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Luring the Best in an Unsettled Time
April 1, 2001

FOR much of the last century, employment in America rested on an exchange that contemplated far more than a day's wages for a day's work: it was all about a bundle of unspoken long-term commitments. Employees gave companies their loyalty -- however grudgingly -- in return for training, promotions, steady raises, job security and identity. Smirk all you like about the Organization Man; his trade-off made possible the 30-year mortgages and college educations that the great American dream was historically made of. In its day, the pact could reinforce itself for a lifetime, for the higher one climbed in a company, the greater the rewards and the stronger the incentive to stick around and try for more.

Eight million layoffs later, the old understanding is dead. Interred with it is much of the conventional wisdom on retaining and motivating the American worker.

Companies are now searching urgently for new ways to foster old-fashioned loyalty and commitment. A number of influential corporations are experimenting with a concept called "employer of choice." Part public relations campaign, part human resources experiment, it seeks to assure employees that no other workplace suits them better.

These companies have an uphill battle. Demoralized by downsizings, outsourcings, restructurings and "rightsizings" -- dislocations summed up in the grim quip "the race to the bottom," today's employees have little institutional loyalty left to give. When headhunters call, they are very likely to answer. One recent survey found that nearly half of managers over 35 speak with headhunters at least quarterly.

Companies are not eager to train or groom people anymore; why invest in someone who might jump ship? Tempting benefits packages cannot easily be assembled to keep the restless in place, for shareholders remain beady-eyed about labor costs. The aggregate level of employee benefits has actually fallen over the last five years, as companies have pared health and retirement plans.

But even as America's nine-year economic expansion sputters, and fears of recession abound, companies will continue to fight the "war for talent." Demographers say that if growth slows, retirement-age baby boomers will begin leaving the labor pool. Somehow, managers will have to recruit and retain good performers, reduce turnover and promote a semblance of the institutional loyalty lost amid the turmoil of the last two decades.

So, the questions remain: How to inspire excellence in an age of impermanence? Is it possible to fight the talent war as you are running the race to the bottom?

The promise of employer-of-choice campaigns may provide some answers.

The phenomenon sometimes goes by other names, like "best employers," "preferred employers" and "great places to work." Nor are there agreed-upon standards for an employer of choice to meet, no single surefire route.

But behind the efforts is the same concept: branding. Position your workplace in the labor market, as you have positioned your products in the supermarket. Know your customers. Convince them you are different. Build brand loyalty.

High-profile companies with workplace branding initiatives -- including the Prudential Insurance Company of America, Cingular Wireless and the CAN Financial Corporation -- seek to identify traits of model employees, figure out what these people want in a job and see to it that these people think they will find it more reliably at their company than anywhere else.

"There are considerable risks," in presenting yourself as an employer of choice, said Martin G. McGuinn, the chairman and chief executive of the Mellon Financial Corporation in Pittsburgh, which introduced such a campaign last year.

What if your branding efforts land you a coveted berth on a popular magazine's "best employers" list, only to set indignant employees screaming false advertising? That's what happened to Merrill Lynch. After it made Working Mother magazine's best-companies list in 2000, a group of female stockbrokers who had sued Merrill Lynch for sex discrimination mounted a letter-writing campaign to have the company's name removed.

The women have hired light airplanes with banners to spread their message at sporting events and are sending a delegation to Merrill Lynch's next shareholders' meeting.

A Merrill Lynch spokesman said that while the company had not reached settlements with all the women, its managers thought they had corrected the workplace practices that had prompted the lawsuit.

In the same way, Verizon (in its pre-merger days, Bell Atlantic and GTE Corporation) landed on Working Mother's list of "best companies for working mothers" not long after employees had struck over the company's decidedly family-unfriendly use of mandatory overtime and other issues. A Verizon spokeswoman said the list's publication soon after the strike was an unfortunate coincidence, but that Verizon thinks the magazine's selection methods are valid and will try for a spot on this year's list.

Mr. McGuinn of Mellon said some of the bank's corporate customers had told him they considered undertaking employer-of-choice campaigns, but decided the risks were too great. "They said, 'If we couldn't do it, we'd be in even worse shape,' " he said. "The way we've tried to manage that risk is to be very upfront with our employees," that it would take time to become an employer of choice.

"We had to make clear that it was a reciprocal commitment, too," he added. "We were going to invest in our employees, but they had to commit to the company."

THAT is the trick: winning the employees' sense of old-fashioned commitment without locking your company into the old-fashioned employment arrangement. Compensation experts say the last generation's weapons for fighting the war for talent -- gold-plated pension plans, health insurance that covered every dollar, seniority-based compensation schemes -- are nonstarters today.

"Companies can't predict what the market will look like or what their competitors will do, and they don't know where technology is leading," said Robert B. Reich, the former Secretary of Labor and the author of The Future of Success," a new book on how the technology-led expansion is changing the structure of work. In this business environment, he said, "Companies want to maintain flexibility."

"They seek to eliminate all fixed costs," he went on. "And the biggest fixed cost of all, of course, is the payroll. "Companies can prune fixed costs gently or brutally, said Peter Capelli, a professor of management at the University of Pennsylvania's Wharton School of Business. But they cannot sit back and leave them in place. Mr. Capelli, who wrote "The New Deal at Work," views the forces that are dictating the conversion from fixed to variable labor costs as more powerful than even the most strong-willed chief executive.

What are these forces? Burgeoning imports, for one. The share of imported goods in the nation's product markets has soared in the last two decades. American manufacturers compete with foreign producers who do not come close to paying the United States minimum wage -- forget about comprehensive health insurance.

There is also technological advancement, which has offered many new ways to monitor employees and suppliers, thus eliminating the need for numerous supervisors and middle managers. And there has been the boom years' stream of mergers and acquisitions, which have demanded ever-improving financial returns from the participating companies. The leveraged buyout craze of the late 1980's particularly demanded big gains because the acquired companies had huge debts to service. Although leveraged buyouts have gone out of fashion, garden-variety mergers continue, as does the need for performance gains. "Where do the performance gains come from?" Mr. Capelli asked. Often, from breaking long-term employment relationships. "Because labor accounts for the vast majority of operating costs," he said, "even small savings in labor costs translate into large improvements in financial performance."

Understanding these forces helps explain why just 1 percent of large American employers still offer defined-benefit pensions as their workers' sole sustenance in retirement, while more than a third have replaced those vehicles with 401(k)'s and other programs that transfer most risk and responsibility to employees. Understanding the dynamic sheds light on the replacement of conventional health coverage with managed-care programs, and the recent initiatives to supplement, or replace, pay with stock options.

But Mr. Capelli has spotted companies cutting fixed labor costs in other, unexpected places. Like corporate real estate: 10 years ago, the typical office offered an employee 250 square feet of space, he said. Today, the average is 200 square feet, while some employers are squashing workers into 100 square feet apiece. "Hoteling," the practice of shuffling permanent employees around a network of temporary offices, is another effort to reduce the fixed costs that work spaces represent.

Even architecture holds lessons for those willing to read meaning in glass and steel, Mr. Capelli said. Company buildings are much lower these days, because so many layers of management have been cut from the flow chart, there is little need for towering edifices. Who would stick around for the long climb to the corner suite?

SUPPOSE your company considers these trends and concludes that its best hope lies in workplace branding. Extensive employer-of-choice initiatives can involve the art and reach of a $50 million advertising campaign.

Focus groups must be assembled and former employees must be located and quizzed on why they left. Those who remain must be polled on what they really want -- but polled carefully, lest they think they will get what they ask for. "Benchmarking" surveys must be carried out to see where a company's pay-and-benefits structure falls short of the competition's.

Benchmarking can turn up all kinds of errors, consultants say. Mr. McGuinn of Mellon said the benchmarking for the bank showed that it was underpaying salaried employees, and would have to give thousands of people raises worth "multiple millions of dollars" if it was to have credibility as an employer of choice.

"When you increase salaries, that's a fixed cost that goes on and on," he said. The raises were granted anyway. But benchmarking can mean good news for other companies. At Prudential, the big insurer in New Jersey, comparisons prepared by the Segal Company, a benefits consultancy in New York, showed that the Prudential was overshooting its competition on dental benefits. The coverage was so out of whack that the company could scale back without angering employees.

"Surprisingly, to be the employer of choice, you don't need to give the employees everything they want," said Rick Wald, a principal in the Minneapolis office of the human-resources consulting firm William M. Mercer. "You need to give them more than the competition is giving."

Next, employer-of-choice candidates must identify their companies' special qualities and express them in a few choice phrases. The chief executive must then persuade skeptical employees that the slogans are real.

Typically, new in-house images are spun to match the face the companies show to the world. Southwest Airlines, whose regnant advertising bit is "the freedom to fly," wrote an employee "promise line" last year: "Freedom begins with me."

With that bright assertion came a list of eight new employee "freedoms" -- "the freedom to create financial security," for instance, "the freedom to make a positive difference" and "the freedom to work hard and play hard." Never does Southwest's list mention the word "pay." The thinking here is to soar above other employers, while imbuing workers with the subliminal message that their interests coincide with the customers' interests.

Cingular Wireless, a new joint venture of BellSouth Corporation and SBC Communications, plans to create an image around "enhancing the consumer experience," so its internal slogans imply that employees' workplace experiences will be enhanced in the same way, said Rickford Bradley, the senior vice president for human resources at Cingular. "We want customers to use the wireless device as a tool to express themselves," he said. "We want to give our employees the opportunity to be just as expressive."

To reinforce these messages, employer-of-choice contenders must assemble a menu of what are sometimes called "relational" or "environmental" employee benefits. "Traditionally, companies competed by leading the competition, but now employers are focusing on the mix" of benefits, said George T. Milkovich, the Martin P. Catherwood professor of human resource management at the School of Industrial and Labor Relations at Cornell University. "They believe it signals certain kinds of employees and makes them the employer of choice."

Thus a company that looks at its work force and sees many time-pressed men and women from dual-earner families may offer relational benefits that convey family friendliness. Prudential, for instance, offers two on-site day care centers, several backup day care centers, two extra weeks of paid family leave and "daddy stress" workshops. Prudential also recently announced that employees could scale back to part-time schedules without losing benefits. In addition, it is testing concierge services to perform employees' personal chores.

Cingular, by contrast, is trying to appeal to a work force that is overwhelmingly young and mobile; it expects the average worker to stay with the company two years.

Cingular is branding itself as an innovative, hip workplace with the style of the dot-com world but none of the dot-coms' propensity to implode. Cingular's relational benefits focus on freedom, informality and personal-growth opportunities: pizza days, casual dress, tuition reimbursement plans.

The work force at the pharmaceutical company Bristol-Myers Squibb consists largely of parents and parents-to-be who stay with the company an average of 10 years, said Charles G. Tharp, the senior vice president for human resources. "These are people who are thinking about pensions," he said. So the company includes a 401(k) program and a traditional defined-benefit pension plan in its benefits.

Many of these benefits can be provided by outside vendors, allowing employers to create brand images without incurring fixed labor costs, said Paul E. Platten, a national practice leader for strategic rewards at Watson Wyatt, a consulting firm in Washington.

"The holy grail for a lot of human resources consultants is to help companies lower their cost of transaction," Mr. Platten said. A company that spent, say, $80 million a year administering pay and benefits in the past might now pare $20 million from its fixed costs by outsourcing those functions. "That's $20 million that falls right through to your bottom line," he said.

COMPANIES may like the sound of that. They may also deplore high turnover and long to keep their best employees. But most do not think that the employer-of-choice approach will work. A recent study of 7,000 corporate officers and managers by McKinsey & Company, a consultancy in New York, found that only 7 percent of managers thought their companies had enough talent to pursue the most promising business opportunities -- yet only 7 percent said they were updating their recruiting and retention strategies.

"There's a lot of people who think the 'best employer' thing is nothing but a big giveaway program," said Gary Mitchiner, a consultant for Hewett Associates, a management consulting firm in Lincolnshire, Ill. "There's a lot of cynicism: 'It's fluff. It's a beauty contest.' "

Mr. Mitchiner recently tried to pitch his firm's services to a utility. "They said: 'Come on! We're pumping natural gas here, and it's the same natural gas for everybody,' " he recalled. At a presentation to a major airline's executives, he was rebuffed with the argument that passengers care foremost about the route network, not about being served by a happy, committed work force. "They said the only people that are really valuable to them are the ones with licenses, and everybody else is just completely interchangeable," Mr. Mitchiner said. "And they're not being flip. They really believe it."

Human-resources consultants find such thinking hard to understand. "If a company buys a new machine, the first thing a manager will think is: 'How do I get the most out of this machine? How do I repair it? What maintenance schedule do I set up if I want to get a certain return?' " Mr. Platten said. "But people are looked at as a necessary evil," instead of as an investment.

One company's experience in offering an attractive benefit -- the four-day workweek -- to a small group of employees may help explain the doubts that many managers harbor concerning employer of choice. Although the experiment was a success, the company did not adopt the shorter week in every department.

PNC Financial Services Group, a large bank, recently moved its deposit-support department from downtown Philadelphia to a building in the suburbs. The change threw the 31 employees' lives into chaos. People were commuting as much as two and a half hours each way. Morale plunged in the department, which prepares paperwork for United States savings bonds, mortgage approvals and other financial processes.

PNC asked the department's supervisor, Ruth Farlee, what could be done. Ms. Farlee did not think a four-day workweek would be feasible, but she was willing to try because she was also fighting traffic four hours each day.

PNC gave Ms. Farlee free rein to design a shorter week; it took her six months. Because she was not authorized to hire new people or to pay overtime, she had to make sure the same number of people would complete the same amount of work in the same total hours a week. She also cross-trained everybody to backstop one another.

Next, Ms. Farlee put her department through a six-month tryout, explaining that if the four-day workweek failed, it would be abandoned. At the end of the trial, she interviewed each staff member privately.

"I got such positive feedback that I was shocked," Ms. Farlee said. Morale was up. Turnover had fallen to zero. Many employees boasted perfect attendance records.

Better yet, productivity was up. Though no one had expected it, the 10-hour, four-day workweek was better suited than the five-day week to the tasks the department performed. The best gains were on mortgage approvals: processing time dropped from eight days to three.

This may sound like the makings of an employer-of-choice campaign. But PNC is not about to roll out the four-day workweek companywide, wait for productivity gains and, on that base, build an internal brand. .

Kathleen D'Appolonia, the vice president for work-life and diversity at PNC, said she believed that the department's experience held a different lesson: the decisive factor in shaping a working environment is the work itself, not the goals of company branding. Some jobs might lend themselves to restructuring, she said, but not all, and seasoned managers are likelier than branding consultants to know which are which.

The four-day workweek succeeded in the deposit-support department because of the nature of the work, she said, and because the supervisor, Ms. Farlee, was a 33-year bank veteran who understood the department's duties and had the trust and support of her subordinates.

Ms. Farlee has now moved on to PNC's A.T.M. card operations department, where she has been given the latitude to introduce another four-day workweek. Even if she succeeds, her efforts will have little immediate effect on the rest of the company's 26,000 employees. "People are dying for some degree of flexibility and the ability to manage their personal Lives and their work lives effectively," Ms. D'Appolonia said. "But I'm not sure the answer is the compressed workweek. It depends on the nature of the business."