Richard Reeves

Going nowehere slowly. Companies take pride in their high staff retention, but is it necessarily a good sign?

by
Last Updated: 31 Aug 2010

Retentiveness is not, typically, seen as a term of praise. It is shorthand for being boring, over-analytical, buttoned up, emotionally illiterate. British, in other words. But businesses are the exception to this rule. For most firms, 'retention' is seen as a good thing, and indeed as a key goal for human resources managers. These days, whole conferences are devoted to the Challenge of Retention.

Of course, we are talking about retaining staff here. Losing staff, along with the skills, networks and knowledge they have acquired, is seen as bad news. Large firms often have 'retention managers' to deal with the issue.

One of the crude measures of the retentiveness, or 'stickiness', of a firm is the staff turnover rate, usually expressed as the percentage of employees who leave during the course of a year. A highly retentive organisation might have a turnover rate as low as 3% – while the Teflon firms at the other end of the scale might be losing a third of their workers every year. The average for the economy as a whole is running at 15.7%.

And for companies that pride themselves on their social responsibility, retaining staff is presented as a badge of honour, rather like a couple congratulating themselves on reaching their ruby wedding anniversary. Innocent, maker of those fabulous smoothies, has never made a single redundancy, and that is seen as a good achievement.

The case for holding on to people seems pretty self-evident. First, the cost of finding a replacement can be high – and according to the Chartered Institute for Personnel and Development (CIPD), employers are finding it harder to fill vacancies. Second, the leaver may well have been the subject of lots of investment – especially in training – from which a new employer will now reap the benefits. Third, departures disrupt continuity, which it is important to keep, especially in service industries, where client re- lationships are vital. Fourth, leavers might set up in direct competition with the jilted firm.

These are all valid concerns, but they do not mean that retention is necessarily a good thing. After all, we can all think of plenty of people without whom our organisations would be much better off. At least one multinational distinguishes between what it rather elegantly calls 'regretted' and 'non- regretted' types of staff turnover. Bosses in that company worry if regretted turnover is too high – but also worry if non-regretted turnover is too low, suggesting that managers are not pushing the wrong 'uns out of the door fast enough.

The problem is that while the cost of finding and hiring a replacement is fairly easy to tot up, the cost to a business of having the wrong person in a job is difficult to measure. So the CIPD can confidently, and with a high degree of precision, say that the average recruitment cost of filling a vacancy per employee is '£3,950, rising to £4,625 if the associated costs of labour turnover are also taken into account'. But there are no equivalent figures for the cost to a business of a lacklustre, lazy or poisonous employee who stays in post year after year.

There is one group – not restricted to the older cohort – who are described as those who have retired but not yet left. Again, we can probably all think of examples.

And how to capture the loss of productivity caused by their infectious unhappiness? This is not to say that there are people who are actually unemployable – surely, for everyone, there is a job they can love. But it is all too easy for a square peg to end up in a round hole, and it is often hard for us, as change-averse individuals, to leave a job voluntarily.

This is the only explanation for the fact that up to a half of those made redundant feel, two years on, that it was a good thing to have happened. It is the equivalent of being left by a spouse after years of an unsatisfactory relationship. After the initial shock and pain passes, a new and better life begins. There is also some evidence that after about three years in a job, most people start to experience a drop in their levels of enjoyment – and probably effectiveness. It's the workplace three-year itch. Some companies have a policy of rotating people after about three years, on the grounds that they are in danger of rusting if they stay in place.

This is probably too proscriptive; everyone is different and every job is different. But the fact that someone has remained in a job in your organisation for 10 years should not automatically be seen as good news. It might be that such an individual is still fully motivated, highly productive and a walking fount of priceless knowledge and experience, to boot. But that decade in the same saddle might also indicate a lack of imagination or ambition. Or it might suggest that their value on the outside labour market is limited, raising questions about their true value to the organisation.

The CIPD research shows that the single most common reason for a departure is 'promotion outside the firm'. These are likely, then, to be regretted departures. The flipside is that a firm with an apparently enviously low turnover rate may simply be full of people who nobody else in their right mind would want to employ. Rather like dinner party guests, the ones who stick around are all too often those with no better place to go.

Find this article useful?

Get more great articles like this in your inbox every lunchtime

Upcoming Events

Subscribe

Get your essential reading delivered. Subscribe to Management Today