JULY
2000
Is
Employee Retention an Impossible Goal?
SEVERAL
YEARS AGO, this newsletter warned that “Headhunters
Are After Your Best Employees.” Since then, the situation
has grown worse. With position openings outstripping the supply
of people available to fill them, recruiters may be after
your average employees as well.
The lures
of changing jobs range from sky-high salaries and stock options
to that hiring bonus du jour, the BMW Z-3. Today’s increasingly
mobile workforce wants to be where the action is and expects
immediate gratification upon arrival.
The history
of your organization and how it works is stored in the minds
of your employees. If they are constantly departing for greener
pastures, the knowledge of what differentiates you from your
competitors departs with them. Moreover, finding new employees
is not easy – and it’s not cheap.
Must
employee turnover be a fact of life in your organization,
or can you buck the trend?
Abolish
Egalitarianism Now
The historical
compensation model in many corporations has been to pay people
of equal rank and seniority more or less the same. The world-famous
Hay Point System evaluated jobs on a variety of factors, awarding
them a score that determined a narrow salary range (expressed,
for example, as position level 42). A combination of meritorious
performance and time in grade determined one’s progression
through the range.
More
recently, “broadbanding” has come into fashion
– in effect, responding to the increased flattening
of many organizational charts by placing a greater range of
jobs into somewhat broader pay ranges. The theory is that,
since employees will have fewer opportunities for promotion,
they should still be able to see their salaries increase over
time.
In either
of those models, however, the assumption has been that employees
should perceive they are being paid equitably. No one, the
theory went, should spend the day worrying about what the
person in the next office earned. Certainly, the best performers
would get slightly better raises, more generous bonuses and
faster promotions, but no one should worry about their car
or mortgage payments.
Fairness
and equality may be, however, exactly the wrong message to
be sending employees.
In a
15-country, 1200-company study released this May, the human-resources
consulting firm Towers Perrin found that companies with the
highest shareholder return go to great lengths to differentiate
and reward high-performing employees.
One of
what Towers Perrin calls the “hard choices” that
separated the top companies from others was a willingness
to provide exceptional salary increases and bonuses to high-performers,
while communicating clearly to under-performers through pay
reductions and counseling that they were not meeting their
employer’s expectations.
“Pay
for performance” is hardly a new concept, but the study
found that top companies go far beyond giving it lip service
– with high-performers receiving raises between 150
and 300 percent of the average increase for all employees
in the same company.
Moreover,
variable (also called incentive) pay is an increasing part
of the compensation plan in many companies. While the use
of bonuses, stock options, deferred compensation and other
devices has been found historically in the executive and sales
ranks, Towers Perrin found that 88 percent of the companies
it surveyed are now offering incentive plans to a greater
portion of their workforce. The best plans are tied to a combination
of individual performance objectives and corporate/business-unit
results, thus heightening employees’ awareness that
the two are interrelated. In too many “average”
companies, employees view their jobs as a task that begins
at eight o’clock, ends at five and has little or no
impact on the organization as a whole.
Don’t
Stop With Pay
As most
executive recruiters will tell you, pay is rarely the motivating
factor for considering alternative employment – but
it can be a strong reason for accepting it.
Accordingly,
generous remuneration of your best employees is as much a
competitive advantage for you as it is a reward to the employees.
In other words, the best defense against attractive job offers
is a strong offense.
Nonetheless,
the number-one key to building strong executive retention
is creating an environment that executives don’t want
to leave.
Procter
& Gamble used to tell its newly hired MBAs that they would
never want to quit because they would never find so many smart
people in one place. There was a certain amount of arrogance
in that statement, but P&G had a point. Procter alumnus
Steve Ballmer, now CEO of Microsoft, refers to the depth and
quality of his current company’s “bench strength.”
From
country to country, the Towers Perrin study found executives
at top-performing companies citing challenging work in a stimulating
work environment as the major reason for staying where they
are. Executives in the US and Canada also cited the quality
of top management and the availability of stock options, while
Europeans placed more emphasis on corporate reputation and
bonuses.
Communicating
a Strong Sense of Mission
Last
but not least, companies that recruiters kill to work for
are known for a strong sense of mission. They know where they
are going, they know how they plan to get there, they communicate
that mission to everyone in the organization and they reward
those who make it possible.
In virtually
every business sector in which General Electric competes,
the company is known for having the most demanding expectations
of its employees – yet GE has relatively low attrition.
It pays for performance, provides an exceptional work environment
that emphasizes constant personal development, has a worldwide
reputation for quality and has been led by a chief executive,
Jack Welch, with a singular sense of mission: to be number
one or number two in every market the company serves.
Recruiter-Proofing
Your Organization
Companies
always want their executive search firms to go recruit the
happily employed, as opposed to those who are actively seeking
new employment. Executive search consultants know, of course,
that the happily employed are the toughest to get. It takes
a bundle of dough, a huge opportunity or a major life disappointment
(such as not getting Jack Welch’s job when he retires).
Even
if you work for one of the world’s best-managed companies,
odds are that the satisfaction quotient of your employees
is somewhat a mystery – at least until they quit.
In order
to build a performance-oriented culture with challenging work
assignments and big rewards, begin by finding out what your
employees think of the place today. Do they understand where
you – and they – are headed? Are superior effort
and results adequately compensated from their point of view?
(And do laggards know what they have to do to improve?) Is
there a clear career path for those you most want to keep?
Are there any nagging concerns or hidden irritants within
your ability to overcome?
From
there, begin to build the kind of organization that the best
won’t want to leave. Reward them handsomely and make
sure they understand their role in the company’s future.
Communicate frequently, so they realize you didn’t undergo
some momentary seizure. Provide feedback to them, and encourage
it in return.
No company
will ever achieve 100-percent employee retention, nor would
it want to. Nonetheless, companies should manage attrition
on their terms – not on others’. And since times
change, employee retention must be a never-ending goal. Even
Microsoft, as a result of its declining stock price and recent
defeat in U. S. District Court, has had to re-double its efforts
to attract – and keep – the best and brightest.
In today’s
volatile marketplace, is a stable, highly motivated workforce
worth the effort? If there’s any doubt, consider the
alternative.
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