Benefits Lure Top-Notch Employees

30 November 2000
Trying to get a tech startup going is clearly a bit tougher today than a year ago. Investors actually expect a startup to show a profit. (Can you imagine anything so unreasonable?)

In the face of these conditions, you have to be a bit imaginative in how you attract the best and brightest people to your company. A sweet employment package is essential. Doing it right will require you to dig into some nasty legal and tax issues.

Despite the recent shakeout in tech stocks, in many ways, it's still an employee's market out there.

I know that many of you employer types fret about the lack of loyalty in your employees. I've heard many of my clients say things like, "Don't my employees care that I trained them, taught them the ropes, paid for their continuing education courses, fed them and bathed them?"

I'm sorry to break the news to you, but the answer is a resounding ``no.' They don't care. Money and benefits talk. So, what can your cash-strapped startup do to line up a stellar management team? The key may be the benefits plan.

You should start by considering equity participation and equity incentive plans. For example, stock options are an important tool in luring employees from more established employers. These options reward an employee's efforts if they result in long-term success for your company.

Consider health, life, disability and accident insurance. Insurance is often much less expensive per covered person when you're buying group coverage, as compared to what your employees would pay if they were forced to buy individual coverage. Federal laws generally provide tax incentives to employers who offer these plans. In addition, the money that an employee receives under these plans is sometimes not taxable.

With the number of two-income families increasing each year, you might think about offering or paying for a portion of child care. Certain child-care contributions that an employer makes aren't taxable to the employee if the contribution complies with certain federal laws.

You'll need to keep a couple of things in mind here. First, you can't devise an employee benefits plan yourself. You'll need to work with your attorney and accountant because of the complex laws that regulate employee compensation plans. For example, any benefits plan that involves the issuance of securities to employees will have to comply with securities laws. The catch here is that your small company, which is trying to use benefits instead of cash, will have to budget cash for the professional assistance it will need. Of course, cash is the last thing your startup has. Does the phrase ``Catch-22' ring a bell?

The second thing to remember is that you should fully and frankly discuss all these issues with your employees up front. These are complex issues and you should have a mechanism in place to insure that your employees understand how the choices you've made with the benefits package impacts them.

You also might want to think about some intangibles. For example, consider the ultimate job title. This can be a big perk, and it comes cheap. When I was a part-time intern, the company that I worked for named me a ``Junior Account Executive.' It made me feel important although, well, I wasn't. A computer software programmer would rather interview for a position as a "senior programming director" than a mere "programmer."

Another factor, lest you forget, is that we're in one of the most desirable locations in the world: sunny South Florida. Don't overlook this in a job description.

It comes down to this: Since your startup is probably short on cash, use cash plus benefits as a way to keep your employees motivated. The downside with benefits is that you'll need the help of your lawyer and accountant to get it legally right. Sorry, but that's just the way it is.

Mark Grossman's "TechLaw" column appears in numerous publications. Mark Grossman has extensive experience as a speaker as well. If you would like him to speak before your group or corporate meeting, please call (305) 443-8180 for information.

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