Total Reward

Case Study 6 - UK Company, Management Buyout

Harmonisation and Total Reward

In early 2003 we were approached by a company in the process of undertaking a Management Buyout.

Services sought were Consultancy Advice and Administration Support/Services for HR, Payroll and Employee Benefits both during the transition phase and on an ongoing basis.

The purpose of this case study is to show how the implementation of a flexible benefits scheme helped to support the Company through the MBO in dealing with:

  • The migration of employees from their existing benefits package
  • Management of employees expectations
  • Transfer of Undertakings Protection of Employment (TUPE) requirements
  • The design of a future benefits and reward strategy
  • Budgetary requirements
  • Timescales

After an initial meeting with the Client it was apparent that they wanted to continue to look after their employees under the new enterprise and required a benefits and reward strategy that reflected this. As such, they were prepared to allocate the equivalent existing benefit spend to the new package.

An analysis was undertaken of the existing benefit structure, identifying the benefits offered together with the costs attributable to this. In conjunction with this, a report was prepared setting out the two options available to the Company:

  • Mirror the existing benefit structure
  • Design a new package aligned to their business strategy and employee needs

The existing package consisted of the following benefits:

  • Final salary pension
  • Permanent Health Insurance
  • Group Life Assurance
  • Private Medical Insurance for both the employees and their dependants
  • Business Travel Insurance

As part of a large international company with circa 4,500 employees the client had historically benefited from the buying power that this attracted within the insurance market place. Once the MBO had been successfully undertaken, NewCo would be circa 20 UK employees. This too was a significant factor that had to be taken into account in managing the expectations of the Company and its employees with the cost of providing the various ‘equivalent’ benefits.

After a further meeting with the Company it was agreed that they favoured a redesign of the benefit package and a more detailed project was to be undertaken for the design of a flexible benefits scheme.

Despite the employee numbers being low, the combination of our IT support and proven consultancy and administrative skills along with the negotiations that had taken place with providers, meant that the design of such a scheme was possible.

Phase 1 – Strategy and Design

In considering the strategy and design of the new scheme, one potential banana skin was the existing occupational final salary pension scheme. Once the MBO was completed, the client would not be classed as a participating employer and as such the employees would no longer be able to participate for future benefit accrual. A detailed report was therefore produced outlining the future options open to the client and the costs associated with this.

We also recommended to the client that prior to the signing of the Purchase and Sale Agreement, consideration be given to any potential financial impact of pension liability and costs from the final salary scheme, as it could be quite significant.

In addition, a legacy final salary pension scheme existed for certain members and this too had to be taken into account when assessing benefit spends.

As part of the strategy and design process the following were considered and agreed upon:

  • Benefit Spend based on a percentage of salary, but capped as a cost control mechanism
  • Benefit modules
  • Rules and regulations for the new scheme e.g. waiting periods, benefit spends for new employees
  • Terms with benefit providers
  • Contractual implications
  • Payroll implications
  • Communication strategy

TUPE (Transfer of Undertakings Protection of Employment) requirements needed to be taken into account. Having reviewed the employment contracts and the proposed design of the new scheme, not only was TUPE addressed but also employees were offered a wider choice of benefits and control for the first time on what benefits they selected.

New Package:

  • Group Personal Pension Plan
  • Permanent Health Insurance
  • Group Life Assurance
  • Private Medical Insurance for both the employee and their dependants
  • Dental cover
  • Critical Illness for employees and their dependants
  • Childcare Vouchers
  • Additional Holiday
  • Business Travel Insurance
  • Voluntary Benefits – paid for personally but accessible through the flexible benefits web-site

Phase 2 – Implementation

To ensure the successful implementation of the flexible benefits scheme, it was essential that the communication was effective and the technical delivery ran smoothly.

A detailed project plan was therefore drawn up and the Implementation Phase commenced.

Amongst many elements, the implementation phase included:

  • Configuration of the flexible benefits site
  • Written communications to employees leading to launch of the scheme
  • Presentations/workshops
  • Opportunity to meet with an IFA
  • Dedicated contacts to deal with additional employee queries
  • Enrolment of employees
  • Checking of data and delivery to payroll and benefit providers
  • Obtaining Inland Revenue Approval


After successfully completing the implementation of the Flexible benefits scheme the following results were achieved:

  • The implementation of the new Benefits and Reward strategy proved to be extremely successful.
  • The project was completed within the required timescales and on budget.
  • There was a seamless transition of benefit coverage with TUPE requirements being successfully addressed.
  • Employees (for the first time) had online access to all information regarding their benefit package and costs together with control over the benefits they selected.
  • This was a very positive message used in managing the loss of their occupational final salary pension and one that was well received.

Not only was the project a success but also we became the first company in the UK to implement a flexible benefits scheme for a company with as few as 20 employees.