Alternative Compensation For Employees


These days, businesses are looking for new and creative ways to secure performance goals and maintain or establish a competitive advantage. However, they want to do this without draining valuable cash flow. As such, alternative compensation for employees is delivered in the conventional forms of spot awards, bonuses and profit-sharing funds.

For some businesses, this is necessary because more cash is needed for financial commitments and general survival. For other businesses, increased cash flow can be invested into a transition, an expansion or major equipment or technology upgrade. Whatever the cause, companies are seeking out ways to increase and better manage cash flow flexibility, without the salaries and incentives of employees taking a hit.

Businesses are aware of the negative impact cutbacks can have on the morale and retention of employees. However, there are frequently challenges in business projections which force business owners to seek out areas in which ‘something has got to give.’ Typically, this comes as an elimination or cutback as a means of attaining their business goals.

Sadly, the cutbacks typically impact the ‘bonus’ worker incentive and compensation areas at the outset. Ultimately, these choices interrupt productivity and impact lasting retention of essential employees. As such, a number of companies have begun to assess the use of alternative compensation for employees. That is, the percentage of a worker’s salary that is associated with performance but is not necessarily a monetary reward. These alternative incentives offer the value that rewards particular employees and retains high performance levels, without needing a cash payout.

Employee Compensation Strategies

There are several alternative compensation opportunities and customizable tactics to assess for each business; these include:

Qualified Retirement Plan Options

This method motivates and provides employees with incentives and is also a tax deferment plan.

ESOP or Employee Stock Ownership Plan

Deferred Compensation Tactics

This strategy is used as an incentive plan and is awarded to key employees, key managers and officers.

  • Phantom stock plans
  • Cash-based deferred compensation
  • Stock appreciation rights

An advisor can assist in assessing the pros and cons, timing, applicability and tax policy that will best satisfy the objectives of a company. Normally, the first stage starts with a means of discovery and identifying short-term and long-term goals. This offers a pathway to detecting prospective compensation programs that could be an effective offer.

In gauging which approach is most beneficial and suitable for your business, it is essential to undergo financial evaluation to make sure the option recommended can be effectively implemented. There are a number of underlying pros and cons to alternative compensation for employees. As such, each business should evaluate the applicable effects to the structure of their business before implementation.

The way in which HR departments handle employee compensation structure is being changed by these incentives. There is a real impact taking place, offering new alternatives to handle age-old business trials. This includes rewarding vital employees for superior retention, enhancing cash flow for improved flexibility and enticing top talent with its competitive advantage.