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Must employers really pay to play?

Authoria CEO Tod Loofbourrow writes that with the U.S. in the middle of a talent crisis, too many companies are being tempted to overpay.

While there is truth to the old adage that "you've gotta pay to play," many companies are building compensation packages in a vacuum, with little, or no connection to actual business goals. In fact, throwing money around--in the form of substantial CEO pay packages and recruitment signing bonuses--is not doing much to improve business success or employee retention.

With executive churn on the upswing, attracting and retaining talent more than ever remains a top corporate priority. Indeed, companies say they are increasingly worried about recurring talent shortages--and for good reason. Less than 25 percent of the businesses Authoria surveyed said they were doing a good job leveraging compensation to attract and retain high quality employees--let alone aligning performance with business objectives.

This nation is in the middle of a talent crisis. The U.S. is estimated to face a 10 million worker shortage in 2010; the 500 largest companies are expected to lose 50 percent of their senior management in five years and the average tenure at one employer for U.S. employees is only three years. An extensive study by research and advisory firm Bersin & Associates last May showed that due to economic growth, demographic shifts (retirement of baby boomers) and new workforce values, organizations are experiencing an unprecedented corporate talent squeeze.

While appropriate and competitive compensation is absolutely critical, it needs to be part of a larger strategy for better evaluating, engaging, growing and retaining talent. Left on its own, compensation may ensure well-paid individual employees. But it doesn't engender loyalty.

In fact, many companies are finding success in presenting and promoting overall rewards packages that demonstrate broader value to the employee. On many corporate employee Web sites, these "total rewards" pages garner the heaviest traffic, even though they don't change often.

Compensation is certainly part of the overall package, but it has been proven over and over again that it is not enough.

Conversations we've had with customers highlight the fact that with recent graduates, short-term money isn't what motivates them. They're looking at a lot of different things, particularly a company philosophy and culture that reflects their lifestyle. In a recent conversation with one of our large financial customers--reflective of what we've heard across our customer base--it was mentioned that the customer spends significant time and energy emphasizing the uniqueness of its corporate culture. It then wraps this culture around a set of compensation attributes, which aren't just related to pay.

This trend is equally as important from a manager's perspective. Another customer, a multinational bottling company, has tightly integrated compensation with performance management and career development. As a result, line managers often remark that people management has become more strategic and much more efficient. They feel more confident in guiding career paths, as well as identifying and retaining those with leadership potential--and the benefits are apparent at all levels of the company.

The best companies to work for as identified annually by Fortune magazine achieve low turnover and motivated workforces by establishing top-down initiatives. Winning programs require creativity and engagement to build loyalty. Successful strategies include employee-driven career development; the flexibility to explore new opportunities within the organization; ongoing training and learning; telecommuting and part-time options that match lifestyles and don't "demotivate" employees by curtailing roles or benefits; alignment among corporate, business unit, manager and employee goals and objectives; and encouragement of personal passions and pursuits such as volunteer work. Setting values--such as integrity, accountability, teamwork and respect--guides behavior, drives decisions and shapes the environment. Creating recognition and awards for all levels within the organization drives enthusiasm and the desire to excel.

Workforces are increasingly complex and borderless. Baby boomer veterans are mixed with Generation X and Yers, all providing value, delivering unique perspectives and requiring different motivators. Companies should ask themselves who drives the corporate value--is it only top management? Do we know who our high potential workers are today and who our future leaders will be tomorrow?

Successful companies are skilled at identifying talent within their globally diverse populations. Forward-thinking organizations such as Hess Corporation know that key roles, such as the engineers in the field, are critical to their success and have developed performance management and employee engagement programs to involve all levels.

Compensation is certainly part of the overall package but it has been proven over and over again that it is not enough. If they want to attract and retain motivated employees, organizations need to invest the time and resources to make talent management their number one priority.