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Reward Strategies Should Target Key Talent

Prof. Dow Scott

As the economy recovers, organizations that fail to revise their pay structures will see key talent walk out the door, according to presenters at the 2012 WorldatWork Total Rewards Conference that was held in Orlando May 21-23, 2012.

"With an increasing number of Americans leaving their jobs or considering doing so, organizations need to revisit their reward strategies to support the retention of key talent"—not the highest-level executives but those workers who consistently provide the most value to the organization, said Dow Scott, professor of HR & Employee Relations at Loyola University in Chicago.

Scott partnered with pay consultancy Hay Group in 2011 to study reward strategies that support key talent retention. Surveys conducted by Hay Group among its clients and members of WorldatWork, an association of HR/total rewards professions at mostly large North American companies, revealed that 20 percent of employees are expected to quit their jobs in the next two years. "Despite high unemployment, a number of baby boomers want one more fresh start before retiring," Scott noted. The consequences may be twofold: subsequent generations often lack the needed experience and skills to take over.

Key talent is always in demand and thus most likely to find that outside opportunities are available. "It's getting easier for key talent to leave," Scott added. With the rise of social media such as LinkedIn, "everyone is always looking for a job. The days when a company wouldn't publish an employee directory for fear of attracting headhunters are long gone." Moreover, "key employees are sensitive to the contributions they make in comparison to their peers," Scott noted.

"It's getting easier for key talent to leave."
-- Prof. Dow Scott

Replacing employees is estimated to cost on average from 0.5 times to 2 times salary, but key employees can be much more expensive to find, Scott said. So it's in the interest of organizations to retain key workers with special reward packages and career development opportunities.

Understanding Key Talent

But first, "it's vital to know who your key talent is," said Tom McMullen, Hay Group's North American practice leader. He offered a definition of key talent that includes consistent top performers, those identified as having high potential and employees who hold critical jobs.

In terms of high potential employees, he advised developing clarity around "potential for what?" in terms of likely promotion scenarios.

Tom McMulllen

Organizations should clarify their rewards strategy for key talent, determining the degree of variation between key talent and others, McMullen advised. This should start with more aggressive base salary increases (including off-cycle pay raises, where appropriate), and include increased incentive and bonus opportunities that reward high performance.

"Differentials should be obvious across all cash reward elements over multiyear periods, throughout the length of the employee's career," McMullen recommended. In addition, nonfinancial rewards, such as mentoring opportunities, should target key talent.

Another important element is an effective communications strategy that lets employees know when they are viewed as key talent, taking into account the risk of alienating those who are not so identified—​which ultimately might not be unhealthy for the organization, McMullen added.

"Involve key talent and senior management in developing key talent programs," he suggested, and learn what drives key talent to stay or leave. To determine the program's effectiveness, measure the growth of key employees in the organization and their retention rate.

Out the Door

Hay's survey revealed that the top reasons key talent leaves, according to HR professionals, include:

Opportunity to earn more elsewhere (cited by 77 percent of respondents).

Lack of promotion opportunities (67 percent).

Pay levels perceived as unfair vs. outside opportunities (58 percent).

Dissatisfaction with job or work responsibilities (56 percent).

Pay level perceived as unfair vs. employee’s performance/contribution (53 percent).

Workloads too heavy (52 percent).

Work/life balance issues (50 percent).

Methods most often used to retain key talent include:

Identify key employees who are essential to the business (85 percent).

Hold discussion with key employees about future opportunities (80 percent).

Pay employees above market level (75 percent).

Role of Counter-Offers

Only 14 percent of surveyed HR professionals said that their organizations had a counter-offer policy, and only 4 percent had a documented policy, according to McMullen. Accordingly, "many find themselves scrambling at the 11th hour, when informed that an employee has received an outside offer," he said. To avoid losing them, "you need to re-recruit that person, and the typical window to present a counter-offer is 48 hours."

To prepare for these situations, "management guidance is needed on who is eligible to receive a counter-offer,” McMullen said. A counter-offer strategy should clarify:

The types of people/jobs eligible for counter-offers.

The role of HR, line managers and senior management in determining the counter-offer.

In addition to enhanced pay, including short-term gestures such as an immediate bonus, it's important to discuss the employee's underlying needs and concerns. "If you don’t make good on those over the long term, you risk losing that person," he noted.

Another point to keep in mind when developing a counter-offer policy: Not everyone who tenders their resignation and indicates an interest in a counter-offer should receive one. "Some employees are key talent only in their own minds, a view that may not be shared by the organization," McMullen noted.

Stephen Miller, CEBS, is an online editor/manager for SHRM.

Related Report:

Retention of Key Talent and the Role of Rewards, WorldatWork, June 2012

Related Articles:

Integrating Performance Management and Rewards at Microsoft, SHRM Online Benefits Discipline, May 2012

Incentive Pay Tips and Pitfalls Shared, SHRM Online Benefits Discipline, May 2012

Pay for Performance: Make It More than a Catchphrase, SHRM Online Benefits Discipline, May 2011

Quick Links:

SHRM Online Compensation Discipline

SHRM Salary Survey Directory

SHRM Compensation Data Center

SHRM Metro Economic Outlook reports

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