Strategies for Retaining Top Talent

Wednesday, September 2, 2009
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While many organizations proclaim that people are their most important asset, a good many fail to act as though they really believe it. But that doesn't make it any less true that people represent the best source of competitive advantage. Strategies, business models, products and services can all be readily copied by competitors. Talented staff, by contrast, provide a sustainable source of differentiation -- if you can retain them.

A weak labor market associated with the economic downturn may have held down turnover rates in many organizations. But it could be argued that we are currently in the eye of a turnover hurricane. Those organizations that fail to identify and act on issues negatively affecting employee commitment during this break in the storm are likely to find employees exiting in increasing numbers as other opportunities become more plentiful.

As the social contract surrounding the employment relationship has been rewritten, individuals and organizations have become more tenuously attached to each other, making turnover an inevitable fact of organizational life. As a result, the challenge for organizations is to understand and manage turnover, rather than to eliminate it entirely. In this article, we provide recommendations regarding the key components of an effective employee-retention approach.


Ready: Identify the Issues

Conduct regular employee surveys. What can companies do to hold on to valued employees? The first imperative is to gain a thorough understanding of the problem. Turnover drivers vary considerably from industry to industry, company to company and from employee group to employee group within companies. So, to understand turnover, you can't rely on off-the-shelf models.

The best way to get a handle on the issues in your organization is through a carefully crafted employee survey. Surveys can predict if, when and (most importantly) why certain employees may be thinking of leaving.

The number of current employees indicating through an employee survey an intent to leave is an excellent leading indicator of attrition that can help you identify employee groups at "high risk" of turnover.

Statistical analyses can then be performed to determine the predictors of intent to leave for different employee groups, to identify the key issues needing to be addressed. If performance data can be merged with employee-survey data, separate analyses can even be conducted to isolate drivers of retention among high-performing employees.

Consider surveying former employees. Most organizations obtain insight into causes of turnover through exit interviews with employees who have recently resigned. Exit-interview data are certainly informative. But they can be problematic, particularly if collected internally. Research has demonstrated low correlations between reasons given for leaving in exit interviews and those cited in follow-up surveys conducted in the months after departure.

In exit interviews, departing employees may feel apprehensive about criticizing the organization, not wanting to compromise letters of recommendation or create difficulties for former colleagues. Alternatively, when the exit interview is conducted, departing employees may simply not yet have fully examined and evaluated highly charged feelings toward the organization.

To gain a full understanding of the causes of turnover, it is helpful to supplement exit-interview data with information collected at a time when the employee has placed some "emotional distance" between him- or herself and a former employer.

In addition to supporting exit surveys, Hay Group Insight conducts numerous former employee surveys for clients. These surveys gather the perspectives of employees who have been out of the organization for several months or several years regarding their work experiences, their current employment situations and their current perceptions of their former employers.

Aim: Sharpen Your Focus

Calculate your annual cost of turnover. With increases in unwanted turnover come increasing costs. Studies estimate the cost of replacing employees to be between 50 percent and 150 percent of salary. For an organization with 2,000 employees and an annual turnover rate of 5 percent, that translates into approximately $3.5 million in turnover costs (assuming an average salary of $35,000).

And the "hidden" costs of turnover may be even greater, in terms of disrupted customer relationships, lost organization- and job-specific knowledge, and increased strain placed on remaining employees.

To build the case for your retention efforts, calculate your organization's cost of turnover. Then, as you implement your retention strategy, continue tracking turnover costs on an ongoing basis to determine your return on investment.

You are likely to find that retaining just a few additional valued employees will pay for your efforts. For example, using the turnover cost assumptions above, a $200,000 investment in retention would be recouped with just six fewer unwanted employee departures.

Target your efforts. Organizations can never eliminate all turnover. Nor would that be desirable, as not all turnover is problematic. Where employees fit poorly in their roles, they and their employers may both be better off after severing ties.

Managing turnover, therefore, requires establishing priorities. In developing your retention strategy, examine turnover rates to determine where in your organization retention is the greatest issue. Then identify your most critical employees -- and focus your retention efforts on them.

Fire: Recommendations

What drives employee turnover? Contrary to what many might assume, it's generally not compensation. Though pay is often a factor in departure decisions, it is seldom the primary one. Research suggests that dissatisfaction with pay is typically not what leads employees to begin exploring alternatives, although the prospect of better compensation elsewhere may solidify the decision to leave once the search for other opportunities has begun.

Nonetheless, retention strategies most commonly focus on compensation (e.g., retention bonuses, stock options). Below we provide some alternative recommendations regarding the components of an effective retention approach.

Manage first impressions. It is much easier for prospective employees to understand how they will be paid in a new position and what they will be asked to do than it is for them to assess how it will feel to work in the organization. But the fit between the employee and the organization's culture and operating style is one of the biggest factors in determining whether the employee will be productive and remain with the organization.

To increase the likelihood of successful matches, organizations should work to provide realistic job previews for prospective employees, including as much information as possible about the organization's culture and values.

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Connect people to the big picture. Hay Group Insight has done extensive research to identify the factors that determine employee commitment, drawing on data collected through employee-opinion surveys we have conducted in hundreds of organizations. Our findings suggest that employees' confidence in the ability of top management is among the most important predictors of turnover.

The relationship between confidence and retention should not be surprising. Today's employees recognize that their prospects for continued employment, career development and advancement are dependent on their companies' health and stability.

Increasingly in charge of their own careers, they cannot be expected to bind their futures to those of their employers unless they are confident that their companies are well managed and headed in the right direction.

Identify growth and development opportunities. Employees are increasingly aware that they are responsible for managing their own careers and that their futures depend on continuous elevation of their skills. If employees are not expanding their capabilities, they risk compromising their employability -- within their current organizations or elsewhere.

Accordingly, opportunities for growth and development are among the most consistent predictors of employee commitment. To retain key talent, potential career paths for employees need to be clearly identified, especially early in their tenures with the organization.

Strengthen supervisory relationships. An individual's supervisor plays a critical role in determining his or her career path within an organization. Through coaching and regular performance feedback, supervisors can help employees identify developmental needs and enhance their skills. Supervisors also often serve as mentors for their employees, helping them understand organizational expectations and develop supportive networks. Finally, supervisors play an important role as "sponsors" for their employees. Supervisors are in a position to help employees secure additional responsibilities or get promoted by "talking them up" to others in the organization or helping them "work the system."

Hay Group Insight employee-opinion norms suggest that many employees are not getting the advancement-related support they seek from their supervisors. Only 53 percent of non-management employees, and just 57 percent of managers, consider their supervisors to be doing a good job of counseling them in their career development.

To keep more of their best people, most companies would do well to focus managers on the need to attend continually to the development of their employees.


Demographic trends as well as competitive pressures suggest that the war for talent will continue well into the future. Indeed, Bureau of Labor Statistics data suggest that the pool of U.S. workers between the ages of 35 and 44 will shrink by 7 percent between 2002 and 2012.

We have outlined a three-phase approach to developing retention strategies. But when it comes to retaining valued employees, perhaps the most important advice is this: Listen carefully. Your employees are remarkably willing -- even eager -- to talk about their career needs. And embedded in their responses are the solutions for keeping attrition under control.

Mark A. Royal is a senior consultant with Hay Group Insight -- the survey research division of Philadelphia-based global consulting firm Hay Group. He works closely with clients in all aspects of survey projects, from initial planning and design through the effective use and communication of survey results.

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