What Drives Employee Retention and Employee Turnover?
Why does a headhunter need to know about long-term employee retention and how to prevent employee turnover? Why do we read the latest research? Because knowing what causes people to leave their job, and what causes people to accept a new job is our stock-in-trade. That's what we do all day, every day. Executive search firms make a living replacing underperforming employees with top performers recruited from other organizations.
Unlike an HR department, external recruiters lose money (and damage our reputation) every time a new hire does not succeed. In my firm, we have an 18-month performance guarantee—every time someone quits or gets fired, we do the search again at our own expense. That's a powerful incentive to understand the factors that drive employee turnover. Fortunately, with the information gathered from our over 600 completed executive searches:
- We can carefully study when and why people quit jobs, and when and why they don't.
- Every day we learn when and why people succeed in certain kinds of jobs and organizations, and when and why they don't.
I know with certainty that we have better data on employee turnover than most HR departments. And we usually know more about our client's reputation as an employer than they do. And we know precisely how employer reputation affects recruiting.
What Executive Recruiters Know
When a key executive leaves, the second tier of managers who reported to that executive are at a significantly increased risk of leaving.
Hopefully we can help you be more successful by sharing what we've learned.
What is the Cost of Employee Turnover?
Imagine if a vengeful IRS agent could levy three hefty new taxes against you—taxes that apply only to your organization. You would mobilize everything you had to fight it. But a handful of toxic managers in your organization do this every day.
As the boss, you can’t possibly keep track of all of the knowledge necessary to run your organization—your head would explode. But if you’re a highly effective senior executive, cruising along at the 30,000-foot, big-picture strategy level, you have to ask yourself, “When people quit, how do I ensure the knowledge they have will not be lost?”
When a top executive leaves an organization, everyone scrambles to fill that key vacancy. But this overlooks a far bigger turnover problem. When a key executive leaves, the second tier of managers who reported to that executive are at a significantly increased risk of leaving. These direct reports should be considered a "flight risk" for at least a year following their executive's departure.
What Causes Employees to Fail or Quit?
Consider the possibility that a resignation is an opportunity: it's a “teachable moment” which allows the team to have some input into how things should work. And a perfect time for innovation and creativity.
Internal equity within a department (or skill set) is fine, but there is no such thing as internal equity between different skills. In hiring, market rate is the only true benchmark. The minute you forget that, not only do you start overpaying your less valuable people, but your more valuable people start quitting to go where their skills are properly valued.
In a word, no. Demanding managers make you bring your "A" game to work every day. They don't tolerate "dead wood"—so they often have great people on their teams. Top performers are very comfortable with clear expectations, and like accountability—they want to keep score. They recognize that working for demanding managers is great for their career.
When new initiatives are unleashed, it's very tempting to want to bring in someone who will "shake things up" or be a catalyst for change. It's also very risky. Studies show that up to 70% of change initiatives fail. Why?
Most management strategies have not evolved to keep pace with the rapid pace of change and the increasing volatility in the world around us. Why do so many work environments stifle creativity, emphasizing continuity and past experience over change and new ways of thinking?
Replacing Underperforming Executives
Evaluating an employee's performance can be difficult. Some employees can look like rockstars while others struggle, purely because of external factors (as opposed to their own skills). It's hard to separate the person's performance from their situation. How do you determine when to invest more in someone's development? How do you know when it's time to cut your losses, move on and find someone better?
As with most management decisions, the first step in the process is to understand the problem clearly. That's why we designed a simple, ten-question diagnostic tool to help you clarify your thinking.
Replacing an underperforming executive is one of the most challenging situations that a leader must confront. It is fairly straightforward to terminate someone who is catastrophically failing, or someone who violates an established policy. But it’s particularly difficult to part ways with someone you really like, such as a long-time executive who gradually became less capable of delivering results, or a hard working employee who never quite seemed to catch on regardless of how you change their responsibilities.
Most of us feel very guilty about firing someone, and have a powerful desire to avoid ugly confrontation. So instead we grasp for all the reasons why maybe it's not their fault—maybe we could have done more to help them. We cling to false signs of hope such as momentary performance improvements. We actively, willingly ignore the problem week after week, and unconsciously heap work on the people around the low performer—often doing their work ourselves just to compensate.
Top performers are grateful when you remove an underperformer—no matter how long they have been around. Have you ever fired someone and then afterwards people start telling you horror stories about them? You always wonder why they didn't tell you sooner. What's that all about?
13) Which is better at reducing turnover?
What Causes Chronic Employee Turnover?
Twenty years of experience as an executive recruiter has taught me that what looks like a people problem is often a situation problem. An occasional bad hire is nearly unavoidable. But if you churn through new hires in the same position every few years, your chronic turnover almost certainly runs deeper than just one bad egg. With a pattern of failure, it’s likely that the work environment sets people up to fail (however unintentionally).
When you have a performance problem, one question can get you right to the center of how to solve it.
If you have chronic turnover in one of your departments, look for a disrespectful boss. To ferret our your least effective leaders (and HR professionals) look for any signs of condescending behavior. You might find that firing the person at the top is the best solution to your turnover problem.
When you have a turnover problem, more recruiting can feel like a decent short-term solution. Out with the bad (apples), in with the new (people). Things will be better with fresh new people right? But when you are in your second or third round of "out with the bad apples," the problem you have will not be solved by more recruiting. If you're not managing your work environment, more recruiting won't help you manage employee turnover.
How to Plan for Employee Turnover
Every organization will experience an executive departure at some point. A leadership change always poses challenges, but how much disruption it causes depends largely on how well the transition period is anticipated and managed.
What Improves Employee Retention?
HR professionals often treat recruiting separately from employee engagement and retention, but recruiting and retention are two sides of the same coin, with the same basic ingredients. The right recruiting practices can also "bake in" long term employee engagement and retention. The recruiting and the retention process both try to answer the same question: What do employees actually want?
Top performers always want jobs where they can make an impact, learn new skills, and raise their professional profile. What that opportunity is denied, they quit to go find it elsewhere. So if you want to keep great people, just accept the counterintuitive wisdom of it, and keep making your people more marketable.
It’s easy to think of recruiting as a simple transaction with a clear end result—hire someone. But the hiring process should go much deeper than predictably making good hires. It should also lead to long-term employee productivity and retention—which can only occur when candidates "fit in" and know what results are expected of them. So how can the hiring process best predict success on the job?
When you are working hard to fill your organization with highly engaged top performers, you must remember the first rule of filling buckets; never fill a leaky bucket. Before blaming all the the problems on your former employee and hoping your new hire will fix everything, take a cold clear-eyed look at the factors causing your turnover in the first place. You'll be glad you did. In about 5 minutes, these two diagnostic tools will help you clarify your thinking.
This is just the tip of the hiring iceberg. Our Resource Center has additional topics you might find helpful.
And one final disclaimer: This advice is primarily for professional hiring in a large metropolitan area. Our perspective is shaped by our work in a retained executive search firm, conducting searches for CEO and senior staff positions. We've completed over 600 searches for associations and other nonprofits in major metropolitan areas like Washington DC, New York, and Chicago, but not all of our advice will be relevant if you are recruiting for other types of positions in other job markets.