Small-business owners have a lot to offer their employees, but competing for talent against bigger companies is a major hurdle.
Smaller firms need to learn how to reward and retain their most talented workers without breaking the bank.
“The biggest challenge smaller companies face is a perception about their ability to pay competitively, and offer job security and job opportunities,” says Barry Cook, partner at Western Compensation & Benefits Consultants. “Small businesses might be creating the most jobs in the economy, but there is a perception that they offer less.”
Small-business owners, however, are not at a complete disadvantage when it comes to rewards. They can develop in-house programs that take advantage of their size, satisfy their employees and offer a positive return on investment.
Before jumping on the newest employee-reward trend, Mr. Cook advises getting the basics right first.
“Economic need is the reason most people work,” he says. “Cash is the reward most employees understand best. More cash means more bills can be paid. Employers who believe they can pay their employees consistently below market and make up for that with benefits are playing a fools’ game.”
Small-business owners, he says, can get a feel for what they should pay employees by speaking to other companies or purchasing a salary survey.
Small-business owners should also consider an incentive-based program, where employees receive bonuses that are tied to a company’s performance. Employees need to understand how their work adds to the bottom line. For the program to be successful, Mr. Cook says employers need to be transparent about how the bonus is calculated.
Another cash-type reward commonly found at larger companies is an employee stock-option plan. Naresh Agarwal, a human resources and management professor at McMaster University’s DeGroote School of Business, lists the benefits of such a scheme: “You want employees to feel connected to the organization’s goals and mission. You want to keep employees mentally and emotionally tied to the business.”
Prof. Agarwal also suggests involving employees in developing the strategic plan. They can then influence how a company’s strategy unfolds and feel some sense of ownership.
While smaller businesses may lack pockets deep enough to afford generous packages, benefits can still make a difference, Prof. Agarwal says. While big companies rush to meet the needs of a large number of employees, small firms can customize their benefits packages to deliver what employees want, he says.
Prof. Agarwal also recommends that small businesses conduct “stay interviews” – a process similar to the traditional exit interview. The stay interview can be used to better understand employee motivation, including why they came to work at the organization, why they are staying, and what issues are non-negotiable. The process may also reveal benefits and other perks the employees value.
Offering the optimal benefits package isn’t essential, but if it is lacking or insignificant, it will be a barrier to attracting talent, Mr. Cook points out. He says small businesses should emphasize the particular benefits they do offer. A few years ago, one of Mr. Cook’s clients in western Canada held a number of information sessions where employees and spouses were invited to hear what benefits were available to staff and their families. After the session, the employer was given a very high benefits ranking on an employee survey.
“Either they had great benefits, or they were great at communicating the good package they offered,” Mr. Cook says.
Recognition and Rewards
Employee rewards and recognition is a $48-billion industry in North America and a $5-billion industry in Canada, says Razor Suleman, founder and CEO of employee rewards company Achievers. But employers can recognize an employee without spending a dime. Recognition can be as simple as saying “great job” to an employee, he explains – or, even better, giving the accolades in public.
