How Companies Compensate Their Employees – Part III

The third article in our series deals with compensation that does not involve a monetary payment (like base pay or incentives and bonuses), but rather benefits that have monetary value and show recognition. Benefits of monetary value include perks and social benefits (the latter were discussed at length in the previous two articles – see part ll), which the employer uses to provide for the employee’s economic and physical needs. Recognition is generally given to the employee or a group of employees for carrying out their job in an exceptional manner.

Fringe Benefits
Sometimes the fringe benefits constitute a part of the employment terms and are supposed to help the employee better carry out his job. At the same time it’s generally assumed that these terms also help him improve his quality of life and increase his expendable income. We’ll focus our discussion on the most notable benefit – a company car.

Company Car
A company car is a car provided to the employee to travel to and from work and to carry out his job, and is placed at his disposal 24 hours a day, with the company paying for all expenses, including fuel and maintenance. In Israel this benefit is of special importance due to the relatively high cost of buying and maintaining a vehicle.

In the past having a company car was reserved for the highest ranking employees at the organization, whereas today it’s considered a commonplace benefit for a regular employee. At many organizations, such as high-tech companies or organizations that employ primarily workers from the liberal professions, a company car is considered in lieu of pay. These organizations, which are becoming major vehicle consumers, generally receive discounts that the employees benefit from. This approach is no different from other company benefits that allow the worker to purchase discounted products and services – weekend vacations, theater tickets, etc.

For example: Traveling on Israel’s roads today are 1,800 cars belonging to a large, international communications company that employs thousands of workers in Israel. The company’s compensation policy states that anyone holding a managerial post, from section manager and up, and every engineer and programmer (who the company defines as “professionals”) is entitled to a company car. Also eligible for this benefit is anyone who needs a car for his work, primarily in the fields of sales and service. However, the terms of use among these employees differ somewhat from the terms given to managers and professionals.

A company car may not be perceived as a regular benefit, but rather as a work tool in every way. At one large Israeli company, for instance, a large portion of employees are given a company car in accordance with their rank and job, and the company does not deduct the cost from their salary. Most of the work at the company is fieldwork, which requires the managers as well to be very mobile. The value of this benefit is considerable because the vehicle is not part of their salary, thereby exempting it from various taxes.

The issue of a company car, and especially the question of the cost of this benefit from the employee’s perspective, made lead headlines in 2007 when the Finance Ministry tried to introduce a reform increasing the amount of taxes levied on this benefit. Their effort encountered stiff resistance from employers, employees and of course vehicle leasing companies. The latter feared a blow to their income since company cars would then become less desirable.
Another dilemma related to the cost of this benefit in addition to taxation issues is the question of whether it constitutes an alternate to regular pay, i.e. can it be seen as a real payment, like the other two salary components? If the answer is yes, social benefits would apply to it as well, thereby raising labor costs for the employer.

Other Fringe Benefits
Other fringe benefits may include paying for cell-phone services, covering food and lodging expenses, funding college courses, a subscription to a daily newspaper and various magazines, etc, as agreed upon between the employer and the employee.
Examples: At a certain large accounting firm employees receive funds for cell-phone purchase and maintenance, while at a large hotel chain employees are entitled to stay at the company’s Israeli hotels for $40 a night per person or at its European hotels for 40 euros a night.

Through recognition the organization tries to impress upon its employees what kind of conduct it finds desirable. It might be a cleaning worker at a hotel who finds a wallet with cash and returns it to its owner, a production worker who finds an original solution to streamline work on his machine or a bank worker who gives some of his free time to the community. In any case, when the organization awards them a gift of a weekend for two at a hotel, for instance, it conveys a message to the staff that it values this type of conduct.
Of course such shows of recognition are a form of motivational compensation intended to foster a certain mode of behavior (regarding the distinction between motivational and material rewards, see Part I). In general it refers to behavior unrelated to the employee’s productivity or performance, but rather conduct in line with the organization’s values.

Recognition can be combined with the unit’s regular incentive program. For example, a unit that made a concerted effort to dispatch a large order abroad on time, thereby increasing output (according to predetermined yardsticks) by 20% receives the incentive payment (for more on incentives, see Part II) normally given in the unit for increased production. In addition, every member of the group may also receive a gift package and a letter home as a sign of recognition for the exceptional effort, and even a night out at a restaurant for the employees and their spouses, at the company’s expense.

Our discussion of forms of recognition will focus on one of the main types of recognition: the process for selecting outstanding employees.

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Selecting Outstanding Employees
The selection process for outstanding employees generally involves extensive communication within the organization. The methodology, setting criteria for excellence and the manner in which recognition is expressed vary from one organization to the next, but of course are influenced by the company culture and in fact are a patent reflection of it. For instance, the decision whether the selection of outstanding employees is made only by managers or by the entire staff may reflect the level of democracy practiced at the company.

For several years one large insurance company has had a tradition of selecting employees of the year. At first the company posts a notice on its website showing the parameters used to gauge outstanding workers, and employees are invited to recommend colleagues they deem worthy. The human resources staff gathers the results and every department manager receives a list of candidates from his department. He can add names to the list or remove a candidate he feels is unsuitable.

Next the selection committee, headed by the group’s human resources manager, holds a meeting. Employees and managers are equally represented on the committee. Starting in 2008 it was decided that committee members representing the employees would be switched annually, to be replaced by the previous year’s employees of the year.

Every nominee appears before the committee along with one of the employees who recommended him. The committee asks him questions on the nominee and narrows down its choice. Last year the committee spoke with 70 nominees, eventually selecting 20 employees of the year. Each of the winners also earned a bonus of NIS 3,000 ($800) in net income. The company also has a process for selecting a manager of the year, chosen by his fellow managers at the company. The employees of the year are presented at the annual employee conference.

Every division is able to choose a different number of outstanding workers, depending on its size. For instance a division that employs 500 workers can present 12 nominees, but the selection committee will choose only five, the allotted number based on its size.

At one large accounting firm the festive toast made every year before Passover doubles as a ceremony used to announce the selection of the employees of the year. All employees and managers take part in the selection process, which is conducted via intranet.

At first the respective staffs choose the outstanding worker among them. Numbering 10-20 people each, including the manager, each staff determines who their top worker is. The mark given by the staff members is weighted 60% and the mark given by the manager is weighted the other 40%. The employee who receives the highest weighted score is named the top employee on the staff.

The outstanding employees from each staff now “vie” for the title of group honoree. In the final phase the selection committee, which is made up of several employees and one of the partners, evaluates the achievements of the six honorees, deciding which of them deserves to be crowned employee of the year. But this time not just his weighted grade is used, but also the evaluations and stances of the partners.

One large high-tech company with branches around the world introduced a process of selecting outstanding employees following the annual opinion surveys, which revealed a need among the workers for recognition of excellence – an issue that also accords with the company’s values. Later a program was formulated for both individuals and staffs.

One of the main principles that guided those who designed the program was not to rely solely on managers’ recommendations, but to include the employees in the selection process as well. In the first phase all company workers are invited to recommend outstanding candidates, whose names are then passed on to the managers for selection. In 2006, for example, 300 employees were recommended.

The managers selected outstanding workers from each division based in part on criteria reflecting performance level and conduct in accord with the company’s values. They also selected an outstanding staff on the division level and on the worldwide level. The company held a special ceremony during the first quarter of 2007 where the employees of the year were announced and given prizes and certificates of recognition. The company’s worldwide magazine also followed the process, devoting an entire edition to presenting the outstanding employees and staffs.

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Other Forms of Recognition
Excellence at work is not the only reason why the organization demonstrates gratitude toward its employees and expresses appreciation. Initiatives that promote savings (e.g. streamlining proposals), lead to new sources of income (e.g. patent ideas) or prevent losses (e.g. catching a shoplifter) are excellent reasons for giving recognition and granting various benefits.

At an international communications company the managers receive slips they can use as a sign of recognition for successful performance by a worker – a weekend vacation, a night out for two, movie tickets, etc. The company also runs a gradated program that compensates workers for proposing patents: compensation for a proposal, for a patent submitted for registration, for a patent actually registered and special prizes for employees who have accumulated 10 and 25 approved patents over the years. 

A certain company in the metal industry encourages its employees to submit suggestions for improved efficiency. A professional team assesses the feasibility of the proposals, both practically and economically, and chooses the best among them. If a suggestion is approved and implemented, the individual behind the idea receives compensation partly determined by the extent of streamlining. According to company policy, compensation can reach a ceiling of 5% of all annual savings achieved through the streamlining proposal.

Every employee can submit all the suggestions that occur to him. As part of its efforts to encourage such proposals the management gives presents such as dinner at a restaurant or a visit to a health spa, even for proposals that wind up getting rejected, if they were creative and made a contribution.

According to the compensation policy at a certain fashion chain, employees should be compensated for every positive action – immediately. For instance, if a worker catches a shoplifter he receives a gift certificate on the spot. To enable quick responses in such cases, the company management placed suitable management tools at the store managers’ disposal by providing each of them with an ample supply of gift certificates.

Granting an unusual compensation, however, requires board approval in order to prevent a free-for-all in giving out benefits since different managers have varying considerations regarding the question of when to give special compensation and when not to. The company, on the other hand, can set clear rules of the game the store manager can follow without having to obtain board approval in most cases.


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