Using a Bond or Contract to Ensure Employee Retention 8

[Sparweb]

My engineering department has suffered from employees who leave after they benefit from extensive training, promotions based on merit, and financial support from us, to the tune of 10k per year in some cases. We have started talking about ways to improve our retention when we invest considerable resources in our employees. Having confidence that we will benefit would make it easier for our executives to raise our training budget.

Future growth of our engineering department's technical staff is probably going to require sending several people to college/university for additional training. We already have one member taking a Master of Aero Eng partly funded by us, to bolster his ME undergraduate degree. It's even harder to find EE's that know anything about aircraft systems, so we are about to try starting at the shop floor and educating candidates up to an EE. Due to the long-term commitment, we are considering using a bond or contract between the company and each candidate. The candidate completes a degree or advanced degree in aerospace largely funded by us. We benefit from subsequent years of their contribution to the work we do. We are aiming for a win-win.

The bond ensures that, if they leave our company within X years of completing the degree, they will face a penalty. The exact mechanism of the penalty is uncertain as we're still sorting it out, but the idea being considered is a bonus that can only be received at least X years after completing the degree. The inverse, where the candidate would pay us a penalty fee if they leave, is simpler. But it probably won't work and seems like it would just leave everyone angry.

Has any one used this kind of bond as an employee retention tool? How did it work? Did it succeed or fail? Who was happy and unhappy?

Before everyone jumps on the obvious. Yes, increasing salaries always improves retention. We know that. It's a factor, but it's not good enough. We're the little guy being eaten by a growing giant. They don't compete for our work, but they do compete for our employees. We need alternatives within our reach to keep the ones we have.

 

[BrianPetersen]

Still, the "why" is relevant; was the owner clueless, just doing it for show, you were bored, you were not being listened to, the writing was on the wall, etc.?

It is indeed relevant, but I will have to say that employment elsewhere afterward, which lasted until my recent retirement, gave much better work/life balance, and leave it at that.

 

[LittleInch]

Going back to the star point and now understanding that you're a team of <12 changes things a bit.

SO I would consider having a good conversation with the guys you're taking off the shop floor and getting degree educated something along the lines of;

We are willing to fund / help you in some way (unspecified so far) get to be an EE. That's a big investment for the company so we would like to recoup some of that money if you then leave within 3 years ( or whatever) after qualifying. But then we would add a bonus of XX payable after 5 years ( basically so it stops you having to pay that one again for someone else)

Anything which ties someone to a company for > 5years, whether repayable bond or guaranteed bonus is unrealistic in this day and age.

You can't and shouldn't stop people moving around - it's good for everyone to get different ideas inserted, but quality of life and interesting and varied work are often what keeps people in one place, at least for me. When I got to design the same thing the third and fourth time in a row, that's when I got itchy feet.

Remember - More details = better answers
Also: If you get a response it's polite to respond to it.

 

[CWB1]

Every change will have folks who agree with it and others who disagree, including the addition of employee benefit programs. That's not a knock against anybody, just a simple fact of life.

College admissions have been a joke for at least the 25 years since I first applied. Disillusionment with that system was actually a major reason I chose to enlist instead. Even back then "top" schools openly discriminated to meet diversity quotas as was readily apparent among my HS classmates. Schools also gave no consideration to the age when students had taken the SATs, AP students took them in 7th grade and were penalized for either taking them twice or simply had their 7th grade score compared to 11-12th graders. A few years later post-enlistment the system was even worse. My alma mater had the school shrink (who didnt identify herself as such) grill every veteran in a faux-interview in case we were a danger to others. When the wife went to college later yet, a "top" midwestern engineering school didnt require SATs/other exams or interviews, just an application and HS transcripts.

 

[NorthCivil]

I had a buddy in engineering school who was there on a deal like that.

He was from a very, very remote area (think end of the earth), with big mining operations. He worked at the mine for a few years and became a favorite of a certain big wig.

They set him up with a package to do an engineering degree, from scratch. Paid for him to relocate to the relatively big city 1000's of kms away, paid his tuition and all study costs. paid a stipend so he and his family (3 kids) could house themselves and survive. (the numbers weren't so crazy 15 years ago like today).

his deal was, he had to come back, work summers during the school off season, and give them 5 years of work after graduation.

during his final year, the company this was arranged through got sold, started a huge staff cutting, saw his deal and tried to axe him. but a deal was a deal. so they paid until he was finished, and withdrew his job offer after graduation. he won the jackpot.

 

[Sparweb]

Thanks again everyone for contributing their stories and experiences. If the discussions of this stuff progress anywhere beyond the spit-balling of ideas, it will be handy to know how others have dealt with it and what could go wrong.

 

[SWComposites]

https://www.nytimes.com/2023/11/20/magazine/stay-pay-employer-contract.html

 

[TheFeds]

I was going to bring up the idea that conditioning the receipt of job training upon a long-term employment contract (i.e. no longer at-will) makes for a significant two-way commitment that can trap either party, but it looks like NorthCivil has actually seen it in action!

Also, in jurisdictions following the common law, contracts can only recoup losses; they cannot impose an arbitrary penalty. So the idea of a penalty fee for an employee choosing to leave is basically going to depend on whether the fee meets your jurisdiction's standard for proof of loss. For a knowledge worker whose value to the company ostensibly increases upon returning to work with the new degree, the company immediately recoups the benefit of having paid tuition (but for having paid tuition, they would not have a worker with this degree), and thus has weak grounds to claim tuition as a tangible loss.

The details of how a bond would be structured also seem unappealing. Either there would be some surety (third party) that charges a premium to guarantee the penal sum (and the premium is based on the employee's ability to pay, which seems awkward to bring up with the employee), or else the bond would just be between the two parties and you'd have to expect to sue the employee to enforce the obligation. Withholding wages for work already done isn't a legal alternative. I don't know if relying upon the subtleties of bond law make the situation any better than if it was just a contract suit, but I'm not optimistic about the prospects of litigation. Maybe your legal counsel will advise differently.

The idea of a bonus in x years is feasible, but I imagine it would have to be pretty large to be attractive. You ought to expect it to compensate the employee for the time value of the deferral (especially unattractive in times of high inflation), and more importantly, for the risk that they will have to pass on a better opportunity while under contract to you, or the risk that the company will become insolvent or otherwise default on the future obligation. This seems like it might end up being a 6-figure expense after more than a couple years, and you'll have to consider how that would work for budgetary and cashflow purposes.

 

[Sparweb]

Thanks Feds! That's a lot to think about.