Why do organizations pay for training that makes employees more attractive to competitors?
Organizations commonly offer some form of tuition assistance to employees. Some limit the type of training they will cover. Others leave it open to the employee to pick and choose the type of courses they’re interested in taking. Many unions, including the CAW, have included tuition reimbursement as a core part of bargaining strategy.
But why should an organization pay for training that could make its staff more attractive to competitors and drive up salaries? It’s a rather simple argument — it keeps costs down in the long run by reducing turnover and increasing the company’s talent pool.
Barbara Moses, president of BBM Human Resource Consultants Inc. and a best-selling author, said organizations that don’t offer tuition reimbursement are one of two things: short-sighted or simply too small to have the resources to cover the upfront costs. The common belief that employees will leave for greener pastures as soon as they’re trained is misplaced, she said.
“For every story I know of that happening, I know of two stories where someone is planning on leaving but the effect of this is, ‘I’m going to stay here,’” said Moses. “As a result of enhancing their education, at considerable expense to their employer, they felt an enhanced loyalty to their employer and felt that their employer had invested significantly in them and that it would be unfair therefore to jump ship.”
Having a better-trained employee usually means organizations will, in turn, have to pay that employee a higher wage. But Moses argues that is the entire point of training employees.
“If you really want someone who has a masters degree, because of what the degree is symbolic of in terms of enhanced understanding of a particular subject area, then you’re simply paying them what they’re worth,” she said. “Obviously, it’s much cheaper for an employer to invest in an existing employee and increase their skill set and perhaps end up having to pay more for that than to go onto the street to buy someone with equivalent skills.”
Peter Cappelli, a professor at the Wharton School Centre for Human Resources at the University of Pennsylvania in Philadelphia, has done extensive research on why organizations offer employees assistance in paying for education. He agreed with Moses that the benefits of offering tuition reimbursement seem to outweigh the risk of having employees leave once the training is done.
“Yes, there is that risk, but you get better candidates and they stay around at least long enough to finish their education, which turns out to be longer than most people stay,” he said.
Cappelli’s research, summarized in his paper Why do employers pay for college?, shows that over the past 20 years, one in five employees had a tenure of less than one year and 45 per cent stay four years or less. Employees using tuition assistance stay with the firm longer, he said, because they want to keep using it to complete their education — a process that can take many years. Since employees typically study part-time on evenings and weekends, it takes about 14 weeks to complete a typical undergraduate course. Given this, the amount of time required to complete an entire degree could easily exceed the tenure of the average employee, he said.
Blue-collar assistance
While the argument for offering tuition assistance to workers in knowledge-based jobs is a strong one, where’s the benefit in training the blue-collar workforce? Both Moses and Cappelli said there’s a benefit to industrial settings as well, even though it might not seem as obvious.
“It’s not an accident that you’re going to find it in knowledge-based industries like law firms, public accounting firms, government and pharmaceuticals, where the possession of credentials is symbolic of a certain kind of thinking,” said Moses. “In an organization where the base of their business is machinery and where intellectual capital is not what drives the business or its heavy investment, then there’s not the same kind of imperative.”
She said it’s “fabulous” that unions bargain for tuition reimbursement.
“In unions, very often they’re not in knowledge-based industries,” said Moses. “But increasingly the kind of skills required by blue-collared workers are knowledge skills. It starts at the basic level, which is literacy, up to degrees and higher-level degrees.”
Cappelli said assembly line workers can benefit from tuition assistance just as much as any employee.
“Even blue-collar jobs can benefit from more educated workers,” he said. “Consider how teamwork and total quality management have changed even assembly line jobs.”
Cappelli said companies need to be strategic in implementing a tuition assistance program to ensure results.
“I’d say the big way is to think about what the employer wants to get out of the investment: Do they want to just attract and retain more or do they want specific skills?” he said. “Depending on the answer they may want to shape how much support they give and with what restrictions. For example, less restrictions will lead to broader use while more focused investments will lead to more relevant courses.”
What are companies doing?
In 1998, Hewitt Associates surveyed 460 medium and large employers on the design and administration of tuition assistance plans.
It found most companies reimburse for a range of courses but require that the courses be related to the employer’s business. Only 23 per cent of employers reimburse for general business-related courses that do not relate to the employer’s business or the employee’s current job. Further, only eight per cent reimburse for non-business courses unrelated to the business or not required as part of a degree program.
•New employees. Most organizations don’t allow new employees to take advantage of tuition reimbursement programs. Two-thirds of employers (67 per cent) set a minimum service requirement with six months to one year being the most common.
•Dollar limit. Nearly half (45 per cent) impose a flat annual dollar limit on the amount reimbursed, with a median limit of $4,700. About 10 per cent of employers set a higher dollar limit for graduate courses.
•Part-time employees. More than one-third (38 per cent) offer tuition assistance to at least some part-time employees.
•Complete the course. Most employers (76 per cent) reimburse only after successful completion of a course.
•What if the employee leaves? Only 26 per cent of employers set a requirement that an employee will return all or a portion of tuition reimbursement if the employee leaves soon after finishing a course or degree.
But why should an organization pay for training that could make its staff more attractive to competitors and drive up salaries? It’s a rather simple argument — it keeps costs down in the long run by reducing turnover and increasing the company’s talent pool.
Barbara Moses, president of BBM Human Resource Consultants Inc. and a best-selling author, said organizations that don’t offer tuition reimbursement are one of two things: short-sighted or simply too small to have the resources to cover the upfront costs. The common belief that employees will leave for greener pastures as soon as they’re trained is misplaced, she said.
“For every story I know of that happening, I know of two stories where someone is planning on leaving but the effect of this is, ‘I’m going to stay here,’” said Moses. “As a result of enhancing their education, at considerable expense to their employer, they felt an enhanced loyalty to their employer and felt that their employer had invested significantly in them and that it would be unfair therefore to jump ship.”
Having a better-trained employee usually means organizations will, in turn, have to pay that employee a higher wage. But Moses argues that is the entire point of training employees.
“If you really want someone who has a masters degree, because of what the degree is symbolic of in terms of enhanced understanding of a particular subject area, then you’re simply paying them what they’re worth,” she said. “Obviously, it’s much cheaper for an employer to invest in an existing employee and increase their skill set and perhaps end up having to pay more for that than to go onto the street to buy someone with equivalent skills.”
Peter Cappelli, a professor at the Wharton School Centre for Human Resources at the University of Pennsylvania in Philadelphia, has done extensive research on why organizations offer employees assistance in paying for education. He agreed with Moses that the benefits of offering tuition reimbursement seem to outweigh the risk of having employees leave once the training is done.
“Yes, there is that risk, but you get better candidates and they stay around at least long enough to finish their education, which turns out to be longer than most people stay,” he said.
Cappelli’s research, summarized in his paper Why do employers pay for college?, shows that over the past 20 years, one in five employees had a tenure of less than one year and 45 per cent stay four years or less. Employees using tuition assistance stay with the firm longer, he said, because they want to keep using it to complete their education — a process that can take many years. Since employees typically study part-time on evenings and weekends, it takes about 14 weeks to complete a typical undergraduate course. Given this, the amount of time required to complete an entire degree could easily exceed the tenure of the average employee, he said.
Blue-collar assistance
While the argument for offering tuition assistance to workers in knowledge-based jobs is a strong one, where’s the benefit in training the blue-collar workforce? Both Moses and Cappelli said there’s a benefit to industrial settings as well, even though it might not seem as obvious.
“It’s not an accident that you’re going to find it in knowledge-based industries like law firms, public accounting firms, government and pharmaceuticals, where the possession of credentials is symbolic of a certain kind of thinking,” said Moses. “In an organization where the base of their business is machinery and where intellectual capital is not what drives the business or its heavy investment, then there’s not the same kind of imperative.”
She said it’s “fabulous” that unions bargain for tuition reimbursement.
“In unions, very often they’re not in knowledge-based industries,” said Moses. “But increasingly the kind of skills required by blue-collared workers are knowledge skills. It starts at the basic level, which is literacy, up to degrees and higher-level degrees.”
Cappelli said assembly line workers can benefit from tuition assistance just as much as any employee.
“Even blue-collar jobs can benefit from more educated workers,” he said. “Consider how teamwork and total quality management have changed even assembly line jobs.”
Cappelli said companies need to be strategic in implementing a tuition assistance program to ensure results.
“I’d say the big way is to think about what the employer wants to get out of the investment: Do they want to just attract and retain more or do they want specific skills?” he said. “Depending on the answer they may want to shape how much support they give and with what restrictions. For example, less restrictions will lead to broader use while more focused investments will lead to more relevant courses.”
What are companies doing?
In 1998, Hewitt Associates surveyed 460 medium and large employers on the design and administration of tuition assistance plans.
It found most companies reimburse for a range of courses but require that the courses be related to the employer’s business. Only 23 per cent of employers reimburse for general business-related courses that do not relate to the employer’s business or the employee’s current job. Further, only eight per cent reimburse for non-business courses unrelated to the business or not required as part of a degree program.
•New employees. Most organizations don’t allow new employees to take advantage of tuition reimbursement programs. Two-thirds of employers (67 per cent) set a minimum service requirement with six months to one year being the most common.
•Dollar limit. Nearly half (45 per cent) impose a flat annual dollar limit on the amount reimbursed, with a median limit of $4,700. About 10 per cent of employers set a higher dollar limit for graduate courses.
•Part-time employees. More than one-third (38 per cent) offer tuition assistance to at least some part-time employees.
•Complete the course. Most employers (76 per cent) reimburse only after successful completion of a course.
•What if the employee leaves? Only 26 per cent of employers set a requirement that an employee will return all or a portion of tuition reimbursement if the employee leaves soon after finishing a course or degree.
