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Training, Development & Retention

Why Employee Retention Strategies DO NOT work

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 Remember the peak of the technology “bubble”? It was 1999 and the height of the technology boom, the first turn of the century gold rush to hit America. Technology companies could not hire people fast enough. As long as a person was breathing and possessed some semblance of knowledge, they were hired.

It was not long before the talent pool shrank to a puddle and companies started poaching competitor’s best people in record numbers – making outlandish offers to steal them away. The poaching companies started offering salaries twice and even three times the going rates causing over-inflated salaries throughout the country. Then, when high salaries were so commonplace that salaries alone could not attract people to the poaching company, they created new carrots to attract people to their company.

Companies turned to more extravagant incentives; 10,000 shares of company stock, stock options, free BMW’s and Corvettes, and in some cases brand new houses. Technology was truly a candidate's market, where even the average employee could demand outrageous money and benefits.

As you know, when the market came back to its senses and readjusted – as it does after every boom; salaries dropped, companies failed, stock options became worthless, cars were repossessed, and unemployment rose as high as 6% in the US.

Since the burst of the “tech bubble”, the economy has steadily rebuilt itself. We are enjoying a technology resurgence with unemployment around 4%. Technology is growing steadily and venture capital is cautiously finding its way back into the market. We are seeing innovation continue to grow in the software, hardware and IT fields.

Now, once again, we are starting to see the talent pool begin to dry up, although much slower than during the "bubble days". There are many causes for this. Baby boomers are beginning to retire and the rate of population growth is slowing. Many IT professionals left the industry when the bubble burst, and are no longer possess the technical skill sets required for today’s companies. 

The US government, economists, and business leaders all agree that we are heading for another severe talent shortage. In 2007, technology companies were already experiencing the resurgence of a ‘Candidates market’ where there are fewer skilled candidates than positions needing to be filled. We are currently seeing this in the areas of software product development, healthcare, IT, high technology, biotechnology, research, engineering, and other fields.

To combat this shortage, aggressive companies are constantly searching for new strategies to supply their employee needs. Some companies have outsourced their needs to India, Pakistan, the Czech Republic, and Vietnam. As demand increases, many US companies that have resorted to outsourcing in the past are seeing the price of labor in these countries increase and they are now reevaluating their use of off shore labor. Other strategies include hiring former headhunters to supplement corporate recruiting staffs in an attempt to utilize direct recruiting (poaching) methods not normally used by in-house recruiters.

New software technology has enabled social and professional networks to flourish and corporate blogs are now being used to attract talented professionals. Some companies are taking proactive measures such as “breeding” their own skilled labor pool by becoming directly involved in Universities – teaching and recruiting students to enter engineering, math and science programs. Sharp, HP and others have found success using this method.

Because recruiting is expensive and time consuming, and the pool of available talent is shrinking instead of growing, employee retention is fast becoming the most cost effective strategy for keeping up with business needs. 

It doesn’t take more than a few keystrokes on Google to find an abundance of information on how to retain your best employees. These sources suggest that you can buy their loyalty with salary, bonuses, perks, patting them on the back, and even letting them bring their pets to work. Yet employees still leave you. What is an employer to do?

For years, I thought employee retention was inherently the responsibility of the manager. I saw part of my responsibility as a recruiter for my client companies as protecting them from being poached by other headhunters as much as possible. Given my commitment to helping clients keep their employees I was confoundedly confused as to WHY managers didn’t take my advice, on retaining their employees or put into practice some other retention strategies available. There certainly is no shortage of good retention strategies available, some of the best include:

  • To have a workplace where people feel respected and valued, where their ideas and efforts are noticed and considered important. 
  • Where talent is promoted and celebrated 
  • Where leaders listen to their employees
  • Enhanced opportunities for vacations, club memberships, and working from home
  • Recognizing the value that the individual brings to the shared success 
  • Stock options or profit sharing programs 
  • In-company day care, laundry service or other personal services 
  • Employee surveys, get employees involved  

Do these retention strategies work? NO. If they did, then why do good employees still leave companies that offer these retention strategies?

HP has an interesting method of retention that they employ. If one of their team members leaves the company, the team leader is not allowed to hire a replacement. The burden of the current project rests solely on the team and its team leader. The team still has to complete the project before the deadline. I believe this is “accountably by fear” which may work in a short sighted way, but in the long run, it could be detrimental to the organization. Six months of team members working over-time in a pressure cooker will drive anyone to accept a “grass is greener at another company” opportunity.

A company can have the best retention strategies known to mankind, but like most companies, if they miss the main ingredient; like flour without yeast, the dough won’t rise. Medical doctors say “Treat the cause, not the symptoms”, and there are many symptoms; mismanagement, lack of contribution availability, low pay, lack of recognition, among others. But these are not the underlying cause. The underlying cause is much bigger.

The main ingredient missing in employee retention is found at its base in top down accountability. In other words, the single most significant factor in companies that fail to retain employees begins with the source: The big cheese… The top of the food chain … The CEO of the company.       

In a recent survey among technology managers we asked the question “Managers and executives know how to retain employees, so why don’t they do it?” We found that the failure to hold executives and managers accountable was the most mentioned response from both executives and managers.

Creating a culture of accountability is the key to employee retention and accountability starts at the top. Without it, all the best laid plans; all the best retention strategies in the world will fail.

Executives and managers polled believe that retaining employees is not a managers’ first responsibility. They believe financial results are, and most do not equate one with the other. Managers and executives do not initiate retention plans because they are not held accountable for it. If a manager posted excellent "numbers," and had horrible turnover then, most likely that manager would not be reprimanded. Whereas if a manager had excellent retention, but had horrible "numbers", they would need to quickly look for another job.

We also found that many managers and executives believe there is a tendency to view personnel as a resource: valuable but expendable. In the survey, employees were viewed as expendable commodities rather than as repositories of intellectual capital. Others believe it is the HR departments’ responsibility to retain employees.

Other studies of employee turnover consistently show that the direct supervisor builds or destroys employee commitment. Yet, how many companies select executives for their ability to manage people, train them in effective people-management skills, and then hold them accountable to retain those people? You could probably count those on the fingers of one hand.

Based on my twelve years of technology recruiting experience, I would venture to say that less than 10% of technology executives make employee retention a component of compensation. We have a culture in American business that is driven by short-term results focused on profits, usually quarter to quarter. That measurement does not take into account the impact that employee retention has on the bottom line. Several technology companies have annual turnover rates in excess of 40%.

I have access to many executives and managers at these companies and while they recognize the issue, they do nothing to change the culture because there is no impact on their compensation at this time. Many CEO’s and Presidents give lip service to retention, but don’t back it up with specific performance measures and rewards, such as bonuses, for achieving a specific measurement of retention. “Actions speak louder than words” and such is the case when a leader stands behind his words using accountability.


Most readers will have experienced multiple changes at the VP and Director levels of their company at any given point in their career. Change brings different cultures, expectations and accountabilities. Without a consistent accountability coming from the top, VP’s and Directors can kill a chance of continuity in a retention program unless retention is coming form the top.

For example:

-- The lifespan of the average CxO and CFO is three years. 
-- Most middle managers are worried about their own longevity, let alone their direct reports.
-- If a manager is not going to be rewarded (or punished) for retention efforts, then he or she will not focus on the effort.
-- It can be argued that very few managers are willing to boost their subordinates into higher roles. 

Generally, since retention is not in a manager or executives’ job description, they simply will not do it. Just because there is a boatload of information out there on how to retain employees does not mean executives and managers are seeking it out and reading it. With all the downsizing that has taken place over the past decade or so no one, including managers, has time to take on a task that is not clearly in their job description. Odds are that such tasks are not something they are trained to do either.

The Good News is that not all companies are ignoring top down accountability.

Telecom equipment vendor, Extreme Networks, has tied their annual bonuses of its top executives in part to how well the company retains its employees.

Under the company’s 2007 executive compensation plan approved by the board of directors, 20% of the bonuses of Extreme’s top four executives is based on “the amount of undesirable attrition of the company’s employees” during the fiscal year, regulatory filings said. Forty percent is based on a revenue formula, and the remaining 40% is based on operating profit as a percentage of revenue.

That plan applies to executives like Extreme’s CEO, Mark Canepa, CFO, COO and VP of R&D. Extreme’s senior vice president of worldwide sales has a similar plan where 50% of his bonus is based on retention of sales personnel. His target bonus for fiscal 2007 is $50,000. Fifteen percent of the bonuses of all other vice presidents are based on employee retention. Canepa’s 2007 base salary was $480,000, and his target bonus for fiscal 2007 was 70% of that, or $336,000. The amount tied to employee attrition was $67,200. (2) Not only does applying retention bonuses to compensation make sense, it also raises the bar of expectations for recruiting and hiring quality employees.

Bottom line:
Employee retention is hard work. It requires a dedicated CEO with an executive team endorsing accountability, and an appropriate reward system. Currently, most mid-level managers are not equipped to manage retention because there is no top down incentive to do so. Executives need to move the discussion of employee retention OUT of the HR department and into the board rooms of American companies. It is not the job of the HR department to retain people. It is the managers’ and executives’ responsibility. Employees never leave a company because the HR department failed to do something. They leave because an executive or supervisor failed to do something. 

Until top executives realize that retaining quality talent as their most precious asset, and commit to that principle whole heartedly, no retention strategy in the world is going to work. However, for those do, their reward will be great; companies can experience increased success initiating top retention strategies, which will result in retaining their top employees and therefore creating additional revenue and profits for their company.

BIOGRAPHY

Gary Perman is a certified recruiting professional and a twelve-year veteran in the recruiting industry. He owns a national search firm called PermanTech, which specializes in recruiting technology executives, managers, and engineers.

PermanTech is ranked among the Top 7 Executive Recruitment Firms in Washington State by CEO Magazine. Gary is also a member of the Software Association of Oregon, IEEE, and The US Recruiters Network as well as hosts a technology blog at www.softwareassociation.org.

Contact Gary at gary@permantech.com or visit his Linked-In profile at http://www.linkedin.com/in/perman or his Web site at http://www.permantech.com/

//
(1) PermanTech conducted an email survey by email polling among 200 technology managers and through Linked-In Question and responses from October 15, 2007 – December 1, 2007.
(2) Nov 22, 2006  By Ed Gubbins Telephony Online Magazine

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