In today’s competitive market, employee retention has been a major concern, not only for the banking and financial services industry, but also for most of corporate America. With increased bank expansion and aging baby boomers, finding and retaining high quality talent has become a serious challenge. According to the Department of Labor, it costs one third of a new hire’s annual salary to replace him or her. Most would agree it is more cost-effective to retain good people than to recruit and hire new employees. The question is, how do we accomplish this?
As an executive search consultant, I talk with banking and financial executives every day. Although I hear various reasons why executives leave their former employers, one thing is for sure: there is seldom just one issue that motivates people to make a career change. Usually there are multiple factors that cause employees to leave. Therefore, it only makes sense to try to understand these factors and then develop a plan to address them.
MEETING BASIC NEEDS
Listed below are six basic motives that compel people to make a career change. These motives are related to Maslow’s theory of human needs. When a basic need is not being met, our human instinct is to take action in order to satisfy it. Once a particular need is satisfied, the remaining hierarchy of needs is then focused on until eventually all needs are met. At some point, if any needs are not fulfilled, there is a likelihood that employees will begin to look elsewhere.
- Need for health and financial security (basic)
- Need for a safe and secure working environment (basic)
- Need for acceptance, appreciation, understanding and belonging
- Need for admiration, recognition, and self esteem
- Need for intellectual stimulation, challenge and career satisfaction
- Need for personal growth and professional development
The important thing for employers to understand is that all employees are different, and a one size fits all mentality will yield marginal results. Therefore, a combination of solutions based on different needs has to be incorporated into a comprehensive retention plan in order to be successful.
Retention plans or incentives come in various flavors. Some plans include equity or stock participation through employee profit-sharing trusts, also known as ESOPs (Employee Stock Ownership Plans). Other plans may provide supplemental retirement accounts allowing employees to accumulate funds for retirement in addition to a 401k. Usually these plans are tax-deferred and require the employee to be with an organization for a minimum period to become fully vested.
Most successful plans implement a combination of strategies that fit a company’s budget, corporate structure and culture. These incentives can be effective in boosting morale and productivity and reducing turnover. The idea or focus of these plans is to provide employees an opportunity to share in the profitability of the organization in exchange for a long-term working relationship.
A creative strategy known as golden handcuffs uses lease perks and deferred compensation to encourage long-term commitments. These types of plans are typically used for retaining business development executives or management staff, where excessive turnover has become a problem.
Examples include short- and long-term housing leases, auto leases and deferred compensation plans. When leases are used in the plan, they are set up in the employee’s name, and the company pays the lease as long as the employee is with the company. If the employee leaves before the expiration of the lease, the employee assumes liability for the remainder of the lease period.
When deferred compensation is utilized, the employer provides a cash account that is funded and maintained by the company for the employee. Periodically, funds are deposited into the account. The amount of funds deposited is usually contingent upon individual performance and company profitability. Funds cannot be withdrawn from the account until maturity or retirement. The anniversary or maturity dates can vary, but usually are long-term.
In the event the employee resigns before the anniversary date the employee forfeits all accumulated compensation. Some would argue that higher than average comp packages, bonuses and financial incentives are the best way to ensure longevity. Others believe that creating a so-called employment brand or company image is an effective way to attract and keep good people. Both of these strategies have merit. Southwest Airlines has implemented a plan that incorporates both a competitive compensation package and a very effective employment brand. They have been extremely successful in developing a unique reputation as a progressive company that cares for its people and provides a fun work environment. This is a great strategy if the company can afford to fund it.
DOING MORE WITH LESS
In a sluggish economy, companies are often forced to do more with less. During these times our best strategy is to find cost effective and creative ways to attract and retain talented individuals. Even if we have to spend a little in order to keep our best talent, it is money well spent and our return on investment will easily justify the cost. Remember, if we don’t take care of our employees, our competitors will.
One creative and economical solution to retention is offering time off, extended vacations and travel perks. Studies have shown that many people will trade an increase in compensation for vacation time. This additional time off enables employees to complete a degree, finish a project, travel or just spend time with their families. The idea has had good results and sends a message to employees that the company cares about their quality of life.
These types of retention programs not only are more affordable for employers, they are equally attractive to employees. Furthermore, conclusive evidence indicates that employees having a balance between their careers and personal lives are less likely to take sick leave and usually are more productive on the job.
CAUSES OF JOB DISSATISFACTION
In looking at what causes job dissatisfaction, two common denominators are often present: poor management and a lack of career development. Both of these shortcomings can be remedied through leadership training, employee development initiatives and open communication.
Asking employees what their goals are and how the bank can help them further their careers are the first steps to overcoming turnover and forming loyal relationships. The major focus of management should be to consistently communicate with the staff and encourage open door policies at all levels of the organization. People feel connected if they are kept informed. Conducting periodic employee assessments and exit interviews will further help to identify issues contributing to excessive turnover.
Personal and professional growth through continuing education has had positive results in developing and retaining high-quality employees. Employers that encourage their people to pursue educational and professional development goals are not only investing in their people, they are also investing in their companies. If the organization cannot afford to fund a tuition assistance program, offering to reimburse for books or career development seminars is an affordable alternative.
Today more than ever, companies realize the importance of connecting with their employees in order to understand what motivates them. With increased awareness, employers can take a proactive approach to building and maintaining long-term relationships. Through consistent management assessment, leadership training, employee career development and open communication policies, community banks can retain their most valuable asset: their people.
Hank Rennar is President of Rennar and Associates and is a member of the Texas Bankers Association and NAGGL. He has been a featured speaker at various conferences, seminars, and workshops.