Cari Tuna had a story in the The Wall Street Journal yesterday on how more companies are making employee retention metrics a component of their bonus goals ("Keeping Workers Earns a Bonus In Some Offices"). The article cited a Hay Survey that
suggests that the practice is gaining popularity. In the 2007 survey of 182 organizations, 8.2% of respondents said they use turnover as a performance measure in executive-incentive plans, more than three times the 2.3% who responded similarly in 2005.While this is generally a welcome trend, tying management bonuses to retention can create unintended negative consequences. Also, I do not mean to be a nitpicker but the trend is not a result of employer recognition that turnover is expensive or that employee performance drives business performance as a Hay consultant in the article says. I cannot believe that business leaders only became enlightened about the importance of employees to their operation in the past few years. Instead, employees simply have become more willing to leave their employers for a better financial deal and/or work environment and companies are increasingly being forced to respond.
Turnover is often a big finger-pointing exercise. Executives blame it on the poor management practices of first-line supervisors, supervisors blame it on the demands made by executives and they both blame it on HR. The unfortunate truth, for those who like to think that there are programmatic fixes to HR problems or that just a bit more CEO vision is needed to raise employee morale, is that most of what drives employee attraction, retention and engagement cannot be controlled in the short-term. A growing and profitable business creates large pay increases, promotion and development opportunities and an overall positive mood in any company. What are often cited as great HR and management practices around work environment more often go along for the ride than actually drive change.
Being realistic about management's limited impact on turnover is important to setting goals that do not create skepticism. It also important not to send the wrong message about retention. Managers and supervisors often need to make difficult and sometimes harsh people decisions and to implement tough performance management standards. These do not come naturally to most people but need to be encouraged and supported. Without the right context, adding turnover metrics to bonus goals can completely demotivate and disempower managers.
Does that mean companies should throw up their hands and not try to improve management practices in the hopes of improving various people metrics? No, I think there a few things companies can do that can have a positive impact in the annual cycle around a typical short-term incentive program:
- Make certain behaviors that might impact turnover "threshold" behaviors required to receive any bonus or potentially to remain employed. For example, all employees should be honest in big things and small and treat their colleagues and outside business partners with respect and integrity.
- Recruiting is an area that can be driven very quickly to the positive if enough emphasis is placed on it throughout the organization. And by emphasis, I mean time and money.
- Create emphasis on actions that might reduce turnover regardless of business performance such as ensuring that all employees have performance plans, career development discussions and reasonably customized goals.
- Ditto for actions that might positively drive employee engagement such as, implementing business literacy and spot bonus programs and identifying special projects and job assignments for select employees.
