Wharton: Hands Off Employee Perks

One of the books on my summer reading desk is a page-turner about the mutiny on the Russian battleship Potemkin back in 1905. After taking over by force, more than 700 sailors roamed the Black Sea spreading terror for nearly two weeks. What caused the mutiny? Cheap pursers aboard the battleship skimmed on their budget and bought rotten meat for the crew's borscht.

With this example in mind, I noticed with interest a report by the Wharton School at the University of Pennsylvania. The study examines what happens when the C-suite in a company monkeys around with employee perks.

In these tight economic times, cutting back on perks is one option many companies are considering. But doing so damages the idea of the "psychological contract" employees tend to consider that they have with management, says Nancy Rothbard, a Wharton management professor.
A prime example in the Wharton study is Google, famed for treating its employees well. Early this summer, Google boosted the prices it charges for child care it helps provide to employees. Infant care rose from $1,425 to $2,500 a month and the cost for two kids in day care went from $33,000 to $57,000. When they got the news, some Google workers wept.

Although some firms have no choice but to diminish perks, there will be push back for doing so. Employees will at first be angry and that will switch to diminished perormance and, in some cases, acts of retaliation.

In the Potemkin case, the rebellious crew killed the captain and tossed his body overboard. Of course, that's unlikely in today's corporate world, but CEOs would do well to keep the example in mind.

Employees are well aware of the perquisites that some CEOs get, such as General Electric boss Jack Welch's $80,000 a month Manhattan apartment and court-side seats at New York Nicks games.

One way to ease the pain and salvage morale is to give employees a choice of perks. Some would rather have more cash than a bigger pension payout. Management could do more to target what would really help its workers and, if it can afford it, make the new programs happen. If the company has to go cheaper, try to present several options.

The Wharton study notes that CEOs who have control of their boards usually are able to trade off less on perks issues.

For a different take on the Wharton article and how to handle employee perks, see Jessica Stillman's post in BNET1.