Can’t give employees raises? Add benefits

Despite fears of a slowdown, the labor market is still pretty tight. Most companies aren't laying people off. They are more concerned about retaining the workers they have. But how? Inflationary pressures mean employees want raises, but employers might not want to grant pay increases in an uncertain economy. 

Yet too often, companies overlook another way to boost employee retention and morale. Enhancements to benefits are often cheaper than across-the-board raises. There are usually also tax advantages both for employees and employers. Those that convince workers to stay are those that increase what academics call "employee embeddedness." In other words, they entangle the employee in the organization in a way that makes it tough to escape, er, quit. While nap pods, on-site yoga and free food got a lot of attention during the tech boom, these sorts of perks are probably better for impressing potential recruits than retaining existing staff. And the most common benefits in the US are more pragmatic: paid vacation, health insurance, a retirement account.

And practical, valuable benefits are what companies are now focused on improving. A few weeks ago, insurance company MassMutual announced an expanded caregiver leave policy, offering eight weeks of paid time off for employees who need to care for a loved one — any loved one, not just an immediate family member. Last fall, Bank of America announced a sabbatical program. An increasing number of US airports are opening daycare centers to help workers with child care — something also possibly coming for employees of chipmakers. And of course, in the wake of the Dobbs ruling overturning Roe v. Wade, several US companies announced that they would pay for travel for employees who needed to cross state lines to access abortion care.

Some of the enhancements are aimed directly at increasing retention by combating the burnout many workers are feeling right now. An array of smaller firms have recently announced two-week vacation mandates, 60-day digital nomad programs and — in the UK at least — four-day workweeks. 

Yes, one can find examples of firms that went in the other direction. Hulu, for example, slashed its paid parental leave program from 20 weeks to just eight. (The US has no federally guaranteed paid leave.) Yet firms like Hulu are the exception.

Companies have clawed back some Covid-era perks such as free lunch for in-office workers, subsidized parking and, most controversially, flexibility around how often to be in the office. But even the rigid return-to-office plans pushed by some Wall Street firms are an outlier. Data from economists Jose Maria Barrero, Nicholas Bloom and Steven J. Davis suggest that as of 1 January, 2023, almost 20% of workers able to work from home were still working fully remotely. 

By and large, it seems that more firms are adding benefits than slashing them. But for employers, this raises a challenge: how to stand out from the pack? One option is to consider adding a less common benefit like paid parental leave, paid mental health days, on-site child care or a sabbatical program.

Then there is bang for the buck. Retirement benefits aren't rare, but they are enormously financially valuable to employees. Conversely, I don't think any employee joins a company for the dental plan, and a perk like dry-cleaning drop-off isn't going to prevent anyone from leaving.  

The opportunity to take a sabbatical — paid or unpaid — is still pretty unusual, but many long-serving employees consider that career break priceless. When Kira Schabram, Matt Bloom and DJ DiDonna interviewed 50 employees who took a career break, not one regretted it. (Research has also found benefits to the organization; when senior leaders take a career break, it can give more junior employees a chance to grow in their jobs.) 

A benefit need not cost an employer a lot of money to have a high dollar value to an employee. Consider flexibility. At firms where employees are more or less always-on — you know, the so-called laptop class — it costs firms little to give workers discretion over when and where they are working. Flexible work is associated with lower rates of burnout and higher intent-to-stay. And workers can save real money when they have more control over the particulars of their schedule and don't have to shell out for commuting costs, takeout lunches or the fees daycares impose for late pickups. It's not surprising that despite the headlines made by some CEOs, most firms seem to be just fine with a hybrid-work approach.

And when you can't give employees a 6% raise to keep up with 6% inflation, benefits are among the best ways to convince valuable employees to stick around.

Sarah Green Carmichael is an editor with Bloomberg Opinion. She was previously managing editor of ideas and commentary at Barron's, and an executive editor at Harvard Business Review, where she hosted the HBR Ideacast.

Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.