University of Redlands

Makebra Bridges – Human Resources Management
Because of limited resources, many small businesses have difficulty recruiting & retaining top talent. In this paper, I will discuss how companies use indirect-financial incentives to gain a competitive advantage.

How Small Businesses Provide Competitive Compensation Packages in a Global Environment.

Table of Contents

Introduction………………………………………………………………………………………………………….. 2

Salary vs. Compensation ..………………………………………………………………………………….. 3

Indirect Financial Payments ……………………………………………………………………………….. 5 1. Employer Match Incentives 2. Cash Rewards 3. Flexible Hours 4. Tuition Reimbursement 5. Paid Time Off

Employee Rewards …………………………………………………………………………….……………… 12

Conclusion ………………………………………………………………………………………….……………… 13

INTRODUCTION
In today’s workforce, small businesses—companies with 100 or less employees—are making a BIG impact.

* There are more than 23 million small businesses in America--accounting for 54% of all U.S. sales. * Since the 1970s, small businesses have provided 55% of all jobs and 66% of all new jobs. * The 600,000 plus franchised small businesses in the U.S. account for 40% of all retail sales and provide jobs for some 8 million people. * The number of small businesses in the United States has increased 49% since 1982. * Since 1990, as big business eliminated 4 million jobs, small businesses added 8 million new jobs.
Entrepreneurs and entrepreneurial firms are attributed with a myriad of positive effects. And “while corporate America has been ‘downsizing’, the rate of small business ‘start-ups’ has grown, and the rate for small business failures has declined.”
Despite consistent economic growth, most small businesses have one thing in common—very limited budgets. So with limited resources, how can small businesses provide competitive compensation packages in today’s global environment?

SALARY VS. COMPENSATION
Salary is just one way that employees are compensated. While salary is the actual amount of money an employee earns (financial compensation), total compensation is the full picture of how an organization demonstrates the value of its employees, including benefits and perks.

The two charts below, which appeared in the National Compensation Survey Report provided by the United States Department of Labor: Bureau of Labor Statistics demonstrate how salaries vary based on the size of he company.

As indicated in the two charts above, Human Resources Managers at companies with more than 100 employees make $20,011 more than Human Resources Managers at companies with less than 100 employees.

To retain top talent, human resources managers at small companies must work with senor management to develop creative compensation packages that expand beyond salary. Some companies offer some or all of the following fringe benefits as part of their comprehensive compensation strategy:

* Medical, dental, and life insurance * Retirement plans, such as a 401k or 403b investment plan * Flexible schedules * Generous time off policies * Internal growth opportunities * Business-casual work environments * Optional unpaid vacation

INDIRECT FINANCIAL PAYMENTS When creating a compensation plan, employers should ensure that “the package includes wages, incentives, and benefits that produce the employee behavior the firm needs to support and achieve its competitive strategy.” Below are few indirect financial benefit options: 1. Employer Match Incentives Starting a retirement savings plans help employees and employers save for the future. Good retirements plans also help businesses attract and retain top talent.

Employers are not obligated to contribute to their employees’ retirement accounts. There is no law or tax code that makes the company match mandatory, with the exception of SEP IRA and Simple IRA plans used by some small businesses. Employers include a company match as part of a benefits package. Like any other benefit, part of the rationale behind the company match is to entice people to want to work for the employer.

One of the most important befits to employers is the tax benefit businesses get for contributing to employee 401(k) accounts. “Small employers receive a tax credit that enables them to claim a credit for part of the ordinary and necessary costs of starting a SEP, SIMPLE, or certain other types of plans (more on these later). The credit equals 50 percent of the cost to set up and administer the plan, up to a maximum of $500 per year for each of the first 3 years of the plan.”

Payroll Deduction IRA’s
There are other options for companies that aren’t ready to set up a retirement plan. According to the United States Department of Labor, “the employer can allow its employees to contribute to an IRA through payroll deductions, providing a simple and direct way for employees to save.”

2. Cash Rewards Money can always be used to motivate employees. In fact, according to a survey conducted by the American Compensation Association and the American Productivity Center up to 89 percent of companies using financial incentives for staff were rated positive or very positive. One of the advantages of using money is that is has mass appeal. Everyone can relate to money from the lowest grade employee to the CEO. However, companies should be cautious for several reasons: * Money looses value as soon as its spent * Can create a “What have you done for me lately” mentality amongst staff * Employees may begin to value the money more than the job performance A good use for a cash reward comes as a year-end bonus. Every employee can be given cash “Thank You” gift for a stellar performance at years end. 3. Flexible Hours People value being in control of their schedule. So, Let your teamwork when they want to work. This type of flexibility is worth a lot more than money. Allowing people to manage their own schedule increases productivity. Here are some others benefits of flexible schedules: * More collaboration and better teamwork

* Quicker expansion

* Increased employee satisfaction

* Continuous output

* New talent pool

* Decreased expenses

* Reduced turnover and hiring costs

* Increased productivity

4. Tuition Reimbursement Company sponsored tuition reimbursement plans are very attractive incentives. When an employer agrees to contribute to an employees’ education, it is making an investment in the employee. To guarantee a return on investment, employers should ensure that the degree would help the employee do their job better. According to the United States Internal Revenue Service, “employers are allowed to provide up to $5,250 in educational expenses as a tax-free fringe benefit to their employees. This includes undergraduate and graduate level courses. Anything above $5,250 is generally considered taxable income.” Some employers are reluctant to offer educational assistance for fear that once an employee completes their program he/she will leave the company. Many employers implement specific requirements to guarantee a return on their investment—these requirements include but aren’t limited to: * Minimum GPA requirements * Field of study requirements * Loyalty requirements 5. Paid Time Off (PTO) PTO is the most common aspect of a company’s compensation package. Nearly all companies offer some type of employer paid time off. There are two types of PTO systems—traditional paid time off and paid time off bank. “Traditional paid time off systems separate time-off categories between vacation, sick, personal time etc. Managers and total rewards professionals are subsequently obligated to track employees’ time off and the reasons for their absences. Paid time off (PTO) bank gives the employee a cumulative number of paid days off that employees use as they wish for sick days, vacation and/or other personal needs.” According to a report by World At Work, PTO Bank-Type Systems are becoming more popular, but traditional PTO Systems are still the most common.

Trends in Paid Time Off Systems: Surveys Conducted in 2002, 2006 and 2010 100% Traditional system with vacation time, sick time, personal time PTO bank-type system

90%

80%

Other 4

70%

60%

71%

63%

54%

50%

40%

30%

28%

33%

40%

20%

10%
1%
2010
2010
2002
2002
2006
2006
0%

4% 6%

According to the WordAtWork report, PTO Bank-Type Systems usually work on an accrual basis, required uses are vacation time, sick time, and personal days, and “use-it-or-Lose it” is very uncommon.

* “Time off for vacation (100%), illnesses (90%) and personal days (98%) most often require the use of PTO bank time. Separate bereavement and jury duty programs continue to be prevalent even with a PTO bank-type system in place.” * “Eighty-five percent of participating organizations award PTO bank time on an accrual basis throughout the year.” * “Fifty-five percent of organizations allow unused PTO bank time to be entirely rolled over to the next year, and 30% allow a partial rollover to the next year. Further, when an employee separates from an organization, 88% of employers pay out the remaining PTO balance in cash.”

The same report indicates that Traditional PTO Systems offer vacation time, jury duty, bereavement, sick leave, and paid holidays.

* “Employees at 72% of the organizations with traditional systems accrue vacation throughout the year, while only half of companies award sick days on an accrual basis.” * “Of those that award a lump sum of time at a specific point in the year for vacation, sick and/or personal days, about three-fourths do so at the beginning of the calendar year.” * “For traditional systems a little more than a third forfeit unused vacation (35%) or sick time (43%) at the end of the calendar year, while unused personal days are almost always forfeited (80%). Most organizations pay vacation time balances out in cash at the time of separation. However, at about 80% of participating organizations with these plans, unused sick or personal time is forfeited when the employee separates.”

EMPLOYEE REWARDS Indirect financial incentives like employer match incentives, cash rewards, flexible hours, tuition reimbursement and paid time off are very structured parts of a compensation package. There are other employee recognition rewards that employers can use to maintain a happy work environment. These befits include, but are not limited to: * Employee Appreciation Picnic – celebrate employees with a family friendly picnic or BBQ. * Catered Meals – provide catered breakfast or lunch for high performing teams. * Close Early / Open Late – surprise employees by closing the office early one day. * Stocked Employee Lounge – keep the staff lounge stocked with quality coffee and tea. * Birthday Celebrations – recognize each employee’s birthday by giving him or her a birthday card and party. * Team Building Activities – use 3rd party companies to set up team building exercises outside the office. * Employee of the Month – recognize the employee of the month publicly. * Preferred Parking Spot – give star employees a preferred parking spot for the month. * Paid Training & Conferences – encourage and pay for employees to participate continuing education. * Email Recognition – send all-staff emails recognizing employees hard work. * Quality Office Equipment – make sure employees have functioning, quality office equipment. * Flowers – send flowers for special holidays like Administrative Assistant Day, and Mother’s Day. * Job Swap with the Boss – swap positions with our employees for the day. Show them you are not to “big” to do their job. * Massage Services – bring in a massage company during unusually stressful periods like audits.

CONCLUSION Bottom line, everyone wants to feel appreciated and valued. For some, success is directly tied to their income, and for others, recognition and approval gives them the satisfaction they need to perform at their maximum potential. Smart companies realize that money isn’t everything. They care about their employees and they are creative about providing a happy work environment. Yes, small businesses may be limited with budget constraints, but they can offer other advantages that give them a competitive edge.