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Essay on Retaining Staff &Reducing Employee Turnover
| Date: |
06-01-05 7:47pm |
| Subject: |
Business |
| Word Count: |
2376 |
| Page Count: |
9.5 |
Retaining Staff &Reducing Employee Turnover
Introduction
Employee turnover and the retention of valued employees are major problems facing business in the U.S. The average turnover rate is hovering at 15%. The costs associated with that turnover can be high - generally 25 percent of the individual's annual salary. Unemployment in the United States is at a 24-year low. Employee loyalty is down. Never before has it been so critical to focus on strategies for keeping good employees. However finding a solution to high turnover is not easy.
One major incentive for retaining employees is the cost of turnover. Keeping good employees increases profits. Employee turnover is a direct drain on the bottom line. Another incentive for employee retention is the high cost of recruiting and replacing valued employees. In a low-unemployment market, employees are increasingly difficult to find. Many employers are trying to reduce employee turnover with quick fixes, gimmicks, games, and prizes that just don't work. Organizations are finding that the solutions are more about how you treat employees than tangible items that are given to them. Also, the concept of employee loyalty diminished as employees realized that doing a good job and being loyal to an employer no longer mattered. True solutions require a change in management's attitudes and behaviors toward employees. The ultimate strategy to reduce the costs of turnover and high recruitment is to manage for retention.
A wait and see approach will not work. Developing a proactive strategy to keeping key employees is essential. Whether it means identifying employees that contribute the most to the bottom line and developing programs that will satisfy them, providing, compensation programs that provide the types of rewards that are important to each employee or taking a closer look at the overall organization’s culture, some immediate actions must be taken.
Why are Top Talent Jumping Ship?
The job market is competitive and the labor pool is shrinking. Employers are more and more frequently vying for the same candidates. The tight labor market is likely to play increasingly important factors in why some companies are losing their top talent. The current economic situation has created an increase in the amount of employment opportunities and companies are trying everything to woo employees away from their competitors.
It is predicted that the job market this year will be the best this decade. Governmental efforts to reduce the budget deficit have led to a reduction in interest rates, which allows business to grow. The U.S. has also grown more competitive in the international business community, which also contributes to an increase in job opportunities. The renewal of the economy has increased some firms sense of national confidence and when businesses feel more confident of the economic future, they are more likely to expand and hire more employees.
Although a good economy has some effects on a company’s ability to retain staff there are other factors. Some employees are jumping ship because their needs are not being met. The lack of challenging and stimulating work, fair pay, the tools and resources needed to do their jobs, recognition for work well done and involvement in the decisions that impact their day to day lives at work, factor into their decision to leave an employer. However some employers have found that meeting the basic need of employees is not enough. When it comes to motivating and retaining employees, organizations are finding that they must become increasingly innovative, by offering a number of creative incentives, benefits and services that are designed to make employees' lives easier and more stress free - at work and at home.
Some employees leave their employers because the skills they possess are in demand, they may be lured away by higher pay, better benefits, or better job growth potential. In this case, a company must take a close look at their organization and determine if they are still competitive.
Another reason employees leave is because there was a bad match between the employee's skills and the job. Employees who are placed in jobs that are too difficult for them or whose skills are underutilized may become discouraged and quit.
However, every employee who leaves your company is not dissatisfied. Some will retire, relocate, quit because of family circumstances, change professions, or even start a business of their own. For these reasons, there is not much an organization can do retain employees. That's why it's important to know and recognize the difference between employees who leave because they are unhappy and those who leave for other reasons.
Employee Retention Strategies
Many corporations use the slogan, “People are our most important asset.” Similarly, many companies contend that their values support teamwork, integrity, respect, and dignity. While this may sound good, it takes hard, consistent work in policies, statements and actions for employees to believe it. For example in the banking industry, it is common for banking institutions to treat their teller employees indifferently, paying them the lowest salary and limiting advancement opportunities and then anguish about high turnover rates amongst these entry level employees. Management forgets that tellers are the ambassadors for the company. They are the first to interact with customers and have a huge impact on a customer’s impression of the institution.
If a business wants to ensure that employees remain with the business, it has to identify and emphasize the positive aspects of the business that make employees want to stay. Some internal factors that may influence your employees' desire to stay are benefits and compensation, pleasant working conditions, opportunity for growth/advancement, and job security. Give employees perks that are perceived by them as benefits that make or break a job. Job perks like flexible hours or better-than-average benefits might keep employees in a job that they would otherwise leave.
Compensation
The classic pay philosophy is to provide wages that will attract and retain qualified employees. Being aware of the wage rates in an organization’s external market place is critical to its success. If an organization’s wage scale becomes too low, the company may lose employees to companies that pay a higher rate. Many companies emphasize total compensation, stating that the total compensation paid by their company is equal to or better than other companies in the market although their salaries may not be.
Variable pay is employee compensation that varies with the organization's business performance. With variable pay systems the interests of the organization are closely linked to the interests of the individual employee. Variable compensation plans are rapidly growing in popularity. It is more costly to the organization that is performing well; yet the organization that is performing well is better able to afford the expense. A variable pay system works well when the organization's business performance is equal to or better than the industry average. However, if an organization is performing poorly while the industry is doing well overall, then your employees' total compensation (variable plus fixed pay) will be less than other companies in the industry, which could lead to poor morale and/or increased turnover.
Profit sharing plans, like variable pay plans in general, are growing in popularity. Profit sharing plans are funded by the organization's profits based on a specified formula. The profit sharing pool is then allocated to employees, usually as a percentage of their base salary. Currently approximately 40% of companies offer profit sharing plans. A typical profit sharing award is 5% to 6% of employees' base salary.
Lump sum merit awards provide financial recognition for an individual's job performance in lieu of merit-based salary increases. This is an effective way to provide financial recognition, especially to those individuals whose base salary is already relatively high. The lump sum merit award must be re-earned each year and is usually paid during an annual salary review period.
Although paying all employees higher than average salaries and bonuses would seem to be a pay strategy that would attract the best employees, there are several drawbacks to this approach. Employees who receive higher than average compensation may be less willing to do the necessary work associated with the job, but will focus more on the menial tasks of the job function. If all employees are paid higher relative to the market, then there's less room for salary differentiation between the best performers and the average performers. Also, if a highly paid employee performs poorly and termination becomes necessary, it can become a problem for the organization.
Regardless of which method is used, an organization’s compensation strategy should focus on allowing for a diversity of skills and styles, differentiating in pay between the best performers and less valued performers, and providing career advancement opportunities.
Benefits
More than ever, employers are looking for new ways to provide the best employee benefits without exceeding their budgets. Employee benefits such as medical, dental, and vision coverage, life and disability insurance, and retirement plans can help attract and retain the best employees. According to a 1999 survey by the Society for Human Resource Management, other frequently offered fringe benefits include 401(k) matches, relocation assistance, educational assistance, year-end bonuses, domestic partner benefits, and a company car. Paid vacation is among the most commonly offered leave benefits. However, time off has yet to register among employers as a retention tool. Nationwide more organizations are experimenting with a smorgasbord of fringe benefits including day care for children, elder care for parents, gyms, massages, subsidized meals, financial counseling and concierge services.
Work/Life Initiatives
While compensation remains a key bargaining chip in recruiting qualified workers, many employers realize that in today's tight labor market, helping workers juggle the hectic demands of work and family can aid in keeping them. According to a telephone survey, conducted by Randstad North America, the parent company of several employment firms, employees want to balance competing work and family responsibilities. Fifty one percent of employees said they would stay at their current job rather than switch if their employer offered flexible working hours. Also, 62 percent said they prefer a boss who understands when they need to leave work for personal reasons over one who could help them grow professionally. Fifty-one percent of employees prefer a job that offers flexible hours over one that offered an opportunity for advancement.
Although job fit is important, culture fit determines whether someone is highly likely to remain with an organization. Every organization has its own unique culture or value set. Most organizations don't consciously try to create a certain culture. The culture of the organization is typically created unconsciously, based on the values of the top management or the founders of an organization. Employees commit to and want to remain with an organization whose culture they connect with.
Providing career advancement opportunities is critical for retention, especially for those employees who are career oriented and are in the early or middle stages of their careers. Companies should whenever possible, promote from within. Career development discussions should be held at least annually or whenever the employee requests it. Although, an employee should take the initiative and own their career development plan, the organization should encourage its development. Career counseling is another effective developmental tool. Typically the manager is the best career counselor for the employee since the manager can impact work assignments which can foster career development. Employees should be encouraged to explore career interests to help prevent burn out or frustration and surprise from reaching a dead end in their career, and to enhance the employee's skills and, therefore, value to the organization.
Another retention strategy is listening to employee ideas and complaints. Employees who do not feel listened to will be demotivated. Listening to employees gives them a sense that they are valued and provides them with a sense of control over their work situation. Providing recognition to employees is another retention strategy. Types of recognition can range from a simple thank you for a job well done, to a plaque or financial incentives. A mentoring program can be an effective retention tool. As part of its effort to attract and retain top talent, Mercedes Benz, USA recently initiated a mentoring program that pairs experienced managers with student interns. The program offers the students an opportunity to get to know someone other than their direct supervisors and build strong ties to the company.
Conclusion
In an effort to reduce turnover and increase retention, organizations should find out from their employees what they truly desire that they currently aren’t getting.
Organization must exert a great deal of effort to develop an effective retention strategy in today’s market. Companies must also be able to identify whether turnover is caused by external or internal factors. In the case of internal factors companies can do several things to retain staff.
One of the first things an organization can do is hire the right candidates. The recruiting and selection process is very important. The first place to look for employees is within the organization. Someone that might not have been considered could be perfect for the position. This also shows employees they have an opportunity to get ahead.
If an organization decides to fill a position with an external job candidate, they should hire carefully. Recent studies show that nearly 80 percent of turnover is due to hiring mistakes. A job candidate with the right technical skills is not enough. Companies must be concerned with not only finding employees that are qualified for the job, but are interested in the overall performance of the organization. Employers must consider whether the candidate shares their company's vision and will adapt to their workplace.
Companies should strive to continually develop strategies that will make their organization an employer of choice. Some strategies include maintaining ongoing two-way communication with employees. Managers should be trained to give recognition and praise and not wait until the next job performance review to tell your employees what a good job they're doing. Managers must provide positive reinforcement on an ongoing basis. Match the skills and interests of employees with their work assignments. Make the necessary adjustments to ensure that employees are effectively aligned with what the company needs them to do and what they are best at and enjoy doing. Employers that make a significant percentage of the compensation package variable will benefit both the organization and the employee by encouraging high-caliber performance. Few companies truly differentiate between better than average and less than average performers when salary increases are given out.
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