The Decade of the Employee: Can You Afford to Keep Your Best People?

By Joel Myers

You’d have to be living under a rock these days to miss all the hullaballoo about how the tight job market is squeezing corporate America into sweetening its compensation packages to attract and keep its best and brightest. Recruitment and retention, once relegated to the "soft side" of running a business, is now firmly positioned on the radar screen of CEO’s and senior management teams across the country. It’s reached fever pitch in some industries, particularly the information technology arena which has taken recruitment and retention to a whole new level of corporate poaching to snare top talent. The rest of corporate America is vulnerable too. This may very well turn out to be "The Decade of the Employee".

Why is that?

We’re running out of workers. Who is going to replace the 76 million baby boomers (now 35 to 53 years old) as they leave the work force? Unemployment is at its lowest level in almost 30 years. The U.S. labor force (140 million souls) is expected to increase 11% between 1996 and 2006. A recent study by Employment Research Corporation predicts demand for workers will swell to 19% during the same period. It’s estimated that this increase in demand coupled with a decrease in bodies aged 24-45 is going to create a 30% labor shortage.

Better hold on to who you’ve got. That’s what the Bureau of Labor Statistics indicates U.S. companies are straining to do. Their 1999 year end data shows employers’ cost to attract and keep employees at all levels rose 3.5%, the greatest rate since 1993. Their Employment Cost Index for all civilian workers measures changes in compensation costs, including wages, salaries and employer costs for benefits. Another study puts the cost of replacing one management (exempt) employee at 2 _ times annual salary, plus benefits.

The 1990’s stretched employers all over the board, with a variety of compensation techniques aimed at keeping their people happy, motivated and loyal. Here are some of the compensation solutions we have helped our clients implement over the last decade.

Compensation Techniques of the 90’s

BROADBANDING

Broadbanding refers to the practice of extending the upper and lower boundaries of traditional salary ranges from 30 – 50% to 70 – 100%. This allows an employee to remain in the same job for a longer period of time without "topping out". It may aid organizations in flattening out their job title hierarchies but it also frequently results in large discrepancies in earnings among individuals performing the same jobs. This is fodder for turmoil in the ranks.

TEAM BASED PAY

Effective team-oriented behavior will be repeated when it is reinforced by pay or recognition. However, the effectiveness of team rewards and teamwork is impaired when one or more team member consistently pulls more than their fair share of the load. Therefore, the overall recognition system in a team based environment should also acknowledge individual excellence and/or team leadership.

SKILL BASED PAY

Skill based pay is typically applied to technically oriented jobs. In this scenario, employees are recognized when they master discreet skills like arc welding, electronic instrument calibration, programming in C++. As they acquire these skills, through structured training and assessment, and when they demonstrate proficiency, their enhanced value to the company is reflected in their pay.

GAIN SHARING

Gain sharing or success sharing plans are self-funded reward programs that give individual employees the opportunity to directly contribute to and profit from the operational and economic gains of their company. For example, employees propose new initiatives or operational changes to tap new markets or improve productivity. They then share the economic gains that those initiatives deliver. If there are no gains, there is no pay-out. These plans are built on the principals of profit sharing plans except the measures and the rewards are more specific and immediate.

RETENTION BONUS

This concept has become particularly popular with companies focused on retaining key employees charged with preventing the much-hyped "impending disasters" of Y2K. It is likely that a good many retention bonuses are being paid out right about now to the highly valued programming folks who make it their business to de-bug computer operating systems. This is a means of offsetting the lure of companies offering signing bonuses as part of their recruiting tactics.

HOT SKILLS PREMIUMS

Heard of Oracle? It is a great example of a "hot skill". Because of supply and demand, people with hot skills are able to demand and get pay rates that are out of whack with other jobs with comparable responsibilities and experience levels within an organization. Employers do this by paying a premium on top of the internally equitable rate. If the scarcity of the skill should diminish in the marketplace, or if the incumbent should move into another role within the company, he/she would not automatically retain the premium hot skills pay.

STOCK

What used to be reserved for the top 2% of the employee population, is no longer. Based on a survey conducted last June and July, the American Compensation Association reported that 63% of companies offered stock and stock option plans to employees. Nearly 55% of companies said that they would extend stock options deeper into their organizations, well beyond their executive group. How deep can a company afford to go?

The Bottom Line

All of these are tactics that are being tried in the marketplace with varying degrees of success. To be truly effective in dealing with the Decade of the Employee requires a strategic approach. There is no perfect, off-the-shelf compensation program that will solve all your recruitment and retention challenges. Companies need to lift the hood on their organization and take a good look at what’s working and what might need a tune up. There are plenty of outside experts to help you do it. Don’t get so caught up in the turn-over mania that you lose sight of what is still true: Everyone wants to feel a sense of contribution, be a part of a team, be recognized, appreciated and rewarded. Tying these human needs with a company’s strategic business goals is an age old principal that even a new millennium can’t change – and something you really can’t afford not to do.

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