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"What's in Their Wallet?" Part 1: Why Your Compensation Stack Matters

By Ashley Liggins | March 3, 2022

In Part 1 of a two-part series, we will explore what factors to consider when putting together the compensation stack for your team members. Like a tech stack, your compensation stack is a combination of human capital tools that create the framework for which you can wholly compensate your team members and frame your firm in the labor market. It is also a powerful recruiting tool that should not be overlooked and should be created with intentionality and enterprise value in mind.

Why does your compensation stack matter? Simply put, to attract and retain top talent, your firm needs to be competitive from a compensation perspective. Candidates have many more options in today’s job market, and being able to stand apart in the crowd through your investment of your employees gives you a distinct advantage. Your compensation stack also sets the stage for your firm’s culture and values. 

So, what should a compensation stack include, and what are some things to consider?

First, let’s talk about financial compensation. This typically includes:

  • Base Pay: Whether hourly or salary, this number is what your employees are guaranteed to make. This number should be fair, competitive, and based on compensation analysis done by looking at the geographical and industry markets. 
  • Signing bonus: If you have been paying attention to hiring trends, you will have noticed a spike in companies offering signing bonuses to qualified candidates. This is something to consider when thinking about attracting top-tier talent. 
  • Bonuses: Traditionally used to incentivize and increase performance on teams, performance or discretionary bonuses are also practical tools in the labor market when attracting and retaining top talent. Whatever method you deploy, approach it with the clear and positive intention of rewarding your team members for their invaluable contributions to the growth of the firm. Feel free to think outside the box when it comes to incentivizing your team!
  • Raises: Based on the individual, company performance, or discretionary factors. A clear bonus and raise structure should be outlined, so candidates understand how they will work towards success and increase financial compensation. Consider what that will look like and how success will be measured equitably and consistently. 
  • Relocation compensation: If you intend on hiring outside of your geographical market and want the candidate to relocate, consider including a stipend to cover the costs of the move. These expenses are typically movers, temporary housing allowance, and per diems. 

Next, let’s take a look at your retirement planning offerings. Most would consider this a crucial part of your compensation stack. It allows your team members to invest in their futures and shows your commitment to their overall financial health.

Retirement plans typically include one or more of the following:

  • 401(k): Employee contributions and employer matches matter. According to the Bureau of Labor Statistics National Compensation Survey, the average maximum employer match is 3.5% across all industries. Consider what your firm can afford to match your team members' plans. Being competitive in that space may allow you to hold your firm out as a premier destination for employment. 
  • Equity Compensation: Often known as RSUs or stock options, equity compensation is a non-cash payment to employees based on shares, restricted or otherwise. If financially feasible, offering equity compensation may be a way to entice prospective team members and reflect a culture of ownership mentality within your firm. 
  • Profit-sharing: “When I win, we all win.” Unlike a standard 401(k) plan, profit-sharing plans are employer-only contributions based on the owner’s discretion. However, much like a 401(k), profit-sharing is a way of helping your team members create secure futures for themselves through retirement planning. 
  • Other Long Term Incentive Plans (LTIP) – LTIPs incentivize key employees to help grow the business through compensation that is tied directly to their individual performance. Examples of other LTIPs are performance shares, cash awards, and phantom stocks. Tying your LTIP to the overall vision of your firm will help you retain top talent in an ever-competitive job market. Once again, consider the financial feasibility of these options before you deploy. 

Finally, let’s address benefits and what factors to consider when deciding what your offerings will be. Traditional benefits are typically what candidates want to address first, and that’s because they are what prospective team members know they will need to survive and thrive. Here are some benefits to think through:

  • Health & Dental Insurance: HMOs, PPOs, POSs, EPOs, HRAs, FSAs, HSAs. Health insurance often feels like an alphabet soup of complex choices, not only for the employer but employees as well. Whatever health insurance you choose, consider what best serves your team members and firm. Think through premium costs (what your firm will cover vs. what your team members will pay out of pocket) and what services/procedures you want the insurance to cover. If needed, use the Healthcare.gov small business portal to shop plans and understand what coverage your firm qualifies for. 
  • Life & Disability Insurance: You may want to consider buying a life insurance policy for your team to help them plan for the unexpected. You may also think about offering short and long-term disability benefits as well. Whatever you decide, think about what is feasible financially for your firm and what is most important to your team members when planning for sudden illness or loss of life. These benefits are tangible ways to let your team know that you are there for them through all stages of their lives.
  • Wellness Programs: The awareness and popularization of wellness programs have skyrocketed since the pandemic. With the world stressed out over COVID-19, many companies, small and large, were faced with how to help employees handle high levels of stress and anxiety. Using wellness programs to supplement your traditional health insurance plans may lead to increased productivity, fewer long-term, expensive health issues among the team, and happier, less stressed team members. Research different plan options and weigh the financial feasibility for your firm, specifically. 
  • Medical leave: If you are a small firm with less than 50 employees, you are not covered under FMLA (Family Medical Leave Act). Therefore, you will need to consider ways to compete with larger firms in this space by providing some type of medical leave (typically a portion paid and unpaid) for your team members who may need to take a leave of absence. 
  • Parental leave: The birth or adoption of a child (or foster child) is equally an exciting and anxious time in a parent’s life. Allowing paid time off to navigate this new responsibility and bond with their child is a gift that is also good for the firm. Making space for your team members to have harmony between work and life creates more productive and loyal employees. 

Putting together your compensation stack with hiring, retention, and enterprise value is no small feat. There are numerous variables at play when making these decisions, and underlining all of these decisions is the need to create a space for happy and healthy employees. Whatever decisions you make, make them with your team and its future in mind, and you can never go wrong. In Part 2, we will discuss some additional tools in your compensation stack that may kick your recruiting into overdrive. 

Coaching Questions

  1. What does your current compensation stack say about the culture of your firm? 
  2. What do you want your compensation stack to say about your firm’s culture?
  3. In what ways do you want to align or reinforce your culture with your compensation stack?

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Topics: employee retention Culture Talent human capital

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