Retention and Reward: Struggling With the Consequences

Illustration by DreamstimeIllustration by Dreamstime

Employee retention is a double-edged sword.

According to Merriam Webster, in addition to being a sword with two sharp edges, this is defined as something that can have both favorable and unfavorable consequences.

That’s about right.

Retention needs to be more discriminating

Or, as John Sumser of HRExaminer puts it:

Why do we have layoffs?” Because the retention programs work too well. The idea that great people should be retained in their jobs for a long time is the exact opposite of growth and innovation. Retention breeds seniority and bureaucracy. Innovation requires youth and inexperience.”

For too long, too many of us have treated retention as a universal objective, one that applies equally to all employees. It’s time we become more discriminating and strategic in our retention efforts and stop spreading them evenly across the organization.

This means figuring out which employees and jobs are most critical to the organization’s success going forward, identifying them as our retention priorities and then focusing our practices accordingly.

Why smarter retention should matter

There are a number of reasons why this is an imperative; here are a few.

  • First, we simply don’t have the resources to invest in everyone’s retention.
  • Secondly and more importantly, our indiscriminate retention efforts can jeopardize the organization’s future by encouraging the wrong employees to stay and sending signals to the right employees that they are not valued.

While some retention efforts are overt and direct, many are embedded in our reward programs and practices. In fact, many well-intended reward programs that produce good results, and even positive press in the immediate term, can set the organization up for a real problem down the road, when circumstances demand changes in its business model, which in turn require a shift in the skills and capabilities of its workforce.

As one example, some organizations have elected to deliver a premium-level compensation package to their employees. This is generally known in the world of labor economics as the membership model or in the words of Drive‘s Dan Pink, the “just pay them enough to take money off the table” approach.

Some organizations, like Netflix, have complemented their premium pay levels with critical HR practices like a relentless commitment to identifying and showing the door to mediocre employees and a competency in engineering amicable departures.

Retention vs. evolution and improvement

For these employers, getting a highly paid labor force to pivot when business demands it may not be a problem. Others will discover that employees with outdated skills who may be unable or unwilling to meet changing role expectations, and who are now paid at above-market levels, may have scarce incentive to move on and little motivation to upgrade their capabilities.

Another example might be the organization with little or no individual merit pay differentiation (perhaps because they’ve abolished performance ratings) and a performance-based pay philosophy that rests almost entirely on group plans — cash profit-sharing approaches that reward performance at the company-wide or business unit level.

High potential and high performing employees, those who’ve shown themselves up to the challenge of transforming with the organization, may feel unnoticed and unappreciated and may be tempted to seek opportunities where their individual contributions are recognized and rewarded.

Talent as an obstacle

Few organizations today are immune to the need to continually evolve and improve, and this cannot happen without evolution and improvement in the workforce. When the world demands that you renovate and upgrade your talent, will your retention and reward programs be an advantage or an obstacle?

Will you be on the right or the wrong edge of that sword?

This was originally published on Ann Bares’ Compensation Force blog.