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Overview: How well equipped
is your organisation to retain its top talent? While the cost of replacing high
performing staff members is considerable, many organisations put too little effort
into developing a retention system that positions their company as a great place
to work. Indeed, an industry benchmarked salary and benefits package is only part
of the equation. This article offers guidelines for establishing industry leading
retention practices.
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Takeouts:
- When all costs are considered,
businesses can spend up to 2,000% of a high performer's annual salary to replace
them.
- Staff
retention must be viewed as part of an integrated human resource system. A three-phased
approach: acquisition (recruitment), induction (assimilation), and maximisation
(benefits and development opportunities) offers a simple but useful framework
from which to start.
- Enhanced
performance packages tailored to individual employees are gaining increased recognition;
their adoption is one key to effective staff retention practices.
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"Take
my 20 best people and, virtually overnight, Microsoft becomes a mediocre company."
- Bill Gates
When
you compare the cost of replacing high performing staff with the significant bottom-line
benefits gained from retaining their services, it's clear that retention planning
is an issue that must move from the fringes of human resource planning to the
heart of an organisation's staffing strategy. But
what are the costs of losing your best people? And how do you create an effective
strategy to encourage high performing staff to stay? Turnover
- the real costs The
typical costs that arise from the loss of a key staff member can include: 1.
Lost productivity while the employee looks for another job;
2. Time taken to
conduct exit interviews;
3. Any money paid out in termination payments;
4.
Time taken to perform the many clerical and administrative tasks associated with
staff departures;
5. Slowed momentum due to the loss of specialist knowledge,
corporate history;
6. Loss of co-worker/departmental productivity;
7. Loss
of sales, revenue, profits and customers;
8. Adverse impact on critical project
completion;
9. Advertising for a replacement;
10. Agency / internal HR
recruitment fees;
11. Time required to review resumes;
12. Time spent on
conducting candidate interviews;
13. Time required to perform pre-employment
testing;
14. Travel / relocation expenses incurred to secure a replacement;
15.
Start-up administration costs;
16. Induction and departmental training, materials
and supervision.
To
quote but one example, a medium sized New Zealand IT company (400+ staff) spent
over $16 million on staff turnover in 2002.
And consider this, for a company with 200 employees, revenues of $25 million and
an average profit margin of 10%, a staff turnover rate of 12.5% per year would
represent 4% of that company's total revenues and 40% of their annual profits.
Got your attention yet? So
how do staff turnover costs escalate to such an alarming level? 'Cost of Replacement'
metrics show that an average performing staff member costs about 90% of their
salary to replace, while high performers can cost anywhere from 300% to 2,000%.
Accordingly, when staff turnover rates start to escalate to over 10% per year,
the total cost of this attrition begins to quickly mount. By
measuring the complete costs to your organisation of replacing your high performing
staff, you become better equipped to gain a mandate to invest in developing an
effective retention system that reduces the odds of people walking.
An
effective retention system requires many components - so to keep things simple,
it's helpful to think of the following three phases: acquisition, induction and
maximisation.
(i)
Acquisition
Like
it or not, staff retention levels are shaped well before the formal recruitment
process commences. Ideally, your company should be so well thought of that high
performers are motivated to contact you when seeking new opportunities. The key
to this 'utopia' is to become known by your ideal employees as one of 'the' places
to work - and there are two key areas that must be addressed to create that kind
of 'buzz'. (a) How
are you perceived?
High performers conduct their own due diligence on companies
they consider working for. Therefore, having a positive reputation in the industry
is vital. Do staff
live your brand - or are your marketing messages merely motherhood statements?
For example, if you preach empowerment, work-life balance and opportunity, but
in practice have high turnover due to under-staffing, poor communication, no recognition,
or questionable ethics and promotional practices, don't expect the best to seek
you out. | | |
Money
Not Main Reason People Look ElsewhereAccording
to extensive research by Accenture, pay is not likely to have the greatest impact
on employees' decisions to stay or leave an organisation. Instead, data suggests
that employees who are planning to leave are most likely to do so for opportunities
that allow them to use and develop their skills - or for opportunities in a company
with strong leadership. This Accenture
study compared satisfaction levels of "committed" employees compared
to those "planning to leave soon" on 40 different topics of organisational
importance, such as strength of management, compensation, training and workload.
The topics with the widest disparities between the two groups of employees - called
"satisfaction gaps" - are the key drivers of attrition. The
widest gaps (between 32-34 percentage points) were found in areas such as "using
my skills and abilities, "opportunity for management" and "company
has a clear sense of direction;" consequently, those are the three major
indicators of attrition. Pay, usually
considered the most emotional factor in the employer/employee relationship, only
ranked as the seventh most significant driver of attrition. Source:
PeopleFirst Solutions
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So,
how do you go about finding out how your company is currently perceived? Just
ask. If you're not already doing so, a structured exit interview process is a
good place to start to learn what is causing staff to leave and can help you identify
common issues to address. Furthermore, a regular staff climate survey can also
provide an appropriate platform for staff to voice concerns before they spiral
out of control. In addition, surveying job seekers and graduates to see whether
they perceive you as a desirable place to work can also be a useful tactic to
help build a well-rounded picture of how you stack up against the competition
and where you need to focus your efforts to improve.(b)
Be diligent, but move rapidly Most
leading employers use a variety of interview and testing procedures to screen
candidates. The important point here is that while you should definitely do this
due diligence it should be conducted over an acceptable time period - candidates
can sometimes have notoriously short interest spans. In a candidate short market,
if you're not back to high quality applicants within 48 hours following each stage
of the selection process, you risk losing their interest, or worse still, losing
out completely to the competition. Once
you have found an appropriate candidate, and completed reference checking and
testing, make the offer immediately. Swift feedback throughout the application
process and offering the job as soon as you've completed your due diligence communicates
that you're efficient, value their time and are prepared to move quickly once
you've made a decision - all hallmarks of leading employers. Once they've accepted,
your focus should immediately shift to their induction.
(ii)
Induction
Changing
jobs is often stressful. Expectations are often high - so it is important that
your company work to quickly reinforce to new employees that they have made the
right decision to join you. Cultural assimilation is key. An effective induction
process means that by the end of the first 4-6 weeks of employment, new employees
would have been provided with information relating to each of the following areas:
(a)
Resources: What tools and training do they need to hit the ground running?
High performers want to kick goals fast - so make it easy for them to do so. There's
nothing worse than waiting 6 weeks for a laptop or company car to show up or for
software to be loaded to their computer. (b)
Routines: Which systems and regular events should they be part of? This can
be anything from being included on the right e-mail distribution lists to being
shown how to claim expenses. The sooner they understand the corporate rhythm,
the faster they will adapt to your pace of business. (c)
Relationships: Who do they need to connect with? Establishing contact with
key work groups such as their line manager/direct reports and informal networks
is important. A well developed buddy or mentor system matching them with a peer
or senior non-direct report can also be very effective. By using existing staff
members to help integrate the employee into the fabric of the organisation, the
new team member becomes linked to more colleagues and to more aspects of the business
than a rapid-fire induction could ever hope to cover
With
an effective induction should come a productive first 90 days. After which time
the fruits of a well-designed benefits package and clearly defined career path
should help to maximise their potential for a long and rewarding career. (iii)
Maximisation Employees
often specialise in either a technical or management career track so each individual
requires benefits and opportunities that match their preferences. Designing an
appropriate benefits package means going beyond monetary considerations. No matter
how much money people earn, financial compensation won't by itself maximise staff
performance or retain staff. Effective benefits packages must combine two elements:
tailoring to individual needs, and clear links to organisational goals. Typical
benefits include exclusive end of year bonuses, additional vacation time, reduced
working weeks, greater work-from home ratios, and guaranteed severance bonuses.
Whether bonuses are cash, share options or non-financial rewards should depend
on length of service and the employee's positive impact on both bottom line and
corporate culture. Whatever
is agreed, it should be non-negotiable that if performance drops, they lose benefits
in a fair and measurable way - taking life changing circumstances (e.g. marriage,
divorce, having children, death in the family) into consideration when reviewing
and setting targets. This gives rising stars motivation to improve, and 'experienced
hands' incentive to stay focused, while showing that you care for them personally
beyond the contract. A
study by Mercer Human Resource Consulting conducted in Australia in 2003
revealed that the most important attributes that Australian employees value about
their job were: 1.
The existence of opportunities for advancement,
2. Training, and
3. A clear
career path.
It
was also important for employees to be proud of their organisation and to have
their achievements recognised by the leadership, the study found. Accordingly,
providing up-to-date training and opportunities to participate in innovative new
projects help keep high performers motivated and productive. Cisco Systems, for
example, has an excellent retention track record, with over 33,000 staff and a
voluntary staff turnover rate of just 3% per year
in part because it is one of the industry leaders that is continually at the forefront
of advancing the technology industry.
Conclusion
Making retention
a cornerstone of your human resource strategy will not only reduce your turnover
costs but strengthen your capacity to attract the best 'new blood' available.
It also ensures that a good portion of the inevitable staff losses that do occur
are genuinely beyond your control. Considering both the costs of inaction, and
the growing skills shortage, it's really not a question of will you do something
to improve your retention practices - but when?
References:
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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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Disclaimer
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.
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