A Study of the Determinants and of the Impact of Flexibility on Employee Benefit Satisfaction

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  • A Study of the Determinants and of the

    Impact of Flexibility on Employee Benefit

    Satisfaction

    Michel Tremblay,1,3 Bruno Sire,2 and Annie Pelchat1

    The purpose of this study was to e xam ine the influe nce of individual

    characte ristics and organizational justice on employee benefit satisfaction, and

    to explore the role of flexible benefit plans. Employees from three Canadian

    organizations were surve ye d. A total of 285 usuable questionnaires were

    returned, for a response rate of 42% . The variables in the model accounte d for

    more than 40% of the variance in benefit satisfaction. The findings showed that

    while distributive and proce dural justice were use ful in predicting benefit

    satisfaction, the concept of process justice had the greatest e ffect on satisfaction.

    Among the variables, communication had the gre atest impact. The effect of

    flexibility, although significant, was ambiguous. Sociodemographic factors had a

    ve ry limited effect when perceptual variables were introduced into the equation.

    The paper also sets out the limitations of the study and its practical implications,

    and makes some suggestions for future research.

    KEY WORDS: benefits; satisfaction; flexibility; communication; organizational

    justice.

    INTRODUCTION

    The cost of benefits has increased conside rably in recent years. In the

    U.S., it represents nearly 40% of salary (Kroll & Dolan, 19851986; McCaf-fery, 1988) , and in Canada between 3035% (Theriault, 1991) , although itmay be as high as 39.6% in some sectors (IRIR, 1994) . At least part of

    the obse rved increase may be due to societal pressure , favorable tax treat-

    Hum an Relations, Vol. 51, No. 5, 1998

    667

    0018-7267/98/0500-0667 $15.00/1 1998 The Tavistock Institute

    1cole des Hautes tudes Commerciale s de Montral, Service de lEnseignement de la Ge s-tion des Ressource s Humaines, 3000, chemin de la Cte-Sainte-Catherine, Montral, Qubec,H3T 2A7, Canada.

    2ESUG, Unive rsit de Toulouse 1, 2, rue Albert-Lautman, 31000 Toulouse, France.3Requests for reprints should be addressed to Michel Tremblay, cole des Hautes tudesCommerciale s de Montral, Service de lEnseigne ment de la Gestion des Ressource s Hu-maines, 3000, chemin de la Cte-Sainte-Catherine, Montral, Qubec, H3T 2A7, Canada.

  • ment, paternalism on the part of employers, a desire on the part of em-

    ployees to have more leisure time, the provision of economic protection

    for employe es, and union pressure (Bergmann et al., 1994) . To control the

    escalation of costs in todays competitive environm ent, some employe rshave decided to re duce the ir own contribution to certain benefits while

    increasing the direct contribution of their employe es and monitoring the

    use of benefits more agressively (McCaffery, 1988; Balkin & Griffeth, 1993;

    Bergmann et al., 1994). Others have chosen a different path, offering the ir

    employees flexible benefits plans. Their aim is to maintain satisfaction lev-

    els and at the same time control costs (Cavagnac & Sire , 1994) .

    The essential feature of flexible benefit plans is that they allow employ-

    ees, within certain limits, to make their own choice s or to construct the ir own

    benefits package . In this type of program, the employe r determines both the

    budget allocate d for indirect compensation and the choices offered, but it is

    the employee who decides which of the benefits offered he or she wishes to

    receive . Generally speaking, the choices made are effective for 1 or 2 years,

    and can be modifie d at the employe es request (Kroll & Dolan, 19851986;Besser & Franck, 1989). In North America, this type of benefit system was

    first deve loped in the late 1960s, but did not become popular until the early

    1980s (McCaffery, 1988). In the last 15 years, we have witnessed a steady

    growth in the number of flexible benefit plans. In 1990, according to a study

    by Hewitt Associate s, more than 50 employers in Canada and more than 1200

    in the U.S. had introduce d flexible benefit systems. A recent study conducte d

    in Canada by the same firm revealed that nearly 16% of employe rs had in-

    troduce d this type of plan (Hewitt Associate s, 1995).

    The three most popular flexible benefits plans are modular plans, core-

    plus-options plans, and flexible spending accounts (Gomez-Mejia, Balkin,

    & Cardy, 1995) . Modular plans consist of a series of different benefit bun-

    dles or diffe rent leve ls of coverage designed for different subgroups of the

    employee population. Employe es can select only one bundle , and coverage

    leve l substitutions are not usually allowe d. Core-plus-options plans consist

    of a core group of essential benefits together with a wide array of other

    benefit options that employe es can add to the core . The core is designed

    to provide a minimum level of economic security. Under plans such as this,

    employees receive benefit credits that entitle them to purchase additional

    benefits of value to them.

    The flexible spending account is the most simple type of flexible bene-

    fit plan. Here, employers allow their employe es to pay for certain categories

    of eligible benefits that are not include d in the plan, using untaxe d dollars.

    This type of plan is in fact a bank account used to pay claims and managed

    by the employer.

    668 Tremblay, Sire, and Pelchat

  • The growing inte rest in flexible benefit plans can be explaine d by their

    many pote ntial advantage s. These plans allow employe es to choose the bene-

    fits that best satisfy their personal needs (Beam & McFadden, 1988; McCaf-

    fery, 1988; Milkovich & Newman, 1990), to unde rstand and appre ciate the

    benefits offered and the relate d costs (Beam & McFadde n, 1988; Rose, 1988;

    Milkovich & Newman, 1990; Hornsby et al., 1991), and to avoid pointle ss

    duplication of benefits for couple s with two income s (Baker, 1988) . For em-

    ploye rs, the flexible programs provide a better way of satisfying the changing

    needs of salaried employe es (Beam & McFadden, 1988; Milkovich & New-

    man, 1990), facilitate the recruitment and retention of employe es (Cable &

    Judge , 1994; Rylan & Rosen, 1988; Rose , 1988), permit the introduction of

    new, less costly benefits (Milkovich & Newman, 1990; Theriault, 1991), and

    help increase employee satisfaction (Barber et al., 1992).

    Despite the cost of benefits and the growing popularity of flexible plans,

    employe e benefits have received little attention by personne l/human resource

    researchers (Gerhart & Milkovich, 1992; Lengnick-Hall & Bereman, 1994).

    Other than the theoretical work by Miceli and Lane (1991) , Danehower and

    Lust (1992) , Lengnick-Hall and Bereman (1994) , and Cavagnac and Sire

    (1994) , and the empirical studie s by Barber et al. (1992), Rabin (1994), Davis

    and Ward (1995) , Poilpot-Rocaboy (1995) , and Williams (1995), very little

    empirical research has been carried out to assess the validity of any or all of

    these models and to test the influence of flexible benefit policie s. The goal

    of the research described here is to test the validity of specific propositions

    related to the determinants of benefit satisfaction and to explore the influ-

    ence of flexible benefit plans on employee satisfaction.

    THEORETICAL FRAMEWORK AND HYPOTHESES

    Past studies of the determinants of benefit satisfaction have focused mainly

    on the relationships between sociodemographic characteristics and level of sat-

    isfaction, considered jointly as benefit satisfaction in a piecemeal fashion, and

    have analyze d the variable s determining satisfaction with specific benefits. To

    our knowledge, only Williams (1995) has tested a theoretical model of the an-

    tecedents of benefit satisfaction. The results of all this work reveal that two

    groups of variable s may have a direct or indirect effect on benefit satisfaction:

    factors related to the individual and factors related to organizational justice .

    Influence of Factors Related to the Individual

    Studie s of benefit satisfaction have focused mainly on two individual

    factors: sociodemographic variable s, in particular, sex, age , level of educa-

    tion, size of family, seniority, salary and organizational leve l, and attitudinal

    Flexibility and Employee Benefit Satisfaction 669

  • variable s related to value s, needs, desirability, and preferences regarding

    benefits.

    Past empirical studies of sociodemographic characteristics have produced

    mitigated results. The results regarding sex, for example , are inconsiste nt. Lust

    (1987), Scarpello et al. (1988), Hemmasi et al. (1992), and Rabin (1994) did

    not observe any significant relationship between sex and overall benefit satis-

    faction, whereas Balkin and Griffeth (1993) found that, generally speaking,

    women were more satisfied than men with their benefits. The results concern-

    ing the relationship between age and benefit satisfaction seem to be equally

    inconsiste nt. Lust (1987), Dreher et al. (1988), Hemmasi et al. (1992), and Wil-

    liams (1995) found no significant relationship between these two variable s. On

    the other hand, Scarpello et al. (1988) observed a positive relationship, and

    Balkin and Griffeth (1993), Rabin (1994), Poilpot-Rocaboy (1995), and Judge

    (1993) all observed a negative relationship. Evidence of a link between level of

    education and benefit satisfaction is equally ambiguous. For example , Lust

    (1987) and Scarpe llo et al. (1988) found a positive relationship, Lust (1990) and

    Balkin and Griffeth (1993) found a negative relationship, and Hemmasi et al.

    (1992) found no significant relationship. Although very little work has been

    done on the impact of family size, the findings are still inconsistent. Lust (1987)

    and Poilpot-Rocaboy (1995) found no significant relationship, while Dreher et

    al. (1988) observed a negative one. Evidence of the influence of seniority is

    equally inconclusive . Lust (1987, 1990) found a positive relationship between

    seniority and overall benefit satisfaction, Scarpello et al. (1988) and Rabin

    (1994) found a negative one, while Dreher et al. (1988), Balkin and Griffeth

    (1993), Hemmasi et al. (1992), and Williams (1995) observed no significant re-

    lationship. The impact of level of salary on benefit satisfaction has been found

    to be fairly constant and positive (Lust, 1987; Dreher et al., 1988; Balkin and

    Griffeth, 1993). However, this same impact was limited when perceptual vari-

    ables such as perception of justice were introduce d into the model (Hemmasi

    et al., 1992; Williams, 1995; Poilpot-Rocaboy, 1995). The results regarding the

    relationship between organization level and benefit satisfaction have also been

    inconsiste nt. Scarpello et al. (1988) found a positive relationship, Lust (1987)

    a negative one, and Williams (1995) observed no significant relationship.

    In fact, the empirical results re garding the impact of socio-de mo-

    graphic factors have been so inconclusive that it is difficult, at the present

    time, to draw any conclusions on the existence and meaning of the vari-

    ations in the relationships. In addition, the direct effect of personal factors

    on benefit satisfaction seems to be limited when perceptual variable s are

    include d in the mode ls. Despite their presumed relevance , we will therefore

    not propose any specific hypothe ses regarding these factors, but will pursue

    our inve stigations in this field.

    670 Tremblay, Sire, and Pelchat

  • The weakne ss of the demographic approach in explaining employe e

    attitude s has led some authors to examine employe e preference or need

    (Milkovich and Newman, 1990) . Employee values are propose d as deter-

    minants of benefit satisfaction in the mode ls of both Mice li & Lane (1991)

    and Danehower and Lust (1992) . However, the ir role is uncle ar, and has

    received little attention in empirical studie s of satisfaction (Danehower et

    al., 1994). According to Locke (1976), the more importan ce individuals at-

    tach to a give n aspect, the greater their satisfaction with that aspect. In

    empirical work, Lust and Danehower (1992) found a positive relationship

    between the importance attache d to benefits and the satisfaction with re-

    spect to leave and retirement, and Williams (1995) obse rved a positive , but

    not significant, relationship between benefit desirability and benefit satis-

    faction. These results suggest that there may be a positive relationship be-

    tween the importance attache d to benefits and employee satisfaction.

    Hypothesis 1. The more importance individuals attach to benefits, the

    more satisfied they will be with those benefits.

    In the same way that value s are acquired through individual expe rience,

    a benefit will be valued more highly if the individuals concerned have a

    knowledge of the benefits that are offered to them. The study of Dreher et

    al. (1988) showed that employe es who had an accurate view of the ir coverage

    were more satisfie d with their benefits package s than employees who had an

    inaccurate view. Such awareness may be a function of benefit history. Miceli

    and Lane (1991) defined benefit history as an individuals cumulative expe-rience with benefits across organizations and over time. An individual who

    has experienced several organizations during his or her career will probably

    have acquire d a greater understanding of the benefits issue than someone

    who has had only one employer. Moreove r, every move between employers

    constitute s an opportunity to become better informe d and more aware of the

    benefits package , and greater mobility provide s concre te points for compari-

    son of compensation (Mice li & Lane , 1991). Research on the question of pay

    satisfaction supports the importance of an historic standard (Hill, 1980) .

    Thus, we can formulate the following hypothe sis:

    Hypothesis 2. There is a positive relationship between interorganiza-

    tional mobility and benefit satisfaction.

    Benefits are aimed, among othe r things, at prote cting employe es and

    the ir dependents from risks that could jeopardize their health and financial

    security (Gomez-Mejia et al., 1995; Milkovich & Newman, 1990) , and pro-

    viding continuity of income in a varie ty of circumstances and situations

    Flexibility and Employee Benefit Satisfaction 671

  • (e.g., sickne ss, injury, une mployment, disability, retirement, death) . A bene-

    fits plan perceived as providing a high leve l of security is more like ly to

    increase employe e satisfaction. However, although the notion of protection

    forms the core of all benefits plans, to our knowledge no research has yet

    been done on the relationship between perception of security and attitude s

    toward benefits. We therefore propose the following hypothe sis:

    Hypothesis 3. There is a positive relationship between perception of

    security and satisfaction with benefits.

    Influence of Factors Related to Organ izational Justice

    Distributive Justice

    Researchers working on justice have identifie d two principal forms of

    justice : distributive justice and procedural justice . The theoretical models

    of benefit satisfaction (e.g., Miceli & Lane , 1991; Danehower & Lust, 1992)

    suggest that these two components of justice may affect satisfaction...

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