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Employee Retention & Development

July 25, 2019

Last week I received a call from a local and well established roofing company we had worked with in the past.

 

Last year I sent them one of my best trainees, Mike. After nine months of employment, he left, heading to another company. 

 

They let him go with no incentives to stay and no exit interview to find out why he had decided to move on.

 

The same firm (a year later) is looking for someone to come to the company in lower management. Mike may have been on this way to lower management if he stayed. 

 

When I mentioned Mike to the owner; there was a pause. He asked to review Mike’s file and call me back. 

 

In the meantime I made my own call to Mike to dig into what happened on his end.

 

It seems that Mike’s car had broken down and he had left because he wasn’t sure how to manage getting to work reliably. Instead of communicating this to the head of HR, he simply resigned. And they let him.

 

A $50 tire made the nine month investment of time and training irrelevant. 

 

The new company Mike is working for not only helped him solved his car issue, they had given him an additional signing bonus and the promise of advancement and additional training.

 

They sold him on his future.

 

 

 

More often than not, I see employers let future key employees leave while they are still fairly green because the young employee hasn’t been informed of their potential future in the company. 

 

Managers will have these conversations among themselves, but keep the information private.

 

As if involving the employee in their own professional development somehow divulges state secrets.

 

Situations like these illustrate the value companies place on their workforce. 

 

Either you believe in the creation of a shared working relationship;  information flows back and forth, communication is open and honest, encouragement is based on respect and high exceptions and cultivating a mutually beneficial relationship

 

OR 

 

You believe in a more rigid autocratic dynamic; your workforce are tools to be used, information bottlenecks and is hoarded, employees are treated as disposable and shuffled through a predetermined route with no direction, choice or involvement.   

 

If you see your company as the latter, there are things you can do. 

 

Moving from one to the other isn’t incredibly difficult.  

 

More often than not it’s about being aware of how you are perceived by staff and taking methodical steps to change your standard operating procedures (SOP) to support a more inclusive working environment. 

 

Using research-based retention management you can mitigate a lot of issues while moving from one (autocratic) to the other (democratic). 

 

I’ve summarized the following from SHRM’s (The Society for Human Resource Management) Retaining Talent: A Guide to Analyzing and Managing Employee Turnover. By David Allen 

 

Within the Construction industry in NYC we are dealing with a tremendous Skills Gap along with a general lack of interest and awareness from younger generations in becoming Construction workers. 

 

This research is even more relevant now to Construction in NYC. 

 

If you have a strong, willing, engaged worker WHY would you let them leave your company? Staff that is engaged and dedicated to working hard and learning need to be seen as what they are; valuable. 

 

By consolidating the few of the parts and pieces of the booklet that I felt were relevant, we hope to encourage you to spend the time and read it in its entirety. 

 

What you start looking into turnover, it's important to note the distinct differences defining the type of turn over you are dealing with.

Types of Turnover

 

Voluntary vs involuntary: 

  • Voluntary turnover is initiated by the employee; for example, a worker quits to take another job. 

  • Involuntary turnover is initiated by the organization; for instance, a company dismisses an employee due to poor performance or an organizational restructuring. 

Voluntary and involuntary turnover require markedly different management techniques. 

 

This report focuses on voluntary turnover. 

 

To manage voluntary turnover in your organization, you need an in-depth understanding of why employees leave or stay with organizations in general, as well as strategies for managing turnover among valued workers in your company. 

 

Functional vs dysfunctional voluntary turnover:

  • Dysfunctional turnover is harmful to the organization and can take numerous forms, including the exit of high performers and employees with hard-to-replace skills, departures of women or minority group members that erode the diversity of your company’s workforce, and turnover rates that lead to high replacement costs. 

  • Functional turnover does not hurt an organization. Examples of this type of turnover include the exit of poor performers or employees whose talents are easy to replace.

 

This distinction between functional and dysfunctional turnover is relative. 

 

What makes an employee valuable and difficult to replace will vary by job, organization, industry, and other factors. 

 

To illustrate, a high turnover rate may be more dysfunctional in an industry characterized by skills that are in rare supply. Moreover, the question of whether the benefits of retaining a valued worker are worth the costs may generate a different answer in some companies than in others, depending on the organization’s strategy and the current labor market. 

 

Avoidable versus unavoidable:

  • Avoidable turnover stems from causes that the organization may be able to influence. For example, if employees are leaving because of low job satisfaction, the company could improve the situation by redesigning jobs to offer more challenge or more opportunities for people to develop their skills. 

  • Unavoidable turnover stems from causes over which the organization has little or no control. 

 

 

Turnover matters for three key reasons: 

 

1. It is costly: Employee departures cost a company time, money, and other resources. Research suggests that direct replacement costs can reach as high as 50%-60% of an employee’s annual salary, with total costs associated with turnover ranging from 90% to 200% of annual salary.

 

In addition to the obvious direct costs associated with turnover (such as accrued paid time off and replacement expenses), there are numerous other costs. 

 

Voluntary Turnover Costs and Benefits:

  • Exiting Employee Cost (Primary, Secondary and Tertiary Costs)

  • HR staff time (exit interview, payroll administration, benefits) 

  • Manager’s time (retention attempts, exit interview) 

  • Accrued paid time off (vacation, sick pay) 

  • Temporary coverage (contingent employee, overtime for remaining employees) 

  • Delays in production and customer service; decreases in product or service quality 

  • Lost clients Clients not acquired that would have been acquired if employee had stayed 

  • Stiffer competition as employee moves to a rival company or forms own business 

  • Contagion (other employees decide to leave; for example, to join defector at his/her new organization) 

  • Disruptions to team-based work 

  • Loss of workforce diversity 

Replacement Employee Costs 

  • New hire’s compensation 

  • Hiring inducements (signing bonus, reimbursement of relocation expenses, perks) 

  • Hiring manager and unit/department employee time 

  • Orientation program time and materials 

  • HR staff induction costs (payroll, benefits enrollment) 

  • Training Costs Formal training (trainee and instruction time, materials, equipment) 

  • On-the-job training (supervisor and employee time) 

  • Mentoring (mentor’s time) 

  • Socialization (other employees’ time, travel) 

  • Productivity loss until replacement has mastered job

However, remember that not all turnover is harmful (dysfunctional) for an organization. As noted earlier, some turnover may generate important benefits; for example, the new hire turns out to be more productive or skilled than the previous employee. To develop an effective retention plan, you need to consider both the costs and benefits associated with turnover in your organization. 

 

 

2. It affects a business’s performance:  A growing body of research links high turnover rates to shortfalls in organizational performance. For example, one nationwide study of nurses at 333 hospitals showed that turnover among registered nurses accounted for 68% of the variability in per-bed operating costs. 

 

Reducing turnover rates has been shown to improve sales growth and workforce morale. 

 

High-performance HR practices (including reduction of dysfunctional turnover rates) increase firm profitability and market value.

 

3. Turnover may become increasingly difficult to manage: Are you ready for a talent crunch? Even outside of Construction, opinions abound regarding whether demographic and labor market trends signal an impending shortage of overall labor supply.

 

Manpower, Inc. 2008 Whitepaper, “Demographic shifts (aging populations, declining birthrates, economic migration), social evolution, inadequate educational programs, globalization, and entrepreneurial practices (outsourcing, off-shoring, ondemand employment) are . . . causing [labor] shortages, not only in the overall availability of talent but also—and more significantly—in the specific skills and competencies required.

 

For a variety of reasons, it’s certainly true in Construction. 

 

 

 

Why employees leave

 

 

Much research on talent retention has centered on understanding the varied reasons behind employees’ decisions to leave organizations, as well as the processes by which people make such choices. 

 

By understanding why people leave, organizations can also gain a better idea of why people stay and can learn how to influence these decisions. 

 

The theory of organizational equilibrium can shed valuable light on these matters.

 

According to this theory, an individual will stay with an organization as long as the inducements it offers (satisfactory pay + good working conditions + and developmental opportunities) are equal to or greater than the contributions (time + effort) required of the person by the organization.

 

Moreover, these judgments are affected by both the individual’s desire to leave the organization and the ease with which he or she could depart. 

 

The comprehensive Voluntary Turnover Model captures this process. The research shows that specific turnover drivers affect key job attitudes:

  • Satisfaction with one’s role

  • Commitment to the organization. 

  • Low satisfaction and commitment can initiate the withdrawal process, which includes

    • Thoughts of quitting

    • Job searching

    • Comparison of alternative opportunities

    • The intention to leave

  • Turnover drivers may also produce other work behaviors that suggest withdrawal

    • Absenteeism

    • Lateness

    • Poor performance

 

Any of these may end in a departure without the person going through a job search, evaluation of alternatives, or extended consideration of quitting.

 

This process may lead to turnover if the organization fails to manage it effectively.  

 

To proactively manage retention, organizations must monitor and adjust key aspects of the work environment that influence employees’ desire to stay or leave. 

 

As we’ve seen, the ease with which the individual can leave an employer plays a role in the person’s choices. When someone has numerous alternatives that are more attractive than his or her current role, the decision to leave grows that much easier.

 

Retention-savvy managers thus keep tabs on alternate opportunities, so they can ensure that positions remain competitive. 

 

Depending on what’s going on in the labor market, businesses may want to focus their retention efforts on particular employees or groups of employees, such as new hires, star performers, workers with high-demand or hard to-replace skills. 

Predicting Turnover

 

Can you predict an employee’s decision to leave? Extensive studies have looked into this question and many drivers of turnover have been identified.   

 

The chart below summarizes the results of this research. 

 

 

The figure lists predictors in order—from those with the strongest relationship to turnover at the top to those with the weakest relationships at the bottom. Though the strength of these predictors may vary somewhat across job types, companies, industries, and individual situations, this list is a useful overall guide. 

 

The chart reveals some interesting information.

 

For example, most of the strongest predictors are related to the withdrawal part of the turnover process, suggesting that managers must monitor these variables (perhaps through employee surveys).

 

Additional predictors that merit careful attention include: 

  • Key attitudes of organizational commitment and job satisfaction

  • The quality of the relationship between an employee and his or her immediate supervisor

  • Role clarity (including definition, communication, and reinforcing of performance expectations) 

  • Job design (including job scope, promotion opportunities, and opportunities to participate in decision-making)

  • Work group cohesion 

 

The figure also suggests that pay might not matter as much as you think in turnover decisions, as compensation and pay satisfaction are relatively weak predictors of employees’ decisions to leave. 

 

Thus, offering pay increases or bonuses to keep people at your organization may not be the most efficient way to address retention. 

 

In addition, demographics (education, marital status, sex, and race) are also relatively weak predictors of turnover.

 

Next week we’ll be looking into other paths to turnover and, more importantly, why Employees stay. 

 

It’s our hope that in creating a more skilled and professional workforce, our ability to create environments within companies to retain their employees develops as well. 

 

 

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