Investment Practices For Improved Retention_Charles R. Greer
Companies invest in their workforces when they pursue practices and develop programs that increase retention. By failing to make such investments, they incur the high costs of turnover. Coarse-grained estimates place the costs of turnover at 150 percent of exempt employees’ compensation and at 175 percent for nonexempt employees. The determinants of turnover are reasonably well under-stood as there has been a great deal of research on the topic. Accordingly, there are sound practices that employers can follow in order to retain their employees.
One of the most important determinants of employee retention is the organization’s culture. By investing in human resource practices that ultimately affect the organization’s culture, firms can influence retention. A longitudinal analysis examined the retention of 904 college graduates hired by public accounting firms over a six-year period. The study found a difference in retention related to the culture of the firms. For employees of firms with cultures characterized by interpersonal relationship values (respect for people and a team orientation), the median for retention was 14 months longer than in firms with cultures reflecting task values (detail and stability). Interestingly, the effects of the culture emphasizing interpersonal values appeared to be universal and were not contingent on employee characteristics. Other research has found higher retention in “fearless cultures” in which employees can speak up in order to challenge the status quo without being concerned about retribution. Retention improves with other related aspects of culture such as positive relationships with superiors, absence of conflict-laden relationships, having input into decisions, less emphasis on formal authority, information sharing, and support for employees.
Effective Selection Procedures
When firms hire employees that match well with the organization, the job, and their coworkers, there is an increased likelihood of retention. Recent survey research indicates that careful selection is the most widely used method for retaining front-line employees. In addition to the use of selection procedures, such as valid tests and improved interviewing processes to obtain better job matches between employee job qualifications, the use of realistic job previews (RJPs) also can increase retention. RJPs attempt to show applicants what the actual job is going to be like. As a result, there is less likelihood that applicants will accept jobs that fail to conform to their expectations. The exact means by which RJPs influence retention is the subject of some debate because there are several variables that can have an impact on their ability to affect retention. Nonetheless, RJPs provide a useful means for increasing retention in many circumstances. In addition, the use of biodata, which are data on objective characteristics such as years of experience, bilingualism, and college education, improves retention.
Compensation and Benefits
Equitable compensation is important for employee retention. In turn, greater compensation equity occurs with fair appraisal reviews, equitable ratios of inputs (e.g., effort, skill, education) to outputs (various rewards), exclusion of politics in compensation decisions, fair compensation structures, and communication of compensation procedures. Increased retention also occurs with performance-based compensation, pay incentives, and benefits that are valued by employees. Not surprisingly, the most frequently used approach for retaining senior executives is to improve their compensation and benefits. Companies in Fortune’s top 100 list typically offer both high compensation and generous benefits. For example, Merck has extraordinary benefits, and its pay ranks at the top of the scale. Merck employees have received $60,000 in stock options over the past decade while the average stock option gain for nonexecutives at Cisco Systems has been $150,000. At WRQ soft-ware, employees pay nothing for their health care. At J. M. Smucker, the jelly maker, voluntary turnover in a recent year was only 5 percent. One of the company’s benefits is a savings plan for which the company provides 50 percent matching contributions. Retention bonuses provide a direct example of how compensation is being used to keep the company’s good employees:
For many companies seeking to hang onto employees, “retention bonuses” have become the tool of choice . . . The [oil] industry is offering bonuses of 15% to 50% of one year’s pay, spread over three years, to employees who stick around . . . Employers have to bolt their back doors, i.e., to fend off recruiters and minimize staff turnover because it is so expensive. Experts, such as those at the Hay Group consulting firm, estimate that finding and training a replacement costs 50% to 60% of the departed employee’s annual compensation.
Job Enrichment and Job Satisfaction
Job-enrichment practices, such as those building in increased responsibility or autonomy, knowledge of results, meaningful work, knowledge of how assigned tasks contribute to the greater activity of the larger organization, and skill variety, have been found to produce moderate reductions in turnover. Practices that enhance job latitude and job satisfaction also have a positive impact on employee retention. However, when high-performing employees feel undervalued, they tend to have higher turnover rates. Another company from Fortune top 100 companies provides a good example of the retention effects of job enrichment and job satisfaction:
“Being at a good company is like having a good wife,” says Floyd Williams, a senior production manager at sports gear maker K2 (No. 52), who gushes about the opportunity to work on as many as 25 projects at a time. “When you get used to a certain level of freedom and excitement, you don’t want to leave.” In fact, none of Williams’ three marriages has lasted as long as his 28-year career with the company. “One wife told me it was either K2 or me. And I said, ‘Well, I’m not leaving K2!’ ”
Practices Providing Work Life Balance
In addition to job-related factors and the work environment, the opportunity to obtain a balance between work and home life also has a positive impact on retention. Alternative work schedules, child care services, and provisions for family leave also facilitate retention. (The Family and Medical Leave Act sets minimum standards for family leave.) Conversely, unreasonable workloads are associated with turnover. It is no surprise that many companies in Fortune’s list of the best 100 companies to work for provide such benefits. Flextime is offered at 59 of these companies, while 18 provide opportunities for telecommuting. These top employers include a wide range of practices for balancing work and family life. For example, Deloitte and Touche has adopted flextime and telecommuting practices. Janus Investments has generous time-off practices. Unum provides subsidized child care for employees earning less than $40,000. The accounting firm Plante and Moran provides child care on Saturdays during tax season. The SAS Institute, the statistical software developer, has a 35-hour week and provides employees child care at a rate of $250 per month. It also provides 12 holidays per year and free medical care on site. At First Tennessee Bank, 91 percent of employees are on flextime.
Organizational Direction Creating Confidence in the Future
When employees are confident about their organization’s future direction, they are more likely to stay. Thus, setting a clear direction for the future and building confidence in the vision for the future should help improve retention. The following excerpt from Built to Last: Successful Habits of Visionary Companies provides an example of such direction:
Merck, in fact, epitomizes the ideological nature— the pragmatic idealism—of highly visionary companies. Our research showed that a fundamental element in the “ticking clock” of a visionary company is a core ideology—core values and sense of purpose beyond just making money—that guides and inspires people throughout the organization and remains relatively fixed for long periods of time. . . . we describe, support, and illustrate this crucial element that exists paradoxically with the fact that visionary companies are also highly effective profit-making enterprises.
Retention of Technical Employees
Retention of information technology specialists and other technical employees is a particular concern for many employers. The demand for such specialists and other highly skilled employees is so strong that companies have been very innovative in their retention efforts. For example, Burlington Northern Santa Fe has implemented a career development institute in which employees can learn new computer languages and other technical skills. The company also has increased the amount of communication with its technical employees and has helped develop their business knowledge and awareness. Alcon Laboratories also has implemented special measures to help retain information technology employees. The company has a well-deserved reputation for being a very stable employer. It also offers very attractive compensation and benefit packages and gives employees the “red carpet” treatment. In addition, the company has a dual career ladder or track program for its information technology professionals. Like many other companies, Alcon allows casual dress and has implemented innovative work schedules such as allowing employees to work 80 hours in nine days in order to gain an additional day off.
Other Practices in Facilitating Retention
Opportunities for training, new learning, growth, and promotion also have positive impacts on retention. Similarly, liberal transfer policies tend to reduce employee turnover. When employees can transfer, they have the opportunity to leave problem situations and are less likely to leave the organization. In addition, effective management of diversity and prevention of sexual harassment tend to increase retention. Marriott International, another of Fortune’s top 100 employers, has a workforce consisting of more then 50 percent minorities. The company has an excellent reputation for training and advancement opportunities and has a voluntary turnover rate of 37 percent even though the company operates in a low-wage industry. Enterprise Rent-A-Car also provides excellent opportunities for advancement as it moves new college graduates quickly into management jobs.
A summary of these positive influences on employee retention is presented in Table 1-1.
Table 1-1 : Investment Opportunities for Improving Employee Retention
Organizational Culture Emphasizing Interpersonal Relationship Values
Team Orientation
Respect for People
Effective Selection Procedures
Use of Realistic Job Previews (RJPs)
Use of Biodat
Compensation and Benefits
Equitable Compensation
Fair Appraisal Reviews
Equitable Input-to-Output Ratios
Exclusion of Political Factors
Fair Compensation Structures
Communication
Performance-Based Compensation
Pay Incentives
Valued Benefits
Job Enrichment and Job Satisfaction
Practices Providing Work Life Balance
Alternative Work Schedules
Family Leave
Child Care Services
Training and Opportunities for Personal Growth
Opportunities for Promotion
Organizational Direction Creating Confidence in the Future
Liberal Internal Transfer Policies
Effective Management of Diversity
Prevention of Sexual Harassment
.......................
Reference :
- Charles R. Greer, (2003), Strategic Human Resource Management, (2nd ed.), Upper Saddle River, NJ: Pearson Prentice Hall.
