Making a Job Offer? Don’t Make This Mistake

Client emails me and says “Hey, I want to offer the job to Kathy, but I only have her salary on her past two jobs, can you get her salary from the company before that? That would be helpful to arrive at a fair compensation package for both her and us.”

Sounds pretty reasonable, right?

Except it’s not the right way to set salary.

If my client wants to retain Kathy, her past salary is irrelevant – the only factor that matters is market rate. And in this search, all the other qualified candidates were within 5% of each other in total compensation–that’s market rate. (Here is more information about how to calculate it).

If you want to attract and retain good people, take your nose out of the salary surveys, ignore individual salary histories, don’t go into an excel-spreadsheet-trance with your budget, and pay at least fair market rate. Because what Kathy earned in 2005 will not help you retain her when your competitors come calling.

Dealing with a Work Avalanche

Are you feeling overworked and understaffed right now? You’re not alone. Under-staffing is common during this stage of the business cycle. Some people think it is a long-term trend–calling it the “Job Squeeze.” Perhaps it is. I do know that work pressure has been building quietly for years in many organizations–like snow falling on mountaintops. And when something small triggers it, you are suddenly faced with a “work avalanche.”

Here is how work avalanches are created: When confidence is low, your organization responds to good news differently. You try to grow without corresponding staff growth. Headcount starts to trail revenue growth, and then falls further and further behind. Good news for the organization actually becomes bad news for the team. They were overworked before, and “good news” just makes it worse. Every new contract, new client, and new project just makes it harder to keep up.

How do you know you waited too long to add staff? Your best people are getting sick more often. You are seeing more preventable mistakes being made. Small issues cause tempers to flare, people are less tolerant of each other. They take things personally. Work just seems less fun. And eventually your best people burn out, give up, or quit–triggering an avalanche of work on the remaining team members.

Here’s the thing. Often, when you force your team to “do more with less” they are not doing more. They are making trades. They are trading long-term thinking for short term thinking. They trade planning time for reaction time. They stop making deposits into the relationship bank, and start making withdrawals–using up the goodwill they’ve built over many years. And the cost of that short term focus builds up… like snow building up on a mountain. Eventually the bill comes due in a work avalanche.

Here is what to do about it: When your hiring fails to keep pace with your growth, you can no longer afford to drag out the hiring process. But when confidence is low, that is exactly what happens. “Let’s try it first on our own, before we put it out to a search firm.”  Three months later the team is exhausted, frustrated, and at wit’s end. In your cautious desire to save money, you not only lost time and focus, you created even more risk–from people quitting.

Newsflash: When you are chronically understaffed, nobody on your team has the time or energy to do hiring on their own. When you are running from a work avalanche, you don’t want to make your backpack heavier.

If your business strategy requires you to keep staffing levels lean, you must be prepared to hire very quickly when you get good news. Either beef up your internal recruiting capabilities, have qualified contract workers on speed dial, or be ready to call in search firms the instant you know you need help.

Because standing still is not a good strategy when an avalanche  is bearing down on you.

What Neuroscience Tells us About Employee Retention

Some people dismiss employee engagement research as ”too fuzzy.”   Not me.   We have successfully integrated key principles of employee engagement research into our recruiting process.   I know it works.    And naturally, as a headhunter, I’m also fascinated with how people make decisions, so I devour research on the neuroscience of decision-making.  

So when Scott Campbell used neuroscience research to validate the key findings from one of my favorite books on employee engagement, it was chocolate and peanut butter for me.  Do yourself a favor and read Scott’s post on Leader’s Beacon.  Here is a quick snapshot of his argument:

“Different (employee engagement) research organizations classify their findings in different ways. David Sirota’s formulation is a simple and useful model. His research suggests that there are three factors that, together, create strong engagement: the employee’s sense of (1) fair treatment, (2) achievement, and (3) camaraderie.[i]

Neuroscience has been making remarkable progress in helping us understand the workings of our mind and illuminating central truths about human nature. In some cases, the findings confirm the validity of existing leadership and organizational practices; in other cases it is turning them upside down. In this case, it confirms that Sirota’s three factors are real, universal, and fundamental in fostering a strong level of engagement in employees.”

David Sirota’s book,  ”The Enthusiastic Employee“  - is probably the most important book on HR that nobody has ever read.   That’s unfortunate because the authors really did their homework.  Over a decade, Sirota Consulting surveyed 2.5 million employees who worked for 237 organizations in 89 different countries.  If you want to know why your new hires just aren’t that into you anymore, read the book (or at least read my blog post about it).  

And now, coming from a completely different perspective, neuroscience is backing up Sirota’s findings.   Delicious.

Resignations – the “December Surprise”

My phone always rings in mid-December.    Is it people wishing me a happy holiday?  No, not really.    Is it usually managers who received a “December Surprise” – a resignation from a key player on their team.   (Thankfully no calls came this year to tell me somebody that we placed has quit!)

There are many reasons people resign in mid-December, and many reasons for turnover in general.  But as a hiring manager you can turn the December surprise to your advantage … if you move quickly.

Because early January is the best possible time to be recruiting (here is why).   So, if you get into action right now, in December, you can probably upgrade to an even better employee, and be back on track in no time. 

On the other hand, if you fritter away the rest of December, and wait until January to start thinking about recruiting, you’ll be too late. (here is why).

3 Year Retention: The Hardest Measure of Search Firm Performance

Some people say the real measure of a search firm is their repeat business rate. How many times do their clients hire them again?   I really like that measure -  75% of our work comes from clients who have engaged us for 3 or more searches.   That’s an easy, fun measure.  But repeat business is not the hard measure. 

No, the measure I really sweat over is retention.  How many of our placements work out long term?

Most search firms can tell you their placement retention rates.  If you ask, they will tell you how many of their placements lasted through the guarantee period (often 3 or 6 months), or how many placements lasted a full year.    But we place most of our candidates at the Manager, Director and VP level, and at that level you rarely get fired within a year.   People might quit for a variety of reasons, but except for egregious circumstances, most employers will not fire an executive during their first year – it just takes more time to see the results of their work.   So for an executive,  the one year retention rate is really only a measure of hiring disasters, not productivity.  

Eighteen months is when I see executives really being held accountable.  (Incidentally, when looking at resumes, if I see a pattern of 18 month jobs, I become concerned that the executive is leaving organizations just when they are supposed to be delivering results – it’s a huge red flag for me).   So eighteen months is still not quite long enough to track retention.

We track our retention numbers for three full years (and not just for executives, we do this for every position).    Three years gives us a much better understanding of whether a new hire was a good cultural fit and whether they stuck around long enough to make a significant contribution to business results. 

And just to make it harder on ourselves, we don’t just track the numbers, we publicly share them.  In December of 2009, I committed to share our retention statistics on this blog every year when we compile them.   (It takes us some time to assemble the numbers -  we’ve placed well over 200 people over the past 4 years).  

In the midst of a recession, I was sorely tempted to exclude layoffs from the statistics, but layoffs often mask performance concerns, so excluding layoffs just seemed like a way to boost the numbers.  So we count layoffs against our statistics (and yes, it drops our results by 2 full percentage points).

So, as promised, here it is.  As of December 2010, our retention stats are:

• 92% of the people we’ve placed are still on the job at 12 months  
• 90% of our placements are still working where we placed them 18 months later 
• 84% of our placements have lasted 3 years or longer 

84% retention at the 3 year mark is astonishingly high by industry standards.  But last year our 3 year retention rate was even higher – 85% – so we’ve slipped a full percentage point this year.   People tell me that’s pretty good for a recession … but my real concern is 2011 – while there will be fewer layoffs, it’s going to be a huge year for employee turnover.   And although we continued to improve the accuracy of our hiring process, we’ll be hard pressed to improve our overall retention rates in the face of all the economic forces driving turnover next year. 

You can look at this blog next December to find out how we did.

Did you Budget for Turnover?

As you prepare your budget for next year, you probably accounted for the cost of your new hires, but how much did you budget for replacing your current employees who quit?  Turnover is expensive.  When your current employees leave (and many of them will), have you budgeted for the full cost of replacing them? 

Before you finalize next year’s budget, be sure you think through the impact of employee turnover. Whatever level of employee turnover you have been experiencing in the past 18 months, plan for it to double as the economy improves.    Yes double. 

If you must replace 10% of your team, will you still be able to achieve your performance goals? What will it cost you when a key player leaves, and it takes you 60 or 90 days to replace them?  What will you lose in productivity while the new hire comes up to speed? What will it cost to attract someone new to the position (both in salary and recruiting costs?)

With all the turnover we are seeing in the DC job market, you should seriously consider what might happen if you lose 20 or 25% of your team … then what happens to your budget? 

If you don’t plan for turnover now, you will almost certainly find yourself behind on your performance goals, short-staffed and over budget at this time next year.

Sharp Rise in Senior Staff Turnover Reported

CEO Update recently reported on a trend we’ve been talking about all year – the spike in executive turnover at associations and nonprofit organizations across the Washington metropolitan area.   They reported that the number of open positions posted with them is ”greater than 2008, 2007, 2006 or any other year we have tracked.”

Back in January we predicted that the local job market would be a big game of musical chairs this year, driven primarily by executive turnover. 

In August we observed that top candidates were on the move in larger numbers, and that we were seeing a spike in candidates who were receiving multiple job offers.   As you may recall, on the strength of that trend we declared the recession over  (at least as a retention tool) a full month before the economists made it official on September 20th.   (Then again, in their September announcement, they said the recession actually ended in June 2009 … so just give me 15 months and I’ll predict what happened today). 

No matter how you look at the data, this is certainly a good time to look for a job if you are an association or nonprofit executive.  Not looking?  Then now might be a really good time to update your executive succession plans and rethink your retention strategies, because your best people are getting calls.

Affordable Job Perks

As the economy recovers and top performers start heading for the door, companies are looking for ways other than salary increases to compensate their employees.

In an article for the Wall Street Journal’s Market Watch, Ruth Mantell reports that companies project merit increases of 2.7 for 2011, compared with 2.3 for 2010 and 1.6 in 2009.  For employees at companies that are strapped for funds, Mantell writes, variations on the following rewards are a good way to hold on to top talent during  tough economic times: 

• Flexible schedules.  Flextime – allowing individuals to alter their working hours – or compressed work weeks are the most well known types of flexible schedules, but flexible schedules can be highly individualized to meet the work/life balance needs of productive employees.
• New job skills and responsibilities — Employers can teach workers new skills to reward them. Employees’ skill sets get increased with the hope that at some time, if the opportunity presents itself, they will be qualified for higher paying jobs.  Alternately, employers can reward younger workers with “stretch” assignments.  Mentoring programs also can help younger workers grow professionally.
• Career development and tuition reimbursement – Employers can pay for courses, conferences and membership to professional groups.  Employees can attend classes to help them develop new skills or work toward an advanced degree. Companies gain better-trained employees, while workers widen their skills.
• Small gestures – Small gestures can go a long way.  Reward top performers with a dinner.  Offer bigger employee discounts. Hand write a note to an employee to thank him/her for a job extra well done. “It isn’t cash,” says Bob Cartwright, founder of Intelligent Compensation, a consulting firm near Austin, Texas, “but these are the kinds of small things that help create a better environment. People are going to think twice about walking across the street to make another 25 cents an hour when they know they are working in a great environment.”

The Job Market Is a Big Game of Musical Chairs

Robust economic growth and job creation is a wonderful thing, but 2010 is not very likely to look that way.   Yet I still firmly believe (and wrote in our job seeker blog) that 2010 looks good for job seekers in the Washington DC metropolitan area and probably in lots of other areas.  Why?

Churn.  Turnover.  The 2010 job market (for skilled professionals) is going to be one big, global game of musical chairs.

Let’s play it out:  One person (call him Adam) gets fed up and quits, or retires.  The second person (call him Bob), sees Adam’s job and says to himself “Hmmm, that sounds better than my terrible job” so he quits his job and takes Adam’s.  The third person (let’s call her Carol) says “Wow, that open job Bob used to hold (that made Bob miserable) is actually a big step up for me and I’d be happy to have it.”  And so on, Dave takes Carol’s job, Erin takes Dave’s job, Fred grabs Erin’s old job and so on.  Play this out and millions of people quit their current job to accept a new (to them anyway) position … but in reality no net new jobs were created.

This is a fantastic time for employers to trade up from lazy, disgruntled Adam to hard-working Bob, or from hard-working but dim-witted Bob, to witty and intelligent Carol, or from high-maintenance Carol to steady competent Dave.  In fact the resignation of every average (or misfit) employee is a gift to employers.   Over a year ago, I wrote about what a golden opportunity a recession provides employers.  You can trade in disgruntled mediocre performers and hire top performers.   Few employers took advantage of that opportunity in 2009, but with the turnover in 2010, everybody has a fresh, new opportunity to make trades.  The key to success, of course, is to use a better hiring process than the one you used when you hired average people in the first place.

Full disclosure here:  Churn is also a gift to executive search firms like ours, who are starting to see business increase, despite a lack of overall job creation.  In my more jaded moments, I acknowledge the harsh reality that search firms earn most of their fees from churn – to make a decent living in the search business we don’t need net new jobs created, we just everyone to change jobs.   (NOTE: I am, EMPHATICALLY, NOT talking about the people WE placed into jobs – we really want them to be happy and we NEVER recruit them away from where we placed them.  In fact we obsess over our long term retention rates).   We are also NOT talking about retention rates at our current clients, all through 2009 we were warning our clients about the looming turnover crisis and sharing information about how to retain their top performers.  In fact, we devoted half of our November newsletter to that very topic.

But … if you are not yet a client of ours  … we’d be delighted to show you a better hiring process, and help you trade-up when your average people quit … even though we’re kind of busy with all these new searches right now.

Who Else is Heading for the Door?

When a top executive leaves an organization, everyone scrambles to fill that key vacancy.  But in the hurry to do that, a far bigger turnover problem is often overlooked.  

When a key executive leaves, everyone who reported to that executive should be considered a “flight risk” – because the second tier of managers are at a significantly increased risk of leaving the organization for at least a year after a key executive leaves. 

So what causes that?

• Sometimes the second level executives were hoping to get the top job and feel snubbed when they were not selected.
• Uncertainty rises when a key position is vacant.  Many executives put feelers out in the job market during that interim time because of a (legitimate) fear that the new boss will bring in their own new team.
• Sometimes people had a personal loyalty to the old boss, or simply prefer the old way of doing things and they are not eager to make the changes to adapt to a new boss.
• No matter what the reason, most people stop and reassess their own career when a key person leaves - they ask themselves ”I wonder if it’s also time for me to make a change.”  They may ultimately stay, but they invariably ask the question.

Stanford Professor Jeffrey Pfeffer wrote an intriguing post about the psychology behind hiring an outsider for a top position, and why so many fail.

“Filling senior-level positions from outside sends a clear message to the current executive team-sorry, you’re just not good enough.  And since outside CEO succession almost invariably results in turnover in top management as the new person brings in his or her own team, the current senior-level managers get disheartened.  They naturally begin thinking about how to find a new job instead of concentrating on improving results at their current company.”

So when it comes to executive turnover, just remember the adage “When it rains it pours” … then go bolt the exit doors.

Thank You for Quitting

Surveys indicate that 2010 is going to be a year filled with employee turnover.  And that is a great gift to every manager who is still not managing performance tightly.  Every time an average employee resigns, you have a chance to rethink who should be in the job, to upgrade the caliber of your team, to completely reset expectations.  You have a chance to make a fresh start, and take a big step forward toward your goals.  

And you would be wise to take advantage of that opportunity.  The national economic indicators show a long slow recovery from this devastating recession – we still have quite a bit of turbulence ahead of us. There will be no rising tide to lift all boats, instead we will all be lifting our own boats. 

So read this before you start hiring, and read this before you orient your new team members, and … remember to be grateful for the opportunity turnover has given you. 

Actually, while you are at it, is there anyone on your team you would not fight to retain if they were considering resigning?  Because anyone you would not fight to keep is probably someone you should think about replacing, or at least managing more tightly.