IT Employment

Payscales and policies cause a loss of the best talent

Companies and organizations are shooting themselves in the feet with new policies designed to show that they can be frugal. In this article, business success coach John M McKee makes the case that bad action is worse than no action at all when it comes to retaining talent.

 "Our policy is to have no more promotions or raises this year. We need to show that this company is serious about doing what is necessary for profits in 2009."

Have you heard this type of statement at your organization yet? It seems to be an approach that’s gaining in popularity; particularly in large public entities.

Two large organizations with whom I work have already implemented it as a strategy. I expect to hear more about it as people worry about continuing bad business reports and the outlook.

 I believe it’s a bad policy. It probably can’t remain in force for any length of time. But during that time, a lot of unintended consequences can occur.

Here's why: Generally this type of policy has a negative impact on two types of people pretty quickly. First are those individuals who are regarded as high potentials or stars. It causes them to wonder if there’s any reason to stick around: "I know I’m good and valuable; but if I can’t move ahead in either title or comp, why not move elsewhere?" It can also get others in the org wondering about the same thing but for a slightly different reason. I’m talking about those who have felt for a long time that they are "due" for a raise or promotion because they have been neglected or underpaid and may feel a bit cranky already. Now told that they can’t expect any change this year, what’s the downside to shopping for another role?

So the organization has an entropic environment started. There's more good stuff going out than coming in. And those who are left may be the people who don’t make the most significant contributions. Then, after a while, the organization’s leadership starts making "exceptions to the rule" to try to keep the good ones from leaving. And word gets out. This causes more consternation and disappointment within those who’d stayed within the policy guidelines. End result is a net loss in talent and productivity.

My advice - don’t make this type of policy in the first place.

That said, I have recently come across something of interest for those of you who are already living in an organization that doesn’t intend to do what it takes to keep their best players. It’s a fairly new website that could help you figure out what other opportunities look like.

In an article in the February Portfolio Magazine by Kevin Maney, he mentions a new site that seems to be getting all the funding it needs to grow during this economy. It’s a neat idea, providing a person who signs on to it to get insight into how other managers and leaders are paid at other organizations.

Called Glassdoor, it’s a site full of actual pay levels and titles at real companies in various communities across the country. To find out what someone with the same title is making at a competitor, all you have to do is sign up and agree to provide (anonymously) your information. Then, voila, secrets at your fingertips!

Maney goes on to note that even during bad times, there’s money for startups in the tech sector. He sites some great examples like HP which started in 1939 (your Grandpa’s Depression), Microsoft came about in 1975 - and that economy was regarded at the time, by a lot of boomers, as the beginning of the end of capitalism. Cisco was founded in 1984 during an era of impossibly high interest rates and lack of capital. And, he reminds us, the dotcom bust in the 90s begat LinkedIn, MySpace, Vonage and Wikipedia.

All that to say that good talent doesn’t need to - and won’t - stay in a place where they’re landlocked.

john

Leadership Coach

About

John M. McKee is the founder and CEO of BusinessSuccessCoach.net, an international consulting and coaching practice with subscribers in 43 countries. One of the founding senior executives of DIRECTV, his hands-on experience includes leading billion d...

10 comments
dilip.talekar
dilip.talekar

IT Manager, Talekar Dilip. Development,Progress of the company is only on IT people works. I developed the system, runs others software as well as manages hardware on which more than 150 peaple work. Like me, Other IT people works. NO Rise or promotion in IT means devaluating them. thanks

rbogar
rbogar

As a contractor I've seen a lot of this over the years, especially in state and federal government. The result is that those who can get a better job elsewhere do so, leaving the least capable behind in a perverse form of "survival of the least fit". Consider this when you visit an SSA or MVA office.

CodeCurmudgeon
CodeCurmudgeon

While they haven't announced that there will be no raises or promotions, there has been a freeze on new hires. Several people have been appointed to open leadership positions, but the lower level positions will be open for the foreseeable future. The joys of working for a red state.

Tony Hopkinson
Tony Hopkinson

Putting out this as an official policy statement, bad for employee morale, might reassure financial backers though. It's a simple question, if you are employing someone who can get more elsewhere, why can they? Do you actually need them. If you do, how much will it cost to replace them versus how much will you save getting something closer to current need? It might be that, scaring the bulk of your people into to effectively taking a pay cut, will improve the balance sheet, you will lose your best people though, can you afford to? They are the ones who can get you out of the mess, if directed and supported properly. Doesn't matter whether they are a cleaner or an MD, value for money should be the only criteria.

Osiyo53
Osiyo53

I agree with much of what you said. However, there are usually two sides to every argument. "We need to show that this company is serious about doing what is necessary for profits in 2009.? That is, indeed, an argument used by some organizations. But for others, the more accurate statement would be something like, "We made NO profits last year, and project the same for this year. And our cash reserves are about to run out. In the long run, we believe that we'll survive these difficult times but to do so we must take temporary steps to control expenses that no one is going to like." And that's just a fact. Now not all businesses and organizations are going down the tubes. For instance, my favorite bank, the one I do most of my business with, is financially strong and has a boatload of capital cash in reserve. In fact, they're refusing any Federal aid. I know of numerous other businesses that are in the same financial situation. I own stock in one, used to work for em, and they're still very strong financially. Thank goodness. Since it seems so many others I have money stuck into have been taking a dump. But a number of organizations are in fact hard strapped just to stay in business. Good companies, but ones where they need to take intermediate actions just to hold on til the economy improves. Companies that are not, and were not, necessarily mismanaged. Let's face it, if people just aren't buying certain products, or are not buying them in the quantities they previously were. If you are in a business that relies on those product sales, you're probably having to cut your overhead expenses in some fashion or other. Same goes with services. If the consumers are holding off on purchasing services, if you're a service provider you probably must needs tighten your belt. I've been seeing pay freezes. And out and out pay cutting going on. In some cases, it's for show. Just a public statement and policy implementation made to please John Q Stockholder. To assure him that the organization is taking some sort of steps in response to the current financial/business situation. After all, if John Q Stockholder isn't placated and reassured, he or she may withdraw his or her money and take it elsewhere. Or stuff it in the mattress. And in some cases, the freeze on pay and bennies is probably just an excuse, not really needed, as a ploy to improve the bottom line and net profits. But in other cases, the need is real. Simple ... we need to cut costs or we shut the doors, perhaps permanently. Have seen a number of such cases locally. In one case, a MAJOR player. A very large corporation, and a good one. But consumers aren't buying like they were last year or the year before. The current market will not support the number of employees they now have, at the pay scale they had. So this corporation didn't just freeze pay scales. They gave their employees a choice. Take a pay CUT, or we start laying off folks. PERIOD. In this case, the employees voted for an approx 15% pay cut, but retain everyone. High level management and execs voted themselves a MUCH larger pay cut. In a number of other cases, I know of companies who're telling employees to use up all their vacation time, or be laid off. And other companies who are doing short term layoffs, a month or two, on a rotating basis such that the layoff time will be spread through all the employees. One must face realities. Now, does this mean one HAS to accept a pay freeze? Oh, heck no. It's an individual decision. You might well be able, at this time, to find someone willing to pay you what you expect and think you deserve. After all, I did mention that there are some players out there who are still in good financial condition. And if they're smart (and they probably are) they're looking to pick up some new talent and/or good bargains. If you've got the cash reserves, now is the time for such things. A friend of mine just made such a move. Worked for one outfit whom he liked working for. But they're strapped right now and he was told to not expect a promotion he was looking for any time soon. So, he went to a competitor business, one he'd turned down before. And got that promotion, and a better paycheck. It still remains to be determined if he's going to be happy with that decision a year from now. More money doesn't always mean the job is better, and that job satisfaction is better. I talked to him this weekend, and while he doesn't actually dislike the new employer/work environment. He's not enjoying the new job as much as he'd hoped, and is feeling more insecure. New employer micro-manages a LOT more than his previous one. And he has found out they have a habit of firing as readily as they hire; suddenly, unexpectedly, and without warning. Employee loyalty to the company, and company loyalty to the employee is mostly non-existent where he now works. So these decisions have to be individual ones. And if you base the decision you make SOLELY on the money, you may or may not be happy with the results.

mattex411
mattex411

["But for others, the more accurate statement would be something like, "We made NO profits last year, and project the same for this year. And our cash reserves are about to run out. In the long run, we believe that we'll survive these difficult times but to do so we must take temporary steps to control expenses that no one is going to like."] I think if an organization where to send out the message as in above instead of just saying ["We need to show that this company is serious about doing what is necessary for profits in 2009."] then you might just find people are more willing to accept the situation. I've found that when you provide more insight in to how the upper management is thinking, then you appeal to the 'loyalty' of those talented people. The truely talented ones will see the situation as a challenge and may stick with it out of a sense of proving they have what it takes to make the company successful. The more self-centered ones will most likely bail no matter what amount of information you give them. Maybe companies shouldn't be so timid with providing such shallow messages as ["We need to show that this company is serious about doing what is necessary for profits in 2009."] and instead take the risk of really talking to their employees. I think in the end you end up with a better organization because of it.

CareerCoach
CareerCoach

A policy of no promotions or raises until times get better is shortsighted. There are better ways to improve the bottom line.

Justin James
Justin James

One of the things that always amazes me is how companies often think of employees as not only replaceable parts, but parts that don't require any maintenance. It's sad that companies will spend more money maintaining a $30,000 fleet vehicle that takes 4 hours to replace than a $90,000/year developer or system administrator that takes 6 months to recruit, train, and come up to speed! J.Ja

jck
jck

but...6 months??????? God, I got to this job and they wanted me to have Java learned in weeks!!! But, I agree. People are not valued anymore at the "worker bee" level. Sad...but true.

Justin James
Justin James

The studies I've seen all say that it's about 6 months for a developer to become fully integrated with a project. Entry level developers are even worse; typically, the friction they put into the formula is more than they produce for QUITE a while, so not only are they not "fully integrated" into the project, but they actually slow the project down. Even more experienced developers slow the rest of the team down, as the people who have been there a while need to "show them the ropes". That's why adding developers to a late project is one of the "classic mistakes of software development"; unless it occurs quite early in the project, adding developers will make a project even LATER! J.Ja