Personnel funds manage, invest, and pay out incentive bonuses awarded by employers to employees. Employees receive regular cash payments while also building up savings in the fund. As an attractive part of a company's compensation scheme, per-sonnel funds are suitable for employers with ten or more employees.
Each personnel fund is owned and managed by the company’s employees, who themselves decide on its establishment. However, it is always the employer that makes the decisions regarding the compensation scheme.
Cash bonus, savings and good returns
The cost-effectiveness of a personnel fund is based on indirect costs and tax benefits, as well as on investment returns. Here is an example of how a personnel fund works:
Employer’s bonus system
The company pays its personnel an annual incentive equal to 6% of salaries on average.
Employee’s situation and needs
John Smith, a typical employee, values the annual cash bonus, but has no regular savings method. Through the personnel fund he can combine the two. He transfers a few years’ bonuses to the fund, and withdraws the amount each year that he previously received in cash. The difference is that in addition to receiving the cash bonus, he accrues savings in the personnel fund.
Based on a bonus of EUR 2,500 a year, after taxes he will receive a net amount of EUR 1,850. He can achieve a corresponding sum by transferring the annual bonus plus the additional expenses benefit, a total of EUR 3,240, to the personnel fund, and starting to make withdrawals after three years of saving. He will also accumulate major additional savings in the personnel fund.
There are many advantages to using a personnel fund:
- As the employer decides on the principles of the compensation scheme each year and employees manage the fund, this is an excellent way to get employees committed to achieving company goals through an incentive scheme.
- The scheme can be fully adapted to match the company’s strategies, goals and needs. Both collective and individual compensation criteria are possible.
- Compensation scheme criteria linked to the fund can be qualitative and quantitative in nature.
- Indirect employer and employee salary costs paid on cash bonuses (totaling over 30%) are not incurred or paid when using a personnel fund.
- Of the amount withdrawn from the fund, 20% is deemed non-taxable income, with the remainder taxed as earned income.
- An individual may withdraw shares from his/her own accrued fund bal-ance even in the first year of the fund. 15% of the fund capital can be withdrawn annually.
Innova Personnel Fund and Pension Services Ltd.
Mandatum Life’s subsidiary Innova currently manages funds with some 90,000 members in total, covering more than half the 60 personnel funds operating in Finland. As experts in personnel incentives, Innova is the only company in Finland that offers a turnkey fund service that also includes financial management. Mandatum Life provides wealth management and risk management, which are essential elements of personnel fund services.