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Four Creative Ways To Compensate Your Workforce


Ben Goldstein


In an increasingly volatile economic climate, business owners need to create new opportunities to keep key employees and attract valuable new ones to come on board.

Okay, sure – that’s human resources 101. But how do you make that happen?

Studies show that the more creative a business gets with its compensation policy, the happier and more productive employees will be, and the more satisfied they’ll be with their work.

Exhibit A is a recent study from MetLife that shows a “reciprocal relationship” between compensation benefits and employee satisfaction.

In 2013, the insurance giant stated that professionals satisfied with their benefits are more than twice as likely to also be satisfied with their work. “In the 12 years we’ve been doing this study, employees consistently indicate that their benefits offering is an important reason why they choose an employer,” said Michael Fradkin, senior vice president of markets and growth strategies with MetLife.

But with the economy slowly improving in 2016, and unemployment down, business owners have to go out of their way, in many cases, to not only attract top talent but retain it.

Consequently, what compensation areas should you target? Try these for starters:

Performance-Based Raises and Bonuses

Raises and bonuses are a great way to get a good employee’s attention and motivate them, too. That said, there’s both an art and a science to the process.

For starters, when planning to give out raises and bonuses in a tougher business climate, consider offering them only to employees who can demonstrate they’ve increased their value to the company by taking on new responsibilities or learning new skills. Be public about this. Let employees know you want to reward them for being high performers.

When you establish a raise and/or bonus program, make sure it has easily-understood goals. For example, if you institute a company-wide campaign to raise sales by 10%, for example, offer bonuses of a low percentage of employee annual salaries – say 5% – as a reward for reaching that goal.

On an individual basis, tie raises and bonuses to annual goals established either at the time of hiring (for recently-hired employees) or at an employee’s most recent review. Factors influencing such a raise or bonus may include solid customer service reviews, meeting or beating project deadlines on a regular basis, and whether the employee took on new assignments and learned new job skills.

Stock Options

Using stock options as an employee incentive remains attractive to companies because they don’t have to be charged as an expense to earnings. Thus, stock options are a great way for a company to conserve cash and still provide employees with competitive pay packages.

At a glance, stock options give employees the right to buy a set number of shares of company stock at a set price for a certain period. Though vesting rules vary from company to company, employees often get the right to exercise 25% of their options each year over a four-year period. Most stock options expire 10 years after they are granted, although four- and five-year vesting periods are not uncommon.

In the 1990s and early 2000s, many companies handed out stock options like candy and paid the price as the overflow of employee options wound up diluting company stocks and thus reducing the value of the company to employees and shareholders alike. But in the “new normal” economy where growth is slower, stock options should be given out selectively and with annual limits.

Use them as bargaining tools for luring new employees on board or to keep valued ones from leaving. Just be selective about handing them out at annual reviews and bonus periods. As Wall Street has demonstrated again and again, it can punish companies that over-use stock options.

Profit Sharing and ESOPs

Profit sharing is a traditional corporate practice that slowed in the first decade-and-a-half of the 21st century, but it’s a compensation model that could be coming back in style.

By and large, a profit sharing plan is a defined contribution plan where the company agrees to make substantial and recurring, though generally discretionary, contributions to its employees. No contribution is necessary in years where there are no profits, but a contribution may be made even if there are no profits or accumulated profits. Generally, profit sharing plans may require completion of one year of service.

One popular brand of profit sharing is the ESOP, or Employee Stock Ownership Plan.

An ESOP is a qualified retirement plan much like a profit sharing plan. The company makes contributions on behalf of the employees. The contributions are allocated to the employee’s accounts according to compensation. Then the contributions are invested and grow tax-free until the employee terminates or retires. Upon termination or retirement, the employee receives his or her vested interest in the plan.

By implementing a profit sharing plan, your company can create an employee/owner work force, which has the same objectives as the shareholder. All are motivated to build a viable, growing, and profitable company and derive greater work satisfaction.

How are profit sharing plans best implemented? In general, use them to give employees a stake in the company. If they do better, the company does better – and vice-versa. Example: consider a profit-sharing program where 15% of the company’s profits get divided equally among everyone who works full-time and has been employed by the company for a year or more. Watch productivity rise as employees shift into higher gear to cash in on your company’s success.

Other Unique Options

Not everyone is cash flush these days. If the budget is too tight, consider replacing cash incentives with lifestyle incentives, like added vacation time or company-sponsored training programs. Or, add dental or eye-care insurance coverage to company health packages.

Related: Paid Parental Leave: Should Small Businesses Try to Compete?

Keeping Staffers Happy and Motivated

Financial incentives that transcend the paycheck are a great way to share the corporate wealth and keep employees loyal and satisfied.

When you do get your new compensation program up and running, make sure that you communicate your compensation plan to employees, and don’t hesitate to change parts of your plan that aren’t working. If employees are reluctant to take stock options, for example, consider giving them cash until the stock market brightens. But don’t change things too often – that’s disruptive, and will erode the plan’s credibility among employees.

Make no mistake, a good, creative employee compensation plan can spell the difference between recording your bottom line each year in black ink or red – it’s really up to you to drive your company’s revenues toward the former, and away from the latter.