EMPLOYEE BENEFITS

The Appeasement Trap

Employees these days often ask for the world. But should you give it to them?
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Employees these days want -- and often get -- the world. The question is, should you give it to them?

Eileen Orenberg has just about had it.

Orenberg (not her real name) owns a small publishing company near Boston. Here's what put her over the top: She recently hired a receptionist -- an attractive, well-dressed, articulate man in his mid-twenties. Right from the beginning he was aggressive, negotiating his starting salary up to $31,500 and his title from administrative assistant to assistant to the president. After a mere 90 days on the job, he asked Orenberg out to lunch for his first performance review. There, he demanded that she raise his salary to $36,000. "He said he wanted to buy a house and had to net $3,000 a month to do so," Orenberg says. "He had only been at the company three months, and he brought no experience. We were teaching him everything. Everything!"

Orenberg was outraged but politely said she'd give the matter some thought. "You've got a week," he replied. Then he stuck his boss with the bill. (She refused to give him the raise he demanded; yet she insists on remaining anonymous because in this tight labor market, she can't afford to fire him.)

Come on. Admit it. You're pissed off.

You'll be damned if you're going to let it show on your face, but your patience these days is wearing a bit thin. It's certainly not from a lack of work to do. In fact, there's more opportunity than ever for your company to rack up record sales. If only you could find the people. Recruiting the right staff is your key to riding the current economic wave all the way to your own commercial Valhalla. It all comes down to finding -- and keeping -- the best people.

Trouble is, they know it.

An unprecedented sense of entitlement has crept over the American workforce, and the change in mind-set has come as a shock for many employers. In a seller's market for skilled workers, employees are more demanding about what they want and less appreciative of what they get. The question in the long run is, Who can afford to keep handing out car keys to every employee, from the receptionist on up? Where do you draw the line?


To reduce turnover, North Highland CEO David Peterson actually started turning business away.


There's no easy answer, even for a CEO like David Peterson of North Highland Co. Peterson prides himself on having created an exceptionally employee-friendly information-technology consultancy. To reduce turnover among his travel-weary staff, Peterson has had to turn away business. Now he will take jobs only within a 50-mile radius of his Atlanta headquarters -- unless employees volunteer to staff a more distant site. Peterson says that that policy has helped keep his annual turnover at a manageable 10%.

But sometimes people leave no matter what you do. Recently, a 24-year-old employee of Peterson's took off for an opportunity at a dot-com start-up. On his way out, the employee said to Peterson, "I love this place, but they're throwing a lot of stock options at me, so I have to take this chance. And if it doesn't work out, I can always come back here, right?"

Such casual disregard for company loyalty has quite a few CEOs getting in touch with their angry side. Mark Zweig of Zweig White and Associates Inc., a recruiting company in Natick, Mass., hit his limit when a member of his staff recently left to work for the proverbial dot-com. "He sent everyone on staff this E-mail saying that he hated to go, but it was a great opportunity, with stock options, an IPO, and blah blah blah," recounts Zweig.

Zweig zipped off a rejoinder to the entire staff. "I said, 'No recruiter has ever left here and stayed at the place they went to for more than 12 months,' " he says. "Recruiting people are great at selling their company. But you know what? They lie." When Zweig heard that some of his staff thought his response was harsh, he lashed back. "I say screw them," he says. "I want people to know what the real world is like."

Sure, the real world is harsh, but today it's harshest for staff-starved employers, who offer no end of economic enticements to anyone -- inside or outside the company -- who'll help them net the head count they require, from multithousand-dollar bonuses to large-screen TVs to splashy new cars. To the recruits themselves, companies proffer huge signing bonuses, profit-sharing and retirement plans, relocation costs, college tuition -- heck, even the down payment on a house. In many industries, stock options have become a given and have entered the recruiting calculus as never before.

And the coddling doesn't stop once the star recruits come on board. In an effort to stay culturally competitive, companies cosset their staffs with a spiraling catalog of creature comforts: chefs to cook breakfast, lunch, and dinner; on-site fitness facilities; weekly massages; monthly house cleaning; meditation rooms; concierge services for laundry and shopping; and trips to Hawaii and other temperate locales. And make sure that you're surrounding your people with the latest technology, a fun and challenging work environment, a say in the strategic future of the company, and an impending initial public offering that'll pop pronto and make them rich.

Oh, and could you validate their parking, too?

More and more, in the eyes of many job seekers, those amenities have morphed from perquisites to prerequisites. A recent survey by Los Angeles-based Jobtrack Corp. found that 50% of today's college students expect to be millionaires by the time they turn 40. The employment mantra of the new millennium: Buy me now, keep me cozy, make me rich -- otherwise I bolt.

To make his company more bolt-resistant, Peterson recently acquired another company -- a dot-com, of course -- with the intent of giving his employees more fast-track opportunities and his company more of a new-economy cachet. That's a strategy that a lot of employee-hungry CEOs are considering, including Tony Coretto of PNT Marketing Services Inc., an 11-person marketing-database-development company in Valhalla, N.Y. Coretto is currently talking to investors for help with moving certain company products onto the Web. He hopes to eventually leverage his off-line expertise into an online shop and thereby attract that desirable talent pool. "You've got to tailor your offering to how you can provide it," he says. "It also happens to be where the work is."

Some companies don't have the option of becoming a dot-com. (And some may not want to, given recent market developments in that sector.) But even the most classic of brick-and-mortar businesses are feeling the dot-com pinch. Bill Palmer is CEO of Commercial Casework, a cabinetmaking business in Fremont, Calif. "In the Bay area, there's so much opportunity in building out for the dot-coms," he says. "But I can't find the skilled workers I need to take full advantage of it."

Palmer says that even the people he can find are hard to deal with, because they know that they're in the driver's seat. "They've got leverage, and they're going to use it," he says. "Maybe they're not asking about stock options, but they're definitely more savvy about salaries and bonus plans."

It's easy to give in to the temptation to give recruits everything they ask for and to fall deeper into the appeasement trap out of sheer desperation. Tony Coretto once recruited an entry-level programmer at a salary of around $40,000. He even sweetened the deal with a $5,000 signing bonus. "The guy wound up leaving within four months anyway," says Coretto. "To his credit, though, he did give me back the bonus." Coretto says the guy left for a job that provided more benefits, including education reimbursement for the employee's wife. "I'm too small to afford that," says Coretto, "and I don't want to set the precedent of keeping up with every single thing another company offers. Those are hard dollar costs that rarely pay off."

Coretto has discovered empirically what the pundits have been saying for years: throwing money at people doesn't work. According to John J. Clancy, professor at Washington University in St. Louis and author of The Old Dispensation: Loyalty in Business (Fairleigh Dickinson University Press, 1999), "The two most primitive ways to motivate people are threats and bribery. And neither works very well in the long run."

Do employees today want too much? Sorry, that's the wrong question. You might as well ask if it's wrong for Jim Carrey to get $20 million per movie or for Kevin Garnett of the Minnesota Timberwolves to have a $121-million contract. In cold, hard terms, the answer is no, not if the market will bear it. "Employees are asking for as much as they can get, and in a free market there's no reason to fault them for that," says Peter Cappelli, a professor at the Wharton School, and author of The New Deal at Work (Harvard Business School Press, 1999). "The more interesting question is, Are employers paying more for people than they should?"

Because the game of appeasement is one you'll lose. The sad irony of the appeasement trap is that the companies that fall into it by continually upping the monetary ante succeed in attracting only the people most likely to leave at the first sign of a better deal.


"There's so much opportunity, but I can't find the skilled workers I need."

--Bill Palmer, CEO of cabinetmaker Commercial Casework, in Fremont, Calif.

It's easy to blame the current hiring scramble on the record-breaking bullish economy and the attendant Internet gold rush. But there's a bit more to it than that. What we're witnessing, observers say, is a fundamental shift in the nature of the employment relationship -- at the employers' expense.

According to Allan A. Kennedy, author of The End of Shareholder Value (Perseus, 2000), there have certainly been plenty of times since the Industrial Revolution that employers have had the upper hand. "For centuries employees have been relatively helpless pawns in the job market," he writes. "That formula is changing. ... Finally, the employee gets to call the shots. Employers beware."

What's more, employers have only themselves to blame, at least as far as Wharton's Cappelli is concerned. He says that all that downsizing in the 1980s and 1990s marked the beginnings of the sea change. Corporations violated the notion of a safety net and demolished the concept of employment for life. Enter a sadder-but-wiser, market-driven workforce, who heeded the message that they needed to look out for themselves.

And it's probably not going to get better anytime soon, even if the economy should take a sudden southern turn, because the changes in workers' attitudes are likely to be permanent. Demographers project an even tighter hiring pool for the next few decades. "What can we expect to see in the future?" asks Kennedy. "The simple answer is more and more of what is already visible now, until much of the job market closely resembles the one in Silicon Valley today."

But the future isn't entirely bleak. Employee loyalty isn't dead, says Clancy, it's just been refocused. "Today in the software business you see development teams who sneer at any idea of company loyalty but whose members will get up from a sickbed to improve the product or meet their schedule," he says. Which means that to be successful, companies must focus on giving employees something to be devoted to. "Companies have to take a long-term view about investing in and creating an environment that attracts and keeps employees," says Kennedy. Some of that can be achieved by proffering perks like free lunches and weekly massages, "but the heart of it comes from the attitude employers have towards employees. That means listening to them, paying attention to their needs, treating them as long-term assets."

Peterson, for one, bristles at the notion that senior management should spend so much time making sure employees are happy. "I know it comes with the territory in trying to be a long-term caring company," he says, "but it's taking its toll on the nurturers. It's taking up all our time. Senior-level consultants and principals aren't spending their time doing what they should be doing." But that begs an all-too-important question: What exactly should senior management be doing? What we're looking at is a redefinition of what it means to be a CEO.

That's how Brett Price sees it. Price, CEO of Cheetah Technologies, a systems-integration business in Bradenton, Fla., says he's happy to do whatever it takes to make his company successful. And right now, that means focusing on long-term employee satisfaction. "Do I sometimes wish I could be doing other things? I don't look at it like that," says Price. "This is what I do. It's my job to put an organization in place that makes these people want to stay. The only thing I wish would change is the speed. You have to respond faster today. If something is wrong with the organization, and you don't fix it in a matter of months, they'll leave."


"There's such a demand that [my employees] often just go into business for themselves."

--Bob Schneider, CEO of sunroom maker Patio Enclosure, in Macedonia, Ohio

In response to the increasingly tight labor supply, a lot of companies are significantly redesigning the way they do business. Some are fine-tuning the way they compensate and motivate people. Others are revamping how they educate and communicate with staff. Some are starting from scratch and reinventing their entire corporate cultures.

Sure, but where should you start? How do you transform your company into the employer of choice? What follows is a sampling of transformative responses that growing companies have developed to address employee satisfaction. Bear in mind that none of these strategies stands alone. Rather each rests within a larger framework of building a long-term productive workplace. When it comes to designing a desirable place for people to work, you're not looking for short-term solutions. You're building a culture of retention.

Sharing the wealth
Sure, money isn't everything. And you certainly don't want to throw it around willy-nilly. But it's not as if money's irrelevant. For most companies, paying the industry average is a minimum, along with some combination of incentive pay, profit sharing, a retirement plan, and even stock options where applicable.

Some companies go even further. In the age of the dot-com, even traditional businesses are feeling the need to give employees a piece of the action. About four years ago Bob Schneider, the 57-year-old CEO of Patio Enclosures, a $73-million-plus company based in Macedonia, Ohio, that manufactures and installs sunrooms, started thinking about succession planning. He decided to share ownership with his employees with an employee stock ownership plan. But measures like that go only so far. "There's such a demand for people to do remodeling that they often just go into business for themselves," he says.

Even companies that are in a position to ply people with stock options have recently had to reformulate their compensation strategies, especially when the allure of an impending IPO is replaced by the reality of the post-IPO stock fluctuations. Since Gordon Brooks of Breakaway Solutions, a Boston-based consultancy, took his company public, in October 1999, its stock went from a stock-split high of 85 1/2 to a low of 16 7/8 before it started to recover. "The stock price is so low now compared to what it was, we tell people to look at all the upside," says Brooks. To reassure recruits, Brooks founded Breakaway Capital LLC, a venture fund through which Breakaway invests in its client companies. Half of the return goes to select employees, but only if they stay long enough to see the investment mature. "Clients like the fact that we have some skin in the game, but the real driver was to reap the benefits and share them with employees," says Brooks.

Participation in the fund is not title-dependent but is based on top performance in all job categories: the best performers in each department participate in that first fund, and Brooks plans to start more. He believes the promise of participation is almost as much of a motivator as actually being in the game. "We tell people that just because they're not part of this particular fund doesn't mean they won't get into one three months from now," he says.

Building a productive workplace
A job isn't just about what you do. It's also about whom you do it with and where you do it. And as in-demand employees have grown more discerning about the lifestyles they wish to lead, their employers have needed to reexamine the way they define the workplace.

When ManagedOps.com outgrew its 25,000-square-foot office in Bedford, N.H., CEO Dan Taylor decided to create for his nearly 100 employees their ideal office space. "We're basically an intellectual-capital factory," he says. "So when we lose someone, we lose an asset." Taylor surveyed workers and designed the new building around their wishes. First off, they wanted plenty of light, so the architect placed every work space within 20 feet of a window, with glare-reducing indirect lights instead of fluorescents. The windows actually open, and there are individual climate controls for each office and each work group. Taylor also installed the latest in technology infrastructure. "We have one of the largest Internet bandwidths of any building in the state," he boasts. "Technical folks just love that."

Entrepreneurs typically view geographic expansion from a customer perspective: you go where the work is. But recently, more CEOs have started making strategic decisions based on where their employees want to be. Tom Finegan, CEO of Clarkston Potomac, took a radical step, restructuring his information-technology consulting company into "solution centers" focusing on set geographic areas. That made it easier for consultants to live and work in the same city, reducing travel time. "We had to make a conscious decision not to do other things," says Finegan. "We're redrawing our map of the United States and not focusing on certain areas, because we can't practically do that now."

You might think that anyone would love the chance to move to Florida, but Brett Price of Cheetah Technologies recognizes that the Gulf of Mexico may not be everyone's idea of paradise. Late last year Price was pitching his company to three senior-level technology candidates from Colorado. They were sold on Cheetah but didn't want to leave the mountains. So Price established a satellite office in Denver, making it his center for work in the telecommunications industry. Price thinks the Denver office might help him with future recruits. "If somebody has to move to join us, now they have two options," he says. "And they're both pretty places to live."

Making the most of employee value
Job training has become an essential part of the employment equation. As skilled workers become more scarce, employers must provide more training to promising but raw recruits. Even highly trained workers require opportunities to enhance their skills and their résumés. (Think of it as recompense for their loss of long-term job security.) Of course, employees become more valuable as they become more skilled -- and not just to your company but also to people-poaching competitors.


"We're basically an intellectual-capital factory. When we lose someone, we lose an asset."

--Dan Taylor, CEO of ManagedOps.com, in Bedford, N.H.

That's the double-edged sword of employee training. And that's just what Peterson is counting on. In addition to acquiring the aforementioned dot-com to give his staff fast-track opportunities, Peterson is also changing the way his company thinks about training and skills development, especially when it comes to entry-level workers. "The market has shifted to the point where they just want the exposure," he says. "They don't care about the long-term benefits. They just want all this career experience." Peterson even considered creating a separate growth track for newbies. "It would have been like the armed forces and boot camp," he says. "They wouldn't have earned our loyalty, so we'd be treating them as interchangeable parts. In the end, they'd say, 'Adios,' but we'd all have mutually benefited, and I'd say, 'Godspeed.' I wouldn't have to get caught up in how I just lost another employee." In the end Peterson never implemented the system.

It's not just people in the new-economy jobs that require career-development opportunities. Bob Schneider found he needed more than an ESOP to find the craftsmen he needed for Patio Enclosures. "Construction is booming, but no one wants to go into that type of work anymore," he says. "They can go work in computers and not fight the weather." He estimates the staffing shortage cost his company more than $5 million in revenues in 1998, and the less than fully qualified staff he did have was a significant drag on profitability. "Last year we had record sales, but profits only ranked third because our installation staff was not as qualified and our installation wasn't as efficient," says Schneider.

So he and his staff set up apprenticeship programs for their sunroom installers and manufacturing staff, with pay scales matched to increasingly valuable skills. Employees are given a four-page booklet that lists the graduating criteria and receive a stamp when they've satisfied the requirements for each level. The effect on turnover has been palpable, according to executive vice-president Jerry Fox. "If an employee knows he's two or three jobs away from the next pay level," he says, "why would he want to jump to another place?"

Treating employees like customers
Victims of the appeasement trap often manifest their desperation by becoming company-culture Nazis. Those CEOs figure if they can't swing the big money or the cushy perks, they'd better make their companies fun, Fun, FUN places to be. Adherents appoint "culture czars," establish "fun committees," throw beer blasts and booze cruises, and put on a perpetually happy face to show the world that, dammit, they have a zany, kooky, madcap kind of workplace.


"People with technical-support skills are in great demand, especially at the start-ups that have money to throw around."

--Eric Rabinowitz, IHS Helpdesk Service, New York City

But those forced efforts miss the point. A lot of companies are realizing that finding and keeping good people isn't about stroking the group mentality. It's about discovering the needs and desires of each individual employee and doing your best to fulfill them without giving away the whole company. That requires constant two-way communication from the day new employees walk through the door.

Brett Price decided that if he was going to track and respond to his employees' ever-changing needs, he wanted to put the process into the hands of a professional. But rather than choosing someone with a human-resources background, Price opted for a selling expert. He enlisted Gordon Greenfield, his vice-president of marketing, to take charge of recruiting and retention. "Today you have to understand that these people don't need you," says Price. "That modifies your behavior."

One of the first things Greenfield instituted was a formal annual employee survey, asking the staff to weigh in on various areas pertaining to their work satisfaction. The top finding from the first survey: Cheetah was an unwitting proponent of the Peter Principle, promoting successful staffers to management positions before their time. "When you have employee unrest, you can usually point to a manager who's struggling," says Price. In response, Price and Greenfield launched a new-manager training curriculum, which includes courses at local universities on such subjects as project management and handling conflict. "It's expensive, but when you lay it against recruiting costs, it starts to look really cheap," says Price.

Taking a similarly long-term approach is Eric Rabinowitz of IHS Helpdesk Service, a New York City- based company that provides outsourced help-desk services. In January 1998, when he appeared in Inc. (" How're You Gonna Keep 'Em Down on the Firm?"), Rabinowitz was battling a 300% turnover rate and was just completing a major overhaul of the business, improving employees' career-planning and training opportunities as well as appointing a communications liaison between management and the rest of his staff.

Rabinowitz reports that although turnover did hit a low of 18%, it has now popped back up, to around 45%. "It's pretty disturbing to me," he says. "With all that we've been doing, there's a lot of people out there doing it, too. And people with technical-support skills are in great demand, especially at the start-ups that have money to throw around." So now he is expanding on the employee-liaison concept and making sure there is a companywide push for employee satisfaction. "Each account manager is now responsible not just for their three or four accounts but also for the 30 to 40 employees that go with them," he says.

Where does Rabinowitz draw the line? How far is he willing to go to hang on to people? "I'll do whatever it takes, as long as I'm still making money," he says. "Not listening to people almost put us out of business. We don't have to learn that lesson again. But whatever we do, it has to be within our cost constraints. We can't start giving more away than we're making. I have to think of all the people this company supports, not just employees but their families, too. It doesn't do anyone any good if we go out of business."

Christopher Caggiano is a senior staff writer at Inc.


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Last updated: Sep 1, 2000




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