COMPENSATION
AND OTHER EMPLOYEE RETENTION STATEGIES

Abstract
There are three human elements that are important to any organizations success - good leadership at the top, effective management at all levels, and personnel who possess the knowledge and skills to get the job done. Retaining effective employees is a challenge, and replacing employees who leave an organization is extremely expensive. Roger E. Herman’s book Keeping Good People – Strategies for Solving the Dilemma of the Decade discusses five strategies that an organization can implement, and which will aid in retaining top talent. This paper discusses those five strategies. Compensation strategies are those which ensure top talent can be recruited, and retained due to competitive compensation from an organization. Environmental strategies involve efforts that address 1) ethics and values, 2) organizational policies that interpret values and translate them into action, and 3) the physical environment that a company’s employees occupy. Relationship strategies are the actions of how an organization treats its people, as well as how they treat each other. Support strategies are those that equip employees with the resources that they require to complete the job. People growing strategies are actions that organizations can practice that contribute to the professional and personal development of their employees.
For most organizations to be successful there are three human elements which are crucial to that success – good leadership at the top, effective management at all levels, and personnel who possess the knowledge, skills, aptitudes, and attitudes to accomplish an organization’s mission and goals. One of the major challenges facing employers is finding and keeping motivated and effective employees. Today’s highly diverse workforce wants to achieve the greatest possible results, both personally and financially, during his or her career. It is because of this individual desire and motivation that employee turnover is one of the most significant challenges that any organization faces. It is imperative that companies understand the challenge of employee retention, and are prepared to retain top talent. This third human element, skilled personnel and the importance of retaining that skill, is what I will focus on in this paper.
THE TRUE COST OF REPLACING EMPLOYEES
In most organizations one of the highest overhead and operating costs is employee turnover. The Society for Human Resource Management (SHR30-50M) has conducted several well-regarded studies which have identified the relative cost of employee turnover. An SHRM study estimated that it costs $3,500.00 to replace one $8.00 per hour employee when all costs are considered. These costs include recruiting, interviewing, hiring, training, and reduced productivity. Another important fact to consider – the SHRM estimate was the lowest of 17 nationally respected companies who calculated this cost (Blake, 2006). Furthermore, it has been measured in numerous studies that turnover costs are 30-50% of the annual salary of entry-level employees, 150% of middle level employees, and up to 400% for specialized and high level employees.
It is a fact that employee turnover is unavoidable, and in some cases even desirable. Turnover is necessary when an organization must replace marginal or poor employees with more productive ones and to bring in people with new ideas and expertise. High turnover costs are both avoidable and unnecessary and this avoidable turnover cost is where companies need to focus much effort. The goal is to retain valued performers while replacing poor ones. In 1990 Roger E. Herman published “Keeping Good People – Strategies for Solving the Dilemma of the Decade” – in this book he discusses five strategies for retaining talent. Although this book was published more than two decades ago, these strategies are still very sound and effective in today’s diverse and ever changing work environment. The five strategies in Herman’s book discuss the following aspects of an organization: compensation, environmental, relationships, support, and people growing.
COMPENSATION STATEGIES
Competitive organizations are regularly looking outside at other companies to find talented individuals to fill key requisitions. When they are able to spot attractive candidates, a company will do what it takes to lure them away from their current employer. They may offer big signing bonuses, stock options, as well as well as providing rich compensation packages. In addition a primary driving factor that motivates productive employees to move from one organization to another is a desire to gain improved income and/or benefits. How an organization structures its compensation and benefits packages is critical in its effort to attract and retain productive employees. At the most basic level of any organizations compensation program is how it stands against compensation packages of competitors. A market-based compensation system is one in which an organization aligns its pay programs with those of similar outside markets and similar jobs that compete for the same talent. Designing a successful market-based compensation system calls for a balance between competing objectives: retaining, attracting, and motivating the most qualified employees and managing overhead operating and labor costs (UVU, 2012). This basic requirement must be met to retain talent – if compensation is not competitive, any organizations top talent will move on. Offering incentive opportunities to all employees provides added motivation for top employees to remain with a company. An organization can tailor its compensation packages so that incentive opportunities are implemented at all levels of the company, commensurate with the employee’s level of responsibility. This has the potential to increase production and motivation of a workforce, which will increase the potential for long-term retention. Another opportunity is to implement flexible and comprehensive benefits packages for a changing workforce. Employers should use all forms of competitive advantage to boost recruitment and help retain existing staff. A well constructed flexible benefit program should be given high consideration by recruited talent, as well as those already employed by an organization. Today’s workforce is more diverse than ever in terms of culture, religion, age and gender – the days of “one size fits all” benefits packages are no longer realistic. Employers of choice are very likely to provide a comprehensive employee benefits package to attract and retain employees. In addition to a competitive salary, an employee benefits package is a standard and expected part of an employee compensation package. There are many incentives that an organization can utilize to make their benefits package attractive to include: competitive and affordable health insurance, paid time off from work, short term and long term disability benefits, dental and/or vision insurance, 401(K) or other monetary retirement plans, and health care flexible spending accounts (FSAs). Non-traditional benefits such as providing child care, use of company products and equipment for personal use, exercise facilities/memberships are very affordable and attractive ways for a company to encourage top talent to remain onboard. Compensation is arguably the most important factor in recruiting and retaining talent. If an organization can provide competitive compensation that provides satisfaction for top talent, the chances of that talent not leaving an organization is greatly enhanced.
ENVIRONMENTAL STRATEGIES When given consideration for employee retention the environmental strategies involve efforts that address 1) ethics and values, 2) organizational policies that interpret values and translate them into action, and 3) the physical environment that a company’s employees occupy (Hermann, 1997).
Ethical business practices are essential for sustainable growth and play a large role in individual and communal corporate success. Today’s employees are becoming more concerned about moral and ethical issues in business and because of this a corporations values affect how people feel about remaining with an employer. In his book, Herman discusses 45 different practices that a corporation can utilize to increase the ethical bond between a company, its employees, and the community. The highlights of these are:
• Share a common vision: Corporate vision is a short, succinct, and inspiring statement of what the organization intends to become and achieve at some point in the future. It is the image that a business must have of its goals before it sets out to, or expects employees, to reach them.
• Loyalty is a two-way relationship: If a company treats its employees with loyalty and decency, that loyalty will be returned in productivity and increased morale.
• Promote a healthy work environment and insist on workplace safety: this is important for moral, legal, and financial reasons. Moral obligations would involve the protection of employee's lives and health. Legal reasons relate to the preventative, punitive and compensatory effects of laws that protect worker's safety and health.
• Avoid stupid rules: Every organization needs rules to guide operations. If a company institutes rules that are not required or conflict with the organizations culture, then employees may have a negative attitude toward most rules.
• Establish clear policies: It is imperative that the people who work for a company understand clearly defined and pointed policies and expectations.
Strategies that are related to the physical environment include personalization of work areas, ensuring that your workers are equipped for productivity, providing appropriate childcare services, and maintaining comfortable atmospheric conditions (Hermann, 1997). The physical environment in which people work says a lot about an organization, its values, and its policies. Ones satisfaction with an organizations surroundings can greatly influence an employee’s interest in remaining with a company.

RELATIONSHIP STRATEGIES How people feel or perceive how they are being treated and appreciated is a very crucial component to overall job satisfaction. Relationship strategies are actions of how an organization treats its employees, as well as how they treat each other. According to TCii Strategic and Management Consultants, developing effective relationship strategies begins with three basic steps:
• Give manager’s proper training – an employee’s primary work relationship is with their supervisor. If an organizations management has the knowledge and training to be effective with people at the individual level, this will have a positive effect on employee retention.
• Ask employees why they work for you – this action has a dual effect: 1) employees reinforce to themselves why they are working for the organization, 2) the manager gains a better understanding of what attracts potential employees to the organization.
• As a manager, ask “What can we do to make things better around here?” – This should be communicated in a positive way, and listen closely to what the employees express. Great suggestions can come out of these interactions – ideas that can be used at all levels within the company (Irwin, 2011).
In addition to these management skills, relationship strategies can be cemented into an organizations culture by implementing some very simple practices. One of the most important aspects of managing relationships is to resolve conflict. Conflict will always be present in an organization – if it is not dealt with promptly and constructively, it is likely to have negative effects in a working environment. Reduced productivity, less cooperation amongst employees, as well as employees who harbor resentment and low morale are probable results of unresolved conflict. There are several other practices that support strong organizational relationships, to include open communication through regular meetings with your team members, and giving recognition strategically and deliberately.
In summary, the practice of building relationship strategies within an organization is very simple – treat and communicate with your employees how you would want others to treat and communicate with you. This is a very basic philosophy that should be practiced in everyday life, as well as being a part of any organizations working culture.
SUPPORT STRATEGIES Strategies that provide support include those that equip employees with the resources that they require to complete their job. Organizational management must address task-oriented needs and concerns of its employees. If employees are provided support and are therefore engaged and committed to their work, they will be much more likely to remain with an organization. There are many different actions that any organization can engage in to enhance support based strategies. I will discuss only a few of these.
• Remove barriers to task accomplishment: one of the most common barriers to task accomplishment is employees feeling like their input is not important. Employees often complain that their superiors do not listen when they try to bring about needed changes. Learn what your people are doing, and not doing. Listen carefully to what they say, and stay alert to perceived barriers (Herman, 1997).
• Empower your employees -- People are an organizations greatest asset. This sentiment should be reflected in an organizations corporate culture, and in the way its leaders lead. Defined, empowerment is the process of enabling or authorizing an individual to think, behave, take action, and control work and decision making in autonomous ways. It is the state of feeling self-empowered to take control of one's own destiny. Empowered employees will have added incentive to stay with an organization.
• Inspire and enable creativity and innovation – Good people will flourish in work environments where they are allowed the latitude of creativity and innovation. A large number of employees believe that creativity and innovation are frowned upon by management (Herman, 1997). Creative people are motivated because they've achieved something. They've solved a problem by thinking outside the box. By successfully finding solutions they are motivated to work – the more motivated they are, the more productive they are. Productive employees are more likely to remain with an organization (Javitch, 2005).
When a company’s employees are provided support to succeed and thrive, it has the profound effect of showing them that the company is committed to their satisfaction and growth on the job. Providing support is extremely important in retention efforts within an organization.

PEOPLE GROWING STRATEGIES
People growing strategies are actions that organizations can practice that contribute to the professional and personal development of their employees. Motivated and productive employees usually have a desire to grow professionally. This strategy is closely tied to Abraham Maslow’s hierarchy of needs – employees striving for self actualization by increasing their personal value (Herman, 1997). A very important practice of any organization is the ability and desire to develop their employees. Taking an active role in the development of a company’s personnel resources demonstrates confidence and concern for the future of the organization. Talent development should be part of company initiatives and culture. There is a plethora of practices that a business can institute to support this strategy.
• Give employees challenging responsibilities: Most employees have a desire to be challenged by their work. Challenges keep work interesting and result in new skills that can open career opportunities.
• Support formal education: Continuing education can help an organization meet objectives and retain employees. When people feel they have exhausted their learning opportunities within an organization, they often leave in search of new experiences. Employees that are learning are more likely to stay longer. (Sorum, 2007)
• Encourage professional development: High-potential employees are not satisfied with the status quo. They are typically ambitious, high performing, and dynamic. They are future leaders if they are given proper guidance in their development. If not, be prepared to lose them to the competition (Frank, 2012).
Employees who commit to professional development and formal education will likely find themselves progressing up the career ladder smoothly and often more rapidly than those who don’t invest in ongoing development. For this reason, it is imperative that organizations provide these opportunities.
When an organization openly and actively engages in the professional and personal development of its employees, it has the far reaching benefit of showing a personal and professional commitment to those personnel resources. As has been a recurring point throughout this paper, when one feels engaged, appreciated, and valued – they are much more likely to remain with a company.
An organizations ability and commitment to retaining its most productive employees is crucial to its success. Not only is this top talent productive and results oriented, but the cost of replacing top talent is very costly. If an organization implements the five retention strategies I have discussed in this paper, there is a much greater chance of developing productive employees who work in a cohesive, trusting, open, and learning environment. If an organization can instill these tenets into its culture, as opposed to just using them as a “band-aid” – it is likely that the top talent it employs will remain. If not, it is probable that those top performers will move on to another organization that will provide some, most, or all of the strategies which I have outlined in this paper.

References

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