Posted on by & filed under leadership.

Today’s blog post is a guest post from Andrew Cravenho, the CEO of CBAC Funding, an innovative invoice finance company.



Wouldn’t it be great if every time we lost an employee it was the employee we wanted to fire anyway? Unfortunately, that isn’t the real world. Instead, we often find it is our most valuable talent slipping away. As leaders, we need to learn why they are leaving and formulate a strategy to retain our talented and hardworking employees.

While leadership means (among other things) the ability to engender loyalty, employee turnover ratios may be less a reflection on loyalty than many have assumed. Studies reveal that churn rates are the product of many variables.

Consequently, it is more accurate to say that excellent leadership is not just about creating loyalty, but it is also about examining the issues responsible for unacceptable turnover ratios and developing strategies to reduce churn.



Cost of high churn rates

High turnover ratios are worthy of your attention. While the costs can be difficult to quantify, they are no less real. High turnover results in:

  • Increased recruitment expenses
    Clearly, departing employees will need to be replaced. This means recruiting costs (ads, events, interview expenses), background checks, drug screens and credit reports, all of which carry a price tag.
  • Ballooning training costs
    Incoming replacements will require training. Costs may vary with the difficulty of the job, but there are always expenses.
  • Lost productivity
    Productivity is certain to suffer as a result of being short-staffed. More to the point, a short-staff scenario places additional burdens on remaining employees and may have a negative impact on morale thus creating additional opportunities for turnover.
  • Competitive disadvantages
    Apart from the obvious disadvantages cited above, all of which contribute to placing your enterprise at a competitive disadvantage, you may be losing valuable talent to your competitors as well. The last thing any business needs is a competitor that is well-informed regarding its proprietary business processes.


How do I know there is a problem?

In smaller enterprises, those with fewer than fifty employees, a high turnover rate should be rather apparent to anyone paying attention; however, in larger organizations it may not be readily apparent unless, of course, you are losing supervisory and management staff at an unusually high rate.

It is important to remember that valuable employees exist at all levels of your enterprise. As a result, involving middle-management in your retention efforts is an essential component of any retention strategy.

I would encourage HR departments to share each department’s churn ratio with corresponding management staff and to work on the development of results-based incentives for achieving established targets. This is information that should be assessed on a regular basis, as it can otherwise go unnoticed and its impact may not be realized.

The generally accepted rate of employee turnover is 15%. Of course, this will vary widely with the nature of the business. For example, retail may have a much higher turnover ratio because of seasonal hiring. In my view, the best approach is to determine your existing turnover ratio, excluding seasonal and other anomalies, and then commit to improving it. To arrive at the ratio, exclude employees retiring from the company but include all other voluntary terminations, and divide by the number of staff.


Fix the problem

Many attempt to resolve this challenge in the same way: by throwing money at it. But counter-intuitive though it may be—leaving one’s job is not always a function of money.

In fact, on the list of reasons employees stay with their employer, better pay isn’t even in the top three. The top three reasons employees stay are:

  1. They like their work
  2. They derive a sense of purpose from their work
  3. They value their relationships with coworkers

While this may be surprising to many managers, it is also good news. Why? It is good news because many small businesses are not in a financial position to be handing out across-the-board salary increases as their only way to encourage employee loyalty.

The best leaders do not motivate with stick or carrot. They use more innovative means to keep employees productive and loyal. Let’s examine some successful tactics used by great leaders.

Active Listening

Active listening in the context of this article may be better defined as reactive listening. That is, it is not enough to simply listen, acknowledge, and empathize with your employees concerns, fears, and needs; you must also actively work to allay those concerns, calm those fears, and to the extent possible, fulfill those needs or at the very least explain why the needs cannot be met at this time.

In small firms, the business owner can accomplish this task. In larger enterprises, managers and supervisors will need to learn this skill and apply it to those under their supervision. 

The Dual Client Approach 

It is an ongoing source of amazement to me that some companies will move heaven and earth to retain a valued customer but will lift nary a finger to help a valued employee. A business needs to treat employees with the much the same mindset as they employ with customers. Small businesses are better at this than their corporate big brothers but it is equally important to both for purposes of employee retention.

I’m not suggesting you give away the store, but reasonable concessions to assist an employee facing a difficult situation at home, or with his child, for example, should be made. Is it unreasonable to treat a valued employee with any less consideration than you would treat a valued customer? Great strides could be made in employer/employee relations if businesses would take the approach that both customers and employees are clients.

The impetus for this strategy must come from the top. A dual client strategy is going to require some level of investment and that will only occur if all levels of management understand that a dual client strategy is the goal of the CEO—your goal. You must be vocal in your support or it will gain no traction.

Honest and Frequent Communication 

The mushroom farm philosophy of management (keeping everyone in the dark) is not conducive to employee retention. An honest and open dialogue with employees regarding the goals and the direction of the company is the best means of building trust and respect. It also quashes the rumor mill, which can be a very destructive force when it comes to employee morale.

Keeping channels of communication open benefits the employees to be sure, but it also benefits the management by encouraging a free flow of ideas—an important factor in keeping an organization fresh and innovative.

Expand Opportunities for Development

Nothing signals the fact that an employee has a future in your enterprise in quite the same way as providing opportunities for development. These opportunities signal positive things for your employee’s future. Mentoring programs, seminars, and educational assistance programs all represent money well spent. These types of initiatives not only aid in retaining driven employees, but these employees also get the opportunity to improve their skills and deliver greater value to your firm as a result.


Final thoughts:

As you begin to implement your plans to increase employee retention, remember to focus on the benefits of your actions:

  • reducing the cost of doing business
  • helping maintain your competitive edge
  • ensuring the productivity of your managers, supervisors, and employees

That said, it is never a good idea to pursue a zero turnover rate. It’s not just an unrealistic goal, it is a counterproductive one. Moderate turnover keeps your organization fresh because new employees bring new ideas with them.

Additionally, new employees coming on board can restore a spirit of competition among your staff. We all recognize that new employees are anxious to prove their value to the organization, and in the process, they frequently challenge complacent attitudes in current staff members.

For these reasons, some turnover is a healthy, indeed a necessary thing. However, turnover should always be monitored and if it becomes a problem, take action swiftly before it can cause long-lasting harm to your organization.

Tags: better leader, leadership practice, management, retention, team, time,

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