Theme: Human Resources – Practical  Compensation Tips 

By Jos Bosmans. Jos provides advice on HR and people management based on 30 years of experience.

What does an employee-friendly compensation delivery look like?

A Cafeteria Plan is a system that allows employees to choose how their total compensation (2) is paid to them.

Employees get access to a menu of options to choose from:

1. Cash salary
2. Membership of a golf club or a gym
3. Leased car 
4. Company-sponsored services like cleaning, ironing, day care.
5. Education tuition reimbursement.
6. Extra insurance units for self or family members
7. … the list is endless and depends on your situation

Why are Cafeteria Plans an attractive practice?

The most important key for influencing your staff is  adding these 4 words to your communication: “But you are free..”

Research has proven over and over again that adding the notion that people are free to follow a suggested action or not, decreases the instinctive rejection of being told what to do. Psychologists call this phenomenon “Reactance” (3)

By taking away/lowering reactance, offering a choice increases people’s positive feelings about something. You appeal to a fundamental and universal drive in people: the need for autonomy.  

In a work relationship, employees will react positively to this autonomous decision-making in two ways:

• It puts the company in a positive light as an employer who shows respect for the needs of its employees
• It enhances the intrinsic motivation of the employee for the work that s/he is to perform (4)

6 Do’s and 2 Don’ts

Do’s

1.  Make sure that you comply with the tax rules of the country that you are operating in – in terms of taxation for the employees and in terms of deductibility of the expenses in the company’s books
2. Inform, educate and, do a survey about what sparks interest before you launch. Provide feedback about the survey results
3. Limit your menu to what you can deliver really well in terms of administration and evaluate after 6 months
4.  Plan to change your menu after 12 months: stop offering what has no traction, and add new features that seem more appealing
5. Allow people to change their mix every 12 months (at least) 
6. Set a maximum of total compensation (%) that can be made flexible, so people don’t get in trouble with their fixed payments/costs

Don’t’s

1. Avoid  making a monetary profit out of the plan ( for the company)
2. Don’t change the deal that you have made with your employees lightly or without consultation. 

When you give people autonomy in decision-making, you have to stand by it.  It will have a detrimental effect on trust, motivation, and commitment in case you want to shove it back into your safety vault.

Does it work for SME’s?

Cafeteria Plans can be successfully implemented in SME’s as well as in big companies. In many aspects the implementation process becomes easier when communication is direct and unfiltered between staff and top management similar one would find in SME’s. 

Jos

Chat with us on LINE or Whatsapp or send us mail via our website for a free discussion about cafeteria plans and compensation strategy in general. 

Notes

(1)Hooked, Nir Eyal, Portfolio Penguin, 2014 – pg 75 Our pleasure center “was not activating when the reward was received, but rather in anticipation of it”

(2) Total Compensation: adds up all the elements an employer spends on paying for an employee: salary, bonus, insurance, retirement savings and, allowances.

(3)Hooked, Nir Eyal, Portfolio Penguin, 2014 –pg 119 -121

(4) Self-Determination Theory, Richard Ryan and Edward Deci, Guilford Publications. 2017.