The way to an employee's heart

Rightly or wrongly, law firms are not renowned for offering lavish employee benefits packages to their staff. Take the case of pensions. "The majority of regional law firms do nothing at all," suggests Andrew Warwick-Thompson, an associate with consultants Bacon & Woodrow. "Staff are left to do their own thing and get ripped off."

He concedes, however, that: "In the City, things are better: you tend to get small, defined benefit schemes [where the level of pension is specified in advance and guaranteed], and there is a move now to group personal pensions (GPPs)."

Indeed, many of the benefits packages provided by City law firms are very good. As well as a pension, most include private healthcare, accident insurance, life assurance, a subsidised restaurant and gym, and season ticket loans. Interestingly, relatively few of them use in-house expertise to provide free conveyancing or free wills.

A comprehensive benefits package might typically cost between 30 and 40 per cent of payroll to provide. Although there's no such thing as a "standard" benefits package, and it would be wrong to tar all law firms with the same brush, it is tempting to ask why the legal profession lags behind in the provision of employee benefits.

Is it because the partners heading these businesses are not themselves "employees" and so have little self-interest in developing a top-notch benefits package for staff? If this is the case, then staff may benefit from current moves towards greater integration.

Warwick-Thompson says his company has already set up dual pension schemes for employees and partners which "allow a seamless transition from staff to partnership".

If the great divide between partners and staff really does lead to poorer quality benefits, we might expect accountancy firms to suffer from similar problems. But research by employee benefits company William M Mercer suggests accountancy firms beat legal practices in most areas of benefit provision.

For example, all the accountancy firms questioned by William M Mercer offer a pension scheme, a life assurance scheme, private medical insurance and short-term sickness cover, compared with 83 per cent of the law firms. And all the accountancy firms offer company cars to at least some employees, compared with only two thirds of the law firms.

But the tables are turned when it comes to long-term disability cover (provided by all the law firms questioned and only 83 per cent of the accountants), share schemes, maternity leave greater than the statutory minimum and paternity leave.

A spokeswoman for William M Mercer admits that the number of firms taking part in the research was not statistically significant. Nevertheless, the findings confirm anecdotal evidence that the accountancy profession is a few steps ahead of law firms when it comes to providing employee benefits.

Warwick-Thompson has a simple explanation for this. "Accountancy firms have been bigger for longer. They are more used to competing for talent," he says. "The law firms only really started to grow in the late 1980s. Since then there has been a fair amount of competition for the bright young things."

The need to recruit and retain staff is a major motivating force behind the development of benefits packages. A survey of 3,000 employers by Employee Benefits magazine found that 96 per cent agreed that "an effective and attractive benefits policy will aid recruitment and retention of staff".

Competition for staff is likely to increase over the next few years: three quarters of those questioned for the survey say they expect staff shortages to have a major impact on their businesses and almost half admitted that they are already struggling to attract and retain some key staff.

So it is likely that UK businesses will increasingly be using their benefits package to attract and retain the right calibre staff. And law firms will be no exception.

Small law firms have particular problems competing on benefits packages. They neither have the resources – in the form of people or money – to dedicate to the development of employee benefits, nor the clout to negotiate a good deal for staff.

Not surprisingly, the research carried out by Employee Benefits discovered that 70 per cent of businesses employing at least 1,000 staff are able to match the benefits provided by their competitors, whereas only 58 per cent of those employing fewer than 300 felt they were able to do so.

One way round this problem may be for a number of small firms to club together. This approach has already been tried and tested, most notably in the shape of the Cheviot Trust's pension schemes (formerly the Solicitors Staff Pension Fund).

The Cheviot Trust offers a final salary option (where benefits are defined in advance and guaranteed) and a money purchase option (which offers no guarantees), both of which require employer contributions. It has recently introduced a group personal pension scheme which requires no commitment from the employer. Around 400 firms participate in these schemes, which cover more than 8,000 employees.

For staff, the big attraction of the industry-wide approach is that it allows them to change jobs without disrupting benefits. And even if employers will not contribute, staff should find that they can get better terms on pensions and other benefits as a group than they could as individuals on the open market.

Industry-wide pension provision may receive a further boost if there is a change of government later this year. The Labour Party has repeatedly expressed interest in the development of so-called "multi-employer" schemes, but has not yet made it clear whether it is prepared to offer any tangible incentives to encourage groups to set them up.

A pension is not the only benefit that can be arranged on a multi-employer basis – the Cheviot Trust allows employers to offer life cover, for example. As well as providing conventional employee benefits, it is expected that employers, unions and other affiliated groups will increasingly use their bulk-buying power to offer staff so-called "voluntary benefits".

Basically this means providing a list of benefits from which the employee can choose; employees would meet the costs themselves, but at discounts negotiated by the employer or other representative. Voluntary benefits might include such extras as cheap mortgages, financial advice and medical insurance.

It is likely that more of the larger law firms will start offering their own voluntary benefits packages on an individual basis. A number, such as Travers Smith Braithwaite, have already experimented in this area.

In such cases a voluntary benefits package could be the first step towards a fully-fledged "flexible" scheme which gives employees a budget to spend on benefits. This allows them to select and "buy" the items on the benefits menu that best meet their personal needs. So non-drivers will no longer be saddled with company cars and single people will not have to have expensive life cover.

Because staff have to choose the benefits for themselves their understanding and appreciation of the package is likely to be enhanced. This is essential if the package is going to be an effective recruitment and retention tool.

The research by Employee Benefits showed that around one in five employers is now considering the introduction of flexible benefits. The major accountancy firms are likely to be among them: Price Waterhouse has already taken the plunge and, as far as employee benefits are concerned, it is vitally important to keep up with Joneses.

If the major accountancy firms make a success of flexible benefits, the major law firms may be tempted to follow.