Why Corporate-Funded Education is the Next Essential HR Benefit

Roble Ventures
June 28, 2023
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Key Takeaways:

  • Corporations are evolving their benefits packages to include education in the same way they did before retirement planning and healthcare coverage became table stakes.
  • Employer-sponsored healthcare and retirement benefits started as incentives to attract and retain talent; after widespread adoption, U.S. policy played a role in solidifying and protecting them nationwide. Similarly, today’s competitive labor market could lead to substantial policy changes that standardize the offering across industries and for employees.
  • Early adopters of education benefits have shown innovative offerings and considerable ROI with their employee base, including increased employee retention, more promotions or role changes among participating employees, core motivation for new applicants, and increased brand favorability.

Employer tuition assistance and other innovative educational benefits are not new to HR benefits packages, but some companies still aren’t taking them seriously. Luckily, the adoption of education benefits is following a similar pattern to that of retirement and healthcare benefits.

For starters, corporations are facing comparable challenges in recruitment, retention, and productivity:

  • The Great Resignation created a tight labor market where companies are still struggling to pull Americans back into the workforce.
  • Gen Z introduced a new type of workforce that is less likely to stick to a job, creating significant retention challenges for employers.
  • The widening skill gap in the US is threatening productivity as businesses race to adopt emerging technologies to meet evolving customer needs, thereby creating new jobs that require new skills.

To stay competitive under these conditions, employers are increasingly adding educational offerings to their benefits packages. Because labor shortages are a factor in inflation growth, the U.S. government will have to take actions to regulate and incentivize corporate involvement as consumers and distributors of continuous education solutions.

Reflecting the same trends we saw with the adoption of retirement and healthcare benefits, it won’t be long before employees will come to expect some form of employer-sponsored education with employment.

Retirement benefits started as an incentive to attract and retain talent

After widespread adoption, worker advocacy groups moved the government to protect it

Employment-funded retirement benefits were first introduced in the U.S. in 1875 in the form of private pension plans. Companies were experiencing challenges in talent recruitment and retention, not unlike the challenges they are facing today. 100 years later, 45% of all private-sector employees were covered by vulnerable pension plans that would leave Americans with nothing in retirement if employers became unable to provide the funding. Eventually, in 1974 the government established The Pension Benefit Corporation to pay employees’ pensions in the case that their company could not.

However, when the government passed The Revenue Act in 1978, which introduced tax advantages for employees who contributed their own money to a retirement account, a new market for defined-contribution plans (e.g., 401(k) plan) emerged. From the 1980s to 2000s, companies rapidly veered away from difficult-to-forecast, expensive pension plans to defined-contributions to employee-owned accounts.

In 2021, 68% of private-sector employees had access to an employee-sponsored 401(k). The result was a shift in responsibility for retirement planning from the employer to the employee, reducing employer costs and risks.

Employer-sponsored healthcare originated from capitalist incentives

It's now so rooted in the system that it remains a public policy issue today

Employer-sponsored health benefits, on the other hand, continue to be an ongoing political debate in the U.S. due to the externalities caused by the privatization of healthcare–such as job lock, increased tax expenditures, and higher healthcare costs.

So how did that come to be? In the early 1900s, employer-sponsored healthcare emerged entirely voluntarily as employers in industries such as mining and lumbering had a practical interest in taking care of their employees, enabling them to return to work more swiftly. However, during the Great Depression, unexpected medical care costs forced struggling Americans to choose between healthcare and basic necessities such as food and shelter. Advocacy groups formed to promote the socialization of medical care, and in 1939, community-based groups such as Blue Cross and Blue Shield formed to help people buy health insurance, paving the way for private insurers.

During World War II, employers facing a great labor shortage drove up compensation to attract workers, thereby influencing inflation concerns. When Roosevelt passed the 1942 Stabilization Act that limited employers’ freedom to raise wages, they began offering health benefits as an incentive. Soon after, the IRS ruled that employer-based health insurance would be tax-exempt, creating the basis for privatized healthcare in the US.

Early adopters of education benefits have shown innovation and ROI

Educational assistance programs began in the U.S. with the passing of the G.I. Bill of Rights in 1944, which provided support, including educational benefits, for veterans of World War II. By 2019, 47% of U.S. employers offered undergraduate or graduate school tuition reimbursement to their employees. Despite the wide adoption of this benefit, employers still report low participation in such programs due to lack of awareness, complexity of application processes, and resistance to individual contribution and debt.

Companies are starting to see strong business returns on their educational investments.

Some companies have ignored the low participation rates, merely focused on “checking the box” to advertise the benefit. On the other hand, with the invention of the Internet came the proliferation of MOOC (massive open online course) and distance learning solutions, allowing corporations to experiment with different forms of educational benefits for employees. With these new forms, companies are starting to see strong business returns on their educational investments.

A 2019 study by Guild Education showed corporate partners increased employee retention by 46%, saw 2x more promotions or role change among participating employees, and attracted new talent, with 24% of applicants citing the education benefit as at least one motivation for applying. In addition to all these returns, partners’ media coverage and brand experienced gains in overall favorable opinions towards the company and perceived prioritization in employee growth.

Capitalist incentives are the primary driver for employer-sponsored education benefits

But policy changes will standardize it across industries and for employees

U.S. policy played a role in solidifying retirement and healthcare benefits, but the initial impetus for both came from the capitalist interests of employers. To attract and retain workers for the entirety of their careers, employers offered appealing pension plans. To maximize productivity with healthy workers, medical services provisions helped employers tend to injured or ill employees quickly.

A similar profit-based incentive to support employees' educational pursuit is ripe in today’s economy with the rapid pace of technological advancements and the need for new skillsets to support such progress.  A Korn Ferry Institute study estimates the U.S. could miss out on $435 billion of revenue by 2030 due to the skills shortage in the financial and business services sector alone. Furthermore, studies show investments in skilling one’s own labor force can have multiplied returns. A recent IDC study of Udemy Business clients estimated clients skilling their own employees save $1.0M annually from a reduction in external hires, a 27% increase in productivity from employee base, and $22.5M average annual increase in revenue attributed to business enablement improvements.

U.S. policy played a role in solidifying retirement and healthcare benefits, but the initial impetus for both came from the capitalist interests of employers.

Beyond capitalist incentives, there are early indications of U.S. policy changes regarding education and its accessibility that could impact the direction of corporate-funded education. The rising burden of student debt is creating pressure on the Biden Administration to provide relief to affected students. The increasing skills gap is a cause for concern, posing a risk to U.S. productivity and employment rates. The Internet for All Initiative is an early signal of government involvement to provide Americans with access and skills to get online.

Policy pressures and capitalist motives are historically leading indicators for changes to corporate HR benefits. While this does not suggest that we are headed towards a world of privatized education, more intentional corporate involvement in the realm of continuous learning could have exponential benefits.

As employees increasingly look to employers for access to and guidance on their lifelong learning journeys, employers would be wise to begin strategically thinking about how to design these educational investments for optimal returns.

About the author

Roble Ventures
noun: oak

Roble Ventures is a future-of-work focused fund investing in technologies that enable people, teams, and organizations to achieve their most ambitious work.

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