by Gene Mandarino, HR Performance Solutions
Are you feeling the attraction and retention pinch? If you aren’t yet, you soon will be. Executive mobility is increasing, unemployment is dropping, and retirement funds are growing. Credit unions are no longer recruiting from the ranks of the unemployed but are being forced to recruit from the ranks of the employed. This market dynamic will drive up the costs of attracting and retaining executives. Is your compensation strategy prepared to deal with this?
As a compensation consulting company, we are in the business of helping credit unions determine appropriate pay ranges for all levels of employees. In 2015, we have seen a dramatic increase in clients requesting help in validating pay levels for executives. Some clients are asking because they want to be sure they are paying enough to retain key people. Others are asking because they are recruiting executives and are feeling the pressure to offer more money. Without question, we are in an employee market.
In a presentation on executive pay I recently delivered to HR professionals at a credit union, I was curious to know if they were feeling the employee market pressure that we were feeling. I started the presentation by showing a slide illustrating how the unemployment rate had changed since 2010. In 2010, it was 9.7% nationally, now it is 5.5%, with some states, like Nebraska, at or under 3%. I also pointed out that, according to the Department of Labor, 2014 was the best hiring year in 15 years. After presenting this data to the audience, I asked them if they were feeling the talent attraction and retention pinch. Everyone raised his or her hand, some even blurted out “absolutely.” I was not particularly surprised by the show of hands. But, I was surprised by how vigorously they raised their hands and by the commentary. They clearly validated what we are experiencing as a consulting company.
The decrease of unemployment numbers and the record rate of hiring do not tell the whole story. There is another dynamic in play that creates even more pressure for employers. The stock market has had a 16% return in the last four years, making it possible for a wave of executives, who previously wanted to delay retirement because of market losses, to reconsider retirement. Those who delayed retirement are now more likely to retire.
With more executives retiring (we are currently experiencing a six-year low in unemployment), there are more executive job openings and fewer unemployed people to fill these jobs. As a result, credit unions looking for talent are being forced to recruit from the pool of the currently-employed. This is compelling these credit unions to pay more to lure executives away from other employers, so those who want to keep their executives are forced to pay more to keep them.
So, how can you prevent your key executives from leaving?
1. Have a clear compensation philosophy. In these times, you may have to shift from a philosophy of “paying at market” to “paying above market” to defend against having your talent poached.
2. Be sure you have the most up-to-date base and incentive compensation data so you know what the market is offering and can pay people what they are worth. This is especially important if you have experienced high levels of asset growth over the last few years.
3. Calculate the costs of replacing an executive. Below are some hard cost estimates of losing an executive making $200,000.
- Search fee ………………………… $40,000 (20% of pay)
- Signing bonus …………………… $20,000 (10%)
- Relocation costs …………………. $25,000
- Six month “ramp up” costs ……… $100,000 (50% of 1st year pay)
- Total ……………………………….. $185,000
4. Recalibrate your merit structure for executives to ensure that executives can earn increases that will enable their base pay to keep pace with the market.
5. Last but not least, show appreciation for your key employees, especially your high performers. Pay being relatively equal, employees who feel valued and appreciated will stay with the credit union.
HR Performance Solutions, a division of CU Solutions Group serves over 1,400 clients in the areas of performance management and compensation. For more information, please e-mail us anytime at email@example.com.