These days, employees are more likely than ever to jump ship and employers are trying everything from wellness benefits to sign-on bonuses to attract and retain talent in an increasingly competitive market.
In this post, we present a three-tier strategy for solving your employee retention challenges in a way that supports your business objectives.
Every company is different and the solutions you come up with will be unique to your company and the culture you want to build. We're going to give you the thought process by which you analyze employee turnover and turn it into a strong foundation for your overall talent strategy.
Measure what matters
To start with, let's take a step back. Why do we care about employee retention?
- We're typically replacing an experienced employee with one who requires time to train, meaning we lose productivity.
- There's overhead associated with every new hire. When we retain an employee, we avoid the costs of posting a job, conducting the phone screen and interview, drafting the paperwork, and so on.
- It negatively impacts the team's performance, at least at first. Teams evolve to a high performance state as their team members get to know each other and play to each other's strengths. When someone new is introduced, that cycle starts over.
- If your team is behind, this is even more damaging: adding people to a late project makes it later.
- Left unchecked, retention can become a vicious cycle. Turnover is contagious, and if employees see their friends and respected colleagues leaving, they take that as a sign to look elsewhere for employment.
If employee turnover is so impactful, we should be measuring retention rates and trying to improve them, right?
Not exactly.
Keeping people employed and engaged is crucial, but not for the sake of retention and employee engagement. They matter only in the context of the overall business objectives, whether that's capital growth, social impact, or otherwise.
In short, the goal of a retention strategy is to advance the company's mission, not to improve retention itself. We can't lose the forest for the trees.
This is the lens through which we will analyze the problem and propose solutions.
Regrettable attrition
There's a reason we call it regrettable attrition: we don't want that employee to leave.
Not all attrition is regrettable. There are people on your team who drive the business forward and maybe even people who hold the team back. In between the two is a majority that does just fine – nothing special, but nothing harmful either.
For clarity, we'll call these our top-tier, middle-tier, and lower-tier employees.
We have a few goals:
- Retain top-tier employees who drive the business forward.
- Convert middle-tier employees to top-tier employees.
- Put lower-tier employees on a performance improvement plan. This gives them an opportunity to improve and gives you sufficient evidence to part ways if it's not working out.
Each group has different retention needs. We will use those needs to reinforce our company culture and improve the team's performance while ensuring the people in which we've invested stay with us for the long term.
Segmenting the data
Our first step in the retention strategy is identifying which employees fall into each tier. If you conduct a regular performance development cycle, you may already have a ranked list of your employees. If not, create one.
If this is your first time making a ranked list of this type, we recommend defining what sets a model employee apart from the rest and building a score based on those factors.
For example, let's say a model employee has mastery of the required skills, demonstrates respect for colleagues and customers, and is proactive about solving problems. You can ask managers to score employees in these three areas on a 1 to 5 scale, determine the total score for each employee, then rank employees based on the total.
With our rankings in hand, we can now segment the data. You may have heard of the 80/20 rule or Pareto principle: 80% of the effects result from 20% of the causes. In this case, we're referring to 80% of your company's success being dependent on 20% of your employees: the ones we defined earlier as top-tier.
Put a checkmark next to the top 20% of employees on your ranked list. If one of them leaves, will your business objectives be at risk, if not unachievable? Add or remove checkmarks as needed until you are confident that you have identified all of your top-tier employees.
Second, put an X next to any employee who, if nothing changed, you'd want to let go. Maybe this is for productivity reasons, or maybe they have a negative impact on the culture (making other employees uncomfortable or a history of arrogant behavior, for example).
In Google's research on teams, the number one driver of team performance was psychological safety and the number two driver was dependability. When we identify lower-tier employees, we're identifying people whose behaviors negatively impact psychological safety and dependability.
Lastly, put a question mark next to any remaining employees. These should be the majority of people on your list and represent the middle-tier.
With that, we have our three groups of employees. Our retention strategies for each of them will vary.
Top-tier employees
For our top-tier employees, the main goal is to establish and reinforce the emotional ties to the business. That means we need to understand what their intrinsic motivations are so we can tap into them.
Autonomy, mastery, and purpose are examples of intrinsic motivators – as opposed to extrinsic motivators like money, power, and status. When we tap into intrinsic motivators, we're reinforcing the reasons our employees choose to work for us.
If employment were just about earning a paycheck, we'd all be looking for the next job that pays more. Clearly, there are other reasons people stay in their roles.
Those reasons vary:
- A stable, long-term career with a company
- Teammates we don't want to let down
- A pension or retirement plan that is too valuable to give up
- Personal identity aligned with the role
- Etc.
With this in mind, we need to approach employee retention with a personal touch. This is why great managers are invaluable. In general, we need to do the following:
- Build trust between managers and employees
- Understand what is motivating and demotivating to each employee
- Create more motivating opportunities
We need to build psychological safety between managers and employees or we can't have a candid conversation about what each employee cares about. Knowing what motivates and demotivates an employee is the key to the retention strategy: reinforce the motivators and eliminate the demotivators or demoralizers.
We work with a lot of engineers, and many engineers join the field because they like to build cool things. They often hate meetings because it interrupts their flow and feels like a waste of time. We can collaborate with these employees to rework their schedules to avoid meetings or create uninterrupted blocks of time so they can still do their best work.
Here's another example: sometimes a member of the team isn't pulling their weight, leaving it up to the remaining team members to pick up the slack. This can be very demoralizing for the highest-performing members of the team. Finding a better fit for a low-performing team member can relieve the pressure.
The last point we'll make is this: people leave their jobs because their goals don't align with the perceived direction of the organization. Whether that's an opportunity for a promotion, a chance to learn new things, a bigger paycheck, living somewhere new, being the best parent they can be, or something else, it comes down to the direction their life is heading and whether your company is on their path. The "perceived" aspect of this is key: don't let facts fall victim to assumptions.
At its core, the strategy for retaining top-tier employees is simple: build trust so you can learn where they want to go, and make sure your company is a compelling character in the story they want to write. Put them in the driver's seat, let them pick the destination, and be the best co-pilot you can be.
Middle-tier employees
As we mentioned above, the goal with middle-tier employees is to put them on a path to becoming top-tier employees. In order to do that, we first need to understand what makes someone a top-tier employee.
Fortunately, you have the data to find what your top-tier employees have in common. What qualities make them stand out?
Turn these qualities into a rubric for evaluating your middle-tier employees. You should be able to see where someone is on target and where they have room to grow. In effect, you've identified a set of opportunities for each employee that supports their career development.
Work together with your employee on ways to grow. This is a great starting point for any annual or quarterly goal setting, for example. Make sure the employee takes the lead – remember that we are tapping into intrinsic motivations. What do they want out of life, and what barriers are in the way?
Not only does a concerted effort to develop your employees improve the performance of the organization, it helps retain your newly-developed top-tier employees. 29% of employees cited career development as the reason they quit.
We're clearly fans of an individualized approach, but even in aggregate a focus on career development can put a major dent in employee turnover.
Zappos has done a lot of research on employee happiness, and two of the four factors they cite are perceived control and perceived progress. Giving your employees agency over their own development helps with perceived control, and acting on the career development plan helps with perceived progress. Make sure to celebrate wins along the way and reinforce how far they've come.
In our experience, potential is often locked behind a simple act: putting your belief in someone and clarifying the steps it takes to unlock their potential.
Lower-tier employees
This is arguably the hardest part of the retention strategy because we're talking about the potential for someone to lose their livelihood. Approach this section with empathy, and all will be well.
As we stated before, we can generally group lower-tier employees into one of two categories: those with low productivity, and those with negative impacts on the company culture.
Understand that low productivity is usually a function of experience, not intelligence. Some people need more practice than others. The question is whether they are capable of meeting the requirements of the role, and the performance improvement plan is the vehicle through which we assess that potential.
For employees with a negative impact on the culture, it usually rests on the relationships they form with other members of the team. Discussing these issues with employees can be difficult, to the point where employees may get defensive, leave the company, or check out.
Addressing productivity issues relies on targeted practice with feedback, whereas addressing relationship issues relies on the employee's self-awareness and willingness to accept feedback. Both are viable for improvement – never count someone out.
When developing a performance development plan, be collaborative. This is similar to what we did with our middle-tier employees. Describe the vision you have for them and where you see room for improvement, then give them ownership of the plan to get there.
Tips on how to make this as successful as possible:
- Don't try to eat the entire elephant in one bite. If you've identified multiple areas of improvement, pick one to start with. Stay focused with clear tasks and deadlines, and make sure they are achievable. Remove the emotional weight of needing to change.
- Multiply milestones, which helps with perceived progress. When they feel like they are making progress, they are happier – when they are happier, they perform better and make more progress. This is a positive reinforcement flywheel you want to get spinning as quickly as possible.
- Praise effort in addition to outcomes. This is crucial for building a growth mindset, and a fixed mindset is what dooms every performance improvement plan. If your employee doesn't believe that they can develop their talents, they won't.
If you don't see progress being made, talk about having them leave the organization. This is a last resort, but it will be more damaging for everyone involved if you don't make this decision.
Put yourself in your employee's shoes: if you weren't a valued member of the team, wouldn't you rather have someone tell you so you could find a more fulfilling job elsewhere? Imagine retiring and your coworkers not being sad to see you go. No one deserves that.
When it comes to experiences, people remember the beginning, the end, and the peak moment (good or bad) in the middle. If you have to part ways, make the end as positive an experience as possible.
Help them find another job, offer them a few month's pay to bridge the gap, or give them a stipend to learn the skills for a career change. There's no reason you can't turn a negative situation into one of the most formative experiences of their life.
Experiment and iterate
We've shown you how to approach retention, but we haven't given you specific tactics for each employee because they vary from person to person. As you implement your solutions, it's important to do so with experimentation in mind.
Consider the scientific method: you have a hypothesis about how to retain your employees, so you design a way to test your hypothesis to see if it holds true. After you run your test, you learn something about retention that you can use to formulate a new hypothesis and continue testing.
This is a cyclical process. The goal is to use existing evidence to inform new solutions and begin converging on a system with high employee satisfaction and performance.
Here's how:
- Form a hypothesis about what will improve employee retention.
- Determine how you will measure success or failure. We recommend deriving these measures from your business objectives.
- Design a solution to test the hypothesis.
- Implement the solution and measure its effects. Be sure to provide enough time to build confidence – beware of knee-jerk conclusions about whether the solution worked or not.
- Form a new hypothesis and iterate.
Part of why we call this an experiment is to reduce the barriers to implementation. It's a test. Sometimes the solutions will work well, and sometimes they won't. The more you test and the faster you learn, the more quickly you'll converge on a solid retention strategy.
Adjust your hiring process
When people do leave the company, you have an opportunity to hire someone using what you've learned about your top-tier employees. Build that evaluation criteria into your hiring process.
We like to have a Q&A video call with interested candidates to give them an opportunity to ask us questions about the company and for us to learn more about their career goals. Because we do this in an informal setting, it helps take the pressure off the candidate so they can be more forthcoming.
We often find out right away that we're not aligned with their long-term goals and can decide whether we want to pass or be the best stop on their journey.
By the time we get to the interview, they're already familiar with us and we're talking like old friends. The interview is a more rigorous use of our top-tier indicators and focuses on our company values and the qualifications for the job.
Employee engagement and retention are often relegated to the execution team or HR post-hire, but the seeds of an effective retention strategy are sown before the employee joins the company. Be intentional and deliberate in your hiring process, and you will reduce the risk of turnover later.
If you want your marriage to last, you probably don't want to use the Las Vegas drive-through! There's value in taking your time to get it right.
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