Saturday, November 1, 2008
Over the years, researchers have proven that when it comes to retaining employees, money does not buy happiness. Most human resources professionals know that while workers welcome pay raises, the boost in satisfaction that comes with extra money typically does not last, nor do raises alone keep employees loyal. So it is too with recruitment: Competitors can lure employees away from other companies by offering better compensation, but the glow of more money wears off quickly without other rewards. Yet if research shows that attention to pay and benefits is necessary but not sufficient to retain talent, why do many corporate leaders continue to use compensation as their primary retention tool? And what should they really do to keep their best people?
This is a particularly urgent question in emerging markets such as India, where both local and global employers are clawing for talent. In 2007, a team of researchers from Villanova School of Business and from Right Management, a human resources consulting subsidiary of Manpower Inc. that is based in Philadelphia, Pennsylvania, embarked on a project to learn more about the nonpecuniary rewards that drive employees to stay with a company or to flee. They chose the booming Indian labor market and examined the talent management practices of 28 companies operating in India; the researchers surveyed 4,811 of those companies' employees about their attitudes toward their employers, including their intentions to stay or leave. Jonathan P. Doh, Stephen A. Stumpf and Walter Tymon of the Villanova School of Business, along with Michael Haid, a global center of excellence leader at Right Management, describe the team's findings in a July 2008 working paper, How to Manage Talent in Fast-Moving Labor Markets: Some Findings From India. At Villanova, Doh is the Herbert G. Rammrath Endowed Chair in International Business and an associate professor of management and operations, Stumpf is the Fred J. Springer Chair in Business Leadership and a professor of management and operations and Tymon is an associate professor of management and operations.
In India, despite salary increases averaging more than 15% annually in some industries, annual turnover rates among young professionals are averaging 15% to 30% and go as high as 50%. The explosive combination of ballooning salaries and rising attrition signals a tight market for talent that could constrain India's growth in the future. Many factors that affect turnover rates are beyond an employer's control — unfavorable demographics and the larger global economy, for instance. But of the factors that an employer can control, four emerged as most important: performance management practices, professional development practices, the quality of supervision and the company's socially responsible posture. In turn, the researchers discovered that these four factors drive two key employee attitudes — an employee's satisfaction with and pride in the organization. When satisfaction and pride are at high levels, employees are likely to stay.
The best companies drive employee satisfaction and pride by providing management support, training and professional opportunities early on, says Doh, who is director of the Center for Global Leadership at Villanova. Just how early? In the high-velocity Indian marketplace, the new employee honeymoon is so short that employers should start an employee's professional development plan on his or her first day, the authors advise. "Our findings suggest that even six months from the start date is probably too late," Doh says. "[At that point] the employee is already making decisions about whether to stay around or not.
"Those early years — from two to five — are the most difficult ones in which to keep employees and the most expensive in which to lose them. If employees don't get management support and professional opportunities during these early months, Doh says, "they begin looking around for other organizations that can provide [them]."
The study also showed that employers should target high-potential employees extremely early in their tenure and create accelerated development plans for them. "Our research suggests that … at an earlier point than people expect, it's too late," Stumpf adds.
Employee development plans alone are insufficient, however. Young, high-potential employees demand active management support. First-line managers are often not equipped to provide the kind of support that the research indicates is critical to employees' decisions to stay or go. The authors recommend that companies simultaneously invest in training front-line managers so that new employees get the kinds of managers who can help them thrive. Indeed, the research showed that management support is pivotal in an employee's decision to stay or not, Stumpf underscores.
Management support, performance management and professional development — each of which are targeted at an employee's personal contributions — contribute to both employee satisfaction and pride. A fourth variable — the company's socially responsible position and reputation — also shapes employee pride and satisfaction.
While the research is clearly pertinent for companies operating in India, Doh says managers in companies everywhere should apply the findings, regardless of whether they're operating in a high-turnover environment or not. "We're in a global war for talent," he says. "Any company interested in accessing the labor force in India or another developing country needs to pay attention to these findings." What's less obvious is that employers operating in slower markets, such as the current U.S. economy, should also heed the research. "No matter what the environment, employees care about nonpecuniary rewards — pride, satisfaction, the support of the management team," Doh says. "In slow times, it's a mistake to cut back on those aspects."
Ref: A brief synopsis of How to Manage Talent in Fast-Moving Labor Markets: Some Findings From India (working paper, July 2008) by Jonathan P. Doh, Stephen A. Stumpf, Walter Tymon and Michael Haid