What Defines a Competitive Compensation and Benefits Package?
One way businesses attract and retain top talent is by offering comprehensive compensation and benefits packages. What your organization provides depends on the budget available, the size of your company, and what your employees value most. While larger firms and government employers tend to provide comprehensive compensation packages, small businesses tend to start with a few elements and build on those as business allows.
If you’re a small business owner/HR manager: If your business is looking to start or expand what you offer as part of your compensation package, look at the categories below and define your own goals and a plan for growing and expanding what you offer.
If you’re an employee: This article is written for employers, HR professionals, and managers who want help in evaluating their current compensation offerings. However, even if you’re a job candidate or current employee, you may find the tips and baseline numbers below helpful as you evaluate your expectations and requests for your own compensation package.
You’ll have to decide: Will the company set salaries at, above, or below market?
What’s competitive?: A competitive compensation package includes salaries that are “at market” or above. If you can’t be at or above market on salary, you can make up for it by being generous in other categories (see below!).
Start your process by identifying all current and planned jobs at your company, defining the associated work and establishing salary ranges that match all of the job descriptions. To determine salary ranges, research and analyze the competitive salary ranges for all relevant jobs based on geographic location. Identifying salary ranges ensures that pay is competitive with other organizations. As you consider pay, you’ll want to look at bonuses and commissions as well (startups, don’t forget about equity!). Often, smaller companies work with a vendor to help analyze salaries, create ranges, and identify an overall approach for how to handle pay.
Employee benefits: Insurance
You’ll have to decide: Which insurance options will the company provide?
What’s competitive?: At a minimum, try to offer health insurance, vision, and dental insurance and cover a portion of the employee’s premium.
There are a variety of insurance options to include in a comprehensive compensation package. The most popular is healthcare insurance. With the passing of the Affordable Care Act, it’s important for small companies to understand what’s required for a business of their size when it comes to offering healthcare benefits.
When providing healthcare coverage, a company can choose to cover 100% of the premium or a percentage, with the employee paying the other portion. Businesses may also choose to offer coverage to just the employee or to the employee as well as family members.
Other types of insurance that can make your benefits package more attractive are short-term and long-term disability, dental, and vision insurance. Again, when embarking on a plan to offer insurance options for employees, it’s important to work with experts and identify providers with options that fit the budget as well as meet legal requirements in your industry and city/state.
Vacation policy: Paid time off
You’ll have to decide: Will you have one PTO balance or separate accounts for sick, vacation and personal days?
What’s competitive?: The average employer provides nine paid holidays. One way to set your company apart is by offering more paid holidays than other employers, or by allowing employees one “floating” holiday each year that they may use for a holiday that the company does not observe.
Paid time off (PTO) generally consists of specific allotments of time for paid time off that cover vacation, sick and personal days. Instead of maintaining different policies and PTO balances for each type of time off, some businesses have adopted a PTO program that awards employees a specific number of paid leave days that employees can use for any purpose.
Managing PTO benefits requires an understanding of federal, state and local laws (including laws around family and medical leave, wage and hour, and military leave) that regulate the payment of all or a portion of pay to employees who take leave.
Retirement savings plan: 401(k) plans
You’ll have to decide: When offering 401(k) benefits, will you provide an employer match?
What’s competitive?: This is definitely in our wheelhouse, so we know a lot about this! Most companies who wish to be competitive offer a baseline 401(k) with no employer match. This is very common for small, more traditional (brick and mortar) businesses.
Those in more competitive industries competing directly with larger companies for talent (law firms, tech companies, engineering firms, etc.) tend to offer an employer match — typically 3% is standard, but some companies are more generous with the match percentage, since a 401(k) provides an easy and cost-effective way for employees to plan for retirement by making tax-deferred contributions to an investment fund. Employees aren’t the only ones who receive tax deductions from a 401(k) plan -— employers can also deduct contributions made to employees’ 401(k) accounts. These tax benefits are important to consider as you determine how to the costs and benefits of your overall compensation package.
Small and large businesses generally select a 401(k) provider to help administration for their program. Retirement plan professionals, like the team at Human Interest, are available to help organizations manage 401(k) administration. Keep in mind, even if you work with an outside provider, your company must ensure responsible management of the plan and balance it with your other benefit offerings.
Update: Depending on which state you live in, you may now be legally required to offer a retirement benefit to your employees
An example of a flexible benefit plan (self-allocated flat amount)
Knowing which part of the compensation package will appeal most to your employees can be difficult. That’s why some organizations opt for a flexible approach to compensation packages. An example of a flexible plan used by Harrisburg University in Pennsylvania was highlighted in HR Magazine (source).
Instead of providing specific benefits for employees, Harrisburg University offers a flat benefit amount to each employee. The amount is the same regardless of the employee’s position with the university, and the employee receives it their first day on the job. Employees can then choose to allocate the benefit allowance to the retirement plan, health care plan or to other benefits, such as disability or long-term care insurance. Employees also can take the amount in cash, though they do have to pay associated taxes on the amount.
As you make plans for your compensation package, make sure it meets employee needs while also addressing the constraints of the available budget. Discuss the options with your legal, labor, and financial advisors to ensure that you’re meeting regulatory and fiduciary requirements. Also keep in mind that when it comes to employee satisfaction, it’s much easier to add components to your package rather than taking them away if budget becomes an issue.
When you take a strategic, thoughtful approach to building a comprehensive compensation package, it will support your ability to hire, develop, engage, and retain the talent you need to deliver business results.
If you’re looking for a great 401(k) for your employees, click here to request more information about Human Interest.
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