Employee Retention

What is employee retention?

The picture states the latest statement

that corporate believes in “Love them or Lose them”

Employee Retention involves taking measures to encourage

employees to remain in the organization for the maximum period
of time. Corporate is facing a lot of problems in employee
retention these days. Hiring knowledgeable people for the job is
essential for an employer. But retention is even more important
than hiring. There is no dearth of opportunities for a talented
person. There are many organizations which are looking for such
employees. If a person is not satisfied by the job he’s doing, he
may switch over to some other more suitable job.

In today’s environment it becomes very important for

organizations to retain their employees. The top organizations are
on the top because they value their employees and they know how
to keep them glued to the organization. Employees stay and leave
organizations for some reasons. The reason may be personal or
professional. These reasons should be understood by the employer
and should be taken care of. The organizations are becoming aware
of these reasons and adopting many strategies for employee
retention.

A first-ever AIMA study reveals the best practices in keeping

your human capital.

It marks the restitution of retention. Do your only assets go home

every evening at 5.30 p.m.? Do you feel paranoid that they won't
return the next morning at 9 a.m.? Welcome to the organisational
angst of the New Millennium. A.k.a. the Employee Retention
Syndrome.

With every business slowly becoming knowledge-based even in

this economy, it has become imperative for CEOs to preserve the
only dynamic repositories of learning in their companies:
employees. That's why, across sectors, sizes, and statures,
corporate India now deploys myriad techniques to retain its people.
From sharing the CEO's vision and career-counselling to welfare-
management and conflict-resolution programmes, there is little that
companies will not do today to keep their people. And, as in any
other marketplace, only CEOs who are innovative about their
retention strategies appear to be winning the war for people.

To benchmark this, the All India Management Association (AIMA)

conducted a first-ever national survey late last year. Grouping
companies into 4 categories-manufacturing, marketing, services,
and hi-tech-in order to facilitate intra-industry comparisons, 2 cut-
off criteria were drawn up: a minimum turnover of Rs 25 crore,
and an employee-strength of 50. Then, the responses of the 135
companies that participated in the study were analysed across
sectors and turnovers to identify the most prevalent practices in
retention-management. Rate yourself against these yardsticks to
find out just how good-or bad-your retention strategies are.

THE Retention Malady

Don't shrug it away; it's real. Three out of every 4 software

companies surveyed, and almost 1 in every 2 manufacturing and
services companies confess that their retention-related woes are
acute. Indeed, more than 90 per cent of the companies surveyed
admit that they all have some sort of people problem although
these percentages indicate the perceptions within, and not the
retention-levels of, these organisations. SAMEs (Small And
Medium Enterprises)-with a turnover of less than Rs 100 crore and
fewer than 100 employees-feel the threat of attrition stronger than
the others. On the one hand, the fewer number of employees on
their rolls makes every departure significant; on the other, SAMEs
are happy hunting-grounds for larger firms that can offer the best
employees in such units more in terms of monetary as well as non-
monetary compensation.

While the actual turnover-rates are much lower than the perceived
threat of attrition, across industries and management-levels, they
showed a rising trend that should worry every CEO. Undoubtedly,
the junior management level is most vulnerable to poaching:
turnover-rates range from 7 per cent in manufacturing companies
to 13 per cent in hi-tech organisations. That's because junior
managers, typically, experience more problems related to fit and
culture than their senior colleagues. Of course, they are also more
susceptible to monetary inducements at this stage of their careers.

Analysed on the basis of size, their track-records indicate that

retention-levels have declined the most in mid-sized companies
(with turnovers of between Rs 200 crore and Rs 500 crore). And
they have either remained the same (83 per cent) or increased (17
per cent) in organisations with turnovers of more than Rs 1,000
crore. The logic in hindsight: a small organisation is an exciting
workplace, with their fewer number making every employee feel
wanted. And large organisations have elaborate people-
management practices in place, which define the role that each
individual is expected to play, and the route his or her career is
likely to take within the organisation. But mid-sized companies are
trapped in limbo: they are placid places to work in and, more often
than not, do not have the kind of systems that their larger cousins
do.

Marketing and services companies, though, would do well to look

beyond the simplistic assumption that retention is a critical issue
only in hi-tech industries. That may be the case in absolute terms
but, while the retention-levels in 16 per cent of the infotech and
telecom companies sampled have declined, they have fallen in 26
per cent of the marketing and services companies. Across
industries, though, the function which witnesses the maximum
attrition varies. In manufacturing and marketing companies, it is
the production function. In services companies, it is the finance
function. And in infotech companies, it is the line function of
information technology. Evidently, the problem of retention is
quite wide-spread in corporate India.
THE Retention Diagnosis

You've heard them all. Sure, the typical reasons why employees
wish to leave your organisation for another are the same: better
compensation, better opportunities, the nature of the job, health
problems. At all levels of management, the pattern remains the
same across manufacturing, marketing, and service companies:
junior managers cite compensation as the primary reason for
leaving; managers at all other levels choose career opportunities;
and health and the nature of the job are relevant only for senior-
level and top managers.

Hi-tech companies are, again, different. Most junior managers who

work in infotech and telecom companies look at every job they
hold as a learning experience that will increase their market value,
and prepare them for the next. Thus, even junior managers in hi-
tech companies quote better career opportunities ahead of
compensation as the motivation for leaving.
THE Retention Responsibility

Carry the Pareto Principle to an extreme: as 20 per cent of your

employees account for 80 per cent of your success, focus 80 per
cent of your retention efforts on 20 per cent of your people. Across
industry-types, manufacturing, marketing, and services companies
believe that it makes little sense to retain all their employees all the
time. The real objective: retain only those people who contribute to
the company's performance in terms of improving the quality of
goods and services, or increasing the level of customer satisfaction.

However, hi-tech companies insist that their strategies must focus

on retaining all employees. Their logic is that organisations get the
kind of employee-performances they deserve. Given the high costs
involved in mid-career hires, especially in software and telecom
companies, it does make sense to create an environment where all
their employees can continuously upgrade their skills-sets rather
than let go of them.

Expectedly, the hr department and the senior management are the

organisational centres vested with the responsibility of retention
management. However, the process is shared: in most
organisations, the hr department, the individual functions, the top
management, teams, and the trade unions manage the retention
function, individually and together. The choice of the unit varies
across industries: 50 per cent of the companies where the union has
a role to play belong to the manufacturing sector; teams are
popular with manufacturing (37 per cent) and services (35 per
cent) companies; and 32 per cent of the companies where the
senior management involves itself in retention are infotech and
telecom companies. Obviously, the high attrition-rates and the
almost-perennial demand for skilled manpower in these industries
is why.

Size too matters. 89 per cent of the companies where the senior
managers concerned themselves with retention had turnovers of
less than Rs 500 crore. And 69 per cent of them had less than 500
employees. Obviously, it is easier for senior managers to concern
themselves directly with retention management when they do not
have to deal with too many employees. Expectedly, teams and
trade unions have a significant role to play in large companies
(more than 500 employees and turnovers exceeding Rs 500 crore).

BEST PRACTICES. The best organisations focus on retaining

and getting the best out of every employee. They believe in
creating multiple responsibility-centres for retention management,
and ensure that senior managers find the time to be personally
involved in the processes of retention management.

THE Retention Measures

Companies now adopt more than one technique to create an

internal environment that will retain their employees. As per the
survey, the most popular retention-oriented initiatives include:

• INCREASING THE ORGANISATION'S LEVEL OF

PROFESSIONALISM. Employees leave companies where
intra-organisational interactions are unstructured, and
decisions, ad-hoc and driven more by personal prejudice
rather than professional consideration. By adopting systems
that introduce an element of objectivity into its internal
operations, a company can create a better workplace.

• MOVING FROM FAMILY TO PROFESSIONAL

MANAGEMENT. In most family-managed organisations,
professional managers leave because they cannot see
themselves holding key positions, or functioning with the
level of independence that their designations merit. By
inducting professionals into senior management positions, a
company can lower its attrition-rate.
• MAKING PERFORMANCE APPRAISALS
OBJECTIVE. Employees like to know how, when, and by
whom their performance is going to be measured. An
appraisal process that lists objective and measurable criteria
for performance appraisal removes the uncertainty in the
minds of employees that their superiors can rate their
performance any which way they please.

• INVOLVING EMPLOYEES IN THE DECISION-

MAKING PROCESS. People like to work in organisations
where their opinions count. The higher an employee's
involvement in decision-making, the higher the organisation's
retention-level. A participative decision-making process is
good; total empowerment, better.

• ENSURING A MATCH BETWEEN AUTHORITY AND

ACCOUNTABILITY. Most companies fall into the trap of
holding an employee accountable for a specific activity
without empowering her with the authority to perform it well.
Often, the situation is exacerbated by the fact that they vest
another employee with the same authority, but do not hold
him accountable!

• MEASURING EMPLOYEE SATISFACTION. Obsessed

with catering to the demands of their external customers,
 companies ignore their internal customers. Periodic employee
satisfaction surveys can highlight the potential flash-points,
and enable the company to take corrective action.

• ACHIEVING A MATCH BETWEEN INDIVIDUAL

AND ORGANISATIONAL GOALS. Many companies fall
into the trap of expecting their employees to subsume their
individual objectives before the organisational one. Which
forces employees to leave. The best companies achieve a
balance between the two.

• DESIGNING A COMPETITIVE COMPENSATION

PACKAGE. Money isn't a motivator, but it is an effective
de-motivator. While organisations that pay best-in-industry
salaries may find themselves unable to use that fact to
motivate their employees, those that do not could find their
best employees leaving.

• INCREASING ORGANISATIONAL TRANSPARENCY.

People do not like to work in black-box like organisations,
where information is rationed out on a need-to-know basis.
They prefer a transparent organisation that is willing to share
every aspect of its functioning with its employees.
• PROMOTING EMPLOYEES FROM WITHIN. A
company that constantly fills vacancies by hiring from
outside is certain to face retention problems. Employees who
realise that they are unlikely to be promoted to fill the
vacancies will leave the organisation. Growing your own is a
sound retention strategy.

• HELPING EMPLOYEES ACQUIRE NEW SKILLS. As

the job-profiles and desired skills-sets for a particular job
change, companies may feel the need to hire employees with
new skills, or retrain their existing employees. Companies
that choose to do the latter will find it easier to retain their
people since the training signals that the organisation values
their contribution, and is willing to invest in upgrading their
skills.

• OFFERING STOCK OPTIONS. ESOPs are a sign that the

organisation recognises the role of the individual in its
performance, and is willing to share the benefits with her.

• FOCUSING ON WELFARE MEASURES. Employees are

not just warm bodies; they are individuals with families and
lives of their own outside the workplace. Organisations that
recognise this, and help employees achieve a better balance
 between life and work are likely to face fewer problems than
those that do not.

Across industry-types, increasing the organisation's level of

professionalism, instituting an objective performance appraisal
system, and ensuring a match between responsibility and authority
are the 3 most-used techniques to improve retention. In addition,
infotech companies focus their efforts on 3 more techniques:
increasing employee satisfaction, designing competitive
compensation-packages, and involving employees in decision-
making.

Hi-tech companies differ from other industries in one other aspect.

Most manufacturing, marketing, and services companies are not
able to achieve the desired level of performance along any of the
retention techniques they adopted, but infotech and telecom
companies exceed the desired level. High potential attrition-rates,
and the growing demand for trained infotech professionals is,
evidently, a motivation enough for companies operating in this
sector to focus on retention management.

BEST PRACTICES. The best companies focus on

professionalisation, appraisal, employee satisfaction, and
participative decision-making. However, their higher-than-average
retention levels can be attributed to the way in which they go about
these initiatives rather than the choice of initiatives themselves. So,
the best companies set themselves stretch targets on each
dimension, and then, try and better them.

THE Retention Action Plan

In these competitive times, the specific measures to improve an

organisation's retention record range from career counselling
workshops to team-building exercises. Of course, the exact nature
of the initiatives to be used is a function of the industry in which
the company operates, and the level of management at which the
initiative is targeted. However, the ideal practices remain constant
across manufacturing, marketing, and services companies: career-
counselling and job-enrichment exercises at the junior level;
promoting from within and training at the middle level; team-
building exercises and welfare initiatives at the senior level; and
culture-building and empowerment at the top level.

Most companies believe that retention is far more important at the

junior, middle, and senior management levels than at the top. This
is evident from the number and intensity of initiatives used. For
instance, the proportion of manufacturing companies using specific
initiatives to improve their retention-records at the junior, middle,
and senior management levels ranges from 24 per cent to 78 per
cent while the corresponding range for senior management is 8 per
cent to 43 per cent.

Infotech and telecom companies are, predictably, different. They

use the same techniques as companies operating in other industries
do. Only, the number of companies using them is far higher. These
companies rate team-building efforts, culture-building, career-
counselling, and designing best-in-industry compensation-
packages important at the junior level; promoting from within,
instituting objective appraisal systems, and team- and culture-
building at the middle level; designing better compensation-
packages, and helping employees grow into leaders at the senior
level; and empowering employees, and sharing the organisational
vision with them at the top level.

Across levels, compensation, and vision-sharing seem to be more

critical to the retention plans of hi-tech companies than to those
operating in other industries. Thus, while 77 per cent of infotech
and telecom companies believe that sharing the organisation's
vision with their junior-level employees will help them keep their
employees, only 16 per cent of the manufacturing companies do.
And the corresponding figure for services and marketing
companies is 35 and 17 per cent.
BEST PRACTICES. The best organisations recognise the fact
that the retention techniques that will work best for them depend
on the dynamics of the industry of which they are a part, and the
level of management at which they wish to focus their efforts.
These organisations tier their retention strategies to suit their
employees at various levels of the organisation. Often, recognising
the individuality of employees is the best retention strategy.

A focus on retention management can serve as a good starting-

point for improving the quality of systems and processes in an
organisation. Retaining their best employees requires companies to
launch initiatives along several dimensions: introducing good
house-keeping practices in offices and shop-floors; making
performance-appraisal systems transparent, objective, and
participative; professionalising the senior management team; and
ensuring that employees take pride in their work.

Fast-growth companies, which are among the top-performers in

their industry, will find it easier to retain employees than others
provided they practise the essentials of retention management:
objective appraisal, and good pay-packages. Everyone loves to
work for a winner. But the only way a company can improve its
performance is by hiring and retaining the best human capital, and
motivating it to deliver its best. If that isn't a vicious circle, nothing
is. And best-in-class retention management is right at its centre.

Select the right people in the first place through behavior-

based testing and competency screening. The right person, in
the right seat, on the right bus is the starting point.

·Offer an attractive, competitive, benefits package with

components such as life insurance, disability insurance and
flexible hours.

·Provide opportunities for people to share their knowledge via

training sessions, presentations, mentoring others and team
assignments.

·Demonstrate respect for employees at all times. Listen to them

deeply; use their ideas; never ridicule or shame them.

·Offer performance feedback and praise good efforts and

results.

·People want to enjoy their work. Make work fun. Engage and
employ the special talents of each individual.
·Enable employees to balance work and life. Allow flexible
starting times, core business hours and flexible ending times.
(Yes, his son's soccer game is important.)

·Involve employees in decisions that affect their jobs and the

overall direction of the company whenever possible.

·Recognize excellent performance, and especially, link pay to

performance.

·Base the upside of bonus potential on the success of both the

employee and the company and make it limitless within
company parameters. (As an example, pay ten percent of
corporate profits to employees.)

·Recognize and celebrate success. Mark their passage as

important goals are achieved.

·Staff adequately so overtime is minimized for those who don't

want it and people don't wear themselves out.

·Nurture and celebrate organization traditions. Have a

costume party every Halloween. Run a food collection drive
every November. Pick a monthly charity to help. Have an
annual company dinner at a fancy hotel.

·Provide opportunities within the company for cross-training

and career progression. People like to know that they have
room for career movement.

·Provide the opportunity for career and personal growth

through training and education, challengine assignments and
more.

·Communicate goals, roles and responsibilities so people know

what is expected and feel like part of the in-crowd.

·According to research by the Gallup organization, encourage

employees to have good, even best, friends, at work

Employee engagement is an important tool for employee retention

The exponential growth of the IT/ITES industry is supported

by three strong pillars that lend themselves, in creating
business excellence, new technological advances and an
unparalleled intellectual capital. These are – employee
engagement, innovation and leadership. Times Ascent presents
columns by three market leaders on these pillars of IT.

In the face of increasing competition for talent, while companies

expand and grow within India and abroad, it has become
increasingly important to ensure one’s current employees are fully
engaged, integrated and feel invested in developing a career with
their employer.
Employee engagement’ is fast becoming the latest mantra for HR
managers, CEOs and company executives. It is, however, a focus

that has always been in existence and defines the true fabric and
identity of a company. Whether an employee is truly engaged or
not is determined by a few key elements that make up the
workplace. Many dictionaries define the word ‘engaged’ as the
condition of being ‘in gear’.The ideal state for any employer is to
have employees who are ‘fully in gear’. An employee is fully in
gear when certain elements about his/her work, manager, and the
work environment are in alignment with the employment situation.
There is no secret recipe that will suddenly engage all your
employees. Many companies provide excellent work
environments, perks and benefits from mother’s rooms, recreation
facilities, multi-cuisine restaurants, fitness centres, crèche
facilities, concierge services to maternity and paternity leave,
adoption leave, sabbaticals and part-time work. While these are
great strategies to keep employees engaged, the real secret goes
back to fundamental management practices – know your
employees.

Many companies are focusing on management excellence as a

fundamental strategy to address employee retention. Equipping
managers with the necessary skills so that they can connect and
converse with employees in the right way is a critical engagement
tool. What keeps a particular employee partially engaged vs. fully
engaged is something a manager can easily discover by regularly
connecting with the person. Driving a conversation around the
person’s work and how well that matches his/her aspirations;
discussing the work environment; the team environment and what
is important to that individual are important decision making data
for a manager. In addition, being aware of what employees need
from you as a manager can help you modify your style, level of
oversight and involvement to better match each employee. Work
culture factors such as flexible schedules can impact engagement
levels and can change over time as the employee’s personal
situation changes. Organisational factors, such as the company’s
commitment to the environment, connections with customers,
product quality, can also be important engagement factors. While
managers may not have control over all factors, they must be
aware of these hot spots to better predict actions and responses and
be prepared for the right conversations.

I see a deeper investment in developing management capability

as a key retention strategy in many companies today. Many studies
have shown that one of the top reasons an employee leaves a
company is the manager. Encouraging managers to have regular
meetings and spend quality time on understanding the employee go
above and beyond having the employee update the manager on
project status, resources and next steps. Many companies
recommend that at least once per quarter there is a deeper
conversation between each manager and his/her employees to
focus on the many elements described above.

In addition to the importance of the manager relationship,

employers are also investing in corporate branding focused on the
internal employee population. Identifying key attributes about why
your employees love to work for your company and then
celebrating that internally is a great way to tap into the existing
pride and excitement of your employee population. Employees
become ambassadors for the company because they speak from the
heart and help position your company as an employer of choice.
This pride and excitement can create a deeper level of engagement
amongst employees.

At the end of the day, having a ‘fully engaged’ employee is a

win-win situation. Those employees stay longer and contribute in a
more meaningful way. ‘Employee engagement’ does feel like a
new tag line – but it has been in existence since the very beginning
as a core management practice. In today’s competitive
environment, companies are ensuring that they have a philosophy
and practice that acknowledge the importance of the manager in
retaining employees. Many companies are investing resources in
the way of training, skill development and mentoring. This also has
a retention side effect. The more companies demonstrate that they
value the management role; often the deeper engaged this
population becomes. As companies continue to grow, it is this
population of employees that can serve to build a bench for
leadership positions. As solid management practices become
embedded in the organisation, it becomes the true fabric of how the
organisation operates and employees will remain more ‘fully in
gear’.
The process of retention will benefit an organization in the
following ways:

1. The Cost of Turnover: The cost of employee turnover adds

hundreds of thousands of money to a company's expenses. While it
is difficult to fully calculate the cost of turnover (including hiring
costs, training costs and productivity loss), industry experts often
quote 25% of the average employee salary as a conservative
estimate.

2. Loss of Company Knowledge: When an employee leaves,

he takes with him valuable knowledge about the company,
customers, current projects and past history (sometimes to
competitors). Often much time and money has been spent on
the employee in expectation of a future return. When the
employee leaves, the investment is not realized.

3. Interruption of Customer Service: Customers and clients

do business with a company in part because of the people.
Relationships are developed that encourage continued
sponsorship of the business. When an employee leaves, the
relationships that employee built for the company are
severed, which could lead to potential customer loss.
4. Turnover leads to more turnovers: When an employee
terminates, the effect is felt throughout the organization. Co-
workers are often required to pick up the slack. The unspoken
negativity often intensifies for the remaining staff.

5. Goodwill of the company: The goodwill of a company is

maintained when the attrition rates are low. Higher retention
rates motivate potential employees to join the organization.

6. Regaining efficiency: If an employee resigns, then good

amount of time is lost in
hiring a new employee and then training him/her and this
goes to the loss of the
company directly which many a times goes unnoticed. And
even after this you
cannot assure us of the same efficiency from the new
employee
Managing Employee Retention
The task of managing employees can be understood
as a three stage process:

1. Identify the cost of employee turnover

2. Understand why employee leave

3. Implement retention strategies

1) Identify the cost of employee turnover:

The organizations should start with identifying the employee

turnover rates within a particular time period and benchmark it
with the competitor organizations. This will help in assessing the
whether the employee retention rates are healthy in the company.
Secondly, the cost of employee turnover can be calculated.
According to a survey, on an average, attrition costs companies 18
months’ salary for each manager or professional who leaves, and 6
months’ pay for each hourly employee who leaves. This amounts
to major organizational and financial stress, considering that one
out of every three employees plans to leave his or her job in the
next two years.

2) Understand why employees leave:

Why employees leave often puzzles top management. Exit

interviews are an ideal way of recording and analyzing the factors
that have led employees to leave the organization. They allow an
organization to understand the reasons for leaving and underlying
issues. However employees never provide appropriate response to
the asked questions. So an impartial person should be appointed
with whom the employees feel comfortable in expressing their
opinions.

3) Implement retention strategy:

Once the causes of attrition are found, a strategy is to be

implemented so as to reduce employee turnover. The most
effective strategy is to adopt a holistic approach to dealing with
attrition. An effective retention strategy will seek to ensure:

• Attraction and recruitment strategies enable selection of the

‘right’ candidate for each role/organization

• New employees’ initial experiences of the organization are

positive

• Appropriate development opportunities are available to

employees, and that they are kept aware of their likely career
path with the organization

• The organization’s reward strategy reflects the employee

drivers
• The leaving process is managed effectively The
organization’s reward strategy reflects the employee drivers