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It's Time to Plug Talent Leaks

By Jennifer Merritt and Louis Lavelle Nothing gets managers sweating these days like a little uptick in the job market. With employment prospects improving, lots of folks who weren't thinking about moving on a year ago now find themselves juggling calls from headhunters. Voluntary turnover began creeping upward last year, and worried managers are now scrambling to find ways to stem the brain drain. "It's no longer a buyer's market for talent," says Laura Sejen, director of Watson Wyatt Worldwide's (WW) strategic rewards practice.

Companies have every reason to be concerned. Monthly voluntary turnover at U.S. companies exceeded year-ago levels for all but one month in 2004, hitting a seasonally adjusted 2.1% in November, according to U.S. Labor Dept. projections. For the 11 months from January to November, 2004, cumulative turnover was 20.4%, the first time since 2001 that voluntary quits topped 20%.

And one recent survey by the Society for Human Resource Management put the share of gainfully employed who are actively looking for new work at 35%, with 47% of workers saying they were "very likely" to kick their job searches into high gear as the economy improves. And some hiring managers say they already have a problem: 38% say they saw turnover increase in 2004.

PENT-UP DEMAND. At Container Store, voluntary turnover, while still low by retail standards, surged to 14% in 2004, up from 9% a year earlier. CEO Kip Tindell says its huge investment in new store employees -- which includes 240 hours of training for employees at every level -- makes any increase in turnover extremely expensive. Last year he changed procedures, adding a new level of management at each store, designed to improve employee career development and help plug the talent leak. Says Tindell: "You can't afford to ever lose anybody."

But avoiding that is harder than ever. After four years of cost-cutting and job-market stagnation, throwing a big bonus at must-keep employees isn't enough to keep them away from the exits. A raise always helps, of course, but job dissatisfaction and pent-up demand for a change are not so easily overcome.

To keep their top performers, companies should embark on an all-hands-on-deck strategy that includes identifying job candidates with long-term potential, cultivating better boss-worker relations, and shoveling cash in a way that treats the best talent like stars, not also-rans. If they don't, companies risk losing their best talent.

Here are some tips on retaning talent from the front lines:

It's the boss, stupid

Obviously, one of the biggest factors in whether you want to bolt is your relationship with your current supervisor. But few companies hold supervisors accountable for retention of top producers, says Christopher Mulligan, chief operating officer at TalentKeepers, an employee-retention research firm. One exception is Texas Instruments (TXN), which pushes managers to make sure employees are challenged and appreciated.

In quarterly performance discussions and career-planning sessions with workers, managers are urged to consider assignment changes that make the best use of their direct reports' skills. Since supervisors are judged on how successful they are at getting top performers to stay, "you cannot fall asleep at the wheel," says Steve Lyle, TI's director of worldwide staffing. The result: zero turnover in a calendar year at some TI units.

Giving managers plenty of leeway to do their jobs can go a long way toward keeping them. At Enterprise Rent-A-Car, branch manager promotions are linked to customer-satisfaction ratings, and employees have broad authority to do whatever it takes to make customers happy -- a combination Enterprise says improves retention. "It's about creating enthusiastic and happy employees," says Bain & Co. partner Robert G. Markey Jr. "That's how you retain your employees in a growing economy where they have lots of opportunities."

Pick 'em right

One of the best ways of ensuring that employees won't get itchy feet is to make sure they're a good fit from Day One. To do that, Marriott International (MAR) periodically identifies its top performers at different levels and surveys them to find out what makes them tick. Then it uses the information to determine which job applicants have similar personality traits.

The extra effort pays off in one of the lodging industry's lowest employee turnover rates -- about 20% for hourly employees and 5% for management. Says Kathy Smith, Marriott's senior vice-president for human resources: "You have to get the right person to start with." American Express (AXP) started doing something similar in 2003 at its financial advisers unit, which had been plagued by high turnover. It says turnover declined as a result but declined to give specifics.

Pay for the best

Replacing one-size-fits-all pay schemes with outsize cash incentives for top performance not only encourages employees to work harder but also makes stars more inclined to stay. At companies like KeySpan (KSE) and Yahoo! (YHOO), managers are working hard to differentiate between the best and the laggards, and they're passing out rewards accordingly, in the hope that the best performers will decided it's worth their while to stay.

Experts say such pay schemes should reduce turnover at the high end of the performance scale -- especially when combined with other methods. Yahoo Senior Vice-President for Human Resources Libby Sartain says this less-egalitarian, performance-based compensation structure has also given the company an opportunity to identify the people it wants to retain and give them good career guidance. Says Sartain: "We're making sure we're nurturing them."

Stay in touch

Even when best efforts and intentions fail, and the top talent heads for the exits, hope is not lost. Rather than slamming the door on a top performer, some companies have done just the opposite, creating alumni networks for ex-employees, says Monica C. Higgins, an associate professor of organizational behavior at Harvard Business School. Bain & Co., for instance, mines those relationships for employee referrals. New hires found this way tend to be a better fit with the company's culture and needs, and they frequently stay longer than other employees.

However they do it, companies have to make retention a priority. "Employers need to pay attention to this now," says Barry Gerhart, director of the strategic human-resources-management program at the University of Wisconsin-Madison. If they don't, they may find themselves waving goodbye to their most important asset. With Mara Der Hovanesian in New York

Merritt is B-Schools editor and Lavelle is management editor for BusinessWeek in New York

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