Rebalancing act Featured

8:00pm EDT April 25, 2009

The pace of layoffs has slowed and, in a recent study conducted by Watson Wyatt Worldwide, 55 percent of employers said major job cuts were over. Although news of a stabilizing economy is good, it may heighten the challenge of motivating and retaining employees, because more than half of surveyed employers said they intend to increase cost-cutting measures through 2009 and beyond. The recession has necessitated short-term savings tactics like reduced bonuses and salaries or wage freezes, yet it has done little to allay experts’ predictions of long-term labor shortages. The answer is to make sure that every penny spent enhances the company’s employment value proposition.

“A company entices and retains employees through its value proposition,” says Yana Plotkin, CCP, senior compensation consultant for Watson Wyatt Worldwide. “Historically, turnover has increased during periods of recovery, so now’s the perfect time to look at everything that contributes to the employee work experience to make sure it is creating the ultimate value.”

Smart Business spoke with Plotkin about the best ways to motivate and retain employees by recalibrating your company’s employment value proposition and redesigning incentive programs.

What is an employment value proposition and how can it be rebalanced to achieve maximum return?

Every company has an employment value proposition, but few know what it is, how to customize it or how to communicate it to employees. Compensation, benefits, the company’s work environment, brand and culture all contribute to the total experience of working for a company, and its value is determined by the company’s employees. First, employers should assess the desires of their critical work force — those employees they must keep — then customize programs and align funding so expenditures deliver their intended impact. For example, a younger work force might be willing to get by on 10 percent less salary because they value investments in training and development, whereas a more mature work force might affix greater value to continued pension contributions and 401(k) matches. One size does not fit all when it comes to value creation. The key is to focus on what is most valuable to the most critical people that a company needs to retain in order to survive and succeed.

How can employers motivate and retain employees with reduced salary budgets?

Our survey shows that companies have budgeted only 1.5 percent for salary increases in 2009, yet as late as May of last year, executives said that retention of key employees was still their No. 1 concern. Rather than mandating no salary increases or small merit increases across the board, top performers or those in critical jobs should receive larger raises. Scarce engineers or rainmakers in professional firms are much harder to replace, and differentiation in rewards and recognition is a key principal to retaining high performers in difficult times by communicating to the most talented workers that the company values them.

How should incentive programs be recalibrated?

This area is particularly challenging because companies with pay-for-performance plans may find that those goals currently are unattainable, which will only demotivate employees. Consider these
alternatives:

? Review your company’s long-term goals and projections to make sure you continue rewarding employees for the right behaviors during the downturn, but perhaps with smaller awards. Now may be a good time to lower performance thresholds to energize and motivate employees, while raising the performance levels leading to maximum payouts in order to protect shareholders and owners from paying windfall bonuses resulting from a recovering economy.

? If your company needs to preserve cash, consider paying bonuses in stock or a combination of cash and deferred stock or stock options. This tactic increases retention and takes advantage of the depressed stock values while aligning employees’ interests with the company’s long-term strategies, ultimately creating a return for shareholders.

Might other incentives also enhance value for employees?

Many companies budget as much as 1 percent of annual salaries for employee recognition, yet few managers even know the funds exist, what to reward for, or that they have the discretion to use those tools to motivate and retain key employees. Look for unutilized funding sources to grant top performers spot bonuses, gift certificates or other recognition so they know they are appreciated during difficult times, and continue funding training and development programs so your company is positioned to optimize business opportunities during the rebound. Keep in mind that, at some point, the market will change and employees will once again be in the driver’s seat. How they are treated now may make all the difference in whether they choose to stay or go once the economy turns.

Yana Plotkin, CCP, is a senior compensation consultant for Watson Wyatt Worldwide. Reach her at Yana.Plotkin@watsonwyatt.com or (415) 733-4212.