Editor's Note: The pursuit of employee retention is a good and healthy thing ... until it isn't. Chuck Csizmar offers cautionary advice in his Classic post on the topic. Step carefully!
In some circles the word "retention" has an identity problem. Some would say that, if you don't want someone to quit your organization, any extra money you give them as an inducement to stay can be considered "retention."
When you don’t want a valued employee to leave your organization, one who might otherwise do so, what are you going to do? You’re going to make it worth their while to stick around. You’re going to offer them more money. I say offer, because you need to put a carrot on a stick – an inducement to get them to remain while it might be otherwise in their best interests to leave.
This concept is very broad, and if not applied carefully can be used to justify any manner of increases for any manner of employees. It can become the opposite of what you intended when you designed your reward programs. Wide discretion and rationale subjectivity could replace pay-for-performance, internal equity and the balanced foundation of your structured reward programs.
What a retention should not be, is an end around effort to give employees more money; a callous attempt to “beat the system” of annual pay increases – to find another way to give selected employees more money - outside the system. The game is played by throwing down the fear card; talent will leave us. We can't have that.
So have a care.
And then there's the retention bonus
When should you consider a bonus as a retention tool?
- You’re selling a business or a piece of your organization. If the performance of the business falters during the sale process the value of that business could be negatively impacted, so you need people in place to maintain proper operations.
- When you’re closing down an operation and laying off the workforce. Someone has to stick around to make sure that the operation remains as effective as possible for as long as possible, and then to turn off the lights.
Employees who manage an operation that’s been offered for sale are typically considered as part of that operation, so they'll be leaving the parent organization. In effect, they're being let go with the rest of the for-sale operation.
If perchance these leadership employees might still be retained by the parent organization their efforts should be considered a project. So you should consider a retention bonus when you’ll be losing the employee(s), not when it's simply a project for them. Projects can be a great objective for the annual management incentive plan.
You have to offer a large enough incentive that they'll remain until the end. Too little and they could be lured away by a new employer's offer. You could phase in retention bonus payments, in stages, but always keep the largest piece until the end.
You could also tie payments to results; otherwise you might pay out monies for someone who is simply sitting there, working on their resume and playing computer games.
How much is enough? Enough to get and keep their attention, so a hefty percentage of their annual base salary is a good place to start. It would be money well spent, so I’d advise you consider up to 50% for the leaders, and ~25% for senior staff.
How many should be included in the program? Keep it small, only those deemed critical to continued operations.
To be clear, any offer of a retention award would be forfeit should the employee leave prior to the agreed upon date, or if their performance is considered “poor.” Note: you might have trouble in a failing or “for sale” business to determine gradients of performance. But obvious failure to perform (against your pre-established objectives) should have a penalty.
Retention as a concept can be a slippery slope, so be careful where and when you step.
Chuck Csizmar CCP is the founder and Principal of CMC Compensation Group, providing global compensation consulting services to a wide variety of industries and non-profit organizations. He is also associated with several HR Consulting firms as a contributing consultant. Chuck is a broad-based subject matter expert with a specialty in international and expatriate compensation. He lives in Central Florida (near The Mouse) and enjoys growing fruit and managing (?) a clowder of cats.
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