Discretionary benefits are a key component of employee compensation. These are benefits that are not legally required for employers to offer, but hold a great deal of value to employees. Discretionary benefits fall into three general categories — protection programs, paid time off, and services. Protection programs include disability insurance, life insurance, and retirement. Paid time off (PTO) compensates employees for time they are not working which includes holidays, vacation and sick-leave. Lastly, service benefits include but are not limited to employee assistance programs (EAP), family assistance services, and tuition reimbursement.
As a compensation professional, it would be my job to create employee compensation packages and determine how discretionary benefits would play a role in these. Money is a scarce resource in HR departments and discretionary benefits are very costly to administer, with the cost continuing to rise each year. In terms of ranking the three categories of benefits, in my opinion service benefits would be the first to go if money was tight. Service benefits are a luxury to employees and are essentially the “bells and whistles” of a compensation package. While it would be nice to offer tuition reimbursement and family services such as child care, these are expenses that do not have to fall on a business to pick up. These services would be ideal to offer if you are the Googles and Facebooks of the market, with huge pockets and a goal to recruit the hardest to get employees. You may also offer services if your goal is to successfully snatch away talented employees from another company with an enticing compensation package. At the end of the day, services would be the first to go when the budget is tight. The next discretionary benefit to go would be paid time off. PTO is a wonderful benefit to offer because it helps employees to maintain a happy work/life balance, and may also reduce absenteeism and improve productivity. Paying employees for time that they are not working is a costly benefit to offer however, and may not be feasible for a small company or business that is struggling financially. Finally, the last discretionary benefit that I would want to cut would be protection programs. Protection programs offer employees a safety net in the case that they suffer a serious life-altering event. While the benefits of these programs may not be drawn on until later on in one’s career, they are essential to protecting an employee and their family’s financial well-being in the case of an injury, disability, death, or ultimate retirement. People with families are likely to place a huge value on this benefit, seeing it as a requirement more likely than a “bell or whistle.” Every employee eventually retires and planning for this is a priority on an individual level and a societal level.
