Retaining Talent in the New Economy


In today's low unemployment environment most hiring managers are poachers, looking outside their organizations to find talented people. When they spot attractive candidates, they do what it takes to lure them away. But hiring outside talent is only half the battle in winning the war for workers. Firms must adopt a new market-driven strategy that replaces the old goal of minimizing who leaves, with a new one that influences who leaves and when. Below are several mechanisms that influence retention:

  • Compensation. The problem with pay-based incentives is often someone is willing to pay more. However, there are compensation strategies that can help shape who leaves and when. For example, some firms pay "hot skills" premiums to employees whose expertise is crucial. The payments are an effective way to keep talent in place for critical periods. However, the payments stop the moment skills are no longer crucial to the employer.
  • Job Design. Consider what UPS did to retain drivers. When they studied why drivers left, they found that the turnover could be traced to the exhausting task of loading the trucks at the beginning of their shift. Hiring and training drivers is time-consuming and expensive, so UPS set out to reduce driver turnover by changing the job design. The company hired a whole new set of employees to load trucks. The turnover in that particular loading job is now 400% a year, but it's far easier to fill those positions than it is to find reliable drivers. The company didn't increase retention overall, it just reduced turnover where it counted.
  • Job Customization. Most firms have customizing programs like flextime, but they are generally company-wide programs. However, firms can go a step further and offer individual programs to key employees. Employees could choose options such as career development or balancing work and family. This could raise fairness issues, but there are precedents: Most companies have fast-track career paths for employees deemed more valuable than their peers. This personal job customization is simply an extension of other established practices.
  • Social Ties. Loyalty to companies may be disappearing, but loyalty to colleagues is not. By encouraging the development of social ties among employees (via golf leagues, softball teams, etc.), companies can drastically reduce turnover. For instance, Ingage Solutions has held turnover of software engineers to 7% mainly by developing programs that create a social community.
  • Location. High-tech companies should have an R&D facility in Silicon Valley, recognizing that the inevitable high turnover rate would allow it to tap into new and fresh ideas. Conversely, the company would be wise to set up a long-term R&D operation in a place where those skills are not in high demand, such as a rural community. For employees with young families, the idea of relocating to a smaller community may be very appealing.
  • Hiring. By targeting employee candidates who are not in great demand, but who would be admirable employees, firms can shelter themselves from market forces. For example, Microboard Processing hires at-risk applicants such as former drug abusers. The company starts the new employees on simpler tasks before moving them inside to the assembly operation. This way the employee becomes used to the discipline of work, while the company can assess the employee's work ethic. In return, the firm gets a hardworking pool of employees who are grateful for the chance.

This article has been adapted from "A Market Driven Approach to Retaining Talent," by Peter Capelli, Harvard Business Review, January-February 2000.

© 2000 Bullet Point News, Inc. All Rights Reserved.

Related resources at inc.com:
"How can I retain talent in a tight labor market?"
Recruiting and Retention Secrets of Inc. 500 Alumni

Last updated: Oct 1, 2000

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