You Don’t Have a Turnover Problem?

Most employers in the convenience store industry think they have a frontline employee turnover problem and, heaven knows, the research surveys seem to confirm your thoughts.

According to a Bureau of Labor Statistics survey in February 2008, 78% of 16- to 19-year-olds and 54% of 20- to 24-year-olds had a tenure time of 12 months or less with their current employer. Employee turnover for all age groups continues to soar despite the shrinking job market.

Across industries, turnover is highest in the group that has the most customer contact: our hourly service workers. It’s no surprise then, as frontline turnover increases, customer expectations drop lower year by year.

So, how did we get ourselves into this sorry situation?

Less than 30 years ago, the U.S. economy was manufacturing-based. What we needed for the assembly lines and loading docks was strength, stamina and an ability to tolerate repetitive tasks. Because there were plenty of people who wanted those jobs and little training was required, management viewed those frontline, hourly employees as replaceable cogs in a wheel.

The problem is, as we shifted to a service-based economy, too many managers kept thinking this way. Frankly, management continued to think of frontline positions as menial tasks that anyone could do. They overlooked one crucial difference: manufacturing frontliners don’t interface with clients as service frontliners do.

While frontline turnover has always been monitored and analyzed, few firms have ever gotten a handle on how to control it. In many cases, when turnover wouldn’t be tamed by higher salaries or length-of-service bonuses, employers wrongly concluded that constant turnover in the rank and file was just “the nature of the beast” and reluctantly accepted it as an unavoidable cost of doing business.

No Easy Solutions
Now, however, the labor pool has dried up and we’re being forced to reexamine our thinking. Today, there aren’t enough entry-level workers to fill the jobs available and the problem is not going to go away. All of a sudden, everyone’s looking at ways to recruit the best of a shrinking labor pool while keeping the good people they’ve got from jumping ship. The focus for all companies is trying to “control turnover.” The thing is, this isn’t a turnover problem—it’s a retention problem. And if you’re treating it as a turnover problem, you’re finding that you’re getting nowhere fast.

When you look at this problem and call it “turnover,” you’re focused on facts and numbers and you come up with facts and numbers solutions—increased compensation, sweetened benefits packages and exit interviews.

When you call it a “retention” problem, however, your focus shifts to where it belongs—to the people involved. When you focus on people, you’re doing what magnetic companies do in order to attract, select and retain the best. Magnetic companies use hiring systems to identify the employees who best fit their jobs and their cultures. Magnetic companies conduct regular employee satisfaction surveys and act on them.

Two recently published studies make these points, the results of which are published in the sidebar below.

Manchester Partners conducted the research that documents what the firms reported they’re doing to keep good, frontline employees on board. If these findings hold true across retail and corporate America, at least a part of it bodes well for the future.

When it comes to hourlies, never before have I seen such a high number for “more careful selection,” not to mention that it’s at the very top of the list. This is the real key to retention across the board—hire right in the first place.

Corporate America specifically has always been careful about hiring its more well-paid professional and administrative staff. The logic behind this is that it only makes sense to spend more time and money to test, screen, and interview professionals because there is more at risk.

However, the same reasoning process led to the belief that since there is less risk with hourly employees and since most won’t be on the job long anyway, testing or screening wouldn’t deliver any return-on-investment. Can you see how this faulty logic actually leads to higher turnover? Companies who hire carefully at every level have lower turnover at every level.

Controlling Labor Costs
The financial model is pretty logical. Let’s say our model company, The ABC Store, needs a new cashier. We know the cost (time and money) to recruit, process, hire and train someone comes to about $1,500. Based on past experience, we can expect the average new hire to stay with us for about 40 weeks. If this holds true, this cashier, who will work 20 hours a week at $6 an hour, will probably leave for school or more money in about nine months. That makes the employee investment (not even counting other payroll and administrative burdens) of $4,800 in wages walk out the door after nine months. In that time, we’ve spent $6,300 ($1,500 plus $4,800) or $700 per month on that new person and, “Poof!” they’re gone and so is the time and money invested in them. Then we get to spend another $1,500 to find a replacement.

Now, let’s say the manager of the ABC Store decides to give testing a try. We know we usually have to interview at least three people to get one good candidate, so add $45 (three tests at $15 per test) to our hiring cost. Now that number becomes $1,545. Because we’re testing and hiring more carefully, this new hire doesn’t resign until after 12 months on the job. In this case, our costs have been $6,240 in wages plus $1,545 to hire or $7,785.

This number divided by 12 tells us this employee only cost us $648.75 per month versus the $700 on the nine-month new hire. And we bought three more months before we had to hire again.

Of course there’s a crossover point in this kind of equation where a good person is with you so long that the “cost per month” gets higher, but wouldn’t that be a blessing? We’re just trying to demonstrate how even a three-month improvement in longevity saves real time and money.

Another way to look at it: Each additional month a person stays beyond what the average was before you started testing,  you save $1,500 in recruiting, selecting and hiring costs.

So the big question is, “Is testing frontline employee applicants for needed capacities and attitudes a good idea or not?” Is there a return on investment? This example doesn’t even take into account all the people you might have hired and fired but didn’t because, by testing, you found out up front that they didn’t have what it takes to be successful in the job.

So here are three cheers for all the employers in the study who are selecting their frontline employees with more care. It can only have a positive effect on productivity and profits.

Keep Ideas Fresh
On the other hand, almost everything else these firms are doing to improve retention is comprised of the same tired old ideas that get dusted off every time there’s a labor shortage, except for profit-sharing, which gains a little ground each year.

Now, let’s take a look on the other side of the fence. The information for the study on what employees say they want was collected from more than 500,000 employees over the past three years by The Hay Group. A quick compare-and-contrast exercise between the two studies offers interesting food for thought.

It’s readily apparent that employees want the inverse of what employers are offering. Employers are looking at the problem as a turnover problem. Four of the nine tactics they’re using to reduce turnover (after “more careful selection”) are numbers solutions: ways of throwing money at the problem, such as compensation and benefits, tuition reimbursement, insurance and profit-sharing. Only one is a facts solution: exit interviews.

Did you notice that training and pay are at the very bottom of the employees’ list and near the top of the employers’? What employees are saying is that it’s a “retention” problem—a people-problem—not a “turnover” problem. Today’s workforce wants to learn new skills, interact closely with their supervisors, have work they enjoy, be able to have faith in management, be respected and be recognized for work well done.

The analogy that comes to mind is the tycoon and his family.

The Tycoon so busy expanding his empire that he has no time for his wife and kids and tries to make up for it with money. Well, we’ve all seen that movie. They don’t want his money, they want his time. If pay is No. 2 on the employers’ list and No. 8 on the employees’, why are we throwing money away when all our people really want is some management attention and guidance? 

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