saratoga-improving-retention.pdf

7/27/2019 saratoga-improving-retention.pdf

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Saratoga

Driving the bottomline: improvingretentionOrganizations that overlook the proven

advantages o detailed and requent

measurement around the cost o retain-

ing, and losing valuable employees—

especially high perormance talent—

are allowing dollars to slip away instead

o adding them to the bottom line.It’s a shame, but people oten value something only aterit’s gone. In the case o retaining employees, it’s not

just a matter o valuing the employee but a bottom lineissue that may be the dierence between hitting or miss-ing Wall Street expectations. Saratoga believes thatthe “war or talent” has shited rom a battle o acquisi-tion to one o retention. While we recognize that turn-over o low perormers may well be good or an orga-nization, Saratoga sees more and more companiesasking themselves, “how do I keep the right people?”

The turnover issue has long belonged to the realm othe HR department. However, in the ultra-competitiveworld in which we live, turnover needs to be managedby both HR and the line and may well be the dier-ence between achieving short-term goals or miss-ing them. Some o the costs o turnover include:

Lost productivity during a vacancy

Diminished productivity o the team and manag-ers who are covering or a vacant position

Diminished productivity o the team and manag-ers who are training the new hire

Increased labor costs due to overtime or contractors needs

Hiring and onboarding costs

More diicult to quantiy impacts may includedecreased customer satisaction, increased utureturnover and loss o institutional knowledge.

Combined, these turnover-related costs repre-sented more than 12% o pre-tax income or theaverage company. For companies at the high endo the spectrum, at the 75th percentile, turnovercosts are equivalent to nearly 40% o earnings!

Companies that are lagging their competitors have dug themselves into a deep inancial hole. As data romSaratoga’s 2006/2007 Human Capital EectivenessReport demonstrate, there is a signiicant dierencebetween the top quartile and bottom quartile volun-tary turnover. In most industries, bottom quartile perform-

ers experience twice the amount o separations than

top quartile perormers. Given the cost o turnover,companies that work to address their retention prob-lems can make a dramatic impact to the bottom line.



Saratoga human resources services |

Voluntary Separation Rate

IndustryBottomQuartile

TopQuartile Dierence

Public Sector 4.5% 11.7% 160%

Engineering/Manuacturing 5.7% 12.7% 123%

Services 8.4% 18.4% 119%

IT & Electronics 7.3% 15.0% 105%

Pharmaceutical 6.2% 12.6% 103%

Other Finance 10.7% 21.4% 100%Telecommunications 7.6% 14.9% 96%

Utilities 3.6% 6.7% 86%

Insurance 8.0% 13.5% 69%

Banking 16.4% 25.5% 55%

Healthcare 9.1% 13.6% 49%

Unortunately, driving bottom line improvement throughretention is not the obvious solution that most HRproessionals might believe. Managing and optimiz-

ing the workorce investment is not part o classi-cal business management, consequently line manag-ers and executives are requently not aware o theopportunity. An unenlightened reaction to the opportu-nity to drive bottom line results through retention mightbe “Turnover’s not a problem. It’s the same as it’s alwaysbeen;” or “What does turnover cost? It can’t be morethan a couple hundred dollars to rehire people, right?”

Saratoga believes that HR departments need to presentleadership with a business case or reducing turnover. Thisbusiness case must include pinpointing turnover “hotspotsin the organization, quantiying the inancial impact o turn-over by business unit, job class, and perormance ranking,and determining actions the company can take to reduce it

Saratoga believes that the business case to reduce turnovecovers three phases:

Identiying the Scope o the Problem

Quantiying the Business Impact

Determining Actions with Impact

A description o each o the phases appears below.

Identiying the scope o the problem

Most companies have turnover reports that show how turnover has been trended over a period o time– and this is astart. To better understand turnover, organizations will needto rely on more than an aggregate analysis. Organizationsneed to dissect it rom a number o dierent vantage points

What types o employees are leaving? Losing highperormers is ar more damaging than average perorm-ers, and losing low perormers may be seen as a goodthing. What might appear to be an acceptable amount o

turnover may mushroom into a signiicant issue i thoseemployees that are leaving are the key perormers.

What does turnover look like by tenure? Losing employ-ees in their first year of service may suggest issues withthe staffing or on-boarding process. Losing employeesbetween three and ten years may represent a compen-sation or career development issue. Losing employ-ees after ten years may represent a leadership issue.

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Were the employees in pivotal positions? Bypivotal positions we mean segments o the work-orce that are expected to create value and deter-mine the success o the company. Clearly, turn-over with employees in pivotal roles is more concernthan others. Employees in call center or retail envi-ronments tend to turn over more – though i theseare pivotal positions, this still may be concerning.

Moreover, to identiy that a problem exists, a companywill likely also need to rely on benchmarks and peercomparisons. Benchmarks will allow the company to notonly determine how many similar companies are doing

better, but will deine some criteria or improvement.

Quantiying the impact

While it is important to recognize how your turn-over compares to others, and when and who is leav-ing, unless HR is able to translate turnover into a busi-ness impact (i.e. money), HR will not be as successulin its business case. Without this translation, exces-sive turnover can be dismissed as having little inan-cial impact, and not become a high priority.

While there is no single correct answer to the ques-tion o “how much does turnover cost, there is one

wrong answer – $0. Without developing internal consen-sus, HR departments are accepting an answer o $0.

In Saratoga’s opinion, the process o determining a costo turnover is more about developing consensus inter-nally than about the impact o turnover rather than creat-ing a “perect” ormula. Having a ormula (such as 1.5 timesthe salary o Exempt employees + 0.5 times Nonexempt

employees) means little i the ormula has no credibility.Convincing line management or executives on the impacto turnover requires itemization o that impact and the detato support the inal opinion (e.g., how much productivitydoes the organization assume they lose or a high vs. a lowperormer). At the end o the day a ormula that is acceptedby the organization as correct should be the goal, even ithe ormula is illed with “wild guesses and assumptions.”

Once a ormula has been developed, it can be convertedinto a rule o thumb (e.g. each average perormingemployee we lost costs $50,000. Each high perorm-ing employee costs $125,000). Dierent than metrics, this

rule o thumb calculation does not need to be reassessedon a monthly or quarterly basis and does not require abenchmark comparison. When presenting cost o turn-over results Saratoga believes it is most interesting to present numbers in absolute value (e.g., Turnover o our callcenter employees is costing our organization $55 million).

Determining proper actions with impact

Once turnover has been identiied as an issue and theimpact has been quantiied, it is critical to determinethe actions that can reduce turnover and those that willhave the greatest impact. This should be done or each

level o employees including pivotal employees, highperormers, average perormers, and low perormers.While metrics quantiy eort in dollars, time, ratios, andpercentages, employee survey data measures the humanresponse to the working environment. Most employeesurveys are good at identiying sources o dissatisac-tion that management may address, correct, or eliminate.




The problem with the way many surveys are constructedand analyzed is that they do not determine the driv-ers o behavior. Some employees can be very dissat-isied and stay; others satisied and quit. For example,right ater a change to the beneits co-payment, employ-ees may be very dissatisied, but turnover is not likelyto change. Companies need to statistically analyzeand prioritize those issues that are driving employ-ees to stay and leave and take appropriate action.

For example, let’s look at two sources o dissatisac-tion on a typical engagement survey. I we assumepivotal employees are dissatisied with their supervi-

sor communication and outside training, managementmay have a diicult time prioritizing between these two.Once we correlate these sources o dissatisaction withthe likelihood o staying we may learn that outside train-ing has less impact on staying than supervisors do. Inthis case, the organization would want to ocus reten-tion eorts on supervisor communication training.

Saratoga believes that by approaching the issue o turn-over rom these three angles, companies can have acomprehensive understanding o the causes o turn-over and the ammunition they need to convince exec-utives and managers o the value o prioritizing invest-ment. Individually, these three steps identiy that an issueexists, translates the issue into a business value and iden-tiies the actions that will have an impact. The three ingre-dients create a recipe or inancial improvement and helpdeine the impact that HR can make to the business.

____________________

Saratoga, a service oering o PricewaterhouseCoopers,teams with executives and HR departments to identiy,quantiy, and track the results o people initiatives in termso dollars gained—or lost—due to the actions o manag-ers and work teams. For more than 30 years, Saratogahas stood at the oreront o deining and optimizingtalent and the workorce investment and has helped thou-sands o clients deine the return on investment in HR.

To learn more about Saratoga, please visit our website:www.pwc.com/saratoga or call us at 866 727-2864.

N e e d t o i m p r o v e

L o w

H i g h

Low High

Impact on engagement

pOutside training

pBeneits

p Vision

pFlex-hours pCompensation

pDevelopment

pSupervision

© 2006 PricewaterhouseCoopers LLP. All rights reserved. “PricewaterhouseCoopers” reers to the PricewaterhouseCoopers LLP (a Delaware limitedliability partnership) or, as the context requires, other member frms o the network, each o which is a separate and independent legal entity.SF-07-0364-A 11/06 MW/RS

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saratoga-improving-retention.pdf