Smaller Company Offer Competitive Benefit Packages Employees

¶ … smaller company offer competitive benefit packages employees competing talent large corporations? FYI - School text book The Handbook Employee Benefits, Seventh Edition Jerry S.

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.

2. Definition of terms

Economic recession = The economic crisis that commences in the second half of 2007 in the United States as a result of the credit crush and the real estate bubble bursting; its effects are still felt throughout the globe.

Employee benefits = The advantages offered by the employer to the employee, aside from the wage, including elements such as vacations, health care coverage, day care for their children and so on. These benefits are generally subjected to some form of taxation, yet to a smaller degree than the wage.

Benefits package = The totality of benefits offered by the employer to the employees, and aimed to increase their satisfaction and subsequently, to generate positive impacts upon the employee commitment to the firm and their performances. The benefits included are both financial and non-financial.

Specialized literature = The totality of available literary sources that discuss specific topics, in an informed manner, and make the information available to the interested researcher.

Voluntary benefits = Benefits offered by the employer, but owned and paid for by the employees (more details provided throughout the project).

Retirement plans = a savings plan created by employers or employers -- in collaboration or separately -- and aimed to save money to be used by the employee upon their retirement from the workforce; it is a crucial benefit offered by employers, and an essential employment factor for the employees.

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).