Traditional strategies for employee retention are unsuited to a world where talent runs free. It's time for some fresh thinking
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by Peter Chappeli
If you're like most executives today, you're a poacher. You regularly look outside your organization to find talented individuals to fill key posts. And when you spot attractive candidates, you do what it takes to lure them away from their current employers. You offer big signing bonuses, you buy out stock options, and you provide rich compensation packages of your own. All the while, you know that other companies are busily rifling through your own organization, hoping to poach your best talent.The open competition for other companies' people, once a rarity in business, is now an accepted fact. Executives know that fast-moving markets require fast-moving organizations that are continually refreshed with new talent, and they've become adept at outside hiring. (See the sidebar "Strategic Poaching.") But if they're comfortable bringing talent in, they remain distinctly uncomfortable about seeing talent leave. To poach is fine; to be poached is not. One reason for the discomfort is emotional. Executives tend to judge themselves on their ability to instill loyalty in their people, and the departure of a talented employee can feel like a personal affront. Another reason is rational. In a time of tight labor markets, talent can be very hard—and very expensive—to replace. When a good employee walks, the business takes a hit.
In trying to stop people from jumping ship, many companies have fallen back on traditional retention programs. I recently attended a talk by a senior manager from DuPont who was telling of a corporate initiative to "re-engage" with employees. By designing and promoting new, long-term career paths and investing heavily in employee development, the company hoped to win back the loyalty of its workforce. When a member of the audience asked him if he really thought the company could stop the outflow of talent, the speaker replied, in a moment of unexpected candor, that he did not—the competition was simply too intense. But, he went on, the company's executives saw no alternative. They had to make the effort.
The speaker was right about one thing. It is futile to hope that by tinkering with compensation programs, career paths, training efforts, and the like, a company can insulate itself from today's freewheeling labor market. That doesn't mean, however, that companies should just go through the motions. There is an alternative: a market-driven retention strategy that begins with the assumption that long-term, across-the-board employee loyalty is neither possible nor desirable. The focus shifts from broad retention programs to highly targeted efforts aimed at particular employees or groups of employees. Moving to a market-driven strategy is not easy. It requires executives to take a hard-headed, analytical approach to what has long been viewed as a "soft" side of business—the management of people. But it is necessary. The clock can't be turned back.
Rethinking Retention
To adopt the new strategy, you first have to accept the new reality: the market, not your company, will ultimately determine the movement of your employees. Yes, you can make your organization as pleasant and rewarding a place to work in as possible—you can fix problems that may push people toward the exits. But you can't counter the pull of the market; you can't shield your people from attractive opportunities and aggressive recruiters. The old goal of HR management—to minimize overall employee turnover—needs to be replaced by a new goal: to influence who leaves and when. If managing employee retention in the past was akin to tending a dam that keeps a reservoir in place, today it is more like managing a river. The object is not to prevent water from flowing out but to control its direction and its speed.
Prudential is one company that has begun to adopt this market-driven perspective. Its "Building Management Capability" program, which integrates recruiting, retention, and training efforts, is geared toward an increasingly mobile workforce. "Gone is the notion that employees are going to stay with one company for life," says Kurt Metzger, a human resources executive at the company. The Prudential program is anchored by a sophisticated planning model that projects talent requirements and attrition rates. The model enables business-unit managers to develop highly targeted retention programs and create cost-effective contingency plans for filling potential gaps in skills. The model also provides a mechanism for constantly measuring the impact of human resources decisions, a capability crucial to managing people in this rapidly shifting labor market.
Prudential has begun doing what most companies avoid: making a truly honest assessment of how long the organization would like employees to stay on board. Such an analysis inevitably reveals that different groups of employees warrant very different retention efforts. There will always be some people a company will want to keep indefinitely—an engineering genius, an inspiring business head, a creative product designer, or a frontline worker deeply respected by customers. Another set of people will be important to retain for shorter, well-defined periods—employees with specific skills that are currently in short supply, for instance, or members of a team creating a new product or installing a new information system. And finally there will be people for whom investments in retention don't make sense—employees in easy-to-fill jobs that require little training or employees whose skills aren't in demand in the market.
Once you know which employees you need to retain and for how long, you can use a number of mechanisms to encourage them to stay. The key is to resist the temptation to use the mechanisms across the board. Tailor your programs to your retention requirements for various employees and to the level of demand for them in the marketplace. Let's look at some of the mechanisms and their strengths and shortcomings.
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