The signs are obvious: employee benefits are increasing again; employment advertising has doubled since 1990 in most major U.S. markets; and employers from all segments of industry are searching for hard-to-find resources and designing new-and-improved benefits to help differentiate their organizations as the "organizations of choice."
It is, and will remain, an employees’ market. Companies aren’t only having a hard time attracting employees—they’re finding it difficult to keep them.
At Linkage Inc., a global organizational development company based in Lexington, Massachusetts, we researched more than 100 HR and organizational development staff of medium and large companies. The primary question of our survey was: "Why do some leaders have consistently better retention of top talent?" We attempted to find why employees leave their organizations, and what employers can do to keep their key talent.
An unplanned turnover means more than a vacant position.
In the simplest terms, turnover is the loss of a human resource that requires a replacement. And there are two kinds of turnover: planned and unplanned.
Planned turnover isn’t usually a problem—like when someone retires or has to move on. On the other hand, unplanned turnover can be, and frequently is, devastating to organizations. When a key person leaves, businesses experience tremendous hurt and dislocation, resulting in lost business and lower margins. In today’s scarcity of knowledge workers, unplanned turnover can be downright scary.
Our research has uncovered some basic facts that further indicate the enormity of the stakes:
- The most successful organizations hold on to their key resources.
- Unplanned turnover can cost as much as three to five times the annual salary of the individuals involved.
- We’re at the dawn of an era of increasing instability, in which many knowledge-based industries in the next 10 years will likely show a 30 percent to 40 percent rate of annual turnover.
- The rules have changed regarding why employees leave and what companies do to keep those who threaten to leave.
- There are some companies that recruiters don’t touch. They know it’s time consuming to pull people out of these organizations because HR has a handle on how to keep their talent. However, other companies are referred to as builders. Their training and development efforts only serve to get the employees ready to move on. These are organizations that are vulnerable to a recruiter’s cold call.
Consider that on any given day, while HR is hard at work improving ways to attract new talent, recruiters (headhunters, employment counselors and agents) are at your back door talking to your key talent, encouraging them to consider better opportunities elsewhere. What recruiters look for in their cold calls and referral networks are dissatisfiers—personally significant reasons for an employee to leave the company. They know from experience that all employees, even the most loyal, can be led to focus on what’s not right within their organization. Recruiters present new possibilities, and where to go to get more satisfaction. Employers need to better understand why employees leave their organizations.
There are various reasons employees leave one employer for another. As one recruiter told us, "Employees never leave because of just one dissatisfier." While some leave because there are multiple upsides in a potential new job, others leave because there are more dissatisfiers at their present job. Even if there are large financial advances involved in a new job, key employees are unlikely to leave just for the money. We’ve talked to hundreds who have turned down huge cash because there weren’t enough dissatisfiers in their present job to pull them away.
But there is a price at which an employee would be willing to take the leap. As one highly paid Wall Street analyst explained, "The money was better, but for years I’ve been looking for the chance to be heard. No one here listens to my ideas. I could’ve gotten most of the gain here. In fact, the employer offered to match the offer." Still, he decided to leave, because there were simply too many dissatisfiers in the mix for him to stay.
Employees feel obliged to leave to achieve unmet satisfiers.
Our research also indicates that most employees don’t really want to leave their organizations, but feel they must leave to achieve the satisfiers that aren’t being met. They’re simply driven out by dissatisfaction. Specifically, employees typically leave for five reasons:
1. The confidence factor. Organizations often look like they’re more out of focus when they’re seen internally, rather than externally. It’s not always clear to employees what the strategy is, and even when there’s a clear-cut strategy, it might not be apparent that it’s linked to the long-term mission and health of the organization. When a key employee loses confidence and hope, he or she may begin to think the grass is greener in another company, where there seems to be more focus.
2. The emotional factor. Key employees need to be recognized, rewarded and developed. When employees leave an organization, they often site lack of recognition, inadequate rewards and too little focus on their personal development as reasons to move on. When employers fail to fulfill these needs, they inevitably conclude they have no choice but to move on.
3. The trust factor. A feeling often expressed upon departure is: "There were too many broken promises and commitments that weren’t kept. They weren’t loyal to me. Why should I remain loyal to them?" Trust is a two-way street—it begins with the employer, and employees respond in kind. Psychologists refer to this phenomenon as transference—the ability of one person to transfer his or her care to another. A broken promise, whether implicit or explicit, breaks the underpinnings that support the trust paradigm.
4. The fit factor. Key employees who dedicate themselves to their organizations need to feel as though they fit—that their values and principles match those of the organization. We frequently hear exiting employees say, "I didn’t fit in with the team like I used to." It’s much easier to leave a manager or team that you don’t like, or more importantly, that you believe doesn’t like you.
5. The listening factor. Key employees need to believe they’re being heard. This is perhaps the most frequently cited reason why employees leave an organization. They believe they’re not being heard. Failure to say exactly what’s needed and expected of them becomes a hurdle that tires out employees, and ends in statements like, "It isn’t worth it anymore."
Identify who’s worth keeping.
Organizations today need to re-examine their rules in order to hold top people. First, you must identify the most important people to retain.
The rationale for making such an assessment is simple but compelling: Because you can’t reasonably pay close attention to every employee, you have to narrow the field so you can make sure your best employees are satisfied. And, especially in large organizations, it’s impossible to measure the potential loss of an employee (during a bidding war, for example) if HR hasn’t done its homework on the front end, and rated the individual in comparison to other employees.
We find that the best organizations use a defined process to identify who they want to keep, mainly because they realize it will never get done if there isn’t some sort of formal mechanism in place.
Managers must identify the best employees through focused decision making. In terms of measures, one easy cutoff is the one-third percentile—that is, the top third of your employees should receive 90 percent of your retention attention. Managers don’t have the time or resources to lavish attention on everyone. In any event, one might pick a different percentage as a cutoff, or opt for a different type of measure—just make a classification that allows HR to focus retention efforts on the most important people to retain.
Another key step is to determine the market worth of each top performer and conduct a vulnerability assessment of the individuals. A vulnerability assessment is to look at the risks that key employees are exposed to on a daily basis. This measure will ensure that you’re not surprised by the sudden departure of one of your key employees. It will also provide you with the data you need to make hard decisions if you get into a bidding war with another company for an important employee.
You should anticipate and create retention scenarios with respect to top employees to be prepared to go to the mat, if necessary. Don’t wait for the offer. Spend time with key people, and use the satisfiers as a checklist to ensure that you’re satisfying them. In that way, if they ever think about leaving, you’ll have a better idea of what buttons you need to push to retain them. Think of retention as a business decision. No prudent businessperson would ever make an important business decision without the relevant data. The same holds true for retention.
More broadly, it’s critical that your organization reward and recognize actual current and potential worth. Don’t rely on old compensation formulas. They’re often detrimental—and can create a syndrome by which even the satisfied employee feels that he or she must leave because of the gap between your outmoded pay structure and the prevailing market rates. Pay for performance against industry standards and market worth, not internal compensation policies and procedures.
The best organizations also design, implement and leverage systems that detect warning signals projected by dissatisfied employees. These systems include performance reviews that give the employee feedback, and also give him or her the opportunity to provide feedback to the organization. A formal feedback mechanism will ensure that you’re warned with enough time to act on it. If you don’t respond, the employee will inevitably conclude that "they don’t care if I stay or not."
Building relationships with your key employees.
Leaders of benchmark companies continually watch the back door to retain their key resources. They consciously dispel myths, make new rules explicit and support satisfiers. Many leaders follow these guidelines to get better turnover results:
1. They build confidence and hope through vision and strategy. The best managers we have observed spend a lot of time and energy making sure the vision and strategy connect to satisfiers. They invite key persons into the process of creating and defining the company’s vision.
2. They pay attention to the person. We find that the best leaders consciously pay close attention to their top employees, making sure they’re being developed, rewarded and recognized for their contributions. The best leaders find a way to make key persons feel they’re more important than the business (which, arguably, they are). They do all of this in a genuine way—if the appreciation seems forced, it comes off as artificial, and will be counterproductive in the long run.
3. They build loyalty, commitment and trust. Many leaders recognize that trustworthy organizations have higher employee retention. However, too many leaders fail to understand that trust is a belief and loyalty is an attitude—it’s only commitment that is an act of will. We’ve found that better managers focus on creating commitment as the foundation. They act deliberately to ensure that employees know they’re going to follow through on what they say they’re going to do. They are loyal to their key people. These leaders work at commitment, talk about loyalty and demonstrate trust to employees—and they get it back.
4. They build and maintain relationships. Managers should control turnover by making departure from the organization a painful thought, difficult to consider and very personal. Managers build one-on-one relationships with key people, knowing the names and ages of their children and important people in their lives. The network of these relationships becomes the basis of the team. Ultimately, the team becomes the reason why key employees stay.
5. They create clear communications systems. Employees hate to learn important information secondhand, so great managers ensure that every key employee is tied into what they need to know at the right time. Before employees "hear things," managers should collect information and leverage processes for distributing it to key employees. They see communication as a two-way street.
The truth is people can’t work much harder or longer, and now they have more choices in terms of their employment. With these choices, the leverage has shifted from the employer to the employee. Managers and organizations should protect their back doors from hungry recruiters by learning how to focus on key employee satisfiers and dissatisfiers. Such a fundamental shift in thinking is required to counteract today’s increasing turnover.
Workforce, October 1998, Vol. 77, No. 10, pp. 74-78.