Is your company having problems finding good employees to fill all the needed positions within your company? Are you thinking wage inflation is getting out of hand? Perhaps you should look at it from a different perspective. Multiple case studies have shown that companies with low employee turnover consistently earn the highest ROI and net profits. Companies with low turnover have minimal problems hiring and recruiting new talented employees. What is their secret, you ask? Three simple truths.

1) Recognition for one's efforts is a big deal.
Great leaders know people inherently need to be recognized for their efforts.

"A soldier will willingly give his life for a simple strip of yellow ribbon, but not for all the gold in France." - Napoleon Bonaparte

People crave a little bit of acknowledgment from upper management to be given an "atta-boy" for their efforts. And the simple truth is most companies do a terrible job of showing appreciation for the hard work being done by the employees.

2) Using the wrong benchmarks for performance measurement causes employee dissatisfaction and, equally importantly, decreases net profits.

In several companies that I has assisted in the past, I have found the design group using the wrong units to measure productivity. For instance, what do you think might be the result of the designers being measured using board foot (BF) for productivity? Well, I witnessed a scissored bottom chord filler using a 2x8. That's right, the bottom chord of the non-structural filler was a 2x8. Do you think designers are inclined to remove unnecessary webs when being measured by BF? The same problem can be found for the design groups using piece count as a benchmark. Let's give a shout-out to the designers who are getting a bonus by costing the company more money.

The wrong benchmarks can be found in other areas. For example, do you think a salesperson cares what the company's profits are if their commission is based on total sales dollars? Salespeople whose commission is based on total sales dollars willingly give out any price break to get the sale. The sales manager should be shouting, "You get a discount, and you get a discount; everyone gets a discount!"

In every department, the benchmarks should focus on what is in the company's best interest, not on the simplest unit of measurement.

3) Merit-based pay and leading market wages are actually making the company more net profits and the easiest method for attracting and retaining quality employees.

Ask any competent department manager one simple question: How much more productive is a skilled worker with at least three years of experience than an unskilled new hire? The answer is always the same. The output is usually double or more with fewer errors and higher quality. Now ask the CFO how much more profit would there be if the total margin dollars were doubled and experienced fewer project problems? Then ask yourself, how much is the company genuinely saving when wages are the main focus, and the company is struggling to retain and fill all the positions needed for maximum output. Focusing on margin dollars and comparing it to wage costs is undoubtedly the most overlooked method for truly understanding the need to invest in people for a better ROI.

"[Per an internal memo:] Time and time again, we see that our talent is in high demand, because of the amazing work you do to empower our customers and partners…Across the leadership team, your impact is both recognized and deeply appreciated — and for that, I want to say a big thank you. That's why we're making long-term investments in each of you." - Microsoft CEO, as quoted by Geek Wire

Just like automated equipment investments, wages should be viewed as an investment when using merit-based compensation.

What Happens When You Ignore These Truths - This true story I witnessed demonstrates my points. In Alberta, Canada, in the early 2000s, when the unemployment rate was officially at 0.5%, wage inflation was out of control. A rather large component manufacturing company had truss sales booked for six months within a market where the price was not an issue. (Sound familiar?) The company CEO brought everyone together for a pep talk because they were experiencing extremely high turnover and worker shortages. The CEO wanted people to speak up about why they were experiencing such a high turnover within the company, and he was willing to listen. After much prodding, a person spoke up and stated that they worked very hard, but it would be nice if they would receive recognition for their efforts. The CEO, who had just stated to the group that he wanted to listen and was eager to hear the reasons, looked directly at the person who spoke up. The CEO pointed his fingers in the shape of a handgun and stated, "I reward you for your efforts every two weeks," and shot the individual with his finger. The CEO went on to tell all the employees why they were working for such a great company, and they should not even consider working for anyone else.

How do I know about this incident? Because I was consulting for their competition that very week and heard about this pep talk via the client from one of their best designers looking for a new company. After that pep talk, this very competent designer wanted to start working for my client the following Monday. He did not want a promotion or a pay raise. He simply wanted to work for a better company. The company I was working with hired that designer immediately. The problem company actually went bankrupt not long after this meeting. Can you imagine a company with more work than they can process where the project's price is not the issue of going bankrupt? It happens, and it is all due to three simple truths they failed to understand about employee motivations: recognition, proper benchmarking, and merit-based pay.