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CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

According to Mathis and Jackson (2003), 0f fringe benefits are forms of indirect compensation given to an employee or group of employees as a part of organizational membership. Bratton and Gold (2009) define them as that part of the total reward package provided to employees in addition to base or performance pay. Fringe benefits focus on maintaining (or improving) the quality of life for employees and providing a level of protection and financial security for workers and for their family members. Like base pay plans, the major objective for most organizational fringe compensation programs is to attract, retain and motivate qualified, competent employees (Bernardin, 2007). Mathis and Jackson (2003) continue to state that an employer that provides a more attractive benefits package often enjoys an advantage over other employers in hiring and retaining qualified employees when the competing firms offered similar base pay. In fact, such benefits may create “golden handcuffs,” making employees more reticent to move to other employers. Some common examples are; retirement or pension plans, medical and dental insurance, education reimbursement, time off, paid vacation and use of company car.

Productivity is a relationship between outputs and inputs. It rises when an increase in output occurs with a less than proportionate increase in inputs, or when the same output is produced with fewer inputs (ILO, 2005). Productivity can also be considered in monetary terms. If the price received for an output rises with no increase in the cost of inputs, this is also seen as an increase in productivity. Productivity improvements can also be understood at different levels. The productivity of individuals may be reflected in employment rates, wage rates, stability of employment, job satisfaction or employability across jobs or industries. Productivity of enterprises, in addition to output per worker, may  be measured in terms of market share and export performance. The benefits to societies from higher individual and enterprise productivity may be evident in increased  competitiveness and employment or in a shift of employment from low to higher  productivity sectors.

According to a study carried out by the US Chamber of Commerce in (2006), fringe  benefits in the U.S., were not a significant part of most employees' compensation packages  until the mid-twentieth century. For example, in 1929, benefits comprised only about 3  percent of total payroll costs for companies. However, employee benefits in the U.S. now  comprise approximately 42 percent of total payroll costs. Several things account for the  tremendous increase in the importance of employee benefits in the U.S. In the 1930s, the  Wagner Act significantly increased the ability of labor unions to organize workers and  bargain for better wages, benefits, and working conditions. Labor unions from the 1930s  to 1950s took advantage of the favorable legal climate and negotiated for new employee  benefits that have since become common in both unionized and non-union companies.

Federal and state legislation requires companies to offer certain benefits to employees.  Finally, employers may find themselves at a disadvantage in the labor market if they do  not offer competitive benefit packages (Bergman and Scarpello, 2001). Fringe benefits have generally constituted a higher proportion of total employee  compensation in Europe than in the United States. In Europe, they are most often the  result of

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