Research reported in the journal, Personnel Psychology, suggests that employees only understand and appreciate between 31 and 68 percent of the cost or market value of the benefits they receive.

Not all benefits plans succeed in an organization. Employees undervalue their benefits for many reasons including:

  • Employers communicate the value of the benefits poorly,
  • The employees have little or no choice in benefits packages or options,
  • The employees misunderstand the market value of benefits.
  • Employees are not involved in formulation of benefits policy and procedure.
  • Inflexibility of the benefits plan.
  • Benefits are added or removed at the whims of management.
  • Non-compliance with existing country legislation.
  • Available benefits are not equitable and fair enough.
  • The benefits may be irrelevant to current employee needs.
  • The benefits plan may be lacking top management support for effective implementation.

The typical decisions managers face in the design and management of benefit plans include;-

  • How should the benefits compare to the competition. Competitiveness impacts benefits decisions in conflicting ways; first, labour costs must be controlled in order to price products and services competitively. And secondly, competition in labour markets to attract and retain productive employees creates pressure to match benefits offered by other employers.

An employer adopts a policy to position its total compensation, including benefits in the marketplace.  More often than not benefits are designed to meet those offered by competitors.  Cost comparisons are made with the competition on total benefits, costs per employee or percentage of payroll.

  • What are the legal requirements and how can a company meet them.
  • Coverage and forms. What types of benefits should be offered and which employees should be eligible for which.
  • How are employees best informed about benefits and how is management informed about employee needs. Employees do not value their benefits because they are unaware of them. Lack of interest or understanding by employees can lead to inappropriate and expensive choices that do not increase satisfaction.
  • What degree of choice or flexibility can be included? How can employee interests and concerns be accommodated? The make-up of the workforce – age, gender, whether they have employed spouses, number of dependants, income level, time until retirement etc, affects the kind of benefits on offer and how satisfied the employees are with the benefits.  The greatest choice in contemporary systems is found in flexible benefits plans.
  • How much do the benefits cost?

Maximize the Value of Benefits Expenditures

Employers can overcome these factors by allowing employees to make choices and by providing lots of information.  You can jump start the education process by providing paycheck inserts that detail your cost for each employee benefit. Other ways to get employees to think about the value of their benefits include interactive computer quizzes, benefits fairs, telephone hot lines, workplace posters and videotapes or television.

Firms that wish to maximize the value of their benefits expenditures need to survey their employees to ask them what they value and how much.  Benefits surveys or focus groups are important first steps in understanding employee preferences.

The variety of benefits offered today is immense. Some benefits, such as medical and retirement benefits, are almost institutionalized or expected in the Kenya. However, others are not—and these are the benefits that set companies apart.   Organizational values are often manifest in the benefits organizations offer. Thus, they help to establish an organization’s positive reputation in the marketplace.


A ‘cafeteria’ or flexible benefit system (flex) allows employees to exercise choice over a range of options within defined financial limits.  Under a flexible-benefit plan, individual employees have some choice as to specific benefits each will actually receive; usually employees select from among several options how they want their direct compensation and benefits to be distributed.  The idea is to allow employees to select benefits most appropriate to their individual needs and lifestyles.  For example, a middle aged employee with several children in school might choose to take a set of benefits different than those chosen by a young, single employee.

Flexible plans are also called cafeteria plans because they provide a ‘menu’ or choice of benefits, from which employees select.  Some plans limit the choices to only a few types of coverage.  Others allow employees to choose from a wide range of options.

Although flexible plans are found in various forms, the core cafeteria plan (provides a menu or choice of benefits from which employees select the most appropriate) is the most common.  Here employees have identical minimal levels of benefits.  They are then given a choice among say, additional insurance, more vacation time etc.

Another approach is the flexible spending accounts.  Employees specify the shilling amount they want deducted from each paycheck for their flexible account.  They then use this fund to pay medical or dependant care bills.

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