Growth Strategies

Perk Power

The downside: You can't match the benefits offered by Fortune 500 companies. The upside: An exclusive Dun & Bradstreet survey reveals you may not have to. The bottom line: You still have to offer something.
Magazine Contributor
9 min read

This story appears in the July 1998 issue of Entrepreneur. Subscribe »

In the movie "9 to 5," Lily Tomlin's character, Violet, says to her boss, "I am your employee, and as such, I expect to be treated with a little dignity and a little respect." But when her employer proves to be a "sexist, egotistical, lying, hypocritical bigot," he is hog-tied, poisoned and shot by Violet and her co-workers. Is a similar fate in store for you?

Results of a recent survey about small-business employee issues by international research-based business information provider Dun & Bradstreet (D&B) suggest that all may not be well in the world of employee benefits at entrepreneurial companies. According to the survey, few small firms provide health or retirement benefits, offer much paid time off, train employees in key skills, or have formal procedures for dealing with discrimination and other workplace issues.

Companies that don't offer any benefits are likely to find it hard to attract good employees, warns William F. Doescher, senior vice president with D&B in Murray Hill, New Jersey. Most job applicants today ask prospective employers if they provide paid vacations, retirement and health benefits, and opportunities to improve skills. "When the answer to those questions is no, qualified people are likely to walk away," says Doescher.

The problem is not that entrepreneurs are heartless, says Kyp Sirinakis, director of the Technology Resource Alliance, a small-business incubator at George Mason University in Fairfax, Virginia. Nor does she consider limited resources an adequate explanation. "To me, it's a lack of awareness," says Sirinakis. "A lot of small-business owners are so focused on the day-to-day running of their businesses that they don't take a step back to creatively use their managerial skills."

Not all entrepreneurs are so shortsighted, however. David DeLong, CFO and co-founder of 25-employee Dynamix Group Inc. in Roswell, Georgia, says training is a constant focus at his computer remarketing firm. While the company lacks a formal vacation policy and pays only a portion of health insurance premiums, DeLong says his employees are content because they receive bonuses they can apply to benefit programs or put to another use, and this provides maximum flexibility.

Benefits Breakdown

The survey findings reveal that entrepreneurial companies have to deal with complex issues when it comes to providing employees with such benefits as paid vacations, health plans, retirement plans and tuition reimbursement.

One of the biggest surprises of the survey has to do with policies regarding paid time off for full-time employees. Only half the firms surveyed offer paid vacations, and even fewer pay for holidays and religious observances, personal and sick days, family and medical leaves of absence, and bereavement leaves. Only one in four pays for maternity and paternity leave.

"I'm sure the reason is money," Doescher says. "But in today's job market, if you don't provide paid vacation time, you're going to have a hard time attracting employees."

The news that just 39 percent of the companies offer health-care benefits is less shocking. What is surprising is that this number has fallen from 46 percent in 1996. Maybe it's because some small firms forgo company-paid plans because of laws stating that health benefits offered to one employee must be offered to all, Doescher says. Other companies say they pay higher salaries to enable employees to purchase their own coverage, he adds.

DeLong's company takes the middle road, providing minimal health insurance coverage: The company pays 25 percent of the premium for a basic policy covering only the employee; additional coverage for family members comes out of employees' pockets. DeLong feels this approach works best for his company because it gives his employees what they really need. Several of his employees retired from IBM and are still covered by the health plans of their ex-employer. Others are covered by plans from a spouse's employer. Paying to cover these employees' families wouldn't be the best use of the company's resources, he says.

The trend in retirement benefits seems headed in the same direction. Nineteen percent of the firms surveyed offer retirement benefits, down from 28 percent in 1996.

Tuition reimbursement is one of the most popular benefits for employees at companies such as Stonyfield Farm Inc., a fast-growing 150-person yogurt company in Londonderry, New Hampshire. President and CEO Gary Hirshberg says this benefit was added after a study group of employees and managers identified tuition reimbursement as something they really wanted.

But only 15 percent of the other companies surveyed offer tuition reimbursement, probably due to financial constraints. "When you're running on a shoestring [budget]," says Sirinakis, "tuition reimbursement has to go by the wayside."

Experience Required

Small-business owners were also asked to identify the employee skills they felt were most valuable. Surprisingly, they ranked communication skills and assertiveness far ahead of computer abilities, leadership and even sales talent.

Even more astounding, employers say they are unwilling to train employees--even in the skills they value most. For instance, 81 percent value communication skills, but only 17 percent are willing to pay to train employees in the skill.

Time and talent are the barriers here, Doescher believes. "The only way small businesses can train is for the owners to train the employees themselves," he says. Yet few entrepreneurs are talented trainers, and fewer still can spare the time to tutor workers. One solution Doescher recommends: Send employees to low-cost seminars.

There are also creative ways for entrepreneurs to offset the cost of employee training. Dynamix, for example, funds an extensive training program with the help of IBM, its main vendor. IBM sets aside a portion of the discounts it offers resellers like Dynamix and uses it to, among other things, fund a technical training program in which the resellers can participate.

The survey also found that entrepreneurs seem to be wary of formal policies. Most firms in the survey don't do performance reviews or have written policies for dealing with disciplinary problems or sexual harassment. Only 11 percent have formal drug-testing policies.

Entrepreneurs believe they have good reason for being leery of written policies: They fear giving up their flexibility. Hirshberg warns against that attitude, however. A self-proclaimed '60s flower child, he hesitated to institute a drug-testing policy at Stonyfield. But safety concerns compelled him to start prescreening applicants and even randomly testing company drivers.

Since his employees operate machinery, having a drug-testing policy lowers his insurance premiums, Hirshberg says. Employees also benefit from the policy. "We've caught people who are in trouble," Hirshberg adds, "and gotten them into employee assistance programs."

Positive Points

Not all the news from the survey is bad. Small-business employees remain highly motivated, according to business owners. Sixty-nine percent gauge their employees' motivation by their willingness to work overtime, improve job skills and enhance job performance.

Sixty-three percent of those surveyed say workers do more than expected and want to move up in the company. In addition, hard work seems to be rewarded in today's small companies: Twenty-one percent of the owners say promotions are based on merit, 34 percent on a combination of merit and seniority, and just 4 percent on seniority alone.

Given the scarcity of benefits, what motivates employees to stay at small companies is a mystery. Schedule flexibility and the chance to participate in decisions may explain part of it. "Some employees are motivated by things other than money," Sirinakis says. "Having flexible hours or being able to leave work [early] to pick up a son or daughter may be what's important."

Benefits don't have to be expensive; many small firms find that flexible hours and other nonfinancial incentives work just as well. Sirinakis recommends that entrepreneurs think creatively about how to provide employees with useful benefits rather than assuming they must provide costly, traditional perks. "Sometimes simply talking to them makes a difference," she says. "And that doesn't [cost anything]."

Hirshberg, for example, uses an open-book management style and shares the company's financial details with his staff to motivate employees by making them feel involved. William Dotson, president of Northwest Business Group Inc., a management consulting firm based in Eugene, Oregon, says recognition for a job well done can motivate employees as effectively as a pay raise. "Verbal and written recognition are important," adds Dotson, "Celebrations in the form of parties and picnics are also important."

An alternative to retirement plans or health insurance is ownership in the company. "We're looking at stock-option plans," says DeLong. "We'll probably come out with them this year and allow people to become shareholders in the company by diverting part of their bonuses into stock."

DeLong's on the right track, says Dotson. "In the 21st century, employees are going to want a piece of the action," he says. "It's a real plus for a small business to do that." The amount need not be large. Just a 1 percent or 2 percent ownership share will provide many employees with adequate motivation, Dotson adds.

Whatever their benefits programs, entrepreneurs remain confident that they'll be able to attract new workers. Thirty percent of those surveyed expect to add employees in the next year. Minority business owners are even more optimistic, with just less than half projecting employee growth.

Even if you compete with other small firms for workers, you may not need Fortune 500-caliber benefits to attract and keep quality employees. Instead, concentrate on more innovative extras such as participation, performance incentives and flexibility.

A company's atmosphere can make a big difference, Sirinakis maintains. After all, perhaps the most important benefits an employer can offer are a little dignity and respect.

By The Numbers

The who, what, when, where, why and how of Dun & Bradstreet's small-business survey.

Dun & Bradstreet surveyed 503 small-business owners and senior executives by telephone for its first-quarter 1998 Small Business Hot Topics Research Report on employee issues. The businesses were randomly selected from a database of U.S. businesses located throughout the country.

Almost all had 25 or fewer employees; the largest employed 100. Half were women-owned, and minorities owned nearly one in four. The largest number of companies were in business services and retail, with smaller numbers in the manufacturing, construction, professional services, financial and wholesale fields.

Contact Sources

Northwest Business Group Inc.,

Stonyfield Farm Inc., 10 Burton Dr., Londonderry, NH 03053, (603) 437-4040

Technology Resource Alliance, (703) 277-7710,

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