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Stop the job hop!

You searched high and low for talented employees, invested time and money preparing new hires for the field, and finally have a full team of capable and efficient front-line workers ... now how are you going to keep them?

It's a situation we've all experienced - standing in the hotel's check-in line, wondering why management can't find enough people to work the front desk. "With all the people who need jobs today," we fume, "why can't they hire enough employees to get the job done?" Good question. And those of us standing on line aren't the only ones asking it. So are the CEOs of the service companies themselves. Their conclusion: Excessive employee turnover is the number-one barrier to high-quality service - and higher profits.

Too many service companies face employee turnover rates of 50 percent to 100 percent per year or even higher. With research indicating that it costs $1,000 to $2,000 to hire and train each new worker, this excessive turnover is a problem well worth solving.

CAUSE AND EFFECT

Driving the rise in turnover rates are dramatic changes in the low-wage service work force. Labor supply is tighter than ever before - in many areas of the country, unemployment has fallen below "full-employment" rates. At the same time, the work force contains more demographic diversity than ever before, in terms of race, national origin, language, and -often overlooked - lifestyles and values. These factors have shifted power from employer to employee, leading to greater employee willingness to migrate from job to job. Simultaneously, expectations are escalating as today's time-pressed consumers increasingly demand outstanding service.

Companies can use technology to bridge some of the resulting service gap, but not all of it. Technology cannot make beds and clean rooms, serve meals and bus tables, or stock shelves and operate check-out registers. To provide outstanding service, it still comes down to people. And to improve the quality of their people, companies must dramatically improve retention of low-wage service employees.

Employee retention will also yield significant cost savings. Some new hire costs are obvious - advertising, interviewing time, processing of new employees, orientation, and training. Others are more subtle. For example, new housekeepers at a leading hotel take four weeks before cleaning a full room schedule. The reduction in productivity adds $500 per new hire.

How much money is at stake? For starters, a 20 percent turnover reduction can save a 2,000-employee firm an average of $600,000 per year. Experienced employees also provide better service, making it easier for customers to spend more money.

THE MONEY MYTH

Most companies relied in the past on two traditional strategies for managing turnover. First, they raised wages until the situation stabilized If that didn't work, they increased training budgets for new hires and first-level supervisors.

These solutions don't work any more. Especially misleading is the myth that paying low-wage service workers an extra $.25 or $.50 per hour will dramatically reduce turnover rates. Even if higher pay rates were economically feasible - the extra few dollars has little influence on workers.

Investments in training don't always pay off either. Training course content tends to assume that today's low-wage service workers live in stable homes, meet minimal educational standards, and share the employer's behavioral expectations. This is often not the case. The result is courses that are irrelevant to workers' real life problems. Compounding the problem is management training that neglects to prepare supervisors for the new "social worker" aspects of their jobs.

THE CEO RESPONSE

What should a CEO do about excessive employee turnover? The mistake some make is to advocate other companies' successful programs without doing the necessary background work that enables them to tailor the solutions to their own situations. This background work includes quantifying their own costs of employee turnover, identifying its root causes, and articulating the employment deal they have struck with their people.

The first and most important step is to insist on good data. This isn't as easy as it sounds. Your company's turnover rates may appear better than they are. A large group of stable, long-service employees, for example, can camouflage a revolving door for new hires. To focus on new hires, companies can track the percentage who are still on the job after four weeks, eight weeks, 12 weeks, etc. A spike in the drop-out rate can pinpoint the source of the problem.

Second, CEOs should show their lieutenants the profit leverage in reducing employee turnover by commissioning a serious study of the associated costs. The study should also draw conclusions on the effect high turnover has on service quality and the resulting impact on revenue. To emphasize the importance of turnover reduction, some CEOs include reduction targets in management incentive plans. This helps the CEOs communicate a commitment to reducing turnover.

A handful of companies are taking aggressive - and innovative - steps to minimize turnover. Along with lower operating costs, these approaches have achieved improved customer service, greater employee satisfaction, and higher revenues.

EMPLOYER AS CASE WORKER The Marriott Corporation has been an industry leader in reducing employee turnover. Through its Pathways to Independence program, the Bethesda, MD-based hotel chain has developed one of the country's most successful programs in training welfare recipients for the work force. In some locations, Pathways alumni are 50 percent less likely to quit than the average employee.

The program's unique structure - a matrix-style combination of internal and external support for the Company's welfare-to-work employees - makes it successful. Marriott supervisors help employees manage their professional lives, while Marriott "case workers" help employees manage their personal lives. By splitting these two roles - and recognizing the necessity for both - Marriott has become an industry leader in turnover, customer service, and profitability.

FINDERS KEEPERS Over the years, Nashville's Opryland Hotel implemented many employee relations programs designed to reduce turnover, including on-site day care for 350 pre-school children, subsidized transitional housing for employees in need, company-paid meals for all staff, and the flexible working schedules parents require. However, given Nashville's 2.2 percent unemployment rate and plans for a 950-room expansion, these steps were not enough.

Management attacked the turnover problem by focusing on the recruitment process. Revamping the process, Opryland reduced the time it took a candidate to apply for a position, interview, get hired, and start training. As a result, recruiting productivity improved 40 percent; Opryland hired the best candidates, instead of giving them time to interview elsewhere; and employee turnover declined.

THE ALL-PRO TEAM Running two restaurant chains, Rock Bottom Restaurants has historically enjoyed exceptionally low turnover. By hiring restaurant industry professionals instead of transients - an unusual recruiting strategy for all but the most high-end restaurants - the Boulder, CO-based company staffs outlets with stable employees who have experienced the lifestyle, fast pace, and customer-service demands of the restaurant business. Employees also participate in the hiring process, so new hires clearly understand the work environment and performance expectations.

Rock Bottom gives employees broad latitude to make service decisions, such as when to provide complimentary food to customers. Employees also help set work schedules. As a result, Rock Bottom locations are staffed with committed employees who look forward to coming to work every day and providing outstanding service.

THE BENEFIT OF BACKTALK While many companies in the meat packing industry experience high employee turnover rates and low productivity due to the difficulty of the work, one Northeastern-based meat packing company can boast that about half of its 250 employees have worked there for more than 10 years.

The centerpiece of this company's strategy for minimizing turnover is an employee survey covering topics such as compensation, benefits, safety, work rules, manager behavior, and teamwork. Through ad hoc committees, employees help prepare the questionnaire. Comments from employee focus groups supplement statistical data. Once the information has been analyzed, management provides a detailed report, including changes planned, to employees. Should the results identify issues requiring further study, employees serve on the committees that will recommend new programs.

CRISIS CAMARADERIE Many of the employees at Parsippany, NJ-based GAB Robins, an adjuster and processor of property and casualty insurance claims, are claims clerks, whose role is to process and categorize claims, and either deny them or forward them to the insurance carrier for payment. These seem the type of lower-level, repetitive administrative tasks that lead to high turnover. Yet, GAB Robins enjoys an enviably high retention rate because of the way the work is organized.

Workloads at the company increase dramatically following natural disasters. To handle these crises, management hires contract labor to process non-disaster-related claims and sets up employee teams that work around the clock to process disaster-related claims. Originally, the objective was to ensure fast service to claimants in distress. Along the way, the camaraderie, commitment, and shared sacrifice of team members also increased their commitment, bringing more responsive customer service and significant improvements in employee retention.

TEACHER, TEACHER ... Long known for stable employees who provide outstanding customer service, Memphis TN-headquartered Federal Express has a number of employee programs that contribute to its outstandingly low turnover. But training is a cornerstone of its success. Federal Express invests money, people, and time, spending more than $200 million each year - 3 percent of its total payroll - on training and assigning 1 percent of all employees to the training function. All couriers start their careers with four weeks of training, and all managers take monthly courses delivered through an interactive video network.

SCORING PROGRESS

While the measures outlined above vary widely in their approaches to the problem, they share a common element - all are innovative programs tailored to the company's specific needs. And all succeeded. As customers continue to demand better service, the turnover issue will gain momentum. And given the new challenges presented by today's work force, the traditional strategies of higher pay and increased rote-style training are on the wane. Yet those companies who have taken more aggressive steps are winning ground in the turnover battle, proving the point that progressive measures can reduce turnover and substantially boost customer service - and the bottom line.

THE 5-STEP PROGRAM

* Step 1: Quantify Turnover Cost. Answer two questions: First, what is your company's baseline turnover rate? Many companies are surprised to learn that they have more than 100 percent turnover annually. Second, how much does it cost to recruit, hire, and train a new employee? For most service companies, the amount ranges between $1,000 and $2,000 and even higher. Two costs are often overlooked - the amount of time supervisors spend on recruiting and training, and the labor costs of a new employee before he or she is fully productive.

* Step 2: Identify Best Employer Practices: Published materials provide considerable information on best practices, but firms should also contact leading companies to request information on their turnover reduction strategies. Many companies make the mistake of limiting their research to companies in their own industry. As a result, they end up with copy-cat solutions designed to solve yesterday's problems.

* Step 3: Review Employee Needs: Effective techniques include process mapping, focus group interviews with employees and supervisors, and bench-marking against industry norms. Focus on three subjects - recruiting and selection; orientation and training; and treatment of employees, including compensation, benefits, supervisor behavior, communication, and career advancement.

* Step 4: Develop and Implement: The common mistake is to design a handful of major new programs, announce them to the organization, and implement them. Instead of rushing to implement the new strategies, successful companies develop small-scale models and test them, e.g., in one function or location, before rolling them out companywide. This enables management to adjust programs for long-term success.

* Step 5: Keep Score: To build on successes and gain maximum leverage from the new strategies, track the effectiveness of programs through a monthly analysis of turnover rates, labor costs, recruiting costs, productivity rates, and customer satisfaction measures.

Carl R. Weinberg and C. David Bushley are principal and director, respectively at Coopers & Lybrand Human Resources Advisory Practice, and partner with CE to produce the magazine's annual CEO Compensation Survey.
COPYRIGHT 1997 Chief Executive Publishing
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1997, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:employee retention
Author:Bushley, C. David
Publication:Chief Executive (U.S.)
Date:Apr 1, 1997
Words:1992
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