Employee Benefits: From 401(k)'s to Profit Sharing
When I was a poor college student, I worked for the survey center at my university for extra money. Timberland, the New Hampshire-based outdoor shoe and clothing company, had contracted my employer to process their annual employee surveys. As I manually entered the responses into the computer, I was struck by the amount of benefit programs the company offered and the level of satisfaction their employees felt. Timberland is a company that goes above and beyond the standard benefits package. The company offers tuition assistance and a flexible schedule. Employees at their headquarters have access to a fitness center, on-site daycare, dry cleaning services, the company store, and a subsidized cafeteria. No wonder their employees were happy!
Employee benefit packages are vital to attracting and retaining quality, long-term employees. Most benefit packages make up 30 to 40 percent of the employee’s total compensation for their position. When the economy is good, employers scramble to offer their employees a range of benefits to keep them from straying elsewhere. However, as we’ve seen during the current economic meltdown, some companies have been reducing the amount of benefits offered to their employees in an effort to save money, keeping only those benefits that are required by law, including overtime pay, worker’s compensation, unemployment insurance, etc.
Most companies offer their full-time staff the standard benefits, including health, dental and vision insurance, sick and vacation days, and life insurance. Others go above and beyond and offer paternity leave, discounted gym memberships, a flexible work week and a company car. These benefits help promote company loyalty in employees apt to take advantage of them. However, for many employees, the biggest motivator is money, especially in the form of a 401K, profit-sharing or regular salary raises.
The 401(k) has become a staple of employee benefits at most companies, with the employer matching contributions up to 6 percent. While the economic recession may have caused employers to temporarily stop matching their employees’ contributions, it hasn’t stopped people from investing a pre-tax percentage of their earnings with this retirement fund. However, many people choose to stay with companies that match a certain percentage of their investment contributions, even though they can take their money with them in the event of voluntary or involuntary termination.
Profit sharing is an incentive program in which the employee receives a percentage of the revenue, often in the form of a cash bonus, a contribution to a retirement plan, or company stock. The percentage that the employee receives is defined even before the profit is made. Often, the percentage an employee is entitled to depends on how long they have been with the company, meaning employees who have been with the company more than ten years receive a higher percentage than those who have been there five years or less. With profit sharing, employees are motivated to work harder and stay with the company longer in order to reap the financial benefits over the long run. If an employee knows that if they stay with the company for ten years, they will be entitled to a nice sum of money, they may remain with the company instead of being wooed away to the competition.
It may seem obvious, but the best way to retain employees is through regular salary raises. Salary raises reward employees for working hard to achieve the goals of the company. While some companies base the criteria for a salary raise on an individual’s length of employment with a company, others base an increase in pay on merit. In either situation, employees will often remain with a company when they have the monetary incentive to do so.
Some employees cannot be bought, no matter how much money is waved at them. For these people, quality of life is worth more than a bonus or an investment plan. Similarly, some employees have unique family or life situations that require flexibility in the workplace. To recruit and retain these employees, businesses offer a variety of nonmonetary incentives including the option to telecommute, a flexible four day/forty hour work week, job sharing or a generous paid time off schedule. These options allow the employee to reconcile their home and work commitments, a convenience that may instill company loyalty.
An attractive financial benefits package will recruit and retain qualified employees for long-term employment. Invest in your employees and your return on investment will be a happy, dedicated workforce.