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Frugal Employers Will Lose Their Talent

During the recession, my employer, a firm in the financial industry, eliminated raises for employees at the Vice President level and above for one year. The company, although continuing to perform well compared to its peers, cut back bonuses and other benefits. It’s easy for employers to demand higher productivity for less compensation when the job market is stagnant and the economy is threatened.

“You’re lucky to have a job” was the prevailing attitude. Many of my co-workers had family members or knew people who were out of work during the recession, and there was a lingering fear that, particularly after some internal consolidation, any of us could be out of our jobs at any time. Some were holding onto their jobs for dear life.

PaycheckThe power balance between employer and employee is always tilted in companies’ favor, but never more than during a period when the economy is falling apart. Unemployment may be at 8.5%, lower than during the height of the recession, but this is still high, and employees are still willing to put up with cutbacks just to keep their jobs.

What appears to be a short-term gain for an employer — reducing expenses in human resources, salaries, and benefits — can be a long-term loss. The recession ushered in a period of New Frugality. Consumers used credit cards less often and companies cut back spending and hoarded cash. The corporate balance sheet was important, and companies appeared stronger by reducing expenses to ensure profits for shareholders. Employees suffered as a result, and the stagnant — or in some cases, decreasing — compensation will not easily be forgotten.

Eventually, the job market will swing in the other direction. The top talent will feel no loyalty to the company that didn’t respect its workers during the recession, and they will leave for greener pastures.

The Wharton School highlights several recent surveys, showing that the short-term gains companies achieve by neglecting the benefits of their employees will likely result in long-term difficulties.

Companies cut compensation more for lower-level employees than higher-level, because executives view the average working middle class employee as easier to replace.

A company’s employees, literally its “human resources,” are the most important assets that a company can invest in. Proper handling and training will present a great return on investment. Spending money to support and enhance the lives of and benefits for employees keeps them engaged. If an employee believes he or she was treated well and respected during a time of economic upheaval, when employees at other companies are sharing their stories of frustration, the employee is more likely to appreciate the employer.

How has your employer treated you over the past few years? Have your compensation and benefits been scaled back? Will you stay when you know it will be easier to find a job?

Photo: dslrninja [1]
Wharton School of the University of Pennsylvania [2]

16 Comments (Open | Close)

16 Comments To "Frugal Employers Will Lose Their Talent"

#1 Comment By Anonymous On January 19, 2012 @ 9:40 am

I think you’re absolutely right. When you look to the shifts in business – especially in the last ten years – you see that the modern business is more closely related to human capital than financial capital. Businesses that rely on financial capital, or are just generally less intensive in the human capital department, seem to be pushed overseas to places like China, India, etc., where wages are lower.

I still think that someone with experience in their field still has greener pastures ahead. Companies will pay for talent at any price. They’re just not willing to pay any price for unskilled labor.

#2 Comment By Luke Landes On January 19, 2012 @ 9:47 am

Great comment, JT. Public companies are rewarded for short-term financial success. There is so much pressure to perform to expectations on a quarterly or even monthly basis, and it’s easy to lose sight of the long-term growth of a company or its industry.

#3 Comment By Anonymous On January 19, 2012 @ 10:01 am

My former employer should read this article! Despite record growth and earnings, he didn’t follow through with his promise to give a yearly raise, for two years in a row. He piled on more duties, but wouldn’t hire more workers, and the environment became so toxic that I was willing to become self employed rather than work there. The most annoying part, was how condescending he was to his hard working employees, telling them that “they didn’t understand business” etc. He lost a few people, but others are staying because they are afraid they can’t find another job. When the economy improves, they will leave in droves, and he will have to replace them with people who care nothing about the business. It is a very short sighted view in my opinion.

#4 Comment By Anonymous On January 19, 2012 @ 10:06 am

I’m currently seeing this in my retail job. Since Christmas, there have been layoffs and cutbacks in hours. Management has used the layoffs to get rid of their less productive floor staff, and the best are leaving as soon as they can for greener pastures. That leaves a group of people who are at best feeling trapped and resentful, and at worst disrespectful and good at hiding their unproductivity. No wonder there are complaints about customer service.

#5 Comment By wylerassociate On January 19, 2012 @ 10:10 am

it’s a tough situation for employees. A friend of mine works for a healthcare company and because of new leadership & changes in policies/procedures a lot of people have left to work for rival companies in the same field. My employer has treated me well, I received raises the last couple years & feel that I am valued but in today’s corporate world that can change the next day.

#6 Comment By Anonymous On January 19, 2012 @ 10:53 am

I’m a member of a union, which is a bit unusual, because my field isn’t one that you’d associate with unions. After our contract expired, the new one included no pay raises for 2 years; we did get increases last year, while our health benefits were being cut. We’re currently in negotiations; management wants to increase our workweek to 40 hours (it’s currently 37.25, and is one of those benefits that makes working here appealing, though I certainly have my share of 40+ hour weeks; I’m exempt, though) while only giving us a 2% pay increase. That kind of attitude, combined with various other things (e.g., the holiday party that consisted of them bringing in lunch–employees were responsible for dessert, and there were no door prizes, announcements, even an appreciation speech) definitely weakens my loyalty.

However, the department in which I work is fabulous–great coworkers, and my director does make sure that we feel appreciated. So, it’s a mixed bag.

#7 Comment By Anonymous On January 19, 2012 @ 11:39 pm

Be thankful you have what you do; many of us don’t get those kinds of perks that you are begrudging.

We pay for half of our health care premiums, receive 2% raises if we are higher performing employees, are expected to work 40 hours for full time employment, and had holiday events that were replaced with mandatory volunteer events.

Not trying to one-up you on this, but sometimes people need to hear about what others have (or don’t have) to realize how well off they truly are.

#8 Comment By Anonymous On January 20, 2012 @ 10:32 am

I am thankful, and I certainly don’t begrudge the fact that I technically have a workweek that’s shorter than 40 hours. (I’m exempt from overtime, and trust me, going to a 40-hr week wouldn’t really affect me.)

However, the article is about companies retaining staff. And the direction my company is heading is not one that’s creating any loyalty; particularly when I see friends working for similar organizations with much better work environments than mine.

#9 Comment By Anonymous On January 19, 2012 @ 11:18 am

The better employees will leave, if they were given the shaft during the downturn, no doubt about it.

I say the better, not the best, b/c the best employees were smart and took the big bids away!

It’ll be great to see the balance of power go back towards the employee in what is hopefully a 5 year upcycle.

#10 Comment By Anonymous On January 19, 2012 @ 11:48 am

I have worked for two public non-profits for the past few years, and unfortunately, this has been the prevailing mindset here as well. budget cuts make for no raises, and “trimming of the fat”. So far, we have not seen a single hint of a raise. And yes, people are definitely making plans to exit fast.

#11 Comment By Anonymous On January 20, 2012 @ 8:22 am

What you said is logical, but I think especially top level employees (generally those who have access to the balance sheet, and are privy to the budget meetings) are going to understand the company’s fiscal position. I run a small business with a few employees, and have taken efforts to let each them know why I pay them what they do (I know they deserve more), and when I expect it to turn around. This same approach should be taken in big business, explain the situation, and let the cards fall where they may. If you don’t have the budget for an increase, or even to keep pay static, so be it. You can’t let the employee’s expectations form your basis for compensation.

#12 Comment By lynn On January 24, 2012 @ 9:19 am

My employer did this, then when his management staff made him millions, He got greedy and bought an 8 million dollar home in Florida. He missed his jet. He forgot us and we all left. He is currently in a sheetload of trouble, and is reaping what he sowed – nothing.

#13 Comment By shellye On January 20, 2012 @ 12:12 pm

My former employer was always frugal and wouldn’t spend a dime on marketing, even though she said she was very pro-growth and pro-marketing. Then when the economy went south in ’08, she blamed the poor economy for unwillingness to spend more to increase market share. Having grown tired of creating silk purses out of sow’s ears, I found another job with a 25% increase in pay…and she’s still pinching pennies.

#14 Comment By Ceecee On January 20, 2012 @ 12:25 pm

In New Jersey, a lot of municipal employees are retiring(at young ages). New state regulations are making it more advantageous to retire than to stay on the job. There is a real “experience drain” occurring.

#15 Comment By tigernicole86 On January 22, 2012 @ 6:40 pm

At my last job, being told you’re luck you have a job was just how it was. I held 4 positions at my old job and made only $10/hr. However, the second I got offered a job that offered $13.50 an hour, I got my 2 beers and jumped. They tried to offer to cut back my duties and increase my hourly wage 21 cents. I laughed and told them I would only have to answers phones and do data entry for a good bit more. Where I work now offers a bonus if we do well and I got a raise, never mind that I actually love this job. Since I left, I found out that 7 of my former coworkers have left for greener pastures.

#16 Comment By qixx On March 10, 2012 @ 11:25 am

The management at my current job like to say “We’re lucky to have a job here” and they wonder why so many people leave. I did have a previous job that would also say “You’re lucky to be working here” but it was different. The job market was up at the time and there was a constant stream of applicants. They treated people well so it was more you are lucky to work here instead of for the competition.