On The Money

The last two editions of Bloomberg’s BusinessWeek contained some interesting statistics that business leaders should take note of:

• 24 million workers will voluntarily leave their jobs in 2014 and an additional 2 million will be asked to leave.
• It will cost about 20% of their salaries to replace each of them.
• The number of job positions open nationally climbed to 4.17M in February, the most since January 2008.

Now consider this correlation research finding from McLean and Company – “a disengaged employee costs an organization approximately $3400 for every $10,000 in annual salary.”

Bottom line: Is your Compensation Strategy – ‘on the money’ – driving high performance and sustainable results?

Voluntary attrition and disengagement cost organizations hundreds of millions of dollars each year.  So, where should a company invest its’ money in the people (Human Capital) side of its’ business?  Here are three interesting perspectives to consider:

• The Corporate Leadership Council research entitled, “Driving Employee Performance and Retention Through Engagement” concluded – “Do not attempt to buy effort. Compensation attracts talent into the organization and plays an important role in retention but has limited impact on employee effort.  The most important component of compensation in driving effort is a clear connection between pay and performance.”
• An April 14, 2014 Harvard Business Review article highlighted the fact that Amazon is now copying Zappo’s practice.  Once a year Amazon make its’ employees an offer to quit.  Employees can self-select themselves out of the organization, with up to a few thousand dollars in their pocket, if they don’t feel committed to the organization and its’ objectives.  Amazon CEO, Jeff Bezos, said “In the long run, an employee staying somewhere they don’t want to be isn’t healthy for the employee or the company.”
• Based on research with 8.6 million employees in 412 companies, the book - The Enthusiastic Employee, concludes that “perceived fair compensation is a function of a number of variables including perceptions of what other organizations pay for similar work, the relationship of pay to employee contributions, and the company’s profitability.”

So let’s talk “dollars and sense” – pun intended.

• Merit Increases.  Is there significant differentiation between individual performance levels?  Have very small percentage differences ever created distracts, disappointments, and disengagement?  
• Short-term bonuses/incentives.  Are there perceived inequities in this reward process – that create ‘we/they’ division?  Can these organizational gains be sustained with only short-term ‘carrots’?
• Offer to Leave. How many people in your organization would leave if offered a small financial incentive?  Don’t forget about including early retirement options in this category too.
• Company’s overall financial position. How do employees perceive the ‘fairness’ of their compensation while experiencing continued layoffs, restructuring, cost cutting, etc. but hearing/seeing significant financial resources being allocated elsewhere?  

Many organizations say “people are our most important asset”.  Do your employees believe your organization definitely puts its’ money where its’ mouth is!  Sustainable high performance will require both competitive compensation and what I call - business culture differentiation (BCD).  More on BCD in my next post.