Best Practices in Retention: a Review of the Literature

A review of the HR literature suggests that sources on HR retention can be grouped into the following categories:

• “How To” articles, books and presentation materials on employee retention. By far the most numerous, these sources tend to be highly prescriptive without delving too deeply into specific details about how to implement retention measures.

• Case studies of particular companies that primarily relate what a particular establishment has done with little or no reference to more general sources within the HR literature.

• Works that focus more intensively and exhaustively on specific retention areas. The literature on compensation and benefits systems, for example, is quite considerable.

• A comparatively small body of academic and business literature in which various research methodologies are used in an attempt to link particular HR initiatives to measurable performance outputs such as productivity, worker turnover, etc.

Our primary concern in reviewing this literature was to produce a typology of the many types of HR interventions that are associated, in the literature, with potentially good employee retention. This typology was instrumental in the development of a conceptual framework for identifying, selecting and ultimately documenting “best practices” firms for this study. Information about practices was derived primarily from the shorter reference sources of the “how to” variety. However, case studies and more detailed works on particular areas of employee retention proved valuable in introducing noteworthy caveats, nuances and detail into our considerations.

Based on our review of the literature, we have developed a list of retention practices that captures the main types of interventions discussed in the HR literature. They are as follows:

1. Compensation and Benefits

2. Recognition and Rewards

3. Training Professional Development and Career Planning

4. Recruitment & Orientation

5. Healthy Workplace or Wellness Programs

6. Work-Life Balance

7. Job Design & Work Teams

8. Employee Participation & Communication

9. Performance Appraisal and Performance Management

It’s Not Just the Pay …

While remuneration and other types of benefits continue to be an important factor in the retention equation, it is important to note that the current HR literature treats them as only one potential area for retention, and not always in and of themselves, sufficient to ensure strong employee commitment. Over the past 10 or 15 years, the business literature dealing with employee participation, workplace wellness, work-life balance and other topics has mushroomed, indicating a strong interest in and recognition of how other aspects of working life influence people’s decisions to stay with or leave a company.

Why do people choose to leave or stay?

Setting aside our list of retention policies and programs, it is clear that there is broad agreement in the HR literature about the general features of any potential HR program that contributes to good retention. Most of these are directly related to creating a satisfactory work environment for employees and thus, in turn, to good retention. These features — or ‘motivators’ — include: [1]

• A stimulating work environment that makes effective use of people’s skills and knowledge, allows them a degree of autonomy on the job, provides an avenue for them to contribute ideas, and allows them to see how their own contribution influence the company’s well-being.

• Opportunities for learning and skills development and consequent advancements in job responsibilities.

• Effective communications, including channels for open, two-way communication, employee participation in decisions that affect them, an understanding of what is happening in the organization and an understanding of the employer’s main business concerns.

• Good compensation and adequate, flexible benefit plans.

• Recognition on the part of the employer that employees need to strike a good balance between their lives at work and outside of work.

• Respect and support from peers and supervisors.

Companies that are inflexible, or whose organizational culture is characterized by domination and autocracy are likely to have dissatisfied employees no matter how good the incentives to stay may be (Ashby and Pell, 2001). Or, at the very least, the tenure of their employees is likely to be highly sensitive to changes in specific (usually monetary) incentives: small changes in compensation may lead to numerous departures. There are however other aspects of the work environment or particular jobs that can act as strong ‘de-motivators’ that can cause people to leave their employment. These include:[2]

• Lack of control over one’s work

• Feeling bored or unchallenged by repetitive tasks

• Lack of job security

• Lack of learning opportunities

• More generous compensation or benefits package offered elsewhere

• Concerns about the future of the firm.

It is important to note that some of these de-motivators can occur at the best of firms, or can be the result of forces that originate beyond the firm itself. That a particular job description involves many repetitive and boring tasks is not necessarily the result of indifference on the part of the employer, but is rather inherent in the nature of that type of job. That employees are often pulled to other companies or industries by more generous offers is, in part, a result of the broad characteristics of an industry or the segment of the market in which the company operates.

Nevertheless, as some of our case studies demonstrate, there are companies that manage to thrive and keep their workers under these types of constraints. Often, attentiveness, responsiveness, and openness of communications on the part of management are elements of the business vision that sustain high retention, even under difficult circumstances.

Workplace Culture & Commitment

There exists a keen interest in the concept of company or workplace ‘culture’ and its connection with an employee’s sense of ‘commitment’ to his or her employer. Authors in the HR field speak increasingly of the need to ensure retention by nurturing ‘affective commitment,’ or, simply put, an employee’s desire to remain a member of a particular organization for motives beyond compensation or obligation (Meyer, 2003).

A ‘culture of commitment’ is more than just the sum of particular HR policies or retention initiatives. It is related rather to overall organizational culture, in other words, not just particular programs but rather how such programs fall into a company’s overall values, how it communicates with its employees about those values, and how employees perceive their own role within the company and the value that the company attaches to their individual contribution.

Because workplace culture depends a lot on how individual perceptions and feelings hold together, it can of course be difficult to say exactly what decisively makes up a particular company’s culture. Branham (2001) suggests that commitment-oriented corporate cultures depend on a number of objective and subjective elements. Cultures of commitment, he writes:

• View employees as partners.

• Recognize the human needs of all employees.

• Invest in people as the primary source of competitive advantage.

• Communicate clear corporate mission, vision, strategy, goals, and objectives.

• Commit to long-term strategy and the people needed to carry it out.

• Reward system and management styles to support the mission and strategy.

• Focus on “managing the performance contract,” not controlling the people.

• Put a premium on employee involvement in new ideas and innovation.

• Focus on results, not on who gets credit.

• Trust employees enough to delegate.

• Tolerate “intelligent error” and experimentation.

Similarly, Paré et al (2000) confirm a strong link between “affective commitment” and turnover intention, particularly as such commitment is built through (i) skills development opportunities, (ii) systems that allow people to recognize their individual contributions, and (iii) systems that encourage greater participation in decision-making. We may also add to this list the importance of building trust around such values, and this is particularly true for companies that are undergoing major changes (Withers, 2001).

Nevertheless, the literature strongly supports the notion that people stay with their employers if the culture of commitment is strong. Beyond this, however, it is also clear that people are more likely to stay if the perceived workplace culture—however this is communicated—is a good “fit” with the individual’s own interests, orientation and attitudes (Harris and Brannick, 1999).  Indeed, a number of our Plastics sector case studies suggest that while compensation, personal and professional development opportunities, and other incentives are important in attracting people and keeping them happy, their decision to stay with the company depends vitally on how well they fit in to the company’s way of doing business, how it treats employees, what it expects of them, and how people relate to one another in the workplace.

Does one need a formal retention strategy?

In contrast to “culture,” the term “strategy” refers to a more formalized and planned system of practices that are linked with an overall vision, a set of values and a mission (although to some extent “culture” and “strategy” are interdependent). Many companies, particularly larger ones with fully developed HR departments, engage in elaborate planning exercises in order to develop a cohesive and unitary strategy to deal with employee retention or, more generally, human resources management (which often includes retention as one objective), and roll out particular programs or interventions with explicit reference to an overall organizing principle.[3]

Indeed, many experts within the HR literature emphasize the importance of such exercises, and emphasize that good retention is best assured when companies take a strategic approach to the question. Yet it is clear that taking a strategic approach to HR management can require considerable resources, and may prove to be too resource-intensive for smaller companies, particularly companies that are too small to have a department dedicated to HR matters, or even too small to have an executive exclusively devoted to HR questions.

Can such companies promote good retention without developing an explicit strategy? The interviews we conducted with some Canadian plastics companies suggest that the answer is “yes.” Many of these companies have done an excellent job at keeping their employees without such formal strategies, and even without having consciously and explicitly addressed retention as a primary issue. A number of companies have simply developed good corporate and workplace practices over time simply by being attentive to their workers’ needs and conscious of the value of the contribution they have made. Indeed, because of their size, small companies can benefit from a much closer day-to-day interaction between owners/employers and workers, and this may help to explain why they are well attuned to their employees’ needs and interests.

Finally, and related to the above, it should be noted that good retention practices need not be the result of a single, strategic exercise. They often evolve slowly over time, with programs and policies being implemented on an ad hoc basis in response to perceived employee needs or the evolving demands of business practice.

What does the evidence say?

Can we definitively say that certain types of HR practices or strategies contribute to good retention? The academic and research-intensive part of the HR literature offers a considerable amount of statistical evidence that there exist strong correlations between the implementations of certain types of practices and indicators of good retention such as reduced turnover, quit rates, job tenure and higher employee satisfaction.

Consider the conclusions of a number of key studies:

·        Comparing the incidence of different types of HR management strategies with a number of business performance indicators, Leckie and Betcherman (1994) have provided evidence that indicates a correlation in firms between “good” workforce outcomes (reduced layoffs, quit rates, accidents and grievances) and HR strategies that emphasize employee participation and intrinsic rewards.

• A survey of Canadian IT professionals conducted by Paré et al (2000) demonstrated that IT specialists’ retention patterns are strongly sensitive to HR practices that provide competence development.

• In a survey of 1,000 employers, better business performance was observed among employers that emphasized employee responsibility for reducing costs and accountability for developing improvements (Wagar, 2003).

• The adoption of “high involvement” work practices was strongly associated with better economic performance and employee satisfaction, and lower levels of conflict in the workplace (Wagar, 2003).

• In a research study of IT professionals, Kaiser and Hawk (2001) concluded that technical training was the highest rated retention practice.

• Research has also shown that the presence of practices related to internal career development is often the best predictor of an employee's affective commitment. Such plans include advancement plans, internal promotion and accurate career previews at the time of hiring (Meyer et al, 2003).

These are but a sampling of the sorts of studies that have sought to determine whether ‘good’ employee outcomes could be positively associated with certain types of HR interventions. It should be noted that none of these studies covers all of the potential interventions that companies have come up with. Furthermore, a good number of these try to look for correlations using particular combinations of practices, while others in fact make the point that better performance is best observed when such practices are contained within a particular system or bundle (Leckie and Betcherman, 1994).

At the same time, some studies have presented evidence that finds no correlation whatsoever between reduced turnover and the introduction of ‘progressive,’ ‘innovative,’ ‘alternative,’ or ‘high involvement’ workplace and HR practices. Morrissette and Rosa (2003) find very little correlation between quit rates and the introduction of different ‘bundles’ of alternative work practices in the Canadian manufacturing sector, and they cite a number of other studies that support similar conclusions.

What is one to make of this evidence? Or, perhaps the more familiar question might be asked: Is there a ‘business case’ for the introduction of certain types of policies as a way of reducing employee turnover? Certainly, there is strong evidence to suggest that retention is associated with certain types of HR practices. At the same time, there appears to be reliable evidence to the contrary, indicating perhaps that this area of HR research requires more development.

It seems clear, however, that none of the research actually succeeds or fails in making the ‘business case’ for all of the possible combinations of retention practices or strategies that are implemented by actual firms, nor has it yet been able to encapsulate in a functional way such intangibles as the quality of the company’s workplace culture or “affective commitment.” Furthermore, as Leckie and Betcherman (1994) point out, it is still unclear whether successful practices engender high performance, or whether strong performance creates the resources for the implementation of such practices (Leckie and Betcherman, 1994).

One of the important conclusions of this report (discussed below) is that there is no “magic bullet” or set formula for ensuring good employee retention. In the same sense, there is little evidence that provides a clearly cut business case for all the particular retention practices a company could conceivable choose to implement. Some of the companies whose practices we have documented have instead relied on understanding the retention challenge by focusing on their unique circumstances and, to some extent, ‘trial and error’ have relayed vital information about how well they are keeping their employees. Others simply practice good retention as a matter of long-standing custom, and rarely, if ever, explicitly address retention as an area of business concern. It is not uncommon to hear the phrase: “This is just the way we’ve always done it.”