Cash vs. Savings (Benefit Tips ® - © 2002)
Cash is such a powerful motivator that many employers reward their staff with performance bonuses. However, in some situations, benefits can achieve better results at a lower cost.
Let’s look at why an employer might decide to reward employees with contribution to a Deferred Profit Sharing Plan (DPSP) instead of cash bonus.
Saving for retirement helps satisfy the employee’s need for financial security, and accumulating wealth helps satisfy the employee’s need for self-esteem. Meeting these employee needs can help attract and motivate staff. Some companies are employers of choice because of their DPSP. Their staff have financial security as well as bragging rights.
Furthermore, up to 19% in payroll taxes are avoided. Employees could save Employment Insurance (2.2%) and Canada Pension Plan premiums (4.7%) while the employer could save Health Tax (1.95%), Employment Insurance (3.08%), Canada Pension Plan (4.7%) and WSIB (2.13%) premiums.
Since bonuses place in a DPSP are used to achieve long-term objectives rather than immediate needs, staff are insulated from fluctuations in bonus payments. While this cushions the consequences of under-performance, it also provides freedom to accurately reflect performance.