Lack of career opportunities is the No. 1 reason employees say they leave an organization, a change from five years ago, when pay was the leading reason people quit.
As competition for talent heats up, companies are prioritizing employees’ career development as a low-cost way to keep them around.
By paying for classes, mapping paths to target positions and even hiring internal career coaches to sharpen resumes, employers are grooming workers to be better job candidates for more positions at a time when the vertical career ladder has been knocked away.
That can sound like priming employees to be poached by a competitor, but some research suggests the opposite is true.
“They actually become more loyal,” said Brian Kropp, human resources practice leader at business advisory firm CEB.
Lack of career opportunities is the No. 1 reason employees say they leave an organization, a change from five years ago, when pay was the leading reason people quit, Kropp said.
Career development tops the list of perks employers say they plan to increase this year, according to a new survey from Korn Ferry Hay Group that examined forms of compensation beyond base salary, benefits and bonuses.
Asked which alternative rewards they planned to increase in the next 12 months, two-thirds of the 242 employers polled named career development or training programs for managers and professionals or clerical, technical and skilled trades. Spot cash bonus programs were the next most popular, with just under half of respondents saying they planned to increase their use.
Tom McMullen, rewards practice leader at Hay Group, said he was surprised that career development was tops even for executives, at 57 percent, suggesting they are concerned about remaining relevant at a time of rapid change.
“I think there’s a healthy dose of security concerns for folks,” McMullen said. “If I feel that I’m not being competitive with peers, if I’m stagnating, I’m at risk.”
Alternative forms of compensation grew during the recession when money was tight, raises faltered and some companies froze or cut pay. The median annual base salary increase fell to 1.5 percent during the depths of the recession, from 3.5 to 4 percent pre-2008, McMullen said.
As the economy improves and pay raises, now tracking at about 3 percent, stage a comeback, many companies, still reluctant to raise fixed costs, are continuing to invest in alternative rewards that don’t cost much relative to their perceived value.
“We’re turning the corner on organizations knowing that if you want to keep somebody, it’s really about the nonfinancial rewards,” McMullen said.
Career development is particularly relevant for retention, as about 70 percent of employees say they are dissatisfied with growth opportunities at their companies, according to CEB.
That frustration stems in part from the influx of millennials to the workplace, as they value varied experiences, Kropp said.
But the chance for promotion has also declined as companies cut layers of middle management to save costs, flattening traditionally hierarchical structures and leaving employees with nowhere to ascend. The average tenure in a position in 2014 was 30 percent longer than it was in 2010, according to CEB.
“Being able to have an upward, predictable, fairly linear career path doesn’t exist anymore,” Kropp said. Employers have been slow to catch up, and the vast majority still model careers on promotions, but some are shifting their focus to career growth, he said.
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When Trading Technologies underwent a reorganization a few years ago, it did away with many title hierarchies and several layers of middle management for the sake of efficiency and flexibility, said Katie Burgoon, executive vice president of human resources at the Chicago-based company, which makes electronic trading platforms.
To keep employees motivated, the company increased its budget for employee requests to attend professional conferences or take career-related classes. It offers full tuition reimbursement to employees who wish to pursue higher degrees. Several employees already have transferred to different departments in diagonal moves.
The company, which has 378 employees globally, including 272 in Chicago, is now rolling out an internal career development program that will offer, for example, introductory technical training for employees who aren’t in technical jobs, courses for new managers, and improvisation classes to help teams and employees build communication skills and confidence.
“If we want to retain the smartest and most curious minds, we have to keep those people excited and feeling like they’re moving,” Burgoon said.
Rather than reward employees through title progression, Kropp said some employers are cultivating employees’ “employability” through new skill sets to position them for jobs elsewhere at the company — and beyond.
Counterintuitively, that doesn’t increase the chances that they’ll leave, CEB’s research shows. Companies that improve the career growth environment can see turnover decrease by a third, Kropp said. With turnover costing organizations about $25,000 per professional employee, that could result in savings of $7.5 million for companies with at least 10,000 employees, he said.
In another shift, companies are becoming more proactive about pushing internal jobs to their employees, to make passive candidates more aware of what’s available.
Some companies have built internal career centers like those found at colleges.
Capital One launched a Career Development Center in 2007 to help associates define their interests and goals through assessments, training and professional career counseling. More than 12,000 career counseling sessions are completed a year.
It also has a Capital One University for teaching digital skills and a Software Engineering College to keep people abreast of emerging technologies.
Some employers are also rethinking the timing of when they discuss career moves to maximize impact. Rather than have the conversation during an annual performance review, they are shifting to the dates when employees are actually thinking about their futures: birthdays and the holidays, when everyone takes stock of how they measure up to their peers, Kropp said.
“We’re seeing companies start to send out notes to managers a month before an employee’s birthday to encourage them to have the career conversation, or before they take the week off during the summer so that when they sit on the beach with an adult beverage they can think about what’s going on,” Kropp said.