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Keeping the People Who Keep You in Business Part 3 of 3

happyThis is the third in a three-part blog series exploring voluntary turnover in small and medium sized businesses – its causes, its effects, and tips on how to keep the employees you want to retain.  The first part described the causes of turnover in small and medium businesses (SMBs). Part 2 described the effects of turnover on both SMB operations and bottom line success.  In this blog, you will learn cost effective steps you can take to keep the people who keep you in business.

5 Cost-Effective Actions SMBs Can Take to Retain Key Employees

Voluntary turnover is expensive for every business, but is especially burdensome for SMBs.  There are two kinds of turnover costs: direct (including separation costs, advertising costs, interviewing, and initial training time) and indirect (lower organizational productivity while filling the job, productivity ramp-up, and reduced customer loyalty).  The total cost of hiring one employee is between 25 and 100 of annual salary.  Even more for executive or senior management hires.

That means keeping the best employees is critical for SMBs who rarely have the financial resources to quickly fill a gap left by a departing employee or have other employees with same knowledge and skill set to step in.

There are five cost-effective actions that SMBs can take to retain the employees who are critical for growth and success:

  1. Hire the right person
  2. Make work more interesting
  3. Pay attention to pay
  4. Make all work team work
  5. Be flexible

1) Hire the Right Person in the First Place

The best (and happily most cost effective) way to keep good employees is to hire the right employees in the first place. Basically, if there is a good job match between the employee and the job, retention goes up.  Are you slapping your forehead?  Not so fast…

Figuring out job match can be tricky because 39%-50% of résumés contain erroneous information and interviews are unpredictable at best: the success rate of an employee hired based on interviews is about the same flipping a coin.[i] By the way, LinkedIn and other similar social sites are prone to the same kind of errors in job information – remember, the candidate is self-reporting information to market themselves to employers.

What is job match? Think about it the way John Harbaugh, coach of the Super Bowl Campion Baltimore Ravens, does.  Until December 2012 the Ravens had a hard time protecting quarterback Joe Flacco.  With every sack, Harbaugh knew the Ravens’ odds of winning went down and the odds of a Flacco injury went up.  Then, when a Ravens guard was injured and couldn’t play, Harbaugh re-evaluated job match. He moved Michael Oher from left tackle to right tackle and Bryant McKinnie from the bench to left tackle. With the new line, Flacco was sacked just six times in four playoff games. Getting the right people in the right jobs at the right time resulted in Super Bowl rings for Harbaugh and his team, to say nothing of a healthy Flacco.

Job match is the degree to which a person’s preferences and strengths match the requirements of the job. Data about job match is collected using pre-hire assessments completed by candidates: assessment responses cannot be faked like the answers in an interview or experience on a resume.

Be sure to use an assessment validated for pre-hire use, one that matches job demands with applicant preferences and strengths.  Pre-hire assessment is different from the Myers-Briggs Type Indicator, DiSC, the Birkman Method, or similar instruments.  These are great tools for identifying communication and interaction patterns; they are useful for team building and communication, but they not designed or validated for use in the hiring process.

When an employee is a strong match for the job, he quickly learns the job and delivers better than average performance.  That means using pre-hire assessment results in lower training costs, faster adjustment to work culture, longer tenure, and consistently higher performance than employees hired using resumes and interviews. Most companies report a 3X to 10X return-on-investment when using assessments.

2) Employees Stay for Interesting Work

When asked, “What are the top …reasons that you stay employed with your company vs. the competition?” the top reason employees give is job satisfaction.  In a survey of nearly 25,000 employees, answers included:

  • I like my job and I have lots of fun
  • I am happy in my current position
  • I enjoy the work I do here
  • I love my job and I feel like I am accomplishing something [ii].

There are two components of job satisfaction: meaningful work and feeling good about being at work.  If the employee is a strong job match, as discussed above, they report finding the work to be especially meaningful.

Even routine work can be made more interesting – just ask front line employees for ideas about what might make their work more stimulating. Implementing their ideas will not only enrich the work, it will produce greater employee stickiness.

3) Pay Attention to Pay

You might be surprised to learn that pay is not the biggest factor in most employee decisions to stay or quit.  But pay is one of the top reasons employees choose to stay in their current jobs.[iii]  While SMBs are not always able to match the pay of larger companies, some adjustments in pay can make a big difference to SMB employees and it will save money, more than a raise or the cost of additional benefits like vacation time.

When employees both find the work interesting and feel valued by employers, most will not look for a new job as long as their pay is competitive in their geographic area and industry. A good strategy is to match the market pay rate for the job whenever possible.[iv]  The closer pay is to the market rate, the less likely the employee will think about quitting.

Pay levels can be compared using services like the Bureau of Labor Statistics Wage Data ( or O*NET OnLine ( – type in the name of a job, scroll to the bottom to find salary data).  You can also check sites like, GlassdoorMonster, or, which provide various kinds of salary data.

4) Team Work Helps Retain Employees

Another major reason that employees choose to stay rather than take a new job is that they like working with their co-workers and supervisors.  This connection grows when an employee understands how each person’s work (including her own) contributes to achieving work goals and how the work of their team contributes to bottom line success.  Building

self-managed teams drives higher productivity and supports employee retention.

Employees who feel attached to the team and organization describe it this way:

  • The people I have come to know here prevent me from wanting to leave
  • My coworkers are fun-loving, goal-oriented, and help me stay motivated
  • I feel like I am part of a team working here
  • My supervisor is a great role-model
  • I like the interaction I have with customers

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Promoting a team-focused culture in SMBs enhances both retention and organizational performance at a relatively low cost.  Team cohesion grows when work goals require employees to cooperate, share information, and work together – in other words when the development of social networks at work are encouraged.

Organizations that promote employee social interactions and encourage teamwork are more likely to have the kind of positive work culture that keeps high performers from leaving.[vi]

5) Flexibility Improves Employee Retention

A flexible work schedule is another key reason for staying with the current organization when an employee is offered a new job in another organization. Numerous studies confirm that flexibility is really important to employees and that flexible work will remain an important issue in the future.[vii]  Flexible work options improve employee satisfaction and productivity and at the same time help reduce absenteeism.

To support a flexible work place, SMBs can give teams responsibility for setting and managing their own work schedules within the time requirements of the business. SMB managers can handle their team’s employee scheduling requests on a case-by-case basis or enable cross-trained employees to “trade” hours as needed to meet both business and personal demands.  The key is for the SMB to be as flexible as possible while meeting the needs of the business.

The Turnover and Retention Bottom Line

This three-part series has shown why small and medium sized businesses are so sensitive to turnover effects, especially when they lose good employees. The financial impact and costs of losing even one key employee can be harmful to the SMB’s performance and sustainability.

Even though SMBs have less money to invest in retention strategies, there is much that managers can do to directly impact turnover decisions at little or no cost.  To reduce costs and grow the bottom line:

  • Use a proven pre-hire assessment when filling any position.
  • Work with employees to make sure their work is interesting and meaningful.
  • Pay as close to market rate as possible.
  • Create work teams and encourage employees to help each other when needed.
  • Be as flexible as possible to help retain top performers and reduce absenteeism.

[i]Haid, Michael. 2010. Talent Assessment Successful Leaders–They May Not Be Who You Think They Are. Right Management ViewPoint.

[ii] Hausknecht, John, Julianne M. Rodda, and Michael J. Howard. 2008.  Targeted Employee Retention: Performance-Based and Job-Related Differences in Reported Reasons for Staying.  Center for Advanced Human Resource Studies Working Paper Series. (

[iii] Hausknecht 2008.

[iv]Heneman, H.G. and T.A. Judge. 2006. Staffing Organizations, 5th edition. McGraw Hill Irwin;  Parus, B. and J. Handel. 2000. Companies battle talent drain. Workspan September: 16-72.  Cited in Allen, David G. 2008. Retaining Talent: A Guide to Analyzing and Managing Employee Turnover. SHRM Foundation’s Effective Practice Guidelines Series.


Hausknecht 2008.

[vi]Moynihan 2007.

[vii] Ramllal, Sunil.  2003. Managing Employee Retention as a Strategy for Increasing Organizational Competitiveness.  Applied H.R.M. Research 8(2): 63-72.