The benefits mix is the complete package of benefits that a company offers its employees. At least three issues should be considered when making decisions about the benefits mix: the total compensation strategy, organizational objectives, and the characteristics of the workforce.11

The total compensation strategy issue corresponds to the “below-market versus above-market compensation” decision we discussed in Chapter 10 . The company must choose the market in which it wants to compete for employees and then provide a benefits package attractive to the people in that market. In other words, management tries to answer the questions: Who are my competitors for employees, and what kinds of benefits do they provide?

For example, a high-tech firm may want to attract people who are risk takers and innovators. The firm’s management may decide not to offer retirement benefits because high-tech companies are usually considered desirable places to work by people in their 20s, and people this young are generally not concerned about retirement. As an upstart challenger to IBM, Apple Inc. at first chose not to offer retirement benefits because management did not think this benefit would attract the entrepreneurial employees it wanted.12 Later, when Apple’s workforce became older, its employees expressed a need for retirement benefits, and Apple redesigned its benefits mix and offered retirement benefits in response to employees’ needs.

The organization’s objectives also influence the benefits mix. For instance, if the company philosophy is to minimize differences between low-level employees and top management, the benefits mix should be the same for all employees. If the organization is growing and needs to retain all its current personnel, it needs to ensure that it offers the benefits its workforce desires.

Finally, the characteristics of the workforce must be considered when choosing the benefits mix. If the firm’s workforce consists largely of parents with young children, it is likely that child-care and other family-friendly benefits will be important. A professional workforce will probably want more say in decisions about its retirement funds. A unionized workforce is likely to demand a guaranteed retirement plan.

The choice of benefits amount governs the percentage of the total compensation package that will be allocated to benefits as opposed to the other components of the package (base salary and pay incentives). This choice corresponds to the “fixed versus variable pay” decision covered in Chapter 10. Once management determines the amount of money available for all benefits, it can establish a benefits budget and decide on the level of funding for each part of the benefits program. Management will then know how much it can contribute for each benefit and how much it will need to ask employees to pay toward that benefit. In larger companies, these calculations are usually performed by the benefits administrator; smaller companies often hire a benefits consultant to do the math.

A company that focuses on providing job security and long-term employment opportunities is likely to devote a large portion of its compensation dollars to benefits. One company that prides itself on its excellent employee benefits is Procter & Gamble (P&G). Its profit-sharing plan—the oldest such plan in continuous operation in the United States—was started in 1887. P&G was also one of the first companies to offer all its employees comprehensive sickness, disability, and life insurance programs.13

The flexibility of benefits choice concerns the degree of freedom employees have to tailor the benefits package to their personal needs. This choice corresponds to the “centralization versus decentralization of pay” decision described in Chapter 10. Some organizations have a relatively standardized benefits package that gives employees few options. This system makes sense in organizations that have a fairly homogeneous workforce. In these firms, a standardized benefits package can be designed for a “typical” employee. However, because of the changing demographics of the U.S. workforce—more women working full-time, dual-career marriages, and single-parent families—there is now a greater variety of employee needs. In organizations that cannot develop a “typical” employee profile, a decentralized benefits package that emphasizes choice will probably be more effective. We discuss flexible benefits packages in detail at the end of this chapter.