Retention pay is a common tool in a total rewards toolkit. However, as discussed in the previous article of this series, the case of Kelly Rieves is breaking new ground on both who is offered retention pay and how it is offered.

This week, we will review the pros and cons of this approach from the employer and the employee perspectives.

Talent Management: An Employer Perspective

Finding and keeping good people is one of the most challenging issues employers face across industries and sectors. Normally, retention conversations and strategies like those offered Rieves, focus on finding and keeping rare talent at the individual contributor or leadership levels, like engineers or chief financial officers.

Yet it is also very well-known that turnover is highest in low-paying, front-line jobs like in leisure and hospitality industries. Employers in these areas spend so much of their time, energy and money trying to find and keep good workers, it makes sense they would need to come up with creative ways to do so. Why not borrow strategies from retention practices that have already been proven to work?

Finding entry-level or lower management employees that want to grow within the company can save organizations the time and money spent addressing high turnover rates and the negative financial, culture and service-level impacts associated with them.

Using time-based retention strategies like setting an employment term and payment incentive pay every month during that time can help employers plan and budget appropriately, create a stable culture and improve service levels. Loyal, long-term employees are also worth investing in with additional training and education dollars.

It is thus critical that once a company makes such an investment, they have the ability to address the gap should the employee want to leave. Adding a minimum notice period to ensure the employer is not left unprepared if the employee in they have invested so much time and money decides to leave is simply good practice.

Getting and Keeping a Job: An Employee Perspective

Employees in the hospitality and service industries are used to long hours and low pay, and work when everyone else has the time off. Such jobs are not known for their perks and require a high level of soft skills like patience, interpersonal communication and hands-on management.

It is also common practice to get a raise by leaving an employer for another — something that is easier to do in this industry than others, simply because of the high number of hospitality and service industry employers. Noting that, if offered a position that provided an additional 30 percent of pay for every month worked, it would be hard not to take it. Further, if training was provided, the organizational culture seemed strong and supportive of longevity, and the employer made it clear their goal was to invest and support career development, it sounds like a great deal.

However, unlike the employer, as a potential employee my power in this situation is limited. I do not have a law degree, nor do I have a team of employment and corporate attorneys available to me to help me read through, interpret and negotiate my contract.

More likely I have an HR person or hiring manager who has told me the contract is standard and has focused simply on the pay and investment the company wants to make in me and my career. In addition, if I am out of work, have been looking for any length of time, or need a job for any reason, then what choice do I have but to take what is offered to me, especially when it is presented in such a positive way?

If this is the first employment contract I have seen, how would I know what to look out for, what is not common and what might not be legal? I need a job, I am tired of moving around, this employer wants me, wants to pay me what finally seems like fair wages, and I am being told this is a standard contract, why wouldn’t I sign it?

But the contract term may be unlawful and compromise my at-will status, six months is a completely unreasonable amount of notice to give as no employer will hold a job that long, wrapping my incentive pay into a monthly payment and tying it to a five-year payback requirement is unfair, and that is just the start.

The employer has all the power in this situation and is using it to take advantage my lack of experience with contracts, understanding of at-will status, inability to negotiate, and overall comprehension of the terms to which I am agreeing. This agreement may make business sense, but it is not fair on any level to the employee.

Bottom Line

It makes business sense to find a way to stop the traditionally high turnover in the hospitality and service industries. However, offering incentive pay contracts like Rieves was is not the solution. But it could be the start down the path to finding a balance between what works for both the employer and employee on a long-term basis.