How a Competitive Compensation Package Can Attract Top Talent
As an employer, you know that there’s a lot more to keeping employees happy. Let’s review the five most important aspects of competitive compensation packages.
Offering an endless supply of snacks. Giving employees their birthday as a paid holiday. Turning the conference room into a massage room. Every day, there’s a new perk popping up at companies across the United States.
As an employer, you know that there’s a lot more to keeping employees happy than beer on tap and dogs at work. But what really matters to employees? How can the right benefits help you attract and retain top talent? And what does a competitive compensation strategy really look like? Let’s start by reviewing the five most important aspects of competitive compensation packages.
1. Money talks, salary matters
The million-dollar question every prospective employee wants to ask is: “How much will I get paid?” There’s no question about it—the value of your compensation packages will often determine the caliber of employee you’re able to attract and retain.
According to the Society for Human Resource Management (SHRM), salary ranges help employers control their payroll expenses and ensure pay equity among their staff members. Before you decide if you’re going to set salaries at, above, or below the market range, think about your company’s compensation philosophy. For example, if you’re trying to become a market leader, you may want to pay employees more than your competitors.
Wondering what your competitive salary ranges are? Some research is in order. Based on geographic location, analyze the salary ranges for all of your company’s jobs. Beyond base pay, you’ll also want to consider bonuses, commissions, and equity. Need a little help? Websites like glassdoor.com can offer a peek inside salaries at other companies, or you could consider hiring a vendor to analyze and assist with pay scales.
Want to compete? Pay at or above the market range (or have other generous benefits that make up the difference).
2. A healthy attitude about health insurance
An important part of employees’ total compensation is health insurance. While some employers offer coverage to employees only, most employers extend the option of coverage to employees’ immediate family members. In addition, some employers also offer dental insurance, vision insurance, short-term and long-term disability, life insurance, and pet insurance.
According to research by the Kaiser Family Foundation, the average cost of employer-sponsored health insurance in terms of annual premiums was $7,188 for single coverage and $20,576 for family coverage. Typically, the employee and the employer each pay a portion of the premium. However, very generous employers may cover 100% of the premium cost of a basic plan and give employees the option to select a higher-level plan (and just pay the cost difference).
Want to compete? At a minimum, provide employees with health care, vision, and dental insurance and cover some or all of the premium.
3. Time to rest, recharge, and recover
After asking about salary, most employees want to know about paid time off (PTO). Typically, companies handle PTO in one of three ways:
- Single PTO balance—A total number of days (for example, 14 days) that employees can use at their discretion when they’re sick, want to take a vacation, or just want time for themselves. If employees don’t take all their time off, some companies allow them to roll over days to the next year and even cash them out when they leave the company.
- Separate PTO balances for sick, vacation, and personal—Separate buckets of PTO (for example, 5 sick days, 10 vacation days, and 2 personal days) that employees can use for that specific purpose. Like with the single PTO balance, you’ll need to figure out your roll-over and cash-out policy.
- Unlimited PTO—The newest trend in PTO, many companies are allowing employees to take as many days off as they want (and for whatever reason) as long as they’re meeting their performance goals.
In addition, many employers provide the typical paid holidays such as Thanksgiving, Memorial Day, and Labor Day. When it comes to managing PTO benefits, you’ll also need to comply with federal, state, and local laws (including regulations on family and medical leave (FMLA), hourly wage minimums, and military leave). However, just offering the basics may not be enough to entice prospective employees.
For example, FMLA allows eligible employees to take unpaid, job-protected maternity leave for 12 weeks. To better serve their employees, many companies go above and beyond this standard by offering paid maternity leave (and increasingly, paid paternity leave) for several weeks or even months.
Want to compete? Do a market analysis to ensure you offer a competitive leave policy—and then sweeten the pot with an extra perk such as a floating holiday.
4. Future focused, retirement ready
After their day-to-day needs are met, employees start looking to the future. As an employer, you can help them achieve the retirement they envision by offering a retirement plan. The most popular type of workplace retirement program today is the 401(k) plan.
On the fence about offering a 401(k) plan as part of your benefits package? Consider these top three reasons to start one today:
- Attract (and retain) employees—In the battle for top talent, a competitive 401(k) plan with perks like matching contributions can entice jobseekers to join your company. (Plus, a company match may cost less than you think.)
- Help your employees build a brighter future—Studies show that financial stress can have a damaging impact on business output, lead to higher employee turnover, and increase recruiting costs. Help mitigate that stress by offering a 401(k) plan that allows your employees to save for their future with confidence.
- Enjoy valuable tax advantages—Employer matching, profit sharing, and safe harbor contributions are tax deductible and bypass payroll taxes! Plus, small businesses can receive valuable tax credits to help offset the costs of your 401(k) plan.
Want to compete? Offer a 401(k) plan with a company matching contribution.
67% of employees surveyed by Betterment said that a good 401(k) was an important factor when evaluating a job offer.
5. Take stock of employee stock options
For start-ups and other emerging companies, employee stock options are also a popular form of compensation. Employees may even join the company for a lower-than-usual salary in exchange for a generous package of stock options.
So what exactly is a stock option? Well, it’s a contract that gives employees the right to buy (or “exercise”) a set number of shares of the company’s stock at a pre-set price. However, employees must buy the shares within a certain time period—and after it expires, they no longer have the option to do so.
If the company prospers, employees who have exercised their stock options could become very wealthy. By giving employees stock options, you also give them a good reason to be invested (literally) in their company’s success.
Perks, perks and more perks
So what about the free beer and nap rooms dreamed up by HR professionals? According to Forbes Magazine’s Forbes Coaches Council some of those benefit offerings are nothing more than a gimmick. In fact, they may be perceived negatively by employees. For example, free food, booze, and places to crash could be seen as a contrived way to hurt employees’ work-life balance by incentivizing them to work longer hours.
However, there may be some extra perks—like remote working arrangements or student loan repayments—that could resonate well with your employees. Wondering which extra compensation and benefits perks could work? Start the conversation with your staff. From one-on-one meetings to employee surveys, there are many ways to take the pulse of your workforce.
So, what will it all cost?
As you can imagine, total compensation varies dramatically across geographic location, industry, and role. You can dig deeper into employee benefit benchmarking data by partnering with a compensation company to develop a better understanding of your local and regional competition. With this data, you can examine compensation at a more granular level to understand if your company is on target—or may need a compensation adjustment. After all, more competitive compensation means more qualified employees—and potentially more business success.
Betterment can help
In the competition for top talent, every single benefit matters. For jobseekers, a strong 401(k) plan can make all the difference. So if you want to enhance your total compensation package, consider offering a 401(k) plan or adding a company match to your existing plan.
While some employee benefits are very costly, the good news is that offering your employees a quality 401(k) plan may cost less than you think. At Betterment, our fees are a fraction of the cost of most providers. As your full-service partner, we can help design your ideal 401(k) plan with employee-friendly benefits like company matching contributions and automatic enrollment.