One of our clients suggested the topic of culture vs. compensation. Their company has been in business for over forty years. Many of their employees have remained employed with them for a decade or more. They kept the majority of their team in place during the recession and overall keep their funnel full of projects, yet they still have turnover where compensation was mentioned as a factor.
Culture is the personality of a company. It encompasses the behaviors, values and psychological make-up of the people. Harvard Business review and “The Culture Factor” states the eight types of company culture; Learning, Purpose, Enjoyment, Caring, Order, Results, Safety and Authority. Culture unites teams to work toward a common goal. According to the study, 89% of companies rank themselves as results driven. I would make a bet most construction and development firms would also list themselves results driven despite hearing about the other types of cultures a lot.
Culture is driven by leadership and strategy.
You can have a combined culture of results and purpose. An example would be you chose to only build facilities designed to heal or educate individuals and you are always seeking better results in the profit and delivery of those facilities. Deciding to hire an executive that pushes to change your strategy will change your culture.
Now the salary component.
There are no standards in our industry for administrative, accounting and management base salaries and bonus programs. Why? There are no two companies or two projects precisely alike. Over 90% of contractors are small business owners. Many do not set hiring standards to match their projected pipeline of business and plan for sustainable growth. The supply versus the demand for qualified candidates has diminished. The supply is not due to candidates lack of building skill, but lack of individuals in our industry who have been trained in communication, documentation and behavioral skills. Our industry is also project driven despite one’s stability culture. Employees leave for more challenging projects and employers are often forced to lay off when the upcoming projects do not align with an employee’s labor burden rate or location.
A construction management professional, five years out of school can be equally or more valuable to you than a twenty- year veteran. Compensation should be related to the job they do. It should not be by how many years they are doing it unless you can measure the worth like the ability to deliver the project faster. If someone gets a raise every year just for being dedicated to doing the same thing without improving it can hurt a business. Eventually, their labor burden outweighs return on your investment. Companies come and go with labor burden costs. Know your labor burden costs.
The salary component of compensation is the only direct cost. Often, employees do not consider indirect costs. Those indirect costs include workers compensation, general liability, employee benefits, paid time off, training, apparel, etc…
Why do so many employees focus on base salary?
It is the same reason business owners and executives are often concentrated on receivables. It is about cash flow. Many employees and employers both don’t realize that changing indirect costs can make or break their household or business status. Did you ever wonder why your banks and bonding companies are so hung up on average monthly and past annual balance vs. the current balance in your account?
Compensation matters more to attract new employees than it does to maintain them. Why? When a person is seeking a new opportunity, it is driven by their current personal and professional situation. An unemployed individual living paycheck to paycheck will usually take the first decent offer. They need a job and career focus is often overruled by primal instinct to provide or survive.
Candidates with allotted time to pursue new opportunities are most likely going to be in better control of their thought processes. Similar to someone who may be in love with another and wants to marry, although chooses to finish their degree and secure a good job before scheduling a wedding. Most often we see a candidate with this mindset make lateral moves or even take a lesser base salary as they are committing to a future, not a trial run. The relationship between employer and employee is already more than a paycheck. It is goal and result driven.
Nine times out of ten if an employer steals someone away for more money the relationship between employer and employee is off to an erroneous start. Healthy relationships are based on mutual goals, not the size of the diamond they receive on engagement.
Each year benefits become even more of a critical factor in attracting the top talent. Typically, the top talent is educated on the value of benefits, not necessarily just from a financial perspective, but personally. They recognize that they can take cash and get their health, dental, vision, 401K, and life insurance, but doing so is often time-consuming and not their gift to understand. Company offered benefits give them peace of mind for their families and one less distraction from their jobs and family.
Now we are where culture and compensation cross paths. Talk is Cheap.
Your culture is true to what people see played out versus what is said. Culture is what you do that others want to follow. A company’s culture is lived and shaped as the organization faces external and internal challenges and works together to address and overcome them.
The values of the CEO and the Executive team, their preferences, and industry demand are important factors when defining culture. Company culture is sustained through strategy. Strategy is driven through planning and as an Executive team working on the business regularly and holding each other accountable to managing the culture process.
Compensation reviews, hiring processes, resignations, and layoffs are examples of the internal challenges driven by external forces that attack culture. A results-driven culture will include leadership’s ability to define competitive salaries, provide competitive benefits, describe the interview process and articulate the company culture to attract employees that produce the desired results.
Nine times out of ten when an employee resigns from a defined culture and competitive compensation the employee is leaving due to a relationship issue and not compensation whether the new offer is higher or not. If it is compensation, most likely they have mentioned to a supervisor, and the choice was made not to address. Don’t throw money at them either way. Wish them well and leave the door open for the future. “The grass isn’t always greener on the other side of the fence.” A welcome door always opens gives proven options future.
If you are hiring for cultural fit, then culture drives your beliefs and standards for compensation. Take time to define, refine and sustain culture. It will change your perspective on “let’s pay them more to stay” and ultimately attract the right people by managing the process.
Jim Collins in his well know book Good to Great talks about companies who hire for success by saying “They hired self-disciplined people that did not need to be managed and managed the system.” Are you managing the system?
Culture vs Compensation? Equally important and your views on compensation speak to your culture.
Worth the read!
Thanks, we’re glad to share value to the construction industry!