Impacts of Employee Benefits on Motivation and Retention




A slanted view of benefits

Understanding the impacts of employee benefits on how your organization can attract and retain capable employees is beneficial. Benefits make your organization an attractive place to work and can motivate employees to stay. An attractive benefits package enhances an organization's image as an "Employer of Choice."

Benefits are non-monetary compensation, given in addition to salaries or wages.

These include:

  • Medical and hospital insurance. This is a way of managing your health care.
  • Flexible work schedules such as flexi time, and telecommuting. This helps in your recruitment activities as some people may prefer this type of working arrangement.
  • Annual leave. Employment terms may specify minimum entitlement in a year based on categories and levels of positions.
  • Maternity leave. Most often legislation provides protection for female employees to prevent loss of their jobs.
  • Group Life insurance
  • Long-term sickness benefit
  • Sick leave and other types of leave
  • Group Personal Accident and disability insurance
  • Paid vacation which may apply either to senior managers or every employee
  • Employee Share Option Scheme. This is not cheap for employees to take advantage of.
  • Uniforms which has the added advantage of creating a sense of belonging
  • Golden handshake
  • Company cars for senior employees
  • Superannuation or contribution to a retirement plan

Some organizations such as those in the hospitality industry provide a monthly food allowance. Others provide free transportation as a means of travel to and from work.

The list and the impacts of employee benefits vary from organization to organization depending on affordability and strategic aim.

These also vary from country to country.

Determination of the potential impacts of employee benefits is an important factor in compensation strategy.

Impacts of Employee Benefits on Organization's Image

Prospective employees would expect to enjoy some of these types of compensation, if not all.

A more motivated workforce is one of the expected impacts of employee benefits.

Motivated employees contribute positively to the achievement of your organization's business objectives.

Link these incentives to performance. Make it very clear to your people that poor performance improvement will result in less incentive given.

No perceived performance improvement means no incentive at all.

Some organizations give rewards without discrimination. These are given irrespective of employees' respective merits. In such cases, it is fairly clear that they fail to realize the positive impacts of employee benefits when managed well.

This is one way of distributing the profits made. It is considered a "health factor".

If your aim is to improve performance, avoid getting into this situation in the first place. Instead, use performance measures to determine rewards.

It is not easy to withdraw a benefit once you have given it. It is difficult to get out of such situation without any adverse effect on employees morale. You have created a belief in the mind of employees that they will continue to enjoy these incentives irrespective of your organization not performing well.

It is also damaging to your image as a good and fair employer. There is no discrimination made between good employees and non-performers.

If your organization is facing such a situation, try to find ways in minimizing the negative effects.

Learn from experience. And always refrain from giving any new benefit unless you are really sure.

Once a decision is taken, communicate the terms of giving the incentives to your employees. For example, what can happen when the economic conditions deteriorate?



Maximize Impacts of Employee Benefits in Compensation Plan

Plan to achieve the overall organizational objectives by doing the following:

  • Strike the right balance between cash compensation and non-monetary compensation.
  • Identify the types your organization is ready to offer. Provide only those you are sure you want to continue giving even if you are forced to forgo other things. Define why you want to give these types of incentives.
  • Determine the amount you are prepared to pay. There is no point paying a certain amount when you know fairly well that you cannot afford to do so, or continue to give.
  • Identify the types and combination that can attract and retain the right employees. This is a very important matter to take into consideration since this is part of strategic human resource employment.
  • Discriminate between recipients based on agreed criteria such as performance and / or higher responsibility.

Additional Cost to Employees and Employer

A well balanced compensation plan as between salaries and benefits will help your people minimize their tax obligation.

Giving benefits limited to a certain amount prevents their value from being included in the gross income.

Examples of these are accident and health plans, and group-term life insurance in the United States.

Some of the taxable items include company cars and free accommodation provided by employers, and loan subsidies. These are some of the taxable items in Malaysia.

Check the tax regulations in the host country of your organization.

In countries such as Australia and New Zealand, some fringe benefits are subject to tax.

Legislation may also limit the types of non-monetary compensation that your organization can offer and, thus, limiting tax deductibility.

Employees may also pay higher taxes with new legislation imposing taxes on non-cash compensation.

Non-cash compensation given such as premiums on group insurance covers are tax deductible, in favor of employers.

Manage the costs of your compensation plan well. If not, you may find that the costs will keep on increasing without any corresponding increase in terms of productivity.

Apart from cutting costs, you can make your people more committed by way of a rewards system, making use of the full potential impacts of employee benefits.

Total Compensation

What is the percentage of non-cash compensation costs as part of your employees' total compensation?

In many countries, there is an upward trend. It is becoming an expensive form of compensation.

But it is attractive due to:

  • Changing life styles
  • Market forces that compel organizations to seek ways to remain competitive including those resulting from globalization
  • New government regulations and court decisions affecting compensation matters
  • Taxation consideration
  • Union pressures in unionized work environment
  • Organization's interests in terms of revenue generation and, thus, survival


Potential negative impacts of employee benefits

It is because of increasing costs that Carter McNamara argues in favor of a flexible benefits plan.

Based on this, you may offer an option for employees to choose the package suitable for their needs. Some call this "cafeteria benefits."

One of the intended benefits is to reduce tax payable by employees.

You may limit the total value to a certain amount. This is true of "flexible benefits" offered. When the price of the benefit rises, employees will pay for the difference.

More senior employees may enjoy a higher limit. However, other employees may consider this as an unfair practice and discriminative in nature.

The other types of cafeteria benefits are core benefits and voluntary benefits.

Core benefits are enjoyed by every employee whereas employees may either opt for voluntary benefits or keep the cash.

If you offer cafeteria benefits, employees can "purchase" benefits according to their personal needs or they can exchange benefits. Again, this subject to a specified maximum limit.

A flexible plan is not easy to manage. This adds to administrative tasks and costs.

You cannot prevent employees from blaming your organization even if they themselves made the wrong choice. There is high possibility of this happening when they find few benefits that suit their needs.

You need to exercise caution otherwise you will not gain any advantage from the positive impacts of employee benefits. Try to keep this in mind.

Impacts of Employee Benefits For Different Parties

A well-designed and well-managed plan offers some advantages to both employees and employers.

Advantages to Employees

  • Higher productivity due to peace of mind as their own well-being and that of their families is assured
  • Group-life insurance provides additional protection. In some countries, this is in addition to insurance coverage required by legislation in favor of certain categories of employees.
  • Improved morale and sense of belonging

However, some of the benefits are taxable. This may cancel out some of the advantages.

Advantages to You as an Employer
Here, the possible impacts of employee benefits scheme are:

  • Help you attract and retain good employees
  • Reduce costs for certain items such as lower insurance premiums compared to actual costs payable
  • Improve morale and motivation of employees. Your employees can dedicate their time and energy to performing their work well. This helps towards the achievement of your organizational plans
  • Result in tax deductability of certain expense items such as insurance premiums

Click HERE for more info on "Strategic Compensation"

Link to HR Strategic Plan and Organizational Objectives

You can look forward to positive impacts of employee benefits on employee and organizational productivity when you relate such benefits to HRM strategy and the organization's mission and business objectives.

Take into consideration every aspect, make your strategic plan and implement it well. Review its effectiveness from time to time.




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