This study has been undertaken to probe the effect of employee benefits on productivity at Korean manufacturing firms. By using the data collected from 308 manufacturing firms listed in Korea Stock Exchange from the period of 1989 through 1996, we would come to the following conclusions: 1. Employee benefits have a positive effect on productivity.2. The effect triggered by employee benefits is much stronger than the effect by such expenses as advertising and sales promotion.The results summarized above enable us to maintain that this study would have two practical implications. First, once the effect of employee benefits on productivity turns out positive, managers are encouraged to spend their time developing more constructively designed employee-welfare programs at the corporate level. Second, as the effect of employee benefits on productivity is much stronger than that of such expenses as advertising and sales promotion, managers are encouraged to pay much more attention to employee benefits than those expenses.