MBA Research

Trend #35: Salary/Benefits Issues

Businesses are striving to provide competitive pay and benefit packages to employees, even as the cost of doing so keeps rising. Employers struggle to pass on these additional costs in the price of their products/services or by reducing profits shared with shareholders and employees. This month’s Action Brief looks at how both businesses and employees are dealing with these challenges.

Workplace Implications

The pressure to bolster wages is increasing as fewer workers with the skills needed for the jobs available are giving workers more wage leverage. Layoffs continue in the energy, computer and retail industries and job creation remains very low. Unemployment remains relatively constant as more workers retire or drop out of the labor market without substantial growth in the number of jobs for those that are entering the labor force for the first time or trying to reenter the workforce. Companies are also trying to balance increasing minimum wages in some states, and the new overtime pay rules scheduled to take effect December 1, 2016. These regulations though costly to all employers, will be particularly hard on the retail, restaurant and non-profit industries who have not been able to afford to pay higher wages because of tight profit margins or trying to hold down costs in order to provide more charitable services. Once again, businesses will likely pass these costs on to consumers via higher prices, reductions in profit sharing, or cuts in charitable services provided.

The new overtime regulations will directly affect 4.2 million workers and will cost employers about $1.5 billion a year which equals about 0.03% of total pay in the U.S. Small businesses, likely to feel the most financially burdened if the order does go into effect, are struggling with how to comply in the most cost-effective ways. Some options include:

  • Tight restrictions and close monitoring of overtime hours
  • Hiring additional staff to relieve overtime burden
  • Increasing salaries above the threshold for overtime pay


A main concern of the revision is the potential curbing of opportunities for employees to show extra dedication to their work by putting in extra hours. It may also be troublesome for workers who have earned the exemption status in the past and may now go back to non-exempt status and be required to clock in and out to track their time again.

The passage of the Affordable Care Act brought the possibility of healthcare coverage to millions of Americans where there previously was none. But the cost of insurance premiums has continued to rise substantially, placing a strain on both businesses and employees. Some insurance companies are electing not to provide medical insurance through the government exchanges in some states. Many companies have moved to the provision of high-deductible healthcare plans or eliminated spousal and family coverage to be able to incur the increasing medical costs to provide coverage for their workers. Some companies are providing Consumer Driven Health Plans that give employees more information about the cost and quality of services for each particular provider. This allows greater flexibility in choosing providers and facilities from which to receive services along with more specific information about costs.

Companies have also begun incentivizing employees towards better health as a way of controlling spiraling costs. Financial incentives, other rewards, or lowered insurance premiums are offered to employees in some companies who: 

  • Complete personal health-risk surveys
  • Take action to improve their health, such as participating in diabetes management or fitness programs
  • Provide documentation of improved health biometrics (e.g., lower blood pressure or cholesterol levels)


Some companies use penalties rather than rewards to motivate workers. In Houston, city employees are required to complete a personal health assessment in order to avoid a $25 a month surcharge on medical contributions. Some employers are not hiring, or they are charging more to provide medical coverage to employees and family members who are smokers or users of tobacco.

Programs such as this have advantages and disadvantages. Pros may include healthier, more productive employees, and lower healthcare costs. Cons may include a lack of employee motivation for further improvement beyond the reward, taxes on incentives and rewards, and penalties that can damage employee morale. Some see the programs as potentially discriminatory with rewards or penalties or having to spend time participating in alternative programs based on an individual’s weight or other physical indicators that may not be within their own control.

Employees continue to want the three core benefits of medical coverage, retirement plan contributions and vacation/paid time off. Some businesses are using other creative solutions as they work to provide stronger benefit packages including:

  • Onsite fitness facilities, or memberships to offsite fitness clubs
  • Paid volunteer opportunities
  • Pet-friendly work environments
  • Financial counseling


Classroom Implications

Helping students understand costs related to benefits will begin to aid their understanding of some of the tough choices employers face as they design benefit packages. 

Benefits frequently take a backseat to pay when a job offer is considered. Ask students to consider what benefits will be most important to them as they enter the workforce. Challenge them to think about and list reasons why they should evaluate benefits just as carefully as pay. The following article can help students consider the many aspects of benefits and their overall worth as part of a compensation package:

Have students research various company benefit plans. Ask them to compare the advantages and disadvantages of each.