According to the case study, Peter pays 10% higher than that available to semi skilled staff in order to attract staff with the necessary abilities required to work at APSL. In addition, he believes that he should also complement wages with fringe benefits for example a subsidised canteen, yet they have been successful. It becomes clear that the employees would much rather have maximum possible pay instead.
What are fringe benefits?
- Subsidised canteen: mentioned by APSL
- Company car
- Medical checks
- Discount on APSL products
- Pension plans
There could be a number of reasons as to why Peter would like to compliment wages with fringe benefits on top of his competitive rate of 10% above most other semi skilled staff wages. However, it is important that APSL evaluate this suggestion in line with their key objective of improving solvency ratios to ensure that they do not conflict.
One advantage of complimenting wages with fringe benefits is that it could offer a cheaper alternative compared with paying 10% higher. For example, by having a subsidised canteen, it means that staff will still have to pay a proportion to contribute towards their meals, however APSL will be providing some money towards it. If it turns out that having competitive fringe benefits such as this is cheaper than paying employees additional monetary wages, it is something for APSL to suggest. The business places an importance on having employees that are well trained and understand the business’ keen objective of maintaining high quality, and therefore if APSL do not provide incentives on top of their competitive rates, it may limit the level of skills that APSL have the capacity of employing. Inevitably, less benefits will attract less staff and therefore Peter’s suggestion of a subsidised canteen helps to contribute to better working conditions for staff to stay with APSL, which as a result, will improve quality rates due to long term, skilled staff, rather than short term, less experienced staff if APSL experience high staff turnover.
However, it is clear that staff are reluctant to accept fringe benefits, and would much rather be offered “maximum possible” pay, and then “make their own individual choices about, what, if any additional perks they buy.” Therefore, if Peter was to introduce fringe benefits such as vouchers and health/fitness club memberships, it is likely to conflict with the business’ key objective of improving solvency ratios. Certainly, investing in fringe benefits for the entire production will be a costly expense and therefore APSL must carefully evaluate whether this is a beneficial one that allows them to meet their objective. For one, having committed and happy staff that are regularly complimented with fringe benefits is likely to reduce staff turnover and as a result improve the motivation and quality offered at APSL, and in conclusion result in better profit margins. However, it is also fair to argue that buy offering such lavish benefits can be costly and therefore APSL may face jeopardising meeting their key objectives. Paying for staff to have health/fitness membership can be approximately up to £50 per month and therefore, this will have an eventual impact on the profit margins at APSL. Whilst it could be argued that having fringe benefits is essential for APSL to “select” rather than “accept”, it must be made sure that they do not hinder the company’s ability to meet objectives.
Further to this, APSL could consider having fringe benefits to specific staff members. By doing this, APSL does not waste excessive money in spending on benefits for all staff, but rather the ones who deserve it. For example, if a production member shows particular interest and has high output in a particular month, APSL could reward that employee with a company car/medical check ups. These are often one off payments that will not require a continuous investment from APSL and therefore fringe benefits can be given out when they can be afforded. This is likely to have a number of benefits. For one, by offering fringe benefits to specific employees it will not only reduce expenses and as a result improve solvency as opposed to offering it to all staff, but also means that employees are motivated to reap benefits in the future, as well as feel as though they are valued and being recognised in the business, which in hand will improve job satisfaction and incentives to do well at APSL.
By contrast, it is also reasonable to argue that Peter should not compliment wages with fringe benefits. Not only is this a frivolous extra expense that the business will occur, accompanied by the scheme to pay 10% higher, but also it is clear that employees are interested. It may be said that if employees do not wish to have fringe benefits, Peter will just be unsuccessfully investing in schemes such as a subsidised canteen, where it will not improve employee turnover, absenteeism or output. Whilst employees may feel recognised, it is unlikely that this will encourage the level of skilled workers that are interested in working at APSL and therefore Peter may have to re-evaluate this suggestion. One idea for APSL to consider is instead of fringe benefits, APSL may offer piece rate. By offering piece rate wages, employees of the business will directly benefit from working hard and achieving high output, where other employees that do not produce as much do not get the same level of pay. This is advantageous as it means there is a direct correlation between work ethic and reward, however, employees have to remember that a main focus at APSL is high quality and thus a high volume production with low quality output will not be rewarded.
Peter should not compliment wages with fringe benefits when it will not be valued by employees. The current scheme of 10% on top of regular employees is already a large proportion of expenses that APSl will have to undergo and therefore the business will need to make cutbacks, and hold back on investing in fringe benefits to reward employees when there are other, more vital issues to consider such as improving solvency.