Career Advisory - Human Resource Departments

Human Resource Departments

Human Resource departments are transforming themselves from cost centers into corporate assets," says Kennedy Information CEO Wayne Cooper. "Everyone needs to do more with less nowadays, so companies are focused on recruiting, retaining and creating incentives for top performers. Quality consultants can be critical allies in transforming HR into a strategic partner of a corporation's top executives."

The report provides detailed market projections for key HR consulting services, discusses trends shaping the competitive landscape, examines firm differentiation strategies, investigates the risks and opportunities of outsourcing and estimates market share by industries served.

Understanding What's on the Minds of Employees Can Help HR Meet Retention Goals in 2006

By Salary.com
It should come as no surprise to human resource professionals that many employees plan to intensify their job search in 2006. A growing job market this year could shift the balance of power to the employee, leaving the door open for potential job seekers to move on to better opportunities elsewhere. HR departments are poised to combat this potential employee migration with a primary employer goal for 2006 to bolster employee retention. Companies will be focusing on offering employees more incentives based on performance, earlier bonuses and salary increases, and non-monetary benefits such as remote access in order to stay competitive and retain top talent. Many employers are still at risk of losing their most valuable and productive employees this year, as well as missing out on new prospects if they don't seek to understand the value systems and perceptions of their employees and focus on incentive programs that will keep them happy and motivated.

According to recent job satisfaction and employee retention research conducted by Salary.com, the leading compensation technology firm based in Needham, MA, human resource managers may be off target with some of their efforts to recruit and retain valuable employees. While most HR professionals have an understanding of what makes employees leave their organization, few understand the nuances of why they stay

"Knowing what is important to employees can enable a new kind of dialogue between HR departments and their employees. This can significantly help to reduce employee turnover and replacement costs," says Bill Coleman, Senior Vice President of Compensation at Salary.com, and a nationally recognized expert on compensation. Knowing what is important to the employee is especially important in 2006 because 65% of employees plan to look for a new job in the next three months, according to the Salary.com survey. In fact, the number of employees who describe themselves as "very likely" to leave their current job has increased more than 50% in the past year, according to the same survey.

Taking into account that HR professionals estimate turnover costs to be about 30% of the annual salary of the person being replaced, a potential mass exodus of employees could significantly hurt a company financially. Saving these employees, and luring in more, has become the main goal of human resources for 2006. The key to retaining valuable employees will be the knowledge of what keeps them satisfied.

The Disconnects

Salary.com's 2005/2006 Job Satisfaction and Retention Survey yielded surprising disparities between what employees actually value, and what human resource professionals perceive to be important to overall job satisfaction and employee willingness to stay or leave. The first major disconnect between HR and employees lies in the number of employees who are actually searching for a new job. While human resource managers believe that only 32% of their employees have updated their resume within the past three months, 80% of employees said that they actually have. Small organizations (less than 200 full-time employees) are slightly less at risk with 50% of employees indicating that they have recently updated their resume. In fact, 34% of employees have interviewed with other companies in the past few months, while human resource departments believe that only 18% have. These statistics point to an important gap between the perceptions of employee job satisfaction on the part of employers and the actual happiness of employees. Understanding what is making employees want to leave and taking steps to combat attrition can help HR professionals to make 2006 a better year for employee retention.

The survey results also demonstrate that companies are most likely to lose employees who have been in their jobs between three and ten years - the period of an employee's tenure when his/her productivity is likely to be the highest. If realized, excessive turnover in this group could mean large soft costs to employers. According to Bill Coleman, "the first step in retaining employees is actually accepting the fact that some are likely to be searching for another job, and knowing that the number of employees searching is probably more than you think." The Salary.com survey highlights that employers who generally regard compensation and benefits as the keys to employee happiness, have to realize that good relationships are actually the primary benefit that employees covet at work. The survey showed that employers are often focusing on the wrong issues while trying to bolster employee retention. Human resource professionals list the top factors impacting employee happiness as:

However, employees rate the top five factors in overall workplace happiness as:

This demonstrates that the factors employees value the most at work, such as friendly co-workers and managers, a short commute and good working hours, are far more work-life oriented than employers think. Fair compensation didn't even make the top five in terms of employee workplace happiness. When thinking about retention and recruitment issues, HR managers should look beyond benefits and compensation to the factors employees care about most. Employers should embrace the perception gap and seek to truly understand what is on the minds of employees so that they can better tap into value systems and offer benefits that will actually impact retention.

Why Employees Leave

Ironically, when asked, "What makes you want to leave your current job?" employees report inadequate compensation as the most significant factor. The other top factors included (2) no opportunities for advancement, (3) no recognition, (4) boredom, and (5) insufficient benefits. Employers are on track when it comes to knowing the reasons why their employees are leaving, also citing inadequate compensation, no opportunities for advancement, and no recognition as the top three reasons employees leave. The disconnect for employees considering leaving lies in the fact that the majority of these employees who are looking to leave their company because they believe they are underpaid are actually not underpaid at all. Salary.com found that less than 20% were actually underpaid, meaning that the majority - more than 80% - were not. "There are a variety of reasons people may mistakenly think they are underpaid," says Bill Coleman. "For instance, many people benchmark their salary based on title, rather than job responsibilities. They then assume a higher title justifies a higher salary than their actual job description merits. When it comes to salary, it's what you do, not what you're called, that counts." Working with employees to map responsibilities to compensation and offering more transparency in pay philosophy can help to ensure that employees understand their worth and what impacts their overall value to an employer. "Employees should strive to accurately match their job duties to the most relevant benchmark job description and salary range. This will give them a good idea of what they are really worth in the marketplace, before they make the assumption that they are underpaid and leave their company because of it," concluded Coleman.

Another factor that leads employees to believe they are underpaid could be the phenomenon of "over-titling", a practice that occurs in tough economic climates like that of the late 1990's and early 2000's. Over-titling is offering an employee an inflated job title in lieu of a salary increase. As a result, the employee's actual experience level and value to the company may not be on par with the market salary level for their title. With more tools at their disposal, many employees are pricing themselves and determining their worth without considering the whole job.

From a human resources standpoint, HR managers should strive to educate employees on proper job description matching, benchmarking, and why they are paid at a certain level. Human resources holds the responsibility of making sure that employees have an accurate job title and job description based on job duties. These benchmarks should match a corresponding salary, while the company's pay philosophy should also be clearly articulated. If human resources and their employees are on the same page when it comes to job titles, job descriptions, and company pay philosophy, it is less likely that an employee will mistakenly feel as if he/she is underpaid, and leave their company based on that false belief.

The Counter-Offer

When it comes down to it, it can cost employers more to replace employees than it would to keep them. On average, HR professionals estimate that turnover costs are about 30% of the annual salary of the person that is being replaced. Conventional wisdom suggests that the actual cost could range from a minimum of 50% to several times the incumbent's annual salary, depending on the individual being replaced.

Salary.com also asked employees to name their monetary threshold, or the minimum salary increase they would accept to keep them in a job they were dissatisfied with. The results showed that employers might be able to stave off turnover with salary increases between 6% and 12%, depending on the reason for the employee's dissatisfaction.

Despite potentially astronomical turnover costs and a relatively low monetary threshold for an employee to stay, one-third of employers still never make counter-offers. Those that actually do make counter-offers do it infrequently and offer only an average of 8.4%. Although one might be inclined to think that an across-the-board salary increase could solve a lot of problems, this is not practical, and in the long-term, may foster increased dissatisfaction. These numbers do, however, shed some light on what it would cost in salary dollars to overcome individual employee satisfaction problems. Employers should still look to understand the factors impacting employee satisfaction and work to improve shortcomings that could be making their employees seek new jobs. Results from Salary.com's job satisfaction and retention research provide employers with valuable insight on what employees actually value in the workplace. Knowing that workplace relationships matter and that employees are thinking more and more about work-life balance issues can help employers to combat retention issues. Employees also have a hard time understanding job title and job description matching, and are generally confused when it comes to understanding what goes into determining a fair salary for their job. Adding a layer of transparency to compensation planning and articulating pay philosophies more clearly could go a long way in dispelling incorrect notions about being underpaid. Identifying and dealing with issues such as these will help human resources meet their recruitment and retention goals in 2006, the year of the employee.

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