EMPLOYEE RETENTION - Clearfit · Employee etentio o o eep he igh eople orkin for ou 7 ThE FOuR...

EMPLOYEE RETENTION

A publication of

How to

Working for You

Keep the Right People

http://www.clearfit.com

Employee Retention — How to Keep the Right People Working for You 2

EMPLOYEE RETENTION How important is it? Here’s something which may put it into perspective for you: next time you walk through the office, the manufacturing plant, or wherever it is that you employ workers, imagine that, suddenly, over three quarters of those employees are gone. Poof, vanished, no longer working for you.

Scary thought, isn’t it? Scary, but very realistic. A recent survey that came out of Right Management, the ManpowerGroup talent and career management company, found that 84 percent of employees in the United States plan on looking for a new job in 2012 (Right Management, 2012). That’s close to seven-eighths of all of your employees on a hunt for a “bigger, better job”.

Why the sudden upswing in the number of employees going back out on the job hunt? Sadly, stats like those provided by Right Management aren’t exactly “new news”. There are a few reasons why the numbers are slightly higher now than before, such as:

»» Employees feel that they’re lacking job options at work

»» Employees are under greater financial strain as all countries globally continue to bounce back from large economic setbacks

»» Employees aren’t challenged and are generally uninspired

84% of employees

are looking for a

new job

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Another large part of the problem is that employers have come to accept that hiring the “wrong people” for the job is simply par for the course. It’s become acceptable for an employer to hire someone who they “hope” or “think” will work out well, and sadly equally acceptable for them to continually find candidates leaving their company within a matter of short weeks, months, or years.

VOLuNTaRY TuRNOVER: IT’s ON ThE RIsE

As the numbers from Right Management’s survey show, the amount of people voluntarily seeking new jobs is on the rise. A large-scale North American study that was put together by Blessing White, a global consulting firm that specializes in employee engagement, shows that from 2008 to 2011 an increasing amount of respondents were out looking around for new career opportunities. One of the key questions asked in the survey was, when given the choice, how likely would you stick with your current organization during the next twelve months?

A mere 56 percent of the respondents said that they definitely would. Of the rest, 13 percent in 2011 gave a definite, “No!”. This is quite a leap from 2008, where only 7 percent gave a definite “No!” (Blessing White, 2011).

Blessing White isn’t the only survey company that’s beginning to notice the trend either; for example, PricewaterhouseCooper’s 2011 annual report revealed that voluntary turnover is beginning to rise in the United States, albeit slightly. After reaching an all-time low in 2010 of a 7 percent turnover, it rose to 8 percent in 2011, and is estimated to continue to rise in 2012 (PricewaterhouseCooper, 2011).






WhY YOu NEEd TO CaRE

Apart from the hassle that comes with trying to find and train another “great” employee that’s an ideal fit with your company, there are a number of negative impacts that having a high employee turnover rate can have on a company.

Some of these are:

1. A Detriment to Company Morale

Who likes to work in a place where there’s always a new face replacing the last? Part of the reason why people enjoy going to work is for the stability and relationships that it offers. Take that away, and you’re taking away a large part of why your employees enjoy coming in to the job every day.

Having a high turnover also forces current employees to question if they’re in the right job. They undoubtedly will wonder why the job was inadequate for the “other guy”, and whether they should be seeking bigger and better job options for themselves as well.

2. A Decrease in Performance

A forty-eight-month long December 2007 Harvard Business School study “Managing the Impact of Employee Turnover on Performance: The Role of Process Conformance”, a forty-eight-month-long study published December 2007 by the Harvard Business School, revealed that customer service and profits decreased due to turnover, as less experienced workers are far less likely to provide knowledgeable service and sell higher value goods and services (Harvard Business School, 2007).






3. Daily Tasks Being Left Unfulfilled

If you hire five people to do a job and only three stick around, that leaves the tasks of two other employees left unfulfilled. Even if you are able to somehow allocate those tasks to the three other employees, this isn’t an acceptable strategy in the long run. For one, it can burn out your employees. Secondly, it can create resentments toward you and the company. Lastly, adding more to anyone’s plate means that all tasks can be negatively impacted, such as there being a decrease in job performance and/or quality of work.

4. A Reduced Employee Knowledge Base

You want knowledgeable employees on board. Having experienced employees means that they know what tasks have to be done and what processes work with your company specifically. Furthermore, experienced management and staff certainly make life easier on everyone in the company.

5. A Significant Increase in Costs

Every time you have an employee hand in their two week’s notice, you’re losing a lot of money. The time that human resources (HR) spent trying to track down and hire that employee is essentially wasted, as is the time spent training that employee.

But those aren’t the only costs associated with high turnover.






ThE MajOR dIRECT COsTs assOCIaTEd WITh EMPLOYEE TuRNOVER

Employee turnover isn’t cheap. According to the American Management Association, the cost of hiring and training brand new employees can cost anywhere from 25 percent to five times the annual salary of that employee’s position (American Management Association, 2006). And the cost generally increases as the salary amount increases. Moreover, a 2001 Griffeth and Hom study showed that it costs companies 200 percent of an employee’s salary to both hire and train them for the job.

To put that in perspective, let’s say that 15 percent (or fifteen out of one hundred) of your employees were going to up and leave this year. Let’s also say that the average annual salary is $50,000. Taking the 200 percent figure from the Griffeth and Hom study, consider the fact that to replace a single employee, it will cost you $100,000. Replace fifteen of them in a year, and it can set your company back $1.5 million.

That kind of a loss can cripple millions of the companies across North America.

New Hire Spending =

Total Salary

25% - 200%






ThE FOuR MajOR aREas OF COsT

After interviewing seventy-eight companies that employ over ten thousand employees, Dr Bill Pinkovitz and his colleagues at the University of Wisconsin-Extension were able to identify four major areas of cost in relation to employee retention and turnover:

»» Separation costs»» Vacancy costs»» Replacement costs»» Training costs

1. Separation Costs

This cost is often missed when employers consider the money lost when losing an employee. When an employee leaves an organization, there are the exit interviews that are often conducted to learn why that employee is seeking other employment. Then there are the administrative costs that come into play, such as organizing the employee’s record of employment (ROE), unemployment benefits, or setting up severance pay packages.

2. Vacancy Costs

As we touched on briefly before, having three people working a five-person job isn’t an effective way of doing business. While you may be trying to find and train new employees to fill those two vacant positions, you may also have to pay your existing employees more money for doing overtime so that shifts are appropriately covered. Furthermore, you might have to pay meal allowances, travel, lodging, and so on.






Given how widely accepted employee turnover is, many companies now consider “vacancy costs” as a “bench cost”. They’ve come to accept that yes, not every employee they hire will be productive or even stick around past training, and that’s the cost of doing business. Large call centers are one good example of this. Many have the business model of hiring a couple hundred of employees, while knowing full well that “this” person won’t be a productive worker, and that “that” person will only stick around for a couple of months before he or she resumes school in the fall.

Vacancy costs shouldn’t be accepted. Simply put, it’s costing you a lot of money. First, let’s look at how “bench” costs can be calculated:

Here’s how Karsan (2007, p35) describes it to perhaps give you a better picture of how you can be saving a ton by not accepting this unnecessary cost:

Can your company stand to enjoy a 5 percent increase in funds this year? We bet it can.

“In an organization with sales of $100 million, the people-related costs generally amount to $56 million. If the average term to

deployment is three months, then using the formula above, we

would see a net cost of $2.1 million over and above the other costs

outlined in the opening paragraph. Thus, reducing your turnover by 25 percent would add an extra $500,000 to your bottom line.”

(# of months needed to train a new employee per twelve months) x turnover rate x Compensation






3. Replacement Costs

When you think about the amount of work that goes into trying to find a new employee, you won’t be too surprised at the costs. You often have to pay for any number of the following direct replacement costs: advertising, having hiring managers (and possibly HR) screen and interview applicants, employee selection tests, moving expenses, medical exams, and so on, and so on.

4. Training Costs

Not only are you paying the “vacancy costs” to your current employees to pick up the slack while the trainees are learning the ropes, but you also have to pay for the training materials, the instructors, for any external facilities that may be required to facilitate the training — the list goes on and on depending on your company’s specific needs. All in all, it adds up to a lot of money.

ThE MajOR INdIRECT COsTs assOCIaTEd WITh EMPLOYEE TuRNOVER

Now that we know what the direct costs are, it’s important that we don’t forget what the indirect costs are as well. A study conducted on 262 Burger King restaurants may best highlight how employee turnover can substantially increase costs for a company indirectly over time.

Over the course of two years, researchers gathered data from a central database which provided information such as recorded sales, employee turnover, and hiring.






They also measured other important parts of the business such as:

»» Customer wait time»» Profits and monthly sales»» Management and staff turnover

After measuring the data, the researchers found that turnover has an adverse effect on both sales and profit, partly because employee turnover decreases efficiency.

When turnover rates are high, employees are less efficient. This can be for a number of reasons, though the primary reason seems to lie behind new managers and employees just not having enough experience and practical knowledge to keep the business running smoothly. Even something so slight as having an experienced employee know how to eyeball how much lettuce is needed on a burger versus a new employee having to weigh it out every time adds up in terms of profits.

New employees also, understandably, make more mistakes. The result: wasted product and higher customer wait times. Both of these things mean less money for your company, though even more money is wasted when management staff leaves. It was found that having management turnover was associated with higher customer wait times, as well an increase in high staff turnover, because staff “build commitment towards leaders and managers” (Kacmar, Andrews, Van Rooy, Steilberg, & Cerrone, 2006).

High customer wait times leads to customer dissatisfaction, which ultimately means less business for you, which means less profits, which means that your whole entire business







can possibly collapse. It doesn’t matter if you’re new on the scene or if you’re running a franchise corporation that’s already backed by some sort of reputation — if your customers aren’t happy with your employees, then you’re doomed to fail.

FIVE COMMON MYThs abOuT EMPLOYEE RETENTION

When it comes to retaining employees, there are a lot of “myths” out there that are helping employers justify why their employees are leaving. There are two problems with this:

1. Employers should never be seeking ways to “justify” the loss of an employee (it’s counterproductive); and,

2. The myths are often false.

So let’s dig into some of these myths so we can begin to clear the air and start looking for real solutions and stop making excuses.

Myth #1: they left for better pay

While this is true in some cases (a study suggests that 12 percent of employees leave for more money [KeepingthePeople Inc., 2006]), the vast majority of employees aren’t leaving because they found better pay elsewhere. According to the study, people were leaving because the job didn’t fit a candidate’s “talents or interests”, or they were poorly managed, or the job was just not as the candidate expected it to be (again, a “bad fit”). Money is hardly the motivating factor here, which we’ll dig into a bit more later on.






Myth #2: hiring soMeone with a lot of experience will ensure better retention

Not necessarily so! Just as with the first point above, people are leaving because they feel that they aren’t a good fit for the organization. Maybe this is due to management, or maybe it’s due to a lack of career development and opportunities. Whatever it is, the amount of experience that an employee has doing a particular job is by no means a great way to try and determine how great a candidate’s potential is in terms of sticking around. Hiring managers

also have to take into account that an “experienced” employee doesn’t necessarily have the specific skills or the right personality needed to fit into the job role that a company’s hiring for.

Myth #3: generation x and generation y have different needs!

One of the most common excuses that’s heard to justify turnover is that Gen X employees work “this” way, while Gen Y employees work “that” way, which is why there’s such a high employee turnover.

While it is true that Gen X employees and Gen Y employees do work differently, this is by no means the reason for a high turnover. In fact, in the past twenty years, the stats are the same: the turnover of employees between the ages of 20 to 30 is still almost twice as high as employees who are 30 and above. Sure, there are obvious factors that contribute to this increase in turnover — less personal commitments, less need for income, etc. — but it all really boils down to the same thing: they aren’t motivated to stay.






Myth #4: a high turnover is just how our industry is!

All because your industry regularly loses one-quarter of their trained and experienced employees every year doesn’t mean that you should find this acceptable or believe that it is “the norm”. Industries are different, yes, but this doesn’t mean that you can’t do anything about improving employee retention. We’ll get into some of those techniques in a bit.

Myth #5: nobody’s loyal anyMore

This couldn’t be less true. Company loyalty allows for higher employee retention than many other things, such as an increase in pay and other monetary incentives. People want to contribute to your company. You just have to give them the right kind of motivation to do it.

There are several other myths out there than just these five, each being a detrimental “excuse” that companies can use to try to explain why their best people are leaving or why they hire people who turn out to be a bad fit. Now you may be asking yourself, “If it’s not about money, then how do I get an employee to stick around?”

The best way to get an employee to stick around is to hire people to do jobs they naturally enjoy and can be successful at. Properly addressing this starts right back at the beginning: the recruitment process. Having a thorough recruitment process that not only looks at a candidate’s abilities and knowledge base, but also looks at their personality and motivational factors, will go a long way in improving employee retention.






For example, by using ClearFit’s patented Success Prediction Process, you can look at the complete picture for every applicant. You can take an in-depth look at their skills and experience, as well as their personality and motivational traits.

CuTTINg ThE COsTs: hOW TO INCREasE EMPLOYEE RETENTION

The Harvard Business Review stated that for every 5 percent of employee retention, a company’s profitability increases by 25 to 85 percent (Harvard Business Review, “Putting the Service-Profit Chain to Work”). You can likely already start doing the math by seeing how just hanging on to more employees and keeping them engaged can help save your company a ton of money. So the next logical question is...

how can you increase eMployee retention?

1. Career Development Programs

Studies have repeatedly shown over and over again that employees will stick around with a company if they see that there’s a chance for advancement. According to a 2005 Maritz poll, two-thirds (66 percent) of employees stated that they were influenced to stay with their company based on the incentive programs offered. 74 percent of 18 to 34-year-olds link their future with a company based on incentives and career development programs (Martitz, 2005).

Here’s a real life example of this: Deloitte introduced a career development program and decided to track any changes — positive or negative — that occurred as a result. As a result of their career development program, they were above to reduce their turnover by






650 employees. This is substantial, as those 650 employees would have typically otherwise left. Their estimated savings: $12 million.

NOTE: What’s also interesting is that career development and incentive programs don’t have to offer a monetary reward. In fact, a study by Scott Jeffrey, PhD, titled “Right Answer, Wrong Questions” revealed that non-cash rewards were two to three times more effective than cash rewards.

2. Company Culture

Studies have shown that culture plays a key role in reducing employee turnover. Let’s take, for example, the tourism industry. “Tourism” generally has a fairly high employee turnover, but one study suggested that employee retention could be increased just by improving the “quality of culture”.

What does it mean to improve the “quality of culture”? Churintr’s 2010 study says that increasing organizational support and reducing “politics” can help boost employee retention.

NOTE: Not sure what your company culture is? Think about your company’s “personality”. A personality (or culture) is made up of a series of values, beliefs, interests, assumptions, experiences, and habits.






3. Employee Engagement

Rewards and benefits are great and all, but many studies have shown that increasing something like employee engagement may actually be even more beneficial, especially in the long run. Blessing White’s 2011 Engagement Report suggests that engaged employees stick around because of what they do and what they give to the company. The result of this is an increase in job satisfaction and fulfillment.

Alternatively, disengaged employees stay with a company simply because of what they get.

The problem with this is that a disengaged employee will leave at the drop of a hat for a $1 an hour increase in pay. An engaged employee, however, will stay despite a chance at higher pay simply because he or she loves doing what he or she does.

What is Employee Engagement? Kimura (2011) suggests that employee engagement can be defined as an association between the employee and how well they are suited or “fit” for his or her job.






4. Motivation

A recent World Values Survey revealed that 42 percent of Americans and Canadians regard work as being “very important” in their lives. This is significant, as only a mere 16 percent from the same survey group said that their job was “not important”.

From the same study, 36 percent of the respondents also stated that they want to look for a job that requires them to do “an important job”. Next on the list was “good income” at 28 percent.

People care about their job. It’s not just about the money; it’s about how they feel. People work to feel fulfillment. People work for job satisfaction. They’re looking to do something that has some meaning in their lives and that makes them feel good about themselves.

first choice percentage who chose

Doing an important job 36.6%

A good income 28.1%

A safe job with no risks 21%

Working with people you like 13.7%

Don’t know/did not answer 4%

N = 3413

Work Matters






results froM the world values survey

As if that wasn’t proof enough, another study conducted in 2007 by Duffy and Sedlacek revealed that young adults had a higher degree of “intrinsic” work motivations (i.e. job satisfaction, career development, pride) rather than “extrinsic” motivations (i.e. money, trips, gifts). The most recent poll showed that 33.8 percent of the young adults had intrinsic orientation, and that 24.9 percent had extrinsic motivation. These numbers haven’t changed much over the past ten years, with the average respondents having 30 percent intrinsic motivation and 28.3 percent extrinsic motivation.

5. The Person-Job “FIT”

The person-job “fit” refers to how congruent an individual is for a particular position which he or she is hired for. Determining how much a person is “fit” or how suitable they are for a job has a number of positive impacts on a company, including employee retention. A recent meta-analysis performed by Kristof-Brown (2005) showed that the person-job fit is able to predict “three key employee attitudinal outcomes” such as:

»» Job satisfaction»» Organizational commitment»» Intentions to quit

The higher one’s person-job fit is for a particular position, the higher a person’s job satisfaction and organization commitment is.

job satisfaction

organizational

commitment

intentions to

Quit






“fit” is highly endorsed by the experts

The good news is that hiring managers can easily implement a number of strategies and activities that can increase a person-organization fit. Sujarto (2011) recently published an article that cited ten different activities that an organization can undertake in order to maximize the person-organization fit (Sujarto defined a person’s “fitness” as weighing out the organizational factors such as culture, values, goals, and norms; and personal factors, such as personality, values, goals, and attitudes). These activities (such as “the process of hiring and selecting employees” and “delivering communications during the hiring and selection process”) involve assessing a person’s “FIT” with a company during the hiring process, and not after.

Using “FIT” as a hiring model during the hiring process can significantly reduce a company’s employee turnover

rate, but most companies still choose to use old and ineffective hiring methods that result in high turnover rates and high costs. To give you an idea of how most companies hire on employees and why it’s

so effective, let’s look at what an average, everyday employee recruitment process looks like.

F I T






hOW COMPaNIEs hIRE EMPLOYEEs — aNd WhY IT’s WRONg

Companies tend to do this in two steps:

1. First, the hiring manager or business owner will come up with a set of criteria that will be required to perform the job well. This usually involves a mix of knowledge and skills.

2. A company will then try to find and hire a candidate who meets those requirements.

Once a hiring manager or business owner finds a candidate who fulfills both requirements, they’ll then typically offer them the job (given that they pass any criminal record checks and other requirements) and, if the candidate accepts, they set up a training date and get the process underway.

Sounds logical, right? But there’s one thing wrong with this: this methodology is exactly why there’s such a high employee turnover. So what if a candidate has a certain level of experience in the field if they’ll end up leaving in a matter of months? What retention value does a candidate have if they possess a particular technical skill set, or can talk their way through an interview? Aptitude tells you absolutely nothing about how the candidate will feel about the job, or how well they will perform, or how committed they’ll be to the company during any rough patches or tough times.






hiring candidates based on “fit”

Several studies have come out recently that are telling us that an employee’s personality and learning what motivates them can help companies determine just how well “fitted” they are for a position.

Let’s take a look at the insurance sales industry. Now this is an industry that regularly experiences high turnover (i.e. often turnover rates are as high as 80 percent in the first three years [Harvard Business Review “On Sales and Selling”, 2008]), and where personality (and not ability) seems to be a good measure for predicting whether or not an employee will stick with a company.

For this particular job, one study found that there were two personality traits that could be used to predict if an employee was going to stick with the company: empathy and ego. Empathy worked in the salesperson’s favor, for when the salesperson leant an empathetic ear to a client, they tended to have an increase in sales as a result. Ego also typically indicated an increase in employee retention. Why? Because ego is one of the top motivating factors for an insurance agent to make a sale, even more motivating than any sort of monetary reward (as we touched upon earlier in this guide).






hOW TO sELECT FOR “FIT”

There is no “one size fits all” solution when hiring employees, no matter what the company or the position may be. The best way for companies to increase retention is to do a thorough analysis of the job position itself, and then assess candidates based on:

»» Competencies»» Personality»» Motivational factors

CLEaRFIT INCREasEs EMPLOYEE RETENTION bY PROVIdINg EMPLOYEEs WhO FIT

This is what it all really comes down to — by putting the right people in the right job in the first place, you are effectively exponentially increasing your employee retention. It may sound complicated, but with ClearFit’s patented Success Prediction Process, you can find yourself looking at a pool of highly trained, experienced, and well-motivated individuals who are the right fit for the job. ClearFit allows you to get a really good look at the individual to see where their strengths and weaknesses lie, to learn about what keeps them driven, and to understand how your company will keep them motivated to not only come to work every day, but to work their best every day because they love their job and your company.

Next time you need to hire, try ClearFit for free:

www.ClearFit.com







How ClearFit Works

ClearFit is a hiring tool for finding job applicants and predicting who will succeed.

1) Save time 2) Save money 3) Get better results!

Takes only 5 minutes to get started.

Job posting bundles

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Predicts employment

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This vector Illustration was created by VectorArtBox.com and it’s 100% royalty free for commercial purposes.You can share it on your site with two backlinks - to VectorArtBox.com and to homepage of this vector freebie(use post title as a text for link). In my work I’m using free vector silhouettes and Illustrations from all-silhouettes.com and vectorlady.com (useful resources of free vector illustrations).You are not allowed to share it without backlinks and sell it on stock sites as your own (take care about your karma).




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EMPLOYEE RETENTION - Clearfit · Employee etentio o o eep he igh eople orkin for ou 7 ThE FOuR...

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