Talent Retention has largely been touted as a cost-control mechanism by management theorists. As per popular belief, hiring, training, and integrating a new employee is often more expensive than retaining an already working employee. That understanding, although true in several cases, is distracting from the core issue.
The core issue lies in assessing the value of the human capital we have. A McKinsey report stated that superior talent can be over 800% more productive than its peers, which are lower on the skill-based ranking system. If you are in an industry that requires complex and cross-functional thinking, the impact of that level of productivity amplifies at each level of the hierarchy.
So, retention becomes more a matter of defending your business’ competitiveness in the market, than it is about saving costs. Generally, human capital management has dealt with retention using intrinsic and extrinsic factors.
Extrinsic factors deal with more tangible benefits – greater salaries, higher bonuses, better health policy coverage. Intrinsic factors focus on humane areas such as – mission alignment, self-actualization, and motivation. While both the areas have some very good ideas, this approach makes managers think in binary terms – they end up using either the extrinsic factors or the intrinsic factors.
As businesses come out of the pandemic, the ones that have more capital at their disposal will be able to command the attention of all the talent in the market. According to a Mckinsey report, post –2008, there was a brief period where it was more difficult to get an entry-level job at Walmart than it was to get accepted at Harvard University, on an applicant to acceptance ratio basis.
So, how do you retain the value-producing talent if your company is facing capital restraints? Here is the thought-algorithm you can deploy:
1. Hire the Right Talent.
While most businesses will not be hiring during the pandemic, if your business has the resources to do so, you should definitely hire more people. In such unforeseen circumstances, the talent market goes through value-corrections just like the capital markets.
Hiring is a critical process in determining how much resources you will have to spend in retaining talent. You have to evaluate each individual on two sets of matrices – how well can she perform at her job and how aligned she is with the cultural values of the business. Having a sense of commitment and belonging with the firm can retain the superior talent for longer than just the monetary benefits.
The best way to go ahead with this is by understanding what is the differentiated value that an individual brings to the firm. Everyone can take care of the bare minimum responsibilities. You have to identify the value of what is different about this person that also makes her valuable.
You should also consider leveraging technology in hiring talent. For instance – AI-powered virtual interviews can help you filter more employees at an early stage before the human resource managers and hiring managers engage with a prospect.
2. Give a More Comprehensive Proposition.
Maslow’s Hierarchy called for a very simplified understanding of how people put different incentives at different levels of preferences. The first level states that people want their physiological needs of food, shelter, water, and resources satisfied, before anything else. Hence, it should begin having market-competitive salaries.
Since resources are constrained at the moment, all you have to do is ensure that employees are paid enough to keep the salaries at the market-average points. Most employees would appreciate having a permanent role, even if it means the remuneration is temporarily decreased. Make sure you are able to instill a sense of job-security to render the goals of this strategy.
The actual value is generated by giving the employees a sense of safety, community, and long-term association. Make sure your employees understand the firm’s strategy as well as their specific role in it. If you can tangibly show your employees how they will evolve in the firm over the years to come, you will be able to easily keep most of them.
Employees tend to cross over to different firms when they see incremental opportunities for growth. Instead of having opaque systems of promoting talent, give them tangible KPIs, time-limits, and expectations on which they can fulfill to get the desired growth. The trick here is to focus on 5% of the talent that might be responsible for 95% of the unique value created in the team.
3. Align Long-Term Engagement Between the Talent and the Firm.
Some managers assume that salaries and bonuses are a company’s way of telling the employees how valuable they are to the business. In reality, salaries are dictated by the nature of the industry, size of the business, and the talent market dynamics.
What really communicates value to the business – is the extra efforts the company is putting to retain someone. That is the reason why the board of directors would prefer paying the CEO a little more, instead of having her leave the firm. Even if your business is facing a cash crunch, you can align the interests of your business and the talent.
This can be achieved by having long-term plans that fruition into realized ESOPs and partnerships. Take for instance – Goldman Sachs. The company went public several years ago but it still runs the partnership program. Every new employee that joins the firm at different levels aspires to someday be named a partner. Only a handful of employees make it there but it keeps the talent glued at the firm for decades to come.
Create organizational structures and policies that promote employees internally and allow them to take part in the company’s bottom line growth.
4. Show that You Care.
Caring and spending heavily on an employee are two different forms of working. Be very stringent about the kind of people who join the business. But once you have hired them, make sure you treat them with empathy.
This reflects in the leave policies, working hours, and extra investments made by the firm in the employee. Even if you are going through a cash crunch, you can take steps like reimbursing for online courses. This would be a marginal investment for the firm but would communicate the organization’s stance on investing in talent.
Generally, retention is measured by looking at the attrition rate which shows how many people are leaving the firm. Since teams are focusing on the attrition rate and have the goal of bringing it under control, they often end up making plans which ensure that the people will stay at the firm. This can be counterproductive because people who are simply ‘staying at the firm’ may bring down the attrition rate but they will not create enough value. Letting such people go systemically would send the wrong message to the investors and the job market.
Retaining the top talent should be on the list of strategic goals that the management team has to achieve in active collaboration with the HR Team. Since it is a strategic goal, it cannot be attained with simple maneuvers. The team will have to devise a comprehensive plan and make sure the firm becomes an organization where value-adding talent wants to work for a long time.
Compensation, although a very important tool for achieving this, is only one part of the solution. Hiring the right form of talent with the right goals, giving the talent a conducive environment for working, investing in training & development, providing a purpose, and creating policies that are empathetic to your people would play an important role in achieving the goal of retaining valuable employees.