Why Companies Are Terrible At Selecting, Retaining And Motivating Their Talent

Recently, I was chatting with someone from a very successful Internet-based company about the "war for talent" he was currently engaged in.

He said: "God, it's amazing what's going on right now! We're constantly developing our people and our competitors will swoop in and poach them. We're growing so fast, so we haven't had time to really focus on it. However, I keep telling the folks in HR that they need to get a better plan to stop our bleeding there."

It reminded me of something I read in a 10-Q for Yahoo! from a few years ago. Under the "risk factors" facing their ability to continue to grow the business, they cited the risk: "If we are unable to retain our existing senior management and key personnel and hire new highly skilled personnel, we may not be able to execute our business plan." Many other companies include it in their risk factors section as well.

They go on to explain that: " Many of our management and key personnel have reached or will soon reach the four year anniversary of their Yahoo! hiring date and, as a result, have become or will shortly become fully vested in their initial stock option grants. Although employees receive additional grants, an employee may be more likely to leave Yahoo! upon completion of the vesting period for the initial option grant, which is generally the largest option grant an employee receives. If we do not succeed in retaining and motivating our existing key employees and in attracting new key personnel, we may be unable to meet our business plan and as a result, our stock price may decline."

So, here are two examples of companies, who realize that their continued success depends on being able to select, retain, and motivate great people. Yet, at least in the first example (and I would guess the 2nd), they acknowledge that they don't really know what to do.

They're not alone. I can't tell you how many times I've heard the refrain: "Our people drive the business" or "Our most important assets go down the elevator at night" or some variation of those.

The problem is that most companies stop at this superficial level. They don't actually develop sophisticated programs to actually address the problem of keeping their best people and finding more to further accelerate their growth. And, by the way, the demographics are irrefutable that this problem is just going to become worse in the next 10 years.

Why do most people not have a clue how to hire, retain and motivate great people?

1. It's HR's problem. It's not. It's the leaders' problem.  At most companies (especially the fastest growing ones), HR is chronically under-staffed and having difficulty keeping up with the more nuts-and-bolts aspects of their jobs (i.e., getting payroll out the door, doing basic hiring/promotion, and generally keeping the business moving ahead). True, some of the best companies have HR experts in leadership development who are building and implementing some great programs for talent selection, retention, and motivation. However, this is more the exception than the norm.

2. Throwing more money at the problem doesn't solve it. Many people believe more compensation will solve the "talent problem." However, this rarely happens — or it's only a quick-fix for problems that will recur. I don't want to be Pollyanna-ish. Money is a factor. But it's usually not in the top 3 reasons for a really talented person to join a company.  They want a great boss, great people, and an amazing opportunity to change the world.

3. What gets you promoted, doesn't make you a great leader or manager of people. When you start out in your career, how do you get promoted?  You get stuff done.  Whether you're an accountant, a lawyer, or a tech exec, you do a lot of work and you do it well.  What gets you promoted when you're a manager of people?  Getting a lot of people underneath you get stuff done.  That's a totally different skill set, which an MBA won't help you with.  You've got to learn it on the fly and most people don't have a clue.

4. Performance reviews and goal-setting doesn't happen. If you're doing a poor job of sitting down with your people and not at least setting goals with them and giving them feedback on how they're doing, they're going to look for other opportunities where they get that feedback.

5. There's never any discussion around career path with your people. Goal-setting is one thing.  Taking a half an hour and asking your people where they want to go in their careers in the next 5 years is another thing. 90% of people I've talked to have no clue where they want to be in 5 years.  Most will say they just want to be promoted to the next rung in the ladder.  If you actually help them think through where exactly they want to go, they'll appreciate it and it builds loyalty.

6. Bosses get sucked into promoting based on performance and not potential. We like to predict who will be a great future sports star or future executive.  But have you ever looked at how well all the expensive NBA, NFL and baseball teams do at drafting young players?  They're lousy.  Don't fall into the trap of promoting someone because they're young, cute, and bright and you think they'll be great in some new role.  Have they actually accomplished really challenging projects?  Getting real complex tasks done is a better predictor of future performance than just some subjective assessment of their potential.

7. Allowing "bozos" to infiltrate a team. Great talent loves other talent.  They can take a lot of abuse (see Steve Jobs at Apple (AAPL)), as long as they're surrounded by great people doing great things.  What talent hates is when "yes men" and brown-nosers – with no talent or at least much less talent – are made their peers or (worse) their bosses.  Instant pink slips.

8. Losing touch with the product or market you're selling into. To go back to Steve Jobs, as his bio makes clear, he was a jerk often.  Why did people take it?  Because he had credibility.  He wasn't always right but he knew his stuff and – probably more often than not – he was right.  He pushed his people hard because he knew the products could be better and (deep down) his people knew it too.  When bosses start spending time buying hockey teams – like Jim Balsillie at RIM (RIMM) – or otherwise get distracted, they lose touch with the customers.  Ever seen a sales manager who's forgotten how to be a good salesman going on sales calls?  It's embarrassing.

9. The leaders get arrogant. It's related to #8, but sometimes leaders get soft when they've been successful for a number of years.  They expect to keep dialing it in and making the same amount of money.  Life doesn't work that way.  Eventually, all monopolies end.  Arrogance tends to put off team members who have to suffer through it, especially when you combine it with losing touch with your core market.

10. Paying people unfairly. One of the dumbest moves last year was when Zynga (ZNGA) CEO, Mark Pincus, decided to take back some of the stock options he'd previously given out to certain employees.  It was unprecedented – and dumb.  People in the Valley will remember that for a long time.  It will hurt Zynga's ability to bring on new talent in the future.  And lots of people will be happy when Zynga stumbles.  Pay good people fairly for what they do.  And don't reward the bozos.

Growth can mask a lot of problems. However, you shouldn't neglect the issue of talent selection, retention, and motivation in your company for too long. You only have to go through the experience of trying to replace a "star" once to know what I mean.

[Jackson was long YHOO and AAPL at time of writing]

Thanks to Eric Jackson / Forbes / Forbes LLC™
http://www.forbes.com/sites/ericjackson/2012/01/19/why-companies-are-terrible-at-selecting-retaining-and-motivating-their-talent/

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