With skills in key areas at a premium, small firms should be emphasising the non-financial advantages of working for small organisations to attract potential recruits.
The findings of a recent British Chambers of Commerce (BCC) skills survey come as no surprise to Brian Marcel, managing director of barcode specialists Bar Code Systems. The BCC survey of 343 small UK firms highlights serious skills shortages particularly in sales, management, computing and IT.
Marcel, who employs 24 staff at his Kingston-based company, understands only too well the difficulties SMEs face.
'I would say the skills situation has been getting steadily worse over the last four years and is pretty nightmarish at present,' he says. 'I spent £40,000 with recruitment agencies last year alone.' His company, which specialises in automatic data capture systems, barcode printing, verification and scanning for industries including retailing, warehousing, distribution and healthcare, depends on IT and sales expertise. 'We are a young, very specialised industry and just putting an advert in the paper is unlikely to locate the skills we need,' Marcel argues.
The BCC survey confirms that widespread skills shortages are dealing a major blow to the competitiveness of the UK's small firms sector. Almost one third of respondents believe that inadequate levels of skills in sales and management staff are having an adverse effect on their ability to compete. Computing and IT skills shortages remain acute. One quarter of firms claim to have suffered because of skills shortages in craft and related occupations and 17% because of skills shortages in plant and machine operatives. 'The obvious danger,' says Ian Peters, deputy director-general of the BCC, 'is that skills shortages will create major capacity constraints in the economy, giving rise to inflationary pressures. That's just what the UK doesn't need at present,' he points out.
Most of Britain's smaller firms do not need, nor can they cope with, ever-increasing salary demands. But if large pay checks are not viable and skills, particularly sales and IT, are at a premium, what can SMEs do to attract and retain skilled employees? 'Many small firms cannot compete with larger organisations in terms of the salaries they offer,' confirms Lauren Read, senior policy adviser for the CBI's small business unit.
'But there are many employees who are attracted by the benefits that working in a small company does offer. It's up to the firm to think creatively about these advantages and sell those benefits to potential recruits and existing staff.'
'When large base salaries are not an option, it's important to tempt employees with a piece of the action,' suggests Peter Leach, chairman of the Stoy Centre for Family Business. Small firm employees, who usually work very closely with the owner of the business, are generally motivated by feeling they can share in the success of the business, he says. Employees could receive share options or, he suggests, phantom shares, which provide all the benefits of share options without the complexities of issuing real shares.
Helen Murlis, remuneration specialist at Hay Management Consultants and co-author of Reward Management, agrees that a range of short-term (such as bonuses) and long-term incentives (such as phantom shares) are key cards in the small business hand. She stresses, however, the importance of providing a realistic salary and benefits package. Many owners don't pay themselves well and find it hard to get their heads around the going rate for skilled staff, she says. 'They need to consult some good data on industry salary trends so they can set their base pay at a sensible level. Then it's important to gear the bonuses very closely to reflect good performance and business growth.'
Marcel believes that the ability to recognise good performance quickly and in innovative ways is a major advantage of working in a small firm.
'We recognise good performance and loyalty in a range of ways including bottles of champagne, holidays for employees and their spouses and a bonus for employees who are still with us in the year 2000,' he explains. 'Being small, we can be hyper-sensitive to how everyone is feeling and react accordingly. I would also say that we probably set our sales targets lower than our larger competitors, which makes for a better atmosphere among our salespeople.'
Intangible factors such as working culture are making small firms increasingly attractive to employees, suggests Maggi Coil, former chair of the American Compensation Association and now principal of the Centre for Workforce Effectiveness in Northbrook, Illinois. 'Many employees now see base pay and benefits merely as a ticket into the ball park,' she says. 'What they are really looking for is flexibility in terms of career, work hours and work place. They want to be engaged in what they do rather than just employed - which can mean a share in the long-term future of the firm or an exciting project to work on. They want more responsibility and more credit for good performance.'
Small firms, Coil continues, are far more nimble than their larger competitors and find it easier to understand what motivation and incentives individuals require. David Hands, parliamentary officer for the Federation of Small Businesses, agrees: 'SMEs offer what many large companies either can't or won't provide, including more say in the management process, more hands-on training, more flexible roles and more individual attention.
Employees see more aspects of the business and are closer to the decisions being made. Smaller firms are also more flexible in how they can incentivise individual employees.'
One of the most forceful reasons for joining a small rather than large company is its potential flexibility towards individual needs, Murlis continues. 'It's wrong to assume everyone is motivated by the same thing. Some people will be insulted if you throw money at them, others will grab your hand off. To attract and retain good employees you must think about their individual motivation.' For example, a manager may want a stake in the long-term success of the company or time off to take some senior manager training. A researcher may be satisfied by responsibility for a key project, a study visit, time to attend conferences or the opportunity to finish a PhD. 'The key', she concludes, 'is to ensure that incentives provide something of genuine value both to the business and the individual. SMEs have a lot to offer skilled employees. They just need to consider more creatively what those advantages are and sell them more forcefully to potential recruits.'
But don't place all your faith in the pulling power of non-financial incentives, warns BCC Skills Task Force member Carolyn Ash, director of Carolyn Ash Recruitment. 'In my experience, employees today want the non-financial motivators and the money as well. Employers must be prepared to invest in training employees themselves and stop thinking of high salaries as a cost. If you recruit a top person, then they will save you money in the long term. The important issue is not what the employee costs but whether they provide value for money. If you don't cut corners on the recruitment process, then your investment in the right skilled employee will ultimately pay off.'
SHARE IN PHARMAVENTURES' LONG-TERM SUCCESS
The rapid rise in biotechnology, IT and hi-tech firms in the Oxford, Reading and Swindon area has produced an insatiable demand for specialist skills along the length of the M4 corridor, says Fintan Walton, chief executive of PharmaVentures, an Oxford-based pharmaceutical business development firm.
Walton and his 17-strong team offer a range of consultancy services that assist existing pharmaceutical and biotechnology organisations worldwide in their licensing, partnering and acquisition activities. 'To provide these services, we depend upon employing highly qualified staff from business development, R&D and knowledge management functions with extensive experience in the international healthcare industry,' he says. 'These skills, particularly in IT, are increasingly scarce.'
The key to luring and retaining the right people is 'incentivisation', says Walton. 'Offering huge salaries isn't practical for us and certainly isn't the only way to attract the skills we need,' he explains. More attractive is the potential for employees to make significant gains by sharing in PharmaVentures' long-term success, Walton suggests. 'Our aim is to go public in three to five years' time, which offers employees attractive share option opportunities.
We make a point of communicating our long-term business plans to staff so that everyone understands where the business is going and how they fit into the long-term strategy.' PharmaVentures' other financial incentive takes the form of bonuses to reward outstanding performance. 'As a small company, we can be far more flexible than larger, bureaucratic organisations in the rewards that we give and the speed with which we can pay them,' he argues.
Flexibility, Walton insists, is the strongest card in the small firm's hand. Small firms should emphasise their non-financial incentives to potential employees more, he says.