Employee Compensation and Benefits

Laura vonKampen

Compensation and Benefits

December 26, 2014

        The cost of employee turnover has been estimated to be up to and sometimes more than 150% of the employee’s salary.  That means that if an employer with 100 employees who earn $50,000 per year has 10% turnover, the cost of employee turnover could be more than $750,000.  For an employer with 1000 employees, the cost would be $7,500,000!  Employers who are interested in the bottom line,(and what employer is not?) may want to look at the root causes of employee turnover and put in place a retention plan that can help significantly reduce this cost.  But where to begin.  What motivates employees to want to continue with their current employers?  How does an employer maximize employee loyalty as a way to leverage against turnover?   Is an employee’s salary the only factor involved when an employee leaves?  

Employees who feel loyalty to a company are less likely to leave.  How does an employer create a work environment where employees have a sense of engagement and loyalty?  Studies have shown that employees who are satisfied with their benefits choices are the most loyal.  Could a rich benefits plan help to increase employee retention?

What constitutes a rich benefits package?  There are certain benefits that an employer is required to provide.  Time off to vote, for jury duty, for military service and in certain cases to care for themselves or a sick family member are required by law.  Workers compensation and short-term disability plans are mandatory as well.  Employers are obligated to withhold a portion of an employees pay in order to fund social security and unemployment insurance.  In most instances, these required benefits will do nothing to create retention, as all employers will provide these.  

Some benefits that employers provide are not required.  These are the benefits that may help an employer to not only attract but to retain employees.  Paid holidays, vacation and sick days are not required but provided by many employers.  Minimal health insurance is now mandatory for many employers, but plans with richer benefits may also be offered.  Other insurance plans including life, supplemental short and long term disability, and long-term care insurance and other types may be available.  Flexible spending accounts where employees can pay for out of pocket medical expenses, child care and commuting costs with pre-tax dollars are sometimes offered.  Access to saving plans, geared toward building assets for retirement such as 401k plans are common and those that include company-matching fund are even more desirable.

Some employers, like Google, Netflix, Best Buy and Evernote provide extreme benefits like free lunch, yoga and other activities, nap rooms and massages.   Quicksilver in California even provides employees with an hour off to go surfing each day! Are these extreme benefits the “wave” of the future?

In a survey conducted by Mercer in 2014, employees were asked exactly what types of benefits packages they were interested in.  The survey showed that while bigger paychecks are important, more time off was equally significant.  Employer contributions to employee retirement plans and decreases in healthcare cost were very important as well.  While the extreme benefits were nice perks, none made the list as vital.

The survey stated that bigger paychecks are a benefit that employees desire.  How can an employer help an employee to earn a bigger paycheck?  Simply increasing pay rates across the board may have instant impact, but eventually employees will once again want more, maybe without increasing their output in more significant ways to meet company goals.  Employers can encourage who want to earn more by anticipating that many employees are looking beyond what they are doing today and want to see that they are working and building towards their own future advancement.  Employers can assist these employees by having clear career paths mapped out.  These paths can include the accomplishments that one needs to achieve and surpass in order to continue along that path.  By encouraging individual development, employers can create a positive work environment as employees will understand better and be motivated to attain their own career goals, while working towards the company’s goals as well.  This type of encouragement can go a long way in creating optimism among workers who see their piers growing within the company, thus reducing turnover.

In order for employees to achieve their own career goals, employers can motivate employees by training and educating them.  By providing training opportunities and tuition reimbursement programs, employees see that their employer is willing to invest in them in order to advance their careers while working towards the company goals.  Employers should take the time to discuss the training with the employee and congratulation them on the knowledge and skills acquired.  Creating career paths and training opportunities can go a long way in controlling employee turnover.

In addition to the benefits of training and education, today’s workforce is interested in creating a work life balance. This will be defined differently for every employee.  Younger employees may be more interested in additional vacation time to “see the world” before they settle down, while those with family may prefer to have a flexible work schedule in order to accommodate varying home life schedules.  Older employees may want a part time situation.  Creating a work life policy that is flexible for different wants and needs of employees could create a work environment where employees do not feel uneasy about needing and or wanting time off for other obligations.  

What are some ways to provide employees with more time off as a benefit that will not adversely impact the employer’s productivity goals?  Flex time is a way that employees and employers work together to get the job done, just not necessarily in the 9 to 5 work day.  Employers who have instituted flex time as a benefit; have found that employees tend to be happier and more productive.  This could be the result of having less worry about home life obligations.  These employees are more likely to stay with an employer as they value the ability to have a work life balance.

Providing employees with additional paid time off days could also result in an employee thinking twice about moving to a new position.  There are many ways to enhance a paid time off policy including giving additional days off, such as the employee’s birthday and extra days off for religious observance.  Some employers offer a pay out of unused vacation days.  This provides the employee with an additional paycheck, which could also be a benefit that helps control turnover.

How can an employer institute a benefits program that will help reduce turnover?  The employer needs to find out what benefits its employees value.  It is a waste of time and money for an employer to put benefits in place that the employees do not need or want.  Employers can begin with a simple employee survey.  A survey is a useful tool to avoiding the costs associated with setting up plans that have no added value to employees.  Once the survey is complete, the employer will have a better idea of the wants and needs of its employees.  If the workforce is generationally diverse, there may be a very wide selection of benefits that employee’s desire.  If that is the case, providing a menu of benefits may be the best option as opposed to a one size fits all option.  Some employers offer cafeteria plans where each employee is allotted a set amount of money to use towards their benefits.  The employees then choose the plans that are most important to them, using the money the employer pays.  Anything over that amount the employee pays.  Offering a number of benefit choices allows for flexibility that employees will be able to customize as they see fit.