Employee Benefits: Who’s Benefiting From Them?

We need to talk about employee benefits. Companies provide them for their employees, but how much do they really benefit the people we employ and are they having the positive impact on employees we think they’re having? 

While we might assume that the objectives are being achieved simply by ticking the benefits boxes, the research on the true impact of employee benefits suggests otherwise. 

We may be tempted to believe that we should be focusing on wages more than benefits, as they’re more important. Again, research has shown that employee benefits protect employees from significant social risks as powerfully as wage levels do. 

Alarmingly, it’s been found that the employee benefits provided by most companies create and reinforce inequality in the workplace instead of dismantling it. 

In my view, this is because most companies unintentionally approach benefits in ways that appear to cater to all employees but only cater to a small fraction in reality. 

Company Benefits Don’t Benefit Everyone – Here’s Why

Let me be clear - I’m not suggesting businesses are being intentionally malicious with their benefits structures. Most likely, companies are simply following models that have worked for years, decades even, and the age-old adage of “if it isn’t broken, don’t fix it” still rings true when businesses look at the state of their benefits offerings. 

However, while the structure looks robust, it’s the invisible results of benefits offerings that are helping to create fractures in the workplace and fuel mass-employee walkouts. 

In 2011, a study on the correlation between fringe benefits and income inequality by Kristal, Cohen, and Mundlak found that benefit inequality has grown faster than wage inequality over the past four decades and is currently a bigger problem than the well-documented wage gap in the United States. 

The findings suggested that benefits inequality had shot up so quickly in large part because employers have greater ability and incentive to alter benefit type and levels as they choose, more so than market-influenced wage levels. 

Other factors include the more flexible nature of roles in the workplace allowing businesses to hire people as subcontractors or part-time employees, thereby reducing or eliminating the need to provide benefits. 

A survey released by the US Bureau of Labor in 2015 on compensation inequality highlighted how stark both the wage and benefits inequality are between private-sector workers with the lowest income bracket who received and the private sector employees who earned within the highest income bracket. 

Benefit types that were included in the analysis were medical benefits, paid sick leave, paid vacation, and share of health premium paid by employers among others. 

The raw data, while unadjusted, still speaks volumes. Across every benefit measured, higher wage levels directly correlated with an increasing percentage of benefits paid by employers. 

These findings support those of Kristal et. al, who found that the size and structure of benefits are largely determined by rank and position in the workplace. 

Who Benefits From These Benefits?

Ideally, if we were to imagine how to represent workplace benefits, we would graphically represent it as a bell curve, peaking amongst the highest concentration of employees. 

However, based on the existing research, it would be more realistic to represent benefits in the shape of an upward ramp with increasing benefits and benefits consumption provided to employees with the highest income. 

We have to ask ourselves why this is happening. Earlier research has pointed to businesses amending the state of benefits as one significant factor, and it’s something most, if not all of us, have seen play out in the workplace.

Companies tend to aim high when offering benefits - but very often that’s the wrong approach. Offering free food, coffee, drinks, and entertainment only benefit a handful of employees who still come into an office. 

Even then, these company offerings only cater to the tastes of a fraction of employees who will partake and perceive these perks and entertainment as “benefits”. 

Also, benefits such as 401K matches and HSA plans statistically only benefit those employees with the highest compensation and discretionary income as they can more easily elect to take advantage of long-term savings and retirement vehicles, tax shelters, and other deductions.  

Present vs. Future Value of Benefits For Employees

The unpleasant truth is that employee benefits only benefit a small percentage of the highest-earning employees in the workplace. This is counterintuitive to the value, appreciation, and impact that most companies strive for. 

Employees with the lowest salaries and compensation at a company would benefit the most from the dollar value of the benefits offered - yet we see them consistently earn less in benefits compensation putting them at much higher risk of social and economic challenges like sickness, market instability and recessions (Kristal et. al). 

If you dissect benefits by their cost to the company and their long-term gain to individual employees, the results are interesting. For instance, if you offered collective benefits valued at $5k on current face value, your lowest-income earners would benefit the most from that incremental $5k, compared to the highest earners. 

There’s also a big difference between benefits that add value now and benefits that increase in value over time for employees.

Using the above example, if you look at the long-term value of that $5k benefit, you might find that its face value today is, in fact, equal to $15K over 5 years when considering how that benefit compounds or offers savings on interest. Many employees are not aware enough of the long-term rewards certain benefits offer.

How We Handle Benefits at Botkeeper

At Botkeeper, we’re working on creating a benefits system that provides all employees an equal face-value benefit that can be used for multiple purposes, whether it’s taken as cash, placed in an investment or interest-generating vehicle, or even traded for discounted goods or travel credits. 

This allows our employees to derive the value they’re seeking from the benefits they receive. 

We’re also striving to illustrate the present vs. future value of benefit options to assist with financial awareness and its coinciding benefit to the team. I believe that if a company is going to offer a benefit, then that benefit and its coinciding wealth should be equally distributed across the team regardless of rank or position. 

Otherwise, it’s better for a company to simply distribute the benefit’s cash and face value through direct salary and cash compensation, and it’s a notion we always try to abide by at Botkeeper. 

Ultimately, we need to do more to provide support for our employees beyond wage compensation. If we’ve learned anything from the events of the past two years it’s that our employees are our most valuable resources and the benefits we provide them need to better protect them against external social and societal upheavals.