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Creating a great working experience can lower your payrolls and boost staff morale at the same time.

Think your employees are asking for too much money? If so, you may want to think about how you can motivate them without doling out more cash. It's a simple thought exercise that can lead to some practical ideas on how to lower your payrolls and boost employee morale at the same time.

In my frequent interactions with the small-business owners who use our payroll service, employee compensation is a hot topic. The feedback I get is fairly predictable. Salary expectations for workers are too high or out of whack with reality. I hear that healthcare benefits and workers' compensation insurance are huge expenses. To be sure, the costs of these benefits are dragging down small business profitability across the nation.

In these interactions, I often ask business owners whether any of their employees would work for free. I get a puzzled look in response.

"No, really," I say. "If your employees were independently wealthy and didn't need to work to make a living, would they work for you?"

You see, that's the holy grail of employee compensation. Create a work experience that is so incredibly awesome that folks will work for you for less money than they might otherwise demand. Let's say, for example, that you install a ping pong table and a pool table in the office. The ping pong table runs $500 and the pool table runs $2,000. You've just invested $2,500 in employee happiness. So, what's your return on investment?

Now, suppose you've got 70 employees and you estimate that you can pay each employee $100 less per year in salary, simply because they love the idea of working at a place that encourages employees to have fun. Lo and behold, you've just turned that $2,500 investment into a $7,000 payroll savings, an annuity that pays out every year and pays even more as you grow your firm. Plus, there's the added benefit of improved morale that hopefully will boost productivity and add an incremental bump to profitability. (That's assuming you manage your employees well, and they don't all stop working and just start playing games all day.)

Holistic Compensation

The lesson here is to think about compensation as being much more than cash. A higher pay rate doesn’t guarantee employee loyalty or longevity -- but an outstanding work environment and unique perks may. At SurePayroll, when an employee has worked with us for five years, I personally take them on a trip. Each year, the group decides where they want to go. We’ve been to the Bahamas, Jamaica and Mexico.

It's something we've been doing for several years, and as we've grown, the number of employees who go on the trip each year has grown. New employees tell me they love the idea. It shows that we are a company that rewards loyalty. Does it cost a lot of money to take so many employees on vacation every year? You bet. But, just like the previous example of the pool tables and the ping pong tables, we believe we get much more than our money's worth on this investment. With perks like these, we have a happy and motivated workforce that does a great job for our payroll clients.

So, if you are wrestling with salaries and healthcare benefits, maybe it's time to take inventory on your non-cash compensation plan. What do employees love about working for you? What can you do to make employees love working for you even more? The reality is that most people don't quit jobs because of pay issues. They quit because the work environment is toxic. The job is no fun. They are not challenged. They hate the boss.

Our job, then, as an entrepreneur, is to make work enjoyable and to pay our employees in units of happiness and fun. Sure, they still will want some of the green stuff, but maybe the positive work experience you provide will ease the demands for cash and let your payroll be less of a burden. Do it right and the competition will be green with envy, wondering how you manage to get the best people while still paying reasonable salaries.

That's the kind of green stuff that we entrepreneurs love to dish out.

What do you do to make your employees love working for you? In my next article, I'll post several ideas on ways to compensate employees well with schemes that fall outside the realm of just paying salaries and providing basic benefits.

Copyright © 2008. Inc Magazine.