Risk analysis and job retention

There are real business benefits in retaining valued employees. They include lower recruitment and training costs, higher productivity and the possibility of good employee relations. Although retaining key employees has always been a difficult task for managers, it has been particularly arduous in the period of economic growth following the previous recession.

Many believe that the widespread restructuring and downsizing of the early to mid-1990s seriously undermined the culture of employees' commitment to their employers, transforming some previously loyal individuals into "butterflies", having little or no affiliation to any one employer, product or service.

It is unlikely that the situation will improve in the near future, despite the popularity of the belief that the balance of power between jobseekers and recruiters will soon have swung back to employers again.

Traditionally, the approach of organisations with concerns about losing employees, particularly to competitors, has been to introduce financial incentives. Raising pay rates, introducing market supplements and extending performance-related pay schemes have for some time been used as standard retention tools.

More recently, incentives not linked to pay have also been identified as having the potential for keeping staff. These include flexible-working arrangements, such as allowing variations in working patterns and hours, including teleworking, together with a raft of "family-friendly" initiatives including generous paternity leave.

On the reward side, though, an increasing number of organisations have also been introducing retention bonuses as a tool, either to head off a potential resignation or encourage individuals to delay or defer their decision to leave. Major differences of opinion are voiced on the effectiveness of bonuses in retention. Dilys Robinson at the Institute for Employment Studies (IES) says that there is often a danger of employers not being entirely clear about the precise nature of the problem of retention within their organisation. Consequently, they incur unnecessary costs in introducing benefits, such as bonuses, where they may not be needed.

The IES was set up in 1969, and is an independent international centre of research and consultancy into personnel management issues. At the IES, Dilys Robinson specialises in researching and advising on employee retention and motivation, as well as performance management and workforce planning, and has helped a number of organisations adopt strategic approaches to personnel management. She believes that, in most cases, retention strategies should be targeted at groups of staff who are both important to the success of the organisation, particularly at critical periods of the business cycle, and most likely to leave.

She is particularly concerned about organisations that decide they have a retention problem and immediately introduce a new benefit across the board. "It might be a welcome benefit which has little effect on the group of staff most at risk of leaving, merely saddling the organisations with a high-cost incentive scheme," she says. However, in arguing for the targeting of retention measures, she highlights the need to balance retention incentives with considerations of equity and fairness.

Keeping the best

A 1997 report from the IES on managing retention¹ recommends that organisations develop a strategy for retaining key employees. Among the main elements that should make up such a strategy (see the box), the IES recommends the use of simple risk-analysis tools that are designed to gain a picture of which staff are likely to leave, and the impact of their departure.

The authors of the report say that risk analysis for staff turnover involves investigating two factors. The first is the likelihood that an individual will leave. Statistically, this means that younger, better-qualified people, with shorter service, few domestic responsibilities, with marketable skills and relatively low morale, fall immediately into the high-risk category. However, building up and acting upon such a profile needs to take account of equal opportunities policy (and anti-discrimination legislation), as well as the second key element of risk analysis - the consequences of a resignation.

Key posts

Dilys Robinson says that risk analysis should be undertaken before any retention measures are considered, particularly those that are financially or administratively burdensome. She and her colleagues at IES have developed a risk-analysis tool that analyses the likelihood of key groups of staff leaving an organisation, rather than focusing on individuals' attitudes to job mobility.

Short-term employee tenure may be a problem for some organisations, but not for others. According to Dilys Robinson, some employers consider that they are doing well if somebody stays for six months, or a year, while, in others, they want employees who stay for at least two years in order to reach an optimum level of performance.

The dynamics of an organisation's internal labour market also have a bearing on the particular "pain threshold" of labour-turnover rates. There are often individuals in a workforce who do not perform particularly well, and whose departure would not be a cause for regret. Promotion is not always available, particularly in today's delayered organisations, and some staff are likely to become frustrated by a lack of progress or future prospects. Again, it may be better, for both parties, if such people move to another organisation. All in all, therefore, staff turnover does not always represent a problem.

Risk-analysis steps

Dilys Robinson explains the three steps involved in conducting a risk analysis to understand the likelihood of staff leaving. First, attention should be paid to the chances of typical employees in particular groups of jobs leaving the organisation. A variety of factors are used to gauge this, for example the level of morale and what opportunities are available to leavers in the external labour market. Employees are given a score within a range of 1 to 3, depending on the likelihood they will leave sooner, later or much later. People who are likely to leave as soon as they get a better job offer, or as soon as the opportunity arises, receive a score of 3.

If an employee or group of employees may not be on the brink of leaving, but there is a danger that they might leave within one or two years, and this would include a particularly critical period for the organisation, they would receive a score of 2.

Finally, if an employee or group of employees is unlikely to leave within a one- to two-year period, they would receive a score of 1.

The second step in the process involves estimating the impact of resignations on the organisation. Likely staff departures are assessed as having a high, moderate or low impact on service delivery, product delivery and cost (in terms of their replacement). Again, every post-holder is awarded an impact score on the range of 1 to 3.

Finally, the scores are added up, and likelihood scores for each post are multiplied with their impact scores. The minimum risk score will be 1 (1x1), and the maximum 9 (3x3). Dilys Robinson says that the process is not intended to be rigorous, but simply provides a feel for the overall risk of retention problems that may arise. Quite often, she adds, the technique reveals retention hot spots within an organisation that managers had not previously identified.

Hot spots

Using a risk-assessment tool in these circumstances will not solve any problems for an organisation concerned about losing key staff, but is an essential first step in managing what is an important business issue.

Dilys Robinson says the risk-assessment process is useful in providing a clear perspective on the locations of retention hot spots within an organisation. She explains that employers often find it difficult to differentiate between staff who proffer a high risk of their leaving - but whose departure would not do the company much damage - and those who are likely to leave and whose loss would cause real problems.

The findings can help challenge the preconceived ideas of many managers about their retention problems. "When a risk-analysis tool is used, it becomes apparent where the real problems are," she says. She gives the example of some serious problems in call centres, where high staff-turnover is currently plaguing the entire industry (anecdotal evidence suggests that a typical call centre loses a third of its staff each year). Research has focused on staff recruitment and retention difficulties experienced in local call centre hot spots. Many of these problems appear to be associated with having large numbers of workers concentrated together in one location².

Dilys Robinson says that IES's research into retention difficulties at call centres reveals that many organisations have a general concern about high levels of turnover across the board. However, once a simple risk-analysis process has been completed, managers become aware of where the real problem lies - high turnover in a particular group of experienced, good-quality, call-centre operators. "Whereas high turnover amongst the majority of call-centre operators they could handle, because they were used to it," she says.

Clearly, risk analysis in staff retention is used as a prioritising tool. It is not an end in itself, but something that helps an organisation decide where its retention efforts should be directed. All too often, Dilys Robinson says, organisations think they have a retention problem and they adopt a "scatter-gun" approach to solving it - applying the same solutions to the whole organisation. Inevitably, this approach tends to have little effect because different groups of people have different motivations and aspirations. Therefore, an organisation must tailor its retention tactics to suit each particular group.

The use of risk analysis in managing retention is best suited to medium-sized and large organisations; staff in smaller units are more likely to be known as individuals, and their future job plans are usually transparent. Within larger organisations, says Dilys Robinson, a more objective measure of risk is required.

¹"Keeping the best: a practical guide to retaining key employees", S Bevan, L Barber and D Robinson, Institute for Employment Studies, 1997, available from BBCS, tel: 01482 224626, price £19.95.

²"Virtually there: the evolution of call centres", U Huws, A Denbigh and S O'Regan, 2001, available from Firefly Communications, tel: 020 7386 1590, price £50.

A retention strategy checklist

Good data

Identify turnover hot spots: high-risk groups, costs and trends over time.

Data on reasons for leaving

Use well-structured exit interviews or leavers' surveys to highlight reasons that are in your control.

Risk analysis

Look at the likelihood and consequences of resignation and to what extent your employees are in the danger zone.

Recruitment

Avoid recruitment turnover by matching people to posts.

Training and development

Tailor and deliver training and development opportunities to the needs of both the organisation and individuals. Training can also be seen as a reward.

Management style

Ensure managers have the skills to manage people effectively and they understand that their style can affect staff turnover.

Job content

Allow as much autonomy, teamworking and control as is practicable. Ensure flexibility does not meet only the organisation's needs.

Rewards

Use loyalty bonuses only where nothing else will work and, even then, do not expect their effect to last. Ensure that rewards are seen to be fairly determined and distributed.

Flexible working

Ensure that employees with a need for flexibility in hours or location feel that the organisation is responsive to them.

Source: Institute for Employment Studies.