Spinning Gold from Straw: Low Cost Employee Retention and Motivation Tools

Employee retention and motivationÂ…why should employers care? A storm is brewing. National productivity was up 3.9% in the second quarter and 1.9% in the third quarter of 2004. At the same time, the unemployment rate was up 5.5% in October 2004. “Productivity is up, but fewer people are doing more,” said Jennifer Loftus, SPHR, CCP, CBP, GRP, National Director, Astron Solutions. “In addition, the number of 25-34 year old workers will decline by 2.7 million by 2008, resulting in a predicted shortage of 10 million workers within the next ten years.”

According to the Society for Human Resource Management (SHRM), each employee who leaves a company generates a cost. Conservative estimates place that cost at 30% of an employee’s salary. For example, an organization that loses and replaces 150 employees a year, each at an average annualized salary of $50,000, incurs an estimated turnover cost of $2,250,000 in one year.

However, making changes to recruitment and retention programs can generate positive fiscal returns. If the same organization that replaced 150 employees were to implement changes, financial savings would accrue. The organization would enjoy a $22,500 decline in recruitment and retention costs with each 1% decline in turnover. By working to improve the employment relationship, the organization would also reap the recruiting benefits of a reputation as an employer of choice.

How can employers cost-effectively retain and motivate employees?

Communication is the key ingredient in finding what will best motivate and meet employee needs. According to the February 2001 Workspan article, “Igniting Passion in Employees,” employers should first ask their employees a series of detailed questions. For example, answers to why they stay at the organization, what would make them leave, and what should be done to keep them from leaving, can be essential in planning incentive programs.

Variable compensation, or incentives, used to be the domain of senior management and executives but are now increasingly being used in a number of organizations. According to a recent WorldatWork study, 77% of organizations in 2004 provided variable compensation opportunities to their employees at all organizational levels.

Team and small group variable compensation programs provide several benefits to the employee and the organization:

• Increased total cash compensation opportunities
• No increase to fixed salary costs
• Greater opportunities to reward top-performing employees and departments
• Enhanced line of sight helps employees to achieve goals
• Improvement in organizational processes and fiscal situations as a result of goal achievement

Astron Solutions’ client, Boston Children’s Hospital launched a small group variable compensation program for their patient financial services department, when their days in receivable had increased to 110 days. This extended length of time in receivable translated into an extremely large daily revenue loss. A quarterly incentive program was formulated focusing on the department’s efforts to decrease days in receivable, with a maximum incentive pool equivalent to 20% of the department's total quarterly payroll. Cash payouts were equal among all employees, with the understanding that performance needed to be kept at satisfactory levels in order to be eligible for participation and payouts. The result was a positive return on investment for the hospital. In addition, the employees learned how to work more efficiently together as a team, the hospital decreased its days in receivable which generated positive cash flow, and the employees increased their take-home cash without causing the organization fiscal strain.

Spot awards are another option for organizations looking to motivate their employees. According to the William M. Mercer 2004 / 2005 Compensation Planning Survey, 55% of organizations continue to use spot cash awards to reward, motivate, and retain key performers, which is 7% more than in 1998. Another 8% of organizations are considering implementing a spot cash award program in the future.

Non-monetary recognition awards also continue to grow in popularity. As also indicated in the Mercer survey, 72% of organizations offer non-monetary recognition awards to reward, motivate, and retain key performers, with an additional 10% of organizations considering implementing a non-monetary recognition award program in the future. Since 1998, non-monetary recognition awards have been the primary emerging reward and recognition practice. These rewards include a public “thank you” or recognition in a company newsletter for a job well done, a special one-on-one lunch, and job restructuring. “Employers should ask their employees how they would like to be rewarded. Employees who work for not-for-profit organizations know that money is tight, and will often be an organization’s best source of ideas with faster buy-in and appreciation,” said Loftus.

Career matrix programs, which link individual competency and varying levels of job complexity to support career advancement, are also another low-cost motivational tool. Creating a career matrix involves various steps. Briefly, these include defining the job level outcomes for three levels of complexity of a job or job family, the activities and requirements that support the outcomes at each level, the three levels of individual core competencies, and the behavioral indicators as well as assessment processes that will be used to determine individual competency. Once defined, employees are then slotted into the matrix using defined criteria, and the guidelines are finalized for placement. This is followed by an overlay of the current pay system and establishment of compensation policies.

Astron Solutions’ client, Northeast Georgia Health System (NGHS), like all hospitals, faced a nationwide nursing shortage. They were having difficulty attracting new graduate nurses to work at the organization, much less attracting RNs to work at their soon-to-be unveiled Open Heart program. After implementing a career matrix program for their Open Heart Program nursing staff, NGHS turnover is now at 5.2%, significantly below the national average of 15.2%. Vacancy rates have also dropped to 8.4%, again lower than the national average of 14.3% (average for Med / Surg and Critical Care.) In addition, 83% of NGHS’s RN positions were filled before the Open Heart Program opened and the fees spent on traveling nurses / agencies declined by $68,000.

NGHS’s career matrix program reinforced their commitment toward employer of choice status, the link between human resource programs, employee satisfaction, and responsibility for contributing to NGHS’ financial objectives, as well as the organization’s commitment to developing clinical expertise internally. Instituting the program also helped establish NGHS as a “learning organization” and has provided them with a competitive edge in local and regional recruitment of both new graduate and experienced RN staff. The program has also required Nursing Management to become more aware of their dual roles as career developers and patient care coordinators. With the RN shortage continuing, NGHS is in a position to continue to meet growing patient demands, while addressing career advancement desires of the new generation of RNs. The success of the program did not go unnoticed by the American Society for Healthcare Human Resources Administration’s (ASHHRA), who honored both NGHS and Astron Solutions with the 2004 “Best Practice” award at ASHHRA’s annual conference.

With all of these various choices, employers should not feel like the spinning impaired miller’s daughter from the beloved children’s fable, “Rumplestiltskin.” Low cost solutions to retaining and motivating employees are readily available, proven to be effective, and are relatively easy to execute, resulting in a “happy ending” for employers.

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Astron Solutions is a consulting firm dedicated to the delivery of HR consulting services and supportive technology. For more information about variable compensation or career path program development please call Astron Solutions at 800-520-3889 or visit their website at http://www.astronsolutions.com

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