US companies giving out benefits instead of raises

Millennials say they prize the freedom to work away from their cubicles, while businesses have learned that flexible compensation can help the bottom line. Photo / Thinkstock

Once a staple of the American workplace, the annual raise is turning into a relic of the pre-crisis economy as companies turn to creative - and cheaper - ways to compensate their employees.

More businesses are upping their spending on benefits such as one-time bonuses, health care and paid time off, according to recent survey data. Many are rolling out perks such as free gym membership, commuting subsidies, even pet health insurance.

But often, those benefits are being provided in lieu of higher salaries. US government data shows the growth in spending on benefits is outpacing gains in wages. Companies say the structure caters to the growing workforce of finicky millennials who prize flexibility over stability and allows them to reward star employees without increasing fixed costs.

"There's been this seismic shift," said Gary Burnison, chief executive of Korn Ferry, an executive search and talent management firm. "And I think one of those is that the raise has gone the way of the gold watch."

The decline of the raise could help explain one of the most frustrating puzzles of America's lumbering economic recovery: stagnant wages. Wage growth has been stuck at about 2 per cent for the past five years despite a rapid drop in unemployment and a surge in hiring since 2014. Without a bigger bump in their paychecks, many workers feel the recovery remains elusive.

Bonuses spike to highest level

But some economists say the focus on wages is short-sighted. Bonuses and other awards have spiked to the highest level in more than three decades, according to an analysis by Aon Hewitt. A survey this summer by a human resources industry group found about 35 per cent of companies increased spending on benefits, up 7 percentage points from the previous year. That included health care, bonuses, vacation time and tuition reimbursement - making up about a third of workers' total compensation.

"Wages tell you almost nothing," said John Silvia, chief economist at Wells Fargo. "It has changed over the last 20 to 30 years as companies try to compensate workers in a way that matches their lifestyle."

When Ashley Chandler went beyond the call of duty at her sales job, she was rewarded not with a bigger paycheck but with something she said was just as valuable: time.

The 25-year-old spent weeks poring over paperwork at the flooring installation company where she works in North Carolina to help one of the managers close some complicated projects on time - the type of dedication that a generation ago might have placed Chandler first in line for a big raise at the end of the year.

Time reward

At a consulting firm Justworks in Brooklyn, that means eschewing the standard matching contribution to employee's 401(k) retirement plans in favour of paid gym membership and pre-tax commuter benefits for its millennial employees. Across the US, standard raises at Los Angeles-based Korn Ferry run about 3 per cent, but the company is considering doubling its maternity leave. And at MonMan, which manufactures and installs high-tech floors, Chandler received three extra days of paid time off.

"Would I like to make more? I think everybody would like to make more," she said. "But for me, what I liked most about it was the flexibility."

Of course, the growth in benefits has only occurred at businesses that offer them in the first place, many of them in white-collar industries where salaries are more generous. For many low-skilled workers, the paycheck is the end of the story. In industries such as retail and fast food, labour groups are pushing to raise the minimum wage to $15 an hour. And even in jobs that have enjoyed bigger benefits, financial experts warn that workers often don't always come out ahead if they sacrifice dollars for other forms of compensation.

The shift toward bigger benefits and smaller salary increases accelerated as firms tightened their belts following the financial crisis, experts say, but it is rooted in broader demographic changes in the nation's workforce. Millennials say they prize the freedom to work away from their cubicles, while businesses have learned that flexible compensation can help the bottom line.

Ryan Hulland, right, used to give flooring employees 6 per cent or 7 per cent raises, no questions asked. But that was before the 2008 financial crisis. Photo / Washington Post, Nell Redmond

At MonMan, Chandler's boss, Ryan Hulland, used to give employees 6 per cent or 7 per cent raises, no questions asked. But that was before the 2008 financial crisis, when the boom in high-tech construction that drove sales of the company's specialty flooring began to drop off. In downtown Charlotte, North Carolina, Hulland saw work grind to a halt on the gleaming skyscraper Wachovia Bank once planned to use as its corporate headquarters. The bank was taken over by Wells Fargo, and Hulland was determined that his company would not meet a similar fate.

"I don't want to be caught in a double dip recession," Hulland said. "I don't want to be caught in a position where we have overextended ourselves."

So he slashed raises to 3 per cent and began searching for other ways to reward his best employees. Hulland started by giving out $100 gift cards and was taken aback by how excited workers were to receive them. Encouraged by the response, Hulland began offering an intangible reward: extra paid time off.

Though the dollar amount didn't make up for the smaller raises, human resources experts say such rewards provide a more immediate psychological boost, particularly when times are tight.

"That's why we give people gifts at Christmas and not just bags of money," said Andrew Chamberlain, an economist at job search firm Glassdoor. "They can build a relationship that goes beyond a paycheck."