Of human bondage and bonuses

While it sought a buyer for its BZW investment banking arm recently, Barclays Bank used a familiar method to stop key personnel being poached: it handed out substantial bonuses. It was a clear demonstration of the widely held conviction that hanging on to staff is largely about paying them enough money.

However, there is a growing body of research that suggests that retaining employees is a lot more complex than that. Indeed, according to a recently published guide from the Institute for Employment Studies, companies that use "golden handcuffs" to hang on to staff may be wasting their money.

The guide, Keeping the Best: a practical guide to retaining key employees, outlines the three main reasons why companies use this approach: to prevent leaving being considered at all; to persuade "waverers" - those who are unhappy and need an excuse to stay; or to defer a decision to leave.

But while there is a view that golden handcuffs can increase the service an organisation gets from an individual in the short term, the guide says that "several problems remain unresolved or exacerbated" by retention bonuses.

In particular, they can cause resentment among those ineligible for bonuses either because they (or their post) are not considered "vital" enough, or because they have not made enough "fuss" compared with others. There can also be a "deadweight" effect if bonuses are paid to people in high- risk posts who are not disposed to leave or to individuals the organisation would not be sorry to lose. Retention bonuses can also lead to an internal "bidding-up" process, whereby different parts of the business seek to make a case that their salaries are "out of synch" with the market. And if a rival employer is sufficiently desperate for the services of an individual, it can always buy out the bonus.

The guide concedes that, in some circumstances, a retention bonus can send out a message that the business is serious about retaining staff, but adds that there is limited evidence that they work. "What seems clear is that they can only have limited impact by themselves," say the authors, Stephen Bevan, Linda Barber and Dilys Robinson. "Unless, in parallel, other approaches to retention are being adopted, it is unlikely that retention bonuses by themselves will yield the expected return."

The guide says employers should carry out a more measured assessment of the risks they run from losing key staff, before reaching for their cheque books. By assessing the likelihood and consequences of an individual leaving, companies can decide how to improve their chances of staying.

It also stresses that money is not such an important factor in persuading people to stay in a job as is often thought. Having carried out more than 50 studies of large employers over the past decade, the IES team suggest that only a tenth of employees resign because of dissatisfaction with their pay. Career development, job content and the degree of challenge are all seen as "considerably more influential" in determining whether specialists will leave an organisation.

The authors stress that the changing nature of employment means employers have to form "a realistic view" about the length of service they can expect from an employee, and they suggest that it is possible to head off staff retention problems by offering deals designed to suit both employers and employees. They foresee organisations offering more employees arrangements such as part-time working, job sharing and working at home.

While pointing out that "ad hoc" deals should not compromise corporate human resources strategies, the guide adds: "Employers need an understanding of what might motivate different groups and individuals." For example, promises of career progression, salary increases or financial deals may not motivate those who derive great satisfaction from the quality and interest of their work, but secondments, foreign travel and professional development might.

As the guide says, "while fat cheques can be very alluring, most employees still attach a higher value to those aspects of work from which they derive cerebral rather than financial rewards."