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Retention Management

A first-ever AIMA study reveals the best practices in keeping your human capital.

By R. Sukumar

Retention ManagementIt marks the restitution of retention. Do your only assets go home every evening at 5.30 p.m.? Do you feel paranoid that they won't return the next morning at 9 a.m.? Welcome to the organisational angst of the New Millennium. A.k.a. the Employee Retention Syndrome.

With every business slowly becoming knowledge-based even in this economy, it has become imperative for CEOs to preserve the only dynamic repositories of learning in their companies: employees. That's why, across sectors, sizes, and statures, corporate India now deploys myriad techniques to retain its people. From sharing the CEO's vision and career-counselling to welfare-management and conflict-resolution programmes, there is little that companies will not do today to keep their people. And, as in any other marketplace, only CEOs who are innovative about their retention strategies appear to be winning the war for people.

To benchmark this, the All India Management Association (AIMA) conducted a first-ever national survey late last year. Grouping companies into 4 categories-manufacturing, marketing, services, and hi-tech-in order to facilitate intra-industry comparisons, 2 cut-off criteria were drawn up: a minimum turnover of Rs 25 crore, and an employee-strength of 50. Then, the responses of the 135 companies that participated in the study were analysed across sectors and turnovers to identify the most prevalent practices in retention-management. Rate yourself against these yardsticks to find out just how good-or bad-your retention strategies are.

THE Retention Malady

Don't shrug it away; it's real. Three out of every 4 software companies surveyed, and almost 1 in every 2 manufacturing and services companies confess that their retention-related woes are acute. Indeed, more than 90 per cent of the companies surveyed admit that they all have some sort of people problem although these percentages indicate the perceptions within, and not the retention-levels of, these organisations. SAMEs (Small And Medium Enterprises)-with a turnover of less than Rs 100 crore and fewer than 100 employees-feel the threat of attrition stronger than the others. On the one hand, the fewer number of employees on their rolls makes every departure significant; on the other, SAMEs are happy hunting-grounds for larger firms that can offer the best employees in such units more in terms of monetary as well as non-monetary compensation.


Create multiple responsibilities for retention management, and ensure that the functional heads and the CEO are involved

Focus on the primary flashpoint -- appraisal-and evolve a performance- appraisal system that is objective and participative

Measure employee satisfaction levels regularly, and respond to any signs of dissatisfaction by launching corrective measures

Formalise the career-counselling function, and fill any vacancies that arise by promoting employees

Recognise variations across organisational-levels and functions, and tailor specific retention strategies to suit them

While the actual turnover-rates are much lower than the perceived threat of attrition, across industries and management-levels, they showed a rising trend that should worry every CEO. Undoubtedly, the junior management level is most vulnerable to poaching: turnover-rates range from 7 per cent in manufacturing companies to 13 per cent in hi-tech organisations. That's because junior managers, typically, experience more problems related to fit and culture than their senior colleagues. Of course, they are also more susceptible to monetary inducements at this stage of their careers.

Analysed on the basis of size, their track-records indicate that retention-levels have declined the most in mid-sized companies (with turnovers of between Rs 200 crore and Rs 500 crore). And they have either remained the same (83 per cent) or increased (17 per cent) in organisations with turnovers of more than Rs 1,000 crore. The logic in hindsight: a small organisation is an exciting workplace, with their fewer number making every employee feel wanted. And large organisations have elaborate people-management practices in place, which define the role that each individual is expected to play, and the route his or her career is likely to take within the organisation. But mid-sized companies are trapped in limbo: they are placid places to work in and, more often than not, do not have the kind of systems that their larger cousins do.

Marketing and services companies, though, would do well to look beyond the simplistic assumption that retention is a critical issue only in hi-tech industries. That may be the case in absolute terms but, while the retention-levels in 16 per cent of the infotech and telecom companies sampled have declined, they have fallen in 26 per cent of the marketing and services companies. Across industries, though, the function which witnesses the maximum attrition varies. In manufacturing and marketing companies, it is the production function. In services companies, it is the finance function. And in infotech companies, it is the line function of information technology. Evidently, the problem of retention is quite wide-spread in corporate India.

THE Retention Diagnosis

You've heard them all. Sure, the typical reasons why employees wish to leave your organisation for another are the same: better compensation, better opportunities, the nature of the job, health problems. At all levels of management, the pattern remains the same across manufacturing, marketing, and service companies: junior managers cite compensation as the primary reason for leaving; managers at all other levels choose career opportunities; and health and the nature of the job are relevant only for senior-level and top managers.

Hi-tech companies are, again, different. Most junior managers who work in infotech and telecom companies look at every job they hold as a learning experience that will increase their market value, and prepare them for the next. Thus, even junior managers in hi-tech companies quote better career opportunities ahead of compensation as the motivation for leaving.

THE Retention Responsibility

Carry the Pareto Principle to an extreme: as 20 per cent of your employees account for 80 per cent of your success, focus 80 per cent of your retention efforts on 20 per cent of your people. Across industry-types, manufacturing, marketing, and services companies believe that it makes little sense to retain all their employees all the time. The real objective: retain only those people who contribute to the company's performance in terms of improving the quality of goods and services, or increasing the level of customer satisfaction.

However, hi-tech companies insist that their strategies must focus on retaining all employees. Their logic is that organisations get the kind of employee-performances they deserve. Given the high costs involved in mid-career hires, especially in software and telecom companies, it does make sense to create an environment where all their employees can continuously upgrade their skills-sets rather than let go of them.

Expectedly, the hr department and the senior management are the organisational centres vested with the responsibility of retention management. However, the process is shared: in most organisations, the hr department, the individual functions, the top management, teams, and the trade unions manage the retention function, individually and together. The choice of the unit varies across industries: 50 per cent of the companies where the union has a role to play belong to the manufacturing sector; teams are popular with manufacturing (37 per cent) and services (35 per cent) companies; and 32 per cent of the companies where the senior management involves itself in retention are infotech and telecom companies. Obviously, the high attrition-rates and the almost-perennial demand for skilled manpower in these industries is why.

Size too matters. 89 per cent of the companies where the senior managers concerned themselves with retention had turnovers of less than Rs 500 crore. And 69 per cent of them had less than 500 employees. Obviously, it is easier for senior managers to concern themselves directly with retention management when they do not have to deal with too many employees. Expectedly, teams and trade unions have a significant role to play in large companies (more than 500 employees and turnovers exceeding Rs 500 crore).

BEST PRACTICES. The best organisations focus on retaining and getting the best out of every employee. They believe in creating multiple responsibility-centres for retention management, and ensure that senior managers find the time to be personally involved in the processes of retention management.

THE Retention Measures

Companies now adopt more than one technique to create an internal environment that will retain their employees. As per the survey, the most popular retention-oriented initiatives include:

  • INCREASING THE ORGANISATION'S LEVEL OF PROFESSIONALISM. Employees leave companies where intra-organisational interactions are unstructured, and decisions, ad-hoc and driven more by personal prejudice rather than professional consideration. By adopting systems that introduce an element of objectivity into its internal operations, a company can create a better workplace.
  • MOVING FROM FAMILY TO PROFESSIONAL MANAGEMENT. In most family-managed organisations, professional managers leave because they cannot see themselves holding key positions, or functioning with the level of independence that their designations merit. By inducting professionals into senior management positions, a company can lower its attrition-rate.
  • MAKING PERFORMANCE APPRAISALS OBJECTIVE. Employees like to know how, when, and by whom their performance is going to be measured. An appraisal process that lists objective and measurable criteria for performance appraisal removes the uncertainty in the minds of employees that their superiors can rate their performance any which way they please.
  • INVOLVING EMPLOYEES IN THE DECISION-MAKING PROCESS. People like to work in organisations where their opinions count. The higher an employee's involvement in decision-making, the higher the organisation's retention-level. A participative decision-making process is good; total empowerment, better.
  • ENSURING A MATCH BETWEEN AUTHORITY AND ACCOUNTABILITY. Most companies fall into the trap of holding an employee accountable for a specific activity without empowering her with the authority to perform it well. Often, the situation is exacerbated by the fact that they vest another employee with the same authority, but do not hold him accountable!
  • MEASURING EMPLOYEE SATISFACTION. Obsessed with catering to the demands of their external customers, companies ignore their internal customers. Periodic employee satisfaction surveys can highlight the potential flash-points, and enable the company to take corrective action.
  • ACHIEVING A MATCH BETWEEN INDIVIDUAL AND ORGANISATIONAL GOALS. Many companies fall into the trap of expecting their employees to subsume their individual objectives before the organisational one. Which forces employees to leave. The best companies achieve a balance between the two.
  • DESIGNING A COMPETITIVE COMPENSATION PACKAGE. Money isn't a motivator, but it is an effective de-motivator. While organisations that pay best-in-industry salaries may find themselves unable to use that fact to motivate their employees, those that do not could find their best employees leaving.
  • INCREASING ORGANISATIONAL TRANSPARENCY. People do not like to work in black-box like organisations, where information is rationed out on a need-to-know basis. They prefer a transparent organisation that is willing to share every aspect of its functioning with its employees.
  • PROMOTING EMPLOYEES FROM WITHIN. A company that constantly fills vacancies by hiring from outside is certain to face retention problems. Employees who realise that they are unlikely to be promoted to fill the vacancies will leave the organisation. Growing your own is a sound retention strategy.
  • HELPING EMPLOYEES ACQUIRE NEW SKILLS. As the job-profiles and desired skills-sets for a particular job change, companies may feel the need to hire employees with new skills, or retrain their existing employees. Companies that choose to do the latter will find it easier to retain their people since the training signals that the organisation values their contribution, and is willing to invest in upgrading their skills.
  • OFFERING STOCK OPTIONS. ESOPs are a sign that the organisation recognises the role of the individual in its performance, and is willing to share the benefits with her.
  • FOCUSING ON WELFARE MEASURES. Employees are not just warm bodies; they are individuals with families and lives of their own outside the workplace. Organisations that recognise this, and help employees achieve a better balance between life and work are likely to face fewer problems than those that do not.

Across industry-types, increasing the organisation's level of professionalism, instituting an objective performance appraisal system, and ensuring a match between responsibility and authority are the 3 most-used techniques to improve retention. In addition, infotech companies focus their efforts on 3 more techniques: increasing employee satisfaction, designing competitive compensation-packages, and involving employees in decision-making.

Hi-tech companies differ from other industries in one other aspect. Most manufacturing, marketing, and services companies are not able to achieve the desired level of performance along any of the retention techniques they adopted, but infotech and telecom companies exceed the desired level. High potential attrition-rates, and the growing demand for trained infotech professionals is, evidently, a motivation enough for companies operating in this sector to focus on retention management.

BEST PRACTICES. The best companies focus on professionalisation, appraisal, employee satisfaction, and participative decision-making. However, their higher-than-average retention levels can be attributed to the way in which they go about these initiatives rather than the choice of initiatives themselves. So, the best companies set themselves stretch targets on each dimension, and then, try and better them.

THE Retention Action Plan

In these competitive times, the specific measures to improve an organisation's retention record range from career counselling workshops to team-building exercises. Of course, the exact nature of the initiatives to be used is a function of the industry in which the company operates, and the level of management at which the initiative is targeted. However, the ideal practices remain constant across manufacturing, marketing, and services companies: career-counselling and job-enrichment exercises at the junior level; promoting from within and training at the middle level; team-building exercises and welfare initiatives at the senior level; and culture-building and empowerment at the top level.

Most companies believe that retention is far more important at the junior, middle, and senior management levels than at the top. This is evident from the number and intensity of initiatives used. For instance, the proportion of manufacturing companies using specific initiatives to improve their retention-records at the junior, middle, and senior management levels ranges from 24 per cent to 78 per cent while the corresponding range for senior management is 8 per cent to 43 per cent.

Infotech and telecom companies are, predictably, different. They use the same techniques as companies operating in other industries do. Only, the number of companies using them is far higher. These companies rate team-building efforts, culture-building, career-counselling, and designing best-in-industry compensation-packages important at the junior level; promoting from within, instituting objective appraisal systems, and team- and culture-building at the middle level; designing better compensation-packages, and helping employees grow into leaders at the senior level; and empowering employees, and sharing the organisational vision with them at the top level.

Across levels, compensation, and vision-sharing seem to be more critical to the retention plans of hi-tech companies than to those operating in other industries. Thus, while 77 per cent of infotech and telecom companies believe that sharing the organisation's vision with their junior-level employees will help them keep their employees, only 16 per cent of the manufacturing companies do. And the corresponding figure for services and marketing companies is 35 and 17 per cent.

BEST PRACTICES. The best organisations recognise the fact that the retention techniques that will work best for them depend on the dynamics of the industry of which they are a part, and the level of management at which they wish to focus their efforts. These organisations tier their retention strategies to suit their employees at various levels of the organisation. Often, recognising the individuality of employees is the best retention strategy.

A focus on retention management can serve as a good starting-point for improving the quality of systems and processes in an organisation. Retaining their best employees requires companies to launch initiatives along several dimensions: introducing good house-keeping practices in offices and shop-floors; making performance-appraisal systems transparent, objective, and participative; professionalising the senior management team; and ensuring that employees take pride in their work.

Fast-growth companies, which are among the top-performers in their industry, will find it easier to retain employees than others provided they practise the essentials of retention management: objective appraisal, and good pay-packages. Everyone loves to work for a winner. But the only way a company can improve its performance is by hiring and retaining the best human capital, and motivating it to deliver its best. If that isn't a vicious circle, nothing is. And best-in-class retention management is right at its centre.

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