[ Volume Fifteen ]

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.

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.[2] 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.[3] 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.[4] 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".[5]

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.[6] 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[6]) 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?[7]

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,[8] 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%,[9] 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

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.

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 views and opinions expressed in this document are those of the authors and do not necessarily reflect the view of Regent Personnel Pty Ltd.