Question

Explain what discretionary benefits are and how companies use them to benefit the company and its stakeholders.

Answer 1

Discretionary benefits include the monetary benefits as well as the perks or the non-monetary benefits that not mandated by the law, and an employer can provide these benefits to the employee on its discretion. These benefits are also called voluntary benefits and may include earned leaves, sick leaves, paid vacation leaves, maternity leaves, health/vision/dental insurance plans, pension plans, prescription drug insurance, life insurance, and others. These benefits are not mandated by the law and it is up to the owners, managers, and HR professionals to evaluate the compensation structure and decide on the discretionary benefits to be provided to the employees. Sometimes employees may also be given a choice to choose their own set of perks and discretionary benefits.

How Companies Are Using Discretionary Benefits to Benefit the Company and its Stakeholders

Stakeholders are individuals, people, and parties that have an interest in a business organization and either affect or are affected by a business. Primary stakeholders of a corporation include its employees, customers, investors, and suppliers. However, over some time, the concept of stakeholder has also evolved, and under the modern theory, it also includes government, communities, and trade associations.

Once considered to be an additional expense, discretionary benefits are now viewed as a smart investment that helps a company to attract, hire, and retain top talent and provide to itself sustainable benefits and advantages. Employees are one of the primary stakeholders of an organization and have a liking for the discretionary benefits that may come to them along with their basic salaries and benefits mandated by law. The discretionary benefits may:

a. reduces the healthcare cost of the workers and their family members (through life and health care insurance).

b. helps the employees create a better work-life balance (through the sick leaves and vacations leaves).

c.make it possible for the employees to meet their important family needs (as in the case of maternity leaves)

.
d.secure the future (in the form of monetary aids towards joining/learning relevant courses or through pension plans) of the employees.

Below are certain points to emphasize how discretionary benefits bring more value to stakeholders and help a firm.

Better Market Reputation

The discretionary benefits improve the job satisfaction of the workers and employees and enhance their confidence, morale, and motivation. The benefits make an organization more likable for its employees, which enhances its market reputation. Among other benefits associated with an improved market reputation, firms possessing it can easily raise investor funding.

Reduce Costs

Operating costs are also reduced due to reduced absenteeism, lesser employee turnover rates, higher employee retention rates, and better employee performance. Employees are motivated through the discretionary benefits and do not leave the organizations early. It reduces the expenditures incurred by a company for initiating and accomplishing hiring and recruitment cycles again and again.

Better Performance and Productivity

When employees find that the organizations are caring for them and are providing them benefits beyond their salary, they perform even better at their jobs at a workplace and a company, they like and prefer to stay in them longer. Benefits including discretionary benefits and perks are still the major factor for employees to choose an organization over others for employment. A Glassdoor survey finds that 60% of candidates and people have this inclination.
Around 80% of employees prefer additional benefits (for instance discretionary benefits) over a pay raise.

Discretionary Benefits May Not Always Be Costly for a Company

Providing these additional and discretionary benefits to employees may not be always costly for a company. For instance, many employees prefer options like working from home, paid vacation and leave times, and flexible hours. They find these perks and benefits to be quite likable and attractive benefit options. Hence the organizations can ensure that they remain appealing to their staff and employees and also attract good talent while only spending marginally on the benefits.

Matching or Excelling The Competition

Discretionary benefits also help an organization stay competitive and match the benefits that its competitors are offering to its employees. These benefits provide for positive and lasting associations between the employer and the employee, and the symbiotic relationship has useful outcomes for many different stakeholders. Employees may also be offered choices regarding these discretionary benefits (for instance choosing between dental or vision care), which benefits the employees even further as they can pick a benefit following their needs.

Reducing costs and improving productivity results in greater profitability and revenues, which may also benefit other stakeholders including investors. Sometimes, a company may try to distribute the profits it makes to its customers as well in the form of better products/services, or certain allied benefits (for instance discounts or loyalty reward campaigns). Therefore, discretionary benefits may create a positive chain and cycle, which may be fruitful and valuable for many stakeholders.

Organizations can develop employees as a strategic and competitive resource/advantage by bringing to them the requisite skills and expertise, and retaining them through discretionary benefits. The globalized world is highly competitive and organizations require competitive advantages and talented workforce to remain profitable and to stay in the lead. Discretionary benefits may hence help a firm realize its short as well as long term objectives.