The battle to get the very best staff on the books has led firms to draw up
ever more complicated incentive packages. But how can you make sure they stay?
Alison Thomas reports
The economy may be slowing down, but the executive pay train continues to
gather pace. According to the latest annual survey issued in August by
professional services firm Monks Partnership, the chief executives of FTSE 100
companies have seen their base salary increase by 14.9 per cent in the last 12
months, and the figure rises to 16.7 per cent when bonuses are added to the
equation.
In pounds and pence, that represents annual earnings of £781,000 –
considerably more for those at the top of the earnings league table.
This makes life rather difficult for the HR departments of large global
firms. Enticing the very best people with a tasty package of monster bonuses
and stock-option windfalls is one thing. Keeping them on board is another
altogether.
The business world is rife with tales of high earners whose response to
being thwarted in the slightest way is to clear their desks and walk out the
door.
If accumulated wealth makes such behaviour a viable proposition, the impetus
comes from the very qualities that attract employers in the first place. Amin
Rajan, chief executive of Create (Centre for Research in Employment and
Technology in Europe), interviewed "stars" from the financial sector
for his report Fund Management: New Skills for a New Age.
"In every sense, these are the mavericks of the labour market," he
says. "Sometimes they change not only their jobs, but their occupation.
They have talent. They have finance. They also have a lot of personal courage
and are not afraid of taking risks. They are driven by fear of failure."
Employers are waking up to the problem and putting together ever more
complicated incentive packages in a bid to hold on to their talented staff.
"Free" shares with tough performance conditions attached, deferred
bonuses that relate to performance for the current year while payment is
staggered over a longer period.
In the words of Peter Kilgour, managing director, Towers Perrin UK,
"The skill is to create these packages in such a way that a competitor
will have difficulty replicating them. Otherwise any rival who badly wants to
poach your people will just buy them out."
Some employers try to heighten motivation and foster loyalty by requiring
their executives to buy shares in the company. Known as a personal shareholder
requirement, this has long been a standard device in the US.
According to recent research by consultants William M Mercer, 32 of the FTSE
100 companies now require their executive directors to own a minimum number of
shares which typically ranges from one to five times their base salary.
The idea is to give employees a sense of ownership, a personal stake in the
business. Damian Carnell, principal in the executive compensation practice,
Towers Perrin, has reservations. "Asking executives to own shares is fine
within reasonable limits, but not if it deprives them of the opportunity to
build up a diversified portfolio. Nor am I convinced that share ownership
guidelines always achieve their objective of improving performance and
shareholder value.
"If people are required to put a lot of their own wealth into a
company, it may even have a negative effect, by encouraging them to be more
cautious than the business opportunities would properly suggest," he says.
No matter how clever a package you devise, he warns against the dangers of
promising that incentives will transform people’s lives, a claim which is hard
to substantiate, especially in the case of millionaires. So how do you motivate
and hold on to someone who already possesses everything money can buy?
"You have to find other ways. Love, interest, ambition, fear, guilt –
all of the human emotions. If the employee leaves and the company hits a rocky
patch, some colleagues might lose their jobs. That is the kind of dialogue you
need to engage in. Millionaires are people too."
Rajan’s interviews with the "stars" of finance have led him to the
same conclusion. Yet although he does not see money as a driver of behaviour,
it plays an important role as a scorecard of success. Recognition is something
high-fliers crave. They also like to create a legacy, make a genuine impact so
that they will be remembered long after they have left the organisation.
Peter Kilgour makes a similar point when he identifies peer recognition and
public acclaim as potentially powerful motivators. "It is no coincidence
that a lot of the most successful companies go in for awards, giving their
employees the chance to prove they are the best in their field," he says.
"Giving them dependent teams can be another strong tool. Some of these
people enjoy taking younger employees under their wing and passing on
skills."
Paradoxically, he believes that what drives top earners when they are fully
engaged is no different from the motivation of people in caring professions,
which pay well below market value.
"Such people have a sense of vocation, a calling, a broader goal or purpose.
Their motivation goes beyond what they are paid. The same applies when
employees align with the vision of an organisation. It is all about buzz,
belief, culture. The things that retain millionaires are the same as for the
rest of us, but accentuated."
Mark Childs is director, global compensation and benefits development, at
Fidelity Investments. "For these people, job definition becomes rather
more fluid than many personnel managers are accustomed to," he says.
"They do not sit comfortably with job descriptions. Because of their
intellectual curiosity, they tend to enjoy internal consulting projects, moving
from one thing to another, finding the complex and making it
straightforward."
This is something HR professionals have to take on board. "They see the
world differently from the HR people who are designing programmes for them. You
have to listen and understand. And have sufficient grasp of the issues so you
can be robust in pushing back when their ambition runs away," says Childs
Another of their priorities is autonomy and space. "They like to be
left alone with minimum supervision, like the proverbial dog on a long
leash," says Amin Rajan.
This is not without its dangers, however, as Chris Wathen, European partner
in the executive compensation practice of William M Mercer, explains, "The
degree of relative freedom they have to get on with their business is very
important. But it poses quite a challenge to the employer, who has to achieve
some sort of balance between their natural drive and desire to be in charge
with the need to ensure that they fit with the broader direction of the
company," he says.
"Good entrepreneurs are often difficult to find, and there may be times
when an employer has to weigh up the advantages of securing the best person available
and giving him the flexibility he needs to grow the business against the risk
of creating cultural strains."
Kilgour puts it more strongly. "Empowered leadership is vital. However,
if the environment is too free and easy, these people may become quite
dangerous. That is why they need some framework. The culture of the
organisation, the mores, the values – all of these are key," he says.
"Ironically they are also key to good business performance and to
retention in general. If a company cannot retain its millionaires, you will
often find it has the same problem with staff at other levels."
The importance of culture is picked up by Rajan when he identifies quality
"employer brand" as a major factor in employee retention. "They
thrive in a successful company, well-led and well-managed, which offers varied
and interesting challenges and the stimulation of working with other talented
people. Talent begets talent," he says.
A prime example of a company with a vibrant culture is Microsoft, which
counts around 10,000 US dollar millionaires among its 50,000 employees
worldwide.
Bill Gates is famous for his ability to create an environment brimming with
ideas, relationships and information. Yet the last few years have not been
easy.
First it had to weather the dotcom challenge, now it is facing a different
problem. Its employees’ wealth is largely tied up in stocks and, for the first
time in the company’s history, the share price has fallen dramatically. Stock
has been reissued and modest pay rises awarded, but CEO Steve Bullmer has held
out against requests for more significant readjustments.
"It is not about money, it is about excitement," explains director
of people, profit and loyalty, Stephen Harvey. "We go out of our way to
hire the right people. Then we work extremely hard to identify their strengths
and make sure they are engaged in what they are doing every day and in the
company’s long-term vision," he says.
"In spite of the pressures of a tight market, my attrition rate is 2
per cent. These people could double or even triple their earnings elsewhere. So
why do they stay? Because they love the dotnet strategy and where the company
is going.
"The number one reason people leave is because the job is not
stretching or challenging enough. The second is that they don’t like the
manager. Pay and benefits come about sixth on the list."
One of the keys to this commitment lies in the company’s approach to
internal communications and knowledge sharing. Another is the buzz that comes
from working with like-minded people. A third is the opportunity to focus on
creating new products, free from bureaucratic interference.
"I passionately believe that most bureaucracy is in people’s heads.
That is one of the reasons I took over HR," he says. "I come from a
finance background and I used to get very frustrated by the invisible policies
that lurked in every corner. Whenever you tried to do something, another one
would pop up. We used to call it ‘HR handcuffs’. What I have done is to free
that world up and give people space to produce the best work of their
lives."
Work-life balance is often cited as another critical issue, although in the
case of Microsoft, the equation appears to be topsy-turvy.
"The people we hire have a passion for technology, and they would spend
all day here if they could. We actually have to persuade them to balance things
out and give themselves space to enjoy their families and outside
interests," Harvey says.
Not all high earners are as fortunate. Recent research conducted with 30
European chief executives by the advertising company Ogilvy & Mather
revealed that many spend sleepless nights worrying about their personal
performance as leaders. Not only do they carry huge responsibility, they often
feel caught between the short-term demands of investors and their own long-term
objectives for the company.
Some long for a quieter life with shorter, less stressful working hours – so
much so they are tempted to throw in the towel.
So what is the solution to the HR dilemma? With so many variants dependent
on individual circumstances and idiosyncracies, there is no single magic
formula for success. Perhaps the closest you can come is to ensure you remain
sensitive to each employee’s personal agenda. As Carnell points out,
"Millionaires are people too."
Managing millionaires is a seminar at CIPD National Conference Harrogate,
Wednesday 24 October 1400-1530.
Fund management: New Skills for a New Age can be obtained from Create.
Tel: 01892 526757.
Five top sectors
– A number of functions of the City
have always produced millionaires and will continue to do so. These include
corporate finance, private equity and fund management
– In the long term, technology and telecoms offer significant
growth opportunities
– As senior executive pay continues to grow, traditional
businesses will spawn an increasing number of wealthy individuals
– The pharmaceuticals and biotechnology sector looks
particularly promising. Despite hype which caused it to fall away in the short
term, biotechnology remains the technology of the future
– Cyclical industries are the first to suffer when times are
hard and the first to bounce back when the upswing comes.
Five ways to motivate millionaires
– A stimulating environment
– Varied work and interesting challenges
– Autonomy and space
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– The opportunity to make a difference
– Public recognition, including pay
