Employee Benefit Familiarity: An Analysis of How Benefit Familiarity Will Affect Benefit Valuation

Abstract

Current literature and research on the benefits employees prefer in their benefits packages is reviewed. The findings reveal some strong preferences for different groups of people. An understanding of these preferences is important in the design of flexible benefit plans. In addition, when designing benefit plans it is important to understand what knowledge of benefits employees possess and how the benefit package can best be communicated. In addition to these topics, the importance of how benefits are valued by employees is reviewed. This thesis reports a study designed to examine the correlation between benefit familiarity and benefit value. Two aspects of benefit value were studied. The first was the perceived personal value of benefits to the benefit receiver. The second was the monetary valuation of the benefits to the worker. The results supported several hypotheses regarding correlations between self-perceived benefit familiarity and a benefit's value. Research groups included 45 staff members of a large southeastern university enrolled in a standard benefits plan and 45 employees of an international company in the petroleum industry who were enrolled in a flexible benefits plan. A sound understanding of the familiarity people have with their benefits was found to be important in understanding the value they attach to benefits. Those enrolled in the flexible plan were found to possess a higher mean level of self-perceived familiarity than those in the standard plan. In addition, those from the flexible plan were found to more accurately estimate their employer's contributions to their benefits and more accurately estimate their benefits monetary valuation for two benefits studied: medical coverage and pension plan. Correlations between monetary valuations of employees' medical coverage and pension plans and perceived personal values for those plans were not statistically significant. In regard to benefit preferences, strong individual differences were revealed. Monetary benefits were preferred at almost twice the rate of nonmonetary benefits. When analyzed individually, familiarity levels were shown to be correlated to the preferences for two of the benefits: medical-life insurance and early retirement. However, when comparing employees from the flexible plan with those from the standard plan, insignificant differences were found between the two groups in their perceived personal values for those benefits studied. Both groups seemed to prefer monetary benefits at almost twice the rate of nonmonetary benefits. The importance of this research is discussed in terms of helping employers communicate the cost and worth of benefits to employees. Limitations of the study and suggestions for future research in the area of benefit value are discussed. Following the literature review, research results examining benefit familiarity and valuation are presented.