8 Things You Need to Fix to Increase Employee Retention

November 15, 2016

Recently, the Department of Labor reported that turnover is now at its highest level since 2008. And yet, many companies are doing very little to combat this problem.

Why? Because a lot of executives don’t realize the tremendous cost of turnover: (e.g. 2X salary costs times losing approximately 25% of their workforce each year). And, the cost of each employee who walks out the door is $100,000 worth of product.

Clearly, it’s a problem worth fixing. And yet, even though literally every business function and even most major HR functions have already shifted to businesslike data-based decision-making model, there is a shocking absence of hard data availability and use throughout the retention function. Without data to understand problem areas and plan ahead, it’s no wonder retention efforts are failing.

How a lack of data hurts your retention efforts and what you should do  

If you want to retain employees, it’s time to lift the cloud of uncertainty and to shift to a businesslike data-driven decision-making approach to retention. No more decisions based solely on intuition, emotions, and gut feelings. What corporations need is a function where data provides the most revealing metrics and retention professionals use data to identify the most effective retention solutions.

Using data can help any retention effort identify what is and is not working. Some of the key turnover / retention problem areas that should be explored include:

1. The business costs of turnover are not quantified, so executive’s pay less attention to turnover

Turnover reports generally only list broad turnover percentages (i.e. our turnover was 18% last year). However, if those turnover percentages are converted into dollars, executives are much more likely to understand the business impacts of turnover.

For instance, if an 18% turnover rate also means that there were over 100 vacancy days in sales positions (where obviously no sales could be made). And those vacancies resulted in $2.6 million in lost sales, every executive would take notice.

Instead, every turnover should be converted into its dollar impact on organizational revenue. In addition to business impacts, the added costs related to high turnover should also be calculated. Those costs calculation should include: added recruiting costs, the doubling of new hire training costs, the cost of new-hires diluting the culture, stress on the team because they have to cover the vacant position and negative customer impacts as a result of the turnover.

Most executives also don’t realize that there are also tremendous productivity costs associated with turnover because an employee who is considering leaving might consciously reduce their productivity and innovation for up to 6 months before their actual departure.

So because of all these factors, it’s wise for retention leaders to work with the CFO’s office to come up with a “standard cost of turnover, based on a multiple of the employee’s salary (i.e. 1X to 5X the departed employee’s salary). Once this multiple of salary is determined, it will be easy for executives and managers to instantly understand the real revenue impacts of turnover.

2. Bad managers are a top cause of employee turnover, but little is done to fix them

Many of the causes of turnover are at least partially controlled by an employee’s manager. Gallup placed the blame squarely on the manager by making this phrase famous, “No one ever quits a company…they quit their manager!” Google research also found that managers… “Had a much greater impact on employees’ performance… than any other factor.”

However, despite knowing the significant impact that a good or weak manager can have on productivity and retention, I have found that most organizations completely ignore solutions that relate to identifying, fixing or firing weak managers. Many managers are not good at preventing turnover because they don’t know its value and most have never been trained in retention.

3. Positions and employees are not prioritized for retention efforts

It’s true that not all employees have the same probability of leaving, but it’s also true that not all employees have an equal business impact when they do leave. As a result, retention efforts that cover “all employees” are a waste of any organizations limited time and resources. And by treating all employees equally for retention purposes, you increase the likelihood that you will lose many top performers that require more than an average effort in order to be retained.

So in order to maximize your impact, you must prioritize your retention efforts on employees and jobs with the highest impact. Generally, you should prioritize and focus resources on all individuals that are top performers or innovators, on employees working in key jobs, on employees that add high value (regardless of their job title), on exempt diverse employees and on employees that have turnover causes that can be easily overcome.

4. Common retention errors are repeated because best practices are not shared

Whenever I examine common retention mistakes across multiple companies, I find some consistent errors that could have been avoided. So it’s important to increase consistency throughout the organization, and the best way to ensure consistent high-quality retention actions is by instituting a formal best practice sharing process.

An internal retention forum and best practice sharing website should be created. And to make it more effective, managers and HR professionals should be measured and rewarded for sharing retention problems and their effective solutions. Obviously, if a company also conducts failure analysis after each major turnover, their leaders will quickly learn which retention actions have a low or even a negative impact.

And finally, HR should work with your companies' customer and vendor retention teams to see if any of their best practices are transferable to the people management retention effort. The most common retention solution errors that I have identified include:

  • An over-reliance on salary increases.
  • Utilizing cash retention bonuses (project completion bonuses are better).
  • Assuming that the same factors retain all employees (when top performers want dramatically different things).
  • Assuming that a low turnover rate is always good.
  • Improving benefits across the board (even though many benefits increases have little measurable impact on exempt employee retention).
  • One study even found that offering employee development, without providing sufficient career opportunities, can actually increase turnover.

5. Most don’t realize that key environmental factors cause fluctuations in turnover

In some cases, turnover rates will improve despite the fact that the company didn’t take a single proactive action on retention. This is because turnover rates are impacted by numerous internal and external environmental factors.

For example, a company’s turnover rate will historically increase due to internal factors, like major executives leaving the firm when there is a major scandal, when a salary/promotion freeze is in effect or when the company stock falters. External environmental factors also impact turnover rates, for example, whenever local unemployment rates decrease, a company’s turnover rate will typically increase proportionately.

It’s also true that hiring freezes and layoffs at your talent competitors will also significantly increase your retention rates (because they have stopped raiding you).

Unfortunately, few retention professionals fully understand this connection and so they sometimes take credit for improvements in retention that are no way connected to their actions. Obviously, it makes sense to monitor these internal and external factors and to determine how much each one historically impacts a company's turnover numbers.

6. There is no proof that the overall retention process works

Most retention leaders have no proof that their overall retention effort actually increases retention. So in addition to merely showing that the turnover rate has decreased (because sometimes that happens without any deliberate action), retention professionals need to be able to prove that their efforts are responsible for and actually caused those improvements in turnover.

One additional way to measure the effectiveness of the overall retention effort is to survey a sample of employees to see if their “intention to stay” has increased. But by far the most effective way of proving your overall program works is using a “split sample experiment,” which is used throughout the business.

This is where you take, for example, half of a large sales group (because their output is already measured in dollars). And without ceremony, apply your retention tools to them (this group is called the experimental group). To the other half of the sales group, you say nothing and change nothing. If over time the retention rates, the productivity and the cost of turnover are superior in your experimental group (compared to the control group) you can be confident that your efforts caused the improvement in retention.

7. There is no blocking mechanism to make it more difficult for recruiters to poach

It is certainly true that some percentage of your employees will decide to leave on their own, without any prodding from an external recruiter. But when you focus on top performers and innovators, you should assume that they are being continually contacted and urged by an external recruiter to leave.

You can find out if recruiter raiding is an issue by simply surveying your employees to ask them how often they are contacted by external recruiters. It should also be a part of the post-exit interview to ask former employees how much the actions of external recruiters influenced their decision to begin looking and to leave.

If your firm has a strong employer or product brand, you can automatically assume that you are being raided continuously. Unfortunately, few companies have a formal “blocking process” that makes it more difficult for external recruiters to contact and successfully sell your employees. One of the most effective approaches is to give a $25 Starbucks or gas card for any employee in a targeted group that takes notes during one of their external recruiter contacts and then shares them with your retention function.

It is valuable information if you know: companies that are raiding, what arguments they are making to convince an employee to leave and what their offers contain. With this competitive intelligence, the retention function can then proactively utilize this information to develop a plan to counter future external poaching efforts.

8. Often no one is held accountable for retention results

It’s obvious that many organizations don’t take retention seriously because they have no formal retention function and no senior HR person has the full-time responsibility for retention results.

In some organizations, employee retention is so informal that it is just one more added job assignment for an HR person. In addition, individual managers and recruiters are seldom measured or rewarded for producing great retention results, so they pay little attention to it. If you want retention to improve, you need executives, recruiters, generalists and managers to continually talk about it, and to have it as part of their performance appraisal and/or their bonus formula.

Now, these aren’t the only retention problem areas and you can read about more here. My final advice? Learn from the lessons in these articles and then talk to your corporation’s customer retention team. They are way ahead of employee retention efforts and you can learn from them how to quantify your impacts, and how to develop a scientific, systematic and data-driven approach to retention.

*Image from Death to the Stock Photo

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