It’s Not Rocket Science
With or without a pandemic, whether the economy is strong or weak, no matter the time of year, and no matter how much they are paid, many of our best employees decide to leave. The question we all grapple with is why?
Why do people stay at a company or leave? What motivates such behavior, and how can employers motivate people to stay longer? What is a “good” rate of turnover, and how do we know who to entice to stay and who to let go? While this article cannot hope to answer these questions in any detail, let’s take a quick look at the subject and see what we find.
First of all, when employees are asked why they leave, they usually give reasons like these: They want a better work/life balance, more money, a better opportunity for career growth, more independence and control over their own work, and of course, job security.
For most of the past decade, employers have worked hard to give employees more time off and more benefits aimed at the family. They have increased salaries and offered stock options, enriched and enlarged jobs until some employees complain that their jobs are too enriched. They have offered employees more autonomy over the kinds of work they do, where they do it, and how they do it. More pay is “at risk,” meaning the employee has to perform to get it, which is loosely coupled to job security.
What is surprising is that turnover is as high as it is. Record numbers of people are leaving organizations, often with no alternative job lined up. This so-called Great Resignation results from many years of HR and recruiting misunderstanding or failing to recognize the many factors causing it.
What is important here is that no single factor in and of itself is decisive in causing turnover or in raising retention rates. People from different cultures respond differently to various factors, as do those of different ages. Like so many other things, the systemic effect of several factors leads to a final decision.
Professor David Finegold and Senior Research Scientist Susan Mohrman at the Center for Effective Organizations at the University of Southern California presented a paper in the Spring of 2001 at the World Economic Forum in Switzerland entitled: What Do Employees Really Want? The Perception vs. The Reality.
This paper presents research from a wide range of organizations, people, and cultures and disputes many reasons people commonly give for leaving. Some of their findings include that security is generally only a major factor in those over 50 and that money is only a motivator for those under 30. For most employees in the in-between ages, other things play a large role.
Most employees want these four things in their organization most of all:
A clear and compelling strategy;
2. An innovative environment low in bureaucracy;
3. Challenging work assignments that enable employees to grow their capabilities; and
4. Rewards, based, in part, on how well the organization performs.
As I look at these, I see that almost all of our “traditional retention” tools fall short. I was recently in an organization where they went through the annual stock option granting exercise. They spent days and days assessing how valuable each person on the management team was (against some dubious criteria, I must say) and then how many options they would each get.
The firms that practice this all say it is to retain people. Yet, many of those with options leave whenever the new firm offers an equal or better package of their own stock! It takes a lot of stock and many years of accumulation before this becomes a more powerful retention tool than satisfaction with the job or a challenging project.
One of the most intriguing results of this research was the finding that group or team incentive pay is a larger factor in retention than individual pay. By offering incentive pay to an entire team, you force management to encourage and develop individuals, and you push individuals to work together so they can all get the reward. Focusing on paying and rewarding individuals for their performance often works against team efforts. Yet, most good things are accomplished by groups of people pulling together and few, indeed, by anyone working alone.
I have always believed and counseled my clients that creating an exciting, challenging workplace filled with managers who are held accountable for turnover is the best retention policy of all.
But there are other reasons people are leaving as well.
#1. Issues with manager
Employees frequently cite disagreements or lack of alignment with their manager or personality incompatibility, lack of empathy, or denial of promotions as reasons for leaving.
The fix: Ensure managers with high turnover are replaced, train managers to be coaches, more carefully match managers and new hires, make sure managers are aware of generational differences and expectations.
#2. Perceived biased performance appraisal
Many feel that their performance appraisal was unfair or biased. They may not have been given evidence of poor performance, or they believe the perception of their performance does not match the facts.
The Fix: Move away from semi-annual or annual performance reviews and put a continuous feedback system in place. Decouple performance reviews from compensation and use KPIs instead.
#3. Lack of opportunity for advancement
The lack of development and advancement opportunities, especially for younger employees, are significant factors in their decision to leave.
The Fix: Redo HR policies to allow more frequent internal moves. Provide learning and development resources and encourage employees to gain new skills with bonuses and other incentives. Develop a robust internal mobility process and make it part of the culture.
#4 Favoritism
Lack of fairness is a major cause of turnover. Employees may feel that some employees are treated better than they are. Some find out other employees have been given higher pay increases which they do not believe were merited.
The Fix: This is again a manger driven activity, and managers need to be very aware of how their behavior is perceived. Managers need coaching and feedback themselves frequently.
The negatives of turnover are obvious: greater costs to hire and train new employees, lost knowledge and experience (i.e., intellectual capital), decreased productivity, and lower quality of work. The positives are less well understood but no less real: infusion of new ideas, additional new knowledge, and experience to the company’s knowledge base, lower wages as new employees often enter at a lower scale, and enhanced promotional opportunities for those who stay.
The costs of replacing a lost employee can be staggering. Costs can be as much as 3x base salary for a mid-level manager. Formulas abound for calculating replacement costs. It would seem that if our traditional beliefs about why people leave are not real and that if our current retention tools are not that effective, it is time to try some new approaches.
Challenging work, good managers, rewards based on what actually got done – sounds like common sense.
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Related Links
These Are the Top 5 Reasons People Are Quitting During the Great Resignation
The Great Resignation: Why more Americans are quitting their jobs than ever before
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