Comp, Growth and Perks: Keys to Retaining Skilled Workers

Pay always matters, particularly for low-skilled workers. But for the most valuable employees, other incentives play crucial roles.

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The relatively buoyant job market of the past two years has given employees, particularly certain kinds of highly skilled workers, more opportunities to leave their companies for greener pastures. So what can companies do to keep these valuable assets from bolting? The answer: a combination of pay, opportunities for personal growth and benefits such as free food and child care, experts say.

For those at the low end of the skill spectrum, wages are the key issue, they say. “These people are living paycheck to paycheck,” says Paul Oyer, an economics professor at Stanford University’s Graduate School of Business. “The other stuff isn’t as important. They aren’t expecting amenities.”

In fact, it’s no surprise that companies like Wal-Mart Stores and McDonald’s have boosted their minimum wage in recent months. To be sure, political and social pressures have played as much a role in driving the increases as has a desire to retain workers. “Worker turnover is costly for any company, but it’s cheaper with workers at the low end,” Oyer says. “It costs to find new people, but those departing aren’t taking valuable skills. It’s unfortunate, but true, that lower-level employees are treated like close to a commodity.”

At the high end, it’s a totally different story, especially in the technology sector. “When it comes to anyone who can write an algorithm, such people are difficult to find,” says Anat Lechner, professor of management and organizations at New York University’s Leonard Stern School of Business. “A war for that talent is in place and growing. These people are the new lords and can have whatever they want in salaries and benefits.”

So how does the pay issue play out in high tech? It certainly does matter, and compensation has exploded, particularly for engineers, experts say. Google started the trend, says Alex Rampell, who has founded several tech companies and is now a general partner at venture capital firm Andreessen Horowitz in Menlo Park, California. “Google said if engineers can do 20 times more work than average, we’ll pay them 20 times more,” Rampell says. “Now rank-and-file engineers there can make millions” annually. And the practice has quickly spread to Facebook.

Some might argue such compensation is excessive. “But it’s also revenge of the nerds, and I would argue it’s appropriate, as these workers are driving value,” Rampell says. Without that kind of pay, “what’s the incentive for the person to stay, rather than start their own company or go to a hedge fund for more money?”


Lofty compensation acts as golden handcuffs, keeping engineers at Google (which recently changed its corporate name to Alphabet) and Facebook from fleeing to start-ups. “If you have a guaranteed paycheck that’s very high, why take a lottery ticket, when the ticket pays off just once every ten years?” Rampell asks. In addition, he notes, “sometimes people build their lifestyle around their current compensation.” If you buy a second house and a Tesla, you’re less likely to jump ship from Google or Facebook for a start-up, he adds. Of course, stratospheric wages can backfire: Engineers may accumulate enough money that they can handle the risk of going to a start-up.

But there’s more to it than money alone. Randy Rayess, co-founder of New York–based VenturePact, which provides software development teams, says that if a potential hire just wants to maximize salary, that’s not a good fit. “There is always a start-up that can pay them more — or Google or Facebook,” he says. “We want to pay them fairly, more than average, but we want to incentivize them and give them opportunity to grow.”

He says it’s a matter of finding out employees’ goals and helping them reach them. “Do you want to lead a team? Do you want to work with a senior mentor? You tailor their experiences to what will excite them,” Rayess says. He notes that many tech companies are afraid to have those conversations with employees for fear that they will raise expectations and induce some workers to leave.

In terms of perks, everything from child care and paternity leave to free food and foosball tables can make a difference in retaining employees, experts say. But some perks are more important than others. “Companies need to know why people want to be here, so they can provide that and remove things that don’t help return,” says Chason Hecht, president of Retensa, an employee-retention consulting firm in New York. “They need to measure the impact of things like child care.”

Rayess is skeptical about the value of some benefits. “The fact that you get a free massage or a great chef is icing on the cake, but the right people think beyond that for their career,” he says. “‘Is this the No. 10 or 11 chef?’ doesn’t matter so much.”

Whereas Google argues that giving employees food saves them time and enhances collaboration, “I don’t think start-ups under 500 people have to do that,” Rayess says. “People care about the company’s growth and their growth. Everything else is marginal.”