As companies continue to seek competitive advantage, they must look to their employees for fresh ideas and new innovations in product and service offerings. However, conflicting forces such as outsourcing, cost-cutting, industry consolidation, and automation are placing high expectations on workers and are decreasing job satisfaction levels. Use this Trends & Predictions note to get to the bottom of employee turnover and find out more about how retention initiatives may help keep competitors at bay.
Work Stinks, Job Market Doesn't
- According to the Society of Human Resource Management, 75% of U.S. employees are actively seeking new job opportunities. Among executives, the situation is even worse, with 82% claiming that they are dissatisfied with their current employer and are looking for a new job (via ITFacts.biz, January 2005).
Percent of American workers that are or may be considering leaving their job
Source: Chart Your Course International, via AZcentral.com, April 2005
n=455 U.S. employees in 2004
n=455 U.S. employees in 2004
- A recent study from The Conference Board confirmed what PR Web is calling the "Work Sucks" Crisis. According to the survey of 5,000 U.S. households, job satisfaction is down from ten years ago in virtually every age group and across all income brackets. Overall, 50% of all Americans claim to be satisfied with their jobs today, compared to nearly 60% in 1995. Worse still, even among the 50% that indicated they are satisfied, only 14% claim to be "very satisfied," and fully one quarter of employees admit that they just show up to work to collect a paycheck (The Conference Board, February 2005).
- Additionally, The Conference Board found that two-thirds of employees do not identify with their company's objectives or feel motivated to drive their employer's business goals. Specifically, while most workers are happy with their commutes to work and their relationships with colleagues, they are most dissatisfied with their companies' bonus plans, promotion policies, health plans, and pensions (The Conference Board, February 2005).
- With respect to management, fully 40% of workers feel disconnected from their employers, and less than one out of three supervisors and managers are viewed as being good leaders (The Conference Board, February 2005).
Middle age workers show the sharpest decline in job satisfaction; seniors still fairly satisfied
Source: The Conference Board, February 2005
n=5,000 U.S. households
n=5,000 U.S. households
- While job satisfaction may be down, confidence in the job market appears to be up among tech workers and several recent reports show that workers are optimistic about finding new jobs. For companies looking to boost employee retention, this is not a good sign, as a strong job market would make it easier for employees to leave. As an example, 74% of wireless professionals felt confident that the current job market is either strong or growing. Also, the U.S. Department of Labor Statistics indicated that unemployment was down in nine high-tech categories, including computer programming, database administration, and computer hardware engineering last year (via CNET News.com, March 2004).
- Similarly, Dice.com, a well-respected job site for tech workers, boasted a 22% increase in the number of job postings during the first three months of 2005 - once again, welcome news for programmers and engineers thinking of exploring new opportunities, bad news for employee retention (via CNET News.com, April 2004).
- Already, approximately one-third of companies are having difficulties filling high-level IT positions, according to a report from E-skills U.K. and Gartner Consulting. In fact, the hiring shortage has led to delays in product development in 76% of companies, higher operating costs at 42% of companies, and in 22% of cases the delay in hiring has led to the loss of business to a competitor (via VNUNet.com, November 2004).
Percentage of job openings resulting from employee turnover versus economic growth between 2002 to 2012
Source: U.S. Bureau of Labor Statistics, February 2004
Retention Logic
- In many industries, customer retention and business profitability are directly attributable to effective employee management. In fact, between 1999 and 2002, companies with highly engaged employees generated 200% higher returns to shareholders than companies with low commitment from employees. Furthermore, studies show that 70% of customers' brand perception is related to interactions with employees, and 41% of customer loyalty can be attributable to employee attitude (via Bizcommunity.com, April 2005).
- The 2002 to 2012 projections from the U.S. Bureau of Labor Statistics indicate that while the economy will produce 165.3 million jobs during this 10-year period, the labor force is only expected to grow by 162.3 individuals. While the Bureau is quick to point out that these figures don't necessarily mean a labor shortage (due to statistical differences between the two series and the fact that individuals can hold multiple jobs), the fact of the matter is that the forecast does indicate a nominal labor deficit of three million people in the U.S. (U.S. Bureau of Labor Statistics, February 2004).
Job satisfaction not purely a factor of salary in 2005
Source: The Conference Board, February 2005
n=5,000 U.S. households
- Contrary to what managers might think, money is not the only motivator for employees to stay at a particular company. A recent poll found that, while managers on average thought that more than 70% of employees leave for compensation reasons, a survey of employees found that in fact 88% left for other reasons (The Saratoga Institute, via Optimize Magazine, January 2005).
Top reasons for leaving a job
1. | The job or workplace wasn't as expected. |
2. | There was a mismatch between the job and the employee. |
3. | The employee is receiving too little coaching and feedback. |
4. | The employee has too few growth and advancement opportunities. |
5. | The employee feels devalued and unrecognized. |
6. | The employee is stressed from overwork and work-life imbalance. |
7. | The employee loses trust and confidence in senior leaders. |
Source: The Saratoga Institute, via Optimize Magazine, January 2005
- According to the Saratoga Institute, the average cost of turnover per employee is the full year's salary of the departing individual. Thus, in a situation where a company with 100 employees and an average annual salary of $35,000 experienced a turnover rate of 15%, this could mean up to half a million dollars a year just in employee turnover costs (via Optimize Magazine, January 2005).
- Other industry experts mirror these findings, citing estimated turnover costs that range anywhere from a conservative 30% of the annual cost of the employee to as much as 150%. These costs might include a variety of items, including hiring replacements, paying for temporary work, overtime pay, signing bonuses, relocation costs for new employees, and training costs. In January 2004, the U.S. Bureau of Labor Statistics estimates that 1.6% of Americans left their jobs. In comparison, the most recent figures from January 2005 indicate that this figure has jumped to 1.9% (via AZcentral.com, April 2005).
Top three ways to improve employee retention
Bottom Line
As competition intensifies, and the fight for talent increases, companies cannot simply afford to shrug off employee disengagement and the potentially high costs of turnover.
For some final thoughts on how to expand retention efforts, consider the following three points of advice from Optimize Magazine:
- Don't overemphasize compensation and perks. Leading companies will also focus their attention on developing positive, caring, employee-centric cultures that keep employees engaged.
- Develop your own best practices. Blindly following what other companies do may prevent leading companies from tailoring innovative benefits and HR practices to meet the needs of their particular employees.
- Train managers and hold them accountable. Direct supervisors hold the key to employee commitment and satisfaction.
Leading companies can no longer afford to keep bad managers.