For decades, employers have compensated employees with a mix of salary, commission, bonus and stock based compensation. Typically, compensation packages are tied to an employee’s role, title or amount of experience, but are not directly aligned with individual performance and long-term retention. Of course, annual bonuses have attempted to align employee performance with company needs and expectations, but those measures often lack any precision. Bonus compensation has been relegated to large, meaningless categories of work that really distance individual achievements from true remuneration. In fact, in 2020 total compensation totalled nearly $9 trillion dollars, with bonuses comprising a mere 2.3% of that total.
Pay raises and bonuses typically reward the past achievements of an individual or company, but do not invest in the future with an emphasis on ROI. And stock options and RSU (restricted stock units), while intended to help retain employees, are often complex to understand and can lose their value literally overnight – creating a new reason for employees to leave or forcing companies to try and issue more options to start the cycle again. An attempt by the company to align mission with compensation simply angers a mob of employees when company stock performance falters.
At the same time, employees struggle to fully understand how their personal achievements are tied to their overall compensation. And in today’s macroeconomic environment with inflation and high costs for housing, increasing student debt and other escalating living expenses, recognizing employees with usable cash vs options or one-time bonuses would have an immediate and meaningful impact on employees’ lives.
In short, traditional compensation is broken and needs more than a Band-Aid to fix it.
The idea behind Keep is simple – help companies design compensation tied to the retention and performance of individual employees so there is a return on investment to boost the company’s productivity, growth, and profitability. In exchange, employees receive usable cash that resembles a retention bonus except the cash is paid upfront with the goal of retaining that employee for an agreed amount of time as the payments vest.
Our Keep Vesting Cash Plans are completely configurable in terms of amount or duration. We envision them ranging from a few thousand dollars for entry-level or higher volume, essential jobs with high turnover rates to six figures or more for senior roles requiring specific skills and experience, ensuring it is a compensation option for companies across the entire labor market. In addition, these bonuses work with occupations that run on shift schedules (e.g. nursing, hospitality, manufacturing, gig, etc.) so it can be infused with performance measurements that can accelerate the vesting period for the employee.
The time to rethink compensation is now. According to a report from The Conference Board, salary budgets are set to increase 3.9% this year – the largest amount since 2008: “The rapid increase in wages and inflation are forcing businesses to make important decisions regarding their approach to salaries, recruiting and retention. In particular, companies are likely to raise wages aggressively for their current employees or they will risk even lower retention rates.”
The days of working for the same company for 40 years and retiring with a pension are long gone, but so is the idea of going into an office five days a week which was “normal” just a few years ago. Basic pay raises, spot bonuses or underwater stock options mean employees are now open to taking that recruiter’s call or reaching out to former colleagues on LinkedIn to see what is available in the market. Employers are then left with the time and expense to find new employees, train them, ensure they fit culturally and then hope they can deliver at least the same performance as the employees they are replacing. This is a huge undertaking for any company, and even more so now in this competitive market.
Instead of that, maybe it’s time to reimagine your company’s compensation package with Keep.
Kathryn Petralia is the co-founder and president of Keep Financial, a technology company revolutionizing compensation to enhance recruiting and retention – aligning compensation with business objectives, ROI, and performance.