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Why your outsourcers’ cost of living adjustments don’t work

Stephanie Overby | May 4, 2016
Cost of living increases are intended to keep IT outsourcing staff happy and working hard on your account. However, only a fraction of the money makes it into the pockets of those workers. Here are three ways to fix that.

Staff retention must become a part of the service level agreement structure. “It’s a bit of a challenge because managing outsourcing relationships is about managing services and, ideally, about managing outcomes,” says Markos. “But of course at some level it’s the people involved who deliver the services and the outcomes, so there needs to be some focus on keeping the right people in place and giving them an opportunity to grow.”

2. Link cost of living adjustment to provider employee benefits.

IT service buyers can tie the cost of living contract terms more directly to increased compensation and benefits for those staffing their accounts. “It’s important that the incentives go beyond salary increases and include positive recognition, career growth opportunities, and a long-term career track — things that create an incentive for talented people to stay put,” says Markos. In some cases, a simple raise can actually be counterproductive; an increase in compensation can be a trigger to job hunt because it makes the candidate appear more valuable.

IT leaders should also pay attention to the details of how increases are distributed. “The other key factor is to normalize for factors such as attrition and new people coming on so that you’re not giving a bonus to a new hire just coming onto the account,” says Markos. “And with automation increasingly being integrated into outsourced solutions, you want to avoid getting into a situation where you’re paying salary adjustments to robots.”

3. Identify key team members who deliver critical value to the relationship.

This may not be clear unless the provider and client have had detailed conversations about the long-term objectives of the relationship are the strategic value the provider team will be delivering. “It requires an investment on both sides, and it’s not just an investment of money, but an investment of time to understand specifically how value is being delivered, who is delivering that value, and what’s important to the people delivering the value,” Markos says.

Once both parties are in agreement, the client can identify the most valuable players on the team and create an incentive structure designed to keep them on board. “You might identify five key managers and five key technology experts you want to retain.” Markos says. “you build the incentive program to keep those key contributors on the account, and then measure how effective the program is.” If it works, both parties benefit from the retention of top talent.

“Everybody talks about the importance of developing outsourcing relationships into strategic partnerships that deliver value and are a win-win for all parties,” says Markos. “This is a very specific and tactical way to address that strategic objective.”


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