The economy is heating up across many sectors. While economic improvement provides many opportunities, companies are facing the increasing challenge of hiring and retaining employees.
“People are the driving force behind the success of every business,” says Scott Anderson, a senior audit manager at Sensiba San Filippo, LLP. “Business owners who understand the immense value of their people and take action to protect and motivate their employees can see tremendous effects on their bottom line.”
Smart Business spoke with Anderson about the difficulties employers face motivating their work force and how to gain a competitive edge in retaining the best employees.
Why is employee retention important to leading businesses?
People are the foundation of successful businesses, and most business owners, especially those who have lost top talent, would agree. While it may be difficult to put a price tag on the value of each employee, every employee’s impact shows up — for better or for worse — in the bottom line. Economists have estimated the cost of replacing an employee at $17,000 to $31,000. For employees making more than $60,000, the cost is $38,000 or more.
The effects of employee retention and loss will only become clearer as we move out of the recession. According to the U.S. Bureau of Labor Statistics, more employees are quitting jobs to take new positions. People generally hunkered down during the recession and put career goals on hold, but now some industries are showing significant movement already.
How does employee retention relate to risk?
Costs associated with hiring and training are just one impact of employee loss. An employee may have had access to how much customers were paying for services, or insight into trade secrets or key intellectual property. That information loss could cause significant damage if it goes to a competitor regardless of whether patents or nondisclosure agreements are in place. There is also reputational risk, as departed employees won’t censor themselves. Negative comments can spread fast regardless of whether they are true or not.
What are successful companies doing to motivate and retain employees?
Companies are finding new ways to keep top talent. Successful companies find a ‘recipe’ of benefits that makes employees feel the company can help them achieve their personal goals. For some, traditional motivators such as time off, health care benefits and flexibility of scheduling aren’t enough.
Small investments can have disproportionate effects on employees. Don’t underestimate the value of recognition. Creating a leadership award and nominating employees for outside business achievement awards improve morale. Wellness programs and community involvement opportunities also differentiate a work environment and build camaraderie.
For others, motivating factors include taking on new work or having increased responsibility. Presenting opportunities for professional advancement and intellectual expansion are overlooked factors to employee retention. An employee should have little difficulty understanding his or her career achievement path. Beyond just talking about it, the path should be written down and communicated. If employees can see how their career will proceed in the next 10 years, their vision for the future will involve a long-term relationship.
Mentoring programs can also improve career development opportunities. Allow employees to select their own mentors who are not far above the employee’s current level. Having a mentor the employee connects with, who is two to three years further in their career track, makes it more likely that candid, meaningful conversations will take place.
How can a business cultivate a culture that leads to happy, motivated employees?
One of the most important factors in forging loyalty is eliminating uncertainty, as it is a driving force that makes people look elsewhere. Unable to visualize a long-term relationship with the company, employees grow insecure.
Communication is also critical. Business owners and company leaders can dispel fears with proactive communication about the company and employees’ roles. Many successful businesses share successes of the organization, emphasizing the connection between employee success and the company’s success.
For smaller businesses, simple face-to-face interaction goes a long way toward showing employees their effort is valued.
Are employees still motivated by performance-based compensation incentives?
Yes. However, there are some common pitfalls that can derail a well-intentioned incentive program. One of the common misperceptions is that an innovative plan is a complex plan. It is actually quite the opposite. The simpler the compensation plan the more likely that it will be effective. The rule of thumb is it takes a beer to discuss the plan and the details can be written down on a bar napkin.
The value of a performance-based compensation plan is directly related to its success. At least 20 percent of the compensation plan should be incentive based and should fit into a picture of the overall health of the business that the employee clearly understands. The progress toward receiving compensation must be communicated frequently. It should be automated, predictable and not dependent on complex spreadsheet calculations.
How can businesses evaluate their employee retention efforts?
Business owners should research how their compensation and other benefits stack up to the competition. If they are lacking, find a good partner who knows the ins and outs of employee motivation, incentives and retention. On the other hand, if business owners find that their plan is superior to the competition, don’t hesitate to tell employees about the benefits of working for your company. Show your employees that you’ve done your homework and highlight the opportunities and benefits provided by your organization.
Scott Anderson is a senior audit manager at Sensiba San Filippo, LLP. Reach him at (408) 286-7780 or email@example.com.
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