By Debra Gordon . Even if turnover in the industry isn't the appalling 75 percent some cynics suggest, there's no doubt that building companies' renown revolving doors are seeing plenty of activity these days. Finding good executives, particularly division presidents, has turned the business into a poach fest. Even the current economic downturn provides no protection against employee pilfering, says Jon Graham, who specializes in recruiting executives for the residential building industry as an account manager at MRI, a recruiting firm in Indianapolis. Good people are still in high demand, he says, "because they have the skills that allow them to be successful in good and bad times."
The continued strength in the home building sector, otherwise a good thing, means that finding good people is likely to remain a challenge. "There are more opportunities than strong people," says Steve Wall, president and CEO of Choice Homes in Arlington, Tex.
Martin Freedland, president of Organizational Development Associates, a consulting firm in Atlanta, says that these days, larger builders have less tolerance for mediocre performance than ever, so managers must perform or leave.
Mid-size builders, on the other hand, have their own issues: sometimes they can't compete for top talent. As they run out of land and stop growing, they find it more difficult to keep their executives, who leave for more challenges, says Tim Ryan, Chicago division president of Town and Country Homes.
New Mexico builder Michael Sivage faces similar challenges. Regional companies like his — the firm will build 1,200 homes this year — can have a difficult time attracting the very best candidates, who tend to look to the largest companies for growth opportunities and better pay, he says. That's why Sivage says he tries to groom executives from within. He can't afford not to.
"With the wrong people, financial resources and systems are wasted," says Sivage, CEO of Sivage Builders in Albuquerque, N.M. "The top executives are not just an asset to the organization — they are the organization." A division president, he says, "can literally make a difference in millions of dollars each year to a company's bottom line. Long term, they can build or destroy your local reputation, by virtue of quality control and customer relations."
Merger In; Managers Out
Consolidation is an added factor in the industry's game of management musical chairs. Not to put too fine a point on it: "After an acquisition or merger, the blood flows," notes Freedland.
Some builders, Standard Pacific for one, have addressed the likelihood of losing talent when two companies merge. When it purchased Phoenix builder UDC Homes four years ago, the co-CEO of the acquired company stayed on as division president. "We had no employment contract with her; she certainly didn't need to stay with the company, but she's still there today," says Stephen J. Scarborough, CEO of Standard Pacific. In Colorado, where Standard Pacific acquired the Ryder Corporation, founder Joey Ryder remained as division president; and the founders of Colony and Westfield — two Florida companies recently acquired by Standard Pacific — are also staying on as division presidents.
Such consistency in management isn't common in acquisitions, says Freedland. "Where we see a fair amount of turnover at high levels is after these mergers take place." One way to avoid that, he says, is to conduct blind attitude surveys from top management down to the customer in order to better understand the culture and management style of the acquired company. "That way, you can find out what's really going on there, assuming you want to keep some of these people," Freedland says. And don't bother with retention bonuses. "As soon as the bonuses are up, they're gone," he says. In one instance, a builder who acquired a large company in the southeast put everyone on a two-year bonus plan. As soon as the two years was up, the executives bailed. "All [the bonus] really did was give everyone two years to find the perfect job for themselves," says Freedland.
Despite the tendency of so many managers to jump ship, most parties strive to remain on friendly terms, says Steve Wall. "Most people try not to burn any bridges going forward because with all the consolidation that's occurring, you never know who you might be working with."
The Price of Farewell
A company's best people can do as much for a builder's bottom line as land inventory or lines of credit. Qualified, loyal people can determine a firm's ability to expand, retain clients, and maintain its standing in the industry.
Then there are the real costs of losing top people, the millions it costs in lost productivity, in losing other team members to the departing executive, in recruiting and training replacements. Not to mention the loss of customer loyalty when a valued division president or even vice-president or manager leaves — and heads across town to a competitor.
A manager's first instinct may be to sweeten the pot. But hold off on revamping that compensation plan. Money isn't the key to happiness.
"Frankly, I've had several recruiters call waving lots of dollars," says Michelle Melvin, marketing manager in Colony Homes' Raleigh division. "What I've found is that the dollars don't replace the quality of life and the relationships that you develop here."
Colony encourages its associates and managers to leave work at 5 p.m., and the Raleigh division recently decided to close its sales centers on Sundays so employees can enjoy personal time.
"People don't quit companies because of money, generally," says Spencer Clarke, founder and owner of S.R. Clarke, an executive search firm in Fairfax, Va., that specializes in human resource consulting for the real estate industries, "They quit their boss." They quit because of how they're treated, the lack of growth or upward mobility, and the lack of opportunity or challenge. And, in the building industry, which attracts independent, entrepreneurial-minded people, they often quit because they simply don't have enough freedom to do their job.
That's why Standard Pacific Builders lets its division presidents run their areas as autonomous, entrepreneurial companies, says Scarborough. "They get support from our operation, but the company has been built up over the years with the philosophy that we're here to service the divisions and we don't want to dictate how they can go about their business," he says. Thus, division and regional presidents determine their own target markets and products, operating procedures, and business plans.
Turnover among top executives at the company is almost nonexistent, says Scarborough, adding that the 35-year old publicly-held company has never had one of its top executives leave for another builder. Scarborough himself has moved up through the ranks of Standard Pacific from division president in Orange County in 1981 to his current position as chairman and CEO of the company's headquarters in Irvine, Calif.
The company also strives to promote from within. For instance, when it expanded into the Inland Empire a couple of years ago, management plucked a young executive who showed tremendous potential for the division president job. "He hadn't been trained for it at all up to that point," says Scarborough. "But he's done an incredible job in a very competitive market."
This type of approach, he says, sends an important message throughout the company that there are opportunities to grow within the organization.
OK, Money Counts
Although money isn't everything, all things being equal, it ultimately will make a difference. That's why Dura Builders, in Indianapolis, recently restructured its compensation plan, says the company's president Paul Shoopman. "You can't talk enough about the importance of manager retention," he says. The new system pays out monthly bonuses based on actual weekly, monthly, quarterly, and annual sales goals. It — along with anticipated growth in the company — has already resulted in the return of two managers, including one of the most successful sales managers the company has ever had, says Shoopman, who declined to be more specific about his compensation strategy. This type of bonus structure works for both the company and the employee because people are rewarded quicker for reaching their goals. "If they have to wait a full 12 months to be financially rewarded, they're not as likely to achieve their goals as fast as you'd like them to be achieved," he says.
At Choice Homes, money also plays a role in retaining top executives — the lion's share of their compensation comes via profit sharing — but freedom and authority play the bigger role. "My philosophy is very simple," says CEO Steve Wall. "Freedom and accountability. It's very important for me to allow them the space they need to do their jobs, and that they don't feel like every time they bump their head their job is on the line." He's seen other companies run hierarchically from the top down, he says. "That's very difficult to do in this day and age," he says, particularly as independent, loyal-to-themselves Gen-Xers move into positions of power. "If you want to grow young leaders that want to work for you long term, you have to adapt," he says.
Shea Homes, of Walnut, Ca., tries to plan ahead in its retention plans, putting potential employees through extensive interviewing and screening in a process called Targeted Selection, says Howard Hulme, the company's human resources vice president. "To the extent that your selection processes are good, it gets the right person in the door and that goes a long way," he says. For instance, when Shea has a position to fill, it first defines in detail the kind of person it's looking for, then creates an interview guide with behaviorally based questions around those requirements.
Once executives are in place, Shea uses a variety of efforts ranging from insuring competitive compensation to managing the morale and commitment of its employees. Every 18 months, for instance, it conducts an extensive survey in each division to understand what's important to employees, says Hulme, then uses the data to make the types of changes necessary to insure that "people feel tied to the organization." For instance, when the survey found some employees didn't believe there was an equitable compensation strategy in place, Shea hired a consultant to revamp its compensation program. The next two surveys found no problems with compensation. "We call it a commitment index," says Hulme. "It's about measuring the strength of the relationship between us and the employee, and it goes both ways. You don't get it unless you give it."
That's true, says recruiter Clarke. "Look to yourself," he says. "I promise you that you cannot get an employee to quit a company where he looks forward to going to work and has opportunities for recognition."
?Debra Gordon is based in Nazareth, Pa.
Published in BIG BUILDER Magazine, November 2002