What does Retention Mean?
Nearly all companies measure turnover. In some industries (retail, customer service, hospitality) turnover rates of 30-40% are common and sometimes even accepted. I had a conversation with one HR manager who told me "we design our organization around high-turnover: we make sure jobs are easy to learn so we can rapidly assimilate new people."
While this may be a reality in many companies, our research shows that it's not a sound strategy. Regardless of the role they play, tenured employees drive far greater value than those who are "cycling through" the business.
Many studies show that the total cost of losing an employee can range from tens of thousands of dollars to 1.5-2X annual salary.
Consider the real "total cost" of losing an employee:
And most importantly of all, we have to remember that people are what we call an "appreciating asset." The longer we stay with an organization the more productive we get - we learn the systems, we learn the products, and we learn how to work together.
The Economic Value of Employees over Time
Consider the following simple chart. It simply shows that initially most employees are a "cost" to the organization, and that over time, with the right talent practices, they become more and more valuable. Our job in HR is to attract the "right people" and move them up this curve as rapidly and effectively as possible.
A New Model to Drive Retention: You’re Talent "System"
Right now retention has become an important topic for many reasons. The economy is picking up; young employees want more career growth; the work environment in companies has not kept up with the outside world; management doesn't always understand how to motivate younger people; and in developing economies the workforce is simply in great demand and the competition for talent is fierce. Added to this, of course, tools like LinkedIn now make it easier than ever for you to look for a new job (or get poached).
And we know that high-performing companies have loyal employees. I can't quote statistics on this topic, but it's well understood that high-performing companies serve their employees just as well as they serve their customers. One of the most important studies on this was done by Harvard many years ago and it proves that only by making your employees happy can you ultimately make your customers happy.
Other research called "Lay off the Layoffs" similarly shows that companies that push layoffs on their employees create long term problems which often take years to fix. The reason? Layoffs, like retention problems, create low levels of employee commitment which in turn move employees back down the value curve. Covey's wonderful book "the speed of trust “clearly explains this in ways that leaders can understand.
So how do we "improve" or "fix" our retention issues?
Much common wisdom over the years blames first line management. Over and over I hear the words "people don't leave companies they leave managers." Of course there is much truth to this - nobody wants to work for an uncaring, difficult manager. But our research shows that the real "retention model" in companies is far more complex.
When we look at retention (Deloitte has both a "retention diagnostic" as well as a "retention analytics" model) we find that each company has its own unique "retention model."
Typically the model involves a whole variety of factors, and these factors take on different weights depending on the age, demographic, and role of the employee. So your goal is not to simply do one thing, but to understand your own company's "retention drivers" by role.
Some of the interesting things to consider:
Is your organization suffering from a retention challenge? Are you feeling "disconnected" or perhaps unrewarded in your job? If the answer is yes, I'd suggest that you’re CHRO or CEO needs to be thinking about retention in a more strategic way.
Ultimately the most successful and enduring organizations in business are those that have a common sense of mission, a deep respect for their employees (and customers of course), and put time, energy, and money into building a highly engaging environment. They carefully select the "right people" with lots of hard work, and once people join they take the time to make sure they have development opportunities to move up the value curve.
"Retention" may be no more than a symptom, but it's something you should take seriously. In today's heating economy and rapid shift in demographics, you'll be competing for talent regardless of your industry.