Theme: Human Resources – Practical Compensation Tips
By Jos Bosmans
Increasing salaries across the board after 2 years of COVID-19, might not be a wise strategy. Therefore companies should maximize the impact of their dollars by making their delivery more attractive to their employees. A proven way of doing this is a Cafeteria Plan. You will keep your salary cost in check and will generate intrinsic motivation towards company and job by recognizing your employees need for autonomy.
November 1, 2021. All Saints Day for Christians.
We return to some sense of normalcy: offices and schools are open more often than not, and long-forgotten traffic jams on Sukhumvit are back.
January 2022 lurks around the corner and the expectations of employees will inevitably turn to the annual salary increases – in many companies suspended after a disastrous 2020 .
People have had ample time to test the market for better paying jobs when they were working from home. They might initially not have followed-through on it: “How can you successfully join a new company from home ”, candidates tell me. But beware: that will change when life really opens up again – similar to the massive staff turnover in the US and in Europe after their reopening.
Thailand’s Consumer Price Index for September 2021 rose to 101.21 – a nominal jump of 1.57 from August. Jumps like this will stir up perceived “needs” from staff.
Dashing out a lot of “new” money with COVID-19 only halfway under control, might not seem like careful management. Instead you could turn to improving the mechanics of compensation delivery rather than simply expanding the salary volume. Anyway: an increase only has a very short term positive effect (1) – if any- while a more employee friendly delivery lasts a long time.
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:
- Cash salary
- Membership to golf club or a gym
- Leased car
- Company sponsored services like cleaning, ironing, day care
- Education tuition
- Extra insurance units for self or family members
- … the list is endless and depends on your employee 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 feeling about something. You appeal to a fundamental and universal drive in people: the need for autonomy. And in this case, it could sound like this: “I have the autonomy to opt for getting my pay 100% in cash or not”.
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
- 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
- Inform, educate and do a survey about what sparks interest before you launch. Provide feedback about the survey results
- Limit your menu to what you can deliver really well in terms of administration and evaluate after 6 months
- Plan to change your menu after 12 months: stop offering what has no traction, and add new features that seem more appealing
- Allow people to change their mix every 12 months (at least)
- Set a maximum of total compensation (%) that can be made flexible, so people don’t get in trouble with their fixed payments/costs
- Avoid making a monetary profit out of the plan ( for the company)
- 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, on motivation, and on 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 respects the implementation process becomes easier when communication is direct and unfiltered between staff and top management like one would find in SME’s.
Chat with us on LINE or Whatsapp or send us a mail via our website or a free discussion about cafeteria plans and compensation strategy in general.
(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, insurances, retirement savings, allowances.. This is different from Total Cost of Compensation.
(3)Hooked, Nir Eyal, Portfolio Penguin, 2014 –pg 119 -121
(4) Self-Determination Theory, Richard Ryan and Edward Deci, Guilford Publications. 2017.