Should I offer my employees benefits like big business?

Don’t get too fancy. 

Big business, academia, and government often offer employees robust and complex compensation packages. These “compensation stacks” combine pay with benefits such as extended medical, paid leaves, flex hours, and retirement saving schemes. Small businesses, however, don’t typically provide sophisticated compensation plans. Is that the right call? 

Compensation Comparables 

A small business owner needs to avoid getting too fancy with the compensation package. Extended medical benefits, paid leaves, flexible hours, and retirement savings perks all have their place, but they create ambiguity compared to per-hour compensation. These benefits have value but are harder to measure than an hourly wage. Benefits take time to explain and are not as clearly recognized in our “how much do they pay you?” culture. 

When you compensate an employee, the primary goal is that they feel valued for their efforts. Ambiguity decreases the perceived value. 

Compare, “I just got a 15 percent raise! Now I make 28 dollars an hour” to “My employer just introduced a new retirement savings program. They match my investment dollar-for-dollar, up to 9000 dollars per year.” 

The first example sees an employee applauding an hourly wage increase of $3.66, a significant wage increase. The second example sees an employee celebrating a potential wage increase of 4.33 dollars an hour, a 17.78 percent increase, albeit in the form of matched savings. The retirement savings benefit also carries substantial tax benefits that amplify the benefit to the employee. 

Did I lose you in the math? That’s the point. Despite having more significant value, the generous employee savings program may be seen to be less valuable than a simple wage increase. Why? 

Even if you explain the benefit to the employee, it’s harder for her to tell the story. 

This employee is sure to go home and tell her boyfriend about the 15 percent raise but she’ll forget even to mention the savings program.  

Who Makes More? 

Let’s look at it another way. 

On Tuesday, your employee, Sadie, makes $24.34 an hour; her boyfriend makes $26.50. It’s not an enormous difference, but they both understand that Sadie’s boyfriend earns more. On Wednesday, you tell Sadie that she’s contributing more to your company and she’s earned a compensation increase. You tell her her wage is increasing by 15 percent. She barely needs a calculator to understand the impact on her hourly earnings, and she’ll be happy to tell her boyfriend that she’s making more than him. 

Now, compare that to telling Sadie you want to reward her by enrolling her in your retirement savings program. You hand her a three-paragraph explanation with a table of examples. She’s appreciative but goes home and asks about her boyfriend’s lacrosse game last night.  

She forgot about the raise altogether. 

A Cautionary Tale 

Having worked with a primarily unionized workforce, after the hard-fought negotiations conclude, the union takes the deal to its members to ratify. The union presents a package of increases and benefits for the members to consider. The list is long, but the topline is the thing that moves the needle. What did I make per hour, per pay period, per year before the contract, and what will I make after? 

The employee goes home to tell his roommate or wife that his union negotiated X per hour “and some other benefits which look pretty good.”  

And that’s it. The conversation moves to buying groceries for the barbecue on Saturday. All the “other benefits” are too complex to distill into three sentences, which diminishes their perceived value. 

So Now What? 

What are the takeaways? Consider the perceived value of a compensation proposal. Sometimes, “simple” costs less and has more impact. 

Does this mean you should distil all compensation into wages and not consider other forms of compensation? No. But before you get too fancy, recognize that four litres of milk costs $6.99, a litre of fuel costs $1.89, and an Oilers ticket costs $86.50. These concepts are ingrained into our employee’s brains several times a day. 

Don’t fight it. Give the raise that doesn’t require a spreadsheet to explain. 

Danny Jones is a small business consultant and leader. He owns Cachebox Business Intelligence with his daughter, Emily, and son, Conagher. He loves his family and loves British Columbia and all its wild spaces.