The optimal combination of cash compensation and benefits is a question that occupies the minds of many HR managers and compensation experts when budgeting for compensation.

There are many signs lead to that benefits are not as attractive to employees as they used to be. That message is heard after assigning or distribution of benefits.

Expansion of people’s access to market information, through websites and applications allow for more tailored and accurate searches. As a result, multiple options are provided, it is not far that the desire to receive cash compensation instead of benefits has increased.

Compensation trends in successful companies around the world, according to the Hay Group-Korn Ferry report, also show a move towards reducing benefits and increasing the cash share.

Human resource management theories have been accepted the mature role of employees from long time ago. They do not recommend that managers make decisions in place of them. Even if this decision is beneficial for them.

Chris Argyris is one of the pioneers of this idea since the 1950s and 60s. He believed that a autocratic management style can prevent employee growth and become an obstacle to organizational productivity. In addition, this point of view is not compatible with the characteristics of employees – who are mature – and causes decreasing motivation and retention.

On the other hand, in situations of resource constraints – conditions that are usually assumed in economic discussions – determining the optimum balance between cash compensation and benefits – which is a decision making from employers – must be done carefully. Sometimes the utility of benefits is not as good as cash. Or the benefits create costs for the organization more than its usual price in the market.

This is only the positive side of the story, and in situations where we are not sure about the health of the supply and allocation system and the procedures for monitoring the quality of services, the situation becomes worse.

If we consider benefits as a gift from the organization, it is desirable. In these situations, a gift can lead to the strengthening of the relationship and engagement.

On the other hand, gifts cannot be viewed as part of employee compensation. The employer cannot foresee that he will compensate the employee for his services by giving them gifts.

Benefits are attractive and memorable. But according to the economic principles, the pros and cons of the decision should be analyzed. currently, the value of benefits side is decreasing every day. So that it can lead to a appeal of the organization’s decision.

It should be noted that optimized planning of welfare and desirability for employees is possible. They are agile in using special conditions in the markets such as seasonal discounts and relevant factors.

Thus, benefits should only be considered as part of a compensation package just when the overhead costs of providing and monitoring its allocation outweigh the savings from price, creating a significant benefit for both parties.

Morad Ahmadipour
Compensation and Job Classification Consultant
Certified by Hay Group