Retention starts with competitive pay for value. Loyalty is not value.

There’s so much out there concerning employee experience, engagement, EVP, employer branding, etc. It’s all good and it all makes a difference. We seek to “win hearts and minds” as we should. That’s the total rewards approach. But I propose that it starts with competitive pay, especially for those we most want to retain. Consider:

  • The key talent you need to retain is either selfish–wanting the highest salary possible, or unselfish: simply devoted to his/her family or other causes they wish to support, in which case they too want to maximize their earnings for those who depend on them, unless they really just don’t need the money.
  • The key talent you need to retain may love the company culture, the employee experience, the leadership, the work environment, even the work at home policy. They may even feel a sense of community and loyalty, and that’s fantastic. But if they have family to support, will they pass up the chance to make more in return for that great work environment? Yes, some will pass up the chance to make more to stick with a really good boss perhaps, but not most. I find that people are generally more loyal to themselves and their family than to their employer.

I find that people are more loyal to themselves and their family than to their employer.

What’s Loyalty?

Let’s look at loyalty. Loyalty cannot be measured or proven to exist, in my experience. “How do you measure loyalty?” I once asked the global HR Leadership team of a large multinational at their annual global HR Leadership conference. “Years with the company” was the sole response. I responded: “Couldn’t it be they’re just not marketable anywhere else?” Awkward silence.

I went on to explain how many employers are going beyond “peformance” which looks only at the past, and now are looking forward at retention, at the future value of a person’s expected contribution and impact. What’s the difference? Aren’t last year’s top performers the ones who will build the company’s future? Often yes. But often no. Ask yourself this: would people’s ratings change if it were based 50% on what they did in the last 12 months and 50% on what they learned in the past 12 months. What if your self-assessment included two questions, one asking the employee to summarize their performance, and a second asking them to summarize their learning.

Every employer that’s been around for more than, say 30 or 40 years, has some people who are “loyal” if you measure loyalty as years with he company. I’m talking about those people who’ve been with the company more than 15 years and deliver consistent “meets expectations” year after year. But are they loyal? If not, what is their value?

Disclosure: I am American. This means I grew up free to speak my mind, and to debate without hesitation. Harmony was something you learn in the choir, not in everyday American culture. That’s our way. So may I speak freely, in hopes you can gain an insight about loyalty? I am not talking about loyalty to family or country or faith. I am talking about employer loyalty, which is a good thing which unfortunately cannot be measured.

Value for Money

Any serving institution, public or private, for profit or not-for-profit, serves best with competent people delivering maximum value to their customers or society, for the available budget. The biggest budget line item for most employers is people, especially salaries. In return, the organization has every right, in fact obligation, to lead people in such a way so as to enable the very best performance of the work of serving those customers. And yet, many organizations–you know who you are–are bloated with long-service employees comprised of two sorts:

  1. Those who really wake up every morning and can’t wait to get working and serving their customers, i.e., engaged employees, and
  2. Those who drag themselves in and work just hard enough not to get fired, i.e. “loyal” employees.

According to a January 2015 report by Deloitte, 44% of workers globally work just hard enough not to get fired. Depressing, but that’s what the report says. Hewitt, now AonHewitt, ran the world’s first ‘best employers’ survey, for Forbes magazine, back in the 1990s, before employer awards was a thing. Hewitt (excuse me, AonHewitt) now has a massive global database on engagement. Guess what? Their survey says 40% of employees globally are either disengaged or actively disengaged, i.e. they don’t like their workplace, or they tell their friends they don’t like their workplace.*

I’ve taught about 2,500 HR professionals on pay topics, including North America, Europe, Asia and Middle East (sometimes Africa and Latin America.) I talk with people about total rewards every week. Total rewards includes both tangible and intangible rewards a person wants or gets from their employer, in return for their work. If you want to simplify it, start with the underlying concept of business: value for money. Employers seek value for money in people just as with raw materials, software, laptops and property. Value for money is essential for the survival of any private organisation, and to a large extent, public ones too.

Tough Choices to Retain Key Talent

What value for money does a person bring who is paid at the top of their salary range, yet complains that they are being penalized for their loyalty to the company? Do you have such people? It’s easy to find out: take the top third of your loyal employees, measured by years of service. What’s their average performance rating compared to the rest? What’s their average compa-ratio, compared to the rest? If you find that your most loyal employees have lower than average performance ratings AND higher than average pay, stop giving them raises. Give them long service awards.

If you find that your most loyal employees have lower than average performance ratings AND higher than average pay, stop giving them raises.

If you cannot summon the courage to do this, then you will fail to retain the above-average, must-retain talents who are more loyal to their families than they are to the company. Salary budgets are thin. You must differentiate, which means some get more (increases) and some get less. Make the tough choices.

Retention starts with competitive pay. The money you need to retain them is not sufficient because it too often goes to people who work just hard enough not to get fired: your “loyal” employees. Demand value for money. Loyalty is a lovely idea but it is absolutely not measurable.

Take the time with your HR team and define value, when it comes to people. I’m helping a global FinTech startup with just that. We have generally defined people value in terms of job scope, competence, learning (deep and broad), humility and teamwork. This company doesn’t care about experience, and there is no automatic annual salary review either. Pay decisions are as and when a talent demonstrates value and the company feels it’s the right time to raise their pay and possibly enhance their role.

What’s your pay philosophy?

*I am citing these statistics from memory. I have the Deloitte report, and I was with Hewitt in the 1990s and still follow them. In the event I have misquoted either, please forgive me. Get the reports and see for yourself.

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