Careers September 4, 2008, 5:00PM EST

The Best Places to Launch a Career

(page 3 of 4)

For many companies, though, the bigger problem—far bigger than recruiting—is retention. Overall, average five-year retention rates for employers that took part in both the 2007 and 2008 rankings began to slip this year, from 55.4% in 2007 to 52.8% in 2008. This was true for some companies in low-paying industries, including insurance and transportation, and industries with relatively high pay, both of which struggled to hold on to their youngest employees. While the accounting industry made modest improvements, companies in other industries took it on the chin: Abbott Laboratories (ABT) saw its five-year rate drop from 83% to 72%, and Intel's (INTC) fell from 71% to 58%. Claudia Tattanelli, CEO of Universum USA, says falling retention is a function of Generation Y's fearless attitude: "They're not going to stay in a job just because the economy is bad."

Indeed, one reason high pay alone is no longer enough to guarantee loyalty is that many members of Gen Y, who have been entering the workforce since 2004, have other priorities. For them, issues such as community service and serving the greater good are among the most important, according to the 2008 Universum USA survey of U.S. undergraduates.

That's an inversion of the baby boomer priorities, and particularly good news for nonprofit and government employers. Some of the federal government agencies in our ranking—including the State Dept. and NASA—mesh well with Gen Y priorities, which helps explain why their retention rates are high even though the pay is nothing special. And with more than 60% of the federal workforce eligible for retirement by 2016 (and 37% expected to actually depart), the opportunities for rapid career advancement—another Gen Y priority—are growing. At AmeriCorps, which each year sends an army of 75,000 to serve nonprofit groups in communities across the country, applications from young adults are up 69% in the last four years. David Eisner, the CEO of AmeriCorps' parent agency, the Corporation for National & Community Service, says AmeriCorps is the beneficiary of a generation intent on giving something back. "It's the kind of demographic shift you almost never see," says Eisner.

But if you can't promise new college grads a chance to save the world—or a seat on the space shuttle—how do you get them to stick around?

A growing number of employers are trying the carrot-and-stick approach. Some companies in recent years have restructured their 401(k) matches and vesting schedules to entice new employees to stay until the richer benefits kick in. Among them: Honeywell International (HON), American International Group (AIG), and Blue Cross Blue Shield, where three out of four entry-level hires leave within three years. The health insurer last year ditched its traditional pension plan and created a 401(k) match that starts at 3% and goes as high as 10%, based on age and years of service.

To improve retention, Ernst & Young in 1999 began doubling its match after four years of service to 3%. Today, it boasts the best five-year retention among Big Four firms: 34%. Although that still leaves a lot to be desired, the savings in recruiting and training expenses are significant. Explains Mary A. Stringfield, E&Y's head of Americas benefits: "Retention was a key factor for designing that match formula."

As incentives go, ballooning 401(k) benefits are a crude but effective way to keep employees tethered to the company. But for a generation that values flexibility, there's something even more valuable that employers can offer: no tether at all. About a year ago, BearingPoint (BE) started a program to permit employees to work from home full-time. Of the consulting company's total workforce of 16,000, some 800 employees ultimately took it up on the offer, including Jenny Fredrickson. Fresh out of college, the 24-year-old marketing analyst started in the company's Redwood (Calif.) office in January 2007 but joined the work-from-home program a year later to be near her family and boyfriend, and to buy a home 360 miles away in tiny Etna, Calif. (pop. 750). Today, she's part of a virtual marketing team with outposts in six states. It's lonely at times, but conference calls and the occasional real-world meeting with her teammates break up the monotony. "There's a lot of flexibility with where you can live," says Fredrickson. "That's one of the main reasons I joined the firm."

It's too soon to determine the success of BearingPoint's work-from-home program. But Tom O'Connor, a senior BearingPoint manager who founded the program, says younger employees like Fredrickson find working remotely more desirable than boomers do, so there's real potential to increase their job satisfaction. "My son is a junior in college," O'Connor says. "The last thing he wants to do is sit in a cubicle all his life."

Programs like BearingPoint's improve retention by making employees more satisfied with the day-to-day aspects of their jobs. But more targeted interventions are sometimes equally effective. By making a big impression when it matters most—in the first year of employment, when a lot of entry-level hires jump ship, or at the three-year mark, when boredom and frustration often set in—employers can get their young charges over the hump and, with luck, motivated to stay on for many more years. More than a dozen companies in this year's ranking did that with cold, hard cash, increasing the size of performance bonuses awarded to entry-level hires in their first year on the job. KPMG paid out an average of $4,300, up from $3,500 in 2007, and to a far larger group of employees—nearly 80% got the bonuses in 2007, up from 53% in 2006.

At IBM (IBM), the average bonus more than doubled, to $3,500, from $1,500 in 2007, but fewer employees received them in their first year on the job: 83%, down from 92%. Laurie Friedman, an IBM spokesperson, says the company purposely raised the bar for awarding the bonuses to increase the amount and make a bigger impression. Says Friedman: "It's one of the ways IBM attracts the highest-quality applicants in today's competitive tech job market."

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