Extravagant Perks Aren’t a Strong Talent Management Strategy

All perks are not created equal. Any employee will tell you that there is a clear difference between free break room coffee and a company expense account. But in an economy where finding and retaining top talent can make or break a company, the lengths that some are going to in order to keep their employees happy is bordering on the extreme.  

Rally Software takes its 378 employees on an annual ski trip and pays for their rentals, tickets and a party.

Justin.TV instituted “Fine Liquor Friday” where employees are given a $300 liquor stipend.

And then there’s Netflix and Best Buy, which offer employees unlimited vacation days.

But are the extravagant perks producing added results?  

Not really, according to Peter Cappelli, professor at the Wharton School of the University of Pennsylvania.

“These are perks that don’t contribute much to productivity,” Cappelli said. “It’s like fancy artwork in the exec suite.”

Cappelli said that underneath all this extravagance, company perks were implemented to achieve three simple goals: tax-free compensation, access to discounted group health care benefits and increased company morale. Anything beyond that is excess.

Excess worries employers like Glenn Kelman, the CEO of real-estate brokerage firm Redfin Corp., especially when it impacts his bottom line. Kelman expressed his fear of giving in to a “culture of entitlement” in a Wall Street Journal blog post. He wants perks to be a reward for performance, not an expensive expectation.

Worrying about promoting employee greed is a waste of time, according to Cappelli.

“People certainly do get used to whatever perks they have, but they get used to everything they’ve got,” Cappelli said. “The phrase ‘culture of entitlement’ is another way of pointing out the obvious that we take things for granted.”

Cappelli’s solution is simple: Just pay employees more. “Many employees would prefer that anyway,” he said.

Throwing cash at employees may not be the best solution either. Cliff Stevenson, senior research analyst at the Institute for Corporate Productivity, believes that the human resources industry’s movement toward collecting data has led it to rely more on evidence-based decision-making instead of focusing on the psychology behind what actually motivates employees to perform better.

“It’s still good to have a really good grounding into how people think because it is one of the only departments that is completely focused on people,” Stevenson said. “As we’re pulling more and more often in the HR field from finance, accounting and operations, some of that expertise may be lost.”

Stevenson cited a Lockheed Martin research study that examined the correlation between employee engagement and yearly bonus as an example. The expectation was that engagement would increase directly with the size of the monetary reward. While this trend was observed, the study’s key finding was that employees who opted out of the bonus program and instead worked toward an award were more engaged and performed better overall.

“What they really wanted was recognition, whether they knew it or not,” Stevenson said.

While this technique won’t necessarily work at every company, Stevenson said that it’s important to try different techniques to find exactly what makes your workforce more productive. Don’t feel pressured to compete dollar for dollar with other companies. Consider your workforce first.  

“Determine the usefulness of those perks,” he said. “With the Internet, everyone knows what everybody’s offering. Find how useful the [perk] is in your arena first. What employees and people in general say they want is not necessarily what they want.”