Employee Retention: A Discussion Model

By William A. Howatt, Ph.D., Ed.D., Post Doc Fellow UCLA, MBA(c)

One of the greatest challenges in today’s business world is to stay up to speed in a time of
technological growth. Companies spend billions of dollars to stay on the cutting edge. As we
hurl ahead at an increasing pace in the area of technology, we are unfortunately facing an
increased shortage of highly skilled employees. Employee retention is a concern for companies
in this strong job market. There are a great number of employment opportunities for talented
professionals. The higher skilled the employees, the greater the demand for their services. Also,
the workforce is not growing as fast as it once did. The axiom of trimming the fat and keeping
the healthy part of the cow continues to be a serious challenge. The cost to replace an employee
is becoming more documented and the news is not good for employers. It costs a great deal to
replace an employee.

For example, review this clipping entitled: WORKFORCE GROWTH SLOWS, AMA'S 13TH
ANNUAL WORKFORCE SURVEY shows More Hiring, More Firing, More Companies
Doing Both at Once; Corporate Restructuring and Reengineering Result in Both Job Cuts, and
Additions NEW YORK, October 26, 1999.

As more companies hire, fire and do both concurrently, the overall growth of the workforce is
slowing, according to the findings of the American Management Association's (AMA) 13th
annual survey of the U.S. workforce.

The survey of 1,192 large and mid-sized firms shows that staffing increased by an average 5.0
percent in the twelve months ending in June 1999, compared to 7.7 percent in the prior twelve
months.

Of those surveyed, 77.2 percent reported creating new jobs, up from 72 percent in the previous
twelve-month period, while 49.6 percent eliminated jobs, up from 40.9 percent previously.
Actual downsizing, or net reductions in the workforce, rose to 24.1 percent of the surveyed
companies from 21.9 previously. Many job cuts were offset by concurrent hiring: 36 percent of
surveyed firms both created new jobs and cut existing jobs in the period, up substantially from
27.1 percent previously.

Above is an example of the difficulty for companies to find balance in the area of the PEOPLE
FACTOR. Employees are seeing and hearing a clear message “If we need you, please, please
stay. If we do not, here is the security guard to escort you out.” The juggling act of cutting the fat
and keeping the good staff is complex. Staff morale is a huge variable that will determine success
of a company and how close it will come to achieving its full profit potential. Thus the company
is wise to study the topic of employee retention very carefully.

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 The objectives of this employee retention model are as follows:

1. Define employee retention.

2. Offer suggestions to increase employee retention.

3. Provide a method to evaluate potential risk factors that may jeopardize employee
retention.

4. Discuss how we address this issue in a corporate environment.

5. Design interventions that will increase employee retention for that specific company.

6. Measure program success via follow-up activities.

In today’s economy, the bottom line in business is profits. Where do the profits come from?
From sales of services and/or products. We have developed the following acronym (ECP) that
explains how companies will increase their profits.

E— Employee retention and employee satisfaction. When you have satisfied employees (who
are not caught up in the quagmire of bureaucracy and leave), they are more able to help the
customer.

C— Customer retention. The more effective the customer services the greater the customer
retention.

P— Profit.

The equation is simple from this point on. When we keep customers that are satisfied, and
continue to add more, the corporation has increased the likelihood of increased profits.

Employee Satisfaction + Customer Satisfaction = Increased Profits

To have satisfied and effective employees, they must want to be in the workplace. There are no
‘silver bullets.’ There is no one model that will work for all situations. It is important to seek to
understand the needs of the corporate vision, as well as the needs of the employees, and work to
align them to create an environment that is synergistic and on course. With all the competition
and world change, companies need to be proactive and are advised to follow the Japanese word
kaizen (consistently improving—a never-ending process). For example, a company’s vision
needs to be a living document that continues to improve and grow as the company grows.
NOTE: This Employee Retention Model will be supported by the theory of Emotional Ergonomics – see
article at the end of this text.

True Cost of Employee Turnover

1. According to the American Management Association, the cost to replace an employee who
leaves is, conservatively, 30 percent of their annual salary. For those with skills in high
demand, the cost can rise to a frightening 1.5 times the annual salary to replace them

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 2. Research of the most profitable companies in America indicates that happy employees
produce more, and are less likely to leave. The company’s ability to retain the kind of
workers wanted and needed has a direct impact on its profitability and effectiveness. The
costs are both direct and indirect. There are the direct costs to recruit and train, and even
greater indirect costs in loss of productivity. Less obvious are the costs of maintaining morale
when there are change and threats of job cuts. Imagine, in a bank which is employing 1,000
people at an average of $10/hour and with a moderate turnover rate of 10 percent, the
annual impact on profits is a staggering $840,000. How does this affect the bottom line of
profit?

3. Report from 1999 AMA Human Resources Conference Onsite Survey—352 respondents

SECTION I: RETENTION AS ISSUE IN ORGANIZATIONS

1. The current availability of skilled manpower in the industries or fields from which
respondents recruit:
2.6% Abundant supply
35.2% Adequate supply
60.2% Scarce supply
2. Long-term availability (through the year 2001):
2.0% Abundant supply
29.3% Adequate supply
66.2% Scarce supply
3. Significance of retention for respondent organization:
46.0% Very significant
27.6% Significant
15.3% Somewhat significant
7.1% Hardly significant
0.9% Not at all significant
4. Current concern about retention compared to last year:
23.3% Far more concerned
40.6% More concerned
28.1% Equally concerned
4.5% Less concerned
1.1% Far less concerned
5. Expectation of importance of retention next year as compared to current importance:
23.6% Far more important
41.2% More important
26.4% Equally important
4.3% Less important
1.1% Far less important
Rationale for Turnover:
Employee turnover is always going to happen. The purpose of this Employee Retention Model is
to increase the likelihood that an employee will stay. In other words, work to find out what is

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 not meeting the masses' needs, and work to correct that. The result will be loyalty in the
workplace. The paradox is that many companies are still cutting positions, though they are at the
same time trying to keep the workforce they have.

Research shows the following three challenges for keeping employees:

a) Employee feels respected and valued.

b) Employee perceives they are being paid well and have a bonus plan.
c) There is growth within the organization for advancement.

Following are other observations of what contributes to staff turnover in many workplaces:

1. Employee does not believe that they have been given the tools needed to do the job.

2. There is a lack of trust in the workplace. There is too much of a survival of the fittest
mentality bred into the culture and the environment. The result: the fear factor is high
which, suppresses creativity and increases stress.

3. Employee is unwilling to change with the company's vision. They feel betrayed or for
whatever reason they want to take another path.

4. Confusing reward and bonus systems that do not recognize what they were intended to.
People are getting rewards for wrong reasons, such as favoritism, not productivity.

5. Employees feel unappreciated and there is lack of meaningful feedback and information
as to what they are doing. Many employees know that they need to be responsible for
their own career planning, though it is still important for employee sto be acknowledged
for what they are doing that is proactive and positive. No one is to be taken for granted;
we are all still human.

6. Cultural insanity—the company front line is out there, but behind the scenes no one
believes. This environment type is so confusing that employees forget what they are there
for, and often lose their job passion.

7. No vision for the employee to follow. Or the vision is a crisis-to-crisis view with the
emergency of the day as the focus. This creates a great deal of second-guessing and
wondering what the employee is supposed to be doing.

8. Employee is unclear or unmotivated to obtain the company's goals. The corporate goals
are not in line with the employees’. It is important that all employees be responsible for
their own goals, so that they can build them to be congruent with the company's.

9. Employees do not get a sense of what their role and expectations are.

10. Employees have poor leadership. Employees want to be led. Leaders lead by example
and role model. Executives’ customers are their employees. They need to model for them
how they want them to treat the customer. The customer is the one that drives the
profits.

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 11. Employees will not stay if they are not involved in decision making, especially if it is in
their area of expertise. They see themselves as devalued in this case.

12. Employees will leave due to personality conflicts. The number one reason employees
leave is not money; it is conflict with their direct supervisor. Most personality conflicts
are rooted in poor communication and a lack of communication skills focused on
achieving agreement.

13. Employees find the job is meeting their needs, but another area of life is in need. For
example, they feel that they cannot balance home and the demands of work. Many
talented people are looking at balance vs. money and stature.

14. Employees leave because of poor management practices. We must manage systems and
we must lead people. For example, when management is cutting staff, many will take the
stance, “I am next,” or ask, “Am I going to be next?” People in turmoil will sometimes
want to jump ship in an effort to maintain self-preservation.

15. Employees do not see any opportunities to grow and advance in their positions; they feel
boxed in.

Value of Employee Retention Model

An Employee Retention Model is a philosophical and newly touted theory. It states that to keep
employees, we must understand what they like and do not like. What they do not like we need
to address, focusing on the masses’ needs. We work to meet the overall big picture first. Once we
have the process in place, we have more chances to help employees meet their individual needs.
We can never satisfy all employees, but if we have a workplace that is driven to help all team
members feel good about what they do, employees will more likely want to stay in this culture.
For example: the SASS Institute in Raleigh, North Carolina—the staff loves to work for this
employer. They believe in taking great care of their employees. The result is employee retention
is high and profits continue to soar. Why? Because it takes time to build strong teams. This
company understands this, so they want to create an environment where people want to stay.
Employee turnover will continually slow the formatting of teams and eventually maximum
performance.

All teams of people go through four stages of the group adaptation process before the team will
work to its potential: (Tuckman in the 1970’s)

1. Forming – group is starting to deal with each other and minimal work gets done.

2. Storming – group is starting to address internal conflicts and is are sorting out and
negotiating to just get along. Work is still minimal.

3. Norming – group members are accepting their roles and are clear of their expectations.
They know what they can and need to do. Safety is high so the corporation is
functioning highly. Each member of the team is much more willing to help each other.

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 4. Performing – group members are all working independently, doing their jobs to
maximum potential. The team is performing at an outstanding level. The team has
learned how to increase productivity, make decisions, share resources, and create
independent satisfaction.

If there is a great turnover in staff, many teams are always in the first two phases of the Tuckman
model. The goal is to get as many teams in the workplace as possible to the FOURTH PHASE of
PERFORMING.

Some of the obvious values of having an Employee Retention Model:

1. Increased ability to find out how to increase employee satisfaction.

2. Increased employee satisfaction will increase employee retention.
3. Reduced costs of recruiting.
4. Increased customer service and profits.
5. Keeps the talent pool deeper. The very talented are less likely to be motivated to leave
just for money when the workplace meets their needs and they see a positive culture.
6. Increased loyalty in employees when they know the employer is interested in their
perceptions and values.
7. Increased company effectiveness. When implementing employee retention programs,
companies discover their employees have many valuable suggestions to increase
efficiency.
8. Provides a venue to offer staff valuable training to help them balance work and home to
reduce their stress levels.
9. Enhanced communications in the workplace
10. Helps the leader of the organization see if employees have bought into their vision, and
if not, what concerns and issues must be addressed. Knowledge is power and sometimes
very helpful when employees are given knowledge of what is happening and why so
they feel empowered. Knowledge helps prevent hallucinating the worst.
11. Increased clarity in the workplace. The business is a living process, and it is not good
enough to adhere to a static set of goals; employees need to know the day-to-day
changes in direction. It is important that employees have a process where they are
obtaining clarity on a daily basis (high priorities, accountability, strategies to overcome
barriers, conflicts with others need to resolved, leadership needs to adjusted to meet the
needs of the day, daily evaluations of communication and ways to improve both inter-
and intra-communication). This is the legacy employee retention models want to leave
behind: the ability to obtain clarity.
12. Increased team building and self-leadership, so more employees can take responsibility
for themselves and work more effectively as part of a team.
Breakdown of Employee Retention
The following section is a breakdown of things to consider in increasing employee retention.
This providesan overview of where we see concerns that represent the origin of employee
turnover.

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 E— Evaluate what is happening in the workplace on a continuous basis to ensure that the staff is
satisfied with the leadership, vision, operations, and management styles.
TIP – The following methodologies are a few examples of how to stay in touch with the employee’s
perceptions: focus groups, 360-degree feedback, surveys, staff meetings, mentoring programs, and in
house coaching programs. As a great side benefit, it will keep the company abreast of who deserves
rewards and recognition. For many employees, all they need to hear is “thank you” for a good day of
work. Rewards do not always mean money or benefits; many times some kind of acknowledgment is
enough. The ultimate goal is for the company leaders to have their pulse on what is REALLY
happening out in the workplace; it is too often miles apart from what they THINK is happening.
M—Management goals are well defined. The goals must include the effective balance of four
independent and important domains: Operating Systems, Products, Services, and Staff (People).
TIP – Management must ensure that the people are supported with effective training and
tools so that they can stay current in the ever-changing workforce. Employees today also
need to have employers who are aware of the importance of home life. It is not possible to
separate the employee from their home. The young MBA “crash and burners” are also
becoming more aware of the importance of life balance.
P— Plan to create a proactive environment in which all employees have had input into the roles,
rules, expectations, and company’s vision so that there is a sense of ownership.
TIP – Plan to FOCUS a great deal of energy on employee satisfaction. There needs to be high
involvement of the staff. The ultimate goal is to build healthy communication channels to reduce the
breakdown of communication, which is the antecedent to conflict.
L— Leadership of self is the new philosophical underpinning of management theories in the
new organization.
TIP – As Deming taught, for people to produce quality they first must be taught what
quality is. Management must role model leadership skills, then each employee actually acts
like their own boss, breeding a community of internally motivated employees who see
themselves as valuable and important to the company.
O— Orientating Staff to new corporate directions is a continuous process.
TIP – In this Information Age, there is so much to learn and so much is changing that
companies must continue to train and inform staff. Change is always occurring, so
companies need a healthy change model to assist employees through the transitions that
they are expected to make. Fear is real in corporate America. Employees need to be
educated as much as possible as to what is happening in the workplace and what they can
do to adjust to it.
Y— Yearly performance reviews (at a bare minimum) that are of value and focus on how to
help the employee improve and grow.
TIP – They need to be done with a sense of purpose and not just an exercise. They need to
have new goals and must always be followed up on. Evaluate to ensure that the system you
are using is getting the expected return.

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 E— Educate upper management as to what is needed to help the employee be more effective in
the workplace.
TIP – Management does not need to carry out all recommendations, though they would be
wise to evaluate the impact of their choice over the next 12-18 months. Management must
be aware of the differences between team and individual needs. Employees are going to
have individual goals that are separate from the company or their assigned teams. It is
important that the employer understand that today’s professionals are struggling to balance
home and work, and they need your support.

E— Environment and Atmosphere are so important for the employee to want to stay.
TIP – The environment will benefit from having elements of both structure and flexibility.
The goal is to work towards each employee being able to perceive that they are a part of a
team. To do this, they need to perceive that they have an affiliation, recognition, and ability
to share ideas, all of which assist the employee to develop a sense of personal self-worth. We
all want to have the sense we are listened to. The Bible teaches that food feeds the body and
words feed the soul.

R— Relationships need to be healthy in the workplace. Broken or weak relationships are the
number one reason employees move on.

TIP – Relationships are much more important to the average employee than money. People
are looking for ways to balance their home and work so that they can have healthy
relationships at both. In the workplace, it is common practice to put people in teams to build
relationships. Team can be defined as a group working for a common purpose. Positive
chemistry in a team is based on each member doing their individual jobs, with everyone
comfortable enough to be relaxed, calm, and having fun doing what they do with high trust
and communications among the group. This takes time and effort to achieve. Chemistry is
important so that the group can believe in the outcome, and members feel comfortable to go
to the boss and continue to ask questions until they are clear of the expected outcome. They
support each other through the gray and frustrating times. This is why team building is so
important. We cannot assume all employees have the skills to work co-operatively and
independently, which is what employers are asking for.

E— Evidence of what is not working needs to be addressed. This information is good only when
it is acted upon.
TIP – When management hears a certain theme over and over, and they do not act on this
evidence, things will not get any better. As Einstein said, “the significant problems of the
world cannot be solved with the same thinking that created them.” Companies need their
employees to believe that they will hear and listen to feedback from employees and
consultants. Ego alone will not build a kingdom.

T— Trust is paramount. This is when the employee believes what they are doing is in line with
the company's vision set out by the leader. They trust that their actions will make a
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 difference in the long term. They know that their tasks, personal expectations, level of
performance and deadlines are important to help the customer at any level. The work they
do is meaningful and of value, and they understand “why” it is. When trust in the
workplace is depleted, it will take time to get it back.
TIP – Employees must trust their leaders in order to be peak performers. Leaders must
answer the “why should I trust you?” question. They cannot hide from it.

E— Escape bureaucracy. The layers of bureaucracy are often not needed, and they are usually
of little importance or value.
TIP – Ensure that all systems have a purpose and there is not a tremendous amount of duplication and
overlap. Toxic environments will develop and lead to lack of healthy karma in the company. When this
“smog” is in the workplace because of confusion and stress over operational bureaucracy, many
employees will look for new employment.

N— Needs of the individual employee must be addressed. The company will benefit when all
employees feel that they have an impact in decision making.
Tip – Do not use Napoleon’s management method. Avoid using the Napoleonic way, as he
did in Waterloo, where he lost the war because of poor decision making. He did not get
input from others; he did not see the entire picture, and this lost him the war. Employees
need to know that they are making decisions that are of importance. This is one of the main
tenets of William Edwards Deming, who taught that we need to teach employees how to
make decisions so that they can produce quality on their own.

T— Talent. Companies must acknowledge the value of their employees. Many employees want
to be perceived of value. The company must look at ways to get input from staff so that they
feel they have been heard.
TIP – Companies need to be creative and look at ways to keep their employees motivated
and happy; this does not mean only money or perks. There are lots of ways to acknowledge
employees. Employees will feel of value as the company invests in their development as
well; they believe the company is recognizing existing talent by investing in them further.

I— Individuals need to know exactly what is expected of them. They must be aware of their
daily tasks. It cannot just be assumed; tasks need to be shown and defined.
TIP – Regardless of your level in the company, to do the job you need to know what needs to be done
daily. There is always an expectation that needs to be obtained. All employees need to be clear on their
roles and responsibilities. They know that there is work that needs to be shared, such as paperwork,
phone calls, evaluating people, and filling out reports. On the other end of the continuum, the glory
assignments must also be shared. This breeds a sense that the team is in it together and all facets of the
work will be shared at an individual level. Personality differences are always evident. Employers who
are aware of this will have more insight on how to group employees into teams that blend personality
types for maximum success.

O— Organizations need to be well organized. The company must create business systems to
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 address how to lead their people, the company’s most valuable resource.
TIP – High technology still needs people to run it. Companies must have systems in place
that allow individual teams to build goals and objectives that are congruent with the big
picture of the organization and the leadership vision. The leader must have a clear vision as
to the direction of the organization. If the leader is not clear in where the company is going,
the company has no chance of getting there. Leasers need to have a vision toward the sunset
that the company is always striving for. As the great CEO Jack Welch says, “Change before
you have to.” Employees need to know who is in charge; the leader must be front and
center in everyone’s mind.

N— Never use coercion, fear and/or pain as a motivator. Employees will perform better when
they feel safe. It is OK to have expectations and consequences for poor performance. They
are predictable, like a speeding ticket.
TIP – Having poor, outdated, unused policies and procedures in place influences the culture
of the organization in a negative manner. When helpful policies are not in place, it leaves
room for knee-jerking management. Have processes that are people driven that make sense
to the employees. Have employee manuals that are up to date and that reflect current
thought. All of these documents should bridge people, systems, structures, and processes.

Employee Retention Model

The model we use is structured, though flexible. The following section is an overview of what
we do. The SUCCESS mnemonic sets up what needs to be done in coaching to help you find
your niche and path in your workplace.

S— See the priorities and pick out the critical issues and goals that need to be addressed.

U— Understand the needs of the employee from their frame of reference. Learn and practice the
Success Touch that is treating others not as you want to be treated, rather as they want to be
treated.

C— Create the programs and services that are needed for staff to perceive they are of value and
importance.

C— Concentrate on what is working, and reflect and learn why it is. Once we do this we are able
to continue to extrapolate the hows in regard to employee motivation. Be aware of how to
help employees choose to be motivated.

E— Evaluate if both the employees and upper management are working for a common goal.

S— Study the learning from the above steps and learn what can be done to enhance the
workplace.

S— Set the task to continue to look for feedback. Support the staff and transfer what is learned
so that there is a reduction in the same mistakes being made, so that it does not work against
staff morale or motivation.

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 In Closing . . .
Consulting, 360-degree feedback, focus groups, and surveys are a few tools to help you flush out
what you need to do to obtain the most out of your present career. Employee retention is an
issue and it is like the flu; the more it is talked about, the more it will spread. The goal here is for
you not to look at what is not working but at what is working and what you can do to feel good
about what you are doing. Your employer is investing in you for the long term. Employers want
to keep employees who want to stay and be productive. Your involvement is needed in this
dance. Many of you are in management positions, so one of your main roles will be to coach
and help retain staff. This section will give you a frame of reference to start to improve not only
your staff, but yourself as well.

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