09/29/2021

As the owner or manager of a small business, do you ever wonder why we offer benefits to our employees? I know I do.

Don’t get me wrong. I’m not suggesting that our employees are overcompensated. Just the opposite, I think our employees are generally underpaid, and wish the company could afford to pay them more. I suspect that you feel the same way.

What I have never fully understood is why we give them things other than money, as opposed to simply giving them the money that those other things cost, and letting them decide what they want to buy with it. Why should employers be picking and choosing from options such as health clubs or daycare services that some workers may want or need and others do not?

Even with major, important benefits such as health insurance, I don’t see why companies should be responsible for deciding what sort of coverage an employee should have. Just pay more to each person and let that person buy the coverage he wants or is mandated to have.

If you were to ask business owners how this system of “fringe” benefits developed, most would assume that it had something to do with avoiding income taxes. Some would probably recall hearing something about World War II affecting the adoption of employee benefits. Both notions are correct, but there is more to it.

The idea dates back to the Industrial Revolution, which transformed the fabric of this country in the latter half of the 19th century, following the Civil War. Big companies needed to draw workers away from the agrarian system in which most of them were still employed.

In 1875, the American Express railroad company came up with an employee pension plan for that very purpose. Other railroads and other industries soon devised their own plans, and the concept of employee benefits was born. The practice preceded the world wars by generations and even preceded the income tax, which was established in 1913.

Health insurance was not a thing back then, and would not become one for some time. Americans rarely visited doctors, although doctors did occasionally visit them, and there was no  pharmaceutical industry in the modern sense. Life expectancy was much shorter, so there wasn’t the huge demand for elder care that we have today.

Communities were building hospitals, however, and those hospitals struggled to find workable business models amid such a self-sufficient population. In 1929, the Baylor University hospital decided to try a departure from fee-for-service. It offered local teachers a medical plan that would cost them each 50 cents a month. In exchange, they were entitled to 21 days of annual hospital care at no extra charge.

The idea caught on with other hospitals, which eventually became an association called “Blue Cross.” That is the point at which, as Rick Blaine would put it, “destiny took a hand.”

During the Second World War, American economists worried about setting off the sort of hyper-inflation that had wracked Germany in the 1930s. In an effort to avoid it, the government instituted wage and price controls.

With so many young men absorbed by the armed forces, and the war machine cranking up manufacturing, there was an enormous demand for workers. Since companies couldn’t jack up wages to attract employees, they used fringe benefits, including pensions and health insurance, to do so.

Through the postwar expansion of the U.S. economy, the provision of benefits by employers became commonplace. From 1940 to 1965, the percentage of employers offering health insurance grew from 9 to 70. In 1954, Congress passed a law to insure that such benefits were not taxable to employees, and in 1959 it created a plan to cover all federal workers.

As most companies came to offer those benefits, it became inevitable that competitive firms would come up with other ones. One of the logical areas to explore was education.

When I was in junior high school, my mother told me that she had a job offer from a major hospital. It would be a long commute, but there was an attractive fringe benefit. I would be able to attend the very expensive university that owned the hospital, tuition-free. I told her that I thought I was too young to commit to what college I wanted to attend, and she dropped the idea.

What I told her was true, but if I were to be totally honest it was not the whole reason I was cool to her offer. The university in question happened to be my father’s alma mater, and the campus was within an hour of my parents’ home. Like many young people in the late 1960s, I suffered from some kind of romantic notion about striking out on my own.

At any rate, it’s one of those crossroad moments that I often think about late at night, after the TV is off and I’ve set my book down. If my easy chair were a time machine, I’m not sure what my call would be on that one.

Back then, it was pretty much only the institutions of higher learning themselves that might offer such a generous benefit to employees. Over the years that situation has changed, and lately it has changed dramatically.

On September 9, I was intrigued by the following headline in The Wall Street Journal: “Amazon Dangles a New Perk in Fight for U.S. Workers: Free Bachelor’s Degrees.” My first thought was that there had to be a catch there someplace.

According to the article, there’s not. The program will be available to all of Amazon’s 750,000 U.S. hourly workers once they have been employed for 90 days, at colleges nationwide. Part-time workers will get half-coverage, which includes tuition, books and fees.

Other big retailers are moving in the same direction. Walmart announced in July that it would fully cover tuition and books for all its 1.5 million hourly workers at certain educational partners. In August, Target followed suit for its 340,000 domestic employees.

None of these companies, by the way, demands anything in exchange for the free education. It’s not like West Point, where you get an education in exchange for a four-year commitment to the U.S. Army. If an employee wants to resign upon graduation, he or she is free to do so.

The companies are trying to attract aspirational employees, many of whom will stay on and advance in the organization. To increase that likelihood, they are implementing other enhanced benefits, such as greater vacation time, flexible scheduling, and access to childcare. Like it or not, benefits are here to stay.

We’re all competing to hire quality employees. As in most other respects, big companies have some inherent advantages in that competition, but small companies have advantages as well.

Rest assured that big businesses will find ways to make use of their size. The rest of us had better do the same.

You can e-mail Kevin at kfahy@fwpi.com.