The highest risk today for employers to hire and retain top technical talent is their compensation package. It is common for employers to base hiring salaries and increases on performance. This has been the case for many, many years. This method does not work in today’s high technology world and companies are considering changing to a market-based approach. Hiring top technical talent requires companies to make starting compensation packages commiserate with market wages to be competitive. Retaining the talent requires a market-based approach as well.
This paper discusses the risk and some suggestions to mitigate it.
The Risk
The risk is attracting and retaining top technical talent needed to operate successfully in today’s high technology environment involving digital transformation that all large corporations have to deal with to survive and be competitive, and the emergence of Artificial Intelligence, Robotics, Big Data, etc.,
To make the risk even worse, today with remote working it is easy to interview and change jobs in the comfort of your home. There is no “sweat factor” (your time, energy and life changes) involved to change jobs. Prior to COVID, companies wanted you to move near their facility and work in the office. They also paid for your moving expenses. To change a job then required you to leave your neighborhood, family and friends and relocate in another community. If an opportunity arises to join another company, there were many things to consider before accepting it. But not today.
Performance Based Compensation Method
Each employee is given a performance requirements document that specifies the criteria for each parameter involved in their job. For an engineer, some of the key parameters include quality of work accuracy, and meeting schedules. For a project manager some key parameters include meeting budget, meeting schedule, and time to respond to customers’ requests. Once a year the boss holds a performance review with the employee. After the review, the boss rates the employee as meeting, exceeding, or not meeting performance requirements.
Typically, companies have a 3-4% salary increase budget. If the employee did not meet performance requirements, they would receive a 0-2% raise. If they met the requirements, they would receive 3-4%. Employees rated exceeding requirements would get 5-7%. Rising stars could get 9-10%. If you stayed with a company for 30-40 years which was common in the 1970s, 19803, and early 1990s, then you could predict your salary level upon requirement You were loyal to the company and they were loyal to you. You felt secure with good pay and benefits.
This not the case today.
Market Based Compensation Approach
Today, it is difficult to find top technical talent never mind hire and retain them due to increased competition and shortage of available talent. Market-based pay structures to determine salary ranges and pay grades based on a current market analysis is a growing trend.
Amazon is a good example of this trend. They recently reported that they are more than doubling its maximum base salary for top technical talent due to the increased completion to $350,000, up from its previous max of $160,000.Most people when asked what type of business Amazon is would reply a retail company. But Amazon is a software company that brings in considerably more revenue that the retail side of the business. A lot of people would be surprised by this revelation. So, it is easy to understand why Amazon needs top technical talent.
Kevin’s Story
Kevin is one of the best chip packaging engineer and analyst in the country. Given the chip shortage today and the desire of virtually everyone to develop our own compatibility to design, package and integrate chips into products and stop relying on foreign sources, Kevin is in great demand. He receives e-mails for job interviews from large corporations every day. He is in his early forties with outstanding knowledge and experience and is young enough to be around a long time.
Currently, Kevin works for a new start up company that is developing photon chips, which is well in advance of the state of the art. Aside from a very generous base salary, his compensation includes stock options. He is invested in his company’s stock to the tune of over $1M.
His competitive salary compensation package is in the $300K to $500 K range. Today, the compensation package includes a base salary, stock options, and bonuses. One company he talked to said they had received and reviewed hundreds of resumes for a chip packaging and analyst job opening and only Kevin’s resume met their needs. Top technical talent is hard to find and then hire and retain them requires the market-based compensation approach.
Mitigating The Risk
For large corporation risk mitigation is easy. They have deep pockets to offer a compensation package to get top talent. For small businesses it not so simple.
One suggestion is to take a page from the software engineer (SW) shortage in the 1990s. The shortage resulted from a flaw in the Microsoft application software that was used in all PCs at the time worldwide. The year in the application software was defined with two digits (e.g., 99 for 1999) The fear was at the change of the century all PCs would not work properly and severely impact companies’ ability to keep operating. It was called the Y2K problem. These were the key demands my company had to meet to hire qualified software engineers: allow SW engineers to wear shorts and sandals on Friday’s; establish a Seven Eleven type store in each building; no more ties; and of course, generous compensation packages. These were ‘out of the box’ changes at the time but they got them. Eventually these changes spread to all of the company employees but if it were not for the SW demands, these changes would not have happened.
Today workers want a workplace experience that is fulfilling. They want their work-life balance. They want flexibility and support from their employer. Other things they want are listed below:
- Remote and hybrid work
- Childcare and family benefits
- Insurance benefits
- Mental health support
- Retirement planning
- Student loan repayments
- Shares in the company
- Career development
- Flexible hours
- Paid family leave
- Four-day work week
- Free food in the office
- Student loan assistance
- Pet insurance/pet friendly offices
- Fitness perks. Gyms and yoga studios have certainly struggled during the pandemic
Small companies cannot complete with large corporations with compensation packages but they think outside the box and come up with better benefits packages and faster promotions.
Summary
Bob Dylan wrote a song entitled ‘The Times They Are a-Changing’. This sentiment is very true today. If companies want to hire and retain top technical talent, then they will have to change the performance-based compensation method to the market-based approach.
Large corporations have deep pockets and can afford to offer candidate employees the compensation package they need. Small companies will have to think outside the box with outstanding benefits and promotion possibilities to address the compensation package gap they can afford to hire and retain top technical talent.
Bio:
Currently John Ayers is an author, writer, and consultant. He authored a book entitled Project Risk Management. It went on sale on Amazon in August 2019. He authored a second book entitled How to Get a Project Management Job: Future of Work. It is on sale on Amazon. The first is a text book that includes all of the technical information you will need to become a Project Manager (PM). The second book shows you how to get a PM job. Between the two, you have the secret sauce to succeed. There are links to both books on his website. https://projectriskmanagement.info/He has presented numerous Webinars on project risk management to PMI. He writes columns on project risk management for CERM (certified enterprise risk management). John also writes blogs for Association for Project Management (APM) in the UK. He has conducted a podcast on project risk management. John has published numerous papers on project risk management and project management on LinkedIn.
John earned a BS in Mechanical Engineering and MS in Engineering Management from Northeastern University. He has extensive experience with commercial and U.S. DOD companies. He is a member of the Project Management Institute (PMI. John has managed numerous large high technical development programs worth in excessive of $100M. He has extensive subcontract management experience domestically and foreign. John has held a number of positions over his career including: Director of Programs; Director of Operations; Program Manager; Project Engineer; Engineering Manager; and Design Engineer. He has experience with: design; manufacturing; test; integration; subcontract management; contracts; project management; risk management; and quality control. John is a certified six sigma specialist, and certified to level 2 Earned Value Management (EVM).
Go to his website above to find links to his books on Amazon and dozens of articles he has written on project and project risk management.