12-1

12-2

12

Employee Benefits
and Services

McGraw-Hill/Irwin
Human Resource Management, 10/e © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
12-3
Indirect Financial Compensation
Also called benefits and services, indirect financial
compensation includes all employer-provided
rewards and services, other than wages or salaries
Social insurance payments, private insurance,
retirement plans
Payment for time not worked
Extra cash payments, other than bonuses
Services, such as subsidized cafeterias

Most of these are available as long as the worker is

employed, regardless of seniority or performance
12-4
Indirect Financial Compensation
There is a lack of agreement on:
What is included
Purposes served
Responsibility for programs
Costs and value of the various elements
Units in which costs and values are measured
Criteria for decision making

Decisionsabout indirect compensation are more

complex than those related to wages and salaries
12-5
Indirect Financial Compensation
Employers face rising benefit costs due to:
Increased legislation
Insurers’ insolvency
The cost of medical technologies
The aging workforce
New immigration
More women in the workforce
Global competition
12-6
Why Offer Benefits and Services?
Programs offered today are the product of 60 years
of effort in this area
Most benefit programs began during WWII, when
wages were strictly regulated
Unions pushed for non-wage compensation increases,
and they got them
In1929, benefits cost the employer 3% of total wages
and salaries
By 2004, benefits accounted for 20 to 60% of payroll
12-7
Why Offer Benefits and Services?
Some employers provide these programs for labor
market reasons
Others want to keep a union out, or the union won
them through negotiations
Some feel that providing benefits and services
increases employee performance
None of these reasons explains the degree to which
benefits and services are provided
12-8
Who Makes Decisions About Benefits?
HR executives often seek professional advice from
specialists
In large organizations, the compensation dept. may
have a specialist in benefits
Many authorities argue that all organizations should
have benefits and services
There is little evidence that they affect employee
satisfaction or productivity
12-9
Who Makes Decisions About Benefits?
In the 1940s and 1950s, unions pushed
for additional holidays
Demands for such benefits as group
automobile insurance, dental care, and
prepaid legal fees followed
The long-range goal is getting employers to perceive
benefits as a social responsibility
Today, unions are trying to stop the erosion of such
benefits as pensions and health care
12-10
The Effect of Public Policy on Benefits
The government mandates some benefits:
Old age and survivor’s insurance (Social Security)
Disability insurance
Medicare
Unemployment insurance
Workers’ compensation

Through preferential tax treatment, the government

encourages businesses to provide other benefits
Firms can deduct benefit expenses
Employees don’t claim benefits as current income
12-11
The Effect of Public Policy on Benefits
The Welfare Fund Disclosure Act requires
descriptions and reports of benefit plans
There are stringent rules on:
Eligibility for benefits
An employer’s ability to change an established
benefits plan
Economic and labor market conditions influence
benefits
In tight labor markets, organizations compete for
employees by offering better benefits and services
12-12
The Effect of Public Policy on Benefits
More women in the workforce
has resulted in pressure for:
Longer maternity leaves
Family leave benefits
Childcare services
Elder care services

An aging workforce is increasingly demanding:

Pre-retirement planning
Health insurance
Pensions
12-13
The Effect of Public Policy on Benefits
How much an employer spends on benefits is related
to the financial health of the company and industry
Healthy, profitable companies tend to expand
benefits
When the economy weakens or profits fall, the cost
of benefit programs intensifies financial problems
Legally required benefits average 8.6% of total
employee compensation
12-14
Mandated Benefits Programs
Three benefit programs are mandated
by federal and state governments
Unemployment insurance
Social security
Workers’ compensation

An employer must offer mandated benefits

programs and cannot change them in any way
12-15
Unemployment Insurance
Unemployment insurance (UI), set up under the
Social Security Act of 1935, had these objectives:
Provide income to workers during short periods of
involuntary unemployment
Help the unemployed find jobs
Encourage employers to stabilize employment
Stabilize the labor supply

UI and allied systems cover 95% of the labor force

The self-employed, firms with less than four
employees, domestics, farm employees, government
employees, and nonprofit employers are excluded
12-16
Unemployment Insurance
To be eligible for compensation, the employee must:
Have worked a minimum number of weeks
Be without a job
Be willing to accept a suitable position offered
through a state Unemployment Compensation
Commission
Neither the Social Security Act nor the National
Labor Relations Act forbids benefits for strikers
Each state decides whether to permit or prohibit such
payments
12-17
Unemployment Insurance
Federal unemployment tax accounts for 0.8%
of payroll
Tax rates, eligibility requirements, weekly benefits,
and duration of benefits vary from state to state
Before benefits are paid, the reason for being
unemployed must be assessed
Applicants can be disqualified for quitting a job
A negotiated quit is a legitimate reason for collecting
unemployment benefits
Discharge for work-related misconduct usually
disqualifies applicants
12-18
Unemployment Insurance
Unemployment compensation is usually limited
to 26 weeks maximum
In most states, the weekly benefit is
about 50 percent of earnings
Minimum/maximum limits are set
by the federal government
12-19
Unemployment Insurance
Unemployment compensation in Canada and
Europe differs from that in the U.S.
In Europe, employees who receive reduced work
schedules receive short-term compensation
The U.S. practice of paying unemployment only to
those working zero hours encourages temporary
layoffs
Canada, which provides wider eligibility and faster
delivery of benefits, has a much higher
unemployment rate than the U.S.
12-20
Social Security
In 1935, the pension portion of the Social Security
system was established
The goal was to provide income to retired people to
supplement savings, private pensions, and part-time
work
At the time it was created:
The wealthy lived alone
The average person moved in with relatives

The poor went to a “poor house”

12-21
Social Security
The concept was that:
Both the employer and employee would pay taxes
The taxes would cover the retirement payments each
employee would later receive
This was a self-funding insurance program

Initially, two goals were sought:

Adequate payments for all
Individual equity
12-22
Social Security

In 1950, there were about 16 workers paying taxes

for each beneficiary
Today, there are about 3.3 workers paying taxes for
each beneficiary
12-23
Social Security
Benefit details:
Employees born in 1937 or earlier become eligible
for full benefits at age 65, or reduced benefits at age
62
Those born in 1960 or later will not receive full
benefits until age 67
If an employee dies, a family with children under 18
receives survivor benefits
Employees totally disabled before 65 become eligible
Under the Medicare provision, eligible individuals
receive payments for medical related services
12-24
Social Security
In 1984, some retirement benefits became taxable
For single people with provisional income of $34,000
or more, up to 85% of Social Security benefits are
taxable
Married couples filing jointly pay taxes with
provisional income of $44,000 or more
Provisional income means:
Adjusted gross income, plus any tax-exempt interest
from municipal bonds, plus half of Social Security
12-25
Social Security
The U.S. has agreements with other governments to
coordinate Social Security benefits in order to:
Ensure equity of treatment
Prevent duplicate contributions or gaps
Ensure that contributions are paid in the location
where the worker is employed
Guarantee benefits to the employee’s family when
they have not accompanied the employee to the
foreign assignment

Total benefits may not exceed the highest pension that would have
been paid if a career had been spent in a single country
12-26
Social Security
Social security systems around the globe are in crisis
Steps that may be taken to meet this challenge:
Reduce the level of future benefits
Increase Social Security taxes
Allow private retirement accounts

As more workers reach retirement, the ratio of

active workers to Social Security recipients will
decline alarmingly
The current 20 to 30 percent will reach 40 to 50
percent over the next 40 years
12-27
Social Security
Demographic trends threatening the long-term
financial security of Americans:
Longer life expectancy
An increasing risk of long-term disability
Evolving work patterns
New family norms

Seniors need more money than previous generations

to maintain their standard of living
Many retirees will rely solely on Social Security
benefits
12-28
Social Security
The social security retirement benefit is tax free
in 24 states and is entirely free from federal tax
However, beneficiaries under age 65 can earn no
more than $9,120 per year
Those between 65 and 69 can earn up to $14,500
Those 70+ are not penalized for earnings

Employers and employees pay a payroll tax to fund

social security benefits
Each pays a tax of 6.2% on the first $90,000 of the
employee’s earnings (12.4% total)
12-29
Social Security
Social Security changes under consideration:
Higher taxes on Social Security benefits
Participation of all state, local, and federal civil
servants
Longer work and later retirement
Dramatic changes in the Social Security, Medicare,
and overall health care systems
Reduction in benefits
12-30
Workers’ Compensation
Workers with job-related illnesses or accidents
receive some financial protection
Workers’ compensation programs are administered
by the states
Employers pay the entire cost
Premiums are tied directly to each employer’s past
experience with job-related accidents and illnesses
All states plus the District of Columbia have
workers’ compensation laws
Only Texas makes participation voluntary
12-31
Workers’ Compensation
Eligibility varies from state to state
Benefits range from 60 to 75 percent of the average
weekly wage
Costs are growing due to:
Escalating fraudulent claims
The expansion of “compensable injuries”
Fewer restrictions to eligibility

A growing number of states are providing workers’

compensation through alternative sources
Some are also adding deductibles to their plans
12-32
Voluntary Benefits
Many employers provide
these kinds of benefits
voluntarily:
Pay for time not worked
Insurance protection
Retirement plans
12-33
Voluntary Benefits
Most employers now offer compensation for time
not worked:
Break time
Get-ready time
Wash-up time
Clothes-changing time
Lunch and rest periods
Coffee breaks
12-34
Voluntary Benefits
Employers also pay employees when they are not
actually at work:
Holidays
Vacations
Sick leave
Funeral leave
Jury duty
Personal leaves

The smaller the business, the fewer the provisions

for time off with pay
12-35
Voluntary Benefits
Vacations are a highly preferred benefit
Preferences for holidays vary
Lower-paid and female employees have stronger
preferences for sick leave
Unions have negotiated hard for added time off
The number of paid holidays has been increasing
The average is 10 or more for full-time employees

Federal Monday-holiday law also provides multiple 3-day weekends

12-36
Paid Vacations
The U.S. is the only major country that does not
mandate paid vacations
In China, workers receive three weeks
European Union countries average six weeks

Paid vacations are an expensive benefit

Most offer paid vacations after some length of service
The theory is that rested workers are more effective

Government and military employees traditionally

receive 30 days of vacation per year
12-37
International Vacation Benefits
U.S. employees earn higher real wages and have
greater personal wealth than many foreign workers
However, they receive substantially less paid
vacation
Unions were an important factor in achieving longer
vacations
If unions in the U.S. could be as politically active as
they are in Europe, vacation schemes here would be
comparable with the rest of the industrialized world
12-38
International Vacation Benefits
Insert Exhibit 12-5 here (Global Vacation Time)
12-39
Personal Time Off

Flextime scheduling minimizes the need for time off

9 out of 10 medium and large firms provide paid
leave for jury duty and funerals of close relatives
7 out of 10 provide paid leave for military duty
12-40
Sick Leave
Most employees of medium/large firms receive paid
sick leave for short-term sickness or injury
Most allow and pay for one sick day per month
This benefit usually accrues over time
Upon termination, few organizations pay for any sick
leave not taken
State/federal employees get paid for the unused
balance
Sickleave is always funded entirely by the employer
Benefits may vary by length of service
More white- than blue-collar employees are covered by sick leave
12-41
Sick Leave
A liberal sick-leave policy can cause excessive
absenteeism
A physician’s written excuse is often
necessary to be eligible for pay and
to return to work if the illness lasted
longer than three days
Some companies use sick-leave banks
Employees deposit a portion of their earned sick-
leave days into a company pool
If an employee uses all her/her sick leave, a
withdrawal from the sick-leave bank can be made
12-42
Family Leave
The typical nuclear American family made up 40
percent of all households in the 1970s
In 2004, this model fit less than 10% of all families
The number of families headed by a single provider
doubled between 1970 and 1983
Females heading families with children under the age
of 18 doubled between 1980 and 1990
Approximately 8% of adults never marry
More than 20 million adults moved back home
because they could not afford to live on their own
12-43
Family Leave
The U.S. passed the Family and Medical Leave Act
(FMLA) in 1993
Employers with 50+ employees must provide up to
12 weeks of unpaid leave during any 12-month period
This allows employees to balance the demands of the
workplace with family needs
Qualifying events include:
Birth of a child, adoption, placement of a foster child,
and the serious illness, injury, or mental condition of
a family member
12-44
Family Leave
Other stipulations:
The employee must have been employed for a full
12 months to be eligible
The employer must continue group health insurance
during the leave
The employee must be allowed to return to the same
(or equivalent) job
12-45
Maternity and Parental Leave
The Pregnancy Discrimination Act of 1978
requires that pregnancy be treated as
any other temporary disability
Parental leave policies are already
established in Western Europe
European leave policies offer lessons:
Limited leave entitlements have a positive effect on
productivity and create few problems for employers
Basic coverage should be established by law
Parental leave should offer some financial payment
12-46
Employer-Purchased Insurance
Many risks can be offset by buying insurance
Midsize and large employers can buy insurance more
cheaply than can individuals
This makes employer-sponsored insurance a
preferred benefit
Historically, insurance premiums were paid in full
by the employer
In the 2000s, employees are being forced to pay an
increasing share of the expense
12-47
Health Insurance
About 82% of full-time employees of midsize/large
firms had employer-provided health care in 1993
This is down from 90 percent in 1990
The decline is due to the increasing number of plans
that require employee contributions
Only one-tenth of part-time employees receive
medical benefits
In 2004, almost 40 million Americans had no health
insurance at all
12-48
Health Insurance
Less than 10 years ago, 6% of payroll
went to health care benefits
In 2004, the figure exceeded 19%

Contributing factors:
Increasing health care labor costs
More sophisticated technology and costly tests
Rising malpractice insurance premiums
Oversupply of hospital beds
Over utilization of fee-for-service medicine
Belief that health coverage is an entitlement
12-49
Health Insurance
Health insurance is a preferred benefit
Most employees get basic coverage
Salaried employees typically receive major medical
coverage with “last-dollar coverage”
Unionized workers usually have expanded coverage
with specific benefits
Unions favor this approach because:
Individual benefits are clearly labeled and impress
union members
These benefits can be obtained with no deductibles
12-50
Health Insurance
Types of health care coverage vary from
organization to organization
Traditional programs pay for both physician and
hospital expenses, as the costs are incurred
This approach is reactive, not preventive

The Health Maintenance Act of 1973 forced

businesses to provide alternative health care plans
Health maintenance organizations (HMOs)
Preferred provider organizations (PPOs)

These and similar plans are known as managed care

12-51
Health Maintenance Organizations
An HMO consists of medical specialists
offering outpatient/hospital coverage
for a fixed monthly fee
HMOs promote preventive, healthy
lifestyles
Increasingly popular with employers,
some employees resist the plan
An enrollee may have to leave his/her family
doctor for one who works with the plan
12-52
Preferred Provider Organization
A PPO is a health care plan that provides services
for a fixed fee
It is based on agreements between doctors, hospitals,
related medical facilities, and an employer or
insurance company
Most PPOs include:
A select panel of providers
An emphasis on cost efficiency
Marketing to purchasers rather than users
Some flexibility in choice of providers
Financial incentives to use selected providers
12-53
Preferred Provider Organization
To compete, PPOs must also:
Provide cost-efficient health care
Emphasize cost containment

Cost controls include:

Obtaining discounts from providers
Passing some risk back to providers
Utilization controls
12-54
COBRA
Section 162(k) of the Consolidated Omnibus Budget
Reconciliation Act of 1985 (COBRA):
Applies to employers with more than 20 employees
Requires the offer of continued health care coverage
for up to 36 months after termination of an employee
Extended coverage premiums are paid by employees
Employees disabled or working reduced hours when
they leave can extend coverage to 29 months
Spouses/children can continue their coverage, even if
the employee dies or becomes eligible for Medicare
12-55
COBRA
Extended coverage is not a free ride:
Qualified beneficiaries can be charged up to 150
percent of the plan’s premiums
Penalty for failing to comply with COBRA and
OBRA regulations:
Employers are not allowed to deduct contributions
to that or any other health plan
12-56
Long-Term-Care Legislation
The number of Americans older than 65 will double
over the next 25 to 30 years
Many private firms already provide long-term-care
insurance
Long-term care insurance used to cover nursing
home stays only
More flexible benefits now include home care by
professionals or family members
Long-term plans are funded by employee
contributions
12-57
Life Insurance
Group life insurance is one of the oldest and most
widely available employee benefits
Most full-time employees of medium/large private
firms are covered
Almost two-thirds of full-time employees of small
firms also receive coverage
This insurance usually provides a
lump-sum benefit to the designated
beneficiary
12-58
Life Insurance
Most plans include coverage for retirees and
dependents of employees
Many also allow employees to increase the value of
the policy at attractive group rates
In most cases, the employer pays the whole premium
The amount of insurance is typically twice the
employee’s salary
12-59
Income Replacement Insurance
Workers’ compensation was designed primarily to
take care of short-term disability
Long-term disability insurance, funded by employers,
kicks in after six months
Social Security and other benefits also kick in

About 1/3 of the plans provide survivors’ benefits

equal to the employee’s monthly benefit
The duration of benefits averages 26 weeks

The goal is to provide employees with at least half

pay until pension time
12-60
Income Replacement Insurance
Most employees covered by income
replacement insurance:
Are blue-collar workers
Receive lump-sum payments

For other employees,

coverage is tied to salary level
12-61
Income in Retirement
Security in later years rests on a three-legged stool:
Social security
Savings
Private pensions

By 2010, Social Security and pensions combined will

provide no more than 40% of retirement income
More retirees will return to work or work longer
Increasing longevity and inflation will make it harder
for retirees of the 2000s to maintain their lifestyle
12-62
Income in Retirement

All the legs of the stool are wobbling

Personal savings are no longer a secure nest egg
Real estate investments no longer guarantee a payoff
Social Security is at risk because of deficit spending
Many private pensions have been defunded
12-63
Retirement Income from Savings & Work
Personal savings are an increasingly important
source of retirement income
People save more if their incomes are high
Employees covered by private pensions are more
likely to save for retirement than those without them
Around the mid-1970s, as Social Security taxes
increased, personal savings started to decline
More retirees may have to return to work to
supplement Social Security payments
Social Security does not allow much work after
retirement, so the law conflicts with retiree needs
12-64
Individual Retirement Accounts (IRAs)
Any employee can make annual contributions of up
to $3,000 to an individual retirement account
Being enrolled in a company pension plan does not
disqualify you
The funds are tax-deferred until retirement
This shifts the tax burden to later years when lower
personal income should mean lower taxable income
12-65
Simplified Employee Pension IRAs
Small companies can implement simplified employee
pension IRAs (SEP-IRAs) for their employees
Maximum annual contribution is $40,000, or up to
25% of compensation, whichever is less
Business contributions to the accounts are tax-
deductible and not subject to Social Security or
unemployment taxes
Funds are taxable when withdrawn
12-66
401(k) Plans
IRS Code Section 401(k) allows employees to save on
a tax-deferred basis through salary deferral
In 2005, the limit a person can defer is $14,000
Deferrals to a 401(k) must be coordinated with
deferrals to other plans
Some employers match employees’ contributions

Most employees prefer 401(k) plans to IRAs

The number of firms offering such plans has risen
dramatically in the last 10 years
12-67
Private Pensions
Private pensions are a relatively new benefit
Virtually no other country has private pensions
By 1960, about 15 million U.S. workers were
covered
After the mergers of the 1980s, many private pension
plans were defunded
In the U.S., private pension participation is at an all-
time low of only 43 percent of the labor force
Only 21% of self-employed workers are covered
12-68
Regulation of Private Pensions
The Employment Retirement Income Security Act
(ERISA) of 1974 regulates private pensions
The legislation was developed to ensure that
employees receive promised pension benefits
The law set minimum standards, which all private
pension plans are required to meet
ERISA does not require an employer to have a
private pension plan
Many existing pension plans were terminated so they
would not have to meet ERISA requirements
12-69
Regulation of Private Pensions
A defined benefit pension plan specifies the benefit
workers will get at retirement
The amount is typically a fixed monthly income for
life, or a variation of the lump-sum cash payment
The employer annually contributes an amount into a
trust fund in order to pay the promised benefit
Contributions are calculated actuarially
Pension payout formulas vary widely
12-70
Regulation of Private Pensions
A defined contribution pension plan:
Usually specifies the employer’s contribution
Cannot predetermine the employee’s benefit amount
Establishes rules for contributions

The money is invested

Projections are made as to probable
retirement income levels
12-71
Regulation of Private Pensions
Defined contribution plans include:
Savings and thrift accounts
Profit-sharing plans
Money purchase pensions
Stock ownership plans

Both types of plans specify age, length of service,

or both, needed to receive full retirement benefits
12-72
Employee Services
Employee services is something of a catchall
category of voluntary benefits, such as:
Cafeterias
Saunas and gyms
Free parking
Commuter vans
Infirmaries
Ability to purchase company products at a discount
Death, personal, and financial counseling
12-73
Stock Ownership Plans
Many companies encourage employees to purchase
company stock, often at discount prices
Purchase plans often allow for payroll deductions or
company financing of the stock
The company may buy back the stock at a guaranteed
price if selling it would result in a loss
Companies use these plans for the same reasons as
they do profit-sharing:
When employees become partners in the business,
they work harder
12-74
Education Programs
Many organizations support off-the-job education
Employees can receive up to $5,250 annually
in tax-free educational assistance
Reimbursements for graduate-level
courses are taxable
The tax status of other reimbursement
plans is unsure
Employees most likely to participate:
Salaried full-time
Nonunion hourly

85% of those eligible to participate do so

12-75
Pre-retirement Programs
Companies are increasingly offering preretirement
planning programs on:
Health
Money management
Legal issues
Housing
12-76
Childcare Programs
At least 5,000 parents a day miss work or fail to find
a job because they can’t find childcare
An increasing number of employers are responding
with company-sponsored childcare programs
Alternatives include flexible working hours,
telecommuting, lists of child care facilities,
providing on-site programs
Offering these programs causes
absenteeism and turnover to fall
Job satisfaction, productivity and
loyalty soar
12-77
Elder Care
People 65 or older will make up 23 percent of the
population of the U.S. by 2050
At least 20 percent of employees already provide
assistance to elderly relatives or friends
They spend between 6 and 35 hours per week
providing this care
At least half also have children at home
The burden falls more heavily on working women
12-78
Elder Care
The employee/caregiver experiences these problems:
Missed work (58 percent)
Loss of pay (47 percent)
Less energy to work (15 percent)

The employer experiences these problems:

Extensive phone calls
Tardiness
Elder care is an
Excessive absenteeism emerging
employee benefit
Unscheduled time off
Loss of concentration
12-79
Financial Services
Organizations help and encourage their employees
to save through:
Employee savings plans
Credit unions
Thrift plans

Financial planning services are also offered,

especially to executives and professional personnel
12-80
Social and Recreational Programs
More than 50,000 organizations provide recreation
facilities for employees
Experts foresee a growing trend to release employees
from work to participate in sports activities
These activities are intended to keep employees
physically fit and tie them to their employer
No studies show the value to the employer
Recreational services are the least preferred of all
benefits and services
12-81
Flexible (Cafeteria) Benefits Plan
Escalating benefit costs and diversity have caused
two new benefits to surface:
A flexible (cafeteria) plan allows employees to
choose between multiple types of benefits, such as:
Health care
Life insurance
Disability insurance
Cash to spend on coverage in the open market
12-82
Flexible (Cafeteria) Benefits Plan
Flexible spending (reimbursement) accounts provide
funds from which employees pay for expenses not
covered by the regular benefits package
These funds are usually a pretax deduction that
can be allocated for such things as:
Unreimbursed health care
Childcare
Care for elderly or disabled relatives
12-83
Flexible (Cafeteria) Benefits Plan
Flexible benefits and reimbursement accounts can:
Increase employee satisfaction
Save employers from purchasing coverage that
employees don’t want
Regardless of employee choices, sufficient coverage
must be provided in key areas, such as:
Health care
Life insurance
Disability insurance
12-84
Managing an Effective Benefits Program
When making decisions about benefits and services,
managers must consider that:
Mandated programs must be funded
There is little evidence that benefits and services
motivate performance or increase satisfaction
Most employees see benefits/services as entitlements
Unions, competitors, and industry trends pressure
managers to provide or increase voluntary benefits
Costs of benefits and services continue to escalate
dramatically
12-85
Managing an Effective Benefits Program
To manage a benefits program effectively:
Step 1: Set Objectives and Strategy for Benefits

Step 2: Involve Participants and Unions

Step 3: Communicate Benefits
Step 4: Monitor Costs Closely
12-86
Cost-Benefit Analysis
When benefit costs increase, the price of products
and services increases
This makes companies less competitive

Higher benefits can reduce permanent employment

It is cheaper to pay overtime or hire part-time
employees than pay full-time wages plus benefits
Most evidence shows that benefits do not affect
turnover at all
12-87
Cost-Benefit Analysis
It is rational for employees to want additional
benefits because they constitute tax-free income
Many companies cannot afford to pay benefits plus
high wages
There has been little research on the effect of benefits
on productivity