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Retaining talent requires multifaceted approach, commitment from the top

Published in the Rochester Business Journal

At this moment, as many as three-quarters of your employees may be looking for a new job, either actively or passively. And, as the economy generates more opportunities, forecasts suggest this trend will continue.

In a poll of nearly 500 employees conducted recently by and reported by the Society for Human Resource Management, 41 percent of respondents admitted they are actively searching for a new job, while 35 percent considered themselves passive job seekers. While money is often cited as the reason employees look elsewhere – and competitive compensation is indeed important to retention – research shows that an employee is just as likely to leave a job because of stunted career opportunities or clashes with a boss.

While some may be alarmed by these figures, successful employers know that, if their companies are to maintain a competitive edge in this knowledge-based economy, they must attract and retain exceptional talent. And to retain those top producers, employers must look well beyond pay and benefits – which, in the current economy may be difficult to significantly boost anyway – and must treat employees much as they do customers. That means asking employees what they need and want, tapping into their innate desire to engage in rewarding work, and remaining flexible enough to offer to each employee the right blend of opportunities, rewards and workplace conditions.

It also means that senior management – not just the HR department – must live and breathe a commitment to taking all the steps necessary to keep its workforce loyal, motivated and productive.

The costs of turnover

While some senior executives believe turnover is good, and keeps most employees at the lower end of the pay scale, experts warn that both tangible and intangible costs are typically underestimated.

Incentive Marketing Association reports that hiring and training an hourly worker may cost 300 to 700 times the worker’s hourly wage. And estimates it costs a company two to three times more to replace a worker than to keep an existing one, even when the new employee is more productive.

But recruitment and training are far from the only costs. What about the loss of productivity endured when an employee remains on the payroll but is thinking about his or her next job, or when others must step up to fill his or her shoes until a replacement is fully up to speed? What about the customer service acumen and technical expertise that walk out the door when a long-time employee resigns?

Frederick Reichheld, a director of Bain & Company and author of “The Loyalty Effect: The Hidden Force Behind Growth, Profits, and Lasting Value,” writes that “the turnover tax on corporate earnings, although invisible in most accounting systems, is larger than any state or federal tax.” For example, a trucking company that Reichheld’s firm examined found it could increase profits by 50 percent by cutting driver turnover in half.

Turnover varies by industry, of course. But even within one industry – grocery retailers, for example – employee longevity can vary significantly. In its 2005 Best Companies to Work For list, Fortune magazine reported that turnover ranged from 32 percent at Whole Foods to 6 percent at Wegmans.

In another study of a national food chain, stores whose employee retention rates were in the top 20 percent enjoyed 55 percent greater profit than stores whose retention rates were in the bottom 20 percent.

Such findings suggest that companies themselves, and even individual shops within a company, have a great deal of opportunity to influence employee loyalty.

Non-cash retention tools

Of 55 local businesses that responded to an informal survey conducted this month by HR Works, nearly 62 percent listed “pay and benefits” as one of the two most important factors encouraging employees to stay.

But while monetary tools such as bonuses and stock options can be important pieces of the retention puzzle, particularly when a merger or acquisition looms, most experts will advise against relying on pay and benefits as the only significant generators of employee loyalty.

Indeed, 49 percent of respondents to the survey listed “interesting and rewarding work” as among the top two factors. Thirty-three percent cited “excellent relationships between managers and employees,” and 31 percent credited “work-life issues such as child care, flextime, telecommuting, sabbaticals.”

Particularly for small businesses with limited resources, finding creative alternatives to spending money is essential and possibly more effective. Taken together, such alternatives often signal a culture that attracts and retains the most talented employees – and the most loyal customers.

Great employers earn loyalty by:

  • Learning what employees think, and acting on the information. Exit interviews can yield valuable insight into the company culture and what creates dissatisfaction. But employers shouldn't wait until employees quit to solicit input. Employee surveys, town hall meetings and lunches with cross-departmental groups are among the ways that today’s leading employers get a pulse on their organizations.


  • Building strong manager-employee relationships. Technology has yet to develop a substitute for a manager who listens carefully, builds trust, makes a genuine effort to understand what motivates the employee, and provides support for the employee’s improvement efforts. More than any other reason, “relationship with boss” is cited in an employee’s decision to stay or to go.


    Among participants in the HR Works survey, nearly 53 percent cited “one-on-one manager-employee conversations” as the best means for pinpointing the strategies that will retain employees.

  • Being flexible. For many, telecommuting, flex-time, job-sharing and free-lancing options can work wonders and enable the employee to remain productive over the long term, particularly during child-rearing years. The technology is available, and experience has shown that good employees may become even better when offered more independence.


  • Providing rewards and recognition. People want to be appreciated for the work they do, regardless of how much they’re paid. Period. It costs nothing to say “Thank you,” and the rewards can be enormous.


While it’s clear that many employers struggle to strike the right balance of conditions that encourage employee loyalty, others say that the key to retaining workers is simply treating them well.

“We pay at or above average, have a strong benefit program and (strive) to treat every employee with respect,” says Bob Jacobson, Human Resources Manager at B&L Wholesale Supply. “We believe our people are confident they can bring any concern to management without criticism. I can't remember losing an ‘A’ player for any reason other than a family relocation.”

At Nixon Peabody LLP, which has twice made Fortune's 100 Best Companies list, “we have very little attrition, and that is due to our management team keeping their eye on the ball in training, interpersonal relations, comp, benefits (and) reward/recognition,” says Bill Simpson, Director of Human Resources. “People want respect and dignity in the workplace. They also want to be challenged in their work and participate in work dynamics and team involvement. Once you sustain that relationship, everything else is quite simple.”


© HR Works, Inc.

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HR Works, Inc., headquartered at 200 WillowBrook Office Park in Fairport (Rochester), New York, with an office in East Syracuse, is a human resource management outsourcing and consulting firm serving clients throughout the United States. HR Works provides scalable strategic human resource management and consulting services, including: affirmative action programs; benefits administration outsourcing; HRIS self-service technology; full-time, part-time and interim on-site HR managers; HR audits; legally reviewed employee handbooks and supervisor manuals; talent management and recruiting services; and training of managers and HR professionals.