Andy Sherwood, MBA - Guest Expert, HR & Benefits

Note from President, Sam Holloway: Andy Sherwood, MBA is our latest addition to our pool of Guest Experts at CAS. Andy has a long history as a home brewer, plus extensive knowledge in finance, operations, and as benefits administrator and benefits auditor in large and small organizations. Andy’s MBA focused on the beer industry, where he conducted interviews of brewery owners across the country, producing an MBA thesis centered on benefits policy standards for craft breweries. We are very fortunate to have Andy and his ideas as part of a four part, member’s only blog series on “HR & Benefits Strategies for Craft Breweries” in 2015. ~Sam Holloway

Compensation Strategy: The Puzzle of Direct and Indirect Benefits

Many challenges await a growing brewery. Chief among these initial challenges is developing a strategy surrounding the compensation of employees. It is important to identify the elements that go into compensating an employee before developing a strategy. Planning effectively is hard, and there are many components of crafting a compensation strategy to consider. This blog entry will cover three important topics when developing a compensation strategy. First, we will review the difference between exempt (salaried) and non-exempt (hourly) workers. Second, we will take a look at how much to pay employees based on market ranges, and finally we will delve into utilizing total rewards packages to attract and retain the best people in the industry.

Exempt vs. Non-Exempt Employees

When working capital is scarce and cash flow is unpredictable, there is a natural tendency to do everything in one’s power to create an exact and predictable payroll budget. Many entrepreneurs accomplish this by putting everyone, from the part-time bookkeeper to the master brewer, on salary. While this makes it easy plan for payroll, it is ill advised. In particular, a blanket policy to salary employees could violate the Fair Labor Standard Act (FLSA). This federal statue, brought about by the Roosevelt administration as part of the New Deal in 1938, implemented many reforms including establishing a federal minimum wage and the forty hour work week.

The FLSA also defines who can be considered a salaried employee and establishes minimum weekly dollar amounts for salaried employees. The minimum amount a salaried employee can make is $455 per week or $23,660. If this annual salary seems to reside on the low end of the spectrum, then keep reading! A quick Google search will reveal that the Obama administration is hinting at an executive order that will bring substantial changes to this $455 a week minimum. Guidelines have been established by the Department of Labor to help employers determine which employees may be salaried and which employees must be paid on an hourly basis.

For instance, your brewmaster would most likely be a salaried employee under the DOL guidelines. Brewmasters’ work is creative in nature and requires advanced knowledge in a field of science; these characteristics suggest a salaried or exempt employee status. A shift brewer, depending on their duties, could qualify as either an exempt or non-exempt employee. Outside sales people are also considered exempt if they are regularly in the field making sales or obtaining orders. Your part-time bookkeeper is most likely a non-exempt employee unless their primary duty includes “the exercise of discretion and independent judgment with respect to matters of significance” (in the words of the DOL). That clause is one of the keys to determining the status of an administrative employee.

Finding the Range

Through my conversations with brewers and brewery HR professionals, I’ve seen variations on three different types of compensation philosophies:

• This is how much we have: This is pretty self-explanatory, a budget-based approach and one that I am sure most breweries are familiar with. Essentially a budget is drawn up for a position based on available resources.
• The wild west: Often times, retaining and attracting talent in craft brewing means “one upping” the competition in terms of salary, bonus structure, and benefits. This approach usually starts by asking the target how much they are currently making and then offering a substantial increase to motivate her/him to jump ship.
• Data-based: As the industry matures, larger breweries are beginning to take an analytical, data-based approach to compensation. This is done by compiling salary survey data from peers within the industry and matching positions based upon duties. Additional considerations include compensation adjustments for knowledge, skills, and abilities - as compared to some industry standard. Salary surveys are compiled and published by multiple sources within the industry, including the Brewer’s Association.

Total Compensation

An entire blog post (or two or three posts) could be and probably will be devoted to the topic of indirect compensation for brewery employees. In fact, Sam Holloway has asked me to spend 2015 helping your learning community understand this complex and important decision. I am happy to do so!! For now, here is a quick summary. First, adding medical benefits and a 401k retirement plan is something that all brewers should begin thinking about the moment that they begin to add full-time staff members. Otherwise, you will undoubtedly find the perfect fit for your organization, and she won’t leave her current job because of insurance and retirement benefits concerns. For quick reference on how to get started in these areas, I recommend the following free sources:

• https://www.healthcare.gov/small-businesses/
• http://www.dol.gov/ebsa/publications/401kplans.html
• http://www.entrepreneur.com/article/232724
• http://www.inc.com/magazine/201312/jeremy-quittner/obamacare-benefits-start-ups.html
• http://www.forbes.com/sites/georgedeeb/2014/08/08/should-your-startup-offer-employee-benefits/

By far, the most important and most difficult piece of crafting a compensation strategy involves these creative and indirect compensation vehicles. As you’ve read elsewhere within the CAS learning community, not everyone in your company is motivated by simple “carrots and sticks”, not everyone responds well to traditional bonuses, commissions, or monetary rewards. In fact, focusing too much on these can kill your company culture, and result in Harry Levinson’s “ Great Jackass Fallacy” overtaking your business. Keep your eyes out for my next blog, where I will write about how to balance direct and indirect compensation, to create a place where employees feel safe, inspired, and are ready to go out and help your community, one great craft beer at a time.