Use Employee Retention Strategy to Avoid Costly Churn

If the pandemic has taught us anything, it’s the importance of smart employee retention strategy. Exhibit A: The Great Resignation. 

Employees don’t just think about quitting these days – they go ahead and do it, whether or not they have employment lined up. And then they post about it on TikTok and other social media. 

About 4.5 million people – 3% of all workers – walked off the job in November 2021, according to the Bureau of Labor Statistics. Most were working in low-wage industries – retail, food and hospitality – but white collar industries are not immune. 

The stress, time and expense of hiring can distract a business owner from his core mission. An inability to retain top employees can damage not only a company’s bottom line but also its reputation and relationships with customers and suppliers. The costs of advertising, recruitment, interviewing, hiring, and then onboarding and training new hires are significant, as much as 60% to more than 200% of salary. The cost of voluntary employee turnover to businesses has been estimated at something like $1 trillion a year. And that was before the Great Resignation. 

For a government contractor with a highly skilled workforce, this isn’t the time to rest on laurels and take team members for granted. Employees have rarely had as much leverage, or as many opportunities, as they do in today’s job market. Deltek, a software company based in Northern Virginia, reported in its 12th Government Contracting Industry Study in 2021 that “regrettable attrition – losing employees that companies would rather retain – rose, with 67% of businesses reporting an increase.” 

Employee retention is critical in high-stakes government contracting and becomes even more important when thoughts turn to selling the business. A buyer will be paying not only for the company, but for its reputation and team members. 

The good news is that employee retention strategies are largely within a business owner’s control. Let’s look at some of the issues that send employees to the exits and how to keep more of them content to stay put. 

What is the company’s turnover rate?  

Employee turnover rate is the rate at which employees leave an organization. Turnover can be voluntary (initiated by the employee) or involuntary (representing firing, layoff or expiration of the employment agreement).  

Some industries (hospitality and retail to name two) have very high turnover, but on average, companies lose about 20% of their workforce each year, with about half of those leaving voluntarily. But who wants to be average, right? Aim for a turnover rate of 10% a year – which translates into an employee retention rate of 90%. 

So, the first step for an organization is to determine whether turnover is a problem. The Academy to Innovate HR (AIHR) suggests this method: Divide the number of terminations during a specific period by the number of employees at the beginning of that period. If a company starts the year with 200 employees and during the year 10 people leave, the turnover is 10/200 = 0.05, or 5%. 

That sounds pretty good, but the turnover rate could be camouflaged by, for example, a rapid expansion in the workforce when a company lands a new contract. If 50 people came in the door, but 30 headed for the exit, that’s not a good trend. 

There’s another concern with looking solely at the retention rate. If 90% percent stay, but the 10% who leave are key employees, the company has a retention problem. It can’t afford to lose people with highly specialized skills and security clearances. 

A new tool for calculating retention rate uses predictive analytics to find out what the retention rate might be if certain retention strategies are not implemented. Rather than closing the barn door after the horse has left, these methodologies uncover pain points – pay, promotion and performance reviews, for example – that might make an employee more of a flight risk. Human resources managers can then design timely and appropriate interventions to keep that employee on the team. 

The top 10 factors that cause employees to leave 

You can find any number of studies and surveys that list the reasons why employees quit. They boil down to these top 10 – most of them self-inflicted: 

  • Jerk bosses. The New York Times recently assessed workers’ tolerance for bosses who are bullies, boors or worse. Unlike sexual harassment and racial discrimination, jerk behavior is not illegal, but it does make employees’ lives miserable. In this era of remote work, employees are less likely to put up with bad bosses. 
  • An ever-increasing workload without a commensurate increase in status or pay. Giving someone more work is not a reward for good performance. 
  • Lack of recognition. This is a tricky one because not everyone craves recognition. But publicly, or even privately, showing appreciation to a team member for a job well done can be very meaningful. 
  • Broken promises. Reneging on a commitment to give a promotion or raise, or any reward, will push an employee closer to the exit. 
  • Lousy relationships with co-workers. Would you want to work with people you don’t like, or who don’t seem to like you? 
  • Inflexible work arrangements. Now that people have become used to remote work, an employer who demands they be in the office from 8 to 5 may be unappealing. 
  • Lack of professional development opportunities. Team members should feel they are working toward career advancement. 
  • Micromanagement. Looking over shoulders betrays a lack of trust in an employee’s decision-making ability. 
  • No clear direction. Team members have to feel like they’re just that: part of a team that believes in the vision and mission. 
  •  Company culture. The employee experience suffers from a lack of communication, transparency and respect. 

What are the best employee retention practices?  

Whether or not an organization is experiencing high turnover, retention strategies designed to keep its most valuable team members make business sense, from both a bottom line and talent management perspective. More than ever before, the “employee experience” is what will deliver a competitive advantage. 

Here are seven best practices. 

1. Competitive pay and benefits 

It (almost) goes without saying that competitive pay and benefits are an important factor in employee retention. Good benefits like these can make up for less-than-competitive pay:  

  • Comprehensive medical/dental/vision coverage 
  • Paid sick, vacation and personal days 
  • Retirement accounts 
  • Tuition reimbursement 
  • Certification assistance program 
  • Company-paid holidays 
  • Flexible spending accounts for medical and child care expenses 
  • Relocation assistance  

For the most highly compensated in senior management, contribution limits of 401(k)s may be, well, limiting. Offering an equity stake in the company is one solution. Another retention strategy is a Supplemental Executive Retirement Plan, or SERP. Under a SERP, a company agrees to provide retirement income to key employees, and their families if they die unexpectedly, as long as the employee meets specific conditions. A SERP must be carefully calibrated so as not to jeopardize the company’s future profitability. 

2. Effective recruitment and onboarding processes 

Retention begins before Day One with recruitment and onboarding. Even before new employees sign on the dotted line, they should be receiving regular communications, including information about mission and vision. OfficeVibe’s State of Employee Engagement report found that 69 percent of employees are more likely to stay with their company for three years if they experienced a well-designed and comprehensive onboarding process. 

3. A company culture of inclusivity 

Actively engaged employees whose input into various initiatives and decisions is valued are less likely to leave. Employee engagement can be increased by building a culture of inclusivity, rather than building the perception of an ivory tower that issues directives. The more employees feel they are being heard, the more likely they are to stay. Inclusivity also values richness of diversity in racial background, work background, age, ways of thinking, and gender, to name a few. 

4. Opportunities for training and professional development 

Nothing says a company is invested in its team members better than providing opportunities for training and professional development. That’s particularly true for government contractors who must continuously update their knowledge, skills and abilities. A highly skilled workforce is a competitive advantage when it comes to winning government contracts, too. These opportunities don’t have to be expensive. Many certifications, such as Project Management Professional (PMP) and Certified Scrum Manager (CSM) are available online. Recognize and reward educational achievements. 

5. Frequent communication 

No organization is problem-free, but when top leadership provides regular, respectful (see Jerk Bosses, above) and transparent communications, problems can be more openly addressed. Communication goes two ways. Employees should be encouraged to share their concerns – as well as their ideas and solutions. This builds trust among senior management, mid-level and front-line employees – a key factor in employee retention. 

6. Work-style flexibility 

Companies that recognize that their employees need to balance work and life are more successful at employee retention. The prevalence of remote work necessitated by the pandemic demonstrated that productivity need not suffer when employees are working from their couches and kitchens. Team members will appreciate scheduling flexibility, including four-day weeks, staggered shifts, hybrid schedules and remote work. In addition, consider providing sabbaticals for those employees who have met a certain longevity standard – say three to five years – to prevent burnout. 

7. Performance feedback for career advancement 

We humans like to have goals in front of us, something we’re working toward. An employee who can see an upward path in an organization – and is given the opportunities to develop the skills and knowledge needed – will also see a long-term upside to staying. A good performance review system to provide feedback on progress is necessary. Keep in mind that not every great employee will make a great manager as they move up the ladder, so a leader might need to identify alternative paths of advancement. 

What’s your game plan? 

These seven strategies require a lot of different types of expertise – such as financial, human resources and educational – in addition to your company’s core business. Why go it alone? 

Whether you plan to grow or sell your company, one truth is inevitable – you will eventually exit from your company. Exiting on your own terms with the proper planning means you can exit when you want and sell to whom you want for the best terms. 

At Cope Corrales’ GovCon Wealth division, we advise successful government contractors who want to align their company, personal and financial goals. Sound business practices, such as those that promote retention of key employees, will make your transition easier and more successful. 

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