Creating a best-in-class workplace: talent is the key to success--hiring, retaining, rewarding and recognizing employee contributions and accomplishments is essential. How is your firm addressing this issue and burgeoning challenge?

Many apartment firms are not prepared for or aware of the impending talent crisis--a growing shortage of workers who possess the skills, education and motivation needed to succeed in a highly competitive environment.

This crisis is not limited to a specific geographic region, property type, size or specialty-focused apartment company. Every firm faces the same predicament and increasing risk, and very few have prepared for this crisis. Most apartment companies have been reactive to the pending crisis by increasing pay levels, deploying various long-term incentive programs, offering signing bonuses to attract candidates and, in general, paying more for more or less the same performance they received from others with a lower cost.

This pending crisis is not only confined to a financial issue; it involves a declining and aging workforce and appallingly high levels of employee turnover. The relationship between the employer and the employee within the apartment sector is changing dramatically.

Perhaps the best indicators of denial or acceptance of the changing workplace relationships can be found in how the organization is structured and designed to accommodate its talent. A firm in denial or lacking concern can generally be identified if the company:

1. Has a human resources department or function that focuses more on paper filing, benefits administration and policy enforcement;

2. Lacks quantitative performance measures;

3. Believes that everyone is easily replaceable;

4. Treats employees as a liability, not as an asset;

5. Has outdated compensation programs;

6. Believes that it has all the "answers" and performance benchmarks are "nice," but not important; and

7. Has no idea of the true cost of employee turnover, lack of training and flawed hiring practices.

Also, if the human resources director is not on the same title or ranking level with all other senior vice presidents or division leaders, that is a clear sign that human capital (70 percent of operating costs) is not that important.

Shifting Employment Models

This unprecedented challenge to the profitability (some might say survivability) of apartment organizations requires dramatic or radical changes to the workplace environment, structure and an entity's approach to talent. In the past, the employer was the king, issuing policies, directions, business practices and rules. However, the passage of the Tax Reform Act in the fall of 1986 changed everything. While not intending to do so, this act essentially shifted the focus of apartment organizations from an asset-centered to an employee-centered business model.

Workers, who in the past often "protected" their position by conforming to management's directions, discovered that there were many employment opportunities and some even "paid you to leave." As the employment crisis worsened during the late 1980s and early 1990s, apartment firms began to "trade" employees. Because few young people were entering the apartment industry, real estate firms "stole" from each other. Why join an industry in recovery when you could be employed by a cash-rich dot.com or high-tech firm?

As this new free agency status heated up, employees began to demand more, expect more and want greater control over the workplace environment. As the age of the average community manager, for example, rises (now 45 years of age), apartment companies were forced to go outside the industry to hire replacements and new employees, offer flexible benefits and compensation structures, accommodate work/life balance issues and in general redefine the employer-employee relationship. Many apartment firms deployed a "values-based" strategy to hire employees who were more aligned with the company's beliefs and standards of excellence.

During this stone period, apartment firms were growing rapidly, development activity was accelerating, the abundance of capital spurred historically high levels of transactions and oversupply factors were placing operating and financial constraints on performance. Apartment CEOs were facing and still face the delicate balancing acts of addressing people and performance. Without people there is no performance, but without performance there are no resources for people.

Struggling to hire in one of the most competitive hiring markets of the past 30 years, apartment firms are now increasingly placing a renewed focus on talent. Apartment organizations now recognize that there is a shortage of good talent; every new employee will require training and mentorship; all titled leaders are not necessarily good, people-based leaders or great judges of talent; current compensation structures no longer work; and human resources can play an important role in profitability, performance and productivity.

Best Practices of Talent-Centric Firms

CEL & Associates Inc. recently completed a two-year study of leading real estate firms specifically to identify ideas, solutions and practices that can be considered best practices. While nearly 50 best practice strategies and initiatives were identified, the following is a brief description of 25 of the "Best-In-Class" actions that have emerged as the leading indicators of talent-centric organizations--actions that also deliver superior results. This list is not in order of importance or popularity.

* Elevate human capital to the same level as financial capital.

* Replace hiring-by-availability with core competency hiring practices and hiring teams.

* Provide a workplace environment that encourages continuous improvement and training.

* Embrace career development as an integral part of every employee's annual performance evaluation.

* Replace subjective/discretionary bonus awards with objective/quantitative reward structures.

* Reduce the cost of employee turnover by developing successors in all key positions.

* Revitalize compensation programs by benchmarking performance and shifting to performance scorecards.

* Adopt productivity measures that quantify true performance.

* Closely monitor rising healthcare costs and deploy benefits plans that are flexible and attractive to a diverse employee base.

* Lock in "stars" through long-term incentive plans and "too-costly-to-leave" compensation structures.

* Encourage and welcome employee involvement in decision-making and policy formation.

* Continuously strive for improved communications between employees and their supervisors.

* Implement and monitor a "key values" workplace environment.

* Conduct independent solicitation of employee feedback through employee opinion surveys.

* Perfect leadership skills among senior-level executives.

* Selectively deploy mentorship and coaching programs.

* Reduce or eliminate unnecessary paperwork, e-mail overload and redundant work practices that detract from performance.

* Build a sense of ownership, empowerment and pride throughout the organization.

* Regularly share the firm's vision, mission, goals, key strategies and results with all employees.

* Make sure that bonus awards and recognition are meaningful.

* Conduct on-time, written and face to face performance evaluations.

* Overcome insecurities of those who are afraid or reluctant to hire people more talented than they are.

* Encourage and support social and community volunteerism.

* Make sure employees receive an adequate orientation before starting a job.

* Communicate the role and value each job has to the firm's success.

Creating a talent-centric workplace environment that works is not easy. Often experienced apartment industry consultants are needed to accelerate and guide or shape the new business model necessary to compete and prosper in the years ahead.

Employee Turnover Rate

          Overall       Senior     Regional     Onsite     Onsite
Year       Rate      Executive    Executive    Manager    Leasing

1998       38.8%          8.6%        10.3%      21.3%      33.7%
1999       41.4%          9.2%        11.2%      23.5%      37.4%
2000       40.3%          8.4%        10.8%      22.0%      35.5%
2001       38.3%          7.8%         9.7%      19.6%      31.6%
2002       37.0%          7.4%        10.4%      20.3%      32.5%
2003       33.1%          5.5%         8.6%      18.5%      27.6%
2004       31.8%          5.2%         9.0%      19.7%      28.9%
2005 *     32.1%          5.2%         9.1%      20.2%      30.3%

               Onsite
Year      Maintenance

1998            43.2%
1999            45.3%
2000            44.2%
2001            41.5%
2002            41.0%
2003            37.9%
2004            38.6%
2005 *          38.4%

* Forecast

Source: CEL & Associates Inc.

Employee Turnover Rate

Year    Senior       Exempt    Non-Exempt    Company    Inflation
         Mgmt.    Employees     Employees    Average         Rate

1998      4.7%         3.9%          3.0%       3.8%       1.6%
1999      5.2%         4.0%          3.4%       3.9%       2.2%
2000      5.5%         4.3%          3.7%       4.2%       3.4%
2001      5.8%         4.9%          4.2%       3.9%       2.8%
2002      4.0%         3.8%          3.5%       3.7%       1.6%
2003      3.7%         3.6%          3.4%       3.6%       2.3%
2004      3.9%         3.5%          3.2%       3.5%       2.7%
2005      4.0%         3.3%          3.1%       3.3%       2.8% *

Year          Bonus
        Realization

1998        90.0%
1999        91.0%
2000        89.5%
2001        92.0%
2002        86.0%
2003        80.0%
2004        83.4%
2005        87.0% *

* Forecast

Source: GEL & Associates Inc.

Rules of Employment

Old Rules

Employee for life

Work is defined by location

Employees work for company

Hierarchical career path

Companies centralize information

Managed employees

Defined jobs

Fixed hours

Employer-employee relationship

New Rules

Everyone is a contingent worker 

Work follows the employee

Employees work for themselves

Rewarding career development

Knowledge is controlled by the individual

Empowered employees

Ever changing responsibilities

Work any time and all the time

Employer-customer relationship

Christopher Lee is President and CEO of CEL & Associates Inc., a real estate consulting, compensation and performance benchmarking firm. For information or questions regarding this article, please contact Lee at 310/571-3113 or [e-mail].