The Psychology Behind Employee Retention and Turnover: The Fight for Relevance

With a labor shortage that is not going away for at least the next decade, the battle to hire and retain talent has been in the headlines every day. Everyone has an opinion about why we have this shortage, why employees leave their jobs, who is to blame, and what we should do about it. Almost everyone is wrong. The reason for the labor shortage is mostly due to demographic issues combined with historically high wealth creation. Turnover and retention are more complicated and psychologically driven — largely by whether an employee feels relevant inside the corporate culture. But what drives relevance? Is it money?

The immediate and most prevalent response to solve retention is to throw money at the problem. If we pay employees more, they will feel more valuable and stay. Yes, there are industries where employees are chronically underpaid and increases can make a difference, but this is the exception and not the rule. Also, unfortunately, the data doesn’t prove that this is a critical factor. PayScale did a study of 70,000 professionals and found that, for companies that overpaid workers, 35% still felt they were underpaid. For those paid at market, 64% said they were underpaid. Not only can we not pay our way out of this, even when we try, more than one-third of the employees won’t give you credit for your generosity.

Other than money, what really impacts a feeling of relevance and how can leaders make an impact? The simple answer is it is not that simple, and that is why retention remains such a problem. Leaders often look for the “silver bullet” or the singular cause of a problem or challenge. In this case, the answer is a large basket of approaches to employee engagement and empowerment. Relevance comes from many areas of a company’s culture, especially from an employee’s ability to make an impact. However, to make any type of impact, employees must be trusted, have access to the information they need to be effective, and the decision rights to act on this information. Leaders must also have the tools to specifically recognize individual workforce performance. It all starts with trust.

Trust

Frances Frei, the sometimes-controversial Harvard Business School professor, is obsessed with trust. She, along with Ann Morris, created the “Trust Triangle” construct that posits Empathy, Logic, and Authenticity are the three keys to earning trust from the workforce. Without strength in all three categories, employees will struggle to trust their leaders and are likely to turn over. It is widely understood that employees are generally leaving due to their immediate supervisor and not the company, and the three pillars of trust are the reason.

Aron Ain, the former longtime and universally loved CEO of UKG, is equally obsessed with trust — he even wrote a chapter on trust in his book, “WorkInspired.” He is logical, overwhelmingly authentic, and his employees always knew that he cared about them (empathy). They trusted him. But he also trusted them and that unlocked performance. They knew they were relevant to the business because they had decision rights and access to the information they needed to make great decisions. Aron extended the concept of trust to every part of the business, including the design of UKG solutions. UKG technologies were initially built to drive governance and compliance related to timekeeping and managing the employee lifecycle. They evolved into so much more including emphasizing individual employee impact through measuring productivity and performance. UKG workforce management and human capital management tools give employees access to information so they can make better decisions faster and allow leaders to recognize employee performance in a timely and impactful way.

Access to Information

A key indicator of employee trust is accessibility to relevant information needed to highly function in a role. We call this phenomenon the “Google Effect.” That is the entire business model of Alphabet. They provide access to information in a useful format so individuals can make better decisions faster. Every product at Google does the same thing — provide this access. This simple business model has created a company with a $1.2 trillion dollar market capitalization.

Organizations face two main challenges when trying to unlock the power of “access to information.” The first is that they have very serious concerns about what would happen if employees had access. Would the company fall apart? Would employees riot in the streets knowing the facts? Or, would they have deeper insights allowing them to better serve the company. Access does not mean giving them all the information from every division of a company, but rather the useful and relevant information so they can make better decisions faster.

The second concern is that useful information is often not readily available. Yes, large databases exist, but how do we mine them for relevant information and deliver that to the people who need it in a timely manner? Technology platforms are getting better at delivering useful information, but we are at the early stages of evolution. Many corporations now use three or four different business intelligence tools, and this is creating more complexity and less governance. Workforce management and HCM tools are largely software as a service (SaaS) models and have begun to offer insights into the workforce with clear and flexible dashboarding instead of export tools allowing you to wrestle with the data. Access is getting better, just not as fast as organizations require.

Decision Rights

Without the information needed to make great decisions, leadership would be irresponsible to give their workforce decision rights. If we can solve the access challenge, we will most definitely have another problem. If employees can see what is going on inside their area of the business, it will help them develop a point of view on what is going well and what needs improvement. Knowing where opportunities exist, great employees are going to want to make an impact. If they do not have decision rights, they will leave. What better way to show an employee they are relevant than to let them exercise their point of view through decisions? This allows them to make an impact. Whether large or small, each time an employee makes a decision, they are demonstrating their relevance.

When I first started at Ankura, I had come from running my own business and was used to making all my own decisions. When I needed to make my first big decision inside of the organization, I went to my CEO, Kevin Lavin, and asked permission. He said, “I trust you to make the decision you think is best.” That was both empowering and terrifying for me. I was entrusted to make decisions, and I also felt that I owed it to those trusting me to make the best decisions I possibly could. Decision rights make us better, make our companies better, and are a clear proof point of trust. People who are allowed to make decisions are always relevant.

Recognition

The annual Ankura Labor Survey is packed with benchmarks on workforce sentiment. Two data points show correlation to workforce turnover, and, when companies outperform these benchmarks, we know their retention is stronger. Although this relates back to the Trust Triangle, it is foundational to relevance. According to the latest Ankura Labor Survey:

• 33% of employees feel management communicates effectively with the workforce.

• 39% of employees feel the management team cares about them.

If we have empowered our workforce to be relevant, we owe it to them to recognize the impact they are making through communication, which should also express care. This allows individuals to know that others see them for the time and effort they expend to drive results.

Am I seen by the organization for the value I create? In other words, am I valuable to the organization? If the answer is no, I should leave. Everyone should be in a role where they are valued by the organization and recognized for their contribution. The problem is often that leaders want to recognize individual employees, but don’t have the hard data to do so authentically. Instead, they recognize groups of people for general accomplishments. This is terrible. High-performing employees deserve high-performing leaders. When they are lumped in with everyone and not seen for their impact, they will either turn over or disengage, while low performers will gain validation for their performance and not see a need to improve. General recognition drives mediocrity. Thanking an individual should always be authentic, timely, and proportionate. It makes them know they are relevant.

People ask themselves subconsciously every day whether they are relevant. This is true in their relationships, their jobs, their hobbies, and their communities. Relevance drives behaviors. Leaders have the power to drive relevance.