By Deborah L. Kerr, Ph.D.
Think about the last time a valuable employee left. The person everyone counted on to solve problems and soothe customers. The one who was really trusted. The one who hung in through belt-tightening, cutbacks and relentless requests to work harder, work smarter or just plain work longer. That employee.
How much did that loss hurt business? And how much did it cost?
As U.S. economic growth continues, small and medium sized businesses (SMBs) should expect more employees to look for new job opportunities. A 2012 CareerBuilder survey found that 25 percent of workers plan to change jobs this year or next year. Employers, however, estimated only about five percent of employees were looking for jobs, leading to a turnover surprise . . . and the workers who leave first will be the best employees.
When an employee makes the decision to leave a company, it’s voluntary turnover. It is certainly part of normal business activity: Employees come and go as personal situations and life goals change. But when good employees leave SMBs, the impact can be significant.
If a company has 100 employees, losing one will have few immediate business effects. When a company has ten employees and loses one, that’s a ten percent drop in the ability to deliver goods and services. Few SMBs have enough employee bandwidth to cover the work or the financial resources to quickly recruit and fill talent gaps.
And, there are those actual dollar and cents costs of turnover. Researcher Marc Blatter found the cost to hire one employee ranges from 25 percent of the position’s annual salary for lower paid jobs to over 150 percent of annual salary for higher paid positions, so hiring one employee for a $30,000 position can cost more than $7,000! Costs increase as pay and responsibility levels go up. The big problem with hiring costs is the expenditures are invisible because they are not a line item in any financial report and no one cuts a check – some managers think turnover is free.
There are four major reasons good employees quit according to various research studies as well as the U.S. Small Business Administration. Some reasons are more manageable than others, but understanding them helps every executive make better decisions about hiring processes and tools, management practices and compensation decisions.
How to Keep Good Employees
There are four key actions helping SMBs retain good employees:
Hire the Right Person
The most effective way to improve SMB retention is to hire the right employees in the first place. Retention is better when there is a good match between the job requirements and employee strengths and when there is a good work culture fit.
Using pre-hire assessments is the most accurate and cost effective way to figure out which applicants are the strongest matches for the job. These specially designed assessments deliver predictive data about how successful a candidate is likely to be in the job and the company. Candidates can’t “fake” assessment responses like they can in an interview or on a resume. When using pre-hire assessments, choose one validated for use in hiring.
When advertising the job, give a “warts and all” preview. The job requires some weekend work? Include it. Loud work environment? Include it – don’t sugarcoat anything. This up-front honesty about job demands leads to better retention.
Be sure to emphasize the benefits of working in an SMB, too:
Make the Work More Interesting
When asked, “What are the top reasons you stay employed with your company vs. applying for a job at the competition?” the top reason employees give is job satisfaction. In a Cornell University survey of nearly 25,000 employees, satisfied employees said:
There are two aspects of job satisfaction: meaningful work and feeling good about being at work.
An employee finds work meaningful when there is a good match between job and person. In addition even routine work can be more interesting. Just ask employees for their ideas about how to adjust the work. Incorporating changes suggested by employees increases employee stickiness.
Good employees stay longer when they feel respected. Take time to talk to employees and really listen and use their ideas. Notice contributions. A comment like, “Thanks for getting me this information ahead of time – I’m better prepared for my meeting,” goes a long way. On the other hand, treating even one employee badly invites everyone to look for a better place to work. Have a manager who yells at employees because that’s the way she is? That will drive the best employees directly into the waiting arms of competitors and cost thousands to hire replacements.
Pay is not the most important factor in the employee’s decisions to quit, but it is one of the top reasons in choosing to stay in the current job, according to the Cornell research. When compensation is relatively consistent with what other companies pay for similar work in the geographic area, combined with job satisfaction, employees are likely to stay rather than accept another job offer.
SMBs cannot always match the pay of larger companies, but the closer pay is to market rates, the less likely the employee will think about quitting, so get as close as possible. Think about other benefits that matter to employees and may not cost much, like flexible work options.
A flexible work schedule is a key reason employees stay with their current organization when offered employment in another organization, according to Sunil Ramlall’s research. Flexible work options improve employee satisfaction and productivity while helping to reduce absenteeism.
To support flexibility, SMBs can give team members the responsibility for setting their own work schedules as long as they are within business requirements. Managers can handle scheduling requests on a case-by-case basis or cross-trained employees could “trade” work hours among themselves to meet both business and personal demands. The key is to be as flexible as possible in meeting business needs.
Everyone knows keeping the best employees delivers a competitive advantage for SMBs. When employees stay long enough to deeply understand the business and its customers, they can figure out how to produce more or serve clients better, faster, and even cheaper. While a competitor can rather easily copy business processes and products, it is never easy to duplicate the knowledge and skills of good employees. It is worth keeping the best employees and a few targeted actions lead to a more stable, capable workforce and better SMB bottom line performance.
Deborah L. Kerr, Ph.D. is the co-founder of Austin-based Affintus, a software as a service company helping managers make better hiring decisions by matching applicants to jobs.
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