If there is one compensation bad habit that, if broken, would make the greatest difference in efforts to retain key talent, it would be when managers allocate their merit budgets like spreading peanut butter. They spread their budget as evenly as possible, to avoid if possible, even a single difficult conversation. By difficult conversation, I mean telling a “loyal” employee that they will get no salary increase this year.
It is my experience that you must pay your best people best, and the others less, to retain the best. If the others leave voluntarily, we will miss them but can backfill them with better talent in many cases. But if the good ones leave, please don’t come to me (HR/Compensation & Benefits) to fix your retention issues. If a manager is guilty of spreading the peanut butter at review time, giving top and bottom talent the same salary increase percentage, it should be no surprise when the best leave.
You must pay your best people best, and the others less, to retain the best
I Have Had the Tough Conversation
I once managed an employee who refused to store sensitive reports (with names and medical information) in a secure, locked location when leaving the office at night. The moment I noticed these reports one night sitting out on her desk as I left the office, I covered the reports and the next day I told her it was not acceptable to leave the reports out where anyone could see names, their injuries and illnesses, etc. This was over 20 years ago before data privacy laws. It was still wrong back then. The woman, old enough to be my mother, scolded me saying in 16 years no one ever said that she had to lock up those reports. That made no difference to me. She never complied, and continued to leave them out on her desk. Finally at review time, I gave her a 2 (out of 5), i.e. “meets some expectations”. I also told her she would get no salary increase. Again, she put me on a major guilt trip: “Tom, in 16 years, I’ve always gotten my annual raise. I’m disappointed in you…” Again, keep in mind I was in my 30s and she was in her 50s. I’m so mean!
Actually, by not giving her a raise, I was able to give a little extra to my two superstar benefit managers that year, otherwise they would get the wrong message, that their extra hard work went unnoticed and unrewarded. The lady who got no increase did not leave the company, nor did my superstar benefits managers. All three women were equally valued as people. But there was a stark difference in performance levels. I believed in differentiation then as a people manager and now I teach differentiation in my various courses and consulting projects.
Yet, so many times I hear my HR friends tell me some of their top people are leaving for big raises. Please don’t blame the “Great Resignation”. HR systems ask you to enter a separation reason when someone leaves the company. The Great Resignation is not a valid reason code when entering a voluntary separation on an HR system. You cannot blame a global phenomenon when someone leaves. They had their own reasons. If they left for a much higher salary, ask yourself, HR: did I do enough to get my managers to differentiate at merit review time, or did we let them spread the peanut butter, ensuring everyone got their raise?
I get it about harmony, about being non-confrontational and saving face. I really do. Saving face is important. That’s why we give negative feedback in private. Retaining key talent is also important. Figure out what your reward philosophy is: is it paternalistic where everyone is entitled to their job, their raise, their bonus, etc.? Or is it a philosophy of shared responsibility where people are held accountable to deliver value for money?
Finally, invest in manager training. The best employers invest in manager training every few years. I am currently going back to a client to train all their managers on pay for the third time in six years. I will do the same for a major university in Singapore, coming back to give a refresher for the deans and department heads. For this investment, they will be more effective in keeping best talent.