Bang for the buck: Understanding employee benefit allocations and new venture survival

Abstract

Providing employee benefits is costly for new ventures, yet offering such inducements is often essential to developing human capital. While a broad combination of employee benefits could yield synergistic effects, adopting a large number of benefits may not be feasible for resource constrained ventures. To ensure survival, while limiting misallocation of scarce resources towards benefits that have lower returns, entrepreneurs must be selective in choosing the benefits that generate the most ‘bang for the buck’. Our study assesses the effects of employee benefit offerings on venture survival odds. Based on a longitudinal sample of 1012 US-based ventures from the Kauffman Firm Survey and leveraging, signalling and motivation theories, we find that offering health insurance, flexible work schedules, paid vacation, or paid sick leave increase the odds of survival. However, offering employee stock ownership plans or tuition reimbursement has no significant influence on the odds of survival.