Employee Retention

Table of Contents:

Part 1 – Background of historical and ongoing importance of retention

Part 2 – Current best practices of 4 firms

I. Process of identifying firms with the best practices in talent retention

II. Alcon Laboratories

III. Intel Corporation

IV. SC Johnson

V. IKEA

Part 3 – Diagnostic Questions

Part 1 – Background of historical and ongoing importance of retention

Ask any business owner or human resource manager what they consider to be their primary staffing objective and they'll most likely say that they are focused on hiring only the best employees into their organization. While this is an important objective indeed, there is a key element of personnel management that is every bit as important, but often overlooked - retention of current employees.

Retention of current employee is a major issue in every industry across the world. The attrition rates or low rate of retention in industry increase the cost of service. As times change, workers change. Companies must evolve along with their employees to avoid getting caught up in the "revolving door" syndrome with their staff. Today's workers have different expectations from the companies they work for and are much less hesitant to leave one job for another if they don't feel those expectations are being met. Job security is less important to today's worker.

According to extensive research by Accenture, pay is not likely to have the greatest impact on employees’ decisions to stay or leave an organization. Instead, data suggests that employees who are planning to leave are most likely to do so for opportunities that allow them to use and develop their skills – or for opportunities in a company with strong leadership.

While issues of "career growth" and "leadership" are major factors that drive attrition and promote retention, there are important nuances related to occupation level and industry.

For instance, among management-level employees, the key attrition drivers are such concerns as opportunities for management," "ability of top management," "use of skills and abilities" and "work/family balance." For professional-level employees, the key attrition drivers are concerns about "coaching and counseling from one’s supervisor," "company having a clear sense of direction" and "chance to do interesting and challenging work." Among clerical employees, the key attrition drivers are such concerns such as "type of work," "use of skills and abilities" and "opportunity to learn new skills.

Among the most common dissatisfiers cited by employees in exit interviews are: lack of recognition and rewards, lack of advancement opportunities, family obligations, lack of feedback/communication from management, not being made to feel like a valued part of the company, lack of training/education, non-competitive compensation packages, and lack of responsibility/challenging work.

It is expensive to lose good people. It may not always be possible to put an exact price tag on the loss of an employee, but there are four internal sources to consider: the cost of termination, the cost of hiring and training a replacement, the vacancy cost until the job is filled, and the loss of productivity with a new hire.The costs of termination include the following:

§ The cost of the person(s) who fills in while the position is vacant. This can be either the cost of a temporary or the cost of existing employees performing the vacant job as well as their own.

§ The cost of conducting an exit interview to include the time of the person conducting the interview, the time of the person leaving.

§ The administrative costs of stopping payroll, benefit deductions, benefit enrollments, COBRA notification and administration.

§ The cost of the various forms needed to process a resigning employee.

§ The cost of the manager who has to understand what work remains, and how to cover that work until a replacement is found.

§ The cost of training your company has invested in this employee who is leaving.

§ The cost of lost knowledge, skills and contacts that the person who is leaving is taking with them out of your door.

§ The cost of loosing customers that the employee is going to take with them, or the amount it will cost you to retain the customers of the sales person, or customer service representative who leaves.

The cost of hiring and training a replacement including the following:

§ Cost of advertisements (from a $200.00 classified to a $5,000.00 or more display advertisement); agency costs at 20 - 30% of annual compensation; employee referral costs of $500.00 - $2,000.00 or more; internet posting costs of $300.00 - $500.00 per listing.

§ Cost of the internal recruiter's time to understand the position requirements, develop and implement a sourcing strategy, review candidates backgrounds, prepare for interviews, conduct interviews, prepare candidate assessments, conduct reference checks, make the employment offer and notify unsuccessful candidates. This can range from a minimum of 30 hours to over 100 hours per position.

§ Cost of a recruiter's assistant who will spend 20 or more hours in basic level review of resumes, developing candidate interview schedules and making any travel arrangements for out of town candidates.

§ Cost of the hiring department (immediate supervisor, next level manager, peers and other people on the selection list) time to review and explain position requirements, review candidates background, conduct interviews, discuss their assessments and select a finalist. Also include their time to do their own sourcing of candidates from networks, contacts and other referrals. This can take upwards of 100 hours of total time.

§ Administrative cost of handling, processing and responding to the average number of resumes considered for each opening at $1.50 per resume.

§ Cost of drug screens, educational and criminal background checks and other reference checks, especially if these tasks are outsourced.

§ Cost of the various candidate pre-employment tests to help assess a candidate' skills, abilities, aptitude, attitude, values and behaviors.

§ Calculate the cost of orientation in terms of the new person's salary and the cost of the person who conducts the orientation. Also include the cost of orientation materials.

§ Cost of departmental training as the actual development and delivery cost plus the cost of the salary of the new employee. This cost will be significantly higher for some positions such as sales representatives and call center agents who require 4 - 6 weeks or more of classroom training.

§ Cost of various training materials needed including company or product manuals, computer or other technology equipment used in the delivery of training.

§ Cost of supervisory time spent in assigning, explaining and reviewing work assignments and output. This represents lost productivity of the supervisor. Consider the amount of time spent at 7 hours per week for at least 8 weeks.

The vacancy cost until the job is filled including the following:

§ The cost of lost productivity at a minimum of 50% of the person's compensation and benefits cost for each week the position is vacant.

§ The lost productivity at 100% if the position is completely vacant for any period of time.

The loss of productivity with a new hire including the following:

§ Cost due to loss of productivity during learning phase of new employee. As the new employee is learning the new job, the company policies and practices, etc. they are not fully productive. Use the following guidelines to calculate the cost of this lost productivity:

- Upon completion of whatever training is provided, the employee is contributing at a 25% productivity level for the first 2 - 4 weeks. The cost therefore is 75% of the new employees full salary during that time period.

- During weeks 5 - 12, the employee is contributing at a 50% productivity level. The cost is therefore 50% of full salary during that time period.

- During weeks 13 - 20, the employee is contributing at a 75% productivity level. The cost is therefore 25% of full salary during that time period.

§ Cost of coworkers and supervisory lost productivity due to their time spent on bringing the new employee "up to speed."

§ Cost of mistakes the new employee makes during this elongated indoctrination period.

§ Cost of lost department productivity caused by a departing member of management who is no longer available to guide and direct the remaining staff.

§ Cost on the completion or delivery of a critical project where the departing employee is a key participant.

§ Cost of reduced productivity of a manager or director who looses a key staff member, such as an assistant, who handled a great deal of routine, administrative tasks that the manager will now have to handle.

This staggering information should be motivation enough for owners and managers to begin to focus on retaining their best employees.

Part 2 – Current best practices of 3 firms

I. Process of identifying firms with the best practices in talent retention

In order to identify the firms with the best practices in talent retention, we referenced the Fortune magazine "100 Best Companies to Work For" and identified, of that list, which firms had the lowest voluntary turnover rate. The firms we will discuss include: Alcon Laboratories, Intel Corporation, SC Johnson, and IKEA.

In 2006, Alcon Laboratories was ranked number 32 of the 100 best companies to work for and, in 2005, the company’s voluntary turnover rate was 2%. Intel was ranked number 97 of the 100 best company to work for and the company’s voluntary turnover rate was 4%. SC Johnson was ranked number seven of the 100 best company to work for and the company’s voluntary turnover rate was 2%.

IKEA was ranked number 96 of the 100 best company to work for and the company’s voluntary turnover rate was 34%. Although IKEA has a high turnover rate, we will discuss the firm because they have drastically improved their voluntary turnover rate from 76% in 2001 to 34% in 2005.

II. Alcon Laboratories

Alcon Laboratories is headquartered in Fort Worth, Texas and employs 6,227 U.S.employees and 5,954 employees outside of the U.S. The company has three divisions: Consumer Product, Pharmaceutical, and Surgical. Their primary products respectively include: over-the-counter eye care products, specialty pharmaceuticals that treat diseases of the eye, and products for ophthalmic surgeons.

According to the Alcon’s website, the company seeks dedicated individuals who share their “vision of diversified specialization in the field of ophthalmology -- people who are committed to their careers as a means of securing a successful future for themselves while adding value to the world in which they live.” The company belives that “self-motivated, innovative thinkers who take the initiative to get the job done’ should be ‘rewarded both professionally and personally.”

Rotational, cross-division, project team assignments, and the "spend a day in my shoes" program, which brings office workers into the manufacturing facility for a day, encourage collaboration and foster a spirit of camaraderie across job functions.

Alcon believes its people are its most valuable asset and their focus on employee benefits proves it. In the United States, Alcon employees enjoy the health care insurance, life/accident insurance, paid time off, retiree medical coverage, and many others free of charge or at nominal rates. There are many other benefits that are based on location and include: various wellness programs, service awards, free coffee, and a company store.

Alcon’s retirement benefits include a very generous 401(k) Plan which allows employees to contribute from 1 % to 5 % of their eligible pay and Alcon will match their contributions $2.40 for each $1 the employee contributes. Kay Cox, Vice President of human resources, said in an article published by Defined Contribution News that the benefit is one of the biggest reasons for employee longevity, even when the company has a significant number of workers in manufacturing and sales, which are associated with high turnover. "The 401(k) and the match is the single most important company benefit employees cite as a reason for coming to and staying with Alcon," said Cox. "We provide a healthy match to ensure that our employees will have sufficient income in their retirement."

Alcon training programs include a reimbursement of 100% tuition at accredited universities around the country, without a maximum. The company allows people to work flexible start times and telecommute when feasible. The Medical Department offers programs on non-medical topics, such as conflict resolution in marriage, caring for elder relatives, and stress control, and employees and their families can receive a $300 per day emergency medical travel benefit in times of travail. A fitness center at each U.S. manufacturing facility helps employees balance their work and lives.

Alcon embraces diversity, realizes the value a diverse employee population can bring, and attempts to be the employer-of-choice for candidates of all backgrounds. According to its website, “developing techniques for the restoration and preservation of sight requires that (they) hire the most talented people in their field of study. (They) rely on people with creativity, compassion, and dedication-people from a variety of ethnic backgrounds that bring (them) their unique experiences and perspectives.” With products sold in over 190 countries, diversity is an essential component to the continued success of Alcon. Minorities constitute approximately (26%) of the Alcon’s U.S. employees, and the number of minorities joining the company in 2005 accounted for approximately (27%) of U.S. new hires.

Alcon has truly exceeded expectations when it comes to embracing diversity within their organization. While substantial efforts have been directed toward recruiting a highly diverse workforce, they have also established a committee of minority professionals whose goal is to recommend strategies that focus on the recruitment, retention and the professional development of present and future Alcon employees. Additionally, Alcon is committed to seeking out and nurturing diverse supplier relationships.

Alcon places decision-making in the hands of people closest to the action which eliminates the inertia associated with a lengthy bureaucracy and approval process. It allowed Alcon managers to be innovative, learn from errors and develop strategic skills.

Alcon truly considers employees "family." Its practices show that it both cares for its people and supports their development. Alcon recognizes that today's dual-income family situations often place stress on both families and jobs, therefore, Alcon devised a series of benefits called Life Balance Solutions to help their employees cope and provide a balance between work and home.

III. Intel Corporation

For decades, the technology developed by Intel Corporation has enabled the computer and Internet revolution that is changing the world. Founded in 1968 to build semiconductor memory products, Intel introduced the world's first microprocessor in 1971. Today, Intel the world's largest chipmaker is also a leading manufacturer of computer, networking, and communications products.

Best Practices

Benefits and Compensation

Hiring the best and brightest people makes Intel a successful building block supplier to the worldwide Internet economy.

Cash Bonus Programs

Intel has two bonus programs to reward for contributions to the company's success. First, the Employee Cash Bonus Plan (ECBP) is a profit-sharing program tied directly to Intel's financial performance. This program rewards employees through a cash payout twice each year. Over the inception of the plan, the corporate average is 7.7% of annual eligible income or 20 days pay. Second, the Employee Bonus is based on individual and business group performance, as well as corporate earnings per share. This reward is paid out once each year and could represent as much as 1 to 4% of eligible earnings.

Stock Programs

At Intel, every employees own a stake in the company. Through Intel's Stock Option Plan, full and part-time employees may be eligible to receive options based on their past performance and anticipated future contributions. Additionally, all employees are encouraged to enroll in the Stock Participation Plan, a program that offers employees an opportunity to purchase Intel stock at a price lower than the fair market value through convenient payroll deductions.

Benefits

In addition to these compensation programs, Intel offers a variety of important benefit programs to protect the well-being of employee and their eligible family members, including same-sex domestic partners.

Sabbaticals and Vacations

Every seven years, all regular full-time employees in the United States are entitled to an eight-week sabbatical with pay, in addition to normal vacation and personal time off. They also offer a competitive vacation program in the U.S., in addition to nine holidays and a "floating" holiday every year. Globally, Intel offer packages varying by location.

Awards

Every day, Intel employees are making an impact — something that doesn't go unrecognized. Outstanding performance by individuals and organizations is recognized and encouraged through Intel's award systems. Awards range from formal recognition at the corporate level to spontaneous employee-to-employee awards presented at the department level.

Personal Development

Developing your personal life outside the office is just as important as development inside the office. That's why we offer a variety of services and programs to further our employees' lives throughout every level of their careers.

Intel University

Intel University is a worldwide internal training organization offering more than 7,000 courses. On average, an Intel employee participates in six different courses each year. Hundreds of employees, including members of the executive staff, serve as volunteer instructors in courses ranging from technical to employee development. Intel University also offers a wide variety of products and services that facilitate the development for employees, managers and leaders.

Tuition Assistance

Employees may be eligible for financial assistance for work-related courses and/or degrees outside Intel. "Work-related" is defined as having present or future applications at Intel. Tuition assistance covers 100% of reimbursable costs, including tuition, required texts and certain fees.

Mentoring

Managers and peers, including senior staff, mentor employees with an interest in learning new skills in a less formal way. Mentors draw from personal experience and their own education to support on-the-job learning for colleagues.

Career Opportunities

Career growth is always encouraged and employees are given opportunities to challenge themselves - in fact, the average Intel employee moves to a new position within Intel every 18-24 months. Intel announces all open positions internally, except for some at the most senior level.

Protecting our Greatest Assets

Meeting work requirements in concert with your personal life requires flexibility in office schedule. There are programs offered to employees in order to help them manage their personal and professional lives.

Flexible Work Schedules

Intel offer a number of alternative work schedules directed by each business group, intended to address both business needs and, wherever possible, personal needs of employees. Examples include compressed workweeks; alternative start times; part-time positions; telecommuting; personal absence days; and family, medical and personal leaves.

Childcare

Childcare is an important consideration for many of our employees. Intel provides assistance in securing qualified childcare at many sites worldwide.

LifeBalance Resource & Referral

This program assists employees with issues and questions on a variety of work/life topics. Services include information and education on adoption, parenting, childcare, eldercare, education, addressing family and work concerns, and more.

Special recognitions and awards received

§ Intel Tops List of Socially Responsible Companies

§ Intel Recognized as World-Class Leader in Sustainability

§ Intel Recognized for Corporate Social Responsibility

§ Intel Named Best Workplace for Commuters

§ DJSI names Intel Sector Leader

§ Best Corporate Citizens

§ Bush, Clinton Thank Intel for Tsunami Aid

§ Intel Among World's Best in Sustainability

§ Fortune Names Intel a Top Employer for MBAs

§ Intel Scores 100% on GLBT Best Places to Work List

§ Intel Recognized for Top Corporate Diversity Website

§ Intel Makes List of "100 Best Companies To Work For"

§ Intel Honored for Reporting Diversity Data

§ Best for Working Mother

IV. SC Johnson

SC Johnson, headquartered in Racine, Wisconsin, was originally founded by Samuel Curtis Johnson founded as a flooring company in 1886. In response to consumer demand, Mr. Johnson also developed a variety of floor care products. The company soon became known for providing “innovative, quality products”, and has maintained this reputation for over 120 years and five generations.” SC Johnson remains a family-run, privately held company and a leading manufacturer of household cleaners and insect control products. The company’s success is attributed to its product innovation, which includes familiar products such as Ziploc bags, Windex, Pledge, and Shout. S.C. Johnson also helped consumers move from the flyswatter to the spray can. The company is one of the world's largest makers of consumer chemical products, including Drano, Glade, Johnson, OFF!, Pledge, Raid, Shout, Windex, and Ziploc. SC Johnson was also a pioneer in the global marketplace, opening its first overseas subsidiary in Great Britain in 1914. The company currently maintains approximately 70 subsidiaries abroad and international business makes up about 60 percent of total sales. SC Johnson provides products in more than 110 countries around the world. U.S. employees number 3,404, while international employees number 8,596.

In a 2006 report by Fortune Magazine, SC Johnson was listed as one of the 100 Best Companies to Work For, and ranked as one of the top ten companies with the smallest percentage of voluntary employee turnover during a 12-month timeframe. How does SC Johnson maintain a low 2% employee turnover rate? According to the company website, http://www.scjohnson.com, the reasons its’ low employee turnover include the following best practices:

§ A profit-sharing plan that added 19% to employee pay. The average annual pay for salaried employees is $102,161 (Sr. Research Scientist); and $58,300 (Assoc - Production) for hourly employees.

§ Retirees get a lifetime membership at the company fitness center.

§ The company offers educational initiatives and skill development programs.

§ SC Johnson promotes business interactions, via cross-functional assignments, that value and respect diversity, stimulates creativity, and create a sense of entrepreneurial ownership.

§ The SC Johnson atmosphere fosters loyalty and commitment among employees.

§ A commitment to diversity: SC Johnson is committed to recruit, retain and promote employees with a diversity of backgrounds and life experiences. The Diversity Advisory Team is a resource for the company in identifying and meeting the development needs of the entire organization.

§ Employee Work-Life Balance: SC Johnson leads the business world in practices that put employee well-being, satisfaction and success at the top of the corporate agenda. The policies promote the pursuit of a balance between work and home life that enables employees to excel in every area of importance to them. The leading-edge programs help employees make the balancing of work and home responsibilities a little easier. These programs include:

o A Flexible Work Schedule Program — allows employees to establish a work schedule that lets them meet personal commitments while maintaining high levels of effectiveness in the company.

o No Meeting Day Policy - enforced two Fridays per month, enables employees to be more productive heading into the weekends, decreasing the need to take work home.

o Expanded Maternity/Paternity/Adoption Policy - gives employees more time to be with a child following birth or placement with the family.

o Paid Sabbatical Program - allows employees extended time to recharge their batteries, whether spending time with family, volunteering, relaxing or traveling, with benefits and partial pay.

o Child Care Services — are available in the company’s state-of-the-art, nationally-accredited child care center, which has become a model for other companies across the country.

o Telecommuting — enables those whose job objectives can be accomplished offsite to telecommute up to one day per week.

o On-site banking and other in-house employee convenience services — from picking up the dry cleaning to taking the car for an oil change.

o Nationally-recognized recreation and health enhancement programs — include a broad variety of intramural sports, fitness and social activities.

o SC Johnson's company-owned and employee-directed 146-acre park — includes a large indoor recreation center, a spectacular aquatic complex, child care center, softball fields, tennis courts, a golf driving range and a miniature golf course, among other attractions.

V. IKEA

Ingvar Kamprad founds IKEA in 1943. In 1955 IKEA began designing its own furniture. In 1985, the first IKEA store opened in the United States. In 2005, IKEA is one of the largest furniture manufacturers and retailers in the world, with operations in 32 countries. The company has 9,499 employees The Company is well known for its stylish and innovative designs. It is the pioneer of furniture that is easily dismantled and packed flat, to allow ease of transportation.

For three consecutive years (2003,2004,2005), IKEA has been named to Working Mother magazine’s list of “100 Best Companies for Working Mothers,” and in 2003 received the magazine’s Family Champion award in recognition of the company’s family-friendly programs.

The IKEA company philosophy to create a better everyday life for its customers, as well as its co-workers has significantly influenced the company’s workplace environment, family-friendly initiatives and the benefits available to support co-workers’ needs. IKEA’s employee turnover rate fell dramatically from 76% in 2001 to 56% in 2002 and 35% in 2003 (see Appendix iii). This brought IKEA ‘s employee turnover rate down to nearly half of the industry rate of 60%, substantially lowering the company’s costs in recruiting and training replacements (Analyst calculated that the replacement cost of one person is between 1 and 1.5 times his/her salary). In 2006 employee turnover rate for IKEA is 34%.

Last year, IKEA has given particular weight in three areas: flexible scheduling, the most critical benefit for working mothers; child-care options, because without them parents can't work; and time off for new parents, because it's critical for mothers to bond with their newborns without suffering professionally.

At IKEA, women represent more than 48% in management positions and are 47% of the company’s top earners. Also, 60% of co-workers take advantage of the flexible work arrangements that the company offers and 36% of IKEA part-time and full-time co-workers participate in the IKEA tuition assistance program, which has helped many co-workers complete undergraduate college degrees, as well as advanced degrees at graduate schools.

“We’re thrilled to receive the Family Champion award honor and for IKEA to be recognized as a great place to work, especially for working mothers,” said Pernille Spiers-Lopez, president, IKEA North America. “We empower our co-workers and respect people’s personal lives, and we have seen how in return people respect their responsibilities. This has a tremendous influence on job productivity, growth and development, which ultimately benefits our customers.”

Some of the comprehensive benefits for IKEA U.S. co-workers include:

§ All co-workers are eligible for benefits, as well as coverage for domestic partners and their children. This includes hourly co-workers who work less than 20 hours per week.

§ Medical/dental coverage is offered to all co-workers, a rarity for the retail industry.

§ Discounts for weight loss and smoking cessation services, as well as free subscriptions to health and wellness magazines.

§ Work arrangements including flextime, job share, and telecommuting and condensed work weeks. IKEA recognizes the recent trend for working parents to coordinate their work hours to complement their spouse’s work schedule so one parent is always with the child and the need for childcare services is eliminated.

§ Co-worker quiet rooms, recreation rooms, lactation rooms and a comfortable, family-friendly area for co-workers’ family members to enjoy when visiting, as well as $2 Meal Deal at the Co-worker Café or IKEA Restaurant for all co-worker shifts.

§ All co-workers are eligible for two to five weeks of paid vacation per year, based on length of service, and vacation accruals begin on the first day of employment. Co-workers are allowed to carry vacation time over from one year into the next, although IKEA encourages co-workers to take their vacation time every year.

§ Paid maternity/paternity leave.

§ Tuition assistance for undergraduate and graduate school degrees. Co-workers are eligible for a $1,000 bonus one year after completing their degree.

§ Extensive professional development and training programs available to cultivate co-worker talent and advancement, as well as mentoring programs and specialized training in such areas as diversity, health/safety and social and environmental responsibility.

Part 3 – Diagnostic Questions

What is our voluntary turnover rate?
Why are employees leaving?
Why do employees stay?
What practices can we put in place to improve retention?
Is the cost of our current turnover more or less than the cost of adminstering more benefits for our employees? In other words, is it worth it to improve our amenities/benefits or just leave as is?
How important are our employees to our business?
Where are employees who are leaving our company going? If to competitors, how can we differentiate our company to make it more appealing for employees to stay and come from competitors?
What’s the “people” market like in our industry? In the geographic area? Are there any trends?
What’s the cost of losing an employee? Recruitment costs, training costs, lost productivity costs, lost sales costs, etc.
What can we put in place to make employees happy but that is not expensive to do?