Workers in hot demand are able to play companies off against each other in bidding wars, writes Steve Hart
KEY POINTS:
Giving staff 20 per cent more money appears to be the golden figure to hang on to people who have had offers from other companies.
Employment commentator James Adonis says increasing numbers of staff are going to their manager prepared to leave for more money, only for their manager to offer them more to stay.
"Bidding wars are on the increase because the talent shortage is getting worse," he says. "Employers are becoming desperate to hang on to their staff or to attract new people."
He says that in-demand talented staff are able to ping-pong offers back and forth with perhaps two or three counter offers being made.
"It is kind of scary for employers, especially when you consider that 80 per cent of staff who are tempted to stay by more money will leave between three and 12 months anyway."
He says the days of companies saying to their staff "if you don't want to be here, we don't want you here" are long gone.
"Not so long ago, employers knew that if a good employee left, then they could get 100 applications for that job within the week," says Adonis.
"The job market has done a full 180-degree shift and employers have almost zero power. And, in some industries, such as accounting, they have absolutely zero power and so are looking overseas for staff."
Adonis says when staff resign the first thing employers think of is how are they going to cope with a three-month gap until a new person starts, assuming there's someone available.
"And once the new person starts there's training to do, team building and everything else that goes on," says Adonis. "Employers now understand that where they would have got 100 applications, today they will get 10 and they'll be crap anyway."
He says the market is so strong for talented employees that they are almost in a position where they can resign without a job to go to safe in the knowledge that they'll probably land a new one within a week or two.
"And once word gets out that someone was paid more to stay then the manager can expect other staff to beat a path to their door," says Adonis. "Staff may get asked to sign confidentiality agreements to stop them talking about their employment packages - but we know people will talk about salaries anyway."
He says employers can't hope to keep stuff like this a secret and, the moment it gets out, it sets a precedent. But while it could cause employees to demand the same treatment there is an even bigger question here - why do some firms pay their staff less than the market rate?
"I can't understand why some firms are underpaying their staff at all in this market," he says. "If a person is earning $50,000 and can get $60,000 by moving to a new firm then that must be what the market values the job at. Why isn't their current employer already paying them the market rate?
"The better companies know that paying well will keep their staff on board. They understand that if they want to have the best of the best working for them - and not their competitor - then they pay above average."
Adonis says in the 1980s, companies differentiated themselves by the products they offered - but their competitors could match those products within a few months. In the 1990s, companies used their customer service levels and added value products as a way to stand out.
"Today, companies differentiate themselves by the people they have working for them," says Adonis. "And there are plenty of studies that show that talented employees have not only a higher level of output but better quality output too.
"Companies know they have got to get the best people working for them to do this - and to do that they have to pay in the higher end."
However, according to a survey by remuneration experts Higbee Schaffler, money has little to do with the retention of staff. The firm's analysis of New Zealand salaries shows there is no correlation between pay and voluntary staff turnover.
To come up with its findings, its staff reviewed data from 35 major companies, but did not include high turnover areas such as hospitality. Their results show that employees are not quitting their jobs over pay issues.
"The average staff turnover in the 10 highest paying companies was 17 per cent and, in the 10 lowest paying companies, 18 per cent," says Caroline Fenton, senior consultant at Higbee Schaffler.
"The 10 companies with the highest turnover (average 27 per cent) paid, overall, almost exactly at the market average. So did the 10 companies with the lowest (average 11 per cent) employee turnover."
Fenton says the lack of any relationship between increased pay and staff retention flies in the face of what most managers believe.
"Paying high in the market may attract candidates at the recruitment stage but it doesn't reduce turnover," she says.
Fenton says her analysis is clear evidence that increasing pay doesn't increase retention. That may come as a relief to managers struggling to keep up with rising pay packets.
But Adonis has an alternative view and says all it takes is a carrot of a 20 per cent pay rise to lure a person to join a new firm, and a further 20 per cent for the current employer to retain them. For the lucky few, he says, a 60 per cent pay rise may be attainable for some employees.
He also says exit surveys are misleading as staff point to low salaries as a reason for resigning, when in fact it is more to do with company culture.
"People will say they are leaving for more money when, in fact, they just want to get away from that firm for other reasons," says Adonis. "People do not want to burn bridges by pointing the finger at their manager or co-workers."
It is here that Fenton agrees, saying that study after study has shown that remuneration ranks well down the list of employees' reasons for leaving a job.
"The most common reasons for people leaving their jobs are that they don't like the manager they're working for, or they feel they are missing out on professional or personal development," Fenton says.
She says employees are looking for intangibles such as career development, job satisfaction, flexibility and a pleasant work environment.
Adonis agrees, saying a mixture of money, training, more opportunities, mentoring or a better work-life balance can retain staff too.
Fenton says that if an employee threatens to leave citing pay issues, managers should think hard before deciding to offer an increase.
"An employee who says they will leave unless they get a pay rise is probably going to go anyway," she says.
"Once someone has mentally left their job, they usually go within a few months. In any event, you would have to ask yourself why you wanted to keep someone who felt like this about their job."
Fenton says employees may even take a pay cut to move into a job that offers more opportunity, flexibility or new challenges. But she has a warning for firms:
"If a company is burning out its staff, if it is an unpleasant place to work, and offers little or no opportunity for personal development, then money may be the only reason to work there," she says. "Companies may have to pay high because they simply have nothing else to offer."
While a lucky handful may be able to negotiate salaries at 20 per cent a time, the most everyone else has had to make do with is pay rises of a few per cent. And an unlucky few have not had a pay rise at all in the past 12 months.
Mercer's Market Issues survey - out this week - reports that fixed pay movements for same incumbents (the same person in the same role) below management level, saw "staff" salaries rise 5.8 per cent in the 12 months to March 2008, and they fared better than "executives" whose pay increased by 5.2 per cent.
Martin Turner, head of Mercer's Human Capital business in New Zealand, said this was a sign employers were finally realising the value of their total workforce and also that retention strategies were working.
"Employers are now paying a premium right across their talent pool but they are seeing a return on this investment. Voluntary turnover has dropped significantly in the past six months, falling from 23 per cent to 18 per cent," he said.
"We believe this can also be attributed to a slowing economy which is creating a sense of nervousness among employees.
"It indicates employers are getting the message on how to keep their workforce loyal, and employees are staying put in places where they're receiving robust pay increases."
Contact Steve Hart at www.stevehart.co.nz
