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back to index backGLOBALtalk August,  2006

Reward Practices Becoming More Critical to Attract Workers in Tight Job Market

With labor markets continuing to tighten in an expanding economy, many employers are finding it harder to attract skilled people to fill key positions. And it's going to get harder.

Over the next several years, as the economy continues to grow and the baby boomers begin to retire, companies will face a greater challenge to get people in the door. Even with online job applications, interviews and onboarding processes, many employers will need to devote more resources to recruiting, screening and hiring.

Given this outlook, offering the right mix of rewards -- pay, benefits, work environment and other intangibles that today’s job seekers are looking for -- is an increasingly critical task for companies in a wide range of businesses.

The responses to our 2005 Global Workforce Study show that employers need to provide a comprehensive -- and tangible -- package of rewards in order to win new hires in today's market. And, if the respondents to our 2003 U.S. workforce survey seemed to be saying "show me the security" after two years of job losses and a down economy, the message from our 2005 respondents may be "show me the money."

Shifting attraction drivers

As Exhibit 1 shows, the past two years have brought some notable shifts in the key drivers of attraction for the U.S. workforce today. Employee benefits have slipped down the list of top 10 attraction drivers, while cash compensation has grown in importance. Competitive health care and retirement benefits, which ranked number one and number four, respectively, in 2003, have dropped to number two and number six in our latest survey. Competitive base pay now tops the list (it was number two in 2003) and raises linked to individual performance jumped to number five this year (from number eight in 2003).

These shifts may reflect the improved economic climate since our last survey. Instead of the mood of "rational endurance" we saw in 2003, when many employees were merely trying to survive the economic downturn, our 2005 results suggest that today's employees are looking to share in the fruits of a strong economy.

In tough economic times, workers are more likely to be looking for a job that offers competitive health care and retirement benefits that meet basic needs for financial security. In more prosperous times, benefits may be taken for granted as employees seek opportunities to enhance their cash compensation.

What has changed far less in the last few years is the relative importance of intangibles like work/life balance, opportunities for advancement, company reputation and the caliber of coworkers. All of these remain important in attracting people to a company. Indeed, our 2005 results show that today's job seekers are looking for a fully balanced package of rewards that includes competitive pay and benefits as well as opportunities to learn new skills, work with talented colleagues in a well-regarded organization, and find the right balance in their personal and working lives.

Rising stress levels

Achieving work/life balance is especially important when so many employees are reporting long hours and stress on the job. More than half of our 2005 U.S. respondents report working more than 40 hours per week, and over a third (35%) rate their work environments very stressful. A slightly larger percentage (38%) view their jobs as somewhat stressful.

Indeed, it appears that relatively few companies have fully mastered the art of helping their employees achieve a good work/life balance -- at least thus far. Only 38% of our respondents rate their organizations highly on helping them in this regard, and more than a quarter (27%) report frustration with their inability to strike the right balance.

This employee frustration may be fueled in part by decisions companies make about key people issues (e.g., hiring, staffing, pay, promotions) as well as business issues. Work/life balance would presumably suffer, for example, when a company elects to pursue a major new contract after laying off or failing to fill key positions needed to deliver the work. Thirty-nine percent of our respondents express strong frustration with people decisions in their organizations, and over a quarter (26%) express strong frustration with company business decisions.

When business growth accelerates, as it has in recent years, and employees' workload grows to match, managers need to pay even closer attention to frustrations and strains within the workforce to ensure that the work environment doesn't begin driving people away -- instead of inviting them in. In this environment, it's important to manage differently to help foster and maintain a high level of organizational health.

Great expectations

In a sense, today's job seekers want it all. As a result, organizations competing for talent in this environment need to pay close attention to how their total rewards package adds up. A piecemeal approach or strategy of allocating scarce resources to emphasize above-market programs in any one area alone probably isn't going to cut it.

It's also worth keeping in mind that getting the attraction basics right requires a good understanding of your current workforce composition, the available labor pool and changing talent needs. This is particularly important with regard to the role that benefits play in attracting people to your organization.

The declining importance of health care and retirement benefits for our broad workforce sample masks an important consideration that many human resource professionals understand intuitively -- benefits matter far more to older workers than to younger groups. In terms of what attracts employees, competitive health care and retirement programs rank number two and number three, respectively, for workers ages 45-54 and number one and number three for those age 55 and older (Exhibit 2).

Talent management tensions

For organizations facing the need to attract experienced mid-career talent in today's competitive market, the importance older workers place on benefits only heightens the tension between cost and talent management goals. Traditional benefit programs, such as defined benefit pensions and retiree medical coverage, cost more for an older workforce, and many companies have moved to reduce the cost of these programs by scaling back or eliminating benefits (e.g., for new hires) in recent years.

Yet these programs are highly valued by the largest and fastest-growing segment of the working population -- those at the midpoint or later stages of their careers. This finding underscores the continuing challenge that employers face in trying to manage the cost of traditional benefit programs at a time when attracting and retaining older workers has never been more critical to many organizations.

It also points to the importance of careful resource allocation across the spectrum of rewards and workplace programs that hold varying appeal for different subsets of the employee population. Often -- as with retirement benefits, for example -- resource allocation decisions raise difficult issues around generational equity and other fundamental fairness considerations because of competing priorities within the workforce.

Effective workforce planning and a good understanding of how the composition of the workforce will change in the future are absolutely critical to making sound resource allocation decisions in this context.

Source: Towers PerrinGAI

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