Hiring for Keeps - or at Least for a While - Industry Trend or Event

A good, integrated strategy for keeping IT employees longer starts with the Golden Rule, plus decent incentives, good communications, and an understanding of your culture.

MANAGING, INCENTING, COMPENSATING, and motivating information technology professional has moved to the level of key strategic importance for many organizations. The critical importance of these issues to U.S. business is prompting companies to reevaluate their overall IT retention efforts. U.S. competitive health is heavily dependent on the technology driving e-commerce and software development, and ultimately on the workforce that is available (or not) to execute and deliver products and services, particularly in light of a persistent IT labor shortage. The continuing technology boom is resulting in companies being forced to innovate in places they never thought would be necessary--IT recruitment, resource management, and performance management. In short, human capital.

However, the vast majority of Global 2000 firms do not have integrated strategies for IT retention, and continue to engage in single-focus efforts. For example, a company with a need to add support technicians will concentrate on finding discrete technical skills, or will focus on the specific salary level, rather than integrate hiring efforts to include a view of the whole candidate-personality, technical skills, business acumen, and potential "fit" with the organization. When the organization attempts to review retention, its single-focus view results in subsequent change efforts (which generally have a similarly one-sided view) that are often unsuccessful. How can organizations make the right decisions about hiring and keeping IT personnel? How can U.S. business remain competitive in the face of growing global shortages of these key resources? What is the outlook for the future?

While there is no easy answer, effective retention starts with understanding the specific cultural environment, and moving from there to a plan for integrating all aspects of human capital management--both resources and performance.

Power to the (Talented) People

Human capital in the information economy increasingly is the competitive differentiator for organizations with information--a distinctly human product, and the currency in this new economy. Human capital has become the driver for the intellectual capital propelling software development, which also drives the IT industry. Inescapably, organizations need effective policies for deriving maximum benefit from these critical assets. In addition, despite rapid advances in technology and more automation of processes and services than ever before, at least until 2003 (and likely even longer), the demand for talented IT staff will continue to outstrip supply, requiring organizations to implement hiring practices that build in policies aimed at retaining staff through an employee life cycle of at least three to five years. During this time, maintaining a balance in salary scales will continue to dominate human resources (HR) and IT concerns, with annual increases for IT staff continuing to be in the 10% to 20% range. Th us, hiring, and retaining, IT employees is critical in light of the dramatic shortage of IT workers--which META Group estimates will be approximately 600,000 vacancies by the end of 2000.

To survive the shortage and manage the issue of salary escalation, organizations must focus on understanding their culture and building knowledge-rich IT talent. They will also need to develop commitment from their employees in order to keep them longer. Those that do will be in the best position to weather the continuing skill and labor shortage.

Retaining IT Staff in a Free-Agency World

A paradox in IT retention is that globally, companies are paying more for IT talent than ever before, even though these same employees consistently maintain that salary ranks only fourth or fifth on any list of criteria of what is most important to them in a job. Annual information technology salary increases across the board are averaging 10% to 15%, amounting to two to three times more than for non-IT staff, who are limited to 4% raises. Yet consistently, IT employees indicate that what they are really looking for is:

1 A hot project--such as development work, being part of an organization's Web initiative, etc.

2 A sense of what the future holds--a career path.

3 Recognition of accomplishments.

4 A Fair compensation--base salary plus incentives based on individual performance.

5 A sense of community, of fitting in with the organization, and being part of something larger than themselves.

Despite these rankings, talented IT workers are looking at the current hot job market with the attitude that it is a phenomenon that can't last forever, so they might as well cash in now. That attitude, combined with the added factors of expanded services for IT, Internet commerce activities, and an overwhelming shortage of labor is keeping the sellers' market going strong. So what can companies do to turn the tide?

First and foremost, they have to start by recognizing that retention is a long-term issue, not a problem that can be easily fixed through short-term measures. Some retention devices can be quickly implemented and will begin to yield positive results fast if executed well--such as providing spot incentives (which can be cash or non-cash awards for outstanding performance, or public recognition of achievement through corporate communications outlets such as newsletters and intranets). Other efforts, such as revamping compensation plans, developing positive long-term communications between employees and management, and enhancing training, require greater commitments of time for analyzing problems and crafting workable solutions, In the end, however, companies need to focus on the long term, since only through having the best trained, most motivated workforce possible will they survive the drought of available staff that will continue over the next three to five years.

Importance of Organizational Culture

The basic components for retaining staff start with an understanding of the cultural dynamics within the organization. Concrete measures that companies must take include evaluating the kind of employee who is successful and valued by the organization. Understanding the cultural dynamics of the organization is a critical factor in hiring the right success profile. All too often, however, instead of focusing on the particular cultural elements that make an individual a good fit--which implies (often incorrectly) that the hiring manager knows what makes for a good match of skill and personality within the company--the focus is on the specific technical skills necessary to getting a job done. For example, a new development project may require C++ skills, and the company needs to hire 10 new people. If the individuals who present themselves have thc right--in some cases, smattering--of technical ability, they're hired. This type of approach has built-in high turnover associated with it.

High Cost of Turnover

It is substantially more expensive to replace workers than to keep them in the organization. Replacing an employee costs roughly 60%--150% of the individual's total annual compensation. The current severity of the IT labor shortage in many companies is creating a crisis management mentality, with IT scrambling to fill short-term needs for those critical skills. Developing a greater sense of bidirectional commitment (e.g., from companies to employees and vice versa) is a powerful and underused tool in the retention arsenal.

Many companies deploy a dual strategy to meet the demands caused by the IT labor shortage (e.g., by using incentives such as sign-on or performance bonuses as part of retention schemes where critical skills are the issue). The second strategic prong must include longer-term methods for keeping workers in the organization. These should include commitment-oriented incentives (e.g., intensive use of training to promote skill building, and family-oriented or quality-of-life rewards, such as extra time off or paid family vacation). A commitment-rich environment--to the enterprise and the IT organization --conveys the message that the employee is valued by the organization. Our research indicates that when individuals are continually made aware of their value, be it to the IT team, IT organization, or the enterprise as a whole, they remain with the organization longer. Creating an organizational culture of commitment on several levels (e.g., for the enterprise, the IT organization, and for the individual employee) is therefore of critical importance where turnover rates are high.

Building an environment in which a high degree of employee commitment exists (and extending the development of an effective retention policy to this concept) first requires an assessment of the current culture. A review of the cultural environment should use a team composed of individuals from the IT organization at multiple levels (e.g., senior management, mid-management, line personnel). This is helpful for providing a locus for communications and can also be used for defining goals, developing a mission statement, and resource/constraint management. The team should consist of a cross section of the organization's employees. This will be particularly important when results are finally provided; affording different levels of personnel a voice in assessment and change management proceedings ensures a greater probability of success for subsequent changes recommended by the team. A chieftain or project/team leader is also important for shepherding the team through the process of assessing the IT organization's culture and making recommendations.

Once the team is in place, a survey of IT employees for their input on the culture provides a useful point of departure. Among the questions that need to be answered are:

* What kind of organization (e.g., hierarchical/horizontal, flexible/rigid) is perceived by employees?

* What kind of organization is important to them?

* What type of environment (e.g., open/closed/combination) currently exists in the organization?

* Does it match expectations as a type of environment that enables employees to achieve maximum potential?

* What needs to be done to make the organization more responsive to IT employees' needs (e.g., more training, different types of training, different types of incentives, flexible work hours, telecommuting possibilities, etc.)?

A picture of employee perceptions will emerge from analyzing completed surveys. A similar type of survey can be given to prospective employees, or to newly hired employees to elicit their feedback on the hiring process. Such surveys are rarely conducted, yet they can be an excellent source of information.

Communication Efforts Key

Frequently, managers express concern that eliciting such information is an avenue for "gripe" sessions rather than a meaningful exchange, and that it is impossible to create policies based on everything employees bring up. We believe that by focusing and communicating clearly to employees the purpose of the survey--to understand employee concerns in a specific arena--companies can reduce the incidence of "gripe by survey." Questions should be carefully worded and close-ended, to derive specific information and eliminate ineffective, unfocused responses.

A process for communicating about the IT culture is also important. What does IT consist of in the organization, and what is its mission? The IT organization's retention efforts will be greatly enhanced through offering employees a clear understanding of IT's perception of itself (its culture) as well its goals, and to build commitment to them. Clear, uncomplicated communication is an important component--in any type of organizational culture--for building lasting and effective retention, training, and development policies.

This communications process also makes it possible to focus on the type of individual that will be successful in the organization.

Demonstrating Corporate Values

Creating a culture of commitment within IT implies that the organization needs to apply the insight it obtains. Companies that want committed employees need to demonstrate the same values to their workers that they expect from them.

It is also important to understand the current culture. Is it traditional and hierarchical? Is the environment one in which employee risk-taking is encouraged? If risk taking is encouraged, is it also rewarded, or is only lip service paid to risk taking? What are the key determinants of employee success (e.g., meeting schedules and deadlines, taking initiative)? How are employees expected to perform in achieving these goals? Are they given the tools they need to perform in their jobs? Does the organization value independent, entrepreneurialism, team-playing partnerships, or some combination? How does the organization recognize successful achievers?

An understanding of more than organizational culture is necessary. Personality is equally important. What type of personality profile is necessary for an individual in the organization to be successful: Strong individualists, consensus builders, or a combination profile?

The way knowledge is managed also figures prominently as part of an organization's culture. Is corporate knowledge available as a resource, or restricted to a "need to know" basis for only certain levels of employee? Are knowledge management systems in place that make information widely available (e.g., intra/extranets)? How is content for these systems developed? Are employees across levels responsible for adding to content? Are they encouraged or rewarded for doing so?

These questions need to be posed and answered honestly by the team responsible for driving change within the organization; it is not possible to move forward unless a clear assessment is made of where the organization currently is. Driving forward from that point requires answers to these types of questions in order to formulate the profile of the kind of employees the organization needs.

The organization needs to be prepared to put the results of its analysis to work. If the profile sought is assertive, risk-oriented, and self-motivated, then a selective retention program should be developed that makes it possible for the employee to take risks and to be rewarded when successful. This includes providing opportunities for leadership, specialized training programs tailored to maintain the employee on a skills fast-track, incentives such as project bonuses or other project-related incentives (e.g., additional time off, or recognition awards such as sports equipment, dinner vouchers, etc). Giving the employee an opportunity to have input into the reward system that will affect him or her is also important in developing commitment. Employees who have been given some say in the design of their incentive programs will be more committed to seeing the program through to reap the rewards.

Incentives as Compensation Drivers

Much attention has been paid to cash incentives as key drivers to retention (e.g., stock options and rich annual and project bonuses). And at one level, all solutions to the vexing challenge of motivating or retaining IT staff revolve around incentive programs. META Group research shows that a vast majority--more than 90%--of companies provide some form of cash bonus or incentive plan for IT workers. Our research also suggests that what matters most is not always how much money or how many perks are offered, but the way in which incentive programs are structured. An incentive must be attainable, relevant, and meaningful to impact performance and behavior.

Ideally, incentives will have a strong link to observable, demonstrated performance. The emphasis should be on the value the employee brings to projects and the team, not just corporate performance, or the "profit-sharing" mentality. Likewise, incentive programs should be tailored to the needs of specific performers, with highest performance awarded highest recognition in terms of variable compensation. This type of selective retention can be a powerful motivator. It clearly telegraphs which types of behaviors are rewarded, and the rewards are plain for all to see. Such incentives can be based on a combination of team as well as individual performance, and do not need to consist of "cash only." In fact, a combination of incentives, cash and non-cash, tangible and non-tangible, often work the best. So a high-achieving employee may be awarded a spot bonus of a long weekend with a spouse or significant other for meeting deadlines or exceeding expectations.

Base compensation is also important to the issue of retention, and companies must recognize that keeping IT employees in the current environment requires regular evaluation of salary rates. Benchmarking salaries every other year, at the very least, is crucial. The current marketplace for many skills is, in fact, global, and the more complex, or the higher level the talent sought, the greater the likelihood that the immediate locale will not provide the candidate. For this reason, many organizations are looking at virtual teams and the benefits of Web-based recruiting to expand their reach as they search for candidates. Given our expectation that the overall life cycle for full-time employees (FTEs, or full-time equivalents, in human resources speak) is at best three years, and in many job categories (Web developers, network technicians) as little as one year to 18 months, it is likely that many companies will be forced to manage high degrees of turnover in some positions on a permanent basis. Employees in se arch of "hot jobs" and higher salaries are also taking positions as contract employees in record numbers (and we expect to see the total percentage of these workers climb to 40% of the IT workforce by 2003). This puts added pressure on firms to find the means to retain their employees.

They will do this by combining all of these methods, and by engaging employees, using techniques that include increasing "touch points" both formally and informally. This will mean greater use of "management by walking around" (difficult for many managers who have remote employees and a larger number of employees they manage than every before), as well as more formalized mechanisms of more frequent reviews, and the opportunities they provide to convey approbation (or not) for work performed. For many managers, this means adding a second performance review and changing the frequency of variable payouts to at least twice a year from the standard annual bonus. Many managers will shy away from these additional responsibilities, when in fact they are key to keeping people and communicating about their value to the organization. A second performance review can be informal, or done by a different manager, or even as an anonymous 360[degrees] review. Like it or not, such reviews are a key way for employees to unders tand where they stand in terms of importance, and are ignored at the company's peril.

Retention is not so much a complex process as one that requires many operations to be maintained on an ongoing basis, and herein lies the challenge. The daily pressures of meeting schedules, adhering to cost parameters for projects, and the myriad of activities that interrupt workflow can quickly overwhelm the best of intentions. For these reasons it is important that organizations build their processes into the heart of the issue--the performance plan of each individual involved. Managers need to be measured on how many individuals they have retained in the organization, individual employees can reasonably expect to be rewarded in some fashion for contributing to the same thing, and human resources needs to provide the organizational tools that allow for better overall retention of knowledge-rich employees. The return on investment in people is measured in part by the time those individuals remain in the organization and, like most assets, the longer the asset is maintained, the lower the cost and the highe r the return. Integrating human resource processes across the varying "human assets" within an organization is key to that company's value and competitive health. The time necessary to implement these plans will be rewarded by less turnover (therefore a better cost/benefit ratio) and greater opportunities for success for all concerned.

In the current highly competitive labor environment, at the heart of IT retention is the application of the "Golden Rule"--plus a decent incentive plan. Solid communications efforts and a clear understanding of cultural dynamics must also be part of the strategy for keeping valuable employees. Success in the global marketplace depends on building these initiatives into a long-term integrated plan.

Maria Schafer is program director, Executive Services, for META Group Inc., Stamford, Conn. Schafer has researched IT human capital management, staffing, and compensation strategies for nearly 20 years. She has extensive experience in IT recruitment and HR management at many companies, including International Thomson Publishing, NYNEX, and CBS Publishing.

COPYRIGHT 2000 Wiesner Publications, Inc.
COPYRIGHT 2000 Gale Group