HR Management: Are Company Loans a Good Tool to Motivate Employees?
One way to keep employees engaged is with company loans. They’re a great way to offer an incentive to your employees that will benefit them in the long run.
However, this may not always be the best course of action for employee motivation. For example, employees who are making payments on loans will have less money available for other necessities such as groceries or rent.
So, are company loans a good tool to motivate employees or not?
What is a company loan?
Employees could need loans for a wide variety of reasons. They may want to take advantage of a good current mortgage rate, about which you can find more info here, and need a loan for home buying expenses or they may simply need a loan because they are struggling to pay their bills.
As an HR professional, you need to be able to give help and advice so that employees can become more financially responsible. But your company could also provide loans to assist employees.
The loan would typically come with an interest rate and fixed repayment schedule. But generally, company loans offer small interest rates to simply cover administration tasks and taxes.
The Pros of Company Loans
Company loans can be a great tool for employee motivation. After all, securing a loan with a lender can be a lengthy process and not everyone will qualify.
When your workers know that they always have the option of applying for a company loan should they need it, they can have peace of mind.
A company loan program can also foster loyalty from the employees. In turn, that can lead to employees staying with the company and having higher job satisfaction.
Furthermore, with the availability of a loan program, employees can focus better on their work. If a worker is experiencing financial problems, he or she won’t be fully attentive to work tasks.
By getting a loan, the worker can solve the financial issue and fully focus on work matters. The employee may even be inspired to work harder.
So, not only does a company loan program benefit the employees. It also benefits the company. After all, employees who are more motivated generate greater productivity.
Company loans can also improve morale among employees and boost the company’s reputation as an organization that cares about its workers.
The Cons of Company Loans
Unfortunately, there’s another side. While it’s true that loans can motivate employees and help both them and the company, there are potential problems with offering company loans.
Having to repay the monthly amounts may be more challenging than an employee realizes, and that could then turn into a source of stress. If the employee becomes stressed about finances, he or she once again becomes less satisfied and focused on work.
The last thing you want is to create a vicious circle. The key is to educate employees about financial planning. And if you spot an employee who is getting deeper into financial difficulties, it’s probably better to recommend financial counseling than to approve the loan.
Turning some employees down could also become a problem as it could lead to discrimination concerns. Before a loan is approved, an employee’s finances must be reviewed in order to assess whether he or she can repay the loan. If one employee gets turned down while another gets approved, it could be disastrous for morale and create bigger problems.
The answer is to be explicit about qualification rules so that employees understand what criteria must be met to be approved.
Another big problem with offering company loans is experiencing employees not making payments on time, or not paying back the loan at all.
That could have major financial implications on the company. So, ensure you do the legal groundwork before you set up a company loan program.
Authored by Ron Evan, linkbuilder.io
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