If you think compensation is all about the money, it’s time to think again. In addition to how much employees are paid, your compensation package ultimately tells employees how they are valued, says Sarah Fogleman, extension human resources management specialist at Kansas State University.

Successful compensation packages are really “total rewards” systems. In addition to wages, they use direct and indirect benefits that meet both the objectives of the employer and the needs of the employees. And when you offer the right mix of carrots, attracting and retaining good employees can become easier.

Here’s how to create a compensation package to attract and retain employees.

What message do you want to send?
Producers need to think about what they want their compensation package to say. But in order to do that, they must first understand what each type of compensation says about the business. For instance:

  • Cash wages. They must be competitive with the market and fair. The wages offered are generally the starting point that perspective employees use to judge the business.
  • Time off.  Paid time off is one of the most valued benefits by both young and old employees. Even the option to take leave — paid or unpaid — for an emergency or death in the family is something that most employees want. Offering time off tells employees that you care about them as people.
  • Flexible schedules. This is something you can offer without incurring additional monetary cost. Your willingness to set schedules so that employees can attend their kids’ soccer game or other family activities can be a huge plus. It says you value family and understand that the personal lives of your employees are important. It’s something that can set you apart from other employers.
  • Farm products. Giving employees half a beef each year or garden vegetables is seen as sharing the bounty. It’s like giving employees a plate at the table and inviting them to be a part of your family.
  • Hunting/fishing opportunities. In certain parts of the country, giving employees the opportunity to hunt and fish on your land is yet another way of sharing the bounty. Some producers use this as a performance-based reward, while others use it as a standard benefit.
  • Health insurance.  Offering insurance doesn’t mean you have to foot the bill, says Bob Milligan, senior consultant at Dairy Strategies in Madison, Wis. Just setting up a group program that allows your employees to tap into group rates can deliver huge savings compared to each employee going solo. This shows that you value employees — and their families — as people.
  • Retirement plans. Establishing a 401(k) or other plan doesn’t mean you have to put all of the money in, as the employer. You can allow employees to set aside pre-tax dollars in a retirement account — something they can’t do without your help. This type of benefit shows that you value longevity.
  • Other indirect benefits. Cell phones for management-team members or use of a company pickup truck are other popular indirect benefits. When considering indirect benefits, be sure to think about what your employees need or would most appreciate. For example, providing Hispanic employees with cell phones that have coverage in Mexico, and allowing them to call home for free after 7 p.m., can be a huge perk. These type of benefits show the value you place on the employees as people, as well their families.
  • Cafeteria program. Another option is to set up a cafeteria program. With this type of program, you could give each employee $1,000 each month, for example, and the employee decides how to spend it — toward health insurance, a retirement account, dental insurance, life insurance and so on. This is pre-tax money. So, every $1 offered in the cafeteria program equates to $1 they can spend on any of these programs, explains Gary Maas, AgriCareers Inc., in Massena, Iowa. On the other hand, if you paid out that money in wages, each $1 in gross wages would equate to about 70 cents in spending power to buy insurance. If an employee wants to take the $1,000 in cash, they can opt to do so, but that money must then be taxed. Offering a cafeteria program shows that you are looking out for your employees and helping them to get more for their money. It also shows that you understand each employee has his own individual needs. 

Salary vs. hourly
For each position within your business, you will need to decide if the person will be paid on an hourly or a salaried basis. 

Generally, management positions are salaried and all others are hourly, says Fogleman. However, because people in management often work longer hours when needed — without extra pay — their amount paid per hour actually can fall below that of your top hourly employees. That means you’ll need a system to compensate these people for their extra efforts.

One solution is to develop a profit-sharing program or performance-based-bonus program for managers. These options allow managers to reap some of the benefits from their extra efforts.

Build your package
The compensation package you offer drives who you hire, says Milligan.

“We are in a low-cost industry, so one strategy is to hire cheap and have a revolving door of employees,” Milligan says. But, if you want to break that cycle, changing your compensation package can help you attract a different type of worker who might be more apt to stick around.

Start with the wage you plan to pay. It needs to be competitive with the market — and fair. Not only fair in your eyes, but fair in the eyes of all of your employees. And, it must be equitable with what other employers pay, stresses Maas. (For help in assessing the competitiveness of your compensation package, please see “Does your compensation stack up” on page 20 of this issue.) 

Most employees and managers agree that the wage rate also should take into consideration job duties and responsibilities, performance and even seniority.

Next, consider what other benefits you want to offer. As a general rule, offering a competitive or above-average wage with no benefits tends to attract young people who probably won’t stay very long. Yet, offering a competitive wage plus a cafeteria program or other carefully-crafted benefits can be just the ticket to attract people who would like to stay in one place (assuming your business also offers opportunities for growth, development and recognition).

How you craft your compensation package could help you become an “employer of choice” in your area, says Fogleman. Keep this rule-of-thumb in mind: “Know your employees. Know what they expect and give them a little bit more, and they will be happy.”

Worker expectations on pay

A survey conducted by Gregory Billikopf, University of California-Davis, revealed that employees expect their wages to:

  • Cover basic living expenses.
  • Keep up with inflation.
  • Leave some money for savings or recreation.
  • Increase over time.

Put a price tag on benefits

Unless you remind employees of the value of the benefits you provide, they tend to focus on just the dollar amount of their paychecks. To help employees understand the value of their total compensation package, consider listing the cost or value of each benefit on their pay stubs, suggests Bob Milligan, of Dairy Strategies in Madison, Wis. The other option is to provide a year-end statement that shows the value of all benefits received. Each should be listed individually with a price tag attached.