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Motivation of white-collar workers

Company groups, Corporate law, Employment, labour law, Medium-sized companies, News / / , , , , , ,

In the first part of our series of articles, we looked at the motivational options available to companies for their physical employees (blue-collar workers). For intellectual employees (white-collar workers), the same options as described above can be applied, but companies may also be interested in other reward possibilities.

It has always been a challenge for employers to retain the talented (executive) management of the company and encourage them for better performance and thus improve the company’s profitability. At the same time, the motivation system works well only, if the business leaders also consider these colleagues as an asset of the company and are willing to “give a slice of their cake”. This is because these executives contribute greatly to the corporation’s success.

“He/she doesn’t look at the firm as his own.” “I paid him/her a high salary for years, yet he/she left us and went to the competition.” We have come across countless times such and similar statements as a consultant. But why would an owner, an entrepreneur expect, whether with an international background or leading a family business, the managers to give their hearts and souls for the company and put their personal life and leisure back, when they do not benefit proportionately from the company’s success? Of course, mapping out the real proprietorship challenge is not a purely legal task. Nonetheless, there are several corporate, commercial, and employment law agreements to motivate management. Not only the owners, but also people who develop the organization by being responsible for HR, coaching, as well as the company’s tax or finance managers should be aware of those solutions.

The following few examples make the benefit system transparent, thus being predictable and strengthening the employer brand, increasing loyalty within the business and encouraging higher performance of key personnel.

Shareholdership – with limitations

Whether a legal person operates in the form of a limited liability (Kft.) or as a private company limited by shares (Zrt.), it has the option to grant shareholdersip with different legal rights with the purpose of recognizing colleagues who play a key role in the profitability. Such solutions do not need to provide equal or proportionate rights (for example, in terms of voting rights or dividend entitlements) and may be for a definite period (i.e. duration of legal relationship with the entity).

Other favorable options

Whether in an employment or contractual relationship, the owner of a company always can formulate favorable rules in relation to employment, and thus, among others, implement tax-efficient performance incentives at the company such the following ones:

  • increased or reduced notice period in proportion to seniority;
  • insurance, health insurance, private health care packages
  • a higher amount of severance payment, based on the number of years spent at the company;
  • “alumni” benefits (either directly or through a fund, insurance company) available after the termination of the employment relationship with the company;
  • benefits provided to the employee’s family,
  • providing longer unpaid leave (sabbatical leave).

The planning and systematization of the above-detailed benefits may have an impact on tax administration, and thus, on the total cost of the benefits. It is therefore worth structuring the benefit plan carefully from a tax perspective, considering the given circumstances.

The loss and replacement of a middle or senior manager imposes a significant financial burden on businesses. That is because not only the time and cost of recruiting the right person should be considered, but also the alternative costs of handing over processes, integrating a new colleague, rebuilding the entity’s reputation, the loss of the company’s know-how, customer base and building long-term loyalty. It is therefore in the fundamental interest of firms to rethink how they can reward the work of their valuable co-workers and support their loyalty through transparent and predictable remuneration systems.

Incentive schemes for blue-collar workers

Company groups, Employment, labour law, Medium-sized companies, News / / , , , , , ,

 

INCENTIVE SCHEMES FOR BLUE-COLLAR WORKERS

The increased demand for labour, the emigration of skilled manual workers – either to a company in a neighbouring city or across the border – places a significant burden on companies’ HR colleagues. There is a recurring need to develop appropriate incentive schemes that increase the appreciation of high performing colleagues and help retain employees.

According to our experience, a compensation system will only be viable, if it is based on well estimated employee needs and a comprehensive knowledge of the options available under labour law. In this article, we would like to draw attention to solutions that go beyond the (also significant) remuneration policy.

Wages and Compensation

 The most trivial correlation is that if an employee earns more, he/she is more likely to stay with the company. In our experience, a proper salary model is undoubtedly an important tool, but not the only one, as employees already take into account other incentives in addition to their wages, which are effective if the conditions are tailored to the employer and the job and diversified according to e.g. presence, performance, quality. The social needs of employees (e.g., tax-free allowances, holiday allowances, etc.) are increasingly important. Employers must be very precise and accurate in defining compensation to avoid labour law and tax risks, for example the classification of compensation as wage, which can lead to serious tax payments and penalties later.

Transparency

 It is important that the employees understand the benefit and that compensation was objective. If, for example, an allowance is based on the company’s results, it must be comprehensible to all employees concerned without the need to read the company accounts. A transparent system leads to greater employee loyalty and increases trust in the employer.

Transparency is often used as a synonym of objectivity at companies, even though the two terms do not have the same meaning. Objective and subjective benefits differ as in the latter case the employer has at least some discretion over the actual payments. However, it is important for both systems to be drafted in a clear and comprehensive way – in our view, this is in the interest of both parties. An example is the combination of group and individual bonuses in the case of a manufacturing company. A dual bonus system ensures that employees not focus only on their own performance, but also on the performance of the team as a whole – that results in making them better off financially, but also in achieving other HR policy objectives (cohesion, team spirit, loyalty).

Predictability

A principle that makes a reward system successful and is closely linked to transparency is predictability. For blue-collar workers, it is of major importance that their livelihood is secure not only immediately, but also in the distant future. It is therefore worthwhile to set short- and medium-term goals in a structured way.

Communication

Entities very often ignore the importance of communication. Whether we are talking about verbal feedback or incentive schemes, positive feedback is much more effective than punitive – disincentive – regulation. In case of physical workers, it is equally important that the company’s core values are expressed to them properly (also in the daily cooperation), and that they can expect the same from the coworkers. It is pointless to proclaim that an employer protects personal rights if it monitors premises illegally. However, it is also important to be aware of the legal aspects of the timing and content of communications, as in many cases these qualify as binding commitments to the employer for the future.

Opportunity for promotion

Ambitious and talented employees should be constantly monitored and provided with the opportunity for development, promotion or training. That will help to retain the most loyal people in the long term. For employers, however, it is of paramount importance to include appropriate labour law guarantees in the agreement with such employees.

As a conclusion, Hungarian labour law provides a very wide range of incentives for blue-collar workers, which not only provide additional benefits for employees, but can also guarantee companies the retention of a secure workforce. However, knowledge and understanding of the basic challenges and the most optimal labour law and tax aspects of possible HR solutions are essential for successful implementation.

Should you have any questions regarding the above, feel free to contact us.

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