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.
"Rewards, such as movie passes and gift cards, have a cost, but recognition is free," Mr. Suleman says. "And it's the most effective form of feedback."
Toronto-based Achievers has just landed a $25-million financing deal. Their system allows employees to collect points from their employers and cash them in for a reward. "Commission is a good way to reward employees for performance, but not everyone works in sales," Mr. Suleman says. "Using a points system serves as a commission."
By tying rewards to performance, employers are able to see a positive return on their investment. Automatically giving a reward to an employee who has achieved a certain length of service doesn't necessarily have the same effect.
Small businesses may have difficulty offering effective rewards programs because of their scale and lack of in-house expertise, adds David Eason, CEO of Berkeley Payment Solutions. Understandably, they tend to get fewer deals on rewards because of the small volume they demand. Moreover, he points out, the rewards programs tend to be more reactive than strategic.
Mr. Eason said an effective program should consist of four elements:
- Visibility: All employees should know the program exists and what they have to do to be rewarded.
- Achievability: A rewards program has to be achievable by most of the employees, not just one. If there is only one lavish trip for the top salesperson, employees could know early on who will win the prize.
- Regular rewards: Employers should reward employees often, so the program is fresh in people’s minds.
- Timely rewards: Employers want employees to associate their behaviour with the reward. So rewarding the employee close to the positive behaviour is best.
Even if a strategy is in place, small-business owners need to be sure that what they are offering is valued by the employee. You don't want the reward to be considered a joke and allow your good intentions to become a glib punchline, Mr. Cook warns.
One of the best perks small businesses have to offer is the opportunity to learn, says Eric Cousineau, managing director of Organization Consulting Group. Small-business owners should use this as part of a strategy to attract and retain workers.
"Gen X and Gen Y are not into a job that's about processing paper," Mr. Cousineau says. "Even older employees want to learn."
A small business can offer a chance to see the boss in action and gain exposure to different parts of the business. It doesn't mean the mundane parts of the jobs won't be there, Mr. Cousineau says, but they can be supplemented.
It takes effort to implement a learning culture. After all, bigger companies have HR departments that can help build learning and mentoring skills. Small businesses often have to develop these skills on their own.
"The small-business owners' job is much easier if they can turn a file over to an employee and teach him or her how to complete it," Mr. Cousineau said. "Small-business owners will have more time to generate new business. They will have a successor. They will win if their employees learn. And the employee wins by learning, too."
Flextime's a winner
Allowing workers to escape the 9-to-5 system is something virtually all workers agree they value. "From baby boomers to Generation Y, flextime is a winner," says Barry Cook.
Properly implementing a flextime policy can be difficult. The nature of the job, client needs and the personnel available to perform a certain task are only some of the many considerations.
Mr. Cook suggested small-business owners start with an assessment. If flextime seems feasible, it should be introduced on a test-case basis for a year before being fully implemented. Then any problems can be identified and resolved before the policy goes live.
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