But sometime very soon, if you haven't thought carefully about your retention strategy, you could be faced with a shocking reality: You don't have the people you need to run your business. And you haven't a prayer of finding replacements.
It's a horrible thought. But it's a scenario that many human resources managers are faced with these days. Here's why it's happening. It's eye-opening:
- Unemployment is 5 percent, the lowest level in nearly eight years, according to the U.S. Bureau of Labor Statistics.
- The proportion of people with jobs is at an all-time high, and the economy continues to boom.
- Economic growth is at 4 percent (up from 2 percent in 1995), inflation continues to hover around 2.5 percent and consumer confidence is sky high (Business Week, May 19, 1997).
- 1.5 million new jobs were added in 1996 by small businesses (Business Week, September 16, 1996).
- The "Employment Outlook Survey" of 16,000 companies (by Manpower Inc.) reveals 30 percent will seek additional employees, and the Bureau of National Affairs reports that hiring projections increased 18 percent over 1996.
- Although turnover statistics are difficult to come by, a survey of 434 small-business owners reveals 50 percent say the labor shortage is their biggest business obstacle.
Labor shortages are happening in virtually every industry from high-tech to marketing and sales, from engineers to fast-food and factory workers. Small companies with sales from $1 million to $50 million expect to come up short in staff needs by at least 10 percent.
Although it may sound like old news, retention of employees is the best strategy to keeping organizations staffed at optimum levels. But it's not the old retention plans of yesterday that promised people a standard pay and benefits package and left it at that. It's a new kind of effort in which HR has to rally all its ingenuity and strategic wisdom for the desired effect.
So this is HR's wake-up call. If our stories on the erosion of employee loyalty (Personnel Journal, August 1996) and our coverage of the staffing drought (Personnel Journal, November 1996) were HR's introduction to the ultimate nightmare of having no employees, then this is where HR professionals find out that the best employees may have been right under their nose all along. Businesses can keep vital workers with a total retention strategy and the programs to support it. But first, let's explore the conditions that caused the business community to rethink its staffing strategies for the '90s—and beyond.
Business conditions turn the employment tables.
Remember the 1980s and early '90s when Corporate America was on a slash-and-burn rampage to become lean and efficient? Guess what? That shrinking of vital personnel has finally caught up with businesses nationwide. While companies busily slimmed down to efficiency extremes, they sent a subliminal message to employees: Just be happy to have jobs.
That mind game has turned 180 degrees. Employees realized something very important: They are the survivors. They are the people employers wanted to keep. By their own doing, companies have created entire organizations of "core" employees.
Add to that the fact that because of low unemployment fewer people are available in the labor market, and one realizes the workplace has metamorphosed into a virtual contest to keep employees. After years of downsizing and restructuring, businesses now see that the laws of supply and demand have shifted, putting employees in control. It's certainly an odd place to be. But it presents an opportunity. Businesses can continue to run leaner and meaner, but they must keep those employees whom they've already identified as core.
It isn't easy. Employees can be lured away these days with promises of state-of-the-art equipment, idyllic surroundings, even large cash incentives to sign on for entry-level positions.
Smart human resources professionals are realizing that retention is one of the most important staffing tools they have, but it requires a centralized strategy — and the policies and practices to support that strategy. HR must make those strategies and programs work together — rather than having disparate strategies and programs that are hit-or-miss.
Start with a comprehensive retention strategy.
"You have to have a comprehensive approach to retain employees that's well thought out," says Steve McMahon, vice president of human resources for San Rafael, California-based Autodesk Inc., a large personal computer software firm. "You want to approach retention on many different levels and in many different ways. Otherwise, an individual program here or there is too fragmented. It's too hard to measure and it's harder to have the kind of impact to make it worthwhile."
Consequently, businesses are awakening to ways for maintaining the valuable workers they already have. "We take a holistic approach," says Philip J. Sharkey, senior vice president of human resources for Miami-based American Bankers Insurance Group. "Our goal is to attract and retain good employees so that we can give quality customer service. We know our most important product is our people because they're the ones who are going to be serving the customers." Indeed, "Most companies lose half their employees in three to four years and half their customers in five," says Frederick F. Reichheld in his book: "The Loyalty Effect" (Harvard Business School Press, © 1996). "Retaining employees is as critical as retaining customers," he writes, "because you won't have loyal customers without loyal employees." Clearly, it's easier to keep customers than it is to gain new ones. The same is true for employees -- especially if those workers are core.
To achieve this type of centralized strategy to retain core workers, HR managers are looking at all their usual corporate trappings, such as competitive compensation and variable pay programs, innovative work/life options and new training and development offerings. But they're also going a step further by examining individual employees' needs so they can create programs and services to address them. Ultimately, HR pros are trying to create an atmosphere in which workers feel trusted and respected.
Experts say the five keys to the new type of comprehensive employee retention plan are to:
- Have a planned approach.
- Retain people as individuals, not groups.
- Value people through a strong organizational vision.
- Invest in employees.
- Approach retention as a long-term, not short-term, strategy.
This strategic vision can include a variety of programs, but it must be cohesive with all the pieces working together. And it must be well-understood by HR staff and line managers in the organization. A good retention strategy must work to retain people as soon as they're hired.
Retain employees from the start.
To be an employer of choice, a company must first attract and hire talented individuals with the skills the organization needs. But, encouraging those valuable people to energetically participate in the company on a continuing basis is what really makes the difference.
Managers at American Bankers Insurance Group are doing all they can to make employees want to stay from the moment they walk in the door. Their obviously strategic approach to retention includes a panoply of programs that address all aspects of employees' lives, from long-term financial growth (such as a leveraged employee stock-ownership program) to flexible work arrangements.
Picture this: the business is located on 84 acres of wooded land with a lake, a softball diamond, tennis and basketball courts. It has a fitness club, a sundries store, a credit union and subsidized lunch program (fifty cents on the dollar). Beyond creature comforts, though, the company's HR department addresses a wide range of personal issues faced by its workers. When it relocated its corporate headquarters to its present site in the '80s (about a 25-mile move), it was concerned about retaining employees and attracting new workers. One desired amenity that employees who had young children asked for was onsite day care. The company responded by hiring a director and setting up a facility.
This day-care facility received such positive response that managers also set up a satellite learning center with the Dade County public schools for employees' children. "Because we had success with our day-care program, we realized that bringing the school to the worksite would also serve as a strong retention tool," says Sharkey.
"We try to adjust as best we can to the individual needs of our employees," he says. "You can't look at employees as a massive group. People have needs and wants that have to be addressed on an individual basis." As an example, the company's flextime is far more than simply flex hours around core work hours. Employees are given the opportunity to manage their own work time, with their supervisors' approval.
On the professional side, employees want more than just jobs. So, American Bankers Insurance Group also offers extensive training and development programs, plus an undergraduate degree program that's housed on its premises. "All of these programs are designed to help give employees a better quality of life at work," says Sharkey. For example, day care and the satellite school give them tremendous peace of mind, he says, and keep the turnover rate virtually nil for those using the service.
These tactics may work for some employees, but it's tricky when a company needs to retain a certain group or workers whose value is particularly hot in the labor market.
Here's how to keep even the most difficult-to-retain workers.
So how does a company retain workers whom other employers want to lure away? In the high-tech industry, where turnover is intense and raids on valuable employees are notorious, Autodesk's McMahon is vigilant about retaining the best and looks at staffing strategy from both short- and long-term perspectives.
Something's working. In this industry in which executive staff-churn is legendary, Autodesk's senior-level staff (14 people) has seen no attrition for four years. This, during a slight downturn in the company's business cycle.
How does this organization do it? In addition to stock options and incentive bonus plans, McMahon says that if individuals -- from the senior ranks on down -- believe they're valued and work in an environment that creates trust, they're less stressed and will be able to function more successfully. As a result, they're happier and more productive. "HR spends a lot of energy creating a context in which employees can work. We communicate this [philosophy] through our vision statement, our newsletters, our Web site and a series of brown bag lunches and other communications vehicles. When people can relate their work to the larger picture, they have a greater sense of purpose and know that what they do really matters."
Specifically, Autodesk has an elaborate development process and leadership program. Part of it is a personal coaching and 360-degree feedback program. The company uses an executive coach (an external consultant) who helps gather the feedback and interprets it to the executive. Then, the coach helps him or her identify and develop the areas in which he or she needs support. "People appreciate the investment that's being made in them," says McMahon. "And they also like the fact they don't have to pretend to do everything perfectly." The firm builds on the person's strengths and helps construct teams in which someone fills in for those areas in which that employee's competencies aren't as strong.
The company's corporate goals are based on team results that engender a heightened sense of collaboration and commitment to the group. And, the rewards are attractive. For example, if an individual's bonus target is $20,000 and the company does exceptionally well because of the team's work, an employee can double his or her bonus. "This [development/feedback] process allows people ... to have a much better sense of who they are. It gives them a sense of being grounded in reality, and they're more aware of their strengths."
Why does this help reduce attrition? Answers McMahon, "Doesn't it follow that if somebody is making a big investment in you and really gives a damn about you, you get the sense you're not just filling a position -- you're valuable?"
To further employees' sense of commitment to the group, Autodesk has instituted a process called dialoguing. It's a structured way for people to discuss their differences. It may be used for conflict resolution, or it may be used simply for people to understand each other better. The process is facilitated by a third party.
Summarizes McMahon, "Individually none of these [programs] will [retain people], but collectively, [it] enhances and improves people's work lives. Creating an environment in which people want to work is crucial. If you have an environment that isn't pretentious or highly competitive, employees aren't as stressed out. If they trust the people they work with, it creates a healthier environment and enhances productivity. Trust is a rare commodity in high-stakes organizations."
In fact, two-thirds of corporate managers who participated in a recent New York City-based Conference Board survey said they face a reservoir of mistrust among their employees. Fully 73 percent of U.S.-based companies encounter this, as well as low morale (71 percent) as a result of downsizing, restructuring and a variety of other factors leading to the death of the old employment contract (when employers provided jobs for life and employees gave their complete loyalty). A good way to keep good people is to trust them.
But, even the most trusting and team-oriented work environments won't keep people put if you forget to incorporate a good pay program into your retention efforts to keep people focused on the tangible rewards of their work.
Boost retention with innovative compensation and training programs.
Speak with Randolph Wm. Keuch, director of compensation strategy and development at SmithKline Beecham PLC, and you'll discover that HR pros who are serious about retaining key employees know the value of integrating their retention with a good compensation strategy. SmithKline Beecham is a British-owned pharmaceuticals, consumer health-care business that's facing a crisis in its employment of information resource (IR) specialists. Because of the global computer issue called Year 2000 (which threatens computers worldwide to shut down on December 31, 1999, because they won't recognize the year 2000), organizations of all types are frantically using their IR employees to address the problem. Retaining these employees is a bedrock business issue.
For example, according to Keuch (who's based in Philadelphia), IBM is hiring 10,000 employees, Oracle is hiring 12,000, EDS about 7,000 strictly to work on Year 2000 issues for their customers, which means he's going head-to-head with these firms for skilled workers.
This is no small matter, and it affects pharmaceuticals because of compound-dating and shelf-life issues, among others. "We'll be out of business or suffer significant problems if a factory goes down because we don't know the age of chemicals in a compound. If our billing system goes down, we could lose tens of millions of dollars because we wouldn't know whom to bill and we couldn't recreate those files," says Keuch.
"So, we have a significant business risk. We're also at-risk because these IR individuals could leave us and make significantly more on a short-term basis elsewhere. When we lose people, we immediately have to replace them with contractors."
SmithKline Beecham is in a tough position. According to Keuch, contractors have been averaging 50 percent higher salaries than the total cost of an employee -including salary, bonus, benefits-and he has seen rates as high as 100 percent. In addition, it used to take 40 to 50 days to fill the position, and now it takes six to nine months. Add to that the cost of training and the cost of lost time of current employees who need to spend time selecting a candidate and training the new hire. Thus, the company examines and analyzes the cost of a contractor vs. the cost of hiring an employee (which is further complicated by the fact that there's now high turnover among contractors).
Breaking this cycle is the real challenge. The first way SmithKline Beecham has dealt with this is to sever its dependence on contractors. It figures that if it's paying 50 percent more to contractors, for example, then it ought to take that extra money and spend it on the existing workforce. In so doing, a company can actually save money by spending the difference on incentive schemes or retention programs, says Keuch. After thorough analysis, however, he knows it's a break-even program.
Keuch says senior managers are considering a retention scheme to use over the next three years (the length of time until the year 2000) that will deliver a significant amount of pay and stock options to workers who stay, if there are no systems failures and no major financial losses due to that failure.
But equally important to the compensation program, Keuch emphasizes that training in the newest technologies, general educational enhancements, and the opportunity to work on the latest technological advances are extremely important to these workers. "We also have a sophisticated leadership and development review process in which their careers are the only focus of a major session," says Keuch. "This is for all employees, not only IR. We're very much directed toward individuals achieving their career aspirations with us."
That's an important point. Companies must provide tools to allow employees to develop their careers. But many employers are concerned they may be developing people to go out the door. That's always a risk. Still, organizations must have environments that are attractive enough for people to want to stay. HR must look at the whole picture.
"[HR] can't be faint at heart and say it'll just do a couple of things and see how they work," says Audodesk's McMahon. "[HR] has to look at the full spectrum of HR activities -- from recruiting through training and rewarding. [HR] has to have a belief that retaining employees really matters." Because without this attitude, retention gets lost in the pile of HR strategies.
If keeping core employees is a strategic HR mission -- and it is -- then the topic of retention may not seem so weary. Look at it this way: the effects of a bad retention strategy -- high turnover -- will yield many sleepless nights. That's not the kind of strategic HR most human resources professionals want to practice. Fortunately, with these kinds of innovative strategies, they don't have to.
Workforce, August 1997, Vol. 76, No. 8, pp. 46-52.