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Cash flow flexibility in today’s business environment is precious. In response to this strain, organizations are seeking ways to replace the traditional cash flow drains in the forms of bonuses, sport awards, and profit-sharing funds by implementing more creative rewards for employees. The bonus: it also creates a stand-out competitive advantage for employee retention and attraction.
How to manage and increase cash flow flexibility, without taking a hit to employee salaries and incentives
Many companies have started to evaluate the use of incentive compensation – that is, the portion of an employee’s salary that is related to performance, but not necessarily rewarded in money. These alternative compensation incentives
provide the value that rewards select employees and maintains high performance levels, without the need for a cash payout.
“These incentives are changing the way HR departments are handling employee compensation structure,” says Danielle McCormick of K·Coe’s HR Consulting services. “There’s a real impact happening here – providing new options to tackle age-old business challenges: rewarding key employees for better retention, optimizing cash flow for greater flexibility, increasing the value of the company through higher performance, and attracting top talent with a competitive advantage.”
Top 6 Alternative Compensation Methods:
There six primary alternative compensation options and customizable plans that businesses typically implement in place of cash rewards:
- Deferred Compensation Tactics – used as an incentive plan; awarded to officers, key managers, key employees
- Cash-based deferred compensation
- Phantom stock plans
- Stock appreciation rights
- Qualified Retirement Plan Options – motivates and rewards employees; tax deferment tactic
- Employee Stock Ownership Plan (ESOP)
In evaluating which tactic is beneficial for your business, it’s important to speak with an advisor to assess the advantages and disadvantages, timing, tax strategy, and applicability that suits your business plan.
There are many underlying pros and cons to each of these compensation incentives, so each organization should evaluate any potential negative effects on their business structure before implementing.
To evaluate which of these compensation options would be beneficial for your business, contact K·Coe Isom’s HR services team. An expert advisor can lead you through the process, provide in-depth financial analysis and assessment, and help with implementation and employee education.