When his students come back from interviews for jobs or internships, Wharton management professor Iwan Barankay hears them talking about what their responsibilities would be or what a challenging interview it was. Sometimes, though, what he hears these new entrants into the workforce speaking about with equal emphasis are the job perks.
“That has become a salient talking point that helps them decide whether to go to one company or another,” Barankay says. “It’s surprising, because it’s immaterial to what their career should look like. But that is something they are discussing now.”
Perks — extras that range from free beer at work to bereavement leave when a pet dies to unlimited vacation time — have been big in many a workplace for a while now. What’s less clear, though, is the extent to which the movement as a whole has produced real value to employers and employees. What’s the use of unlimited vacation time, for instance, when employees with stipulated vacation time aren’t using all of it now? And don’t workers who haven’t seen real wage growth over the past decade look upon company-provided yoga lessons or a new ping-pong table with a jaundiced eye?
The value of a given perk depends on a number of variables, says Wharton management professor Sigal Barsade. Some perks now being offered beyond the traditional package of compensation, health care and two weeks’ paid vacation might seem frivolous, she says.
“But if it’s tied to the values of the company, if it is a living instantiation of the culture, then it can have deep symbolic meaning,” says Barsade. “So, when I hear about a day for bereavement of one’s pet, that’s a great representation of a culture of companionate love — that is, affection, caring and compassion,” which in fact may be quite relevant to the emotional culture of a particular company.
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“I think these policies are done to attract and retain talent,” says Barankay. “They are ways to just stand out among all the opportunities that these top job applicants have. Companies may not like to talk about this, but they know that the value added of the top talent to their company is very large — typically the top one percent of a company generates 15% to 20% of value-added, so anything they can do to attract and retain these people is fair game.”
In addition to appealing to star performers, “perks are symbolic of valuing employees, and people will give more when they are in a culture which is supportive and caring,” says Wharton management professor Nancy Rothbard.
In order for perks to be optimally effective, they must be more than mere talking points to get talent through the door. They should be conceived of and tested for whether they are producing the desired results.
When they are “in alignment with the culture, I think perks are wonderful,” says Barsade. “They serve a practical and behavioral purpose, and a symbolic and cultural purpose. But they have to be done the right way.”
The relative significance of a ping-pong table
Netflix offers a year of leave to new parents. Cloud platform communications company Twilio gives its workers a Kindle and a $30 stipend each month to buy books. Twitter has on-site acupuncture, catered meals and classes in improv. Some companies develop perks to echo a message about the kind of work they do. Outdoor camping and recreational gear company REI, for instance, gives workers two paid days off per year to spend on an outdoor activity.
Perks are often associated with tech companies and the new economy, though in truth, such extras have roots stretching back decades — often negotiated as part of collective bargaining agreements. At some large newspapers, for instance, workers could once take advantage of doctors and nurses on site, 24-hour cafeterias, bank or credit union branches, and free rides home at the end of a shift.
Today, of course, labor unions don’t have the presence or influence they once did. But the shining example of Silicon Valley has set off a wave of similar offerings at other firms who want to appear equally attractive, says Wharton management professor Samir Nurmohamed.
“Silicon Valley helped ignite these things, everything from cafeterias to yoga to bring-your-dog-to-work day,” says Nurmohamed, “and it relates to the concept of isomorphism, where aspiring companies replicate what a higher status peer does to give itself legitimacy. They may say, ‘If we want to be seen as a start-up, then we should get that ping-pong table.’”
A ping-pong table can mean different things at different companies at different times. At the firm where there have been no raises, it may be interpreted as a sop — a cheap gesture in lieu of one that would be a meaningful improvement in wages and conditions.
But if it arrives in a healthier context, it can be efficacious to a company’s success. Where a company is about competition and fun, a ping-pong table can help to emphasize and reinforce that culture, says Nurmohamed. “How does it connect to the company’s culture and values it is trying to create and maintain? If you put a ping-pong table in at a company that isn’t known for fun, then it may not highlight fun as a value unless it’s reinforced in other ways.”
Still, a ping-pong table or free beer might lead to more collegiality, he says. “It can create collaboration across boundaries across the organization, by having people from the organization meet each other. Doing things outside of your regular routine has been shown to spark greater creativity, and if the company values collaboration and creativity, then it reinforces those values.”
So, what kinds of perks do workers want? More time off, according to a MetLife 2019 benefits study. In a survey of 2,500 workers, when it came to perks, 72% said they were most interested in unlimited paid time off — well above the 61% who said they wanted on-site gyms, meals or dry-cleaning services.
Wharton management professor Peter Cappelli finds this response surprising in a way. “Those who value unlimited vacation time so much should get a reality check,” says Cappelli, director of Wharton’s Center for Human Resources. Unlimited vacation doesn’t really mean taking off as much time as you want, he points out. “[There] are lots of pressures on you to not take time off in organizations where they have ‘unlimited’ vacation days. Nothing prevents bosses from punishing you, formally or informally, from taking time off, or from leaning on you to not take it when it suits you. My sense is that [workers] just don’t understand how it works in practice.”
In fact, 55% of those surveyed in a 2019 Ipsos poll of 1,025 American workers said they did not use all of the time off they were allotted in 2018. The number of unused days was 9% higher in 2018 over the previous year because the number of days workers were granted increased more than the number of days they could apparently use.
Unlimited Vacation: Happier workers and extra outputs?
And yet, unlimited vacation time is “definitely a perk that is gaining traction at both established and emerging firms,” says Jiayi Bao, a Wharton doctoral candidate in business economics and public policy whose dissertation examines the proliferation and effects of the unlimited vacation-time policy.
Looking at unlimited vacation at a large high-tech firm, Bao found that people do actually take more vacation time when there is no limit, and “giving them more vacation makes them feel better about their own productivity, and they rated their own productivity higher subjectively,” she said, “but only when team members are close to each other and when they feel heard by managers. The effect is positive and even stronger in teams with strong cohesion. But the effect is negative for people in bad teams that are not close to each other.”
But those are evaluations of productivity workers gave themselves. To get a more objective measure, Bao — whose paper is titled, “(How) Do Risky Perks Benefit Firms? The Case of Unlimited Vacation” — ran a field experiment where she hired hundreds of people to work for her for a month and found that unlimited vacation time actually attracted higher ability workers.
She also determined that a typical unlimited vacation contract, which involves bundled practices including a performance requirement and a removal of face time requirement to replicate what happens in firms, is three times more attractive to high performers; that it increases worker productivity by 51%, with 20%-30% coming directly from the vacation feature; and that it induces extra outputs from happier workers. Moreover, unlimited vacation time, coupled with a strong firing threat conditional on performance, reduced the slacking rate (that is, not fulfilling the performance requirement in the work contract) by 45%.
“That blew me away, as I thought that this policy is just a fad,” said Barankay. “The reason for it might be surprising: Under unlimited vacation, most employees worked beyond their required performance for no extra pay, and when asked about it they said that they wanted to signal their commitment to the job and employer. Thus, these policies are a vehicle for fostering a deeper relation between employers and employees.”
The study shows how managers can create a highly skilled, productive and motivated workforce through the perk of unlimited vacation, Bao says, while highlighting the contingencies based on organizational conditions such as social dynamics, bundled HR practices, and the culture for punishing under-performance.
But unlimited time off might be in a category by itself, given the high value workers attach to it. Do other perks draw greater productivity and loyalty from workers? Here, the greater context of the work environment matters.
“When you have all these perks that have to do with taking care of you, it is wonderful, but if you sense you are being coerced into staying at work longer and don’t want to do that, then having all these things on site may well be viewed negatively,” says Barsade. “The intent behind the perk has to be seen by both employees and management as something that is consistent with the values of the organization which is meant to support those values and not skirt some other obligation, so it’s not seen as a cynical ploy.”
How should employers determine which perks are hitting a sweet spot and which are not?
“As in anything else, organizations should be rigorous in their metrics, including about their employee attitudes,” says Barsade. “I would be out there asking employees in systematic surveys and focus groups, not just relying on information gathered anecdotally.”
Sometimes, perks are in fact just a way of getting employees to work harder without any extra pay, says Barankay. Even though the labor market is tight right now, companies still have a lot of bargaining power, he points out, as a result of the long decline in employee representation by trade unions and increased use of outsourcing and freelancers.
“This might be great for America, but the reality in real life is that working conditions are not as good as they could be,” he says. “Instead of giving us real benefits in terms of money or fringe benefits, like more predictable work schedules or better job security or maternity or paternity leave, they are giving us messages about how important we are to the company. I think this is becoming more and more obvious and people are catching on to this, and that people are indeed working harder. I think there will be a backlash over time where it is being shown that people are working harder without any additional pay or benefits.”
Many agree that perks are sometimes a case of a company getting off easy. On the other hand, perks that work demonstrate that “you can do a lot to show caring to your employees without it being overwhelmingly expensive. A lot of times leaders and managers tend to overlook some of the little things they can do to make people feel valued, whether it’s perks or treating people with respect and asking them how they are doing,” says Rothbard. “Those types of things that develop a relationship between a leader and an employee can go a long way.”