Stephen Aday, controller of Cellular One of San Francisco, has managed to hold the turnover rate in his finance department to about 21 percent. Too high, you say? It could be much worse, according to Aday.
After all, Cellular One, a digital wireless service provider that began as a joint venture between AT&T Corp. and AirTouch, doesn’t offer stock options. That’s a big minus in Silicon Valley, where the overall turnover rate is about 20 to 25 percent, and where experienced finance staffers are hot properties.
Also, Aday’s department had embarked on a cost-cutting program three years ago, called The Finance Challenge. As a result, head count dropped 23 percent, largely through attrition. “Not exactly the message you want to send out these days,” Aday dryly remarks. The Finance Challenge came to a screeching halt in the second quarter of 1999, when word came of Cellular One’s impending acquisition by AT&T Wireless. Aday realized the merger would create uncertainty that would inevitably lead to a mass exodus from the finance department unless something dramatic was done.
“We said, ‘The Finance Challenge is over — good riddance,’ ” recalls Aday. In its place is a new program, dubbed Finance 2000. “Our mission is to build a work culture that meets the needs of employees in an uncertain environment.” The new program has kept turnover from soaring even higher, he says.
Meeting the needs of finance employees is something turnover-weary companies are striving to do these days — and not just in Silicon Valley. National unemployment hovers near 4 percent, while the flurry of start-ups everywhere has dramatically increased the demand for financial leadership. The slump in the stock markets has sunk many stock options, the golden handcuffs that are supposed to keep employees in place. Throw in the rise of the free-agent workforce, and you’ve got an employee-retention problem on a nationwide scale.
Of course, any company is going to have trouble retaining employees if it can’t convince them that its business model is sustainable. But these days, more than ever, CFOs need to promote a corporate culture that values and rewards finance staffers — even if the rewards aren’t always monetary.
Pushing Finance Buttons
Cellular One’s new finance program was launched not a moment too soon. The AT&T Wireless acquisition was completed at the end of June, and uncertainty is the word of the day. Fortunately, Aday was able to implement a number of his Finance 2000 initiatives before the sale was complete. The program focuses on creating learning opportunities, blending home and work life, and creating a fun work environment.
Conspicuous by its absence from Finance 2000 is the word “compensation.” “None of this is about compensation or shaving expenses,” says Aday. “Every single one of us could leave for more money and a promotion tomorrow. It’s the work environment that’s keeping me here. It’s the soft stuff, not the options.”
Aday and his senior finance staffers brainstormed about what would make Cellular One of San Francisco a terrific place to work, and he says that they tailored the Finance 2000 program for “a finance psyche.”
“We tried to figure out what pushed finance buttons,” he explains, adding, “a lot of this stuff wouldn’t work for engineering and IS.” High on the list of buttons were training, professional development, recognition, and balance. “In finance, you toil away at your desk all day, but you don’t get that much recognition.” Cellular One’s finance department now has five different recognition programs, says Aday, including the Star Awards, in which outstanding staffers are eligible for prizes; and the X Awards, which recognize quality achievements and allow winners to give presentations about their activities to finance managers.
Aday also put Cellular One’s money where its mouth was. He doubled the budget for training programs and put special emphasis on cross-training within a variety of finance disciplines. In addition, he created a training matrix for each employee, which was filled in as employees completed various assignments.
Aday also began advocating alternative scheduling arrangements to foster a better balance between work and leisure time. This involved asking employees what their ideal schedules would be, as long as they worked 40 hours per week. “There was some internal resistance to this,” says Aday, but the controller made it clear he was 100 percent behind the new, flexible scheduling; any finance manager wanting to make an exception had to explain why.
Training, development, and retention benchmarks are now part of finance supervisors’ performance evaluations, says Aday. Although Cellular One of San Francisco’s current retention figures are still not great, Aday is very happy with the program. “Our employee satisfaction has improved, and we have an identity about what kind of internal environment we can offer now.”
The Implicit Contract
Creating that environment, say experts, is the only way to ensure long-term employee retention, especially in today’s market. Many companies have relied for too long on high salaries and options incentives, and have neglected the basic thing that makes people care for and stay at a company — the implicit contract between employer and employee.
“There’s the mistaken impression that if you give people options, they’ll act like owners,” says Charles A. O’Reilly III, a professor at the Graduate School of Business at Stanford University. “A lot of companies are about to reap what they’ve sown. In order to keep people, those companies are going to have to reprice [options], but if you do that, lots of other bad things happen.” Among those bad things is a raft of disgruntled shareholders.
“You have to ask, what is the real employment contract here?” continues O’Reilly. “If it’s, ‘I’m going to buy you for this fixed amount,’ then when the financial underpinnings of the contract look bad, employees should leave. If the contract is ‘I will manage the company in a way that looks out for your interests,’ then when the company is under threat, people work harder.”
“A lot of companies are neglecting the ‘vision’ part in favor of the options compensation part,” notes B. Lynn Ware, an industrial psychologist and CEO of Integral Training Systems Inc., in Menlo Park, California. “Companies said for years, ‘You have to take care of your own career, be responsible for your own skills development.’ And employees bought it. Now I talk to companies all the time that say, ‘We don’t get it — we used to have people drop to their knees to come work here, and now these young kids won’t accept our job offers.’ “
Creating an employment contract that keeps people around when things go bad is one of the biggest challenges facing finance executives today, says O’Reilly. However, he adds, finance executives, used to dealing in dollars, may think that people are motivated primarily by money, not with the “softer” incentives that research repeatedly shows are more effective at keeping people. In fact, recent studies by Radford Surveys show that although technology companies are attempting to retain employees by raising wages, improving medical coverage, and increasing vacation packages, the biggest reasons people leave a company are a poor relationship with their supervisor and poor career opportunities.
Those points haven’t been lost on Arthur Knapp Jr., CFO of San Jose, California-based Calico Commerce, which makes software that enables E-commerce sales. Calico’s stock price hit the 70s shortly after it went public in October 1999 but has staggered since, falling all the way below the initial public offering price of 14 in May until settling to its current level of about 9 (below strike price for some employees, although they can still buy stock at 85 percent of the IPO price for the next two years). Yet, despite the downturn and the constant calls from hungry headhunters — Knapp’s direct reports are particularly in demand, since they have experience taking a company public — Calico has been able to retain all of its dozen finance staffers, says Knapp.
How has he done it? “It’s no one thing that works,” he answers. Instead, employee retention is a matter of following some basic, tried-and-true managerial techniques that have worked for him throughout his 30 years in the high-tech business. With the golden handcuffs all but gone, retaining employees is “more about communicating what the future can bring,” says Knapp. It’s also about making people feel that they are valued. To create that kind of an environment, Knapp says he starts out by hiring less-experienced finance staffers, bringing them in at a slightly lower salary than experienced workers. That way he’s able to give them larger raises and promote them more quickly or move them into new assignments, techniques that Knapp says make the staffers “feel like they’re growing as individuals.”
Once on board, “we try to keep the staff lean so that everyone’s working hard and nobody gets bored,” says Knapp. “And we try to keep a fun environment. We try to keep a sense of humor.”
But perhaps the most effective method of retaining employees is simply thanking them for a job well done. “You know the old ‘one-minute manager’ routine about catching people doing something right?” asks Knapp. “If you recognize people and make them feel they are contributing, they feel they have ownership in the company.”
Hiring for the Long Term
Another way to promote employee retention is to screen out so-called mercenary types — those more interested in a quick financial score than a long-term relationship. This approach to hiring has worked well at DoubleClick Inc., an Internet advertising-solutions company based in New York.
“We do not want mercenaries coming in to DoubleClick to score a quick buck on flipping some options,” says Stephen Collins, DoubleClick’s CFO, who has lost only one manager from his 110- person finance/accounting department in the past year, not including dismissals. “People who join us and think like shareholders are going to see the long-term potential of building their wealth,” he says. “We try to root out anyone who’s here for the pure greed of it.”
Collins also relies heavily on internal employee referrals to find good long-term staffers in the first place. Then, after Collins conducts initial interviews, all finance-staff prospects are subjected to a round-robin interview process with potential future co-workers. “We try to get people to open up about why they want to come to DoubleClick,” says Collins. “I’ve had several interviews where people come in and say, ‘I’m in bricks-and-mortar right now, and I see all these people making money and I want that, too.’ I say, ‘That’s not how it works. You’ll have to take a big cash cut.’ And the people who are willing to take a risk will end up having a more thoughtful discussion with me.”
That risk has grown considerably greater recently. Since it went public in February 1998, DoubleClick has seen its stock plunge from a high of 135 in January to 27 in July, close to its all-time low. Still, finance staffers have hung in.
“Most people keep things in perspective,” says Collins. “They believe in the business model and what we’re doing. We’ve seen this cycle three or four times since we’ve been public.”
Collins supplements pep talks with regular internal company communication about the company’s business model and goals. “If the employees see that we’re executing against our plan, then they have confidence in staying,” says Collins.
But Collins says that the biggest factor in his excellent retention rate is giving employees plenty of responsibility. “We push people to do more than what they think they can do,” says Collins. “They’re out there, talking to Wall Street, making big decisions. The compensation and options are good, but at the end of the day, if people couldn’t get that kind of responsibility, they wouldn’t be happy in their jobs and they’d leave.”