Mash's Musings

Paternalistic benefits

Published May. 12, 2021

Some things in life are so commonplace and mundane that we never stop to question them. Only when you see things done another, perhaps contradictory, way you're left wondering why you never questioned it in the first place. Like the first time learning that some countries drive on the opposite side of the road. Or when you met someone certain they don't want children. I recently had this existential crisis with workplace benefits.

In Apr. 2021, the cofounders of Basecamp faced intense backlash for announcing changes that included a ban on societal and political discussions on company account. While this is worth opining on (see thoughts here), it was the overshadowed second change that really caught me off guard.

2. No more paternalistic benefits. For years we've offered a fitness benefit, a wellness allowance, a farmer's market share, and continuing education allowances. They felt good at the time, but we've had a change of heart. It's none of our business what you do outside of work, and it's not Basecamp's place to encourage certain behaviors — regardless of good intention. By providing funds for certain things, we're getting too deep into nudging people's personal, individual choices.

This concept of providing taxable non-cash benefits has been around for a while but the psychology of it was formalized by Richard Thaler and Cass Sunstein, and published in their book Nudge. Along with the rationale was coined the term "libertarian paternalism", a term meant to evoke images of a loving father raising a free-thinking child under his wise and knowing tutelage. But stated directly, the philosophy dictates that institutions should exert their will through subtle psychologial manipulation, while still leaving us free to overcome them. This to me is the Nobel Prize-winning version of passive-aggressiveness. Your libertarian paternalistic roommates aren't forcing you to do the dishes but they might stop mentioning which one of them did the dishes last week if you do.

Universally, these paternalistic workplace benefits are well-intentioned. Stripe initially had an unlimited vacation policy but, like other employers, found that employees were still getting burnt out and not taking enough vacation. The solution? Re-implement accruals and caps. This was clearly a thought-out move to benefit employees, by using loss aversion to overpower cultural and self-imposed stigmas around taking "too much" vacation. And recently, this was ramped up through additional days that had to be used within the next 3 or 6 months or lost forever. These nudges, the employer equivalent of "Limited time only!" sales tactics, are based on the assumption that employers know what's better for us than we do. The focus could have been to send communications to reduce stigma and empower employees, with management leading by example. But instead, employers choose the lazier nudging approach.

The unsettling aspect is that, while well-intentioned, benefits are used in ways that are the least likely to be questioned as opposed to what is truly best for us. The biggest example is the frequent availability of alcohol as a benefit. If employers really wanted the healthiest outcome for employees, they could simply state that the company would only be expensing non-alcoholic drinks. Or better yet, prevent sending messages for non-mission critical employees between 10:00 pm – 6:00 am to encourage sleeping well. While objectively healthier, nudges like these would be far too overt to be palatable by employees. The watchful paternalistic hand must avoid raising suspicion.

Weirdly though, even hyper-analytical people seem to enjoy these paternalistic benefits instead of demanding that they be paid out. I think this highlights the depth of our mental accounting bias, the tendency for us to not view money as fungible. We view a $1000 education benefit as a huge improvement over a $0 education benefit but a view a $1000 raise as insultingly low on a $100k salary. This presents employers an arbitrage opportunity: boosting employee satisfaction by reapportioning compensation to smaller benefits instead of increasing total compensation. But aside from situations with bulk purchasing benefits such as health insurance, I'd always rather have the cash to make my own choices. Benefits are not some free lunch but rather chunks of your compensation that have been locked up to be released with good behavior. The paternal hand will only give us our allowance if we spend it "the right way".

This whole system leads to some weird conclusions: Does your employer offer a stop-smoking benefit? Smoking employees get paid more. How about a gym benefit? Fitter employees get paid more. Retirement account matching? Scrupulous employees get paid more. Compensation starts getting linked to completely extrinsic behaviors but the ubiquity and positive framing of these benefits lead us to never give pause. As Gerd Gigerenzer calls out in his paper The Bias Bias in Behavioral Economics, a focus on maximizing autonomy and education are the long-term solutions to better outcomes. If we are able to learn from their mistakes and decide what is best for ourselves, then why do we let our employer guide our lifestyle outside of work? Next time your employer starts listing off their benefits, ask whether you can take them in cash. After all, who knows what's best for you?