Benefits as a Retention Tool By George McClure, What makes for satisfied employees? Human Resources departments are exploring that question diligently, since a defecting, existing employee increases their workload and costs, in finding and recruiting a replacement. Turnover exceeds 15 percent annually in some high-tech companies. Salary is not the primary consideration. For engineers, interesting work, a comfortable working environment, competent and cooperative colleagues, and trustworthy management rank higher than salary in determining job satisfaction. Employment benefits are a factor in job satisfaction, but the problem is that many companies offer the same basic package. An estimated $1.6 trillion are now invested in 401(k) plans, with the average plan having $683 million in assets. But the median household account balance for 401(k) plans in 1998 was reportedly only $15,000 -- while the average account balance was $47,000. In large plans, engineers’ contributions as "highly compensated employees" are limited by the participation levels of lower-paid workers. While there have been some improvements in 401(k) plans, such as wider investment choices and more frequent status monitoring opportunities for participants, companies are increasingly looking beyond the standard savings and pension plans to attract and retain workers. One of the more popular benefits has been stock options, formerly reserved for top-level employees, but now spreading to other salaried workers. In Silicon Valley, stock options have replaced pensions as a benefit. There are two types: incentive stock options and nonqualified stock options. With the former, no income tax is due until the option is sold. With the latter, tax is due on the spread between the option price and the stock price when the option is exercised, and again on any gain when the stock is sold. Stock options have immediate attraction because a gain can be realized quickly, in a rising market. The vesting period for pensions is typically five years, while the median job tenure for the sought-after worker aged 25 to 34 is just 2.7 years. The downside for equities is that the market does not always rise. One retiree, with some of his retirement fund in Microsoft stock, has written that the government’s antitrust suit may save him $20 on later purchase of a Microsoft product -- but has cost him $40,000 in retirement savings, as the stock price fell by 40 percent in the past six months. Employee stock ownership plans are popular both as stock bonus plans and money purchase plans. A risk is tying up too much of your savings with your employer. The traditional defined-benefit pension plan is less popular today than in the past. The number of such plans has dropped by 65 percent since 1985 and the number of active workers covered has fallen 17 percent. One feature of defined-benefit plans -- that they accumulate about 50 percent of pension credit in the last ten years of work -- has become less desirable for companies interested in attracting younger workers. The early retirement option with defined benefit plans has likewise fallen from favor. With the run-up in pension fund values owing to strong stock market performance, many companies are reducing pension liability. Some companies are even drawing out some excess pension assets, by switching from defined-benefit plans that based retirement calculation on the final five years’ average pay, to cash-balance plans, that accrue pension credits each year based on present salary. These plans typically pay out less because the career-average salary is less than the final average salary. For younger workers the cash-balance plan is attractive, but a worker must remain five years to vest in either plan. Older workers may receive smaller pensions under the new cash-balance plan than under their prior plan. Overall, benefit costs are rising at up to two percent per quarter -- including health care, where the savings from managed care have mostly already been realized. But some benefits that cost little remain attractive to workers. Such benefits fall under the work-life heading, and include flexible work hours, telecommuting, two part-time workers sharing one full-time job, child-care subsidies or on-site child care, and conscierge service to take care of errands during the day. Hours from 9 to 5 are being replaced, in some cases with early and late working at home, then mid-day commutes to the office for meetings. In other cases, a four-day work-week with 10-hour workdays and three-day weekends is gaining popularity. Some firms are using 9-hour work-days with alternate Fridays off, except for marketing and proposal work. Ninety of the Fortune 500 companies have adopted policies to offer domestic benefits to same-sex partners, usually citing the tight job market as the reason. Education benefits are also important for workers who want their skill sets to keep pace with a changing world. Finding it difficult to replace their workers, employers will be more amenable to upgrading skills through training -- even though the upgraded worker could be more attractive on the job market as well. Some companies use periodic surveys of employee- and customer-satisfaction to fine-tune the workplace organization, eliminating situations that inhibit the best performance of the employees. This practice can lead to rearranging of department workloads, as well as to identifying of new benefits (e.g., on-site medical clinics, employee parking lot oil changes, adoption and infertility financial aid). Higher employee satisfaction usually leads to better customer satisfaction. Reprinted from the September issue of IEEE-USA Perspectives, with permission from IEEE-USA. Copyright© 2000 by the Institute of Electrical and Electronics Engineers, Inc. Last Updated: 30 August 2000 |
