Top Management Story

Writen by Sharon Terry

New York, NY, February 25, 2005 – Employee retention and motivation…why should employers care? A storm is brewing. National productivity was up 3.9% in the second quarter and 1.9% in the third quarter of 2004. At the same time, the unemployment rate was up 5.5% in October 2004.

"Productivity is up, but fewer people are doing more," said Jennifer Loftus, SPHR, CCP, CBP, GRP, and National Director of HR consulting firm, Astron Solutions. "In addition, the number of 25-34 year old workers will decline by 2.7 million by 2008, resulting in a predicted shortage of 10 million workers within the next ten years."

Turnover can be very costly. According to the Society for Human Resource Management (SHRM), each employee who leaves a company generates a cost. Conservative estimates place that cost at 30% of an employee's salary. For example, an organization that loses and replaces 150 employees a year, each at an average annualized salary of $50,000, incurs an estimated turnover cost of $2,250,000 in one year.

Making changes to recruitment and retention programs can make a difference. As Loftus explained, "If the same organization that replaced 150 employees were to implement changes, they would enjoy a $22,500 decline in recruitment and retention costs with each 1% decline in turnover. By working to improve the employment relationship, they would also reap the recruiting benefits of a reputation as an employer of choice."

Communication is the key ingredient in finding what will best motivate and meet employee needs by asking employees directly about what motivates them. "In order to avoid losing valuable employees, employers must expand their retention efforts by getting inside the hearts and minds of employees and candidates," said Loftus.

One retention and motivation option is instituting a variable compensation program. Team and small group variable compensation programs link organizations and their employees towards particular goals, while providing several benefits including increased total cash compensation opportunities, no increase to fixed salary costs, greater opportunities to reward top-performing employees and departments, enhanced goal setting, and improvement in organizational processes and fiscal situations.

Astron Solutions' client, Boston Children's Hospital launched a small group variable compensation program for their patient financial services department when their days in receivable had increased to 110 days. A quarterly incentive program was formulated focusing on the department's efforts to decrease days in receivable, with a maximum incentive pool equivalent to 20% of the department's total quarterly payroll. Cash payouts were equal among all employees, with the understanding that performance needed to be kept at satisfactory levels in order to be eligible for participation and payouts.

The results were extremely positive. The employees learned how to work more efficiently together as a team, the hospital greatly decreased its days in receivable which generated positive cash flow, and the employees increased their take-home cash without causing the organization any fiscal strain.

Of course there are other options. Spot cash awards are another option for organizations looking to motivate their employees, as well as non-monetary recognition awards such as public "thank you's" or recognition in company newsletters for a job well done. In addition, career matrix programs are a way to motivate employees by linking performance, job complexity, and career advancement. What works best really depends on your employees. "Employers should ask their employees how they would like to be rewarded. For example, employees who work for not-for-profit organizations know that money can be tight, and will often be an organization's best source of ideas with faster buy-in and appreciation," said Loftus.

With these various choices, employers should not feel like the spinning impaired, miller's daughter from the beloved children's fable, "Rumplestiltskin." Low cost solutions for retaining and motivating employees are readily available, proven to be effective, and are relatively easy to execute, resulting in a "happy ending" for employers.

Astron Solutions www.astronsolutions.com is a consulting firm dedicated to the delivery of HR consulting services and supportive technology. To reach Jennifer Loftus directly, please call 800-520-3889 or email her at jcloftus@astronsolutions.com.

Jennifer C. Loftus, is a National Director for Astron Solutions, a consulting firm dedicated to the delivery of HR consulting services and supportive technology. Her primary areas of expertise are the design, administration, and analysis of customized market surveys, employee opinion surveys, and exit interviews. Her experience includes the creation of computer-based solutions to HR issues, and ability to develop, design, and implement base pay compensation systems.

Jennifer is a member of, and has presented to, various major HR organizations. She participates in HR/NY's Career Planning and Professional Development Committee and is Chair of HR/NY's PR committee. She has been published in The American Economist and Workspan and has appeared on ESPN's morning show, Cold Pizza and The Employment Channel, New York City's PBS affiliate. She is also an Adjunct Professor in Human Resources at Pace University.