Impact of Net Income on Employee Benefits: A Study of Three Firms

This report investigates the impact of a firm's net income on employee benefits, focusing on Caltex, BHP Billiton, and British Petroleum. It explores the correlation between these factors, drawing from previous studies that suggest a positive relationship where higher net income enables better employee benefits, leading to improved worker performance and overall firm success. Data on employee benefits and net income were collected from the official websites and annual reports of the selected companies, spanning a ten-year period (2008-2017). The analysis includes descriptive statistics, correlation analysis, and regression analysis to test the hypotheses that net income significantly influences employee benefits in each company. The findings are discussed in the context of existing literature, addressing the research question of how net income affects employee benefits within these organizations, while also acknowledging limitations and offering recommendations. Desklib provides access to this and other solved assignments to aid students in their studies.

Running head: IMPACT ON EMPLOYEE BENEFOT DUE TO NET INCOME OF THE FIRM
Impact on Employee Benefit due to Net Income of the Firm
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1IMPACT ON EMPLOYEE BENEFIT DUE TO NET INCOME OF THE FIRM
Executive Summary
The paper enquires impact on employees benefit on net income of the firms. The primary
research question is how employee benefits changes due to a change in net income of the firm.
Previous studies indicate a positive association between net income and benefit to the employees.
Studies mostly confirm that higher employee benefit is associated with an improved performance
of workers and hence improves performance of the firm as a whole. The relation between benefit
to employee and net income of the firms runs in both ways.
Three companies namely Caltex, BHP Billiton and British Petroleum are selected for the study.
Data on employee benefit and net income of the selected companies are collected from official
websites and annual reports of the company.

2IMPACT ON EMPLOYEE BENEFIT DUE TO NET INCOME OF THE FIRM
Table of Contents
1.Introduction...................................................................................................................................3
1.1 Problem Statement.................................................................................................................3
1.2 Research aim..........................................................................................................................4
1.3 Research question..................................................................................................................4
2. Literature Review........................................................................................................................4
2.1 Employee Benefits.................................................................................................................4
2.2 Importance of Employee Benefits.........................................................................................5
2.3 Net income and employees benefit........................................................................................6
2.4 Hypothesis.............................................................................................................................7
3. Methodology................................................................................................................................8
3.1 Collection of Data..................................................................................................................8
3.2 Analysis of Data....................................................................................................................8
4. Findings and Analysis..................................................................................................................9
4.1 Descriptive Statistics.............................................................................................................9
4.2 Correlation analysis.............................................................................................................12
4.3 Regression Analysis.............................................................................................................14
5. Discussion..................................................................................................................................16
5.1 Hypothesis 1: Net income has significant influence on employee benefits of Caltex.........16
5.2 Hypothesis 2: Net income has significant influence on employee benefits of BHP Billiton
...................................................................................................................................................17
5.3 Hypothesis 3: Net income has significant influence on employee benefits of British
Petroleum...................................................................................................................................17
6. Conclusion.................................................................................................................................17
6.1 Addressing research question and research objective.........................................................17
6.2 Limitation............................................................................................................................18
6.3 Recommendation.................................................................................................................18
7. References list............................................................................................................................19
8. Appendices................................................................................................................................23

3IMPACT ON EMPLOYEE BENEFIT DUE TO NET INCOME OF THE FIRM
1.Introduction
The research topic of this paper is related to implication of net income of a firm on
benefits given to the employees of a firm. The relevance of the topic lies on the fact that both
employee benefit and net income are the important determinant of performance and growth of a
firm (Ekere & Amah, 2014) The paper first studies background of the chosen research topic.
Depending on the background research aim and research questions are determined. Past
literatures are studied to understand significance of current research. Final part of the paper
consists of research methods, analysis, discussion and overall conclusion.
1.1 Problem Statement
The benefits provided to employees hold a significant importance both for the employee
and employers. Such benefits have a critical role to play on choice of employees regarding
employment and decision to stay in the job (Ismail, Yabai & Hahn, 2014) Employee benefits not
only include wages and salaries given to workers but also other benefits in the form of health
security, security to employee’s family, long service leaves, annual leaves and such other
obligation. Benefits to employees differ across the different level of employment. Firms
sometimes delay or rule out employee benefit to cut its cost (Duda, 2018). This however can
affect performance of the employee which has direct impact on profitability of the firm. Firm
with a relatively high income are in a position to offer different monetary and non-monetary
benefits to the workers.
In this paper three renowned mineral companies are selected to study the impact on
employee benefits due to net income of the firm. Of the three two belongs to Australia namely
BHP Billiton and Caltex. The third on is a London based company namely British Petroleum

4IMPACT ON EMPLOYEE BENEFIT DUE TO NET INCOME OF THE FIRM
(BP). Influence of the chosen companies’ net income on employee benefit is critically evaluated
using relevant time series data.
1.2 Research aim
The study aims to evaluates impact on employee benefits followed by a net in net income
of the three selected companies.
1.3 Research question
The paper is developed to address the following research question
 How net income of Caltex, BHP Billiton and British Petroleum influence employee
benefit of the company?
2. Literature Review
This section provides a brief overview of the past literatures based on the employees
benefit, performance of a company, net income of firms and its association to employee benefits.
2.1 Employee Benefits
Employees benefits signify different program that a firm uses to in addition to cash
compensation to the employees. The objective is to secure the employees and their families from
potential financial risks (Burton et al., 2017). Different form of benefits represents a major part
of remuneration package to the workers. These are additional facilities to workers in some other
forms of monetary payment such as salaries and wages with the intention to improve quality of
work and increase productivity and cooperation within the organization (Ning, Xiao & Lee,
2017) Employee benefits refer to form of compensation except salaries and wages that firms pay
in part or as a whole (Gerhart & Fang, 2014) Such benefits are necessary to develop industrial

5IMPACT ON EMPLOYEE BENEFIT DUE TO NET INCOME OF THE FIRM
relationship. Examples of employee benefit include child care, retirement plan, social security,
medical treatment, paid holiday and vacation (Jaworski, et al., 2018). The main purpose of
offering different benefits other than monthly salaries is to raise the sense of economic security
among the employees. This is expected to improve retention rate of worker in the organization
(Bellou et al., 2015).
There is different rationale for providing additional benefits to workers. A package of
benefit is provided to reward the employees and increase loyalty of employees towards the
organization (Carter et al., 2016). Once employers show concern towards it employees, it
discourages need for union and hence protect the firm from harmful consequences of
unionization (Kristal, 2017). An attractive remuneration package along with added benefits helps
to attract more competent and talented workers. The benefits are designed to enhance individual
welfare of employees. An import rationale to provide monetary benefits to some other forms is to
protect the workers from burden of heavy taxation (Hou, Priem & Goranova, 2017) This is due
to the fact that most of these benefits belong to non-tax category. Benefits help the workers to
enjoy a non-taxed return from investment. Satisfying legal requirement is another objective of
benefits apart from wages and salaries (Selviaridis & Wynstra, 2015).
2.2 Importance of Employee Benefits
The impact of employee benefits on performance of an employee is dependent on the
structure of existing compensation and management performance package of the firm. Response
of the employees to the payment and additional benefit offered by the firm is generally positive
and productive (Shields et al., 2015). Several past studies concluded that benefits to employees
have a linkage with performance of the firm. Finding of one scholarly study found that both
compulsory and fringe benefits to employees have a positive and significant relationship with

6IMPACT ON EMPLOYEE BENEFIT DUE TO NET INCOME OF THE FIRM
commitment of the employees and associated performance of firms (Jenter & Kanaan, 2015)
Fringe benefits in fact found to have a higher impact compared to compulsory payment. The
findings suggested that more and more fringe benefits are received by employee higher is the
commitment of the employees to the organization (Ferrell, Liang & Renneboog, 2016).
Workers who are more committed tend to constitute a higher productivity and improve
performance of the firm. Benefits thus improve profit of the firm, result in an increase in sense of
responsibility among the employees and improve quality of life of the employees (Selviaridis &
Spring, 2018) Benefits and compensations are the key to retain experienced workers for a
considerably long period. in the organization (Azeez, 2015) Several studies considered
employees benefit as an important source of improving the competitive gains of the firms.
2.3 Net income and employees benefit
Net income is fundamental representative of profitability of a firm. Net income is also
regarded as a proxy measure of efficiency. Overtime increase in net income indicates growth of
the firms. This in turn help to boost confidence of investors and contribute to further growth. The
earned income of the firm is further reinvested to enhance future growth (Kajola, Adewumi &
Oworu, 2015) Among different expenses of a firm employees benefit comprise an important
part. The linkage between net income of a firm and given benefit to the employees run in both
ways. As income increases, financial position of firms improve (Tayeh, Al-Jarrah & Tarhini,
2015). This increases ability of the firms to pay a better remuneration and other associated
benefits to its employees. Higher benefit to employees increases productivity, rate of retention
and quality of workers (Kuo et al., 2014). All these together contribute to an improvement in
performance of the firms which is reflected in terms of a higher net income. Net income and
employees’ benefits are thus complementary to each other.

7IMPACT ON EMPLOYEE BENEFIT DUE TO NET INCOME OF THE FIRM
Studies conducted research on linkage between net income of a company and different
levels of employees. One study researched how payment to CEO of a company is affected by the
income a firm (Hayek, 2016). The paper concluded the different components of payment which
include bonus, restricted stock option and others tying performance of upper level management
to net income of a company. Literature also evidenced some contradicting findings (Herbst,
Foerster & Emmert, 2018) Some paper in this field have founded that incentives, cash bonus,
restricted stock rewards and others encourage employees to engage in activities that might create
problem for the organization. Supporters of this claim suggested that paying a higher fraction of
net income to the employees might bring short term benefits but at the cost of long term health of
the firm (Gupta & Shaw, 2014)
2.4 Hypothesis
Reviewing the past literatures and accomplishing research objective the three following
hypotheses are developed.
Hypothesis 1
Null hypothesis (H10): Net income of Caltex has no significant impact on employees benefit.
Alternative hypothesis (H11): Net income of Caltex has significant impact on employees benefit.
Hypothesis 2
Null hypothesis (H20): Net income of BHP Billiton has no significant impact on employees
benefit.
Alternative hypothesis (H21): Net income of BHP Billiton has significant impact on employees
benefit.

8IMPACT ON EMPLOYEE BENEFIT DUE TO NET INCOME OF THE FIRM
Hypothesis 1
Null hypothesis (H10): Net income of British Petroleum has no significant impact on employees
benefit.
Alternative hypothesis (H11): Net income of British Petroleum has significant impact on
employees benefit.
3. Methodology
3.1 Collection of Data
The study aims to research whether there is any impact on employee benefits due to
change in net income of firm. The study is explorative in nature and depends on raw data
collected from secondary sources (Neuman, 2013) The data related to net income and employees
benefit for each of the three companies are collected from annual reports of the respected
companies.
For net income, company profit after payment of taxation and other liabilities is taken
into consideration. The structure of employee benefits differs among the companies. The total
expenses on employee benefits are taken as common measure of employee benefit. Data for ten
years (2008-2017) has been collected on the two selected variable for the three companies. Total
number of sample observation is thus 30.
3.2 Analysis of Data
Quantitative data are collected to carry out the research. As the objective is to find out the
extent of relationship between net income and employee benefit quantitative methods are used
for analysis (Bryman, 2017). First, descriptive statistics of the relevant data are computed to find

9IMPACT ON EMPLOYEE BENEFIT DUE TO NET INCOME OF THE FIRM
an overall summary measure like average, nature of the distribution, stability measures and
others. Bivariate correlation represents association among the selected variables. Finally,
regression analysis is done to verify presence of any significant relationship (Hussein, 2015).
4. Findings and Analysis
4.1 Descriptive Statistics
Table 1: Summary statistics of net income and employee benefit of Caltex
Caltex
Net income Employee Benefit
Mean 295561.10 Mean 200560.20
Standard Error 84830.71 Standard Error 17221.69
Median 316380.00 Median 199320.00
Mode #N/A Mode #N/A
Standard
Deviation 268258.25
Standard
Deviation 54459.78
Sample Variance
71962489249.4
3 Sample Variance
2965867461.2
9
Kurtosis -1.87 Kurtosis 1.24
Skewness -0.09 Skewness 0.71
Range 693963 Range 187434
Minimum -73211 Minimum 127762
Maximum 620752 Maximum 315196
Sum 2955611 Sum 2005602
Count 10 Count 10
The average net income of Caltex as obtained from the descriptive statistics is 295561.10
thousand dollars. Caltex on average thus maintained an average income of 295561.10 thousand
dollars. Standard deviation of the income distribution is 268258.25. Since the standard deviation
is less than the obtained average coefficient of variation for income is less than 100 indicating a
relatively less volatility of income. Range of net income of Caltex is obtained as 693963

10IMPACT ON EMPLOYEE BENEFIT DUE TO NET INCOME OF THE FIRM
thousand dollars. Net income of the company varies from a loss of 73221 thousand dollars to a
maximum of 620752 thousand dollars.
The average employees benefit of Caltex as obtained from the descriptive statistics is
200560.20 thousand dollars. Caltex on average thus provided an average 200560.20 thousand
dollars as employees benefit. Standard deviation of employees’ benefit is 54459.78. The benefits
given to employees varied less in the last ten years as indicated by a smaller value of standard
deviation. Range of employees benefit of Caltex is obtained as 187434 thousand dollars with
maximum and minimum amount spent for employees’ benefit is obtained as 315196 and 127762
thousand dollars respectively.
Table 2: Summary statistics of net income and employee benefit of BHP Billiton
BHP Billiton
Net income Employee Benefit
Mean 11437.70 Mean 4974.50
Standard Error 1786.04 Standard Error 410.32
Median 10823.00 Median 4816.00
Mode #N/A Mode #N/A
Standard Deviation 5647.95 Standard Deviation 1297.54
Sample Variance
31899282.9
0 Sample Variance
1683616.0
6
Kurtosis 1.81 Kurtosis 0.00
Skewness 1.12 Skewness 0.74
Range 19810 Range 4018
Minimum 4136 Minimum 3414
Maximum 23946 Maximum 7432
Sum 114377 Sum 49745
Count 10 Count 10
The average net income of BHP Billiton as obtained from the descriptive statistics is
11437.70 million dollars. BHP Billiton on average thus maintained an average income of

11IMPACT ON EMPLOYEE BENEFIT DUE TO NET INCOME OF THE FIRM
11437.70 million dollars. Standard deviation of the income distribution is 5647.95. Since the
standard deviation is less than the obtained average coefficient of variation for income is less
than 100 indicating a relatively less volatility of income. Range of net income of BHP Billiton is
obtained as 19810 million dollars. Net income of the company varies from minimum of 4136
thousand dollars to a maximum of 23946 thousand dollars.
The average employees benefit of BHP Billiton as obtained from the descriptive statistics
is 4974.50 million dollars. BHP Billiton on average thus provided an average 4974.50 million
dollars as employees benefit. Standard deviation of employees’ benefit is 1297.54. The benefits
given to employees varied less in the last ten years as indicated by a smaller value of standard
deviation. Range of employees benefit of BHP Billiton is obtained as 4018 million dollars with
maximum and minimum amount spent for employees’ benefit is obtained as 7432 and 3414
million dollars respectively.
Table 3: Summary statistics of net income and employee benefit of British Petroleum
British Petroleum
Net income Employee Benefit
Mean 9670.20 Mean 12399.90
Standard Error 3729.15 Standard Error 364.23
Median 7515.50 Median 12303.50
Mode #N/A Mode #N/A
Standard Deviation 11792.62 Standard Deviation 1151.81
Sample Variance
139065779.2
9 Sample Variance
1326657.6
6
Kurtosis -1.63 Kurtosis -0.05
Skewness 0.12 Skewness -0.50
Range 32579 Range 3732
Minimum -6482 Minimum 10204
Maximum 26097 Maximum 13936
Sum 96702 Sum 123999
Count 10 Count 10