Employee Incentives: How to Attract and Retain Talent

Attracting and retaining high-quality talent can be a struggle for many organizations due to a stronger economy and increase in job availability. Today’s job marketplace finds employers competing for job candidates, and one of the most effective ways to attract and retain talent is with a competitive benefits program.

Exceptional Benefits Can Provide a Competitive Advantage

An exceptional benefits program can be a competitive advantage for attracting and retaining top talent. However, it is not going to be the same for every organization. It should be developed to meet the organization’s as well as current and potential talent’s expectations. An effective plan should be designed based on the organization’s objectives, philosophy, and budget as well as demographics and standard of living expectations.  Additionally, a company should consider the benefits offered by competitors. A benefits program that is preferable to competitors’ programs will provide an advantage to attract and retain talent.

Incentive-Based Retirement Benefit Programs

A benefits program tied to company or employee performance can be a great way to attract high-performing talent while incentivizing current employees to perform at a higher level to meet organizational goals. Examples of common retirement incentive-based programs include company match, company contribution, and deferred compensation programs.

 Company Match Program: In a company match program, the company matches the contributions made by the employee to their retirement program (401(k) plan for example), usually up to a certain percentage or dollar amount. This type of program is frequently attached to a prearranged expected performance of the company, a team, or the individual employee.

 Company Contribution Program: A company contribution program is similar to a company match program, except the company contributions to the employee’s retirement plan are not based on employee contributions. They are typically based on the performance of the company in that particular year (profit-sharing contribution for example). Additionally, the company contributions are not limited to the employee’s selected investments but could be a contribution to a company stock or phantom stock account (more on this below).

 Nonqualified Deferred Compensation Program: A nonqualified deferred compensation plan simply defers the payment of a portion of the employee’s compensation to a future date. Through nonqualified deferred compensation plans, employers can offer bonuses, salaries and other kinds of compensation. In the process of postponing the payment of extra money and benefits, the income tax owed on this extra income gets deferred as well.

In all three programs, the employee would be required to stay with the company for a certain period to receive the full benefits. This gives employees an incentive to stay with the company long term while providing initial incentive to meet and exceed performance requirements.

Equity-Based Compensation

Equity-based compensation is another incentive that can be provided by a company in order to attract and retain key employees. This incentive can be offered without having to transfer any ownership. Examples of commonly used equity-based incentives are phantom stock and stock appreciation rights.

Phantom Stock: A phantom stock plan is an equity-based compensation plan that offers employees the benefits of owning stock without the company actually giving stock to the employees. Instead of receiving physical stock, the employees will receive hypothetical shares of the company. These shares will follow the day to day price of the company’s actual stock and can pay out dividends. At a specific point in time, determined by the company, the value of the phantom stock is paid to the employees.

Stock Appreciation Rights (SARs): Similar to phantom stock, employees can be given or rewarded stock appreciation rights. Stock appreciation rights are a bonus that can be given to employees that represent the appreciation of a set number of shares over a specific period of time. For example, if an employee is given 100 SARs for a period of 1 year, and the company’s stock increases by $10 per share over that period, the employee would receive a bonus of $1,000.

These two equity-based incentives are not only advantageous when attracting/retaining key employees, they also encourage employees to work harder and be more efficient because they will now own a financial stake in the success of the company.

Need Help?

Dannible & McKee, LLP has worked closely with our clientele to develop and implement various incentive plans such as incentive compensation plans, nonqualified deferred compensation plans and phantom stock plans. The goal with each of these vehicles is to attract and retain executives and key employees by providing financial incentives for successful management of the company, as reflected in its annual profitability, increase in value and other key factors.