If you think compensation is all about the money, think again. In addition to how much employees are paid, your compensation package tells employees how they are valued, says Sarah Fogleman,
Successful compensation packages are actually total rewards systems. Along with wages, they use direct and indirect benefits that meet both the employer’s objectives and the employees’ needs. When you offer the right carrots, it makes attracting and retaining employees easier.
Here are some tips for creating an enticing compensation package.
Sending the message
Think about what you want your compensation package to say. This will require you to understand what each type of compensation says about the business. For example:
Cash wages. They must be fair and competitive with the market. The wages that you offer are the starting point from which perspective employees use to judge the business. It signals how much you value workers.
Time off. Paid time off is among the more valued benefits. Even the option to take leave, whether it’s paid or unpaid, for an emergency or once-in-a-lifetime event is something that most employees want. Offering time off tells employees that you care about them as people.
Flexible schedules. This is something you can offer without incurring additional monetary cost. Your willingness to adapt schedules so that employees can attend their kids’ soccer games or other activities can be a huge plus. It says you understand that your employees’ personal lives are important. This can help set you apart from other employers.
Farm products. Giving employees pork products or garden vegetables is seen as sharing the bounty. Think of it as giving employees a plate at the table and inviting them to be a part of your family.
Hunting/fishing opportunities. In certain areas of the country allowing employees to hunt or fish on your land is yet another way of sharing the bounty. Some producers use this as a performance-based reward, while others use it as a standard benefit.
Health insurance. This is today’s hottest topic. But, offering insurance doesn’t mean you have to foot the total bill, says Bob Milligan, a consultant in
Setting up a program that allows employees to tap into group insurance rates can deliver huge savings compared to each employee going solo. Again, this shows that you value employees — and their families. Madison, Wis.
Retirement plans. Establishing a 401(k) or other plan doesn’t mean you have to fund the effort. You can allow employees to set aside pre-tax dollars in a retirement account — something they can’t do without your help. This type of benefit shows that you value longevity.
Other indirect benefits. This includes things like supplying cell phones for management-team members, providing a house or a company vehicle. When considering indirect benefits, be sure to think about what your employees need or would most appreciate. For example, providing Hispanic employees with cell phones that include coverage outside of the
, and allowing them to call home for free after , can be a huge perk. United States
Cafeteria program. Under this program, for example, you could give each employee $1,000 a month and let him/her decide how to spend it — toward health insurance, a retirement account, dental insurance, life insurance and so forth. This is pre-tax money. So, every $1 offered in the cafeteria program equates to $1 they can spend on any of these programs, explains Gary Maas, AgriCareers,
. On the other hand, if you paid that money in wages, each $1 in gross wages would equate to about 70 cents in spending power to buy insurance. If an employee wants to take the $1,000 in cash, they can opt to do so, but that money must then be taxed. Offering a cafeteria program shows that you want to help employees get more for their money. It also shows that you understand that each employee has individual needs. Massena, Iowa
Salary versus hourly
For each position within your business, you need to decide if the person will be paid on an hourly or a salaried basis.
Generally, management positions are salaried and all others are hourly, says Fogleman. Because managers often work longer hours when needed — without extra pay — their hourly pay in the end can actually fall below that of a top-level hourly employee. That means you’ll need a system to compensate salaried employees for their extra efforts.
One solution is to develop a profit-sharing program or performance-based-bonus program for managers. These options allow managers to reap some of the benefits from their extra efforts.
Compensating them for those extra hours by allowing them to take some comp-time also is a nice gesture.
Build your package
Your compensation package will drive who you ultimately hire, says Milligan.
“One strategy is to hire cheap and have a revolving door of employees,” he notes. If you want to break that cycle, changing your compensation package can help attract a different type of worker who might stick around.
Start with the wage. It needs to be competitive with the market. It also needs to be fair; not just in your eyes, but also in your employees’ eyes. It must be equitable with what other employers are paying in the area and the industry, stresses
Most employees and managers agree that wage rates relate to job duties and responsibilities, performance and seniority.
Next, consider what other benefits you want to offer. Offering an above-average wage with no benefits tends to attract young people who probably won’t stay long. Offering a competitive wage plus a cafeteria program or other carefully crafted benefits may attract people who would like to stay put — assuming that your business offers opportunities for growth, development and recognition.
How you craft your compensation package could make you an “employer of choice” in your area, says Fogleman.
Finally, she offers this rule: “Know your employees; know what they expect, then give them a little bit more. Do that and they will be happy.”
What do Workers Expect?
A survey conducted by Gregory Billikopf, University of California-Davis, reveals that employees expect their wages to:
Cover basic living expenses.
Keep up with inflation.
Leave some money for savings or recreation.
Increase over time.
Putting a Price on Benefits
Employees tend to focus on the dollar amount of their paychecks. So it’s up to you to remind them about the value of the benefits that you provide. To help employees remember the specifics, consider listing the cost or value of each benefit on their pay stubs, suggests Bob Milligan, a consultant in
The other option is to provide a year-end statement that shows the value of all benefits the employee received. Each one should be listed individually with a price tag attached.