Importance of Employee Benefits: Essay

Business professionals are often faced with human resource challenges that, in the long run, can impact company performance. Valuable personnel is especially important to properly manage during an economic downturn. Employee benefits can play a crucial role here. Kathryn Mayer, an hrexecutives.com editor and chair of the Health & Benefits Leadership Conference says, “[In the midst of COVID-19] even employers that find themselves in cost-cutting mode know that they are in a unique position to help employees.... Many are turning to employee benefits as one of their coronavirus strategies” ('Effects of Employee Benefits'). Although competition in business may seem intimidating, carefully implemented employee benefits offer a competitive edge and create value for a company because they promote higher job satisfaction, have a positive correlation with company commitment, and increase organizational performance.

Employee benefits are a multifaceted resource utilized across the globe to influence businesses. The growth of benefit popularity has people split on whether implementation should increase or not. Employee benefit hype began in the 1960s and caused a variety of arguments for and against benefits. Many who supported wished for more benefits, while the challengers opposed the idea and would rather that money be changed into wages. In the last century, benefit costs have grown exponentially as employers offer more employee benefits that drive competition. The Gale Encyclopedia of Management includes numbers from the U.S. Department of Labor's Bureau of Labor Statistics that say, in 1929, benefits just were 3 percent of company expenses, and as of March 2018, they grew to nearly 32 percent. The nearly 32 percent of current expenses shows how supporters are winning the battle for more benefits. This radical change in costs poses a problem for many employers and creates a need for a sustainable solution.

Until around the 1970s, benefits implementation was uncomplicated as benefits up to this point were referred to as traditional benefits since, traditionally, only healthcare and retirement were offered. The new complications came about in the form of flexible benefits. or a 'cafeteria plan', where employees can choose from a pool of benefits to best fit individual needs. Cafeteria plans integrated more employee control over individual compensation needs, influencing an increase in job satisfaction. Augustine O. Agho Ph.D. in his article 'Flexible Benefits Plans: Perceptions of Their Effectiveness' discusses four key reasons why flex plans are attractive and are more commonly implemented in recent years: they can help control health care costs, they improve employee attitudes, they help fulfill the needs of the diverse workforce, and they can give employees an active role in the selection of their individual benefit needs to further improve the relationship with the company.

The impact of benefits, flexible or traditional, is difficult to be displayed empirically, but evidence of higher job satisfaction due to employee benefits has been found by Alison Barber, associate dean at the Eli Broad College of Business at Michigan State University. Barber states that, traditionally, companies offered just healthcare and retirement plans, but in recent years, traditional benefits have evolved into flexible benefits that are adapting to the ever-changing demographics, for example, more women entering the workplace and having a different set of needs. The growing trend of flexible benefits has played a major part in job satisfaction levels. In Barber’s research, data gathered from a pre-test and post-test survey, completed by 110 persons, presents an increase in overall satisfaction from flexible benefits.

Benefits come in the form of different mediums, monetary and non-monetary benefits; both types of benefits are crucial components for business. Flexible benefits and their correlation to job satisfaction can be broken down into a couple of socio-emotional components. The social exchange theory (SET) in Jaekwon Ko and SeungUk Hur’s research on worker attitude is one component that describes the idea that everyday exchanges have an impact on employees' perception of their work environment and can lead to positive reciprocation of duties. A part of this theory, and most important to the workplace, is the leader-member exchange (LMX) theory, which associates employee satisfaction and turnover intentions with high-exchange relationships built on high levels of trust and confidence with superiors. Effective relationships are a non-monetary element that is positively associated with satisfactory employee attitudes (Ko & Hur, 176). The increase in job satisfaction is affected by both willingness to work with an employee on his/her specific benefit needs and social exchanges with peers, as well as leadership. Job satisfaction is a foundational component to creating value in a company and offering a competitive edge because there is a correlation to organizational commitment.

The idea of social exchange can influence employee attitudes in such a way that it leads to company commitment. Eleanna Galanaki writes on the idea of social exchange and how behavior is influenced by expectations or relations. For example, employers may include incentives such as an employee benefits package in exchange for positive employee attitudes that eventually may translate to improved economic results. Employee-employer relations must remain healthy to create a positive environment. Relationships regarding social exchange mature over time through multiple exchanges and result in both parties in the relationship developing a reciprocal obligation to one another.

Galanaki also highlights studies that find a correlation between employee benefits and employee continuance commitment. One study done by Lee, Hsu, and Lien (2006) presents cases of how employee benefits diminish turnover rates. There were two hypotheses in this article that contrast each other saying, increased benefits diminish turnover rate, and decreased benefits will increase turnover rates greater than increasing benefits would decrease turnover rates. Lee, Hsu, and Lien show benefits diminish turnover rates, and a change in the provision of employee benefits, most notably a reduction, was found to be most influential on the effects of employee benefits. Galanaki’s findings support both hypotheses made that benefits positively impact turnover rates.

To reduce turnover rates and keep employees committed, not only must employee-employer exchanges be positive, but the process by which an employee is presented with new incentives must be just. This is known as procedural justice, and the more understood and informed an employee feels, the better chance for company commitment. In Michel Tremblay’s study titled 'The Role of Organizational Justice in Pay and Employee Benefit Satisfaction, and Its Effects on Work Attitudes', procedural justice was found more influential on benefit compensation satisfaction than distributive justice, which is fairness among worker compensation. Tremblay mentions another article on justice and job satisfaction by C.L. Martin and N. Bennett, saying, “From our knowledge, only Martin and Bennett (1996) have evaluated the individual role of process justice regarding benefits. Their study revealed that process fairness has a significant and direct effect on organizational commitment, and this effect is stronger than distributive fairness” (Tremblay, 269-270). A just process of selecting benefits adds trust to employee-employer relations because they are being given more control. If they are given the control to choose how their specific socio-emotional and tangible needs are met and treated with fairness, it can translate to a long-term commitment.

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The idea that benefits positively correlate to company commitment is partially due to job satisfaction. Fan-Yun Pai researched the connection between benefits and commitment because of job satisfaction in 2012, hypothesizing that job satisfaction would have a significant correlation with professional commitment, and discovered this to be true through a series of surveys in the information technology field. “Empirical results show that under the environment of economic downturn, all dimensions of job satisfaction have a significant positive correlation with professional commitment” (24). To recap, benefits show an increase in job satisfaction, which can lead to improved employee commitment, as satisfaction plays a major role.

Most of the time, employees work for their own interests, not the interests of the company they work for. Retaining employees is pivotal for success and requires time, effort, and an evaluation of all capital being managed. Benefits in a variety of industries have different effects. In the manufacturing industry in Korea, benefits would help employees last longer in the industry. As this industry is a more labor-intensive workplace, benefits can motivate employees to continue to work. Commitment in an industry can be advantageous as employees learn valuable skills that boost productivity.

Commitment within a company is beneficial for a few reasons. First, a longer member of staff is more likely to be comfortable in the work environment, which can lead to increased sharing of ideas and less friction in communication. Comfort levels can also significantly alleviate stress, which has a negative correlation with productivity in a work environment. The next commitment-based factor that can affect performance is the employees' level of knowledge. The longer an employee is working for a firm, the more knowledgeable they become. If a company has a high turnover rate, they are constantly having to train new employees to do the same job, creating a less efficient environment. Employees create more value, says Olivia Guillon, because the services they offer are improved by their better knowledge of their teammates and of the particular methods and environment of the organization. Indirectly, both monetary and non-monetary benefits create value for a company when service and interpersonal relations are improved.

While many studies sought to connect benefits to productivity through satisfaction and commitment, few studies aimed to find a direct relationship between benefits and productivity. Kang, Yu, and Lee considered two types of effects of benefits and their impact on productivity, the embodied and disembodied effects. The embodied effect has direct influences on productivity by means of both loyalty to the company, or labor-embodied effect, as well as maximization and efficient use of capital goods, or the capital-embodied effect. The labor-embodied and capital-embodied effects work together to show the direct positive impact of benefits through elements of production. Kang, Yu, and Lee discuss how the labor-embodied effect increased firm productivity in the manufacturing industry where the study was done. They attribute other industry differences in results to working conditions and believe benefits have a greater impact on productivity.

Contrary to the embodied effect, the disembodied effect impacts productivity through relations built between employees and employers, like SET. In Kang’s research, relations and the disembodied effect do not display evidence for an increase in productivity. The lack of evidence is said to be due to the even distribution of benefits and a minute contribution to favorable relations. Though overall, the study confirms that benefits have a positive impact on productivity and the effect can be realized in the long-term.

Support of employees needs to be in place for the entirety of their careers. As research by Galanaki says, non-monetary and non-traditional methods, such as influence by procedural justice, can be just as effective as monetary compensation methods. M. Moses Antony mentions that he finds that the non-monetary benefits are highly valued by employees and more meaningful. They have the potential to motivate employees, promoting more willingness to increase performance. In Antony’s study, the overall behavior of employees responded very well to the benefits of recognition. The study is a social experiment that boils down to the types of things that motivate people the most. This article touches on the psychological and social side of business, which is very important because it is necessary to understand people to work with them better.

One of the most prominent reasons for a person to quit their job is caused perceived lack of or dissatisfaction with compensation. When an employee does not feel valued at their job, they are subject to lose interest and mentally check out. Potential inefficiency or non-existent reciprocal obligation is why many sources strongly suggested positive personal interaction between employee and employer.

Although competition in business may seem intimidating, appropriately managing employees and benefits implementation impacts company outcomes both directly and indirectly. The indirect way employee benefits can lead to creating value for a company flows in a sequence of steps. First, if benefits are meeting the mental and physical needs of an employee, it contributes to increased satisfaction with the job. A satisfied and emotionally healthy employee is likely to express this through their behavior and attitude and last longer in their working environment. This commitment translates to less turnover and more performance due to their knowledge and comfort level within an organization, generating more value for the organization as time goes on. The effects of employee benefits on company value must be gaged in the long run due to the process of SET and its developmental, yet meaningful, timeline.