Senior Client Partner, Sector Leader, Professional Services
Move Over, Equity. Cash Is King
The executive was having a good day: three job offers awaited him in his in-box, part of a talent bidding war for his services. The employers began sweetening their offers. One offered a larger signing bonus. Then a competitor tossed in an annual cash payment that would vest over four years. A third followed suit with a salary boost. These were not small amounts of cash.
This year, a shift has hit the compensation market: cash is king. Deep-pocketed companies like Alphabet and Amazon are upping their cash payments to employees, often in the form of performance or sign-on bonuses. Others are fattening salaries yet again. Korn Ferry’s Global Rewards Pulse Survey 2022 found that 69% of companies are now offering sign-on bonuses and 75% are offering retention bonuses, with 1 in 5 firms saying they’re using each more than ever before. “It’s a bidding war,” says Juan Pablo González, Professional Services sector leader at Korn Ferry. “This has become the cost of attracting talent and, more importantly, retaining top talent.” And what a high price it is: experts say that inflation is being partially driven by these high costs of labor.
To be sure, equity is still a pivotal part of compensation packages. “It’s tough to attract talent without equity as part of a long-term incentive plan,” says Bradford Frank, senior client partner in the Technology practice at Korn Ferry, who has recently helped candidates understand the value of cash that vests over time vs. equity. Frank says that or the last 10 years, when market growth was consistently up-and-to-the-right, equity was usually more attractive to candidates than cash. “That’s no longer the case,” he says.
Today, experts say that cash is a reasonable incentive if you know why you’re using it. Wrongly deploying it may inadvertently attract job hoppers, whose job horizons are shorter than the three-to-four-year timelines of many equity packages (thus their attraction to cash). “I don’t think midlevel people are thinking three years out. They’re intending to be promoted in one-and-a-half years,” says Gonzàlez.
Tom McMullen, leader in the North America Total Rewards solutions group at Korn Ferry, categorizes attracting and retaining talent as two different moments of truth. It works like this: financial rewards are often critical in getting workers in the door, but nonfinancial rewards tend to keep people in organizations. “A variety of compensation tools is increasingly being used to bring talent into to the organization,” says McMullen.
But long term, cash is not the answer to labor market constraints. “You can’t solely just throw a bunch of money at this,” McMullen says. That’s because whether people stay with an organization longer term quite often revolves around non-monetary factors like meaningful work, an energizing environment, and career development opportunities—paired with a compelling compensation package. “It’s about waking up and wanting to go back and work for an employer, day after day,” says McMullen.
Korn Ferry surveys support this: They show that year after year, the number one reason managers and professionals consider leaving companies is because of a lack of career development opportunities. A close second is a lack of mission-driven work, which connects employees’ work to the firms’ vision and values. A third of companies are increasing their efforts around clarifying and leveraging organizational purpose, according to recent Korn Ferry surveys. Because cash is not king in the second moment of truth. “It’s about what it feels like to work at an organization,” McMullen says. “Where companies tend to lose their people is in the nonfinancial rewards.”