by Bruce Shutan | March 18, 2013
Employee benefits glue people practices to profitability. This is a thesis supported by many compelling statistics and anecdotes. But an evolving workplace has seen the balance of that power shift from cookie-cutter insurance and retirement savings plans to a more tangible subset of service-oriented perks, each customized to address an individual employee's unique everyday needs. This is especially true for small and mid-size businesses (SMBs) that must be more nimble and strategic to compete with large companies in a sluggish economy that has decimated employee loyalty and job satisfaction.

Leading organizations recognize how valuable personalized "power perks" are for motivating and rewarding employees, and fueling business performance. The secret formula is to focus on convenience, relevance, and affordability - an approach that is resonating with a workforce that has grown increasingly restless with top-down reward structures and organizational hierarchies; this is especially true for younger generations. By using interesting perks that are simple and cost-effective, businesses will reap a higher return on investment (ROI) in the areas of employee engagement, morale, recruitment, and retention, as well as improve productivity, innovation, customer loyalty, and revenue.



Why Perks Matter
Employee benefits are more valuable than ever, according to MetLife's 10th annual study of employee benefits trends, which shows a strong relationship between satisfaction with benefits and overall job satisfaction. All types of employees place a high value on personalized benefits, for which they are even willing to pay the entire cost of those perks. But researchers caution that an economic recovery could produce "unanticipated setbacks for retention and productivity" for many employers unless they treat their employees better. In 2011, U.S. workers became increasingly dissatisfied and disloyal, with as many as one-third of them wishing they worked somewhere else within the coming year.

Several leading economic indicators warn of an impending jolt to talent management at companies that cut corners during the Great Recession. In January 2012, U.S. unemployment and layoff rates were at their lowest levels in years, and there was an increase in the number of people quitting their jobs. A Time magazine poll in 2010 found that fewer than half of working Americans were satisfied with their jobs - the lowest such percentage since 1987. Nearly half (48 percent) of U.S. employees are willing to leave their employers for companies that clearly recognize their contributions, according to the "Fall 2012 Globoforce Mood Tracker." As a corollary, 84 percent of employees prefer to be rewarded with a wide variety of gift cards, says the Society for Industrial and Organizational Psychology.

While traditional incentive programs are important, they do not affect as many employees as perks do. In a 2005 Maritz Poll, just 27 percent of employees who seek award merchandise or gift cards incentives receive such recognition. Perks, parties, and other forms of recognition that are credible and sincere send a symbolic message that it "is especially important to convey if employees have endured a year of no raises, extra workloads, threats of layoff, or many of the other conditions common in workplaces right now," according to Kimberly Merriman, an assistant professor of management and organization at Pennsylvania State University. Power perks can help leverage any investment in human capital that businesses already make with standard employee benefit offerings. And they pay off in organizations that don't treat employees like commoditized goods.

"To be frank," says Peter Hart, president and CEO of Rideau Recognition Solutions, "if you can't get the small stuff right, forget about trying to get the big stuff right; you have to crawl before you walk." He explains, "All too often, we're focused on the running part and we forget about the smaller steps. Small perks and actions are the foundation for having programs that really work. If you can't recognize with words, no amount of gift certificates, cash, or merchandise is really going to do the trick to provide real and meaningful recognition. That emotional connection just won't be there. You build emotional connections with small things that happen in your everyday life."

Providing an environment that promotes employee happiness is a top priority at Zappos.com, according to Hollie Delaney, the company's senior human resources manager. The world's largest Internet shoe store and a subsidiary of Amazon.com, Zappos was recognized in 2009 by Fortune as one of the "100 Best Companies to Work For," debuting as the list's highest-ranking newcomer that year.

Perks are an integral part of Zappos' everyday culture. They include access to free lunches and vending machines, and reduced prices on gourmet coffee, as well as reimbursement for endurance events and a membership to Weight Watchers. There's also a game room and nap room. "If you have happy employees, all of the other things fall in line," Delaney says. She credits the company's more than 3,000 employees with shaping its corporate culture and core values. "It's imperative that we ask and listen to what matters to our employees. We then take that information and turn it into tangible perks or benefits that will mean something to our employee base."

Zappos employees have such a high level of engagement that acting friendly toward customers comes naturally, observes Milton Moskowitz, co-author of The 100 Best Companies to Work for in America - the best-selling book that later was turned into an annual list published in Fortune. "It's not something the company forces them to do," he says. "They want to do it. They do it almost impulsively."

Leigh Gallagher, the assistant managing editor of Fortune who oversees this annual list, says power perks can produce happier employees who "work harder, are more engaged, have stronger feelings of attachment to the company and are less likely to leave. They pay dividends in so many ways." One of her favorite examples is free food, especially healthful and high-quality fare, which she calls "a huge differentiator."

The Emergence of Power Perks

Perks that promote convenience or concierge services date back many years. Dallas Salisbury, president and CEO of the Employee Benefits Research Institute (EBRI), recalls how, in the 1980s, Senator Bob Packwood (R-OR) credited auto repair, bank, and dry cleaning services at General Mills for improving productivity.

"Concierge services are really very popular," says Rideau's Hart. "The things you don't have time to do are very popular because they help people with achieving a work-life balance." From travel services and restaurant reservations to theater tickets and even housecleaning services, says Hart, those simple services can have a big impact.

While retirement savings and insurance plans are always appreciated, they may not be as tangible or relevant as some of the smaller touches that could play a big role in helping to engage employees. "What will attract someone to come and work for you has to be a differentiator," says Hart. "Most small to medium-size businesses don't have the power of a huge brand. You have table stakes - adequate compensation and benefits - but when the employee starts, that's when you can make an impact."

Hart says that the key to building recognition and having happier employees is creating a company culture. "You have to create a culture that allows people to buy into the vision of the company's overall mission value. If people can understand mission/vision values and how they fit into the organization, and make sure they have the tools to do their jobs, that's ideal," he says. "If they don't have the personal tools, invest in that personal development so they feel like they're contributing to something that's larger than themselves; make them feel like they're a part of that." Personal development tools might include computer skill courses or language courses.

Employees increasingly value intangible benefits that tie in with a company's overall culture and their lifestyle. An emerging area that offers both convenience and camaraderie at an affordable price involves online orders placed at local restaurants for catered group lunches. Discounts on food delivered in a timely manner can save on productivity and foster innovation when employees across several departments talk shop. The social component brings employees together and helps build morale.

The prevalence of these types of perks will vary. For example, as many as 74 percent of employers offer free coffee, while nearly half (47 percent) stock on-site vending machine with snacks and beverages, and almost 20 percent have a corporate cafeteria, according to the "2012 Employee Benefits: The Employee Benefits Landscape in a Recovering Economy" report from the Society for Human Resource Management. But numerous other services have failed to take hold. They include dry cleaning (10 percent), employer-sponsored personal shopping discounts (6 percent), prepared take-home meals (3 percent), concierge services (2 percent) and on-site haircuts (3 percent).

Despite its below-the-radar ranking, there's a burgeoning marketplace of online shopping opportunities that features deep discounts from Groupon, which sends daily offers to more than 140 million employees. Competitors include LivingSocial, Amazon, and Google. Recognizing the significance of this key trend, some of the nation's leading consultants and brokers have waded into these waters in hopes of helping their corporate clients motivate, recognize and reward Web-savvy employees. "You can do something that has a greater-than-anticipated impact on morale for a very nominal cost that offers employees a sense that the company cares about them," says Bob Nelson, Ph.D., the best-selling author of 1001 Ways to Reward Employees and 1501 Ways to Reward Employees.

One such area is working Americans' growing preference for gourmet coffee to help jump-start their morning. Nelson helped to commission a national survey that found the average employee spends $650 a year on cups of coffee outside the workplace, which translates into about 38 hours away from work. His suggestion: spend about $100 on a decent coffeemaker that will provide a fresh cup available in many styles. Nelson also advises SMBs to negotiate employee discounts with a local dry cleaner in exchange for a steady volume of business. Such an arrangement could include two weekly pickups and drop-offs, with a front-lobby closet or similar office space used for storing laundry. "It wouldn't cost the employer anything and it provides a convenience to employees that makes their lives a little bit easier," he says.

Free resources such as MyCollegeBenefit.com providesa 5 percent match of an employee's 401(k) or any type of retirement plan with guaranteed college scholarships. The 5 percent match is given once a year and is based on a point system, with each point equaling $1 worth of tuition reduction. For those without such a plan, $500, $700, or $1,000 worth of points can be accrued and applied toward this purpose through what's called the Birthday Club. A registered child will receive points each year on his or her birthday, with the number of points varying by age. Scholarships are redeemable at nearly 300 private colleges and universities. A similar website is SaverNation.org, which features cash-back discounts on items as well as an option to funnel those dollars into a 401(k) plan with matching contributions.

Many power perks can be extremely tailored. For example, dock space is offered to kayaking commuters at WRQ, a Seattle software firm that also features a nap room with futons and on-site massages. Employees of Robert W. Baird, a financial-services company in Milwaukee, are given membership discounts to a local art museum as well as theater tickets. In sharp contrast, production workers at steel processor and plastic products manufacturer Worthington Industries in Columbus, OH, enjoy $2 haircuts on company time. They also are able to fish at a nearby pond when they're not working. A handyman is available free of charge to employees of Wilton Connor Packaging Inc. in Charlotte, NC (now a part of Weyerhaeuser), while the cost of parts are deducted from paychecks over several months.



How Perks Can Deliver ROI
The overall value of a carefully crafted employee benefits package - long known as the "hidden paycheck" - surpasses salary to a point where some perks may be worth 10 times their cash equivalent. As such, this investment could be seen as a deep discount on employee pay, especially when taking full advantage of the tax code. For example, furnishing meals at the office for a majority of workers is 100-percent tax deductible, whereas only half of a reimbursed restaurant meal is deductible (and can eat into productivity in terms of travel time). Full deductions also are allowed for snacks and beverages served at the worksite, as well as perks involving the transfer of company property that are listed on an employee's W-2 form.

The potential payback of these creative efforts to raise the level of employee engagement is surprisingly high. There's a strong link between employers-of-choice and profitability. Consider, for instance, the 10.6-percent annual return reported among Fortune's "100 Best Companies to Work For" since 1998. Companies that nurture this connection and build it into their corporate culture are 44 percent more likely to have above-average profits than those that do not adopt this approach, according to the authors of Values Shift: The New Work Ethic and What It Means for Business. Highly engaged workforces generate, on average, 29 percent more revenue and are 50 percent more likely to have above-average customer loyalty, according to Right Management. Follow-up research shows that engaged organizations report 44 percent higher retention rates, say the authors of First, Break All the Rules. A 10 percent increased investment in employee-engagement practices can boost annual profits by $2,400 per employee, while a 1 percent rise in employee commitment can spike monthly sales 9 percent, says a 2011 IES/Work Foundation Report. One seminal study by Towers Watson found that a highly engaged workforce improved operating income by 19.2 percent within a year's time, while a 32.7 percent decline was reported by companies with low engagement scores during that same period. Employee engagement also leads to innovation, with nearly 60 percent of these employees telling pollsters their job sparks creative ideas compared to just 3 percent of those who are disengaged, according to a Gallup poll. In addition, a mere 10 percent improvement in employee attitude can boost productivity by 5 percent, as seen in "Worker Attitudes, Worker Behavior and Productivity in the U.S. Automobile Industry, 1959-1976," by J.R. Norsworthy and C.A. Zabala.

Nelson says employees who work in a culture of recognition are five times more likely to feel valued than those who do not. There's a 700 percent greater shareholder return in companies whose employees report being more satisfied, Nelson says.

Reload Media, a small digital strategy company in Brisbane, Australia, actually calculated its ROI on power perks. For every $1 spent within a recent 12-month period on massage therapists, iPhones, a games room, travel, and similar items for about 40 staffers, $11 was returned. The figure was based on an outlay of roughly $80,000 and factored in low turnover that ran about 20 percent ahead of the industry average, as well as an estimated $20,000 to train each employee. Client revenue also shot up by $720,000.

Two large U.S. organizations known for delivering a high level of customer service have been able to trace people power to profitability. Take the Walt Disney World Resort, where a 15 percent increase in employee satisfaction with the type of daily recognition provided by immediate supervisors produced high guest-satisfaction scores that indicated a strong intent for repeat business, writes Kim Harrison in "Why Employee Recognition Is So Important." There's also the case of Sears, Roebuck & Co., where every 5 percent increase in employee attitude scores increased customer satisfaction by 1 to 3 percent, as well as revenue by 0.5 percent.

It behooves management to care deeply about the implications of a disengaged workforce, which costs the U.S. economy an estimated $370 billion a year in terms of lost productivity, according to Gallup. The concern is deepest among SMBs, many of which may not even have a human resources presence or the time to assess the needs and desires of employees.

Employers who fail to engage their employees could end up paying a terrible price down the line. Turnover and training costs can be up to 2.5 times an employee's salary - an assessment that also considers ambiguous measures such as damage to morale and lost customers, says the National Association for the Self-Employed.

With the nation's median job tenure stuck in neutral for more than half a century at about four years, EBRI's Salisbury says the result is a high-turnover society. Stable companies "might end up with a quarter of the people that they hire staying for 25 or 30 years, but that's still three-fourths that don't," he explains. "In most cases, roughly half of the people who are hired leaving relatively quickly in most enterprises." Salisbury points out that attitudinal surveys show a clear "feel-good component" to low-cost, high-yield perks that help employers reap corporate goodwill and improve loyalty, regardless of whether or not they're actually used. "I never heard of a company going broke doing these things," adds author Moskowitz.

Looking Ahead
Personalization will continue to shape the workplace of tomorrow much like it has permeated highly successful consumer marketing campaigns from McDonalds' "making it your way" to Nike's pro-size sneaker mass production. Some experts believe that more creative compensation packages and a flattening of hierarchies will also commence, with some employees working remotely or off-peak hours, but everyone staying connected - changes that will help employers better understand their employees.

Smaller companies increasingly will continue to adopt the type of perks that Google pioneered in order to compete for talent, according to Fortune's Gallagher, who believes "there is more awareness of workplace dynamics and workplace happiness among smaller companies and even startups."

Hart says that although not every company will have the profit margins that Google has to be able to offer power perks like free meals, he says injecting "a feeling of camaraderie" is just as effective. "Create a once-a-month potluck where everyone brings food, for example," says Hart. "It doesn't replace and never will replace a company-provided meal, but it creates camaraderie and a feeling of togetherness. That's what you really want to do. The objective of any of these programs is really about building relationships."

However, one important caveat about power perks is that they can quickly become viewed as an entitlement at companies that lack the outstanding culture or outside-the-box thinking of a Google or General Electric. Consequently, they can fail to motivate employees, cautions John Hollon, vice president for editorial of TLNT.com and the former editor of Workforce Management. When Hollon worked at Pets.com, for example, he recalls how the CEO eventually realized that many employees hung around for subsidized dinners and then went home, which defeated the purpose of helping to raise productivity.

Moskowitz believes more companies will strive to become an employer of choice, even as they struggle to create jobs. He cites stiff competition among hospitals that face a severe shortage of nurses as an example of how it's critically important for one particular industry sector to court talent. Noting how a dozen such facilities have landed on the Fortune list of 100 stellar workplaces, Moskowitz says hospitals have been closing in droves and, for the first time, have been forced to offer perks that have long been a hallmark of the for-profit world. But developing a reputation for being an employer of choice will help hospitals firm up their bottom line, he adds.

Hart echoes Moskowitz's sentiments, saying that organizations can become employers of choice just by paying attention to the smallest of details. "For example, with one of our clients, if someone puts in a change of address with the human resources department, we send them a housewarming gift. It's a very small thing but there's a big return. People appreciate that. With any perk or form of recognition, you're trying to build a relationship between the company and its workers, but you also want to create relationships within the organization," says Hart. "People who work with their friends have a harder time leaving and, simply put, they work better with their friends."