Information on controlling the employee turnover rate with added benefits.
A do-it-yourself strategy to attract and keep top-notch employees* * *
The problem is as basic as they get. You need to attract good people and you want them to stick around. Rapid turnover is fraying your nerves -- and costing you business. But you can't match your big competitors on salaries and fringes without sending costs soaring. So what do you do?
Until recently, Kenn Ricci, president of Corporate Wings Inc., a 10-year-old air-charter business based in Cleveland, was smack in the middle of this dilemma. He had been taking it for granted that, sooner or later, every pilot he had would leave for more money -- or for more prestige. But over the past two years, his thinking has changed. In fact, he has developed a system that attracts good people -- and encourages them to stay. Lower turnover makes it easier to keep his clients satisfied, and it hasn't, he argues, had a dramatic effect on the company's costs. "We're not spending appreciably more money on payroll than our competitors do. We're spending it differently.'
Back in the early years, when Corporate Wings was just getting off the ground, Ricci, now 32, and executive vice-president Richard Michaels, 35, had no trouble finding young pilots. In order to get ahead in the aviation industry, explains Ricci, pilots need experience. But with the war in Vietnam over and the airlines fully staffed, there weren't many places where aspiring pilots could get the amount of flight time necessary for career advancement. Corporate Wings didn't hestitate to take advantage of this situation. Like other charter companies, it hired pilots one year out of flight school, paid them substandard wages (starting at about $24,000 a year), and gave them plenty of flying time. There was never a sense that anyone would want to stay -- not with the low pay and the on-demand flying schedules. "We were programmed for turnover," Ricci says. When American or TWA called with jobs, Corporate Wings pilots packed their bags.
For several years, the revolving-door policy suited everyone just fine. Pilots stuck around for 14 months, got their flight time, then said good-bye. And the company made money. From 1981 to 1985, revenues climbed from $300,000 to just under $3.4 million. As airline hiring picked up, however, turnover became a nuisance -- particularly to the regular clients who owned their own aircraft. After flying with the same pilots for more than a year, Ricci says, some clients began to grumble about having to fly off with recent hires, people they'd never seen before. But they didn't just complain. In late 1986, two of the company's biggest clients severed their ties with Corporate Wings.
Based on what he calls "the early vibrations from customers," Ricci had made some attempts to stabilize his work force through enhanced pay. A pilot who stayed with the company for three years got a $500 annual salary increase (to about $38,000). But it was too little too late. The company's most senior pilot left shortly after his raise. It wasn't money that lured him away, says Ricci, but the opportunity for a better flying schedule with one of the company's ex-clients. Worse, clients started managing their aircraft themselves. "In the space of five months -- between October 1986 and March 1987 -- we lost about a third of our business," Ricci says.
This was a clear signal to Ricci that he had to rework the company's overall people strategy. "We had no idea our clients would feel as strongly about turnover as they did." But the solution wasn't obvious. The trouble with raising pilots' salaries across the board, he felt, was that most pilots weren't interested in remaining with the company for long under any circumstances. Nor was it easy to improve schedules, given the nature of the charter business; clients wanted to fly when they wanted to fly. But Ricci felt he could attempt to do something for the few pilots who weren't hell-bent on working for the airlines. And what he came up with was a special package of pay and benefits aimed directly at them.
Think of it as a tenure system at a university -- or a two-tiered personnel system -- and you'll have the general idea. You can't afford to give a sweet deal to everyone, but you can find a way to give it to some. Ricci says he took ideas for the program from both academia and the corporate world, including some of the airlines that were snapping up his people. But in significant ways, his system is different. At most of the major airlines, he explains, pilots leap to the upper tier automatically, after a finite period of time. But at Corporate Wings, the governing factor is more than just time. To become a senior flight officer, you have to apply for the promotion -- and you have to be voted in by management. The idea, says Ricci, "is to give people a chance to look at us and to give us a chance to look at them.'
To be eligible, a pilot has to be rated as a flight captain and has to have at least three years of flying experience with the company (or with a business it acquires). If a pilot wants to stay and take advantage of the program, it's his move. Before anyone is promoted, he or she has to write a letter asking for consideration; there's a thorough evaluation of safety and customer service records; and there's a vote by a seven-member management committee.
By design, says Ricci, the ranks of senior flight officers will be reserved for the top-notch people. No more than 30% of the company's pilots will be admitted to the program. And once you're promoted, there's an understanding that your job is secure -- as long as you maintain safety, health, and personal-conduct standards.
Since the new program took effect in 1986, 4 of Corporate Wings' 32 pilots have applied to be senior flight officers. So far, all have been accepted. They don't make $150,000 like the top jet pilots at the majors. But they do make significantly more than the company's other pilots -- and more than those at most other charter companies. Upon promotion, they get a salary hike from $42,000 to $48,000. They also get more health and life insurance, more paid vacation time, and deferred compensation of up to $100,000, payable at retirement, at age 62. There are also new policies designed to mitigate the on-demand schedules: once pilots have flown 15 days in a given month, they get additional pay (up to $200 per day); and after 20 days of flying, they get the option of declining an assignment -- or taking as much as $400 per diem. Yet payroll and benefits as a percentage of total costs have gone from 14% in 1986 to only 18% today.
It's much too soon to know how all this will play out over time, but Ricci and his colleagues are thrilled about the effects so far. "We used to lose six or seven pilots a year," says Ricci, "but we've lost only two in the past year." What's more, the caliber of applicants for pilot positions has significantly improved. "Instead of getting kids without experience," says Vince Criswell, the company's chief pilot, "we're getting the crème de la crème -- guys who have been flying jets for 20 or 25 years.'
Now that turnover is under control, customers are benefiting too. These days, says Ricci, it's usually possible to give clients at least one of the two or three pilots they know. "We can offer some consistency." This consistency will be important as Corporate Wings, currently an $8.8-million business operating in four cities besides Cleveland, expands into new places. The system is working so well that Ricci is in the process of extending some of the same benefits to other hard-to-retain employees -- his maintenance people.
Of course, there are some questions that the company hasn't yet addressed. What happens when it hits its quota for senior flight officers? And what if business slows down? Does it keep the highest-paid pilots -- or let some of them go? As time goes on, Ricci offers, it will inevitably become harder for good pilots to get promoted. And there's no getting around the fact, he agrees, that a downturn would require layoffs. "The extent of the problem," Ricci says, "would determine how far we had to go with cuts.'
But for now, the program is doing just what Ricci wants it to. "We're getting extremely capable pilots," he says, "and we think we can keep them.'
THE TENURE TRACK
How to develop a two-tiered personnel system
Corporate Wings Inc.'s system can be followed by almost any company searching for -- and wanting to hold onto -- employees with special skills.
* Pinpoint the need. If customers hadn't cared who flew their airplanes, president Ken Ricci wouldn't have had a problem. But they did care. The challenge was to attract seasoned pilots who could make a commitment and provide a sense of stability. Hence the need for an upper tier of compensation.
* Know the market. Whatever changes in pay and benefits you are considering, make them attractive. "It's stupid if you're only matching your competition," Ricci says. "Ideally, you want to appeal to people on the outside as well as to the people who are already working for you."
* Don't make the lower tier too attractive. Remember, says Ricci, that you can't possibly afford to pay all your employees more than they could make elsewhere. If you need salaries to average out at $30,000, you have to pay someone $15,000 for every person you pay $45,000. What you can offer at the lower end is experience.
* Find a way to control quality. At Corporate Wings, flight officers are closely monitored by the Federal Aviation Agency. Pilots who receive safety warnings or who have health problems will be relieved of their duties. If your industry has no regulatory controls, figure out a method for ongoing evaluations. Otherwise, says Ricci, you may be stuck, like many universities, with people you don't want. n