By Diane M. Calabrese / Published May 2018
Slackline, tightrope, and icy walk all in one…that’s how it sometimes seems when trying to balance the components of employee compensation. Fair pay for an honest day’s work is a nice adage, but it’s oh-so-much-more-complicated than that now.
Everything from work-day breaks to attend parent-teacher meetings to sabbaticals to refresh one’s mind and spirit may be included in compensation packages. The list is only as limited as the imagination.
Employers with a large number of employees generally have more flexibility. While 87 percent of all civilian employers with 500 or more employees provide medical care and retirement benefits, only 40 percent of civilian employers with 49 or fewer employees do the same. The numbers come from the March 2017 (most recent available) U.S. Bureau of Labor Statistics (BLS) survey on medical care and benefit combinations.
The BLS puts the number of all civilian workers with access to medical care and retirement benefits at 62 percent. Twenty-two percent of the civilian workforce has neither medical care nor retirement benefits.
How do members of our industry achieve a balance in compensation packages? We get a great deal of insight into the process from Greg Sprunk, president of Superior Cleaning Equipment in Phoenix, AZ.
“For us it is a factor of the market we are in,” says Sprunk. “We always want to be ahead of our competitors on how we compensate our employees, just like we do by offering the best product and service. Everyone needs to look at what they can afford, but we feel investing heavily in our employees gets us less turnover and fewer callbacks, and has been good for our business. It is something that has to be budgeted, and the numbers have to make sense.”
A compensation package, once established, requires frequent review. “We are constantly looking at what adds value for the employee and balancing that with our return on investment,” says Sprunk.
How often, at minimum, should the package be reviewed? “Obviously yearly—when our health insurance premiums are going up by 30 to 40 percent, you have to take a look at what you are offering and what you can afford,” says Sprunk. “If it is something we can afford, the employees will use it, and it helps them to be more productive, that is a big part of the decision.”
Sprunk believes that health insurance should be considered part of employee compensation. And he is an exemplar of the employers who, when confronted with increases in premiums for health insurance, look for solutions.
“According to my insurance broker, we are one of the few employers that pay the entire employee premium for their health insurance,” says Sprunk. “We also offer a local Direct2MD service that allows them to have immediate access to doctors via FaceTime on their cell phones, reducing office visits and downtime. I look at health insurance as an integral part of employee compensation. However, like many small businesses we have had to adapt and go to programs with higher deductibles, etc.”
Some companies turn to consultants to help them develop an employee compensation package, but Sprunk has never gone that route. “We do have our broker relationships, and I have many other business owner friends and dealers I can compare and talk with in this area,” he explains.
There’s a great wealth of knowledge to be tapped among colleagues—and competitors—in the industry. “I am not a huge fan of consultants when I have friends in the industry who run very strong businesses with strong market share. So, I am going to rely on them more than paying someone from outside my industry. I also have great vendors whom I rely on when I do have questions or need feedback.”
Sprunk sees the process of arriving at a compensation package as “pretty straightforward.” “We offer a 401(k) plan with matching up to five percent, paid vacation days, and the Direct2MD service. We are currently on a HSA medical plan through EMI health, and we pay that premium—and we also offer dental and life insurance coverage as part of our compensation package.”
A new member of the CETA board of directors, Sprunk says that professional organizations may lend some guidance to employers in the development of compensation packages. “I would listen to any input they would have, but the majority of my decision would be made by talking to my employees and finding out their needs, as well as looking at our budget and deciding what we can afford,” he explains.
Every business owner knows that there are limits to what’s achievable in a compensation package. As such, they aim for the best mix of benefits and pay possible.
“I think there are other areas to cut costs other than compensation packages, but there is also a certain limit to what we as small business owners can afford,” says Sprunk. “We are in a constantly changing employer and regulatory environment, so it is not the same for everyone.”
Talk to colleagues and vendors and solicit ideas from employees, as Sprunk suggests. Also, access resources from the federal government, such as tutorials from the U.S. Small Business Administration via SBA.gov. Consider participating in a benchmarking program, such as the Profit for Planning offered to CETA members. Or, connect with a consultant.
But, do what works. When reaching for the optimal combination of health insurance and compensation, an employer can find lots of expert recommendations. Ultimately, the employer must make the decision.
For owners who ever doubt they are providing the best possible compensation package, context helps to dissolve concerns. Take a look at analyses by the BLS for a quick immersion. An example follows.
On December 15, 2017, the BLS reported employer costs for employee compensation in September 2017. For that month, total employee compensation averaged $35.64 per hour. Benefit costs contributed 31.7 percent to that amount, or $11.31.
Employees should understand that a big chunk of their compensation comes in the form of health insurance, retirement, and other benefits, including the federally and state-mandated payments employers make on their behalf (i.e., Social Security, Medicare, and workers’ compensation). Workers newer to the workforce may not understand the breakdown, and an employer can gain ground in retention by making sure they appreciate their full benefits and pay package.
In the BLS report on employer costs for September 2017, insurance benefit costs to private employers was eight percent of total compensation. (For state and local government, the percentage was higher at 11.6 percent of that group’s average hourly compensation of $48.78 per hour.)
In March 2017 (the most recent BLS figures available as we write), the employer to employee share of premium costs for a worker’s medical benefits averaged 80:20. For family medical coverage, the employer to employee share averaged 68:32.
The same March 2017 analysis from BLS breaks down the prevalence of some quality-of-life benefits. Employee assistance programs (e.g., help with education) were most common among them at 55 percent. Forty-three percent of employers offered wellness programs, while 11 percent offered childcare assistance, six percent offered flexible workplace, and seven percent subsidized commuting.
The question of what happens when employees enjoy more quality-of-life benefits is one that interests scholars in industrial engineering and other fields of academic inquiry. The short of it is there is a risk that once a wish (or need) of employees is met, say flexible workplace, employees will become inured to it and fail to see it as a benefit. They may then want something more that they will view as a benefit. Again, employers who take the time to list benefits and periodically remind employees of benefits are doing the right thing.
What about compensation in the strict and traditional sense? Just how much an employer should pay an individual is no easier a question to reckon with than any other related to compensation.
Low unemployment, need for special skill sets, and high-level responsibility for the position are factors that build to higher pay. Some employers add profit-sharing benefits in lieu of dollars to attract and retain employees that are scarce. And some add profit sharing for all employees.
It’s complicated. Be creative. Do not always trust common knowledge. For example, when setting hourly wages or salaries, cost-of-living calculations can be deceptive. Yes, it may be very costly to live in New York State if Uptown Manhattan is the place, but overall cost of living in the Empire State is little different from living in Kansas City, KS, if the place is Albany or Schenectady.
In addition to regularly providing employees with a summary of their benefits package, an employer can also give prospective employees—especially those from outside the area—a summary of cost of living (average utilities, housing, fuel for vehicles, etc.). The more employees and prospective employees know about the investment their employer—and their community reciprocally—makes in them, the stronger and more long-term a bond can be built. It’s about balance.