Survival of the fittest” best describes the competitive marketplace in which today’s business attempts to not merely survive, but thrive. A business owner must identify and solve issues regarding the competition for customers and clients on a daily basis. As a business owner, are you overlooking the competition for one of your top resources your own employees?
“Today’s workers have a mindset that is much different from those of previous generations,” says Gregg Steinberg, president of International Profit Associates. “Simply put, they expect more from their employers especially when it comes to compensation and work culture. Employers who want to find and keep qualified, motivated, top-performing employees need to re-evaluate the compensation packages they are offering.”
Salary is obviously important, Steinberg says, but it is far from the end of the analysis. Rather, it takes more thought, effort and ingenuity to create both the total and tax-friendly compensation packages that deliver on the proverbial “carrot.”
Smart Business discussed these and other related issues with Steinberg.
What is considered a competitive compensation, and why?
The starting point of the compensation discussion should be base pay. This is the fixed portion for salaried employees or wages earned by hourly workers. In addition to base pay, one way to create a competitive advantage and attract workers is to include a compensation program that offers regularly scheduled step increases for employees who stay with the company. Another strategy is to offer increased pay or bonuses for defined achievement. Bonuses allow firms to recognize performance without increasing fixed costs.
What can be added to compensation?
Benefit packages add value to the total compensation plan. Some of the most common and desirable benefits include medical and dental insurance, sick/personal leave, paid holidays and paid vacations. In addition, some companies are offering optical/vision insurance, life insurance, 401(k) plans, deferred compensation plans, pensions, profit-sharing, expense reimbursement, tuition reimbursement and access to health club memberships.
While some of these benefits mean that companies must pay extra, some do not. In either case, the expense often makes the difference in a company’s ability to recruit and retain the best qualified employees and producers.
What about investing for the future?
401(k) plans are one of the most popular options companies can offer to their employees. These plans enable employees to build up a tax-deferred retirement account. Some companies offer an amount of matching funds relative to the individual’s contributions. There is a maximum amount that can be contributed by the employee. Because a 401(k) is a taxed-deferred plan for retirement, there are steep penalties for withdrawing funds early. So with this offering, it’s important to provide an overview of the pros and cons of certain benefits so employees can make informed decisions.
An area of benefit commonly overlooked by business owners, especially for themselves, is deferred compensation planning. If your business is producing more income required to maintain your current or desired lifestyle, you are paying too much tax. Monies paid in tax by the business or individual business owner are gone forever. Some would applaud you on your patriotic effort to redistribute the wealth, but certainly better options exist. A nonqualified deferred compensation plan represents one of those opportunities.
What are deferred compensation plans?
There are two types of deferred compensation plans: qualified and nonqualified.
A qualified retirement plan offers every employee the opportunity to save for retirement. Examples of qualified plans are 401(k) plans, pension plans and profit sharing plans. For a company to qualify for a tax break, the plan must be nondiscriminatory and offered to every employee. Employees are not immediately taxed on the contributions made to their retirement account, and employers get to deduct their contributions to such plans. These plans are eligible for favorable tax treatment under the Internal Revenue Code and benefit both employees and the employer.
What are some necessary rewards?
In the employee-employer relationship, nothing means more to the employee than compensation. While recognition is appreciated, satisfaction is most often based on the quality/quantity of the workers’ services in exchange for the compensation received. Simply put, the greater the value of the employee, the more benefit he or she expects to receive.
In order to grow their companies, business owners need to develop creative ways to offer competitive compensation plans for their employees. If they don’t, current employees are likely to feel unappreciated and therefore more vulnerable and susceptible to offers from competing businesses.
GREGG STEINBERG is president of International Profit Associates. IPA’s 1,800 employees offer consulting services to businesses throughout the United States, including Alaska and Hawaii, as well as Canada. Reach him at (800) 531-7100 or at www.ipa-iba.com.