The Turnover Recipe – (Hint -it isn’t always about compensation)

Alert – totally unscientific post ahead! I was recently asked by a Sr. Operations Leader from another company, “Do you think employees really leave organizations just because of money?” “If not, why do they leave then?” The long answer to this is that depending on what survey you read, who conducts it, and where/when it is completed, the #1 reason people leave organizations is, in fact, based on compensation. But then again, I also read that the #1 reason employees leave companies is due to their manager. I also read that the #1 reason they leave is a lack of engagement. On and on it goes….survey after survey. So what are the “real” reasons why employees leave? Well, I firmly believe that it depends on the specifics of your own company. You can’t look at a survey of 1000 employees in Nebraska and because compensation is the #1 reason they leave determine that that is the problem at your company.

So how do you determine what is going on with your company? Well, hopefully you conduct proper exit interviews on all staff that voluntarily leave your company. Preferably this is done by HR or someone in a confidential capacity that has the trust of the staff. This, along with retention questions asked at performance review time coupled with “stay” interviews should give you a pretty good indication of what is going inside your organization from a broad based perspective. Then, there is the real truth. I have worked for several companies where the organizational heads have believed that almost everything starts and ends with compensation. They believed that people only left because of more money. Depending on who the departing employee was, we may or may not have been able to provide them with more compensation and if we couldn’t, it was often rationalized with a comment like, “well if we pay them any more we will be out of business.” Huh!? Of course, the exit surveys all showed compensation as the number 1 reason so the Operations Directors were pleased with themselves that it all came down to a numbers game and depending on client contracts, there was nothing they could do about it.

But let’s think about that for a second. Set aside the surveys and stats, do we REALLY think that the majority of staff leave solely because of compensation? Are they really going to move on to something else for $2K more gross salary or even $5K more? I ask these questions of operations leaders and they typically respond with, “well that is what the survey’s show.” To which I indicate, “That is because it is the easiest box to check off that they feel won’t burn any bridges.” Seriously, by indicating it is compensation it is something tangible for everyone to sink their teeth into and all parties can rationalize why they have parted ways. You know, ABC Company offered them $5K more and we simply can’t match that in these economic times. Easy peasy right?

I have a totally unscientific theory as to why someone leaves – it is called the Armchair HR Manager Recipe for Turnover (patent pending):

Start with: Compensation – from an equity perspective. An employee has been with their company for several years and is a good performer. Someone new, with less experience, is brought in at a higher rate, performs relatively the same as the other person, but continues to make far more. This gap is maintained throughout the employment life cycle as the only way the 1st employee ever gets increases is through the paltry annual increase process.

Add: Lack of Respect – this employee has discussions with their manager and manager’s manager about how they feel their pay is out of line internally and externally. They show the work they have been doing, how their performance has helped the company and what the market is paying. This is all met with a “leave this with us to look at” followed by a 2% annual increase which doesn’t even keep pace with inflation.

Subtract: Professional development and training opportunities – that have been reduced as part of cost cutting measures and/or because of the employee’s current workload.

Add: Work life/balance issues – that are causing undue personal hardship for the employee to which an unsympathetic manager (or incapable manager) is not wanting/willing to address.

Layer: With organizational communication issues. This is a lack of feedback from organizational leaders about the direction of the company, financial status, how the employees contribute to the company success, etc. It is most often prevalent with the attitude from the top that the smart people will make the decisions and the little people will just do the work.

Pair with: A side of lack of recognition. This is a common short-coming in many organizations. The failure to recognize the little wins, the incremental gains, the above and beyond. People just want to know that what they are doing matters and a lack of recognition is a sure fire way to drive disengagement.

So there you have it: Equitable Compensation + Lack of Respect – Professional Development & Training + Work life Imbalance covered in Communication issues and lack of recognition = TURNOVER.

And who said HR people weren’t good at math?

As I told you before, totally unscientific but I challenge you to find the gaps in the recipe. Now the key is to find out which parts of the recipe you can address within your organization and how you can make sure they don’t become key ingredients. Now, I need to get something to eat as I am starving…..

Image courtesy of Simon Howden/ FreeDigitalPhotos.net

The Compensation Conundrum

Many of us are heading into that time of year where the annual increases are given out. For some organizations it will be a fairly simply process – they have set an overall cost of living increase budget (one that they can afford based on their financial circumstance) and everyone in the organization will receive this amount. It is not tied into performance (i.e. merit increase) or any other factor. Other organizations “say” that they have a merit budget and will attempt, through some means, to disperse this budget across their employees based on their performance(s). The problem with this approach is that if you do not have a proper performance based compensation system in place, one that includes employees having specific goals and objectives set at the beginning of the year and measured through key performance indicators, than it is difficult to say you have merit pay. What happens in cases like these is that the increases are subjectively given out based on the perception of who has done well, or worked hard, even though this may not be the case as performance was not measured! The end result is that you have given out a bunch of increases that probably won’t provide any type of ROI for the organization.

So, for those organizations that apply a COLA (cost of living) increase, your approach is easy enough to administer; however, I am not so certain that your organization is performance-based, unless you have some other type of financial incentive system in place. For those organizations that have “merit” pay systems and/or indicate that they provide performance based compensation you need to make sure that you are objectively measuring results and rewarding the top performers. For the record, if your average increase (budget) is less than 3%, than you do not have a merit (performance) based system! The pie is simply too small to split up and reward for performance.

The key at merit pay time is to make sure that the monies allocated for these increases are used just for that – merit increases. Far too often I have seen companies inappropriately and inadequately use this budget to address compensation gap issues. You know, the ones that are created by hiring an employee at one salary and then they only receive the standard increase every year regardless of how good their performance is. You then bring on external talent and immediately begin paying them the same or more than your current staff that are performing (because you need to in order to attract them). However, what message does this send to your employees? So then you have these “gaps” that get created and your good performers barely keep up with inflation, in terms of their overall earning capability, while new folks brought in receive starting salaries much higher than current incumbents.

So then what happens? Well, you probably lose a few folks due to compensation concerns and/or some come forward to discuss or even complain. The company then deals with the squeaky wheels and takes from the merit budget to deal with these gaps, thereby diluting the pool of funds available. This is a vicious cycle that once started is hard to recover from. So what should you do?

1) If you have a merit pay system, than make sure you have clear goals and objectives with measurements (KPI’s) attached to each one for your employees. These serve as performance guideposts so you can measure them against these KPI’s (key performance indicators) with pre-determined outcome levels that indicate acceptable, below acceptable and above acceptable levels of performance. (Reward accordingly).

2) Deal with salary inequities in the form of out of cycle increases. Progressive organizations continually look at internal and external market factors and determine which jobs hold the greatest value to them as an organization. Through surveys and quantitative data, they ensure that performing incumbents in those roles are paid at least at the market rate. Organizations with strong compensation practices should NEVER steal from their merit budget to deal with these gaps. Ideally, when these gaps are discovered, the company makes salary adjustments in a timely manner (i.e. proactively) and communicates this to the employee(s) affected.

3) If you don’t have merit pay or don’t want to have merit pay, you need to establish a financial incentive system that once again rewards based on performance in order to drive the business results you are looking for. This may be done in the form of bonuses, lump sum (one time) pay outs, increased paid time off, etc. There are creative ways to do this depending on your budget, but you must be clear on how you are going to measure and reward (compensate).

4) Above all – COMMUNICATE. Communicate to your staff what you are trying to achieve with your compensation system. Communicate the goals and objectives to them. Communicate how their performance will be measured and how they will be rewarded. Communicate how you ensure salaries are measured through surveys and how you ensure they align with market pay. Communicate how jobs are valued through your job evaluation process. If you have no budget for merit increases, communicate the decision behind why there are no increases but what is being done (and needed from employees) to better position the company for next year.

Compensation is a sticky issue and a real delicate matter for everyone involved. By being transparent, objective and communicative as a manager and as an organization, you can go a long way in resolving the compensation conundrum. As always, I welcome your thoughts and feedback.

Image courtesy of Grant Cochrane/ FreeDigitalPhotos.net