A Crash Course for Building Employee Retention 1

A CrAsh Course for Building employee retention

Building EmployEE REtEntion in your CompAny

A Crash Course for Building Employee Retention 2

There is nothing more disappointing than finding the right talent for a position, hiring them, developing them, grooming them, loving their work, and then hearing the dreaded words: I’m giving my notice.

In the face of a growing talent shortage, few companies can afford to ignore strategies for employee retention. But how can we create a magnetic and sticky culture that not only attracts candidates to us, but helps us hang on to the great talent we already have? We need answers.

This collection of some of our most popular blog posts will offer you some constructive advice and actionable pointers on how you can reduce voluntary turnover and build a culture of retention.

3 // The Ridiculously High Cost Of Employee Turnover

Employee retention is a bottom-line ROI problem. Here’s a look at its financial impact on your organization.

6 // The Talent War Ceasefire Is Over (and What That Means to You)

A look at the current state of employee retention and how you can prepare for the looming talent war.

9 // Why Managers Fail To Recognize Employee Contributions

Leigh Branham, author of 7 Hidden Reasons Employees Leave shares strategies for helping managers to be more successful in keeping employees happy.

12 // 12 Surefire Tips to Reduce Employee Turnover

Tips for companies to help build retention.

InTRoduCTIon The ARTICLeS

A Crash Course for Building Employee Retention 3

The source of my astonishment was the creation of an infographic for our new paper that shows the incredible costs of turnover. (It’s called 5 Reasons You Need Strategic Recognition). One might think that an infographic like this would be simple, but it turns out, as anyone knows who has really tried to do it… the cost of turnover is not an easy number to calculate. We spent literally hours talking over the numbers and calculations to make sure that the end result would reflect reality for our customers.

thE Ridiculously high cost of EmployEE tuRnovER

By Darcy Jacobsen

Every way we sliced the numbers, even with exceedingly conservative (i.e., ridiculously low) per-person costs resulted in a shocking expense associated with high turnover. The totals dwarfed the cost of even the most robust recognition program. Programs that hit industry benchmarks and cost 2% of payroll spend wouldn’t hold a candle to how much employee turnover is costing companies. And when you consider that those programs can boost retention up to 31%, the business case for recognition is astounding.

“Inconceivable!” That’s one of my favorite lines from the classic movie, The Princess Bride, and I have to admit it’s been running through my mind a lot over the past few weeks, as we’ve been trying to calculate the astronomical cost of employee turnover.

Even exceedingly conservative per-person costs resulted in a shocking expense associated with high turnover. The totals dwarfed the cost of even the most robust recognition program.

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A Crash Course for Building Employee Retention 4

Company Size: Our customers tend to range in size from 1,000 to 350,000 employees, therefore we figured 10,000 employees was a reasonable number.

Breakdown: Since many companies seem to break down at a 70/20/10% level, in terms of manager/employee ratio, we thought this was a safe bet for our ACME Average Company.

Average Salaries: We had a look at the Bureau of Labor Statistics numbers and did some averaging and generalizing and arrived at a conservative estimate of a $30/70/150K breakdown for salaries.

Cost to Replace: Here’s where it starts to get more complex. In our paper we noted that SHRM has estimated the cost to replace an employee at $3,500, which was the lowest estimate of 17 organizations surveyed, but we agree with experts who suggest that the cost to replace really does vary by role. Still, the cost to replace even a minimum wage employee, when you factor in time lost, training time, interviewing and advertising investment, etc. is significant. It goes up exponentially when an exhaustive talent search is needed. In the end the estimate we thought captured the most nuance was a chart published by the Jack Phillips ROI Institute. To save over-complication we averaged the costs into a 75% of annual salary turnover cost.

Annual Turnover %: While the US Labor Bureau reports average turnover costs at 38%, we thought that was a little excessive for our example. In their recent study of workplace psychology, the American Psychology Association estimated turnover at the very best companies to be 11%. We thought that most companies would find the high cost at even a low 11% to be illuminating, so we chose that number.

20%

10%

Average Annual Salaries

Company with 10,000 Employees

$41.3MMin bottom line turnover costs

$150K

$30K

$70K

Annual Loss of Talent (@11% turnover)

770people

people

people

220

110

Cost to Replace (@75% of salary)

$22.5K

$52.5K

EntryLevel

Mid-mgmt

Senior mgmt

70%

$112.5K

$17.3MM

$11.6MM

$12.4MM

Creating this graphic was a real education for me. So much work went into it that I thought I would take a few minutes here to walk you through how we got the calculation that we did.

here’s the finAl produCt:

1

1

2

3

4

5

2

3 4 5

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A Crash Course for Building Employee Retention 5

Then it was all over but the calculating. We determined that if you had 10K employees @ those given annual salaries, with a cost to replace at 75% of salary, at an 11% turnover rate, your annual loss would equal $X, and in this case $X is a whopping $41.3 million.

If that number seems impossibly high, and your company has new recruits beating down the doors so you spend little on re-cruitment, note that even if everyone in the company made entry level wages and cost only $3,500 to replace, the turnover would still run you $3 million annually. You can see why I was blown away.

When you do the numbers this way—substituting real metrics for our estimates—for your company, even in the most conservative manner possible, I think you’ll be really surprised what talent loss is costing you, even before you factor in the intangibles. When you consider that strategic recognition can boost those retention numbers dramatically, it’s amazing there are any companies out there without programs. Yet according to the latest Mood Tracker survey, 46% of employees don’t feel they are being recognized effectively.

I think somebody needs to send those companies our infographic!

We determined that if you had 10K employees @ those given annual salaries, with a cost to replace at 75% of salary, at an 11% turnover rate, your annual loss would equal $X, and in this case $X is a whopping $41.3 million.

A Crash Course for Building Employee Retention 6

thE talEnt WaR cEasEfiRE is ovERBy Darcy Jacobsen

The economy is recovering. That’s good news, right? Um… right?? Well, yes! But most Human Resources pros view rising employment data with very mixed emotion, because as unemployment slowly ticks down, recruitment can get more competitive, and voluntary turnover rates begin to inch up. Employees worry less for their job security, and top talent begins to poke out of the foxhole and look around for opportunities.

Employees worry less for their job security, and top talent begins to poke out of the foxhole and look around for opportunities.

And that is just what we are seeing. In other words, if the economic recession offered an armistice in the War for Talent— that ceasefire is rapidly coming to an end.

Of course, employment numbers are only a small part of the story. The War for Talent is exactly that: a competition among employers for the most skilled talent available. There’s a reason it isn’t called the War for Employees. That’s because there is a growing shortage of highly-skilled workers, which is independent of unemployment among less skilled workers.

According to a 2012 report by the McKinsey Global Institute, employers will face a 13% shortage of highly skilled workers by 2020 –that is 38-40 million fewer skilled workers than needed. In developing economies, the shortage of educated workers could be nearly 45 million workers. Conversely, we will see an 11% oversupply of unskilled workers around the globe. And according to World at Work, at least 72% of companies worldwide have already admitted that finding skilled workers is a major problem.

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This begs the question: “This begs the question: How can you ensure that you are able to hire and then retain all the skilled and qualified workers you need, in the face of fierce competition? Well, it helps to consider what skilled employees are looking for:”

• Competitive Base Salary

• Job Security

• Career Advancement & Growth

• A Convenient Work Location

• Learning & Development Opportunities

• Flexibility

• Great Company Culture

• Robust Benefits

In light of that, here are some tactics you might employ in 2013 to differentiate your company and attract the talent you need.

1. Build your hr BrAnd Your company may have a great brand, but do you have a great HR brand? Are people attracted to your culture and dying to be part of it? Maintaining an HR brand is more than simply tacking recruitment ads onto your corporate brand. It is about projecting a positive reputation and communicating that image of your company to current employees and the prospective employee pool. People have always been willing to eat at McDonalds, and employee satisfaction has always been high. But not many people wanted to work at a place where the term “McJob” was coined. When the company started to manage its HR brand, it jumped to #8 on the list of the Best Multinational Companies to Work For. And in 2011, when McDonald’s sought to hire 62,000 new workers, more than 1 million people applied. Neglect your HR brand at your peril.

2. hire for the right fitJust because the market is tough doesn’t mean you should be desperate or lower your standards. Hiring people who fit your culture means they’ll be both more productive and more likely to stick around.

3. mAgnetize And mAnAge your CultureThe single best thing you can do to retain top employees is to create a culture that they don’t want to leave. The top 100 Best companies to work for see 3% or fewer of their employees leave voluntarily. Find ways to create a great culture that reflects values that your employees can relate to. Then find ways to measure and manage that culture.

nEglEct youR hR bRand at youR pERil.

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A Crash Course for Building Employee Retention 8

4. think outside the zip CodeTelecommuting and non-traditional work groups have made the job market a global one. According to a survey by KPMG, 71% of companies believe that working across borders has increased over the past 3 years and 60% of companies have increased use of virtual workspaces. Consider broadening your search for the right candidates to other geographic regions.

5. trAin the skills you needHiring for growth potential and developing existing staff is becoming a tactic for many companies. This segues nicely with employees’ desire for career growth and empowerment and can be a huge statement of confidence in your employees that will boost your culture.

6. inCreAse sAlAriesIt may not always be an option, but according to Manpower’s Talent Shortage Survey, the “pay more” approach is being implemented most often in China and the U.S. Make sure that at the least, compensation is at or just above the averages for your area and industry.

7. mAster the teChnologyBeing on the cutting edge of technology is critical to success when the competition gets cutthroat. Use technology to source and connect with prospective hires, and then use it to manage your talent, recognize and reward employees and measure your culture. Getting a handle on big data is necessary for everyone, but mastering it and making it work for you can give you a huge competitive advantage.

The Talent War ceasefire is over. So now that we’re back in the trenches, how do you plan to fight the good fight?

A Crash Course for Building Employee Retention 9

Why managERs fail to REcognizE EmployEE contRibutionsBy Leigh Branham, Guest Blogger

One of the most profound drivers of employee retention is the relationship between employee and manager. Yet, inexplicably, many managers still cannot seem to engage in the behavior that has been proven to keep employees happy and on board. Leigh Branham, author of “The 7 Hidden Reasons Employees Leave,” shares some wisdom on why this might be, and how you can encourage managers to help minimize voluntary turnover in their departments.

After 20 years of researching the drivers of employee engagement, I have concluded that the mother lode of motivation come from what I call the C-A-R Cycle

• Giving employees a Challenge

• Having them Achieve

• Making sure they are promptly Recognized

Yet, sadly, about four out of every five employee contributions go unrecognized, according to at least one study. These management errors of omission are costly missed opportunities to pump up engagement levels. So, it seems only logical to try and understand why so many managers fail to recognize. After reading more than 100,000 verbatim comments from surveys submitted in Best-Places- to-Work competitions, I’ve identified 13 reasons managers fall short when it comes to recognizing their people—each of which is understandable, but unacceptable:

• They believe they are too busy to take the time. This is usually a failure of the culture that has either overloaded their managers as doers rather than delegators or, has somehow communicated to managers that recognizing employees is not an essential part of their job.

• They actually have the time, but are not paying enough attention to the employee’s performance to notice the contribution. Many managers are simply more task-focused than people-focused, and have their heads down looking at their to-do lists.

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• They believe “if you don’t hear from me, it means you’re doing a good job.” I’ve personally heard this one from more than one manager. It’s an abdication of manager responsibility in the guise of giving the employee autonomy. And managers should bear in mind what the renowned psychologist William James once said: “The deepest principal in human nature is the craving to be appreciated.”

• They believe “employees shouldn’t expect me to pat them on the back all the time for just doing their jobs …their paycheck should be enough.” This perspective is quite common and reveals a basic misunderstanding of human psychology. On the contrary, the pats on the back should be reserved for acknowledging extra effort, not “for just doing their jobs.”

• They are unsure about how best to recognize, so they do nothing. This is easy enough to understand; people tend not to do things when they’re not exactly sure on how to do them. But this one is also the easiest to correct—by training managers in the basic principles and how-to’s of effective recognition.

• They never received much praise or recognition themselves, so they aren’t inclined to give it to others. Again, understandable but not excusable. In fact, many managers who practice recognition most effectively do so because they know what it’s like not to be recognized.

• They believe employees will think they are phony and insincere if they suddenly start praising them. It’s OK for a manager to tell their direct reports they’ve decided to start doling out praise when it’s merited. The key is to notice and praise a specific above-and-beyond contribution and describe how much it meant to the business, not just go around patting people on the back and saying “you’re doing a great job.”

• They are concerned that if they give special recognition to some, others will feel unfairly overlooked. Employees usually know who deserves to be recognized and who doesn’t. The mistake some managers make is praising the team as a whole when it was really one individual that carried the ball, or singling out one person when it was a team accomplishment.

• They harbor a fundamental disrespect for some types of work or workers. I once heard a manager say “A monkey could do that job.” I’ve also noticed a tendency to devalue employees in support departments in companies that are otherwise sales-or expertise-driven. This is clearly a massive mistake; all jobs and contributions are worthy of respect.

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• They believe employees know they’re replaceable and shouldn’t expect to receive special treatment. This one is endemic to the current economy. Too many leaders are counting on a poor job market to motivate employee loyalty. Are we really motivated by “You should feel lucky to have a job”?

• They don’t believe they should have to pay employees above market for sustained high performance or provide bonuses for special achievements. The fact is only about a third of employees believe their pay is linked to their performance. The best employers pay a premium for high performance.

• They believe the employees they recognize will respond by asking for a raise. Some employees will indeed ask for raises, but that is a question that every manager should expect and be prepared to discuss.

• They don’t know enough about the employees’ jobs to distinguish between average and superior performance. I’ve heard this one many times from employees in describing their managers, often in technical organizations. Managers who can’t make distinctions between average and superior performance among their direct reports should not be managing them.

There you have it—a baker’s dozen reasons. Having presented and discussed these at length with hundreds of managers, I realize that many will remain firm in their resistance to “giving too much recognition” to employees whom they see as “already too entitled,” or part of the “trophy generation who got trophies for just participating and expect more of the same at work.” Yet, when I ask audiences of all ages “How many of you get too much recognition?,” not a hand goes up–ever.

I do not advocate giving more recognition than people deserve. Those whose expectation of recognition exceeds the value they bring should receive the strong dose of reality they need—in the form of direct, fact-based feedback.

Questions to consider: Which of the above reasons, if any, do you believe are justifiable? Which do you believe present the biggest obstacles to employee engagement? What should companies do to address the beliefs inherent in these reasons?

Leigh Branham is Founder and Principal of Keeping the People, Inc., which helps companies analyze the root causes of employee disengagement and turnover, then develop strategies for becoming better places to work. He is the author of The 7 Hidden Reasons Employees Leave and Re-Engage: How America’s Best Places to Work Inspire Extra Effort in Extraordinary Times.

When I ask audiences of all ages “How many of you get too much recognition?,” not a hand goes up–ever.

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12 suREfiRE tips to REducE EmployEE tuRnovERBy Darcy Jacobsen

How would you feel about a higher retention rate in your organization? I don’t know about you, but I can’t think of a single HR exec I know who would turn that down. In fact, employee retention is without a doubt one of the most intense challenges facing most human resources departments.

Sadly, with the improving economy and the coming talent crunches due to retiring boomers, retention rates promise only to get worse. Already, turnover rates for all industries hover around 13%–and those rates are far higher in the service sector, where the average is 30%, according to SHRM. The retention crisis will undoubtedly intensify as the talent war rages and Millennials (who are notorious for job hopping) become a bigger part of the workforce.

With that in mind, here are a dozen tips on how you can slow down the revolving door at your company. Some may be familiar, some may be new to you, but all should help you inspire long-term loyalty from your best employees.

1. hire the right peopleThe best way to ensure employees don’t leave you is to make sure you are hiring the right employees to begin with. Define the role clearly—both to yourself and to the candidates. And then be absolutely sure the candidate is a fit not only for it, but for your company culture.

2. fire people who don’t fit

As the old saying goes, “a stitch in time, saves nine.” The same goes for cutting employees loose when necessary. Sometimes even when you follow the advice above, you get an employee who—no matter what you try to do—just doesn’t fit. And, no matter how effective they might be at their actual work, an employee who is a bad fit is bad for your culture, and that creates “culture debt.” They will do more damage than good by poisoning the well of your company. Cut them loose.

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3. keep CompensAtion And Benefits Current

Be sure that you are paying employees the fair going wage for their work (or better) and offer them competitive benefits, or—really—who can blame them for ditching you? This might seem like a no brainer but you’d be surprised how few companies offer raises that keep up with an employee’s development and actual rising worth.

4. enCourAge generosity And grAtitude

Encourage pro-social behavior in your employees. When they are given the opportunity to connect with one another through acts of generosity and the expression of gratitude, employees will be healthier, happier, and less likely to fly the coop. And by encouraging them to be on the lookout for good behaviors to commend, you give people a sense of ownership of the company.

5. reCognize And rewArd employees

Show your employees they are valued and appreciated by offering them real-time recognition that celebrates their successes and their efforts. Make it specific, social and supported by tangible reward, and you, too, will be rewarded—with their loyalty.

6. offer flexiBility

Today’s employees crave a flexible life/work balance. That impacts retention directly. In fact, a Boston College Center for Work & Family study found that 76% of managers and 80% of employees indicated that flexible work arrangements had positive effects on retention. And more and more companies know it. That means, if you’re not offering employees flexibility around work hours and locations, they might easily leave you for someone who will.

7. pAy Attention to engAgement

This one sounds obvious, but for too many leaders interest in engagement is limited to the results of engagement surveys. It’s not enough simply to run an engagement survey once a year. You need save most of your energy to take action based on the results and you need to work to build a culture of engagement in your company all year long.

8. prioritize employee hAppiness

Happiness may sound a bit soft and squishy to many execs, but the numbers behind it are anything but. Employee happiness is a key indicator of job satisfaction, absenteeism and alignment with values–just for starters. Investing in the happiness of your employees will pay dividends in engagement, productivity and yes, retention.

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9. mAke opportunities for development And growth

Employees place HUGE value on opportunities for growth. In fact, a recent Cornerstone survey drew a direct connection between lack of development opportunity and high turnover intentions. If you aren’t developing your employees then you aren’t investing in them. And if you aren’t investing in them, why should they stay with you?

10. CleAn up performAnCe reviews

Our most recent Workforce Mood Tracker survey painted a frankly dismal picture of how employees feel about performance reviews. Only 49 percent of them find reviews to be accurate, and only 47 percent find them to be motivating. Performance reviews offer a prime opportunity for a big win to increase trust and fortify your relationship with employees. Improve performance management by overhauling reviews, and watch employee trust and satisfaction grow.

11. provide An inClusive vision

One key factor in employee engagement and happiness, according to experts, is to provide them with a sense of purpose and meaning in their work. Offer employees a strong vision and goals for their work and increase their sense of belonging and loyalty to your organization.

12. demonstrAte And CultivAte respeCt

Finally, don’t discount respect when it comes to creating a magnetic culture. In fact, in one 2012 study, respect in the workplace was revealed to be a key factor in voluntary turnover. Find ways to cultivate and nurture respect in your workplace and it will pay off in higher retention.

Use these tips to help build a culture in your organization that will keep your turnover rates low, and your best employees on board and productive for years to come.

A Crash Course for Building Employee Retention 15

Keep Your Talent from Walking Out Combat Rising Quit Rates by Holding onto the Employees You Value Most

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