This article was written as a whitepaper we used prior to the extreme impact the Coronavirus lock-downs had on the employment situation across the US. Although unemployment rates skyrocketed and it it looks like a employer's labor market, hiring and finding the right employees is just as hard as it was before the virus, but as the country reopens, there will be more employers looking to fill open positions. Having an excellent employee retention strategy is more important than ever. We've published the resource below to help you start thinking about your retention strategy.
Nearly every employer, manager, and small business owner have been wrestling with the same question lately. Unemployment has been at a record low. The economy has recovered. Yet somehow some business can’t even stay open because their employees are moving on to new opportunities. HOW do you keep good employees for the long term?
CoCreate Financial’s most foundational conviction is that we “create the future… together.” We believe we do this for ourselves and, more importantly, those around us. As employers, we have one of the most profound ways to impact others—our businesses. By creating a positive employee culture and good employee benefit offerings, we can help our employees thrive and keep them around for the long term.
This article will dive into a few of the important pieces to an effective employee retention strategy and particular benefits you can use to create a magnetic business. Of Course, you can schedule an appointment with a CoCreate Financial Advisor to discuss your strategy.
Effective Employee Retention Starts & Ends with Great Leadership
Numerous studies have investigated the reasons employees leave their employers, and all have shown that compensation is rarely the primary reason an employee leaves their post. This has become a fairly well circulated fact, which, by now, is almost old news. Pay is often a job-change catalyst when an employee feels dissatisfied for other reasons. The biggest of these comes down to leadership within your business. After all, it’s about turning our employees into our business’ most avid fans.
For any of us, thinking critically about our own behavioral tendencies and professional philosophies, isn’t particularly fun. Often it can feel like the least effective use of our time. But a little self-reflection always goes a long way.
We’re all a product of context… Writing both as a Millennial and a business owner, I can fairly say that my generation was conditioned to approach their careers with a fend-for-yourself mentality. Big-Media, ENRON (et al), a Great Recession at the wrong time, and a highly politicized world of social media has conditioned many Millennials to be skeptical of business and “the elite” who are the owners. Also, if any business can go down in flames—or anybody can be laid off and struggle to get back on their feet, then pay-checks, retirement accounts, promises of the future, are all somewhat fleeting. (There were also a number of healthy perspectives that developed for Millennials too, like their emphasis on community.) I don’t think these skeptical presuppositions are remotely accurate. I’m not even sure how aware most in my generation are even conscious of their perspectives, but they insist that business owners and management must engage their employees differently.
There are a lot of resources on leading and developing your employees well (here are a two: research on generational differences; The Harvard Business Review), so I’ll only address two relevant ideas in this article.
Your employees want you to be “in it” with them.
You have to lead by example on the job, but you need to lead by example in commitment too. You have to commit to your cause (your business mission) and you need to show you’re willing to do whatever it takes to accomplish your mission (that means even the things that are “beneath you”). After all, your engaged employee is willing to do whatever you say it takes but if you aren’t willing to engage in a particular task, you either don’t really care about your cause or the task isn’t worth doing. This is old news.
You have to be “in-it” with them. There is another side to the paradigm. Being able to retain good employees means transcending the on-the-job management duties of leadership and becoming human with them. The need to see you connect with their experience of life and the world. This bridges the conceptual gap (however subconscious) for millennials between “elite” or “corporation” and “leader” or “professional family.” This doesn’t mean you have to agree with worldview or acquiesce in matters of business. Have conviction and give direction; just do so while demonstrating understanding and commitment.
Good leadership is always personal.
Your employees need to know that they are your priority. Not the company’s priority—yours. This means you need to engage with them, ask for feedback AND RECEIVE IT (with humility and genuine interest), and you need to demonstrate your willingness (read enthusiasm) to invest in them. This is the foundation of your corporate culture. [you can’t just put something in a manual, a policy or memo… Culture is driven by you as a leader]
All of your employee benefits, compensation plans, and vacation packages have to be consistent with your culture and your heart as THE leader of your business. Any dissonance will engage the employee’s inner-skeptic.
Consider the employee perspective when you develop your employee retention strategy
Work Within your Employee’s Worldview
Again, each of us is a product of context. Our perspectives, no matter how right or wrong they may be, came from our experiences. Yours did, and so did mine. When we engage others, we need to honor the experiences that led to their perspectives and values systems (that’s not to say we need to agree or necessarily validate their perspectives at the expense of our own personal conviction). This is one way you can apply the “personal” to your leadership and create an effective filter for creating employee benefits. Let’s take a look at some things that have been said about Millennials as an example, bearing in mind that these stereotypes don’t actually represent the majority of us.
| You’ve heard it said… | What experience shaped their perspective? | When we honor the experience we can create an effective solution within the employee retention strategy. |
| Millennials will only work at your company for a year or two and then quit. | They are younger and are focused on achieving a variety of goals, and are also racing to reach a place of financial stability their parents never had (you never told us, but we all witnessed it…). They spent an unusually high amount of time in college (possibly multiple degrees) before entering the work-force, so they value learning and growing into new challenges. | At your business, you can create pathways for growth, exploration, and developing new ideas to help the company grow (all within defined limits). Also, by laying out a career trajectory, you can create a way for them to achieve from within. They know that you usually grow your professional capacity more when you change companies, but this doesn’t have to be true at your business. |
| Write your example here: |
Your Employee’s “needs”
Your business has a unique mix of demographics. Employees in different life stages have differing worldviews, life experiences, urgent needs, etc. When your beginning to plan your employee retention strategies, you should make an evaluation of what these are for your business. I would recommend making a short list of all of your employees (or if you have a large number of employees, creating profiles that represent common personalities) and answering three questions for each:
- Do this employee have any concerns or challenges I can address without cutting a check?
- What are some of the immanent needs this employee might be feeling and could there be appropriate and effective ways to address these needs as an employer?
- What are the long term needs this employee might have and how can I help them address these needs as an employer?
Designing the Right Employee Benefits
Now that you have [done the above], you’re ready to offer a diverse range of benefits to your staff, because each one of them matters to you.
For a long time, many small employers have prioritized cost-effectiveness of their benefit plans, but in today’s competitive market for employees, the winner is the employer who puts retention-effectiveness first.
You should also market the exceptional quality of your benefits to your employees and why you care about providing each individual benefit.
Here are a few benefits you will want to consider as you specifically tailor your benefit plan to your unique employee demographics. Of course, you can always enlist the help of a CoCreate Financial Advisor to design and implement the employee retention strategy that is right for you.
Health Care & Insurance Benefits
- Health Insurance
- The Devil is in the details… premium, deductible, employer contribution, plan type, availability of in-network providers, etc.
- High Deductible, low-deductible, health sharing? Will you offer direct primary care, vision/dental?
- HSA, HRA, or Flex account?
- Short Term Disability
- Indemnity Insurance (the most common example of this would be Aflac)
- Long Term Disability
- Group Term Life Insurance (usually a small policy)
Retirement Plan
Retirement plan options can become very complex, but most small-midsized employers opt for Profit-sharing/401(k) plans or Simple IRA plans. Here are a couple of considerations in selecting the right plan.
- Simple IRA plans are less expensive to administer, but the plan puts significant limitations on your ability to contribute as an employer. Contributions to the Simple IRA also belong to the employee immediately, where a 401(k) or other “qualified plan” allows the employer contributions to “vest” gradually as the employee demonstrates their commitment to your business.
- Plan to maximize your Simple IRA contribution. If you choose the 401(k), plan to make a generous matching contribution, likely at least 4%-5% and an additional discretionary employer contribution at the end of the year (which will show your enthusiastic dedication to their future success).
- In both plan types, consider automatic enrollment. If you choose the 401(k), you can also add an automatic increase to the employee contribution each year until it reaches 15% (as of 12/23/2019). Let’s say you’ve decided on the 401(k) and would like to match employee contributions dollar-for-dollar up to 5% of their salary. If you establish the plan with automatic enrollment, you begin deducting their contribution from each paycheck as soon as they become eligible (assuming they don’t opt out). Then each year, you can increase the percentage of their salary a predetermined amount (as long as they don’t opt out), perhaps 1% each year, so after three years they would be contributing 8% an you would be matching the first 5%.
- Choose a plan provider that gives you and your employees the right amount of investment flexibility and dedicated personal service. You’ll also want to make sure you’re working with someone who can help you understand and efficiently navigate your fiduciary responsibilities as the plan sponsor.
Help for Student Loans
Many of your employees are working hard to pay down their student loan debt. This group of age-diverse employees feel a sense of urgency to get out from under their over-priced education. Not only do they have the emotional complications of having a massive debt hanging over their heads, they also have the immediate cash flow impact of its payments. Helping to cover the cost of this debt makes an immediate impact for your employees.
To make this benefit even more significant, many people wait to begin start saving for retirement in a meaningful way until after they have paid off their loans. This means that the employees student loans are hurting your employees doubly (interest paid & interest not being earned) while diminishing the value of your retirement plan benefit. By implementing a student loan repayment benefit, you can significantly help your employees and demonstrate you care about their situation right now.
Employer Sponsored College Savings Plans (529 accounts)
Employer Sponsored 529 plans are becoming increasingly popular as well as help with student loans. There are some great aspects to this benefit but also some considerations to be aware of. 529 plans are tax-incentivized accounts, but the tax incentives are not as great as retirement accounts, however they may be more flexible than you realize.
When an individual sets up a 529 account their contributions are not deductible on their Federal taxes; however, most states offer some sort of tax benefit for contributions. In Montana you can deduct the full amount of your 529 contribution from your state income taxes. While there are currently 7 states who have incentivized employers to contribute to 529 accounts with additional tax benefits, in Montana, like most states, the tax structure remains the same regardless of if an individual or employer is contributing to the account. Any employer 529 contributions are taxable income, but your employee does receive a deduction on their state taxes.
Deferred Compensation
One very powerful benefit you can use to motivate and retain your employees is the non-qualified deferred compensation plan. These plans are highly customizable and can provide benefits to your employees that become vested & available to employees at specified dates or triggering events (i.e. retirement). The date could be a ten-year anniversary, a retirement age, or specific year. The benefits can also be designed to be awarded only if your employee or company meets certain performance objectives. You can fund the employees future benefits now, create a plan to informally fund their benefits, or simply pay the benefits out of your cash flow when they become eligible to receive it. Because of the flexibility these plans provide, and the significant legal complexities in Section 409(a), These plans should always be established in conjunction with an attorney with experience in this area of law.
While non-qualified deferred compensation plans are often referred to as “golden handcuffs,” and often used for key executives or high earning employees, they can be used effectively to provide incentives and longevity benefits for any dedicated employee who does significant work for your business.
Surprise & Delight Plan
Never underestimate the power of a thank-you gift. Plan to identify a success for each employee at least once a year and give them a thoughtful gift in recognition. Do it individually. Do it thoughtfully. Do it at random. If the gift needs to be included in their taxable income, be sure to cover the tax liability for them.