RETENTION A Strategic Approach to Building Today, talent is - PDF document

RETENTION A Strategic Approach to Building “Today, talent is becoming the most important differentiator in a Solid Talent Foundation business. There are few secrets left in product development and service offerings. Anyone determined enough can copy and commoditize your offering. Only your talent will differentiate you from competitors or potential outsourcers.” (McCormick, 2007, p. 15) 2 Introduction Table of Contents Since each organization is unique, no one retention strategy should be universally applied. To manage retention most effectively, organizations must regularly diagnose the nature I. What is Turnover……………………………………………………… 5 and causes of their own turnover, develop the right mix of II. Why Turnover Matters………………………………………….......... 12 retention initiatives, and continually evaluate and hone these practices. By using an integrative strategic process, III. Why Employees Leave……………………………………………..… 19 organizations can retain the solid talent foundation that can lead to a competitive advantage. IV. Why Employees Stay………………………………….……………… 24 V. How To Develop a Retention Management Plan………………..… 27 This presentation will discuss: VI. A Menu of Retention Practices…………………………………..….. 52 • Turnover and why it matters • How organizations can assess the costs of their own turnover VII. Conclusions……………………………………………………….…… 66 • How organizations can identify an appropriate retention strategy VIII. References…………………………………………………….………. 68 • Some commonly used retention practices from which organizations may choose IX. Suggested Resources………………………….…………………….. 71 In addition to this information, readers can choose to learn more from our numerous supplementary slides and Suggested Resources section. 3 4 What is Turnover? I. WHAT IS TURNOVER? Employees leave organizations for various Definition: the number of employees in reasons: an organization who leave and are • Some leave for a different job replaced over a given period. • Some move out of town • Some decide to go back to school or to no longer work at all • Some are laid-off or fired Each of these reasons has different organizational implications and therefore, different implications for HR. To determine these implications, we must first define the types of turnover. 6 1

Turnover Classification Scheme Turnover Classification Scheme Turnover Voluntary Involuntary vs Initiated by the Initiated by the employee organization Voluntary Involuntary Functional Dysfunctional Unavoidable Avoidable (Griffeth & Hom, 2001) 7 8 (Griffeth & Hom, 2001) Turnover Classification Scheme Turnover Classification Scheme Functional Dysfunctional Avoidable Unavoidable No harm to the Harmful to the vs vs organization: organization: Stems from causes that Stems from causes the The exit of poor performers, The exit of high performers, the organization may be organization has little or employees with hard-to-replace or employees with able to influence: no control over: skills, certain populations, or easy-to-replace skills departures that will lead to high replacement costs An employee leaves due to An employee leaves due to a lack of growth opportunities health issues, or a spouse’s transfer to another town This distinction is relative and will vary by job, organization, industry and other factors. (Griffeth & Hom, 2001) (Griffeth & Hom, 2001) 9 10 II. WHY TURNOVER MATTERS Strategic Retention focuses here: Turnover matters for three key reasons: Voluntary 1. It is costly 2. It affects the overall performance of the organization 3. It may become increasingly difficult to Dysfunctional manage Avoidable 11 (Allen, 2008) (Allen, 2008) 2

1 . Turnover is Costly 1. Turnover is Costly VOLUNTARY TURNOVER COSTS AND BENEFITS Turnover costs organizations time, money Separation Costs: Financial • HR staff time (exit interviews, payroll, benefits) and other resources: • Manager’s time off (vacation, sick pay) • Accrued paid time off (vacation, sick pay) • Temporary coverage (contingent employee, overtime for fulltime) • Direct replacement costs can be as high as 50-60% of Other • Delays in production and customer service; decrease in product or service quality an employee’s salary, with total costs ranging from • Lost clients • Clients not acquired that would have been if employee had stayed 90-200% of an annual salary. ¹ • Stiffer competition as employee moves to a rival company or forms own business • Contagion (other employees decide to leave too) • Costs can represent more than 12% of pre-tax • Disruptions to team-based work • Loss of workforce diversity income for an average company and nearly 40% for Replacement Costs • New hire’s compensation those companies at the 75 th percentile turnover rate. ² • Hiring inducements (signing bonus, reimbursement of relocation expenses, perks) • Hiring manager and unit/department employee time • Don’t forget the loss of productivity, loss of knowledge • Orientation program time and materials • HR staff induction costs (payroll, benefits enrollment) or loss of engagement of the person who checks out Training Costs • Formal Training (trainee and instruction time, materials, equipment) long before s/he quits . ³ • On-the-job training (supervisor and employee time) • Mentoring (mentor’s time) • Socialization (other employees’ time, travel • Productivity loss until replacement has mastered job ( ¹ Cascio, as cited in Allen, 2008; Mitchell, Holtom & Lee, 2001; ² Saratoga Institute, as cited in Allen, 2008; ³ McCormick, 2007) 13 14 (Heneman & Judge, as cited in Allen, 2008) 2. Turnover Affects Organizational 2. Turnover Affects Organizational Performance Performance • The loss of knowledge can cause stress on The impact is even greater when organizations those remaining and encourage others to consider who is leaving: consider leaving. Ultimately, these • “The loss of star talent can hinder a company’s preoccupations can lead to dissatisfied performance, and the current shortage of highly skilled professionals in many specialties makes customers. ¹ replacing these individuals even more difficult.” ¹ • Research shows that reducing turnover rates • Losing employees with tremendous “social capital” improves sales growth, employee morale, can dramatically erode performance by severing firm profitability and market value. ² relationships that facilitate instrumental action. ² ( ¹ Jacobs, 2007; ² Batt, 2002; Huselid, 1995) ( ¹ Messmer, as cited in Smith, 2008, p. 6; ² Shaw, Duffy, Johnson, & Lockhart, 2005) 15 16 3. Managing Retention May So When Does Turnover Matter? Become More Challenging All the time, even in a challenging economy when employees are driven to stay put. • Businesses everywhere face an impending labor shortage: • High unemployment rates have little impact on star performers or those with highly sought after skills “The statistics from the U.S. Department of Labor’s Bureau are frightening: every 10 minutes, a Baby • As previously mentioned, businesses everywhere Boomer turns 60; and by 2011, more than 75 million face a looming labor shortage. ¹ of them will be eligible for retirement. By 2016, there is expected to be a shortfall of three million workers Organizations that strategically manage retention – between the projected workforce and the number of jobs required to keep the economy moving.” in good times and bad – will be more likely to weather an economic storm and emerge with the • Given the current economic climate, the jury is still out on solid talent foundation that could lead to a how this situation will unfold. competitive advantage. ² 17 18 (Smith, 2008, p. 6) ( ¹ Trevor, 2001; ² Minton-Eversole, 2008) 3