By: Lee Michael Murphy
Retaining top-level talent in the highly competitive job market of Silicon Valley is one of the greatest challenges that I have witnessed for small to midsize companies. Employees often believe that there is less upward mobility and a much lower pay scale in small to mid-sized companies than at a Fortune 500 company, and employers fear that they can’t afford to pay for qualified employees. A higher salary, however, is less than 20% of the reasons that employees leave their job. Today’s employees want to work for companies that offer new challenges, strong values, and a distinct culture. Though the pay scale may be lower, employers can retain employees if they sweeten the pot by offering a well-structured and managed retirement plan. Employers often believe that they can’t afford to provide a retirement plan, the reality is that they can’t afford not to.
A recent survey by LinkedIn discovered that less than 20% of employees leave looking for higher pay. The survey revealed that employees quit for one of five reasons:
- Boredom or lack of challenges—33%
- Absence of concrete company values or culture—24%
- Expectation of losing their job—21%
- Higher Pay—19%
- Company Politics—3%
Challenge and Boredom
When employees feel that they are not being challenged, it could lead to boredom and may cause them to look for new jobs. One way to combat boredom is to offer a profit sharing plan that challenges the employee to accomplish goals that reward them with money from the profit sharing. As they accomplish their goals, their sense of self-satisfaction will rise as well as their commitment to the success of the company. In addition, a good 401(k) plan is an incentive for employs to stay with the company by helping them put aside money for retirement.
Profit Sharing
A profit-sharing plan that offers a discretionary contribution from the employer—which can be based on merit—can be structured with a vesting schedule—requirement to work a set number of years, say five or six, before they are vested for the benefit. Therefore, the longer an employee stays with the company, the more money they can earn in their weekly paycheck. This challenges them to work hard for themselves, which, in turn, contributes to the success of the entire company.
401(k)
Employees who regularly contribute to their 401(k) with, for example, a 4% match from their employer are helping to ensure their successful retirement. Employers who offer this benefit and contribute to the plan are helping to create employees that are more loyal because the employees recognize that the company is interested in helping them secure a better future.
Let’s imagine that “Jane” earns 70K/year. If she saves 10% of her income each paycheck (the standard recommendation) into her 401K and receives a 4% match from her employer, her total monthly contribution would be $9,800 ($7,000 from Jane and $2,800 from the company). Now, if she receives a 7% return from our 401(k), her 401(k) portfolio would total $959,669 after 30 years, and this doesn’t include any profit-sharing contributions from her company.
Smart Moves
Companies need to stop dwelling on how they can pay their employees more money and start focusing on how they can enrich the lives of their employees through challenges and strong company values and culture. And employers can further enrich the lives of their employees through profit sharing and 401(k) plans, which are excellent incentives for employees to work hard to earn more take-home pay and to provide for their future retirement. Employers who offer a 401k plan with a generous match, a profit-sharing plan, and professional guidance show employees that the company values them, their future, and the wellbeing of their families. A 401K advisors’ job is to help owners and employees by structuring a retirement plan that suits both parties financially and provides service and guidance. Please reach out to me if you have questions about your plan.
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