To snag the best employees, some startups and smaller businesses find it’s worthwhile to offer big-company-style benefits packages.
And while you still need to pay competitive wages to get people in the door, it’s the perks that will help you retain them.
Read how, in a recent article in Human Capital Media (and originally appearing in Crain’s New York Business), that by offering some basic, creative, and often underrated low-cost benefits, you can compete with many of the big companies in attracting the best people.
Generous benefits tend to attract top talent.
When Appway opened an office in Manhattan in 2011, the Zurich-based firm brought its European benefits sensibility along.
Employees get basic health care for $42 a month, and the company contributes 6% of workers’ salaries to 401(k) plans regardless of whether the employees contribute anything.
“We believe in generous benefits, respect and dignity for all employees, and a strong emphasis on work-life balance,” said CEO Hanspeter Wolf, by email.
The company, which makes workflow-management software for financial-services firms, needs the benefits to attract talent, too: With 100 global employees, it aims to double its 10-person staff in New York this year. The market for software engineers in the city is tight, and Appway seeks only top candidates.
“About 10% of prospective hires make it past the initial assessment,” said Dina Fernandez, office manager.
Hiring is picking up in New York City-based small businesses, which means the talent war is as well. In a hypercompetitive market for skilled workers, a well-crafted benefits package is crucial.
Larger companies know this: They spend more on benefits, as a percentage of total compensation, than small firms. According to the Bureau of Labor Statistics, businesses with more than 100 workers spent 33% on benefits in 2013, versus 26% for smaller companies. Experts say the key to making sure your dollars aren’t wasted is knowing which benefits your employee demographic values most.
In Appway’s case, workers are typically in their 30s and 40s – at an age when the cash value of benefits tends to be important. “This isn’t my first rodeo,” said Ms. Fernandez, who manages the company’s benefits programs. She says Appway’s employees do add up the dollars, with the health care and 401(k) contribution being the biggest persuaders, and other benefits, such as money for a gym membership, carrying weight, too.
Of course, many small business owners would like to offer better benefits but can’t easily afford them. Rising costs mean that Cadillac benefits now feel like Rolls-Royce plans to them. The employers in the New York metro area who responded to consulting firm Mercer’s 2013 National Survey of Employer-Sponsored Health Plans spent $13,345 last year on health care benefits per employee, asking workers to contribute about $140 a month. (The smallest firm had 250 employees.) Not many small businesses can afford to spend that much.
Other benefits, such as a 401(k) plan, can also be costly, with administrative costs that run as high as 0.75% of the total assets in a plan, on top of a few thousand dollars in other fees. To keep 401(k) fees down, owners may try to get proposals from at least three kinds of companies that administer the plans, such as a bank, an independent benefits firm or an insurer, said John Carnevale, CEO of Boston-based Sentinel Benefits & Financial Group, an employee benefits consulting firm with a large presence in New York City that focuses on companies with fewer than 1,000 employees.
1. Treating Technology as a Perk
Bring-your-own-device (BYOD) policies are becoming popular among employers.
Here are some other ideas for designing a big-company benefits package as a small business:
2. Talk To Your People
Whether your process is formal – such as a survey – or informal, like a series of lunches, ask your employees which benefits they value most. “Frame the conversations as trade-offs,” said Julie Stone, senior consultant with Towers Watson, a professional-services firm focused on improving companies’ performance. The answers may surprise you. When Ms. Stone’s firm started consulting for a large retailer with a presence in New York City that had a lot of turnover, Towers Watson discovered that the employees didn’t care that much about the 401(k) or the health plan: The problem was that they didn’t feel in control of their scheduling. Though a new scheduling system cost money, instituting it enabled people to pick their own shifts and turned the company’s retention problem around, Ms. Stone said.
As a small business, you have an advantage over big companies: fewer people to survey and closer relationships with your employees.
3. Show You Care
Small firms become more competitive with bigger rivals by being very thoughtful about choosing a plan and adding some ancillary benefits, particularly ones focused on health. Studies show one of the key drivers for engagement and retention is whether employees feel their employer cares about their health and well-being, according to Ms. Stone.
Sometimes, benefits outside a traditional health plan can go a long way. Appway, for instance, offers a health discount program with reduced rates on fitness clubs, nutrition counseling and smoking cessation. Some employers sponsor sports teams and running or walking competitions. Large employers are adding biometric screenings to their plans, according to Ms. Stone. If you have a younger, gadget-happy workforce, an Up bracelet from Jawbone, which monitors daily habits, might serve the same emotional purpose.
4. Emphasize Choice
You can give employees more varied health care options by joining a marketplace. Among those operating in New York are Manhattan-based HealthPass; Mercer Marketplace; the Bright Choices exchange, operated by Towers Watson’s Liazon, based in Buffalo and New York City; and, of course, New York State of Health – the marketplace mandated by Obamacare. Marketplaces offer a selection of plans; employees make their own choices on how to spend a set contribution from employers.
5. Stay On Top of Trends
Among those catching hold among larger companies, according to Ms. Stone, are supplemental life-insurance plans, long-term disability plans, and pet and vision insurance. Also popular are group legal plans, which offer benefits for seeking advice on writing wills and critical-illness policies, among others. The latter typically pay out lump sums to cover costs, including deductibles that the company health plan leaves uncovered.
Just as with health insurance, owners can pay all or part of the cost of other insurance benefits, most of which are relatively inexpensive (disability is one exception).
6. Make Them Owners
If you’re a fast-growing company and your employees have an ambition that matches yours, your equity and/or profit-sharing plan may be even more attractive than old-fashioned benefits like health plans and 401(k) matches. To create a competitive plan, set aside about 10% to 20% of the equity in your company to give out to employees in the form of equity, said Bob Greene of Manhattan-based Contour Venture Partners, a venture-capital firm. If you want to be particularly generous, set aside a larger portion.
It doesn’t cost much to set up an equity plan, because lawyers will often do the work for a very low fee in hopes of becoming company counsel. If you run a family-owned firm, you may not be aiming for the kind of exit that makes equity appealing, such as an IPO or buyout. But a profit-sharing plan can serve the same purpose. The costs are similar to those in a 401(k).
7. Offer a Healthy 401(k) Match
An irony of the benefits world is that one of the most valuable benefits you give your employees – a 401(k) plan, sometimes with a match – is one of the least appreciated. A healthy match may help attract the financially savvy: On average, companies with 49 or fewer employees offered a 3.2% contribution to 401(k)s in 2011, and companies with 50 to 99 employees offered 2.6%, according to Chicago-based Plan Sponsor Council of America. Typical contributions are about the same in New York City, except in the finance industry, where they are higher, according to Mr. Carnevale.
8. Simplify Saving
Once your employees are on board, it may help to keep them if you make the act of saving for retirement as painless as possible, with as many automated plans, target-date funds and index-fund options as possible. “After 25 years in this business, I know that participants don’t really want to pick their investments. I always go back to making sauce: I don’t want you to deliver the oil, the spices and the tomatoes to my table,” Mr. Carnevale said. “People get frustrated, and they don’t participate.”
Especially if your workforce is younger, employees may have a hard time grasping the idea that a $500-a-month contribution now could make the difference between being old and poor or retiring comfortably. Adding a financial-education component to your retirement plan could bring some of the reward home to employees.