When CEOs sacrifice their bonuses, do employees stick around?

by External08 Mar 2016
(Bloomberg) – There are two reasons employees leave companies, said Ken Oehler, the director of the global engagement practice at human resource consulting firm Aon Hewitt: “They’re moving away from something unpleasant ... or toward something better.”
 
LinkedIn is concerned about the former scenario.
 
After a disappointing earnings report, a downgrade by analysts, and a stock plunge, the social network lost about half its market value. When companies stumble, the best employees leave. Losing talent is expensive, and an exodus of institutional knowledge is last thing a struggling company needs.
 
Hoping to avoid this phenomenon, chief executive Jeff Weiner held an all-hands meeting about a month ago to calm the troops. “We are the same company we were the day before our earnings announcement,” he told 9,200 nervous employees. His efforts to keep the company’s workforce from bolting didn't stop there: Last week, Weiner relinquished his annual US$14 million (S$19.3 million) stock bonus to employees. “Jeff did not receive an equity package this year at his request,” a spokesperson told Re/code. “He asked the compensation committee to take the stock package he would have received and put it back in the pool for employees.”
 
The tactic has become more popular among CEOs leading companies headed into darkness. Jack Dorsey gave Twitter employees US$200 million (S$276 million) in stock after a rough first couple of weeks as CEO. (Layoffs followed after the company's stock price dwindled.) Aeropostale CEO Julian R. Geiger (former leader of the catastrophe that was Crumbs), gave up US$1 million (S$1.4 million) in stock options “solely for the purposes of motivating and retaining other key members of the organisation,” read a business update from early this year. (Aeropostale has lost almost all its value over the past five years.)
 
The hope is that the gesture, the money, or some combination of the two will keep people around. But does it work?
 
“It doesn’t make much of a difference,” said Brian Kropp, who heads the HR practice at CEB. Of course people like money, but the benefits are short-lived. “There's kind of a flurry of talk and activity about it. It doesn’t actually sustain,” he said. Even US$14 million ($S19.3 million) in stock isn’t that much divided among almost 10,000 people, and it creates the dangerous expectation of a bonus next year. “A well-written thank you note from a manager has as much of an impact as a cash bonus,” said Kropp.
 
What keeps people at their jobs, feast or famine, is perceived career opportunities, research from both Aon Hewitt and CEB has found. “A compelling value proposition is really at the forefront of what makes people stay,” said Oehler, citing Aon Hewitt research. “Pay and rewards do have a part in this equation – but it's not everything.” People want to see a future with their employer, which is particularly difficult when it’s not clear if the employer has a future of its own. Better ways to keep employees from fleeing include giving them interesting projects and challenges, improving their work-life balance, and creating an environment that nurtures work friendships.
 
That’s not to say the gesture is completely devoid of value. It signals empathy: “I don’t think the financial impact [on] the rank-and-file employee is nearly as great as the shared pain that the CEO is trying to communicate,” said Jason Wesbecher, chief marketing officer of Mattersight, which sells software to help companies retain workers. Sometimes humanity is the only thing a faltering employer can offer during chaotic times.
 
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