Employee Benefits in Today's Economy

Next Level Café, a St. Paul, Minnesota, technology management firm, saw 2007 as a great year. But 2008, not so much. "It's been a tough year," says CEO and co-founder Rich Anderson, 38. "We haven't been growing as much." Morale was falling, so last autumn, Anderson began tracking morale through a weekly survey that he plotted on a graph. He met with the company's 25 employees and told them the truth: The company wasn't at risk of failing by any means, but it wasn't a great year and that meant fewer bonuses and perks.

Anderson, who co-founded the 7-year-old company with Stephen Weiler, 43, also started sharing some information about the company's budget. He revealed that 75 percent of the service company's expenses are salary-related, and he explained how a drop in clientele affects the expense side. An enlightening moment came when Anderson asked employees to guess how many clients the company had won and lost to date in 2008. "Every single person on the team underestimated," he says. Now the company posts the names and revenue of new and former customers on a wall--a daily reminder of where the company stands. Morale is on an upswing, and the company closed 2008 with $2 million in sales.

Entrepreneurs shouldn't fear pulling a perk, but they should fear doing it without employee involvement, Anderson warns. "As soon as you do it without having employees involved in the process, they're going to resent it and fight back. They're going to use it as a reason to leave if they're looking to leave," he adds. "If you get them involved, they'll support the decision. They'll embrace the world that they helped create."

Central to a good communication plan is anticipating how employees will react when a perk is taken away and who will be most affected. You'll also have to decide what kinds of low-cost perks could replace what's gone. "Think about how you can offer the same or similar kinds of benefits in a different fashion that won't cost you so much money," says Cohen.

PerkSpot, a perks management company that creates customized portals where employees can go for discounts on a wide range of consumer goods, is seeing large companies implement its service to offset other benefit cuts they're making, including insurance coverage. In one case, a national retailer rolled out PerkSpot when it announced it wasn't giving anyone a raise. Says founder and CEO Christopher Hill, "They wanted to introduce PerkSpot to help soften the blow."

Linking perks to performance
Cohen sees companies moving toward flexibility and other unique benefits that promote work-life balance. "That's really been dictated by the work force," she says.

Nelson, however, thinks now is the time for companies to link perks to performance. This way, companies don't create cultures of entitlement where employees feel the company owes them just for showing up. "Smart companies are offering perks to the performers who have earned those perks," he says.

Expedite Group has its share of softer perks, from Wii nights to beach trips to potlucks. Piepho, however, is most concerned with keeping her best performers happy, so she tailors perks to them. She's letting one employee with an infant work flexible hours from home, while a rising star in the company is getting greater responsibilities. "What do pivotal employees need to thrive? That's what you should focus on," she says. "I know who my stars are, and I'm going to focus on them."

There are still high expectations, however, particularly from the company's Gen Y employees experiencing a recession for the first time. "It's not their fault; they haven't had the different experiences that us hugely older people have had," Piepho says, laughing. "Recently, [we said], ‘This is what the pay range is, and if you're not happy with it, go forth and be happy.'" Employers in a lackluster economy could find that sharing their blues is better than sinking into the red.

Chris Penttila is a freelance journalist in the Chapel Hill, North Carolina, area.

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