Blog Article

How to develop a plan for keeping your people

Posted by Satya Radjasa

Satya Radjasa

What do economies in recovery mode and high-growth emerging economies have in common? They need top talent to run their businesses – and this talent is in great demand!

Our global research indicates that emerging economies such as Indonesia, India and Russia will have employee turnover rates of up to 27% over the next two years. This presents businesses with a significant challenge, and pushes them to be as creative as they can to make sure they’ve got the best people at the top, and that very few (or none) of their best people leave.

What is a retention scheme and why is it so important to have one?
Organizations need to identify which target group of employees they can’t afford to lose, and establish methods for keeping them that will meet the needs of both the employees and the organization. This is where a retention scheme comes in. A retention scheme is a systematic approach that organizations use to retain top talent through various cash and non-cash rewards.

Developing a retention scheme can:

  1. Create an external barrier to ‘hijacking’: High-potential employees can be safeguarded by a retention clause, so it’s more expensive for competing organizations to hijack them.
  2. Create an internal barrier to exit: Your target employees are engaged and don’t want to leave the organization.

But the reality is that we often see organizations take a reactive approach to retention planning, which means that hard-bargaining employees end up driving them to at least match the salary offered by competing firms.

In our experience, this happens because reactive schemes:

  1. Aren’t aligned with what the target employees need or want
  2. Create internal equity issues which can appear unfair or inconsistent
  3. Tend not to be evaluated for return on investment.

What are the benefits of developing a proper retention scheme – and the risks of not doing so?
The benefits are clear: you get to keep your best people. One organization I worked with saw the number of high potentials being poached drop from four in one year to one the next.

The risks of not having a proper plan need to be quantified for your organization.  These can include hidden costs like lost sales, knowledge drain, cultural issues and the time and investment required it takes to replace someone and train them.

So now we know that developing a comprehensive plan matters, here are four ingredients for doing it well:

  1. Governance
    To be fair on everyone, a good retention scheme needs good governance. It should set out who gets to decide on the employees that are eligible, and what the process is for nominating people. Board members should then have full ownership of the process, including authorizing which kind of retention methods to use and how much to spend.
  2. Eligibility criteria
    You’ll need clear and transparent criteria for those who are eligible (typically high potentials). This can include things like performance levels, flight risk, how critical the role is and how scarce the talent is in the market.
  3. Identifying and meeting your employees’ needs
    It’s vital you identify what really makes your target employees tick. for some employees, it’s monetary: salary increases, deferred cash schemes, special cash awards and share-based schemes. for  others, it’s non-monetary: training and development, scholarship subsidies and additional employee leave. In my experience, up to a third of proactive retention efforts no longer lead to extra cash bonuses or significant salary increases; instead, people want things like extra annual leave and scholarship schemes.
  4. Retention clauses  
    Retention schemes need to give you a return on your investment. To help achieve this, most organizations embed a clause in their retention schemes to make sure that the investment they make employees pays off. Typically, retention schemes are communicated by letter with the retention clause embedded in it. The clauses should be concise and clear enough to communicate the consequences of breaching the retention contract. Some clauses require the employees to pay back on a pro-rated basis if there is a cash-based element and some may forfeit the payout from their LTIs or MTIs (long or medium term incentives). For most organizations, this creates engagement and a commitment from the employee to stay as they feel among the elite of the organization.  Check your local labor law though as retention clauses don’t work everywhere. In some countries, such as Brazil, labor laws make it hard for retention clauses to be effective.

Satya Radjasa is Reward Practice Lead for Hay Group Indonesia.

 

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