How to keep good people

Employee retention is one of the biggest business issues of this decade. Here

By Toby B. Gooley, Senior Editor -- Logistics Management, 1/1/2001

Remember the popular song that began, "How you gonna keep'em down on the farm after they've seen Paree?" With today's record low unemployment rate and booming demand for tech-savvy people, many an employer is humming that tune as employees leave in droves for new jobs. Instead of Paris, though, job-hopping employees often are heading for the (admittedly riskier) stock options and big paychecks promised by high-tech and Internet-based companies.

Replacing those employees is expensive. In addition to the costs of processing the separation (exit interview, paperwork), hiring a replacement (advertising, screening, and interviewing), and training a new hire, companies also must foot the bill for the resulting lost productivity and lost business. Philip Brewer, president of employee retention consulting firm KeepEmployees Inc. of Fort Collins, Colo., estimates the cost of losing a mid-level manager as 1.5 times that person's annual salary and benefits; for top executives, he says, that number may reach a factor of three to five times the annual compensation.

Even for entry-level employees, such as warehouse pickers or dock workers, the benefits of retention are clear. Although the actual cost of replacing those employees may be considerably lower than it would be for top executives, companies that promise customers fast delivery and "perfect" order fulfillment can hardly afford the lost productivity and inevitable errors that result from high turnover in such positions.

Is there any way to fight today's job-hopping trend, short of praying that the dot-com that stole your vice president of operations goes belly up? Employee retention experts say yes, but it will take a lot more than simply boosting salaries.

Adopt New Ways of Thinking

According to specialists in employee retention strategies, improving retention rates will require a fundamental change in the way companies hire and think about employees. "It starts with the employer's attitude," says Brewer. "We have to think about what will make us successful as an employer, which is separate from our success in product development and sales. This approach says that ... we have to ask ourselves, are we good at employing people and dedicating resources to help people get better at their jobs?"

Gareth S. Taylor, associate dean of the business school at Mississippi State University and a specialist in human resources issues in logistics, agrees. "You almost have to view employees as you do customers," he says. "You have to attract employees to the company and then work to retain them, just as you do with customers."

Brewer recommends that executives also stop thinking of recruiting as simply finding a person with certain skills to fill a specific position. "Eighty percent of the time, employers make a hire based on technical skills, education, and training. But 80 percent of job failures are due to failures in behavior," he says. Employees who are a good fit not only with the individual job but also with the corporate goals and culture are more likely to stay with a company longer, he believes.

Lynn Ware, president and CEO of employee retention consultants Integral Training Systems in Menlo Park, Calif., recommends that clients evaluate the "softer" characteristics of successful, long-term employees and look for those same traits in new hires. "We have to look for what will make for success in three to five years, not just whether they'll be able to do the one job they're hired for now," she says.

Why Employees Leave

The next step in combating employee turnover is to recognize why employees leave, says Roger E. Herman, CEO of The Herman Group, management consultants and business futurists in Greensboro, N.C. Herman, author of Keeping Good People and How to Become an Employer of Choice, and other employee retention specialists agree that there are five principal reasons why employees leave a company. These include:

• Feeling uncomfortable with or not understanding the corporate culture. "People support what they help to create," says Herman. "You want a sense of belonging, a family feeling ... but if the mission statement is the boss's mission statement and has little to do with what's going on in reality, they won't participate."

• Feeling unrecognized and undervalued. According to Ware, "I didn't feel fully recognized for the contribution I was making" is one of the top three reasons for leaving cited by employees in exit interviews her firm conducts.

• Feeling that they don't receive the support they need to get their jobs done. Failure to provide technical support, information, and the tools they need to accomplish objectives can be harmful, Herman says. "In this economic environment, people can pick and choose where they want to work. If you make life difficult for them, they'll leave."

• Feeling that they lack opportunities for professional and personal development. Employees want to grow via job-related training and other types of skills-enhancement programs. Says Taylor: "People want autonomy and responsibility, and ... they will find a [corporate] culture that will let them get that."

• Feeling that they are underpaid for the contributions they make to the company. Study after study has shown that money is not the prime motivator for most people. Even so, everyone wants fair compensation, so all the "warm fuzzies" in the world won't make up for inadequate compensation.

What Makes Them Stay

Managers who understand what makes employees leave know what problematic conditions to avoid. Although that knowledge is invaluable to any retention effort, it's not enough on its own. A successful retention initiative will be multifaceted and wide ranging, says Ware.

For starters, employers should take a fresh look at how they conduct new employee orientations, Taylor suggests. Typically, someone in human resources gives new hires a bunch of forms to fill out and drones on about company policies. But one human resources manager Taylor knows takes that opportunity to discuss his company's values, its business focus and philosophy, and where the new employee fits into the big picture - an approach the manager credits with alleviating turnover problems.

Sharing a strategic overview and a common vision with employees also can be a powerful motivator, says Taylor. He cites the example of a manufacturer of military defense system components that was experiencing high turnover. When Taylor asked employees, from production line workers to top executives, what the company's mission was, the answer always came back the same: "We make chips for cruise missiles." Introducing a different vision - "We make products that keep our soldiers and our nation safe" - helped pull employees together.

Those examples indicate how critical open communication between employer and employee can be. "It's important to give people information, to let them know what's happening," says Herman. "When people see what the numbers are, they know what they can do to help improve those numbers." That kind of "open-book management" helps employees feel more invested in a business. Companies that implement that approach, Herman says, typically have lower attrition rates.

Although the high-level overview is important, where the rubber really meets the road is in personal relations. "A key reason - perhaps the number one reason - people stay with their current employers is the relationships they have with their direct supervisors," reports Brewer. That's why training managers in career development and human resources strategies should be an integral part of any employee retention effort, says Ware. "Most managers haven't had any education in that [area], but things like very basic management practices can have a huge impact on employee retention."

One thing managers can do to develop loyalty in their direct reports is to help people succeed in their jobs. "If the supervisor gives them what they need to be successful in their work, that can be reason enough to decide to stay or to leave," Brewer says. Ware suggests that managers look for ways to let employees use their strengths, rather than restrict them to a narrow job description forever. Other powerful loyalty builders, the experts agree, include providing training for advancement and allowing employees increasing measures of autonomy, control, and responsibility as they prove their abilities.

Creating opportunities for people to stretch their job boundaries pays off in other ways, says Herman. Taking people out of their usual environment to get a broader view also can help them better understand their contribution to the company. "If you send your lift-truck drivers out with the truck drivers for a day to see what happens to products after they leave the loading dock, they'll understand that the way they do their job makes a big difference to the truck drivers," Herman observes. "You've lost a day of time on the dock, but you've gained a lot in motivation."

Managers also need to find ways to recognize employees' contributions. Making them feel valued doesn't have to consist of cash bonuses or awards ceremonies, says Ware. It's more effective, she believes, for managers to try to meet individual needs. "Find out what winds their watch, and as much as is possible craft some benefit for that individual person. Don't make a public announcement about it but try to help them out with what's important to them," she suggests. "Accommodate them with flexibility within reason, but stay within the framework of equity with other employees. That gives the message that you are paying attention to their needs and value their work."

Feedback represents another critical piece in the employee retention puzzle. Structured performance appraisals, for example, can be useful retention tools. Taylor's research found that employees who believed their performance appraisals were fair tended to be longer-term employees. They considered appraisals to be fair if their managers treated them with respect, they were allowed to express their opinions, and they were able to see a clear connection between their performance and their rewards, he explains.

Brewer says effective evaluations should incorporate feedback not just from supervisors but also from peers and others who may be affected by the employee's work. Employees should also be evaluated on the impact they have on their company, he says. "[I]t's not just do you know how to do it, it's are you doing it in a way that's getting measurable results." That's more meaningful and satisfying for employees than traditional approaches, he says.

That desire to relate performance and reward - not to mention competition with dot-com companies - is one reason "equity vehicles" are becoming more popular, says Ware. One of her clients, for example, financially rewards teams of employees for the success of products they develop.

Changing Times

Many of the tactics the employee retention experts recommend are non-traditional. It's high time American businesses changed the way they deal with recruiting and retention, they say. Not just the times, but the employees themselves are changing. "We have a new workforce that is culturally and ethnically more diverse. Today's employee also expects such different things than employees did 10 years ago," Taylor points out.

Both Herman and Ware note that the newest employees are part of the "latchkey" generation, who grew up with both parents working and therefore generally are more independent and self-sufficient than their predecessors were. "They want more control over their careers - over when, how, and why they're working," Herman observes. He predicts that this generation will develop a "hopscotch" career pattern. That is, rather than always moving in linear progression up the career ladder, they will move forward, backward, and sideways to achieve the kind of personal and professional satisfaction that people have always wanted but until now, have rarely been in a position to attain.

employee retention resources

There are many sources of information and advice on employee retention. The following are some of the ones we consulted in preparing this article.

• Keeping Good People, by Roger E. Herman. Oakhill Press, 389 pages. Recently revised, this book offers an overview of the factors affecting today's employment conditions, what employees want, and why they leave. The major part of the book offers practical advice on strategies for improving the workplace environment, employer-employee relationships, support systems, personal and professional growth, and compensation.