Employers in the U.S. are out of sync with their staff over the role that pay and benefits play in recruitment, retention and employee engagement - and organisations are losing talent as a result.
In particular, with many firms revamping health care and retirement programs, high-performing employees are placing strong emphasis on pay, but many employers appear to underestimate its importance.
That's according to a new survey of 262 large U.S. companies and 1,100 workers carried out by consultants Watson Wyatt Worldwide and WorldatWork, the association for human resources professionals.
For the third consecutive year, many employers complained they are having real problems attracting and retaining employees, particularly critical-skill and top-performing employees.
In fact, almost two-thirds (63 per cent) said that they faced moderate or high levels of difficulty in attracting top staff, while four out of 10 said that they faced similar difficulty in retaining them.
These problems are compounded by a buoyant recruitment market. Only one in five employees felt that they would have problems finding another job if they needed to, and one in seven (15 per cent) of top performers were unsure how long they would stay with their present employer.
One big factor in this indecision is be the difference between what employees value and what employers think they value.
Underlining this is the fact that although almost nine out of 10 (86 per cent) of companies think they do a good job of treating employees well, only half (55 per cent) of employees agree.
Likewise, while half (54 per cent) of employers say they will do a better job of treating employees well over the next three years only a quarter of employees have the same confidence.
Pay was another major issue to emerge from the 2006/2007 Strategic Rewards survey. Most notably, seven out of 10 top-performing employees rank pay as one of the top three reasons they would leave an organisation. But fewer than half (45 per cent) of employers think the same.
Instead, two-thirds (68 per cent) of employers rate promotion opportunities as one of the top three reasons employees leave, closely followed by career development (66 per cent).
Employers are also seriously underestimating the role that benefits such as health care coverage and retirement plans play in retaining top employees.
For example, while none of the companies surveyed think health care coverage is a key reason that staff quit, almost a quarter (22 per cent) of top employees cite it as an important reason.
And it is a similar story with retirement benefits, which 17 per cent of employees see as a factor in retention compared to only two per cent of employers.
"The employer-employee deal is changing, and so are employees' priorities," said Laura Sejen, director of strategic rewards consulting at Watson Wyatt.
"Regardless of whether companies are retaining the older 'lifetime career' deal or a newer, less paternalistic deal, it is important to balance business goals with the rewards that employees value. Firms that do not get the pay-benefits mix right risk losing some of their best talent."
Moreover, when employees do head for the door, many organisations will find real difficulty attracting replacements.
While employees say that it would take a pay increase in the region of 20 per cent to persuade them to leave their current organisation, employers think it takes less than that to attract talent from other organisations.
Meanwhile, employers are putting more money into performance-based rewards. A quarter of increased cash incentive targets in 2006, and more than a third increased cash incentive payouts.
With merit increases averaging 3.6 per cent, increases for some employees may not keep up with current inflation rates. However, as employers differentiate merit increases based on performance, top-performing employees can achieve real wage increases.
Employers are also budgeting 1.4 per cent of payroll for market adjustments and promotions, which can support retention goals if used to reward top performers.
"As labour markets tighten, employee commitment takes on increasing importance," Laura Sejen added.
"Those employers that understand what drives commitment ó particularly among top performers ó and act on it will be best positioned for success."