Avoiding the Turnover Tsunami
Traditional solutions, such as retention bonuses, equity plans and economic solutions may not be enough to help organizations retain key talent that has been tethered during the economic downturn. While economic tools may help, high-performing companies should concentrate more on assessment, communication and development plans for key talent, high performers and high potentials.
By Gene Tange
The tide seems like it has finally changed. As recovery trickles along, senior leaders are having to change their focus, from pushing employees overboard to trying to keep them reeled in.
Seven in 10 (70 percent) companies expressed concern about the ability to attract "top talent," while three in 10 (29 percent) fear they will lose top talent this year, according to a
BusinessWeek article
on a survey of 1,800 companies by Marc Enfron, founder of the New Talent Management Network.
In a survey that came out about the same time, this one by the HR Forums in Silicon Valley, participants rated "motivating and engaging employees" and "retaining top talent" as the two biggest issues, at 26 percent and 19 percent, respectively.
Similarly, in an informal survey, CEO Roundtable members were asked to share what they saw as the top issues facing them. Employee retention and talent in general rose in importance from being "not on the radar screen six months ago to [being] one of the pressing issues keeping them up at night."
Needless to say, the past 12 months has put a strain on many organizations. In an effort to survive this recession and be able to look at a more positive 2010, senior leadership took a number of actions: employee reductions, consolidation of roles, cuts in pay and benefits, and the elimination of employee development.
These actions, while necessary for enterprise survival, have shaken organizational capability, even those organizations that are considered "high performance." So, given that a turnover tsunami is ahead, how can we avoid the wave and grow the talent pool at the same time?
Traditional Solutions May Not Work
First, let's examine traditional solutions, such as retention bonuses, equity plans and economic solutions. When an employee has declared an interest to pursue other opportunities, these tools are not only ineffective but costly in many ways.
They cause internal concern for employees who feel they are as important but have not received special treatment, and thus may increase difficulties.
Managers not armed with criteria for inclusion, or not skilled at communicating the reasons for plans based on traditional solutions, run the risk of undermining the credibility of management.
I can still hear a company manager I spoke with after a plan was installed say to a group of fellow engineers, "I don't know how management selected those who got retention bonuses, they didn't ask me for my opinion."
I watched the employee group walk off, shaking their heads in disgust. This strategy runs a high risk of employee disengagement and lower productivity, which may increase the size of the tsunami.
Another technology firm based in the Silicon Valley, decided to use RSUs (restricted or full-value stock) as the basis for retaining their "top talent." The cost to the company was about $5 million. Unfortunately, the stock dropped significantly in the 12 months following the issuance.
In a general employee meeting, one of the recipients of the retention plan asked, "In the same period, what did we spend in developing our key talent?" The answer was it had been cut as part of a massive cost-reduction effort to minimize expenses. The result: Overall turnover continued at the same rate, while the turnover of high-potential employees increased.
Given the potential risks, should economic tools be used? The answer is "yes;" however, when they are used in isolation, they have a greater potential to offer limited returns and increase costs for retaining talent.
When deployed as a part of a simple, efficient, ongoing process that ties talent to business outcomes and therefore stronger organizational capability, economic rewards can become a powerful lever to achieve success.
Avoiding the Wave
Some companies have been successful in creating integrated programs and processes to keep their key talent engaged and productive.
Leaders of a billion-dollar med-tech company in southern California felt that the company was at risk of losing significant technical talent. They immediately conducted an assessment process to determine who was critical to their near-term performance and longer-term outlook using the company's strategic plan as a framework.
Following the assessment, line management sat down with each technical person to share the company's business potential, such as new products and possible acquisitions. They also linked the company's success with the collective improvement of each key employee's career, such as by offering work on new and exciting projects or by creating special assignments for high-potential employees interested in future leadership roles.
The CEO incorporated a brief supportive message in every employee meeting whether at headquarters or when traveling to remote sites. The communication plan included similar content, which was delivered in smaller supervisory meetings where employees were able to ask questions more freely.
Following each meeting, comments and suggestions were consolidated and reviewed for themes and potential action. In subsequent meetings, high-potential employees given opportunities to grow were asked to share their thoughts with the broader audience. This generated a great deal of excitement and many questions from others on how they could get involved.
Rewards, bonuses and equity, were incorporated but only when the project results exceeded the planned expectations.
The message was clear: Increasing the overall talent pool, while simultaneously improving enterprise outcomes was critical to the business and the employees would be rewarded handsomely when results were achieved.
This plan was so successful that it reduced overall turnover below the historical run rate and high-potential turnover was reduced to less than 1 percent. Ultimately, the plan was expanded to include nontechnical employees globally.
At Lam Research, a $1 billion global high-technology firm based in Fremont Calif., CEO Steve Newberry recently said publicly that their companywide high-potential turnover was less than 1 percent. At the same time, Lam's year-over-year market-share growth in one of their key business segments was unequaled. Today, they have more than 50 percent of the etch market segment.
Lam achieved these results during a time when the economy forced significant reductions in head count, given the overall reductions in the semiconductor-capital-equipment sector. So how did they do it?
Lam's philosophy has always incorporated talent into their overall business-success equation. The company has two key processes that the line managers drive each year. The first is their organizational audit. In this process, each key business executive presents a review of their organization -- identifying high potentials, developmental assignments and gaps, including past turnover -- to achieve strategic business results in a one-, three- and five-year time horizon.
This information is aggregated, presented to senior management and reviewed quarterly, consistent with ongoing business reviews. The HR function plays an active role in helping line management who drive this process by tracking high-potential developmental assignments and creating the architecture and integration for the process.
The second process, monthly analytics, runs concurrently and feeds the organizational audit. Here data is gathered from around the globe and summarized into a review at the most senior level. This data includes key trends and acts as an early-warning system for senior management.
Some of the analytics are high-potential-development assignments -- those that require intervention and high-potential turnover by company, region and or product group -- so early identification and assistance can be provided. These analytics are included as part of the overall business review and are integral to achieving overall business results.
The subject of accuracy is key and becomes a balancing act with "keeping it simple." These systems can run the range, from identification based on financial and operations results to a combination of results and forward-looking predictive competency-based assessment.
Some include the integration of three or four key elements -- performance management, success probability, turnover probability and aligned-development assignments -- that create a powerful mosaic. This strategic mosaic provides a clear, summarized picture of what could be early warning signs of required actions or positive financial and operational results.
One of the keys to increasing the overall accuracy of any of these tools is built-in checks and balances that come from both process design, in the form of multi-rater input and tool design, to improve both accuracy and efficiency.
A third example is San Francisco-based Catholic HealthCare West, one of the largest healthcare providers ($10B in revenue) that grew largely through acquisition. This industry has a benchmark of 20-percent turnover; however, combined with 20 acquisitions, Catholic HealthCare West's leadership insisted on a proactive program to reduce the turnover trend as well as to focus on high-potential turnover to sustain its growth trajectory.
An elegantly simple system, called Organizational Renewal, was installed. This system integrates performance-management data in a four-quadrant colorized display and compares this data with the financial success of the unit.
Success probability, the second component, is based on a high-performance predictive leadership-competency model tied to business outcomes. The third component, a forward-looking turnover probability uses a qualitative measure, based on the individual's career desires and marketplace demand for their skills and, lastly, developmental assignments for those assessed with the potential to succeed at the next level.
The system included training for line executives to increase the accuracy of each assessment and real-time peer input that met the objective of keeping the system accurate without compromising the need for efficiency.
Additionally, summary analytics were derived from the process, in the form of pie charts, graphs and bar charts for easy use and to examine correlations to business drivers. During the period of use the high potential turnover dropped significantly and was less than 0.5 percent.
Some Common Themes
Systemic solutions based on predictive tools can help HR leaders avoid the oncoming wave in their companies.
Like the early-warning systems located on beaches around the world that alert the population of a potential tsunami, successful companies use simple, but powerful, predictive tools to drive high-performance talent retention, at a rate that is unequalled by other firms. (On average, turnover is less than 1 percent within this key group).
These tools can be custom or built in house. Common to these systems are:
* An efficient and accurate assessment to determine their key talent, high performers and high potentials. (I call them "high-success probables" -- those who would probably have been successful at the next level within the preceding 12 months.)
* A communication element that is simple, clear and efficient to let those who have been assessed know about the company current and future strategies, and where they stand and how they might attain their career goals.
* Integrated development plans that provide safe, but real world, experiential learning tied to the individual's and firm's success. Mentoring is sometimes added to this process to improve potential outcomes.
* An integrated approach of these elements in a "no frills" leadership-owned process that drives business outcomes.
In addition to these common elements, I recommend the inclusion of another powerful element, a turnover-probability assessment. This assessment projects who is at risk and further quantifies the risk so it becomes actionable and integrated with the elements above.
There a number of factors to consider when looking at future turnover; however, two are critical in this assessment: demand for the person's skill set in the marketplace and alignment with what the company can offer as a career assignment consistent with the employee's plan.
Enfron refers to these systems as "simple, effective; they get results that support the business without the bells and whistles and HR bureaucracy." The key here is eliminating the jargon, grounding the results in business success versus HR success, and lastly, gifting these systems to line management to help them drive and own the outcomes.
To be effective, these solutions must integrate a great deal of data and synthesize it into an easy-to-use, efficient process. Concurrently, they must drive business outcomes: revenue growth, improved market share, innovation in product or service, and bottom-line enhancement.
The elements of such a system include: identification of high performers (looking back) and high-success probables (looking forward), the determination of turnover probability, and lastly, the integration of in-place assignments combined with mentoring and effective communication.
This last element is one of the most powerful elements in retaining high potentials because it affords the creation of opportunities that mimic the challenges normally found in next-level positions.
The subject of accuracy is key -- and becomes a balancing act with the importance of "keeping it simple." These systems can run the range from identification based on financial and operations results to a combination of results and forward-looking predictive competency-based assessments.
Gallup, the widely known survey firm, has conducted extensive research in the high-performance area. Their Q12 lists
12 questions
that, when answered consistently, correlate to high engagement, low turnover and strong organizational capability.
Some companies have included this in their overall determination of high-success probability in the quest to improve the accuracy of predictions and provide a little more rigor to a critical system.
It is clear we have faced one of the deepest recessions in decades. The landscape and business models of the past have been changed by this global force.
Employees are working their way through this turmoil, particularly the highly talented employees. They are becoming more focused on the specific companies they want to be associated with and the role of talent assessment and development are important to their engagement and retention.
The only question for many CHROs is: Will you lose talent by waiting until you can see the tsunami wave mounting on the shore or will you take the steps necessary to avoid losing your company's competitive edge?
Gene Tange, is the president of
PearlHPS
, a firm that specializes in building tools, processes and provides consulting for firms interested in eclipsing their competition. His research on high-performance companies started in the late '80s, looking at unique competencies in the leadership teams and the correlation to financial and operational excellence.
June 16, 2010 Copyright 2010© LRP Publications
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