RETAINING TALENT SHRM FOUNDATION'S EFFECTIVE PRACTICE GUIDELINES SERIES
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SHRM Foundation’s Effective
Practice Guidelines Series
Retaining
Talent
A Guide to Analyzing and
Managing Employee Turnover
SHRM Foundation’s Effective Practice Guidelines Series
RETAINING A Guide to Analyzing
Talent
and Managing Employee
Turnover
by David G. Allen, Ph.D., SPHR
i
RETAINING
Talent
This publication is designed to provide accurate and authoritative information regarding the subject matter covered. Neither the pub-
lisher nor the author is engaged in rendering legal or other professional service. If legal advice or other expert assistance is required,
the services of a competent, licensed professional should be sought. Any federal and state laws discussed in this book are subject to
frequent revision and interpretation by amendments or judicial revisions that may significantly affect employer or employee rights and
obligations. Readers are encouraged to seek legal counsel regarding specific policies and practices in their organizations.
This book is published by the SHRM Foundation, an affiliate of the Society for Human Resource Management (SHRM©). The
interpretations, conclusions and recommendations in this book are those of the author and do not necessarily represent those of the
SHRM Foundation.
©2008 SHRM Foundation. All rights reserved. Printed in the United States of America.
This publication may not be reproduced, stored in a retrieval system or transmitted in whole or in part, in any form or by any means,
electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of the SHRM Foundation, 1800
Duke Street, Alexandria, VA 22314.
The SHRM Foundation is the 501(c)3 nonprofit affiliate of the Society for Human Resource Management (SHRM). The SHRM
Foundation maximizes the impact of the HR profession on organizational decision-making and performance by promoting innova-
tion, education, research and the use of research-based knowledge. The Foundation is governed by a volunteer board of directors,
comprising distinguished HR academic and practice leaders. Contributions to the SHRM Foundation are tax deductible. Visit the
Foundation online at www.shrm.org/foundation.
For more information, contact the SHRM Foundation at (703) 535-6020.
ii
Table of
Contents
v Foreword
vii Acknowledgments
ix About the Author
1 Retaining Talent
2 What Is Turnover, Exactly?
3 Why Turnover Matters
5 Why Employees Leave
9 Why Employees Stay
10 How to Develop Your Retention
Management Plan
21 A Menu of Retention Practices
27 Conclusion
28 References
33 Sources and Suggested Readings
iiiForeword Dear Colleague:
As a busy human resource professional, you probably find it difficult
to keep up with the latest academic research in the field. Yet knowing
which HR practices have been shown by research to be effective can
help you in your role as an HR professional.
That’s why the SHRM Foundation created the Effective Practice
Guidelines series. These reports distill the latest research findings and
expert opinion into specific advice on how to conduct effective HR
practice. Written in a concise, easy-to-read style, these publications
provide practical information to help you do your job better.
The Effective Practice Guidelines were created in 2004. The SHRM
Foundation publishes new reports annually on different HR topics.
Past reports, available online at www.shrm.org/foundation, include
Performance Management, Selection Assessment Methods, Employee
Engagement and Commitment, Implementing Total Rewards Strategies
and Developing Leadership Talent. You are now reading the sixth report
in the series: Retaining Talent.
For each report, a subject matter expert is chosen to be the author.
The report is reviewed by a panel of academics and practitioners to
ensure that the material is comprehensive and meets the needs of HR
practitioners. An annotated bibliography, “Sources and Suggested
Readings” section, is included with each report as a convenient
reference tool.
This process ensures that the advice you receive in these reports is useful
and based on solid academic research.
Our goal with this series is to present relevant, research-based
knowledge in an easy-to-use format. Our vision for the SHRM
Foundation is to “maximize the impact of the HR profession on
organizational decision-making and performance, by promoting
innovation, education, research and the use of research-based
knowledge.” In particular, we are strategically focused on initiatives
designed to help organizations maximize leadership talent. This includes
a focus on the assessment and acquisition of leadership talent, as well as
leadership development, retention, and succession.
We are confident that the Effective Practice Guidelines series takes us one
step closer to making that vision a reality.
Frederick P. Morgeson, Ph.D.
Chair, SHRM Foundation Research Applications Committee
Professor of Management, Michigan State University
vAcknowledgements
The author gratefully acknowledges the assistance of Phil C. Bryant and James
M. Vardaman in the preparation of this report, as well as the helpful comments
of Dr. Charles A. Pierce.
The SHRM Foundation is grateful for the assistance of the following
individuals in producing this report:
Content Editors Reviewers
Herbert G. Heneman III, Ph.D. Meredith Brooks Carpenter, PHR
Dickson-Bascom Professor in Booz Allen Hamilton Inc.
Business
University of Wisconsin-Madison Martha R.A. Fields
President and CEO
Frederick P. Morgeson, Ph.D.
Fields Associates, Inc.
Professor of Management
Eli Broad College of Business
John D. Kammeyer-Mueller,
Michigan State University Ph.D.
Assistant Professor
Warrington College of Business
Project Manager Administration
Beth M. McFarland, CAE University of Florida
Manager, Special Projects
SHRM Foundation Merry Lee Lison, SPHR
Director, Human Resources
TRC Global Solutions, Inc.
Major funding for the Effective Practice Guidelines series is provided by the
Human Resource Certification Institute and the Society for Human
Resource Management.
viiRetaining Talent
About the Author
David G. Allen David Allen earned his Ph.D. from the Beebe Institute of Personnel
and Employment Relations at Georgia State University. He is currently
an Associate Professor of Management in the Fogelman College
of Business and Economics at the University of Memphis, and the
Director of the Management Ph.D. program. His primary research
interests include the flow of people into and out of organizations and
the role of technology in human resource management. His research
on these topics has been published in the Academy of Management
Journal, Journal of Applied Psychology, Journal of Management, Personnel
Psychology, Organizational Research Methods, Human Relations, and
other outlets.
Dr. Allen is a 2005-2006 recipient of a Suzanne Downs Palmer
Professorship award for research. He teaches undergraduate and
graduate courses primarily in the areas of human resource management
and organizational behavior, as well as research methods. He does
organizational research and consulting on topics such as recruitment,
retention, and organizational effectiveness. He earned the designation
of Senior Professional in Human Resources (SPHR) from the
Human Resource Certification Institute. Dr. Allen has worked with
organizations such as the Red Cross, Campbell Clinic, Georgia
Department of Family and Children Services, Harrah’s Entertainment,
Methodist Hospitals, Pfizer, Region’s Bank, and the U.S. Navy.
ixIn 2006, 23.7% of American workers voluntarily quit their jobs.
-- U.S. Bureau of Labor StatisticsRetaining Talent
Retaining Talent: A Guide to Analyzing and
Managing Employee Turnover
by David G. Allen, Ph.D., SPHR
One of the most critical issues facing organizations today is how to retain the
employees they want to keep. Yet nearly one quarter of all U.S. workers quit
their jobs in 2006, and in some industries the turnover rate is considerably
higher. There are more than 1,000 published research articles on turnover
and retention. As a busy human resource practitioner, do you have the time
to read them all, synthesize their recommendations, and translate them into
usable practices to improve retention? If you’re like most HR professionals, you
probably do not. That’s why the SHRM Foundation prepared this report—to
summarize the latest research findings on employee turnover and retention and
offer ideas for putting those findings into action in your organization.
This report explores several major themes related to retention management:
Why employees leave and why they stay. This presents the major theories
and research findings in this area and explores the practical implications of
each. A model is provided depicting how employees make turnover decisions.
How to develop an effective retention management plan. To create a
sound plan, you need to determine the extent to which turnover is a problem
in your firm, diagnose turnover drivers, and formulate retention strategies.
These sections explain how to take these steps and include summaries of
research on strategies.
Let’s start by exploring what turnover is and why it is important to manage it.
Reducing Turnover at American Home Shield
American Home Shield, the major appliance warranty arm of ServiceMaster, is
based in Memphis, Tenn. and has about 1,500 employees. A critical department
at American Home Shield was experiencing an annual turnover rate of 89%.
The company estimated the direct financial costs associated with losing
employees and hiring and training replacements at over $250,000 annually.
Managers also believed that the high turnover rate was eroding employee
morale and customer loyalty. Using research-based retention management, the
department reduced turnover to 35% in about one year.
Source: Phil Bryant, former HR Manager, American Home Shield
1Retaining Talent
To manage voluntary What Is Turnover, Exactly?
Employees leave organizations for all sorts of reasons. Some find a different job,
turnover in your
some go back to school, and some follow a spouse who has been transferred
organization, you need out of town. Others retire, get angry about something and quit on impulse,
or never intended to keep working after earning a certain amount of money.
an in-depth understanding Still others get fired or laid off, or they come into money (a lottery win, an
inheritance) and decide they no longer need a job.
of why employees leave All of these examples represent turnover, but they don’t all have the same
organizational implications. To distinguish their implications, we need to define
or stay with organizations types of turnover. Consider Figure 1 Turnover Classification Scheme.1
in general, as well as
Figure 1: Turnover Classification Scheme
strategies for managing
turnover among valued
Turnover
workers in your company.
Voluntary Involuntary
Functional Dysfunctional
Unavoidable Avoidable
As Figure 1 suggests, the first important distinction in turnover is between
voluntary and involuntary. Voluntary turnover is initiated by the employee; for
example, a worker quits to take another job. Involuntary turnover is initiated
by the organization; for instance, a company dismisses an employee due to poor
performance or an organizational restructuring. Voluntary and involuntary
turnover require markedly different management techniques. This report focuses
on voluntary turnover. To manage voluntary turnover in your organization,
you need an in-depth understanding of why employees leave or stay with
organizations in general, as well as strategies for managing turnover among
valued workers in your company.
Another important distinction is between functional and dysfunctional
voluntary turnover. Dysfunctional turnover is harmful to the organization and
can take numerous forms, including the exit of high performers and employees
with hard-to-replace skills, departures of women or minority group members
that erode the diversity of your company’s workforce, and turnover rates that
2Retaining Talent
lead to high replacement costs. By because of health problems or a Organizations that systematically
contrast, functional turnover does desire to return to school, there may manage retention—in good times
not hurt an organization. Examples be little the organization can do to and bad—will stand a greater chance
of this type of turnover include the keep them. of weathering such shortages.
exit of poor performers or employees
The distinction between avoidable Turnover matters for three key
whose talents are easy to replace.
and unavoidable turnover is reasons: (1) it is costly; (2) it affects
This distinction between functional important because it makes little a business’s performance; (3) it may
and dysfunctional turnover is sense for a firm to invest heavily become increasingly difficult to
relative. What makes an employee in reducing turnover that arises manage. The sections below examine
valuable and difficult to replace from largely unavoidable reasons. each of these reasons in greater
will vary by job, organization, However, the line between avoidable detail.
industry, and other factors. To and unavoidable turnover can be
illustrate, a high turnover rate may fuzzy. To illustrate, your company Turnover is costly
be more dysfunctional in an industry has no control over whether an
characterized by skills that are in employee decides to start a family. Employee departures cost a
rare supply. Moreover, the question Yet it can elect to offer paid company time, money, and other
of whether the benefits of retaining maternity leave, on-site child care, resources. Research suggests
a valued worker are worth the costs and other benefits intended to help that direct replacement costs can
may generate a different answer working parents stay with your reach as high as 50%-60% of an
in some companies than in others, organization. employee’s annual salary, with
depending on the organization’s total costs associated with turnover
strategy and the current labor ranging from 90% to 200% of
Why Turnover annual salary.4 Examples include
market.
Matters turnover costs of $102,000 for a
Could your organization retain all journeyman machinist, $133,000 for
its valued employees if it wanted Does turnover matter? Absolutely—
an HR manager at an automotive
to? The answer is no. Even if you even during times when the job
manufacturer, and $150,000 for an
invested heavily in keeping every market is tight and people are
accounting professional.5 If these
key employee on board, some of strongly motivated to stay with their
estimates strike you as high, keep in
those individuals would still leave. current employer. At such times,
mind that in addition to the obvious
This brings up another important it would be shortsighted to ignore
direct costs associated with turnover
distinction: Some voluntary turnover retention management. That’s
(such as accrued paid time off and
is avoidable and some is unavoidable. because even high unemployment
replacement expenses), there are
Avoidable turnover stems from rates have little impact on the
numerous other costs. Consider
causes that the organization may be turnover of top-performing
Table 1: Voluntary Turnover Costs
able to influence. For example, if employees or those with in-demand
and Benefits.6
employees are leaving because of low skills.2 Thus, organizations that
job satisfaction, the company could ignore retention may inadvertently Clearly, turnover costs can have
improve the situation by redesigning plant the seeds for losing these an alarming impact. One study
jobs to offer more challenge or more highly marketable workers. estimated that turnover-related costs
opportunities for people to develop Moreover, businesses everywhere represent more than 12% of pre-tax
their skills. Unavoidable turnover are facing impending shortages of income for the average company
stems from causes over which the overall talent as well as a dearth and nearly 40% for companies at the
organization has little or no control. of employees with the specialized 75th percentile for turnover rate.7
For instance, if employees leave competencies companies need to However, remember that not all
stay ahead of the competition.3 turnover is harmful (dysfunctional)
3Retaining Talent
for an organization. As noted Turnover affects nurses accounted for 68% of the
earlier, some turnover may generate organizational variability in per-bed operating
important benefits; for example, performance costs.8 Likewise, reducing turnover
the new hire turns out to be more A growing body of research links rates has been shown to improve
productive or skilled than the high turnover rates to shortfalls in sales growth and workforce morale.
previous employee. To develop an organizational performance. For In addition, high-performance
effective retention plan, you need to example, one nationwide study HR practices (including reduction
consider both the costs and benefits of nurses at 333 hospitals showed of dysfunctional turnover rates)
associated with turnover in your that turnover among registered increase firm profitability and market
organization. value.9
These relationships become
Table 1: Voluntary Turnover Costs and Benefits even more pronounced when
Separation Costs
you consider who is leaving. For
instance, research shows that
Financial
high turnover among employees
HR staff time (exit interview, payroll administration, benefits)
with extensive social capital
Manager’s time (retention attempts, exit interview)
can dramatically erode firm
Accrued paid time off (vacation, sick pay)
performance.10 Thus, a savvy
Temporary coverage (contingent employee, overtime for remaining employees) HR manager can make a clear
business case for tailoring turnover
Other management strategies to the
Delays in production and customer service; decreases in product or service quality types of employees departing the
Lost clients organization.
Clients not acquired that would have been acquired if employee had stayed
Stiffer competition as employee moves to a rival company or forms own business
Retention may become more
Contagion (other employees decide to leave; for example, to join defector at his/her
challenging
new organization)
Disruptions to team-based work Are you ready for a talent crunch?
Loss of workforce diversity
Opinions abound regarding
whether demographic and labor
market trends signal an impending
Replacement Costs
shortage of overall labor supply.
New hire’s compensation
For example, according to
Hiring inducements (signing bonus, reimbursement of relocation expenses, perks)
Manpower, Inc., “Demographic
Hiring manager and unit/department employee time
shifts (aging populations, declining
Orientation program time and materials
birthrates, economic migration),
HR staff induction costs (payroll, benefits enrollment)
social evolution, inadequate
educational programs, globalization,
Training Costs
and entrepreneurial practices
Formal training (trainee and instruction time, materials, equipment)
(outsourcing, off-shoring, on-
On-the-job training (supervisor and employee time)
demand employment) are . . .
Mentoring (mentor’s time)
causing [labor] shortages, not only
Socialization (other employees’ time, travel)
in the overall availability of talent
Productivity loss until replacement has mastered job
but also—and more significantly—in
Source: Herbert G. Heneman, III and Timothy A. Judge, Staffing Organizations (5e), Middleton, WI: Mendota House, 2006; p 675.
the specific skills and competencies
Reprinted with permission. required.”11
4Retaining Talent
More and more observers agree that as the inducements it offers (such
a talent scarcity is looming—and as satisfactory pay, good working Spotlight: Turnover Is Tougher
that this shortage will make finding conditions, and developmental on Small Organizations
and keeping the right people opportunities) are equal to or
The loss of key employees can
with the right skills increasingly greater than the contributions (time,
have a particularly damaging
challenging for organizations. In a effort) required of the person by
impact on small organizations:
SHRM survey of HR professionals, the organization. Moreover, these
62% of the respondents reported judgments are affected by both • Departing workers are more
already having difficulty hiring the individual’s desire to leave the likely to be the only ones
workers with the skills essential for organization and the ease with which possessing a particular skill or
a 21st century workforce.12 Many he or she could depart. knowledge set.
business leaders worry that this
Clearly, turnover is a complex process. • A small company’s culture
problem will worsen with important
That is, although some individuals suffers a more serious blow
demographic shifts (such as waves of
may quit a job on impulse, most when an essential person leaves.
retirements among aging workers).
people who leave spend time initially
Inadequate educational systems, • There is a smaller internal pool
evaluating their current job against
increasingly mobile employees, of workers to cover the lost
possible alternatives, developing
and even generational differences employee’s work and provide a
intentions about what to do, and
in perceptions about the nature replacement.
engaging in various types of job-
of work and careers will all likely
search behavior.14 • The organization may have fewer
aggravate matters further. HR
professionals who take time now Figure 2: Comprehensive Voluntary resources available to cover
to create strategies for dealing with Turnover Model captures this replacement costs.
these developments will put their process. The research shows that
organizations at a competitive specific turnover drivers affect key
advantage. job attitudes such as satisfaction
with one’s role and commitment to
the organization. Low satisfaction
Why Employees Leave and commitment can initiate
the withdrawal process, which
Much research on talent retention includes thoughts of quitting, job
has centered on understanding the searching, comparison of alternative
varied reasons behind employees’ Managing the Inducements-
opportunities, and the intention
decisions to leave organizations, Contributions Balance
to leave. This process may lead to
as well as the processes by which turnover if the organization fails Organizations can actively
people make such choices. By to manage it effectively. Turnover manage employees’ turnover
understanding why people leave, drivers may also produce other work decisions by influencing the
organizations can also gain a better behaviors that suggest withdrawal, inducements-contributions
idea of why people stay and can learn such as absenteeism, lateness, and balance.
how to influence these decisions. poor performance, any of which
To manage this balance, make
The theory of organizational may end in a departure without
changes affecting how intensely
equilibrium13 can shed valuable the person going through a job
employees want to leave as well
light on these matters. According search, evaluation of alternatives, or
as how easy it is for them to
to this theory, an individual will extended consideration of quitting.
leave.
stay with an organization as long The lesson? To proactively manage
5Retaining Talent
retention, organizations must especially with highly valued workers
Spotlight: Intervening in the monitor and adjust key aspects of in high-demand positions.
Turnover Process the work environment that influence
With limited resources,
employees’ desire to stay or leave.
There are multiple points in organizations may choose to focus
the turnover process where As we’ve seen, the ease with which on target populations rather than
organizations can intervene to the individual can leave an employer trying to retain every employee
influence turnover decisions. plays a role in the person’s choices. indefinitely. (See the bottom of
Key attitudes—job satisfaction When someone has numerous Figure 2.) Depending on what’s
and organizational commitment— alternatives that are more attractive going on in the labor market,
are especially critical during the than his or her current role, the businesses may want to focus their
turnover process and therefore decision to leave grows that much retention efforts on particular
are worth paying special easier. Retention-savvy managers employees or groups of employees,
attention to. thus keep tabs on alternate such as new hires, star performers,
opportunities, so they can ensure workers with high-demand or hard-
In the withdrawal phase of the that positions remain competitive. to-replace skills, or members of
turnover process, the intention Also, in Figure 2, notice the particular demographic groups.
to leave is generally the most feedback arrow from the withdrawal
powerful predictor of turnover. process to key attitudes. When
Thus measuring it is vital. Predicting turnover
attractive alternatives are plentiful,
people tend to evaluate their current Can you predict an employee’s
work environment against a higher decision to leave? Extensive studies
standard than when options are have looked into this question and
few. It may become more difficult many drivers of turnover have been
for their employer to keep them identified. Figure 3 summarizes the
satisfied—which is a challenge results of this research.15 The figure
Figure 2: Comprehensive Voluntary Turnover Model
On-Boarding
Realistic Embeddedness Shocks/Scripts
Previews
Socialization
Turnover Drivers Withdrawal Process
Job Characteristics Key Attitudes
Thinking of Quitting
Leadership Job Satisfaction
Job Search Turnover
Relationships Organizational Alternatives
Work Environment Commitment
Turnover Intentions
Individual Characteristics
Work Behaviors
Absenteeism
Lateness
Target Populations: e.g., new hires, high performers, high-demand skills, demographic groups Performance
6Retaining Talent
lists predictors in order—from those this list is a useful overall guide.
with the strongest relationship to Spotlight: Decreasing
Figure 3 below reveals some
turnover at the top, to those with Turnover at Cendant
interesting information. For
the weakest relationships at the
example, most of the strongest Cendant decreased annual
bottom. Though the strength of
predictors are related to the turnover from about 30% to
these predictors may vary somewhat
withdrawal part of the turnover less than 10% by adding to
across job types, companies,
process, suggesting that managers the inducements side of the
industries, and individual situations,
equation.16 Specifically, it
implemented a flexible working
Figure 3: Turnover Predictor schedule and work/life balance
program after an employee
Turnover Intentions (+) survey revealed workers’ desire
Thoughts of Quitting (+)
for greater balance between their
Search Intentions (+)
Search Behaviors (+) professional and personal lives.
Stronger
Weighted Application Blank (+) The program is managed at the
Organizational Commitment (-) department level and offers daily
Relationship with Supervisor (-)
Role Clarity (-)
flexible start and end times as
Tenure (-) well as an option to work four
Job Satisfaction (-) long days each week and take
Role Conflict (+)
the fifth day off. Cendant also
Absenteeism (+)
Work Satisfaction (-) now offers wellness programs
Comparison of Alternatives to Present Job or Company (+) for employees, such as on-site
Satisfaction of Expectations of Job or Company (-)
mammograms, blood pressure
Job Performance (-)
Stress (+) and vision tests, flu shots, and
Promotion Opportunities (-) seminars on topics such as
Children (-) single parenting and smoking
Alternative Job Opportunities (+)
Job Scope (-)
cessation.
Quality of Communication in Organization (-)
Work-Group Cohesion (-)
Co-worker Satisfaction (-)
Participation in Decision Making (-)
Satisfaction with Supervisor (-)
Role Overload (+)
Job Involvement (-)
Age (-)
Pay (-)
Outcome Fairness (-)
Degree of Routinization of Job Responsibilities (+)
Family Responsibilities (-)
Training (-)
Pay Satisfaction (-)
Weaker
Lateness (+)
Education (+)
Marital Status (-)
Sex
Cognitive Ability (+)
Race
Note: a plus (+) indicates that the predictor is positively related to turnover. (As the predictor increases, so does turnover.)
A minus (-) indicates that the predictor is negatively related to turnover. (As the predictor increases, turnover decreases.)
7Retaining Talent
Spotlight: Managing Turnover Paths 17
Through surveys and exit interviews, the work environment. Be prepared to minimize prevalent negative
organizations can identify the percent to deal with external offers for valued shocks (such as harassment or
of people leaving who follow each employees. perceptions of unfair treatment). Give
of the four primary paths to turnover. employees realistic previews and clear
• Plans: It may be difficult to counter
Each path has different implications communication to minimize unexpected
these directly. Increasing rewards tied
for the company’s retention strategies: shocks. Provide support mechanisms
to tenure may alter some employees’
to help employees deal with shocks (for
• Dissatisfaction: Attack this with plans. Determining which plans are
instance, grievance procedures, flexible
traditional retention strategies such common in your workforce may help
work arrangements, and employee
as monitoring workplace attitudes you develop a tailored response; for
assistance programs).
and managing the drivers of turnover example, more generous maternity and
identified earlier. family-friendly policies if you discover Example: UPS has countered the threat of
numerous family-related plans. better job alternatives by providing well-
• Better alternatives: Ensure that above-market wages, ample vacation time,
your organization is competitive in • No plan: Analyze the types and free health insurance, and a highly competitive
terms of rewards, developmental frequencies of shocks that are driving pension plan.This approach has resulted in an
opportunities, and the quality of employees to leave. Provide training unusually low annual turnover rate of 1.8%.18
must monitor these variables employees’ decisions to leave.
(perhaps through employee surveys). Thus, offering pay increases or
Additional predictors that merit bonuses to keep people at your
careful attention include: organization may not be the most
efficient way to address retention. In
• Key attitudes of organizational
addition, demographics (education,
commitment and job satisfaction
marital status, sex, and race) are
• The quality of the relationship also relatively weak predictors of
between an employee and his or turnover.
her immediate supervisor
• Role clarity (including definition, Other paths to turnover
Shock n 1. Any event that leads
communication, and reinforcing of The research findings we’ve been
someone to consider quitting
performance expectations) examining can help you identify and
his or her job. Shocks can be
manage the turnover predictors most
expected (e.g., completing • Job design (including job scope,
important in your organization.
a degree) or unexpected promotion opportunities, and
However, research has also
(discovering that a spouse has to opportunities to participate in
recognized that not every employee
relocate). They can also be job- decision-making)
follows the above-described path
related (a negative performance
• Workgroup cohesion toward the decision to leave a job.
appraisal) or non-job-related
The unfolding model of turnover
(pregnancy). Finally, they can The figure also suggests that pay identifies four different paths to
be positive (winning the lottery), might not matter as much as you turnover: (1) leaving an unsatisfying
neutral (a merger), or negative think in turnover decisions, as job, (2) leaving for something
(sexual harassment).19 compensation and pay satisfaction better, (3) following a plan, and (4)
are relatively weak predictors of leaving without a plan.20
8Retaining Talent
Leaving an unsatisfying job mechanisms to help employees
Spotlight: Managing Turnover
resembles the typical turnover recover from a shock.
Predictors at Running Pony
process discussed above. Leaving for
something better entails leaving for Research has not systematically
an attractive alternative, and may determined differences in turnover
Why Employees Stay predictors’ strength based on
or may not involve dissatisfaction.
That is, some people who are quite A great deal of turnover research organization size. Nevertheless,
satisfied with their current jobs still focuses on people who leave, on the managers in small organizations
leave when presented with an even assumption that understanding why should leverage well-established
more appealing alternative. These people depart will help organizations predictors they may be in a
decisions may be initiated by a determine how to retain them. particularly good position to
“shock,” such as an unsolicited job Of course, it is also valuable to offer, such as building positive
offer that the individual can’t resist. understand why employees stay. work-group cultures, providing
Some recent studies have examined employees with challenging jobs,
Following a plan refers to leaving a the ways in which employees and making each worker feel
job in response to a script or plan become embedded in their jobs and valued. Other strategies, including
already in place. Examples may their communities.21 As employees offering well-defined career paths
include employees who intend to participate in their professional and or above-market rewards, may be
quit if they or their spouse becomes community life, they develop a web more difficult for smaller companies.
pregnant, if they get accepted of connections and relationships on
into a particular degree program, Running Pony22 understands that
and off the job. Leaving a job would
after they earn a certain amount workplace relationships matter in
require severing or rearranging
of money or complete a particular people’s decisions about staying or
these connections. Employees who
training program, or after receiving leaving an organization. Founded in
have many connections are more
a retention bonus. Again, these 1994, Running Pony is a multiple
embedded, and thus have numerous
decisions may have little or nothing Emmy Award-winning freelance
reasons to stay in an organization.
to do with job dissatisfaction. production company. In business for
There are three types of connections
Further, there may be little or 13 years and currently employing
that foster embeddedness: (1)
nothing organizations can do to 17 people, the company has had
“links,” (2) “fit,” and (3) “sacrifice.”
influence these decisions. 100% retention since its inception.
Each of these types may be related to
How has it achieved this feat?
Leaving without a plan is all about the organization or the surrounding
Managers have strived to build a
impulsive action, typically in community.
supportive and cohesive culture. As
response to negative shocks such as Links are connections with other co-founder and managing partner
being passed over for a promotion people, groups, or organizations. Jonathan Epstein puts it, “We were
or having a family member suffer Examples include relationships with trying to build a team of people who
a catastrophic illness requiring co-workers, work groups, mentors, knew each other, who liked each
extensive care. Once more, these friends, relatives, church groups, and other, who worked well together
departures may or may not be so forth. Employees with numerous and complemented each other.”
associated with dissatisfaction before links to others in their organization Rod Starnes, also a co-founder and
the shock. In addition, organizations and community are more embedded managing partner, adds that the
can manage these decisions by and would find it more difficult to company’s biggest achievement
minimizing certain types of negative leave. is “creating an environment where
shocks in the workplace (such as creative and talented people are
sexual harassment). Companies can comfortable.”
also consider providing support
9Retaining Talent
Fit represents the extent to tenure, a positive work environment,
Spotlight: Strengthening which employees see themselves promotional opportunities, status
Community Ties at Paragon as compatible with their job, in the community, and so forth.
National Bank organization, and community. For Employees who would have to
example, an employee who relishes sacrifice more are more embedded
Paragon National Bank,
outdoor activities and lives in a and therefore more likely to stay.
in western Tennessee,
community that offers excellent
has embraced the idea of
outdoor opportunities would find
encouraging employees to
it more difficult to leave his or her How to Develop
build ties with the community.
job if doing so required moving to
For example, the bank has
another community that did not
Your Retention
“adopted” a local second-grade Management Plan
provide such opportunities.
class, has invited employees
to participate in Habitat for Sacrifice represents forms of value The above-described suggestions for
Humanity home-building a person would have to give up managing turnover predictors and
projects, and encourages if he or she left a job. Sacrifices employees’ embeddedness are useful
workers’ participation in the include financial rewards based on for any HR practitioner seeking to
annual Susan G. Komen Race
for the Cure events, among
other local projects. The Table 2: Embedding Your Employees
Memphis Business Journal
In your organization In the surrounding community
named Paragon National Bank
the winner of its 2006 Best To build and strengthen • Provide mentors. Encourage and support community
Place to Work in Memphis links . . . • Design work in teams. involvement; for example, through
• Foster team cohesiveness. community service organizations and
contest among organizations • Encourage employee referrals. recreational leagues.
with 51-150 employees.23
To build and strengthen • Provide realistic information • Recruit locally when feasible.
fit . . . about the job and company
• Provide relocating employees
during recruitment.
extensive information about the
• Incorporate job and community during recruitment and
organizational fit into employee selection.
selection.
• Build ties between your company
• Provide clear socialization and the community (e.g., by
and communication about the sponsoring local events).
enterprise’s values and culture.
To build and strengthen • Tie financial incentives to tenure. • Encourage home ownership (for
sacrifice. . . instance, by providing home-buying
• Provide unique incentives that
assistance).
might be hard to find elsewhere
(such as sabbaticals). • Develop career paths that do not
require relocation.
Table 2: Embedding Your Employees24 shows strategies for building and
strengthening links, fit, and sacrifice in your organization.
10Retaining Talent
help his or her organization retain job types, geographic locations, and
talent. But they’re not enough in even individuals. Thus, one-size-fits- Ongoing Retention
themselves. That’s because simple all retention initiatives may backfire. Management at American
one-shot retention efforts (for Home Shield
How, then, should you approach
example, a single employee attitude
the task of developing the right American Home Shield
survey, a one-time bonus, or a
retention management plan for your recognized that to retain
once-offered management training
company? its most valued employees,
program) are unlikely to exert much
impact over the long run. Figure 4: Developing a Retention managers first had to
To manage retention most Management Plan26 on page 12 understand why some
effectively, you need to engage in an shows the important steps in this employees leave and
ongoing diagnosis of the nature and process. In the sections below, we others stay. To capture this
causes of turnover, as well as develop examine each of these steps more information, an employee
(and constantly hone) the right mix closely. turnover project team
of retention initiatives. surveyed a sample of
employees who had already
That calls for thinking about left the organization. It also
Step 1: Is Turnover a Problem
retention before employees are implemented an ongoing
for Us?
hired, while they’re working at your procedure to survey people
company, and after they leave. As an As we noted earlier, not all
who left the organization after
HR professional, you have a critical voluntary turnover is harmful for
the initial survey. In addition, it
role to play in this process. Indeed, an organization. Turnover among
surveyed remaining employees
many organizations are integrating underperformers, turnover that
on a quarterly basis throughout
their retention efforts into a broader enables your company to tap
the project to determine which
talent management strategy. Talent fresh perspectives and skill sets or
aspects of their jobs made
management comprises workforce lowers labor costs are all examples
them stay and which caused
planning, hiring, development, of functional turnover. Moreover,
them to consider leaving.
and retention to ensure that the in most cases, it’s impossible to
organization has access to the prevent every employee from leaving The team found that supervisor
quality and quantity of talent it a company. However, turnover availability, job training, and job-
needs to compete now and in the becomes dysfunctional when the requirement communications
future. A recent study concluded wrong people are leaving, or when were the most important, yet
that 53% of organizations have a the turnover rate becomes so high most dissatisfying, aspects of
talent management initiative in that the accompanying costs and working at American Home
place, and 76% of these enterprises instability outweigh the benefits. Shield.
identify talent management as a top To determine whether turnover is
organizational priority.25 problematic in your enterprise, you
need to conduct a turnover analysis.
But keep in mind that each
organization is unique, operates in
Turnover analysis
its own idiosyncratic environment,
and has its own human capital An effective turnover analysis
strategies and challenges. Even examines three questions: (1) How
within a single organization, many people are leaving (turnover
retention goals and challenges may rate)? (2) Who is leaving? (3) What
differ across departments, divisions, are the relative costs and benefits of
11Retaining Talent
Figure 4: Developing a Retention Management Plan
STEP 1: STEP 2: STEPS 3 and 4:
Is Turnover a Problem for Us? How Should We Proceed? Implementation and
Evaluation
Benchmarking Data Collection
External Internal Why People Quit or Stay
in Your Organization
Exit Interviews; Post-Exit Surveys
Stayer Focus Groups
Employee Surveys
Turnover Analysis
Targeted
How Many Are Leaving? Develop Strategies
Retention Implementation Evaluation
Who Is Leaving?
Goals
Costs and Benefits? Broad based
Strategies
Data Collection
Why People Quit or Stay
in General
Retention Research
Needs Assessment Best Practices
External Internal Benchmarking Surveys
our current turnover? Let’s look at performance level of departing schedules are an effective retention
each of these in turn. workers). These breakout data help strategy, and are more likely to
you identify “turnover hotspots” to cite a relocating spouse, child care
How many are leaving? focus on. issues, conflict with co-workers,
Use the equation on page 13 to and difficulty balancing work and
calculate turnover rate over a certain Who is leaving? personal life as reasons for leaving
time period (e.g., monthly The question of who is leaving is organizations.28 Owing to these and
or yearly).27 crucial for assessing the extent to other differences, you should track
which turnover is functional or breakout data on the performance
Also track types of turnover (such levels, skills (especially high-demand
as voluntary vs. involuntary and dysfunctional, because not every
employee is of equal value to or hard-to-replace skills), tenure, and
avoidable vs. unavoidable), type of membership in underrepresented
employee (part-time or full-time), your organization. Furthermore,
some employees may leave for groups (e.g., minorities, females)
job category, job level, geographic of individuals who leave. This
location, and other categorizations different reasons than others. For
example, a SHRM survey found information will give you a more
that may be important in your complete picture of the extent to
organization (for instance, that women are more likely than
men to report that flexible work which turnover is a problem in your
12Retaining Talent
Average number of employees
Turnover Rate = X 100
Number of employees leaving
company, and will help you develop manufacturing organization, Another source of external
more effective retention strategies. this rate is absolutely too high. benchmarking data could be private
That’s because such organizations organizations such as the Attrition
typically experience much lower Consortium. This group of 25
What are the relative costs and
levels of turnover. But for hourly Fortune 500 companies provides
benefits of our current turnover?
employees in a retail or food-service quit-rate statistics to a third-party
Most retention strategies require environment, it almost certainly organization that compiles the data
investments of time, money, or is not, because these types of and circulates benchmark statistics.30
other resources. To design strategies organizations often experience much
that yield acceptable returns on Through internal benchmarking,
higher turnover. Benchmarking
those investments, you need a you track your organization’s
and needs assessment can give
clear idea of how much the costs turnover rates over time. If the
you additional information for
associated with turnover in your rate is increasing, overall or among
determining whether turnover is a
company outweigh the benefits particular groups or locations, that
problem in your organization.
associated with turnover. Using this could be a red flag.
information, you can calculate total Through external benchmarking,
turnover costs as well as costs per you compare your organization’s
Needs assessment
incident of turnover. The formulae turnover rates against industry and
competitor rates. If your rates are Through a needs assessment,
you use may vary based on factors
significantly higher than those of you evaluate the implications of
such as job type or level, employee
rival companies, your firm may turnover for your organization in the
type, or employee performance level.
be at a competitive disadvantage. context of future labor demand and
A variety of resources are available
Alternatively, relatively low rates availability.
to help you develop cost-benefit
formulae and metrics, including in your company could provide Using an external needs assessment,
the SHRM Retention Toolkit an edge over rivals. One source of you consider trends in the industry
available at www.shrm.org.29 In external benchmarking data is the and larger labor market that may
practice, your turnover-cost metrics U.S. government. For instance, affect supply and demand of
need not be “perfect.” It’s more the Department of Labor (DoL) human capital. Some trends (such
important that you arrive at an publishes the Job Openings and as industry growth) may increase
internal consensus on appropriate Labor Turnover Survey (JOLTS; demand for employees valued by
measures, so that the analysis, www.bls.gov/jlt). Table 3: JOLTS your organization. Others (such as
conclusions, and recommendations 2006 Quit Rates on page 14 shows retirements of baby boomers) may
are seen as credible by others in your an example. These data represent worsen already shrinking supplies of
organization. annual and monthly quit rates as a labor.
percentage of total employment for
all non-farm employment across the Through an internal needs
Benchmarking assessment, you evaluate your
United States. On the DoL’s web
Is a 15% annual turnover rate too site, you can find breakdowns by organization’s future strategic
high? This question is impossible to industry, geographic region, public- direction and that direction’s
answer in isolation. For managerial private, and government sector. implications for your labor
employees in a stable, mature requirements. Some strategies
13Retaining Talent
(such as expansion of a business) the board. For example, “Decrease
Spotlight: Tracking will increase demand and may annual turnover in our company by
Turnover Rates at Harrah’s make turnover more problematic 7%.” Targeted strategies are designed
Entertainment than strategies likely to decrease for organization-specific turnover
demand (including outsourcing drivers and are intended to address
Harrah’s Entertainment
or contraction). Some strategic organization-specific issues. Often,
tracks overall turnover rates
plans may require a more nuanced these strategies are also used to
as well as turnover rates by
approach to managing turnover. For influence turnover among certain
property (location) and by
example, if your company needs to employee populations. For instance,
division/department. The
decrease the size of its workforce and “Increase the retention rate of
company also codes each
decides to do so by offering early female engineers by 10%.”
termination as voluntary or
retirement or severance packages,
involuntary and controllable or Figure 5: Adapting Your Retention
you may also want to simultaneously
uncontrollable. Within these Strategies provides guidance for how
work on retaining certain other key
broader categories, it breaks to proceed based on the criteria of
employees.
the data down into almost 30 turnover costs, turnover rates, and
more specific subcategories who is leaving.
(such as voluntary-controllable- STEP 2: How should we
dissatisfied with pay; proceed? As Figure 5 suggests, when turnover
involuntary-policy violation). costs are tolerable, turnover
Taken together, turnover analysis,
These data enable Harrah’s to rates acceptable, and turnover
benchmarking, and needs assessment
track turnover rates and types is considered functional, then
enable you to determine the extent
across business units and turnover is not a significant current
to which turnover is problematic
identify patterns that warrant issue. Thus, your organization
in your organization. These data
attention. can focus on monitoring the
will help you develop appropriate
situation and maintaining the
responses and set your retention
status quo. When costs are
goals. If you’ve decided that
tolerable, but employee departures
turnover is not a problem, you may
are considered dysfunctional,
want to simply maintain the status
consider low-investment strategies
quo while still monitoring turnover
targeted at people who leave, for
in your organization.
example creating more flexible
If you’ve determined that turnover work arrangements. When costs
does present a problem, you might are tolerable, but turnover rate
want to consider broad-based or is problematic, you may want to
targeted retention strategies (or a try low-investment but broad-
combination of both), depending based strategies. When both the
on your company’s unique situation. turnover rate and who is leaving
Broad-based strategies are based are problematic, you’ll need both
on general principles of retention targeted and broad-based strategies.
management and are intended to When turnover costs are deemed
help reduce turnover rates across intolerably high, look for strategies
Table 3: JOLTS 2006 Quit Rates
Annual Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
23.7% 1.8% 1.6% 1.9% 1.8% 2.1% 2.2% 2.1% 2.7% 2.1% 1.9% 1.7% 1.7%
14Retaining Talent
that provide a positive cost-benefit organization or at large subsystems, In addition, you’ll want to learn
ratio, even if they require extensive and are intended to address overall from best practices—the strategies
resources. Finally, when neither retention rates.31 Examples might that other organizations are
the rate nor who is leaving is include providing across-the-board doing and are finding effective
problematic but turnover costs are market-based salary increases, or ineffective. For example, a
high, seek to streamline and reduce changing your company’s hiring WorldatWork survey of HR
the costs associated with each person process to incorporate retention- professionals found the following
who quits. related criteria, and improving the top ten retention initiatives in use:32
work environment. The data to help
Note that broad-based and targeted
you proceed can come from several
strategies don’t have to be mutually 62% Market adjustment/base
sources, including (1) retention
exclusive. Indeed, general retention salary increase
research, (2) best practices, and (3)
best practices can help you keep
benchmarking surveys. 60% Hiring bonus
specific employees on board and
determine which organization- Retention research can shed valuable 49% Work environment (e.g.,
specific turnover drivers to measure. light on the primary drivers of flexible schedules, casual dress,
At the same time, data that you turnover in organizations. Earlier telecommuting)
collect on those organization- in this report, you saw a summary
specific drivers can help you reduce of the predictors most consistently 28% Retention bonus
overall turnover rates. Still, you’ll related to turnover and the relative 27% Promotion and career-
get the best returns on your strengths of those relationships. development opportunities
retention investments if you use data The Annotated Bibliography at
collection and retention strategies the end of this report describes 24% Above-market pay
that are tailored to your particular additional useful resources. You may 22% Special training and
turnover problem. Let’s take a closer also want to attend conferences of educational opportunities
look at the differences between certain professional associations to
broad-based and targeted strategies. gain access to the latest research on 22% Individual spot bonuses
turnover and retention; for example,
19% Stock programs
the Academy of Management
Broad-based strategies
and the Society for Industrial and 15% Project milestone/completion
As we’ve seen, broad-based retention Organizational Psychology. bonuses
strategies are directed at the entire
Figure 5: Adapting Your Retention Strategies
Turnover Costs Tolerable Intolerable
Turnover Rates Acceptable Acceptable High or High or Acceptable Acceptable High or High or
Increasing Increasing Increasing Increasing
Who is Leaving Functional Dysfunctional Functional Dysfunctional Functional Dysfunctional Functional Dysfunctional
Response Maintain Low- Low- Low- Streamline Targeted Broad-Based Broad-Based
Status Quo Investment Investment Investment Costs Strategies Strategies and Targeted
and Monitor Targeted Broad-Based Broad-Based Strategies
Strategies Strategies and Targeted
Strategies
15Retaining Talent
Professional associations such as
SHRM can also be useful sources Implications for Small Organizations
of best practices data. The SHRM
web site (www.shrm.org) offers Organization size can be a factor in determining the extent to which
a wealth of survey data, research turnover is a problem, as well as appropriate retention goals. Smaller
reports, toolkits, white papers, and organizations may be more sensitive to high turnover rates and to the loss
other resources related to retention of key employees. If an excellent HR manager leaves a large organization,
practices. For example, Table 4: it may hurt, but the organization has the human capital and other resources
Retention Initiative Effectiveness33 to move on. If the excellent (and only) HR manager leaves a small
is drawn from a SHRM retention organization, it can be devastating. Small organizations may also have
practices survey. different thresholds for evaluating what represents a high cost and what
represents a reasonable investment in retention strategies.
Finally, benchmarking surveys
can also provide useful data
for developing broad-based
above example) is a targeted strategy. to cite negative aspects of the
retention strategies. For example,
To develop a targeted strategy, you organization that have contributed
organizations regularly conduct
can gather data from several sources, to their decision to leave (such as
compensation and salary reviews to
including (1) exit interviews, (2) dissatisfaction with their supervisor).
know where they stand in terms of
post-exit surveys, (3) current- In addition, they tend to cite
tangible rewards relative to those
employee focus groups, (4) linkage positive external factors that lie
offered by other companies. This
research, (5) predictive turnover outside the organization’s control
kind information can be invaluable
studies, and (6) qualitative studies. (for example, better opportunities
as you consider system-wide changes
elsewhere) as causes for their
or new reward structures intended to
departure.
influence overall retention. You can Exit interviews
also collect benchmarking data on Exit interviews are used to collect In one study of exit interviews,
retention initiatives from consortia data on why employees are leaving 38% of employees reported leaving
that conduct such studies. an organization. In a SHRM survey because of salary and 4%, because
of HR professionals on the use of of dissatisfactory supervision. In
Targeted strategies routine organizational practices a questionnaire posed to these
related to talent management, 61% same individuals 18 months later,
At times, HR practitioners need to
of the respondents reported that only 12% reported leaving because
determine more specific drivers of
they used this type of interview.34 of salary, whereas 24% cited
turnover in their organization. For
Exit interviews are popular because supervision as the cause.35 Why the
example, a research project in the
they generate immediate data on distortion? People may want to
gaming industry found that one
why an employee is leaving. They avoid doing anything that might
of the best predictors of turnover
can also help an organization salvage end the employment relationship
among new hires was whether the
a valued employee. Moreover, on a negative note, especially if they
shift they were told they would work
they can serve a public-relations believe they may need references
during recruitment matched the shift
function by ending the employment from the company in the future.
actually assigned to them once they
relationship on a positive note. They may also find it easier to give
were on the job. Communicating
realistic information during Despite their popularity, exit the impression that there is little the
recruitment is a useful broad-based interviews have raised some concerns organization could have done. That
strategy for lowering turnover rates. about the data they uncover. way, the interviewer will be less likely
But communicating accurate shift Research suggests that many to try to retain them.
information to new hires (as in the departing employees are reluctant
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