How to Improve Employee Retention

June 1, 2014

As the economy revives, companies
with dissatisfied employees will
experience a swift exodus of their top
talent. Here is how to keep your staff
engaged and happy.

In a down economy, employees have
fewer opportunities to take a job at
another company, but entrepreneurs would
be remiss to take their fingers off the
pulse of company morale simply because
employees have fewer options.
“Companies that don’t think
about [employee retention], that
basically rest on their laurels and
think ‘the economy will take care
of us, where are they going to go?’ Those are the companies that, as
soon as the labor market picks back up,
their turnover rates are going to go
from 5% to 50% and it will happen
overnight,” says Mark Murphy,
Author of The Deadly Sins of
Employee Retention
and CEO of
Leadership IQ, a Washington D.C.-based
executive education firm.

So what is one of the biggest reasons
people quit their jobs? “One of
the major reasons is being dissatisfied
with their supervisor,” says Linda
Argote, a Professor of Organizational
Behavior at Carnegie Mellon and
Editor-in-Chief of Organization
Science. In the
cramped confines of a small business,
that relationship can create even more
of a strain. “In bigger companies
there are more opportunities to move to
other jobs if you’re dissatisfied
with a particular supervisor but like
the firm, whereas smaller companies may
have less options so they run the risk
of losing the employee,” Argote

to Improve Employee Retention:
Motivation Is Not Enough

Bonuses, vacation days, office
parties, and many of the tools in a
business owner’s arsenal revolve
around rewarding employees for a job
well done and motivating them to produce
similarly stunning results in the
future. But Murphy says that leaders who
dole out these types of perks are only
focusing on half of the picture.

There are “2 issues generally
going on with employees at any given
time: there are ‘shoves,’
things that demotivate people, and then
there are ‘tugs,’ the things
that motivate you, that tug at you to
stay at the organization,” he
says. While these factors will differ
for every employee, leaders often make
the mistake of focusing on the
motivators without adequately
considering what rubs people the wrong

to Improve Employee Retention: Keeping
the Employee Satisfied

Even if you resolve to be more
attuned to employee likes and dislikes,
it can be difficult to ascertain what
drives your employees, especially when
their motives differ from your own.

In the last 10 years, as CEO of
Engage Direct Mail, Dennis Hoffman
learned the hard way that “I never
know what’s inside people’s
heads. I used to assume
everybody’s ambitious because
I’m ambitious and that
everybody’s motivated by money
because I’m motivated by money,
and I’ve learned through painful
experience that that’s not the

Despite Hoffman’s
self-professed learning curve, his
actually has a stellar retention rate
for its 130 employees. Engage has a
90-day trial period during which
evaluate whether new hires are good fits
for the company. During that time, their
retention rate is about 77%, and
afterwards it is over 95%, which is
about as good as you can get. After all,
“0% turnover is not a thing to aim
for,” Murphy explains. You want to
retain your high performers and strong
matches, and gracefully part ways with
your worst performers.

to Improve Employee Retention:
Attracting the Right Candidates

Over the years, Engage has
implemented a number of policies that
serve the dual purpose of attracting
potential employees and keeping current
ones passionate and committed.

Here are a handful of examples

  • Engage
    gives hiring priority to people who live
    near the office because they believe
    that long commutes are detrimental to
    work-life balance.
  • Instead
    of a traditional vacation policy, the
    company lets employees take time off
    from a leave bank, in which they can
    accumulate as many as 60 days off to use
    as they see fit. This policy has helped
    with employee retention, particularly by
    making it easier for female employees
    starting families to take time off and
    ultimately return to work.
  • During
    the hiring process, Engage administers
    the DISC Personality test, which charts
    the 4 characteristics—Drive,
    Influence, Steadiness, and
    Compliance—to build personality
    profiles for new hires. All
    employees’ test results are public
    knowledge, which Hoffman feels helps
    people understand one another and get
  • By
    setting quarterly goals with rewards
    attached, such as iPods for the whole
    team or a trip to a nice restaurant,
    Engage can encourage employees beyond
    the competitive, and potentially
    divisive, realm of salary bonuses. The
    group nature of these rewards is
    important, says Hoffman, because
    “somebody who is not motivated by
    getting an iPod knows that other people
    in his or her group are and
    doesn’t want to let them

In addition to spurring employees to
productivity, this team structure can
make them happier in the workplace.
Argote says, “there’s
evidence that being in cohesive work
groups where members like each other
reduces turnover.”

to Improve Employee Retention: Keeping
in Touch

One reason CEOs of small businesses
must remain vigilant against high
turnover is that it impacts them more
than their counterparts at larger
companies. Argote notes that,
“smaller companies are hurt by
employee departures more [than larger
companies] usually because a lot of
their knowledge hasn’t been
formalized or embedded in processes and
routines.” But where small
businesses fall down when it comes to
institutional memory, they have a
distinct advantage of giving employees
greater access to the boss.

Murphy recommends holding monthly
check-ins with every employee to see
what is motivating them and demotivating
them. This can give a CEO foresight into
potential morale problems much sooner
than he or she would ordinarily catch
them. “Instead of getting 2
weeks’ notice when somebody is
quitting, if you’re doing these
conversations regularly, you should get
a minimum of 4 months’ notice if
you’ve got a real problem with an
employee, and that’s just
light-years better,” he says.

While Hoffman does not meet with
every employee individually, he conducts
frequent all-hands meetings to give
employees a role in setting company
goals and to stay in touch with what
their needs are. Still, especially as
your company grows, details of the
employee experience will escape your
attention, which is what the exit
interview is for. It is the last line of
defense against a bolting employee and
it can sometimes yield surprising
insights and reveal fixable problems.

For example, when Hoffman’s
Head of Accounting quit, everything was
going amicably. She gave plenty of
advance notice, and she helped train her
replacement; it was only at the exit
interview that Hoffman realized why she
was leaving. It had nothing to do with
the company. She had simply grown tired
of accounting and needed a new
challenge. That was all it took, and 2
months later, the employee returned to
the company in a different department,
and she is now its head buyer.

to Improve Employee Retention: Do Not
Burn Bridges

Though the adage that you join a
company but quit a manager holds a lot
of truth, as showcased by the previous
example, employees do not always leave
because of a personal dissatisfaction
with their boss or their company. While
at a small company, it can easily feel
like a personal slight when an employee
leaves you in the lurch, but it is
important to remain on good terms.

A lot of small businesses “make
the mistake of doing the whole
‘you’re dead to me’
thing when an employee leaves,”
Murphy observes, “if you part with
people in a friendly way, you’ve
probably got a new customer and a friend
out in the industry.”

to Improve Employee Retention: Leave
Some Room for Error

Whenever you task an employee with a
project, you want them to succeed,
right? Murphy poses the counterintuitive
suggestion that if you only give
assignments where success is assured,
you are hurting yourself in the long
run. If your employee is “not
going to have to learn anything,
probably the assignment you gave
wasn’t robust enough,” he
says. Pushing people out of their
comfort zones and allowing them to
develop new skills is also a key
strategy for retaining your best

And no job is too simple or mundane
for a boss to give employees room to
innovate. While employees might be
suspicious at first if they have never
been presented with such decision-making
power before, they will often not just
adapt to, but thrive in, an environment
that gives them additional control.

Murphy cites the example of a group
of garbage men making the rounds in a
planned community. Once their supervisor
encouraged them to improve upon the
existing methods for collecting garbage,
one employee discovered a way to cut the
route in half, saving both time and fuel
costs. By carrying an empty can with him
on his route, he only had to make 1 trip
between the truck and each house instead
of 2.

Empowering employees to improve their
work processes can increase their sense
of satisfaction and reduce turnover.
Consider this and the aforementioned
tips to reduce turnover and increase
your chances of holding on to your best