Keeping Your Best: Retention Management
As our ongoing breakdown of the series from SHRM Foundation’s SHRM Foundation’s Effective Practice Guidelines: Retaining Talent, we head into the planning and execution phase.
Retaining employees not only ensures spent resources stay within your company, as we saw a few weeks ago, it also creates an environment that embeds all employees and creates a community. This week we'll start digging into Retention Management Plans; what they are, why they are relavant and how to build one.
To recap: we are trying to understand why employees leave but also why they stay. As employees participate in their professional and community life, they develop a web of connections and relationships on and off the job. Leaving a job would require severing or rearranging these connections. Employees who have many connections are more embedded, and thus have numerous reasons to stay in an organization.
There are three types of connections that foster embeddedness:
(1) “links,” (2) “fit,” and (3) “sacrifice.”
Each of these types may be related to the organization or the surrounding community. This is where CMC Workforce reinforces industry standards and community with our trainees.
Links are connections with other people, groups, or organizations. Examples include relationships with co-workers, work groups, mentors, friends, relatives, church groups, and so forth. Employees with numerous links to others in their organization and community are more embedded and would find it more difficult to leave.
Fit represents the extent to which employees see themselves as compatible with their job, organization, and community. For example, an employee who relishes outdoor activities and lives in a community that offers excellent outdoor opportunities would find it more difficult to leave his or her job if doing so required moving to another community that did not provide such opportunities.
Sacrifice represents forms of value a person would have to give up if he or she left a job. Sacrifices include financial rewards based on tenure, a positive work environment, promotional opportunities, status in the community, and so forth. Employees who would have to sacrifice more are more embedded and therefore more likely to stay.
Step 1: Develop Your Retention Management Plan
The above-described suggestions for creating an environment that encourages embedded-ness are useful for any firm that wants to retain it’s best and brightest.
But they’re not enough in themselves.
That’s because simple one-shot retention efforts (for example, a once-offered training program) are unlikely to exert much impact over the long run.
To manage retention most effectively, you need to engage in an ongoing diagnosis of the nature and causes of turnover, as well as develop (and constantly hone) the right mix of retention initiatives.
Many organizations are integrating their retention efforts into a broader talent management strategy. Talent management comprises workforce planning, hiring, development, and retention to ensure that the organization has access to the quality and quantity of talent it needs to compete now and in the future.
A recent study concluded that 53% of organizations have a talent management initiative in place, and 76% of these enterprises identify talent management as a top organizational priority.
But keep in mind that each organization is unique, operates in its own idiosyncratic environment, and has its own human capital strategies and challenges. Even within a single organization, retention goals and challenges may differ across departments, divisions, job types, geographic locations, and even individuals.
Thus, one-size-fits-all retention initiatives may backfire. CMC Workforce focuses, at the moment, exclusively on Labor and Pre-Apprenticeship training and onboarding.
How, then, should you approach the task of developing the right retention management plan for your company? Figure 4, below, shows the important steps in this process.
In the sections below, we examine each of these steps more closely.
As noted previously, not all voluntary turnover is harmful: Turnover among under-performers, turnover that enables your company to tap fresh perspectives and skill sets or lowers labor costs are all examples of functional turnover.
However, turnover becomes dysfunctional when the wrong people are leaving, or when the turnover rate becomes so high that the accompanying costs and instability outweigh the benefits.
To determine whether turnover is problematic conduct a turnover analysis. An effective turnover analysis examines three points:
1. Turnover Analysis: How many people are leaving: Turnover Rate = average number of employees/number of employees leaving x 100. Also tracking types of turnover. These breakout data groups help identify turnover hotspots within your organizaton.
Tracking who is leaving and why is crucial for assessing the extent to which turnover is functional or dysfunctional, because some employees may leave for different reasons than others. This information will give you a more complete picture of the extent to which turnover is a problem in your company, and will help you develop more effective retention strategies.
Track breakout data on:
Skills (especially high-demand or hard-to-replace skills)
What are the relative costs and benefits of the current turnover? Most retention strategies require investments of time, money, or other resources. To design strategies that yield acceptable returns on those investments, you need a clear idea of how much the costs associated with turnover in your company outweigh the benefits associated with turnover.
Using this information, you can calculate total turnover costs as well as costs per incident of turnover. The formula you use may vary based on factors such as job type or level, employee type, or employee performance level.
((vacant position coverage cost + cost to fill the vacant position + onboarding + orientation costs + the productivity ramp up cost) x by the number of employees lost in that position in a given year) x 12 = Annual rate
A variety of resources are available online to help you develop cost-benefit formula and metrics.
In practice, your turnover-cost metrics need not be “perfect.” It’s more important that you arrive at an internal consensus on appropriate measures, so that the analysis, conclusions, and recommendations create a standard and benchmarks.
2. Benchmarking: Is a 10% annual field turnover rate too high? This question is impossible to answer in isolation. For managerial employees in a stable, mature General Contracting firm, this rate is absolutely too high. That’s because stable, healthy CM’s and General Contractors typically experience much lower levels of turnover at the office management level. But for hourly employees in the field, it almost certainly is not, because these types of roles often experience much higher turnover.
Benchmarking and needs assessment can give you additional information for determining whether turnover is a problem in your organization. External benchmarking and comparing your organization’s turnover rates against industry and competitor rates can be incredibly valuable. If your rates are significantly higher than those of rival companies, your firm may be at a competitive disadvantage.
One source of external benchmarking data is the U.S. government.
For instance, the Department of Labor (DoL) publishes the Job Openings and Labor Turnover Survey This data represent annual and monthly quit rates as a percentage of total employment for all non-farm employment across the United States. On the DoL’s web site, you can find breakdowns by industry, geographic region, public,private, and government sectors.
3. Strategic Needs Assessment Planning: Through a needs assessment you evaluate the implications of turnover for your organization in the context of future labor demand and availability. Using an external needs assessment, you consider trends in the industry and larger labor market that may affect supply and demand of human capital.
Some trends (such as industry growth) may increase demand for employees valued by your organization.
Others, retirement and lack of ongoing training, may worsen already shrinking supplies of labor.
Through an internal needs assessment, you evaluate your organization’s future strategic direction and that direction’s implications for your labor requirements.
Some strategies (such as expansion of a business) will increase demand and may make turnover more problematic than strategies likely to decrease demand (including outsourcing or contraction).
Some strategic plans may require a more nuanced approach to managing turnover. For example, if your company needs to decrease the size of its workforce and decides to do so by offering early retirement or severance packages, you may also want to simultaneously work on retaining certain other key employees.
STEP 2: Moving forward and taking action
Taken together, turnover analysis, benchmarking, and needs assessment enable you to determine the extent to which turnover is problematic in your organization. These data will help you develop appropriate responses and set your retention goals.
Types of Response Strategies
Broad-based strategies are based on general principles of retention management and are intended to help reduce turnover rates across the board. For example, “Decrease annual turnover in our company by 7%.”
Targeted strategies are designed for organization-specific turnover drivers and are intended to address organization-specific issues. Often, these strategies are also used to influence turnover among certain employee populations. For instance, “Increase the retention rate of skilled carpenters by 10%.”
Adapting Your Retention Strategies
Below, provides guidance for how to proceed based on the criteria of turnover costs, turnover rates, and who is leaving. As Figure 5 suggests, when turnover costs are tolerable, turnover rates acceptable, and turnover is considered functional, then turnover is not a significant current issue.
When costs are tolerable, but employee departures are considered dysfunctional, consider low-investment strategies targeted at people who leave, for example creating more flexible work arrangements.
When costs are tolerable, but turnover rate is problematic, you may want to try low-investment but broad based strategies.
When both the turnover rate and who is leaving are problematic, you’ll need both targeted and broad-based strategies.
When turnover costs are deemed intolerably high, look for strategies that provide a positive cost-benefit ratio, even if they require extensive resources.
Finally, when neither the rate nor who is leaving is problematic but turnover costs are high, seek to streamline and reduce the costs associated with each person who quits.
Broad-based and targeted strategies don’t have to be mutually exclusive. General retention best practices can help you keep specific employees on board and determine which organization specific turnover drivers to measure while collecting data on specific drivers can help you reduce overall turnover rates.
To get the best returns on your retention investments using data collection and retention strategies that are tailored to your particular turnover problem.
STEP 3: Implementing Your Plan and Evaluating the Results
The third phase of retention management is implementation of your plan, while the fourth is evaluating the plan’s results.
Let’s consider implementation first: The actions you take to implement your plan will depend on the strategies you are pursuing and the unique circumstances of your organization. With any organizational change, you’ll want to get top management support and buy-in for your strategy.
It will also be important to develop a communications plan to ensure that managers understand the changes and are prepared to implement new policies and procedures. Try to anticipate any possible objections to your new strategy and be prepared to answer those concerns.
After implementing your plan, it will be important to evaluate the results: Retention efforts may require substantial investments, so you’ll want to assess their impact relative to the cost.
Consider how many employees are leaving, which employees are leaving, and what return your company is getting on its investment in the strategies. Do these results support your company’s retention goals? If not, are some of those goals unrealistic, and do they need to be modified? Do unsatisfactory results suggest the need to gather new kinds of data or to develop a more effective implementation approach?
Exploring these questions can help you tease out the causes behind less than ideal outcomes. This allows you to objectively assess your retention strategies and make the changes needed to improve the results.
Next week we’ll take a closer look at the differences between broad-based and targeted strategies and the various ways to integrate both into your Needs Assessment Planning.
Text above was taken from SHRM Foundation’s Effective Practice Guidelines Series Retaining Talent.