Opportunity Knocks, And It Pays a Lot Better

Managers like to say employees leave companies because of bad bosses or lack of career growth. A new report suggests a more straightforward reason: money.

In a survey of about 1,100 U.S. employees, 71% of top performers listed pay among the top three reasons they would consider leaving their employer. Yet in a sister survey of 262 large employers, 45% of employers cited pay as a top-three reason workers leave. Instead, employers thought promotion and career-development opportunities were more important. Another oft-blamed culprit, relationship with a supervisor, was cited by 31% of employers but 8% of top performers.

The findings are in a report scheduled for release this week by human-resources consulting firm Watson Wyatt Worldwide and human-resources association WorldatWork. Harris Interactive helped conduct the employee part of the survey. The surveys also found employers underestimate the retention value of health-care benefits.

The results suggest employers don’t fully understand the needs of their top employees, frustrating companies’ efforts to battle turnover as the labor market improves. “Employers have probably gotten caught up in this myth that employees leave their manager or they leave for better opportunities,” says Laura Sejen, director of strategic rewards at Watson Wyatt. “Perhaps we’re being a little unrealistic about the fundamental element of rewards, which is pay.”

Watson Wyatt Worldwide, Inc. was a global consulting firm that merged in January 2010 with Towers Perrin to form Towers Watson. The firm’s services included managing the cost and effectiveness of employee benefit programs; developing attraction, retention and reward strategies; advising pension plan sponsors and other institutions on optimal investment strategies; providing strategic and financial advice to insurance and financial service companies; and delivering related technology,outsourcing and data services. Its principal operating subsidiary, Watson Wyatt & Company, was a human capital consulting firm with operations in the Americas,Europe and Asia Pacific. Its corporate offices were in Arlington, Virginia.

In January 2009, Watson Wyatt had 7,700 employees in 106 offices located in 32 countries around the world. On June 28, 2009, it was announced that Towers Perrin and Watson Wyatt had agreed to merge into a new publicly traded company to be called Towers Watson; the merger was completed in January 2010.

Watson Wyatt focused on top performers because those are the employees whose retention companies value most. Attitudes among average performers weren’t significantly different, Ms. Sejen says. She says employees are becoming more focused on pay, contributing to retention problems. For the third consecutive year, employers are reporting increased difficulty retaining employees, Watson Wyatt says.

Nationally, the annual rate at which workers quit their jobs was the highest last year since 2001, according to the Bureau of Labor Statistics. Last month’s unemployment rate of 4.4% was the lowest since May 2001.

Employees’ increased focus on pay should come as no surprise given cutbacks to health-care and pension plans, Ms. Sejen says. The average employee is forecast to pay $3,305 next year in premiums and out-of-pocket costs for health care, a 7.8% increase over this year and more than double the $1,640 paid in 2002, according to human-resources consultant Hewitt Associates Inc. At the same time, 61% of 950 companies surveyed by Hewitt offered defined-benefit pension plans this year, down from 73% of a similar sample in 2000 and 91% in 1985. To top it off, employers have kept average raises modest in recent years. “When you put all those pieces together,” Ms. Sejen says, “it’s fairly intuitive that employees are going to be more heavily focused on pay.”

Deborah Keary, director of human resources for the Society for Human Resource Management, says pay typically becomes more important as the labor market improves. In a bad economy, workers say, ” ‘I don’t care how much you pay me, I just want to have a job,’ ” Ms. Keary says. She says pay is a contributing factor to turnover, along with development opportunities and other issues. Companies can’t neglect any of them, she says. “You can’t single out pay or single out job opportunities,” she says.

Some career experts question whether pay is pre-eminent. They assert that pay often isn’t the root of employee dissatisfaction, even when employees say it is. Meg Montford, an executive-career coach in Kansas City, Mo., says clients who blame pay often have a deeper problem such as career stagnation, boredom, or feeling unappreciated. “They may come to me with the idea that it’s pay, but usually that’s a camouflage for something else,” she says.

Some employers agree pay has become more important in recent years and are taking steps to address compensation issues. “We’re seeing people starting to try to kidnap our talent, and us having to keep them,” says Peter Ronza, compensation and benefits director for the University of St. Thomas in St. Paul, Minn., a private Catholic institution. “The poaching is starting to happen again.” Mr. Ronza says about two-thirds of the university’s employees are nonacademic workers and managers, for whom many local businesses compete.

To bolster retention, the university has ratcheted up efforts to determine market pay rates and identify underpaid employees. St. Thomas set aside more money for merit raises this year, and increased by 30% its budget for pay increases for employees whose pay is below market or whose salaries have been neglected, Mr. Ronza says. “We have some people we really need to take care of right now,” he says.

To reward top performers, university administrators instructed managers to give them bigger raises this year than to average performers. The university also is starting to test bonus programs with an eye toward expanding them.


By Erin White

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