Medical Device Link.

BUSINESS PLANNING & TECHNOLOGY DEVELOPMENT

Building Employee Equity

Employees' professional development and a company's success go hand in hand.

Home ownership: it's the American dream. To many people, owning and building equity in a home means security. And just as Americans grow equity in their homes to create a more stable financial future, companies and employees should focus on growing professional equity to gain more stability in today's changing-at-the-speed-of-light marketplace.

Equity is a fabulous phenomenon. Someone purchases a home, paying just 5 to 20% of the home's value as the down payment. Over time, equity—the value of the home—usually increases as the owner continues to make payments toward the loan and improves the property, and as the home appreciates. Of course, some properties do lose equity if a second loan is secured, maintenance is ignored, or the neighborhood declines. But, for the most part, as time passes and owners invest time and funds into their purchase, they receive a valuable return on their investment. The same is true for one's career and company.

Individual Equity

It's relatively easy to see how the concept of career equity can work for the professional. Say John works for XYZ Co. for 10 years, then leaves when the business suffers a downturn. He joins another company, a start-up, but fails to understand the fundamental changes in technology and customer thinking that are reshaping his industry. John's new employer folds, and he is unable to find a comparable position.

Barbara also works for XYZ Co. She stays through the initial downturn and uses the time to identify and learn new skills, including expanding her professional network. Barbara is later found by a recruiter and joins a new company in a related industry, with a substantial increase in salary and responsibility.

The lessons behind this story—the importance of learning new skills and staying current in one's field—are certainly not new. It's clear that Barbara built career equity whereas John didn't, and their later experiences reflect that equity.

Corporate Equity

The concept of career equity as it applies to companies seeking to have the right mix of skills and experiences is more complex. Career equity is not the same as employee retention or longevity. Some companies provide incentives to minimize turnover, but discourage employees from developing new skills for fear that they will leave and join the competition. Unfortunately, such companies simply reap an aging workforce that doesn't have the knowledge or skills to face the future. On the other hand, companies that encourage too much turnover can end up with a young workforce that is in touch with the latest trends but lacks the experience and skills to implement a focused business strategy. The total turnover for the biotechnology industry is estimated at around 20% per year, of which 15% is voluntary.¹ In addition to identifying those employees who represent the core of the company's equity, successful organizations seek to keep their turnover of designated employees well below 10%.

Equity, or true value, is achieved only when a company has established among its workforce a balance between people invested in the success of the enterprise with the knowledge required to address new challenges and people with the experience to implement new strategies in an increasingly competitive market. Career equity for a company equals the total career equity of its employees. Career development for the professional and success for the business go hand in hand. Top performers want to work at great companies and, increasingly, great companies are those businesses that encourage their employees to develop new knowledge and skills.

Incentives to Build Equity

In today's extremely tight labor market, savvy companies are looking for new, innovative ways to differentiate themselves from their competitors. No longer are healthy paychecks, stock options, and flexible hours enough to keep the brightest stars. Consider how greatly the employer-employee relationship has evolved during the past decade.

• No longer do employees expect to stay with one company throughout their entire career. It is generally accepted that most people will work at four or five companies throughout the course of a career in the medical device industry. Many will also change careers midstream.
• While in the past a worker who left a job after only two to three years would be regarded with suspicion, today recruiters find it more unusual if someone has been with the same company for more than a few years.
• The "right-sizing" movement of the 1990s led many employers to embrace the concept that employment was a short-term proposition and that the needs of employer and employees could rapidly change. Employees became less loyal when job security and pension plans disappeared.
• Companies have also changed how they compensate employees. The importance of salary has given way to incentive compensation, especially at the higher levels.

In the face of all of these changes—employees now working for "Me Inc.," always looking for the next opportunity, and the current worker shortage—companies are being forced to reconsider how they can attract and retain the best talent. One of the keys to retention is growing workers' equity, which, incidentally, builds the company's equity as well.

As Jeffrey Pfeffer, a professor of organizational behavior at the Stanford University Graduate School of Business told Fast Company last year, "All that separates you from your competitors are the skills, knowledge, commitment, and abilities of the people who work for you. Companies that manage people right will outperform companies that don't by 30 to 40%." And the Society for Human Resource Management (Alexandria, VA) says that providing employees with training and other professional development opportunities is one of the top retention tools for companies today.

Let's look at an example of how building employees' career equity can position a company for success. Consider three companies—A, B, and C—and their approaches to the emergence of the Internet to mainstream business in the early 1990s. Companies A and B thought they had recognized the potential of the Internet several years before it became popular—their senior managers thought that employees would waste time and be less productive if they had access to the World Wide Web. These companies carefully monitored and controlled which employees had Web access and what sites they could visit.

When Company A decided to develop an Internet presence, it recruited a Webmaster. The search was typical in that it took six months to find someone, but the company was fortunate to find someone with both Web and relevant industry experience. Of course, it paid a six-figure salary for this combination. The new Webmaster then hired a three-person staff and outside contractors. The new Web site was up and running one year after the search for the Webmaster began, with the company absorbing the cost of four relatively highly compensated new employees, recruiter fees, and relocation costs.

When Company B created its Web site, it hired an outside Web-development vendor to completely manage the project. While the Web site was operational in six months, it was not successful, mostly because Company B didn't dedicate to the project an employee who could give industry-specific direction to the vendor. This particular site had an attractive look and feel, but it lacked the product-specific content that would attract and hold visitors. In addition, the transaction engine was built around credit cards, but the typical end-user could initiate an order only by sending a purchase order through that company's purchasing department. The site was disappointing in both "hits" and an unrealistic expectation of significant on-line sales. A second attempt that focused on providing content achieved greater success in attracting viewers, and Company B initiated its new site at about the same time as Company A, but with a long-term dependence on an outside vendor to maintain and update the site.

Company C took a completely different approach. Its top managers viewed the Internet as a new tool for its employees rather than as a threat to productivity, and allowed relatively unrestricted use on employee desktops. Over time, several employees applied for and received permission to attend seminars focused on various aspects of Web use and development. One employee, Joe, approached management for permission to work half time on developing a company Web site. The request was approved, and the employee easily found colleagues who made the time to contribute to the new initiative. Their first attempt was crude, but successful in that its product- and industry-specific content attracted a large number of visitors.

In fact, it was the first exposure managers at competitor companies A or B had to the concept. By the time companies A and B had their first successful sites, company C's site was in its third generation, with incorporated functionality that allowed customers to initiate and track purchase orders. This functionality saved the cost of adding an additional customer service representative in the call center, which had been budgeted. While the company couldn't specifically identify the site's impact on sales at that point, it did earn high marks in its annual survey of customer satisfaction, and many customers mentioned the Web site's usefulness. The company and current staff also benefited. Joe was promoted to Webmaster and staffed his group with his former volunteer contributors. The Web team's former positions were filled with talent from the local community.

So Company C, at very little cost compared with what its competitors spent, beat its competition on-line, developed expertise in a new technology, and strengthened its employees' knowledge and skill sets. Company growth and value and employee growth and value moved in tandem. These companies' different approaches to the introduction of the Internet to the business environment easily translates into how a company's approach toward any new technology, trend, or innovation—and how it views its employees' interaction with that technology—can dramatically affect its future.

How to Build Value

How can companies be sure they're doing all they can to build employee equity? First, by making the most of existing equity. Second, by building new equity. And third, by retaining equity once it's been developed.

Put Employees First. Many companies are blessed with a diverse workforce; employees who hail from a variety of different backgrounds offer a wealth of hobbies, friends, and different outside interests. A diverse workforce can often produce a wide variety of ideas. Fortune magazine annually ranks the U.S. companies that successfully integrate a diverse workforce, and it indicates that companies on that list, taken as a whole, outperformed Standard & Poor's Index for three years.

Unfortunately, few companies establish ways to tap into this tremendous source of skill and knowledge equity. There's a tendency to view "Jane" as an accounting assistant because that's the title on her cubicle. However, perhaps Jane is also active in community affairs and might have some fresh ideas on how to market to local hospitals and clinics. Typically, the executive in charge of the project would seek a pricey outside consultant and never think to ask Jane.

Knowledge equity is not the exclusive domain of experienced employees. Consider new employees who have just graduated from a university, the United States' greatest incubators, for new ways of thinking, or professionals who have worked at other companies or within other industries where things may be done quite differently. Most organizations devote considerable effort to ensuring they don't "leave money on the table" with respect to financial transactions. Developing the same discipline when looking at the equity residing in employees could deliver even better returns.

Encourage Lifelong Learning. Once a company recognizes the value of the equity in its employees, the next step is to maintain and build upon it—like one would manage the property value of a home through regular maintenance and upgrades. R&D managers often consider that 20% of an individual's time should be available for intellectual exploration. In Leading Change, John P. Kotter of the Harvard Business School says he considers lifelong learning to be a critical factor in adaptive companies' development of leadership. "Truly adaptive firms with adaptive cultures are awesome competitive machines," he says. "They produce superb products and services faster and better [than their more-traditional counterparts]." ²

One common method of encouraging learning is through tuition-reimbursement programs, which are offered by 90% of biotech companies, according to the Radford survey.¹ This approach is appealing since the programs are of known quality, grades serve as a means of monitoring employee participation, and courses can be approved based on the company's perception of value. The drawback has been a lack of accessibility to employees who are not able to attend the courses at the time and place they are offered. Alternatives include courses on cassettes played while commuting or on-line learning.

More-innovative approaches include collaborating with an educational institution to provide a satellite program that is more convenient for employees. One in vitro diagnostics manufacturer arranged for select courses to be taught on-site from 4 to 6 p.m. two days a week or on alternate Fridays and Saturdays, splitting the time commitment 50:50 between employer and employee.

While organizations need to be resourceful and flexible in the forms and locations of training programs offered, they also must be flexible in determining who gets training. In many organizations, the opportunity to attend programs outside the company is considered to be a perk and is doled out selectively to those willing to navigate a maze of policies and authorizations. These companies fail to understand that the development of career equity for the employee provides an equal benefit to the employer. The American Society for Training and Development (Alexandria, VA) finds a positive relationship between training investments and higher performance as measured by sales, profitability, and product quality across a variety of industries. Successful companies will have a budget line available for each department for employee development, and a training plan in place prioritizing areas of interest.

Of course, support and encouragement of career development programs shouldn't be confused with carte blanche approval of expensive travel and long absences. Quality programs are often available locally at modest cost. Employees could organize "brown-bag" sessions over lunch to discuss areas of common interest. Ad hoc groups may seek official approval for time or resources to explore new areas. Professional societies hold local and regional meetings. One marketing assistant at Promega Corp. received permission to spend eight hours a month as a vice president of the local chapter of the American Marketing Association. The new skills she learned helped earn her two promotions, reflecting both her own growth and her increased value to the company.

Developing a training program requires planning, but it doesn't have to be expensive or disruptive. For example, say a company decides it needs to develop a greater awareness of financial issues among its employees. It might offer to send employees to a two-week executive program at a leading business school or a semester-long course at a local college, or it might simply host informal seminars conducted by members of its own finance department. Learning opportunities can differ in accordance with employees' interests, backgrounds, and levels of responsibility. A company's equity plan should strive to provide value to the employee consistent with the worth of his or her value to the company.

Keep and Continue to Grow Equity.Once companies commit to building their employees' equity (and, thus, that of the company), it's critical that employees receive a consistent message as to what the company considers important. Performance goals and compensation must be aligned with employees' equity.

People respond best to rewards as well as to the perception of punishment. A potential innovator may be fearful that he or she will be criticized for spending too much time on outside learning rather than focusing strictly on the job at hand. That fear may be deeply ingrained, based on experiences with prior employers or even at school. A manager's positive comment may be all that is required to align this employee with the company's desire to build equity. More-substantial accomplishments may deserve more-tangible rewards. For example, those employees who make the best use of local resources should be given preference when an opportunity to travel or attend a prestigious event does arise. And employees who regularly "go the extra mile" should get special consideration, too. Organizations need to reward those professionals who take prudent and thoughtful risks, regardless of outcome, to send a clear message that such activities are in the company's best interests.

The performance review is an excellent opportunity to talk about plans for the upcoming year. Supervisors should be responsible for creating and implementing a plan to build equity within their group. This plan should include a projected skill inventory for the next two or three years and thoughts as to which employees might be candidates for self-development in these areas. It's also an opportunity to ask employees what they believe will be important and hear their ideas and proposals for development.

Escalating Equity

Of course, once companies invest in building employee equity, they certainly don't want to see the newfound knowledge and skills walk to the competition. So, whenever possible, companies should promote from within. Just as people "trade-up" as they build equity in their homes, they will also seek to move up as they build equity in their careers. Professionals want more-interesting, challenging work; greater responsibility, and the pride that comes from knowing that one's contribution has been recognized. They'll stay with an organization that provides these rewards or will eventually seek them elsewhere. When a decision regarding a promotion is close, assume that the individual who is not chosen will immediately leave the company. This approach can help managers sort through the extraneous issues and pick the employee who offers the most equity for the organization when new opportunities arise.

When companies organize their thinking around the concept of career equity for employees and for the business, it helps reduce the complexity of decision making by focusing on bottom-line values. Most importantly, it puts building career value for the staff and the net worth of the company on the same side. Thinking in terms of career equity provides a common ground where the desires of the individual and the needs of the organization merge to become a foundation for success.

References

1. Radford Benefits Exchange (San Jose: Radford Div., Aon Consulting, 1999).
2. JP Kotter, Leading Change (Cambridge, MA: Harvard Business School Press, 1996).

Richard S. Schifreen is business unit leader for molecular diagnostics at Promega Corp. (Madison, WI).

Illustration by Chet Phillips/SIS

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