Talent Management and Retention: Reward Strategy for 2012

Friday, December 30, 2011

Where should organizations place their emphasis in 2012 on talent management, retention, and rewards? In 2012, there are certainly a number of complex and complicated variables including: an encouraging but slow U. S. recovery, a looming presidential election, weak U. S. employer and consumer confidence, continued congressional deadlock over spending and revenue, and the potential floundering economy and political turmoil in Europe.

Even for employers who are reluctant to hire, when they do hire every effort should be directed at hiring the top talent available. This may result in an extended search and selection process. However, the results will be an individual who is a top performer, integrates well into the organization, and a member with the right skills, for the right role, for right now. Regardless of whether internal or external recruiting staff is used, employers no longer have the luxury of a bad hire with its associated high costs and lost opportunities.

In order to retain that top performer, they have to be rewarded, and rewarded well. An organization’s top performer will not be satisfied with a 2% increase. Cash and non-cash rewards have to be tailored to each performer on a personalized level. The organization must know what motivates each performer and design a mixture of rewards and incentives to keep them on track. Employers can be assured of one thing; in 2012 there is someone out there looking to hire that top performer away from their current organization.

Today, it would be hard to find a large organization that does not have multigenerational and diversity challenges in managing their workforce. Top performers can be found in every generational segment, the challenge is managing all of them to get the best results from all team members. As many boomers extend employment beyond their normal retirement age and as new college graduates enter the workforce; the synergy of all groups can prove to be beneficial or detrimental, depending on how they are managed.

One thing the recent economic recession has taught organizations, is that some parts of their businesses may have suffered, while other business lines have prospered. Top performers in those business or market segments which are experiencing a downturn or stagnation, will require special attention. While the organization may have made a strategic decision to exit a market space, top performers are still expected to manage that process to its maximum value.

Rewards and incentives have little value unless they are meaningful to the intended performer. This means that what is valued and has meaning for a top performer in Boston may not have the same value or meaning to someone in Mexico City. The same holds true for members of various generations. Thus managing top talent requires a reward system that speaks to the individual’s generational, cultural, and situational attributes. This system of rewards has to be dynamic. As an employee moves from one assignment to another, what motivated them in a prior role may not necessarily motivate them in their current position. What incented a top performer in the early days of their career may have no value in today's position.

Patient Protection and Affordable Care Act’s Impact on Job Lock

Friday, December 23, 2011

On December 15, 2011, Government Accountability Office released a seven month study on the Patient Protection and Affordable Care Act (PPACA) and its potential impact on Job Lock. Job Lock is a phenomenon where employees decide not to separate from their employers due some employer provided benefit such as health care coverage. The study was initiated by two questions from three leading members of the Senate; Harry Reid, Majority Leader, Max Baucus, Chairman, Committee on Finance, and Tom Harkin Chairman Committee on Health, Education, Labor and Pensions.

The two questions were:

“1. What has research shown about whether and the extent to which workers stay in jobs they might otherwise leave out of fear of losing health care coverage and the impact of those decisions on the labor market?

2. What are expert views on the ability of PPACA to mitigate job lock?”

In a classical example of a double-edged sword, the Job Lock impact of PPACA has the potential to both encourage and restrict employee mobility among employers. While the 32 page study stopped short of any definitive conclusions of PPACA and Job Lock, the study did concede that certain provisions of the Act pose greater positive or negative influence on worker attraction and retention.

The primary reasons which employers offer health care coverage to their workers is to attract, retain, and motivate their workforce. Health care, along with other benefits, plus wages combine to make up a worker’s total compensation package. Employers utilize this total compensation (reward) package approach as one of several ways they hope to differentiate themselves from their labor market competitors. Anything that disturbs that differentiation could have potential impact on an employer’s ability to acquire and retain a stable, talented, and skilled workforce. On the other hand, anything that levels the playing field among otherwise equal competitors could allow employers to focus on their products and services as well as allowing talented and skilled worker to flow unimpededly among employers.

It is generally agreed that worker mobility among employers as well as in and out of the workforce has positive and negative value to both employees and employers. Thus anything that has the potential to remove health care coverage induced Job Lock as a barrier could be seen as beneficial to the overall economy. However, the law of unintended consequences is very fickle, while designers and developers of public policy believe they understand how complex systems such as a national workforce behaves, it is impossible to predict the long term impact of such systems over 10 or 20 years.

It would be hard to imagine that anyone in the early 1970’s could have foreseen the current significant decline in the defined benefit pension plan as the major retirement funding method for most American workers. Nor is it conceivable that the designers of tax reform intentionally constructed a system as complex as tax legislation in manner to achieve such a decline. The designers of the Patient Protection and Affordable Care Act indicate their reasoning behind this landmark effort to curb both private and public health care cost. Certainly, most would agree that health care costs are too large a component of employers’ cost of doing business as well as the national expenditure. What is not certain is the long term impact of such a groundbreaking measure as national health care reform on an economic system as complex and as inelastic as health care.

Expectations: Employers vs. Employees, Is There a Middle Ground?

Friday, December 16, 2011

Towers Watson’s May, 2011 report, “The 2011/2012 Talent Management and Rewards Study, North America” clearly showed that both employers and employees are out of touch with each other’s expectations. This is most clearly illustrated around those reasons each group perceived why employees would consider joining an organization. US employers perceived that employees were attracted to their organizations due to reasons such as, Base pay, Organization's mission, Organization's reputation, Career development, and Challenging work. On the other hand, employees reported that Job security, Base pay, Health care, Length of commute, and Time Off were their top concerns. As might be expected, “Base pay” was the only issue on which they both agreed. Employers and employees are equally out of touch with the reasons why employees would chose to leave an organization. US and Canadian employees indicated Work-related stress as the top reason they would exit their current employer, yet employers thought that Base pay was the reason.

The issue of a misalignment between employers and employees expectations comes into focus when employers are attempting to attach and retain highly skilled and top performing workers. Even in the kind of economy that has existed for the last several years, top performers and highly skilled workers have other employment options. Since most progressive organizations build their reward systems around features which they believe are designed to attach and retain employees, this misalignment means that many employers have designed systems that have little value to employees. It is great that an organization has a noble mission, stellar reputation, strong development opportunities, and offers challenging work. However, what employees want is more substantive values such as employment security, good pay, health care, reduced commute time, and time off. Many of these employee desires appear to be rather utopian on the surface. With the two parties apparently so far apart, is there any way the two can reach their individual goals?

Job security: In this highly competitive and dynamic global economy employers do not have the ability to promise long term employment. However, employers do have the ability to manage they workforce to provide for mobility, allowing for the transfer of talent within the organization. And employees can ensure that they maintain the knowledge, skills, and abilities that their employers will demand now and in the future and if and when they need to seek other employment.

Base pay: Employers need to invest the technology resources in tracking market wages so that base pay is competitive, and not tied to antidotal perceptions. Employees need to recognize that Base pay is only one part of the total compensation equation and they, through adding economic value can have some control over their own wages.

Health care: Employers can do much to acquire and provide affordable health care. However, employees are ultimately responsible for reaching and maintaining a healthy lifestyle. Lack of exercise, smoking, obesity, excessive alcohol consumption, and improper diet are all significant contributors to many of today’s chronic illnesses. Ironically, employee participation in many employer provided preventative health and wellness programs is low.

Length of commute: Today’s technology allows many workers to work remotely form home or off-site. Yet many employers have not taken full advantage of such opportunities. Flexible starting and stopping hours, working remotely, and “hoteling” offer reduced expenses for both employers and employees.

Time off: Employers have the ability to reduce the importance of this issue with increased flexibility around when and where employees work. In addition, rather than providing separate “buckets” for sick time, vacation, and holidays; employers could consider a single allocation of time under a “paid time off” arrangement. Employees would be required to manage their time appropriately; however, they would have the flexibility to deal with work-life issues.

Employers must become better at understanding the expectations of employees and employees must become better at understanding that they have a role and a responsibility in this partnership.

Employers vs. Employees: A Disconnect for Retaining Talent

Friday, December 09, 2011

What workplace issues are important to employees and do employers and their employees agree on them? The simple answer is No! Workplace issues which are important to employees and what employers perceive as important do not align. This failure to align has and continues to create an inability of employers to both attract and retain workers with the desired skills. Even in the face of high unemployment, many employers continue to struggle with their failure to attract and retain talent. Towers Watson a global professional services company reports that as much as 60% of North American organizations are continuing to report “having trouble attracting critical-skill employees”. Furthermore, employees and employers disagree on what pay and workplace issues are important to employees.

In its May, 2011 report, “The 2011/2012 Talent Management and Rewards Study, North America” Towers Watson surveyed 316 employers in the US and Canada on a variety of workplace issues including the top 5 concerns which are important to employees. In virtually every case, employers and employees disagreed on what was important to the employee. US employers perceived that employees were attracted to their organization due to, Base pay, Organization's mission, Organization's reputation, Career development, and Challenging work. However, employees reported that Job security, Base pay, Health care, Length of commute, and Time Off were their top five reasons to join an organization. The only issue that employers and employees could jointly agree on is “Base pay”.

Employers are equally disconnected with the reasons which would cause employees to leave. Across the board, US and Canadian employees reported Work-related stress as the top reason they would leave while employers perceived that Base pay as the top issue. Clearly, employers are out of touch within those issues which are important to employees, affecting both attraction and retention.

What are the driving forces behind the differences between employers’ and employees’ perceptions of Base pay vs. Work-related stress as competing top factors in US employee’s decision to leave an organization? One thing is clear; employers are expecting more from employees. Not only have employers expected more hours but more knowledge, skills, abilities, and competencies. As organizations have restructured to remain completive, employers have sought out ways to leverage those employees left in order to meet customer demands. Additionally, organizations have begun and are continuing to change how employees are rewarded at all levels. Employers are recognizing the fact that many of them have not aligned their reward practices with their organizational needs. This includes short and long term incentives as well as career pathing, coaching, mentoring, development, leadership, and succession planning programs.

Even as the recent economic conditions reached their deepest point, many employers were struggling with attracting the critical-skilled employees their organization required. By 2010, organizations were reporting a doubling of concern over critical-skilled employees and their inability to attract and retain them in spite of an average of 5 applicants per job opening. Furthermore, despite a decline in the quit rate, many employers were reporting concerns over being able to fill critical-skills positions.

Public Health Care Could Be Saddled with Sick Employees

Friday, December 02, 2011

It goes without saying that employers are struggling with the high cost of health care for their employees and covered dependents.  Every open enrollment season brings a new round of cost shifting, plan changes, and strategies designed to control utilization and lower expenses, for both employers and employees.  Yet, year after year, the total cost of health care plans continues to climb at rates of several multiples of the current Consumer Price Index, eating deeper into most organizations’ and their employees’ earnings.

With the passage of the Patient Protection and Affordable Care Act (PPACA), some have speculated that employers would exit the health care market entirely or attempt to unload their sickest employees and dependents onto public health care plans.  If the later were to take place, over time these public plans would experience a death spiral of escalating costs that would make them all but unaffordable, even by the deep pockets of a federal government.

Amy Monahan and Daniel Schwarcz weave a Gordian Knot of the pros and cons as well as various scenarios of how employers might undertake the spin-off of their highest risk employees by shifting them to government sponsored exchange-based health care plans. Writing in the March 2011 Virginia Law Review, Monahan and Schwarcz construct a roadmap of how employers might accomplish such an achievement they claim is permissible under the PPACA and possible strategies which could avert or dampen such efforts. The authors’ premise, other than subverting the spirit of the law, is that such actions would benefit employers, especially larger employers, by lowering their overall health care costs.

Fundamental to health care utilization is the Pareto Principle or more commonly known as the 80-20 Rule, which simply states that 80% of a health care plan’s expenses are incurred by 20% of the participants.  While not totally restricted to health care plans, the Pareto Principle holds true that the overwhelming majority of costs are incurred by the sickest, i.e., the highest risk members within the plan.  Thus, if those high-risk, high-cost employees and their dependents were to be removed from the employer’s plan onto a government sponsored exchange-based health care plan, an employer could see a significant reduction in their ongoing health care cost.  The counter-point would be increased health care expenses and consequentially higher premiums for all exchange-based members, as well as the potential that exchange-based health care plans would not be self-sustaining.  There are numerous regulatory and systemic barriers to prevent employers from merely “dumping” high-risk employees onto exchange-based health care plans; only time will tell if large numbers of employers actually take such actions.

One possible model might shed some light on the prospective future of employer sponsored health care plans is the fate of the traditional defined benefit pension plan. With the large scale introduction of defined contribution plans beginning in the 1980’s, many employers eliminated, scaled back or redefined their defined benefit pension plans.  While this migration away from defined benefit to defined contribution plans has occurred over two decades and weathered several court tests, it has left the defined contribution plan as the major source of retirement income for most Americans.  Since employers are highly sensive to competitive pressures, including compensation and benefit practices, many employers simply followed their peers away from defined benefit to defined contribution plans.   Such could be the future of employer sponsored health care plans.