Managing Employee Retention and Turnover
Employee retention has always been an important focus for human resource managers. Once a company has invested time and money to recruit and train a good employee, it is in their own best interest to retain that employee, to further develop and motivate him so that he continues to provide value to the organization. But, employers must also recognize and tend to what is in the best interest of their employees, if they intend to keep them. When a company overlooks the needs of its employees and focuses only on the needs of the organization, turnover often results. Excessive turnover in an organization is a prime indicator that something is not right in the employee environment. We will look at the differences between retention and turnover, why employees stay, reasons why they leave, and what can be done to save them. We will also examine some external factors that will make employee retention and turnover reduction highest priorities for human resource professionals in the twenty-first century.
Basically, employee retention is measured by an employee’s longevity with a company, and is the desired outcome of a company hiring workers it wants and needs. Many organizations find it more productive and profitable to redirect resources formerly allocated to recruiting, hiring, orienting, and training of new employees and use them instead toward employee retention programs. Such programs identify good performers who are likely to leave the company and work proactively to retain them. Although there is no tried-and-true prescription for retaining good employees, there are five factors that have a proven positive impact on retention and they should be taken into consideration when developing an employee retention program:
Supervisor/Employee relationship – “Immediate supervisors who are also leaders of people will be the most important people in the workplace of the future…” (Jamrog, 2004) Today’s supervisor is expected to be a coach, a trainer, and a mentor. Foremost, he must be able to communicate well up and down the organization. Employees who have honest, open relationships with their supervisors feel a sense of commitment to them.
Employee engagement – The best employees are motivated by tasks that are intellectually stimulating and provide variety and challenge while contributing value. Studies from the Gallup organization show that employees who have an above-average attitude toward their work will generate 38 percent higher customer satisfaction scores, 22 percent higher productivity, and 27 percent higher profits for their companies.
Training – Employees want to increase their skills, knowledge, and abilities to remain marketable. It gives them a sense of job security. In today’s workplace, the more training employees get, the more likely the employer will retain them. “According to a 1999 Emerging Workforce Study conducted by Interim Services and Louis Harris and Associates: Among employees who say their company offers poor training, 41 percent plan to leave within a year, versus only 12 percent of those who rate training opportunities as excellent. (Business Week, March 1, 1999)”
Recognition – According to Roger Herman, chief executive officer of The Herman Group, a management-consulting firm in Greensboro, N.C., “you need to show your employees that you appreciate them, that you value their opinions–and show them in a lot of ways.” Care and concern for employees on a personal level means more to many employees than compensation.
Balance – “Management’s recognition of the importance of personal and family life remains the top driver of employee loyalty. Employees who spend a moderate amount of time each week attending to personal matters while at work have a higher level of commitment to their employer than those who spend no time.” (America @ Work 1999,” Aon Consulting, Chicago, Illinois; 312.701.4844) Employers who provide a work/life/family balance are more successful in retaining employees.
Traditionally, executives have used compensation strategies to solve retention problems, but in today’s workplace high pay by itself is not enough to keep employees around. A recent survey by The Society for Human Resource Management ranked tuition reimbursement programs and vacation/holiday time as the top two retention initiatives being offered by employers. In addition, instant recognition programs, such as spot bonuses, are being used to reward excellence in performance as it occurs. Such programs give employees immediate gratification for their efforts rather than delaying it until annual reviews. Also, flexible work hours and telecommuting programs that allow employees to better balance their work commitments with their family duties are becoming more common. According to Ceridian Employer Services (2004), “90 percent of companies with more than 5,000 employees allow telecommuting…. And … 52 percent of large companies use virtual teams.” Organizations must continually search for innovative ways to retain their best employees. Fortunately, the costs of these efforts are low in comparison to the high costs of turnover.
Turnover of employees can be involuntary or voluntary. When a company “lets go” of an employee who has been a bad performer, has violated company policy, or broken a law it is usually considered involuntary turnover. So are layoffs. More often we speak of turnover in the context of being voluntary, or the unplanned loss of employees who leave on their own accord, but that the company would prefer to keep. This type of turnover is undesirable. Regardless of type, turnover costs are staggering. The quantitative costs include: hiring a temporary to fill the position or paying overtime to an existing employee, lost productivity, loss on training dollars invested in the employee who left, severance pay and benefits, as well as, advertising, recruiting, hiring, orienting, and training costs to fill the open position. Carl Kutsmode, Principal and founder of the Tiburon Group, an Internet recruiting solutions consulting firm makes this observation, ” In many cases, reducing your turnover rate can significantly reduce your total staffing costs by as much as one half. ” The Journal of Business Strategy, 2003 estimates turnover costs in the United States at $5 trillion annually. There are also intangible costs associated with turnover, such as a drop in employee morale, poor service delivery, and lost customers. Though difficult to quantify, they impact both productivity and profitability.
Because employees are inclined to state politically correct reasons for resignation, companies often conduct exit interviews to obtain value feedback. Using human resource personnel to conduct the interview establishes a safe zone for employees to openly share their thoughts. To further encourage communication, questions should be open-ended, prepared in advance, and designed with a purpose. Buhler (2004) recommends including the following questions:
What did you most enjoy about your job? What did you least enjoy?
What did you like about the management style at the company? What did you dislike?
What would you have changed at the company if you had been given the opportunity?
Is there anything that would have resulted in your staying with the company?
What is your new position providing you differently from your position here?
Exit interviews can be used to track trends in turnover that may be rooted in discrimination, improper training, or inadequate pay or benefit programs. Employers can use this information to make appropriate changes or take corrective action, if needed. Exit interviews should always maintain a positive note so that employees realize their feedback is welcome and appreciated, and so their closure with the company is a positive experience. Some employers choose to wait three to six month before conducting exit interviews. These are often done by mail, phone, or online and may take the form of a survey or be outsourced to a third party. The belief is that as time passes, former employees tend to be less hesitant and more objective in their responses. The results from exit interviews only prove valuable if they are used productively within the organization.
By examining the core reasons given for turnover, a company can implement strategies to reduce it. These strategies can form the basis for the employee retention program. Christian & Timbers, a leading global executive search firm, gives these top ten reasons for why employees leave:
Boredom or lack of challenge
Limited opportunities for growth and advancement (40% of resignations)
Lack of appreciation
Low expectations and standards for the position
Noncompetitive compensation packages
Inferior or ineffective co-workers
Lack of leadership or poor supervision
Unreasonable work hours
Commute or location of company
By combining turnover and retention information, a company can see why people leave and what can be done about it. Each of the ten reasons for leaving listed here could be reduced or eliminated with a proactive employee retention program, one that is centered on factors that employees themselves have given as reasons for staying with their employer. Again, these factors stress good supervisory/employee relationships, engage employees in their work, provide training opportunities, recognize and appreciate employees, and offer flexibility and balance in work, life and family duties. By profiling what makes an employee stay, companies can establish proactive retention programs that reduce the number of turnovers.
Employee retention and reduction in turnover will become more critical to organizations in the twenty-first century than ever before. As the economy recovers from the massive layoffs caused by outsourcing, corporate downsizing, acquisitions, and mergers, and enters a job-producing phase, employees will defect from their employers at unprecedented rates. These conditions, along with the corporate fraud and scandal that reeked havoc on American workers since the dawn of the new millennium, created a labor force that distrusts employers and no longer feels loyalty toward them. A 2003 Spherion Emerging Workforce study indicates that ” the U.S. workforce is poised to walk out on employers at the first opportunity”. Employees now find job security through marketability, and so they seek employers who will contribute to their growth and development. Employees want to keep updated on their knowledge and skills to be in demand by their competitors.
The major issue organizations will soon face is the shrinking labor force. President Bush gave testimony to this fact when he addressed the need for social security reform. He stated that the ratio of workers to retirees in America is shrinking at a pace that is jeopardizing the country’s social security system. According to the Bureau of Labor Statistics (2004), there aren’t enough workers behind the baby boomers in the labor supply pipeline to fill their jobs. The shortage may become critical as early as 2008. “There could be as many as 5 to 6.2 million more jobs than there are employees in the United States, 7 to 10 million by 2010, and an astounding 21 to 40 million by 2015.” When jobs are abundant, employees are at an advantage. The situation creates opportunities to shop their skills for higher pay and better benefits. For management, it results in higher turnover rates. As we have seen, too much turnover can threaten a company’s efficiency, its operational effectiveness, and even its existence. In a tight labor market, a company’s ability to retain key employees may be its saving grace.
Labor shortage predictions are based on retirement trends continuing at their current level. However, with social security reform, many workers may find themselves working later in life to compensate for a reduction in their benefits. Couple that with the fact that a majority of baby boomers are still trying to recover from depressed 401(k) plans and significant stock losses that occurred earlier in the decade. The U.S. Bureau of Labor Statistics confirms that older workers are staying in the work force later in life. In 2001, 13.1% of the labor force was 65 years and older and this figure is predicted to increase to 15.2% by 2030. This increase may seem slight until you consider the substantial increase in the pool of eligible retirees. By 2008, 43% of the civilian workforce will be eligible for retirement. Extended life expectancies is also contributing to the increase in the number of older workers, as employees return to work for enjoyment, to occupy their time, for money, and for social interaction.
As the pool of young workers declines, employers will recognize the need to get more out of the largest segment of the workforce – people age 45 and older. Employers will try to attract and retain older workers, as well. Since baby boomers are generally better educated and in better health than their predecessors, they should be more interested in and capable of working longer. An AARP study conducted in 2002 reports that 70 to 80% of baby boomers expect to work at least part time after retirement. Watson Wyatt believes that this changing work force will have radical ramifications for human resource managers. Employees’ relationship to their work, motivational factors and rewards, demands for growth and advancement will be altered. Management of human capital will replace the concept of workforce management.
If predictions hold true, the future for HR professionals will be consumed by staffing issues – retaining as many good employees as possible in light of the open job market, attracting new candidates for employment from both the younger and older worker pool, and dealing with new human resource issues that emerge with the latter group. To best prepare for this transition, employers should begin today training their supervisors and managers at all levels of the organization to become retention specialists, to recapture employee loyalties, and to motivate their employees to be actively engaged in their jobs, and then hold them accountable for these activities. Employers should also select new managers based on their proven track records in these areas. Although the focus of human resources is destined to shift, advance planning and preparation will help employers more readily adapt.
AARP. 2002, Staying Ahead of the Curve: The AARP Work and Career Study. Wahington, D.C.: AARPRetention rodeo.
Buhler, Patricia M. The exit interview: a goldmine of information
Source: Supervision v. 63 no4. (Apr. 2002) p. 15-17. Database: WilsonSelectPlus.
Ceridian Employee Services, http://www.ceridian.com/myceridian
Christian & Timbers, www.ctnet.com
Frank, Fredric D. The Race for Talent: Retaining and Engaging Workers in the 21st Century. Source: Human Resource Planning v.27 no3 (2004) p. 12-25. Database: WilsonSelectPlus
Jamrog, Jay. The Perfect Storm: The Future of Retention and Engagement. Source: Human Resource Planning v. 27 no3 (2004) p. 26-33. Database: WilsonSelectPlus.
Society for Human Resource Management (2003). Older Workers Survey.
U.S. Department of Labor, Bureau of Labor Statistics (2003) Customized Data Compilation, November 20.
“Demographics and Destiny: Winning the War for Talent,” Watson Wyatt Worldwide, Bethesda, Maryland; 301.581.4600