On Retention

The world is in crisis... Many legendary corporations went bankrupt and it seems more on the way. The only or let me say most popular strategy applied by Organizations is cost effectiveness or cost minimization rather than crisis management. Of course, when it comes to cutting cost, the first component coming to mind is people or people related activities such as pay increases, development, training etc...

But is this really a true strategy or action to be taken? What if the crisis will not last as it is predicted to be? What if Organizations are dismissing key people, talent or high-potentials? Will it be easier to hire them back as soon as the crisis is over? This article will try to answer questions and discuss about Retention...

Retaining key people in the Organization has always been a critical and vital task for management especially in reducing turnover. We all know that employee turnover is costly. And in my previous articles, I have also mentioned the cost elements (http://humancapitalstrategy.blogspot.com/2007/08/overlooked-cost-employee-turnover.html).

Let me state one more time that, for some positions the cost can go even 2 to 4 times of an employee's annual base salary. For example the percentage may be between 30%-50% for an entry level blue collar employee, and 200%-300% for an engineer (These statistics and calculations will be explained on my forthcoming article soon).

So, if this is the case, can Organizations afford such high costs of employee turnover or should they come up with necessary retention strategies. I do believe that although the most important thing will be the maximization of operating cash flow, retention starts at the top. Sourcing, hiring and retaining talent or high-potentials is the top executives' responsibility. HR alone can not reduce employee turnover or increase retention. Top management should put this issue as one of the key priorities in their agenda.

What can be done...

In order to survive in the challenging business environment, Organizations need key people in many different positions from worker to specialist levels. In this global arena fueled with crisis, the most simplistic solution is to have a retention strategy followed by a retention bonus policy in order to keep within.

As i mentioned earlier, you may say that the world is in crisis and employees may not go anywhere. However, every crisis has always had an end. In the globalization era, the effect of it is devastating but not endless. So, this is the right time not to loose engaged, talented people.

Retention strategy is comprised of retention plans determining the key positions that add value and critical more than other positions within an Organization, has a scarce supply in the labor market and the jobholders are vulnerable to leave. These plans should be supported with right retention bonus systems in place.

Is it costly...

Retention bonuses should be based on highly selective determination processes. Of course, it has a cost but not tremendous at all. I would suggest the total positions or key people to be applied, may be limited with the 10% of the total headcount or the average headcount.

The bonuses must be based on base salary of the incumbent excluding any sales or management bonuses if this position is eligible to those. Retention bonuses is mostly the 25% of the annual base salary of the employee and is distributed in three installments. But I'd recommend to set these installments in progressive payments like 25%, 30% and 45% respectively. The system may be applied to a group of positions or single one.

Another critical point is to set a limit for the service period necessary which can be a 18 months length of obligatory service.

That is as simplistic as it is described above. However, the critical point is up to HR's responsibility to design and take the support of top management and persuade them about the necessity.

I am sure more and more Organizations will follow and put priority on retention strategies and bonuses even during the crisis period.

The world is in crisis, yes that's right but what if it won't last so long and the ones you dismissed from your Organizations may not be re-hired at the end... Think about it...


Facts do not cease to exist because they are ignored.... Aldous Huxley