With a common focus on identifying and attracting top talent, the importance of retaining people is often overlooked. In the Japanese energy market competition for talent is increasing, the types of hiring companies are diversifying and the opportunity for high potential talent to significantly increase their market value with strategic moves is higher than ever before.
Hiring companies need to consider and implement a clear retention strategy from the start. This includes working style and benefits packages, longer term incentives designed to increase retention, visibility for career growth and most critically, a healthy workplace culture where employees feel valued and respected.
The market here is small, and people talk. In the past few months, we’ve seen multiple cases of one or two key people leaving a toxic organization, and within a very short period of time a mass exodus follows. When it comes to retention, prevention is better than a cure.
Benefits, what do people want?
Covid-19 shook up the work place, and shifted priorities for many. Work-life balance and flexibility have become a major factor for many employees, especially those with young families. The increase in European companies entering Japan with generous leave policies also creates a disparity that can sway decisions. Below are key benefits that today’s talent cares about, which can keep people satisfied or see them walking out the door:
-
-
- Hybrid workstyle. 3 days in the office, 2 days at home is the most desired setup for employees in Japan now. 5 days in the office is increasingly rare, even for blue-chip Japanese firms.
- Remote workstyle. Related to hybrids, many people moved back to their home regions post Covid. A system that allows them to work from their hometown, and payment for travel and/or accommodation close to HQ is highly desirable.
- Leave. The Ministry of Health, Labour and Welfare (MHLW) mandates a minimum of 10 days annual leave. Some companies still only offer this, where others are offering 20 or 25 days, with additional leave for sick days, childcare leave etc.
- Housing support. Companies can adopt a couple of methods to offer full or partial rental support; the benefit to the employee is that a portion of the cost is paid pre-tax.
-
There are other benefits offered by some firms, such as wellness and education support, additional health insurances, pension/ retirement systems; however, the above four have the highest impact on talent attraction and retention.
The pull factor, temptation from the outside
Why do people pay north of a million JPY for a Rolex or Louis Vuitton bag? Is the quality ten times better than a product that costs a hundred thousand JPY? Of course not, however scarcity drives up prices. Various job functions within the energy industry are either relatively new, or have an outsized impact on the success of an organization. These are the main areas where we see talent scarcity driving up hiring prices:
-
-
- Offtake. Talent with a strong network of bankable offtakers beyond the obvious GAFA players, and a track record of getting PPAs signed are in huge demand.
- Project origination. Japan is land-scarce for large scale projects. Talent who have built a personal network of landowners and brokers have gained significant market value.
- Interconnection. Both LTDA rounds were 10x oversubscribed for BESS applications. That is a lot of grid connection applications being made. Talent who can do this swiftly and efficiently commands a premium on the labor market.
- Trading. With futures volumes up 4x from last year and asset backed trading on the rise, this talent is the new profit center for operators.
-
If you add in other skills, such as bilingual ability or engineering + commercial negotiations, then scarcity increases. The bilingual electrical engineer who can also do development and lead commercial negotiations has become a Patek Philippe.
As an employer, you can bet that your talent in such categories will be approached by competitors. Even if they don’t have a LinkedIn profile and online presence, the market is small enough that they will be approached by ex-colleagues, friends, or business partners. Some of the approaches will include big money offers, significant promotion opportunities or other major ‘pull factors’ that can tempt your otherwise happy talent away.
Build a golden cage
The term ‘golden handcuffs’ typically refers to post-exit performance terms for top management; however, a similar approach can be taken to keep employees engaged and employed until the company reaches critical success milestones.
The simple approach of paying a higher base salary can work in some cases. After all, Japanese talent tends to lean toward certainty and security, so they’ll favour higher base salary (minimize downside risk) over high variable performance bonuses.
That being said, with scarcity pushing the value of ‘lightly experienced’ talent up, hiring companies are often reluctant to pay top dollar for as yet unproven talent. Building up a performance based ‘golden cage’ can be an ideal approach to minimize initial budget outlay, but give strong incentive to high performers and increase retention. Here are some long-term incentive methods that are particularly effective:
-
-
- RSU (Restricted Stock Units) or SO (Stock Options): RSU only applies to publicly listed companies, and SO can be given for private firms. Typically, having a one year cliff and three or four year period will give the company strong retention ability as the employee has significant value tied up in staying. SO can be weaker as typically illiquid, and RSU has the risk that a company trying to tempt your talent away may opt to buy your RSU out in the form of a stock for stock sign-on bonus.
- Exit-linked profit share: Often seen in development platforms or investment vehicles, a one-off bonus payout linked to events such as fund exit, asset selldown, etc, can be a strong retention strategy. The key is visibility. When the timeline, or the calculation for a split is vague, it often feels less real to employees and they’ll walk away from this.
- Performance based profit share: Typically appearing in consulting/ advisory or trading firms, giving a percentage of profit on an annual basis is an effective way to reward your early joiners as the business grows. Risk is directly related to the performance of your business; if it does well then they’re making too much money to walk. But if the business suffers, so do the employees as vulnerabilities in the scheme are exposed.
-
Not every scheme will apply to every type of business, however the feeling of reward and recognition for contributions made is one of the strongest factors in talent retention.
Career growth – is it worth staying?
With competitors sniffing around your top talent, offering Director titles to your Managers, giving wider responsibilities and attractive packages, how do you keep your people from being tempted? Showing a clear future is critical. If someone is presented with a certain step up externally, and the internal vision lacks clarity, or worse, if internal promotion relies on simply taking more trips around the sun, you are sitting on a ticking time bomb.
Companies that do this the best are open with their team with organization planning. Employees can apply internally to open positions, and even if those openings have both internal and external candidates being considered, the visibility and the chance to apply are major retention factors.
For a loyal employee, working hard for years, suddenly having an external hire come in above them can often be a trigger to start talking with people like us!
Not every company is large or complex enough to offer various career development routes. Even if you are a small firm, what you can do is set clear KPIs and performance targets that link to promotions in terms of title and income, even though the role and responsibilities may remain largely unchanged. Avoiding a feeling of stagnation, and fostering a sense of forward progress is critical for employee engagement.
Culture can make or break everything
Countless times, we’ve witnessed people leaving a lucrative golden cage, leaving a solid benefits package on the table and stepping away from imminent promotions because the culture simply sucked. Yelling bosses, no inter-team communication, shifting goalposts, top-down management, expectation to put in the hours over generating results etc are all signs of a bad culture.
Anytime someone leaves, or looks to leave, take the time to conduct an exit interview. Not only with the employee, but also with their direct manager and upper management.
Look for patterns if you have multiple exits. The old saying ‘people don’t leave jobs, they leave managers’ is often very true.
Andrew Statter is a Partner at Titan GreenTech, an executive recruitment agency focused on the clean energy space.