Proceedings of FIKUSZ ’16 Symposium for Young Researchers, 2016, 127-140 pp © The Author(s). Conference Proceedings compilation © Obuda University Keleti Faculty of Business and Management 2016. Published by Óbuda University http://kgk.uni-obuda.hu/fikusz Fringe Benefit - still a Motivation? Judit Pasztor Óbuda University, Keleti Faculty of Business and Management judit.pasztor@babylonglobal.co.uk Szabina Valent Budapest Business School, Faculty of Finance and Accountancy valent.szabina@gmail.com Abstract: Nowadays employers have to face to numerous challenges: sociological questions, quick changes of legal environment, economical insecurities and impacts of international changes as well. These changes affect working individuals of any organization or company too, thus, goal of HRM strategies and reward management is to identify and satisfy the variable needs of employees through organizational reward system which contains fringe benefits as well. The present article discusses the connection between motivation and rewards, in order to make fringe benefits more effective for its users; specifies the opportunities in the Hungarian tax system; and finally, the results of the questionnaire research on the incentive effect of the fringe benefits among employees. Keywords: motivation, fringe benefit, incentives, Hungary, PIT, employee satisfaction, HRM 1 Introduction Nowadays companies depend on human capital much more than ever. Increased importance of knowledge management and innovation potential have been placed the focal point of HRM strategies onto employees’ satisfaction. In longer term employees’ loyalty results organizational commitment that has three primary elements: a strong conviction in and approval of the organization's aims and merits; a disposition to wield significant effort on behalf of the organization; and a strong urge to preserve with the organization [1]. The world of business is traditionally based on profit. Beside the natural and formal boundaries, this process can be limited only by attitude of individuals, by the quality of the workforce and their ambitions. Without the various driving forces the needs of the individual remain unsatisfied and they may stop operating as productive workforce. 127 The employees' expectations can include: wage system (base salary and benefits), safe and innovative working environment, leadership style. Previous researches show that financial compensation is just the second most important factors among young Hungarian professionals. Conditions, good working atmosphere and stability are the key factors regarding requirements for future workplace. The importance of good working conditions includes innovative environment, opportunity for personal development and attitude of managers and their leadership style. Young labor market entrants who cannot succeed in finding the suitable and desired conditions, have no other choice but working in lower ranked positions. Due to one of the most important motivator is earning potential, it has to be fulfilled, even if the individual is overeducated for the available position [2]. Studies shows that Hungarian employees are mainly salary-driven, but good working conditions are considered as well. Employers and employees in Hungary have to face to heavy tax burdens (the 4. highest in the EU) regarding to wages [3]. In order to facilitate both parties, cafeteria system which offers different fringe benefits has been introduced by the Government. A cafeteria system is such type of non-cash employee benefit which aims to increase satisfaction and loyalty of individuals and offers cost effective compensation alternative for the employees due to provided tax reliefs [4]. Many non-financial factors motivate employees to improve their outcome. These intrinsic motivations give personal satisfaction to the individual and make the employee feel better in the organization. But what is motivation exactly? What is behind benefits? 2 Motivation as a HRM instrument Motivation is a process that starts with a physiological or psychological need that activates a behavior or a drive that is aimed at a goal. Motivational theories summarize the different integrated approaches encourage individuals to be productive. Every individual has different desires, needs and goals which may appear as a requirement addressed to the organization. More demands remain unsatisfied, more negative organizational and personal impact emerge. As soon as the need is satisfied, balance can be restored and the organization can improve productivity again. Tools to encourage employee performance and productivity can be enhanced if management is aware of the interests affecting the motivation of the employees [5]. Every employee is expected to show increased performance by the managers whose goal to achieve this behavior of the employee. The behavior of the individual is influenced by the environment in which they work. If an employee is never given opportunities to use all of his skills, then the employer may never have the benefit of his total performance. Work performance is also based on the abilities of employee. If a worker lack the learned skill or talents to do a certain task, then performance will be less than optimal. The third dimension of performance is motivation. 128 2.1 Motivational theories Numerous need-based theories of motivation focus on the drive of an individual to satisfy their needs through their work. The motivational content theories summarize the individual traits which may encourage people to be more productive. Employees are attracted by very different needs, drives and goals. The work-related motivation is “the willingness to make efforts towards organizational goals in line with individual needs to satisfy” [6]. The effectiveness of the rewarding tools can be increased if the managers are aware of needs affecting the motivation of the employees [7]. 2.1.1 Maslow's Hierarchy of Needs and Alderfer’s ERG theory Maslow’s hierarchy of needs is a well know and most commonly used theory in psychology proposed by Abraham Maslow. In his book, Motivation and Personality (1954) Maslow used the terms "self-transcendence", "self-actualization", "esteem", "love/belonging", "safety", "physiological" to describe the different motivations and organized these needs into pyramid form [8]. The most important levels of needs are at the bottom, and the higher ones at the top. According to Maslow, employees are motivated by unsatisfied needs which have to be satisfied before higher needs are to be addressed. If we relate Maslow’s Hierarchy of Needs theory with employee motivation, a manager has to try to motivate his subordinates by satisfying their lower level needs first before he tries to address the higher ones, or the employee will not be motivated. The difficulty lies in the personal differences regarding the priority of needs. Clayton Aldefer reviewed Maslow’s theory and further developed it and categorized the needs and hierarchy in a more realistic way and created the ERG Theory. This theory defines three core needs such as: Existence Needs, Relatedness Needs, Growth Needs [9]. 2.1.2 McClelland's Need for Achievement Theory Achievement Theory was instroduced by the psychologist David McClelland and focuses on that need of the individuals which lead to achievements which means better productivity. Segments of examined needs are tighter [10]. “Need for Achievement” (N-Ach) refers to an individual’s desire for significant accomplishment. Henry Murray, who used this term first, associated it with a range of different actions: "intense, prolonged and repeated efforts to accomplish something difficult. To work with singleness of purpose towards a high and distant goal. To have the determination to win" [11] [12]. Achievement motivation defines three types: - Achievement – seeks position advancement, feedback, and sense of accomplishment; Authority – need to make an impact, lead and accepted by others; 129 - Affiliation – need to be liked by others in a friendly environment. Most persons have individual combination of these three types which can be measured with the Thematic Apperception Test (TAT) was developed by Murray. Understanding and applying these characteristics can be useful for not just psychologists but managers as well because “need for Achievement” is related to the difficulty of tasks people choose to undertake which effect productivity and performance at a workplace. This theory can help identify the possible most effective employees and leaders in an organization. These individuals (with high NAch) demonstrate strong desire to accomplist their goals, dedicated and want to succeed and desire for feedback on their performance [13]. 2.1.3 Herzberg’s Two-Factor Theory The two-factor theory (also known as dual-factor or motivation-hygiene theory) defines that there are certain factors in an organization that lead to job satisfaction, while different ones cause dissatisfaction. It was developed by psychologist Frederick Herzberg, who theorized that job satisfaction and job dissatisfaction act independently and not the opposites of each other; satisfied employees are not necessarily more productive than unsatisfied ones [14]. Herzberg's findings point out that certain characteristics of a job can be related to satisfaction (which opposite is No Satisfaction), while different factors are associated with job dissatisfaction (which opposite is No Dissatisfaction) [15]. - Factors for Satisfaction: Achievement, Recognition, The meaning of work itself, Responsibility, Advancement, Growth - Factors for Dissatisfaction: Company policies, Supervision, Relationship with supervisor and peers, Work conditions, Salary, Security, Status Herzberg classified these job factors into two categories [15] such as: Motivational factors The motivational factors yield positive satisfaction and cannot be regarded as motivators. These factors motivate the employees for a better performance and give positive satisfaction, arising from intrinsic conditions of the job itself, such as achievement, recognition or personal growth. Employees find these factors intrinsically rewarding. The motivators symbolized the psychological needs that were perceived as an additional benefit. Lack of these factors does not lead to dissatisfaction. just lack of satisfaction [16]. Motivational factors include: - Recognition Sense of achievement Growth and promotional opportunities Responsibility Meaningfulness of the work 130 Hygiene factors Hygiene factors are those job factors which are essential for existence of motivation at workplace. These do not lead to positive satisfaction for long-term. But if these factors are absent or non-existent at workplace, then they lead to dissatisfaction. These factors are extrinsic to work itself and describe the job environment/scenario and symbolized the physiological needs which the individuals wanted, and expected to be fulfilled. Improvement of these factors does not lead to satisfaction just helps to avoid dissatisfaction [15] [16]. Hygiene factors include: - 2.2 Company Policies and administrative policies Fringe benefits Interpersonal relations Job Security Pay Physical Working conditions Status Practical application of motivation in business Industrial and organizational psychology (also known business or I-O psychology) is the scientific study of human behavior in the workplace and applicate different theories [17]. Actions based on these theories can help organizations and companies improve their productivity and create a more optimal working environment for their employees. I-O psychology devotes considerable attention to motivation and rewards and its role of goal achievement and productivity. 2.2.1 Connection between motivation & rewards Motivation is the reason drives an individual to do something. Reward can be defined what is an individual get for doing something rather than the reason for doing it in the first place. A simplistic way to look at the difference between motivation and reward is that motivations generally come before the behavior, but rewards come after the behavior. Reward management was developed on basis of I-O psychologists’ behavioral research. They focused on the reactions of the individuals and groups to rewards and started to study what motivated them to do what they are doing – the results were basis of many motivational theories, which are affiliated with reward management, which aims to analyze and control employee remuneration, compensation and all of the other benefits for the individual and aims to create and efficiently operate a reward structure for an organization [18]. 2.2.2 Organizational reward system A well-designed reward system motivates employees and helps in building positive emotional response towards the job. It also leads to higher and better performance 131 of employees which has direct impact on the productivity/outcome of the company. Reward management does not focus just onto salary and employee benefits, is also concerned with non-financial rewards such as recognition, development and increased job responsibility [19]. The principal goal of rewards is to increase productivity by increasing employees’ willingness to work. Most people assimilate rewards with wage raise or bonuses, but this behavior can be modified by applying reward strategies based on differences of intrinsic and extrinsic rewards [20]. The main difficulty is to harmonize employees' performance (extrinsic) and satisfaction (intrinsic) [21] due to the fact that two type of motivation can differ in how effective they are at driving behavior. Intrinsic motivation & rewards Definition of intrinsic motivation is the self-desire to try new things and seek for new challenges, to analyze the individual’s capability and to gain knowledge [20]. It has been studied since the early 1970s. "Intrinsic motivation occurs when we act without any obvious external rewards. We simply enjoy an activity or see it as an opportunity to explore, learn, and actualize our potentials." (Coon & Mitterer, 2010) [22]. Intrinsic rewards make the employee feel better at the organization, while this kind of motivation arises from within. It gives personal satisfaction to individuals and make the employee feel better in the organization. Types include information/feedback, recognition, empowerment or gaining trust which can guarantee good working environment which is important for the employees: if they feel better about themselves, they may become more productive and affective. Every confirmation came from outside of the individual gain confidence and help them to succeed [23]. Extrinsic motivation & rewards Extrinsic motivation refers to the performance of an activity in order to achieve a desired outcome, and comes from influences outside of the individual. Usually this kind of motivation is used to attain outcomes that an employee cannot get from intrinsic motivation [24]. "Extrinsic motivation refers to our tendency to perform activities for known external rewards, whether they be tangible (e.g., money) or psychological (e.g., praise) in nature." (Brown, Psychology of Motivation, 2007) Extrinsic motivations are rewards for showing the desired behavior, received from the company the employees work for, such as bonuses, benefits, salary raise, gifts, promotion and can be beneficial in some situations. These rewards can gain interest and participation in something in which the individual had no interest. Extrinsic rewards can be used to motivate people to learn new skills or knowledge. Once these skills have been learned, employees may become more intrinsically motivated to pursue the activity [25]. These extrinsic rewards are the basis of goal-oriented incentive systems [6]. Both kind of motivations and rewards have to be implicated into incentive systems to increase job satisfaction which leads to higher productivity. Based on the results 132 of SHRM Employee Job Satisfaction and Engagement survey of U.S. employees in 2015, 53% of employees can be motivated to better performance with fringe benefits [27]. 3 Characteristics of fringe benefits in Hungary 3.1 Definition and history Fringe benefits include various types of non-financial compensation [28] provided to workers in addition to their base salaries and belong to the type of extrinsic rewards. They are designed to make a compensation package more attractive. The mandated ones belong to employee rights or entitlements, while discretionary benefits are designed to increase loyalty of individuals and increase satisfaction [22]. First studies on the loyalty and satisfaction of employees appeared in the 1970s in the US. Researchers established that increase of basic salary cannot increase the satisfaction of the individuals past a certain a point. Thus, fringe benefits started to be applied but the outcome was different based on age, health and other personal features of employees. Based on these results more complex Cafeteria Plans had been created in the USA pursuant to Section 125 of the Internal Revenue Code, followed by other Anglo-Saxon countries in the 1990s. [29]. Hungarian Cafeteria System appeared in the 1990s and it became a popular and cost effective solution for companies to increase employee satisfaction [30]. These benefits are competitive due to taxation reasons compared to the cash payments even though Hungarian workers prefers cash compensation. Based on the latest researches, the main purpose the organizations introduced cafeteria systems in Hungary is “The ability to plan the costs and using the advantages of the tax exemptions are among the leading reasons” said by Poór and Óhegyi [31]. The early adopters of cafeteria put more emphasis on commitment of employees. In the latest implementations, the cost related motivation is dominant in the organizations. 3.2 Types The first food vouchers as cafeteria elements appeared around 1995 in Hungary and the system has developed in a very dynamic manner during the last 20 years. Government varies the taxation and social security regulations even yearly thus the elements and cost of cafeteria system transforms continuously [31]. In 2016, Hungarian employers can choose from wide selection of benefits such as: - Erzsébet voucher Back-to-school benefit SZÉP Card (catering, accommodation, leisure & recreation subaccounts) 133 - Formal training Holiday service/voucher Health care contribution Pension fund contributions Dining contribution Provided local public transport pass Hungarian law strictly defines the type of benefits and conditions of usage. For example food vouchers cannot be used for purchasing anything else than food. 3.3 Financial advantages Employees must receive compensation for labor from their employees based on work related laws and regulations. Hungarian employers are mandated to offer some non-cash compensation in addition to normal numeration as well and most of them offers many selectable items within a certain amount. Many of the benefits do not have any fiscal advantages for the employees but guarantee cost effective solution for the employer compared to increase of wage due to differences in taxation. This effect has been classified as a tax-shield-effect. Research of Szent István University have found that majority of the companies passed the tax burden fully onto the employees. Less than 30% of the companies took the additional costs resulting from the taxes [31]. Reasons why employers typically implement benefit packages are different. One group wants to maximize the tax advantages, while others aim to use a strategic compensation approach focused on attract and retain good quality workforce. 4 Results and Discussion This article discusses the summary of Hungarian system of fringe benefits and its motivating effects associated with financial advantages. The quantitative research aims to find out the organizations’ awareness regarding the real demands of employees, and examination of the satisfaction concerning different benefits. 4.1 Measure and Method The data has been collected anonymously by a questionnaire which took maximally 5 minutes to fill in. The survey form included just 17 questions to simplify the filling process and maximize the number of responses. The first four questions collected general information such as gender, age, educational level and job position. The rest of the questions were specifically related to the cafeteria system. The questionnaire was available online and paper form as well in Hungarian and has been sent to employees in area of the capital city, Budapest. Business and public sector also have 134 been involved in the research. Presented data below is not representative regarding the whole Hungarian population. The total number of responses were 116 (N=116) shared between 81 female and 35 male participants. Employees under 18 years are excluded from the research due to the lack of experience and relevant opinion on the fringe benefit system. 4.2 Survey analyses The survey has been answered mostly by the age group of 41-50 years old employees which represents the 31.7 % of the entire replies. According to their educational qualifications, 46.5 % of the respondents have higher educational degree, 41.4 % secondary or vocational degree and 12.1 % skilled on lower level. In regard to the positions, 101 subordinates and 15 managers are represented. 95% of the employees are receiving any form of fringe benefits above their wage. Based on the results, Erzsébet voucher is the most popular type among employees, regarding the private and public sector too. The SZÉP card’s different subaccounts are widely used as the back-to-school benefit as well. The voluntary health insurance fund and the pension contribution are represented exclusively just in the benefit element of the business sector. In regard to the variations, 48.3% of the employees reported that everybody receives the same kind of benefits from the employer – there is no option to choose, while 37,9% can select and combine and 13.8% provides benefits only for specific groups. Generally, employers offer fixed benefit packages for the employees who are not allowed to choose the preferred elements. Based on the whole responds, 60 persons cannot personalize their benefits, while the system is absolutely flexible in the rest of the cases. More 50% of companies are interested in the needs of employees and try to satisfy their demands. Level of satisfaction of the employees is measured by questions relating to the provided benefits of the company. Responds have been measured on a 10 point Likert scale, the value "0" represents "not satisfied at all" and value "10" mean "very satisfied". Based on the answers the value is 4.28, which is the "moderately satisfied" level according to the scale. The variance is 2.99 from the average point. The survey asked the employees regarding their further demands as well. The greatest need among the respondents was the local travel pass and a great number of employees demanded also the implementation of the food voucher as a fringe benefit. Several people are interested in leisure and accommodation subaccount of the SZÉP Card and pension fund and health care contribution as well. Results show obviously that the demand for benefits is much more than the actual provided elements (Figure 1). 135 Figure 1 Further needs regarding fringe benefits The impact of fringe benefits during the job selection process has been examined as well. The most important factor was the payment (salary), followed by stable job conditions and possibility of work-life balance. Fringe benefits have been the least important factor in case of acceptance of a job offer. Figure 2 Importance of different factors regarding a new position After the examination of the impact of fringe benefits to the motivation, the results showed that after the job is secured, the benefits have effective motivational effect. The benefits’ incentive effect has been measured on a 0 to 5 scale. The average value is 2.59 which shows that the benefits are a little bit more motivating than the medium level. The deviation of the opinions is 1.76. 136 The questionnaire focused on a very important question as well. It measured the willingness to accomplish additional work for more available benefits. NO 17 MAYBE 39 YES 60 0 10 20 30 40 50 60 Number of employees (N=116) Figure 3 Willingness to accomplish additional work for benefits The answers were positive: 60 employees (more than the half of the examined persons) are willing to do extra work if it effects the amount of received benefits. 39 of them replied “maybe” and just 17 employees have no motivation at all. In conclusion, fringe benefits have strong incentive affect. Figure 3 Willingness to accomplish additional work for benefits 137 The study aimed to seek for any correlation between satisfaction of employees regarding the benefits and their opinion on Hungarian tax system. Chuprov's coefficient and Cramer's V have been applied, and the value is 0.3 which showed there was no significant correlation between these opinions (Figure 3). Conclusion and recommendations The present paper focused on the fringe benefits (Cafeteria) within the incentive systems of the human resource management in Hungary. Research results show that most of the employers do not inform their employees about the exact opportunities offered by the Hungarian Cafeteria Plan. Even if the tax burden is the same between several different benefit options, the list of given ones is usually complied by the company, without the assessment of employee needs and preferences. If an individual looks for a new job, the “value” and content of the benefit package is not relevant regarding the acceptance of a job offer, but when they are already hired, they are "moderately satisfied" with the fringe benefit system – further improvement would be welcomed. Positive results are that increased sum of benefits would effect employees' motivation towards additional work. Due to the employee’s willingness to work more, companies could consider the range of the offered benefit selection and various information channels about the cafeteria system. 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