The battle to get the very best staff on the books has led firms to draw upever more complicated incentive packages. But how can you make sure they stay?Alison Thomas reportsThe economy may be slowing down, but the executive pay train continues togather pace. According to the latest annual survey issued in August byprofessional services firm Monks Partnership, the chief executives of FTSE 100companies have seen their base salary increase by 14.9 per cent in the last 12months, and the figure rises to 16.7 per cent when bonuses are added to theequation. 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 globalfirms. Enticing the very best people with a tasty package of monster bonusesand stock-option windfalls is one thing. Keeping them on board is anotheraltogether. The business world is rife with tales of high earners whose response tobeing thwarted in the slightest way is to clear their desks and walk out thedoor. If accumulated wealth makes such behaviour a viable proposition, the impetuscomes from the very qualities that attract employers in the first place. AminRajan, chief executive of Create (Centre for Research in Employment andTechnology in Europe), interviewed “stars” from the financial sectorfor his report Fund Management: New Skills for a New Age. “In every sense, these are the mavericks of the labour market,” hesays. “Sometimes they change not only their jobs, but their occupation.They have talent. They have finance. They also have a lot of personal courageand are not afraid of taking risks. They are driven by fear of failure.” Employers are waking up to the problem and putting together ever morecomplicated incentive packages in a bid to hold on to their talented staff.”Free” shares with tough performance conditions attached, deferredbonuses that relate to performance for the current year while payment isstaggered 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 competitorwill have difficulty replicating them. Otherwise any rival who badly wants topoach your people will just buy them out.” Some employers try to heighten motivation and foster loyalty by requiringtheir executives to buy shares in the company. Known as a personal shareholderrequirement, this has long been a standard device in the US. According to recent research by consultants William M Mercer, 32 of the FTSE100 companies now require their executive directors to own a minimum number ofshares 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 thebusiness. Damian Carnell, principal in the executive compensation practice,Towers Perrin, has reservations. “Asking executives to own shares is finewithin reasonable limits, but not if it deprives them of the opportunity tobuild up a diversified portfolio. Nor am I convinced that share ownershipguidelines always achieve their objective of improving performance andshareholder value. “If people are required to put a lot of their own wealth into acompany, it may even have a negative effect, by encouraging them to be morecautious than the business opportunities would properly suggest,” he says.No matter how clever a package you devise, he warns against the dangers ofpromising that incentives will transform people’s lives, a claim which is hardto substantiate, especially in the case of millionaires. So how do you motivateand 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 rockypatch, some colleagues might lose their jobs. That is the kind of dialogue youneed to engage in. Millionaires are people too.” Rajan’s interviews with the “stars” of finance have led him to thesame 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 somethinghigh-fliers crave. They also like to create a legacy, make a genuine impact sothat they will be remembered long after they have left the organisation. Peter Kilgour makes a similar point when he identifies peer recognition andpublic acclaim as potentially powerful motivators. “It is no coincidencethat a lot of the most successful companies go in for awards, giving theiremployees the chance to prove they are the best in their field,” he says. “Giving them dependent teams can be another strong tool. Some of thesepeople enjoy taking younger employees under their wing and passing onskills.” Paradoxically, he believes that what drives top earners when they are fullyengaged 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 whenemployees align with the vision of an organisation. It is all about buzz,belief, culture. The things that retain millionaires are the same as for therest of us, but accentuated.” Mark Childs is director, global compensation and benefits development, atFidelity Investments. “For these people, job definition becomes rathermore fluid than many personnel managers are accustomed to,” he says.”They do not sit comfortably with job descriptions. Because of theirintellectual curiosity, they tend to enjoy internal consulting projects, movingfrom one thing to another, finding the complex and making itstraightforward.” This is something HR professionals have to take on board. “They see theworld differently from the HR people who are designing programmes for them. Youhave to listen and understand. And have sufficient grasp of the issues so youcan be robust in pushing back when their ambition runs away,” says Childs Another of their priorities is autonomy and space. “They like to beleft alone with minimum supervision, like the proverbial dog on a longleash,” says Amin Rajan. This is not without its dangers, however, as Chris Wathen, European partnerin the executive compensation practice of William M Mercer, explains, “Thedegree of relative freedom they have to get on with their business is veryimportant. But it poses quite a challenge to the employer, who has to achievesome sort of balance between their natural drive and desire to be in chargewith the need to ensure that they fit with the broader direction of thecompany,” he says. “Good entrepreneurs are often difficult to find, and there may be timeswhen an employer has to weigh up the advantages of securing the best person availableand giving him the flexibility he needs to grow the business against the riskof 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 quitedangerous. That is why they need some framework. The culture of theorganisation, the mores, the values – all of these are key,” he says. “Ironically they are also key to good business performance and toretention in general. If a company cannot retain its millionaires, you willoften 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. “Theythrive in a successful company, well-led and well-managed, which offers variedand interesting challenges and the stimulation of working with other talentedpeople. Talent begets talent,” he says. A prime example of a company with a vibrant culture is Microsoft, whichcounts around 10,000 US dollar millionaires among its 50,000 employeesworldwide. Bill Gates is famous for his ability to create an environment brimming withideas, relationships and information. Yet the last few years have not beeneasy. First it had to weather the dotcom challenge, now it is facing a differentproblem. Its employees’ wealth is largely tied up in stocks and, for the firsttime in the company’s history, the share price has fallen dramatically. Stockhas been reissued and modest pay rises awarded, but CEO Steve Bullmer has heldout against requests for more significant readjustments. “It is not about money, it is about excitement,” explains directorof people, profit and loyalty, Stephen Harvey. “We go out of our way tohire the right people. Then we work extremely hard to identify their strengthsand make sure they are engaged in what they are doing every day and in thecompany’s long-term vision,” he says. “In spite of the pressures of a tight market, my attrition rate is 2per cent. These people could double or even triple their earnings elsewhere. Sowhy do they stay? Because they love the dotnet strategy and where the companyis going. “The number one reason people leave is because the job is notstretching or challenging enough. The second is that they don’t like themanager. Pay and benefits come about sixth on the list.” One of the keys to this commitment lies in the company’s approach tointernal communications and knowledge sharing. Another is the buzz that comesfrom working with like-minded people. A third is the opportunity to focus oncreating 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 afinance background and I used to get very frustrated by the invisible policiesthat lurked in every corner. Whenever you tried to do something, another onewould pop up. We used to call it ‘HR handcuffs’. What I have done is to freethat world up and give people space to produce the best work of theirlives.” Work-life balance is often cited as another critical issue, although in thecase of Microsoft, the equation appears to be topsy-turvy. “The people we hire have a passion for technology, and they would spendall day here if they could. We actually have to persuade them to balance thingsout and give themselves space to enjoy their families and outsideinterests,” Harvey says. Not all high earners are as fortunate. Recent research conducted with 30European chief executives by the advertising company Ogilvy & Matherrevealed that many spend sleepless nights worrying about their personalperformance as leaders. Not only do they carry huge responsibility, they oftenfeel caught between the short-term demands of investors and their own long-termobjectives for the company. Some long for a quieter life with shorter, less stressful working hours – somuch so they are tempted to throw in the towel. So what is the solution to the HR dilemma? With so many variants dependenton individual circumstances and idiosyncracies, there is no single magicformula for success. Perhaps the closest you can come is to ensure you remainsensitive 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 Cityhave always produced millionaires and will continue to do so. These includecorporate finance, private equity and fund management– In the long term, technology and telecoms offer significantgrowth opportunities – As senior executive pay continues to grow, traditionalbusinesses will spawn an increasing number of wealthy individuals– The pharmaceuticals and biotechnology sector looksparticularly promising. Despite hype which caused it to fall away in the shortterm, biotechnology remains the technology of the future– Cyclical industries are the first to suffer when times arehard 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– The opportunity to make a difference– Public recognition, including pay Rich pickingsOn 23 Oct 2001 in Personnel Today Comments are closed. Previous Article Next Article Related posts:No related photos.