The combination of an impending labour shortage and turnover concerns as the economy improves is making employee retention a particular challenge for HR. So, when it comes to top talent, what’s the best approach?
Money, according to a survey released by WorldatWork. Two of the top three reasons star performers quit is to earn more pay elsewhere and because they feel their pay levels are unfair relative to others outside the organization.
“Right now, cash is king,” said Kerry Chou, senior practice leader at WorldatWork in Scottsdale, Ariz. “(Top talent is) probably getting lots of warm fuzzies already because they are top talent — so they’re getting interaction with their manager, they’re getting opportunities to be visible to other parts of the organization... They are more focused on making sure their pay is more competitive, better than the average employee.”
Top performers are already seeing the rewards they want, such as career development, so it’s not surprising compensation is important, said Dow Scott, professor of human resources at Loyola University in Chicago and a co-author of the report.
“The way they keep score is the money,” he said, adding this is a really expensive solution that can throw off an employer’s pay system for others.
For the most part, key talent know they’re key talent and their skills will be in demand, so if their organization isn’t showing the love, they’ll find it elsewhere, said Tom McMullen, North American reward practice leader at Hay Group in Chicago and a co-author.
“Never underestimate the power of money.”
Rounding out the top three reasons for top talent quitting was a lack of promotional opportunities, according to Retention of Key Talent: The Role of Rewards, based on a survey of 526 WorldatWork members.
“If promotions are kind of stalled or if companies have taken their eye off the training and development ball or if managers aren’t having good discussions with employees about their career objectives, they’re going to look for a better deal elsewhere and key talent in particular is very susceptible to that,” said McMullen. “This focus on career development and the processes and systems that go around that is one of the hottest issues HR manages these days.”
Overall, two-thirds (69 per cent) of the respondents said retaining managerial and professional employees who are high performers or have critical skills is a significant challenge. And just 51 per cent said they are confident their organization can retain key talent as the economy improves.
Even the best companies are nervous about their best people taking flight, said McMullen.
“It has been tough out there and a lot of people are itching to see if the grass really is greener. Even in well-run companies, people feel that they’ve been through the meat grinder.”
Even during recessionary times when the general labour market gets soft, there are organizations that still struggle in retaining top talent, said Chou.
“It’s on the minds of senior leadership because the high performers and key talent, they’re the ones that really are moving the needle. So, their productivity is generally higher, their results are more significant and replacing them, especially if they have specialized training in your organization, gets very expensive.”
So, what rewards are used most often when it comes to retaining key talent? Identifying the star performers tops the list (at 88 per cent), with 74 per cent considering this approach effective or very effective, according to the report.
That’s the big one, said Scott, and it means not just defining the term “top talent” but identifying people and moving them on and off the list.
“Companies often have a very nebulous notion of what key talent is,” he said. “Without that concept, you can’t actually identify who the people are in whatever positions you have them, but you can’t also have managers start to groom and build people into key talent. So you have to have something that everybody knows about and you have to work from that.”
Discussing future opportunities at the company with star performers was also popular (84 per cent) and respondents said it was either effective or very effective (67 per cent), found the survey.
“That’s the issue — once you identify people, then you need to work with that relationship, they need to see what the potential is for earning more money in jobs, they need to see what the potential is for promotions,” said Scott.
Employers are more likely to retain people if they’re actually sitting down and talking with them, telling them they’ve been identified as key talent, said Chou.
“That has shown to make a big difference, so people know, ‘Hey, I’m recognized, they know who I am, they’re thinking about my career and they have plans for me.’”
In looking at the rewards that are least often used by employers to attract top talent, incentives or bonus opportunities (68 per cent) and stock options and equity awards (71 per cent) came in last, though they ranked well when it came to effectiveness (68 per cent and 63 per cent, respectively), found WorldatWork.
With the recession, there is a lower level of confidence among executives that stock options are guaranteed to create some wealth, said Chou.
“The stock market is so topsy-turvy right now — many employees see stock options as kind of a roll of the dice.”
It’s also possible many organizations in the survey are smaller and don’t offer those kinds of programs, said McMullen.
When it came to the least effective ways to retain talent, tuition reimbursement and other educational opportunities came out at the bottom (at 53 per cent), though they were used often (83 per cent).
Some organizations might send executives to attain an MBA but it’s less prevalent these days, said Chou.
“Probably a good portion of high talent, key contributors, it’s more likely they’ve already secured their educational needs.”
Most top performers feel they’re at the top of their game already, said Scott.
“They’re putting in long hours and to go back to school or other educational stuff is just not on the radar.”
ROI assessments limited
However, it may be difficult for employers to really know what rewards to offer as 21 per cent do not formally evaluate retention programs for key talent. One-third (31 per cent) rely on informal feedback, 26 per cent look at formal attitude surveys and 31 per cent look at turnover data, found the survey.
CFOs and HR often say they “haven’t got their act together” when it comes to monitoring the ROI of human capital, said McMullen.
“But I’ve also had execs tell me, ‘Hey, Tom, we’re not going to get hung up on monitoring the ROI on programs that we have a deep-rooted belief are working... We get it, we understand it, we certainly believe it does add value.’”
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