Employee turnover is a growing problem for small business owners in just about every industry. Now that many jobs allow for remote work, employees have more positions to choose from. With the national unemployment rate at a 20-year low, Gartner reports that voluntary job turnover among all employees in the U.S. will rise 20 percent in 2022. Employee retention can be particularly expensive for small businesses. According to Gallup, the cost of replacing an individual employee can range from 50 to 200 percent of their annual salary — and that doesn’t include the effect of high turnover on team morale.
Unfortunately, few companies track their annual retention rate or its cost, perhaps for fear of how high the numbers might really be. Small business owners that do keep track find that a majority of their resignations happen within the first six months of employment.
Here are seven things you can do to increase your employee retention rate, especially early in their tenure.
1. Set a company mission all employees can believe in
More often, people don’t leave companies; they leave managers and co-workers. Especially in light of the pandemic, people want their work culture to connect them to something greater than themselves. Everyone wants to work at a company with a mission they can personally support.
What you need to do: It’s up to the small business owners and managers to articulate a mission that everyone can believe in, and to extend this mission to why they should come to work every day. Hint: It’s not just about making money. Your company mission should be directed at the main problem that you solve for your customers and how employees make this possible. Rally support for your mission by telling employees about weekly successes with customers and within your work culture.
2. Audit your best employees’ compensation every quarter
With low unemployment and high turnover, savvy small business owners are increasing their current team members’ compensation. On a quarterly basis, check that you are paying at least market-rate wages. You don’t want to lose your best employees to a competitor who offers them a 10 to 20 percent raise. Also, make sure you’re not giving new employees (with less experience) more compensation than current employees just because the market has shifted. This imbalance will cause serious problems among staff, and the leadership will lose credibility with the team.
Make sure that people in the top 50 percent are receiving enough compensation that they’re unlikely to go looking for a higher-paying opportunity.
What you need to do: Small business owners no longer have the luxury of waiting until a team member asks for a raise or threatens to quit. Make a list, privately, of all your employees and their salaries. Rank them from best to worst in terms of contribution to the business, factoring in their particular value to the company and what it would cost to replace them. Make sure that people in the top 50 percent are receiving enough compensation that they’re unlikely to go looking for a higher-paying opportunity.
To accommodate these higher labor costs, most companies are increasing their prices on the consumer side by 10 to 20 percent.
3. Understand the incentives your team responds to
Money isn’t always the only incentive for improving sustained performance. Financial incentives can change behavior in the short term, but it doesn’t last — or people focus only on the financial incentive of their job and not on their overall performance. Directly ask individual team members what motivates them.
What you need to do: Roll out some non-monetary incentives. For example:
- Recognize employees in front of their peers for doing an outstanding job.
- Give them the opportunity to learn interesting new skills and grow professionally.
- Empower them to execute their goals.
- Don’t be stingy with job titles.
- Provide free snacks, paid lunches and fun events.
- Allow for flexible work hours and time off.
4. Do company surveys and conduct ‘stay’ interviews
Survey employees — anonymously — so they can share their thoughts candidly and feel heard. Keep the survey to less than 10 questions, and think about the action you would take with each answer. Areas to cover include their level of job satisfaction, what they would like to see changed, their association with the company mission and whether they would recommend your small business as a good place to work. This feedback is critical, and you should check in every quarter to see how the answers change.
What you need to do: Besides company surveys, conduct individual “stay” interviews for at least the top 50 percent of your staff. Ask team members what they like about working at your company and what would make them more likely to stay for a long time. Lupe Morante, Human Resource Manager at LA Property Management Group, says a manager can open the stay interview like this: “I would like to talk with you about the reasons you stay with [Company Name] so I understand what I might be able to do to make this a great place to work for you.”
Lupe says that these are some of the most effective questions to ask employees during a stay interview:
- What is your favorite part of your job?
- What part do you wish you could change?
- What keeps you working here?
- What would make your job more satisfying?
- How do you like to be recognized?
- What talents are not being used in your current role?
- What can I do to best support you?
- What might tempt you to leave?
5. Describe career paths inside the company (and demonstrate them)
Most professionals come to a company for career advancement. Many people who leave small businesses leave because they don’t see any upward mobility. Use your organization charts to map how people can “move up the ladder.” A client of mine displays these career paths visually, on a board in their office, with pictures of people who have taken each path.
What you need to do: In employee reviews, discuss what the team member’s next promotion will be if they achieve certain results. This discussion should include their new title, the position’s specific responsibilities and the compensation adjustment. This will keep many people striving for growth, because they can see where their career is headed and the benefits of working toward the next position up the ladder.
6. Don’t just tell them you care; show them
Businesses owners often say reflexively that they care about all of their employees, but to retain them, you need to prove it individually. Particularly in a hybrid work environment, personal life and work life is intertwined. As many people reassess their priorities, their personal life comes first, and work fits in — not the other way around.
Every time you talk to a team member (as possible, depending on the size of your company), ask them how they’re doing before you start talking business.
What you need to do: Start every business interaction with a personal check-in. Every time you talk to a team member (as possible, depending on the size of your company), ask them how they’re doing before you start talking business. Make sure you know what they enjoy outside of work. Ask about their interests, and ask if they’re getting time to pursue it. If you can’t remember their personal interests, write it down! Again, employees usually leave people, not companies. Showing that you truly care about them encourages people to stay at your business and be part of its mission.
7. Hire an HR professional at least part time
If your small business has less than 50 people, you may not be able to afford a full-time HR professional. Instead, you can hire a contractor or HR service provider to coordinate benefits and onboarding and talk to employees about general issues. Ask your HR provider to track your retention rate so you can see what’s working and what needs improvement. By assigning a specific person to these tasks, you prevent things slipping through the cracks.
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Even with the best retention policies, there will still be turnover. Make sure you have a list of qualified candidates — who you’ve already interviewed — so that you don’t spend months trying to fill an open position.
A large part of the success of every small business is how effectively they can hire the right team members and then retain them. By following this plan consistently, building it into your work culture and processes, you can improve your retention rate and lower the cost of turnover.
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