People work for money but go the extra mile for recognition, praise and rewards.1
- Dale Carnegie
What do you work for? Is it to accumulate wealth, to find a purpose, or even to survive? In an increasingly competitive world, organizations have to find innovative ways to motivate employees by giving benefits or rewarding them.
Continue reading to learn more about how you can motivate your employees by rewarding them without necessarily having to increase their salaries. This explanation will explore employee benefits and give you concrete examples.
Employee Benefits Definition
Employee benefits are an excellent way for a company to attract and show their appreciation to their employees; it's also a great way to increase overall job satisfaction. Although they have been around for a while, they have evolved significantly over the years.
Employee benefits are advantages employees get from their employer in addition to their regular salary.
There are various types of employee benefits, and they typically cover retirement packages, health insurance, company cars, etc.
Importance of Employee Benefits
In a world in constant change, where competition is high and employee turnover is increasing, it has become increasingly essential for companies to offer valuable employee benefits. Benefits have many advantages3:
Attract and retain talent: company benefits can be used to differentiate from competitors to attract, hire and retain new employees. It's especially important in competitive industries where it can be an alternative to paying high salaries.
Cost efficient: it's much more cost-efficient for a company to purchase perks in large quantities at a discount and offer them to their employees rather than offering them a higher salary. For example, a new phone line and Smartphone might cost $1,000 for an individual, but since companies can purchase in large quantities, it would only cost them $500. It, therefore, makes economic sense for both the employee and the employer to prefer this solution.
Motivation & performance: employee benefits are a great way to motivate employees. For example, a company could promise their salesperson a monetary bonus if they reach a certain level of sales.
Tax advantage: it can be much more fiscally advantageous to offer company benefits such as retirement or health insurance plans rather than a higher salary for both the company and the employee.
Reputation: offering significant benefits to your employee will reflect your company's reputation, as people will know that the company genuinely cares for its employees.
Job satisfaction: an organization that offers its employees benefits shows interest in their well-being and contributes to their overall job satisfaction.
Four main factors affect job satisfaction:
- Working conditions: the working place environment, training methods available for the employee, interaction between co-workers, etc.
- Personality: the employee's personality will affect how people see their working conditions and how satisfied they are.
- Corporate social responsibility: people are generally concerned about the environment and other social responsibilities companies can have. They like to be part of an organization that can contribute and has a positive impact on the world.
- Pay: money is an essential factor in job satisfaction up to a certain point. Employee benefits can complement the monetary value people receive and can contribute to their overall job satisfaction.
Types of Employee Benefits
Not long ago, there were traditionally four types of company benefits: life insurance, health care, disability insurance, and retirement plan. Those were the most popular type of company benefits. However, as times have changed, people's interests and organizations have also found new benefits. Therefore, it might be more appropriate to categorize company benefits as follows: insurance, retirement plan, profit sharing, and others.
Insurance
In this category, we can include all types of insurance:
Health insurance: this insurance can cover the cost of hospitalization, medicine, specialist visits, etc. In other words, it can help the employees cover their healthcare costs.
Dental/Vision/Disability insurance: all medical costs are not always covered by regular health insurance, which is why many complementary insurances can cover more specialized medical costs.
Life/death insurance: this type of insurance will typically compensate a beneficiary when an insured person passes away. It's not fun to think about, but this insurance can be essential for families that rely on one person's salary, as it might be the difference between living well and living in poverty.
Insurances are still one of the most popular company benefits available, especially in countries where healthcare costs are expensive, such as the USA.2 Companies also like to offer this kind of benefit as there are often tax advantages, and it is in their interest to ensure that their employees stay in good health.
Retirement Plan
Companies can help their employees save money for retirement by contributing to a retirement plan. There are many different investment vehicles the company can choose. For example, in the USA, companies can contribute to their employee's 401K or invest in a separate retirement fund.
Those retirement plans are generally taxed advantageously for both the employee and the company. Furthermore, it's a great way to encourage employees to stay in the company long-term.
Work Flexibility
This category includes everything related to employees' working flexibility arrangement:
Remote work and flexible working hours: Many people love the flexibility to work from home or at a more convenient time.
Paid time off: Companies can offer additional paid time off to their employees as a way to differentiate from others.
Parental leave: Companies can offer additional parental leaves pay.
Since Covid, many organizations have had their employees work from home, and people are increasingly interested in working flexibly.2 Furthermore, many organizations benefit from flexible working hours as it allows them to organize meetings outside regular working hours, which is convenient for international companies working in several time zones.
Other Employee Benefits
You will find all the other types of benefits in this category:
Stock options: It's especially popular with high-growth tech companies that prefer giving stock options over money. If the company is doing well in the stock market, the value of stock options can skyrocket and be worth a lot of money. Furthermore, stock options are often rewarded after a specific number of years, making them a great incentive to continue working for the company long-term.
Bonus: Companies can award monetary bonuses based on their employees' performance.
Special discount: Employees can often buy their company's products and services at a discount. It's a way to encourage employees to be interested in what their company offers.
Transportation: Companies have a vast choice of benefits they can offer their employee to reduce their transportation costs: a company car, a fuel card, public transport subscription, a bike, etc.
There are many other examples of employee benefits, but those are generally the most common types you will come across.
A stock option gives the right to buy shares of a company at a specific price. With stock options, employees can often buy shares of their company in the stock market at a discount.
Employee Benefits Example
Some companies go above and beyond to offer employee benefits to their workers.
Netflix has a notorious "no holiday policy," meaning that employees can take as much holiday as they want. "We don't have a prescribed 9-to-5 workday, so we don't have prescribed time off policies for salaried employees."4
Google is well known for having excellent office infrastructure for its employees. They can enjoy free food, daycare for children, massages, gym facilities, etc. They aim to offer their employees as much comfort as possible to increase productivity.
Amazon offered a lot of stock options to their employees. They wanted to motivate them to work hard so they could get a share of their company's benefit. So those who kept their stock options over the years can now enjoy hefty profits.
Remote.com surveyed 10,000 people working full-time in the USA and Europe about the type of employee benefits they are interested in.2 According to this survey, company-sponsored retirement plans and flexible working hours are the most sought-after benefits.
However, it's essential to notice that the study gave drastically different answers depending on people's circumstances: family situation, location, wealth level, cultural differences, etc. For example, many European countries already benefit from free healthcare, so employees aren't interested in additional coverage. In contrast, this benefit is highly sought after in the USA, where healthcare costs are high.
Disadvantages of Compensation and Benefits
There are several disadvantages related to company benefits:
Not interested: the most obvious is that people wouldn't be interested in the benefit they get. If the company chooses a benefit the employees are not interested in, it goes against the purpose of having the benefit in the first place.
Not eligible: some people might not be eligible for specific company benefits, which might create friction between colleagues. For example, salespersons can get a bonus if they reach their sales target, but accountants are not rewarded if they do their job on time.
Not applicable: if a company offers many benefits that do not apply to specific employees, they will feel that they don't get any benefits. For example: if a company offers many perks to their remote workers: flexible working time, relocation package, IT equipment, etc. Those benefits might not apply to someone who comes to the office every day.
Employee benefits are an excellent way for a company to attract and show their appreciation to their employees; it's also a great way to increase overall job satisfaction.
Employee Benefits - Key takeaways
Employee benefits are advantages employees can get from their employer in addition to their regular salary. There are various types of employee benefits, and they typically cover retirement packages, health insurance, company cars, etc.
Offering employees benefits is crucial for companies as it is a way to differentiate from competitors and to hire and keep competent people.
Employee benefits can be a great motivation and improve performance, they can be a tax advantage, and they can contribute to overall job satisfaction.
Four main factors affect job satisfaction: working conditions, personality, corporate social responsibility, and pay.
There are four types of employee benefits:
- Insurance: life/death, health, dental, vision, disability insurance, etc.
- Retirement plan
- Work flexibility: remote work, paid time off, parental leave, etc
- Other: stock options, bonus, discount, transportation, etc.
- There are some disadvantages to employee benefits:
- Employees might not be interested in the benefits.
- Employees might not be eligible for the benefits.
- The benefits might not apply to the employees.
References
- Incentive theory event. https://incentivetheoryevents.com/reward-recognition/
- Remote.com. https://remote.com/future-employee-benefits#the-future-of-employee-benefits
- Eden Health. Why are employee benefits important? 11/10/2021. https://www.edenhealth.com/blog/why-are-employee-benefits-important/#:~:text=A%20good%20benefits%20package%20can,attract%20and%20retain%20top%20talent.
- Netflix. https://jobs.netflix.com/work-life-philosophy
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