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Key to Retention

February 1, 2010

Everyone wants a raise and employees can shift to competitors if they are offered better pay packets. Does that mean that higher compensation is the key to retention ?

 Not Really. The employees do not remain satisfied for long with the extra money- says a study conducted by Villanova School of Business and Right Management, a human resources consulting subsidiary of Manpower Inc.

Started in 2007, a team of researchers “embarked on a project to learn more about the nonpecuniary rewards that drive employees to stay with a company. Looking at the Indian labor market, they examined the talent management practices of 28 companies operating in India. The researchers surveyed 4,811 of those companies’ employees about their attitudes toward their employers, including their intentions to stay or leave.”

Despite salary increases averaging more than 15% annually in some industries, annual turnover rates among young professionals was fund to average 15% to 30% and go as high as 50%. 

While there were many factors that were beyond the control of employers,Of the factors that an employer can control, four emerged as most important: performance management practices, professional development practices, the quality of supervision and the company’s socially responsible posture. In turn, the researchers discovered that these four factors drive two key employee attitudes: an employee’s satisfaction with and pride in the organization. When satisfaction and pride are at a high level, employees are likely to stay.

The study also showed that employers should target high-potential employees extremely early in their tenure and create accelerated development plans for them. Young, high-potential employees demand active management support — something first-line managers are often not equipped to provide, but which is critical to employees’ decisions to stay or go. The authors recommend that companies also invest in training front-line managers so they can help employees thrive.

This research is pertinent not just for companies in India, but for managers everywhere. “We’re in a global war for talent,” Doh says. “Any company interested in accessing the labor force in India or another developing country needs to pay attention to these findings.” That applies to companies in slower markets, too, such as the current U.S. economy. “No matter what the environment, employees care about nonpecuniary rewards — pride, satisfaction, the support of the management team,” Doh says. “In slow times, it’s a mistake to cut back on those aspects.”

Source: Financial Post, Dec 22, 2008. Article Courtesy- MIT Sloan Management review, full text available at  http://sloanreview.mit.edu/smr/

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