Recently, we had the pleasure of presenting to a group of MBA students from The Chinese University of Hong Kong and the University of Hong Kong. Our Group Marketing Director, Luis Rolim, advised on how professionals can navigate a difficult job market, as well as improve their personal branding. Interestingly, in both sessions, the same question was asked by a member of the audience – a question about loyalty.
“Loyalty hurts you in the long run,” one student commented. “When you are part of the same company for years, each promotion has salary increase caps and ultimately you can reach a point where you are perhaps 40-50% lower than the average market value.”
In this scenario, the student asked, what advice would Selby Jennings give? Should someone stay with their company and hope their value is rewarded? Or are they better off seeking a new job with another company?
This made us think, what really is the cost of loyalty? When it comes to employment decisions, should employers and employees alike reexamine the wisdom they have taken as truth?
The Salary Choker
Picture this scenario. A leading financial services company are looking for a new senior business analyst. Industry standards set this salary range at US$85-95k. When considering external candidates, they are likely to offer the lowest range and anticipate some negotiations. Now, imagine this firm already has an excellent employee in a business analyst role who applies to be promoted into the role.
The snag? The firm caps promotions at a 15% salary increase. This employee makes US$60k currently and, so, they are offered a new salary of US$69k.
The MBA student was right. An external candidate in the same position would enjoy more than a 40-50% salary increase. For an internal candidate, it would take several promotions for an existing employee to reach the same market value.
While this is a great incentive for the financial services firm to promote internal talent – they will have saved between US$16-26k by internally promoting – for the loyal employee, this is not a good deal.
Salary increase caps are often undocumented but par the course. This lack of transparency can further mistrust between employees and employers. Frequently, internal hires only discover the salary cap once the promotion is offered – or they are given another excuse for the unexpectedly low salary compared to the market rate.
HR managers will say the company does not have the budget to accommodate a higher salary. Instead, however, they will dangle its deliverance as the proverbial carrot; when things improve for the company, the salary will be revisited. That day rarely comes.
The MBA student will be familiar with this situation. They will have worked hard and been promoted time and time again holding out for a salary increase that finally matches up with the market rate. Salary increase caps are bad for morale and bad for the firm in the long term if employees must look elsewhere to be paid their market value.
Of course, every employer, including those working in banking and financial services, needs to control salary growth, but those who take such a rigid approach will lose top performers in the process. Yes, compensation is not everything. Employers can find other ways to reward loyalty, such as offering additional paid holiday or sick days based on years of service. Ultimately, however, they need to evaluate how closely pay is tied to the market.
The Unexpected Cost of Loyalty
For employers, retention is key. That is what we hear all the time anyway and what keeps many a manager up at night – where are my people heading?
In many ways, this is true. The cost of screening, interviewing and hiring can be astronomical. For executives earning high salaries, the cost of replacement has found to be 213%. One study found that someone who earns $150,000 would cost $319,500 to replace on average.
We rarely hear the flip side – the cost of retention or, in other words, the cost of loyalty. Those accrued benefits (additional holiday or sick days) can be more costly than an increased salary. Meanwhile, employers who value – or at least want to communicate that they value – loyalty can be stuck with underperforming employees.
In different companies and institutions, most of us will have encountered a member of the ‘old guard’ – a long-serving employee who is a part of the company furniture.
In an era where most workers move jobs every two or three years, most HR professionals will tell you that employees who stay put for a decade or more should be rewarded – even revered – for their loyalty.
While the length of service should be acknowledged, it should not necessarily be rewarded in and of itself.
Doing so can create a culture of complacency – that turning up and putting in the hours every day is enough. New blood is also valued for a reason – new hires are eager and hungry to prove themselves and often bring a wealth of new ideas.
For employers who are keen to be seen to reward loyalty, long-serving but underperforming employees often seem immovable – and that presents a problem.
Aside from the issue of pay, how can companies create a culture that rewards loyalty, while also keeping employees motivated, productive, and innovative?
The Revolving Door of Talent
Companies should treat employees like customers. Customers do not always buy the same brand or product, or even visit the same store; their preferences adapt to changing needs, wants or situations. Yet, if they liked what was originally on offer, and the company showed that they valued their business, the customer is likely to return or, at the very least, refer them to a friend.
Many business giants know this, and they encourage relationships with ex-employees as part of their talent strategy. These groups have a name – corporate alumni network. Deloitte calls them ‘colleagues for life’. Others use terms like ‘boomerang employees’ or ‘comeback colleagues’.
More and more professionals are turning through this revolving door. In 2018, LinkedIn found the US national rate of workplace boomerangs hit 3% - and this figure rose to double figures for some organizations.
Employers who share this flexible view of their workforce nurture different kinds of loyalty. Their employees are empowered to pursue new opportunities and their market value without fear of burning bridges. In return, they are more likely to become strong brand advocates who can help with business-related goals, such as lead generation, or HR-related goals by increasing referrals or rehires. These boomerang employees are also likely to return with enhances skills and experience.
The increasing trend of financial services professionals moving every few years also benefits previous employers. More than 20% of professionals change jobs every year. This volatility creates a revolving door or talent and the opportunity to re-recruit in a short space of time.
Rethinking the Value of Loyalty
There is obviously something wrong with the way we think about the relationship between employment and loyalty. In firms with salary increase caps, employees are penalized for staying put. Meanwhile, employers who fear losing their best and brightest are often stuck with underperforming employees when advocating loyalty above all else.
If banks or financial services firms cannot reassess their salaries based on market value, they must find more creative ways to motivate or retain their top performers. That may fall to rethinking what loyalty can look like all together – by encouraging a life-long relationship with any professional who has at one time or another walked in their door and been part of their story.
Whatever the case, the rise of job-hopping is likely to endure as professionals seek better career opportunities and higher salaries. Banks and financial services firms will have to adapt if they hope to hold on to them for any longer.
To the MBA student who asked if they should stay with their current firm and hope their loyalty is eventually rewarded, we say only time will tell – but they must choose if they are willing to wait indefinitely.
Quickest Way to Understand the Market Rate
Salary is always a sensitive topic that you are not able to easily ask anyone. That doesn't just limit to individual employees - Hiring managers and HR managers also struggle to understand sometimes if they have a good enough package compare to their competitors. Specialist recruiters talk to companies and employees every day about their hiring budget and expected salary. Our consultants can give you a fair and accurate market value. If you decide to pursue a new career opportunity or hiring for the next business-critical talent. We can help secure a higher salary and make sure your offer is competitive enough to get you this right hire. Get in touch.