In a free market employees' 'value' is determined by their capabilities. But if you are increasing your salaries to keep talent you are focusing on price, not value. Instead, make talent marketable
Almost everyone in the word of business is afraid of becoming irrelevant, of becoming outdated. Almost everyone is striving to stay ‘in demand’. Everyone wants to be wanted.
This should not be surprising. In a free market of labour, your ‘value’, like it or not, is determined by your capabilities. If your capabilities are no longer in demand, your ‘value’ falls.
Does your company build ‘in demand’ capabilities for your employees?
If the answer is yes, then the retention rate of your talent should be high.
How does this happen?
You could ask: “If my company builds capabilities that are in demand in the market, should that not mean that my ‘in demand’ talent will be lured away?”
This is where the paradox comes into play. If your company is building talent that is in demand, it means that the market, which is demanding your talent, is not building those capabilities. At least, not at the same rate as you are. That is why your company’s talent is in demand.
In such an environment, the dilemma for your employee is either to cash the value that has been created in your company by going to another company and now risk being in a company that does not create ‘in demand’ capabilities, or continue in your company which is outperforming the market in creating ‘in demand’ capabilities.
As an example, in the chart below, in your company, at organisation level 2, the employee has the same capability level that is at organisation level 3 in a competitor company. In this situation, your employee could leave you and join the competitor at a higher level. However, as soon as that happens, the employee is now at a slower rate of value creation. It is a difficult choice for the employee.
This is the same dilemma that is faced by professional sportspeople. A soccer player may often be on the bench of a club in the Premier League. The same player could be a central player in a second division club. Yet, he often chooses to be on the bench of the Premier League club because, if he moved, in the same way as the employee of your company, his capability creation will now be at a lower rate.
Paradoxically, therefore, a great retention environment is one where the employee is perpetually on the horns of a dilemma. An employee always has great market value in a great company. That makes the employee attractive to the market. However, in the act of cashing this value lies the risk of lower market value going forward.
Smart employees value how much they are learning with the same seriousness as they value how much they are earning.
If you miss this point, you could be increasing your salaries to keep talent. You are then focusing on price, not value. To keep talent, increase its market value.
To keep talent, make it marketable.
Smart employees value how much they are learning with the same seriousness as they value how much they are earning