1. Purpose of Welfare Systems

Welfare, which means additional benefits other than wages, can motivate employees to higher performance. It not only helps maintain physical and mental wellbeing in performing their duties, but prospective employees are also attracted to an advantageous work environment. Given that the system builds strong commitment to the company, it serves as an effective means to reduce absences and resignations. Moreover, the company can agree to a welfare program prior to any union demands by advocating them in advance.

2. Considerations in Introducing a Company Welfare Program

(1) On the company side

1) How much the company can set aside for welfare costs from the total personnel costs when introducing the welfare program needs to be considered. This is reviewed in relation to the wages the company pays its employees. That is, when the company increases welfare expenses, it is likely to bring a negative effect to wages.

2) The company shall also weigh welfare costs and benefits. Here, the benefits are measured by the company's accomplishments from introducing the welfare program.

3) The company shall consider the level of its competitors’ welfare systems. This includes external equity in welfare costs and decision-making about maintaining the welfare gap between the company and its competitors.
There are three given strategies: Raising the level of the company's welfare so that it is higher than its competitors (“market leader strategy”); raising it to the same level (“competitive strategy”); and lowering it (“market lagging strategy”).

4) The company shall consider legal requirements first. Then, the welfare program it introduces shall more than meet the requirements.

(2) On the employee side

1) How well the employees accept the level of welfare as equity is important. Equity is assessed by looking at past welfare programs offered by the company, the level of current welfare programs introduced by its competitors, and the size of the current welfare benefits the company distributes to an individual.

2) The company shall consider employee statistics. Welfare programs are usually selected differently according to age, gender, marital status, and the number of dependents. For example, senior employees prefer pensions, severance pay, educational support for their children, etc. whereas younger employees prefer paid leaves, training opportunities, etc., and employees with a large number of dependents tend to prefer medical support programs.

3. Welfare Programs

(1) Living facilities

Under this welfare program, the employee may be provided with housing facilities, dining facilities, etc.

Living facilities benefit the employee with housing security, reduce commute time, and increase actual income, but costs the company a lot of money. If there is a shortage of facilities, conflicts may arise concerning the distribution of benefits.

Dining facilities are an important part of the welfare program because they are closely related to the maintenance of employee health and can be costly for the company.

(2) Financial and convenience facilities

Financial and convenience facilities include snack shops, a lending system, etc. Internal facilities, such as a snack shop, help increase actual wages by providing quality products at cheaper prices. A lending system is a system in which the company provides loans to its employees at a lower interest rate.

(3) Health facilities

Health facilities refer to general facilities that promote health for the employees and their dependents. They include medical treatment facilities, recreation facilities, health facilities, etc. Concerning medical treatment facilities, the company can directly operate a medical treatment center or a hospital, or provide health examinations or medical treatment services or medical consultation through a designated hospital. In addition, the company can directly run recreational facilities or provide employees with outside recreational facilities affiliated with the company. The company may provide the employees partial or full coverage of recreational fees. Health facilities include a sauna, barbershop, beauty shop, etc.

(4) Education, sports, and recreation facilities

The company provides educational or cultural opportunities through educational facilities, libraries etc. Sports and recreation facilities are designed to promote the physical and mental development of the employees so they can make the most of their leisure, recreation, etc. These include gymnasiums, playgrounds, tennis courts, volleyball courts, swimming pools, etc.

4. “Cafeteria” Style Welfare Programs

(1) There are two types of “cafeteria” style welfare programs: a standard benefits package and a flexible benefits package. The standard benefits package does not give employees options but is pre-selected and applied. In this case, employees are obliged to accept it whether or not the package is suited to their needs. Accordingly, the standard benefits package can be less effective if employees do not fully appreciate the benefits offered to them. In order to avoid such problems and maximize employee satisfaction, the company can introduce a flexible benefits package to better meet employee needs.

(2) The flexible benefits package offers various welfare programs the employees can select from. Accordingly, the plan is referred to as a “cafeteria” style program from the idea that people select their own items at a cafeteria.