Wage Stagnation: Renewed Focus on Benefits

Tuesday, December 31, 2013

In the constant struggle to retain an organization’s talent, employers must use all of the resources at their disposal.  This is especially true during this extended period of wage stagnation most employers are experiencing.  It is easy for a top performer to be enticed away by a competitor with a 25% or 50% of an increase.  Even a well educated employee can fail to consider the true financial impact of jumping ship, particularly if it involves relocation of family members.  A number of years ago I worked for an organization where my primary role was oversight of retirement plans.  I was approached by a senior organizational member for help in understanding an offer from a competitor.  I was able to help him appreciate the loss of future retirement benefits if he were to accept the offer at this point in his career.  Ultimately, he decided to stay.

In the December 18^th release of the “2013 State of Employee Benefits in the Workplace Series”, the Society for Human Resource Management (SHRM) concluded that that “the use of benefits as retention tool in not widespread among HR professionals”.  SHRM’s study reported that between 2012 and 2013, the percentage of organizations using benefits to retain talent had fallen 2 percentage points from 20% to 18%.  For those employers who do attempt to use employee benefits to retain talent; health care, retirement, and flexible work benefits were the top 3.  However, the sobering fact is this accounted for only 60 out of 335 survey participants.

Considering the cost of employer provided benefits average 30% of an employee’s total compensation, how is it that organizations are not using benefits to dissuade top performers from walking?  As reported in SHRM’s May 2013 “Workplace Visions, 2, 2013”, the top issue for CEO’s in 2013 was “Human Capital”, per the Conference Board’s, 2013, “CEO Challenge 2013 Summary Report”.  Again, why are over 80% of employers failing to leverage every possible tool to retain their talent?

Human Resource functions are often lightly staffed and one of the first organizational units to be reduced, outsourced or eliminated during down times.  Since 2007, most HR functions have been impacted, yet at the same time organizations expect HR to provide the same or even expanded levels of support.  HR staffs may not have the tools to help employees understand the value of their benefits relative to a competitor’s.  Often by the time HR learns of a top performer leaving, it is too late, the employee has already terminated.  Employers with multi locations often have no local HR support and many regional and site managers do not have the time, knowledge, skill or tools to leverage their organization’s benefits retention power.

With 30% of the cost of production tied up in employee benefits, it is a missed opportunity not to leverage benefits as a retention tool.

Non-Profit Organizations Facing Brain Drain

Friday, December 27, 2013

 

Non-profit organizations (NPO’s), including religious, educational, philanthropic, health care, labor unions, and professional associations are facing a critical talent drain as Baby Boomers retire over the next five years.  A recent study [highlights] by the Plan Sponsor Council of America and sponsored by the Principal Financial Group reports that almost 70% of NPO’s will be forced to replace most retirees and over a third will report difficulties finding replacements.  Over 50% of NPO’s project they will lose 10% to 20% of their workforce to retirement.  While the study focused on 403(b) plan design, eligibility, participation, and administration, the study points to a serious pending loss of talent.  The survey is available for purchase at:  2013 403(b) Plan Survey.

 

Faced with such a significant loss of talent, NPO’s will have to go head-to-head with for-profit organizations to acquire the required talent to meet their missions.  While there has always been a tug-of-war between private for-profit and non-profit organizations, however with both sectors feeling the burn of Baby Boomers’ forthcoming retirements, talent acquisition and retention will take on an increased sense of urgency.  Candidates with advanced degrees in the sciences have typically leaned towards schools of higher learning for teaching and research opportunities, those same skills are increasingly sought by the private sector.  Organizations such as Bain& Company actively seek masters and PHD level applicants for consulting and internship positions, the same candidates often sought out at many NPO’s.

 

Organizations cannot compete for talent solely on the merits of their benefits and retirement plans.  Even the most altruistic candidate can be swayed by cash and non-cash opportunities, as well as work culture.  Both for-profit and non-profit employers will be faced with the challenge to present applicants with a total package.  This challenge will demand a new level of flexibility in the design and administration of the employer-employee relationship.  Organizations will be faced with situations which necessitate the retention of their current talent while acquiring their replacements.  Phased retirement could be one tool smooth the transition from an employee with decades of service to their replacement.  Many of us entered the workplace in a “phased” manner, working part-time, summer jobs, internships, and finally full-time employment.

 

While the loss of organizational talent is not a pleasant prospect, it does bring with it the opportunity to re-design and re-invent how work is done for many employers, including NPO’s.  Concepts such as Creative Destruction can be applied to job level tasks in an effort to bring about workplace change from “we have always done it that way”.  A self-managed and cross-functional team culture could appeal to the mind-set of many Generation X and Y cohorts as potential Baby Boomer replacements.  Finally, leveraging of technology for non-profits is just as vital as it is for their for-profit counterparts if they are to focus on their mission.

The Best Workers Are the Least Engaged

Friday, December 20, 2013

 

Is this possible, some organizations’ best workers are those who are the least engaged?  Susan Adams, a staff writer at Forbes, reported a 2013 study, “Job Performance Not a Predictor of Employee Engagement”, authored by Mark Murphy, CEO of Leadership IQ which found that job performance is not a predictor of an employee's engagement level.  Thus, it would appear, low performers could be more engaged than high performers.  If true, the findings reported in the study brings into question many of the commonly held beliefs of a large number of employers.  A PDF of the full report is available at: Study  

 

“Low Performers Are the Most Motivated To Give 100% Effort at Work.”

Why aren’t top performers giving 100%?  They are not being challenged or motivated to perform up to their full potential.  Murphy’s recommendation is to have one-on-one time with those high performers to provide a few gentle “Shoves and Tugs” to direct them towards opportunities for them to shine and thus feel recognized.
 

"Low Performers Are More Likely To Recommend Their Organization As A “Great Place To Work.”

This directly impacts the applicants, customers, and vendors with which an organization has to deal.  The concern Murphy has with this is simple, if an employer’s top talent does not perceive the organization as a great place to work, they are going to be job hunting and soon.

 

"When Low Performers Are Not Held Accountable For Poor Performance It Negatively Impacts High and Middle Performers."

It always seems there are a few workers who just do not carry their load, yet they are rewarded as if they did.  So while low performers are delivering 50% or 75%, an organization’s top performers are knocking down 125% or 200% just to keep the project on its timeline and under budget.  Leadership IQ’s advice, hold every employee accountable for their work.  This would be a good use of some “Shoves and Tugs” for those low performers to “shape up or ship out.”

 

"High Performer Efforts Go Largely Unrecognized While Low Performers Receive Positive Reinforcement."

An organization’s top performers are self-starters, self-mangers, and deliver results.  Low performers need a constant stream of directions and follow-up by managers, who have little time left over for top performers.  Murphy believes that organizations must identify those attitudes, in addition to skills, which create successful employees for their businesses.

 

"High Performers Feel Helpless About the Trajectory of Their Careers."

High performers want to be in charge of their lives and especially their careers.  Leadership IQ relates this to linking the organization’s vision, the acquisition of attitudes and skills, and top performers finding a role to help the employer achieve that vision.

 

"Low Performers Don’t Know They Are Low Performers."

It is a very unpleasant and uncomfortable situation to sit down, face to face with any employee and say they are not performing.  The impact on the high performer is de-motivating since they perceive the low performer is not being held accountable.  So, they start job hunting.  Murphy thinks this not a lack of skills, rather the wrong attitudes.  Change the attitudes, and you will change the performance.

Internal Pay Compression Important

Friday, December 13, 2013

 

According to WorldatWork, the human resources association for professionals and organizations, market pricing jobs remains the most frequently used method for job evaluation in organizations today.  Compared to other methods of evaluating jobs, market pricing is relatively simple and inexpensive.  However, after years of salary freezes, minimal salary increases, and job consolidations, should organizations be concerned about the impact of pay compression within job classifications?

 

Internal pay compression occurs when cohorts within the same job classification are paid very similar rates but have very dissimilar skill and/or experience levels.  Rates are compressed as new hires, with little or no experience, enter the classification while existing incumbents, with significant experience, have had their rates frozen or have received only minimal increases over time.  Compression may also occur when an individual contributor approaches the pay level of their immediate manager.  A significant and contributory factor in recent years has been the suspension or radical reduction of annual pay increases by many organizations for large numbers of employees.  This stagnation of wages has resulted in a flattening of pay variation within most salary ranges and thus increased the likelihood of compression.

 

Pay compression becomes an issue for an organization’s talent acquisition and management efforts when top performing employees perceive their efforts will go unrewarded and new hires enter the organization at or near the top performer’s pay level.  While it is easy for an employer to pronounce that workers should not have “expectations” of automatic pay increases, employees do have expectations their individual efforts beyond the standard will be rewarded.  Compression has the ability to have a significant impact on employee morale and productivity, even in down economic times.  By failing to reward their best employees, organizations risk the possibility of increased turnover among their top talent.

 

The solution for pay compression appears to be very simple, raise employees’ pay.  Unfortunately, all that may do is to perpetuate the issue for the same group of employees or generate compression issues for a whole new group of workers.  Organizational redesign might also sound like a solution.  However, creating advancement opportunities where there are no valid organizational needs also creates its own unique set of future problems.

 

Jim Kochanski and Yelena Stiles, at Sibson Consulting, a The Segal Group, writing for SHRM, the Society for Human Resource Management recommend several long term solutions to pay compression in their July 19, 2013 article, “Put a Lid onSalary Compression Before It Boils Over”.

• Look for high-potential external candidates ... ready to move up into the job and will see it as a promotion.

• Control pay both from an HR policy standpoint and from a budgetary standpoint.

• Limit how high within a range new hires can be paid.

• Require a review of equity adjustments for incumbents if new hires are brought in at higher salaries.

• Institute transparency across units, either before or even after compensation actions are taken.

• Institute calibration across units.

Where has all the Talent Making Gone?

Friday, December 06, 2013

Talent making is a lot like cooking, you get out what you put in.  Use the wrong cook or sub-standard ingredients and you’ll get a sub-standard product.  Talent making, just like cooking, depends on understanding how the various ingredients work together to produce great talent.  Cooked too slowly and talent is under prepared, cooked too fast and talent is burned out, cooked in the wrong appliance and the final product is undesirable. 

In today’s “just-in-time” everything, organizations often expect talent acquisition and development to be the same.  With organizational demands which often require employers to turn-on-a-dime at a moment’s notice, it is understandable that mangers expect somewhere out there in the talent-sphere, there is a supply of potential employee’s with just the right mix of knowledge, skills, and abilities to match their needs.  However, as the economy continues its slow and protracted recovery, fewer and fewer desirable individuals are waiting in the wings.  Increasingly, employers are faced with the dilemma to buy or build their talent.  In either case, the raw materials must be identified within the organization or acquired externally.

On the one hand, there are hundreds of “staffing agencies” who have stables full of talent.  In the world of a la carte staffing organizations, employers can staff virtually any position required on a “temp” basis.  Why should any organization attempt to source, screen, recruit, onboard, and manage a cadre of workers when in 6 days or 6 months workers with a different set of skills may be needed?  Hobbled with all of the current and future rules and regulations surrounding employment, compensation, and benefits, would it not make economic sense to let some staffing agency deal with those issues?  And, there is an upside for “temp” workers”, many do get placed with employers.  So employers get to “test drive” an employee and the worker gets to try on the job for a “goodness of fit”.

On the other hand, the very fabric of an organization is found in its employees.  Often the brand itself is linked closely to the services provided by those same employees to the organization’s customers.  As good as many temp workers are they have little vested interest in an organization which sees no value in their long term tenure.  While there are exceptions, long term employees see a connection between the success of their organization and their own success.  As much as it can be in today’s business world, employers and employees are symbiotically bonded to one another.  That bonding is best explained by “social exchange theory”.

Regardless, whether an organization buys or builds its talent, talent is essential to the long term success of any employer.  From the CEO down to the loading dock, employers are always seeking the best talent they can find and afford.  Cheap talent is like the throw-away paint brush from the corner home improvement store, it is good for one job, and sometimes not even for that.