The Smartgroup story
Dave Adler, the Chief Executive of Leasing and Fleet for Smartgroup recently spoke to The Australian Business Executive (The ABE) about Smartgroup’s customer-centric viewpoint, innovation, and the services we provide.This article was originally published in ABE magazine Q4, 2017 Edition.
Amongst the key services Smartgroup offer is salary packaging. Also known as salary sacrifice, the process of salary packaging allows employees to take a portion of their salary as non-cash benefits, the bulk of which can be paid for with their pre-tax income. Salary packaging was born in 1986 when Fringe Benefits Tax (FBT) was introduced. In modern use, it is one of the most effective ways that not-for-profits and public sector organisations can offer earnings to their employees that are competitive with those available within the private sector. It also allows those in the private sector to increase their take home pay.
Since 2002, Mr Adler has taken on a variety of roles at Smartgroup including operations, client services, business development, marketing, and has been part of the company’s key executive team since 2006.
The ABE: How would you describe how Smartgroup came about and what it has evolved into today?
Dave Adler: Smartgroup began as Smartsalary Pty Limited in 2001. We were fairly late entrants into the salary packaging market, the major players had been around since the mid-90s and were doing a good job capturing market share. The Fringe Benefits Tax (FBT) legislation was relatively new and quite complex. Organisations didn’t really understand salary packaging and so immediately looked to outsource.
A couple of Melbourne-based providers took most of the market, but didn’t excel at providing good levels of service, thus encouraging a number of their clients to look for alternatives. This allowed Smartsalary to win a number of hospital clients and gain a solid presence in the market. Our journey and growth essentially commenced in 2002 when we won a large hospital contract in Victoria.
Since day dot, our focus has been on serving our current clients as best we can.
The ABE: In over 15 years with the business, what have you learned is important to its success?
Dave Adler: Number one is making sure our customers are looked after. We’ve managed to retain the vast majority of our clients by focusing on providing and maintaining great service. Customer loyalty is at the pinnacle of our capability triangle.
We’ve measured net promoter score since 2010. This gives us a very clear understanding of customer loyalty-who is promoting us and talking to their friends about us, and what we need to do about the few customers who may be on the detractor side. But that core principle of looking after our clients and our customers, the end users, has been in place throughout our entire history.
The term salary sacrifice is bandied around but a lot of our readers may not fully understand how it works. Could you give us a grounded explanation of this and who uses the service you provide?
It’s basically an employee benefit based on Fringe Benefits Tax legislation in Australia. It’s a way for people, rather than taking their entire salary as cash, to take a combination of cash and specific benefits that can be primarily paid with pre-tax dollars.
While the users range from not-for-profits and government employees to corporates, the main group that it benefits are employees of not-for-profits, often called Public Benevolent Institutions (PBIs). The idea is that they get a portion of their salary tax-free, and they can allocate that tax-free cap to pay for a range of benefits. Knowing that the public sector or the not-for-profit sector cannot compete with the private sector in terms of actual salaries, these tax concessions are a way to even it out so employees in all sectors are earning similar amounts.
The ABE: How did you roll out these services across different industries?
Dave Adler: Two services are available to all sectors regardless of whether they are for-profit or not-for-profit, or whether they are a public benevolent institution. The first being additional superannuation contributions over and above the super guarantee that is paid by the employer.
The second is novated leasing. Novated leasing is the car leasing benefit. It has become one of the fastest forms of vehicle financing in Australia as a result of not only tax concessions, but some additional savings in the form of discounted vehicles, not paying GST on the purchase price of the vehicle, competitive finance rates and insurance rates that are lower than what the employee could source themselves. There is a combination of savings, plus the convenience of outsourcing car leasing management to us, that makes this benefit very attractive.
As a result of these two opportunities, employees in a number of sectors have started to salary package. Today, for example, the offering of salary packaging is in many of the enterprise bargaining agreements, so it’s something that organisations must offer their employees as part of the remuneration program.
The ABE: Why are salary packaging and novated leasing important benefits in the corporate sector? In the government sector?
Dave Adler: In many cases employers see salary packaging as an extension of their overall remuneration and benefits offering to staff. We typically see the highest levels of employee participation at organisations that view these benefits as a critical part of their remuneration and benefits program, so when the HR department truly believes salary packaging employees can improve their financial wellbeing and increase their take-home pay. These companies are supportive of us educating their staff about the benefits available to them. It’s important to make employees aware that besides their cash salary there are other legal ways that allow them to increase their take-home pay, often significantly.
There’s a misconception that novated leasing is for those earning six-figure salaries. Really, it works for employees on a middle income. 70% of users are employed in Health, Education, Charities, Government and Emergency Services and the annual salary range for most users of novated leasing is $80,000-$89,999. And lastly, the average purchase price of a novated lease vehicle is around the $37,000 mark.
The ABE: Smartgroup has won several awards for innovation, including being named on the Australian Financial Review’s Most Innovative Companies list for 2017, how does innovation feed into your company philosophy?
Dave Adler: We represent our key capabilities as a triangle. At the base of that triangle is employee engagement. We believe if staff are not engaged, it’s really hard to motivate them to do the right thing. At the pinnacle of our triangle is customer loyalty. Without loyal customers, you’re not able to grow over time.
In many ways the salary packaging industry is no different to other industries. The product we offer is highly legislated, and the product and the benefits that we offer are also offered by all of our competitors. In our case, differentiation of product is not really an option – it’s all about how we differentiate our service. We introduced innovation to the core of our triangle to encourage positive change that adds value to our customers’ experience. We were first recognised for innovation in 2012. At the time it was known as BRW’s most innovative companies list, but over the last couple of years it’s been know as the Australian Financial Review 50 most innovative companies list. We’ve been recognised in those rankings four times in the past 5 years. It’s all about innovation that delivers a better outcome for our customers and our suppliers.
The ABE: You recently received the highest audit score ever recorded by the Customer Service Institute of Australia (CSIA), can you comment on the Smartgroup approach to customer service?
Dave Adler: The CSIA is the peak body for customer service in Australia. We’ve been accredited with them since 2008, and when we initially gained accreditation, we really saw it as a stamp of approval. The real meaning comes from the feedback we get as a result of the audit.
CSIA visit our office and they actually talk to people, not to the management team, but they talk to staff who are in customer facing roles to make sure that what we said in our submission is in fact what we’re doing – that we are living by our principles. It’s not only customer service staff they speak to (as in people who are answering the phone and having a direct conversation with the customer) CSIA also talk to people in marketing who are communicating with the customer, and the sales team who are educating and signing people up for services. In the past three years we’ve had the highest score issued in the history of the CSIA. In 2015, 2016 and again 2017.
The ABE: What is the benefit of outsourcing employee remuneration and benefits administration?
Dave Adler: If you’re offering a novated leasing program, it is really hard to do in-house because of the intricacies and number of providers that are necessary to put a novated leasing program in place. For example: in order to have an attractive cost-effective program, you need to have access to a network of car dealerships to source vehicles. You also need to have access to funding or financiers in order to finance those vehicles. You need a range of different insurance options, whether it’s comprehensive or CTP insurance, and other more specific insurances like redundancy insurance.
When an employee’s package is built, they go through the credit application process. Payments are bundled into a monthly lump sum. Pre-tax and after-tax deductions on that vehicle need to be managed and payments need to be made to the various suppliers for the term of the lease. Then at the end of the lease, employees often want to trade in or purchase their vehicle outright.
There’s a layer of technology that we offer in terms of online calculators and models to help people to understand how much money they can save. They have the ability to apply for credit online and claims for out-of-pocket expenses for that vehicle can be made through our app or mobile-friendly website. They can also change their deductions for some of their expenses online. We have fuel cards, which are a critical part of the program, and people can order or cancel these online. There’s a layer of technology that employers don’t have.
There’s also the management. The financial and the tax management should be outsourced so you’re not taking on any potential liability or financial risk. If you do it yourself and you have the wrong calculation, you might end up with liabilities.
Most organisations don’t really have the time or skills to carry out this whole function. They need an outsourced provider to do it for them because to offer novated leasing without a third party is practically impossible. We’ve found some hospitals and not-for-profits who do manage salary packaging in-house and outsource their novated leasing.
We’ve seen not-for-profits thinking “I want a lower cost program, I don’t want to do the admin, I want to partner with an organisation that can help me increase the participation rates for better service and better technology.” The benefits are significant.