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Compensation Focus

Retention of Key Talent and the Role of Rewards
By Dow Scott, Ph.D., Loyola University Chicago, Tom McMullen, Hay Group, and Mark Royal, Ph.D., Hay Group

Retention of key talent — those employees who are the strongest performers, have high potential or are in critical jobs — is very important, especially during economic recoveries when organizations compete aggressively for market share and talent. To better understand such retention and the impact rewards programs have on it, WorldatWork and the authors surveyed the rewards professionals who design and execute rewards programs. Following is an overview of the survey findings.

Survey Background
From December 2011 to January 2012, more than 600 rewards professionals, primarily WorldatWork members, participated in the “Retention of Key Talent and the Role of Rewards” survey, which focused on key talent retention practices. The survey respondents represented a wide variety of organizations in terms of size, industries and sectors of the economy.

The survey was designed to answer fundamental questions about employee retention that included:

  • Is retaining key talent a significant challenge?
  • Why does key talent quit?
  • What is done to retain key talent and are these efforts effective?
  • What role do counteroffers have in retaining key talent?
  • What are the “best practices” for retaining key talent?

Key Findings
The survey confirmed the majority of rewards professionals (i.e., respondents) recognize that retention of key employees is very costly and represents a major concern of senior management. Rewards professionals fear that key talent is becoming increasingly frustrated due to layoffs, the resultant expansion of job accountabilities and constraints on rewards programs — primarily limited base salary increases, lower incentives and fewer advancement opportunities.

Rewards professionals report the primary reasons key employees give for quitting is the opportunity to earn more pay elsewhere and lack of promotional opportunity. Other reasons include feeling that pay levels are unfair relative to employees in other organizations, dissatisfaction with job or work responsibilities, and the perception that pay levels are unfair given the employees’ level of performance.

The strategies most effective in retaining key employees were reported as having a process for identifying talent, discussing the future key employees have within the organization, paying key employees above the labor market, and creating a succession plan to replace individuals critical to organization success.

Regarding counteroffers, the authors found that few organizations have a formal policy; most made decisions on a case-by-case basis. The majority of respondents indicated either the HR/compensation function and management are jointly involved in extending counteroffers or the HR/compensation function may provide some input, but management primarily determines who receives a counteroffer and the nature of that counteroffer.

Survey Analysis
Based on the findings the authors concluded that first, and foremost, management must develop clarity around what defines “key employees” or “top talent.” If this definition includes high-potential employees, management must answer the question “Potential for what?” Specific criteria to distinguish top talent from other employees must be carefully developed and then applied systematically to ensure that correct individuals have been identified.

Once top talent has been identified, important questions must be answered as to how this group of employees will be managed. “Do we communicate their status to them? How do we address concerns of employees who are not on the top talent list? How and under what circumstances are employees removed from the top talent list? What extra resources are going to be invested in top talent? Who is responsible for managing or at least overseeing the pool of top talent (e.g., corporate, business unit or functional leadership)? What role do human resources professionals play in managing key talent?”

The findings indicate that employees identified as key talent are concerned with their pay. To retain key talent, the rewards system must be perceived as relevant and fair. Furthermore, management should consider paying above the median of relevant labor markets to lessen the chance that competitors can lure these employees away. Careful monitoring of the external labor market for key talent is advisable, but one must also make sure employees identified as top talent understand why they are paid what they are. In addition, since few secrets can be kept today, management must have clear and compelling reasons for pay systems that differentiate key talent from other employees.

Key talent is also concerned about the opportunity for development and advancement. Management should have a development and succession plan for each key employee. Furthermore, key employees must be kept apprised of their development and advancement opportunities. Although it may be tempting to leave a key employee in a critical position, this can create retention problems when advancement is slow.

Attracting, retaining and developing key talent is one of the major organizational challenges of our time. As is evident by the survey findings, rewards can play a very important role in meeting this challenge. Rewards professionals will be key to this effort.

About the Authors
Dow Scott, Ph.D., is professor of human resources at Loyola University Chicago and a consultant. He can be reached at dscott@luc.edu.
Tom McMullen is vice president and North American reward leader for Hay Group in Chicago. He can be reached at tom.mcmullen@haygroup.com
Mark Royal, Ph.D., is a senior principal at Hay Group in Chicago. He can be reached at Mark.Royal@haygroup.com.

Read the June 2012 edition of Compensation Focus.

Contents © 2012 WorldatWork. No part of this article may be reproduced, excerpted or redistributed in any form without express written permission from WorldatWork.

Reader Comments
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Tue June 19, 2012 10:27 PMReport Abuse
Adel Al Mejhed
HR Policy Analyst
Member Since: 8/1/1999
Comments: 1

we have our own high-potential track, but lack of communication is a pivotal contributor to the success of such program.