Offering benefits reduces employee turnover in small businesses

A survey by the Office of Advocacy of the U.S. Small Business Administration reports that while job tenure is longer at larger firms, offering benefits reduces the probability of employees leaving jobs at any firm in a given year by 26.2 percent, and increases the probability that an employee will stay an additional year by 13.9 percent. In addition, the study found that for every year the employee remains on the job, the likelihood of turnover is reduced by 81 percent.

"It's hard to keep up with the big guys," said Corinne Mattero, manager of human resources at Providence, RI-based Walco Electric Co., according to a report in the Providence Business News. "We can't pay what Hasbro pays . . . so you have to find other benefits." Walco pays 65 percent of employees' heath care costs.

Embolden Designs, a small technology company near Providence which has 12 employees, can't pay corporate salaries, but offers health care and "a good benefit package for time off," flexible work schedules, free family memberships to the YMCA, and a consensus-oriented decision-making process, the Business News reports.

"We've actually had folks come work for us from bigger businesses where they were offered larger pay," says Ann-Marie Harrington, president and founder of Embolden. "They decided to work for [Embolden Design} for quality of life."

Although small businesses struggle to offer health care benefits, they can lead in creating an appealing work environment and tailoring benefits to the needs of the individual worker. The ideal work environment can provide flex place (working from home), flextime (employee control of scheduling) or compressed work weeks (longer hours but fewer days).

It is easier for small businesses to offer these benefits because making the decision doesn't take as long or involve so many people, says Steve Gross, global leader of the rewards consultancy for Mercer Human Resources Consulting, according to a report in Forbes.

More businesses are also offering opportunities for outside recreation including picnics, participating in local sports leagues, and other reasonably-priced perks, noted the Forbes report.

Creating an environment that empowers employees also helps to avoid turnover, said Dave Baeder, president of Providence-based Baeder Corp, in the Business News. "Within the culture of small business . . . you're not very deep in any one discipline or department. So very often one person is empowered to their maximum."

"We recognize we are at the lower end of the pay scale," Baeder said. "But the projects and products we work on are so cutting edge . . . employees are enthused about the type of technology . . . the technology and culture of how the company is run keeps them here."

Dr. Chad Moutray, Chief Economist for the Office of Advocacy, said that more study is needed to understand the reasons for shorter job tenure and lower compensation in small business. "Smaller establishments tend to be younger, and younger firms are more volatile. Their higher closure rate could be a major factor in determining job tenure rates. More study is needed to fully understand this phenomenon."

The report, The Relationship Between Employee Turnover and Employee Compensation in Small Business, used data from the Bureau of Labor Statistics' National Longitudinal Survey of Youth. The survey subjects were interviewed annually from 1979 to 1994, and they are still interviewed biannually, the authors note in their research summary.

You can read the complete survey.

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