Employee Loyalty: More Valuable Than Some People Think

 In Company Culture/People At Work, Michael's Corner

Michael Carrillo Co-Founder/President

What’s the price of executive turnover? One CPG executive recently
estimated the cost of replacing a senior-level manager with eight years experience at $600,000, including the expense of hiring, training, lower productivity, lost knowledge base, and, more often than not, increased salary.

With employee retention so important, it’s surprising how little value some companies place on it, according to Michael Carrillo, president of CPGjobs.  “By the time a dissatisfied manager has made the decision to leave, it is already too late,” he says. “In most cases the manager could have been retained had the company listened to their needs; the irony is that this almost always would have been cheaper than replacing them.”

Cost analysis

People work for money, and salary is one of the chief motivations for departing managers. Salary provides the means to secure good housing, provide for retirement, care for family members and send the kids to school. It also represents the value the company places on the employee, Carrillo says. “It is only natural that companies want to hold down payroll costs,” he says, “but companies are being shortsighted when they pay key employees less than they can get elsewhere.”

Across-the-board limits on salary increases often hamstring supervisors in paying executives their true market worth. The result, magnified over years, is that executives fall behind their peers. “This lack of parity eventually resolves itself in the employment market as underpaid executives switch companies. But this mechanism does not calculate the enormous costs caused by turnover. It is almost always less expensive to retain an executive than hire and train a new one.“

“It’s easy to see the manager asking for a ’catch-up’ raise as being greedy. But the executive knows the market value of his or her service, even if you don’t,” Carrillo says.

“In 2005, the average salary of an S&P 500 CEO topped $11.75 million; it seems absurd that companies are losing key managers over what amounts to a few thousand dollars a year.”

A pressing problem

Retention is one of most pressing personnel issues facing American business today, experts say. According to the Society of Human Resource Managers, a staggering 82 percent of the nation’s senior level managers would consider a new job opportunity. “As president of a firm specializing in placing executive talent, I take no comfort in these numbers,” Carrillo says. “On the contrary, I find this level of dissatisfaction a serious issue for our industry.”

“Key talent retention and leadership continuity and development are critical to the health of every company,” he says. “When it comes to good HR practice, ’turnover’ is a dirty word.”

Underpaid executives are, not surprisingly, less motivated than those satisfied with their compensation, Carrillo says. “If left unchecked, this dissatisfaction can spread and cause damage throughout your organization. Eventually the issue becomes one of trust and respect,” he says. “When it reaches this point there may be little you can do to right the situation. Don’t let it come to that.”

“Every salary request should be considered on its own merits,” he says. “What is the true market value of the manager? What would it cost to replace them? When it comes to compensation, one policy does not fit all.”

In many cases, salary is but a symbol. In one recent survey conducted across multiple industries, the number one form of recognition cited was support and involvement, followed by personal praise, autonomy, and authority. Employees ranked cash rewards tenth in the survey.

An executive who feels valued and appreciated is less likely to ask for a pay raise than an executive who feels insecure or unfulfilled. “Don’t just listen to your managers when they have a grievance,” he says. “Ask them point-blank what you can do to make their work life better. In many cases, they will talk about issues other than money. When you address these concerns you will frequently see longstanding productivity and communications issues begin to resolve themselves.”

“All of us need to identify our key talent and establish programs that identify their concerns, foster their development and ensure continuity in our leadership. It’s not just about money, but compensation is a critical component that we ignore at our company’s peril.”

Michael Carrillo is president of CPGjobs, the CPG industry’s leading candidate recruiting service for HR professionals and employers. You may contact him at Michael@CPGjobs.com or call (626) 535-0143.

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