Retention: back on the agenda

by 19 Oct 2009

Are you prepared for turnover rates to double? In the first of a three-part series, Dr John Sullivan looks at the factors of poor retention performance

As the economic turnaround picks up steam, turnover rates in many organisations are likely to skyrocket and recruiting top quality replacement workers will be extremely challenging.

Study after study has confirmed the notion that many employees would have left their employers months/years ago had the option to do so been viable. The economic downturn, combined with the mortgage crisis, has forced many frustrated, disappointed, and unmotivated employees to stay put. The trend is not a new one and is consistent with past downturns.

While turnover rates are at an all-time low, they most certainly cannot be taken as an indication of a firm’s status as a desirable place to work.

Just as in years past, when job opportunities became more prevalent, employees will exercise their right to demonstrate just how much they appreciated the treatment they received throughout reductions in the workforce, furloughs, clumsy mergers, travel freezes, and budget cuts. The level of animosity among many will render most traditional retention approaches ineffective.

Some studies indicate that as many as two- thirds of employees are ready to go. Unfortunately, few corporations are preparing today to handle the dramatic increase in voluntary terminations that will come tomorrow.

Retention is one of the most poorly managed goals in HR

HR leaders and recruiters talk a lot about the importance of retaining the very best employees that the organisation has invested so much time, money, and development resources in. Unfortunately, talk is where most HR organisations end when it comes to formalising retention efforts.

Among organisations that rank satisfaction with HR deliverables, retention often appears high in terms of importance but extremely low in execution, sometimes lower than compensation and benefits.

Its perennial position at the bottom of the list qualifies it as the most poorly managed staffing activity. However, its position at the bottom should come as no surprise, because few organisations can identify who’s in charge of it, what the strategy is, and how retention efforts are measured and evaluated.

These three factors are the reason behind most organisations’ poor retention performance:

Reason 1 — Who is in charge of retention?

In many organisations the answer to this very basic question is “no one”! Rarely does the organisation’s design for the HR function include a role(s) charged with designing, developing, and executing retention programs. When such a role does exist, rarely is it positioned at a level with enough resources and power to make a difference (i.e. senior director or VP).

When it comes to organisational design, nothing says “low importance” more than lack of budget or executive-level leadership at the helm. Some might argue that all are responsible for retention, but merely listing it as one among many responsibilities essentially guarantees a mediocre enterprise-scale effort.

While great managers may assume ownership of retention activities in their group, because there is no clear support organisation their approaches will largely be ad hoc in nature and inconsistently leveraged, opening the door for anyone disgruntled to scream discrimination.

Reason 2 — The real costs of key employee turnover are not reported

Retention metrics in most organisations begin and end with overall turnover by period. Absent are metrics that measure the business impact of turnover and specific goals to mitigate predicted impact. If your retention function doesn’t measure and report these five key metrics, chances are your efforts are under-managed:

The cost of turnover. Reporting a percentage turnover rate seldom excites executives, but converting that turnover rate to a dollar impact on business performance can establish the visibility on talent issues needed to transform a good recruiting function into a great one.

Top performer/key employee turnover. Often called regrettable turnover, this measure prioritises the jobs and individuals based on the degree to which their leaving hurts the firm.

Competitor win/loss ratio. This metric is simply the ratio of the number of top performers you have successfully recruited away from a competitor compared to the number of top performers who voluntarily terminated to join a competitor. If a top performer quitting goes directly to a competing firm (vs retiring), it raises the costs because it hurts the firm while aiding a competitor.

Preventable turnover. If turnover is occurring for silly or preventable reasons, the percentage of cases where that is true needs to be reported and fixed.

Percentage of “at risk” employees. The best firms proactively identify high-priority individuals who present a high risk of leaving during the next one or two years. Reporting the percentage of target individuals at risk alerts managers, helping them put into place proactive programs attacking retention issues before they get out of hand.

Reason 3 — What is the name of your retention strategy?

The economic impact of losing 10 per cent of the workforce each year in a large corporation amounts to tens of millions of dollars. With that amount of money and disruption involved, retention is clearly a strategic issue. To develop a competitive advantage around a strategic issue requires a strategy that is measurably superior to that of your competitors.

Unfortunately, it’s rare for organisations to develop a formal retention strategy. To make matters worse, most HR executives don’t even know the common retention strategies in use that they could adopt.

In the next issue of HR Leader, part two will continue with the top 15 retention strategies in use today

Dr John Sullivan is a well known thought leader in HR.

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