Employee Compensation and Incentives

Employee Compensation and Incentives

By Diane M. Calabrese / Published September 2016


Start-up companies put great emphasis on the unconventional. Bicycles and skateboards may be used in open spaces. Employees may live in the same big spaces where they work. We’ve all seen the articles on the happy environment—and presumably more satisfied employees—that result because the boundary between work  and life has been obliterated.

Time will tell. For with the vanishing boundary, there is a loss of privacy and clarity. With new federal requirements that many exempt (salaried) employees must be given overtime pay, determining how many hours the free-range employees are working, even when contained in a single wide-open space, will not be easy. Somewhere between punching a timeclock and working sporadically across 24 hours is the ideal place that most employees want to be. As regulations are added, it all gets a bit trickier for employers.

Recruitment and retention has never been a simple matter for employers. Employees look for compensation they consider commensurate with their work. They weigh hours and days of work. They also evaluate incentives, such as health benefits, savings and retirement plans, and holiday pay; and they circumscribe all the variables in the context of one variable that is often overlooked: location.

The realtor’s mantra of “location, location, location” applies. Employees who want to live in a particular place, especially one deemed to allow for a great quality of life, will consider tradeoffs on pay and more.

Of course, there’s also the way employees view a company. With Google and other search engines allowing users to post reviews of companies, job seekers can get some feeling for a company before applying for a job. The savvier prospects also consider the history of the company.

Stability is important, and it’s important even to the youngest recruits, although they may define it differently. They may ask themselves, “Will I be able to make a difference here?” when their more fundamental question is, “Will I be able to have a good and productive stay here?”

Employees leave for many reasons. An employer must balance the reality that employees will sometimes leave against the needs of the company for continuity. That’s done by strength within.

“Keeping continuity in your organization is key,” says Eric Wing, managing partner of MOTA Industrial Services LLC in Columbia, SC. “Employees like stability, but in the event that you do lose someone, cross-training employees is very important.”

Turnover is inevitable. “Having several people capable of multiple duties keeps small businesses running efficiently when turnover happens,” says Wing.

Each employee is different. Finding the fit is as much of an art as a science of hiring, and some of it is just trial in context. Think of assembling a crew team—changing just one person
(oarsman) may make all the difference.

Safety and Incentives

It should be a given, yet in many workplaces, there are gaps. Employees want a safe workplace. They want first and foremost to know that when they meet their obligations to their employer each day, they are doing so with properly functioning equipment, vehicles, and machinery.

“The most important incentive that I practiced and developed for many years was having zero accidents on OSHA Log 200—the Log and Summary of Occupational Injuries and Illnesses,” says Robert M. Hinderliter, president of Rahsco Manufacturing Company in Burleson, TX. He adds that the log is currently in version Log 300. (For a quick update on the Occupational Safety and Health Administration Log 300, see the OSHA fact sheet https://www.osha.gov/dep/fap/recordkeeping_faqs.html.)

Putting a strong focus on safety began with a friendly bit of advice. “About 35 years ago, my company doctor called me and said that a company my size was having too many accidents,” says Hinderliter. “The advice was that I needed to investigate the problem and develop a solution before something serious happened.”

Hinderliter approached the task as he did everything connected to his business. “I knew that for a program to be successful it had to be supported by all of the employees,” he explains. “And I knew that having safety meetings did not get the support and serious interest of the staff. However, regular safety meetings are a very important part of any program.”

So Hinderliter brainstormed by asking himself one foundational question: “What do you have to do to get the staff’s interest and support? It’s a big question,” he explains. “I tried several programs, but the one that worked best was giving the entire staff an incentive if OSHA Log 200 reported zero accidents,” says Hinderliter. The form is now filed annually.

The cost of providing the incentive is offset by other gains. “If you have zero accidents consistently, your insurance rates are lower,” says Hinderliter. “So I figured if I took this savings and gave it to the staff, the company would be more profitable at zero cost. Pay the employees to be safe or pay the insurance company for their injuries.”

After implementing the incentive program, Hinderliter soon discovered it had a very positive feedback loop. “What I discovered was if someone was not doing the right thing by following safety rules and procedures, his fellow workers would scold him for not being safe and threatening their safety bonus,” he says. “A several hundred-dollar safety bonus got everyone’s attention. This was given to the entire staff.”

The bottom line is this: meaningful incentives work in multiple ways. “Under this program, we had about one accident every 10 years,” says Hinderliter. “In 35 years after this program was implemented, I never had a serious injury.”

Whether or not an employer chooses to connect an incentive to safety, there is one takeaway that Hin-derliter wants to emphasize. “Safety needs to be part of the company culture,” he says, “and support starts at the very top and flows downhill.”

Ideas Of All Sorts

Decisions about employee compensation and incentives are ultimately made by the owner or owners of a company. Good ideas of many sorts are available in the learning center at the U.S. Small Business Administration via website (www.sba.gov).

Compensation profiles for almost any industry can be found in a Web search. A good place to begin, though, is with the statistics compiled by the Bureau of Labor Statistics (BLS, U.S. Dept. of Labor) via www.bls.gov/bls/blswage.htm.

Contractors, distributors, and manufacturers also get a fair idea of what competitors are paying by interacting with their colleagues through professional organizations, such as CETA, PWNA, and UAMCC. Location is a component of compensation, but so, too, is the employment level in a particular area. If there is very low unemployment, employers will have more competition in the pool of prospective employees.

All compensation should be tied to a job description, and following on Wing’s suggestion that continuity depends on employees who can take on multiple duties, some version of the ability to assist colleagues and willingness to learn new skills should be mentioned in the job description.

Cost-of-living comparisons may help when determining a salary range (and it should be a range, however small, to provide flexibility to an employer). Even so, some elements are difficult to compare because an employer would have to know the way that employees spend pay, whether they live in a dual-earner household, and so on.

Required employee benefits, or those prescribed by the federal government and the states, are not considered incentives. They include the employer’s contribution to Social Security, unemployment insurance, and workers’ compensation; certain states also require employers to contribute to disability insurance.

Compensating employees for holidays and vacation, jury duty, personal leave, and bereavement leave falls largely in the sphere of benefits. Some states, however, require pay for jury duty and more.

Any employer with 50 or more employees must adhere to the Family and Medical Leave Act (FMLA). FMLA gives employees the option of taking 12 weeks of job-protected unpaid leave for the birth or adoption of a child, care of an immediate family member, or a serious health condition.

Ideas for incentives may develop in many ways, as Hinderliter’s example illustrates. For employers that would like to develop an incentive program, or at least make changes to their workplace that might encourage employees to stay, there is a clever learning tool at the SBA Learning Center. The interactive webinar, which takes about 30 minutes to complete, encourages employers to think a bit differently about their approach to hiring and retention.

It’s probably not surprising that communication is an important element of retention strategy. When employees understand the goal of a company and their individual roles in achieving the goal, they work more harmoniously. The harmony brings a rhythm to a day that carries through to a work-life balance.

If you do a Web search for work-life balance, it’s clear that whatever novel activities are going on in work settings besides work—balance is what most employees want. Employees want to have time to live their life, and they also want to be good employees. An employer that can help them strike the optimal balance provides a powerful motivator to those who wish to join and stay.

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