It’s a nightmare scenario for any business: A star employee suddenly decides to jump ship for the competition. Out the door goes years of experience, in-depth knowledge of sales and marketing plans and even a good number of hard-won customer connections. The loss of longtime customers can have a devastating impact on a business. “Customers will often follow a departing employee out the door to his or her new employer,” says Richard Avdoian, an employee development consultant. “People like to stay with employees they trust.”
Problems with employee retention are reaching crisis proportions. In 2017, CFOs cited hiring and retaining qualified employees as their No. 1 concern for the first time in the 21-year history of surveys by Duke University’s Fuqua School of Business.
Moreover, the desertion of a top-performing employee lays waste to any plans for grooming that person for a management role. “When you lose your best employees, you lose not only their skills but also their leadership potential,” says David Dye, president of Let’s Grow Leaders, a Washington, D.C.-based management consulting firm.
Expect more star employees to seek greener pastures in the months ahead and fewer quality replacement prospects. With the nation’s unemployment level hovering just over 4 percent, most economists believe the labor market has reached a condition of full employment. As top-quality talent grows scarce, other employers in your region will try harder than ever to lure away your best people.
“When demand for personnel is high and supply is low, people have more choices for where to work,” Dye says. “Employers have greater difficulty retaining the best performers, and the value rises for those individuals’ work skills.” In rural areas especially, where employers reside far from large cities with concentrated pools of talent, quality employees come at a premium.
How about your own business? Do you think your top performers will hesitate to jump ship? Regardless, the fact remains that people who perform the best in the workplace tend to suffer the most from wandering eyes. One in three employees say they are considering leaving their employer, according to 2017 survey by Mercer Global Talent Trends.
In a survey for The Wall Street Journal by Vistage Research in early 2018, 64 percent of employers said they were facing a shortage of skilled workers. In response, they are implementing strategies such as increasing recruiting, boosting wages, partnering with a local community college or other institution and reskilling workers so they can take on new roles.
SPOT THE STARS
So how do you keep your best people from jumping ship? The first step is to make sure you focus on the brightest stars. Avdoian suggests looking at your pool of employees as a network of three classes of workers on an escalating scale of value: slackers, foundationals and high achievers. Slackers are easy to spot. They do the bare minimum to collect their paychecks. Foundational employees, in contrast, perform their duties in a conscientious and dependable manner, serving as reliable anchors for your business. The final category consists of people who outperform the norm. “High achievers are driven go-getters,” Avdoian says. “They are your most productive employees.” These individuals can deliver up to 400 percent more productivity than other employees, according to a Harvard Business Review report.
With this short list in hand, make sure you give your best people the specific things they need to keep them on board. And just what do they want more than anything else? The answer is probably not surprising: Top- performing employees care significantly more than average or low-performing ones about competitive compensation, according to the report. You must offer them a salary commensurate with their skills and at least equal to what other employers in your region provide.
“When you lose your best employees, you lose not only their skills but also their leadership potential.”
—David Dye, president, Let’s Grow Leaders
PAY FOR PERFORMANCE
High performers also care more than their slacker or foundational coworkers about the ability to earn bonus pay based on performance. “The opportunity to make more money through their achievements is an incentive for your top performers to stick around,” says Donna Cutting, CEO of Red Carpet Learning Systems. Top salespeople, for example, will expect additional compensation when they outperform their peers. The goal is to create a win-win situation for employer and worker: Fixed compensation costs remain low while employees have the chance to earn more when they excel.
A pay-for-performance system is a far cry from old, familiar reward relics such as the annual seniority-based salary hike and the automatic year-end bonus. The conventional system is no longer getting the job done, because it does not incentivize better performance. Moreover, high performers resent the fact that they are not rewarded for their superior productivity at a rate any higher than others. Additionally, ongoing salary increases bloat payrolls until businesses risk becoming uncompetitive.
Besides its direct financial component, bonus pay serves to highlight the connection between employee actions and organizational success. “It’s important that people understand their overall part in the success of a business,” Cutting says. “Performance-based pay does that.”
At some companies, performance compensation represents 20 percent or more of take-home pay. Valuable as it is as a retention tool, performance-based pay carries the hazard of unwittingly rewarding the wrong behavior. “You need to be careful that the performance objectives you set are in alignment with your business values,” Cutting says. She points to the news in recent years about Wells Fargo, a bank that rewarded its employees for burdening customers with unwanted accounts, as a textbook illustration of a performance-based pay scheme gone bad. “You have to make sure the objectives you set are not just based on sales or revenue but also on the way customers and colleagues are treated,” she says.
For instance, the salesperson who is making a great number of sales may also have a rushed, impatient manner that irritates your customers. Gear your bonus plan to reward employees for quality customer service. One way to measure customer service is to use the telephone, a mailed survey or the internet to find out how happy your customers are.
On the other side of that coin, performance-based pay won’t work if employees lack sufficient know-how to perform at their maximum potential. “You need to make sure employees have a sufficient measure of control over meeting the described objectives,” Cutting says. “And they must be given the proper tools to do so.”
One more hazard for performance-based pay: Employees left out of the program may resent their inability to earn bonus compensation. That’s why it’s important to include everyone, even those for whom it’s difficult to measure quantifiable workplace results.
“For people who are solely responsible for their work, and where their activities can be readily quantified, pay-for-performance plans are more straightforward,” says Dye. That’s why many organizations begin by evaluating easily measurable achievements such as higher revenues from salespeople, accident reductions by security personnel and glowing customer reports for service representatives.
Designing an effective program is more difficult for some members of the support staff who do not perform in quantifiable ways. However, it is not impossible. “You can make pay-for-performance work for receptionists, housekeepers or any kind of support staff, as long as they are given the necessary tools by management,” Cutting says.
The biggest challenge is finding a way to measure support staff performance that is fair and reasonable. One approach is to ask, “What is this person’s job and how well are they doing it?” Perhaps a receptionist answers the phone before three rings or greets customers in a cheerful and professional way. If you ask employees how they measure their own performance, you may hear good ideas that can be translated into a quantifiable system.
Assure success by continually expanding your plan’s scope. Include more people and develop more refined performance assessment parameters while soliciting feedback from participants.
Vital as it is, performance pay is not the only tool for retaining top employees. You also need to cultivate a respectful and supportive work environment. “It’s important that people understand what the business wants, and that they feel valued when they meet the employer’s expectations,” Cutting says. “The ability to contribute and to feel involved with the success of the organization can be its own motivation.”
Here are some additional factors that keep your best people aboard:
- Autonomy: “High performers do not like to be micromanaged,” says Christina Eanes, a workforce management consultant. “They want the freedom to do their job in a creative way, along with the requisite responsibility and authority.” This also serves the organization well. “Innovation happens when smart people find new and better ways to get their jobs done,” she adds.
- Frequent Feedback: Top performers want to know where they stand and want feedback more than once a year. A negative December surprise, especially if it affects bonus pay, may well send them packing. The Harvard Business Review report highlights the importance of monthly performance reviews.
- Advancement Pathways: Top performers expect their employers to help them advance in their fields. “You need to create a culture where people want to work with you because of what they are going to learn and have a real, clear-cut career ladder so they see how they can move up,” Cutting says.
Sometimes clearing a path for advancement is easier said than done. In a perfect world, a business would have enough open management positions to accommodate every deserving person. Reality is a lot different. What can you do? “You need to create a growth path for top-performing people that keeps them feeling challenged even though they are not advanced into management positions,” Dye says.
One solution is to feed the craving of top performers for new skills. “High achievers have an insatiable need for self-development,” Eanes says. “They have an ingrained need to develop themselves, so the more opportunities you can provide them to learn, the more loyal they will be.”
Sometimes those opportunities can come with a simple change of scenery within the company. “Not every top performer expects that advancement means a higher-level position,” Eanes says. “Millennials, especially, often prefer to move laterally because it provides them with more learning opportunities and more challenges.” A high-performing worker in sales, for example, might welcome a move to an adjacent position in human resources with the chance to learn a new set of marketable skills.
TAILOR YOUR OFFER
Because not all top performers have the same motivations, you need to consult with each of them to better understand specific needs. “I suggest designing what I call an ‘individual development plan’ (IDP) with each person,” Eanes says. “Determine the next logical level of knowledge and expertise and what you can do to help them achieve it.”
An IDP might include a planned pathway to advancement or the acquisition of new skills. One individual might take on responsibility for larger projects. A second might share their knowledge by training other people. A third might cross-train in areas outside of their core competency. Think of these as “expertise promotions.”
These work environment modifications, combined with a robust pay-for-performance plan, should go a long way toward keeping your best people from jumping ship. Monitor how well you are doing by asking your staff for feedback. And observe how employees perform: Are they acting in more motivated ways and paying closer attention to the things that are really important?
Creating a program to retain your top people takes time and effort. The payoff, though, can be considerable, while letting things slide is unacceptable. “Businesses that fail to retain their best people will be stuck with a majority of their employees being slackers and overtaxing the foundational employees whom they rely on for productivity,” says Avdoian. “And that will lead to a decline in employee morale, which will in turn impact productivity and devastate profitability.”