Keeping the People Report
LB@keepingthepeople.combullet (913) 620-4645bullet http://www.keepingthepeople.com
E-Letter Volume 7 Spring, 2006
Leigh Branham,
Founder/Principal,
Keeping the People, Inc.
     

In this issue:

  • Trouble in River City
  • 27 Reasons to Invest in People: The Evidence Keeps Mounting
  • Spring Quarter Quotes
  • Book News
  • Upcoming Speaking Engagements
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    Ladies and Gentlemen, there's trouble right here in River City

    We have a situation where the U.S. Department of Labor is predicting an increase in jobs accompanied by a decrease in labor force, with 78 million Baby Boomers set to retire with only 44 million Gen-Xers in line to replace them. Some Boomers will no doubt choose to keep working, but not likely in sufficient numbers to stem the tide.

    Now Add These Complicating Factors:

  • Of all the many organizations surveyed, only 13.8 percent can be categorized as having an "enthusiastic" workforce. (David Sirota, Sirota Consulting, 2005)

  • Only about one quarter of U.S. workers can be described as "engaged," meaning those who are passionate about their work and profoundly connected to the organization. Another 60 percent are "not engaged," meaning they are going through the motions doing just what's required, while 15 percent are "actively disengaged", or busy acting out their unhappiness and undermining the engagement of their coworkers and managers. (The Gallup Organization, 2004)

  • The cost to the American economy of disengaged employees is estimated to be $400 to $500 BILLION per year. (The Gallup Organization, 2004)

  • Thirty percent of American workers are actively seeking another job, while 45 percent are passively looking. (Society for Human Resource Management study, 2005)

  • While 62 percent of corporate officers said they see the importance of linking business and talent strategies, only seven percent said their companies were actually doing it, and while 44 percent agreed that line managers should be held accountable for talent-related objectives, only 10 percent said their companies were doing so. (Wall Street Journal article, "Talent Travails," 11/28/2000)

  • Only 24 percent of companies report that they have a competency system aligned to their business strategy (Lawler and Mohrman, 2003)

  • Of the 54 percent of companies that track turnover by leader, only 27 percent of their executives hold middle managers accountable for turnover, and only 16 percent put supervisor's pay at risk based on retention goals. (TalentKeepers, 2004)

    So, the results are decidedly mixed, with many companies obviously groping for solutions. Human Resources professionals keep track of other companies' best practices, and watch for articles in the business media that report what other companies are doing. Instead of measuring themselves against their own progress, many companies mistakenly copycat the practices of other companies. Consider the following listing:

    Recruiting & Retention Tactics

  • Employee Referral Bonus
  • (63%)
  • Sign-on/Hiring Bonus
  • (61%)
  • Base Salary Increases
  • (55%)
  • Spot Bonuses
  • (43%)
  • Retention/Stay Bonus
  • (27%)
  • Stock-Option Program
  • (27%)
  • Paying Above Market
  • (25%)
  • Project Milestone Bonus
  • (16%)
  • Overtime Pay/Time-Off
  • (14%)
  • Separate Salary Structures
  • (13%)
  • Larger Merit Increases
  • (7%)
  • Paid Sabbaticals
  • (3%)

    Workforce Recruiting magazine, August 12, 2004

    Such listings are journalistically well intended. Yet, for Human Resource professionals seeking guidance regarding what to do to retain more of the people they hire, these kinds of lists can be misleading. The truth is that the attraction, engagement, and retention of employees is governed far more by management practices and organizational culture than by the enticements shown on the list above.

    To quote Jac Fitz-Enz in The ROI of Human Capital (2000), "More than 70,000 exit interviews have proved that the principal reason people leave a company voluntarily is the behavior of their supervisors."

    Take another look at the list of retention tactics. Where are: rigorous selection practices, realistic job previews, giving performance feedback and career coaching, recognizing employees' accomplishments, work-life balance strategies, and senior leadership? They are conspicuous by their absence. The unfortunate implication is that it's the short-term tangibles that make the difference in recruiting and retaining the workforce you need to meet your changing business objectives.

    I optimistically believe that most human resources professionals and senior executives want to do the right things to engage and retain their workforces because they know intuitively that doing those things will, in turn, enhance customer service, thus increasing revenues and making their businesses more profitable. Yet, why are so many workers less than engaged? Why are so many workers still actively or passively looking to leave their current employers? And why do I still get requests from human resources staff from information that will help them make the case to senior leaders about why they should invest more money in the human side of the enterprise?

    To answer that request, and because many senior leaders are more persuaded by the logic of factual research, I hereby offer some findings that have been accumulating over the last 15 years or so about the ROI of "two-legged assets."

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    27 Reasons to Invest in People: The Evidence Keeps Mounting

  • 67 percent of customers leave because of an attitude of indifference on the part of a company employee. (American Society for Quality, 2000)

  • Enthusiastic workers often increase the quality of work by huge percentages-up to a 75 percent reduction in defect rates. (Sirota, Mischkind, and Meltzer, The Enthusiastic Employee, 2005)

  • Business units with employee engagement scores in the top half compared to those in the bottom half reported 86 percent higher customer ratings, and 50 percent higher productivity (Coffman and Gonzalez-Molina, Follow This Path, 2002)

  • The average cost of losing, replacing, and restoring equivalent productivity when a valued professional leaves, is on the average, one times salary. (Saratoga Institute study, 1997)

  • Companies in the top quarter in training expenditure per employee per year ($1,500 or more) average 24% higher profit margins than companies that spend less per year.(Susan J. Wells, HR Magazine, 4/19/2001)

  • Organizations that view their people strategy as a source of competitive advantage outperform those that do not by a margin of more than two to one, delivering a median shareholder return of 109 percent between 1996 and 1998, versus 52 percent for other employers. (Watson Wyatt,1998)

  • The 20 percent of Taco Bell stores with the lowest turnover yielded double the sales and 55 percent higher profits than the 20 percent of stores with the highest turnover rates (Jac Fitz-Enz, The ROI of Human Capital, 2000)

  • GTE found that a one percent increase in its Employee Engagement Index resulted in nearly a .5 percent increase in customer satisfaction with service. (Ulrich and Smallwood, Why The Bottom Line ISN'T, 2003)

  • Based on a comprehensive review of the research, revenue gains of 40 percent or so can be realized by companies implementing work practices that result in high employee commitment. (Pfeiffer, The Human Equation, 2000)

  • Public companies in the top 25 percent based on number of performance management best practices in use achieved a 7.9 percent higher total shareholder return (Hewitt Associates, 1996)

  • Stock growth of public companies on Fortune magazine's Great Places in America to Work outperformed companies on Standard & Poor's by 133 percent to 25 percent for the five-year period 2001-2005. (Great Place to Work Institute, 2005)

  • An additional 26 percent of shareholder value was attained by companies with significantly better people management practices. (Watson-Wyatt Human Capital Index, 2002)

  • 41% of employees at companies with poor training plan to leave within a year vs. 12% of employees at companies with excellent training (American Society for Training & Development, 2003)

  • A five-point improvement in employee commitment on a Sears employee survey drove a 1.3 percent improvement in customer satisfaction, which in turn drove a .5 percent improvement in revenue growth. (Rucci, Kern, and Quinn, "The Employee Customer Profit Chain at Sears", Harvard Business Review, 1998)

  • Over a five year period (1996-2001) companies with effective human capital management practices (human capital index scores) achieved a 64 percent total shareholder return vs. 21 percent for low human capital index scores (Watson Wyatt, 2002)

  • A five percent increase in employee retention at advertising agency Leo Burnett increased productivity by more than 20 percent and profits by 50-100 percent. (Reichheld and Teal, Bain & Company, 1996)

  • A study of 30 steel mini-mills, some characterized by a "control" management approach, and other based on a "commitment" style with more training, decentralized decision-making, small-group team problem-solving, higher wages, and a higher-skilled workforce, concluded that "commitment" mills required 34 percent fewer labor hours to produce a ton of steel and showed a 63 percent better scrap rate. (Ichniowski, Shaw, and Prennushi, 2000)

  • Human capital practices that most drive shareholder value are: Above-market pay, linking rewards to performance, competitive benefits with choice, commitment to performance management, flexible/collegial workplace, high trust in senior leadership, and managers that demonstrate company values. (Watson Wyatt Human Capital Index Study, 2002)

  • Companies that successfully implemented "high performance work practices" and increased the use of such practices by one standard deviation achieved, on average, a seven percent decrease in turnover, and, on a per-employee basis, $27,004 more in sales, and $18,641 and $3,814 more in market value and profits, respectively. (Huselid, 1995)

  • After factory floor workers were given the training and freedom to make repairs to their own equipment rather than having to call a supervisor every time they had a problem, they reported fewer occupational injuries and increased job satisfaction. (University of Sheffield, 1990)

  • High-performance people systems are those that include "rigorous recruitment and selection procedures, performance-contingent incentive compensation systems, management development and training activities linked to the needs of the business, and significant commitment to employee involvement. (Becker and Huselid 1998)

  • Top performers, or "A" players" in any function (not just employees in sales generating or billable positions) create from 80 to 130 percent more value than "C" players (Michaels, Handfield-Jones, and Axelrod, 2001)

  • Companies that spend $273 per employee per year on training average 7% voluntary turnover, compared to 16% for companies that average $218 per employee per year. Carroll Lachnit, Training magazine, September, 2001)

  • High-performing companies share a set of general practices that lead to superior economic results: 1. reasonable job security, 2. highly selective hiring, 3. higher pay, 4. strong autonomous teams with decentralized decision making, 5. reduced status distinctions, 6. extensive training, 7. open information sharing, 8. linking of performance and reward (Pfieffer, 1998)

  • Non-financial human performance, culture, and leadership factors drive at least 35 percent of a company's evaluation by stock analysts and investors.(Ernst & Young)

  • According to one long line of research, differences in the quality of enterprise-wide people systems can increase a firm's market value by as much as $73,000 per employee (Huselid, et.al.)

  • 50 percent of HR executives report that their companies are increasing their investments in tracking the impact that metrics such as turnover rates, productivity, and employee morale have on the bottom line. (Workforce Management, 2004)

    Enlightened CEOs already understand one undeniable conclusion from all this research-that investing in people is the surest path to business success, especially in a time when there are more jobs than people to fill those jobs. Other CEOs, who focus more on short-term returns than long-term success, who still believe in the "cannon-fodder" theory of human resources, who still insist that money is the main motivator, who are distracted from the organization's best interests by their own greed, or whose leadership ability is hampered by the limits of their emotional intelligence, may never be persuaded.

    Even so, smart, caring, and well-informed HR leaders must not give up the fight to educate and influence executives to do what is in their own intelligent self-interest and the long-term interest of the business to do. And when senior leaders respond by saying, "but we are already successful" the appropriate reply must be: "and think how much more successful we can be!"

    Note: If you have seen other research findings linking business results to human resource investment, please send them to me at LB@keepingthepeople.com, and I will make them available in future issues.

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    Spring Quarter Quotes

    On the Wisdom of Investing in People

    "The only difference between one organization and another is the performance of its people."

    spacer--Peter Drucker

    "You can't overcome a bad culture by paying people a few bucks more."

    spacer--David A. Brandon, CEO of Domino's

    "The value of human capital, or intangibles, in most corporations today accounts for more than half, if not two-thirds, of a company's value."

    spacer--Margaret Blair, Director of Intangible-Assets Research Project, Brookings Institution

    "We treat our people well, and in turn, they treat our customers well. Happy employees equal customer satisfaction."

    spacer--Gordon Bethune, former CEO, Continental Airlines

    "Only people who want to, work this hard."

    spacer--Jim Mittelhouser, Netscape Founding Engineer, commenting on the 70-hour workweek norm at Netscape.

    "...there is one key to profitability and stability during either a boom or a bust economy: employee morale."

    spacer--Herb Kelleher, Southwest Airlines Founder

    "My main job was developing talent. I was a gardener providing water and other nourishment to our top 750 people. Of course, I had to pull out some weeds, too."

    spacerJack Welch, former CEO, General Electric

    "Faith in people is a wonderful thing, but you have to manage, Bubba."

    spacerJac Fitz-Enz, author, The ROI of Human Capital

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    The 7 Hidden Reasons Employees Leave
    "7 Reasons" Selected Among Best of 2005

    The Library Journal recently selected The 7 Hidden Reasons Employees Leave as one of the best business books of the year for 2005, in the category of "job satisfaction."

    To order The 7 Hidden Reasons Employees Leave, visit www.keepingthepeople.com and click on "books."

    If you have already read The 7 Hidden Reasons Employees Leave and would be interested in writing a brief review on amazon.com, please click on the following link: http://www.amazon.com/gp/customer-reviews/write-a-review.html.

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    Upcoming Speaking Engagements

    Leigh Branham's public speaking engagements and presentations to private companies and organizations will include trips to the following locations in the coming weeks: Tuscon, AZ. (April 24-26), New York City, N.Y.(April 27-28), Atlanta, Ga. (May 10-11), Kuala Lumpur, Malaysia (May 14-19), Tulsa, OK. (May 22-23), Warsaw, Poland (June 11-12), Lawrence, KS. (June 22), Minneapolis, MN. (July 11-12).

    For more information about having Leigh speak to your company or organization, please contact him directly at (913) 620-4645 or LB@keepingthepeople.com. To view a streaming video of Leigh Branham delivering a recent presentation, visit www.keepingthepeople.com and click on "Speaking."

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    To send this newsletter to a friend, please click here.

    Keeping the People, Inc. helps organizations link employer-of-choice strategies with business strategies, conduct third-party post-exit interviews and surveys, conduct engagement surveys with current employees, and provides the management coaching and training needed to implement those strategies.

    For more information, contact Leigh Branham directly at (913) 620-4645, or by e-mail at LB@keepingthepeople.com. Also visit the Web site: www.keepingthepeople.com.

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    Keeping the People Report
    LB@keepingthepeople.combullet (913) 620-4645bullet http://www.keepingthepeople.com
    13488 West 126th Terrace, Overland Park, Kansas 66213

    Copyright, Keeping the People, Inc. 2005. Keeping the People Report is written and edited by Leigh Branham.