When you’re a start-up or a growing business and you’re trying to attract and retain talent, but you don’t necessarily have the cash flow to offer industry-standard salaries, what can you do? How can you compete? Or do you have a market-rate salary, but you want to find a way to stand out and go the extra mile?

Benefits are an obvious, popular and smart way to improve your offering to get new employees to jump onboard, and to entice employees to stay onboard. Things like health insurance, retirement plans, flexible work schedules, PTO, childcare, gym memberships, casual dress codes, company trips, tuition reimbursement, and training stipends are a few ideas. But not every employer has the resources or business structure to offer benefits like these.

Not to mention, oftentimes employees just want to see actual money, and not just perks. You and your competition are trying to hire from the same pool of candidates and compensation can be used strategically as a tool to get the talent you want. You might want to consider exploring other forms of compensation without draining your bank account. Below we give you a brief intro to other compensation structures you can utilize to attract job candidates and reward employees:

Signing Bonus

A bonus is a one-time payment you can offer an employee upon accepting an offer. Some bonuses are given immediately upon hiring, others are deferred. So you can offer some up front, and then the rest at the one-year mark, for example. Other bonuses may be performance or project based. These payment structures can be beneficial if you have less leeway in terms of offering a higher salary.

A bonus can help increase retention as well, especially if it is a deferred or project-based bonus. It’s best to set terms prior to offering a bonus to new employees. If an employee receives a signing bonus and then leaves three months later, do they have to payback the bonus? What are the benchmarks/requirements for performance-based bonuses? Do employees know and understand the terms? Are metrics transparent and objectively applied to all eligible employees?

Stock Ownership

With an employee stock ownership program, employees can purchase a predetermined number of shares of the company at a special price (whether public or private). The employer draws up the terms in a contract that specifies how the stock options will vest. Stock options are often not available immediately after hiring; they have to vest.

Once the options are vested, employees can buy the stocks and do that they want. Often that is why there is a waiting period, so that employees don’t take the stock and run right away. A waiting period could be a year before all of the stock is available, or it could be released gradually over the course of years until they are fully vested. Employees are personally invested in the success and growth of the company. If you offer stock options, the terms and conditions should be outlined specifically in the employee offer letter.

Profit-sharing or Equity

Profit-sharing allows employees the option to share their company’s profits. A profit-sharing plan includes a fixed structure for how profits will be allocated and distributed to employees. Generally, it’s a percentage of the profits as opposed to a specific dollar amount each year. There are different types of equity and profit-sharing plans out there. It’s best to hire a consultant to find the best plan for your company.

Not only can these help recruit and retain qualified employees, but giving employees greater responsibility can engender a sense of ownership over their work, but also the company. If they are personally motivated for the company to do well, then their performance will improve as can satisfaction, loyalty, and ultimately profits.

Whenever you introduce a new benefit or program, there are additional factors to consider before you offer a specific type of compensation structure. Here are a few things to consider:

  • Will you or the employee owe taxes on compensation?
  • Are communications or reporting required for the IRS?
  • What administrative duties are you responsible for when adopting a specific type of plan?
  • Is there reporting or disclosures you need in order to maintain compliance?
  • Are you subject to provisions of the Employee Retirement Income Security Act (ERISA)?
  • What shareholder communications must you be aware of?
  • Does your employees’ exemption status matter?
  • Are your plan terms and metrics objective or subjective?
  • Have you adequately and accurately communicated program details to your candidates and employees?