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Retention 2010: How to keep good employees in a tight labor market

The unemployment rate is often an indicator of how well our economy is doing. But in the very near future, unemployment figures may become far less relevant. Why? Because we are quickly approaching a seismic shift in the number and types of employable workers in our country.

Teresa J. Rothausen-Vange, Ph.D.
Photo by Mike Ekern
Teresa J. Rothausen-Vange, Ph.D.

More than 70 million baby boomers — upward of 40 percent of the workforce — will reach the traditional retirement age of 65 over the next 15 years. But only 40 million new workers will enter the workforce.

2010 is forecast to be the beginning of an upward trend in severe labor shortages, especially in skilled labor. It costs an employer 25 percent to 150 percent of an employee's annual compensation to recruit, select and train him/her. The projected labor shortage may result in a significant increase in this expense.

Double-barreled challenge
Along with the forecasted labor shortage, the new workforce is increasingly diverse in many dimensions. The U.S. Census Bureau has projected that while the white population will grow from 195 million to 210 million by 2050, the proportion of the labor force that will be white will decrease from almost 70 percent to 50 percent. People of color and ethnic minorities will make up that difference. For example, Hispanics of all races are projected to increase from 12 percent to 24 percent by 2050.

Baby boomers also may stay at work longer, expanding diversity in age. Gender will play a role as well. In 2005, 46.5 percent of America's workforce was female, although women represented less than 8 percent of top management (40 years after civil rights legislation promised to bring equality).

Thus, American business is looking down a double barrel of workforce challenges: a decreasing number of skilled workers who are increasingly diverse in dimensions that employers still haven't figured out how to retain.

What can businesses do? The best way to deal with the upcoming labor shortage is to become the kind of workplace where many different types of people want to stay. But how?

I looked for answers to this question during our last significant labor shortage, and my findings may provide a clue to what employers can expect in the near future.

Research on retention
Previous turnover and retention research shows that, all else being equal in terms of opportunities, people who are more dissatisfied with certain facets of their jobs are more likely to leave. University of St. Thomas business alumni probably remember learning that skill variety, task identity and task significance are important. Additional key aspects of a satisfactory work environment include the amount and quality of feedback, level of autonomy, compensation, working conditions and quality of co-worker and supervisor relationships. But do these facets matter to a new, more diverse workforce?

I interviewed 45 — and surveyed 158 — former employees of Minnesota companies with reputations as good places to work. These former employees represented valuable resources to the companies. Sixty-six percent of survey respondents indicated that their last performance appraisal had been above average or higher, and the sample included 20 percent who had been selected for some type of high-performance management program. The employees in this study represent valuable human capital in other ways as well. Seventy-three percent worked between 40 and 70 hours per week; 83 percent have at least a college degree; and 29 percent have graduate degrees.

Survey respondents were asked to rank more than 150 items on a scale of 1 (an item that made it very hard to leave the company) to 7 (the lack of an item was a primary reason for leaving). Statistical analysis of responses yielded 16 facets that these former employees considered in their decisions to leave.

Top reasons for leaving
The sample of former employees reported the following top reasons for leaving their good jobs: 1. Executive team leadership 2. Executive ethics 3. Facilitation of their careers 4. Company culture

A stunning finding of this research is that the top two facets employees cited as reasons for leaving — executive leadership competence and executive ethics — didn't even register in research done 10 or 20 years ago. The latter was especially important for women and for younger workers in this sample. Employees cited a lack of upper management communication about decisions and changes, executives' poor general management skills, a sense that executives weren't employee advocates, as well as a belief that upper management could not be relied upon and trusted and that upper management wasn't consistent and stable. One employee offered the following explanation:

"I have worked for companies — large and small, private and public — and I am used to change. I'm used to layoffs. I'm used to reorganizations, and that's fine. But when there is a lack of direction ... it's very frustrating ... to [try to] retain your staff and keep them motivated. There was such a lack of communication and such a lack of direction."

A related facet was executive ethics, or the sense that upper managers weren't using morals or telling the truth consistently. This facet was especially important to women's decisions to leave. One woman said, "After a while, it just got to the point where I could not conscientiously represent the company anymore in the marketplace." Another said, "It got to a point where I realized that ... I didn't want to be associated with the things that were going on and the people that were [in leadership]."

When I asked for examples, I heard a lot of stories. One woman told me about how a colleague working on her team had mysteriously disappeared and the team didn't know why. She said, "We found out later [that executives decided] to lay her off and they didn't want to tell us because they were concerned that we'd leave before the project was done. They wanted us to finish."

I asked her how that played into her decision to leave and she said, "Oh, it [played] a big part. We lost our trust in management."

People want to feel that they are part of an organization that is being led by competent, ethical leaders. These concerns about leadership and ethics were highly related to problems with company culture and strategy (the fourth- and seventh-most commonly cited reasons for leaving). Leadership sets the course for the company as well as the tone of the climate, so these strong relationships aren't surprising. One woman talked about the compounded impact of the leaders and the tone they set:

"In the last five years in [the company], I learned to keep my mouth shut. ... It was funny because I used to laugh at people who said they were afraid of [executives]. ... Well, I learned to be scared, too. As soon as I left [the company], within a week my [courage] came back. Thank God the real person [was] still there."

Retaining diverse talent
The study also revealed that retention of women and minorities may boil down to, in the words of Aretha Franklin's famous song, R-E-S-P-E-C-T — respect for the employees themselves and for their co-workers. Employees want to feel inclusion at work, which means that they want to feel they belong, can participate and have an influence. They also want to see those around them treated with respect and included in decision-making.

Racial/ethnic minority employees, although not a large part of this sample, were more likely than white employees to say they left due to a lack of respect, as well as the lack of career development (the third-most commonly cited facet overall). Having the company invest in their future can be another sign of true inclusion. Women also were more likely than men to say they had left due to a lack of respect, as well as a lack of ethical leadership, a lack of a sense of accomplishment and not being able to help people in their job.

White employees were somewhat more likely than racial/ethnic minority employees to say they left due to the lack of a sense of accomplishment and not being able to help people in their jobs. Men were more likely than women to say they left because they needed a more stable or secure job, and because they had problems with their managers. And, interestingly, more men than women left due to a lack of respect for their age, race and gender. It may be that a side effect of specific programs for women and ethnic minorities is that men now feel the lack of such programs for themselves.

The only significant difference between older and younger workers was that younger workers also were more likely to report having left due to the ethics of upper management. However, I did hear some stories about feeling a lack of respect due to age. One woman said, "There was just no challenge left any more. I am not ready to retire. ... I still have a lot more to offer. [But I] just got the feeling that [the company] was like, 'Just don't bother us, let's just push you in the corner.' I think it was an age issue."

Lastly, I asked employees two additional questions about retention: whether there was something the employer could have done at the last minute to retain them, and whether they'd be willing to go back to their employer at some time in the future. Statistical analysis of differences in survey responses between those who said "no" to these questions and those who said "yes" suggests that disillusionment about a company's culture, strategy, respect for human beings and lack of a sense of accomplishment are the most permanently damaging to the employment relationship from an employee's perspective.

These findings suggest that some tried-and-true facets of the job — such as opportunities for advancement and one's supervisor or manager — are still important to retention, and that some new facets are emerging. However, the emphasis of even the "old" facets has shifted. For example, an opportunity for advancement used to mean promotions, but now includes training, career development and other growth and learning opportunities.

New facets are emerging as important to the retention of workers, such as how well executives run their companies and how ethical company leadership is perceived to be. Although more work needs to be done, the results of this research also suggest that women, younger workers and racial and ethnic minority employees may place more emphasis on these new facets.

As the workforce tightens and diversifies, performing an audit based on these new and shifting facets, and then devoting resources to improvements, may be an important investment in the future of any company.

This article is reprinted from the fall edition of B., the magazine of the Opus College of Business of the University of St. Thomas. Dr. Teresa Rothausen-Vange is a professor of management at the school.


Want to add your voice?

If you're interested in joining the discussion by writing a Community Voices article, email Don Effenberger at deffenberger [at] minnpost [dot] com.

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