Fringe benefits — just how taxing are they?

At the height of the dotcom bubble, companies provided mountain bikes, masseuses and lunches to maximise staff retention. But do such incentives really work?

Companies like Google behave almost as though the dotcom crash never happened. They still emphasise the importance of fringe benefits in their recruitment and selection process. “Let’s face it — programmers want to program, they don’t want to do their laundry,” says Google boss Eric Schmidt in Google: Ten Golden Rules, a recent article in Newsweek. “We make it easy for them to do both.”

Schmidt goes on to explain how Google nurtures knowledge workers and caters “to their every need”: with first-class dining facilities, gyms, laundry rooms, massage rooms, haircuts, car washes, dry cleaning and commuting buses. And research suggests fringe benefits make more than peripheral sense. “The variable pay or merchandise-based reward system is always costly for companies. However, replacing a skilled employee is a far greater cost,” says research organisation Aberdeen Group in its recent report, Retaining Talent: Retention and Succession in the Corporate Workforce.

Kelly IT’s manager of engineering and IT recruitment, Peter Hargraves, is sceptical about the value of such schemes, however. “There’s no information that I’ve ever seen that shows providing mountain bikes has a measurable effect on job retention,” he says. “The problem we have here is a ‘copycat’ effect: ‘get some mountain bikes, put a pool table in, that’ll keep our IT people happy’. There’s nothing wrong with putting in a pool table or getting people to come around and give neck massages, but they’re side issues. Nobody would stay working somewhere just because there’s a mountain bike in the hallway.”

It would be difficult for many New Zealand organisations — in a small market with its associated disadvantages — to offer their workers similarly attractive incentives. Anne Buzeika, general manager of information services in the Faculty of Education at the University of Auckland, doesn’t believe in offering employees fringe benefits that aren’t relevant to the job, but says that since the university isn’t able to offer many of them anyway she’s never been able to test for positive effects. “A fringe benefit of a car is only relevant if you’re expected to be mobile. As part of our remuneration packages some IT people are allocated company-paid cellphones. That can be seen as a fringe benefit because they can be used in their own time, but it’s actually a necessity for their job so that we can contact them when they’re out and about.”

Dianne Dumper, human resources manager at Axon Computer Systems, says technical IT workers respond to different incentives than other company employees. Fringe benefits are important to the culture at Axon, but there is a tendency for them to go unnoticed, she observes. “We’ve found that the technical IT people enjoy different stimulants to other people and are more appreciative of being paid a salary for doing the job, rather than a carrot being dangled.”

Myth busting

Some CIOs interviewed for this article say technical staff require entirely different incentives from other workers in the organisation. But these incentives are not monetary, according to a CIO at a major New Zealand organisation with a high number of contract programmers. However, our recruitment experts each independently and strongly disagree with that anecdotal view.

“My experience has been that the way to motivate all people is very similar,” says Hargraves of Kelly IT.

“IT people are exactly the same as every other kind of person, so there really is only a single retention strategy, and it’s the most difficult thing for a company to do: it’s what we call ‘bringing meaning to the work’. For that to happen, the employee has to be able to see exactly what their contribution is to the organisation.”

Martin Price of HR Equations says the widely held belief that IT workers respond differently from other workers may have had its origins in the 1970s and 1980s, when IT sector growth rates and speed of technology change surpassed all other areas of the economy. But he also believes the phenomenon is a myth.

“In my view, the notion that IT workers are different is a red herring and distracts from the really useful questions about culture and behaviour.”

However, Buzeika of Auckland University says programmers and developers definitely respond to different motivations, and that tech geeks might value a lapel badge as much as a financial reward.

“It’s very individual, and it’s related to the culture of where you’re working. For example, the culture of education is life-long learning, so all of our people are offered extended training opportunities because that aligns with our culture.”

Muhammad Khan, acting general manager at the New South Wales Department of Environment and Conservation agrees that the career development opportunities afforded to staff are more important than material fringe benefits. “If the organisational culture is supportive and friendly, technical opportunities are diverse and challenging and career development paths are provided, good staff will stay and work with the organisation.”

Fertile ground or

treacherous swamp?

In the experience of Brian Pink, government statistician and chief executive of Statistics New Zealand, fringe benefits are often driven by quirks in a country’s tax system. “In my view, the dotcom era provided fertile ground for extreme examples of status symbols for management and staff with strong egos and market clout. That it still persists suggests to me that it’s now part of the culture in some markets.”

HR Equations’ Price says lack of recognition is a common reason for people to leave a job and material benefits can help in this regard. “Monetary and non-monetary rewards are important drivers of recognition. It’s well worth developing a reward strategy — including some serious thinking about whether or not perks will be included — to help drive retention.”

So, you’ve handed out your swag of free T-shirts and you’ve pinned an “after-work drinks” invitation on the notice board next to the water cooler. How else can you retain staff when a Google approach to fringe benefits is economically untenable? Price says local CIOs would be better served creating a workplace culture that enables employees to be successful, with customer demand, future changes and business goals in mind. “Having decided what sort of behaviour is needed from the group as a whole, the CIO can then ask what behaviours they need from each individual for each job. Then they can recruit for those specific behaviours in new recruits and coach for and reward that behaviour in existing staff.”

Hargraves of Kelly IT says organisations also need a detailed plan that is shared with employees so that their contribution can be measured against it. “We’re not talking about their contribution to ‘project X’ that finishes on Monday, we’re talking about their contribution to making the organisation grow and making it profitable,” he says.

The classic IT recommendation to measure success applies just as much to staff retention strategies as it does to a system rollout. But it’s no use merely setting key performance indicators (KPIs) for your employees unless each of them understands how meeting those KPIs will contribute towards achieving the organisation’s overall business goals.

“An IT worker with rare skills who can’t be replaced is the most difficult employee to performance-manage,” Hargraves warns. “He knows you’re not going to let him go. What he needs7i is motivation, and the reason to come in in the morning should be to work as part of the whole organisation to help move it forward.”

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