The Handcuffs Are Off, Now What? Three Strategies to Retain Talent without Non-Competes

With the Federal Trade Commission effectively eliminating non-compete agreements, it's time to cultivate an environment where talent chooses to stay and grow with your organization.

We’ve all read the news. The Federal Trade Commission has effectively eliminated non-compete agreements for all employees. It’s estimated that 18% to 30% of workers are bound by non-compete agreements, and they aren’t just at the executive level. It may surprise you to learn that a typical worker bound by the non-compete makes a median hourly wage of $14 – baristas, retail sales clerks, bartenders.

Many employers may feel that losing the protection of these agreements could pose a significant risk to their competitive advantage. Maybe not…

Non-compete agreements historically have limited people from moving to competitors or starting competing firms, handcuffing employees to their organizations. But in many ways, the employers are handcuffing themselves with this very action. Think about it like this:  when people are held in captivity, are we getting the best from them?

Of course we aren’t.  And there’s evidence to prove it.  

According to an article in The New Yorker Magazine, non-compete agreements depress productivity by preventing people from joining organizations where they are a much better fit and are more likely to thrive. Additionally, Harvard Business Review claims they reduce employee motivation and knowledge sharing. There is also evidence that they create a stagnant labor market where ideas are not flowing, stifling the fundamental building blocks of innovation.

Just as compelling, organizations are restrained along with employees with these agreements in place. Non-competes reduce market dynamism and interfere with a free market for labor. According to Harvard Business Review “When talent is locked up, the job market becomes “a market for lemons” — that is, a market where it is difficult to ascertain the quality, skill and past experience of candidates.” Rather than being able to hire the best talent, companies often must settle for less skilled people who require deeper initial investment in learning and development. Not all those people will be a long-term fit in the organization.  As a result of being tied to their firm, these employees are likely to engage in “quiet quitting” and consequently drive suboptimal business performance.

So, what’s the answer? Take advantage of this moment to create an environment where people want to stay and can easily chart their career and pay growth.

To attract and retain the talent that’s best for your organization, create integrated career and pay progression systems that deliver paths for people to stay and grow (in both their career and pay) with your organization rather than finding new opportunities elsewhere. Seeing a path for growth not only keeps your top performers but attracts newly available talent who are no longer locked down by non-compete agreements. With so few organizations painting this picture for employees, they will be clamoring to join your team. By giving your people more “agency” (more on this in an upcoming blog) over their careers and pay, you’re keeping the right people who want to grow and succeed with the business.

We recommend three strategies to tackle this opportunity within your organization:

  1. Invest in a flexible job architecture, a visual roadmap of career and pay progression, that includes interconnected paths to move across and around the organization. According to Harvard Business Review, “the career of the future is a portfolio to curate” rather than a ladder to climb. A flexible job architecture ensures top talent curates that portfolio through internal mobility versus looking outsides for their next career move.
  2. Adopt a pay for skills strategy. According to Josh Bersin, a prominent thought leader on talent trends, companies that operate around “people and skills, not just jobs and positions,” perform better on key business metrics, including that they are 9X more likely to attract and retain talent. Additionally, “A move to a skills-based philosophy is a future promise to employees that their investment (of time and energy) will pay off,” reports Mercer’s skills-based talent and pay practices guidebook.
  3. Proactively reskill employees to meet the business strategy now and in the future. Generative AI and other technologies are rapidly changing the nature of work and the skills required to meet business strategies. And employees are aware of these changes. A recent study by the University of Pennsylvania and OpenAI found that four in five U.S. workers could see at least 10% of their tasks impacted by AI. Companies who invest in skill-building efforts and tie it to business strategy will have a better shot at retaining top talent.  

Have I convinced you that you don’t need non-compete agreements to attract and retain the best talent? But do you still fear losing protection over your intellectual property and trade secrets?

Well then non-competes aren’t the right tool anyway. Why use a sledgehammer that creates so much damage when you can protect your intellectual property through a simple non-disclosure agreement without these ripple effects? Through a non-disclosure agreement, you can go after the actual people who infringe on your intellectual property rather than hamstringing all your employees. In addition, we’re all bound by federal laws to protect trade secrets.

The benefits of eliminating non-compete agreements far outweigh the downfalls. At Acera Partners, we partner with organizations to create integrated career and pay progression strategies. With our help, you can optimize this moment to attract and retain the best talent without relying on non-compete agreements to lock people down.

And everyone will feel better without shackles on.

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Carrie Magee
May 9, 2024
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