As a high-ranking human resources executive with responsibilities for managing large employee populations, Peter Fasolo has learned to look beyond conventional solutions to retention and turnover problems. Throwing money at valuable employees who may be ready to bolt or locking them up in the golden handcuffs of options and other perks may have appeal, but those easy answers may not be getting at the real problem, he says.
Fasolo recently left Bristol-Myers Squibb to become worldwide vice president for human resources at Cordis Corp. a subsidiary of Johnson & Johnson. At Bristol-Myers Squibb, where Fasolo was vice president of leadership development and organizational effectiveness, he remembers looking over turnover numbers at Bristol-Myers Squibb and thinking, "I’ve got a huge leaky bucket here."
At that point, he says he decided to challenge the conventional wisdom that the best way to keep workers who are ready to bolt is to throw money at them. And he says he’s glad he did.
One of the first steps he took in trying to get at the root of the problem was adding up the one-year cost of bringing in new employees to replace those leaving. Fasolo, who spent 13 years at Bristol-Myers Squibb, determined that the company’s Worldwide Medicines division spent $50 million on recruiting tools like advertising, agency fees and training to bring in approximately 2,000 new employees. He knew that number was high enough to justify a company-wide initiative and get the backing of the CEO and board of directors.
As the project took off, it meshed closely with an initiative to streamline the company with a focus on its core pharmaceuticals business and to turn around a decline in the company’s stock price and revenues. The stock hit lofty levels in 2001 and 2002, trading above $70 a share, but then revenues declined--and along with them, the company’s stock, which in early 2005 was selling at about $25.
The company is continuing to restructure. In the last two months, it announced that it was outsourcing some of its human resources and other operations to Accenture, signed an agreement to sell its oncology unit to One Equity Partners and said it was selling its consumer medicines line of over-the-counter drugs. Now, four years into the multi-year effort at data collection and analytics, Fasolo says the project is paying off by improving retention and developing a more engaged workforce. He won’t reveal hard numbers, but he says research shows that his company can increase the likelihood of retaining talent by an impressive 45 percent.
Fasolo says his quest began with this simple question: "Why did people stay or why did they leave Bristol-Myers Squibb?"
In asking that question, Fasolo faced a universal workforce management problem. Obvious costs of turnover are the outlays for recruiting and training to replace lost talent. But even more costly is the possible loss of high performers, those ranking in the top 20 percent of the workforce.
Clearly, costs go up when those walking out the door have a history of high sales and take key customer contacts with them. At this point, the issue becomes a business problem directly affecting the bottom line. If workforce managers handle the situation well, they can influence corporate profits on both sides of the ledger, reducing the fixed costs of turnover on one side and boosting revenues by holding on to top performers on the other.
The undertaking at Bristol-Myers Squibb began with an employee preference survey that asked U.S.-based employees to attach relative importance to such things as compensation, benefits, work/life balance, job fit and base pay. That dovetailed into a turnover analysis of the company’s biggest division, Worldwide Medicines. As the months passed, and initial surveys began being compared to exit surveys and interviews, a clear picture began emerging, and it was soberingDuring 2001, there were 2,624 terminations, or about17 percent of Worldwide Medicines’15,176 employees. But what cried out for further analysis, Fasolo says, was that nearly 1,500 of those people quit. Fasolo wondered how many of those leaving were what he calls "critical players," whose loss would be felt much deeper than other, less key employees.
Follow-up surveys developed by Fasolo and his staff showed, somewhat surprisingly, that employees put relationships with their managers above issues such as job fit, promotional opportunities, health benefits, retirement plans and work/life balance. At that point, more numbers were crunched, and survey scores of people who quit were compared with employees who remained.
It turns out that the scores were a good predictor of which employees would eventually leave the company. "Not surprisingly, people who leave signal in surveys that they are likely to leave," Fasolo says.
And relationships with managers stood out in stark relief. In seeking answers to turnover at Bristol-Myers Squibb, Fasolo discovered a pivotal point in the middle of the workforce: first-level managers.
It is the point that Fasolo stresses in presentations to senior-level human resources executives, with whom he shares an enthusiastic affinity for numbers.
Spreading the word
"Nine out of the top 10 factors influencing employees’ decisions to stay are influenced by their managers, not stock options or other issues," Fasolo tells a group of executives during a conference in Los Angeles.
On this particular day, he has traveled from Bristol-Myers Squibb’s New Jersey headquarters for a presentation sponsored by the University of Southern California’s Center for Effective Organizations. The audience is composed of nearly 100 high-level workforce executives. They listen with rapt attention as he goes through a PowerPoint demonstration and explains the complex system of scorecards and workforce surveys that form the basis of his data sleuthing.
As he speaks, his passion is palpable. Even though human capital metrics and analytics drive his research, he is highly animated, bouncing around the room, stabbing at the air to emphasize a point about his mission. He views each resignation as a personal challenge.
"Human resources is really under the microscope in terms of trying to measure a return on investment."
The problems of turnover, manager satisfaction and keeping employees engaged enough in their jobs to stay are not new. But tying it together with convincing numbers, using the data to change corporate behavior and linking it to business results is, and tools like those Fasolo and his staff use are capturing a wider and wider audience.
The key, he tells the group, is pulling everything together and being savvy enough to communicate the findings to the CEO and board of directors.
Data in demand
John Boudreau, a professor and research director at USC’s Marshall School of Business, is one of those listening in. He says the executive’s focus on metrics and analytics is key to what is driving much of today’s creative energy in human resources.
"CEOs are demanding numbers," Boudreau says. "They are saying, ‘Show me the numbers.’ " But too often the numbers generated look like accounting figures--dry columns that don’t get at the heart of understanding how a company can turn its people programs into a business proposition and competitive advantage.
Executives like Fasolo succeed by working from "a good, logical framework," Boudreau notes. "They are trying to get a handle on taking measurements in directions where they can affect decisions that really make a difference to business."
Certainly, the timing is right. C-level executives have long wanted more from human resources, but now, with a war for talent in some key areas and ever-tighter profit margins, the demands are increasing. Troy Kanter, president of the human capital management group at Kenexa, which produces talent acquisition and performance management software, says that chief financial officers have been taking far more interest in his products over the past two years.
HR-centric metrics and analytics are not enough, he says. The numbers must prove themselves by contributing to corporate profits.
"Human resources is really under the microscope in terms of trying to measure a return on investment," Kanter says. "They’ve always had to produce, but not at the level we have seen in the last couple of years. Good CFOs are asking for a 12-month turnaround on their investments. They want to match what they spend in 12 months, and then on the 13th month exceed that. "
Turnover and retention are key areas that truly do affect both a company’s costs and revenues, says Marc Drizin, director of survey solutions and workforce engagement at the Performance Assessment Network, which conducts ongoing surveys to determine workforce engagement.
"The vast majority of companies don’t measure this kind of value because they see employees as a cost or, worse yet, as a necessary evil they have to deal with to keep customers satisfied."
Going after the underlying causes of turnover, as Fasolo is doing, attacks problems that more money can’t solve, he says.
"What HR understands is that while golden handcuffs improve retention, you are creating a whole new set of problems," Drizinsays. "These employees may be staying, but they may be staying only in body, not in spirit. Ultimately they may do more harm to customer relationships by staying than if they left. The good thing about trapped employees is they stay; the bad thing about trapped employees is they stay."
"Good CFOs are asking for a 12-month turnaround on their investments. They want to match what they spend in 12 months, and then on the 13th month exceed that."
Many companies are catching on, and Fasolo is helping lead the charge. He has a doctorate in organizational psychology from the University of Delaware and joined Bristol-Myers Squibb in 1992. He left the company in mid-January and started work at Cordis Jan. 24.
As his career developed, Fasolo crossed the line from human resources generalist to playing an increasingly strategic role. In previous positions, he served as vice president of human resources for the Americas region of Bristol-Myers Squibb and as vice president of human resources for the international division.
Fasolo’s work at getting to the bottom of turnover meshed closely with changes at Bristol-Myers that were driven by a willingness to accept fresh ideas. In 2001, Peter Dolan became CEO and rebuilt the management team. That same year, the company divested itself of its Clairol beauty care line and acquired DuPont Pharmaceuticals. With the company ripe for change, Fasolo found that Dolan and other top company officers were not only receptive, they were urging him on.
One of the changes that sprang out of the work in progress was development of a retention scorecard aimed at significantly reducing resignations. The plan puts more responsibility on managers to retain talent and communicate and emphasize organizational priorities to increase employee engagement. The retention scorecard and exit survey were rolled out in 2002, and new workforce measurements were added last year. Performance management surveys and research continued into this year and will extend beyond next year.
Fasolo believes that the payoff is already showing in stronger retention rates. "The company has done a terrific job over the last several years to attract and retain some of the best talent in industry," he says.
Emphasis is placed on developing managers’ awareness of the need to more fully engage their workforce and how they can do a better job at that. Progress is tracked by--you guessed it--more scorecards.
A steady stream of balanced scorecards and surveys tracks employee retention and development efforts. Senior-level executives are held accountable for the development and retention of critical players in the company. Fasolo declines to go into specific steps the company took to improve performance of managers.
In September, Right Management Consultants released a survey of human resources managers from 133 organizations showing that concerns about lower-level managers are widespread across companies.
The survey found that about four out of 10 managers are considered excellent leaders, but almost one-third are regarded as severely lacking in the ability to manage people.
Kenexa’s Kanter says he is not surprised by Fasolo’s findings. He says his own surveys almost always find that managers are more important factors in turnover than compensation. Compensation figures into the equation only when pay and benefits are extraordinarily low.
Once a family’s minimum living requirements are met, he says, employee satisfaction tends to turn on such questions as "Do I feel listened to? " "Do I feel trusted?" "Am I aligned with the mission and vision of the organization?"
One of Kenexa’s clients is Lucent Technologies, whose chairman and CEO, Patricia Russo, is pushing to make the company one of the best places to work in America, Kanter says. Creating an engaged workforce is key to that effort. To get a grip on the problem, each supervisor is given a scorecard on how engaged, committed and satisfied his staff is. Exit interviews are tied back to annual surveys that measure employee commitment and engagement.
He defines an engaged employee as a person who rarely thinks about looking for a job with another company, who would recommend employment at the company to a friend or family member, and who says they are extremely satisfied with their employment.
Although these characteristics are broad, Kanter says they are good indicators of employee engagement. But there are also surveys that prioritize and measure such things as trust in leadership, understanding of a company’s mission, rewards and recognition programs, and growth and development within an organization.
Fasolo believes that analytics and scorecards represent a fundamental challenge to human resources leaders. When they get the ear of the CEO, they must be prepared.
"The conversation must be moved from ‘Let me tell you what I think and feel’ to ‘Let me give you a sense of what the actual attitudes and behaviors of the employees are and how they directly relate to work behaviors such as engagement, performance and turnover,’ " he says.
And one of those is this: Money can’t always fix a leaky bucket.