Keeping the Best—Why Retention Matters
Hiring and retention are two sides of the same coin. They complement each other, and if both are done well, they produce what every company desperately needs: first-class human assets.
After all, if your human assets were measurably superior, other companies would notice and try to lure them away with higher pay, more authority, and more appealing work situations—perhaps the same inducements you used to recruit them! You'd find yourself on the defensive, forced to look at your own employment practices, benefits, and compensation scheme to determine if these were undermining bonds of loyalty between your company and the great people you've hired.
Many companies recognized that a lack of human talent was a serious constraint on future growth and pulled all the stops in order to retain their most valuable employees.
Retention is the converse of turnover.
Industrywide and company-specific measures that track turnover rates reveal that most companies surveyed by the Center for Organizational Research had turnover rates in the 15 to 50 percent range, though a sizable minority enjoyed single-digit turnover.
The retention of good employees matters for
three important bottom-line reasons:(1) the growing importance of intellectual capital;Intellectual capital is the unique knowledge and skills that a company's work force possesses. Today's successful businesses win with innovative new ideas and top-notch products and services—all of which originate in the knowledge and skills of employees.
(2) a causal link between employee tenure and customer satisfaction; andEmployees who are satisfied with their work and their company are more likely to create satisfied customers.
Seven fundamental propositions form the links of the service-profit chain:
1. Customer loyalty drives profitability and growth. A 5 percent increase in customer loyalty can boost profits by 25 to 85 percent.
2. Customer satisfaction drives customer loyalty. Xerox found that "very satisfied" customers were six times more likely to repurchase company
equipment than were customers who were merely "satisfied."
3. Value drives customer satisfaction. An insurer's efforts to deliver maximum value include funding a team that provides special services at the sites of major catastrophes. The company has one of the highest margins in its industry.
4. Employee productivity drives value. Nucor Corporation's production teams are the most productive in the steel industry. It's no coincidence that Nucor has created more value per employee for its shareholders than any other steelmaker over the past twenty years.
5. Employee loyalty drives employee productivity. One auto dealer's annual cost of replacing a sales rep who had eight years of experience with one who had less than a year was $432,000 in lost sales.
6. Employee satisfaction drives employee loyalty. In one company study, 30 percent of all dissatisfied employees expressed an intention to leave, compared to only 10 percent of all satisfied employees. Moreover, low employee turnover was found to be closely linked to high customer satisfaction.
7. Internal quality drives employee satisfaction. Service workers are happiest when they are empowered to make things right for customers and when they have responsibilities that add depth to their work.
(3) the high cost of employee turnover.Employee turnover involves three types of costs, each of which saps bottom-line results:
Direct expenses, including the out-of-pocket costs of recruiting, interviewing, and training replacements. (In a tight labor market, replacements may require a higher salary than the people who are defecting—not to mention the potential cost of signing bonuses.)
Indirect costs, such as the effect on workload, morale, and customer satisfaction. Will other employees consider quitting? Will customers follow the employee who left?
Opportunity costs, including lost knowledge and the work that doesn't get done while managers and other employees focus on filling the slot and bringing the replacement up to speed.
Turnover Isn't all Bad
The turnover of an incompetent employee may not produce any cost since the departure of such employees may actually eliminate certain hidden costs.
Periodic turnover also creates vacancies you can use to move deserving employees up the career ladder. The same vacancies represent opportunities to bring new people with new skills and different experiences into the organization.
Why People Stay
The major motivations for staying are:
Pride in the organization. People want to work for well-managed companies headed by skilled, resourceful leaders.
A respected supervisor. The employee-supervisor relationship is extremely important. People are more likely to stay if they have a supervisor whom they respect and who is supportive of them.This is the factor over which you, as a manager, have the greatest control and the most numerous opportunities to boost retention.
Fair compensation. People also want to work for companies that offer fair compensation. This includes not only competitive wages and benefits but also intangible compensation in the form of opportunities to learn, grow, and achieve.Your control of wages may be limited, but you can compensate the people you want to retain with interesting assignments.
Affiliation. The chance to work with respected and compatible colleagues is another element that many people consider essential.
Meaningful work. Finally, people want to work for companies that let them do the kinds of work that appeal to their deepest interests. Satisfying and stimulating work makes all of us more productive.
"employee value proposition," or EVP.
EVP is the workplace equivalent to the value proposition that every company offers its customers: a measure of perceived value for a particular cost.
If companies want to be more successful at attracting and retaining talent, they should evaluate and strengthen their value propositions to employees:
To create a compelling employee value proposition, a company must provide the core elements that managers look for—exciting work, a great company, attractive compensation, and opportunities to develop. A few more perks, casual dress, or more generous health plans won't make the difference between a weak EVP and a strong one. If you want to substantially strengthen your company's EVP, be prepared to change things as fundamental as the business strategy, the organization structure, the culture, and even the caliber of leaders.
Why People Leave
The company's leadership shifts. Either the quality of top management's decisions declines, or new leaders—whom employees don't yet trust or feel comfortable with—take the helm.
Conflict exists with immediate supervisors. People may also leave when their relationship with their bosses becomes stressful or problematic, and they don't see any other options in their company. (See "Managers and Supervisors Are Key" for more on this topic.)
Close friends leave. One or more colleagues whom an employee particularly likes and respects leaves the firm, thus taking away a meaningful affiliation link.
An unfavorable change of responsibilities has occurred. A person's job responsibilities change so that the work no longer appeals to his or her deepest interests or provides meaning or stimulation.
Problems with work-life balance are present. Employees whose workplace responsibilities separate them from friends and family for extended periods eventually lose interest in their jobs.
You can have terrific pay and benefits, employee-friendly policies, and all the other things that induce loyalty and retention, but a few rotten apples can spoil the barrel. Specifically, a bad manager can neutralize every retention scheme you put in place.
Bad managers, which they describe as "C performers."
"[K]eeping C performers in leadership positions lowers the bar for everyone—a clear danger for any company that wants to create a performance-focused culture. C performers hire other C performers, and their continued presence discourages the people around them, makes the company a less attractive place for highly talented people, and calls in question the judgment of senior leaders."
Market-Wise Retentiona) The first step toward market-wise retention is to identify the individuals and employee segments most critical to the success of your organization. So, within your unit, make a list of the individuals who:
provide formal or informal leadership to others;
consistently create excellent results;
contribute practical and valuable new ideas;
require little or no supervision to accomplish their tasks;
facilitate the work of others;
act as important information transfer "nodes" within the company;
have unique knowledge or skills that would be costly and time-consuming to replace; or
could do the company great harm if they defected to direct competitors.
Also give some thought to the employee segments that are most essential. Think about the employee segments in your operation that are essential to the operation but in short supply; create the most disruption when they defect; are most costly to recruit and train; and control the company's link to customers.
b) Compensation
Compensation matters in the sense that you cannot recruit or retain desirable employees if they view their compensation as unfair or noncompetitive. Even people who are more dedicated to their crafts or professions than to money see their compensation as an indication of the organization's appreciation of their contributions and abilities. If they feel undervalued, they will walk.
Nor is compensation a reliable motivator.
Years ago, Frederick Herzberg, the tribal elder of motivation, found that the incentives employers most commonly use to motivate—including pay raises— produce temporary performance improvements at best.
Peter Cappelli, a human resources expert and professor at the Wharton School, offers these pieces of advice for market-wise compensation:
Pay "hot skills" premiums to employees with crucial, rare expertise. This keeps them in place for critical periods—for example, the late design stages of a key product. Stop premiums when the skills become more available or less important to your business.
Pay signing bonuses in stages—for example, pay out the new CEO's sign-on bonus over five years.
You may or may not have much say about companywide pay and bonus policies, but you can use performance evaluation to determine who should receive the lion's share of pay and bonuses.
c) Job Redesign
If you can identify the elements that create satisfaction and dissatisfaction within a particular job, you may be able to split off the dissatisfying tasks entirely and give them to other individuals who will appreciate the work. Outsourcing unwanted tasks is another solution, and something that every company practices to one extent or another.
So, if you experience unacceptable turnover in a key job that is difficult and costly to refill, put that job under a microscope and ask:
Which aspects of this job create employee dissatisfaction? (Ask several employees directly.)
If we separated objectionable tasks from the job, would we need to add something else to keep it a "whole" job? And what would that something else be?
Assuming that someone must do the objectionable tasks, what alternatives exist for handling them?
Which is more costly to the organization, job redesign (and its consequences) or the current rate of turnover in the key job?
General Strategies for RetentionHere's a short list that will cover most of the bases.
1. Get people off to a good start. This begins with hiring people who are suited to their jobs and making sure that they understand what they are getting into. A good start also begins with a new-employee orientation that makes people feel welcomed and part of the group.
2. Create a great environment—with bosses whom people respect. Managers often assume that company policies and corporate culture determine the working environment. They do, to an extent. But policies can be circumvented. In any case, the atmosphere in a department or unit is more important to individual employees than the culture of the corporation as a whole.
Bad bosses are not conducive to a great environment. How many of your unit's managers or supervisors are repellent to their reports? How many have temper tantrums, berate their subordinates in public, blame others for their own failures, or never have the sense to say "Thanks, you're doing a good job"? If your managers or supervisors are repellent, count on every employee with marketable skills to leave.
In the end, it's better to replace bad managers and supervisors than to replace an endless stream of good employees.
3. Share information. Freely dispensing information—about the business, about financial performance, about strategies and plans—tells employees that you trust them, that they are important partners, and that you respect their ability to understand and contribute to the business as a whole.
4. Give people as much autonomy as they can handle. Many people enjoy working with a minimum of supervision. So give your employees as long a leash as they can handle. Doing so will make them happy and make your job as manager easier.
5. Challenge people to stretch. Most people—particularly the ones you want most to retain—enjoy a challenge and the feeling that you've entrusted them with bigger responsibilities than they had a right to expect. So put the people you want most to retain into jobs that will make them stretch—and give them the support they need to succeed.
6. Be flexible. Flexible work arrangements are highly successful in retaining employees. To be sure, not every manager has the authority to create whole new work arrangements. But nearly everybody can allow some on-the-spot flexibility, letting employees rearrange work to care for a sick child, for example, or to keep a doctor's appointment. Today's harried employees value that kind of flexibility.
7. Design jobs to encourage retention. Nothing is more soul-deadening for an intelligent employee than a job that is too repetitive, too isolated, insufficiently challenging, or downright unpleasant. So if you see unacceptably high turnover in a critical job category, take a good look at what you're asking people in that job to do every day. You may be able to cure the turnover problem through job redesign: adding variety to a repetitive job, engaging isolated employees in occasional team projects, upping the challenge, and so forth. If a job involves one or more repugnant tasks, consider eliminating or outsourcing those tasks.
8. Identify potential defectors early. Great work environments and great jobs are a matter of opinion; what challenges one person may terrify another.You won't know how well you're doing on either score unless you ask.
9. Be a retention-oriented manager. Never forget that part of your responsibility as a manager is to ensure proper staffing in your unit. Retaining good and excellent performers is part of that job. So look at how you manage people and how you schedule workflow. Are you the kind of boss who manages in ways that encourage the best people to stay, or are you unknowingly driving them away?
Watch for early signs of dissatisfaction and disaffection, including the following:
A change in behavior, such as coming in later or leaving earlier
A decline in performance
Sudden complaints from a person who hasn't been a complainer
Wistful references to other companies (for example, "I heard of this guy who got a $30,000 signing bonus at XYZ Company.")
Withdrawal behavior (for example, an employee who had always participated in meetings, or volunteered for projects, suddenly stays in the background or does just enough to get by)
Talk about "burnout"
The Role of Work-Life BalanceWork-life balance is a core element of employee satisfaction, loyalty, and productivity.
This means that if you provide a workplace in which employees can effectively balance the requirements of work and their personal lives, retention will be less of an issue.
Work-life balance is a major issue today because so many people are fed up with long days, paltry vacations, evenings spent in hotel rooms, and weekend e-mails from the boss.
Three principles for breaking through the zero-sum game:
1. Make sure that employees understand business priorities and encourage them to be equally clear about their personal priorities. The work of the organization must get done, and work-life balance should not be an excuse for letting it slide. Alternatively, work cannot be an excuse for letting important personal matters slide. Friedman, Christensen, and DeGroot counsel managers to be clear about company goals and performance expectations. At the same time, they encourage employees to be clear about their goals as family members and as individuals. Once everyone's cards are on the table, schedules and assignments can usually be arranged in ways that satisfy both sides.
2. Recognize and support employees as "whole people" with important roles outside the workplace. Managers can only deal with work-life conflict if they understand and show some interest in the nonworking lives of their employees. And showing a sincere interest creates trust and loyalty.
3. Continually experiment with how work gets done. Smart managers know that work processes must be periodically rethought and redesigned for greater efficiency and effectiveness. Work-life balance provides opportunities to experiment with these processes.
Here are a few things you can do to make work-life balance a win-win situation:
Give employees specific goals, but also greater autonomy over how they achieve them. Say, "You are responsible for conducting a customer survey and producing a complete report between now and mid-March. I'd like you to develop a plan for handling that."
Give more attention to results than to how, where, and when the work gets done.
Get to know your employees and coworkers on a more personal level. Do they have civic obligations that need tending? Do they have children or aging parents to support? Do they have other skills that might benefit the company? As workplace researchers found many decades ago, simply showing an interest in employees as individuals can have a positive impact on morale and motivation.
Encourage people to find new and better ways of meeting their responsibilities. For example, sales managers and product development people may discover that a $5,000 investment in teleconferencing equipment could save the company $15,000 each year in travel expenses—and save each of them from hundreds of hours of unproductive travel time, and many nights away from home.
Telework
Many companies have found that telework is an effective tool for creating work-life balance.Telework describes work done by employees in locations other than their regular offices, facilitated by telecommunications and Internet capabilities.
Proponents of telework point to measurable cost savings and benefits, including lower real-estate costs, greater employee productivity, greater employee loyalty and job satisfaction, and lower personnel turnover. And the teleworkers themselves report that it helps them balance work and personal responsibilities.
Respondents indicated that they worked at least one hour more per day; were more productive; were more loyal; and found greater satisfaction in their work.
Two-thirds of these managers reported that the company's telework policies made their job of retention and attraction notably easier.
But before you rush out and advocate a tele-work program, your company or unit should think through a number of questions, including:
Which jobs are appropriate for telework?
What are the legal, regulatory, insurance, and technology issues? (Individual stockbrokers, for example, cannot work from an unsupervised office of a broker-dealer.)
How will you supervise teleworkers and ensure accountability?
Will employees worry that becoming a teleworker will negatively affect their chances for promotions and other recognition?
In an article for Harvard Business Review, Mahlon Apgar addressed this question, explaining that programs such as telework are most appropriate when companies are
committed to new ways of operating;
more informational than industrial;
dynamic, nonhierarchical, technologically advanced;
not command-driven;
willing to invest in tools and training.
Telework also requires adaptation on the part of managers and supervisors. After all, their subordinates will not be under their watchful eyes. Who's to know if they are working or watching Seinfeld reruns? The remedy, according to most experts, is for managers to focus on results instead of activities.That means setting clear goals for individual teleworkers, making sure that they understand those goals, and setting up a system for monitoring progress in short-term stages. Managers must also integrate teleworkers into the larger group; otherwise people may become isolated and out of touch.
Flexible Work Schedules
Flexible scheduling allows individual employees to work something other than the usual nine-to-five, forty-hour, five-day week. This creates opportunities for people to work even as they accommodate the needs of young children, infirm relatives, and so forth.
Here are some typical flex-schedule arrangements used in business today:
Reduced-time schedules. For example, an employee works from ten o'clock to five o'clock in order to accommodate her need to drive her children to school in the morning.
Seasonal schedules. For example, a tax specialist works sixty-hour weeks from January through April to accommodate the tax-filing crunch, then works thirty-hour weeks for the balance of the year.
Compressed schedules. For example, to accommodate his weekend acting vocation, a computer technician puts in forty hours Monday through Thursday, leaving Fridays free for rehearsals.
Summing UpWe has described major issues relating to employee retention and highlighted ways in which managers can make a difference. In particular:
Retention matters because high turnover creates high replacement costs and is clearly associated with low levels of customer satisfaction, customer loyalty, and lost revenues.
People stay with their employers when they see the organization as a source of pride and affiliation, when they respect their supervisors, when they are fairly compensated, and when they perceive their work as meaningful.
People seek greener pastures when leadership changes unfavorably, when they are in conflict with their immediate superiors, when close friends depart, and when their responsibilities change in ways that they do not favor.
Managers should be less concerned with turnover than with retaining people who truly add value to the organization and its customers.
Programs that enhance work-life balance generally help to increase employee satisfaction and reduce turnover.
For more Information
* Essentials of Management Skills. Management Techniques, Management Concepts, Management Models. Management Books. *
