The key to employee retention

The Key to Retention

by | February 6, 2017

The recent focus on employee retention, from what we’ve seen at Equinox, arises from two trends. First, it’s really tough to find the right people in the current market. Once you find them, it’s essential that you keep them.  Second, business owners are seeking people who can take over when they retire and key employees are good candidates.  These different drivers of the employee retention question may lead us to different tools and solutions; but ultimately, we need to start with the core question of what the particular employees in question care about.

Many businesses start with the idea of company ownership as a retention tool because it aligns the employee’s behavior with the “value” of the company.  I disagree, though.  I feel, in a closely held business, that ownership should be one of the last tools to consider unless the employees are intended to be the future owners of the business, taking over from the current owners when they retire.  The reality is that the average employee doesn’t really understand what equity means.  The average employee sees ownership as either 1) a right to participate in decision making; and/or 2) the right to receive the profits of the business. While these are key attributes of ownership, they often don’t have significant impact for a minority owner in a closely held business.  Most business owners who are considering equity for employees do not intend that the employees have a significant say in the business management – and in reality, the owners of the business don’t make the operating decisions.   Similarly, the annual distributions to owners are discretionary and often not made at all.  The real dollars come from the sale of the business.   For most companies, small ownership percentages to employees do not satisfy the employee’s vision of what “ownership” buys them plus it creates a lot of legal and tax complexity for both parties.

When we look more closely at what we want “ownership” to mean for employees and what employees want from ownership, it leads us to other options that might be less complex and more satisfactory to the employee.  For example, profit sharing with key employees aligns the employees’ behavior with actual results of the company.  The company benefits because the employee’s actions should be focused on improving profit and the employee benefits because he or she receives additional compensation based on these results.  As this is a bonus program, it is flexible for the company as well.

Finally, remember that when we get to the core of it, retention is about having a company culture where employees feel valued and are loyal.  In recent years, this cultural commitment has been coined as “employee engagement”.   Employee engagement ties employees to a workplace because they want to be there not because of the money but because of the fit and how the work environment makes them feel.  It’s tough to understand and build your company’s culture.  It’s already there, you just may not have defined it – and it may be something that has developed on its own.  You should consider whether it’s what you want it to be – and more importantly, whether it’s what your key, essential employees need it to be.   Once you understand it, you can build policies and programs to support and grow it.  We’ve all seen the fancy game rooms, happy hours, and parties that the tech companies are known for.  It looks good, but that may not be right for your company.  Consider what your company values – maybe it’s family or community involvement or gratitude toward others.  With these values in mind, you can build programs – large or small – to bring these forward regularly.  Some common examples are “gratitude” programs where employees have an easy and visible way to say “thanks” to a colleague or a community service effort such as  a PTO day or a group activity.

The core of employee retention programs is understanding what makes your workforce as a whole as well as the key individuals tick.  Next, you must understand the risks of losing any employee.  From there, on a combined and individual basis, determine what the business needs to do and what it can support in a retention program.  There is no “one size fits all” here.  Each company’s needs are unique and changing.  As most things in our businesses, it’s always a work in progress – so get to work!