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A recent New York Times article discussed backlash at Facebook and other tech companies as a result of parents getting more time off at these companies. Google recently announced that, starting next year, it will pay $2,500 “to help [Googlers] pay off their student loans faster, allowing them to save money to use in other ways, whether it’s purchasing a new home, starting a family, or investing in a 401(k).”
These stories made me think about the need to start a dialogue to change the future of total rewards.
A few disclaimers before I share thoughts — I have personally benefited from similar programs directly and indirectly, and I fully support these programs for parents and students with loans. I agree with and understand companies’ desire to provide the best suite of benefits to employees to satisfy diverse needs.
Generally, total rewards include many components, such as salary, short-term bonus, long-term incentives and benefits including well-being, recognition and development. Benefits is the only element of total rewards where companies consider an individual employee’s personal information (e.g., married status, health status) or an employee’s personal choices/elections (e.g., 401(k) participation).
But neither has anything to do with the job when determining the company’s cost of benefits for that particular employee. For example, I don’t think many companies conclude that married employees or parents are better employees as compared to non-married or those without kids.
Facebook provides extra time off to employees who have or adopt a child in their tenure with the company. Google will now pay $2,500 per year to help with student loan repayment. Companies provide 401(k) matches based on an individual employee’s election to save under retirement programs. While these programs serve great purposes, they create a sense that a company is willing to pay certain groups more than others regardless of performance, requires employees to take certain personal and non-work related steps (e.g., contribute under 401k) to take advantage of a program.
Total rewards professionals should consider establishing the value of a job or role based on the value of work without regard to the decisions an employee makes that aren’t related to work.
My suggestion is that we should look at total rewards from a cost/benefits point of view. Let’s say, hypothetically, that an entry-level software engineer’s role at Facebook is worth approximately $150,000 to the company. This $150,000 includes salary, short-term bonus, long-term incentives and benefits.
Under the current approach, the company’s cost could be $175,000 for one person who is married and decides to have a child in a year and fully participate under the 401(k) plan. For another person in the same role, the cost could be $125,000 if this person is not expecting a child and doesn’t participate under the 401(k) plan for personal reasons.
A Chance to Reimagine Total Rewards
I think we should consider a strategy that provides similar total rewards opportunities to all similarly situated employees regardless of their personal situation or preferences. I am not suggesting elimination of existing programs, but rather providing similar value to all similarly situated employees from the company’s point of view.
In the above software engineer example, Facebook could level the playing field by allowing the second employee to take extra time off for any reason and pay the company share of 401(k) match in after-tax dollars.
I understand that the same employees do not have kids every year, and I’m not suggesting the program should be modified to provide “extended leave”-type benefits every year. What the company could do is design a program that allows all employees to take six months off — fully paid — up to two times in their career, for example. This would allow future parents to take six months off to have a child and would allow other employees to take the same amount of time to meet their needs.
One challenge with the suggested approach is the cost of programs. When designing a new program like parental leave or student loan payoff, companies assume that only a fraction of employees would benefit from it. If similar “value” is offered to all employees, it becomes too costly and prohibitive.
I don’t have a silver bullet to address the issue, but this point also highlights the issue with the current fragmented approach. Let’s say, Google’s student loan program would cost the company $20 million per year. If another network group at Google identifies another need in a few months, Google now has relatively less resources to meet their need. While technology companies like Google and Facebook seem to have resources to keep expanding benefits, most companies do not have the same flexibility to add new benefits.
We have opportunities to think about other structural changes to total rewards. For example, if a company is interested in helping its employees pay student loans or buy a house, the company could consider increasing salaries and offset these salary increases by giving lower short-term bonuses. Most short-term bonus programs pay at least 50% of target every year, regardless of company performance. In essence, 50% of short-term bonus could easily be considered fixed cost.
This is just a thought-starter and a company could consider other variations, such as move only 25% of bonus to salary or provide a choice to employees to select between higher salary/lower bonus target and lower salary/higher bonus target with appropriate design feature to balance risk-rewards.
In summary, we could approach total rewards from a total value point of view and then slice it between various pieces considering company and employee preferences, but not taking into account employees’ personal choices, lifestyle choices and so on.
This approach is likely to address perceived inequality issues as well as offer similar total rewards opportunities to all similarly situated employees regardless of their personal situation while maintaining the benefits — like becoming an employer of choice for women/parents — of the current approach.
About the Author
Anil Agarwal is a total rewards professional with broad industry and consulting experience.