Sam Cook

» Blog

Paternalistic Benefits Are Dumb #

Basecamp’s latest move is really smart. No, I’m not talking about Basecamp’s decision to prohibit political discussions on company time and using company resources. I have nothing valuable to add on that topic that hasn't already been said. Instead, I’m talking about Basecamp’s decision to stop making paternalistic financial decisions with portions of their employees' overall compensation packages.

I've advocated for this privately for years. Here's the general idea: Instead of paying for things like use-it-or-lose-it childcare subscription packages, health club memberships and roadside assistance services for employees that may or may not have any need or interest in such services, Basecamp will instead pay the appropriate proportional amount in cash to the employees themselves to do with what they will.

The obvious counterargument to this is that individual employees do not have the same level of bargaining power as a corporation does, such that individuals will on average pay higher per-unit prices than a corporation for the same benefits (let's call this the a la carte premium).

Consider, however, that the average employee probably only really uses one or two of the, say, nine or ten offered goods/services that the corporation pays for in bulk. When you take that into account, it turns out that the aggregate cash payment to the employee will, on average, exceed the amount the employee would actually freely choose to pay for their desired goods/services, despite the above-mentioned a la carte premium.

Moreover, consider that employees under the new Basecamp model have more free choice in what goods/services to actually buy. To be sure, having more choices isn’t always desirable (option paralysis is a very real thing). But I’d certainly rather choose my own cell phone provider, fertility counselor or veterinarian network than be stuck with the one my corporation just happens to have a contract with.

Basecamp’s choice here is Pareto optimal:

  • The employee gets the same (or better) goods/services plus the applicable cash delta.
  • The employer has a neutral cash outflow plus enjoys a material reduction in HR, legal and general admin time spent choosing and negotiating with benefits suppliers plus has (potentially) happier, healthier and more productive employees (the extra cash and extra personal choice make this last part a possible, though hard-to-measure, outcome).

This move by Basecamp was a win-win all around. I like to think that, over the long haul, obviously good ideas win. And this is an obviously good idea.

Well done, Basecamp.