How better employee benefits can help grow a company

“Where are all the workers?”

It’s a question employers are asking in this era of historically tight labor markets. But the data says that plenty of workers are still out there. In fact, the size of the local labor force is back to where it was pre-Covid. Workers have more options now, so they’re migrating to sectors and jobs that pay more, offer better benefits, and lead to a higher quality of life.

Given these circumstances, we’ve been talking with companies about the importance of designing high quality jobs (i.e. positions with sustainable pay and benefits in a supportive work environment).

But sometimes I get the sense we’re talking past each other. It’s easy for us to encourage business owners and executives to just pay more, for example. It’s also easy for them to wonder what public sector employees know about running a competitive business. Both groups have a point.

So, looking to bridge the gap, I went to someone who spent their career running a local company.

Paul Neumann was the CEO of local manufacturing firm Universal Woods (now UW Solutions) from 1994-2019. During this time, the company went from approximately $4 million in annual revenue to $80 million. They also implemented some top drawer benefits and resources for their employees, which helped annual turnover drop from 100% to less than 10% over that same stretch.

What role did employee benefits play in the company’s growth while you were CEO?

Paul: When I was brought in to run the factory, we had 33 employees. Our pay was below average for the industry at the time. We were doing commodity manufacturing and the business was struggling, frankly. We had to pivot and focus on building a stronger brand and a line of branded products. This took around ten years or so.

As the company began to grow, our compensation and benefits also began to improve significantly. Eventually, our benefits became recruitment and retention tools for us. By 2016, our pay was in the 60-70 percentile of local manufacturing companies and our benefits were in the top 10%. When I retired, we had 250 employees and were doing sales in 80 countries around the world. Our ability to attract and retain quality workers was a key piece of our success.

Was the improvement in benefits a proactive plan or more of a natural reaction to the demands of a growing company?

Paul: Our high turnover was a major challenge in those first few years. We tried a lot of things to address it. What we learned, over time, was that better benefits - sometimes even more so than higher hourly wages - gave our workers more stability in their lives. A more stable workforce obviously had immense value to the company.

“What we learned, over time, was that better benefits - sometimes even more so than higher hourly wages - gave our workers more stability in their lives.”

So we strategically decided to make high quality benefits one of our selling points. We were a small company, but we wanted to offer big company benefits. It also made sense to share the trappings of our success as a business with our employees. It got people to buy into what we were doing.

Did you set specific goals around the level of benefits you wanted to offer?

Paul: Ford was our ultimate target, although we never quite got to that level. But we aimed to be in the top quartile of our peer companies for each of our benefit categories. We accomplished this in every category, except for maybe holidays. We found that most workers preferred getting a bigger raise in lieu of more paid holidays.

How did you know what your peer companies were offering?

Paul: We looked at publicly available data like the Bureau of Labor Statistics (BLS) reports. We also talked to benefits providers, who can tell you basically where you stack up. That was critical to our thinking process as we figured out how to position ourselves.

Was your ability to offer higher level benefits a luxury of a fast-growing company?

Paul: No, and if I could go back fifteen years and do things over again, we would have absolutely put better benefits in place even earlier.

Turnover is hugely expensive. It may cost the company $5-6k depending on the job. If you are a one hundred person company, and you’re hiring 40 people a year, you might be spending a quarter million dollars annually on turnover alone. The benefits policies we enacted were paying for themselves in terms of reduced turnover.

With 20/20 hindsight, we could have offered better benefits and better service to our customers sooner, which would have led to higher sales and faster growth.

What about a business in a super competitive space with tight margins? Can they take the same approach to benefits?

Paul: I’ve never run a restaurant, for example, so I don’t know the specific challenges a business like that may face. But, what I can say is, regardless of the industry, you have to think about how you can take care of your employees so they can take care of your customers.

“It’s a virtuous circle. As you become more stable as a business, you can provide better compensation and benefits, which in turn helps attract better employees and get them to a better place in their lives, which leads to a healthier business. ”

It’s a virtuous circle. As you become more stable as a business, you can provide better compensation and benefits, which in turn helps attract better employees and get them to a better place in their lives, which leads to a healthier business.

What about a business that’s struggling just to stay afloat?

Paul: If you can’t afford to pay your employees $15/hr, you need to think about how you can reorganize your business so that you can afford to pay a living wage. You need to be asking questions like ‘Do we need to change our pricing or maybe our product line? How can we offer a better value proposition to our customers?’

To survive, a company has to be providing and capturing enough value so that it can afford the necessary input costs. Some companies focus on cutting their way to success or trying to increase efficiency. Both of these approaches are very difficult to pull off. The easier and, in my opinion, better route is to figure out a growth trajectory for your business. You should be doing that in conjunction with your employees and with your customers.

It also takes time to turn a business around. It took us about fifteen years to go from a place of scarcity to where we were firing on all cylinders with really high-quality benefits.

If improving benefits helps businesses make money over time, why don’t more do it? Bad management?

Paul: I wouldn’t call it bad management, per se. There are many approaches that can lead to a successful business. I’d say it’s more of a failure of imagination. Leaders of businesses sometimes can’t picture what the business might look like if it worked differently.

“You’ve got to work at understanding what challenges your employees are facing, and you’ve got to approach things analytically.”

It can also be a lack of empathy, and I don’t mean that in some horrible way. The people running the business aren’t typically facing the same economic challenges that their lower level workers may be. For instance, if an executive’s car breaks down on the way to work, it’s no big deal. But it might be a huge deal for someone who can’t afford to get an Uber, or make the repair to their car. An inconvenience for one person is a crisis to another, because they don’t have the same options to deal with the problem.

You’ve got to work at understanding what challenges your employees are facing, and you’ve got to approach things analytically. If someone shows up late to work, managers tend to blame the employee for planning poorly or being lazy, instead of drilling down to the root causes.

Every now and then, the root cause may be that the individual employee just isn’t very reliable. But that shouldn’t be your default way of looking at things. Most people don’t get up in the morning thinking they want to do a crummy job at work.

Do you have specific examples of where empathy played a role in a benefits policy?

Paul: We had an education benefit at Universal Woods where we reimbursed workers for taking college classes. Only about 1% of our workers took advantage of it in any given year. But what I initially failed to realize was that shelling out $500 to pay for a class was quite difficult for many of our employees, both on an economic and psychological level. Even if they had the money, they worried about losing it if they didn’t pass the class or couldn’t finish for some reason.

*The Honor Roll wall at Universal Woods (2018)*

After consulting with our HR director, we flipped things so that the company paid the class fees up front. Over a three year period, we went from 1% of our people taking classes to over 10%. Over a 7-8 year period, more than 20 employees had finished degrees and were still working in the company, often in different roles - engineering, computer science, graphic design, accounting, etc. Some got advanced degrees and stayed in the same department. That simple policy change completely changed the dynamic and improved many aspects of our company over time.

Any other examples?

Paul: We started paying more attention to the macro-societal issues that were impacting our workers. Something like a quarter of American adults are in medical debt, for example. If you’re in management making $100k a year, you might not realize that. So we took steps to lower the deductible on our health insurance plan.

“We started paying more attention to the macro-societal issues that were impacting our workers.”

We also wanted to do something about payday lenders. There probably isn’t a factory in Louisville, or a large workplace for that matter, where some employees aren’t going to payday lenders. And once someone gets one of these loans, they tend to start going back over and over again until they’re deep in the hole. Trapped, basically. Payday lenders should be illegal, but that’s another story…

Anyways, we didn’t want this happening to our employees. It’s bad for them and it’s bad for the business. If an employee gets one of these high-interest loans, they’re less likely to survive economically. If they’re not surviving economically, they’re less likely to show up to work.

So, we put $15k on deposit at a credit union and started an emergency loan program. The credit union gave out something like $150k in loans over the next ten years. The total cost to us was maybe $5k at the most. So, basically, we spent $5k to increase the overall level of financial stability of our employees. It turned out to be a no-brainer.

What about employee retirement plans?

Paul: We matched employee 401k contributions up to 3% and added an additional 2% for everyone. So the total max contribution was 11% of their paycheck. We also required workers to opt out of the plan, rather than opt in. That’s more the norm now, but it wasn’t at the time. We got to a place where more than 95% of our employees were putting 11% into their 401k plan. One of our objectives was for employees to be able to retire and live well.

How did you approach benefits during the down times? Like, 2008, for example?

Paul: In 2008, our business shrank for the first time in years. We didn’t make layoffs, but I took a 15% pay cut. Employees making more than $75k took a 10% pay cut, and those who made less took a 5% cut. There were no raises or bonuses given that year. We also didn’t do the extra 2% retirement contribution, although we kept up with the matching.

We were in survival mode like almost everyone else. In 2009, we grew a little bit. Then, in 2010, things really picked up again and we grew by 40%. Thankfully, we were able to handle that growth since we hadn’t made any layoffs. There’s no way we could have done it if we had needed to hire a bunch of new people.

“If you want leadership to care about the benefits of their entry level and frontline workers, and to be looking for ways to continuously improve those benefits, then make sure everyone is on the same plan. ”

Our employees knew the state of the economy in 2008. They had friends and family members losing their jobs. They knew that I was taking a pay cut and everybody else they worked for was taking a pay cut. I think that helped foster the understanding that we were in it together.

How did your benefits plan compare to your average worker’s?

Paul: Every full-time employee at the company, including myself and our senior managers, had the exact same benefits plan. If you want leadership to care about the benefits of their entry level and frontline workers, and to be looking for ways to continuously improve those benefits, then make sure everyone is on the same plan.

Empathy requires a level of open communication. How did you get feedback from the company’s workforce?

Paul: We did a few things. Employee surveys, for one, which have some pluses and some drawbacks. But we really wanted to hear from people first-hand as well. We had annual meetings with people from all departments and all levels of the business where we’d ask them questions about how they felt about their jobs, pay, benefits, what they’d like to see improved, et cetera. Open ended questions that encouraged them to comment.

We found this to be a valuable source of market intelligence, often more so than whatever was published in the newspaper or other reports. By listening to our employees, we could get a better sense of what other companies out there were offering.

Every year, we also produced individual statements for each employee that showed what they made in wages and what they made in benefits. A lot of companies talk about these things on a generic level with their employees, we talked about it very specifically. We wanted people to understand and value their benefits.

How did you know the limit of what the company could offer its workers in terms of benefits and compensation?

Paul: Our general approach to everything in the business was evolutionary, not revolutionary. It was sort of the antithesis of the “move fast and break things” mentality. We weren’t looking to change the entire paradigm.

This applied to compensation as well. If you’re paying $15/hr and you jump to $30 in one move, what’s the next step going to be in that progression? You have to think about sustainability. Our focus was on growing the business sustainably and making money.

How did you try to enhance the company culture and work environment?

Paul: At any manufacturing facility, and really any workplace, safety is the most important priority. When I came into the company in 1994, our safety record wasn’t great. So that became a focus. We got to the point where our accident rate was about half of the average for our industry.

We also realized that it made sense, both morally and as a business, to invest in improving the work conditions. For instance, studies have shown that there’s an optimal temperature for a factory in terms of employee productivity. If a factory starts getting too hot, for every added degree above that optimal level, you’re losing productivity because the employees are less comfortable. So we invested in a major air conditioning system in 2012. It’s one of those things I wish we had done sooner.

Anti-discrimination training and DEI (diversity, equity, and inclusion) efforts have really taken off in recent years. Was this something you were doing?

Paul: Yes. Everybody comes to work each day with a basket of beliefs. We all have built-in prejudices of different kinds. It may not always be about race or gender or religion or nationality. It may be that a manager has a bias towards workers with college degrees, for example.

Like anything else, some DEI training tools are better than others, and it’s a shame how some of it has been politicized. But the idea that prejudice doesn’t exist in the world, and in the workplace, is just silly. You absolutely need to be proactive around these subjects.

Anything else you want to add to other business owners and executives who may be helping make decisions around pay, benefits, and human resources?

Paul: All businesses are different. I can’t just write down a list of specific recommendations for another company. But I’d just like them to keep in mind that you can change the level of profitability of your business by thinking strategically about how to retain your workers. A lot of people haven’t lived it themselves, so they don’t have the faith. But I did, so I know it works.

Want to dive deeper into the research, ideas, and strategies around quality jobs? A great place to start is the National Fund for Workforce Solutions’ Guide to Designing a Human-Centered Workplace. It is specifically geared towards executives, human resources specialists, operational leaders, and frontline leaders.