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From long-term incentives to immediate recognition, ways to boost morale and earn employee loyalty
The economic pendulum might be swinging toward correction, yet many companies linger in survival mode. While cost-trimming measures might be necessary to survive the transition from an anemic economy to a stronger one, the importance of attracting, retaining and motivating key employees remains. With salaries on the chopping block, now might be the ideal time to establish creative rewards measures.
The highest-performing companies recognize that the key to success—regardless of economic times—is talent pool. Despite the economy, these companies continue to seek out great talent, not merely good employees willing to accept bargain-basement salaries.
For the most part, top talent responds to opportunities that reward for performance, and rewards can come in many forms.
For example, deferral plans are fast becoming a popular benefit, since they allow for pretax contributions that mirror 401(k) contributions lost under limitation rules. A deferral plan is the bonus that keeps on giving year-round, as it allows employees to reduce their current income tax liability and watch their funds grow tax-deferred. In addition, the employer can make matching contributions to cover those contributions not allowed under a 401(k) plan, making the deferral plan a genuine incentive for longevity within a company.
Phantom stock is another incentive that can be tied exclusively to performance. The most essential element of this incentive approach is its long-term nature. Also, phantom stock plans are not tax-qualified, and as such are not subject to the same tax rules as 401(k) plans. A company can promise a new and valuable employee this durable bonus every three or five years, or over a longer period of time, making it attractive to remain for an extended run.
An alternative form of bonus typically offered to executive-level employees is the performance unit—an offer to pay a sum of cash at the end of a long-term performance period. The amount of a performance unit is based on attainment of certain pre-established financial objectives of the company. Some may define this brand of incentive as the ultimate performance carrot, as it consistently encourages an executive employee to tie his or her individual success to that of the company.
Company stock options provide an additional form of incentive compensation appealing to many executive-level employees. The amount of equity can be tied to the number of years in service, translating into potentially high returns for employee longevity.
There are occasions when a well-timed “spontaneous” reward, although small in amount, can be worth its proverbial weight in gold. A check for a modest sum in the aftermath of a key company success can go a long way toward providing management team members with a sense of company loyalty.
Other, more imaginative approaches to compensation—executive-level or otherwise—should not be discounted. Options include:
The “it’s the thought that counts” category might include “employee of the month” or “employee of the quarter” programs. The reward could be a certificate of recognition, a small gift or maybe a good parking space. Providing a free weekly lunch is another way of thanking employees, particularly in tough times. These basic, economical programs can often elevate workplace morale.
There’s no avoiding the hard truth. During recessionary periods, companies will face layoffs. But there are ways to protect the workforce and respect the philosophy on which the business has built success.
Sabbatical leaves, for example, can be offered to valued employees who may not provide vital contributions today but who the company cannot afford to lose in the long run. This type of leave suspends guaranteed payments for a period of time but keeps the affected employees eligible for long-term benefits and wealth building programs into which they have contributed.
Tiered pay cuts can also be implemented to avoid the euphemistic “reduction in force.” While adjustments in salaries or other guaranteed pay are made during a specific time frame, employees taking a tiered cut will still have a job and continue to contribute to long-term incentive programs.
Employees who have embraced an ownership mentality will comprehend that shifting financial circumstances might redefine their compensation and short-term rewards. If dealt with honestly and fairly, they will maintain their focus to achieve company goals with the knowledge that better times will return eventually.
By creating a business environment that fosters achievement and implements long-term incentive programs, companies can attract talent and avoid the loss of vital employees whose skills and knowledge are fundamental to the success of a company.
Mention must be made about early retirement programs—a cost reduction move that can be beneficial for both employees and the company. In most organizations, there are likely to be employees approaching retirement age or considering a shift from their present full-time work to an occupation with fewer demands or hours. And in terms of benefits to the company, an early retirement plan can accelerate attrition during economic downturns, making room for new talent that will need to be added when things pick up.
If a layoff cannot be avoided, company owners and management teams must be prepared to perform damage control. Remaining employees will need assurances that their jobs are safe. A wise business owner calls a meeting immediately after a layoff to provide the reasons for the action and to address expressed concerns in a direct and honest fashion.
Ultimately, what employees want most is to be kept in the loop. If business starts to pick up—even just a little—let staff know that their hard work and commitment is paying off, even in these tough times.
James E. (Jim) Moniz is CEO of Northeast VisionLink, a Braintree, Mass., executive compensation firm that works with businesses to structure compensation plans. Moniz is a national speaker on the topic of wealth management and executive compensation, and also is president/CEO of Northeast Wealth Management, a company that focuses on the needs of high-net-worth individuals and professionals and tailors financial programs to help clients determine and progress toward their objectives.
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