How to Retain Employees in a Tight Labor Market
Retaining top talent is a key issue for any effective organization, intensified by its costliness—it costs between one-half and two times an employee’s annual salary to replace them. Additionally, 61% of employees are considering handing in their resignations in 2023, making it an urgent problem that organizations must address.
While organizations might have some level of success by implementing various initiatives such as wellness programs and team-building activities, there are three core problems that organizations encounter when addressing employee turnover.
First, corporate responses to employee turnover are often scattered and unfocused—organizations implement various programs in the hope that something works. A quick Google search for “how to retain employees” yields dozens of retention tactics. When they’re done well, these ideas can be quite effective—but they must be part of a larger, organization-wide strategy for retaining employees. Employee retention requires a strategic approach, incorporating tactics that align with an organization’s culture and that produce measurable results—not just trying a bunch of different things, hoping that something will “stick.”
Second, many organizations don’t identify the true causes of resignations, and therefore cannot implement retention solutions that address these causes. For example, many organizations believe that compensation is the primary reason employees resign. While compensation is an important component to employee satisfaction, we’ve found that employees tend to rate it much further down their priorities list.
Instead, employees tend to prioritize the strength of their relationship with their manager and whether they are getting adequate recognition for their work; research shows that relationships with managers are the most important aspect of employee satisfaction. In fact, we and other researchers have found for decades that most employees don’t leave because of compensation or benefits (or even their function)—employees leave because of their managers.
Your organization’s retention strategies must create better relationships between managers and their employees. Doing so not only reduces employee turnover, but also improves performance.
Third, many organizations don’t differentiate between strategies to attract talent versus strategies to retain them. The things that attracted talented performers to your organization in the first place quickly become expectations.
Moreover, the tactics that tend to attract high performers—compensation, benefits, or perks—are extrinsic motivators. In his book Drive: The Surprising Truth About What Motivates Us, renowned researcher Daniel Pink says he has found that intrinsic motivators are much more effective in driving human behavior: having some level of autonomy and agency over their lives, developing mastery of their skills, and having a purpose they’re aligned with.
While extrinsic motivators may attract talent, intrinsic motivators are much more useful in retaining it. Therefore, it’s crucial that your organization not only differentiate between these two sets of tactics, but also not rely on compensation as the primary tool for retaining employees.
This is good news, though, because while most of your managers likely have little control over the level of compensation they can offer, every manager has the ability to influence their top talent to stay.
Therefore, it is critical to equip managers to better retain their top talent by providing opportunities for growth and development; creating a growth-oriented culture of coaching and feedback; and addressing underperforming employees.
Provide Opportunity for Growth and Development
When employees learn, grow, and develop more knowledge, skills, and capabilities, they’re able to see multiple paths to career advancement and are more likely to stay with the organization long-term.
These talent development opportunities may already exist within your organization, so it is crucial that employees be able to see and take advantage of them. The managers’ role in this process is to help their team members identify learning and development opportunities that best support their employees’ career goals.
This requires that managers understand and implement the skills necessary to effectively coach and develop their team members.
Create a Growth-Oriented Culture of Coaching and Constructive Feedback
Beyond helping employees identify growth opportunities, managers must take a leadership approach that creates a culture of coaching and constructive feedback. When employees consistently see managers actively coaching and mentoring their peers and having frequent conversations about learning, growth, and career advancement, it fundamentally shifts the team’s culture to one that encourages and supports growth.
A major benefit of creating such a team culture is that employees begin to see that these various paths to growth are actually available to them, and are therefore much more likely to consider them as serious options that will help them advance in their careers.
Address Underperforming Employees
A critical part of retaining your top talent is addressing issues with underperforming employees. Studies have shown that for top performers, the most demotivating element in a work environment is a manager who does not address poor performance. Of course, that’s not even mentioning the fact that addressing the same performance issues over and over again, yet failing to change employee behavior, drains your organization’s resources.
This means that your managers must have the necessary skills to address their underperforming employees by coaching them into higher performance. Out of the 4,000+ managers we have trained, one of the biggest issues we’ve noticed is that, for the most part, managers believe that they are skillfully and consistently doing all the right things to coach their employees, but employees believe managers are doing a much poorer job of this.
To motivate and increase performance among their underperforming employees, managers must be able to do the following:
Have the skills, confidence, and commitment to handle difficult conversations that produce a positive outcome.
Use specific, practical skills and strategies for what to say and how to say it to have maximum positive impact.
Help employees understand performance expectations and commit to producing desired outcomes.
Get performance back on track when it misses the mark and help employees take ownership of solving performance problems.
Communicate clearly to ensure that employees meet performance targets.
Spend less time correcting the same performance problem repeatedly by creating solutions that stick.
In teaching these skills and behaviors in our Coaching and Developing Your Team and Improving Performance programs, we’ve found that when managers are able to implement these behaviors effectively, an underperforming, even difficult, employee often can quickly become one of the highest performers on their team.
Implications for Your Organization
In order for such an approach to employee retention to get results, organizations must prioritize helping managers see coaching and developing their team members as a significant requirement of their job, and helping them develop the skills and tools to be successful coaches and developers of talent.
While managing performance is often a core component of a manager’s role, it is important that they see coaching and developing their employees as a significant part of their job. More specifically, managers must see developing their employees as a core element of managing and improving performance rather than yet another demand on their time.
Additionally, managers must develop the skills and tools to be effective coaches and developers of talent:
Conducting effective and regular one-on-one coaching sessions with team members.
Using a model for engaging and structured two-way conversations, resulting in greater openness and mutual trust.
Offering frequent and actionable feedback that results in improved team-member performance.
Helping team members develop greater confidence, engagement, satisfaction and commitment on the job.
Engaging employees in career-planning discussions and guidance.
Overall, when addressing employee turnover, it’s important to take a focused approach that addresses the core issues driving resignations and that differentiates between methods to attract and methods to retain talent. Moreover, retention strategies must improve employees’ relationships with their managers and overall job satisfaction by providing opportunity for growth and development; creating a culture of coaching and constructive feedback; and addressing underperforming employees.
