Join Edward Lawler III for an in-depth discussion in this video Using pay to attract and retain talent, part of Pay Strategy.
- Pay can be a very powerful force in attracting and retaining the right employee. So let me just underline the right employees. Increasingly organizational effectiveness is determined by the quality of the employees that you can attract and retain. Why do I say increasingly? Because work in most instances is becoming more knowledge based, requires more skills, more commitment, in many ways more self management by employees. So if your employees have some flexiblity about how they do work, what they do, etc., and how well they produce you need to be very concerned about getting the right employees and in particular.
Then of course once you get them, retaining the right employees. How do you do that? Well, certainly yes the work they do is critical, the nature of it, but certainly also very very important is the reward package that you offer them. That reward package is partly cash, delivered in abundance of different ways, but often also includes thing like vacation time, benefits, fringe benefits as they're often called, and flexible work arrangements of various kinds.
That whole package that you create as a manager is critical in both the attraction of the right talent and the retention of the right talent. And here I'm underlining and using the term Right Talent because issue is not talent in general. It's talent that can do and perform what you need done at a level that gives you a competitive advantage in the marketplace. How do you do that? How do you pay and reward people at a level and in a way that fits what you want to do as a business? Well certainly you have to know what the market is.
You have to know what other people are doing. Then you have to understand what your employees want and what will fit the employee population, the right talent, that you need in order to be successful as a business. You can certainly ask, survey them. Many companies do. Get information about what they want, and that's valuable input but you can also give them choices. You can give them a choice of cash, stock, as some companies do instead of cash, bonuses instead of salary.
Various kinds of benefit mixes are available, can be made available and they can choose. That's in many ways, if you can do it, reasonably the best way to go because it commits them to what they have decided is the most preferred form of reward for them. Now all of that of course has to be in alignment with the market. That is what your competitors are paying people who have the same skill set and they're doing the same kind of work. So clearly as a manager you need to be concerned about the market.
You should be getting data about what other companies or competitors are paying similar employees and factoring that in. From a retention point of view you may not have to pay more from a retention point of view but from a attraction point of view almost always have to pay more to get somebody to come to work for you then they would get paid where they are currently. So that means perhaps some nuances around attraction and retention. It always means though knowing what's going on in the labor market and what competitors are paying.
Some companies decided rather than try to be too nuanced simply to pay everybody above market. The argument is we have the best employees. We want to attract the best employees. So we're gonna reflect that in the pay rates that we offer. Netflix is one that takes that stance. It says we want the best employees. We're not gonna fool around with below market pay. If somebody doesn't warrant above market pay they shouldn't be working here. We don't want them. So we're gonna pay everybody above market. We're also going to give them some choices as to how they're paid.
If they want bonuses, if they want stock, whatever. So we're tailoring an above market package to the preferences of individuals as demonstrated by their choices. That's a powerful package. Of course it requires the ability to identify who the good employees are. That they're performing well because the worst thing in the world of course is to pay above market pay for below market performers. You're almost guaranteed to lose. Because your cost structure will be higher than your competitors cost structure. The right combination the best of all worlds is above market pay for above market performance.