Tidal Software: stopping the engineering leak
Tidal Software is a Wellington SaaS company with 85 staff, revenue of $12 million and EBITDA of $1.1 million. Voluntary turnover in engineering is 24%, against an industry average of 12%; seven engineers left in the past year. Exit interviews point to base pay 8–12% below market, no clear career pathway, an on-call roster of one week in three, and unpaid overtime. Each replacement costs about $18,000 and takes 45 days to fill; contractors cost $1,200 a day. Two senior engineers have just resigned to a competitor, taking product knowledge with them. The CEO proposes either a 10% pay rise for all staff, costing $720,000 a year, or retention payments of $15,000 each for 14 critical staff, costing $210,000, plus $90,000 for a career framework and an on-call review. The board wants to protect EBITDA and avoid an employment relations dispute. An engagement survey shows 54% engagement, and 68% of staff cite workload as a problem.
1. Analyse the human resource issue at Tidal Software. Use turnover data and at least one motivation theory to explain why engineers are leaving and why the issue threatens business performance.
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The issue
Engineering turnover is 24% against a 12% industry average: seven exits from roughly 30 engineers. The direct replacement cost is 7 × $18,000 = $126,000. Vacancy cover at $1,200/day for 45 days is $54,000 per role, or $378,000 for seven roles. The total visible cost is about $504,000, or 46% of EBITDA. That excludes lost product knowledge, delayed releases, customer service risk and the effect on remaining staff.
Why they leave
Herzberg's two-factor theory separates hygiene factors from motivators. Pay 8–12% below market, unpaid overtime and a one-week-in-three on-call roster are hygiene issues: their absence creates dissatisfaction, even if exciting work exists. The lack of a career pathway is a motivator problem: engineers cannot see advancement or recognition. Equity theory adds that engineers compare their pay and workload with the market and with colleagues; perceived inequity leads to exit.
Why it threatens performance
In a SaaS firm, engineers hold product and client knowledge. Two senior exits to a competitor create immediate delivery and confidentiality risk. The company then pays contractors $1,200/day and slows delivery, which can trigger customer churn. Turnover therefore affects revenue, not just HR cost. The issue is strategic, not simply a pay problem.
2. Evaluate the CEO's two pay options against the alternative of a targeted retention and work-design package. Recommend a course of action, with implementation steps and one measure of success.
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Option 1: 10% across-the-board pay rise
Cost $720,000, leaving EBITDA of $380,000. It is simple and may be seen as fair, but it is permanent, treats all staff the same, and does not fix career pathways, on-call workload or unpaid overtime. It also spends most of the available margin without a clear retention mechanism.
Option 2: targeted retention plus work-design package
Cost $210,000 + $90,000 = $300,000, leaving EBITDA of $800,000. It directs money to the 14 critical staff and addresses the career and on-call causes. The risk is perceived inequity: staff outside the 14 may disengage, and retention payments can become an expectation. Payments should be transparent, criteria-based, time-bound and combined with a genuine on-call review, not used as a substitute for fair base pay.
Recommendation
Choose Option 2, but strengthen it. Use objective criteria for the 14 roles, consult staff and any unions in good faith, and publish the career framework. Review on-call within eight weeks: paid on-call, fatigue limits, time off in lieu and a two-week roster. Add a smaller market adjustment for lower-paid engineers if the budget allows, because 8–12% below market is a structural problem. Success measure: voluntary engineering turnover falls below 15% in 12 months, with engagement up at least 10 percentage points. A second measure is time-to-fill below 30 days. If turnover does not move after two quarters, revisit the base-pay gap.
3. Explain the employment relations and legal risks Tidal must manage if it introduces retention payments and changes the on-call roster, and how these risks affect the viability of the plan.
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Employment relations risk
The Employment Relations Act 2000 requires good faith. Changing the on-call roster, overtime or pay is a change to terms and conditions, so Tidal must consult before implementing it. It cannot impose the change unilaterally if on-call is in individual or collective agreements. A failure to consult can lead to personal grievances, legal costs and further turnover.
Health and safety and holiday risk
A one-week-in-three on-call roster plus unpaid overtime may create fatigue. The Health and Safety at Work Act 2015 requires the company to manage risks so far as reasonably practicable. Holidays Act 2003 compliance is also relevant if overtime and on-call are not properly recorded. These are not optional; they affect the viability of any plan that relies on extra hours.
Retention payment risk
Retention payments are lawful if in written agreements, but criteria must be objective and non-discriminatory. A clawback clause must be reasonable and enforceable. Paying 14 staff while others are below market can damage equity and morale, so the company should explain the criteria and pair payments with a wider review.
Effect on viability
The targeted plan is affordable at $300,000, but legal non-compliance could add cost and delay. The board should treat consultation and health and safety as part of implementation, not as an afterthought. If the on-call review identifies unsafe workload, the company may need to reduce on-call frequency even if that costs more. That is the responsible judgement.