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Which Perks Matter Most to Employees?

Wharton professors weigh in on which fringe benefits motivate and which ones might backfire
Whistle (and Foosball) While You Work: GoDaddy designed its Silicon Valley headquarters (seen here in 2014) to include go-karts, a rock-climbling wall, and a portable bar. (Photo: Lawrence Anderson/Esto)

 

When his students come back from interviews for jobs or internships, Wharton assistant management professor Iwan Barankay hears them talking about what their responsibilities would be or what a challenging process the interview was. Sometimes, though, what he hears these new entrants to the workforce discuss are the job perks. “That has become a salient talking point that helps them decide whether to go to one company or another,” Barankay says. “It’s surprising, because it’s immaterial to what their career should look like. But that is something they’re discussing now.”

Perks—extras that range from free beer at work to bereavement leave when a pet dies — have been big in many workplaces for a while now. But it’s unclear to what extent the movement has produced real value for employers or employees. What’s the use of unlimited vacation time, for instance, when employees with limited time off aren’t using all of it anyway? And don’t workers who haven’t seen real wage growth over the past decade look at company-provided yoga lessons or a new ping-pong table with a jaundiced eye?

The value of a given perk depends on a number of variables, says Wharton management professor Sigal Barsade. Some perks now being offered beyond the traditional package of compensation, health care, and two weeks’ paid vacation might seem frivolous, she acknowledges.

“But if it’s tied to the values of the company, if it’s a living instantiation of the culture, then it can have deep symbolic meaning. So when I hear about a day for bereavement of one’s pet, that’s a great representation of a culture of companionate love — that is, affection, caring, and compassion” — which may in fact be quite relevant to the emotional culture of a particular company.

“I think these policies are done to attract and retain talent,” says Barankay. “They’re ways to stand out among all the opportunities that these top job applicants have. Companies may not like to talk about this, but they know that the value-add of the top talent to their company is very large. Typically, the top one percent of a company generates 15 percent to 20 percent of value added, so anything they can do to attract and retain these people is fair game.”

In addition to appealing to star performers, “Perks are symbolic of valuing employees, and people will give more when they’re in a culture that’s supportive and caring,” says Wharton management professor Nancy Rothbard. But in order for perks to be optimally effective, they have to be more than mere talking points to get talent through the door. And they should be tested for whether they’re producing the desired results. “When in alignment with the culture, I think perks are wonderful,” says Barsade. “They serve a practical and behavioral purpose and a symbolic and cultural purpose. But they have to be done the right way.”

The Significance of a Ping-Pong Table

Netflix offers a year of leave to new parents. Cloud platform communications company Twilio gives each worker a Kindle and a $30 stipend every month to buy books. Twitter has on-site acupuncture, catered meals, and improv classes. Some companies develop perks to reinforce a message about the kind of work they do. Outdoor camping and recreational gear company REI, for instance, gives workers two paid days off per year to spend on an outdoor activity.

Perks are often associated with tech companies and the new economy, though in truth, these extras have roots stretching back decades — and were often negotiated as part of collective bargaining agreements. At some large newspapers, for instance, workers could once take advantage of doctors and nurses on-site, 24-hour cafeterias, bank or credit union branches, and free rides home at the end of a shift.

Today, of course, labor unions don’t have the presence or influence they once did. But the shining example of Silicon Valley has set off a wave of similar offerings at firms that want to appear equally attractive, according to Wharton assistant management professor Samir Nurmohamed. “Silicon Valley helped ignite these things — everything from cafeterias to yoga to bring-your-dog-to-work day — and it relates to the concept of isomorphism, where aspiring companies replicate what a higher-status peer does, to give themselves legitimacy. They may say, ‘If we want to be seen as a startup, then we should get that ping-pong table.’”

A ping-pong table can mean different things at different companies at different times. At the firm where there have been no raises, it may be interpreted as a cheap gesture in lieu of one that would be a meaningful improvement in wages and conditions. But if it arrives in a healthier context, it can add to success. Where a company is about competition and fun, a ping-pong table can help emphasize and reinforce that culture, says Nurmohamed.

“Instead of giving us real benefits, they’re giving us messages about how important we are to the company,” says professor Iwan Barankay.

“It also can create collaboration across boundaries throughout the organization, by having people from the organization meet each other,” he says. “Doing things outside of your regular routine has been shown to spark greater creativity, and if the company values collaboration and creativity, then it reinforces those values.”

So, what kinds of perks do workers want? More time off, according to a MetLife 2019 benefits study. In a survey of 2,500 workers, when it came to perks, 72 percent said they were most interested in unlimited paid time off — well above the 61 percent who said they wanted on-site gyms, meals, or dry-cleaning services.

Wharton management professor Peter Cappelli finds this response surprising, in a way. “Those who value unlimited vacation time so much should get a reality check,” says Cappelli, who’s the director of Wharton’s Center for Human Resources. Unlimited vacation doesn’t really mean taking off as much time as you want, he points out: “There are lots of pressures on you not to take time off in organizations that have ‘unlimited’ vacation days. Nothing prevents bosses from punishing you, formally or informally, for taking time off, or from leaning on you to not take it when it suits you.”

In fact, 55 percent of those surveyed in a 2019 Ipsos poll of 1,025 American workers said they didn’t use all the time off they were allotted in 2018. The number of unused days was nine percent higher over the previous year because the days workers were granted increased more than the number of days they could apparently use.

Unlimited Vacation’s Surprising Impact

Yet unlimited vacation time is “definitely a perk that is gaining traction at both established and emerging firms,” says Jiayi Bao GRW20, a Wharton doctoral candidate in business economics and public policy whose dissertation examines the proliferation and effects of the unlimited-vacation-time policy. In looking at a large high-tech firm with unlimited vacation, Bao found that people do actually take more vacation time when there’s no limit. What’s more, “Giving them more vacation makes them feel better about their own productivity, and they rated that productivity higher subjectively,” she says, then adds a caveat: “But only when team members are close to each other and when they feel heard by managers. The effect is positive, and even stronger in teams with strong cohesion. But the effect is negative for people in bad teams that aren’t close to each other.”

Of course, those are evaluations of productivity that the workers gave themselves. To get a more objective measure, Bao — whose paper is titled “(How) Do Risky Perks Benefit Firms? The Case of Unlimited Vacation” — ran a field experiment in which she hired hundreds of people to work for her for a month and found that unlimited vacation time attracted higher-ability workers.

She also determined that a typical unlimited vacation contract is three times more attractive to high performers; that it increases worker productivity by 51 percent, with 20 to 30 percent coming directly from the vacation feature; and that it induces extra outputs from happier workers. Moreover, unlimited vacation coupled with a strong firing threat conditional on performance reduced the slacking rate (that is, workers who don’t fulfill a performance requirement in the work contract) by 45 percent.

“That blew me away, as I thought this policy was just a fad,” says Barankay. “The reason for it might be surprising: Under unlimited vacation, most employees worked beyond their required performance for no extra pay, and when asked about it, they said they wanted to signal their commitment to the job and employer.”

The study shows how managers can create a highly skilled, productive, and motivated workforce through the perk of unlimited vacation, Bao says, while highlighting the contingencies based on organizational conditions such as social dynamics, bundled HR practices, and the culture for punishing underperformance.

But unlimited time off might be in a category by itself, given the high value workers attach to it. Do other perks draw greater productivity and loyalty from workers? “When you have all these perks that have to do with taking care of you, it’s wonderful,” says Barsade. “But if you sense you’re being coerced into staying at work longer and don’t want to do that, then having all these things on-site may well be viewed negatively. The intent behind the perk has to be seen by both employees and management as something that’s consistent with the values of the organization — which is meant to support those values and not skirt some other obligation.”

Just Fluff, or the Good Stuff?

Sometimes, perks really are just a way to get employees to work harder without any extra pay, says Barankay. Though the labor market was tight — at least prior to the COVID-19 pandemic — companies right now still have a lot of bargaining power, he points out, as a result of the long decline in employee representation by trade unions and increased use of outsourcing and freelancers. “The reality is that working conditions aren’t as good as they could be,” he says. “Instead of giving us real benefits in terms of money or fringe benefits, like more predictable work schedules or better job security or maternity or paternity leave, they’re giving us messages about how important we are to the company. I think this is becoming more and more obvious, and people are catching on to this and are indeed working harder. I think there will be a backlash, over time, where it’s being shown that people are working harder without any additional pay or benefits.”

Many agree that perks are sometimes a case of a company getting off easy. On the other hand, certain perks demonstrate that “you can do a lot to show caring to your employees without it being overwhelmingly expensive,” says Rothbard. “A lot of times, leaders and managers overlook some of the little things they can do to make people feel valued, whether it’s perks or treating people with respect and asking them how they’re doing. Those types of things that develop a relationship between a leader and an employee can go a long way.”

 

Published as “Perks That Work” in the Spring/Summer 2020 issue of  Wharton Magazine.

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