February 20

The Secret to Improving Employee Retention

Does your business retain all of its employees? The goal of an organization isn’t to retain 100% of its employees. I mean, some turnover can be good. How much? Well, that’s debatable. But turnover always affects productivity, and I believe it significantly impacts your culture.

I only know of a few organizations that don’t have turnover challenges. Most organizations have at least one area in which they struggle greatly to retain employees. I know of a manufacturing company that struggles to keep its front-line production employees. I assume they are not an anomaly.

The company I used to work at had an average employee turnover rate of 26%. Most turnover happened in the first 24 months of an employee’s tenure. It was a drain on resources to constantly recruit, select, and train new employees. The negative impact on production was huge because disengaged employees who are about to walk out don’t produce at a high level, nor does a new employee who doesn’t yet have the skills to be productive.

The most significant negative impact it had on the organization was the front-line supervisors’ physical, mental, emotional, and spiritual energy in operations that could not get out of the constant crisis of employees leaving and trying to find new employees. It was so draining. They had difficulty meeting production goals without being fully staffed and having staff that couldn’t produce all the needed products.

My peers on the executive team wanted the problem solved, and the innovative ideas to recruit better and bring more people in to start a new career in ‘healthcare’ (manufacturing) only helped improve our recruiting, not our retention. It was nearly impossible for us to agree on the problem’s root cause. The executive team didn’t want to overhaul the compensation system, but we did make some changes to incentivize new employees to stay during their first two years. We tried to focus supervisors more on helping employees improve their work by providing feedback and assistance.

Now, over five years have passed. The company has invested in its employees with a considerable increase in the compensation structure, but the business still struggles with equally high turnover rates. So, what’s going on? Is this something they will have to live with because medical manufacturing is a complex business? Do people generally not want to work in this field or entry-level jobs?

I don’t think so. Here’s why I believe this. A rigorous study conducted by Zenger Folkman of nearly 100,000 direct reports in hundreds of organizations gives us an answer. The focus of the study was to determine the effect that leaders have on job satisfaction and commitment of their direct reports. The study was on 49 behavioral items and 16 leadership competencies. Specifically, the “employee satisfaction/commitment index measured the extent to which employees were satisfied with the organization, their confidence in it, their commitment to stay, and to go the extra mile.”

The findings: “After examining the myriad factors that influence employee satisfaction and commitment, one has consistently been shown to provide the most impact: the leadership effectiveness of employees’ immediate managers. This study validates the notion that the quickest and most reliable way of increasing employee satisfaction and commitment is to provide employees with a more effective leader.”

Okay, so you might be thinking the study shows employee satisfaction and commitment increase when leadership effectiveness improves, but does that translate into retention? Yes! Let me explain the way that the formula works.

First, look at Gallup’s research on employee engagement for the past 20+ years (they are the premier employee engagement research company). Gallup defines employee engagement as “the involvement and enthusiasm of employees in their work and workplace.” I believe involvement and enthusiasm follow satisfaction and commitment. Therefore, we are talking about the same thing here.

Now, back to the leaders or the managers in our organizations. Does their leadership impact employee satisfaction, commitment, involvement, and enthusiasm? Absolutely! I can’t agree more, and I have never found anyone who disagrees with Zenger Folkman’s or Gallups’s research. By the way Gallup states: “70% of the variance in team engagement is determined solely by the manager.”

When a leader is an outstanding leader, they will positively impact employee turnover. Back to Zenger Folkman and some of their latest research: they found a 50% decrease in employee turnover as a result of using a strengths-based approach to become an extraordinary leader.

What can you do with this information?

  1. Evaluate the overall leadership effectiveness of your management team. Start at the top because great and bad leadership cascades through the organization. Create a regular cadence to evaluate overall leadership effectiveness.
  2. Create a leadership development culture so that everyone is engaged every year to become a better leader. This doesn’t replace their day-to-day responsibilities. It should be integrated into their responsibilities.
  3. Hold everyone in management accountable to be at least a good leader. Bad leaders must be compassionately confronted. They should be allowed to improve; if they cannot, they should be reassigned to a non-management role or asked to leave. Good leaders must know and develop their unique leadership strengths in tangible ways.

Effective leadership development directly impacts employee satisfaction, commitment, involvement, and enthusiasm. It will improve your culture and reduce your turnover. Therefore, your investment in leadership development will give you a strong return. If you are curious about some ROI studies, please get in touch with me, and I’ll send them to you.

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