"Why it's worth making employee discounts relevant again"

White Paper by Helen Craik, Director of HR Policy & Strategy. February 2007

You can also download a PDF version of this White Paper.

Are employee discounts a valuable employee benefit?

Employee discounts fall broadly into two categories – those on an employer’s own products and services and those third party discounts an employer offers to its employees as part of the overall benefits package. Discounts on an employer’s own product, while probably less available and relatively more expensive than used to be the case, will continue to be expected, particularly in some industries, and will be highly valued. Airline staff who have access to reduced or free tickets, for example, see this as a central part of their employment proposition, even though sophisticated load control on aircraft has tightened the actual availability of seats to the point where low-cost market fares look attractive by comparison. And massive over-capacity in the car industry has taken the relative shine off employee discounts for new vehicles but those who work in the car industry would not expect to pay full price for their firm’s vehicles. In many cases, employees see a hugely discounted rate for their own employer’s products as part of the psychological contract.

So what of third party discounts for employees? Many large employers traditionally had someone in-house, with a much smaller number using an external specialist provider[1], who negotiated a raft of deals which were then promoted to employees. The discount supplier got access to customers who were pre-inclined to use them, employees got access to reduced rates and a perception of being an important and valued customer, and for the employer, employees associated getting a discount with the workplace - a win-win-win situation.

What has happened to these third party discounts as an employee benefit? Can they also be a valuable element of the psychological contract? If anyone actually says “I can get 10% off my holiday if I book it through work” any more, the response would probably be “but www.bestpriceforeverything.co.uk has got 15% off and you can take your granny for free”.

The case-by-case, negotiated way of sourcing an employee benefit has therefore shifted to if not ‘lose-lose-lose’ then a tripartite ‘disinterest-disinterest-disinterest’ situation. Employees are not impressed with the offer so employers don’t get the feelgood factor but do get the downside of staff moaning soto voice about ‘discounts’ which turn out not to be worth anything and the suppliers don’t get the anticipated increase in pre-disposed potential customers. It is at this point that the benefit falls into disuse and disrepute and may even be detrimental to the employer’s reputation.

Competition in retailing in recent years – online or on high street – is such that the ability of an employer, even a very large employer, to negotiate a discount on a product or service for their employees has dwindled to the point where many such offerings have become irrelevant. ‘Two for one’ ,’get 3 months’ free’, ‘20% off’ are all standard currency for the individual purchaser. Few employers have someone to spare to negotiate the deals in the first place and then regularly review and update the offers. And if anything makes a company look outdated and slightly worn round the edges, it’s curling posters, or pages on the intranet with out-of-date or pathetic discount offers. In one of the few pieces of research on the subject of employee benefits, Employee Benefits magazine found that “employers may well have begun to recognise that it is increasingly difficult to beat ever-changing deals on the high street or over the internet.”[2]

It used to be that the insurance offering available to civil servants, for example, would beat the rate available to the rest of us, partly due to the desire of insurance companies to get nice, safe, careful civil servants as customers and partly due to the size of the potential customer base an insurance supplier could hope to access by doing a favourable deal with the employing body. Now, with the commodity nature of insurance and many other products and services, and the sophisticated marketing tools used by supplying companies, that advantage has gone.

So over the last decade or so, the relevance of third party discount offers available as part of the employment package have become increasingly marginalised and irrelevant in practice, despite, confusingly, holding a high perceived value for employees. The challenge is on for employers to find a meaningful discount scheme that does not use up valuable HR or finance time to negotiate, set-up and administer.[3]

It is clear that while some employers don’t want to pay a fee to external providers of employee benefits packages, many are prepared to do so[4]; and perhaps among those that say they don’t currently pay there is a lack of awareness of how low the fees can be. Some specialist providers of employee discounts used to offer their product for free, making a return by pushing their own financial products to employees, but increasingly providers have either moved to charging (e.g. LloydsTSB/Bringme) or withdrawn from the market completely(HBOS/Brinc). Employers are on the cusp of recognising the added value employee discount specialists bring to the benefit party.

Why bother with employee discounts?

The reasons for an employer to have a decent employee discount offer are not up there with the desirability of a non-contributory pension scheme, an extra week’s holiday or private medical cover but neither can any of these, the top-regarded benefits, be bought for a few pounds per employee per year.[5] Employee discounts are always going to be ‘nice to haves’ not crucial retention or recruitment tools. They are more to do with the employer’s internal branding to and relationship with its employees than with the fight for talent, but they do have a place.

The 3 most compelling reasons as to ‘why bother’ are that a decent employee discount scheme is cheap, practically effortless and employees will like it very much. It is a cost-effective, high-profile, not-taken-for-granted addition to the compensation and benefits package. A branded scheme with the company logo, good communication and a mix of well-known names and some offers local to the employer’s key sites offers an instant, non-contentious (no discussion about performance, length of service, possible discriminatory factors, employee or worker status) tangible benefit for use by an employee (or agency or contract worker). Such schemes also raise no expectation so when they do produce a tangible benefit for the employee, it is all the more appreciated for not being expected.

A voluntary employee discount scheme also offers a halfway house for employers who, usually for reasons of finance, don’t offer highly desirable benefits such as gym membership, childcare vouchers, private medical, dental or personal accident insurance. Funding the benefit directly may be a financial step too far but offering a decent choice of discounted schemes with a personal cashback element to employees is definitely better than nothing. In recent times, there has been an increased “wil