M E M O

From: David E. Edell, President

Date: May 2, 2002

Re: Managing Talent: Professional Recruitment and Retention

During 2001, important research and a series of articles and presentations re-opened the discussion about the "personnel crisis" in the nonprofit sector. At conferences and professional gatherings we heard time and again about the difficulties in recruiting staff, especially senior professionals and keeping them. The economy, 9/11, the war in Afghanistan, new government administrations and the crisis in the Middle East has each affected how you and your organization operate. We all know that an organization's professional resources are the critical component in its ability to respond to crisis, new challenges and change. I am concerned that the discussion about how to recruit nonprofit professionals and how we build their skills and careers not be placed on the back burner again.

To help keep a focus on the issue, we at DRG have prepared a series of E-mailings for senior executives and volunteer leaders of nonprofit organizations. In each brief mailing, we will look at new thinking, best practices and research in the areas professional recruitment and retention. Schools of business and management, consulting firms and private sector companies have all conducted new research and modeled new programs in these areas. The lessons are quite relevant to building programs in nonprofit organizations.

Each mailing will include an article or study that explores an area more fully. We hope to present ideas about what "excellent organizations" do to recruit top talent and the programs they implement to motivate, educate and promote their best professional performers. We will look at subjects such as; successful recruitment strategies, what do candidates look for in choosing an organization, what makes an organization an "employer of choice", programs for top performers, succession planning, professional development programs that work, executive coaching and mentoring. Many nonprofit organizations have begun to focus on these issues by using these strategies.

Our first article, "A World-Class Retention Strategy" by Dr. John Sullivan of San Francisco State University outlines four important steps that organizations use to keep their best professionals.

DRG is a national Executive Recruitment Firm working exclusively within the nonprofit Sector. Since 1987, DRG has worked to help organizations recruit for CEOs, CFOs, Chief Development Officers and other senior executives. To learn more about DRG and our search success visit us at www.DRGNYC.com

A WORLD CLASS RETENTION STRATEGY

by Dr. John Sullivan and Master Burnett (reprinted by permission)
If you've watched an hour of business news on television or picked up a business magazine lately, the mix of good and not-so-good economic news probably puzzled you. It's been a real roller coaster lately, and no one can predict when exactly our economy might exit its current slump. Some analysts say we are on the verge of a major recovery; others warn that we should expect an economic hiccup; while yet another camp says the upturn is still months or even years away. But for those of us in HR, particularly in recruiting, the state of the economy plays a major role in how we do our jobs.

While a few firms leveraged the economic situation to their advantage, most were forced to retrench, laying off employees they had fought so hard only months earlier to acquire.

As the question about what recruiters should be doing was on the rise, another issue was emerging from a much broader set of professionals: how to keep employees not targeted by layoffs engaged and committed to the organization. Engaging employees simply means keeping them focused on the business objective at hand, rather than on the emotional departure of friends or feelings of uncertainty surrounding the future. While organizations led by HR weenies focused on trivial events like weekly parties to say goodbye to those leaving, leading organizations crafted strategies supported by data identifying key remaining players who might be at risk of leaving, and decision factors that might convince them to stay and help lead the rebuilding.

In short, retention replaced recruiting as the hot topic.

Why Retention Should Always be Job #1

Organizations that were more concerned with the impact of layoffs on the remaining employees versus the layoff itself demonstrated true business acumen. Each year corporations spend billions of dollars to recruit talent, and most experts would agree that it is the only resource left that can help differentiate your organization from another. But what is surprising is that while we spend billions to acquire it, we spend almost nothing to prevent it from walking out the door.

Most HR organizations don't even have a retention function, yet when you scavenge through almost any corporation, somewhere inside you will find a department that is focused on preventing loss of physical assets, from computers to $0.59 boxes of paper clips. If we try to prevent loss of a $0.59 box of paper clips, which probably does very little to differentiate our company from that of a competitor, why don't we formally try to protect our most costly, most value-added resource — our top performers?

On a cost basis alone, there should be enough reason to invest in a formal retention program. Let's not forget that for every employee who leaves an open position, a vacancy is created, a void in which no work is being completed. The existence of that void has consequences: we call the monetary consequences "cost of a vacancy" (COV). From delays in product development to reductions in organizational capacity, having a position open costs the organization daily. While the average cost per hire in America may be $7,500, the average cost of a vacancy dwarfs that number. For one Silicon Valley high-tech company I worked with lately, the cost of vacancy on one position in particular was calculated at $80,000 per day.

Think about that. If you were to lose an average performer involved on an average project, the cost of that single turnover transaction would not only be the cost of replacing that individual, but also the financial impact of that position being vacant for the number of days it takes your organization to replace her.

Let's look at a very basic example, in which we are going to assume that the average employee contributes equally each day, and that revenue per employee is an indicator of his or her performance.

Annual Revenue per Employee:...................... $250,000
Contribution per Day*:
(Revenue per Employee / 220 Work Days).......... $1,135
Average Time-to-Fill: 45 Days
Cost of Vacancy
(Contribution per Day X Average Time-to-Fill)...... $51,075
Cost-per-Hire.................................................... $7,500

Average Impact of Turnover per Instance............ $58,575

*Rounded to nearest $5 increment

While the above example is over simplified, you can see that non-desired turnover can have a huge financial impact. Jump back for one second and pretend that you work for a 5,000-employee company, with 10% annual turnover. Retention is this case would be an over $29 million problem. Is that worth some attention?

Top Performers Present an Even More Compelling Reason

Losing an average performer is bad enough, but when we talk about losing a top performer, your troubles grow exponentially. From our research top performers contribute on average 12 times more than average performers. While many experts disagree about the multiple, they all agree that top performers do contribute significantly more to the success of the organization than average performers. This creates a situation in which when a top performer is lost due to undesired turnover, the impact is significantly larger, and may even be immediately visible. Imagine your firm losing its top salesperson overnight. Would the lost revenues this employee generated have a fairly visible impact fairly quickly?

To make matters worse, top performers usually associate with other top performers, and often take them with them when they decide to leave a firm, exponentially increasing the financial impact on your organization. If the top performers were highly visible employees, then their departure could also raise the question among remaining employees as to whether or not they should stay or try to find something else.

Four Steps to Building a World-Class Retention Function

1. Know the real reasons why employees quit your organization. Everyone says it's the money, but in most cases it's not the money. Asking your employees why they are leaving as they are walking out the door (exit interviews) is like asking a child who spilled the milk: you are not going to get an honest answer. Leaving an organization can be uncomfortable for anyone, regardless of whether they were happy or not, so when probed as for their reasons, like a child they grasp for the easiest excuse. But numerous studies using post-exit interviews have proven that 99% of the time, the money was not a significant reason. While the reasons may differ in your organization, the three most common reasons identified through research were 1) lack of interesting work, 2) lack of appreciation for contributions made, and 3) poor management. (If post exit interviews in your organization identify poor management as the number one reason why top performers have fled in the past, maybe it's time for a little desired turnover!)
2. Continuously reevaluate which positions in your organization are key positions, and which employees are top performers. While retention isn't hard, in some instances it shouldn't be the goal! Not all employees are top or even average performers; every organization has its handful of lemons. Extending the logic from earlier regarding top and average performers, poor performers contribute multiples less than average employees, and can even cost you money when they have direct contact with customers. To be world-class in retention, you need to understand which positions in the organization have the potential to dramatically impact the success of the organization, and who in the organization is worth keeping. Remember that top performers make us more money, so identifying them is critical. But also keep in mind that an average performer is better than a poor performer or a vacancy! Update this list often, and use it for Step 4 below.
3. Identify warning indicators that alert you to the potential of someone contemplating leaving. When people contemplate leaving, their behavior changes. A world-class retention function identifies which behavioral changes warn of possible turnover and addresses that particular employee's motivators prior to that employee making a mental commitment to leaving. If you are wondering how you are going to find out what that employee's motivators are — it's no wonder why they are leaving! Consider using a tool mentioned before in another ERE article called a "more of/less of" list. Ask the employee what they really enjoy about their job, and what they have an intense distaste for. Go one step further and ask them what percentage of their time they spend doing the part of their job they enjoy, and what percentage is spent doing work they dislike. Managers can use this information to help restructure the employee's work so that they spend more time doing what they enjoy versus what they dislike.
4. Continuously re-engage top performers. Knowing why your employees quit and identifying who you should retain is only half the battle. Using that information to re-engage an employee is the other half. Engaging someone isn't easy, but your organization did it once before when they got the person to join the organization. Retention is just like recruiting, with the exception that the target candidate is already employed by the organization and has a fairly clear picture of what life at the company is really like. While recruiting is just sales with a crummy budget, retention is just like sales with no budget at all! Consider letting your recruiters re-recruit your top performers.

Time flies when you are working hard, and often times resources don't get used where most needed. Letting recruiters go inside the walls of your organization can identify where candidates are being underutilized, and serve as a feedback loop identifying who might be at risk of leaving. While it is somewhat political to recruit from one group to fill a void in another, we have to ask what is best for the company as a whole, and move forward based on the answer. Recruiters assess the likelihood of successfully hiring someone every day; maybe it's time we let them assess the risk of someone hiring our own people away!

Steps in the Re-Recruiting Process

• Assume the best are getting recruiter calls and outside offers. Adopt the strategy that no one will stay at your firm longer than one year without being re-recruited. Drop loyalty from your vocabulary and assume you must continually excite top talent if you are to keep them.
• Identify which employees are in high demand. Ask your internal recruiters and external search professionals to help you identify hot jobs and individuals who maybe at risk. Consider searching the Web to identify which of your own employees are currently looking.
• Ask your current employees to help you to keep the team together by identifying those they feel are risk of leaving.
• Identify the elements of typical offers for each key position by looking at the "other" offers that your new hires received. Ask executive search professionals to periodically update you on the offers that other similar professionals are getting in the outside market.
• Tell your current employees how important they are on a periodic basis. Ask them for the professional courtesy to notify you when they might consider an external offer.
• Ask your current top talent to describe their dream job and where they would like to be in the next year.
• Ask your current employees what frustrates them in their current job.
• Prepare a personalized offer for each of your top employees and deliver it to them on a periodic basis (between three and twelve months).
• Prepare an instant counteroffer strategy in case the above approach fails.

Case in Point
One company that I rarely mention does recruit internally in a way that could be considered a retention "wow." The internal staffing group at Microsoft — while spending the bulk of their time dealing with redeployment of resources post completion of a project or employees returning from medical leave — also looks at the deployment of senior resources throughout the organization, and attempts to re-recruit these valuable resources to key groups that relate to the organizations evolving business strategy. These senior resources bring both experience and visibility to groups that have the greatest potential impact. While many organizations do have some form of redeployment function, the extension of this activity to continuously focus on key talent already occupying a role is a retention "wow."

Conclusion

No other activity can impact the success of an organization more than retaining key players. It's time to stop monitoring the loss of paper clips and act more strategically by protecting our investment in our people. While the numbers in this article are simplified for example purposes, please understand that they are also very conservative. Retention as a business problem can have a business impact, measured in full percentage points of total revenues, in excess of 5%. For some of the most well-known corporations in the U.S., we are talking about a business problem with financial impacts in excess of $1 billion.

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Dr. John Sullivan (JohnS@sfsu.edu) is a well known thought leader in HR. He is a frequent speaker and advisor to Fortune 500 and Silicon Valley firms. Formerly the Chief Talent Officer for Agilent Technologies (the 43,000 employee HP spin-off), he is now Professor and head of the HR Program at San Francisco State University. He was called the "Michael Jordan of Hiring" by Fast Company magazine. Dr. Sullivan is also the editor of "VP of HR," an e-newsletter providing "out of the box" solutions for senior HR managers. (Free subscriptions can be obtained by sending an e-mail to vp-of-hr-request@sfsu.edu with the subject line blank and the word "subscribe" in the body of the email.) More recruiting articles by Dr. Sullivan can be found at ERE, and general HR articles can be found at www.drjohnsullivan.com.