The first in a three-part series, this article discusses the value of benefits to employees and the cost justification for employers. Part 2 addresses common benefit package options. Part 3 introduces the concept of total compensation and explains how to communicate its value to employees.

Ask a remodeler, “Do you value your employees?” and the answer is, more than likely, “Yes.” It's unclear, however, exactly what that means. Is the remodeler saying he cares about his employees, or is he thinking about how much they contribute to the company's profits?

For remodelers battling competitive markets, thinning labor pools, and fast-rising benefit costs, the distinction is subtle but important. Assigning a monetary value to each employee is necessary to assess the health of the business. Workers add to the bottom line; remodelers should know how much each worker produces and what that productivity is worth.

But the employer-employee relationship is inherently more complex than that. Everyone wants a competitive wage, but most also want something else less tangible — to be treated fairly, to spend time with their families, to not worry about health care. Without incentives above and beyond a wage, workers might produce for a while, but they won't hesitate to leave if a better offer comes along.

To attract the best talent and earn loyalty, employers must offer benefits. The trick: Earn employee loyalty without sacrificing profits.

Benefit costs are out of control in the U.S., driven upward almost entirely by rising health insurance premiums. In the first two quarters of 2006, the average employer in the U.S. spent $25.16 per hour on each employee, and 29% of that cost went to benefits. Last year the average employer-paid premium rose by 9.2%, marking the fifth consecutive increase of at least 9%. Since 2000, health insurance premiums have grown 73%, nearly five times the rates of inflation and wage growth over the same period.

The costs can be staggering. But economists, human resources experts, and many employers agree that in the long term, a stable and loyal work-force is well worth the investment. Workers want benefits and are more likely to stay with a company that provides them. While it's not necessarily true that wages are secondary to benefits in employees' minds, a number of surveys have shown that workers are more inclined to work for companies that provide the benefits they want.

Robert Malone, owner of Baywood Design and Remodeling, San Francisco, says his benefit package includes 100% employer-paid health insurance, paid vacation, six paid holidays, life insurance up to $50,000, a gas allowance, and tool repair. Among Baywood Design and Remodeling's 10 full-time employees, several have worked at the company for years, including a production manager who started 25 years ago. Malone says benefits aren't the only thing that matters to his employees, but that the package is part of a company culture that fosters a comfortable, family-like atmosphere.

“It's about treating my employees well, Malone says, “and about them, in turn, being satisfied with their work and treating me, the company, and our clients well.”

Malone says his competitors offer incentives such as bonuses and profit-sharing plans, which can be used to drive the bottom line. After employees became disinterested in retirement plans, Yorktown, Va., remodeler Robert Criner decided to redirect surplus profits into bonuses that reward his employees for better performance. In the coming months, he plans to add a bonus tied to quantifiable growth goals for each employee.