The benefits that most businesses offer today are vastly different than what was the norm 20 years ago. Of course, the expectations of employees are also different today. Benefits include both tangible and intangible items that the employee receives in trade for their labor. The most significant component is undoubtedly salary. Although we have seen a de-emphasis on just salary with Millennials, for the company it still represents the single biggest cost of the employee total package. That benefit is relatively easy to evaluate and adjust based on location and similarity to positions you have filled. I would like to think that most companies do a decent job of checking their competition to determine the appropriate salary, but just in case you don’t, here is a quick guide.
When it becomes evident that a new role has to be created to expand the company or that a position needs to be filled because it has become vacant, the first step should be to reevaluate all the requirements for the role. Once the position is clearly defined, the next step is to start searching job websites for similar positions. This may help you add or remove components based on what other businesses advertise, and it should give you a good idea of what the market demand and pay rates are for such a position. Remember, the amount that a company is willing to pay for a specific role should depend predominantly on market conditions, as long as the company can bear the cost that the market demands. If the company cannot afford to be competitive, it may be necessary to reduce the requirements of the role until the company can compete for talent. There is no reason to pay above market rates to fill any position unless there is a time crunch, and in that case, you should still pay market rates, and offer a hiring cash bonus tied to a minimum time on the job.
If you think that you can get a better person by offering more money for a particular role, you are mistaken. That is the “common wisdom” which I find to be empirically incorrect. Let’s think about it for a moment. Suppose you are looking for a Director of Finance and the market rate is $95k + benefits for that role. You can pay $115k based on your budgeting. Could you find a person for $115k for that role? Of course, and they will be happy to tell you why they are worth the extra money. However, if you do further research, you might find that in your area you can hire a CFO for $120k. Of course, a $120k CFO may not be at the top of the chart, but a qualified mid-level CFO candidate should be able to come in with much more knowledge and, most importantly, more experience than an above-average cost Director-level candidate.
Now if you don’t have a CFO and you are hiring a Director of Finance, would you be better off with someone at a middle stage of their career or would you be better off hiring someone at a later stage of their career with more experience for just $5k more? If you already have a CFO, naturally part of his or her job should be making sure that the company does not spend any more money than it needs to on any position in the business!
Like any rule, there are exceptions. If you have extenuating circumstances that justify paying above market, like a time crunch or needing someone who is more self-guided because there is no immediate supervisor for that role, it is entirely ok to pay more, but with a caveat. You have to recognize that you are addressing a problem in another part of the business with a less-than-ideal solution. If there is a time crunch, the company should have started looking sooner. If there is a lack of immediate supervision, maybe that is the role that needs to be filled first or management functions consolidated. The bottom line is that you should never need to pay more than the market demand for a person to fill a particular role with a specific set of requirements.
Hiring someone who is overqualified for a role is okay as long as you are not overpaying that overqualified person. Hiring someone with no more qualifications for more money is a poor business decision, and hiring someone with fewer qualifications is always a bad idea. Notice I say qualifications and not just experience. The minimal qualifications should have been determined for the role and should include experience, knowledge, and other elements that qualify someone for that role in the company.
So what about the other components of benefits beyond salary? The second largest cost to business for benefits after salary is either medical insurance if the company provides a substantial portion on behalf of the employee, or vacation pay if the company has a generous vacation policy. Other costs these days include company-provided food/beverages, activity reimbursements for things like health club memberships, company clothing or even car expenses, bonus or profit sharing, office furnishings (especially standing desks and Aeron chairs), and in some companies, games or relaxation are an employee expense.
While corporations like Google are famous for having free catered meals, massages, pool tables, and other games for their employees, this trend is now making its way to smaller companies. The appearance of a coffee shop, with soft music playing while baristas serve espresso drinks made with expensive Italian coffee machines, is becoming a more common sight in businesses. In my opinion, this is partly driven by the actual desires of the younger workforce and partly by management assumptions that these are the kinds of benefits that attract young workers.
Benefits of a ‘cool’ work environment and free food at the office are examples of Consumptive Benefits. These benefits attract people who want to make work feel more like home. Often the positive result is longer working hours for employees who have no reason to go home or to a coffee shop as the work environment is equally as comfortable for them.
Benefits such as longer vacation pay or 401k matching programs are Sustaining Benefits as they do not provide an immediate benefit to the employee and are appreciated by employees who value personal time and individual investment planning. These employees will have the same attitude toward long-term company investments and will champion long-term goals and solutions that may not achieve a result for an extended duration of time.
I do not put a value judgment on one type of employee vs. the other. They both have pros and cons for the company, but as long as the benefits selection that the company provides is chosen with these results in mind, they should help attract and keep a particular type of employee personality. However do keep in mind that if a business invests significantly in a “cool” work environment but only 50% of employees value that, then that investment is wasted on the other 50% of employees, unnecessarily increasing the effective cost of the per employee benefits.
Interestingly, both types of employees like the remote working or work-anywhere option. The former like the ability to work from a coffee shop near their house or to meet at a remote workspace with their colleagues once a week. The latter like being able to save money on commuting to the office and have the ability to work from the house. Remote working is a topic that could be its own chapter or even a full book. Let me just say I am a firm believer that almost any job that does not require physical access to specialized company equipment can be done as well, or better, remotely.
I have seen the shift from cube farms to open offices and now am seeing the swing back. A large Fortune 500 company that I consulted with years ago had a rather efficiently designed scheme. It crammed as many employees into cubicles near windows as it could, while using the inner space in the building for lots of small conference rooms. The idea was that people are sitting near windows, but if two or more people need to meet in private, they just grab a conference room as needed.
This sounds good in principle, and I’m sure some business efficiency consulting firm got paid plenty to suggest this arrangement, however in practice, this didn’t work well at all. People who were naturally extroverted tended to spend a lot of time in conversations with others around them in this very tight seating arrangement. While people who work best in quiet surroundings and with little distraction struggle with noise-blocking headphones. Others gave up and simply created dummy meetings to be able to sit in a windowless room and get their work done. This meant that conference rooms were rarely available, while the overall productivity of the office was reduced due to unrelenting chatter.
While people today think that cube farms are horrible, it’s important to remember that cubes were actually a solution to the problems of an open office in the 1950s. As white-collar jobs increased, companies found themselves with more and more employees who worked behind a desk rather than operating a machine. Initially, these desks were needed to hold paper for reading and writing. Back then most things were handwritten, to be given to a typing pool to reproduce as typed text. Businesses simply borrowed the solution to this growing need from someplace it had already been used – in schools. The same arrangement of desks into rows, albeit with nicer and larger desks, was utilized. Keep in mind that back then most people didn’t even have telephones on their desks unless they were part of a sales team. So you had a bunch of employees sitting at desks and quietly reading and writing. They would generally have IN and OUT boxes on their desks to be filled or collected by roving bands of clerks. Management had offices on the outside perimeter surrounding the desks and would meet in their managers’ offices to discuss what they were working on.
As technology progressed, telephones became a more common fixture on desks and by the 80’s, computers found their way into the workforce occupying even more desk space. Putting up noise-absorbent cube walls around the desks allowed companies to provide some level of noise reduction, increasing the storage space in cubes by going vertical and increasing the concentration of employees in a given size space. By putting storage over the desk, cubes could be made to be 44-inch wide and replace typical 60-inch desks. That allowed companies to add more meeting rooms while reducing the size of management offices. This way people who worked in cubes could have a meeting place even when it didn’t involve a manager.
The modern open office, as I recently experienced at a client, has massive long desks like those in an Apple store or a coffee shop which accommodate up to 12 people per desk. There is no privacy and no noise protection, so virtually everyone has headphones on to block out external noise. While the desk space per person is abysmal in this open office, it is augmented by soft loungers, coffee tables, and hanging chairs that one might find on a porch. People move throughout the day from location to location – seemingly trying to find a level of privacy or comfort that an open office does a great job of preventing.
As odd as it seems to me, having an open office plan is still perceived as a desirable benefit by many younger workers. I guess I’m old school. Give me an office or let me work from home! Either way, I want a quiet and uninterrupted workspace! My advice is don’t just dive into the open office trend – figure out what works for your workflow first, then your individual employee preferences second – and only if possible, adopt a policy of flexible office space that doesn’t break the bank or result in one employee getting much more expensive furniture than another.
Excerpted From The Original
Foreword by Roy H. Williams
Gene isn’t a journalist, but he is most definitely an investigator.
I was talking to a friend who employs about 250 people in 3 different companies when he mentioned that he had hired a specialist to figure out what was wrong with a company that was underperforming.
“Who did you hire?”
“A fellow named Gene Naftulyev.”
“He’s going to figure out what’s holding you back?”
“Yeah. He’s famous for it.”
“Procter & Gamble. American Express. Kraft Foods. Target. They’re all clients of Gene’s.”
“What does he do, exactly?”
“He improves profits without spending money.”
“Process re-engineering, operational optimization, making business units autonomous, negotiating employee and consultant contracts and a hundred other things like that. It just depends on what you need. He refines the core of your business so that you become more efficient, have fewer frustrations and make more money. Naftulyev can always spot the problems and his fixes are famously quick and easy.”
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