Motivation
Fringe benefits
Fringe benefits are rewards an employer gives in kind rather than as money. Examples include a mobile phone the employee can use privately, private medical insurance, meals that the employer helps to pay for, and a gym membership paid for by the employer. They count as a financial method of motivation, even though employees are not handed money, because each benefit has a cash value and increases the total value of the pay package.
Why businesses offer them
| Benefit for the business | Why it matters |
|---|---|
| Attracting staff | A job advert offering private medical insurance and subsidised meals stands out against one offering only a wage, so more people apply. |
| Retaining staff | Employees who value a benefit are less likely to leave for a slightly higher wage elsewhere, which saves the cost of recruiting a replacement. |
| A competitive pay package | The whole package looks more attractive without the business having to find a large rise in basic pay. |
A small plumbing firm cannot match the wages of a large rival, so it gives each engineer a mobile phone for private use and pays for a gym membership. That package persuades experienced plumbers to join and to stay.
Drawbacks
Fringe benefits are costly to provide. Phones must be bought, insured and replaced, and gym memberships must be renewed each year. They also take time to administer, because someone must arrange each scheme, keep records and sort out problems. Employees may take benefits for granted once they have had them for a while. They may also undervalue one they never use, such as a gym membership for someone who never goes to the gym, so the motivational effect can fade.
Practise this
Edexcel GCSE Business · 2.5.4 Motivation