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In today's economy, says Peter Cappelli, companies can't shield their employees 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," he writes.
"If management 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 speed."
There are a number of mechanisms a company can use to encourage targeted employees to stay, says Cappelli. These include compensation, social ties, location, hiring and the two mechanisms he describes below: job design and job customization.
Job Design
To retain people with critical skills for longer periods, companies need better mechanisms than compensation. One is job design. By thinking carefully about which tasks to include in which jobs, companies can exert considerable influence over retention rates.
Consider what United Parcel Service did to improve its retention of drivers. UPS recognized that drivers have some of the most important skills in the delivery business. They know the idiosyncrasies of the routes and they have direct relationships with customers. Finding, screening, and training a replacement driver is time consuming; it may take a new hire months to learn the details of a particular route. When UPS studied the reasons its drivers left, it discovered that much of the turnover could be traced to the tedious and exhausting task of loading packages at the beginning of a run. It therefore unbundled the loading task from the drivers' job and assigned it to a new group of workers. The turnover rate for drivers fell dramatically.
Of course, turnover in the new loading jobs averages an eye-popping 400% per year. But that doesn't matter. With high hourly wages and low skill requirements, the loading jobs are fairly easy for UPS to fill, typically with students or other part-timers, and fairly simple for new employees to learn. A high turnover rate in the loading jobs is expected and manageable. In using job design to improve retention, UPS didn't attempt to decrease overall turnover; instead, it targeted the specific skills it wanted to retain. For employees without those skills, it allowed the revolving door to spin freely.
Jobs can also be defined in such a way as to influence when people will leave. Wall Street investment firms were once plagued by erratic, unplanned turnover among junior analysts. The companies addressed the problem by requiring the analysts to leave after three years. Forcing people to quit may seem like an odd way to solve a turnover problem, but it makes a lot of sense. The real issue, after all, was not that the junior analysts were leaving — it was expected that many would go on to business school — but that the firms could not predict who would leave or when. As a result, project teams were often left understaffed, leading to delays and quality problems. Now that they know junior analysts will depart at the end of their third year, the firms can design projects to coincide with analysts' tenures. Having clear termination dates also creates large, well-defined employee cohorts, making training and development easier. The emergence of the three-year stint as an industry standard helps ensure that employees stay for the full period because a junior-analyst job lasting less than three years looks bad on a resume.
Job Customization
In addition to tailoring jobs to particular categories of employees, companies can also tailor them to the needs of individuals. Prudential is experimenting with such a program. It provides workers with a variety of tools to help them assess their own interests, values, and skills, and it encourages managers to tailor rewards, benefits, and assignments to individual requirements. A part-time arrangement might satisfy one employee's desire to pursue outside interests or meet a parenting need, while tuition reimbursement might be the key to keeping another employee happy.
Prudential's program draws on an array of employment options, most of which are available to all workers. It's easy to imagine, however, programs that would go even further in customizing jobs. Key employees might undertake a formal self-assessment of their work and nonwork goals and of how those goals could best be achieved in the context of the company's operations. The assessments would form the basis for individual employment agreements, which might be created using cafeteria-style programs similar to those used in allocating employee benefits. Each employee would be able to allocate a set amount of money to "purchase" options in such areas as career development and balancing work and personal life. The amount available to allocate would depend on the importance of the employee to the company.
Individualized deals always raise fairness concerns, of course. Basing rewards on skills, rather than just on performance, is something new, and it's sure to rub some people the wrong way. But there are plenty of precedents. Salaries have long been based on the labor market — those in hot fields get paid more. Relative compensation routinely hinges on criteria outside an employee's control, such as the performance of a division or the state of the stock market. And most companies have always had a fast-track career path for employees deemed more valuable than their peers on measures other than current job performance. Giving greater benefits to those with critical skills that are difficult to replace seems in tune with these established practices.
The bigger issue may lie with the form of the rewards rather than in how they are distributed. Few companies allow employees to design their own jobs, and those that do usually offer such programs across the board rather than selectively. That's the case, for example, with most flextime arrangements. Companies will need to consider carefully the effects on morale as well as the legal implications of selective programs, but they should not reject them simply because they're unusual and raise tough questions. The market is very creative in providing individualized rewards. Companies should be equally creative.
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