Many times over the past year, I’ve been tempted to write about the issue of paying retention bonuses to executives, especially those who’ve often helped run their organizations (and the economy) into difficulties by making poor, extravagant, or questionable business and ethical decisions.
The network news, radio talk shows, business publications, weekly news magazines, and daily newspapers are full of such stories, often regarding executives in financial services and other firms.
With few exceptions, I’m opposed to such bonuses.
They’re too often another form of compensation without significant or long term benefit to the employer.
And they’re costly in other ways.
Here are 7 reasons not to award executive retention bonuses:
1) Does the executive really intend to leave? Or are such bonuses just becoming “expected?” Plus, it’s easier to keep someone than going through the time and expense of a search.
2) Do other organizations really want them—while paying substantially more to hire them? Remember that if another organization wants them, they’re likely going to have to match their compensation, retention bonus, and increase other forms of compensation, perks, and benefits.
3) Do you really want to retain them given the problems they’ve helped create? Using contrarian thinking for a minute, some people would argue this is exactly why to keep them—that since they got us into difficulty, they must now have the wisdom to get us out of it.
However, in your experience, is this what usually happens—or do such executives typically get their organizations in more difficulty?
4) Even at their level, the current employment market isn’t great. Can they really just walk out the door with “a new employer by the end of the week?”
5) Would fresh outside thinking be beneficial? Think of Ford Motor Company going outside its industry and hiring Alan Mulally from Boeing; it’s not the only reason, but only Ford didn’t ask for government bailout funding among the Big Three.
6) Reduced morale among employees not receiving retention bonuses, but who get the day to day work of the organization done. Retention bonuses given to highly paid executives whose performance isn’t stellar (and often even when it is), creates resentment and feelings of a lack of value among other employees.
Sooner or later, organizations pay for these bonuses in reduced effort, thinking, customer service, and increased employee turnover costs.
7) You’re often buying their loyalty for a short period of time. Retention bonuses are usually a short, not a mid or long term solution; if they want to leave for another employer without as many business problems, is a retention bonus really going to keep them?
Besides, in most cases, there’s usually no requirement that assures they’ll stay for at least a year or more; how much time are most organizations really buying?
As with almost anything, there are exceptions. Here are 4 reasons to pay such bonuses, but as a last choice.
1. The executive has proprietary information that must be protected.
2. They’re essential to retaining one or more vital customers.
3. They’re a “subject matter expert;” have needed skills others don’t; or replacing them would take a very long time and be very costly.
4. Losing them to a competitor would be highly damaging.
Which weighs more? The reasons to pay most executive retention bonuses, or not to pay them?
Instead, implement employee retention strategies across all levels of the organization, and reduce employee turnover costs by paying higher wages and making improvements.
You’ll be ahead.
Author Resource:
Ross Blake, the Employee Retention Manager, trains employers, business owners, and HR professionals how to develop employee retention strategies specifically for their organizations, and save tens and even hundreds of thousands of dollars in employee turnover and recruiting costs. Free Special Report, “How to Stop Losing $5,000 to $50,000 by Keeping Your Valuable Employees Longer,” plus free retention tips, tactics and strategies ezine: http://www.EmployeeRetentionManager.com
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