Competition Spreading: How HR Incentives Make You Stay Longer
Most companies want most employees to stay with the company as long as possible. Onboarding and training new employees is a significant investment for a lot of companies, and retaining talent helps keep those costs low and productivity higher. But how do companies get their people to stay? The obvious answers are the important ones like being a pay and benefits leader and maintaining a healthy work environment that balances productivity and employee well-being. Today, we are going to talk about a not so obvious answer: compensation spreading.
What is compensation spreading?
Today, I'm going to refer to compensation spreading as the idea of an employer spreading out components of its compensation and benefits throughout the year so that employees are experiencing their benefits throughout the year as opposed to all at once. This is a common practice for established companies to help retain talent and spread the burden of their employee costs over the course of a year.
What is there to spread out?
Employers have a lot of tools at their disposal to compensate and benefit employees including:
Salaries and Wages
Cash Bonuses
Stock compensation
401k matching
Raise notifications
HSA Contributions
Spending allowances
Firm holidays and events
Every company will be different with respect to how much each of the above factors into an employee's compensation, but it's important to understand that your compensation is more than just the number on a paycheck.
How Does Spreading These Things Out Affect Me?
Human resource departments give a lot of thought into balancing these benefits to keep employees engaged and happy throughout the year. By spreading out the compensation components above, a company can create a steady stream of rewards with periodic little bonuses thrown in to ensure that employees aren't too far away from the next milestone. Let's look at each one:
Salaries and Wages - usually paid bi-weekly, semi-monthly, or monthly. This is the bare minimum to keep employees coming back to work.
Cash Bonuses - companies usually have bonus programs that aim to compensate employees for their hard work. Typically, bonuses are paid out anywhere between 1 and 4 times per year. It's very common to hear that an employee might put in their notice the day after the bonus check hits their account. Even if this is the case, the employer still retains the employee until that bonus check is cleared.
Stock compensation - if you're lucky, your company might compensate you with stock or stock options that allow you to own a piece of the company you're working for. These instruments usually have some type of vesting or claw back terms that incentivize an employee to stay with the company for the long term. Cliff vesting is particularly helpful in keeping employees for at least one year from the date of their stock grant. Additionally, employers might only grant stock compensation on certain dates of the year, incentivizing employees to remain employed through that date.
401k matching and profit sharing contributions - many companies boast a 401k match as a part of their compensation packages. However, you may not know that the company isn't usually doing this match every paycheck. They may end up doing it once or twice per year. If an employee leaves the day before the 401k match is processed, they won't get their free money.
Raise notifications - many employers will evaluate employee compensation and make adjustments to base salaries once per year. Many employees, myself included, look forward to the notification each year of what their raise is. While this isn't money by itself, it is something a lot of people consider waiting on before they decide to leave the company.
HSA Contributions - if your employer makes a contribution to your HSA account, they have the choice to do that every paycheck or once a year, and everything in between. While it's not much, it can be nice to get that quarterly notification that I have some extra money to spend on my doctor's appointments.
Spending allowances - some employers have spending allowances for employer supported activities like business development, health and wellness, and personal education. The firm may provide a use it or lose it allowance starting January 1st and ending December 31st, or they might provide funds quarterly. Like some of the other items on this list, this might not be too much in terms of dollars, but it is something that keeps employees engaged.
Firm holidays and events - Some companies like to party. Some companies have generous time off around the holidays. Some have both. In either case, employees are incentivized to stay around to enjoy these benefits. Keeping employees engaged at the end of the year is especially important for public accounting firms that need to have enough bodies for busy season.
When we put all these things together, you might have a year that looks like this:
Every Month - Regular Salary
January - Refresh of spending allowances for Q1 and Q2
February - 401k Profit Sharing and Matching Contributions
March - Cash Bonus*
April - HSA Contribution
May - Summer firm event
June - Cash bonus*
July - Refresh of spending allowances for Q3 and Q4
August - Raise announcements
September - Cash bonus*
October - HSA Contribution
November - Stock compensation granted
December - Holiday Party and Firm Holiday, Cash bonus*
*Cash bonus programs are different for every company. Some may have portions spread throughout the year while others may have one bigger payment on a regular date each year.
Looking at this example, you can see that an employee is never more than a couple of months away from their next reward. Are all the rewards of equal value? Certainly not. But having these rewards spread throughout the year allows the employer to keep employees engaged for that much longer and reduces turnover compared to dumping most of these benefits out on January 1st.