To no one’s surprise, hiring and retaining good employees is increasingly difficult for manufacturers. As baby boomers retire and birth rates decline, the U.S. Bureau of Labor Statistics predicts the growth rate of the American labor force will continue to decrease through 2060. That’s certainly an excellent reason to plan your strategy and tactics for retaining great employees. Among other options we will explore in this article, this may include helping marginally performing employees be more productive versus struggling to replace them (though keeping a truly “bad apple” is rarely a good move).
Compensation Isn’t Everything
We often hear that a common employee retention tactic is to “give them more money.” However, compensation is only one aspect of hiring and retention, and it certainly isn’t everything. Think of it like your ticket to a baseball game: money buys your entry into the stadium, but it won’t win the game for your team. Compensation may attract new employees to your company but time and again we see that employees stay put for more complex reasons than just money. They also consider:
- how they’re treated (respect is critical, in the past and present),
- how important you make them feel about working at your company and
- how you can help them better perform their jobs.
Although it seems simpler to solve retention problems by giving employees more money, it could be better to invest at least some of those dollars in training your managers and supervisors to be the type of boss that makes employees want to stay. In 2009, Google started a project with the goal of "building better bosses” across the organization. Through this exercise, the company uncovered that we all value an even-keeled boss who makes time to get to know employees and helps them solve problems by asking the right questions, not just dictating answers. 
Dissatisfied employees will research what their value is in the market via crowdsourced or recruiting websites. Even satisfied employees are being wooed by recruiters regularly, who do know the realities of competitive pay. So, although it is certainly in your best interest to know what is happening pay-wise for people in your marketplace, it is even more important to know what your employees truly value in their working relationship with your company.
Retaining employees is a balance between compensation and a workplace culture that makes them want to stay.
Using Retention, Referral and Sign-On Bonuses
Some companies utilize retention bonuses to get employees to stay, but this strategy often comes with a whole host of unintended consequences. You just can’t buy people’s loyalty — and remember, people talk. Giving some employees retention bonuses can lead to a “domino effect” of others trying the same tactic, which rarely ends well for employers.
If you are in a merger or acquisition situation or have a vital project you need to complete, then retention bonuses may be an effective short-term solution (with appropriate caveats explained in advance). But otherwise, once an employee has gotten to the point of wanting to leave, it’s often too late to retain them. Job satisfaction comes from more than money. You want to build a company where people are respected by management and co-workers, valued for their contributions to the success of the organization and challenged by the work they do.
Referral and sign-on bonuses have a few more “pros” than retention bonuses do, though it is still important to focus on what makes employees want to stay after they have made the decision to join your company. If you’re going to implement a referral or sign-on bonus program, your hiring managers need to know all the details, including the number of days it takes to qualify and when bonuses are paid out. Document and communicate this process for your new employees, too, beginning with the offer letter (the details may vary for different jobs, shifts, locations, etc.).
With the recent passage of the Tax Cuts and Jobs Act, we saw several large employers providing one-time bonuses, especially to their hourly/non-exempt employees. This is all well and good, but it really doesn’t have much staying power. The “what have you done for me lately” mindset often sets in after the initial satisfaction of getting a bonus wears off. Although concerns about raising base pay and its impact on costs are real, when implemented appropriately, it will likely have a more lasting, positive impact on retention.
If you are considering raising starting pay by 5–10%, especially for entry-level jobs, be very careful with the impact of “wage compression.” It can easily occur and must be carefully considered for the jobs the next few levels up — new employees can end up making as much or more than those who have been there for a couple of years, which will negatively impact morale and retention. Note that an increase to starting pay may be appropriate for some jobs, but not all. You must effectively analyze data related to your compensation structures, employee performance, cost pressures from customers and other factors, as well as exercise good business judgement. Relying soley on published salary surveys (lagging data) or employee-reported sources (often unreliable) is not likely to produce the results you need.
What You Can Do
You know turnover is expensive, especially when you lose good people. Consider evaluating turnover by supervisor. If people are leaving before six months, evaluate why that is happening. If some supervisors have higher turnover rates, investigate what is causing the issue — just like you would a continuous improvement project. Providing supervisors with effective training on basic skills in communication and respectful behavior can help them become better bosses and will significantly impact retention.
When it comes to compensation, we expect to see more upward pressure on wages over the next few years. Customers of manufacturers are often asking you to cut costs, not increase them, though it is likely they are having the same problems with employee retention. You’ll need to evaluate the impact of various approaches such as job design (who does what, how and why), automation and process improvement, the potential for implementing price increases and what can be absorbed out of profit margins.
In the end, compensation has a lot to do with managing employee expectations. Let employees know about compensation opportunities in your organization. Explain why some jobs pay more than others, what employees need to do to attain raises or how they can move into higher-paying positions. Make sure your managers understand the reasoning behind your pay programs and are trained to have effective conversations about pay with their employees. “Trust me” needs to be backed up with good data, training and solid communications. Having realistic conversations about money can go a long way to managing expectations and helping retain employees.
If you want to learn more about compensation strategies and how to attract and retain employees, contact Deborah Marshall or your Wipfli relationship executive.
 “A Look at the Future of the U.S. Labor Force to 2060,” Mitra Toossi, U.S. Bureau of Labor Statistics, September 2016, https://www.bls.gov/spotlight/2016/a-look-at-the-future-of-the-us-labor-force-to-2060/pdf/a-look-at-the-future-of-the-us-labor-force-to-2060.pdf, accessed March 14, 2018.
 Adam Bryant, “Google’s Quest to Build a Better Boss,” The New York Times, March 12, 2011, https://www.nytimes.com/2011/03/13/business/13hire.html?emc=tnt&tntemail0=y, accessed June 11, 2018.