Case Study: How Benefits Shapes your Talent Management

Steve Gifford Benefits, Organizational Development, Policies, Steve Gifford

So, here’s your organization, talent pro: strong employment brand, national recruiting, and no trouble filling vacancies.  Employees pay no premiums for medical, dental, or vision coverage.  They also get tuition reimbursement (including time off to study full time), free housing, and about a third of their paycheck is tax free.  No 401k match, but a fairly generous pension.  And, best of all, there is steady promotion, and it takes an act of Congress to get fired!

No, literally.

I’m speaking, of course, about my old employer, the Department of Defense.  Careful readers will note that one thing stood out in that litany of remarkable employee benefits – no 401k match.  The peculiarities of this particular retirement plan end up shaping how talent behaves throughout the military.

Military pensions offer cliff vesting.  It’s a big cliff.  If you serve in uniform for two years, or ten years, or 19 years and 11 months, you walk away with no retirement benefit.  Nothing.  Serve that last month to the twenty year point, and your pension is 50% of your final pay.  The pension starts as soon as you get out, not at age 65 – and, that 50% number creeps up with each addition year you serve past 20 years.

Before I turn FOT into Compensation Café, there is a talent impact here.  The ten year mark is a magic psychological barrier for soldiers.  If you pass that point, you’re “more than halfway”, and the pressure to stay in gets higher.  You could be collecting a pension at age 38 – who doesn’t want that?  Besides, you’ve figured out the system, you’re more senior now; the second ten years will probably be easier than the first.

By seventeen years, nothing’s going to get you out.  Voluntary turnover after about the fifteen year point is minimal.  An awful lot of these service-members at that point can tell you the number of days until the twenty-year mark.  They’re not making waves, they’re not driving change – they’ve found a safe place to hide, and are waiting.  And, in the process, they’re holding up promotion potential for others.

There have been proposals for a more civilian, 401k-match system.  These are initiated by the ballooning cost of this benefit, but also look at fairness.  After all, 83% of soldiers never make it to 20 years, and so get no retirement at all!  As you might expect, though, there is severe institutional push-back against changing anything about the current system (I’ve weighed in on this particular argument as well).

But for you, the talent pro who doesn’t plan on doing twenty years in the military, ask this question.  What are your employees doing differently because of your benefits package?  And, is that what you want them doing?