Incentives Help Mid-Marketers Overcome a Tight Labor Market

As the state of the overall economy continues to improve, middle-market firms were especially optimistic about the economy’s future. Three in five of those said they expect gross revenues to increase over the next six months.

Surveyed businesses also said they expect to hire and increase compensation levels in the coming year to fuel revenue growth. Of those surveyed, 33% said they increased hiring in the previous quarter while 42% expect to hire in the near future. Almost half increased employee compensation in the first quarter of 2016 and expect compensation levels to rise in the future.

Joe Brusuelas, chief economist at RSM, said that as unemployment rates fall, the availability of labor, especially skilled labor, will become a challenge for the middle market. “We believe incentive compensation will become a significant factor in a firm’s ability not only to attract and retain skilled workers, but to grow revenue overall,” said Brusuelas.

Of the executives surveyed by RSM, 71% also said their firms were already using compensation tools to incentivize high performers. The most commonly used types of incentives were monthly, quarterly and annual. The most popular offerings to attract or retain employees were healthcare benefits, retirement programs, opportunities to have input on how work is done, an employee recognition program and flexible schedules.

The report also revealed that while the responsibility for determining incentives varied among firms, it was most commonly performed by the office of the chief executive.

Michael Kesner, leader of the National Compensation Practice at Deloitte, said in a company blog post that while short-term incentives can help, long-term incentives can better retain talent. He said new incentives gaining favor among middle markets are phantom restricted stock, phantom stock appreciation rights and profits interest. The latter provides an interest in a partnership that is not a capital interest, entitling the holder to a percentage of post-grant partnership interest and gains.

“Taking some deliberate steps now can help ensure your key employees can look, feel and act like owners of the company—a quality that is likely to make potential or existing employees think twice about working anywhere else,” said Kesner.