So I’ve been thinking about retention/turnover and just how much effort a 1. Some turnover is a good thing, and if an employee who isn’t a top performer finds another offer somewhere else there is no particularly compelling reason to retain him/her. Even if a company doesn’t have a deep bench, sometimes replacing an employee who doesn’t have a great deal of talent (or isn’t a cultural fit) can be a good thing.company should make to keep a high performing employee. 1
I’ve always defaulted back to the mindset that the costs of losing an employee and having to hire someone else to take his/her place are generally so high that if an employee is a good performer (and money is the reason he/she is leaving) it’s almost always better to pay to keep him/her as long as the cost to retain stays within the guidelines for the pay range.
The lost productivity (which has a cost) while the position is open, costs to bring a candidate in to interview, and finally retraining cost summed together almost always eclipse the value of the raise an employee may asks for to stay many times over – not to mention that the new hire often comes in at a higher salary than the incumbent that left anyway. So unless there is a deep bench internally/the employee’s work is redundant, I’ve always felt pretty confident in my belief that paying people to stay rather than letting them leave was a good thing… but a couple of days ago I started reading about this idea taken to its practical extreme – broadbanding – and now I’m not so sure.
With broadbanding as I understand it a company stops trying to manage to the midpoint of the pay range, and instead creates really wide bands (100 plus percent wide) and says “All Coordinators are in band X, all managers are in band Y, all Directors are in band Z etc.”, letting market forces dictate where employees fall within the range.
Theoretically I love the idea of a company-wide market economy where the best talent moves to the top of the grade based on the merits of their ability (combined with an understanding of their market value). In practice though, a company that tries to pay every high performing employee at market value over time erodes their margins so much that they can no longer be competitive in their industry.
I don’t think I’m a fan of broadbanding for the same reason that I’m a fan of managing to the midpoint in a population: Line’s may be arbitrary, but they are there for a reason.
Example: The driving age is 16 in the U.S. (even though there are no doubt 15 year olds that could be excellent drivers given the chance). The age 16 is an arbitrary line, but if we didn’t have a line at all and instead let everyone take the driving test the cost to society (safety risk, administering the added volume of test etc.) would likely outweigh the benefits. So some 15 years olds can’t get licenses even though they’re capable… but it’s a tradeoff society makes having done a cost benefit of depriving some competent teens of the right to drive vs. the cost of administering the test/safety hazards of testing 2. As a general rule I’m skeptical of laws that limit the rights of the individual in the interest of the collective – which I suppose happens in this analogy – but in the case of a 12 year old potentially driving I can make an exception.12-15 year olds. 2
This analogy illustrates the exploding cost effect companies have to be mindful of when deciding to offer match.
Although a company can often afford to match the competitive offers their employees receive from other companies, the question of when to make exceptions going forward once an employer has done so the first time makes opening that door a difficult proposition.
If a company is not a pay leader – and many aren’t for very valid business reasons – then tough decisions sometimes need to be made as it concerns letting a good employee walk in order to manage the cost of headcount for the entire organization over time.
With that said, I have mixed thoughts on this topic, and am curious to hear from readers below.
Please share your thoughts in the comments section.
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