When companies in the 1940s had to get creative to attract workers, little did they know that their efforts would later become the modern-day perks people have today – from gym passes and onsite massages to exclusive use of the company iPhone.
Yet, that's exactly how company benefits came to be. Now, non-cash compensation is baked into almost every job there is: Some of these benefits are required by law for companies of certain sizes (like health insurance), and others are just nice to have (like student loan payoffs or unlimited sick days).
Even if they're not actual money, perks have real, tangible value. A job offer with a more moderate salary, paid lunches, and free onsite childcare might be tough to refuse compared to a job that pays more but lacks those extras.
Because of that, fringe benefits have moved from the fringe of workplace benefits to the very heart and soul of them – acting as deciding factors for candidates who are considering new job opportunities.
We have history to thank for that.
The History of Fringe Benefits
During World War II, the U.S. government faced a major problem: inflation. With factories pumping out equipment for the battlefield, goods were harder to come by for everyday Americans. That raised the costs exponentially, so lawmakers tried to help tackle inflation by limiting the maximum hourly wages a worker could receive. The idea was that by putting a ceiling on Americans' earning potential, it could trickle down into other areas of the economy.
But just like we would be today, employees weren't happy about that move – and neither were business owners. Companies struggled to hire and keep talented workers without the appeal of a higher paycheck or raises, so they began offering extra incentives that were “on the fringe" of cash wages, like paid vacations and pensions.
Acting as a kind of creative loophole, these benefits complied with the law, provided employees something valuable, and also gave employers the rock star workers they needed. It was a win-win-win, and the idea took off from there. By the late 1940s, benefits became a mainstay of labor negotiations as they burrowed even deeper into workplaces everywhere.
Benefits Evolve Into Something More
By 1950, fringe benefits accounted for 5% of the average workers' compensation – which might seem low today, but that was pretty remarkable given that it grew from nearly zero just a decade before. By 1960, that increased to 7.8%, then 10.3% in 1970, and 15.8% in 1980.
As workers grew more interested in the extras they got on top of their weekly paychecks, company benefits not only evolved in numbers but in types of benefit as well.
In the 1990s, for example, the supply of jobs outpaced the workers who could fill them, so companies had to get even more creative about their benefits. During that time, flexible schedules picked up, and so did executive-level perks (short for perquisites) like premier parking, company jets, or limos. A frenzy of other perks kick-started trends of employer-paid legal help, club passes, and errand runners.
That's also when stock options became popular – ushered along by the dot-com boom of the 1990s. Many people saw non-executive personnel like receptionists gain millions or more with those options, and everyone wanted a piece of that pie.
Changing Workforce, Changing Benefits
Whereas cash is always cash and nothing more, benefits will keep changing as people want and need more from their work – and also as new demographics enter the labor force.
Now, more than half of all U.S. workers are women, according to the U.S. Bureau of Labor Statistics. In response, more employers have ramped up their offerings like subsidized childcare, remote working, and paid maternity leave. And as Baby Boomers retire and get older, their grown kids bear the role of caregiver, which has made other benefits like elder care more relevant, too.
Younger workers want different perks as well. As companies double-down to attract Millennials, new ideas like egg freezing, paid paternity leave, and relaxing nap spaces have entered the scene. Generation Z, those right behind Millennials who are characterized as more pragmatic and practical, now get entrepreneurial coaching and financial wellness programs to suit their preferences and tastes.
Beyond the Dollars and Cents
In all, fringe benefits now comprise about a third of the average employee's total compensation – but the ratio could even out as time goes on. From the modest beginnings of pensions and paid sick leave, the perks list has grown as diverse as the workforce itself.
Now, common benefits include these plus many, many others:
- Required benefits, like health insurance (for companies of certain sizes)
- Retirement benefits, like 401(k) plans
- Asset benefits, like the use of company phones, cars, or planes
- Leave benefits, like paid sick leave or mental health days
- Flexible benefits, like remote working or four-day-a-week schedules
- Commuter benefits, like public transportation passes
- Parental benefits, like onsite childcare or paid maternity leave
- Financial benefits, like student loan repayment or employee discounts
- Developmental benefits, like mentor programs or tuition reimbursement
- Wellness benefits, like after-work yoga classes or gym memberships
- Fun benefits, like office ping pong or take your dog to work days
- Supplemental health benefits, like add-on coverage for accidents, critical illness, disabilities or hospitalization, offered at a low cost so you can customize your safety net.
Though most of those don't have a cash value, benefits typically (but not always) mean employees don't have to pay income tax on them, which makes the financial impacts stretch out further. For example, if an employee saved an extra $500 a year from employee discounts, they might get more mileage from that money compared to if they were taxable wages.
In addition to the financial impact, many of these benefits can help improve physical and mental health, such as those that promote exercise, stress management, smoking cessation, or healthy eating.
So the next time your employees take Fido to work or enjoy an onsite massage, they can thank those in the 1940s who made it happen. They may not have ever imagined their work would yield such fun, out-of-the-box perks, but they must have known that they were on to something when employee after employee signed up. And still do, to this day.
401060 NS 07/20