Do You Make Your Employees Too Valuable Too Fast?

Many of you have these jobs in your organizations.  You fill them with new (or nearly new) graduates, either from college or a particular technical school certification or licensure.  Then you expose them to a year, maybe 18 months, of intense training and development, after which they are prepared to assume a critical role and set of responsibilities.

Or be lured away by a talent competitor for significantly more money.

These employees could be manufacturing technicians or nurses.  They might work in the physical sciences or account management.  What they have in common - regardless of their role or your industry - is that you have invested time, energy and resources into making them very valuable, and now your pay program may be preventing you from paying them commensurate with that value.  That annual 3% merit opportunity simply won't cut it in these circumstances.

Situations like this often drive a lot of fire fighting, a lot of adhoc market adjustment activity.  Unfortunately, this type of reactive approach only feeds employees' perceptions (and the possible truth) that the organization doesn't recognize how valuable they are.  That they must take matters into their own hands in order to get paid what they're worth; not a tough thing to do when the recruiters start calling.

Do you make your employees too valuable too fast?  First of all, congratulations!  Likely you've invested a lot in defining the competencies required for success in an important role and you're delivering the necessary training experiences to get employees there quickly.  Well done you!  Now let's make sure you aren't undermining that investment with your pay practices.

Here are a few thoughts on tackling that challenge.

Gather data to understand the problem.  Start by collecting the data necessary to get a clear understanding of the nature and scope of the problem.  You might look at your market adjustment activity, information on departures, counter-offers and what can be gleaned from exit interviews.  Is this a more general and diffused issue - or is it concentrated in a particular job or job family?  Is compensation really the driving force behind quits and threatened quits, or are there other forces at work?

Seek market reference points to confirm the value trajectory.  If you are indeed hiring "fresh outs" and losing them 12-18 months later, and you have confirmed that compensation is a significant factor, focus on the kind of market reference points that will help you understand the value trajectory that these employees take during the first critical years.  Career centers at educational institutions often have information on new grad job offers, allowing you to confirm the starting point.  Then try pricing the kinds of jobs to which they are fleeing.  Note that these might be very different roles in very different organizations from yours.  Use this to estimate the typical net change in value for these employees through and following their development period.

Audit/adjust pay policies and practices accordingly.  If you have an employee group where, thanks to your training efforts, the market value needle is moving at a rate that "regular" merit increases - or even merit plus promotional combos - can't possibly match, you've created a poaching risk.  Time to consider carving out this job - or job family - for a different approach.  This might be a tighter series of more narrow salary ranges, coupled with an accelerated salary review process, allowing employees to move both through and up as they hit developmental milestones.  Or it might be a defined set of salary steps overlaid on a the regular salary range, allowing a rapid progression through the first 12-18 months (again, assuming development and performance milestones are met), after which they can be rolled back into the regular cycle and process.  Or something else still.

How have you responded to situations where you've made employees too valuable too fast?  What advice and experience can you share?

Ann Bares is the Founder and Editor of the Compensation Café,  Author of Compensation Force and Managing Partner of Altura Consulting Group LLC, where she provides compensation consulting to a range of client organizations.  Ann serves as President of the Twin Cities Compensation Network (the most awesome local reward network on the planet) and is a member of the Advisory Board of the Compensation & Benefits Review, the leading journal for those who design, implement, evaluate and communicate total rewards.  She earned her M.B.A. at Northwestern University’s Kellogg School, is a foodie and bookhound in her spare time. Follow her on Twitter at @annbares.

Creative Commons image "Arrows showing up" by FutUndBeidl

Comments

[Darcy]

We had this scenario at my last employer (restaurant company) so we started providing 2 times per increases (at the full annual rate) for the first 3 years that someone started in the new role. It didn't solve the problem completely, but it helped significantly.

[Joe Rice]

We cut our training program... nailed it!

[Ann Bares]

Joe:

Oh man, too funny - but I guess that option will always be on the table too!

[E. James (Jim) Brennan]

Joe's "solution" is depressingly realistic. If you limit the breadth of your training, you restrict the portability of your talent, thus retaining them by default. Of course, that keeps your people less competent and minimizes their growth potential, lest a rival pirate them before a promotional slot opens up. I imagine that fine line is still a frequent topic of discussion and debate in training and development circles.

[David Scott]

Great article and comments! I see this is as a challenge at my organization.

@Darcy: How did you go about implementing that policy? Was it well received by Senior Management? It's tough for me to make that argument at my organization because I drive the compensation function 18 months out of school. There seems to be a conflict of interest in proposing such a program/policy. Any suggestions?

[E. James (Jim) Brennan]

David: suggest you propose the policy be immediately applied to those with less tenure than you. That precludes any accusations of self-interest and simultaneously provides a control group for later comparative study.

At my last big Corporate employer, new non-exempts hired in the bottom third of their range were eligible for "early increases" every six months over their first two years. Their jobs had fast learning curves. The rapid initial merit approval component alone made it very successful, focusing mutual attention on swift mastery. Merit reviews dropped to annual and the pay trajectory slowed once inside the middle third.

[Peggy]

Another great posting! Reminds me of a key finding from the Watson Wyatt Human Capital Survey from circa 1997 where they linked HR activities to shareholder return. Biggest gain for shareholders was found in investing in recruiting practices that proactively sought to find "already trained" people rather than investing in internal development. Sadly this type of recruiting practice is short-sighted and guts internal culture. It's sustainable only because fear drives a lot of our economy - not sustainability and ethics.