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.

 

[LittleInch]

It's not easy for sure.

First off, do you have a clear idea / leaving process where you identify from those who have left why they are leaving, what could be in place to keep them or things they think the company could do to retain staff?

Most people are usually quite open and if you can ignore the odd personal issues, you can build a bit of a picture. I know the companies I have left all did this in a semi formal "chat" with someone not in line management using a check list approach.

For smaller companies training people up is the way to make money during that process, but the lure of bigger and better opportunities which you just can't match is the key issue. Has your company become to be seen as a great starting position, but then you don't have the work or places or projects to keep people happy for 10,15 or 20 years?

Carrots though always work better than sticks IMHO. So "golden chains" of future bonuses, share vestments / stock options can be used for sure, but penalties might just get paid by the company hiring your people as a one off cost to them. Not many would pay future bonuses or stock options.

But then people still just weigh up future gold for gold today or career advancement.

Anything more than 3-4 years normally doesn't work in terms of retention and then you just risk that as soon as they get their delayed graduation bonus then they leave. You're no further forward really.

Is there no one you can poach from other companies? circulation of people and ideas, so long as it doesn't exceed 5- 6% or up to 10% a year is usually good to keep new ideas and ways of doing business alive.

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[EngrPaper]

For companies that pay for college time (or other serious training), I've usually seen some sort of payment plan set up - similar to a relocation payback plan if you leave the company within X years of having been relocated. I've usually seen it something along the 4-5 year mark. Every year that you stay, the proportional threat of payment goes down. So for a $50,000 degree with payback threat over 5 years, if you leave after 2 years, you have to pay back $30,000. Something like that.

 

[JedClampett]

We have a policy that if an employee resigns before 12 months after the course is completed, they must pay back the reimbursement in full. It makes perfect sense. We're paying to improve an employee's skills (for our and their benefit), not to make them more marketable somewhere else. I've heard it applied once, and it really pissed off the guy that had to pay back the tuition. But he went to a competitor, and we weren't that happy with him either.
We have a similar policy for moving expenses.
It's a tough world out there.

 

[CWB1]

IME in both private-sector and govt stateside, employees receiving tuition assistance for advanced degrees usually have to sign agreeing to stay three years after completing their degree. Purportedly they'd be responsible for paying some of it back if they leave early, but I dont recall any ever doing so. A few were released from the obligation early tho due to layoffs. In monetary terms this is usually for $10k USD/year with a $50k total limit. Worth noting is that many employees won't see the commitment as worthwhile vs job-hopping for $10k/year more and paying out of pocket with no commitment.

I would strongly caution against trying to impose a similar obligation for weeks-long training/cert programs. Employees expect employers to fund continuing education and consider it part of a good culture. I wouldn't doubt that the cost of annual training throughout my career has consistently been over $10k, 2-3 weeks of salary is most of that before paying the cost of attendance.

I would also strongly advise against having any informal expectations, nvm formal ties between education benefits and job role changes/promotions. Stateside that would cause labor law issues, and IMHO isnt realistic. The odds of your tradesmen completing a degree, being successful as an engineer, AND enjoying it are pretty slim. The odds of their failure creating a rift between themselves/others and management OTOH is significant.

Genuinely not trying to sound insulting but iME smaller companies have to rely on a "lazy" culture for retention. They generally cant compete on salary, benefits, training, or career-growth opportunities, so need to find employees unmotivated by money and who dont want to learn new systems, new people, new process, etc at a new employer, just do the same 8-430 for decades then retire.

 

[RVAmeche]

I would take an honest look at your company. Is the culture bad? Or people being worked too much to meet deadlines or schedules? Are there micro-managers that result in people leaving? Outside of the training are you paying well and giving good raises outside of promotions?

The time of working somewhere for 20 years is definitely over thanks to both sides of the equation. If you pay well and have a good culture, people generally stay. Outside of owing back a signing bonus or something, personally I would not sign with a company that needs me to sign something saying I'll stay. That's a massive red flag that people are leaving for some reason and they're resorting to a contract to tie people down instead of fixing it.

 

[Sparweb]

Thank you for these perspectives.

The current company culture is in flux. In my personal opinion, too slow to face reality. The signals I'm picking up are real changes but for several people, too little too late. I'd also say that the departure of some was necessary for the "wake-up call". But let's take as read that even a perfect company culture wouldn't be enough to address the strong competition between local players for a small pool of talent.

CWB,
I'm not insulted at all, but we certainly have different perspectives. I've worked in small business and in corporations. I struggle frequently with the politics in any large organization, and IME it is easier to hide a lack of motivation in a crowd. Quite the opposite of what you report.

Brief training programs aren't in the scope of my question. They can be costly for sure, but they usually have more direct applications, too, so for both parties the payoff is quicker. What I'm asking about are year-long programs or multi-year commitments like completing a degree. Thank you for your thoughts in that regard, CWB. I hadn't put into words, yet, my own misgivings about either party being able to fulfill the commitment. The hardest burden is on the candidate student, who of course has to actually pass the course. How do you figure out, in advance, if any given candidate is actually going to be a good student? Give them a math test???

LittleInch,
The coin you termed "golden chain" seems apt and I may use it. I actually don't mind (much) if the employee uses the contract termination cost as just another cost of doing business if they do leave. If my company can recoup some of the cost of the training, it softens the blow, somewhat. We know we are taking a risk. In the meantime (the years where employee X is studying) we can demonstrate to the other members of the department that we will invest in them, too, when their time comes. So there could be the loyalty of the others to consider (maybe small in the opinion of some).

Poaching? Yes we have done that. But only once, due to the variety of projects we do compared to another firm. There are two typical entries to my company's engineering department: our own shop floor or university graduates <5 years work experience. Hence the retraining. I (and the fellow we poached) are the rare exceptions. To fill the senior roles we are relying more and more on contractors.

 

[GregLocock]

I've seen the 3 year proportionate payback thing, but to be honest two of my jumps were for 40-50% (and neither were for the money as such, I did not go for a counter offer) so a few months as a penalty is neither here nor there really. To put it another way if you are offered a job that sounds better with higher pay would a penalty of a few months pay put you off?

Hmm, what's the tax situation? The business has claimed it as an expense, so it seems unlikely that the employee would have to reimburse the total original cost, or perhaps the business would pay tax on the reimbursement. And can the employee claim it as an expense? This is why I pay someone to do my taxes!

Cheers

Greg Locock


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[LittleInch]

Sparweb,

Interesting information. The phrase I used came from an engineer in the ME who constantly moaned and bitched about life there, but when presented with the option that a plane left every day, would hold up his arms in a cross and say "Golden Chains.....". He had lost a load of money on some investment or similar and needed to rebuild his finances with no tax pay. So to me that's not really a positive....

Is your industry suffering one of those bath tub moments of having a higher set of older experienced guys 50 or 55+ and a loads of promising 20 yr olds, but not enough in between?

Petrochem certainly has this or had a few years ago and those in the middle were highly sought.

Maybe the emphasis in the company needs to be be realistic and see itself as a training ground where they can use people for 3-5 yrs before they bugger off somewhere else. If people are in demand then they need to see interesting and varied work and a pathway to promotion or higher salaries or both. If the company is stagnant or shrinking, this is a hard task. Only if there is some growth or movement of senior engineers out of the company to create space will that pathway seem open.

Most people would be reluctant to move for <10% increase so you don't need to be the top payers, just close enough.

Is there a bonus scheme / stock option scheme? If not why not?

Mind you a few years ago (couple of decades actually! time flies) the company I was with had a very successful project with a large bonus pot signalled for about two years before it arrived. Just after the end of the year when it was finally paid, there were quite large number of resignations as people had clung on waiting for it - it was about 20%. So not always good.

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[IRstuff]

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?

> Retention bonus is, or was, pretty common; almost ditched one such bonus because VP of engineering pissed me off so much ;-)
> Vesting period of stock options or retirement savings matches are also often used; never had any stock options, but have had vesting periods for company matches.

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[Sparweb]

IRstuff-
Retirement savings matches. That's an interesting one that I would not have thought of. We already get that but the ratio doesn't have to be 1:1.
Stock options are not an option. Company too small to have publicly-traded shares.
Bonuses haven't happened in the past 5 years. Salaries do increase yearly, ahead of inflation.

LittleInch-
Yes, the demographic makeup of our eng. department looks like a bathtub now. The company as a whole is better mixed. The industry overall looks a bit like a bathtub too. The depressed middle that I'm experiencing is a "brain drain" from aviation (and other local industries) to the petrochemical industry.

Note for clarity, sometimes your questions ask about the company as a whole, which has ~150 people, and other times I'm answering questions about the engineering department, which has less than a dozen people. It shouldn't be a surprise that the average workers in this company, mostly tradespeople, have different salaries and different working environments than the engineering professionals. You can tsk tsk all you want, but I'll just be honest and admit that I know much much more about the engineering department than I know about the operation of the others.

 

[IRstuff]

Our matches are, or were (since I'm retired), 75% of employee contributions up to maximum of 6% of employee salary, but I've heard of other ratios. So, if you're over 8%, up to maxing out, 401K contributions, you get an additional 6%, which is nothing to sneeze at.

My 2nd job had company matches that vested after 6 months.

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[Enhineyero]

I have my own personal experience of this and would NOT advise using such an instrument. Money is not the only main reason people stay on a company, particularly in professional jobs as we earn a decent amount of money (or so I'd like to think). If people arent happy they are going to leave with or without a bond.

We all care for our co-workers, however, using this bond mechanism will ultimately give a vibe that working in your company is purely business (i.e. we dont care about you we only care about profits) and people will not feel great about it. This will not help in retention.

If you want retention, figure out why people are leaving. In 99% of the time its culture or people who are massively underpaid finding out the truth.

 

[dik]

Can you create an environment where they would want to stay?

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[IRstuff]

Can you create an environment where they would want to stay?

You'd have to know what to change, which requires you to do some research. Ostensibly, that's what exit interviews should be able to extract.

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[BrianPetersen]

Discussion at a now-long-previous employer, of the boss/owner doing stuff to try to get people to stay, is one of the factors that got me to leave. Just sayin' ...

 

[IRstuff]

Discussion at a now-long-previous employer, of the boss/owner doing stuff to try to get people to stay, is one of the factors that got me to leave. Just sayin' ...

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.?

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[geotechguy1]

Bonds for large sums like relocation allowances or support for a university degree are normal where I am, usually something like 2 years for relocation with a pro-rata decrease per month or year, and for university degrees usually 1 year per 10k or something so if you get 20k of fees + 10k of company support for training time you would get a 3 year period. Personally I'm suspicious of these arrangements because people I know who have taken them have suddenly had 3 years of 1% raises even in hot markets.

For normal training though at least in the country I work people would be pretty offput by a bond - it's expected that you get about 40 hrs / yr minimum for a training code plus say 2-3 courses at around 1k/each as part of normal employment.

 

[CWB1]

How do you figure out, in advance, if any given candidate is actually going to be a good student?

If you figure out a good method please let us know. My previous employers collected transcripts and would not continue paying tuition assistance if classes were failed, but also didnt require repaying past TA. That's a weak emphasis on passing IMO.

 

[IRstuff]

How do you figure out, in advance, if any given candidate is actually going to be a good student? Give them a math test???

That's kind of the way college entrance worked, until recently; SAT/ACT, AP tests, Achievement tests, and yes, even entrance exams, at least, there was a series of them for getting into the school I went to, but that was 48 years ago. Nevertheless, while past performance is not a solid predictor of future performance; it does say that the student was, at some point in time, a diligent student.


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