How smaller companies can offer competitive employee benefit packages

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Competitiveness of employee benefits in small size enterprises

The global economy is still striving to overcome the tremendous pressures of the economic recession that began in 2007 in the American real estate sector and soon expanded to the rest of the sectors, as well as the rest of the countries. The means in which each country or sector overcome the recession differ from one region to the other and the differences are due to elements such as fiscal policies, strength of the economic sector or the threshold for risk. Generically, more protective countries have proven better able to overcome the threats of the crisis (Bernitz and Ringe, 2010).

Despite the domestic particularities of each region, fact remains that overcoming the crisis should be a global effort and a universal solution proposed in this sense is represented by the stimulation of the economic sector. And aside from the large size multinational corporation, this economic growth should also be reflected at the level of the smaller size companies, which represent the fuel of the local communities (Mickels-Kokwe, 2006).

Still, the smaller size entities face a series of challenges in their operations, and these are normally due to the fact that they have to compete against multinational corporations, who possess vast resources. The smaller size entities then possess fewer resources, including capitals, technologies, people and so on, but have to deliver competitive products and services.

The smaller size companies must also compete to hire and retain the best staff members, but they often find it difficult to compete against the larger size companies, who provide the staffs with more benefits. At this specific level then, a question is being posed relative to the means in which a small size entity can compete against larger size firms to provide their employees with competitive benefit packages.

3. Competitiveness of employee benefits in small size firms

As it has been mentioned throughout the introductory stages of the paper, the smaller size entities are characterized by restricted resources, and they as such reveal a decreased ability to present their staff members with benefits as competitive as the larger size employers. The larger size employers for instance, possess scale economies and these can be employed in negotiations for benefits, including the provision of medical coverage from tertiary insurance firms. These firms are able to present the larger size employers with deductions on the medical coverage bills since the large number of employees allows the institution to pool the risks. In the case of the smaller size firms however, this risk pooling opportunity is decreased due to the small number of employees, and the smaller businesses come to pay 18 per cent more on the medical coverage of their employees than the larger size employers (Colonial Life, 2010).

In spite of this shortage, the smaller size companies continue to hire individuals and to play a crucial role in the economy of the nation. More specifically, the multinational corporations seem to control the economic environment, but the smaller size companies remain the fuel of the economy. This is virtually explained by the following statistics:

The small size firms represent 99.7 per cent of all employers in the United States

The small size businesses employ more than half the individuals in the private and pay 44 per cent pf the total private payroll in the country

The small size businesses produce 13 times more patents per employee than the larger size companies, and last

Throughout the past 15 years, the small size companies have generated 64 per cent of net new jobs in the United States (Colonial Life, 2010).

Still, the smaller size firms remain less able to provide competitive benefits to their employees, and as such to hire and retain the best skilled and talented staff members. This decreased inability is generally pegged to decreased financial resources, as well as other size related shortages, such as the previously mentioned inability to distribute risks across the employees, and as such generate higher levels of efficiency in the provision of benefits.

Despite the shortages revealed by the smaller size firms, fact remains that the companies can adapt their benefits to their own resource capabilities. In other words, it is necessary for the smaller size economic agents to find a balance between their possessed resources and the benefits that can be generated with these resources. Sidney Kess and Barbara Weltman (2005) for instance, point out that the smaller size companies will encounter severe financial difficulties if they seek to provide their employees with health care coverage, and this is due to their restricted financial resources. Nevertheless, they should opt for other employee benefits, which can be provided with more financial ease. One relevant example in this sense is represented by retirement plans.

Sidney Kess and Barbara Weltman (2005) as such state that retirement plans are a useful employee benefit that increases the retention rate. In other words, the employees are better stimulated to remain loyal and employed within the firm, and they as such generate a decreased employee turnover rate. In turn, this lower employee turnover rate generates cost efficiencies at the level of human resource management, as the firm is less pressured to continually hire and integrate new staffs (Slugoski, 2008).

In order to maximize the efficiency of retirement plan benefits for the employers, Kess and Weltman propose the implementation of the Simple 10K retirement plan. This has the ability to minimize the contribution of the employer, with the possibility to increase contributions from the employees. This solution is then applicable for firms with restricted financial resources as they minimize costs to the employer, but also increase the loyalty of the employees.

Aside from the retirement plan, another important benefit to stimulate employee satisfaction and retention is represented by medical coverage. As it has already been mentioned, such a benefit is highly costly for the firm, and, in the contemporaneous economic climate, small businesses become less and less able to provide this benefit to their staff members. Historically, the cost of health care coverage would be entirely covered by the employer -- be it small or large -- but nowadays, more and more smaller size employers only provide basic care. They for instance provide minimum medical coverage for the employees, without any coverage for their family members.

In order to still provide medical coverage to their staff members, the small size firms could implement flexible coverage programs, by which they ensure coverage of medical fees in a specific amount, for each employee.

"Employers who want to offer coverage with the lowest possible cost to the business can use flexible spending accounts to allow employees to pay premiums on a pre-tax basis. The simplest arrangement is a premium-only flexible spending arrangement to cover the employee's share of medical costs. These plans are called 'turnkey plans' since they are offered through many commercial payroll systems, such as ADP" (Kess and Weltman, 2005).

The editors at Colonial Life propose the implementation of voluntary benefits as a cost effective solution for the small businesses. They as such state that a relevant example in this sense is represented by the voluntary insurance, which can increase employee satisfaction and retention, and also be financially sustainable for the employer. The mechanism of a voluntary insurance sees that most of the cost of the benefit package is transferred from the employer to the employee.

In the case of voluntary benefits, the employer presents the employees with the possibility to purchase a specific benefit package, such as insurance, medical coverage, retirement plan and so on. These plans are administered by the employer as group benefits, yet they are paid and owned by the employees. When the employee leaves the firm, they can take their voluntary insurance with them (Colonial Life, 2010).

The usage of voluntary benefits is linked to the creation of a series of benefits for the employers, such as increased employee satisfaction, but also other advantages, felt at the level of the employees. The more relevant examples in the sense of employee benefits from voluntary benefits include an increased flexibility in claims payments, portability, intact coverage, more lenient underwriting, stability of premiums or continued convenience for the employees; additionally, the employees become able to access the benefits at prices lower than they would be set if they approached the companies in an individual manner.

At the level of the employers, these benefit from increased employee satisfaction and commitment (which in turn generates cost efficiency through decreased employee turnover), financial sustainability on the part of the firm or the generation of an increased ability to hire and retain talented staff members.

Source: Colonial Life, 2010

Today, the employees most interested in the voluntary benefits are represented by the baby boomers, who are retiring themselves, but also who come to care for their aging parents, who possess limited benefits. The more common forms of voluntary benefits preferred by the employees in small size entities is represented by coverage for short-term disability, long-term disability and supplemental life. The popularity of benefits covering cancers and accident insurance is also increasing.

"Research from Colonial Life shows the top three most frequently offered voluntary benefits by small businesses are short-term disability, long-term disability and supplemental life. However, both cancer and accident insurance are gaining traction among smaller firms. With more than one-fifth (21%) of small businesses moving to higher deductible medical plans, interest in supplemental medical coverage will continue to grow. Additionally, long-term care insurance is considered to be one of the fastest growing voluntary products. Much of the growth reflects interest from Baby Boomers who are now bearing the responsibility and expenses associated with the custodial care of their parent" (Colonial Life, 2010).

Aside from the retention plans aimed to minimize employer contribution and the voluntary benefits, smaller size employers can also create competitive benefits packages through the employment of more benefits, which can be cost efficient, but which can stimulate employee satisfaction. These benefits will generally be non-financial incentives for the staff members (to as such exclude premiums and bonuses), and will primarily target the morale of the employees (Khan and Soverall, 2007).

Some suggestions in this sense are provided by Ryan St. Germain, who promotes the following:

Allowing the employees to work from home a few days, when this is possible. Such a measure will decrease office costs, but will also enhance employee satisfaction by the creation of a better balance between the professional life and the personal responsibilities (Plunkett, Attner and Allen, 2011).

Presenting the employees with the possibility to take a few days off work for family reasons, such as the birth of a child or the hospitalization of a spouse.

The contraction of a local massage specialist to come in once a week and provide massages to the employees. It is possible for the firm to only provide the space and for the employees to pay their therapy.

The creation of a flexible working schedule, also to allow the employees to better combine work and home responsibilities.

The creation of company awards to recognize and reward employees who had gone the extra mile to help with the completion of a specific project.

The approach of local optometrists to solicit employee discounts. The service providers would welcome the new business, and the employees would welcome the benefits; the firm would not encounter any costs from this endeavor, but would capitalize on the gains.

The setting up of gaming and relaxation opportunities, such as the setting of a foosball table in the lunchroom. This would allow the employees to unwind without having to leave the office.

The approach of local gyms and sports centers and asking them to provide discounts to the employees. This measure would also involve no financial costs for the economic agent, but would stimulate the employees to become more active and healthier, to increase their overall morale.

The encouragement of the employees to keep updated on the new developments in their professional field, through the full or partial reimbursement of books bought by the employees on professional matters.

The organization of social gatherings outside the firm, such as barbeques, which would allow the employees to better interact and solidify the teams, to subsequently generate positive impacts upon their performances (Dyer, Dyer and Dyer, 2010).

Ryan St. Germaine ultimately states that these examples are mere propositions, and that each firm should develop and implement its own system of benefits. This system would be based on the specific characteristics of the firm, such as the number of individuals it employs, the industry in which it operates, its resource capabilities and so on. Ultimately, it is believed that there exists no such thing as the perfect recipe for success, but that each economic agent should create its own business model, based on its traits (Longenecker, Moore, Palich and Petty, 2006). In the case of the small business agents, their approach in the creation of competitive benefit packages should seek to find a balance between the needs of their employees and the resources available to the firm.

4. Conclusions

From a distant perspective, it would seem that the large size multinational corporations rule the economic community. And while this might be true -- to a degree or another -- it is also true that the engine of economic growth is represented by the small and medium sized enterprises (SMEs). This importance of the small size companies is supported at the statistical level as well, as the smaller size firms employ the majority of the individuals in the private sector and are responsible for the largest creation of new jobs.

Despite their important role within the economy, the small size enterprises find it difficult to compete with the multinationals, due to massive differences in the resources available. This problem is also revealed in terms of employee retention through competitive benefits packages. Still, the smaller size companies should not admit defeated, but seek to develop and implement those benefit packages which are mostly able to serve their own needs.

For instance, the small size companies could present their employees with retirement plans focused on employee contributions, voluntary benefits, or a series of non-financial incentives, such as flexible working schedules or discounts at local service providers (optometrists, sports centers and so on). Ultimately, it was to be remembered that the smaller size economic agents ought to find a balance between their capabilities and the needs of their staff members and should reach this balance through continued observations and adaptations to their own particularities.

References:

Berniz, U., Ringe, W.G.. (2010). Company law and economic protectionism: new challenges to European integration. Oxford University Press.

Dyer, W.G., Dyer, W.G., Dyer, J.H., (2010). Team building: proven strategies for improving team performance. John Wiley and Sons.

Kess, S., Weltman, B. (2005). Individuals and small business tax planning guide. CCH.

Khan, J. Soverall, W., (2007). Gaining productivity. Arawak Publications

Longenecker, J.G., Moore, C.W., Palich, L.E., Petty, J.W., (2006). Small business management: an entrepreneurial emphasis. Vol. 1. Cengage Learning

Mickels-Kokwe, G. (2006). Small-scale woodland-based enterprises with outstanding economic potential: the case of honey in Zambia. CIFOR

Plunkett, W.R., Attner, R.F., Allen, G.S. (2011). Management. Cengage Learning.

Slugoski, E.V.. (2008). Employee retention: demographic comparisons of job embeddedbess, job alternatives, job satisfaction and organizational commitment. ProQuest.

St. Germaine, R. (2008) Employee benefit plans that small firms can afford. BC Jobs. http://www.bcjobs.ca/hr-advice/employee-benefit-plans-that-small-firms-can-afford / accessed on November 7, 2012

(2010). Small business: big benefits. How smaller employees can use voluntary benefits to create a competitive advantage. Colonial Life. http://www.coloniallife.com/Newsroom/~/media/acrobat/newsroom/white%20papers/ns-11150.ashx accessed on November 7, 2012