In a down economy, employees have fewer opportunities to take a job at another company, but entrepreneurs would be remiss to take their fingers off the pulse of company morale simply because employees have fewer options. "Companies that don't think about [employee retention], that basically rest on their laurels and think 'the economy will take care of us, where are they going to go?' Those are the companies that, as soon as the labor market picks back up, their turnover rates are going to go from 5 percent to 50 percent and it will happen overnight," says Mark Murphy, author of The Deadly Sins of Employee Retention and CEO of Leadership IQ, a Washington D.C.-based executive education firm.
So what's one of the biggest reasons people quit their jobs? "One of the major reasons is being dissatisfied with their supervisor," says Linda Argote, a professor of organizational behavior at Carnegie Mellon and editor-in-chief of Organization Science. And in the cramped confines of a small business, that relationship can create even more of a strain. "In bigger companies there are more opportunities to move to other jobs if you're dissatisfied with a particular supervisor but like the firm, whereas smaller companies may have less options so they run the risk of losing the employee," Argote adds.
How to Improve Employee Retention: Motivation is Not Enough
Bonuses, vacation days, office parties, and many of the tools in a business owner's arsenal revolve around rewarding employees for a job well done and motivating them to produce similarly stunning results in the future. But Murphy says that leaders who dole out these types of perks are only focusing on half of the picture.
There are "two issues generally going on with employees at any given time: there are 'shoves,' things that demotivate people, and then there are 'tugs,' the things that motivate you, that tug at you to stay at the organization," he says. While these factors will differ for every employee, leaders often make the mistake of focusing on the motivators without adequately considering what rubs people the wrong way.
How to Improve Employee Retention: Keeping the Employee Satisfied
Even if you resolve to be more attuned to employee likes and dislikes, it can be difficult to ascertain what drives your employees especially when their motives differ from your own.
In the last 10 years, as CEO of Engage Direct Mail, Dennis Hoffman learned the hard way that "I never know what's inside people's heads. I used to assume everybody's ambitious because I'm ambitious and that everybody's motivated by money because I'm motivated by money, and I've learned through painful experience that that's not the case."
Despite Hoffman's self-professed learning curve, his company actually has a stellar retention rate for its 130 employees. Engage has a 90-day trial period during which they evaluate whether new hires are good fits for the company. During that time their retention rate is about 77 percent and afterwards it is over 95 percent, which is about as good as you can get. After all, "zero percent turnover is not a thing to aim for," Murphy explains. You want to retain your high performers and strong matches and gracefully part ways with your worst performers.
How to Improve Employee Retention: Attracting the Right Candidates
Over the years, Engage has implemented a number of policies that serve the dual purpose of attracting potential employees and keeping current ones passionate and committed. Here are a handful of examples:
- Engage gives hiring priority to people who live near the office because they believe that long commutes are detrimental to work-life balance.
- Instead of a traditional vacation policy, the company lets employees take time off from a leave bank, in which they can accumulate as many as 60 days off to use as they see fit. This policy has helped with employee retention, particularly by making it easier for female employees starting families to take time off and ultimately return to work.
- During the hiring process, Engage administers the DISC Personality test, which charts the four characteristics, drive, influence, steadiness, and compliance, to build personality profiles for new hires. All employees' test results are public knowledge, which Hoffman feels helps people understand one another and get along.
- By setting quarterly goals with rewards attached, such as iPods for the whole team or a trip to a nice restaurant, Engage can encourage employees beyond the competitive, and potentially divisive realm of salary bonuses. The group nature of these rewards is important, says Hoffman, because "somebody who is not motivated by getting an iPod knows that other people in his or her group are and doesn't want to let them down."
In addition to spurring employees to productivity, this team structure can make them happier in the workplace. Argote says, "there's evidence that being in cohesive work groups where members like each other reduces turnover."
How to Improve Employee Retention: Keeping in Touch
One reason CEOs of small businesses must remain vigilant against high turnover is that it impacts them more than their counterparts at larger companies. Argote notes that, "smaller companies are hurt by employee departures more [than larger companies] usually because a lot of their knowledge hasn't been formalized or embedded in processes and routines." But where small businesses fall down when it comes to institutional memory, they have a distinct advantage of giving employees greater access to the boss.
Murphy recommends holding monthly check-ins with every employee to see what is motivating them and demotivating them. This can give a CEO foresight into potential morale problems much sooner than he or she would ordinarily catch them. "Instead of getting two weeks notice when somebody is quitting, if you're doing these conversations regularly, you should get a minimum of four months notice if you've got a real problem with an employee, and that's just light-years better," he says.
While Hoffman doesn't meet with every employee individually, he conducts frequent all hands meetings to give employees a role in setting company goals and to stay in touch with what their needs are. Still, especially as your company grows, details of the employee experience will escape your attention, which is what the exit interview is for. It's the last line of defense against a bolting employee and it can sometimes yield surprising insights and reveal fixable problems.
For example, when Hoffman's head of accounting quit, everything was going amicably. She gave plenty of advance notice, she helped train her replacement, it was only at the exit interview that Hoffman realized why she was leaving. It had nothing to do with the company, she had simply grown tired of accounting and needed a new challenge. That was all it took and two months later, the employee returned to the company in a different department and she is now its head buyer.
How to Improve Employee Retention: Don't Burn Bridges
Though the adage that you join a company but quit a manager holds a lot of truth, as showcased by the above example, employees don't always leave because of a personal dissatisfaction with their boss or their company. But at a small company, it can easily feel like a personal slight when an employee leaves you in the lurch. Still, it's important to remain on good terms.
A lot of small businesses "make the mistake of doing the whole 'you're dead to me' thing when an employee leaves," Murphy observes, "if you part with people in a friendly way, you've probably got a new customer and a friend out in the industry."
Dig Deeper: What Should You Say When an Employee Quits
How to Improve Employee Retention: Leave Some Room for Error
Whenever you task an employee with a project, you want them to succeed right? Murphy poses the counterintuitive suggestion that if you only give assignments where success is assured, you're hurting yourself in the long run. If your employee is "not going to have to learn anything, probably the assignment you gave wasn't robust enough," he says. Pushing people out of their comfort zones and allowing them to develop new skills is also a key strategy for retaining your best employees.
And no job is too simple or mundane for a boss to give employees room to innovate. While employees might be suspicious at first if they've never been presented with such decision making power before, they will often not just adapt to, but thrive in, an environment that gives them additional control.
Murphy cites the example of a group of garbage men making the rounds in a planned community. Once their supervisor encouraged them to improve upon the existing methods for collecting garbage, one employee discovered a way to cut the route in half, saving both time and fuel costs. By carrying an empty can with him on his route, he only had to make one trip between the truck and each house instead of two.
- Leadership IQ is a Washington D.C. based firm that conducts research on leadership strategies and provides executive education courses on topics such as workforce issues and executive performance.
- Organization Science is a bi-monthly scholarly peer-reviewed publication covering a range of field including organization theory, strategic management, and communication theory.
- The Society for Human Resource Management offers courses and advice on leadership strategies pertaining to human resources policies.