There are plenty who claim that quirky and impressive office perks are pointless, counterproductive, or the wrong way to motivate people. Be that as it may, many startups—especially in tech—have baked those perks into their work cultures. But if history or probability are any guide, they may not be sustainable for the long haul. You may not think so, but putting your unlimited cereal bar on indefinite hiatus can actually do more damage to your culture than you might think. Here's what to do right now while the Frosted Flakes are still flowing.
What if I told you that sometime within the next two years, Mike Tyson will try to punch you in the face? Would you a) start wearing a helmet and mouth guard at all times; b) carry on as usual, doubting when and why Tyson would knock your teeth out; or c) train to block, bob, and weave so you can be ready when he turns up? If that's a halfway decent metaphor for disruption, whether the the tech bubble or a market correction in any industry, most companies have opted for choice b). Why? Because it's easier to convince ourselves that we are somehow different and therefore safe. Our startup doesn’t have an excessive burn rate; our valuation is realistic; we have a solid business model; we don’t need the helmet and mouth guard.
This exceptionalism leads many entrepreneurs to overlook how market fluctuations could affect their most fragile and valuable asset of all: culture. More than anywhere else, American tech startups are world-famous for their culture of generous perks, which many bestow upon employees whether the company is profitable or not.
However, in a bear market, most companies can’t afford unlimited Apple products, bimonthly house cleanings for employees’ homes, team trips to Hawaii, and an all-expenses-paid Parents’ Weekend for interns.
And when those things go away, employee dissatisfaction sets in, people leave to work elsewhere, and the entire culture suffers. Taking perks away is worse than not having them in the first place—especially if your culture is built on those things. That's why companies need to invest instead in more meaningful, "market-proof" cultures that are founded on ownership and not on entitlement.
There's nothing intrinsically wrong with generous perks. They attract and retain talent, brighten workplaces, and create positive buzz for company recruiters. The problems begin when perks create a culture of entitlement—where free meals, massages, and laundry service are taken for granted. To be fair, those sorts of amenities are out of reach for a wide swath of the startups, but even more modest perks can still set some unhealthy expectations.
In research conducted in 1984, the psychologists Daniel Kahneman and Amos Tversky identified an "asymmetry of value" called "loss aversion," by which "the disutility of giving up an object is greater than the utility associated with acquiring it." In other words, the pain of losing perks is disproportionately greater than the perceived reward of gaining them. Losing Wine and Cheese Wednesdays does more damage than a glass of Pinot Noir and a plate of Camembert do good.
For many tech startups, even some of the less lavish cultural add-ons rely on VC money and bullish valuations, rather than actual profit. And they can fast prove unsustainable, at which point you risk disappointing employees and creating a perception that they've been wronged. Cutting perks may disillusion, spook, and ultimately drive away the talent that's so critical to succeeding in a turbulent market.
The problem with cultures of entitlement is that they dish out perks to everybody, regardless of their contributions. The mentality is, "We need to keep our employees happy so they don’t leave for a better gig." In that regard, loss aversion is a two-way street. Instead, companies need to offer employees a real stake in success—not a menu of commodities that can be lost or gained by everyone. Perks should be conditioned on behaviors that make the perks sustainable in the first place. Incentives, not entitlement, create a much more healthy culture capable of weathering tough times. Here are just two alternative approaches to consider:
Most companies have a narrow view of compensation that clashes with what employees actually value. As research commissioned by Capstrat found, 72% of millennial workers are "willing to sacrifice a higher salary for a more personally and professionally fulfilling career." They particularly value benefits like health insurance and retirement plans, and they care deeply about work-life balance.
So why not give job candidates the freedom to build their own compensation packages, rather than just putting forth a standard offer? Think of equity, salary, vacation time, benefits, and bonuses as ingredients that employees can mix and balance to their liking. For instance, creative talent might take a lower salary for a bonus that's based on the amount of content they create or the volume of social media activity it generates. This would attach an incentive to every project they complete.
Many companies pay for gym memberships and personal training under the belief that physical exercise will produce happier, healthier, more productive employees. Social psychologist Ron Friedman goes so far as to argue that "regular exercise is part of your job," citing a multitude of studies suggesting that "our mental firepower is directly linked to our physical regimen."
So should a company cover a free gym membership for an employee who uses it once a month? That one visit certainly doesn’t produce the benefits in learning, memory, concentration, creativity, and mental stamina that Friedman touts.
Instead, it might make sense to use a results-based system. The gym membership is free if the employee uses it three times each week for a minimum of one hour per visit. Or you could tie fitness reimbursement to total exercise measured by an activity tracker. The more exercise, the higher budget employees gain for memberships, coaching, and gear. The idea isn't to relentlessly monitor your employees' fitness regimens like they're Olympic trainees, but however it's structured, the perk should be earned—creating a sense of personal ownership over it, not entitlement.
With a market-proof culture—one based on ownership—your people, values, and mission will endure. As long as perks can be gained but not lost, your culture can roll with the punches.
Dan Ruch cofounded the business travel startup Rocketrip in 2013. He was previously vice president at Tremor Video Europe, a leading provider of technology-driven video ad solutions. Follow him on Twitter at @DanRuch.