Key Topics Covered in This Chapter
• Using alumni relations and informal contacts to keep departed employees in your company’s orbit
• The benefits of rehiring former employees
• Using exit interviews to uncover the root causes of employee turnover
O ne of the realities of market-wise retention is that you will never be able to keep all employees—par- ticularly the most talented, who have the greatest mobility.People retire.They are "poached"by rival companies.More than a few entrepreneurial types go into business for themselves. Others simply find opportunities elsewhere that your company can- not match.Some organizations actually create employee turnover as a matter of policy. For example, CPA and law firms have "up-or- out" traditions that result in 20 to 25 percent annual turnover in their professional ranks. Perhaps one in ten employees makes part- ner, but all the rest have to go. One major accounting firm, in fact, admits that at any given time half of its professionals have a year or less tenure with the company or are within one year of leaving. In the end, the struggle to retain good employees is a losing game. Either by death, retirement, or defection, everyone eventually leaves.The most you can hope for is to have some influence over who leaves and when. This chapter explains how you can minimize the damage caused by employee turnover—and even benefit from it—through atten- tion to alumni relations and the rehiring of former employees.We also explore how exit interviews can be a source for insights into improving the attractiveness of your workplace. Keeping Valued People in Your Orbit If you’re like most managers,you hate losing a real contributor.First, there are those nagging personal questions: "Is there something wrong with me?" "Could I have done something to prevent this person’s defection?"Then come thoughts about the consequences: "This won’t improve my performance evaluation a bit.""Why did she have to leave right in the middle of our key project? This will really throw a wrench into the works." "How will we cover her work until we can bring someone else on board?" Finally, you think about what you must do to fill the empty slot—and what that will cost in time and money.Talking with HR about the job description. Posting the vacancy. Scanning dozens of résumés—almost all wide of the mark.Arranging for interviews,and approving thousands of dollars for travel expenses.Then getting the new person up to speed.And all the while you know you’ll be lucky to get someone as good as the person who left. Losing a good contributor is a big headache and produces noth- ing but negative thoughts and extra work. But don’t let those nega- tive thoughts color your parting with the employee. In some cases you should not even use the word parting. Consider the hypothetical case of Stephen, a management con- sultant with Global Strategy Advisors, a full-service firm. As often happens with consultants and CPAs, Stephen was lured away from his job by a client company that he had advised on marketing strat- egy for the past four years.That company was seeking a top-drawer professional for its vacant Vice President of Marketing post.Stephen was a logical candidate for the job and was asked by the CEO to apply. Stephen knew the company, its competitors, its industry, and industry best practices.And the company knew Stephen. Its execu- tives and marketing staff had observed his performance over several years, and they liked what they saw. Compared with Stephen, other applicants for the VP position were simply question marks with good résumés. No one could say with any confidence how these other applicants would perform or fit in, whereas everyone agreed that Stephen was sharp and fit in nicely. Stephen’s move to the client company appeared to be a loss to his consulting firm—but was it,really? Now that he was the market- ing VP of a company that made regular use of consultants, Stephen was a potential customer with a sizable budget and the authority to hire outside marketing advice. If fortune favored his career, Stephen might rise to the CEO level, in which case he’d be hiring consult- ants in business strategy, mergers & acquisitions, marketing, IT, and other areas.And as a consulting veteran,he would be in a position to recommend different firms to both practitioners and M.B.A.gradu- ates of his alma mater who might be seeking consulting careers. So if Global Strategy Advisors handled its relationship with Stephen sensibly, his defection might not be a loss after all. And if corporate life didn’t suit him, Stephen might even return to his old firm in three or four years—and with the operating experience that many consultants lack. This hypothetical story is not far-fetched in the field of public accounting and consulting. Leading firms in those industries now have regular "alumni"programs that: • keep track of former employees; • maintain up-to-date,password-protected directories of former employees to which alumni have access; • post job vacancies and recruiting information; • provide free access to the firm’s latest research;and • host events that bring alumni together with current employees. The whole point of these programs is to keep former employees within the company’s orbit, even after their official ties are severed. That’s good for business.It also makes the company more appealing to career-minded potential recruits who understand that joining the company makes them part of a larger network of business profes- sionals. As Carl Stern, president and CEO of Boston Consulting Group, put it,"I want our people to feel that in joining BCG, they have joined a second family, and they remain part of that family for the rest of their lives." 1 What are you doing to maintain productive relationships with your valued former employees? Whether you have a formal alumni relations program or have used less formal links, keeping in touch with departed employees can lead to new business, market intelli- gence, and an occasional rehiring of good people who temporarily "got away."The effectiveness of either approach, however, will be determined by how you and your company handle departing employees.When a good employee gives notice,is he treated badly? Given the cold shoulder? Do bosses whine,"How could you leave after all we’ve done for you?" Those behaviors will sour the rela- tionship forever.Instead,you should: • congratulate the individual on his or her new career move; • ask the HR department to help wrap up all of the departee’s termination issues; • demonstrate appreciation for his or her contributions with a party or outing; • plan to communicate with the departee in a month or two to see how he or she is doing;and • keep him or her posted on employment opportunities within the company. Hiring Former Employees Thomas Wolfe’s message that you can’t go home again does not hold true for former employees.Just because a valued person has left your company, don’t assume that he or she is gone for good. Some women drop out while their children are infants but are ready to return a few years later. Others leave for what appear to be great career moves,only to be disappointed and disillusioned. Rehires can be a valuable asset for your company. First, they know your business and how to get things done there.This gives them a huge advantage over people hired from the outside, who generally need many months to learn the ropes and become effec- tive. Second, rehires return with broader experience and, in many cases, new skills. Finally, every returning defector sends a loud and clear message to others that the grass isn’t greener elsewhere. There are few statistics on the number of employee rehires, or "boomerangs" as they are sometimes called. For example, in 2000, the accounting firm of Ernst & Young claimed on its Web site that nearly 25 percent of its customer-serving new hires in North Amer- ica were former employees.During the following year—when most companies weren’t hiring anyone—Ernst & Young made a special effort to re-recruit good IT employees who had defected to now- defunct dot-com companies.It even set up a national Alumni Rela- tions Office to manage this important aspect of its human resource business. 2 Here are a few things you can do to increase the number of employee rehires: • Cure the problems that made them leave in the first place.Exit interviews and direct investigation are the best ways to deter- mine the root causes of defection.If you find that a bad regional manager has been driving his most capable sales peo- ple away,replace that manager—and then invite the best of the defectors to return. • Keep the lines of communication open between your firm and the best of its departed employees.Use some of the alumni relations tactics cited above.Communicate with them periodi- cally,ask about how they’re doing in their new jobs,and keep them up to date concerning job openings at your company. • Make re-employment as easy as possible.There’s a certain amount of discomfort involved with returning to one’s old company.Eliminate that discomfort through public statements that "Our door is always open to valued former employees." Celebrate each return,just as you would the return of a former customer."We’re glad you’re back!" Perhaps the biggest and most celebrated rehire in recent memory was Apple Computer’s rehiring of departed founder Steve Jobs.Jobs returned to his former post older, more experienced, and undoubt- edly wiser, and his return marked the beginning of an important revitalization for the then-beleaguered company. It’s unlikely that any one of your rehires will have the impact that Steve Jobs had on Apple,but you’ll know a great deal about the person you’re getting, and the hiring outcome is more likely to be more successful than if you hired an unknown off the street. Exit Interviews Most HR departments conduct exit interviews with departing employees, either directly or through questionnaires. The aim of these interviews is to get feedback about the firm,its operations,the root causes of turnover, and the performance of its managers from people who now have less reason to hedge or conceal their views. If your company isn’t doing this—or not doing it in a serious or systematic way—insist on a change.At a minimum,an exit interview should seek answers to these questions: • What originally attracted you to this company? • How satisfied were you with employment here (on a 1-5 scale)? • How would you assess your boss or supervisor (again,on a 1-5 scale on various dimensions:ability to communicate,leadership, fairness,employee development,etc.)? • Why are you leaving? (if the exit is voluntary) • Would you consider applying for another job here in the future? • How could we make this a better place to work? The responses gathered through many exit interviews can help you identify the root causes of turnover and build a solid strategy for improved retention. In this sense, information gleaned from exit interviews is an important part of continuous workplace improve- ment. Chances are your company seeks the root causes of below- standard output elsewhere in the organization—on the production floor, in customer service levels, and so forth—with a goal to improve process quality.What departing employees tell you should be used in the same way. Summing Up Acknowledging that employee turnover is inevitable, this chapter has offered three ways to potentially benefit from departing em- ployees: • Keep up contact and good relationships with company alumni; doing so can sometimes provide your company with new business,market intelligence,and,in some cases,rehires. • View highly valued former employees as potential rehires;in most cases,a former employee returns with broader experience and new skills—both of which can benefit your company. • Use exit interviews to obtain as much information as possible about the root causes of employee turnover. 142 Hiring and Keeping the Best People app e n dix a Sample Job Description A job description is a profile of a particular job, its essential func- tions, reporting relationships, hours, and required credentials. It identifies what the job-seeker agrees to do in return for pay and benefits. Rather than focusing on how an employee should spend his or her time,a good job description should focus on performance and the results the company expects in the bargain.What will success look like? How will it be measured? How should the employee’s work affect the mission and needs of the company? It is also an attempt to describe the qualifications needed to perform the job. The sample represented below contains the basic elements you should include in job descriptions you develop. Should you reveal the salary range in the job description? Many employers are reluctant to do this because of fear of offending exist- ing employees,preferring to veil uneven hiring practices.This is not only bad management,in the United States it is also potentially ille- gal if it indicates that you are not offering equal pay for equal work. For your convenience, you can use the "Job Profile" form to develop job descriptions for your open positions.

Workplace Factors That Affect Hiring and Retention

Key Topics Covered in This Chapter
• Company culture,and how it can attract or repel the kinds of people you want to hire and retain
• Employee burnout,and how to minimize or avoid it
• Work-life balance,and how to make it work for both employees and the company
H iring discussions with potential recruits almost always focus on the specifics of the job, the reporting relationships, career possibilities, and com- pensation and benefits. Each of these is important to job applicants. But the climate of the workplace may be equally important in the applicant’s decision to take the job—or to stay for any length of time thereafter. Some companies have reputations as great places to work. For- tune identifies the best of these companies each year in its list of the "100 Best Companies to Work For." Certain companies, such as stockbroker Edward Jones, Container Store, SAS Institute, Plante & Moran, and Frank Russell are consistently near the top of the list. Working Mother produces a similar "top 100"list from the perspective of women with children.The reputations of companies that make these lists undoubtedly make them more attractive to job applicants and current employees. In this chapter,we examine three workplace factors that play an important role in hiring and retention: company culture, employee burnout,and work-life balance. Consider Your Culture As one of the factors that determines the attractiveness of an organ- ization to qualified potential recruits and to current employees, culture matters. If a culture is excessively relaxed, for example, the company may have trouble attracting and retaining hard-core professionals; they may find the workplace insufficiently "serious" and detrimental to their long-term careers. If the culture is too formal and straight-laced, young and creative types are likely to feel uncomfortable and out of place. If it’s unwelcoming to women and minorities, talented individuals in those communities will look for careers elsewhere. And none of these groups will be keen on working for a company if its culture is dominated by conflict, turf wars, dysfunctional senior management, or excessive hierarchical privilege. How is your workplace culture perceived? As a first step in improving culture,ask employees these two questions: 1. Are there any important gaps between the kind of atmosphere you would like to work in and the atmosphere that currently characterizes our group? If so,what are they? 2. What measures would help improve our work culture and/or help close gaps between what we want or need and what exists? There are many ways to close gaps between the current culture of your organization and the one you need to attract and retain great people.Here are just a few sample scenarios: Scenario 1: Your department’s young,high-energy employees want a more informal,fun,and hard-driving culture.They find the current culture too formal and rigid.In this case,you could try the following: • Relax the dress code. • Permit flexible schedules that let employees work long hours during high-pressure projects and more reasonable hours at other times. • Install a ping-pong or foosball table to allow employees to burn off energy. • Take your team to a local park for a volleyball game and picnic lunch. • Start a tradition whereby you have a party at the end of challenging projects. • Bring in stand-up comic videos (nothing too extreme, though!) and play them in a conference room during lunch. Scenario 2: Your department has many employees with young families.They don’t like the current separation between their lives at work and their lives at home.Consider these ideas: • Institute regular family picnics—and invite people to bring their pets,too! (Many people consider their companion animals as members of the family.) • During informal conversations,ask employees about their families—and show a genuine interest in what they say. • Let employees bring their children to work occasionally to celebrate special occasions. • Facilitate work from home during part of the week,or pro- vide flextime or other arrangements to reduce family stress. • Let employees go home early on their birthday or their wedding anniversary,or to attend parent/teacher conferences or important school events. Scenario 3: Your group consists of researchers who want enough privacy and quiet to do the concentrated thinking and writing required by their jobs.Try these ideas: • If your department has cubicles instead of offices with doors, invest in "white-noise"machines to drown out distracting sounds. • Allow employees to work from home during times when they’re embroiled in especially intense projects. • Keep the frequency and length of meetings to a minimum. But don’t allow people to become too isolated.Even if they must work quietly and alone you can create a team spirit by means such as these: • Periodically reward the group with free passes to the theater, museum exhibits,the ballet,and other cultural events. • Start up a book or film discussion group,which could meet once a month during lunch. Clearly, fine-tuning your culture doesn’t have to be difficult or expensive. All it takes to develop an appropriate culture is a wil- lingness to observe and listen,a little creativity,and openness to new ideas. But remember that managers must be visible symbols of the culture they aim to promote. Employees look at what top manage- ment does. If management says "Let’s be casual" but still wears suits every day,anyone who aspires to being at the top will keep on wear- ing a suit. If management says "We care about our people" but focuses only on cost controls and dumps long-term employees at the first whiff of slowing revenues,no one will take their statements seri- ously.That said,by attending to your culture in these ways and really working to change it for the better,you can make your organization more attractive to the people you’d like to hire—and boost your retention rate. Employee Burnout Burnout is work exhaustion.It is sometimes self-induced,but in many other cases is a result of the workplace culture. Burnout typically manifests itself through lower job satisfaction, less commitment to the organization,and heightened intention to "do something differ- ent."In some cases,you will also see these warning signs: • reduced self-esteem (when there’s just too much to be done, some people blame themselves) • a decline in feelings of competence and achievement • a detached or negative approach to colleagues,customers,and clients Burnout generally results from long-term involvement in situa- tions that have many negative attributes,such as: • work overload • conflicting demands (e.g.,"Think big and be creative—but don’t make any mistakes") • unclear objectives • monotonous tasks • interpersonal conflict • too few real rewards (bonuses,extra time off,and so on) • little acknowledgment of employee contributions • failure to achieve clear success As the list indicates,burnout is not strictly a function of the number of working hours.A person may work countless hours and still feel highly motivated. Rather, most people burn out when they feel more stress than support in their work lives. Burnout can directly undermine your company’s retention efforts—and if the organization develops a reputation as a burnout chamber, it will have trouble hiring good people. Worse, its most highly motivated employees—those who feel a strong commitment to their work—are most susceptible to burnout. Supervisors sometimes contribute to the burnout problem without realizing it. Most supervisors have a natural tendency to load all the critical projects onto their few top performers."I can’t trust anyone else to do it right," they say in justification.And then, when these workhorses have succeeded with one project, supervi- sors immediately load them up with another! Meanwhile, the lax, the lazy,and the malingerers coast along,picking up their paychecks every two weeks.Are the workhorses of the department given pro- motions for all their good works? Not always. If they were pro- moted,there’d be no one left to handle the important jobs. Consider using one of the following strategies for combating burnout: creative staffing, burnout management, and regular "re- recruitment"of top talent. Creative Staffing One way to avoid employee overload is to create a long-term,strate- gic staffing plan that ensures enough people—and enough of the right people—to do the job.Here’s how: • Get line supervisors to work closely with the human resource department and upper management to define a staffing strategy that meets department and company needs.Staffing is not entirely within the control of line supervisors—but they should do their best to clarify the human resources they need to meet their assigned goals. • Assure that people are well trained.People who are not prop- erly prepared for their assignments are at greater risk of burnout.So arrange for the training they need. • Prioritize the workload.If your department is especially short- handed and unable to add people,be strategic about what you ask employees to do.Consider every task in light of whether it adds value to customers.If it doesn’t add enough value,eliminate it.(All tasks add some value—be a ruthless judge of just how much.) • Consider internal redeployment of personnel.If you don’t "repot"your houseplants every so often,the roots that support them will become impacted and stop growing.The same applies to employees.Redeployment gives your organization greater flexibility while retaining top employees.Equally important,it gives employees a chance to gain new experiences and skills that may be important to them. • Provide variety in place.Internal redeployment may not be necessary if you can find ways to vary their tasks and responsi- bilities.You might,for example,give one person in your depart- ment responsibility for leading a team-based project for the next six months—before rotating the task to someone else. Another person could be given temporary responsibility for facilities maintenance in your work area.Just be sure that those responsibilities are added to the individual’s performance objec- tives and taken seriously. In discussing redeployment or varied responsibilities with employees, be respectful of their thoughts and feelings. Rather than moving them around like chess pieces, think about what might be the best opportunities for them—and emphasize any professional development benefits offered by those opportunities.Also,redeploy- ment should be optional. If a reassignment does take place, check with redeployed personnel periodically to see how things are going, and devise solutions to any problems that arise. Burnout Management Another way to avoid the high price tag of overload is for managers to actively minimize work exhaustion.Here are a few things that can be done: • Regularly monitor workloads, especially among your top performers. One of the Big Five accounting firms did this by screening travel schedules. Individuals observed to be spending excessive time on the road or volunteering for too many projects were identified and counseled. If you find people like this, meet with them regularly to see how they’re doing.This act alone can help people feel supported.And go a step fur- ther—do something about their schedules before they flame out. • Show your appreciation for valued workers.This,too,can help outweigh some of the other negatives. • Consider job redesign.If a valued employee shows symptoms of burnout,take a look at his or her job description.The tasks and responsibilities of the job may be beyond the powers of even an exceptional worker.In these cases,talk with the HR department and your staff about redesigning the job. Above all,be a keen observer and a good listener.Acknowledge cries for help—such as "I don’t know how to keep up,""I’m swamped,"or "It looks like I’ll have to work over the weekend again."Then do something to alleviate the situation. "Re-recruit" Your Top Talent Don’t take valued employees for granted or assume that they’ll want to keep working for you. Remember that the marketplace for cer- tain skills is highly efficient and provides great mobility for top pro- ducers.Assume that you need to "re-recruit"these people from time to time.Identify your top performers and then: • Remind yourself that high producers are your competitors’ likely poaching targets. • Show high producers how much you appreciate them—either through informal but heartfelt thanks for a job well done,small but meaningful tokens of appreciation,or in the form bonuses or extra "comp time." Work-Life Balance Work-life balance was one of the hottest business topics prior to the 2000–2001 recession.And despite the shock of recession-driven lay- offs, it is an issue that refuses to go away.The reason that it won’t is because work-life balance is a core element of employee satisfaction, loyalty, and productivity.This means that if you provide a workplace in which employees can effectively balance the requirements of work and their personal lives,retention will be less of an issue.And if you develop a reputation in the labor market as a place that supports work-life balance,you’ll have an edge in hiring good people. A study by the Ford Foundation sums up what many other researchers have found about this issue: The separation of work and family undermines both business and employee goals,impairing work efficiency and family life. The process of challenging old assumptions and cultural beliefs that underlie work and work-family integration frees employees to think more creatively about work in general and provides companies with a strategic opportunity to achieve a more equitable,productive,and inno- vative workplace. Many of the same assumptions and beliefs that create difficulties in work-family integration also lead to unproductive work practices,under- mining the companies’ability to achieve key business goals. Restructuring the way work gets done to address work-family integration can lead to positive,"win-win"results—a more responsive work environment that takes employees’needs into account and yields significant bottom-line results. 1 As this quotation makes very clear, work-life balance isn’t just a "feel-good" issue or a perk that will cost your company money. It translates into better business performance. In the United States, two long-term developments brought the work-life issue to a head in the late 1990s.The first was the uniquely American practice of expanding the work year, even as people became more productive and prosperous. Harvard economist Juliet Schor in her book The Overworked American has documented how the typical American has been asked to work more and more hours. By her count, the average U.S. work year has grown nine hours per year over the past several decades. 2 Those extra hours (and they really add up over the years) have cut directly into the time people would normally spend tending to family and personal matters. Ironic, isn’t it? The more productive and prosperous Americans become, the more they are asked to work. By the late 1990s, the average American manufacturing employee was putting in 320 more hours each year than his or her counterpart in Europe. Schor’s research was completed before laptops and e-mail had made major inroads into corporate life.So you can add into her cal- culation of long hours the time that people now spend working at home on weekends and answering e-mails at night and during their vacations. The result of working hours escalation: people feel squeezed. They find themselves in a winless situation in which they must either shortchange their careers or neglect their home lives. Many companies have made this situation worse by perversely buffering up-cycles in the economy with overtime.When business is boom- ing, they ask people to work extra hours; this helps them to avoid adding new people to the payroll. The second big contributor to the issue of work-life balance has been the growing percentage of married women in the work force. Today,well over 50 percent of married women are employed outside the home.That’s good news for gender equity,but having two work- ing spouses means that fewer people are available to keep up the household.When both are working full time and tied up in daily commutes, the time available for family and personal life takes a major hit.Meals are caught on the fly,and civic and family activities are shortchanged. Three Principles Work-life balance is a major issue today because so many people are saying "enough" to long days, paltry vacations, evenings spent in hotel rooms, and weekend e-mails from the boss. Many companies have gotten the message and responded with programs that help their employees balance the two sides of their lives. At first blush, you’d think that every concession toward work- life balance would represent a cost to the sponsoring company. But as Stewart Friedman, Perry Christensen, and Jessica DeGroot ex- plained in a widely read Harvard Business Review article, work-life balance can be approached from a "win-win"perspective,and not as a zero-sum game: [W]e have observed that a small but growing number of managers . . . operate under the assumption that work and personal life are not competing priorities but complementary ones.In essence,they’ve adopted a win-win philosophy.And it appears they are right:in the cases we have studied,the new approach has yielded tangible payoffs both for organizations and for individual employees. 3 These researchers offer three principles for breaking through the zero-sum game: 1. Make sure that employees understand business priorities and encourage them to be equally clear about their personal priori- ties. The work of the organization must get done,and work-life balance should not be an excuse for letting it slide. Alternatively,work cannot be an excuse for letting important personal matters slide.Friedman,Christensen,and DeGroot counsel managers to be clear about company goals and per- formance expectations.At the same time,they encourage employees to be clear about their goals as family members and as individuals.Once everyone’s cards are on the table,schedules and assignments can usually be arranged in ways that satisfy both sides."The fact that these managers define business success in terms of results is key,"they write."To them,outcomes matter more than process.To that end,they give their employ- ees specific goals but also great autonomy over how to achieve those goals." 4 2. Recognize and support employees as "whole people" with important roles outside the workplace. Managers can only deal with work-life conflict if they understand and show some interest in the nonworking lives of their employees.And show- ing a sincere interest "creates a bond and,with it,trust—which brings organizational benefits familiar to any manager." 5 3. Continually experiment with how work gets done. Smart man- agers know that work processes must be periodically rethought and redesigned for greater efficiency and effectiveness.Work- life balance provides opportunities to experiment with these processes.In describing managers who have successfully adopted work-life balance,the authors state that "[C]onflicts between work and personal priorities can actually be catalysts for identifying work inefficiencies that might otherwise have remained hidden or intractable." 6 Does your office have a "this is how we do things" mentality? That’s bad for the company because it stands in the way of process improvement. In a dynamic environment, the best way of doing things is always changing. Flexibility is one of the ways we adapt to change and survive. So,according to Friedman,Christensen,and DeGroot,work-life balance doesn’t have to be a zero-sum game. Managed correctly, work-life balance can improve morale, increase productivity, and help you hire and retain the best employees. (See "Tips on Work- Life Balance.) Telework Many companies have found that telework is an effective tool for cre- ating work-life balance. Telework describes work that is done by employees in locations other than their regular offices and is facili- tated by telecommunications and Internet capabilities.The Interna- tional Telework Association & Council’s (ITAC) definition of tele- work is "using telecommunications to work wherever you need to in order to satisfy client needs: whether it be from a home office, telework center, satellite office, a client’s office, an airport lounge, a hotel room,the local Starbucks,or from your office to a colleague 10 floors down in the same building." 7 The ITAC estimated that some 20 million U.S. employees were involved in some form of telework in 2001. Proponents of telework point to measurable cost savings and benefits, including lower real estate costs, greater employee produc- tivity, greater employee loyalty and job satisfaction, and lower per- sonnel turnover.And the teleworkers themselves report that it helps them balance work and personal responsibilities.AT&T, which has used telework heavily since the early 1990s, conducted a random survey in 2000 of 1,238 managers and found that: • Teleworkers put in more hours.Respondents indicated that they worked at least one hour more per day;that’s equivalent to 250 hours or 6 weeks of extra (unpaid) work done by the average teleworker. • Telework is more productive.Seventy-seven percent of AT&T’s teleworkers said that they got more accomplished at home than they did in the office. • Loyalty improves.Of those teleworkers who reported receiving competing job offers,67 percent said that giving Taking our cue from the "three principles" of work-life balance described above,here are a few things you can do to make work- life balance a win-win situation: • Give employees specific goals,but also greater autonomy over how they achieve them.Say,"You are responsible for con- ducting a customer survey and producing a complete report between now and mid-March.I’d like you to develop a plan for handling that." • Give more attention to results than how,where,and when the work gets done. • Get to know your employees and coworkers on a more personal level.Do they have civic obligations that need tending? Do they have children or aging parents to support? What hobbies or artistic pursuits absorb their attention? Do they have other skills that might benefit the company? As the Hawthorne experiments found many decades ago, making these inquiries and simply showing an interest in employees as individuals can have a positive impact on morale and motivation. • Encourage people to find new and better ways of meeting their responsibilities.For example,sales managers and product development people may discover that a $5,000 investment in teleconferencing equipment could save the company $15,000 each year in travel expenses—and save each of them from weeks of unproductive travel time and many nights away from home.Supervisors may find that their 4 p.m. staff meetings—the ones that never seem to end before 6 p.m. and make everyone late for dinner—could easily be rescheduled as a lunch meeting.That would get the job done and get people home on time. up the telework environment was a factor in their decision to turn down those offers. • Attracting and retaining good employees is made easier accord- ing to 66 percent of responding AT&T managers. • Seventy-seven percent of teleworkers are more satisfied with their careers since shifting to telework. • Work-life balance is easier to achieve.Eighty-three percent of AT&T teleworkers reported being more satisfied with their personal and family lives since beginning telework arrange- ments. AT&T also reported saving $25 million annually in real estate costs through full-time teleworkers. 8 (See "Telework Readiness.") These remarkable findings are not unique to AT&T. But before you rush out and advocate a telework program, your company or unit should think through a number of questions,including: • Which jobs are appropriate for telework? • What are the legal,regulatory,insurance,and technology issues? (Individual stockbrokers,for example,cannot work from an unsupervised office of a broker-dealer.) • How will you supervise teleworkers and assure accountability? • Will people worry that telework will negatively affect their chances for promotions and other recognition? Despite claims on its behalf, telework is not appropriate for every organization. In an article for the Harvard Business Review, Mahlon Apgar addressed this question, explaining that programs such as telework are most appropriate when companies are: • committed to new ways of operating; • more informational than industrial; • dynamic,nonhierarchical,technologically advanced; • not command-driven;and • willing to invest in tools and training. 9 Telework also requires adaptation on the part of managers and supervisors.After all, their charges will not be under their watchful eyes. Who’s to know if they are working or watching Seinfeld reruns? The remedy, according to most experts, is for managers to focus on results instead of activities.That means setting clear goals for individual teleworkers, making sure that they understand those goals,and setting up a system for monitoring progress in short-term stages. Managers must also find ways to integrate teleworkers into 130 Hiring and Keeping the Best People Are you a good candidate for telework? How about the people who’ve been asking you for permission to work from home every Friday? AT&T’s telework advice site has a handy "Person- nel Screener" that will evaluate the readiness of any employee for telework. a That automated screener evaluates telework readi- ness in four dimensions: 1. Prerequisites.Levels of job knowledge,experience,produc- tivity,work quality,etc. 2. Skills.The ability to plan and manage projects,to set and reach goals,etc. 3. Work style. The ability to work with a minimum of super- vision,the ability to work independently,etc. 4. Attitude factor.A willingness to try new things,a positive attitude toward telework,etc. This self-diagnostic test helps individuals to identify their strengths as well as any barriers they might need to overcome before trying telework. the larger group,otherwise people may become isolated and out-of- touch. Telework clearly represents new challenges for managers,but the benefits—especially in terms of work-life balance and retention— can be substantial. Flexible Work Schedules Flexible scheduling is another mechanism for helping employees achieve work-life balance. Flexible scheduling allows individual employees to work something other than the usual 9-to-5,40-hour, 5-day week.This creates opportunities for people to work even as they accommodate the needs of young children,infirm relatives,and so forth. Many people favor flexible schedules.This is what the accounting and consulting firm Deloitte & Touche learned when it surveyed its professional staff—both men and women—in 1993. Eighty percent said that they wanted greater flexibility in where,how,and when they worked.The company responded the next year with programs for both flexible work arrangements and parental leave.By 2000,approx- imately nine hundred of the firm’s professional employees were enrolled in one or another of these programs. 10 Did these programs help retain professional employees? Clearly so.Eighty percent of the individuals enlisted in the Deloitte & Touche programs reported that they would have left the firm if the programs had not been made avail- able. If you figure the average replacement cost of 720 Deloitte & Touche professionals at 1.5 times annual salary (assumed here at $75,000),the savings to the firm are roughly $81 million. Here are some typical flex-schedule arrangements used in busi- ness today: • Reduced-time schedules. For example,an employee works from 10 to 5 in order to accommodate her need to drive her children to school in the morning. • Seasonal schedules. For example, a tax specialist works 60- hour weeks from January through April to accommodate the tax-filing crunch, then works 30-hour weeks for the balance of the year. • Compressed schedules. For example, to accommodate his weekend acting vocation, a computer technician puts in 40 hours Monday through Thursday, leaving Fridays free for rehearsals. Flexible work schedules are appreciated by many employees. More important, they expand the pool of potential employees. If you define "who can work here" too narrowly—as 9-to-5, Monday through Friday—you automatically exclude many otherwise quali- fied people.Any hospital will confirm this. Desperate to recruit and retain licensed nurses, most hospitals have expanded their hiring pools through flexible scheduling.The first to do so differentiated themselves from rival institutions.You can too.But first make a busi- ness case for it. Women as a Special Case Everything said so far about the importance of work-life balance and its enabling mechanisms is doubled if you are having trouble hiring and retaining talented women. For reasons too numerous to discuss here, women still bear the brunt of raising and caring for young children and keeping the homestead running on an even keel—often by choice.As Felice N.Schwartz once observed,majority of women . . . are what I call career-and-family women; women who want to pursue serious careers while partic pating actively in the rearing of their children." 11 Traditional work schedules and the demands of business travel put these two goals in conflict. It’s nearly impossible to manage the household if both parents are "career primary." And it’s still usually the woman who handles the home front and the job.This is why flex-schedules,telework,and similar programs are particularly appreciated by women.And since women represent half of the talent in the world,it makes good busi- ness sense to do what needs to be done to make their recruitment and retention as easy as possible.So,if you don’t have work-life pro- grams at your company,ask yourself: • What is our turnover among women in key positions,and how does that compare with male turnover in the same positions? • In exit interviews,what have defecting female employees cited as their reasons for leaving? Are they moving to firms with work-life programs? • In our recruiting for those positions,what percentage of women versus men has rejected job offers we’ve made? Was work-life balance a factor in our offers being rejected? If the answers to these questions point to clear problems in hiring and retaining women,determine through research which—if any— work-life programs would neutralize those problems.Then calculate the cost/benefit relationship of these programs. Summing Up This chapter examined three "workplace factors" that can affect a company’s ability to attract,hire,and retain good people: • Company culture: Your company culture should be appealing to the types of employees you want most to attract and retain. Depending on the types of people you are looking for,you may need to alter your culture to be more formal or informal, relaxed or fast-paced.It should also be welcoming and as free as possible from the internal conflicts that sour well-intentioned people. • Employee burnout: Burnout is an important workplace factor to avoid.It can lead to lower job satisfaction,less commitment to the organization,and defections.And talented people won’t be eager to work for your company if it has a reputation as a meat grinder.Watch for the several warning signs of burnout and their root causes described in this chapter.You can avoid or mitigate burnout through proper staffing,being sure that people are adequately trained and prepared for their assign- ments,prioritizing the workload,periodic redeployment, and/or adding variety to employee assignments. • Work-life balance: Work-life balance is a core element of employee satisfaction,loyalty,and productivity.Find ways to help employees successfully manage their commitments at home and at work,and you will avoid many retention prob- lems.And if your company develops a public reputation for providing work-life balance,its recruiters will have an edge over others in hiring good people.Telework and flexible work scheduling are the two of the most effective tools for providing work-life balance.Give them as much attention as you would other aspects of hiring and retention.

Developing the Talent You Have

Key Topics Covered in This Chapter
• Why employee training and career development represent a dilemma for employers
• Formal and informal approaches to skill training
• Why training pays,with tips for reducing costs through online learning
• The retention benefits of career development
• How mentors build bonds between talented employees and their companies
• What to do with C performers
T hus far, we’ve discussed hiring techniques and vari- ous strategies for employee retention. If implemented effectively,these techniques and strategies can ensure the human assets an enterprise needs to pursue its goals effectively. Employee development is another way to fill open positions with competent people. An alternative to recruiting, it prepares people who are already a part of the organization to step into vacancies as they occur. Employee development has several important benefits for com- panies.When properly managed it: • increases the value of the company’s human assets—which are the prime assets of companies in a growing number of industries; • assures that competent people will be ready and able to move up as vacancies appear; • creates a pool of individuals who understand the company and industry,and who are prepared to assume leadership as the enterprise grows;and • contributes to effective retention. That last point bears further elaboration. Substantial research confirms that skill and career development (the two faces of employee development) are near the top of the list of workplace features that employees favor.As the Gallup Organization concluded in a broad-based survey in 1999, "American workers who receive employer- sponsored training are more satisfied with their jobs." 1 And,as we’ve learned,satisfied employees are more likely to stay with you.
The Development Dilemma
Many companies consider employee development a good invest- ment.Employees become more knowledgeable and effective,which, in turn, makes customers happier. Other companies, however, ques- tion the value of employee development in the current era of high workplace mobility."Who,"they ask,"will reap the benefit of all this expensive training and development if a) we are forced to lay these people off, or b) they leave us for jobs elsewhere?" More pointedly, they question,"Are we simply picking up the training tab for other companies—perhaps our direct competitors?" These questions underscore a dilemma for training and career development.On the one hand,training investments make employ- ees more valuable and more satisfied with the deal they are getting at work.This is particularly true for technology workers and engineers who recognize that their competencies erode over time. On the other hand, the same investments that make people more valuable make them more marketable and attractive to personnel poachers. Many of America’s major brokerage firms, for example, have long enjoyed a reputation as great trainers of retail stockbrokers. After careful screening, they hire people with the right stuff for the busi- ness, put them through three or four months of intensive sales and investment training and licensing preparation, and then mainline them into the day-to-day work of their nationwide branch offices. Many small broker-dealers, meanwhile, spend little or nothing on training. Instead, they lie in wait for the newly trained "registered reps"to learn the ropes and build client accounts—and then they try to recruit them.It is a way to acquire good people on the cheap. The practice of poaching workers trained by others—or "free riding"—deters some companies from investments in any training that creates transferable (as opposed to "firm-specific") skills. However, research by the Bureau of Labor Statistics indicates that the free rider problem is less a deterrent to training investments than many suppose.Over half of all companies surveyed by the BLS, including more than three-quarters of large employers, were unde- terred by the free rider problem and looked to their training pro- grams to retain and increase the value of their people.These respon- dents did not distinguish between transferable and nontransferable skills in the training programs. 2 Indeed,most companies recognize the necessity of being a"learn- ing organization," and that necessity appears to trump any concern with the free rider problem.Sure,every so often a competitor will lure away an individual trained at company expense.But most people will stick with companies that give them opportunities to sharpen their skills and grow in their careers.In the long run,free rider firms are the real losers because they do not invest in ongoing learning. Skill Training Skill training is the foundation of employee development.It has two aims: 1. to keep the skills of employees current with advancing tech- nologies and business practices and 2. to help employees master the skills they need to advance within the company. Skill training is a mutually beneficial arrangement. Companies that provide effective skill training gain the benefit of workers who are well versed in current standards, and employees maintain their "employability"and,in some cases,advance to higher levels. Informal and Formal Approaches Skill training is either informal or formal.Informal training is gener- ally conducted through on-the-job training,or OJT.This is the least costly form of training, as it doesn’t take the employee out of production. OJT is also the most prevalent approach to skill develop- ment by U.S.companies. Generally, OJT practices in the United States are very unstruc- tured and involve neither designated trainers nor training materials. Japanese companies,in contrast,take a more structured and planned approach to OJT since they consider it a key element of training sys- tems that aim to develop employee competencies over long careers. 3 As described by Clair Brown and Michael Reich: In Japan,OJT is as carefully planned,mapped,and recorded as company-provided classroom training.Training and skill development are an expected part of every worker’s job.Each employee,from new hire to senior manager,simultaneously thinks of himself as a teacher of the person(s) below him as well as a student of the person who is above.Training the person to take your place is as important as training to move up the job ladder. 4 Formal training, as practiced by U.S. companies, is more highly structured than OJT and takes place in classroom or "e-learning" settings.It can be used to address both company-specific and general (transferable) skills.Formal training,however,is more expensive than OJT because it takes employees away from their work,makes use of dedicated trainers, and depends on curriculum materials that must be developed and kept up-to-date. Formal training at many large corporations is dispensed through "corporate universities,"of which there are approximately one thou- sand six hundred in U.S.firms.Jeanne Meister has studied these cor- porate institutions and points to two reasons for their popularity: 5 • They align employee training with business strategy. By con- trolling the curriculum, the firm can focus training on the spe- cific skills that complement its strategy.This reduces the problem of skill shortages in key positions. • They assure a continual upgrade of internal knowledge. "Pro- fessional knowledge," according to Meister,"is like a carton of milk—it has a shelf life. If you’re not replacing everything you know every couple of years,your career is going to turn sour." Some firms outsource some or all of their skill training to local educational institutions, particularly vocational-technical schools. In areas where these firms are dominant employers, they often have a significant say in the curricula of these institutions—and are thus able to shape the training they need for their employees. Skill training can not only hone key employee skills, but it can build a bond between a company and its employees. Thus it is important to assess how well your own company is meeting this need: • Does it have a systematic and broad-based program of skill training? • How do employees perceive the quality of that training? • Is training clearly aligned with company requirements and strategy? • The American Society of Training and Development has esti- mated that U.S.corporations spend 2 percent of payroll on employee training.Where does your firm stand relative to this average figure? Training Pays Investments in employee training appear to produce positive returns. A survey of three thousand businesses with twenty or more employ- ees by the National Center on the Educational Quality of the Work- force found that companies that instituted programs that increased average employee reading or math comprehension by one grade level experienced, on average, an 8.6 percent productivity increase. Among service industries the average productivity increase was even higher. 6 And greater productivity is eventually reflected in the value of corporate equity. Does this mean that training will produce a positive return for your company? Not necessarily. Motorola, which has extensive experience in the field of corporate training, determined that its return on training investments was highly dependent on rein- forcement and unstinting management support. As described by William Wiggenhorn: "In those few plants where the work force absorbed the whole curriculum of quality tools and process skills and where senior mangers reinforced the training . . .we were getting a $33 return for every dollar spent, including the cost of wages paid while people sat in class." In contrast, Motorola plants that failed to reinforce training with follow-up meetings and a gen- uine emphasis on quality experienced a negative return on their investment. 7 Online Training Developments in the field of online training are having a major impact on formal corporate training programs. Online learning, or "distance learning," has clear advantages over formal classroom delivery of training: • Lower cost to supply. Despite a high initial fixed cost in curricu- lum development (and ongoing expenditures for keeping learn- ing modules current), online training is very inexpensive to deliver. • Elimination of travel costs and lost production time. Sending employees off to classroom training sessions can be extremely expensive in terms of travel,lodging,and meals.Many resent the added overnights away from home.And while they are sitting in the classroom, employees aren’t producing. Online learning can reduce all of these costs and drawbacks. • Scalable to any level of demand. Once an online training course is produced,it can be made available to any number of employ- ees at essentially the same cost. • On-demand availability. Online training sessions are available whenever and wherever employees need them. Despite its advantages, experts warn that online learning is seldom a complete training solution. The personal contact and interactions that occur in classroom settings or OJT are often essen- tial to effective learning. Ernst & Young LLP, whose training pro- gram was rated seventh in the U.S. by Training & Development mag- azine in 2002, has a very powerful computer-enabled learning portfolio. Still, the majority of its formal learning is completed through traditional classroom experiences. So the best solution may be to use online training in conjunction with other formal or informal methods of skill training. Career Development Career development is an umbrella term that describes the many training experiences,work assignments,and mentoring relationships that move people ahead in their vocations.Any company that aims to retain its most valuable people and to fill vacancies caused by retirements, defections, and growth from within must dedicate resources to career development. Ultimately, it can create a strong "bench" of people who will one day lead the company as technical professionals,managers,and senior executives.In effect,career devel- opment is a form of "internal hiring."Also, a reputation for career development can make the company attractive to potential recruits who are serious about building their careers. Career Ladders Human resource people often refer to career ladders when they talk about career development.A career ladder is a logical series of stages that move a talented and dedicated employee through progressively more challenging and responsible positions. For example, in the publishing business, a person with senior editorial aspirations might be progressively moved through various positions in production or marketing to editorial assistant to editor. Each step would broaden his or her skills and understanding of the business. Formal training is generally an important element on different rungs of the career ladder.For example,an aspiring editor may need to attend a three-day course on electronic publishing and another on legal matters such as contracts and copyright rules. An R&D bench scientist being groomed for a management position in prod- uct development would benefit from course work in basic financial analysis and marketing and from personal coaching in communica- tion and team leadership. Some firms systematically analyze a person’s current level of skills and experience and match those against the skills and experi- ences needed at the next step up the ladder.Gaps between what the person has and what he or she needs are then addressed through a plan that involves some combination of formal training, special assignments, and regular mentoring by a respected superior, as described in figure 5-1. From a retention perspective,the career ladder approach is most effective when it avoids "plateaus."The employee should always feel that he or she is learning and being challenged with a manageable new set of responsibilities. There should be plenty of excitement and no opportunity of feeling "stuck" on a career plateau. That stuck feeling creates the potential for defection.If circumstances bar a promising employee’s vertical advancement for the foreseeable future, his or her manager should find some type of lateral assign- ment that will engage the employee’s interest and provide learning experiences. Now, ask yourself these questions about career ladders in your unit: • What career ladders are available to your valued employees right now? • Are they aware of those ladders and taking advantage of them? • Have you identified and made some provisions for the skills and experiences that your charges will need to climb to the next level? • Who,if anyone,is currently stuck on a plateau? What can be done to get them off the plateau? As a manager, it’s your responsibility to make sure that the peo- ple you value are on progressively advancing career paths. Moving ahead is good for them and increases the likelihood of their staying with your company.Their progress is also good for you since it will be easier for you to move up if you’ve developed a successor capable of stepping into your shoes. Mentors The U.S. culture applauds the self-made person. But few successful people are entirely self-made. Most successful people can point to a relative or a boss—a mentor—who helped them make the most of life’s lessons and guided their professional development. Former GE CEO Jack Welch often pointed to his mother and the lessons he learned from her early in life. A study conducted by Harvard professor Linda Hill during the late 1980s concluded that at least half of all executives had bosses who mentored them during their careers. 8 That percentage may have increased, since more and more job applicants are now inquir- ing about mentoring opportunities within the organizations that are recruiting them. Hill points to three characteristics of effective mentors: • they set high standards; • they make themselves available to their charges;and • they "orchestrate"developmental experiences. Mentors who possess these characteristics play an important role in facilitating career development.And by all accounts they make a clear difference with respect to retention,perhaps because the fact of mentoring tells the employee that "We care about you and think that you are important." Common sense tells us that mentors provide a positive bond between the employee and the firm.The strength of that bond is no doubt determined by the effectiveness of the mentor and the inten- sity of the mentoring relationship.And that suggests that you should assign mentors with exceptional care. In addition to Hill’s three characteristics, you should also seek mentor candidates who: • can empathize with an employee facing special challenges (for example,a female executive mentor for a female employee in a largely male organization); • have a nurturing attitude; • exemplify the best of the company’s culture;and • have rock-solid links to the organization.The last thing you want to do is develop a bond between a promising employee and a potential defector;nothing could sour the employee’s outlook on the firm more decisively than to see his trusted counselor take a walk. Some companies make sure that every employee has an identifi- able formal mentor; others reserve mentors for upwardly mobile personnel. If your company or unit isn’t making effective use of mentors in developing employee careers, consider developing a mentoring program. Begin by identifying the people who would benefit most from such a program; then, working with your own leadership group and HR, determine who would be effective and available as possible mentors.
Handling C Performers
Every organization has a distribution of performers and not every employee is promotable.At the top are the "A" performers, whose contributions are exceptional."B" performers do very good work, while "C"performers do work that is just barely acceptable.In their study of managerial talent in two large companies, Beth Axelrod, Helen Handfield-Jones, and Ed Michaels of McKinsey & Company found that the contributions to profit growth of these groups were miles apart. On average,A managers grew profits 80 percent in one company and 130 percent in the other. C managers in these same companies achieved no profit growth whatsoever.This raised a ques- tion about where skill and career development resources should be focused.Certainly,well-managed investments in the development of A and B performers make perfect sense.But what about C perform- ers? Should you invest in their improvement or simply move them out of the way? Some companies regularly prune the ranks of their C-perform- ing managers while others try to bring them up a notch. But most do nothing to deal with them.The cost of this indifference is high, both in terms of defections by good employees and lack of profit growth.As the authors write: Consider that every C performer fills a role and therefore blocks the advancement and development of other more talented people in an organization.At the same time,C performers usually aren’t good role models,coaches,or mentors for others.Eighty percent of respondents in our survey said working for a low performer prevented them from learning,kept them from making greater contributions to the organiza- tion,and made them want to leave the company.Imagine,then,the collective impact on the talent pool and morale of a company if just 20 of its managers are underperformers and if each of them manages ten people. 9 So, what should be done? These authors suggest a three-step approach (remember that their concern is with managerial person- nel only): • Identify C performers. • Agree on explicit action plans for each C performer."Cer- tainly,"they write,"some C players can improve their perfor- mance substantially if given the direction and the developmen- tal support do so." 10 This is where the kinds of skill training we’ve described in this chapter may be most effective. • Hold managers accountable for the improvement or removal of C performers. Bradford Smart,an HR expert and consultant,likewise uses an A, B,C approach to grading employees.In his view,C players can suck the life out of an organization and should be channeled into jobs— usually at a lower level—where they have the potential to be A per- formers.If they fail to improve after coaching in these new positions, he feels that it is in the organization’s best interest to let them go. 11 Nevertheless, investments in C performers may be worthwhile. The only way to know for sure is to make an estimate of how orga- nizational performance would improve if you could shift a C-level person to the next highest level.What would be the cost of doing this relative to the benefits? Is the cost less than the benefits? If the cost exceeds the benefits, then the recourse is to either move the Developing the Talent You Have 113 • Provide a career ladder for every person you hope to retain. • For promotable individuals,identify gaps between the skills and experience they now have and those they’ll need to step into new roles.Then fill those gaps with training and appro- priate assignments. • Don’t allow good people to get stuck on career plateaus. • Make sure that everyone who needs one has a suitable mentor. individual to a job he or she can do better, or to ask the person to leave the organization. Summing Up This chapter has examined the importance of employee training and career development in the hiring and retention arenas.Every organi- zation needs to implement both training and development programs if it intends to enhance the value of its human assets and reduce the rate of defections.(See "Tips for Career Development.") If you work in a large corporation,training and development is probably the baili- wick of a specialized group of HR personnel. But don’t leave it to them alone.Everyone in a management position has responsibility for enhancing the human capital assigned to them.Therefore: • Treat the cost of employee development as an investment;it does have a real payoff,and it should reduce costs associated with the turnover of valued personnel. • Be sure that employee development is aligned with company goals and strategy. • Use online learning to supplement and reduce the cost of formal training. • Map out career ladders to move talented and dedicated employees to higher levels of responsibility and performance, using formal training,mentoring,and special assignments as rungs on those ladders. • Deal decisively with C performers.They must improve their performance (using training if necessary),move to positions where they can perform at higher levels,or leave the company.

Market-Wise Retention

Key Topics Covered in This Chapter
• Differentiating between employees in terms of economic value to the organization
• Seven market-based strategies for improving retention
E very large organization has a distribution of low, average, and high performers. Nevertheless, most corporate retention programs—which are typically expensive to implement—don’t differentiate between them.At the same time, every organization is subject to labor market forces over which it has little or no control.There is likely to be a "buyer’s mar- ket" for some job categories and a "seller’s market" for others.Thus, a company must do its best to identify which employees—or employee segments—represent the highest value to the organiza- tion, and then apply its resources in a manner that optimizes their retention in a free labor marketplace. 1 Not All Employees Have Equal Value The human resources people who toil in the field of hiring and retention are no strangers to the labor market which,like every mar- ket, is subject to the laws of supply and demand.They also under- stand the cost of replacing personnel. Those experiences do not, however, always find their way into retention efforts and programs. In this regard they would benefit from the experience of their col- leagues in the marketing department. 2 Marketing people know that some customers—generally identi- fied as customer segments—are more valuable to the corporation than others. From the marketing perspective, various qualities make them more economically valuable: • they spend more dollars on company products • they purchase the high-margin products • they remain as customers over longer periods of time • they need relatively fewer inducements to remain loyal For example, if you worked for a credit card operation, which of these customers would you find most valuable: Helen is a professional with a high income and high net worth.She travels frequently for business and pleasure,charging her airline tickets, hotel bills,meals,and car rentals as she goes.Helen also keeps thou- sands of dollars of emergency cash on hand in the credit card company’s money-market account,even though it pays only about 2.5 percent interest.She’s been a cardholder with the same company for the past fifteen years and doesn’t need any special discounts or inducement to stay on board.Both of her college-age children have cards on the same account. Herb has a moderate income and modest net worth.He uses his card for online purchases,shopping,and restaurant meals.Whenever he accumulates an account balance that he cannot pay off in a few months,Herb transfers his balance to whichever card company offers him a special six-month,low-interest deal.When that period expires he switches again to whichever company will offer him a special inducement. From a marketing perspective, Helen is a valuable customer while Herb has negative economic value. Smart marketers learn how to differentiate between people like these and target the cus- tomer segment that Helen represents, and once they capture those valuable customers,they are not reluctant to spend money on things that will keep them loyal.In their view,it’s money well spent.Money spent trying to acquire and retain Herb and the segment he repre- sents is generally wasted. We used a credit card company as an example but could as easily have used another:a retail stock brokerage,a subscription magazine, a cell-phone service,a long-distance phone service,an Internet serv- ice provider, a bank. In each case, the old 80/20 rule applies, where 20 percent of the customers create 80 percent of the profits. Smart marketers learn to identify the profitable 20 percent segment and concentrate their customer retention efforts on them. Chances are that you do not see the same market-oriented approach in how your company deals with its employee retention problems. Performance evaluations make it possible to identify the employees who add the most value, yet retention efforts are seldom skewed toward these high performers. True, merit bonuses are awarded and people get promotions if they do well,but salary struc- tures seldom differ markedly between people in the same job cate- gories (adjusted for years of service) even though their productivity levels may be very different. In an article for the Harvard Business Review, Peter Cappelli highlights UPS as an example of how one company successfully dif- ferentiated between two groups of employees, with the aim of improving retention of the group with the highest value to the company. 3 In effect, the company redistributed turnover from a high-value, hard-to-replace employee segment to an employee seg- ment that was easy to replace and train. UPS recognized that drivers have some of the most important skills in the delivery business.They know the idiosyncrasies of the routes and they have direct relationships with customers.Finding,screening,and training a replacement driver are all time-consuming tasks;it may take a new hire months to learn the details of a particular route.When UPS studied the reasons its drivers left,it discovered that much of the turnover could be traced to the tedious and exhausting task of loading packages at the beginning of a run.It therefore unbundled the loading task from the drivers’job and assigned it to a new group of workers. The turnover rate for drivers fell dramatically. Of course,turnover in the new loading jobs averages an eye- popping 400 percent per year.But that doesn’t matter.With high hourly wages and low skill requirements,the loading jobs are fairly easy for UPS to fill,typically with students or other part-timers,and fairly simple for new employees to learn. Managers spend so much of their time putting out fires and dealing with problems that they don’t always give a lot of time and attention to determining which employees represent the greatest value to their operations. So, within your unit, make a list of the individuals who: • provide formal or informal leadership to others, • consistently create excellent results, • contribute practical and valuable new ideas, • require little or no supervision to accomplish their tasks, • facilitate the work of others, • have unique knowledge or skills that would be costly and time-consuming to replace,and • could do the company great harm if they defected to direct competitors. Managers typically give even less thought to the employee segments that are most essential. So think about the employee segments in your operation that: • are essential to the operation but in short supply, • create the most disruption when they defect, • are most costly to recruit and train, • control the company’s link to customers and, • act as important information transfer "nodes"within the company. Once you’ve identified the individual employees and employee segments that have the highest value,be sure that they receive the lion’s share of retention resources and attention.
UPS in this instance was less concerned with its overall reten- tion rate than with the retention of particular people who were costly to replace and who added substantial value through their direct interface with customers. It identified a key employee segment and took an active step in retaining them,even though that action would make retention of a less-valued segment more difficult. Now ask yourself: • Which are my company’s (unit’s) most valuable employee segments? (See "Tips for Recognizing High-Value Employees and Employee Segments.") • Which employee segments are least valuable and/or easily replaced and trained? • How are our current retention efforts allocated with respect to these very different segments? No company has an entirely free hand in how and to what degree it can allocate its retention efforts. Dramatic compensation differences between individual employees may create friction and resentment between people who must work together. Labor agree- ment and government regulations likewise stand in the way of some market-based approaches. Qualified retirement plan statutes, for example, do not tolerate differences in the terms of plan participa- tion or percentage-of-compensation contributions. Nevertheless, there are strategies for keeping the best or, at a minimum, keeping them longer.We turn to these next. Market-Based Retention Strategies Cappelli suggests a number of practical retention strategies that rec- ognize labor market realties and value-differences between employee segments:new compensation plans,job redesign,job customization, strengthening social ties,and hiring the less mobile.Linking potential defectors with internal job opportunities is another market-wise tool for retention.
New Compensation Plans Most people in the know give compensation a low rating as a reten- tion strategy. Compensation matters in the sense that you cannot recruit or retain desirable employees if they view their compensation as unfair or noncompetitive. Even people who are more dedicated to their crafts or professions than to money see their compensation as an indication of the organization’s appreciation of their contribu- tions and abilities.If they feel undervalued,they will walk.(See "Tips for Getting Compensation Right.") Nor is compensation a reliable motivator.Years ago, Frederick Herzberg, the tribal elder of motivation, found that the incentives employers most commonly use to motivate—including pay raises— produce temporary performance improvements at best. 4 We need only look to the "retention champions"profiled in the previous chapter to appreciate the limited utility of compensation as a motivational and retention tool.Southwest Airlines is near the bot- tom of the list in terms of entry-level pay within its industry (though pay relative to its competitors improves with longevity). Never- theless, SWA employees are highly motivated to deliver on the air- line’s strategy, and defect at half the rate of the airline industry as a whole.Meanwhile,SAS Institute,the software company,experiences approximately one-quarter the turnover rate of its industry even though its pay scales are no higher than those of competing compa- nies.And unlike workers in most other high-tech companies, SAS people do not receive stock options. SWA and SAS are not unique cases.The limited value of pay as a retention tool is corroborated by various studies.Typical of these is a 1999 American Management Association/Ernst & Young work- place survey,which ranked compensation low on the scale relative to most other employee-retention factors. 5 Clearly, other strategies have greater impact on retention. Peter Cappelli offers these pieces of advice for market-wise compensation: 6 • Pay "hot skills"premiums to employees with crucial,rare expertise.This keeps them in place for critical periods—for example,the late design stages of a key product.Stop premiums when the skills become more available or less important to your business. • Pay signing bonuses in stages—for example,pay out the new CEO’s sign-on bonus over five years. Job Redesign Job redesign is another retention strategy,as the UPS example men- tioned earlier makes clear. If you can identify the elements that cre- ate satisfaction and dissatisfaction within a particular job,you may be able to split off the dissatisfying tasks entirely and give them to other individuals who will appreciate the work. Outsourcing unwanted tasks is another solution, and something that every company prac- Compensation really matters. But as a retention issue, it’s one of the easiest to address—much easier than organizational culture. Here are some strategies for getting compensation right: Figure out what wages your industry is offering. You can do this by hiring a compensation and benefits consulting firm—or by trying these more affordable options: • track classified ads on the Internet • network with members of human resources organizations • consult trade organizations Examine internal pay disparities. Make sure that the pay for each job is roughly equivalent to that of similar jobs across the organization. Don’t assume you have to outspend your competitors. Just make sure you can meet employees’most important tices to one extent or another. The big securities dealers on Wall Street, for example, don’t ask their traders and clerical personnel to clean out the restrooms and vacuum the carpets before they go home at night.They outsource those tasks to commercial cleaning companies.Your company does the same. So, if you experience unacceptable turnover in key jobs that are difficult and costly to refill,put each job under a microscope and ask: • Which aspects of this job create employee dissatisfaction? (Ask several employees directly.) • If we separated objectionable tasks from the job,would we need to add something else to keep it a "whole"job? And what would that something else be? • Assuming that someone must do the objectionable tasks,what alternatives exist for handling them? • Which is more costly to the organization,job redesign (and its consequences) or the current rate of turnover in the key job? Psychologists Timothy Butler and James Waldroop, directors of M.B.A. career development programs at Harvard Business School, have used the term "job sculpting"to describe their own form of job design. 7 Their prescription is to design jobs that match the "deeply embedded life interests"we identified earlier in this book (application of technology,quantitative analysis,counseling and mentoring,etc.). For instance, a competent engineer with a deeply embedded life interest in counseling and mentoring might be asked to plan and manage the orientation of newly hired engineers. A salesperson with an interest in quantitative analysis might be given new duties working with the firm’s market-research analysts.Effective job sculpt- ing is only possible,however,when managers ask questions and listen carefully to what their employees tell them about their real interests. Job Customization Companies have almost always tried to fit people to jobs.Their writ- ten job descriptions and workplace routines itemize tasks and performance expectations and dictate where, when, and how the work will be performed. People are expected to conform to these what-where-how descriptions, which in reality may be highly arbitrary. Fitting people to jobs generally fails to serve the individual employee’s primary interest, which is to fit the work into his or her life situation and future plans. So when supply and demand in the labor market favors the employee, companies should think of cur- rent and potential employees as "customers" and make an effort to recognize and satisfy their needs. Job customization can be a power- ful method through which to achieve this. To appreciate the power of customization, consider the product and services side of the economy. In this arena, competitive markets have forced companies to provide some level of customization of the things they sell. Burger King lets customers "Have it your way." Levi’s allows shoppers to customize any of its standard jeans or cre- ate unique ones from scratch. Dell, the kingpin of customizers, has pummeled its rivals with a "make-to-order" strategy for personal computers,while its competitors build and offer PCs on a take-it-as- is basis.That strategy has been a winning ticket in a highly competi- tive buyer’s market. Customization is a powerful tool in any buyer’s market—including the labor market.To customize a job to satisfy the needs of both company and employees, think about the what, where, and how of the job. The what can be covered through job redesign. Where the job is performed may involve some degree of "telework" or work from a satellite location.The how of work may be altered—and possibly improved—by examining specific work processes. Strengthening Social Ties The annals of warfare are filled with moving stories of heroism and sacrifice by individual combatants. Soldiers throwing themselves on live grenades to save their comrades.Medics crawling through with- ering fire to reach the wounded. Soldiers with "ticket home" wounds slipping out of field hospitals and limping back to the front line to support their buddies. What motivates this type of selfless behavior? It’s not usually "the cause," nor is it for "the Army."What motivates such heroics is more often the bond to people they know and with whom they have shared experiences.The military describes that bond as "small group cohesion." Such cohesion is powerful stuff and generally trumps any allegiance we may have the larger institution of which our small group is a part. Small group cohesion,or "social ties,"as Peter Cappelli describes this dynamic, is another strategy you can use to improve the reten- tion of valued employees in tight talent markets."Loyalty to com- panies may be disappearing," he writes, but "loyalty to colleagues is not. By encouraging the development of social ties among key employees, companies can often significantly reduce turnover among workers whose skills are in high demand." 8 He cites the successful case of Ingage Solutions (Phoenix), which maintains a low 7 percent annual turnover among notori- ously mobile software engineers by creating golf leagues,investment clubs, and softball teams.These create a social network and personal bonds between fellow employees."Leaving the company," he points out, "means leaving your social network of company-sponsored activities." Reconfiguring linear work processes into team-based processes can also create social ties.This was initially attempted many years ago in Sweden by Volvo, which eliminated its traditional assembly-line method of production and turned over responsibility for large chunks of assembly to teams. Nucor, whose steelworkers are the most productive in its industry, likewise organizes its production people into closely knit teams. Hiring the Less Mobile Cappelli’s last tip for retaining people in hot labor markets is to hire from segments of that market that are just barely warm."When peo- ple go out recruiting,"he writes,"they often focus on attracting pre- cisely those people who will be more difficult to retain. By shifting their sights to workers who can do the job but are not in high demand, organizations may be able to shelter themselves from market forces." 9 So, before you hire someone, give some extra thought to the work experience, skills, education, and native talent you presume a successful candidate must have.You may discover that someone with less of the above—and a person with less employ- ment mobility—can do a credible job.This advice not only can help in retaining employees but also underscores the vital link between hiring and retention. Reaching further down into the talent pool to fill a position may require that you do more training—which costs money—or you may have to redesign your jobs a bit. But in each case, weigh the cost of training and/or job redesign against the lower probabil- ity of turnover costs in that position.That’s market-wise hiring and retention. Tap Your Internal Labor Market In an efficient market for talent, opportunities outside the company are bound to draw people away. Since most people are opportunity seekers, be sure that your free-ranging talent is aware of the oppor- tunities that exist inside your own company. In a large corporation there’s always a good chance that potential defectors can find what they’re looking for in another operating unit or department. So make sure that internal postings are available and easy to access.One way to do this is with an online internal job search tool. Here are a few tips to observe in creating such a tool: • Make sure that the tool’s language and presentation convey the message that "it’s okay to look for a new job within the com- pany."A personal note on the site from the CEO can help here. Let people know that you want them to stay,whether in their current positions or in others. • Make the tool fun to use.Add graphics,links to training pro- grams,a self-assessment utility,and anecdotes about other employees who’ve built their careers by moving around the company. • Personalize the tool.For example,let job seekers register one or more "personal search agents"(PSAs) that will automatically notify them via e-mail whenever a new opening of interest is posted.Allow people who are concerned with confidentiality to use a personal,noncompany e-mail address. Summing Up This chapter has taken a "market-driven" approach to the challenge of employee retention.Here are key points to remember: • Not all employees have equal value to the organization;some represent greater value to the enterprise than others. • As a manager you should identify high-value individuals and high-value employee segments.Scarce retention resources should be allocated to these two groups first,since high turnover in less valuable and easier-to-recruit job categories is unlikely to matter as much. • Compensation is relevant in terms of retention,but "fair" compensation is often sufficient.You can use special compensa- tion arrangements to address short-term issues. • Job design,as exemplified in the UPS case,can help with reten- tion.By identifying the elements that create satisfaction and dissatisfaction within a particular job,it is sometimes possible to split off the dissatisfying elements entirely and shift them to less critical employee segments. • Customizing jobs,particularly for individuals and segments in high demand,can be a powerful retention tool in a hot labor market. • The work-based social ties between individuals may in- directly strengthen an employee’s commitment to their organization. • In some cases you can improve retention by deliberately recruiting people who are in less demand,though this may result in greater training costs. • By linking footloose employees with job opportunities within the larger organization,it may be possible to reduce organization-wide turnover rates. 100 Hiring and Keeping the Best People

Keeping the Best

Key Topics Covered in This Chapter
• Why retention matters
• Why retention is now so challenging
• The special challenges of a diverse work force
• Why people stay—and why they leave
• Examples of companies that successfully retain employees
• Tips on managing for retention
H iring and retention are two sides of the same coin.They complement each other, and if both are done well they produce what every company des- perately needs: first-class human assets. In this chapter we will shift our focus from the hiring process to strategies for keeping the good people you already have. If you did everything described in the previous chapters right, and filled all your positions with only talented, hard-working peo- ple,you’d most likely have a considerable advantage over your com- petitors, since few companies ever accomplish this goal. But your hiring success would create another challenge: keeping those star employees on-board.After all,if your human assets were measurably superior, other companies would notice and try to lure them away with higher pay, more authority, and more appealing work situa- tions—perhaps the same inducements you used to recruit them! You’d find yourself on the defensive, forced to look at your own employment practices,benefits,and compensation scheme to deter- mine if these were unconsciously undermining bonds of loyalty between your company and the great people you’ve hired. Retention is a challenge faced by many of the world’s most admired companies.Consider the experience of many companies in the United States from 1992 to 2000. U.S. businesses enjoyed tremendous economic prosperity during this period and just about every able-bodied person who wanted a job was enlisted in the work force. In many employment categories—particularly high- skilled areas such as IT, software development, electrical engineering, accounting, and finance—demand outstripped supply, touching off what has become known as the "war for talent."Many companies recognized that a lack of human talent was a serious constraint on future growth and pulled all the stops in order to retain their most valuable employees. Ernst & Young went so far as to establish an Office of Retention with direct reporting responsibility to the CEO.Others set up work-life balance programs to alleviate stress on the home front. Casual dress regimens, on-site child care, and foos- ball tables proliferated.More than a few companies allowed employ- ees to bring their dogs to work. Books and magazine articles on "how to keep your employees happy and productive" were cranked out by the score. The great war for talent in the United States appeared to end with the recession that hit the country in late 2000.The high-tech sector was the first to be hit.Even IT professionals—the people for- merly in greatest demand—were furloughed by the thousands. Lay- offs followed in other industries as the recession rippled through the economy. Even Charles Schwab, a pioneer in the field of employee development and work-life balance, was forced to downsize. Between late 2000 and early 2002 the national unemployment rate almost doubled. But recessions don’t last forever, and most people recognized that the war for talent would heat up again once the economy got back on track.And in some sectors of the economy, the war never really subsided. So, what is the retention situation in your business? Are all of your employees toiling happily in the company vineyards? Don’t bet on it. According to a 1999 study of 2,000 employees by Hudson Institute and Walker Information: 1 • 33 percent are "high risk"—that is,they are not committed to their present employer and not planning to stick around for the next two years; • 39 percent are "trapped"—they aren’t committed to the organ- ization but are currently planning to stay for the next two years;and
• only 24 percent are "truly loyal"—both committed to the organization and planning to stay on for at least two years. Thus, if your employees are anything like the ones surveyed, more than half are prepared (or preparing) to bolt! This chapter is the first of several on the subject of employee retention.It explains why it is so important to your business—and so challenging.It offers insights into why people stay with their current employers and what factors influence them to leave.Two companies with remarkable success in employee retention are highlighted as examples: Southwest Airlines and SAS Institute. Finally, this chapter offers suggestions on what you can do to retain your best people. Why Retention Matters Retention is the converse of turnover (turnover being the sum of voluntary and involuntary separations between an employee and his or her company). Industry-wide and company-specific measures that track turnover rates reveal that most companies surveyed by the Center for Organizational Research had turnover rates in the 15 to 50 percent range, though a sizable minority enjoyed single-digit turnover (see figure 3-1). Retention isn’t simply a "feel good"issue.The retention of good employees matters for three important bottom-line reasons: 1) the growing importance of intellectual capital; 2) a causal link between employee tenure and customer satisfaction; and 3) the high cost of employee turnover.Let’s examine each of these in turn. The Importance of Intellectual Capital During the Industrial Age, a firm’s physical assets—such as machin- ery, plants, and even land—determined how strongly it could com- pete. In the current "Knowledge Era," intellectual capital is what defines a company’s competitive edge. Intellectual capital is the unique knowledge and skills that a company’s work force possesses. Today’s successful businesses win with innovative new ideas and top-notch products and services—all of which originate in the knowledge and skills of employees.Examples of people who possess intellectual capital include computer programmers, network engi- neers, technical designers, CPAs, and direct-marketing analysts. Other possessors of intellectual capital are: • mid-level managers (they know whom to contact to get things done) • top-level executives (they have years of business savvy and industry knowledge) • strategic-planning/business-development professionals (they know how to do competitive and other forms of analysis) • human resource professionals (they understand recruiting, employment law,compensation,and other critical employee- relations issues) • in-house legal counsel (they understand intellectual property, securities,and other areas of business law)
Whenever employees leave, the company loses their hard-won knowledge and (often expensively) acquired skills. When those employees go to a competitor,the loss is compounded.Not only has your firm been deprived of an important part of its knowledge base, your competitors have gained it—without having to invest the time and dollars in training that your firm may have invested. Retention and Customer Satisfaction Everyone understands that customer satisfaction is one of the most—if not the most—important factors in business survival and growth.This is another reason that retention is so critical. Simply stated: Employees who are satisfied with their work and their company are more likely to create satisfied customers.Although this may be intuitively obvious,a growing body of research supports this correlation. This fact was amply illustrated by Sears Roebuck, which in the early 1990s was rapidly losing money and customers. A new management team led by Arthur Martinez was brought in to stop the losses and revitalize the aging retail giant.As reported in a land- mark Harvard Business Review article, one of the initiatives under- taken by the new management team was a study that involved eight hundred company stores and thousands of store personnel. 2 That study examined a number of important relationships and found that: • negative employee attitudes and behaviors adversely affected the satisfaction of Sears customers; • high employee turnover reduced customer satisfaction and store revenues;and • the extent to which store employees understood their jobs and the company’s strategic objectives had a direct bearing on their attitudes and behaviors. The study concluded that employees’ attitudes toward their work and toward Sears were both poor and that these attitudes were producing employee behaviors that measurably reduced customer satisfaction and sales revenues. Using these insights, the Sears team
developed an "employee-customer profit chain model" that quanti- fied the causal links between employees’ attitudes, job tenure, and the financial performance of the store in which they worked.They even formulated metrics capable of predicting the impact of employee attitude, tenure, and behaviors on revenues. (See "Case Study: Retention and the Service-Profit Chain" for some history behind the creation of this model.) Sears’s findings are echoed by many other studies, including a multicompany project that concluded that "employee attachment predicts customer attachment.When employees feel an attachment to the firm, they are more likely to share their positive images and feelings about the firm with customers. When customers are exposed to favorable testimonials, they respond more favorably to the firm." 3 Likewise, a William M. Mercer survey of senior human resource executives in large enterprises reported that "more than half of (study) participants see poor customer service as a conse- quence of attraction and retention problems." 4 The Cost of Turnover The high price of turnover is the third major reason that retention matters. Employee turnover involves three types of costs, each of which saps bottom-line results: • Direct expenses,including the out-of-pocket cost of recruiting, interviewing,and training replacements.(In a tight labor mar- ket,replacements may require a higher salary than the people who are defecting—not to mention the potential cost of sign- ing bonuses.) • Indirect costs,such as the effect on workload,morale,and customer satisfaction.Will other employees consider quitting? Will customers follow the employee who left? • Opportunity costs,including lost knowledge and the work that doesn’t get done while managers and other employees focus on filling the slot and bringing the replacement up to speed. The Sears employee-customer profit chain model is a method- ological descendent of an earlier model developed by Harvard Business School professors James Heskett,Earl Sasser,and several associates.Called the "service-profit chain,"it likewise recognizes the role of employee satisfaction,loyalty,and retention. Seven fundamental propositions form the links of the service- profit chain: 1. Customer loyalty drives profitability and growth.A 5 percent increase in customer loyalty can boost profits by 25 to 85 percent. 2. Customer satisfaction drives customer loyalty.Xerox found that "very satisfied"customers were six times more likely to repurchase company equipment than were customers who were merely "satisfied." 3. Value drives customer satisfaction.An insurer’s efforts to deliver maximum value include funding a team that pro- vides special services at the sites of major catastrophes.The company has one of the highest margins in its industry. 4. Employee productivity drives value.Southwest Airlines deplanes and reloads two-thirds of its flights in fifteen minutes or less;pilots fly an average of twenty hours more per month than their competitors.Fares stay low while service remains high. 5. Employee loyalty drives productivity.One auto dealer’s annual cost of replacing a sales rep who had eight years of experience with one who had less than a year was $432,000 in lost sales.
What do these add up to? Estimates vary widely,in part because the cost of losing and replacing an employee depends on the individual and the industry involved.But it is rarely low.For employees in gen- eral,the U.S.Department of Labor estimates a turnover cost of about one-third the new person’s salary. Among managerial and profes- sional employees, the percentage increases dramatically. Generally, estimates are in the range of one to two times the departee’s annual salary. Those figures mask lots of variability, however, much of it related to the effectiveness of the departing employee.The cost of losing a highly effective employee is obviously much higher than the cost of losing an average performer—even though the salaries and benefits of the two may be very similar.To help estimate your cost of employee turnover, please visit www.elearning.hbsp.org/busi- nesstools to access an employee turnover calculator. Employment categories such as information technology, soft- ware programming, management consulting, and public auditing routinely experience turnover rates of 20 to 25 percent.Considering salary levels in these fields, those rates must result in a painful finan- cial burden for the affected company. There is another side to the cost-of-turnover coin.The turnover of incompetent people may not produce any cost since the departure 6. Employee satisfaction drives loyalty.In one company study, 30 percent of all dissatisfied employees expressed an inten- tion to leave,compared to only 10 percent of all satisfied employees.Moreover,low employee turnover was found to be closely linked to high customer satisfaction. 7. Internal quality drives employee satisfaction.Service work- ers are happiest when they are empowered to make things right for customers and when they have responsibilities that add depth to their work. source: James Heskett, Thomas Jones, Gary Loveland, W. Earl Sasser, Jr., and Leonard Schlesinger, "Putting the Service-Profit Chain to Work," Harvard Business Review 72, no. 2 (March–April 1994): 164–172.
of such employees may actually eliminate certain hidden costs.Con- sider,for example,the costs of having mediocre or incompetent peo- ple in key positions,as cited in the introduction to this book.What is the cost of the poor decisions often made by such employees? Brad- ford Smart has estimated the cost of an inept middle manager at roughly $1.2 million per year.The price tag goes up as you consider incompetence at the senior management level.And what is the cost associated with the poor morale and defections they create? That’s anyone’s guess. Why Retention Is So Challenging The challenge of retaining good employees is complicated by a number of factors: demographic conditions, cultural expectations, and upheavals in the world of work. Demographics In some countries, most notably the United States, demographic changes have made retention especially challenging. Here are just a few of the remarkable statistics from the American scene: • The work force overall is maturing.Currently,the average age of employees is 35.Some 3.75 million workers have already turned 55.By 2015,the population of Americans in the prime management age range of 35–45 will be 15 percent less than it was in 2000.(See figure 3-2.) • Economic growth is outpacing the growth of the work force.The U.S.economy has been growing at 2.4 percent while growth in the labor force lags behind at only 1.2 percent. • The supply of highly skilled technicians and professionals is being overwhelmed by demand—particularly in computer- related fields. The ramifications of these trends are clear:a pronounced shortage of skilled workers—and escalating competition among companies to recruit and retain those that are available. Cultural Expectations People’s expectations about work also strongly influence retention patterns. In some countries, for example, employees often spend their entire lifetime working for one firm. Employees, their col- leagues, and companies consider one another almost as family, and give each other the same dedication,commitment,and support that one would give family members. In contrast, the cultures of other countries emphasize fast-moving and continual change—including rapid "job-hopping" by workers in search of the best possible com- bination of work, compensation, and future opportunities. Some countries’ employment laws—particularly in France, Germany, and Italy—make it difficult to fire or lay off workers, while in other regions companies can freely let employees go. As you might guess, a company’s retention goals might be more or less challenging depending on the cultural factors that shape its region’s or industry’s employment trends. Upheavals in the World of Work Finally, changing economic and cultural circumstances can produce dramatic upheavals in the work world.Here are just a few examples: • A trend toward free agency.Free agents—self-employed work- ers who serve various clients on a temporary,contract basis— now make up 15 percent of the American work force. • The dissolving employer/employee contract.With the wave of reengineering and restructuring that hit many parts of the business world in the 1970s and 1980s—and again in the 2000–2002 business downturn—some companies downplayed the importance of the work force.As a result,old assumptions about employer paternalism and employee loyalty evaporated. Today,most workers assume that they must take charge of their own employability and careers—even if that means moving from firm to firm.In the United States alone,most people will hold 8.6 different jobs between the ages of 18 and 32. • An intensifying need for technical skills.Economic develop- ment around the globe,the emergence of the Internet econ- omy,and accelerating advances in technology in general have increased the demand for people with advanced technical skills. With a global marketplace for technical labor,competition will be intense and come from unlikely quarters. • A growth in Internet recruiting.As described in the previous chapter,the Internet has made it easier for employees to learn about—and apply for—jobs at other companies.And it’s no longer just the young folks who are computer savvy enough to surf the Web for the perfect job.Workers of all ages and back- grounds are feeling more and more comfortable using the Internet to explore outside job opportunities. • Demands for greater work-life balance.In the United States, where two-earner households are commonplace,many are simply fed up with workplace hours and practices that put corporate needs ahead of personal and family obligations. Weekend meetings.Vacations interrupted by e-mails from the office.Too many hotel nights.Long daily commutes.Many employees,particularly women with young children,are walk- ing away to take lower-paying jobs nearer to home or finding other situations that make work-life balance more feasible. When you put these trends together, it’s clear that companies can no longer expect employees to join them early in life and stay indefinitely. Instead, firms must actively and creatively encourage good people to stay—especially in high-tech markets. The Special Challenges of a Diverse Work Force Retention is especially challenging when the work force is highly diverse. And this is the type of work force that managers in many parts of the world today face.From age and gender,to part-time ver- sus full-time status,to ethnicity,race,sexual orientation,and physical ability—companies are both benefiting from and struggling with differences among employees."One-size-fits-all"strategies for keep- ing good people simply don’t work any longer.Companies can best improve their retention rates by crafting creative, specialized strate- gies for each major segment of the work force. The Contingent Work Force Members of the "contingent work force"—part-timers,contractors, and temporary employees—offer some important advantages,as well as difficult challenges, for managers and HR departments. Primary advantages include: • Flexibility—companies can customize these workers’schedules to meet current work flow and demands,using them only when needed. • Affordability—firms save money on payroll taxes,health bene- fits,and other expenses by employing temps,part-timers,or freelancers. Challenges include: • High turnover—sometimes as much as 200 to 300 percent— which introduces unpredictability and instability into the firm’s culture.
• A lower degree of loyalty to the firm and its products. • A growing demand for the same benefits that regular employ- ees receive—such as satisfying work and career-development support. Because the contingent work force is such a valuable resource,many companies are now developing programs designed specifically to retain these employees.For example,one company offers contingent work force members skills training in exchange for a six-month commitment. Younger Workers Younger workers—primarily those in their twenties—bring energy, freshness, and state-of-the-art technical knowledge into a firm’s work force. Demographic trends, in the United States especially, have created an unprecedented shortage of these workers, who are often referred to as "Gen-Xers." These workers pose some difficulties: • Young workers are particularly interested in defining their career paths and taking jobs that will help them advance to their next jobs. • Many young workers are more comfortable with rapid change and flat management structures than are older employees.This can create misunderstandings and tensions between the two generations at work—especially when a supervisor and a direct report hail from different generations and have different work expectations. • Many young employees want their employer to define a career ladder for them—a professional track that will let them build up to a level of compensation that will enable them to support young families. How can your firm meet its younger workers’needs and thus retain the best among them? These four strategies can help:
1. Understand their background, and customize their work accord- ingly. These young people know about "downsizing"from the experience of their parents;they have accepted the truth that nothing is certain in the corporate world.Consequently,they’re most loyal to their own skills.If there is any group for which job modification or a "stretch"assignment is not only a good but an essential idea,it’s this one.At the same time,they’re com- fortable with timesaving and instant-communication devices (e-mail,instant messaging,and the Internet) and so tend to perform tasks quickly.Thus short-deadline,multifaceted proj- ects may be especially appealing to them. 2. Include professional development in your value proposition to this group. To appeal to younger workers,your firm can demonstrate its commitment to supporting and clarifying their career paths (for example,through high-tech career- management resources like the Internet and job boards). 3. Lead through learning. Employees in their twenties place a high priority on learning and developing new skills.Provide teaching and coaching on a regular basis,as well as mentoring and internship programs.Give new recruits the opportunity to learn about the rest of the company by allowing employees to make presentations about their departments and jobs. 4. Seek independent, continuous feedback from all employees. Capitalize on this group’s everyday learning by soliciting con- tinuous feedback through any of the new online tools available today. 50+ Employees Employees in this age group merit special attention for two reasons. First, for some companies they represent a sizeable percentage of their employees. Second, mature workers (in the United States, the "baby boomer" generation) have extensive knowledge and rich business experience—they thus embody a major portion of any
firm’s intellectual capital. Many have life skills such as reliability, patience,or fair-mindedness—the types of hard-won skills that peo- ple gain only by grappling with day-to-day responsibilities over many years. According to the author of the article "How to Keep Your 50-Somethings," these employees also pose several difficulties for companies: 5 • They are moving closer and closer to retirement each day.As they begin to retire,whole plants or departments may be deci- mated. • In regions where the economy is booming,many older work- ers are setting their sights on early retirement,a second career, or a better job somewhere else. • Others may become sick or injured or will leave to care for an aging parent—and never return. To keep boomers on your payroll and productive, you may have to create a workplace in which conventional wisdom about job descriptions,hours,pay,benefits,and so on go out the window.Keep these four tips in mind: • Ask mature workers what they need. Merely opening a dia- logue in this way can help you better serve this age group’s needs.For example,many older workers may value long- term health care insurance more than a big raise. • Support flexibility. Life seems shorter at 50-plus;many employ- ees at this age want to work part-time,job-share,or telecom- mute.They’re also interested in sabbaticals,unpaid time off,and released time for community projects.Consider any of these offerings,as well as "phased retirement,"which lets employees reduce their hours in stages rather than all at once. • Make their work interesting. On the job,many boomers want autonomy,a sense of meaning,and a chance to keep learning. This can mean redesigning the way tasks get done.Let mature employees work on their own,and provide whatever training they need to pick up new skills—particularly in the area of technology.
• Tailor your compensation system. Avoid "one-size-fits-all"pay plans.For example,while younger employees may want cash, older ones may prefer larger contributions to a retirement fund. Be creative! Female Employees In the United States and many other Westernized societies, the end of World War II triggered an unprecedented flood of women into the workplace.Now,that trend is reversing—in some alarming ways. For instance, women are leaving corporate America at twice the rate of men—many of them trading the corporate world for the entre- preneurial frontier.Why? Many corporate women are discouraged by the "glass ceiling"that blocks their advancement.Others want or need more flexibility than their employers can provide. Still oth- ers—like their male counterparts—have developed business con- cepts that they would rather pursue as individuals than as employees of some faceless corporation.The resulting "brain drain" carries a heavy price. How can your firm respond? Try these four strategies: 6 1. Analyze the current situation. Identify how many women hold upper-management positions in your firm and how many are in the pipeline.Then talk with these women—find out what’s important to them,and then find ways to meet their needs. 2. Eradicate "invisible" barriers to women’s success. Take a hard look at your corporate environment.Barriers to female success can be subtle—but very real.Identify high-potential women and give them equal access to career-enhancing opportunities: line positions,skill-building opportunities,special project assignments,committee leadership,and appointment to high- visibility teams. 3. Cultivate support throughout the organization. For example, hold supervisors responsible for meeting the company’s gender- equity goals.Assign an ombudsman to handle any bias inci- dents.Send a message from the top that signals acceptance of a broad range of leadership styles and an invitation to top tal- ent—male and female—to progress through the ranks. 4. Promote the understanding that women’s ways of managing are good for business . Many older books on management advise women to act like men in order to succeed.Today,a wealth of research contradicts this approach.Specifically,numerous female entrepreneurs offer more flexibility,understanding,and an open management style—all of which can give their corporations a vital competitive edge. There are many ways to address gender concerns in the workplace. No matter how you choose to do so,communication,creativity,and a proactive approach will help. Race, Ethnicity, Sexual Orientation, and Other Differences Human beings have a long history of treating one another unfairly because of differences—whether the difference is race, ethnicity, sexual orientation, physical ability, or another characteristic. Many people have suffered discrimination in the workplace—sometimes covert, sometimes open—if they didn’t fit in with what others thought of as the "mainstream"culture.This kind of unfair treatment carries a high price for businesses. Companies can’t afford to neglect the talent found among peo- ple who are "different."Every talented employee counts,and finding ways to keep them simply makes good business sense. So, how can your firm benefit from—and sustain—the many forms of diversity represented in its work force? Observe the four points identified above with respect to women. Remember, too, that members of nonmainstream groups are keenly alert to insincere gestures aimed at mollifying them.They’ll be watching to see if your organization will "walk the talk." Promises made but not delivered will not go unno- ticed. At the same time, promoting unqualified nonmainstream employees will alienate everyone.Also,if the opportunities for growth and advancement aren’t really there,pretending and proclaiming that they are will only hurt your organization.
Why People Stay People stay with a company for many different reasons, including job security,a work culture that recognizes the importance of work- life balance,recognition for a job well done,flexible hours,or a sense of belonging.These reasons can vary widely from country to coun- try. However, in cultures in which it’s assumed that people may freely change jobs,the major motivations for staying are: • Pride in the organization. People want to work for well-man- aged companies headed by skilled,resourceful leaders—that is, top-level managers who have a clear vision of the firm’s future, who can devise powerful strategies for success,and who can motivate others to realize that vision. • A respected supervisor. Even more important is the employee- supervisor relationship.People are more likely to stay if they have a supervisor whom they respect and who is supportive of them. • Fair compensation. People also want to work for companies that offer fair compensation.This includes not only competitive wages and benefits but also intangible compensation in the form of opportunities to learn,grow,and achieve. • Affiliation. The chance to work with respected and compat- ible colleagues is another element that many people consider essential. • Meaningful work. Finally,people want to work for companies that let them do the kinds of work that appeal to their deepest interests.Satisfying and stimulating work makes all of us more productive. The findings of the McKinsey & Company "War for Talent 2000 Survey" of middle and senior managers generally supported these findings.That survey asked managers how important various factors are in their decisions to join and stay with a company.The results are shown in figure 3-3.The bold items are those that have a strong causal relationship with the overall level of reported satisfac- tion.Authors Ed Michaels, Helen Handfield-Jones, and Beth Axel- rod make a case from these and other findings that companies can attract and retain talented people if they pay attention to what they term the "employee value proposition," or EVP. EVP is the work- place equivalent to the value proposition that every company knowingly or unknowingly offers its customers: a measure of perceived value for a particular cost.They suggest that if companies want to be more successful at attracting and retaining talent,they should evalu- ate and strengthen their value propositions to employees: To create a compelling employee value proposition,a company must provide the core elements that managers look for—exciting work,a great company,attractive compensation,and opportunities to develop.A few more perks,casual dress,or more generous health plans won’t make the difference between a weak EVP and a strong one.If you want to substantially strengthen your company’s EVP,be prepared to change things as fundamental as the business strategy,the organization struc- ture,the culture,and even the caliber of leaders. 7 Though the data on which Michaels et al. base their conclusions focused on managers and executives,it’s likely that other employees will respond similarly. Why People Leave People also leave organizations for many different reasons, but pri- marily because one or more of the above conditions was either absent at the beginning or has since been eliminated. For example: • The company’s leadership shifts. Either the quality of top management’s decisions declines,or new leaders—whom employees don’t yet trust or feel comfortable with—take the helm. • Conflict with immediate supervisors. People may also leave when their relationship with their bosses becomes stressful or problematic,and they don’t see any other options in their company.(See "Managers and Supervisors Are Key"for more on this topic.) • Close friends leave. One or more colleagues whom an employee particularly likes and respects leave the firm,thus taking away an affiliation that is very meaningful to that employee.
You can have terrific pay and benefits, employee-friendly poli- cies, and all the other things that induce loyalty and retention, but a few rotten apples can spoil the barrel. Specifically, a bad manager can neutralize every retention scheme you put in place. Gallup researchers Marcus Buckingham and Curt Coffman put it this way: Managers trump companies.It’s not that . . .employee-focused ini- tiatives are unimportant. It’s just that your immediate manager is more important. She defines and pervades your work environ- ment. . . . [I]f your relationship with your manager is fractured, then no amount of in-chair massaging or company-sponsored dog walking will persuade you to stay and perform.It is better to work for a great manager in an old-fashioned company than for a terrible manager in a company offering an enlightened, company-focused culture. a Beth Axelrod,Helen Handfield-Jones,and Ed Michaels of McK- insey & Company reached a similar conclusion about bad man- agers,which they describe as "C performers.""[K]eeping C per- formers in leadership positions lowers the bar for everyone—a clear danger for any company that wants to create a perform- ance-focused culture.C performers hire other C performers,and their continued presence discourages the people around them, makes the company a less attractive place for highly talented people, and calls in question the judgment of senior leaders." b (We have more on C performers and how to handle them in a later chapter.) While many say that the company culture is what matters in retention,the culture of operating units is what really matters to the people who work in them.If the boss is a jerk or an incom- petent,the best people will leave. Managers and Supervisors Are Key a Marcus Buckingham and Curt Coffman,First,Break at the Rules (New York:Simon & Schuster,1999),34. b Beth Axelrod,Helen Handfield-Jones,and Ed Michaels,"A New Game for C Players,"Harvard Business Review 80, no. 1 (January 2002): 83.
• An unfavorable change of responsibilities. A person’s job responsibilities change so that the work no longer appeals to his or her deepest interests or provides meaning or stimulation. Perhaps the number-one point to keep in mind when thinking about why people leave is this: People most often leave for the wrong reasons.That is, they leave without really understanding why they’re unhappy or what opportunities to improve things may exist within the company.Thus they jump from company to company, making the same mistake each time.Consider this example: An engineer is promoted to a managerial position because he’s a high performer and has been with the company for a while.This person may not even like being a manager.But because he hasn’t yet identified his deepest work interests,he doesn’t make the connection between his new role and his unhappiness.Instead,he concludes that he just doesn’t like the company anymore—and starts looking for another job. Unfortunately,when he finds another job outside the company,it’ll likely be another managerial position.He’ll work at that job for a while before realizing that he’s still unhappy—at which point he will decide that the new company,too,is a bad fit for him. Mid-level managers seem to repeat this pattern more than any other employee group. Two Retention Champions Most people recognize Southwest Airlines as a highly successful company. In an industry plagued by strikes, desperate mergers, and buckets of red ink,Texas-based SWA boasts thirty consecutive prof- itable years—something that no other major airline can do. Less well-known is the fact that SWA’s employee turnover rate is just over 4 percent, half that of its competitors. People who sign on as SWA employees clearly like their jobs and stick around, cutting the company’s recruiting and training costs.And high employee morale rubs off on customers,making them satisfied and loyal users. SWA’s strong relationship with its employees is the legacy of Herb Kelleher, who created an employee-focused workplace based
on informality, camaraderie, teamwork, and dedication to customer satisfaction. Just as he differentiated his product with his business strategy (low price,no frills,on-time),he differentiated SWA’s value proposition to its employees. Studies of the SWA work en- vironment indicate that it delivers on the qualities we’ve already identified under "why people stay"—pride in the organization, compatible supervisors, fair compensation, affiliation, and meaning- ful work. Also with a turnover rate of just over 4 percent, SAS Institute is another retention champion. Its low employee turnover is even more remarkable given that SAS is in the software development business, where turnover generally runs in the 20 to 25 percent range.Most of its 8,000-plus employees could walk away from their jobs and quickly land new ones—and probably at higher pay rates. But they don’t. SAS’s secret for employee retention is a working environment that few would ever trade.Fast Company magazine did a feature story on SAS several years ago, describing it as "Sanity, Inc.," a calm and humane place in a high-pressure world. 8 The SAS work environ- ment has many features that employees appear to value highly:indi- vidual offices for all,flexible work schedules and programs that help employees integrate their work and family responsibilities,an on-site health facility,and unlimited sick days.Parents can use the company’s on-site day care facility and even have lunch with their children. Most unusual of all is the fact that the company’s Cary, North Car- olina,campus headquarters closes at 6 p.m. It would be easy to dismiss the SAS approach as too soft-hearted and soft-headed to be sustainable in the hardball software industry. But the company has a long-term record of growth and profitability. Its high spending on employee-friendly programs doesn’t come out of potential profits but from the millions it would otherwise spend on employee turnover. The company has calculated what it saves through its low turnover rate (relative to its competitors) and used those savings to fund a better life- and work-style for everyone on the payroll. Figuring that it saves somewhere between $50 million and $70 million per year in turnover costs, SAS estimates that it can spend six to eight thousand dollars per employee on workplace enhancement.And it is still ahead of the game when you figure the greater productivity of teams that stay together, the knowledge that stays in the company, and the bonds that link customers to individ- ual employees. Managing for Retention: An Overview So what can managers do to keep as many good employees as possi- ble? Here’s a short list that will cover most of the bases.We’ll get into more details on many of these points later in this book. 1. Get people off to a good start. Getting people off to a good start begins with hiring people who are suited to their jobs and making sure that they understand what they are getting into (both in terms of the culture of the company and the specifics of their job descriptions).A good start also begins with a new- employee orientation that makes them feel welcomed and part of the group. 2. Create a great environment—with bosses whom people respect. Managers often assume that company policies and corporate culture determine the working environment.They do,to an extent.But policies can be circumvented.In any case,the atmosphere in a department or unit is more important to indi- vidual employees than the culture of the corporation as a whole.How does your unit stack up on this score? Bad bosses are not conducive to a great environment.How many of your unit’s managers or supervisors are repellent to their reports? How many have temper tantrums,berate their charges in public,blame others for their own failures,or never have the sense to say "Thanks,you’re doing a good job"? If your managers or supervisors are repellent,count on every employee with marketable skills to leave. In the end,it’s better to replace bad managers and supervi- sors than to replace an endless stream of employees. 3. Share information. Freely dispensing information—about the business,about financial performance,about strategies and plans—tells employees that you trust them,that they are impor- tant partners,and that you respect their ability to understand and contribute to the business as a whole. 4. Give people as much autonomy as they can handle. Many people enjoy working with a minimum of supervision. So, give people as long a leash as they can handle. Doing so will make them happy and make your job as manager easier. Send a team off on its own with the charge of exploring a new market or solving a business problem. If it’s feasible, carve out a whole business unit and let its members work on their own. 5. Challenge people to stretch. Most people—particularly the ones you want most to retain—enjoy a challenge and the feeling that you’ve entrusted them with bigger responsibilities than they had a right to expect.So put the people you want most to retain into jobs that will make them stretch—and give them the support they need to succeed. 6. Be flexible. A survey by Ceridian Employer Services (in Min- neapolis) confirmed what savvy managers already know:Flexi- ble work arrangements are highly successful in retaining employees.Nearly two-thirds of Ceridian’s respondents felt that virtual teams,flexible work plans,and telecommuting were effective in boosting retention.To be sure,not every manager has the authority to create whole new work arrangements.But nearly everybody can allow some on-the-spot flexibility,letting employees rearrange work to care for a sick child,for example, or to keep a doctor’s appointment.Today’s harried employees value that kind of flexibility highly. 7. Design jobs to encourage retention. Nothing is more soul- deadening for an intelligent contributor than a job that is too repetitive, too isolated, insufficiently challenging, or downright unpleasant. So if you see unacceptable high turnover in a critical job category, take a good look at what you’re asking people in that job to do every day.You may be able to cure the turnover problem through job redesign: adding variety to a repetitive job, engaging isolated employees in occasional team projects, upping the challenge, and so forth. If a job involves one or more repugnant tasks, consider eliminating or out- sourcing those tasks. 8. Identify potential defectors early. Great work environments and great jobs are a matter of opinion;what challenges one person may terrify another.You won’t know how well you’re doing on either score unless you ask. As a manager,you routinely interact and share views with your direct reports.Think about adding "defection detection" to these communications.Doing so will help you identify potential defectors in time to take effective countermeasures. Conduct a "stay interview"by asking people how they feel about their assignments,company policies,and the working environment.Ask about individual goals,whether they feel included or excluded by the corporate culture,and what would keep them with the company.For an interactive tool on con- ducting a stay interview,please visit www.elearning.hbsp.org/busi- nesstools.Hartford Life starts this process six months after an employee is hired,with a formal session asking what employees think about the company.(See "Tips for Detecting Potential Defectors"for more information about this process.) While you’re at it,get feedback on your performance as a manager.Arrow Electronics uses a "360-degree feedback" system,monitored by the CEO to determine whether its man- agers are actually providing the feedback and coaching that they should. 9. Be a retention-oriented manager. Never forget that part of your responsibility as a manager is to assure proper staffing in your unit.Retaining good and excellent performers is part that job. So look at how you manage people and how you schedule work flow.Are you the kind of boss who manages in ways that encourage the best people to stay,or are you unknowingly driving them away? Are some of your people considering leaving? B. Lynn Ware, founder of the retention consulting firm ITS, Inc., counsels clients to watch for early signs of dissatisfaction and disaffection, including: • a change in behavior,such as coming in later or leaving earlier; • a decline in performance; • sudden complaints from a person who hasn’t been a complainer; • wistful references to other companies (for example,"I heard of this guy who got a $30,000 signing bonus at XYZ Company"); • withdrawal behavior (for example,an employee who had always participated in meetings or volunteered for projects, suddenly stays in the background or does just enough to get by);and • talk about "burnout." If you see one of these warning signals, get right on it.Arrange to meet with the employee as soon as possible. Use probing questions to identify the source of the problem. Indicate that you value him or her as an employee,and ask how you can work together to creating a better work experience. Tips for Detecting Potential Defectors source: "Employee Retention:What Managers Can Do," Harvard Management Update, April 2000.
Summing Up This chapter has described major issues relating to employee reten- tion and highlighted ways in which managers can make a difference. In particular: • Retention matters because high turnover creates high replace- ment costs and is clearly associated with low levels of customer satisfaction,customer loyalty,and lost revenues. • Retention is particularly challenging today due to a number of factors—in particular,an aging work force and a growing imbalance in the supply and demand of qualified personnel.In addition,today’s workers have different expectations about work-life balance. • People stay with their employers when they see the organiza- tion as a source of pride and affiliation,when they respect their supervisors,when they are fairly compensated,and when they perceive their work as meaningful. • People seek greener pastures when leadership changes unfavor- ably,when they are in conflict with their immediate superiors, when close friends depart,and when their responsibilities change in ways that they do not favor. • Managers can make a difference by following the nine "Manag- ing for Retention"points outlined in this chapter.