A conceptual model of the determinants of employee benefit satisfaction

A CONCEPTUAL MODEL OF THE DETERMINANTS OF EMPLOYEE BENEFIT SATISFACTION Carol Danehower Memphis State University John A. Lust Illinois State University

A model of employee benefit satisfaction, as a construct distinct from pay satisfaction, is proposed. Benefit satisfaction in this model contains two components: satisfaction with the costs incurred and satisfaction with the quality of the benefit package. Proposed determinants of benefit satisfaction in the model include employee needs, values, and expectations; benefit availability and level of coverage; employee experience with package components; and cost structure of the benefit program. Employer communication, distributive justice, and procedural justice are proposed as moderating variables. A discussion of the complete model is presented along with suggestions for future research.

The cost of employee benefits has increased at an alarming rate over the last several decades, with U.S. Chamber of Commerce survey estimates for 1951 and 1989 showing that average benefit costs as a percent of payroll increased from 18.7% to 37.6%. (U.S. Chamber of Commerce 1981,199l). Further, one in four of the companies surveyed in 1989 reported benefit costs of more than 40 per cent of payroll. Corporations concerned with the management of this large and growing financial investment treat the benefits package as a distinct and critical component of total compensation. They no longer merely react to rising benefit costs; rather, they have taken pro-active strategies through managed care programs, case management, wellness programs, strong employee assistance programs, and creative pension plans (Main 1991). Benefits managers are employed with the specific charge of insuring that programs are satisfying both employer and employee needs as efficiently and effectively as possible. Direct aII correspondence end Economics, Memphis

to: Carol Danehower, Department of Management, State Universitv. Memphis. TN 38152.

Human Resource Management Review, Volume 2, Number 3, 1992, pages 221-238 All rights of reproduction in any form reserved.

Fogelman College of Business Copyright 8 1992 by JAI Press, Inc. ISSN: 1053-4822

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Unfortunately, research interest of employee benefits has not increased as dramatically as have benefit costs or employer actions. Heneman’s (1985) review of the pay satisfaction literature found minimal work in the area of benefit satisfaction as one component of compensation satisfaction. More recent research has begun to approach benefit satisfaction as a construct potentially separate from, although not unrelated to, pay satisfaction (see, for example, Barber, Dunham, & Formisano 1992; Dreher, Ash, & Bretz 1988; Lust 1986, 1987, 1988, 1990; Miceli & Lane 1991; Scarpello, Huber, & Vandenberg 1986, 1988). In addition, Heneman and Schwab’s Pay Satisfaction Questionnaire (Heneman 1985; Heneman & Schwab 1985) treats benefit satisfaction as one facet of overall com~nsation satisfaction (along with pay level satisfaction, satisfaction with raises, and satisfaction with the structure and administration of the system). However, despite this recent research interest, few conceptual models of employee benefit satisfaction have been developed. The purpose of this article is to propose a conceptual model of the determinants of benefit satisfaction, The need for a model of employee benefit satisfaction which is distinct from existing pay satisfaction models (for example, Dyer & Theriault 1976; Lawler 1971; Weiner 1980) rests not only on the growing practitioner interest in benefits but more importantly on distinctive characteristics of benefits that make an independent examination of this evaluation process necessary. Studies on the dimensionality of compensation satisfaction demonstrate satisfaction with benefits as one distinct facet of the construct (Heneman, Greenberger, & Strasser 1988; Heneman & Schwab 1985; Scarpello, Huber & Vandenberg 1988). A possible explanation for this distinction is that the psychological processes involved in forming attitudes toward benefits may differ from those associated with pay. The potential for the existence of these differences is evident when one compares typical pay and benefit practices. While the dollar component of compensation can take different forms (for example, base wage/salary level, merit raises, incentive pay, cash bonuses), the form of pay availability is determined solely by the employer. In contrast, benefit plans have traditionally provided some individual employee choices. For example, traditional plans usually give employees opportunities to buy additional insurance coverage at group rates. With the advent of flexible benefit plans, individual choices have escalated. Employees are constantly reminded of pay level with every pay check. Percentage raises are usually stated explicitly and administered at somewhat consistent intervals within a company (annually, semi-annually, quarterly). On the contrary, employees may devote little consistent attention to some aspects of their benefit package. Years may pass with no consideration of retirement or with sporadic usage of services covered by health insurance. Thus, employees may have little or no understanding of the benefits available to them and employers must make a conscious effort to communicate aspects of the benefit package (Gasser 1989/90; Phillips & Bramson 1990; Nichols 1988). Finally, benefit plans differ in the way they are funded. The employer, the employee, or both may contribute to some components of these plans.

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In summary, these differences in the nature of benefits as compared to pay undoubtedly cont~bute to differences in the psycholo~cal processes required to evaluate benefits as compared to pay. As a result of these differences, existing pay satisfaction models are inadequate and inappropriate for explaining benefit satisfaction. Thus, the purpose of this article is to present a conceptual model of benefit satisfaction which can be used to guide future research on attitudes related to this important component of total compensation.

THE BENEFIT SATISFACTION

MODEL: AN OVERVIEW AND DEFINITIONS

The proposed model suggests that benefit satisfaction is a function of both organizational and individual variables. Antecedents underlying the determinants of benefit satisfaction are characteristics of the individual employee, such as age, gender, education level, health, and family status; factors about the individual related to the job, such as pay level and tenure; and factors about the job in the context of the organization, such as work environment (i.e. nature of the job, presence of health hazards) and union status. The indirect influence of these factors on benefit satisfaction is exerted through their influence on the four sets of proposed determinants. Two of the proposed determinants are organizational variables: benefit availability and level of coverage; and the cost structure of the benefit package. The remaining two determinants are unique to the individual: employee needs, values, and expectations; and employee experience with benefit package components. The model suggests that the four determinants shape how employees perceive the quality and cost of the benefits they receive. Employer communication is proposed as an organizational moderator of the process by which these determinants influence employee formation of perceptions of benefit cost and quality. An individual moderator of the process by which employee cost and quality perceptions result in satisfaction with cost and quality is distributive and procedural justice. That is, how satisfied they are with the perceived quality and cost of their benefits is atfected by their perception of how fair the employer’s resource allocation process was and their assessment of the fairness of the resulting outcome. Benefit availability and level of coverage pertains to the actual offering of benefits, including the level and type of coverage of particular benefits, to the employee (Does the company offer a dental plan? Do employees have a preferred provider organization or a health maintenance organization? What is the vacation/sick day policy?). Cost structure of the benefitplan, determined by orgznization policy, includes not only the actual dollar amount that the benefit package costs, but the means by which the benefits are funded (for example, what percent of the total cost of a health plan is paid for by the employee). Also included in this variable are any other aspects of the benefit package related to costs incurred by the employee, such as level of deductible in a health plan, copayment on office visits or medication, etc.

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Organizational and Individual Antecedents

- gender - lamily - age - education - health

- union/non-union - workenvironment

t

t Benefit Availability and Level of Coverage

- tenure - pay level

t

Cost Structure of Benefit Package

,

Employee Needs, Values, and Expectations

3 Experience the Benefit Package

with

t

1

:%!:CTION

Figure

1. Determinants

] of Benefit

Satisfaction.

The concept of needs in this model is no different from needs in other models of organizational behavior or human resource management, defined as “an internal state of disequilibrium or deficiency which has the capacity to trigger a behavioral response” (Cherrington 1991, p. 32). The values concept is based on Rokeach (1962) as cited by Vinson, Scott, and Lamont (19771, and refers to

centrally held enduring beliefs related to desired life goals which stimulate choices and behavioral responses. Expectations refer to standards and beliefs held by employees regarding the functions a benefit package provided by employers should perform (Dichter 1984). Employee experience with the benefit package refers to the degree to which the employee has actually used components of the package which are available. Employer communication, proposed as a moderator affecting the relationship between the four determinants and employee perceptions of benefit cost and benefit quality, refers to media used to explain benefit programs to employees, frequency of presentations, and level of pe~nali~atio~ of the communication. Perceived fairness is proposed to moderate the relationship between perceptions of cost and quality and satisfaction with benefit cost and quality. ~~tr~bu~~e justiee is the fairness perception concerned with outcomes (benefits) received, whereas procedural justice is the perception of fairness related to the process leading up to the allocation of the outcomes (Greenberg 1990). In summary, this model proposes that overall benefit satisfaction has two dimensions, satisfaction with casts and satisfaction with the quality of the benefit package. The effect of four sets of determinants-benefit availability and level of coverage; cost structure of the benefit program; needs, values, and expectations; and employee experience with components of the package;-on perceptions of cost and quality is moderated by employor ~mrn~i~tion eflorts. The relatio~hip between employee perceptions of cost and quality and these two components of satisfaction is moderated by the employee’s perception of the distributive and procedural fairness. These variables and their relationships are shown in Figure 1.

ORGANIZATIONAL AND INDIVIDUAL ANTECEDENTS Previous empirical examinations of several organizational and individual or demographic variables as direct determinants of benefit satisfaction have been limited or have obtained inconclusive results. Lust (1987) found that unionized employees and people with longer terms of employment were more satisfied with their benefits than other employees_ In addition, pay level was shown to be a significant predictor of benefit satisfaction {Lust 1987). The effect of several demographic variables has been examined with greater frequency but without providing conclusive evidence regarding their relationship to benefit satisfaction. In one study, Lust (1986) found that men and women had different preferences relating to benefits; however, two later studies (Lust 1987,199O) found evidence to the contrary. Lust (1987, 1990) found no signiticant direct relationship between benefit satisfaction and family size or age. Dreher, Ash, and Bretz (1988) however, did Fxndthat level of family responsibility had a modest negative relationship with benefit satisfaction. The precarious influence of education is evident in two studies by Lust, one fmding a statistically sign&ant inverse relationship between education and benefit satisfaction (Lust 1990) and another finding a non-significant positive relationship (Lust 1987). Barber? et al. (1992) examined

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the effects of deviation from a “traditional” demographic profile (married males with children and non-working spouses, long tenure with company) on benefit satisfaction before and after implementation of a flexible benefit plan and found no significant relationship. A potential explanation for these mixed and inconclusive results may be that these organizational and individual variables are antecedents rather than direct determinants of benefit satisfaction. In a study of the determinants of pay satisfaction, Berkowitz, Fraser, Treasure, and Cochran (1987) found demographic variables to be what they termed “distal influences which exert their influence through proximate influences captured by psychological variables” (p. 550). Similarly, in this model we proposed that the four determinants of benefit satisfaction have both individual and organizational antecedent variables. These antecedent variables are posited to have little direct influence on benefit satisfaction; rather their influence is felt through their impact on the proposed determinant variables. Antecedents of employee needs, values, and expectations may include demographic variables, some of which have been examined in previous research: gender, age, education level, health, and family status. For example, higher education may increase employee’s expectations for benefits by making them more aware of the need for specific benefits like health insurance. On the other hand, expectations of more highly educated people may also be influenced by their awareness and understanding of the employer’s pay/benefit trade-off. Age and family size may also play an important part in determining the individual’s needs, values and expectations with regard to benefits. Many of the employee benefits offered by the employer (especially those with the highest cost) deal directly with security (i.e., medical, life insurance, disability, dental, and all types of pension plans). As the individual ages and/or the family grows, values may change and expectations regarding employer offerings may increase. Other characteristics of the individual relative to their job in the organization, such as pay level and tenure, and organizational factors such as union status and work enviro~ent are proposed as additional antecedents to needs, values, and expectations. Age, health, family status, and tenure might also influence the individual’s experience with components of the benefit package. The demographic variables are likely to influence health insurance usage, and an employee with longer tenure has, by defmition, had more time to use or experience a variety of benefits. Union status and work environment (in the form of position in the company hierarchy) are proposed organizational antecedents of benefit availability and level of coverage, with union status also an antecedent of cost structure of the benefit plan. Typical bargaining issues for labor unions or employee associations involve employee benefits, in terms of both what types of benefits are offered and what percent of the benefits are paid by the employee. In some organizations certain benefits or “perquisites” are available to employees depending upon their position (some employees receive use of a company car, others may have stock options available to them that are not available to others).

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In summary, previous research examining the effect of demographic variables as determinants of benefit satisfaction has failed to produce conclusive results. Consequently, in this model organizational and individual characteristics, including the previously researched demographic variables, are proposed as antecedents to four determinants of benefit satisfaction.

DETERMINANTS

Benefit Availability

OF BENEFIT SATISFACTION

and Level of Coverage

Intuitively, the number and types of benefits available to employees should influence their perceptions and subsequent benefit satisfaction. In two studies utilizing data from the University of Michigan Quality of Employment Survey, Lust (1986, 1988) reports benefit availability (mere presence or absence of benefit package components) as a significant predictor of benefit satisfaction. Dreher, et al. (1988) suggest focus on level of benefit coverage, in addition to and beyond just availability of benefits, as one critical variable in the determination of benefit satisfaction. Their study of the effects of both benefit coverage and employee cost on compensation satisfaction in eight organizations enabled them to examine variations in coverage. They used seven objective measures of level of coverage (ranging from life insurance, health insurance, disability protection, retirement, holiday, sick leave, and vacations) which they combined in a single index of benefit coverage. Their results indicate a significant partial correlation of 0.21 between coverage and satisfaction in their total sample of 1,239 employees from the eight organizations. Employer interest in and potential practical research opportunities for the examination of level of benefit coverage and its influence on satisfaction is likely to increase. Flexible benefit plans may constitute variability in level of coverage on some components of the benefit package, depending on the type of flexible plan offered, within any one organization. Cost Structure of the Benefit Package

In recent years increased benefit costs and the development of a variety of cost containment strategies have become two of the most difficult issues faced by compensation and benefit managers (Luthans & Davis 1990). These cost containment strategies usually result in changes in percentage paid by employer/employee for employee health coverage, percentage payment or payment at all for dependents/spouse, co-payments for medication, and annual stop loss ratios (Luthans & Davis 1990; McCafIery 1988). Due to the complexity of these funding arrangements which accompany these cost containment strategies, particularly those regarding health insurance but also pension funding and life insurance, employees find it difficult to fully understand the nature of and reasoning for the means by which their benefits are funded. Nonetheless, they are quite sensitive to benefit costs, particularly as they affect their own contribution evident in payroll deductions. Dreher, et al. (19881, discussed

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above, found a significant negative relationship between employee benefit costs and benefit satisfaction, (-0.33 for the total sample). Employee Needs, Values and Expectations Research involving perceptual models, including Lawler’s (1971) pay discrepancy model, supports the influence of both organizational and individual variables on employee perceptions. In the proposed model, these characteristics are posited as influencing benefit satisfaction through employee needs, values and expectations, as suggested by Miceli and Lane (1991). The relationship between individual characteristics or demographics and employee needs, values, and expectations relative to benefit satisfaction is suggested and supported by research in the field of marketing. This research links demographics with consumer needs, values and expectations relative to product preferences and satisfaction (Crosby, Gill, & Lee 1984; Kramer 1984). Further, although no recent empirical evidence supports the effect of employee needs on satisfaction with benefits, benefit programs designed to meet the changing needs of a diverse workforce have been reported as having widespread success (Main 1991; Masterson 1990; Pomper 1990; Santora 1990; Schachner 1990). Originally conceived as a cost containment measure, flexible benefits (“cafeteria plans”) signify employer recognition of the important relationship between personal chacteristics such as gender, marital status, and tenure and employee needs and benefit satisfaction (Clark 1990; Mulcahy 1990; Roberts 1990; Santora 1990; Wilt 19901. Flexible benefit plans, established in 1978 through Section 125 of the IRS Code, allow tax free-benefit contributions by employees, providing tax advantages to companies who offer planned flexible benefit programs. They also offer some choice in benefits, allowing employees to custom design their benefit package to suit their personal needs (Johnson 1986; Masterson 1990). Typical flex plans might allow employees to trade off additional life insurance or vision care for dependent care services, for example. Needs, values and expectations are reflected in items on the List of Values (LOV), a measurement tool developed by the University of Michigan Survey Research Center and used in marketing research (Kahle, Beatty, & Homer 1986). Items relating to values of major life roles (i.e. marriage, parenting, work, leisure, daily consumption), such as security, warm relationships with others, fun and enjoyment in life, and excitement, have a logical relationship with benefit satisfaction. For example, employees valuing security most highly will have different attitudes toward retirement and disability benefits from those persons valuing excitement. Employee Experience

with Benefit Package Components

The degree to which employees use the various components of their benefit package should influence their perceptions of the quality of the package and their perceptions of cost. That is, the more often employees take advantage of

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various benefits, the more likely they are to be attentive to what their benefits cost and the level of quality of the benefit package. In a study of the effectiveness of various methods of benefit communication on satisfaction and knowledge, Driver (1980) found no relationship between level of knowledge of benefits and benefit satisfaction, indicating that just knowing about benefits, even if the knowledge is complete, without actively using them may have little effect on employee attitudes. However, repeated use and increased familiarity with benefits such as health insurance, depending on the nature of the experience (positive or negative), could have either a positive or negative impact on perceptions and subsequent satisfaction with cost and quality. The effect on quality perceptions is obvious, but increased use might also affect employee perceptions of cost (“what I pay seems reasonable given how much I’ve been to the doctor lately”) and subsequent satisfaction. In summary, determinants of benefit satisfaction suggested by this model include two variables unique to the organization, benefit availability and level of coverage and cost structure of the benefit package, and two sets of individual variables, employee needs, values, and expectations and employee experience with benefit package components. Previous academic research and practitioner experience, although limited in scope, have suggested these variables as determinants. In this model the effect of these determinants on employee perceptions of benefit cost and quality and subsequent satisfaction with cost and quality is moderated by organizational communication, distributive justice, and procedural justice, discussed below.

MODERATOR

VARIABLES

A moderator variable is one which “systematically modifies either the form and/or the strength of the relationship” between predictor and criterion variables (Sharma, Durand, & Gurarie 1981, pp. 291-300). For this analysis three variables are hypothesized to moderate portions of the model: organizational communication of the benefit program, distributive justice, and procedural justice. Communication

Employer communication of the benefit package moderates the effect of needs, values, and expectations, benefit availability and level of coverage, cost structure, and employee experience with components of the benefit plan on perceptions of benefit cost and quality. Communication efforts can educate employees concerning their options and enable them to more fully understand the costs incurred by employers and the costs they are being asked to bear (Engel 1990; Hammond 1990; Lewis 1989; Page 1988; Whitaker 1990). As a moderator variable, aspects of benefit communication affect the way the four causal variables shape employee perceptions and subsequent satisfaction. The effect of the availability of benefit package components and level of

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coverage may be enhanced greatly by employer communication. Several studies have indicated that, in general, employees are not very knowledgeable about the availability or cost of their benefits. Mitchell (1988) compared administrative records and worker perceptions of early retirement options, type of pensions plan, and level of employer/employee contribution and found widespread worker misinformation. A survey of white collar workers found that roughly half of the respondents were unable to describe the company’s eleven major benefits accurately (Sloane & Hodges 1968). Another survey asked union and non-union employees to list their benefits. On the average, union employees identified only eight of fifty-eight benefits, and non-union employees identified only seven of fifty-two benefits (Halley & Ingram 1973). Wilson, et al. (1985) found that employees badly underestimate employer costs incurred on benefits and did not realize the fair market value of the benefit package. They suggest that employers take an “information enhancement approach” (i.e. communicate more specifically) to increase employee understanding. The moderating effect of communication on employee perceptions of benefit quality and satisfaction with the quality of coverage is suggested further by the Dreher, et al. (1988) results. Correlations between quality of benefit coverage and satisfaction differed greatly by perception accuracy. The partial correlation between coverage and satisfaction for the total sample (n = 1, 239) was 0.21; for employees with inaccurate perceptions (n = 504) the correlation was 0.02; and for employees with accurate perceptions the correlation was 0.32. They measured accuracy of perception by comparing subjective company data concerning coverage and employee perceptual measures of coverage. HR manager interest in improving benefit communications is evident in the large number of practitioner articles devoted to the formulation of communication strategy and a variety of issues related to communication. Thomas (1988) and others note that this increased emphasis on communication results from the complexity of multi-option, flexible benefit plans (KittrelllQ88; Masterson 1990; Nichols 1988), improvements in communication technology, and the employer’s desire to inform employees of the significant costs of benefits. The means and level of intensity of benefit communication, including the use of creative forms of personalized communication, have been discussed by Engel (19901, Kittrell (19881, Rogerwick (19911, Phillips and Bramson (19901, Murino UQQO),and Rhodes f1991). In addition, the need for pre-retirement planning programs designed to communicate pension plan specifics and to help employees make well-informed decisions concerning their retirement benefits has been recognized by employers in recent years (Morrison & Jadrziewski 1988; Siegel 1986). Only limited empirical research has addressed some of the areas of HR practitioner concern or interest regarding benefit communication effectiveness. Geisler (1975) found a direct relationship between increased frequency of communication and better benefit knowledge and no significant differences in communication effectiveness of personalized versus generalized messages. Dahle (19541, as cited by Huseman and Hatfield (19781, found that combining oral and written communication was more effective than oral communication

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alone, written communication alone, or the use of bulletin boards in increasing employee knowledge of the benefit program. Similarly, Driver (1980) found that level and retention of knowledge of benefits was greater when the means of communication was “two way” (meeting with employees and a slide presentation) rather than “one way” (i.e. booklets and brochures, bulletin boards). Finally, Haar and Kossack (1990) examined the readability of benefit packages of twenty companies in a variety of industry categories and found that the readability level of communications was far above the average employee reading level. Distributive and Procedural Justice Two additional variables which may affect how satisfied the employee is with what they perceive to be their benefit package, on both cost and quality dimensions, relate to what the employees think is “fair.” Literature and research in the area of organizational justice has begun to focus on two perceptions of fairness: distributive and procedural justice. Distributive justice is the perception of fairness related to outcomes received by the employee, while procedural justice is the perception of fairness of the procedure used to make decisions resulting in the outcomes (Greenberg 1990). Adams’ (1963) equity theory has long served as the dominant framework for research in dist~butive justice. Several recent studies have examined the effect of the equity theory cognitive comparison process, comparisons to referent others, on pay satisfaction (Ronen 1986; Scholl, Cooper, & McKenna 1987; Summer & DeNisi 1990). Ronen (1986) found that comparisons to referent persons both inside and outside of the organization had a significant effect on pay satisfaction, with external comparisons having a slightly greater effect on lower-level worker pay satisfaction when compared to pay satisfaction of managers, Seven equity comparisons (including various internal, external, and self standard referents) in the Scholl, et al. (1987) study were significant predictors of pay satisfaction. Similarly, Summers, and DeNisi (1990) examined nine different referents and found significant relationships for all nine with each of two different measures of pay satisfaction. Comparisons to referent others are undoubte~y relevant dist~butive justice factors in moderating how individuals perceptions of benefit package cost and quality are transformed into satisfaction with cost and quality. However, to date no studies have examined this relationship. The research cited above indicates that a wide range of comparison referents correlated with pay satisfaction; however, the same results may not be true for benefit satisfaction. One might argue that internal comparisons may be a lesser consideration in shaping employee attitudes toward benefits. Differentials in benefits available to employees are much less likely to occur within organizations, unlike differentials in pay. The importance of procedural justice has recently been recognized as a necessary complement to human resource researchers’ previous preoccupation with dist~butive justice concerns (Folger & Greenberg 1985; Greenberg 1990).

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Individuals’ attitudes toward procedures used independent of their feelings about the outcomes they receive were first discussed in research on disputeresolution in both legal and non-legal settings, but most recently procedural justice has been suggested as relevant to reward (primarily pay) distribution processes in organizations. Folger and Greenberg (1985) cite several studies demonstrating such relevance. A few studies have examined the effect of procedural justice on pay satisfaction. Folger and Konovsky (1989) examined the relationship between procedural and distributive justice and satisfaction with a pay raise (from the PSQ) and two other attitudinal variables, organizational commitment and trust in supervisor, for employees in a manufacturing setting. Their results indicated that distributive justice was associated only with pay satisfaction, while procedural justice was associated with all three variables. In a study of federal employees, Miceli, Jung, Near, and Greenberger (1991) found a signiflcant relationship between reactions to pay (pay satisfaction) and a distributive justice measure (perceived fairness of rewards and bonuses) and a procedural justice measure (pay system fairness) for middle managers. In the same study results from a sample of executives indicated a significant relationship between pay satisfaction and the procedural fairness measure only. Relating procedural justice to pay satisfaction, Bies (1987) has suggested that employees would be more willing to accept a two-tier pay system if such a plan is believed to be the only way a company can stay in business. On the other hand, they are not likely to favor such a system if it is perceived to be a “union-busting ploy-” by management. Similarly, procedural justice concerning the fairness of decision processes related to benefits (offering some benefits and not others, attempting to keep health insurance costs down by increasing deductibles, reallocating premium costs, changing to lower cost-potentially lower quality carriers) may be associated with benefit satisfaction to an even greater extent than the fairness of payrelated decision processes are to pay satisfaction. For example, employees may speculate about their employers’ financial ability to offer certain benefits. If the employee perceives that the employer has sincerely considered all alternatives and has cut costs in other areas before cutting benefits offered or before increasing employee costs, they may be more satisfied with their benefit package. This perception of the ability to offer benefits and other concerns related to the fairness of the benefit decision making process have not been examined in current benefit research, although this variable may surface as one that is quite critical when employees are asked to withstand both temporary and permanent benefit cuts or changes. Folger and Greenberg (1985) contend that procedural justice may explain reported employee satisfaction with flexible benefit plans. Experiments conducted in other disciplines indicate that when given a choice, people are more satisfied due to the choice process (the fact that they were allowed to choose), even when the outcome is no different from what they would have had without choice. In this model (Figure 1) a dotted line is drawn between employer communication and distributive and procedural justice, indicating a possible relationship between these two sets of moderator variables. This relationship is

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suggested by logic and supported by Bies’ (1987) model of the management of moral outrage in the discussion of ways “harmdoers” (decision makers whose decisions may cause harm to others) attempt to mitigate their responsibility for their decisions. Efforts to communicate the claim of mitigating circumstances (such as financial constraints or the economy, discussed above) or an ideological account of superordinate goals should affect the strength of procedural justice. That is, employer communication could affect these fairness perceptions in either a postive or negative direction, depending on how the communication is handled by the employer. Logically, employer efforts to communicate regularly and in detail the decision making process and alternatives considered when they are forced to make potentially unpopular choices (e.g. discontinuing dental insurance) should impact the employees’ perceptions of how fairly they have been treated. In summary, previous research concerning a variety of aspects of employer communication of benefits suggests that this variable may moderate the manner in which the determinant variables result in employee perceptions of benefit cost and quality. In addition, previous pay satisfaction research indicates that employee perceptions of fairness, including distributive and procedural justice, may further moderate the degree to which these perceptions result in subsequent employee satisfaction with benefit cost and quality.

THE TWO DIMENSIONS

OF BENEFIT SATISFACTION

Previous studies have implied the existence of two dimensions of benefit satisfaction. Dreher, et al. (1988) studied the quality of benefit coverage, and one of the factors determining satisfaction with cost (the amount contributed by the employee). From their results, they conclude that both the quality of coverage and the amount contributed by the employee were important factors in determining benefit satisfaction. In addition, Wilson, Northcraft, and Neale (1985) found that employees did not realize how much the employer paid for fringe benefits, nor did they realize the fair market value of their benefits (perceptions of cost). Further support for the existence of these two dimensions comes from the Pay Satisfaction Questionnaire (Heneman 1985; Heneman & Schwab 1985). To measure the benefit satisfaction component, subjects are asked to describe their satisfaction with the following items: “my benefit package,” “amount the company pays toward my benefits,” “the value of my benefits,” and “the number of benefits I receive.” These questions clearly isolate the two suggested areas of satisfaction, cost and the quality of the benefit package itself.

CONCLUSIONS

AND DIRECTIONS

FOR FUTURE RESEARCH

The current model suggests that benefit satisfaction should be considered separately from pay satisfaction. Benefit satisfaction in this model has two

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components not addressed in existing pay satisfaction research: satisfaction with benefit costs and satisfaction with the quality of the benefit package. Previous research in the area has focused primarily on individual and organizational antecedents to benefit satisfaction, and, to a lesser extent, on the causal variables proposed here. As such there are a number of opportunities for future research. First, further work is needed on the broad conceptualization of benefit satisfaction and on the two facets suggested in this model. While there is some empirical support for the cost and quality concepts proposed here, more research is necessary to ensure that these two dimensions are correct (for example, more facets may in fact be needed to fully explain the construct). In addition, the model or portions of it should be validated. First, the impact of individual and organizational antecedents on employee needs, values and expectations must be examined. While it is clear from prior research that these demographic correlates alone hold little explanatory power as main effects variables, their impact as antecedents has not yet been explored. In addition, the impact of the four causal variables must be tested. While full validation will require multiple organizations (because of the need to vary the benefits which are available, etc.), portions of the model should be easily testable within one or two subject organizations. Finally, the role of the suggested moderator variables remains to be examined. The first obvious question is whether the three suggested variables are in fact moderators or actually predictors. In addition, the interesting question arises whether the variables are in fact mediators (see for example, Baron & Kenny 1986, for a discussion of this issue in the broader realm of social psychological research). This model draws from the burgeoning literature on organizational justice which has not, heretofore, been discussed fully in the context of benefit satisfaction. The more precise, though complex, conceptualization of benefit satisfaction posed by this model should contribute to greater understanding of compensation satisfaction. As organizations continue to experiment with and determine the motivating properties of incentive systems, gain sharing, and other innovative pay plans, researchers will be faced with an even greater need to clarify pay and benefit satisfaction, their interaction and distinction. Moreover, practitioner interest in the effective administration of benefit packages continues to grow (Wendling 1988). As benefit costs rise, so do potential dollars lost due to employer benefit package decisions made with little or no understanding of the determinants of benefit satisfaction. This model is proposed as a framework for future study of benefit satisfaction and provides a modest contribution toward generating future empirical research in the area.

ACKNOWLEDGMENTS

An earlier version of this article was presented at the 1990 annual meeting of the Southern Management Association. The authors wish to thank Jerry Ross

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and two anonymous reviewers and acknowledge the impact of their comments on the revision of the model proposed in this article.

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