Employees leave a company to get a better job—and for other reasons. It has cost the business money to hire and to train them; over time they have become more and more useful; to replace them will cost money. It frequently happens that the most effective employees have the most enterprise and initiative and also hold the better jobs. They tend also to be among the first to look for greener pastures—and leave a greater hole behind. For these reasons retaining employees is an issue in every business. At the two poles human resource experts emphasize benefits or meaning as ways to hold on to valued employees. The first approach sees success in rewards (better pay, fringes) the second in making jobs more valuable (training, advancement, interest). Most observers suggest a blend of approaches.
But retention also arises in the broader context of economic trends and affects different elements of the workforce in different ways. Thus employee retention is not much discussed in times of economic downturn: employees tend to be hunkered down and glad they have a job at all. In times like that “retention” has a kind of inverted aspect. The question becomes: “Whom will the company retain?” In most cases those with lower income tend to be favored. In expansive times companies are beating the bushes for people, and opportunities abound.
At different times different skills are greatly in demand and turn-over in these skills is high as companies bid up the jobs. In the 1980s and into the 1990s computer programmers and analysts enjoyed a surge of attention until employers found ways to ease the pressure by outsourcing this type of work to India and elsewhere. Meanwhile, in good times as in bad, the most qualified and enterprising employees are always in demand and always mobile. Small business has a special view of this issue as discussed below.
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Focusing The Retention Effort
Employee retention is usually discussed in a too-narrow context and is therefore treated as an unalloyed good thing, like gold. This view arises because both the hiring and training processes are costly and employees increase in value, from the company’s perspective, as they become ever more experienced. But employee turnover can also be a benefit. As Management Today reported in 2006, “At least one multinational distinguishes between what it rather elegantly calls ‘regretted’ and ‘non-regretted’ types of staff turnover. Bosses in that company worry if regretted turnover is too high—but also worry if non-regretted turnover is too low, suggesting that managers are not pushing the wrong ‘uns out of the door fast enough.”
In the view of most seasoned managers, it is rather a truism that the good ones leave and the not-so-good hang around forever. The unnamed multinational cited by Management Today had its finger on the pulse.
Retention must not be isolated from good personnel management generally. In well-run organizations, personnel policies will be designed around the mission of the business—recognizing that turn-over is both unavoidable and sometimes necessary.
Why Employees Stay
Employees stay with a company either because the business satisfies their needs and uses their abilities to an optimum extent (the ideal case) or because they just can’t find another job (the worst case).
Job satisfaction is a complex consequence of the total corporate identity. It obviously includes compensation and fringe benefits as a minimum, but surveys keep reporting that most employees want to “make a contribution” or want to “make a difference.” They will feel that they’re achieving this goal if their skills are fully used, if the balance between discipline and freedom is right, and if the overall mission of the company makes good social sense. Ambitious employees also require that some path of advancement be at least visible to them.
Given this general profile, it is fairly obvious that retention policies based simply on reward mechanics (increase health coverage, add a child-care service) will be inadequate. Retention will work best if the company’s values are very clear, supportive of employee aspirations, and implemented to provide both “rewards” and “scope” within the means of the business. In actual practice, far too many companies provide excellent reward systems and yet are populated with alienated employees because corporate policies seem irrational, bureaucracy is stifling, the motives of management appear to be pure ambition, and the corporate goal seems to be meaningless growth.
Yet, employees stay because they cannot easily replace the rewards. In contrast some businesses—often small ones— offer meager rewards but a meaningful work environment—and yet still manage to keep their employees.
Small businesses on average pay lower salaries than larger firms. Data from the U.S. Census Bureau for 2001, for instance, show that companies with fewer than 100 employees had payrolls of $29,138 per employee; companies with 100 or more employees had payrolls of $37,265 per employee—a difference of $8,127 a year.
Data on employee benefits were not provided, but small businesses also offer fewer benefits. Thus small business has a distinct disadvantage in holding on to employees. If employee retention depended entirely on compensation and fringe benefits, small businesses (they employ somewhat over a third of all people in companies) would eventually lose their employees. But retention is based on the total employment situation, and in that context small businesses have advantages over the large employers: 1) employees are closer to management and interact with management more intensively; 2) there are fewer layers; the owners are visible and not “princely” figures you read about; 3) the work situation is more organic (more like a family, less bureaucratic); 4) employees usually have more scope; they are required to do more things, wear more hats, and are therefore more fully utilized; and 5) the mission of small businesses is almost always clearer, more immediately felt; contact with the customer may be frequent; feedback is good; and therefore employees “make more of a difference.” The thoughtful small business owner will do the best to exploit these natural advantages to counter the natural disadvantage of having less to offer.