Faster business growth from enhanced employee benefits

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By: Wise Marketer Staff |

Posted on June 5, 2002

Faster business growth from enhanced employee benefits

Out of the 407 fastest growing US businesses, two-thirds are offering enhanced employee benefits, according to PricewaterhouseCoopers' 'Trendsetter Barometer', and companies with stock incentive plans have been found to grow much faster than those without.

The PricewaterhouseCooper (PwC) Trendsetter Barometer interviewed the CEOs of 407 product and service companies identified in the media as the fastest growing US businesses over the last five years. The companies ranged in size from US$5 million to US$100 million in annual revenue.

Enhanced employee benefits include savings plans, flexible spending accounts for medical or dependent care, stock incentive plans, and profit sharing plans.

The company says that those CEOs who value enhanced employee benefit and compensation programmes are being rewarded with significantly higher productivity than others who see those programmes as "not particularly important".

Technology industry CEOs (69%) value such programmes more than non-technology CEOs (63%). Likewise, service sector CEOs (68%) value them more than product sector CEOs (64%). Believers in these programmes are enjoying significantly higher productivity: US$141,000 in revenue per employee, compared to only US$101,000 for those without - a 40% advantage for those who do.

"Most 'Trendsetter' CEOs see value in a caring, up-to-date system of rewards and incentives for their employees," says Paul Weaver, PricewaterhouseCoopers' global technology industry leader. "And this enlightened group is benefiting from far greater productivity, and expecting faster growth in the coming year."

Savings plans A high percentage of both those rating employee programmes as important (90%) and not particularly important (86%) have 401(k) employee savings plans. Technology companies report a higher incidence than non-technology companies (94% against 82%), as do those in service against product sector companies (91% against 86%).

Some 75% of trendsetter companies with 401(k) plans match a percentage of employee contributions, typically with cash (68%), and sometimes with company stock (3%) or other forms of funding (4%). Over the past year, the amount of 401(k) matching contributions has remained the same for 85%, with only 9% increasing and 6% decreasing.

Flexible spending accounts Some 59% of trendsetter companies have flexible spending accounts where employees can pay for medical or dependant care expenses using pre-tax income. This employee benefit was found far more often in technology companies (67% against 48% in non-technology companies), and in service companies (68% against 49% in product sector companies).

More than half of these plans (57%) provide employees with the option to select their benefits using a system of credits and pre- and post-tax contributions, whilst the remaining 43% do not.

Stock incentives While trendsetter companies are nearly all privately held, stock incentive plans were reported in 41% of them, with another 6% planning to add such a plan during the next 12-18 months. These plans were found more often in technology businesses (56% against 24% for non-technology companies), and in the service sector (46% against 36% in product sector companies).

The stock plans tended to be wide scale, typically involving all (or nearly all) employees in 61% of trendsetter companies. Another 20% of company plans involved most key employees, while others involve only the top employees.

According to PwC, trendsetter companies with stock incentive plans have grown 65% faster than all others over the past five years, and they expect to grow revenues at a faster pace over the next 12 months (19.2% growth against 12.8% for the others). That's around 50% faster growth.

"A reason why companies with stock incentive plans have performed so well is the sense of ownership they inspire among employees. Another contributing factor is that the companies offering them happen to be in industry sectors growing at a much faster than average clip - 6.4% in 2002 against 3.1% for all others, or more than double the rate," explains Weaver.

Employee profit sharing Employee profit sharing plans were reported in 35% of fast growth companies, with another 6% planning to add such a plan over the next 12-18 months. These plans are a bit more prevalent among technology companies (37% against 32% in non-technology companies) and product sector companies (37% against 33% in service businesses).

On average, companies involved in profit sharing tend to be in less vibrant industry sectors (growing at 3.2% against 5.1% annually). Their own performance, while ahead of expectations for their industry, has generally been below that of all companies without profit sharing over the past five years (only 1,453% growth compared with 1,570%).

"From what we've seen, profit sharing seems best applied when helping businesses to exceed expectations in slower-growing industry sectors," concluded Weaver.

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