Why happy employees may leave, and what can companies do about it

McKinsey declared in its article of 1997 that there is a “War for Talent”.?After two decades, the war continues to intensify. Recruiters of each company, in addition to finding newer talent catchment areas, continue to hire talent from other companies. However, organizations are very comfortable bringing talent in, but very uncomfortable when talent leaves them.?

This happens because of two reasons:

1. The first reason is emotional- “how could s/he leave me?”. This stems from the fact that people managers’ self-assessment is largely based on how well they instill loyalty in people. Any departure challenges this self-assessment, and leaders often find it difficult to deal with this. Interestingly this is applicable not only for people leaving the company but also for people applying for internal job postings!
2. The second reason is a tangible financial reason. When we operate in highly competitive markets, replacing talent can be hard and costly.?

Why does it matter?

• Let us look at a typical employee’s job change cycle in a company of 5000 people where the average salary per annum is INR 10 Lakh.
• Let us also assume a conservative annual voluntary employee turnover rate of 10% and a notice period of 1 month.
• At any point in time, approximately 500 employees are considering opportunities outside. We are not distinguishing active or passive change seekers.

Steven Covey in his book “Seven Habits of Highly Effective People” says “all things are created twice. There's a mental or first creation, and a physical or?second?creation to all things”.

As soon as an employee gets a call from a recruiter or starts exploring opportunities outside, s/he starts to visualize the new beginnings. Disengagement from the current workplace starts at this point, even when an employee is not unhappy. Dream of greener pastures can set off disengagement! ?         

Assuming the entire job changing cycle of 3 months- from deciding to pursue the opportunity, to joining the new employer let us look at the cost implications of this disengagement:?

• Average 90-day salary: INR 2.5 Lakh
• Assuming this disengagement causes a 25% productivity drop because people would look for jobs, prepare for interviews, sit interviews, and start dreaming about their new job much before they actually get the offer.
• The direct cost of disengagement: 25% of 2.5 Lakh multiplied by 500 employees: INR 3 crores.
• Add to this the new joiners’ learning curve, and opportunity lost, the total cost of disengagement will be around 10-12% of the total wage bill translating to 50-60 crore Rupees for this company.

What can be done about it?

Companies and their HR departments have been working relentlessly to devise and revise retention programs. The problem is that changing compensation programs, devising career paths, learning journeys, etc. will not help stop talent from leaving. Why? Because talent markets operate like consumer markets. Like customer churn, employee churn is inevitable. Market forces are simply too strong for a company to insulate against.

Business and HR leaders need to embrace new realities of the talent market and redesign HR interventions:

Reality 1: Golden Handcuffs don’t work because someone else can say a Golden Hello

Most HR retention programs have a retention bonus component for some critical people. Also known as the golden handcuff?it is given to an employee once s/he completes a particular tenure in the company. However, it is no longer a great retention strategy because:

• A company may just come in and say a golden hello- they will offer a better retention bonus and may be throw in a sign-on bonus too.?
• In many other companies, retention efforts start the moment a key person communicates the decision to leave. Companies go all out to retain the person. While this may sound like an efficient approach, we must not forget that this would also send a message that the only way to increase compensation in the Company is to get an offer outside and negotiate internally. This may create a vicious cycle of offer and counteroffer which would spiral salary costs upwards.

Two Ways in which companies can respond to this reality

Fix the right compensation:

• Platforms like Glassdoor, PayScale, Salary.com, etc. publish user-generated information about salaries. Most people visit LinkedIn to perform a parity check about designation and grade. Opacity around compensation is reducing. HR programs must factor this when designing compensation for new talent and the existing ones.
• One mistake that many companies make is they take their internal talent for granted. They hire from the market at higher salaries but pull their purse strings when they need to correct the salaries of internal employees.

Think of innovative compensation models:

Companies can structure compensation in such a manner that people feel that rewards are personalized.

• For example, if a star performer likes to travel. Instead of paying only cash compensation, the company can design a pay structure that has one or two holidays in a year up to a certain amount included in the total salary package. Because companies usually have travel partners, good deals can be negotiated that can create a win-win for employees, company, and travel partners.
• Similarly, if an employee wants to go for higher studies, or has student loans, the compensation structure can be tweaked to include that amount in salary.
• If an employee wants to go for treks, the company can build additional leaves while restructuring compensation so that while leaves are higher, overall compensation is lower and a particular payment can hit around the trekking season.
• If an employee has school-going children, incentive/variable pay-outs can be tailored to coincide with fee-paying frequency. The amount can be discounted to present value in case the salary is being brought forward. But these thoughtful considerations free employees from emotional labor and the cognitive load of trying to think of ways of managing some of these expenses.
• Another way companies can structure compensation, especially for technology skills is by using Hot Skill premium. People get paid a premium till the supply of talent becomes large enough when that skill does not remain exclusive.

These are just some ideas. The list is endless but can be made possible by deploying tech-enabled tools that can help define personalized rewards for Organization of One.?

?Reality 2: The problem of retention needs to evolve

Peter Cappelli, in one of his HBR articles, says, “The old goal of HR management—to minimize overall employee turnover—needs to be replaced by a new goal: to influence who leaves and when. If managing employee retention in the past was akin to tending a dam that keeps a reservoir in place, today it is more like managing a river. The object is not to prevent water from flowing out but to control its direction and its speed.”

Companies can train their managers in the art of managing retention conversations to deal with this reality.

Manage retention conversations better:

• Even if a company has great programs, people will still leave.?When that happens, companies must focus retention efforts only on the critical resources, and those who disproportionately impact the company’s performance.
• ?Many HR professionals and managers make the mistake of an amateur salesperson when handling retention conversations: They talk a lot about why people should stay.?A better option would be to listen to why people are leaving.
• Instead of being the advocate of the organization, if HR professionals and managers try to be the advocate of the person who is thinking about leaving, they may discover many ways to improve the probability of retention from these conversations: consider this- many employees in their early stages of career think of shorter time frames because they want to increase their salaries very quickly. Managers and HR can help them take a longer-term perspective-

“How could staying at the company ultimately position them for much greater success when they do decide to leave after 3 years, 5 years?”

Have they considered all that the current environment offers by computing a financial equivalent (36 leaves here against 23 in the new company, medical insurance cover benefit differential, monetized value of education assistance, timely increment versus delay of 3 months in the new place, etc.)??

Then, if they want to continue the conversation, plan how they can develop their career. This demonstrates managers’ commitment to employees’ success, not just the company’s.

Know when to stop retention efforts

At times, the conversation will enter a zone of “Either do this, or I’m out of here.” In this case, recognize that it is best to end the conversation because the psychological contract of commitment and emotional bond with the company has run its course. After that, the employee has already started to build his/her future workspace in mind. Managers can congratulate the person on finding the new opportunity, wish them the best for their future, and agree on timelines and terms of separation.

Reality 3: People’s decision to leave a company may not always be because of workplace issues.?

Consider these potential attrition triggers that have nothing to do with work or the workplace:

• It is your birthday. You look back at the life gone by, and how you can make it better in the year ahead.
• We come back from a college alumni meeting. We start comparing how well our batchmates are doing versus how well we are. The same thing happens when we return after attending a wedding.
• We go for a peaceful vacation in the lap of nature. In a serene environment free from office distractions, we start evaluating our life. We realize that we need a quiet peaceful life, not the daily frenetic pace of our lives.

To deal with this reality, Rethink Stay conversations:

• The traditional view of Stay conversations was a 6-monthly or annual conversation with employees.
• However, since career risk triggers can be any personal event, managers need to be clued on to the lives of their teams more.
• They need to engage in stay conversations just after a career trigger event- an employee’s birthday, annual performance review, someone else getting promoted, change in role, change in manager, any news of a major change, a vacation, or any other event.

Reality 4: People not only evaluate what they get but also what others get.

I got promoted, great! Who else also got promoted? If I consider myself better than the other person, news of his/her promotion kills the joy of my promotion.

To deal with this, be more transparent and communicative about performance and potential with teams

All of us have our bounded rationalities-limited information about others that guide our perceptions. Add to it the fact that most of us tend to over rate ourselves, and we have classic ingredients of incorrect relative view of self and others. Managers can ensure that everyone in the team knows who is doing well, and what significant contributions stand out. This reinforces the desired behaviors in teams, and there are no surprises or heartburns when the right people get rewarded.?

People who are happy in a company may decide to leave a company for reasons many of which will have nothing to do with workplace. HR programs need to understand these reasons, and prepare managers to proactively read and deal with them. Even then, people will leave. In these cases, managers need to be equipped with the right conversational tools to attempt to retain, and know when to stop.