Benefit Coverage and Employee Cost: Critical Factors in Explaining Compensation Satisfaction

This research examined the joint effects of benefit coverage and the costs borne by employees on multiple dimensions of compensation satisfaction. Information regarding pay and benefit practices was collected by interviewing personnel specialists and reviewing policy and procedure documents in eight organizations. At a later time, satisfaction data were collected from employees via mail surveys. The results indicated that satisfaction with benefits increased with improved coverage and decreased with higher employee costs. Employees were particularly sensitive to variation in the cost of health insurance. Also, for respondents possessing accurate information about actual coverage levels, the relationship between coverage and satisfaction was more pronounced. For the organizations studied here, salaries and benefits were being administered using compensatory allocation rules. Salary levels were negatively correlated with the levels of benefit coverage, and the various components of the compensation systems covaried in complex ways. The methodological implications associated with this research are emphasized and suggest that the interpretability of much of the past research devoted to employee benefits has been compromised.