Faced with a full-employment economy and a strong housing market, how are the largest home building companies responding to the challenge of finding, hiring, rewarding and retaining management talent?
We explored this issue in Reference Point, our periodic study of management practices in the home building industry. This year’s study, undertaken jointly by SAI Consulting and Greene, Hollister, was conducted among a select group of 56 large building companies, drawn from the nation’s top 400, as ranked in this magazine’s 1998 Report on Housing’s Giants.
Recruiting and Retaining
Almost three-quarters (73%) of the surveyed CEOs of these firms have attempted to fill management positions in the previous 12 months. The percentage was slightly higher among those who classified themselves as semi-production builders (86%) vs. those who classified themselves as production builders (74%). In contrast, slightly more than half (55%) of those who called themselves custom or semi-custom builders indicated they have been in the market for management talent.
While an overwhelming percentage (89%) successfully filled positions, the search tended to be anything but easy. More than two-thirds (71%) of those surveyed said it was “very difficult” to find people to meet their requirements, while another 17% said they were disappointed in the quality and experience of the people they hired. Bottom line? Only 12% of the big builders who attempt to recruit managers say they have no difficulty in finding and hiring the right candidates.
External vs. Internal
Our questions to these senior executives generated responses focused almost entirely on external sources of applicants. Less than 3% identified internal growth as a "best source" for management talent. Slightly more than half (55%) said that referrals are their best source of candidates, while another third (33%) said they rely on executive search firms. The larger the employer, the less likely to rely on referrals and more likely to use executive search firms. In fact, employers with 100 or more employees rely almost equally (46% and 39%, respectively) on network contacts and search firms. Interestingly, responses to this question produced a clear correlation to profitability. The more profitable the company, the more likely it is to rely on referrals from contacts and the less likely it is to rely on executive search firms.
The vast majority (88%) of executives participating in our survey said management turnover is not a problem. However, almost one out of every 10 (9%) said they have huge amounts of turnover — turning more than 50% of their management team in the last 12 months. And the incidence of high turnover is just as likely in custom or production building companies and just as likely in smaller companies as in the largest.
Rewards
When it comes to rewarding employees, "bonus tied to performance" still rules. When asked what reward system they use, almost all respondents (91%) cited this method. Public recognition (32%) and other, unspecified methods (23%) are used to a much lesser extent.
We take particular note of the extent to which surveyed firms are now willing to share equity. While only one in five (20%) cited this method as part of their reward packages, there’s a clear relationship between the size and production methods of firms and their willingness to do so. Only 10% of companies with fewer than 50 employees share equity, but that percentage rises to 22% for companies with 50 to 100 employees and to 28% for those with more than 100 employees.
Not a single custom or semi-custom builder in our study provides equity ownership. Yet 14% of "semi-production" and 29% of those who describe themselves as production builders include stock ownership in their reward packages.
Although this year’s study is the first time we’ve probed the components of big-builder reward systems, what we found gains support from the data in previous Reference Point surveys. In 1997, 17% of participants said the following statement describes their company very well: "We believe that employee stock ownership is a relevant issue for our company." The connection between company size and production methods is also remarkably consistent. Only 7% of the 1997 respondents with fewer than 50 employees agreed with that statement, compared to 23% of those with 50 or more employees. Not a single custom or semi-custom builder agreed with the statement, but 18% of semi-production and 27% of production builders did.
Among this year’s participants, there is considerable diversity of opinion on what their reward systems are intended to accomplish. Almost half (45%) believe the primary objective is to motivate better job performance. But more than a third (34%) see it primarily as a way to "align our employees with the company’s vision and mission." One in five view it first and foremost as an opportunity to attract and retain employees.
The more production-oriented a builder is, the more likely the firm is to see the reward system as a means to attract and retain employees and the less likely the firm is to see it as an opportunity to motivate job performance. And despite all the rhetoric about being "learning organizations," none of this year’s survey respondents say they intend bonus payments to function as an incentive to reward learning.
Job or Individual?
Traditionally, compensation has been linked to the job an individual holds. But with the advent of "work teams," new forms of compensation such as "skill-based pay" and "competency-based pay" have emerged. Such systems link the amount of pay to the skills, knowledge, abilities and even attitudes of the individual, not the job he or she is performing. Our survey data reflects the growth of this trend, with respondents almost equally divided between "position pay" (48%) and "person pay" (43%). Again, size and production methods have significant impact. The largest employers, with 100 employees or more, mostly link compensation to the job (72%).
Finally, we asked responding executives about bonuses, which nearly every company indicates that they pay, and whether they are based on defined performance goals. Overall, almost three-quarters (73%) say they base bonuses on pre-established performance goals. However, production (80%) and semi-production (71%) builders are more likely than custom and semi-custom (55%) to have such goals.
Our Advice
In light of all this, here are our thoughts on recruiting, rewarding and retaining a management team:
- Back when we were building homes, we were taught to keep key talent from leaving in good times and to add talent in bad times. Have we now reached the point where management talent has become the primary constraint — the resource in shortest supply — and therefore the one builders must try hardest to manage and improve? If so, the capacity of the current management team should be exploited and all other resources subordinated to it. Make certain the managers in your company are free to perform the value-added work for which they have training and talent. Everything else in your company should be focused on making that happen before you buy (recruit and hire) additional managers.
- Regardless of what resource is constrained — capable, motivated managers or something entirely different — improving the performance of that constrained resource will result in additional production capacity. The challenge then is to find a profitable use for it.
- Open your books! Sharing your company’s financial goals and operational performance is a prerequisite to achieving any of the objectives your reward system is intended to accomplish, be it motivating better job performance, aligning individuals with one shared vision, attracting and retaining good people, or motivating and rewarding learning. In our survey data, there is a direct correlation between open-book practices and (1) reduced problems with hiring the right kind of people and (2) achieving a successful rewards program (i.e., the ability of bonuses based on group-oriented performance goals to work as intended.)
A Thickening Plot
In every Reference Point survey, we have asked the CEOs of the nation’s largest home building companies one simple, open-ended question: What is the greatest managerial challenge facing your company today? In every survey, responses relating to recruiting, retaining and motivating employees have significantly — and increasingly — outpaced other categories.
In 1996, 24% of answers to that question related to employee issues, twice the number of the next most frequent issue. In 1999, 52% of the answers related to this issue. As we’ve written in previous issues of Professional Builder, the people side of home building is all about the why, the underlying business logic and the want to. All of the what and how-to elements are disappointing exercises without people who care deeply about the outcome.
Mike Hollister is president of Greene, Hollister, in Greenville, S.C. He can be reached at 864.370.0400 or via e-mail at [email protected]. Fletcher Groves is a vice president of SAI Consulting (formerly Service & Administrative Institute) in Ponte Vedra Beach, Fla. He can be reached at 904.273.9840 or via email at [email protected].