Are employee benefits the answer to the cost of living crisis?

Many HR leaders are struggling with how to support employees with the skyrocketing cost of living. And if the predictions are correct, it will get worse before it gets better.

With pay rises not able to match CPI – or make up the difference on the $9 broccoli – how can HR ease things for employees? How can you stop employees looking around for better pay?

What can you do to support your team and keep them engaged?

Employee benefits have been a popular way to be seen to be helping. You pay a provider a fee per employee for the employee to access discounted insurance, gym membership, gift cards and more. Sounds great.

It’s not.

While on the surface this seems like a good idea, employee benefits do little to actually financially support the employee – or engage them.

Employees can easily access similar – or better – discounts from consumer programs. Phone and internet companies, the insurance companies themselves, subscription services, utility companies. Everyone has some sort of loyalty or benefits program that your employee offer competes with.

There are so many discount programs out there, research from Salesforce has found we are all loyalty fatigued. The average person belongs to more than 14 programs and there is over $100B left on the table in unredeemed benefits annually.

While this research is in the retail loyalty space, it suggests the benefits market is over-saturated and uninspiring.

Many programs offer the same thing – discounted lifestyle benefits just for being signed up. Given almost everyone has a mobile or internet account, it’s likely that all employees can access cheap movie tickets and small discounts in multiple other places.

Another issue with employee benefits programs is that often, the discounts just aren’t really worth much. On the surface, a 5% discount on insurance sounds great but in reality, it’s not that meaningful.

Take the average car insurance policy in Australia. Paid monthly, the typical cost is about $120 a month for a comprehensive policy. A 5% discount is just $6 – not really something worth chasing down. The discount is not worth the effort an employee goes through to redeem it. Sure, it’s equates to a free coffee but is it meaningful or engaging?

Discount gift cards sound great. Who doesn’t want a grocery voucher for less than the face value. Again, it’s the size of the discount that makes it meaningless for employees.

The way employee benefits companies work is they buy in volume at a large discount. They may get 5 – 6% off the face value or more. The more they buy, the bigger the discount. Given a gift card is pretty much like cash, that is like giving someone $95 in exchange for $100.

Good deal - but for who?

The employee benefit company then add a slice on the way through, selling the card for maybe 2 – 3% discount. The employee still gets a discount, it’s just not much of one. And as employees don’t buy in volume, there is no compounding impact.

And the benefits company? They get a nice tidy profit with the benefit of volume. Even if they are only adding 1% and your employees buy at a 4 – 5% discount, the benefits company still wins.

Add to this that no-one wants to be seen as a cheapskate. There are social factors that come into play when we consider redeeming a discount. We psychologically trade off the social disincentive of being seen as cheap with the economic incentive. When discounts are minimal, not wanting to be seen as cheap wins every time.

If, for example, it was a 20% discount, the economic incentive would outweigh the social impacts. But for a minimal financial gain, we prioritise our social standing.

The real question when it comes to how to best support your employees is what your objective is? Financial support, engagement, loyalty or something else.

If the objective is helping employees financially, employee benefit programs have some validity, although not much. They just aren’t used enough to be valuable.

If the objective is driving loyalty and engagement, employee benefit programs don’t do this. They have nothing to do with loyalty and engagement. All you have to do is google ‘employee benefits’ and you can see they are sold as a loyalty tool. This is just sales speak.

Employee benefits programs have zero impact when it comes to employees considering if they will stay with the company.

Here’s why.

Benefits are not motivating. Everyone, no matter who they are or how hard they work, gets access to the program. The benefits are a given and if your employees are looking around for a new job, they will likely be a given at the next company too.

Employees can’t work harder to get more. They can’t go above and beyond for bigger discounts. The employee in the back corner who never pulls their weight has the same access to the benefits as the employee of the year contender. Benefits hold no extrinsic motivation for employees at all.

Employee benefits are not sociable. Employees don’t sit around talking about the 5% discount they scored from the program. They don’t brag that they got $6 a month off their insurance. Even $72 a year is nothing to chat about. From a reward perspective, they have no sociability.

They are not engaging. A small number of your employees will use them, sure. But benefit do nothing to drive up engagement. They don’t add to your culture in a meaningful way and employees can’t participate and contribute to an employee benefit program. They can’t engage and as a result, the program doesn’t engage.

If you are looking to really drive engagement and improve loyalty, reward and recognition is a much more powerful tool.

Recognition programs are by nature engaging. They make employees feel valued and rewarded for their efforts.

When employees feel valued, they will contribute positively to your culture. They will go above and beyond to support each other and deliver for the business. They will extend themselves to deliver an exceptional customer experience. They will share in others’ successes and benefit from the positive halo effect of through their interactions.

Companies with great recognition culture have higher levels of engagement, teams that are bonded and connected and deliver better overall results.

It comes down to this. Employee benefits programs, when coupled with other benefit initiatives outside of discounts, will help attract new hires. Many companies have them so prospective employees expect to see them. Although to be honest, they are just one small consideration for new talent.

If you are looking to really support employees through turbulent times, reward and recognition creates a sense of psychological safety and connection that will actually help your employees thrive.