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Article
Overview: Holding
on to your star performers is only one aspect of effective retention planning.
The questions in this article are designed to help guide you towards retention
practices that are truly profitable for your business.
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Key Takeouts:
- A
focus on minimising turnover and measuring costs to the decimal point fails to
fully quantify the benefits of effective retention strategies.
- When
managers are rewarded for retention using appropriate metrics that focus on the
most profitable areas of the business, companies can significantly boost their
profit margins.
- Optimal
turnover is not reflected in having the lowest turnover percentage in your industry
- it must be measured in terms of productivity and business process improvements.
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| Overseas
research indicates
that companies can minimise declining profits, gain advantage over competitors
and guarantee long-term survival and growth by focusing on people and culture. The real issue is how you focus. As such, an increasing
challenge in HR cost management is that of staff retention. Replacing
high performing employees can cost a business a significant multiple of their
annual salary - escalating into millions of dollars.
However, a small but steadily growing number of HR leaders are resisting
the simple assumption that low turnover across the board must naturally lead to
higher profits. Drilling deeper, they have asked hard questions about retention
and how it really contributes to sustainable profit. Some of the key questions
(and why you should ask them) are summarised below: Question
1 - Do you know the financial BENEFITS of staff turnover? Turnover
costs can be separated into 4 basic categories:
a) Separation:
(e.g. severance pay, administrative costs); b) Vacancy: (e.g. additional overtime,
temporary help); c) Replacement: (e.g. recruiting, testing, training);
d) Performance: (e.g. productivity loss). But
for every cost associated with a departing staff member, it can be argued that
there is a corresponding potential benefit:
a) Separation:
no bonuses paid out; b) Vacancy: salary and benefits package not paid;
c) Replacement: lower salary and benefits for less experienced new hires and new
skills gained not needing training; d) Performance: productivity gains from
a higher performing new hire with a better skills match and new improvement ideas. A
true cost/benefit analysis of turnover levels helps Management focus on ensuring
that turnover gains far outweigh losses. Question
2 - Are you hostage to industry benchmarking? Much
is often made of the merits of benchmarking - looking at 'best performance' in
your industry, then seeking to match or exceed that metric. But a quick review
of voluntary turnover statistics in any 'best companies to work for' survey shows
businesses in the same industry can have vastly different percentages.
While benchmarking may offer a general guide, it is by no means the final authority.
Resist the temptation to follow the crowd and apply an industry average to your
business as a fixed target. Question
3 - Do you know both the turnover cost and
financial threshold for every position at every performance level in your company?
The
turnover cost is the real financial impact on your organisation of staff leaving
and being replaced. The financial threshold is the 'break-even' point at which
the financial benefits are greater than the costs, and depends on two factors:
the performance and compensation levels. Performance
levels are tracked by several KPI's that may include completed projects, cost
savings or sales. Compensation is measured against market levels. You can then
set performance levels of pay to influence turnover levels for every different
role and grading within the organisation. Done properly, it can lower turnover
for high performers and raise turnover for poor performers. It
may take a company several years to compile the data, but the rationale is simple.
If you can measure it, you can manage it. Question
4 - Do you have an 'up or out' career management plan? While
not suited to every workplace, there are times when higher turnover can significantly
benefit a company. Recruitment and training can cost a lot - but so does a workforce
of 'stale' staff, comfortable in positions with high salaries and costly benefits.
Significant savings can be made on retirement by resetting salaries down for less
experienced employees promoted to vacated roles. By
working with your staff to develop a solid career development path two important
goals can be achieved: actively weeding out poor performers at low levels; and
"counselling out" senior staff whose contribution has peaked long ago.
The result? Top talent is constantly refined, and the cost of labour is reduced. Question
5 - Do line management have real authority to terminate poor performers?
In
an increasingly litigious society, much is made of the high costs of legal action
for wrongful termination. However, in a performance driven culture, the procedures
and training should be in place to empower managers to deal with issues of poor
performance. Jeff Chambers, VP for HR at SAS, is a strong advocate of this. As
the former general counsel (legal advisor) prior to taking on the HR role, he
was well aware of the dangers. His
argument is simple: "HR has to commit to doing what's right and help managers
deal with it. I don't care if we get sued; I care if we win. We give employees
with performance problems a chance to correct the problem, and we do that in a
way that any third-party fact-finder or legal agency can understand". If
HR managers wait for a downturn to lay off poor performers in bulk, it sends the
wrong message. Turnover should be used to support a performance driven culture. Question
6 - Are managers rewarded for low turnover of high performing staff? You
must have metrics that profile high performance, which are easily scored and recorded
through your systems. Retention
targets based on metrics are not meaningful unless they are linked to compensation
and rewards for the manager. Hard data allows for rankings of staff and greater
potential accountability and can be used as part of reporting to senior management
and peer line managers on a regular basis. Question
7 - How close are you to your high performers? A
bottom-line focus on cost should never ignore the people dimension. For many high
performers, work is a large part of their life and community. How well do managers
really know their staff? Do they know their staff's values, career ambitions or
view on work/life balance? Are the differences between Generation X and the emerging
Generation Y (38% of who don't want to work full-time for the one employer)
understood? Is there clear, transparent communication on important issues where
appropriate - both corporate and personal? Is contribution valued and rewarded?
Are staff nurtured through the ranks and introduced to key relationship networks?
Are there opportunities to work on cutting edge projects that stretch their skills? If
you answered 'No' to any of these questions, then you're not as close to your
best staff as you may think. Conclusion
Cost
consultants will continue to beat the drum about the impact of staff turnover
on business profit. The reality is more complex than their simple equations. While
employee-initiated turnover can be one of the largest costs to a business,
employer-led turnover can have the opposite effect. Obviously a pure financial
picture is not the only one that should inform the human resource manager. The
opportunities for turnover to drive profit and high performance are significant
- if you know where to look. With HR practitioners recently scoring the gap between
retention's importance as an issue, and their own performance at implementing
successful retention initiatives as 62%,
there's obviously still some way to go.
References:
1. The Turnover Myth http://www.workforce.com/archive/feature/24/06/37/index.php
2. "Retaining Top Talent
In New Zealand" - Bill Rehm http://www.itsinc.net/retention-newzealand.htm
3. Best Companies
to Work For http://www.workforce.com/archive/feature/24/06/37/240640.php)
4. The Turnover Myth http://www.workforce.com/archive/feature/24/06/37/index.php
5. Employee Initiated Turnover - IT Performance Management System http://www.ihr3.com/p-eit3-1.shtml
6. Generation Y: Born
c.1981 - c.1990, depending on who you read http://www.theadvertiser.news.com.au/common/story_page/0,5936,16221441%255E913,00.html
7. Hewitt Associates Best Practice US IT Study http://was.hewitt.com/hewitt/business/talent/subtalent/shor_it_money.htm
8. Employee Initiated Turnover - IT Performance Management System http://www.ihr3.com/p-eit3-1.shtml
9. Watson Wyatt HR Scorecard
- HR Function Ratings http://www.watsonwyatt.com/services/integrated/workforce/Oct03_HRScorecard.pdf Other
References: Assess Your High Performance Retention Practices (26 Questions)
http://www.workforce.com/cgibin/iu.pl?content_id=32638&util_type_name=Quiz&template=/archive/article/23/18/53.html
Portfolio Partners Research http://www.shortlist.net.au/nav?id=30159&no=92286540
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About Regent Recruitment
Regent Recruitment is a recruitment consultancy that assists leading Australian
employers to attract and retain talented staff on a contract, temporary or permanent
basis. Whether we are filling one permanent role or recruiting contract staff
for a 400-seat call centre, we deliver an exceptional recruitment service.
Unlike other recruitment consultancies, Regent
Recruitment is unique in that it combines the capabilities of a large-scale multinational
recruitment operation with exceptional service levels typically only associated
with small boutique agencies. How
can we assist you? We would welcome the opportunity to have a confidential
meeting to discuss your staffing needs in more detail. If
you are interested, in the first instance please call Howard Mereine, General
Manager, on (03) 9909 7150 or e-mail Howard at hmereine@regentrecruitment.com.au. We
look forward to speaking with you.
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This article was licenced by Regent Recruitment for the Regent
Recruitment client newsletter.
Written by Victoria Small and edited by Paul Quinn, Quinntessential Marketing
Consulting Pty Ltd.
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The
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