How to achieve economic flexibility while satisfying employees’ need for security Featured

7:00pm EDT November 25, 2010

A crisis of confidence has overtaken employees and employers alike, but that’s where the similarity ends. In one corner, employers are insisting on cost control and maintaining the flexibility to initiate further pay and benefit cuts should a tepid economy take a turn for the worse. While employees want financial and emotional security after surviving a decade of layoffs and declining real value of their total rewards package.

Perhaps its time to seek middle ground as 52 percent of U.S. employers say it’s already difficult to attract employees with critical skills and 25 percent say it’s hard to retain top performers, according to Towers Watson’s “Global Talent Management and Rewards Survey” of 1,176 companies conducted earlier this year. The study highlights substantial gaps between the perceptions of employees and employers regarding the influence of security and flexibility on employee engagement and retention. Unless steps are taken to close the disparities, employers risk losing valuable employees who no longer believe their current employers offer viable opportunities for growth, security and wage gains.

“Realistically, most companies have already cut to the bone, but may be caught flat footed if they don’t come up with a game plan to reward and retain top performers and employees with critical skills,” says Rick Beal, consulting director for the Rewards, Talent and Communications Practice at Towers Watson.

Smart Business spoke with Beal about the secrets of balancing employer flexibility with employee desires for security.

What’s the best way to retain high performers and critical-skill employees?

Salary freezes and reduced increase pools have made it difficult for companies to recognize top performers by awarding them larger shares of the annual merit budget or variable incentives. Pay differentiation is essential to controlling fixed costs and maintaining flexibility while giving vital employees the security and real wage growth they crave.

There is some movement in the right direction as organizations have started awarding top performers larger raises and incentives. Global companies are delivering approximately 1.5 times more in short-term incentives to those exceeding performance expectations and two times more in merit increases.

Leading edge employers aren’t stopping with pay differentiation; they’re also turning to non-cash improvements to retain core employees. Nearly 86 percent of the 22,000 employees surveyed in the 2010 “Towers Watson Global Workforce Study” cited improved work-life balance as a retention factor, so now’s the time to offer flexible schedules, telecommuting and the chance to work in convenient locations.

But more can be done. It doesn’t cost a lot to recognize employees or offer them opportunities to enhance their skills, yet only 33 percent of employers view skill enhancement as a retention factor compared to 62 percent of employees.

What else can employers do to promote security in an unpredictable economy?

Develop a clearly defined employee value proposition (EVP) and harness its retention powers through an internal communications program. Only 25 percent of employers have a formal EVP and many view it strictly as a tool for attracting external candidates. But our data show that among high-performing companies 42 percent have an explicit EVP that conveys the total benefits of employment, and market its value internally and externally. Employment deals should not be left to the interpretation of employees, since ambiguity erodes engagement and makes top performers vulnerable to competitors.

The best news for employers is that value extends beyond monetary rewards in the eyes of employees. Thirty-nine percent of U.S. employees value the opportunity to develop innovative products or services and 55 percent value a wide range of jobs and work experiences. So tout job rotation, formal mentoring programs and the ability to work in global locations or serve on cross-functional teams when authoring a comprehensive EVP. Talk to employees about the unique tangible and intangible benefits of employment with your company.

How can employers satisfy a large group of diverse employees?

Certainly employers want to uncover the general needs and preferences of employees through surveys and focus groups, but savvy employers tailor their offerings and rewards by understanding the unique desires of employees in specific geographic regions and professions. Wide gaps between what employees want and what they believe is attainable can lead to disenchantment and an unwillingness to devote discretionary effort to the job. For example, highly coveted software engineers may favor an innovative environment and the opportunity to work with emerging technologies, while employees in a European subsidiary may favor a generous time-off allowance. Don’t settle for a one-size-fits-all approach. Employers should target vulnerable groups and diverse cultures by creating a series of unique, customized compensation programs and EVPs.

What’s the best-kept secret of high-performing companies?

Savvy employers work hard to turn managers into leaders so they can help the company retain and motivate critical employees during economically challenging times. While managers play an important role in helping the organization run efficiently, it takes leadership to catapult the company into a winning position in this kind of an environment. Leaders are expert communicators who build relationships with employees, understand their needs and effectively convey the company’s EVP. Sparse funding for training and development can be an impediment, but employers should exhaust every low-cost option to grow managers into leaders so they aren’t bemoaning the loss of critical employees and institutional knowledge after they’re gone.

Rick Beal is the consulting director for the Rewards, Talent and Communications Practice in Northern California at Towers Watson. Reach him at (415) 733-4310 or