Metric of the Month: Total Cost to Reward and Retain Employees

Now is the time to take care of your best asset — your people.
Perry D. Wiggins, CPAJuly 1, 2020
Metric of the Month: Total Cost to Reward and Retain Employees

In times of economic downturn, it is incumbent on every finance leader to take a hard look at spending and make cuts as needed to keep the business strong. While every cost should be on the table, this month I’m going to advocate a move that may seem counterintuitive.

If you have the finances to do so, you should leave your employee reward and retention spending intact and make investments in keeping morale high. Not every company will be in a position to do this, but for those that can, it can make all the difference for struggling employees.

This month’s metric, the total cost to reward and retain employees, includes expenses related not only to compensation, benefits, and payroll processing, but also award/incentive administration and employee assistance. Any expenses that a company incurs by hosting morale-boosting engagement activities or by gifting its employees — whether with financial assistance for childcare, employee wellness programs, or a gift card to recognize good performance — is part of this measure.

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Through our Reward and Retain Employees Performance Assessment, APQC found that companies in the 75th percentile spend the most on this process at $0.53 per $1,000 revenue. Companies within the median spend $0.33 per $1,000 revenue, while those in the 25th percentile spend $0.17 or less.

Unlike other key performance indicators such as days sales outstanding, there are no clearly visible “top” or “bottom” performers here. Any company’s reward and retention spending are a product of factors like the company’s size, culture, and internal reward and retention practices. While every company should eliminate process inefficiencies and optimize the process as much as possible, it wouldn’t be accurate to say that companies spending less on this process are performing “better.” They may, in fact, be performing worse if lighter spending leads to lower morale or employee satisfaction.

Added to these complexities is the COVID-19 crisis, which continues to present economic hardships not only for companies but for their employees as well. Business as usual has been swept off the table, and there are plenty of good reasons to do as much as you can to help your employees right now. Rather than asking where to cut costs in the process, the more relevant question is: How can I ensure the company is doing its best to take care of its people with the resources it has at this time?

Company Care Boosts Morale

The COVID-19 pandemic has led to an explosion of compassionate gestures from companies to their employees. For example, Microsoft committed to keep paying the hourly workers who support their physical campuses, even as these campuses closed. Starbucks extended its mental health care benefits to offer 20 free in-person or video sessions with mental healthcare providers, a benefit offered to employees as well as their family members. Within the struggling airline industry, Delta’s CEO committed to forgoing his salary for the year to help diminish layoffs.

In March, APQC’s executives were faced with a decision of paying or delaying a bonus that our employees had earned for their performance in the first quarter. Based on our financial position and the economic difficulties our employees were beginning to experience, we felt that it was in our best interest not only to honor the payment, but to forgo our bonuses as executives so that our employees could see a higher payout. APQC also purchased meals and other essential household items for our employees and their families.

Not every company can afford to take actions like these, especially if they are struggling just to keep the business above water. The good news is that organizations do not need to break the bank. There are plenty of smaller gestures that nonetheless mean a great deal to employees. The ability to fill in the gaps that employees might not be able to fill at the grocery store or even to send a small care package of hand sanitizer and other essential items can go a long way in helping employees feel seen and recognized in the midst of a difficult time.

The COVID-19 crisis and its impacts are ongoing. Many physical offices, childcare providers, and schools remain closed. As employees struggle to care for family members or even just to make ends meet, it’s important to find a way to acknowledge those anxieties and struggles.

Speaking with APQC in April, engagement expert Lisa Ryan noted that these forms of support (or lack of them) leave a lasting impression with employees:

“The precedent that you are setting right now with your employees may determine their future loyalty to you when this is over. Are you creating an environment that they want to stay in or the kind that makes them want to leave?”

Showing care for your employees to the extent that you are able is one of the best ways to create the kind of environment that employees are proud to call home.

Perry D. Wiggins, CPA, is CFO, secretary, and treasurer for APQC, a nonprofit benchmarking and best practices research organization based in Houston, Texas.