Retaining Top Talent in New Zealand
By Bill Rehm, CEO of KASE Consulting Group Ltd., a Human Resources consultancy specializing in Retention, Organisational Development, and Selection

October 2001 -- How does a business distinguish itself in a highly commodified and competitive market? By one method: the ability of the organisation's human assets to innovate and provide services differentiating a company from its fierce competitors. Many corporations and government agencies are struggling to find and keep these valued employees.

Driving Forces

Forces driving this crisis include:

• Changing workforce demographics and values
• Corporate downsizing and contracting undermining employee loyalty
• Decreasing average employee tenure, which has dropped from over 10 years in the 1980s to below the 5-year mark
• Inability of the New Zealand education system to keep up with private and public sector labour needs
• Uncertainty of change and lack of job security causing talented individuals and managers to feel less bonded to their organisations

Aggressively tackling the dilemma, Integral Talent Systems Inc. (ITS) conducted attrition and retention research with its clients. Seven critical findings are described below.

1. Unseen Costs

Studies show the cost of employee turnover is between 1.5 to 3 times the employee's remuneration, depending on the position. Cost factors such as recruitment, training, and the productivity lost due to a vacant position are obvious. However, there are often unseen costs like the departing employee's reduced productivity when job seeking and during the resignation period.

Recent data in New Zealand show employee turnover costs:

• One medium sized (400+ employees) IT service provider over $16m a year
• The call centre industry over $29m dollars a year

One international beauty aids manufacturer and distributor estimates lost sales opportunities in two years to be over $2m dollars.

2. Staying vs. Leaving

Most organisations do not have a handle on the actual reasons employees stay or depart. Traditional exit interviews fail to differentiate between:

• What makes the departing employee's new job attractive
• Why the employee was prompted to consider leaving in the first place

Fear of retribution may mean departing employees often report what is attractive in the new job rather than negative aspects of their old job. Bad diagnosis may lead to inappropriate strategies.

3. Manager's Role Underplayed

Although most managers lamented the loss of talented contributors, when asked to diagnose the reasons for an employee's departure, the average manager:

• Points to a variety of external organisational factors as the causes for attrition
• Fails to take any personal responsibility for the situation
• Does not acknowledge any factors within their control contributing to the employee's departure
• Often attributes attrition problems to factors like compensation

Company responsibilities such as inequitable pay scales can aggravate attrition if they are not in order, but many factors contributing to employee retention are within the manager's sphere of influence.

4. Prevention is Best

Not surprisingly, we found:

• The only time the average manager thinks about retention is when an employee resigns
• Most managers attempt to talk departing employees out of leaving, but in the infrequent situation where the manager is successful the employee often leaves within six to nine months
• When a manager views retention as an 'HR issue' it often falls to the bottom of his or her priority list

Clearly the solution lies in tying retention to critical business activities so managers do not think about retention after the fact when it is too late, but rather see it as an ongoing priority integral to business success and survival.

5. Impact on Customers

Our research found even managers of customer contact functions, such as sales or customer service, are often insensitive to the impact attrition has on customers. When key employees leave, customers often experience discontinuity in a trusting relationship and their own productivity suffers. A change in account managers or service providers can:

• Set the company-customer relationship back months and give competitors an advantage
• Send a message of instability or that the organisation does not care about the account relationship
• A key person's departure has a 'ripple effect' often causing organisation and client problems for months.

6. Misguided Thinking

Some level of attrition is unavoidable and in fact desirable to compensate for poor hiring decisions or poor employee performance. Human resource and senior line managers sometimes question whether they can really increase their retention rates. Evidence suggests the answer is definitely yes -- attrition can be overcome with the right strategies and tools.

7. Multi-factored Solutions

Six dimensions most critical to influencing retention surfaced in the research. These dimensions must be infused into three major components that must be in place and aligned for an organisation to achieve world class retention. Any strategy focusing on only a few (but not all) the factors produces mediocre results, or no results at all. One litmus test for a retention solution is to assess its scope and depth. Any one-dimensional solution is bound to fail.

Retention Components

Manager retention practices: There are a significant number of manager retention practices which increase the probability an employee will remain committed to an organisation over time. These represent the manager's actual behaviours on the job. Good retention practices focus on:

• What the employee is contributing to the company
• How the manager can create a climate in which the employee is retained and committed on a long term basis

Managers play a very crucial role in retention, but they do not control all the factors affecting attrition.

Organisational retention systems: A number of organisational systems and processes influence retention:

• Some are obvious, such as the equity of pay scales
• Others are less obvious, and their impact on retention is often unrecognised

For example, effective recruiting systems and processes support manager retention practices and increase the likelihood employees are committed on a long term basis and are performing at their best.

Measurement and accountability: This component ensures that retention becomes an ongoing priority. Organisation data collection systems must gather sufficient information to pinpoint the most severe aspects of the attrition problem and uncover the specific causes. For example, organisations need to track attrition by length of service and by occupational group as well as by 'management' or 'non-management'.

Measurement goes hand in hand with accountability. Organisations must:

• Hold managers accountable for retention
• Hold corporate staff accountable for developing and upgrading their retention systems

When retention is relegated to the status of an 'HR issue', it often falls to the bottom of a manager's priority list. When retention becomes one of their business goals, it takes on a new perspective. Holding managers accountable in this fashion ensures the motivation to examine and enhance their personal retention practices is ever present.

Business Reality

Some organisational experts claim mergers, downsizing, and economic slowdowns result in employees who feel lucky to have a job and stay. While this tends to be true for employees in the lower tiers of performance, high talented employees recognise they represent a valued organisational asset. When their loyalty deteriorates, the tendency to switch organisations increases.

The cost of workforce attrition eats away at the profitability of even the healthiest organisations. The loss of just a handfull of key employees who have a special expertise or who maintain valued customer relationships can shake an organisation to its roots. In today's business environment of high stakes and unpredictable market changes, organisations must educate their managers and create an environment where their top talent can thrive.