and poor productivity. To overcome this possibility the people profession should help their employers focus on the potential gains that each benefit brings and then explore how these can be provided to all employees.

If they can’t, then HR teams need to help the organisation evaluate the potential positive and negative consequences of segmenting particular benefits, and be prepared to ask difficult questions as to whether some benefits should be offered at all. They should also ask employees for their view. For instance, those who receive certain benefits that are associated with their status or seniority might feel embarrassed about getting them.

Even if this isn’t the case, the organisation should think about what it can do to ensure that the workplace is as inclusive as possible by breaking down any feelings of ‘them and us’. For instance, if providing private medical insurance to all staff is not affordable, what cost effective health and well-being benefits can the organisation provide to the rest of the workforce?

Surprisingly, while our survey finds that when it comes to benefit provision there’s widespread evidence of employers segmenting their workforce, it also finds that very few (just 11%) segment their communications accordingly.

While there can be advantages from segmenting the workforce, it can be difficult to create personalised messages based on a small number of characteristics alone, and employers run the risk of pigeon-holing employees incorrectly based on some flawed assumptions about a person’s situation based on their age, gender or education.

There’s also the fact that organisations may not collect the data or, if they do, it may not be in the format needed to create and target their communications.

A more pragmatic approach may be for people professionals to craft and provide similar messages to all employees, but encourage them to think through what the implications for them are given that they should be best placed to know about their individual circumstances. By encouraging employees to personalise and own the messages that they are receiving then this should encourage awareness of, and engagement with, the benefits package.

Likewise, frontline managers also play a crucial role in making the benefits narrative relevant to their team members, though to be effective in this role, they will need support and development from HR.

In summary, employee segmentation can present opportunities to target more effectively both benefits and messages. However, there are challenges with this approach in that it can cause resentment among those not receiving certain benefits and confusion if the segmented communication is based on incorrect data or false assumptions. To get over these problems, HR professionals should help their employers offer a package of benefits that not only appeals to a wide range of employees but also offers them flexibility so that people can select those benefits that best meet their needs.

To help workers select their benefits, HR needs to have an education and communication programme that helps people understand the choices on offer and the various possible consequences arising from their benefit decisions. By adopting a more personalised approach to benefit provision and communication, staff should be better able to value and appreciate the benefit package offering and employers should see this reflected in their business and people metrics.

Thank you for your comments. There may be a short delay in this going live on the blog page as we moderate the comments added to our blogs.