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Unless you discover what really matters to your employees, youll never know if your compensation and benefits outlays are really working for you.
It’s no secret to HR that employees’ attitudes about their jobs, their benefits and their employers can range from exuberant to sour. What’s less well known and harder to find out is exactly what matters to specific types of employees—and how effective various types of compensation, benefits and workplace characteristics are in spurring employee productivity and retention.
Salary increases, for example, may be welcome across the board, but they may be less effective than stock options at promoting retention among a particular segment of employees.
Or a company trying to stem the loss of experienced workers planning to retire may find that one type of inducement is unexpectedly more effective than another. Or access to a particular type of health benefit may be a motivating influence for some but not all of a company’s workers.
Those are the types of analyses that companies are seeking, and the reason is cost. As companies’ outlays for health care and other employee expenses continue to rise, more and more employers want to assess the value returned from each dollar spent on compensation and benefits, says Linda Barrington, a labor economist and research director at The Conference Board, a New York-based business research organization. As a result, she says, “targeting specific benefits to the employees that value them is more important than ever.”
In fact, many experts note, the costs of not having detailed analyses of what motivates particular segments of the workforce can be substantial—not just in avoidably high turnover rates but also in wasted spending on unappreciated benefits.
Determining what matters most to employees and aligning expenditures with priorities is a strategic challenge for HR, says Debra Cohen, SPHR, chief knowledge officer of the Society for Human Resource Management (SHRM). HR professionals not only must create a mix of benefits that retains and motivates what is often a very diverse workforce, but they also must continually fine-tune that mix.
“Employee preferences are really a moving target,” says Cohen. “They change continuously due in part to changes in personal preferences, but also in part to the churn that occurs as employees leave and new ones enter the organization.” Moreover, she says, it can be “very difficult—both from a cost perspective and from a practical perspective—to satisfy everyone. So, the better HR professionals understand their employees and the issues they face, the better equipped they will be to respond.”
An Array of Preferences
No one doubts the difficulties that HR can face in trying to discern employees’ priorities. Consider, for example, the results of the 2004 Job Satisfaction Survey, conducted by SHRM and CNNfn, the financial network of the CNN News Group.
Just over 600 employees at various companies responded to the survey, which asked how satisfied they were with their jobs and what job-satisfaction factors were most important to them. Separately, more than 400 HR professionals identified the job-satisfaction factors they believed were most important to employees.
Of the 21 factors, HR professionals and employees differed on the relative importance of all but one, including those most important to workers. (See “Views from Both Sides”.)
Since the results were aggregated from separate pools of respondents, no conclusions can be drawn as to whether HR professionals are out of touch with the attitudes among their own particular employees. And, in fact, there may be wide variations from one business to the next when it comes to understanding employee preferences. “I would suspect that in some organizations, HR is very in tune with what their employees are thinking, while in some others the gap may be larger,” says Cohen, whose SHRM division administered the survey.
The survey’s results do illustrate, however, the breadth of preferences and perceptions that come into play when gauging employee attitudes. And while the results may also suggest that HR professionals need more-differentiated data about segments of their companies’ workforces, some experts maintain that the issue is broader than the quality of the data.
In some instances, surveys aren’t falling short; they’re just not being put to good use, says Jeffrey M. Saltzman, chairman and CEO of Sirota Consulting, a Purchase, N.Y., firm that does attitude surveys for business clients. “Employee survey data and the use of that data in improving organizational effectiveness,” he says, constitute “probably the most underutilized asset most organizations have.”
Another employee survey expert, Theresa M. Welbourne, president and CEO of eePulse Inc. in Ann Arbor, Mich., says timeliness is the key issue. “I think HR is sometimes responding to old data,” says Welbourne, whose company collects data from employees as often as weekly. Some HR professionals, she continues, “get the results of their employee surveys or research reports six months to one year after they are completed, and they form attitudes and opinions based on that data.”
One problem, as consultant Haig Nalbantian sees it, is that although companies spend an average of one-third or more of their revenue on employees, few employers know how to measure that investment. Nalbantian, a principal and worldwide partner with Mercer Human Resource Consulting, addresses the topic in How Fleet Bank Fought Employee Flight, a report he co-authored in the April 2004 issue of Harvard Business Review: “For the most part, [employers] cannot judge whether a given program or management practice—an incentive plan, say, or a new recruitment strategy or training program—actually produces a return. Instead, decisions about where to direct such investment are based on anecdotal information, intuition or so-called best practices.”
Filling In the Blanks
Such challenges notwithstanding, attempts to dig deeper into what motivates employees are producing results. Some came to light in a Conference Board survey on older workers planning to retire within five years. The results showed, for example, that if a company was thinking of using promotions to induce such workers to postpone retirement, it might achieve better outcomes by targeting the effort to a subset of the older workers.
While 33 percent of the surveyed older employees said a promotion would likely alter their decision to retire, the figure rose to 48 percent for those who said they intended to retire because they didn’t feel respected at work. “If a company needs to retain experienced talent, spending scarce resources on internal promotions will affect retention more for some employees than others,” Barrington says.
Similarly, while 46 percent of all the surveyed older employees planning to retire said a salary increase would likely prompt them to stay, a pay increase would have that effect on a higher share—56 percent—of those who said they were retiring because they didn’t feel respected.
Conducting the detailed analysis necessary to arrive at such conclusions is entirely possible, as evidenced by the efforts of IndyMac Bank, a mortgage lender based in Pasadena, Calif.
Last year, to gain better understanding of the drivers of its turnover, IndyMac conducted a statistical analysis of data in hand on many of its 5,ooo employees to determine what mattered most to specific segments of its workforce. IndyMac’s analysis was based on data from its PeopleSoft system—including job title and compensation—along with survey information from its annual performance review process and some exit interview data. (For more on survey techniques, see “Constructing a Framework”.)
To better understand the attitudes and preferences of various collections of employees, the bank grouped its more than 100 job titles into job “families” and then grouped the families into seven workforce categories: sales, management, information technology, professional, customer service, operations, and skilled and semi-skilled.
This approach enabled the company to “drill down” into various segments of the employee base in analyzing patterns of retention and turnover, says Bill Myers, human capital analytics project manager at IndyMac. The patterns were also discerned according to other employee characteristics, such as performance ranking, tenure and previous work experience.
So far, IndyMac’s analyses have provided valuable insights.
“Our studies have allowed us to make strategic recommendations regarding compensation and benefits for our existing workforce, and improve our hiring criteria for new employees,” says Myers. “We’re really trying to push the envelope in terms of segmenting our workforce in a variety of different ways, but also in our ability to integrate disparate information from a variety of sources.”
IndyMac’s workforce segmentation led to finely tuned results, some of which contradicted conventional wisdom.
One of the surprises in the IndyMac study was the relationship between turnover and performance. As might be expected, when the company segmented employees by performance level, it found that turnover was highest among the poorest performers and was lower with each successive group up the ladder of performance ranking—with one exception. Analysis showed that turnover was higher than expected among those in a certain band of top-rated employees—higher even than among those with only above-average performance. (See “Turnover by Performance Rating”.)
“We were not quite sure what to make of the upswing in turnover among higher-performing employees,” says Myers. But one possible explanation, he says—emphasizing that it’s an untested theory still under examination—is that the uptick is related to eligibility for stock grants. While all employees whose performance reviews are above 85 on a 100-point scale are considered to be “above expectations,” Myers explains, only those rated at 90 or above receive restricted stock grants. “Turnover spiked among those employees receiving a rating between 85 and 90—in other words, those who are considered high performers but who don’t receive stock grants.”
Views from Both Sides
Among the results of the 2004 Job Satisfaction Survey, conducted by SHRM and CNNfn, were these job-satisfaction factors listed as very important by the two groups that responded to the survey.
The list on the left shows the order of importance of jobsatisfaction factors among employees as a group. On the right is the order of importance for employees in the view of HR professionals as a group.
According to Employees
According to HR Professionals
Relationship with immediate supervisor
Management recognition of employee job performance
Feeling safe in the work environment
Communication between employees and senior management
Flexibility to balance work/life issues
Opportunities to use skills/abilities
Career development opportunities
The work itself
Organizations commitment to professional development
Overall corporate culture
Autonomy and independence
Career advancement opportunities
Meaningfulness of job
Variety of work
Relationship with co-workers
Contribution of work to organizations business goals
Myers says the bank is considering whether to lower the threshold for stock awards to 85 on the scale so that all employees performing at above expectations receive them.
In addition, there was a weaker-than-expected correlation between commuting distance and turnover. In fact, turnover among employees with a short commute turned out to be at least as high as turnover among those who travel the greatest distances between work and home.
IndyMac also found that turnover was unexpectedly higher than average among employees hired through employee referrals. A subsequent analysis showed a correlation between the quality of the referring employee and the quality of the referred employee, Myers says. The company is now considering ways to redesign its employee referral program. Possibilities include limiting referral rewards to high performers or paying a higher referral bonus to higher-rated employees.
The company also learned that stock awards had a powerful retention influence on employees in all categories, but the degree of influence varied significantly from one group to another. “For management, turnover was only slightly lower for those awarded stock than those who weren’t, but for operations staff, the turnover was more than 50 percent lower,” says Myers.
Similarly, various segments of the workforce reacted differently when their compensation was increased, Myers says. For employees in the lowest and median levels of compensation, turnover went down as pay went up. But for employees in the 75th to 90th percentile, he continues, the effect of pay raises on turnover “kind of levels off.” Referring to the 20th century American psychologist Abraham Maslow, who studied human motivation, Myers says, “It’s kind of like … Maslow’s ‘hierarchy of needs,’ where at first acquiring things like food and water are what really drives you, but after a while, you get focused on meeting higher-level needs.” In effect, after compensation needs are essentially satisfied, employees’ needs shift to other things.
“You get some surprises when you look at individual pieces of data,” says Myers, “but by looking at your workforce from different angles, you begin to be able to connect the dots. Eventually, you reach a kind of critical mass where you can start to make some really insightful strategic recommendations.”
When All Is Said and Done
Finding out what really matters to employees so the company can maximize its investment in human capital is not an incidental undertaking. There are costs involved in doing surveys and in analyzing their results, and there are additional costs if an organization doesn’t show that it values the effort.
It’s imperative that senior management be viewed as committed to the process, that surveys be perceived as relevant and that employees see results, says Ben Dattner, a principal at Dattner Consulting in New York.
“If you’re surveying each year and it doesn’t lead to results or improvement, HR shouldn’t be surprised if a certain cynicism develops, with employees wondering about the effectiveness of the survey,” Dattner says. “Ask yourself: ‘Did this survey lead to action and results? Was it viewed as politically unbiased?’ ”
On the other hand, an organization shouldn’t feel compelled to “fix” everything either, says Cohen. “In some cases, it may be a matter of explaining things to employees that they do not see. And in other cases, it may be a matter of the organization telling employees that they will not address a particular issue at that time.” For example, although employees may be dissatisfied with pay or a particular benefit, an organization may decide for financial reasons not to change compensation or benefits.
“It is better to tell employees what won’t be done and why than to not address the situation at all,” Cohen says. “Responding in some way is key to the success of any attitude analysis program.”
Down the Road
Surveys a decade from now likely will have some core similarities to those of today—feedback on pay, supervision and training, for example. But content will change as baby boomers exit the workforce and members of subsequent generations with different work/life values acquire increasing influence in the workplace. Elder care benefits, for example, might eventually become as important as child care issues became a decade ago, Cohen says.
Surveys should evolve as organizations evolve, Dattner says. “It shouldn’t be the same benchmarks year after year because the playing field is changing. As with other key systems and strategies, an organization should be self-reflective and self-critical about surveys, too. In other words, part of the survey should be about the survey itself.”
An example of evolution in employee surveys can be drawn from a decision by The Conference Board. The organization started a new line of inquiry after earlier surveys showed continuing declines in job satisfaction among U.S. workers, especially among workers 35 to 44 years old—those poised to move into corporate leadership ranks in the coming decade. “This declining satisfaction has prompted us to begin research around employee engagement and satisfaction,” says Barrington.
Moreover, the project will proceed along two paths, involving both a nationally representative survey and confidential intracompany surveys, Barrington explains. “The parallel ‘macro’ and ‘micro’ approach will allow us to track and compare differences in engagement of workers and job satisfaction by characteristics such as industry, race, gender, age and job function, but also disentangle company-specific satisfaction and engagement issues from national trends.
“As an HR executive,” she says, “it’s important to know if something is ‘just your problem’ or systemic throughout the workforce at large.”
Pamela Babcock is a freelance writer in the New York City area who has been a reporter for The Washington Post and the News & Observer in Raleigh, N.C., and has worked in corporate communications.
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