Thursday, April 28, 2016

Are you an entrepreneur with a new business venture? Are you the leader of a well-established company? Researchers at the University of Iowa have something important to tell you: offer benefits wisely!

A newly published study from University of Groningen and University of Iowa researchers discovered that certain benefits, described as ‘motivation-enhancing human resource (MHR) practices’, can dramatically increase or reduce a firm’s chances of success, depending on when those benefits are offered. The study appeared in the Journal of Management (JOM) and was recently featured in the Wall Street Journal and Inc. Magazine.

The study separates businesses by age – those younger than three years are termed “viability-stage companies” and those older than three years are termed “growth stage companies”. When these firms start to take on employees, an important questions arises. What kind of benefits should we offer our employees?

Thankfully, the researchers have combed through the data to find the answer! Viability-stage companies are cautioned against offering MHR employee benefits because it diverts resources away from more pertinent uses, such as achieving initial financial goals and gaining legitimacy in the marketplace. Since nearly half of all new ventures fail, management of company resources early on is crucial. In fact, offering just one benefit to employees lowers a venture’s chance of survival from 55% to 45%. The more benefits the company offers, the higher their risk for failure.

On the flip side, when growth stage companies offer benefits to their employees, their success rates rise. For growth stage companies, offering zero benefits gives them a 55% chance of surviving. When those same firms offer 4 benefits to employees, they have a 72% success rate. The researchers explain that this is due to the investment in human capital. Benefits attract and retain talented employees, which adds value to the company and helps ensure long-term health.

To read the full research findings, please follow the link below:

The Benefits of Benefits: A Dynamic Approach to Motivation-Enhancing
Human Resource Practices and Entrepreneurial Survival

David S. DeGeest
Assistant Professor, Department of Business and Economics | University of Groningen

Elizabeth H. Follmer
Graduate Teaching Assistant, PhD Candidate, Department of Management and Organizations|University of Iowa

Sheryl L. Walter
Graduate Fellow, PhD Candidate, Department of Management and Organizations|University of Iowa

Ernest H. O’Boyle
Assistant Professor, Department of Management and Organizations|University of Iowa