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Rethinking Employee Development

Employers should consider re-emphasizing the training and development of employees. When structured in a way that employees share the costs, such programs can aid retention as well as productivity.

Monday, April 28, 2008
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The issue that concerns me the most in the world of work is the sharp decline in employee training and development that has occurred over the last 25 years. Employers no longer plan on hiring raw recruits and growing them into contributors. They want to hire "just in time" workers who can step right in and contribute now.

An important reason for this shift is the view that investments in employees are simply lost: Employers who make the investments lose their employees to competitors who pick them off before the original employer can earn a payback on those investments.  

We have to find a way around this problem, or we risk losing the ability to train and develop talent. 

Getting employees to share the costs: Employees, not employers, are now the main beneficiaries of most training and development investments. The reason is that virtually all such investments raise the marketability of employees and, in turn, raise their wages even if they stay put.

As a result, it might seem reasonable to expect employees to at least share in the costs of training, especially because employers otherwise may not be able to afford to offer it. 

U.S. employers are free under the law to ask even nonexempt employees (covered by the Fair Labor Standards Act) to contribute to the costs of training and development that is not mandatory for one's current job. This includes training for competencies or experiences that may be required for other jobs in the organization, including ones that would be logical promotions. 

It is also within the law for employers to ask employees to share the costs of training and development if the employees are "exempt" from the FLSA, that is, not hourly paid.  

For those who are hourly paid, it is still within the law to ask employees to share training costs as long as the training is voluntary and is not required for their current job.  

Work-based learning probably doesn't fall under the protections of the law in any case.  In other words, asking an employee to work on a project that will stretch their skills or where they will learn something new is not protected.

A typical approach for employers might be to offer optional training programs after hours, when employees are not being paid, and to let those interested in taking the programs do so on their own time -- in effect advancing their own prospects for promotion in the process. 

An interesting example of this occurs in temporary help agencies, where the agencies make available extensive training programs for their workers in areas relating to their work, such as the use of desktop software, some of which even lead to recognized credentials. 

The employees take these classes on their own time and are then eligible for better jobs at higher pay. The employees benefit, as does the agency. 

Another way to get employees to share the costs is to through "training wages," a wage or compensation level that is held down during the period of training. A training wage would reverse the logic of the usual model and have the employees themselves pay for their training up-front -- since they are being paid less than they are worth. 

This is essentially a "pay as you go" model, which has the advantage of eliminating the incentives for either the employee or employer to break their side of the contract. 

The best-known example of training wages is in craft work, where apprentices make substantially less than journeymen but soon become worth much more. Wages go up as soon as they advance to the journeyman level. 

The practice of paying employees less than the value of their work at the beginning of their career compensates the firm for its training costs. Procter and Gamble is widely thought to be a company that can pay less than the salaries of its competitors because it offers much better development opportunities for new hires. 

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One of the most interesting and under-used examples of sharing development costs is tuition assistance programs.

In most of these programs, the employer pays part or in some cases most of the tuition costs of a post-secondary education program, and the employees typically do the work on their own time. Classes are scheduled after working hours, and students do their course work and studying after working hours. 

The U.S. Census Bureau estimates that the average level of employer-provided assistance is about one-third of the total costs of tuition and fees paid by post-secondary students. 

The employees have out-of-pocket costs, but their biggest investment, by far, is the time and effort spent attending classes and doing class work. 

What we've found about employers with these programs that is most interesting is, first, that the programs help attract better quality applicants: Anyone willing to work full-time and then go to school evenings and weekends is a hard worker. 

And, most surprising, turnover rates actually seem to be lower with these programs. Even if the participants are just waiting to get their degree and then leave, it takes a very long time to get through most academic programs doing them part-time. For the employer, these programs end up being the cheapest retention devices they can imagine.

The end result of all of these arrangements is that more training and development can be offered. The employees benefit enormously from all this. 

The employers also see some benefits through retention and, at least in the short-run, superior skills at lower wages, and their costs for development are minimized. Most importantly, the economy as a whole benefits because the level of skill in the workforce goes up.

Peter Cappelli is the George W. Taylor Professor of Management and director of the Center for Human Resources at the Wharton School of Business.

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