As U.S. economy rebounds, will star employees depart?

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Last month, the Commerce Department reported a dramatic 7.2% annualized growth rate in the third quarter—the highest growth rate since the first quarter of 1984—so many people are convinced the U.S. economic recovery is finally under way. A number of observers predict a sustained growth rate of around 4% for the remainder of this year and next.

Compensation and staffing levels at ad agencies are creeping up, too. The b-to-b portion of the just-completed 2003 Advertising Age Salary Study projects base salary growth for 2004 among CEOs, CFOs and account executives in the 4% to 6% range. That compares with 3% to 5% growth this year. Staffing levels show a greater uptick. Some 36% of respondents to our sister publication’s study said staff levels in 2003 were greater than in 2002, compared with 20% in 2002 vs. 2001. But for 2004, more than two-thirds of agencies forecast an increase in total employment, and only 2% expect head counts to fall at their shops. (One caveat: the b-to-b portion of the survey, prepared by Irwin Broh & Associates, was based on 28 out of 215 total responses.)

Unfortunately, there’s an unpleasant underbelly to this good news. Over the past three years, both ad agencies and marketing departments have slashed staff and frozen (or cut) salaries. The effect has been felt most keenly among the bottom 10%, employees who were laid off and may still be out of work. The top 10%, while undoubtedly anxious about the future, have jobs and responsibilities that aren’t all that different from the pre-crash days.

But it’s the 80% in the middle, the workers who’ve absorbed the slack from staff downsizing, that companies need to focus on. These employees, across all industries, are irritated, overworked and ready for a change. What does an improving economy mean for them? It means opportunities to jump to new employers, exchanging what they know is a bad situation for the promise of something better elsewhere. Indeed, the skill sets of these workers have expanded significantly during the downturn, as necessity has dictated they wear multiple hats and add job functions.

For companies that acquired top-notch talent at bargain-basement prices during the past couple of years, there’s an additional vulnerability. "If they came from a large corporation and suddenly that job opens up again, at the salary and benefits they had before, it’s hard to compete against that," the head of a well-known b-to-b agency told me.

What should companies do?

For starters, managers need to find creative ways (training or other perks) or traditional ways (bonuses, raises) to retain top people. Don’t wait until every other company is doing this. By then, it’ll be too late, and you’ll lose your best talent at the very moment you need them most.

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