Smart Money:
How to Build a High-performance Company
by Spending on Staff
By Mark W. Sheffert
June 1999
During our years of consulting in a wide variety of industries, we have been
continuously amazed by the gap between what a company’s mission or value
statements say and what their executives do.
Many companies, for instance, have mission or value statements proclaiming
employees as the company’s most valuable asset or resource. But a cursory examination
of what they have invested in communications, training, benefits, or work environment
shows that it is just a bunch of horse pucky (as we say in the Midwest).
What a manager does speaks louder to employees than what a manager says, and
your management team should talk the same talk. The CEO might say that employees
are the company’s greatest asset, but the CFO is complaining that most of the company’s
overhead is walking around on two feet.
High-performing companies invest in winning environments that emphasize
communications, training, benefits, competitive compensation packages (including
non-compensatory rewards), and pleasant facilities. This is particularly important in
our changing society. As the country moved from an industrial-based economy to an
information / technology and service society, we are less reliable on machines and more
reliable on intellectual assets (people).
To achieve the high performance of companies such as Motorola or Hewlett-
Packard, follow their lead by making substantial investments in employee training and
development. Successful companies have recognized that providing employees with
opportunities to learn pays off for both the company and the employees. Employees get
an opportunity to learn, and you get better skilled employees who can improve quality
and productivity, know how to do their jobs better, and appreciate the investment you’ve
made in them and their future. Why is it that companies will spend thousands on
machinery and computer maintenance contracts, but little or nothing on maintaining
their intellectual assets?
Training has a positive impact on employee loyalty too. For example, an
acquaintance of mine is going through an executive training program on his own nickel
because his company won’t pay for it. Rather than becoming a greater resource for his
company, his attitude now is that it will make him a more attractive candidate as he
begins a new job search.
As my example illustrates, loyalty cuts two ways. Executives may think
employees are portable or replaceable, and employees may think they can be laid off
without warning. But employees who feel their employers care about them and their
future are more likely to stay around and put forth extra effort when it’s needed.
How much should you spend on training? The National Association of
Manufacturers in Washington, D.C., recommends that companies spend 3 percent of
payroll on training, and the American Society for Training and Development (ASTD) in
Alexandria, Virginia says that companies spending 3 percent or more of payroll on
training achieve exemplary financial results.
Whatever the amount, what’s most important is making sure that the money you
are spending on training is designed to foster your company’s growth. First, identify the
core skills that your employees currently have and the core skills they must have to work
at your company today. To determine the skills that you’ll need in the future, step back
and take a big strategic breath. Re-visit your strategic priorities and business goals.
Where do you see your company in three years, and what skills will you need to
take you there? Match those skills with your employees’ current skill sets to identify
gaps. This will identify the areas where you need to invest in training today. Companies
that excel are those that hire and train employees today for the skills they will need in
the next three years.
Another significant area to invest in is benefits. If you are not providing benefits,
you aren’t positioning your company as a place where people want to work. In fact,
benefits are so expected that they aren’t considered a motivator, but rather, the absence
of benefits is considered to be a major reason for employee dissatisfaction. Medical
insurance in particular is a must for attracting quality workers. For example, Starbucks
Coffee Company provides part-time employees with insurance, which has helped them
cut turnover to less than 50 percent in an industry where turnover typically is more than
100 percent annually.
Paid time-off (PTO) days like vacation and sick days are also musts. One current
trend is to put all PTO days into a single "pot" where employees get 15 days off, for
example, to use at their discretion for vacations, illness, personal business and so on.
Other benefits like life and disability insurance and retirement plans can help make your
environment more attractive.
On average, companies spend 25-30 percent of their employees’ salaries on
benefits packages … this amount, misspent, can be a tragedy! No-cost or low-cost
benefits are available such as flextime, job sharing, telecommuting options, and holiday
parties, which all can add to creating a high-performing work environment. Whatever
you decide to do, first survey your employees about what they value, and then give them
as much of what they want (or need) as makes sense.
Payroll represents yet another investment opportunity. If your company’s
compensation isn’t competitive, you won’t keep good people. It’s a fine line, because top
employees are motivated by many things, and money is just one of them. But if they are
adequately compensated, the chance of earning a few more dollars a week somewhere
else won’t lure them away if they feel their present job is personally enriching and
challenging. Designing interesting jobs is much more effective for retaining good
employees than is simply designing the most lucrative pay plans.
Investing in a pleasant work facility has rewards as well, and it doesn’t have
to be a tremendous investment. Take a look around --- is your facility set up in a way
that encourages teamwork and communication, or does it create divisions? Is it a
comfortable, inviting place where people can look forward to spending their work
hours? Inexpensive ideas are plants, artwork, clean carpets, good lighting, adequate
meeting space and break / lunch spaces, and a pleasant reception area.
Last, but most important, is that you invest in the time to communicate your
company’s goals and objectives to employees, and then recognize them for a job well
done. Catch people in the act of doing things right! Create a reward system that
recognizes employees for innovation, extra effort, the most sales, or whatever is
appropriate for your company.
If you invest in your people and make your mission or value statements more
than just words, they will truly become your most valuable assets and a source of
competitive advantage. However, if you don’t, they will, in fact, be just "overhead
walking around on two feet".
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