The high cost of employee retention

"A retention strategy in the absence of an effective employee engagement strategy is not altogether dissimilar to marrying for money, and it’s unlikely to end in a happy marriage – from either side" Says Terri Brown.

Employee retention is a complicated subject, and one that I was motivated to revisit after a recent discussion with a friend who works for a very big and impressive blue chip company.

Following some brief chitchat , F began telling me how unhappy she is at work. Suffice to say, my friend had a very long list of reasons why she’s just not happy and, to be fair, most of them seemed valid. This begs the question: why stick around? If you’re feeling unhappy, unmotivated and unstimulated, why stick it out – surely it’s unproductive on both a personal and professional level?

When I asked F this question, her answer was pretty simple and rather compelling. The business in question has a very (very) attractive employee retention strategy. This includes long-term incentive bonuses, shares options, shares due to vest, and other golden handcuffs in every imaginable form. Which confirms the widely held belief that engaged employees stay for what they give, and the disengaged for what they get.

For years, employee retention has been considered a key indicator of employee satisfaction and engagement. And both logic and research indicate that the more engaged employees are, the more discretionary effort they put in…and the greater the value they create.

(Let me quickly illustrate the extent of this value. In 2009, Towers Watson, a global consulting firm, found that companies with engaged employees boosted operating income by 19% compared with companies with the lowest percentage of engaged employees - which saw operating income fall by 33%.)

Yet I can’t help wondering if perhaps some of the retention strategies in place are having the opposite of the intended outcome - leaving both parties handcuffed to each other in a dysfunctional relationship. We’ve all worked with a colleague who has tuned out and succumbed to the temptations of Farmville, walking the fine line between delivering enough to stay under the radar but only sufficient effort to meet the requirements of their job.

At the moment that’s where F is, and so in a sense you could say that the retention strategy is working…sort of. But having her position filled and relying on the retention strategy to retain her means that the opportunity to bring in some new blood, fresh thinking and energy is precluded. A position that would be more exciting and interesting is probably sitting open because it’s still two years until F’s shares vest, creating the perfect no-win situation.

The downside of this type of retention strategy is that it has very real bottom line impact on business performance. According to a Gallup poll, engaged employees in the UK take an average of 2.69 sick days per year, compared to disengaged employees who are taking off an average of 6.19 days per year – over twice the number of days of lost productivity.

A retention strategy in the absence of an effective employee engagement strategy is not altogether dissimilar to marrying for money, and it’s unlikely to end in a happy marriage – from either side. And with indications of another wave of global sado-economics, the likelihood of retaining under-performing employees looking for economic refuge in wobbly financial times are likely to increase employee stickiness.

Towers Watson 2010 Global Workforce Study that indicates ‘Job mobility is at a decade-long low point, and many are sacrificing career growth for a secure job’ supports this trend. Good news if you’re simply looking to retain employees, bad news if you’re looking to retain engaged employees.

There may be something to be said for having a more rigorous employee engagement strategy and a not-very-robust employee retention strategy, allowing companies to retain those employees who are engaged and committed - and release themselves from those who are merely treading water. Given the significant cost of employee attrition (loss of productivity, advertising, recruitment and training costs), estimated by Mercer to be between 50% and 150% of annual salary depending on the role and level of seniority, it makes sense to focus on retaining employees. But the mechanism must ensure that the employees retained are both happy and productive souls.

Businesses will often recite impressive employee retention statistics, but as Andrew Lang famously said, ‘he uses statistics as a drunken man uses lampposts – for support rather than illumination’ - and a second glance at employee retention stats may shed light on an alarming trend - too many retention programmes amount to little more than bribing unhappy employees to stick around.



By Terri Brown, Director at Actuate employee engagement specialists

Article Menu Categories: