#292 from Innovative Leader Volume 6, Number 8          August 1997

Avoiding the Career Limbo of Skilled Specialists
by Jim Kochanski and Kevin O’Connell

Mr. Kochanski is a principal in the Raleigh, N.C.  office of Sibson & Company, an international organizational effectiveness and compensation consulting firm.  Mr. O’Connell is senior consultant in Sibson’s Princeton, N.J. office (phone 609-520-2806).

In many companies, highly skilled specialists such as scientists and engineers are central to the franchise—without them, there’s no business.  Yet most of these companies still treat the pay and careers of their all-important technical employees (or others with unique knowledge or skill) the same way they did before they ever heard of biotech or the Internet.

The end result:  technical employees are caught in an uncomfortable kind of limbo.  These people are unique in that their knowledge is critical and dynamic, their work style is unconventional, their career aspirations are often non-vertical, and their services are in high demand in the job marketplace.  The problem is, technical employees are generally paid and managed like workers in other parts of the company.

For example, many companies still keep their technical employees on traditional merit pay programs, complete with the 3 to 4% annual base pay increases.  These increases hardly create the conditions for technical excellence and, in many cases, don’t reflect rapid market movement in pay for “hot” technical jobs.  We’ve seen several organizations where the technical staffers returned what they called “insulting” pay increases.  Not surprisingly, places such as labs are becoming areas of employee dissatisfaction, low productivity and high turnover.  Meanwhile, companies want these specialists globalizing, working in teams, cutting cycle time and increasing business impact.

Defining the Problem

One reason for this unfortunate situation is that companies are wary of treating their technical people differently from other employees.  But yet most do.  Sales people get commissions, executives get performance bonuses, and production teams get gainsharing checks.  But what about technical employees?

Special “dual” career tracks have been around for years.  But, as the percentage of technical jobs continues to grow, you need other creative ways to retain and motivate this critical employee group. 

Flexible Pay Ranges

The pay systems most companies are using were designed for a buyers’ market for talent.  Now, however, there’s a talent shortage.  We often meet technology managers who tell us that a key business concern is the inflexible pay systems.  Some managers become specialists in how to circumvent the systems that would keep them understaffed and behind schedule.  They either inflate grade levels, sometimes creating phantom management levels, or they promise employees more money than they are authorized, and later ask for forgiveness.  These Band-Aid activities don’t address the real business needs, and typically create more problems than they solve.

One solution is a broad range of pay to provide more flexibility to hire and advance technical employees.  Unlike the traditional narrow-step system, advancement within and between the broad ranges should follow the natural career progression that comes with the phases of technical careers.  Dual tracks were originally designed so technologists could equal the pay of a manager.  Now, even more flexibility is needed to pay technologists at the market rate which, in some cases, is more than an equally experienced manager.  Flexibility is also required when competing for technical talent in a market dictated by rapidly changing supply and demand.  Managers, handcuffed by less flexible pay systems typically created for non-technical employees, are at a significant competitive disadvantage to attract and retain the expertise needed to succeed.

An important word of caution:  while broad ranges give companies that flexibility, they require greater managerial skill, judgment and accountability.  Otherwise, a more flexible pay system can escalate a company’s labor cost beyond competitive positions.  In the end, managers need to be responsible for their decisions in a more flexible pay system and they must have the information needed to do so.  Information about payroll budgets and competitive rates of pay internally and externally allow managers to make good decisions.

Alternative Base Pay Increases

Rather than a series of discrete jobs in narrow pay ranges, today’s technical career is characterized by a series of projects.  As a result, it’s critical that key people stay associated with the projects.  Narrow pay ranges that force a person to move to a new job to get a significant pay increase often disrupt critical projects and may have little to do with the business cycle or the cycle of an individual’s development.

At the same time, the “experience curve” concept, the foundation for many technical career ladders, is no longer viable for many technical disciplines.  In the more dynamic fields, a person with only five to ten years of experience may be at the peak of his or her craft.  This person may be the most valuable to the enterprise and be of highest value in the marketplace.  Managers need new ways to provide base pay increases to replace merit increases that have become ineffectual entitlements and promotions that require a change of job.  One example is Technical Growth Pay, a vehicle for managers to reward employees without an artificial annual cycle, according to the employees’ technical development or attached to the project cycle.

Performance Bonus

One way to get technical employees to focus more on a particular goal is to tie a part of the pay to the performance of the business.  Business managers are often frustrated because R&D isn’t focused on business results; yet most companies wouldn’t want their technical people constrained by a quarterly earnings focus.  Still, there are other longer-term performance measures that can be tied to variable pay.  For example, a product development department at a clinical nutrition company linked incentive pay to the net present value of a project’s expected cash flow to ensure the commercial viability of research efforts.

Equity

As the business landscape changes, major technology-based companies are losing key people to small start-up firms that provide an equity stake to non-manager technologists.  Some larger companies provide stock, options, or even phantom shares, not only as a retention device, but to get R&D employees to focus on long-term financial performance.  Like performance bonuses, equity has the benefit of encouraging employees to see the whole picture of the business.

Perks

Companies often miss the boat on employee perks when it comes to their technical staff.  Like executives and managers, scientific and technical employees are highly motivated by perks—but not necessarily the same ones as their management peers.  Technical stars favor the autonomy to make real, technical decisions, not just administrative ones.  Another valued perk is additional budget to fund research or to buy materials and equipment.  To meet the learning orientation of technical employees, some organizations provide educational sabbaticals to their top performers.

Giving Away the Store?

The answer is not to just pay technologists more as the market for their talents goes up.  Companies need to be careful how technologists are paid to get the results that are best for them and the company.  By developing an approach to technical careers based on today’s realities, companies and their technical employees can eliminate their mutual concerns and embark on a new kind of relationship in which both thrive.