Why investing in employee perks still matters

Credit: Yvonne Qumi

iSelect’s Melbourne office one-ups Google’s playground vibe, adding a ball pit to the slide experience

The era of over-the-top company perks might be coming to an end, but perks, if properly designed, may still the best way to attract and retain employees

There probably aren’t many business people out there who haven’t rolled their eyes at least once reading about tech industry employee perks. It seemed there for a while that no startup could dream of attracting talent without a mechanical bull or an indoor tree house. Maybe the clearest indication that there was a bubble forming was when nap pods were declared among the 10 most essential employee perks by esteemed tech industry insider Teen Vogue.

Of course, it may be just dumb obvious that a bubble built on chocolate fountains and table tennis tournaments had to burst. And in the tech sector there’s evidence of that coming. Money is going to be tighter, judging from a recent canvassing of venture capitalists by Business Insider. Down rounds are up, in which companies raise money at lower valuations than in previous rounds. Over at Dropbox, perks were indeed cut earlier this year—no more free gym-gear-washing service, sorry—although they did keep the infamous $100,000 chrome sculpture of their panda mascot.

It’s tempting to conclude that this signals the death of the perk entirely, but businesses outside of technology—those who likely did not overpay for employee ball pits or Thursday kickball recesses—should not drop the perk entirely from their HR toolkit. Perks are powerful when applied with forethought. And they may, in the end, be more far more flexible in attracting and keeping employees than mere dollars.

“Salaries can actually paint you into a corner,” says professor Daniel Skarlicki of UBC’s Sauder School of Business, whose area of research is compensation and leadership. Annual salary increases are typically small for most employees, he points out, and so they do not motivate much. But they tend also to operate with what he calls a “ratchet effect”—meaning that once you give a raise, it cannot be withdrawn without enormous demotivating effects. An even bigger issue with salaries is that employees attribute value to them without reference to any absolute scale but based instead on social comparisons. Research has long confirmed this: we’re happier in the biggest house on a street of small houses than we are in a huge house where the other houses are huger.

Perks, on the other hand, prove much more difficult to compare. Weekly hot yoga classes or a Michelin-starred chef in the kitchen? It’s hard to know on which side of that fence the grass is greener. “One size does not fit all with perks,” says Sandra Reder of Vertical Bridge, a human resources consultancy in Vancouver that advises clients on how to attract and retain key employees. Knowing that their employees are typically outdoorsy types, for example, Mountain Equipment Co-op probably wouldn’t give them perks in the form of opera tickets. Employee discounts on MEC gear would work better all around, as that’s a perk that builds the brand internally while also responding to the life employees are actually living 

Perks can also be a way of creating employee experiences that mesh with their values and contribute to a sense that their work is meaningful. “Younger employees in particular want to work for a place demonstrating corporate social responsibility,” says Reder. The best of these so-called CSR programs do not necessarily involve vast contributions of money by the company itself. Seed the giving—ideally to a charity selected with employee involvement—and then let employees themselves contribute. The result, she says, is an engaged employee community that senses the connection between their work and their core beliefs.

Both Reder and Skarlicki agree, further, that the best perk programs are designed with generational differences in mind. Millennials are values driven, so if your workforce is 20 to 30, think about a CSR program; think about on-site bike storage. If you’re hiring people a few years older, think about daycare assistance or flex-time arrangements that allow people to better structure time with their family.

Of course, there remain risks with perks. Skarlicki warns about perk lockout, where a perk to assist employees with families excludes a whole tranche of the workforce that has no kids. A certain amount of balancing and awareness of employee demographics is necessary. Worse perhaps is the perks arms race phenomenon—where, in a hot job market, companies find themselves trying to one-up each other. It’s arguably that line of thinking that brought us to in-house masseuses and private Kid Rock concerts in the first place.

But in the end, the potential rewards of a well-designed perk program—having carefully considered the workforce, its demographics and its values—are likely to have far greater motivating and engagement effects than any across-the-board salary increase or bonus that a given company could afford. And engagement is the key, because you want to keep people. “The cost of hiring,” Reder reminds us, “is much greater than the cost of retaining.”