Founding conditions and benefit offerings: evidence from US startups
| Pages | 141-162 |
| DOI | https://doi.org/10.1108/PR-09-2017-0264 |
| Date | 04 February 2019 |
| Published date | 04 February 2019 |
| Author | Xiang Yi,Yang Xu |
| Subject Matter | HR & organizational behaviour,Global HRM |
Founding conditions and
benefit offerings: evidence
from US startups
Xiang Yi
Department of Management and Marketing, Jacksonville State University,
Jacksonville, Alabama, USA, and
Yang Xu
Penn State New Kensington, New Kensington, Pennsylvania, USA
Abstract
Purpose –The purpose of this paper is to answer the following research question:at the time of founding of
a startup, what entrepreneurial conditions would influence the long-term offerings of HR benefits? To answer
this question, our study examines the effects of four founding conditions of startups –total assets, founder’s
education, industry experience and startup experience –on the basis of the resource-based view of firms.
Design/methodology/approach –Using data from the Kauffman Firm Survey (KFS) conducted in the
period2005–2010, this paper analyzedthe relationships betweenthe founding conditionsand the offering of HR
benefits by 4,148new ventures during the first five yearsafter founding. In addition, thispaper examined the
relationshipsof the same founding conditionsto the offering of each of seven specificbenefits: alternative work
schedule,bonus plan, health insurance,paid time off, retirement plan,tuition reimbursement andstock options.
Findings –Three conditions at founding –total assets, founders’education level, industry experience –have
a positive and enduring influence on the offering of HR benefits to the employees. Startup experience has a
significant effect on benefit offerings during the first year after founding but no significant effect on benefit
offerings in subsequent years. All founding conditions have significant and long-lasting positive effects on
each benefit, except for startup experience, which has a negative effect on some benefits.
Originality/value –The HRM literature indicates that there has been a surprising gap between practical
interest and academic research with regard to benefits. In addition, there is a dearth of research on how
entrepreneurs make strategic decisions such as offering benefits to their employees. The study represents an
attempt to fill in this gap.
Keywords Quantitative, Entrepreneurship, Fringe benefits
Paper type Research paper
Introduction
Employee benefits include various programs voluntarily offered by organizations to their
employees and their families to address such concerns as health, retirement, work-life
balance and motivation. Typical benefits include health care, retirement plans, paid time off
and bonus programs. Benefits have been widely adopted by organizations in the USA and
throughout the world. For example, in 2016, 52 percent of non-military workers in the USA
were covered by employer-sponsored medical insurance, including 49 percent of private
industry employees and 73 percent of state and local government employees (US Bureau of
Labor Statistics). In September 2016, benefits averaged $10.73 per hour per employee and
accounted for 31.4 percent of the total cost of compensation (US Bureau of Labor Statistics).
Benefit offerings are an important factor in attracting and retaining employees and
consequently in helping firms remain competitive in the labor market (Dulebohn et al., 2009;
Gavino et al., 2012; Hayton, 2003). Social exchange theory (Blau, 1964) contends that offering
employees benefit packages signals the organization’scareandsupportfortheemployees
(Muse and Wadsworth, 2012), which fosters an environment that favors reciprocation by Personnel Review
Vol. 48 No. 1, 2019
pp. 141-162
© Emerald PublishingLimited
0048-3486
DOI 10.1108/PR-09-2017-0264
Received 7 September 2017
Revised 15 February 2018
Accepted 4 June 2018
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/0048-3486.htm
Dr Yang Xu thanks the Kauffman Foundation for the sponsored seat to access the confidential
microdata set of Kauffman Firm Survey through the University of Chicago Data Enclave.
141
Founding
conditions and
benefit
offerings
employees of commitment to the organization (Kehoe and Wright, 2013; Tsui et al., 1997)
and results in greater employee work effort and better workplace performance (Kim and
Wiggins, 2011; Lee and Hong, 2011; Eisenberger et al., 1990; Eisenberger et al., 1986; Rousseau
and Parks, 1993). For example, a literature review by Williams and MacDermid (1994) suggested
that benefit offerings can produce a variety of positive attitudinal and behavioral outcomes, such
as application attraction, satisfaction, organizational commitment, employee performance and
reduced absenteeism and turnover. Recent empirical studies confirmed these suggestions.
For example, the results of a study of 1,228 Japanese employees indicated that the adoption of
family-friendly policies improved employee job attitude and consequently increased employee
retention (Yamamoto, 2011). Similarly, Ko and Hur (2014) found that both traditional benefits
and family-friendly benefits have a positive effect on job satisfaction and a negative effect on
turnover intention of public employees. Motivational benefits can translate into better employee
job attitudes, which contribute to improved organizational performance. In a meta-analysis of
102 studies representing 56,984 firms from around the world, O’Boyle et al. (2016) found a
significant effect of employee ownership on firm performance (r¼0.04). They noted that
although the effect is small, even minor influences can lead to huge rises in the financial value of
firms; in addition, these effects have become stronger over time (O’Boyle et al., 2016).
However, despite the critical role benefits play in employee attraction, retention and
motivation and ultimately firm performance, not all companies offer benefits to their
employees, for a variety of reasons. This is especially true for startups, which are usually
not large enough to be subject to legal requirements such as those of the Affordable Care
Act (Obamacare). Before the adoption of the Affordable Care Act, the offering of benefits
was completely voluntary and strategic for employers. It would be interesting to determine
under which conditions startups would offer benefits, especially for entrepreneurs whose
resources are particularly limited. In such contexts, it is imperative that those limited
resources be allocated wisely, to achieve the best possible outcomes, such as survival and
long-term growth, whereas employee satisfaction and retention are not usually of high
priority in the list of considerations.
Although managers are concerned about the crucial issues of recruiting and retention,
reviews of the HRM literature indicate a surprising gap between practical interest and
academic research with regard to compensation and benefits as related to these issues
(Dulebohn et al., 2009; Deadrick and Gibson, 2007). In addition, there has been a dearth of
research on the conditions under which entrepreneurs decideto offer certain types of benefits
to employees. Our study represents an attempt to fill in this gap and answer the following
questions: How wouldthe founding conditions of US startups affectthe adoption of benefits?
How long wouldthe effects of founding conditions on benefitadoptions last? How would these
founding conditions affect offerings of specific benefits such as health care,retirement plans,
paid time off and bonuses? In the following sections, we propose hypotheses on the basis of
the resource-based view (RBV) and analyze data from the Kauffman Firm Survey (KFS).
We draw conclusions and offer suggestions on how to help entrepreneurs increase their
participation in benefit programs for their employees in the hope of improving employee
productivity and firm performance.
Theory and hypotheses
The RBV of the firm (Barney 2001; Conner, 1991; Wernerfelt, 1984) has been widely utilized
in management research in the past three decades to explain managerial phenomena and
provide guidance to managers. According to the RBV, a firm’s resources and dynamic
capabilities contribute to performance variation of firms. When resources are valuable,
unique and inimitable, firms will gain competitive advantages which will subsequently
generate strong performances (Amit and Schoemaker, 1993; Barney, 2001; Peteraf, 1993).
In addition, firms form their strategies based on resources and instrument these strategies
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