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The research on strategies for improving retention presents a clear picture that a focus on retention through employee engagement strategies is going to be as least as important or even more critical than recruiting new employees in a continuing tight labor market. It's a challenging employment scenario developing for 2023. Many employees received raises in 2022, but many aren't likely to obtain what they want in 2023. Inflation continues to exceed wage increase rates, so any increase below that rate is the equivalent of a pay reduction. Employees want flexible work schedules or full-time remote work, but many are now expected to return to the workplace a certain number of days on a schedule that may or may not fit their personal lives. Labor unions are agitating the labor market with the help of a pro-union Biden administration and the National Labor Relations Board, but employers do retain their NLRA rights. Job applicants and employees consider work relationships one of the most valuable assets for happiness and success.
So many factors are at play now and getting more complicated in 2023, making a focus on improving retention critical to thriving in the current environment. Closing labor gaps is no longer primarily about whom you can recruit. It's equally about whom you can retain.
The labor market remains tight going into 2023. As of October 31, 2022, the Bureau of Labor Statistics reported 10.3 million job openings still existed, and turnover remains high. There are different kinds of turnover.
In a labor market where the quit rate is 2.6 percent and millions of employees leave their jobs for other opportunities, turnover costs are high. The cost of turnover includes the cost of the following:
There is also a negative impact on the organizational culture and employee morale. The cost of turnover varies based on the type of position. For example, the turnover costs for an hourly employee are less than for a supervisor or management position. However, all turnover costs are expensive, and most calculations don't consider all the costs, like lost customer sales or lost productivity.
Express Employment Professionals commissioned a Harris Poll survey on turnover costs. Following are some of the findings.
The Bureau of Labor Statistics says the median employee tenure is 4.1 years. Tenure was higher among older workers (9.8 years) compared to 25-34 years old (2.8 years) workers. Employees who have been with their employer for a year or less are called short-tenured and consist of new hires, job losers who found new jobs, and people who voluntarily changed jobs. The highest tenure was in manufacturing (5.2 years), and the lowest tenure was in leisure in hospitality (2 years). Workers in all the service occupations are younger employees and had one of the lowest median tenure rates by occupation of 2.8 years, with food service workers the lowest at 1.6 years.
As Midlands Technical college discusses, many organizational leaders underestimate the cost of turnover. The discussion points to Gallup estimating a cost of $1 trillion each year for voluntary turnovers in the U.S. Consulting firms generally find turnover costs range from $3,500 to $10,000 per employee, but these figures only include items like overtime, lost productivity, and training. They don't consider the costs that are more difficult to measure, like the cost of decreased employee morale, lost opportunity costs, and the time that management must spend on integrating new hires into the workplace. These costs can easily double the estimated per-employee turnover costs. For non-hourly employees, turnover costs one to two times their annual salary.
It takes an average of 42 days to fill a position and up to six months or longer to break even on the investment in a new hire. It is less costly to retain employees. Not only does employee retention cost less in terms of dollars. A high employee retention rate helps your company maintain a positive organizational culture and reputation, and you keep the most experienced and knowledgeable employees. Many of the employees most likely to voluntarily quit are those who can most easily find another job because of their qualifications and experience. In other words, they are often your best employees.
When you understand the reasons for high turnover in today's workplace, it's easier to address retention. A company may have a training and development strategy, a flexible schedule strategy, or an employee engagement strategy but not a retention strategy. A retention strategy addresses talent management from recruitment marketing to internal employee engagement.
There are several parts to a retention strategy. Of course, you must first identify the reasons for turnover in your organization. Some elements of the retention strategy are based on labor market conditions, and others focus on the reasons employees are leaving your organization. We broke down the process for increasing retention in 2023 into five parts for ease of discussion. These five parts embrace all the steps in a successful talent management process which promotes retention.
Recruiting talent is more than a standalone administrative process. It's a marketing effort with implications. Successful recruiting of desired talent can increase retention. In fact, recruitment and retention are directly linked, so there is a caveat. Your recruitment marketing should reflect what is true about your organization, the workplace, and the job. Potential employees are attracted to employers who present their brand as authentic and realistic, but how do you do that in an age of labor union negativity and general labor market distrust of employers? Following are some suggestions.
Notice that recruitment marketing is an internal and external effort. We could have said, "sign up with a staffing agency," "advertise online," or "write a good job description," but job searchers are looking for more than a job advertisement. Recruitment marketing is only as effective as the authenticity of what is being marketed.
In the connected world, potential hires will read social media and reviews of the workplace. If your employees are saying negative things about your company, leaders, or workplace, the company's recruiting marketing is negated as misrepresenting the brand. From this perspective, developing a positive employee experience is a recruitment and retention strategy, and the employee experience becomes part of the Employee Value Proposition for job candidates.
A bad hire can increase total turnover costs! The supervisor or manager has to invest more time in managing the employee, an increased burden is placed on coworkers, and there are negative consequences like poor customer service and lower productivity. A bad hire is more likely to find fault with the company because the person is never fully engaged or becomes actively disengaged, which can lead to union organizing, grievances, or Unfair Labor Practice charges. Eventually, a bad hire will either promote unionization, leave, or have to be terminated.
Hiring the right employee can increase retention because there is a good fit. You put the right people in the right roles, and your leaders give them the kind of work that keeps them wanting to continue working for the business. Job candidates today look for positions with personal and work value and want a purpose to their work. This is true for managers as well as hourly workers because satisfaction with work and services provided to the company and its customers applies to all. When talking to job applicants, let them discuss their personal goals and how they believe their knowledge, experience, and skills will enable meeting personal and work goals.
Some guidelines for hiring the right people and improving retention include:
Structuring the retention strategy includes developing a structured onboarding process. For example, it can consist of preboarding new hires and assembling a team of coworkers and managers who collaborate with the new employee to ensure the person understands their role and to promote a feeling of belonging and commitment from the start. Some companies pair a new employee with a buddy who is a company ambassador and can answer questions the new person may have.
What did you tell the new hire about the workplace and things like advancement opportunities, collaboration, employee voice, etc., during the recruitment marketing? What does the new employee need to know to be as productive as possible as soon as possible and to assimilate as quickly as possible? Is your onboarding process structured and strategic?
The onboarding process is an engagement process because it helps employees become productive, knowledgeable organizational members as quickly as possible. Research by multiple companies, including Gallup, Glassdoor, and Brandan Hall Group, has consistently found a strong link between the onboarding process and improving retention.
BambooHR found that effective onboarding led to employees feeling 18 times more likely to be committed to the organization, 91 percent feeling a strong connectedness at work, and 89 percent feeling a strong integration into the culture.
Onboarding is a socialization and performance process. It's not just about sharing benefits package options and completing required forms. It's also about helping new employees understand their roles and responsibilities, meeting coworkers, and learning company policies and procedures. Just as importantly, it's also when the new hire acclimates to the organization's culture. The onboarding process is a process that engages employees and managers, so it's also a feedback process that demonstrates caring for the employee's efforts to become a fully productive and comfortable member of the team. The onboarding process can include the following:
Your leaders should use onboarding as a time to engage the employee in conversations about the company's brand, advancement opportunities, performance expectations, recognition and rewards, team collaboration, job autonomy, and other topics that workers today are interested in and the reasons they accept positions with particular organizations.
Job skills requirements are a moving target today due to changing technologies. The OECD estimates that 1.1 billion jobs will be transformed by technology by 2030, so workers need regular reskilling and upskilling to keep skills current. The World Economic Forum developed the Reskilling Revolution in response, and a number of U.S. partners are participating. Many factors influence retention, and training is one of them. Though the Great Resignation has slowed a little, employee turnover is forecasted to continue being higher than experienced pre-pandemic. Gartner research estimates that "new skills per role are increasing by 6 percent annually, while 29 percent of skills hired in 2018 are expected to be irrelevant by 2022."
Emma Phillips, division vice president of HR at ADP, said her company combats turnover by prioritizing learning and development. Providing employees with the learning opportunities to do their job function well, afford them a chance to grow and expose them to new experiences and opportunities, as well as explain the purpose of how their work ties to the broader company strategy, are all critical steps to retaining your talent."
She goes on to say that developing leaders is even more critical, so they are equipped "…with the tools and training to check in regularly with each member of their team. Leaders must understand their employees' strengths, and they should empower them to give their employees an opportunity to do more of what they love. Leaders are the single most powerful lever that influences talent attraction and retention and helps employees navigate their own personal challenges."
The Prudential Pulse of the American Worker Survey found that 46 percent of workers say they need to learn new skills, and 53 percent would retrain for a different job opportunity. In a tight labor market, it's easier for employees to leave for a company that provides skills upgrading and develops skills faster. Providing employee training also demonstrates that your organization recognizes the employee's value and is willing to invest in the employee's future.
Compensation was a hot topic during the pandemic and through 2022. The labor unions used compensation as leverage to gain the attention of non-union employees and to prove they bring benefits like higher pay to people paying union dues. The trigger point was the pandemic when "essential workers" had to work in hazardous conditions. Companies paid hazardous wages in many cases but eliminated the extra pay when the pandemic was considered over. During this same time, workers, especially those in lower-paying jobs, became activists for higher pay which led to many unionization efforts. Compensation is also a major topic because inflation is the equivalent of a pay cut.
A Workhuman poll of 1,000 employees found that 47.7 percent want a raise or a promotion in 2023. Since there are 1.7 open jobs for each unemployed person, employees will continue to have some leverage concerning pay. If unhappy with the pay or career advancement opportunities, they will either start a union organizing campaign or leave. The Workhuman poll found that 60 percent of employees feel they are not valued or only somewhat valued.
One of the unknown factors for 2023 is a possible recession. The Workhuman poll found that 62 percent of workers are worried they could lose their job if a recession develops. During periods of layoffs, employees are less likely to get significant pay increases.
But compensation consists of pay and benefits and other perks. Standard benefits packages will give way to more tailored benefits that are a best fit for workforce characteristics. For example, if you have a lot of younger workers with student loan debt, you could offer a program that helps them pay off that debt sooner. Evaluate your total rewards package and leverage internal marketing to make sure your employees recognize all the benefits offered.
A 2022 Gallup survey found that 56 percent of employees are less likely to look for new job opportunities when they feel recognized. Yet, only 19 percent of employees believe they work in an organization with a strong recognition culture. Recognition has always been important, but the working conditions during the pandemic and the increase in hybrid and remote work arrangements have made employee recognition even more critical to improving retention.
In addition, millennials and Gen Z employees want frequent recognition from their managers and peers. Gallup's survey of employees found that only 26 percent said they received similar amounts of recognition as other team members with similar performance levels. The implication is that many employees may believe their supervisors or managers are playing favorites. Black (19 percent) and Hispanic (21 percent) employees were the most likely to perceive recognition as inequitable. Based on these results, inequitable recognition is not just an engagement issue. It is also an inclusion and belonging issue and an employee experience issue.
Structuring recognition means making recognition a part of the employee's workflow. It's more than supervisors giving pats on the back or even installing a recognition program. Your organization wants to structure recognition so that it's in alignment with the organization's culture and values as well as meeting employee needs. Different types of recognition include monetary, social, peer-to-peer, and supervisory or management. The recognition process should:
Structured recognition processes also include measuring outcomes. You can't determine the effectiveness of recognition unless you measure results. The one thing your leaders should not do is rely on a self-supporting recognition system as the only path for employee recognition. Your tech-based recognition and rewards system should be enhanced with leaders skilled in giving employees a voice, applying best practices like conversations with employees to obtain and give feedback, recognizing productivity and effort, and encouraging peer-to-peer recognition.
It's time to reinvent exit interviews to shed light on retention. In the past, exit interviews were approached with a negative perspective, and employers used them as opportunities to find out what employees didn't like about the company. Yet, exit interviews also enable discovering the positive things. People leave their employers for more reasons than lack of engagement or dissatisfaction with leadership. In fact, the Work Institute analyzed 17,000 exit interviews and found that 63 percent of employees rated their supervisors as excellent or very good. The recommendations for effective exit interviews include the following:
Do you really know what motivates your employees? It might be compensation, but it might be something unrelated. As Roger Martin discusses in The Real Secret to Retaining Talent, feeling special is more important to talented employees than compensation. Talented people always have options, want their ideas heard, like a voice in decisions, want to advance and continually learn, and want individualized recognition. How your employees view their roles, contributions, and the business is discoverable through employee engagement surveys. What you learn through the surveys is used to increase retention.
Exit interviews are important, but you should also conduct stay interviews to identify the reasons people remain with your company. These interviews show that your leaders care about their employees, build trust, and want employees to have a strong voice. Every type of position is eligible for a stay interview, i.e., employees in call centers, healthcare, manufacturing plants, food service, retail, tech, etc.
Always collect data too, and use data analytics as drivers for decision-making. Employee engagement surveys include in-depth periodic surveys and regular pulse surveys. The surveys should cover the employee's entire lifecycle from recruitment and through employment.
One of the new approaches is offering a software platform that employees can use to give feedback whenever they want, rather than waiting for the employer to conduct a survey. Automated surveys can enable employee sentiment analysis in which employee opinions, perceptions, and feedback about the brand and workplace are captured and measured. What is your employee's attitude toward your business and the workplace? Engagement surveys can help your managers discover opportunities for professional growth, identify employee achievements, and develop a better employee experience.
All of the things just discussed concern various strategies and tactics to improve employee engagement. Money is important, but it's only one factor. In fact, you can give employees a raise, and they still "quiet quit." What people want today is a better employee experience, and developing strong employee engagement is a critical step in developing overall positive employee relations.
Good employee engagement helps retain workers. There are many different ways to increase employee engagement.
Help your employees believe in their importance to company success. Employee engagement helps employees realize their value and opportunities, so many reasons to leave are far outweighed by the positive aspects of employment with your company. Leadership training is crucial to developing leaders who understand how to engage employees. It's also important that your leaders develop proficiency in labor relations too because labor unions are expected to ramp up their efforts to become divisive influences in workplaces while there is a pro-union government.
Following is an IRI Consultants case study that demonstrates employee engagement's positive impact on retention.
A company with several product lines serves domestic and global customers. Over time, the company began focusing on market share instead of employee relationships. Supervisors were expected to meet production quotas, and their bonuses depended on successfully meeting goals. Employees began to feel less engaged, and retention rates fell to 74-80 percent over several years. The low retention rate was costing the company $20 million per year. At the same time, the workforce demographics were changing due to an influx of immigrants. Their non-English languages complicated communication between employees and management.
Employee engagement surveys confirmed what was going on. Employees were unhappy, apathetic, and lacked morale, and they believed their employer didn't care about them.
To address the issues and develop a plan to improve employee engagement, IRI employed a variety of tools. They included evidence-based decision-making, people analytics, and supervisor training. Employee engagement data was gathered and analyzed to establish a baseline for current employee engagement. Employees were also confidentially interviewed and included in discussions concerning creative and authentic solutions via focus groups. Employee online surveys captured the daily experiences of employees and how they interacted with their supervisors. The survey questions revealed that only 38 percent of respondents felt valued as an employee.
Working with management to change the mindset of leaders and employee perspectives led to significant improvement in employee attitudes about the workplace and management within 12 months. For example, data showed that 38 percent of employees felt valued in 2018 and 64 percent in 2019. IRI trained all leaders, including frontline supervisors, in employee engagement and how retention is improved.
No matter how low your current employee retention rates are, IRI Consultants can help your leaders improve employee engagement through various evidence-based approaches. A methodical strategy is designed that incorporates an in-depth analysis of employee perceptions and beliefs about their employer, giving management a clear path to building solid employee-supervisor relationships that are sustained at the frontline.
With over 25 years in the industry, and now as IRI's Director of Business Development, Jennifer has gained a unique perspective on what it takes to build a culture of engagement. By blending a deep understanding of labor and employee relations with powerful digital marketing knowledge, Jennifer has helped thousands of companies achieve behavioral change at a cultural level.