Broadly, most UK SME managers grant employees the bare minimum of additional benefits over and above salary. In many cases, they’ll award staff the statutory minimum, and maybe even, bizarrely, herald that on job adverts. The UK Government’s mandated employer’s pension contribution of 2% now and 3% later is a good example. Some even offer table tennis tables and pay for beers after work on a Friday claiming a collegiate, modern workplace.

Yet a few SMEs do give their employees generous high-value benefits – like 12% employer’s pension contribution, premium private healthcare for all the family and a practically limitless learning and development allowance.

So why the difference, and does it make any sense to offer more than you must?

Manager's belief

Let’s start at the very beginning. Let’s assume that most managers fundamentally believe that they should treat people well. They believe that if they do right by their staff, their staff will do right by them. That belief is deep-rooted in their upbringing and early experiences. So, what happens between that belief and subsequent action?

Managers’ beliefs are moderated by a number of pressures.

Firstly, there’s the manager’s own experience. If they’ve seen the debilitation of Crohn’s disease on their draftsman, they’ll value awarding generous sick pay. If their chief engineer took cancer and only survived and returned to work because they benefitted from the top level of private medical care, they’ll see first-hand the benefit of what many consider an unnecessary cost. They’ll feel proud to see that engineer’s family cope when he continued to receive 75% of salary for as long as it took. And if their office manager was back at her desk three days after having gall stones removed, they’ll understand the stark business case in favour of care over profit.

But many don’t have that experience, so let’s not get emotional.

Big influences

Secondly, managers are influenced by shareholders and their demands for short-term profits, so there’s a natural drive to minimise costs this year. With such a short-term focus, there’s no real interest in getting the chief engineer back to work after 15 months off. And if the office manager is off, he or she can be replaced with a temp. Short-termism and managers’ disinclination to invest (in both people and technology) is killing Britain, resulting in oft-cited poor productivity.

Thirdly, managers are also driven by what’s needed to compete in the labour market today – what’s needed to hire people. If competitors don’t offer good benefits, there’s no real drive to do more. You need only do a bit better to be ahead. Of course, if managers want to be able to hire the best, they’ll have to offer the best. But maybe the best is not necessary if profits are already high.

And finally, managers must offer what’s needed to get high performance from staff. But that relies on managers knowing what benefits to tap to achieve that.

From benefits to performance

For a start, let’s dismiss the myth. Money doesn’t motivate. Employees need enough of it to keep them and their family in comfort. More money won’t make them work harder, so managers should always pay a good salary, but more is a waste.

Staff are motivated by the job they do. So, make sure that the job is well designed for its motivational potential.

Committed staff will be inclined to declare “this is a great firm and I want to stay here and maximise my contribution”. Benefits play here. Employees will commit to a firm that commits to them. Benefits here include generous pensions (“why would they go anywhere else?”), healthcare (“my family will be cared for in case of any illness”) and income protection/sick pay (“I won’t ever have any money worries here”).

Commitment makes other management and leadership action possible. Commitment allows managers to plan for the future.

Of course, we all know that performance depends on employees’ skills and knowledge. And that those skills and knowledge need enhancing to keep up with changes in technology, processes and methods. Developed skills and knowledge allow the firm to be ready for an unknown future and to exploit those as-yet-unknown opportunities. But more importantly, skills and knowledge development leads to job engagement – and that’s what managers should be striving to achieve because job engagement drives performance.

Of heart and head

Making the decision about what benefits to offer is partly a decision of the heart and partly of the head. Emotionally, managers want to avoid discussions with staff about why it is that the firm won’t help them enhance their general wellbeing. Morally, they might want to believe that all in the firm are equal – it’s just that some are more equal than others and such equality doesn’t extent to benefits. Morally, they might want to do to others as they would want done to themselves. But maybe that doesn’t extend to benefits either. Managers might want to do good, but that reasoning head gets in the way.

Often logical reasoning is used to explain the pangs of any emotion – like, "we’ll improve benefits when profits improve…”

And managers likely won’t get rewarded for spending shareholder cash. Their job is to minimise short-term costs, not improve long-term well-being. But of course, short-term leads to long-term. And long-term sustainability depends on short-term motivation, commitment, engagement and performance.

So, managers are left with a choice: improve benefits that improve all the long-term business metrics, or pander to the shareholders and turn staff benefits into shareholder dividends.

Now, just for reference, what do our foreign cousins do?

World benchmarking

In Germany, employees are on the Board, so they’re part of the decision making. And investment in people is not a question. It just happens.

In France, the government charges employers a sum equivalent to 75% of each employee’s gross salary. High quality pensions, healthcare, redundancy and sickness protection and learning and development are all state funded.

And the USA coined the phrase ‘Me Inc.’ to describe the idea that each employee is his or her own profit centre. Everything there is up to the individual. There you get a wage, and that’s it: buy all the benefits you want, or not.

So, what’s it to be? What’s the manager to copy: USA, France or Germany or stick to the UK norm? Which model realises the best productivity and sustainability for firms?

In the end it will depend on the manager’s beliefs.